1. Terry Corporation acquired 80 percent of Vegas Company’s stock on January 1, 20x5.

At
the acquisition date, Vegas had the following account balances.

Book Value Market Value Remaining Life

Cash and Receivables P 50,000 P 50 ,000 3 months
Inventory 160,000 200,000 5 months
Plant Assets (net) 450,000 550,000 10 years
Liabilities 300,000 280,000 5 years
Common Stock 20,000
Retained Earnings 340,000
Vegas has income of P150, 000 and pays dividends of P60,000 during 20x6. Assuming
there is no goodwill impairment, what is the amount of investment income (using cost
method) on Terry Corporation’s financial records for 20x6?
a. P76,800 c. P115,200
b. P108,800 d. P140,800

2. Mary Corporation acquired 70 percent of Phoenix Company’s stock on October 1, 20x5.

At the acquisition date, Phoenix had the following account balances.
Book Value Market Value Remaining
Life
Cash and Receivables P 40,000 P 40,000 3 months
Inventory 100,000 130,000 5 months
Plant Assets (net) 350,000 350,000 10 years
Cost of Goods Sold 160,000
Operating Expenses 50,000
Liabilities 200,000 215,000 5 years
Common Stock 20,000
Retained Earnings 230,000
Sales 250,000

Phoenix has net income of P110,000 and pays dividends of P10,000 during 20x5.
Assuming there is no goodwill impairment, what is the amount of investment income
(using equity model) on Mary Corporation’s financial records for 20x5?

3. Hi Rise Enterprises acquired 70 percent of Low Rent Company on January 1, 20x5 for
P500,000. At that date, Low Rent’s inventory and plant assets (net) had market values in
excess of book values in the amounts of P55,000 and P200,000, respectively. The
estimated remaining life of the inventory and plant assets were four months and eight
years, respectively. Assume that Low Rent has 20x5 income and dividends of P110,000
and P30,000, respectively and 20x6 income and dividends of P130,000 and P40,000,
respectively. What is the amount of the Investment in Low Rent account balance at
December 31, 20x6 using equity method?

4. Metro Corporation acquired 80 percent of Local Company on January 1, 20x5 for

P320,000. At that date Local had inventory and plant assets with market values greater
than book values in the amount of P35,000 and P75,000 respectively. The inventory and
plant assets were assigned a remaining life of six months and five years respectively.
Assuming that Local has 20x5 income and dividends of P100,000 and P40,000,
respectively and 20x6 income and dividends of P140,000 and P50,000, respectively,
what is the Investment in Local account balance (using cost method) at December 31,
20x6?

5. Perry Corporation acquired 80 percent of Sammy Company’s stock on January 1, 20x5.

At the acquisition date, Sammy had the following account balances.
Book Value Market Value Remaining Life
Cash and Receivables P 30,000 P 30,000 3 months
Inventory 100,000 120,000 5 months
Plant Assets (net) 250,000 290,000 8 years
Liabilities 150,000 160,000 5 years
Common Stock 10,000
Retained Earnings 220,000

Sammy has income of P80,000 and pays dividends of P20,000 during 20x6. Assuming
there is no goodwill impairment, what is the amount of income allocated to the non-
controlling interest for 20x6?

6. Ace Corporation acquired 70 percent of Base Company’s stock on September 1, 20x5. At

the acquisition date, Base had the following account balances.

Book Value Market Value Remaining Life

Cash and Receivables P 70,000 P 70,000 3 months
Inventory 160,000 190,000 5 months
Plant Assets (net) 400,000 520,000 10 years
Cost of Goods Sold 300,000
 Operating Expenses 90,000
Liabilities 350,000 380,000 5 years
Common Stock 20,000
Retained Earnings 180,000
Sales 470,000

Base has net income of P150,000 and pays dividends of P30,000 during 20x5. Assuming
there is no goodwill impairment, what is the amount of income allocated to non-
controlling interest for 20x5?

7. Powell Enterprises acquired 80 percent of Sullivan Company on January 1, 20x5 for

P250,000. At that date, Sullivan’s inventory and plant assets (net) had market values in
excess of book values in the amounts of P30,000 and P80,000, respectively. The
estimated remaining life of the inventory and plant assets were four months and eight
years, respectively. Assume that Sullivan has 20x5 income and dividends of P75,000 and
P25,000, respectively and 20x6 income and dividends of P90,000 and P50,000,
respectively. What is the balance in the non-controlling Interest account at December
31, 20x6?

Use the following information for questions 8 and 9:

Ramana Corporation purchased 70 percent of the outstanding stock of Knapp Company on
January 1, 20x5. The following information existed for Knapp at the date of acquisition.
Book Value Market Value
Cash and Receivables P 70,000 P 70,000
Inventory 240,000 300,000
Plant Assets (net) 560,000 700,000
Other Noncurrent Assets 80,000 80,000
Current Liabilities (90,000) (90,000)
Long-term Debt (400,000) (400,000)
Stockholders’ Equity (460,000)

At the acquisition date, Ramana assigns a remaining estimated life of 4 month to the
inventory and seven years the plant assets.

8. What is the amount of purchase differential amortization included in the calculation of

Investment Income on Ramana’s books in 20x5 and 20x6?

9. What amounts appear on the income statement portion of the 20x5 consolidation
worksheet with regard to the purchase differential amortizations?

10. Sandpiper Inc. acquired a 75% interest in Shore Corporation for P27,000 cash on January
1, 20x5, when Shore’s stockholders’ equity consisted of P30,000 of capital stock and
P20,000 of retained earnings. Shore Corporation reported net income of P18,000 for
20x5. The allocation of the P12,000 excess of cost over book value acquired on January 1
is shown below, along with information relating to the useful lives of the items:

Overvalued receivables (collected in 20x5) P 600

Undervalued inventories (sold in 20x5) 2,400
Undervalued building (6 years’ useful life remaining at
January 3,600
1, 20x5)
Undervalued land 900
Unrecorded patent (8 years’ economic life remaining at 3,200
January 1, 20x5)
Undervalued accounts payable (paid in 20x5) 300
Total of excess allocated to identifiable assets and liabilities 7,200
Goodwill ___2,800
Excess cost over book value acquired P 12,000

Determine Sandpiper’s investment income from Shore for 20x5.

Use the following information for questions 11 to 13:

On 4/1/x6, Parrco acquired 60% of Subbco’s outstanding common stock. Both entities have
December 31 year-ends. Selected data for each company for 20x6 follow:

Parrco Subbco
Net income from own separate operations
(excludes equity in net income of subsidiary
and amortization of cost in excess of book value):
3 months ended 3/31/x6 P 200,000 P 180,000
9 months ended 12/31/x6 700,000 200,000
P 900,000 P 380,000
20x6 Amortization of cost in excess of book value
 (recorded in the general ledger) P 30,000
Dividends declared:
3 months ended 3/31/x6 P 100,000 P 40,000
9 months ended 12/31/x6 300,000 120,000
P 400,000 P 160,000

11. Determine the consolidated net income for 20x6 under the economic unit concept.

12. Determine the consolidated net income to be reported for 20x6 under the parent
company concept.

13. Determine the amount of dividends to be reported in the consolidated statement of

retained earnings for 20x6.

Use the following information for questions 14 to 16:

On 10/1/x6, Plyco issued shares of its voting common stock in exchange for 100% of Slyco’s
outstanding common stock in a business combination appropriately accounted for under the
purchase method. Both companies have a December 31 year-end. Selected information for
each company follows:
Plyco Slyco
Net income from own separate operations
(exclusive of earnings recorded under the
equity method or the cost method):
9 months ended 9/30/x6 P 2,500,000 P 500,000
3 months ended 12/31/x6 1,000,000 400,000
P 3,500,000 P 900,000
Dividends declared:
9 months ended 9/30/x6 P 1,000,000 P 300,000
3 months ended 12/31/x6 400,000 100,000
P 1,400,000 P 400,000
Amortization of cost in excess
of book value for 20x6
(recorded in the general ledger) P 33,000

14. Determine the parent’s net income for 20x6 under the cost method.
15. Determine the parent’s net income for 20x6 under the equity method.
16. Determine the consolidated net income for 20x6.
17. P Company purchased 80% of the outstanding common stock of S Company on May 1,
20x5, for a cash payment of P318,000. S Company’s December 31, 20x4 balance sheet
reported common stock of P200,000 and retained earnings of P180,000. During the
calendar year 20x5, S Company earned P210,000 evenly throughout the year and
declared a dividend of P75,000 on November 1. What is the amount needed to establish
reciprocity under the cost method in the preparation of a consolidated workpaper on
December 31, 20x5?
18. Raider Corporation acquired 70 percent of Bulldog Enterprises on January 1, 20x5. At
that date, Bulldog had equipment (ten year remaining life) with a market value and book
value of P80,000 and P60,000 respectively. Bulldog’s income in 20x5 and 20x6 were
P15,000 and P22,000, respectively while dividends paid were P6,000 and P9,000,
respectively. Raider accounts for the investment under the cost method. What amount
of adjustment to the investment account is necessary to convert the cost method
investment account to the equity method balance at December 31, 20x6?

Use the following information for questions 19 to 21:

Pinta Company purchased 40% of Snuggie Corporation on January 1, 20y4 for P150,000.
Snuggie Corporation’s balance sheet at the time of acquisition was as follows:

Cash P30,000 Current Liabilities P 40,000

Accounts Receivable 120,000 Bonds Payable 200,000
Inventory 80,000 Common Stock 200,000
Land 150,000 Additional Paid in Capital 40,000
Buildings & 300,000 Retained Earnings 80,000
Equipment
Less: Acc. (120,000) _______
Depreciation
Total Assets P560,000 Total Liabilities and P560,000
Equities

During 20y4, Snuggie Corporation reported net income of P30,000 and paid dividends of
P9,000. The fair values of Snuggie’s assets and liabilities were equal to their book values at
the date of acquisition, with the exception of Building and Equipment, which had a fair value
of P35,000 above book value. All buildings and equipment had a remaining useful life of five
years at the time of the acquisition. The amount attributed to goodwill as a result of the
acquisition in not impaired.
19. What amount of investment income will Pinta record during 20y4 under the equity
method of accounting?
20. What amount of income will Pinta record during 20y4 under the cost method of
accounting?