Chapter 2

Problem 2 page 188-189

For Case 1

January 1, 20x4
Investment in S Company…………………………………………… 408,000
Cash…………………………………………………………………….. 408,000
Schedule of Determination and Allocation of Excess (refer to Requirement 1 Case 1)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred……………………………….. P 408,000
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 100%)………………….. P 240,000
Paid-in capital in excess of par (P24,000 x 100%)... 24,000
Retained earnings (P96,000 x 100%)………………... 96,000 360,000
Allocated excess (excess of cost over book value)…… P 48,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%)…………….. P 18,000
Increase in land (P72,000 x 100%)…………………… 72,000
Decrease in buildings and equipment
(P12,000 x 100%)……………………………………... ( 12,000)
Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair
value)…………………………………………………….. P 12,000
4. WPEN
(E1) Common stock – S Co………………………………………… 240,000
Additional paid-in capital – S Co…………………………… 24,000
Retained earnings – S Co…………………………………… 96.000
Investment in S Co……………………………………… 360,000
Eliminate investment against stockholders’ equity-S Co
(E2)
Inventory…………………………………………………………. 18,000
Land……………………………………………………………… 72,000
Goodwill…………………………………………………………. 12,000
Buildings and equipment……………………………… 12,000
Premium on bonds payable……………………………… 42,000
Investment in S Co………………………………………… 48,000
Eliminate investment against allocated excess.
5.
Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash*…………………………. P 12,000 P 60,000 P 72,000
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… (2) 12,000 12,000
Investment in S Co…………. 408,000 (1) 360,000
(2) 48,000 -
Total Assets P1,320,000 P600,000 P1,602,000
Liabilities and Stockholders’ Equity
Accounts payable…………… P 120,000 P120,000 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Premium on bonds payable (3) 42,000 42,000
 Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000 (1) 240,000
Paid in capital in excess of par. 60,000 60,000
Paid in capital in excess of par. 24,000 (1) 24,000
Retained earnings…………… 300,000 300,000
Retained earnings…………… _________ 96,000 (1) 96,000 __________ _________
Total Liabilities and Stockholders’
Equity P1,320,000 P600,000 P 462,000 P 462,000 P1,602,000
(1) Eliminate investment against stockholders’ equity of S Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P408,000 = P12,000.

6.
Assets
Cash (P420.000 – P408,000 + P60,000) P 72,000
Accounts receivables (P90,000 + P60,000) 150,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (net) – P480,000 + P360,000 – P12,000) 828,000
Goodwill (refer to Requirement 1- Case1) 12,000
Total Assets (a) P1,602,000
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable (P120,000 + P120,000) P 240,000
Bonds payable (P240,000 + P210,000) P 360,000
Premium on bonds payable (P162,000 - P120,000) 42,000 402,000
Total Liabilities (b) P 642,000
Stockholders’ Equity
Common stock, P10 par – Parent/Acquirer only P 600,000
Paid-in capital in excess of par – Parent/Acquirer only 60,000
Retained earnings – Parent/Acquirer only 300,000
Total Stockholders’ Equity P 960,000
Total Liabilities and Stockholders’ Equity P1,602,000

For Case 4
3.
January 1, 20x4
(1) Investment in S Company…………………………………………… 432,000
Cash…………………………………………………………………….. 288,000
Common stock, P10 par…………………………………………….. 120,000
Paid-in capital in excess of par……………………………………. 24,000
(2) Retained earnings (acquisition-related expense - close to
retained earnings since only balance sheets are being
examined)…………………………………………………………… 12,000
Cash……………………………………………………………………. 12,000
Acquisition- related costs.
(3) Paid-in capital in excess of par……………………………………….. 8,400
Cash……………………………………………………………………. 8,400
Costs to issue and register stocks.
Schedule of Determination and Allocation of Excess (refer to Requirement 1 Case 2)
Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred
Cash………………………………………………………. P 288,000
Common stock: 12,000 shares x P12 per share….. 144,000 P 432,000
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 100%)………………….. P 240,000
Paid-in capital in excess of par (P96,000 x 100%).. 96,000
Retained earnings (P24,000 x 100%)………………... 24,000 360,000
 Allocated excess (excess of cost over book value)…… P 72,000
Add: Existing Goodwill of Sky Co. (P6,000 x 100%)……… 6,000
Adjusted allocated excess…………………………………. P 78,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%)…………….. P 18,000
Increase in land (P72,000 x 100%)…………………… 72,000
Decrease in buildings and equipment
(P12,000 x 100%)……………………………………... ( 12,000)
Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair
value)…………………………………………………….. P 42,000

Alternatively, the unrecorded goodwill may also be computed by ignoring the existing goodwill in the books of
the subsidiary, thus:

Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation)
Fair value of Subsidiary (100%)
Consideration transferred……………………………………………………… P 432,000
Less: Book value of stockholders’ equity of S……………………………….. 360,000
Allocated excess (excess of cost over book value)…………………………. P 72,000
Less: Over/under valuation of assets and liabilities…………………………… 36,000
Positive excess: Goodwill (excess of cost over fair value)…………………... P 36,000
Add: Existing Goodwill……………………………………………………………… 6,000
Positive excess: Goodwill (excess of cost over fair
value)…………………………………………………………………………… P 42,000

4.
(E1) Common stock – S Co………………………………………… 240,000
Additional paid-in capital – S Co…………………………… 24,000
Retained earnings – S Co…………………………………… 96.000
Investment in S Co……………………………………… 360,000
Eliminate investment against stockholders’ equity of S Co.

(E2) Inventory…………………………………………………………. 18,000

Land……………………………………………………………… 72,000
Goodwill…………………………………………………………. 36,000
Buildings and equipment……………………………… 12,000
Premium on bonds payable……………………………… 42,000
Investment in S Co………………………………………… 72,000
Eliminate investment against allocated excess.

5.
Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash*………………………….. P 111,600 P 54,000 P 165,600
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… 6,000 (2) 36,000 42,000
Investment in S Co…………. 432,000 (1) 360,000
(2) 72,000 -
Total Assets P1,443,600 P600,000 P1,725,600
Liabilities and Stockholders’ Equity
Accounts payable…………… P 120,000 P120,000 P 240,000
Bonds payable………………… 240,000 120,000 360,000
 Premium on bonds payable (3) 42,000 42,000
Common stock, P10 par**…..… 720,000 720,000
Common stock, P10 par……… 240,000 (1) 240,000
Additional paid in capital*** 75,600 75,600
Additional paid in capital…… 24,000 (1) 24,000
Retained earnings**** 288,000 288,000
Retained earnings…………… _________ 96,000 (1) 96,000 __________ _________
Total Liabilities and Stockholders’
Equity P1,443,600 P600,000 P 486,000 P 486,000 P1,725,600
(1) Eliminate investment against stockholders’ equity of Sky Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P288,000 – P12,000 – P8,400 = P111,600.
**P600,000 + P120,000 (12,000 shares x P10 par) = P720,000.
***P60,000 + P24,000 (12,000 shares x [P12-P10] – P8,400 = P75,600.
****P300,000 – P12,000 = P288,000.

6.
Assets
Cash (P420.000 – P288,000 – P12,000 – P8,400) + P60,000 P 171,600
Accounts receivables (P90,000 + P60,000) 150,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (net) – P480,000 + P360,000 – P12,000) 828,000
Goodwill (refer to Requirement 1- Case 2) 36,000
Total Assets (a) P1,725,600
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable (P120,000 + P120,000) P 240,000
Bonds payable (P240,000 + P210,000) P 360,000
Premium on bonds payable (P162,000 - P120,000) 42,000 402,000
Total Liabilities (b) P 642,000
Stockholders’ Equity
Common stock, P10 par – Parent/Acquirer only* P 720,000
Paid-in capital in excess of par – Parent/Acquirer only** 75,600
Retained earnings – Parent/Acquirer only*** 288,000
Total Stockholders’ Equity P1,083,600
Total Liabilities and Stockholders’ Equity P1,725,600
*P600,000 + P120,000 (12,000 shares x P10 par) = P720,000.
**P60,000 + P24,000 (12,000 shares x [P12-P10] – P8,400 = P75,600.
***P300,000 – P12,000 = P288,000.