BUSINESS

 COMBINATION  –  SUBSEQUENT  TO  DATE  OF  ACQUISITION  

Problem  1:    Prada  Corporation  acquired  75%  of  the  outstanding  shares  of  Salvatore  Company  on  January  2,  2017  for  
P287,400  excluding  control  premium  of  P20,000.    Salvatore  Company’s  shareholders’  equity  on  January  2,  2017  were  as  
follows:    Ordinary  shares,  P100  par,  P131,400;  Share  premium,  P52,500;  Retained  earnings,  P105,000.    Non-­‐‑controlling  
interest  is  measured  on  January  2,  2017  at  fair  value.    The  fair  value  of  the  non-­‐‑controlling  interest  amount  to  P90,000.    
Current  fair  value  of  non-­‐‑controlling  interest  amount  to  P90,000.    Current  fair  value  of  Salvatore’s  identifiable  net  assets  
exceeded  their  book  values  as  follows:    Inventories,  P15,750  (1/3  were  sold  in  2017);  Plant  assets  (economic  life  of  10  
years),  P26,250,  while  the  book  value  of  Patents  exceeded  their  fair  value  (economic  life  of  5  years),  P10,750.    Both  Prada  
and  Salvatore  include  depreciation  expense  and  amortization  expense  in  operating  expenses.    Both  companies  use  the  
straight  line  method  for  depreciation  and  amortization.    Prior  to  acquisition  the  ordinary  shares  of  Prada  Corporation  is  
P180,000.    Additional  paid-­‐‑in  capital  is  P75,000  and  Retained  earnings  is  P150,000.  
 
For  the  year  ended  December  31,  Prada  Company  and  Salvatore  Company  reported  the  following  results  of  operations:  
2017    Prada      Salvatore    
Net  Income    178,000      15,000    
Dividends    102,000      5,000    
 
1.   Prepare  all  journal  entries  in  the  books  of  Prada  Company  during  2017  to  account  for  its  investment  in  Salvatore  
Company  and  Salvatore’s  operating  results  using  the  cost  model.  
2.   Prepare  the  working  paper  elimination  entries  for  consolidated  financial  statements  on  December  31,  2017?  
3.   Compute  the  following  on  December  31,  2017:  
a.   Non  controlling  interest  in  net  income  
b.   Non  controlling  interest  in  net  assets  
c.   Consolidated  net  income  attributable  to  parent  
d.   Consolidated  retained  earnings    
e.   Consolidated  shareholders’  equity  
 
Problem  2:On  January  2,  2017,  Proenza  Company  acquired  80%  of  Schouler  Company’s  ordinary  shares  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  fair  value  on  date  of  acquisition.    On  the  date  of  acquisition,  shareholders’  equity  
of  the  two  companies  were  as  follows:  
 Proenza      Schouler    
Ordinary  shares    1,312,500      300,000    
Retained  earnings    1,950,000      525,000    
 
On  December  31,  2017,  Schouler  Company  reported  net  income  of  P131,250  and  paid  dividends  of  P45,000  to  Proenza.    
Proenza  reported  earnings  from  its  separate  operations  of  P356,250  and  paid  dividends  of  P172,500.    Goodwill  had  been  
impaired  and  should  be  reported  at  P7,500  on  December  31,  2017.  
1.   How  much  is  the  consolidated  profit  on  December  31,  2017?  
A.   P447,187.50   B.   P473,473.50   C.   P450,000   D.   P442,500  
 
2.   How  much  is  the  consolidated  retained  earnings  attributable  to  parent’s  shareholders’  equity  on  December  31,  2017?  
A.   P2,202,750.00   B.   P2,197,500.00   C.   P2,196,750.00   D.   2,599,687.50  
3.   How  much  is  the  non-­‐‑controlling  interest  in  profit  of  Schouler  Company  on  December  31,  2017?  
A.   P23,439.50   B.   P23,250.00   C.   P26,250.00   D.   P17,250.00  
4.   What  amount  of  non-­‐‑controlling  interest  is  to  be  presented  in  the  consolidated  statement  of  financial  position  on  
December  31,  2017?  
A.   P205,312.50   B.   P208,500.00   C.   P193,125.00   D.   P181,875.00  
5.   How  much  is  the  consolidated  profit  attributable  to  parent  shareholders  on  December  31,  2017?  
A.   P420,000.00   B.   P445,500.00   C.   P425,250.00   D.   P450,000.00  
 
Problem  3:Phelan  Company  purchased  75%  of  the  ordinary  shares  of  Sophie  Company  on  December  31,  2012  at  P525,000  
more  than  the  book  value  of  its  net  assets.    The  excess  was  allocated  to  equipment  in  the  amount  of  P234,375  and  to  
goodwill  for  the  balance.    The  equipment  has  an  estimated  useful  life  of  10  years  and  goodwill  was  not  impaired.    For  four  
years,  Sophie  Company  reported  cumulative  earnings  of  P2,362,500  and  paid  P682,500  in  dividends.    On  January  2,  2017,  
non-­‐‑controlling  interest  in  net  assets  of  Sophie  Company  amounts  to  P984,375.  
 
Assuming  non-­‐‑controlling  interest  is  measured  at  fair  value,  what  is  the  price  paid  by  Phelan  Company  on  the  date  of  
acquisition?