Module 36.

1 Quizzer 2 – Subsequent to Date of Acquisition

Pendon

Problem 1

On January 1, 2021, Ramon Corporation acquired 75 percent of Tester Company's voting

common stock for P300,000. At the time of the combination, Tester reported common stock
outstanding of P200,000 and retained earnings of P150,000, and the fair value of the
noncontrolling interest was P100,000. The book value of Tester's net assets approximated
market value except for patents that had a market value of P50,000 more than their book
value. The patents had a remaining economic life of ten years at the date of the business
combination. Tester reported net income of P40,000 and paid dividends of P10,000 during
2021.

1. Based on the preceding information, what balance will Ramon report as its
investment in Tester at December 31, 2021, assuming Ramon uses the equity
method in accounting for its investment?
a. P318,750
b. P317,500
c. P300,000
d. P326,250

2. Based on the preceding information, what balance will Ramon report as its
investment in Tester at December 31, 2021, assuming Ramon uses the cost
method in accounting for its investment?
a. P318,750
b. P317,500
c. P300,000
d. P326,250

3. If Ramon’s patents have a carrying amount of P450,000, and Tester’s patents has
a carrying amount of P200,000 at their own separate financial statements at year
end, how much is the consolidated balance of the patents?
a. 645,000
b. 650,000
c. 695,000
d. 700,000

Problem 2

Parent bought 100% of Subsidiary on January 1, 2020 for P500,000. On that date,
Subsidiary’s equity was P380,000. On the purchase date, inventory of Subsidiary, which was
sold during 2020, was understated by P20,000. Any remaining cost over book value is
attributable to building with a 20-year life. Other data is as follows:

2020 2021
Net Income 80,000 90,000
Dividends Paid 10,000 10,000

Property of PREMIERE CPA Review and Professional Development Center – October 2020
Module 36.1 Quizzer 2 – Subsequent to Date of Acquisition

1. Using the Cost Method, determine the following:

a. Investment Income for 2020
b. Investment Income for 2021
c. Investment Account Balance 2020
d. Investment Account Balance 2021

2. Using the Equity Method, determine the following:

a. Investment Income for 2020
b. Investment Income for 2021
c. Investment Account Balance 2020
d. Investment Account Balance 2021

Problem 3

On January 1, 2021, Prem Company acquired 80 percent of El Bimbo Company's common

stock for P280,000 cash. At that date, El Bimbo reported common stock outstanding of
P200,000 and retained earnings of P100,000, and the fair value of the noncontrolling
interest was P70,000. The book values and fair values of El Bimbo's assets and liabilities
were equal, except for other intangible assets which had a fair value P50,000 greater than
book value and an 8-year remaining life. El Bimbo reported the following data for 2021 and
2022:
El Bimbo Corporation
Comprehensiv Dividends
Year Net e Income Paid
Income
2021 P25,000 P30,000 P5,000
2022 P35,000 P45,000 P10,000

Prem reported net income of P100,000, including dividends received from El Bimbo, and paid
dividends of P30,000 for both the years.

1. Based on the preceding information, what is the amount of consolidated

comprehensive income reported for 2021?
a. P125,000 b. P123,750 c. P119,750 d. P130,000

2. Based on the preceding information, what is the amount of consolidated

comprehensive income reported for 2022?
a. P145,000 b. P135,000 c. P138,750 d. P130,750

3. Based on the preceding information, what is the amount of comprehensive income

attributable to the controlling interest for 2021?
a. P123,750 b. P118,750 c. P119,000 d. P115,000

4. Based on the preceding information, what is the amount of comprehensive income

attributable to the controlling interest for 2022?
a. P138,750 b. P131,000 c. P123,000 d. P135,000

Property of PREMIERE CPA Review and Professional Development Center – October 2020
Module 36.1 Quizzer 2 – Subsequent to Date of Acquisition

Problem 4

On January 1, 2020, Singto acquired 70% of outstanding ordinary shares of Krist at a price of
P210,000. On the same date, the net assets of Krist were reported at P260,000. On January
1, 2020 Singto reported retained earnings of P2,000,000 while Krist reported retained earnings
of P200,000.

All the assets and liabilities of Krist are fairly valued except machinery which is undervalued
by P80,000 and inventory which is overvalued by P10,000. The said machinery has remaining
useful life of four years while 40% of the said inventory remained unsold at the end of 2020.

For the year ended December 31, 2020, Singto reported net income of P1,000,000 and
declared dividends of P200,000 in the separate financial statements while Krist reported net
income of P150,000 and declared dividends of P20,000 in the separate financial statements.
Singto accounted the investment in Krist using cost method in the separate financial
statements.

1. What is the noncontrolling interest in net assets on December 31, 2020?

a. 124,800
b. 130,200
c. 126,000
d. 133,800

2. What is the consolidated net income attributable to parent shareholders for the year
ended December 31, 2020?
a. 1,102,200
b. 1,162,200
c. 1,141,200
d. 1,095,200

3. What is the amount of consolidated retained earnings on December 31, 2020?

a. 3,012,200
b. 2,991,200
c. 2,952,200
d. 2,945,200

Property of PREMIERE CPA Review and Professional Development Center – October 2020