CHAPTER 17

MULTIPLE CHOICES - COMPUTATIONAL

17-1: b

Consolidated sales
Sales – Papa P 900,000
Sales – San 500,000
Elimination of inter-company sales ( 50,000)
Consolidated sales P 1,350,000

Consolidated cost of goods sold

Cost of goods sold – Papa P 490,000
Cost of goods sold – San 190,000
Eliminations:
Realized profit in beginning inventory ( 4,000)
Unrealized profit in ending inventory 10,000
Intercompany purchases ( 50,000)
Consolidated cost of goods sold P 636,000

17-2: c

Net income – Sisa P 60,000

Unrealized profit in ending inventory – upstream ( 10,000)
Adjusted net income – Sisa P 50,000
NCI proportionate share 20%
NCI in net income of subsidiary P 10,000

17-3: d

Net income from own operation – Pat P 200,000

Adjusted net income of Susan:
Net income – Susan P200,000
Realized profit in beginning inventory
(P112,000 x 50%/150%) 37,500
Unrealized profit in ending inventory
(P33,000 x 50%/150%) (11,000) 226,500
Consolidated net income P 426,500
Attributable to NCI (P226,500 x 30%) 67,950
Attributable to parent P 358,550

17-4: b

Net income from own operations- Patton P 300,000

Unrealized profit in ending inventory – DS (P200,000 x .25) (50,000)
Adjusted net income for own operations – Patton 250,000
Solis net loss from own operations (150,000)
Consolidated net income P 100,000

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17-5: d

Pardo’s share of Santos’ net income (P300,000 x 75%) P 225,000

Unrealized profit in ending inventory – Upstream
(P200,000 x 25%/125%) x 75% ( 30,000)
Realized profit in beginning inventory – Upstream
(P150,000 x 25%/125%) x 75% 22,500
Investment income account balance, Dec. 31, 2011 P 217,500

17-6: d
Net income from own operation – Puzon P 200,000
Suazon’s adjusted net income from own operations:
Net income P110,000
Unrealized profit in ending inventory-
Upstream (P25,000 x 40%) ( 10,000) 100,000
Consolidated net income P 300,000
Attributable to NCI (P100,000 x 25%) (25.000)
Attributable to parent P 275,000

17-7: b
2010 2011
Net income from own operation – Pat P 500,000 P 550,000
Unrealized profit in ending inventory:
2010 (P20,000 x .40) (8,000)
2011 (P30,000 x .50) (15,000)
Realized profit in beginning inventory 8,000
Realized income 492,000 543,000
Sun net income 200,000 225,000
Consolidated net income P 692,000 P 768,000

17-8: a

Net income from own operation – Pip P 400,000

Adjusted net income from own operation - Sol
Net income P 250,000
Realized profit in beginning inventory-
Upstream (P40,000 x 40%) 16,000
Unrealized profit in ending inventory-
Upstream (P70,000 x 30%) ( 21,000) 245,000
Consolidated net income - 2011 P 645,000

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17-9: a
Net income from own operations – Popo P 500,000
Unrealized profit in ending inventory – Downstream ( 15,000)
Realized net income from own operation – Popo P 485,000
Adjusted net income from own operations - Sotto
Net income P 360,000
Realized profit in beginning inventory-
Upstream 10,000 370,000
Consolidated net income P 855,000
Attributable to NCI (P370,000 x 5%) 18,500
Attributable to parent P 836,500

17-10: d, should be P(19,200).

Net income – Sand Company P200,000
Realized profit in beg. Inventory (P120,000 x .20) 24,000
Unrealized profit in ending inventory (P360,000 x .20) (72,000)
Amortization of allocated excess P1.000,000 / 5) (200,000)
Adjusted net loss – Sand Company P(48,000)
NCI (P48,000 x 40%) P(19,200)

17-11: d
Gross profit rate – Short (P110,000 / P200,000) 55%

Inventories
Inventory from outsiders – Power P 5,000
Inventory from outsiders – Short 25,000
Power’s inventory acquired from Short – at cost:
[P5,000 – (P5,000 x 55%)} 2,250
Consolidated ending inventories P 32,250

Investment income
Power’s share of Short’s net income (P50,000 x 75%) P 37,500
Unrealized profit in ending inventory – upstream
(P5,000 x 55%) x 75% ( 2,063)
Realized profit in beginning inventory – upstream
(P10,000 x 55%) x 75% 4,125
Investment income, Dec. 31, 2011 P 39,562

Investment in Short Company

Acquisition cost (P80,000 x 80%) P 60,000
Unrealized profit in ending inventory ( 2,063)
Realized profit in beginning inventory 4,125
Investment in Short Company, Dec. 31, 2011 P 62,062

NCI in Short company’s net income

Short’s net income from own operations P 50,000
Realized profit in beginning inventory (P10,000 x 55%) 5,500
Unrealized profit in ending inventory (P5,000 x 55%) ( 2,750)
Adjusted net income from own operations P 52,750
NCI proportionate share 25%
NCI in Short’s net income P 13,187.50

92
17-12: b

Gross profit rate of Sit (P200,000 / P500,000) 40%

Net income from own operations – Pit P 200,000

Adjusted net income of Sit:
Net income P 75,000
Realized profit in beginning inventory-
Upstream (P40,000 x 40%) 16,000
Unrealized profit in ending inventory-
Upstream (P25,000 x 40%) ( 10,000) 81,000
Consolidated net income P 281,000
Attributable to NCI (P81,000 x 10%) ( 8,100)
Attributable to parent P 272,900

17-13: b

Gross profit of Sir (P120,000 / P400,000) 30%

Consolidated cost of sales

Cost of sales – Pig P 600,000
Cost of sales – Sir 280,000
Eliminations:
Realized profit in beginning inventory (P70,000 x 30%) ( 21,000)
Unrealized profit in ending inventory (P60,000 x 30%) 18,000
Intercompany purchases (200,000)
Consolidated cost of sales P 677,000

Consolidated net income

Net income from own operations – Pig P 200,000
Sir’s adjusted net income:
Net income P 80,000
Realized profit in beginning inventory 21,000
Unrealized profit in ending inventory (18,000) 83,000
Consolidated net income 283,000
Attributable to NCI (P83,000 x 10%) (8,300)
Attributable to parent P 274,700

93
17-14: a
2009 2010 2011
Pal Corp net income 150,000 240,000 300,000
Intercompany profit in ending inventory:
2009 (14,000) 14,000
2010 (21,000) 21,000
2011 ( 24,000)
Pal net income from own operation 136,000 233,000 297,000
Solo net income from own operation 100,000 90,000 160,000
Consolidated net income 236,000 323,000 427,000
Attributable to NCI
2009(100,000 – 14,000) x 40% 34,400
2010(90,000 +14,000 – 21,000) 40% 33,200
2011(160,000 + 21,000 – 24,000) 40% 62,800
Attributable to Parent 201,600 289,800 394,200

17-15: a

Total sales 600,000

Intercompany sales (30,000 + 80,000) (110,000)
Consolidated sales 490,000

17-16: c
Total cost of goods sold (250,000 +120,000) 370,000
Adjustments due to intercompany sale:
COGS charged for intercompany sale (20,000 + 50,000) 70,000
COGS charged by: Star (30,000 – 6,000) 24,000
Polo (80,000 – 20,000) 60,000
Total 154,000
Cost of goods sold for consolidated entity:
20,000 x (24,000/30,000) (16,000)
50,000 x (60,000/80,000) (37,500) (100,500)
Consolidated cost of goods sold 269,500

17-17: c
Polo Corp. net income from own operation (105,000 – 25,000) 80,000
Unrealized profit in ending inventory-DS (6,000 x 10/30)
(2,000)
Adjusted Polo Corp. net income from own operation 78,000
Star Corp. net income from own operation:
Net income 45,000
Unrealized profit in EI-US (20,000 x 30/80) (7,500)
Amortization (20,000/10 years) (2,000) 35,500
Consolidated net income 113,500
Attributable to NCI (35,500 x 40%) (14,200)
Attributable to Parent 99,300

94
17-18: a

Pepsi net income from own operation 160,000

Sarsi net income 90,000
Unrealized profit in EI (45,000 x 60/180) (15,000) 75,000
Consolidated net income 235,000
Attributable to NCI (75,000 x 30%) (22,500)
Attributable to Parent-2011 212,500

17-19: a

Inventory-Pepsi P 30,000
Less: unrealized profit in books of Sarsi:
(135,000 – 90,000) x (30,000/135,000) (10,000) 20,000
Inventory-Sarsi P110,000
Less: unrealized profit in books of Pepsi:
(280,000 – 140,000) x (110,000/280,000) (55,000) 55,000
Consolidated inventory 12/31/11 75,000

17-20: a

Cost of goods sold on sale of inventory on hand-1/1/10:

[45,000 x (120,000/180,000)] 30,000
Cost of goods sold on purchases from Sarsi- 2010
[(135,000 – 30,000) x (90,000/135,000)] 70,000
Cost of goods sold on purchases from Pepsi- 2010
[(280,000 – 110,000) x (140,000/280,000)] 85,000
Consolidated cost of goods sold-2011 185,000

17-21: b

Pepsi net income 220,000

Sarsi net income 85,000
Realized profit in beginning inventory - 2011 15,000
Unrealized profit in ending inventory- Sarsi (10,000)
Unrealized profit in ending inventory- Pepsi (55,000)
Consolidated net income – 2011 255,000

95
17-22: b
Net income from own operations – P Company P200,000
S Co. adjusted net income:
Net income – S P30,000
Unrealized profit in ending inventory –
Upstream (P9,000 x 50/150) (3,000)
Realized profit in beginning inventory-
Upstream (P6,000 x 50/150) 2,000 29,000
Consolidated net income 229,000
Attributzble to NCI (P29,000 x 30%) 8,700
Attributable to parent P220,300

17-23: b

NCI, December 31, 2010 [(P245,000/70%) x 30%] P105,000

NCI in subsidiary dividends (P20,000 x 30%) ( 6,000)
NCI in net income of subsidiary 8,700
NCI in S Company, December 31, 2011 P107,700

17-24: c

P Company (P400,000 x 20%) P 80,000

S Company:
Sales P416,000
Cost of goods sold (P400,000 x 80%) P320,000
Add write down of ending inventory 10,000 330,000
Gross profit P 86,000

17.25 a

Sales P416,000
Consolidated cost of goods sold 256,000*
Gross profit P160,000

* Purchases at cost (P400,000 x 80%) P320,000

Less ending inventory at cost (P80,000 x 80%) 64,000
Consolidated cost of goods sold P256,000

Note that cost is lower than market

96
17-26: a

Sales P270,000
Cost of goods sold 171,250
Gross profit 98,750
Other income -
Other expenses 47,000
Consolidated net income 51,750
Attributable to NCI 3,350
Attributable to controlling interest P 48,400

Supporting computations:

Sales:
Pablo Company P220,000
Sally Company 120,000
Intercompany sales (70,000)
Consolidated sales P270,000

Consolidated cost of goods sold:

Pablo Company P150,000
Sally Company 90,000
Intercompany sales ( 70,000)6
Realized profit in beginning inventory (P15,000 x 25%) ( 3,750)
Unrealized profit in ending inventory (P20,000 x 25%) 5.000
Consolidated costs of goods sold P171,250

Other income:
Pablo Company P 5,000
Computer services (5,000)
:
Other expenses:
Pablo Company P 40,000
Sally Company 12,000
Computer services (5,000)
Consolidated other expenses P 47,000

NCI in net income of Sally

Net income P 35,000
Realized profit in beginning inventory (upstream) 3,750
Unrealized profit in ending inventory (upstream) (5,000)
Adjusted net income P 16,750
NCI proportionate share 20%
NCI P 3,350

97
 PROBLEMS

Problem 17-1

The computation of the selected consolidation balances are affected by the inter-company profit
in downstream intercompany sales as computed below:

Unrealized profit in ending inventory, Dec. 31, 2010 – Downstream

Intercompany profit (P120,000 – P72,000) P 48,000
Inventory left at year end x 30%
Unrealized profit, Dec. 31, 2010 P 14,400

Unrealized profit in ending inventory, Dec. 31, 2011 – Downstream

Intercompany profit (P250,000 – P200,000) P 50,000
Inventory left at year end x 20%
Unrealized profit, Dec. 31, 2011 P 10,000

a. Consolidated Sales
Apo P800,000
Bicol 600,000
Intercompany sales – 2011 (250,000)
Total P1,150,000
b. Cost of goods sold
Apo’s book value P 535,000
Bicol’s book value 400,000
Intercompany sales-2011 (250,000)
Realized profit in beginning inventory – 2011 ( 14,400)
Unrealized profit in ending inventory – 2011 10,000
Consolidated cost of goods sold P 680,600
c. Operating expenses
Apo P 100,000
Bicol 100,000
Total P 200,000

d. Dividend Income – 0 (eliminated)

e. NCI in Net Income of Subsidiary (P100,000 x 20%) P 20,000

f. Inventory
Apo P 298,000
Bicol 700,000
Unrealized profit in ending inventory, Dec. 31, 2011 (10,000)
Consolidated inventory P 988,000

98
Problem 17-1, continued:
g. NCI
NCI, December 31, 2010 [ (P902,000/80%) x 20%] P225,500
NCI in dividends paid by Bicol (P50,000 x 20%) (10,000)
NCI in net income of subsidiary (P100,000 x 20%) 20,000
Total NCI, 12/31/11 P235,500

Problem 17-2

P Company and Subsidiary

Consolidated Income Statement
Year Ended December 31, 2011

Sales (P2,000,000 + P1,000,000 – P600,000) P2,400,000

Cost of goods sold (Schedule 1) 704,000
Gross profit 1,696,000
Expenses 600,000
Income before income tax 1,096,000
Provision for income tax 440,000
Consolidated net income after income tax 656,000
Attributable to NCI (Schedule 2) 44,000
Attributable to parent P 612,000

Schedule 1:
Cost of sales – P Company P 800,000
Purchases from S Company (600,000)
Intercompany profit in beginning inventory (P60,000 x 25%) ( 15,000)
Intercompany profit in ending inventory (P76,000 x 25%) 19,000
Total P 204,000
Cost of sales – S Company 500,000
Consolidated cost of sales P 704,000

Schedule 2:
Net income – S Company P 180,000
Realized profit in beginning inventory – Upstream 15,000
Unrealized profit in ending inventory – Upstream (19,000)
Adjusted net income P 176,000
NCI proportionate share x 25%
NCI in net income of subsidiary P 44,000

Problem 17-3

a. Working Paper Eliminating Entries

(1) Dividend income 32,000

NCI (20%) 8,000
Dividends declared- D (P32,000 / 80%) 40,000
To eliminate intercompany dividends.

99
Problem 17-3, Continued

(2) Common stock – S 90,000

Retained earnings – S 220,000
Investment in S Co. stock 248,000
NCI 62,000
To eliminate equity accounts of S on the date of
acquisition.

(3) NCI 4,000

Retained earnings, Jan. 1 16,000
Cost of goods sold 20,000
To eliminate realized profit in beginning inventory

(4) Sales 150,000

Cost of goods sold 135,000
Inventory, Dec. 31 (P45,000 x 33.33%) 15,000
To eliminated intercompany sales and unrealized
profit in ending inventory.

(5) NCI in net income of subsidiary 9,000

NCI 9,000
To establish minority interest in net income of S Co.
computed as follows:
Sales P200,000
Cost and expenses (P140,000 +P20,000) 160,000
Net income 40,000
Realized profit in beginning inventory – Upstream 20,000
Unrealized profit in ending inventory – Upstream (15,000)
Adjusted net income P 45,000
NCI proportionate share x 20%
NCI in net income of subsidiary P 9,000

b. Consolidated Net Income

P Company net income from own operations (P250,000 – P32,000) P 218,000
S Company adjusted net income 45,000
Consolidated net income P 263,000

c. Non-controlling Interest
NCI, August 30, 2011 [(P248,000/80%) x 20%] P 62,000
NCI in subsidiary dividends [(P32,000/80%) x 20%] ( 8,000)
NCI in net income of subsidiary 9,000
NCI P 63,000

100
Problem 17-4

a. Consolidated Sales
Reported total sales (P600,000 + P510,000) P1,170,000
Intercompany sales (P140,000 + P240,000) (380,000)
Consolidated sales P 790,000

b. Consolidated Cost of Goods Sold

Cost of goods sold:
Pato (P660,000 / 140%) P 471,429
Sales (P510,000 / 120% 425,000
Amount to be eliminated (P128,000 + P232,000) see entry below ( 360,000)
Total P 536,429

Elimination of intercompany sales and intercompany profit in inventory:

Downstream Sales
Sales 140,000
Inventory (P42,000 x 40/140) 12,000
Cost of goods sold 128,000

Upstream Sales
Sales 240,000
Inventory (P48,000 x 20/120) 8,000
Cost of goods sold 232,000

c. Consolidated Net Income

Net income from own operations – Pato P 70,000
Unrealized profit in ending inventory – Downstream (12,000)
Adjusted net income – Pato P 58,000
Adjusted net income of Sales Co.
Net income P20,000
Unrealized profit in ending inventory – Upstream (8,000) 12,000
Consolidated net income P 70,000

d. Consolidated Inventory, Dec. 31, 2011

Inventory reported – Pato P 48,000
Inventory reported – Sales 42,000
Unrealized profit in ending inventory (P8,000 + P12,000) (20,000)
Consolidated inventory P 70,000

101
Problem 17-5

P Company and Subsidiary S Company

Consolidation Working Paper
Year Ended December 31, 2011

Eliminations Adjustments Consoli-

P Company S Company Debit Credit dated

Income Statement
Sales 12,000,000 1,300,000 (5) 400,000 12,900,000
Dividend income 210,000 (1) 210,000 -
Total revenue 12,210,000 1,300,000 12,900,000
Cost of goods sold 7,000,000 750,000 (7) 30,000 (5) 400,000 7,380,000
Operating expenses 4,210,000 50,000 (4) 40,000 4,300,000
Total cost and expenses 11,210,000 800,000 11,680,000

Net income to retained earnings 1,000,000 500,000 1,220,000

Statement of Retained
Earnings
Retained earnings, January 1 5,500,000 2,200,000 (2)2,200,000 5,500,000
Net income from above 1,000,000 500,000 1,220,000
Total 6,500,000 2,700,000 6,720,000
Dividends declared - 210,000 (1) 210,000 -
Retained earnings,12/31 to BS 6,500,000 2,490,000 6,720,000

Statement of FP
Cash 810,000 170,000 980,000
Accounts receivable 425,000 445,000 (6) 25,000 845,000
Inventory 600,000 275,000 (7) 30,000 845,000
Property, plant and equipment 4,000,000 2,300,000 (3) 400,000 (4) 40,000 6,660,000
Investment in S Company 3,200,000 (2)2,800,000 -
(3) 400,000

Total assets 9,035,000 3,1900,000 9,330,000

Accounts payable 35,000 100,000 (6) 25,000 110,000

Common stock 1,000,000 400,000 (2) 400,000 1,000,000
Additional paid in capital 1,500,000 200,000 (2) 200,000 1,500,000
Retained earnings from above 6,500,000 2,490,000 6,720,000

9,035,000 3,190,000 3,905,000 3,905,000 9,330,000

Eliminations and Adjustments

(1) Eliminate intercompany dividends
(2) Eliminate subsidiary’s equity balances
(3) Allocate excess to equipment
(4) Amortize allocated excess to equipment
(5) Eliminate intercompany sale of P400,000
(6) Eliminate intercompany trade balances of P25,000
(7) Eliminate intercompany profit (30%) applicable to P100,000 (P400,000 – P300,000)
of intercompany goods in P Company.

102
Problem 17-5, Continued

Determination and Allocation of Excess Schedule

Price paid by the parent P3,200,000

Less book value of interest acquired (100%)
Common stock – S Company P 400,000
Additional paid in capital – S Company 200,000
Retained earnings, Jan. 1 – S Company 2.200,000 2,800,000
Excess allocated to equipment P 400,000

Amortization (P400,000/10) P 40,000

Note: There is no NCI since this is a wholly-owned subsidiary.

Problem 17-6

Determination and Allocation of Excess Schedule:

Price paid by the parent (80%) P425,000

Non-controlling interest [(P425,000/80%) x 20%] 106,250
Total 531,250
Less book value of interest acquired:
Common stock – So P200,000
APIC – So 100,000
Retained earnings 100,000
Total equity P400,000
Interest acquired 80% 320,000
Excess allocated to goodwill P131,250

Fair Value Analysis:

Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)

Company fair value P531,250 P425,000 P106,250

Fair value of net assets excluding goodwill 400,000 320,000 80,000
Goodwill P131,250 P105,000 P 26,250

103
Po Company and Subsidiary So Company
Consolidation Working Paper
Year Ended December 31, 2011
Eliminations Adjustments Consoli-
Po Company So Company Debit Credit dated
Income Statement
Sales 880,000 630,000 (6) 32,000
(8) 30,000 1,448,000
Dividend income 24,000 (2) 24,000 -
Total revenue 904,000 630,000 1,448,000
Cost of goods sold 704,000 504,000 (7) 1,320 (5) 1,350
(10) 750 (6) 32,000
(8) 700
(9) 30,000 1,146,020
Other expenses 130,000 81,000 211,000
Total cost and expenses 834,000 585,000 1,357,020
Net income 70,000 45,000 90,980
NCI in net income of (12) 8,990 (8,990)
Subsidiary
Net income to retained earnings 70,000 45,000 81,990

Statement of Retained
Earnings
Retained earnings, January 1 1,105,000 140,000 (1) 8,000
(3)100,000
(5) 1,350
(8) 560 1,135,090
Net income from above 70,000 45,000 81,990
Total 1,175,000 185,000 1,217,080
Dividends declared 25,000 30,000 (2) 30,000 25,000
Retained earnings,12/31 to BS 1,150,000 155,000 1,192,080

Statement of FP
Cash 216,200 44,300 260,500
Accounts receivable 290,000 97,000 (11) 15,000 372,000
Inventory 310,000 80,000 (7) 1,320
(10) 750 387,930
Pant assets (net) 1,991,000 340,000 2,331,000
Investment in S Company 425,000 (3)320,000
(4)105,000 -
Goodwill 60,000 (4)131,250 191,250
Total assets 3,292,200 561,300 3,542,680

Accounts payable 642,200 106,300 (11) 15,000 733,500

Common stock 250,000 200,000 (3)200,000 250,000
Additional paid in capital 1,250,000 100,000 (3)100,000 1,250,000
Retained earnings from above 1,150,000 155,000 1,192,080
Non-controlling interest (NCI) (2) 6,000 (1) 8,000
(8) 140 (3) 80,000
(4) 26,250
(12) 8,990 117,100
3,292,200 561,300 659,360 659,360 3,542,680

104
Eliminations and Adjustments
(1) Recognize NCI in subsidiary’s increase in undistributed earnings (P40,000 x 20%)
(2) Eliminate intercompany dividends.
(3) Eliminate subsidiary’s equity at date of acquisition
(4) Allocate excess to goodwill.
(5) Eliminate realized profit in beginning inventory (P9,000 x 15%) = P1,350
(Downstream)
(6) Eliminate intercompany downstream sales from April 1, 2008 to March 31, 2009,
P32,000.
(7) Eliminated unrealized profit in ending inventory (downstream), P6,000 x 22% =
P1,320.
(8) Eliminate realized profit in beginning inventory (upstream) P3,500 x 20% = P700.
(9) Eliminate intecompany upstream sales on March 31, 2009, P30,000.
(10) Eliminate unrealized profit in ending inventory (upstream), P3,000 x 25% = P750.
(11) Eliminate intercompany payables and receivables ,P10,000 + P5,000 = P15,000.
(12) Recognized non-controlling interest (NCI) in net income of subsidiary computed as
follows:

Net income of So Company P45,000

Realized profit in beginning inventory (upstream) 700
Unrealized profit in ending inventory (upstream) (750)
Adjusted income P44,950
NCI share 20%
NCI in net income of subsidiary P 8,990

(2)
Po Company and Subsidiary So Company
Consolidated Income Statement
Fiscal Year Ended March 31, 2011

Sales P1,448,000
Cost of goods sold 1,146,020
Gross profit 301,980
Expenses 211,000
Consolidated net income P 90,980
Attributable to NCI 8,990
Attributable to controlling interest P 81,990

105
Problem 17-7

a. Unrealized Profit in Beginning Inventory

Beginning inventory - Downstream P 100,000
Gross profit rate (P240,000/ P400,000) x 60%
Unrealized profit in beginning inventory P 60,000

Unrealized Profit in Ending Inventory

Ending inventory – Downstream (P200,000 x 80%) P 160,000
Gross profit rate x 60%
Unrealized profit in ending inventory P 96,000

b. Intercompany Sales
Sales – P Company P2,000,000
Sales – S Company 1,000,000
Intercompany sales – 2011 (400,000)
Consolidated sales P2,600,000

Intercompany Cost of Sales

Cost of sales – P Company P 800,000
Cost of sales – S Company 600,000
Intercompany purchases (400,000)
Intercompany profit in beginning inventory ( 60,000)
Intercompany profit in ending inventory 96,000
Consolidated cost of sales P1,036,000

c. Parent’s interest (40,000 shares / 50,000 shares) 80%

P Company Entries – 2011:

(1) Investment in S Company stock 96,000
Income from subsidiary 96,000
To record P’s share of S Co. income
(P120,000 x 80%)

(2) Cash 48,000

Investment in S Company stock 48,000
To record dividends received from S
(P60,000 x 80%)

(2) Income from subsidiary 36,000

Investment in S Company 36,000
To adjust income from subsidiary for intercompany
profit in :
Ending inventory (96,000)
Beginning inventory 60,000
Net adjustment ( 36,000)

106
 Problem 17-7, continued:
d. Working Paper Eliminating Entries:

(1) Income from subsidiary 60,000

NCI (P60,000 x 20%) 12,000
Dividends declared – S 60,000
Investment in S Company 12,000
To eliminate intercompany dividends.

(2) Common stock – S Co. 500,000

Retained earnings – S Co. 860,000
Investment in S Company stock 1,088,000
NCI 272,000
To eliminate equity accounts of S Company as of
beginning of year.

(3) Goodwill 60,000

Investment in S Company 60,000
To allocate excess to goodwill.

(4) Retained earnings – Jan. 1 60,000

Cost of sales 60,000
To eliminate realized profit in beginning inventory-
Downstream.

(5) Cost of sales 96,000

Inventories 96,000
To eliminate unrealized profit in ending inventory-
Downstream.

(6) Sales 400,000

Cost of sales 400,000
To eliminate intercompany sales.

(7) Accounts payable 50,000

Accounts receivable 50,000
To eliminate intercompany payables and receivables.

(8) NCI in net income of subsidiary 24,000

NCI 24,000
To recognize NCI share in S Company net income
(P120,000 x 20%)

e. Consolidated Net Income

Net Income from own operations – P Company (P480,000 – P60,000) P420,000
Realized profit in beginning inventory 60,000
Unrealized profit in ending inventory ( 96,000)
Adjusted net income – P Compay P384,000
S Company net income 120,000
Consolidated net income P504,000

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