Or, P24,750 X 20/120 P4,125

office inventory as of December 1 considered of:
Shipments from Home Office (see below)............................................................. P 12,000**

Purchases from outsiders (balance of inventory).................................................. 3,000
Total inventory........................................................................................................... P 15,000
Goods acquired from home office and included in branch inventory at billed price are calculated as
follows:
Unrealized Profit
Cost (Billing Price Minus
Billing Price (Billing/1.20) Cost)
Inventory, December 1 **P 12,000 *P 10,000 P 2,000
eliminations:
750
Cost of merchandise returned by branch: P750/1.20= P625.
Entry Made Correct/Should be Entry
Sales Returns……………… 750 Shipments to Branch………. 625
Branch Current……… 750 Unrealized Int. Inv Profit…… 125
Branch Current…………. 750
Results of Branch Operations:
A. Branch Net Income/Loss from its own operations:
Branch Income Summary............................................................................... 2,600
Branch Current…................................................................................ 2,600
B. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/
Unrealized Intercompany Inventory Profit:
Unrealized Intercompany Inventory Profit.................................................... 4,125
Branch Income Summary.................................................................. 4,125
Unrealized Profit
Inventory, December 1 P 0 P 0 P 0
Shipments during December 42,000 35,000 7,000
Less: Returns _____750 ____625 ____125
Available for Sale (before adjustment) P 41,250 P 34,375 P 6,875
Less: Inventory, Dec. 31 (after adjustment) 16,500 13,750 __2,750
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods
sold (adjustment) P 24,750 P 20,625 *P 4,125
*or, P24,750 x 20/120 = P4,125;
Decrease in Unrealized Intercompany Inventory Profit:
Balance prior to adjustment, 12/31, P7,000 – P125................... P6,875
Balance required in account, 12/31,P16,500 – (P16,500/1.20).. 2,750
Decrease in Allowance................................................................. P4,125
Branch Income Summary (P4,125 – P2,600)....................................................1,525

Income Summary.................................................................................... 1,525
Therefore, the Real/True/Adjusted Branch Net Income/Branch Net Income in so far as HO is
concerned, amounted to P1,525, computed as follows:
Branch net loss as reported/unadjusted……………………………………………………(P2,600)
Add: Overvaluation of branch inventory/Realized profit from branch sales……….. 4,125
Real/True/Adjusted Branch Net Income or Branch NI in so far as HO is concerned P1,525
Problem III
a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on
December 31, calculated as follows:
Unrealized Profit
follows:
Unrealized Profit
eliminations:
750
Branch Current…................................................................................ 2,600
Unrealized Profit
Less: Returns _____750 ____625 ____125
*or, P24,750 x 20/120 = P4,125;
Income Summary.................................................................................... 1,525
Problem III
Unrealized Profit
follows:
Unrealized Profit
eliminations:
750
Branch Current…................................................................................ 2,600
Unrealized Profit
Less: Returns _____750 ____625 ____125
*or, P24,750 x 20/120 = P4,125;

Income Summary.................................................................................... 1,525
Problem III
Unrealized Profit
follows:
Unrealized Profit
eliminations:
750
Branch Current…................................................................................ 2,600
Unrealized Profit
Less: Returns _____750 ____625 ____125
*or, P24,750 x 20/120 = P4,125;

Income Summary.................................................................................... 1,525
Problem III
Unrealized Profit
Sales............................................................................................................... 42,000
Shipments to Branch................................................................ ………… 35,000
Unrealized Intercompany Inventory Profit........................................... 7,000
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Branch Current…………… 42,000 Branch Current……….. 42,000
Sales…………………… 42,000 Shipments to Branch 35,000
Unrealized Int. Inv Pr. 7,000
B. Shipments to Branch...................................................................................... 625
Unrealized Intercompany Inventory Profit................................................... 125
Sales Returns........................................................................................... Chapter 14
Problem I
1.(in millions)
Acquisition of assets and liabilities:
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Goodwill 6,120
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
Common stock, P2 par 100
APIC (P4,000 – P100) 3,900
Consideration transferred:
Cash 18,000,000
Common stock 4,000,000
Consideration transferred 22,000,000
Less: MV of Assets and Liabilities Acquired:
Cash 90,000
Receivables 190,000
Inventories 7,000,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Current liabilities ( 400,000)
Long-term liabilities (47,000,000) 15,880,000
Positive excess: Goodwill 6,120,000
Acquisition expenses
Acquisition/merger expenses 1,100
Cash 1,100
Costs to Issue and Register Stocks

APIC 500
Cash 500
2.(in millions)
Cash 90
Receivables 190
Inventories 7,000
Trademarks 4,000
Brand names 5,000
Noncompetition agreements 10,000
Cash 18,000
A. Sales............................................................................................................... 42,000
Problem I
1.(in millions)
Cash 90
Receivables 190
Inventories 7,000
Trademarks 4,000
Brand names 5,000
Goodwill 6,120
Cash 18,000
APIC (P4,000 – P100) 3,900
Consideration transferred:
Cash 18,000,000
Common stock 4,000,000
Consideration transferred 22,000,000
Less: MV of Assets and Liabilities Acquired:
Cash 90,000
Receivables 190,000
Inventories 7,000,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Current liabilities ( 400,000)
Long-term liabilities (47,000,000) 15,880,000
Positive excess: Goodwill 6,120,000
Acquisition expenses
Acquisition/merger expenses 1,100
Cash 1,100
Costs to Issue and Register Stocks

APIC 500
Cash 500
2.(in millions)
Cash 90
Receivables 190
Inventories 7,000
Trademarks 4,000
Brand names 5,000
Noncompetition agreements 10,000
Cash 18,000
A. Sales............................................................................................................... 42,000
Problem I
1.(in millions)
Cash 90
Receivables 190
Inventories 7,000
Trademarks 4,000
Brand names 5,000
Goodwill 6,120
Cash 18,000
500,000
Allocated Excess: Acquisition differential – Jan. 1, 20x4 300,000
Less: Over/under valuation of A/L (Allocated to):
Increase in Inventory 40,000
Decrease in Patents (70,000) (30,000)
Positive Excess: Goodwill - full 330,000
A summary or depreciation and amortization adjustments is as follows:
Over/ Annual Current
Account Adjustments to be amortized Under Life Amount Year(20x4) 20x5 20x6
Inventory P40,000 1 P 40,000 P 40,000 P - P -
Subject to Annual Amortization
Patents (70,000) 5 (14,000) ( 14,000) (14,000) (14,000)
Amortization P 26,000 P 26,000 P(14,000) P(14,000)
Impairment of goodwill (full) 330,000 - _____ _____ ______ __ 19,300
P 26,000 P 26,000 P(14,000) P 5,300
For purposes of comparison between Cost Model/Method and Equity Method
Cost Method
Journal Entries Year 1 Year 2 Year 3
Investment
Investment in Small 600,000
Cash 600,000
Dividend of Subsidiary
Cash 18,750 7,500 30,000
Dividend income 18,750 7,500 30,000
Investment in Son Dividend Income
1/1/x4 CI…… 600,000
18,750 - Div–S (75 x80%)
12/31/x4 600,000 18,750
7,500 - Div–S (10 x80%)
12/31/x5 600,000 18,750
30,000 - Div–S (40 x80%)
12/31/x6 600,000 30,000
Equity Method
1. Year 1 Year 2 Year 3
Investment
Cash 600,000
Net Income (Loss) of Subsidiary:
Investment in Small (75% x Small’s profit) 60,000 67,500
Less: Amortization of allocated excess (refer to amortization above):
20x4 (P40,000 – P14,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 26,000
20x5 and 20x6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,000) (2,000)
Fair value of stockholders’ equity of subsidiary, December 31, 20x6 . . . . . . . . . . . P 532,000
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . . 20
FV of Non-controlling interest (partial goodwill), 12/31/20x6 . . . . . . . . . . . . . . . . . P 133,000
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P330,000 full – P247,000, partial = P82,500…………………………………. P 82,500
Less: Impairment on the NCI (P19,300 x 25%)………………………………… ___4,825 ___*77,675
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . . P 210,675
*or P330,000 full – P247,000, partial = P82,500 – (impairment loss on full goodwill less (P19,300 x 25%)]
= P77,625
Alternatively, NCI on December 31, 20x6may also be computed as follows (Note: This is the American version of
computing NCI, since they only allowed using Full-goodwill Method):
Common stock, 12/31/20x6………………………………………………… P 400,000
Retained earnings, 12/31/20x6
(P100,000+P80,000 – P25,000 – P35,000 – P10,000)………….. P 110,000
Add: NI – Subsidiary (20x6) …………………………………………………. 90,000
Dividends – Subsidiary 20x6………………………………………………….( 40,000) 160,000
Book value of SHE – S, 12/31/20x6…………………………………………. P560,000
Adjustments to reflect fair value (Increase in Net Assets)………………P 300,000
Amortization of allocated excess:
Inventory – 20x4...…………………………………………………….( 40,000)
Patent (P14,000 x 3 years)………………………………………….. 42,000
Impairment of goodwill – 20x6……………………………………..( 19,300) 282,700
FV of SHE of Small……………………………………………………………… P 842,700
Multiplied by: NCI%..................................................................................... 25%
FV of NCI, 12/31/20x6………………………………………………………….. P 210,675
Or, alternatively:
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
NN expenses............................................................................................................714,000
Excess fair value amortization (70,000 ÷ 10 yrs).................................................................. 7,000
Consolidated expenses........................................................................................................... P1,342,000
119. b
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
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)
Less: Amortization of allocated excess (refer to amortization above):
20x4 (P40,000 – P14,000). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 26,000
20x5 and 20x6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,000) (2,000)
Fair value of stockholders’ equity of subsidiary, December 31, 20x6 . . . . . . . . . . . P 532,000
Multiplied by: Non-controlling Interest percentage . . . . . . . . . . . . . . . . . . . . . . . . . 20
FV of Non-controlling interest (partial goodwill), 12/31/20x6 . . . . . . . . . . . . . . . . . P 133,000
Add: Non-controlling interest on full goodwill , net of impairment loss
[(P330,000 full – P247,000, partial = P82,500…………………………………. P 82,500
Less: Impairment on the NCI (P19,300 x 25%)………………………………… ___4,825 ___*77,675
FV of Non-controlling interest (full-goodwill), 12/31/20x6. . . . . . . . . . . . . . . . . . . . . P 210,675
*or P330,000 full – P247,000, partial = P82,500 – (impairment loss on full goodwill less (P19,300 x 25%)]
= P77,625
Alternatively, NCI on December 31, 20x6may also be computed as follows (Note: This is the American version of
computing NCI, since they only allowed using Full-goodwill Method):
Common stock, 12/31/20x6………………………………………………… P 400,000
Retained earnings, 12/31/20x6
(P100,000+P80,000 – P25,000 – P35,000 – P10,000)………….. P 110,000
Add: NI – Subsidiary (20x6) …………………………………………………. 90,000
Dividends – Subsidiary 20x6………………………………………………….( 40,000) 160,000
Book value of SHE – S, 12/31/20x6…………………………………………. P560,000
Adjustments to reflect fair value (Increase in Net Assets)………………P 300,000
Amortization of allocated excess:
Inventory – 20x4...…………………………………………………….( 40,000)
Patent (P14,000 x 3 years)………………………………………….. 42,000
Impairment of goodwill – 20x6……………………………………..( 19,300) 282,700
FV of SHE of Small……………………………………………………………… P 842,700
Multiplied by: NCI%..................................................................................... 25%
FV of NCI, 12/31/20x6………………………………………………………….. P 210,675
Or, alternatively:
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
NN expenses............................................................................................................714,000
Excess fair value amortization (70,000 ÷ 10 yrs).................................................................. 7,000
Consolidated expenses........................................................................................................... P1,342,000
119. b
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 income 10,500
Investment in Son Investment Income (loss)
1/1/x4: CI 600,000
NI of S 18,750 75% Div - Son NI of Son
(80,000 75% Amort& Amortization (80,000
x 75%)……. 60,000 19,500 impairment impairment 19,500 60,000 x 75%)
12/31/x4 621,750 40,500
75% NL – Sub 75% NL – Sub
26,250 (35,000 x 75%) (35,000 x 75%) 26,250
7,500 75% Div - Son
75% Amort& 75% Amort&
Impairment 10,500 10,500 impairment
12/31/x5 598,500 15,750
NI of S 30,00075% Div - Son NI of Son
(90,000 75%Amort& Amortization (90,000
12/31/x6632,025 63,525
Reconciliation of Investment /Conversion of Investment Account from Cost to Equity Method:
Investment balance under cost model P 600,000
Retroactive adjustments: (Small’s net income less dividends)
Small’s retained earnings, end of year P160,000
Less: Small’s retained earnings, date of acquisition _100,000
Increase in retained earnings (NI less dividend) P 60,000
Less: Cumulative amortization of allocated excess _17,300
P 42,700
X: Controlling interests ____75%
P 32,025
Less: Impairment of goodwill _______0 _32,025
Investment balance under equity method P 632,025
2.
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
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000
Investment income 60,000 67,500
Investment income 26,,250
Investment in Small (75% x Small’s profit) 26,250
Investment in Son Investment Income (loss)

1/1/x4: CI 600,000
NI of S 18,750 75% Div - Son NI of Son
(80,000 75% Amort& Amortization (80,000
12/31/x4 621,750 40,500
75% NL – Sub 75% NL – Sub
26,250 (35,000 x 75%) (35,000 x 75%) 26,250
7,500 75% Div - Son
75% Amort& 75% Amort&
Impairment 10,500 10,500 impairment
12/31/x5 598,500 15,750
NI of S 30,00075% Div - Son NI of Son
(90,000 75%Amort& Amortization (90,000
12/31/x6632,025 63,525
Reconciliation of Investment /Conversion of Investment Account from Cost to Equity Method:
Investment balance under cost model P 600,000
Retroactive adjustments: (Small’s net income less dividends)
Small’s retained earnings, end of year P160,000
Less: Small’s retained earnings, date of acquisition _100,000
Increase in retained earnings (NI less dividend) P 60,000
Less: Cumulative amortization of allocated excess _17,300
P 42,700
X: Controlling interests ____75%
P 32,025
Less: Impairment of goodwill _______0 _32,025
Investment balance under equity method P 632,025
2.
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
(P100,000 + P80,000 – P25,000 – P35,000 – P10,000).............................. P110,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P200,000

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office inventory as of December 1 considered of:

Shipments from Home Office (see below)............................................................. P 12,000**

Branch Income Summary (P4,125 – P2,600)....................................................1,525

Branch Income Summary (P4,125 – P2,600)....................................................1,525

Branch Income Summary (P4,125 – P2,600)....................................................1,525

Costs to Issue and Register Stocks

Costs to Issue and Register Stocks

Investment income 60,000 67,500

Investment in Small 10,500

Investment in Son Investment Income (loss)

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