CONSOLIDATION

SUBSEQUENT TO ACQUISITION
& INTERCOMPANY TRANSACTIONS

Problem 1.
On January 2, 2014, Party Corporation purchase 80% of Summer Company's common stock for
P810,000. P37,500 of the excess is attributable to goodwill and the balance to a depreciable
asset with an economic life of ten years. Non-controlling interest is measured at its fair value on
date of acquisition. On the date of acquisition, stockholders' equity of the two companies were
as follows:

Party Corp. Summer Co.

Ordinary shares P1,312,500 P300,000
Retained earnings 1,950,000 525,000

On December 31 2014, Summer Company reported net income of P131,250 and paid dividends
of P45,000 to Party. Party reported earnings from its separate operations of P356,250 and paid
dividend of P 172,500. Goodwill had been impaired and should be reported at P7,500 on
December 31, 2014.

1. How much is the consolidated profit on December 31, 2014?

A. P447,187.50
B. P473,437.50
C. P450,000
D. P442,500

2. How much is the consolidated retained earnings attributable to parent’s shareholders

equity on December 31, 2014?

A. P2,202,750
B. P2,197,500
C. P2,196,750
D. P2,599,687.50

3. How much is the non-controlling interest in profit of Summer Company on December 31,
2014?

A. P23,437.50
B. P23,250
C. P26,250
D. P17,250

4. What amount of non-controlling interest is to be presented in the consolidated statement of

financial position on December 31, 2014?

A. P205,312.50
B. P208,500
C. P193,125
D. P181,875

5. How much is the consolidated profit attributable to parent shareholders on December 31,
2014?

A. P420,000
B. P445,500
C. P425,250
D. P450,000

Problem 2
Bacolod Company acquired 55% of the outstanding common stock of Silay Company on August
1, 2010 at a total cost of P5,005,000. At acquisition date, Silay's common stock and retained
earnings amounted to P200,000 and P4,800,000, respectively. All of Silay's assets and liabilities
had fair values equal to book values as of the acquisition date except for patents which had a
fair value of and a book value of P400,000. The patents have a remaining life of five years. For
2010, Silay had the following earnings and dividends:
 Jan – Jul Aug - Dec
Net income P500,000 P1,100,000
Dividends paid P300,000 P1,200,000

1. Compute the net income attributable to the non-controlling interest?

A. 667,500
B. 594,000
C. 442,500
D. P369,000

Problem 3
Top Company owns 70% of Midway Corporation, which in turn possesses 60% of Bottom
Company. Midway exercises control over Bottom and Top exercises control over Midway. The
following information is available:

Top Midway Bottom

Company Company Company
Separately calculated operating P600,000 P300,000 P100,000
income excluding dividend income
Cash dividends from:
Subsidiary 80,000 50,000 -0-
Associate(s) 20,000 -0- -0-
Others investments at -0- -0- 30,000
fair value
Net deferred inter-company gains P110,000 80,000 20,000
within current year income
Amortization expense relating to 30,000 25,000 -0-
excess fair value over book value
of investment

1. What is the consolidated net income attributable to Top Company stockholders?

A. 735,000
B. 646,100
C. 658,700
D. 630,100

2. How much is the dividend income in the consolidated statement of income?

A. 180,000
B. 150,000
C. 50,000
D. 30,000

Problem 4
GV Company purchased 70% ownership of DL Company on January 1, 2010, at underlying
book value. While each company has its own sales forces and independent product lines, there
are substantial inter-corporate sales of inventory each period. The following inter-corporate
sales occurred during 2011 and 2012:

Cost of Sales Unsold at Year Sold

Year Seller Product Sold Buyer Price End of Year To Outsiders
2011 GV Co. P448,000 DL Co. P640,000 P140,000 2012
2012 DL Co. P312,000 GV Co. P480,000 P 77,000 2012
2012 GV Co. P350,000 DL Co. P437,500 P 63,000 2013

The following data summarized the results of their financial operations for the year

GV Company DL Company
Sales P3,850,000 P1,680,000
Gross Profit 1,904,000 504,000
Operating Expenses 770,000 280,000
Ending Inventories 336,000 280,000
Dividend Received from affiliate 126,000 -
Dividend Received from non-affiliate - 70,000
For the year ended 2012, compute:

1. Consolidated sales

A. P4,612,500
B. P4,612,500
C. P4,612,500
D. P5,530,000

2. Consolidated costs of goods sold

A. P2,457,550
B. P2,206,950
C. P2,202,050
D. P2,202,050

3. Consolidated net income attributable to parent's shareholders equity

A. P1,301,335
B. P1,476,335
C. P1,476,225
D. P1,350,335

4. Non-controlling interest in net income

A. P59,115
B. P59,115
C. P80,115
D. P80,115

Problem 5
On January 1, 2015, RX Company purchased 80% of the stocks of MB Corporation at book
value. The stockholders' equity of MB Corporation on this date showed: Common stock —
P570,000 and Retained earnings — P490,000. On April 30, 2015, RX Company acquired a
used machinery for P84,000 from MB Corp. that was being carried in the latter's books at
P105,000. The asset still has a remaining useful life of 5 years. On the other hand, on August
31, 2015, MB Corp. purchased an equipment that was already 20% depreciated from RX Co. for
P345,000. The original cost of this equipment was P375,000 and had a remaining life of 8
years. Net income of RX Co. and MB Corp. for 2015 amounted to P360,000 and P155,000.
Dividends paid totaled to P115,000 and P52,500 for RX Co. and MB Corp., respectively.

On the consolidated financial statements in 2015, how much would be the:

1. non-controlling interest in net assets

A. P236,140
B. P232,500
C. P232,500
D. P236,140

2. carrying value of the property and equipment

A. P405,000
B. P378,500
C. P405,000
D. P378,500

Problem 6
On January 2, 2014, Power Company acquired 90% of the outstanding shares of Solar Inc. at
book value. During 2014 and 2015, intercompany sales amounted to P2,000,000 and
P4,000,000, respectively. Power Company consistently recognized a 25% mark-up based on
cost while Solar Inc. had a 25% gross profit on sales. The inventories of the buying affiliate,
which all came from inter-company transactions show:

December 31, 2014 December 31, 2015

Power P240,000 P160,000
Solar 100,000 40,000
On October 1, 2014, Solar Inc., purchased a piece of land costing P1,000,000 from Power
Company for P1,500,000. On December 1, 2015, Solar Inc., sold this land to unrelated party for
P1,500,000. On the other hand, on July 1, 2015, Solar Inc., sold a used photo-copier with a
carrying value of P60,000 and remaining life of 3years to Power Company for P42,000.

Separate Statement of Comprehensive Income for the two companies for the year 2015 follow:

Power Company Solar Inc.

Sales P25,000,000 P14,000,000
Cost of Sales (15,000,000) ( 8,400,000)
Gross Profit P10,000,000 P 5,600,000
Operating Expenses ( 6,000,000) (3,800,000)
Operating Profit P 4,000,000 P 1,800,000
Loss on Sale of Office Equipment ( 18,000)
Dividend Revenue 40,000
Net Income P4,000,000 P 1,822,000

Compute the following amounts for/as of December 31, 2015

1. Consolidated Gross Profit

A. P19,632,000
B. P15,712,000
C. P15,632,000
D. P15,584,000

2. Consolidated Net Income attributable to Parent

A. P6,183,300
B. P6,369,000
C. P6,169,800
D. P6,191,300

3. Non-controlling interest in Net Income

A. P189,700
B. P185,700
C. P188,200
D. P184,200

4. Consolidated Operating Expense

A. P9,800,000
B. P9,788,000
C. P9,803,000
D. P9,789,500