a.

Goodwill, 12/31/20x6 (P330,000 – P19,300) P 310,700

b. FV of NCI, 12/31/20x6:
Non-controlling interest (full-goodwill), December 31, 20x6
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . . P 400,000
Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 . . . . . . . . . . . . . P 560,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)- decreased in Net Assets . . . . ( 30,000)
Investment income 60,000 67,500
Investment income 26,,250
Investment in Small (75% x Small’s profit) 26,250
Dividend of Subsidiary
Cash (75% x Small’s dividends) 18,750 7,500 30,000
Investment in Small 18,750 7,500 30,000
Amortization of Allocated Excess
Investment income (75% x amortization of PD*) 19,500 3,975
Investment in Small 19,500 3,975

Investment in Small 10,500

Investment income
10,500
c. Consolidated Retained Earnings, 1/1/20x6 – P498,500
Consolidated Retained Earnings, January 1, 20x6
Retained earnings - Large Company, January 1, 20x6 (cost model) P500,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, January 1, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Increase in retained earnings since date of acquisition P 10,000
Less: Amortization of allocated excess – 20x4 26,000
Amortization of allocated excess – 20x5 (14,000)
P ( 2,000)
Multiplied by: Controlling interests %................... _____75%
P ( 1,500)
Less: Goodwill impairment loss (full-goodwill) – 20x6 ________0 (___1,500)
Consolidated Retained earnings, January 1, 20x6 P498,500

The CRE, December 31, 20x6 would be as follows:

Consolidated Retained earnings, January 1, 20x6 P498,500
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of Large for 20x6 233,525
Total P717,550
Less: Dividends paid – Large Company for 20x6 70,000
Consolidated Retained Earnings, December 31, 20x6 P662,025

Over/ Annual Current

Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P16,000 1 P 16,000 P 16,000 P -
Subject to Annual Amortization
Patents 20,000 10 2,000 2,000 ___2,000
Amortization P 18,000 P 18,000 P 2,000
Impairment of goodwill (full) 99,000 - ________ _____ ___9,900
P 18,000 P 18,000 P 11,900

20x5
Consolidated Net Income for 20x5
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000
Acquisition of S Company.

January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 28,800
 Dividend income (P36,000x 80%)……………. 28,800
118. c HH expense ..........................................................................................................P621,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . P 560,000
Unamortized acquisition differential / allocated excess / increase in net assets:
{P300,000, allocated excess – {P40,000 - (P14,000 x 3) + P19,300, full impairment __282,500
P 842,500
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . . ______25%
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . . P 210,675

c. Consolidated Retained Earnings, 1/1/20x6 – P498,500

Consolidated Retained Earnings, January 1, 20x6
Retained earnings - Large Company, January 1, 20x6 (cost model) P500,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, January 1, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000

a. Goodwill, 12/31/20x6 (P330,000 – P19,300) P 310,700

b. FV of NCI, 12/31/20x6:
Non-controlling interest (full-goodwill), December 31, 20x6
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . . P 400,000
Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 . . . . . . . . . . . . . P 560,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)- decreased in Net Assets . . . . ( 30,000)
Investment income 60,000 67,500
Investment income 26,,250
Investment in Small (75% x Small’s profit) 26,250
Dividend of Subsidiary
Cash (75% x Small’s dividends) 18,750 7,500 30,000
Investment in Small 18,750 7,500 30,000
Amortization of Allocated Excess
Investment income (75% x amortization of PD*) 19,500 3,975
Investment in Small 19,500 3,975

Investment in Small 10,500

Investment income
10,500
c. Consolidated Retained Earnings, 1/1/20x6 – P498,500
Consolidated Retained Earnings, January 1, 20x6
Retained earnings - Large Company, January 1, 20x6 (cost model) P500,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, January 1, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Increase in retained earnings since date of acquisition P 10,000
Less: Amortization of allocated excess – 20x4 26,000
Amortization of allocated excess – 20x5 (14,000)
P ( 2,000)
Multiplied by: Controlling interests %................... _____75%
P ( 1,500)
Less: Goodwill impairment loss (full-goodwill) – 20x6 ________0 (___1,500)
Consolidated Retained earnings, January 1, 20x6 P498,500

The CRE, December 31, 20x6 would be as follows:

Consolidated Retained earnings, January 1, 20x6 P498,500
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of Large for 20x6 233,525
Total P717,550
Less: Dividends paid – Large Company for 20x6 70,000
Consolidated Retained Earnings, December 31, 20x6 P662,025

Over/ Annual Current

Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P16,000 1 P 16,000 P 16,000 P -
Subject to Annual Amortization
Patents 20,000 10 2,000 2,000 ___2,000
 Amortization P 18,000 P 18,000 P 2,000
Impairment of goodwill (full) 99,000 - ________ _____ ___9,900
P 18,000 P 18,000 P 11,900

20x5
Consolidated Net Income for 20x5
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000
Acquisition of S Company.

January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 28,800
Dividend income (P36,000x 80%)……………. 28,800
118. c HH expense ..........................................................................................................P621,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . P 560,000
Unamortized acquisition differential / allocated excess / increase in net assets:
{P300,000, allocated excess – {P40,000 - (P14,000 x 3) + P19,300, full impairment __282,500
P 842,500
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . . ______25%
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . . P 210,675

c. Consolidated Retained Earnings, 1/1/20x6 – P498,500

Consolidated Retained Earnings, January 1, 20x6
Retained earnings - Large Company, January 1, 20x6 (cost model) P500,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, January 1, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000

a. Goodwill, 12/31/20x6 (P330,000 – P19,300) P 310,700

b. FV of NCI, 12/31/20x6:
Non-controlling interest (full-goodwill), December 31, 20x6
Common stock – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . . . . . . P 400,000
Retained earnings – Subsidiary Company, December 31, 20x6
Retained earnings – Subsidiary Company, January 1, 20x6
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Add: Net income of Small for 20x6……………………………………………….. 90,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 . . . . . . . . . . . . . P 560,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4)- decreased in Net Assets . . . . ( 30,000)
Investment income 60,000 67,500
Investment income 26,,250
Investment in Small (75% x Small’s profit) 26,250
Dividend of Subsidiary
Cash (75% x Small’s dividends) 18,750 7,500 30,000
Investment in Small 18,750 7,500 30,000
Amortization of Allocated Excess
Investment income (75% x amortization of PD*) 19,500 3,975
Investment in Small 19,500 3,975

Investment in Small 10,500

Investment income
10,500
c. Consolidated Retained Earnings, 1/1/20x6 – P498,500
Consolidated Retained Earnings, January 1, 20x6
Retained earnings - Large Company, January 1, 20x6 (cost model) P500,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, January 1, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000
Increase in retained earnings since date of acquisition P 10,000
Less: Amortization of allocated excess – 20x4 26,000
Amortization of allocated excess – 20x5 (14,000)
P ( 2,000)
Multiplied by: Controlling interests %................... _____75%
 P ( 1,500)
Less: Goodwill impairment loss (full-goodwill) – 20x6 ________0 (___1,500)
Consolidated Retained earnings, January 1, 20x6 P498,500

The CRE, December 31, 20x6 would be as follows:

Consolidated Retained earnings, January 1, 20x6 P498,500
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of Large for 20x6 233,525
Total P717,550
Less: Dividends paid – Large Company for 20x6 70,000
Consolidated Retained Earnings, December 31, 20x6 P662,025

Over/ Annual Current

Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5
Inventory P16,000 1 P 16,000 P 16,000 P -
Subject to Annual Amortization
Patents 20,000 10 2,000 2,000 ___2,000
Amortization P 18,000 P 18,000 P 2,000
Impairment of goodwill (full) 99,000 - ________ _____ ___9,900
P 18,000 P 18,000 P 11,900

20x5
Consolidated Net Income for 20x5
Bonds payable… 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
20x4: First Year after Acquisition
Parent Company Cost Model Entry
January 1, 20x4:
(1) Investment in S Company…………………………………………… 372,000
Cash…………………………………………………………………….. 372,000
Acquisition of S Company.

January 1, 20x4 – December 31, 20x4:

(2) Cash……………………… 28,800
Dividend income (P36,000x 80%)……………. 28,800
118. c HH expense ..........................................................................................................P621,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Less: Dividends paid – 20x6…………………………………………………………. 40,000 160,000
Stockholders’ equity – Subsidiary Company, December 31, 20x6 . . . . . . . . . . . . . P 560,000
Unamortized acquisition differential / allocated excess / increase in net assets:
{P300,000, allocated excess – {P40,000 - (P14,000 x 3) + P19,300, full impairment __282,500
P 842,500
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . . ______25%
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . . P 210,675

c. Consolidated Retained Earnings, 1/1/20x6 – P498,500

Consolidated Retained Earnings, January 1, 20x6
Retained earnings - Large Company, January 1, 20x6 (cost model) P500,000
Adjustment to convert from cost model to equity method for purposes of
consolidation or to establish reciprocity:/Parent’s share in adjusted net
increased in subsidiary’s retained earnings:
Retained earnings – Small, January 1, 20x6
(P100,000 + P80,00 – P25,000 – P35,000 – P10,000) P 110,000
Less: Retained earnings – Small, January 1, 20x4 (date of acquisition) 100,000

d. P233.525
Consolidated Net Income for 20x6
Net income from own/separate operations
Parent Company: Large Company [P200,000 – (P40,000 x 75%)] P170,000
Small Company 90,000
Total P260,000
Less: Non-controlling Interest in Net Income* P 21,175
Amortization of allocated excess (14,000)
Goodwill impairment _19,300 __26,475
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P233,525
Add: Non-controlling Interest in Net Income (NCINI) __21,175
Consolidated Net Income for 20x6 P254,700
*Net income of subsidiary – 20x6 P 90,000
Amortization of allocated excess – 20x6 ( 14,000)
P 104,000
Multiplied by: Non-controlling interest %.......... 25%
P 26,000
Less: Non-controlling interest on impairment loss on full-goodwill ( (P19,300 x 25%)* ___4,825
 Non-controlling Interest in Net Income (NCINI) P 21,175
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate
to NCI acquired.

e. P21,175 – refer to (d) for computations

Note: Regardless of the method used (cost or equity) answers for No. 2 (a) to (e) above are exactly the same.

Problem II
A.
1.
a. P87,725
Consolidated Net Income for 20x4
Net income from own/separate operations
Pill Company P55,000
Sill Company 40,000
Total P95,000
Less: Non-controlling Interest in Net Income* P 5,775
Amortization of allocated excess 0
Goodwill impairment 1,500 __7,275
Controlling Interest in Consolidated Net Income or Profit
attributable to equity holders of parent………….. P87,725
Add: Non-controlling Interest in Net Income (NCINI) __5,775
Consolidated Net Income for 20x4 P93,500

b. P5,775
*Net income of subsidiary – 20x4 P 40,000
Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* _____225
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would not be proportionate
to NCI acquired.

c. P93,500 – refer to computation in (a)

d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the same with the
Consolidated Retained Earnings also on the date of acquisition.
d.2
Retained earnings of P Co, 1/1/20x4 P75,000
Add; Net income under cost method [P55,000 + (P9,000 x 85%)] _62,650
P 137,650
Less: Dividends of P Company ___5,000
Retained Earnings of P Co, 12/31/20x4 under cost model P 132,650

*Net income of subsidiary – 20x4 P 40,000

Amortization of allocated excess – 20x4 ( 0))
P 40,000
Multiplied by: Non-controlling interest %.......... _____15%
P 6,000
Less: Non-controlling interest on impairment loss on full-goodwill (P1,500 x 15%)* _____225
Non-controlling Interest in Net Income (NCINI) P 5,775
*this procedure would be not be applicable where the NCI on goodwill impairment loss would
Retained Earnings of P Co, 12/31/20x4 under cost model P 132,650

Chapter 18
Problem I
A. Downstream Sale
1.
Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000
Dividend income (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 48,000
 Net Income – S Company
No entry

Amortization of Allocated Excess

No entry

Unrealized Gain on Sale of Equipment

No entry

Realized Gain on Sale – depreciation

No entry

Equity Method – 20x5

Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Investment in S Co (60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 32,000

Net Income – S Company

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656,000
Investment income (P820,000 x 80%). . . . . . . . . . . . . . . . . . . . . 656,000

Amortization of Allocated Excess

None, since there is no amount available

Unrealized Gain on Sale of Equipment

No entry
1/1/20x4
Selling price……………………………………… P740,000
Less: Book value:
Cost…………………………………………P 1,280,000
Less: Accumulated depreciation
P1,280,000/8 years x 4 years……. 640,000 640,000
Unrealized gain on sales………………………. P 100,000
Realized gain on sale thru depreciation
based on remaining life of equipment
[P100,000 / (8 – 4, expired years)……… P 25,000

Realized Gain on Sale – depreciation 25,000

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income (P25,000 x 100%). . . . . . . . . . . . . . . . . . . . . 25,000

2. Working Paper Elimination Entries:

Cost Model
Equipment 540,000
Beginning R/E – Prince 100,000
Accumulated Depreciation 640,000

Accumulated Depreciation (P100,000/4) × 2 50,000

Depreciation Expense 25,000
Beginning R/E – Prince 25,000

Equity Method
Equipment 540,000
Investment in S Co. 100,000
Accumulated Depreciation 640,000

Accumulated Depreciation (P100,000/4) × 2 50,000

Depreciation Expense 25,000
Investment in S Co. 25,000

3 Controlling Interest in Consolidated Net Income:

Prince Company’s income from its
independent operations P3,270,000
Reported net income of Serf Company P820,000
 Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 20x4 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
× .8
Prince Company’s share thereof 676,000
Controlling Interest in Consolidated net income P3,946,000

4. Noncontrolling Interest Calculation:

Reported income of Serf Company P820,000
Plus: Intercompany profit considered realized
in the current period 25,000
P845,000
Noncontrolling interest in Serf Company
(.20 × 845,000) P169,000

5. NCI-CNI (No. 4) P 169,000

CI-CNI (No. 3) 3,946,000
CNI P4,115,000

or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Company’s realized net income from separate operations…….….. P3,270,000
S Company’s net income from own operations…………………………………. P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Son Company’s realized net income from separate operations*…….….. P 845,000 845,000
Total P4,115,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P4,115,000
Less: Non-controlling Interest in Net Income* * 169,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P3,946,000

Or, alternatively
Consolidated Net Income for 20x5

Retained Earnings of P Co, 12/31/20x4 under cost model P 132,650

Chapter 18
Problem I
A. Downstream Sale
1.
Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000
Dividend income (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 48,000

Net Income – S Company

No entry

Amortization of Allocated Excess

No entry

Unrealized Gain on Sale of Equipment

No entry

Realized Gain on Sale – depreciation

No entry

Equity Method – 20x5

Equipment 540,000
Investment in S Co. 100,000
Accumulated Depreciation 640,000

Accumulated Depreciation (P100,000/4) × 2 50,000

Depreciation Expense 25,000
 Investment in S Co. 25,000

3 Controlling Interest in Consolidated Net Income:

Prince Company’s income from its
independent operations P3,270,000
Reported net income of Serf Company P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 20x4 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
× .8
Prince Company’s share thereof 676,000
Controlling Interest in Consolidated net income P3,946,000

4. Noncontrolling Interest Calculation:

Reported income of Serf Company P820,000
Plus: Intercompany profit considered realized
in the current period 25,000
P845,000
Noncontrolling interest in Serf Company
(.20 × 845,000) P169,000

5. NCI-CNI (No. 4) P 169,000

CI-CNI (No. 3) 3,946,000
CNI P4,115,000

or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Company’s realized net income from separate operations…….….. P3,270,000
S Company’s net income from own operations…………………………………. P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Son Company’s realized net income from separate operations*…….….. P 845,000 845,000
Total P4,115,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P4,115,000
Less: Non-controlling Interest in Net Income* * 169,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P3,946,000

Or, alternatively
Consolidated Net Income for 20x5

Retained Earnings of P Co, 12/31/20x4 under cost model P 132,650

Chapter 18
Problem I
A. Downstream Sale
1.
Cost Model – 20x5 (104,000/130,000 = 80% ownership)
Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000
Dividend income (P60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 48,000

Net Income – S Company

No entry

Amortization of Allocated Excess

No entry

Unrealized Gain on Sale of Equipment

No entry

Realized Gain on Sale – depreciation

No entry

Equity Method – 20x5

 Dividends – S Company
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000
Investment in S Co (60,000 x 80%) . . . . . . . . . . . . . . . . . . . . . . . 32,000

Net Income – S Company

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 656,000
Investment income (P820,000 x 80%). . . . . . . . . . . . . . . . . . . . . 656,000

Amortization of Allocated Excess

None, since there is no amount available

Unrealized Gain on Sale of Equipment

No entry
1/1/20x4
Selling price……………………………………… P740,000
Less: Book value:
Cost…………………………………………P 1,280,000
Less: Accumulated depreciation
P1,280,000/8 years x 4 years……. 640,000 640,000
Unrealized gain on sales………………………. P 100,000
Realized gain on sale thru depreciation
based on remaining life of equipment
[P100,000 / (8 – 4, expired years)……… P 25,000

Realized Gain on Sale – depreciation 25,000

Investment in S Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment income (P25,000 x 100%). . . . . . . . . . . . . . . . . . . . . 25,000

2. Working Paper Elimination Entries:

Cost Model
Equipment 540,000
Beginning R/E – Prince 100,000
Accumulated Depreciation 640,000

Accumulated Depreciation (P100,000/4) × 2 50,000

Depreciation Expense 25,000
Beginning R/E – Prince 25,000

Equity Method
Equipment 540,000
Investment in S Co. 100,000
Accumulated Depreciation 640,000

Accumulated Depreciation (P100,000/4) × 2 50,000

Depreciation Expense 25,000
Investment in S Co. 25,000

3 Controlling Interest in Consolidated Net Income:

Prince Company’s income from its
independent operations P3,270,000
Reported net income of Serf Company P820,000
Plus profit on intercompany sale of
equipment considered to be realized
through depreciation in 20x4 25,000
Reported subsidiary income that has been
realized in transactions with third
parties 845,000
× .8
Prince Company’s share thereof 676,000
Controlling Interest in Consolidated net income P3,946,000

4. Noncontrolling Interest Calculation:

Reported income of Serf Company P820,000
Plus: Intercompany profit considered realized
 in the current period 25,000
P845,000
Noncontrolling interest in Serf Company
(.20 × 845,000) P169,000

5. NCI-CNI (No. 4) P 169,000

CI-CNI (No. 3) 3,946,000
CNI P4,115,000

or,
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P3,270,000
Realized gain on sale of equipment (downstream sales) through depreciation 0
P Company’s realized net income from separate operations…….….. P3,270,000
S Company’s net income from own operations…………………………………. P 820,000
Realized gain on sale of equipment (upstream sales) through depreciation* 25,000
Son Company’s realized net income from separate operations*…….….. P 845,000 845,000
Total P4,115,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P4,115,000
Less: Non-controlling Interest in Net Income* * 169,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P3,946,000

Or, alternatively
Consolidated Net Income for 20x5

not be proportionate to NCI acquired.

c. P93,500 – refer to computation in (a)

d.
d.1. P75,000. Retained earnings of Parent on the date of acquisition should always be the same with the
Consolidated Retained Earnings also on the date of acquisition.
d.2
Retained earnings of P Co, 1/1/20x4 P75,000
Add; Net income under cost method [P55,000 + (P9,000 x 85%)] _62,650
P 137,650
Less: Dividends of P Company ___5,000