Chapter 5 - Multiple Choice Problems

Multiple Choice Problems
1. a
Combined equipment amounts P1,050,000
Less: gain on sale 25,000
Consolidated equipment balance P1,025,000
Combined Accumulated Depreciation P 250,000

Less: Depreciation on gain 5,000
Consolidated Accumulated Depreciation P 245,000
2. a
Original cost of P1,100,000
Accumulated depreciation, 1/1/20x4 P 250,000

Add: Additional depreciation (P1,100,000 – P100,000) / 20 years ____50,000
3. a
Combined building amounts P650,000
Less: Intercompany gain __30,000
Consolidated buildings P620,000
Combined Accumulated Depreciation P195,000

Less: Piecemeal recognition of gain ___3,000
Consolidated accumulated depreciation P192,000
4. a – the amount of land that will be presented in the presented in the CFS is the original cost
of P416,000 + P256,000 = P672,000.
5. a The costs incurred by BB to develop the equipment are research and development
costs and must be expensed as they are incurred. Transfer to another legal entity does
not cause a change in accounting treatment within the economic entity.
6. e
Original cost of P 100,000
Accumulated depreciation, 1/1/20x6 (P100,000 x 50%) P 50,000

Add: Additional depreciation (P100,000 – P50,000) / 5 years ___10,000
7. d
Sales price P 80,000
Less: Book value
Cost P100,000
Less: Accumulated depreciation (50% x P100,000) __50,000 __50,000
Unrealized gain on sale P 30,000
Less: Realized gain - depreciation (P30,000 / 5 years) ___6,000
Net unrealized gain, 12/31/20x6 P 24,000
8. e
Eliminating entries:
12/31/20x6: subsequent to date of acquisition
Realized Gain – depreciation
Accumulated depreciation 6,000
Depreciation expense 6,000
[P80,000 - (P100,000 - {P100,000 x 50%])] = P30,000 / 5 years or
P15,000 – P8,000 = P7,000
“Should be in CFS” Parent – Pylux “Recorded as” Subsidiary - Sylux

Depreciation expense Depreciation expense
(P50,000 /5 years) 10,000 (P80,000 / 5 years) 16,000
Acc. Depreciation 8,000 Acc. depreciation 16,000
9. d
20x4 20x5
Unrealized gain on sales of equipment (downstream sales) ( 90,000) -0-
Realized gain on sale of equipment (downstream sales) through depreciation
P90,000 / 10 years ___9,000 9,000
Net ( 81,000) 9,000
10. d
20x4 20x5
Unrealized gain on sale of equipment (downstream sales) ( 150,000) -0-
P150,000 / 10 years ___15,000 15,000
Net ( 135,000) 15,000
11. a
20x4 20x5
Unrealized gain on sale of equipment (upstream sales) : 50,000 – 30,000 ( 20,000) -0-
Realized gain on sale of equipment (upstream sales) through depreciation
P20,000 / 5 years ___4,000 __4,000
Net ( 16,000) __4,000
12. e
Original cost of P
100,000
Accumulated depreciation, 1/1/20x6 P

40,000
Add: Additional depreciation (P100,000 – P40,000) / 6 years x 2 years ___20,000
Accumulated depreciation, 12/31/20x4 P
70,000
13. c
Less: Book value
Cost P100,000
Less: Accumulated depreciation __40,000 __60,000
Unrealized loss on sale P(12,000)
Add: Realized loss - depreciation (P12,000 / 6 years) x 2 years ___4,000
Net unrealized loss, 12/31/20x7 P( 8,000)
14. a
[P48,000 - (P100,000 - P40,000) = P(12,000) / 6 years or P10,000 –
P8,000 = P2,000
“Should be in CFS” Parent – Poxey “Recorded as” Subsidiary - Soxey

(P60,000 /6 years) 10,000 (P48,000 / 6 years) 8,000
15. c
Original cost of P 100,000
Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000) P 80,000

Add: Additional depreciation (P100,000 – P80,000) / 5 years x 2 years ____8,000
16. c
Less: Book value
Cost P100,000
Less: Accumulated depreciation __80,000 __20,000
Unrealized gain on sale P 25,000
Less: Realized gain - depreciation (P25,000 / 5 years) x 2 years __10,000
17. b
[P45,000 - (P100,000 - P80,000) = P25,000 / 5 years or P4,000 – P9,000
= P5,000
“Should be in CFS” Parent – Sayex “Recorded as” Subsidiary - Payex

(P20,000 /5 years) 4,000 (P45,000 / 5 years) 9,000
18. c
19. b
20. c – (P20,000/20 years = P1,000), the eliminating entry to recognize the gain – depreciation
would be as follows:
Accumulated depreciation……………………………………………… 1,000
Depreciation expenses………………………………………….. 1,000
21. a
The truck account will be debited for P3,000 in the eliminating entry:
Truck 3,000
Gain 15,000
Seller Buyer
Cash 50,000 Truck 50,000
Accumulated 18,000 Cash 50,000
Truck 53,000
Gain 15,000
22. b
Consolidated Net Income for 20x5
P Company’s net income from own/separate operations…………. P 98,000
Realized gain on sale of equipment (downstream sales) through depreciation ___0
P Company’s realized net income from separate operations*…….….. P 98,000
S Company’s net income from own operations…………………………………. P 55,000
Unrealized gain on sales of equipment (upstream sales) (15,000)
(P15,000 / 3 years) 5,000
S Company’s realized net income from separate operations*…….….. P 45,000 45,000
Total P143,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x5 P143,000
Less: Non-controlling Interest in Net Income* * 18,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x5………….. P125,000
*that has been realized in transactions with third parties.
Or, alternatively
(P15,000 / 3 years) 5,000
Total P143,000
Less: Non-controlling Interest in Net Income* * P 18,000
Amortization of allocated excess…………………… ____0 18,000
equity holders of parent………….. P125,000
Add: Non-controlling Interest in Net Income (NCINI) _ 18,000
**Non-controlling Interest in Net Income (NCINI) for 20x5

S Company’s net income of Subsidiary Company from its own operations P 55,000
(Reported net income of S Company)
Unrealized gain on sales of equipment (upstream sales) ( 15,000)
Realized gain on sale of equipment (upstream sales) through depreciation 5,000
S Company’s realized net income from separate operations……… P 45,000
Less: Amortization of allocated excess 0
P 45,000
Multiplied by: Non-controlling interest %.......... 40%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 18,000
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . 0
Non-controlling Interest in Net Income (NCINI) – full goodwill . . . . . . . . . . . . . P 18,000
23. a - refer to No. 22 computation

24. a
25. a
26. b
27. d – the entry under the cost model would be as follows ;
Accumulated depreciation……………………………………………. 4,000
Depreciation expenses (current year) – P6,000/3 years…. 2,000
Retained earnings (prior year – 20x4)……………………….. 2,000
28. d – the entry under the cost model would be as follows ;

Accumulated depreciation……………………………………………. 10,000
Depreciation expenses (current year) – P15,000/3 years.. 5,000
Retained earnings (prior year – 20x5)……………………….. 5,000
29. a
30. b
31. c – P50,000/5 years = P10,000 per year starting January 1, 20x6.
32. b P40,000
Depreciation expense recorded by Pirn
Depreciation expense recorded by Scroll 10,000
Total depreciation reported P50,000
Adjustment for excess depreciation charged
by Scroll as a result of increase in
carrying value of equipment due to gain
on intercompany sale (P12,000 / 4 years) (3,000)
Depreciation for consolidated statements P47,000
33. e
Depreciation expense:
Parent P 84,000
Subsidiary 60,000
Total P144,000
Less: Over-depreciation due to realized gain:
[P115,000 – (P125,000 – P45,000)] = P35,000/8 years __ 4,375
Consolidated income statement P139,625
34. c
20x6
Unrealized gain on sale of equipment ( 56,000)
Realized gain on sale of equipment (upstream sales) through depreciation ___7,000
Net ( 49,000)
Selling price P 392,000

Less: Book value, 1/1/20x6
Cost, 1/1/20x2 P420,000
Less: Accumulated depreciation: P420,000/10 years x 2 years 84,000 336,000
Unrealized gain on sale of equipment P 56,000
Realized gain – depreciation: P56,000/8 years P 7,000
35. c – (P22,500 x 4/15 = P6,000)

36. a – [P50,000 – (P50,000 x 4/10) = P30,000]
37. b The P39,000 paid to GG Company will be charged to depreciation expense by TLK
Corporation over the remaining 3 years of ownership. As a result, TLK Corporation will
debit depreciation expense for P13,000 each year. GG Company had charged
P16,000 to accumulated depreciation in 2 years, for an annual rate of P8,000.
Depreciation expense therefore must be reduced by P5,000 (P13,000 - P8,000) in
preparing the consolidated statements.
38. a TLK Corporation will record the purchase at P39,000, the amount it paid. GG Company
had the equipment recorded at P40,000; thus, a debit of P1,000 will raise the equipment
balance back to its original cost from the viewpoint of the consolidated entity.
39. b Reported net income of GG Company P 45,000
Reported gain on sale of equipment P15,000
Intercompany profit realized in 20x6 (5,000) (10,000)
Realized net income of GG Company P 35,000
Proportion of stock held by
non-controlling interest x .40
Income assigned to non-controlling interests P 14,000
40. c Operating income reported by TLK Corporation P 85,000

Net income reported by GG Company 45,000
P130,000
Less: Unrealized gain on sale of equipment
(P15,000 - P5,000) (10,000)
Consolidated net income P120,000
41. b
12/31/20x5: date of acquisition
Restoration of BV and eliminate unrealized gain
Equipment 10,000
Gain 150,000
Parent Books – Mortar Subsidiary Books – Granite

Cash 390,000 Equipment 390,000
Accumulated depreciation 160,000 Cash 390,000
Equipment 400,000
Gain 150,000
Mortar
Selling price P390,000
Cost, 1/1/20x2 P400,000
Less: Accumulated depreciation : P400,000/10 years x 4 years 160,000 240,000
42. a – refer to No. 41 for computation

43. b - refer to No. 41 for computation
44. d
P150,000 / 6 years or P65,000 – P40,000
“Should be in CFS” Parent Books – Mortar “Recorded as” Subsidiary Books - Granite
(P400,000 / 10 years) 40,000 (P390,000 / 6 years) 65,000
45. c
Equipment 10,000
Retained earnings (150,000 – 25,000) 100,000
Accumulated depreciation (P160,000 – P25,000) 135,000
46. a
Total gain on the sale = P1,000,000 – (P500,000 - P150,000) = P650,000
Unconfirmed gain after three years = 2/5 x P650,000 = P260,000
47. d
Depreciation to 1/1/x3 is P25,000
Depreciation expense for 20x3 and 20x4 is (P85,000 - P25,000)/6 = P10,000 per year
Therefore accumulated depreciation at 12/31/x4 is P45,000.
Net equipment balance is P85,000 - P45,000 = P40,000.
48. b
At the end of two years, the subsidiary reports the equipment at original cost of P2,500,000
and accumulated depreciation of (P2,500,000/10) x 2 = P500,000. Depreciation expense
is P250,000.
The consolidated balance sheet reports the equipment at original cost of P1,000,000 and
accumulated depreciation of P200,000 + ([(P1,000,000 - P200,000)/10] x 2) = P360,000.
Depreciation expense is P80,000.
Eliminating entries at the end of the second year are:

Investment in subsidiary 1,530,000
Equipment 1,700,000
Equipment 200,000
Accumulated 200,000
depreciation

49. d
50. d
The subsidiary reports depreciation expense for the year at P500,000 (P2,500,000/5) and a
gain on the sale at P1,750,000 [P2,750,000 - ((P2,500,000 - (3)(P500,000))]. The consolidated
statements show depreciation expense for the year at P600,000 (P3,000,000/5) and a gain
on the sale at P1,550,000 [P2,750,000 - ((P3,000,000 - (3)(P600,000))]. Therefore the
eliminating entries increase depreciation expense by P100,000 and reduce the gain by
P200,000, for a net effect on consolidated income of: P300,000 decrease.
51. a
Unrealized loss on sale of equipment (upstream sales) 20,000
Realized loss on sale of equipment (upstream sales) through depreciation –
none, since the date of sale is end of the year ( 0)
Total P190,000
Cost, 1/1/20x4 P500,000
Unrealized loss on sale of equipment P( 20,000)
Realized loss – depreciation: P20,000/4 years P( 5,000)
Or, alternatively
Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
Total P190,000

Realized loss on sale of equipment (upstream sales) through depreciation ( 0)
P 50,000
52. b
Consolidated Net Income for 20y0
Unrealized loss on sale of equipment (upstream sales)
Realized loss on sale of equipment (upstream sales) through depreciation ( 5,000)
Total P202,000
Consolidated Net Income for 20y0 P202,000
equity holders of parent – 20y0………….. P194,500
Or, alternatively
Total P202,000
Add: Non-controlling Interest in Net Income (NCINI) _ _ 7,500
**Non-controlling Interest in Net Income (NCINI) for 20y0

P 25,000
53. d
Building 3,000
Gain 8,250
Parent Books – Sky Subsidiary Books - Earth

Cash 33,000 Building 33,000
Building 36,000
Gain 8,250
Sky, 7/1/20x4
Cost, 1/1/20x2 P36,000
Less: Accumulated depreciation : P36,000/8years x 2.5 years 11,250 24,750
Realized gain – depreciation: P8,250/5.5 years P 1,500
54. a - refer to No. 53 for computation

55. b
Realized Gain – depreciation (July 1, 20x4 – December 31, 20x4)
Accumulated depreciation 750
Depreciation expense 750
P8,250 / 5.5 x ½ years or P3,000 – P2,250
“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
(P24,750 / 5.5 x ½ years) 2,250 (P33,000 / 5.5 years x ½ yrs) 3,000
56. c
P8,250 / 5.5 x years or P6,000 – P4,500
“Should be in CFS” Parent Books – Sky “Recorded as” Subsidiary Books - Earth
(P24,750 / 5.5 years) 4,500 (P33,000 / 5.5 years) 6,000
57. d
Building 3,000
Retained earnings (8,250 – 750) 7,500
Accumulated depreciation (P11,250 – P750) 10,500
58. d - P60,000 - P36,000 = P24,000 debit

59. b - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
60. c - (P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
61. a - P31,200 - {(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12)} = P30,400 credit
62. c - P36,000 - (P60,000 - P31,200) = P7,200 gain (debit)
(P36,000/6)(8/12) - [(P60,000 - P31,200)/6](8/12) = P800 credit
63. b
P72,000 - (P96,000 - P36,600) = P12,600 gain (debit)
(P72,000/5)(4/12) - [(P96,000 - P36,600)/5](4/12) = P840 (credit)
(P12,600 - P840) .1 = P1,176 debit
64. d When only retained earnings is debited, and not the non-controlling interest, a gain has
been recorded in a prior period on the parent's books.
65. d
66. a
67. b
68. b – at its original cost or book value.
69. b
20x4: Any intercompany gain should be eliminated in the CFS.
20x5
Selling price – unrelated party P 100,000
Less: Original Book value, 9/26/20x5 __60,000
70. d – P30,000 + P40,000 = P70,000

S P Consolidated
Selling price
Less: Book value
Gain P 30,000 P 40,000 P 70,000
71. d – P110,000 – P30,000 = P80,000

S (Nectar) P (Lorikeet) Consolidated
Selling price P 50,000 P 110,000 P 110,000
Less: Book value _30,000 __50,000 _30,000
Gain P 20,000 P 60,000 P 80,000
72. d
S P Consolidated
Selling price P1,980,000 P1,440,000 P1,440,000
Less: Book value: Cost P2,000,000 P1,980,000 P 1,800,000
Accumulated ___200,000 1,800,00 *1,320,000 660,000 **1,200,000 __600,000
Unrealized gain on sale of
equipment P 180,000
(P180,000/9 x 6 yrs) 120,000
Gain on sale P 60,000 P 780,000 P 840,000
*P1,980,000/ 9 x 6 years = P1,320,000
**P1,800,000/9 x 6 years = P1,200,000
73. d –(P100,000 + P50,000 = P150,000)

S P Consolidated
Selling price
Less: Book value
Gain P 100,000 P 50,000 P 150,000
74. c
S P Consolidated
Selling price P 990,000 P720,000 P 720,000
Less: Book value : Cost P1,000,000 P990,000 P 900,000
Accumulated 100,000 __900,000 *440,000 550,000 **400,000 __500,000
Equipment,1/1/20x4 P 90,000
(P90,000/9 x 4 yrs) 40,000
Net unrealized gain, 1/1/20x8 P 50,000 __________ ___________
Gain on sale P 50,000 P 170,000 P 220,000
*P990,000/ 9 x 4 years = P440,000
**P900,000/9 x 4 years = P400,000
75. d – (P30,000 + P15,000)
76. c
Selling price – unrelated party P 14,000
Less: Original Book value, 12/31/20x5
Book value, 1/1/20x4 P20,000
Less: Depreciation for 20x4 and 20x5: P20,000/4 years x 2 years 10,000 10,000
77. b
Sort Fort Consolidated
Less: Book value : Cost P 120,000 P100,000 P 90,000
Accumulated __30,000 __90,000 **50,000 50,000 **45,000 __45,000
Equipment, 12/30/20x3 P 10,000
(P10,000/6 x 3 yrs) __ 5,000
Net unrealized gain, 12/31/20x6 P 5,000 __________ _________
Gain on sale P 5,000 P 15,000 P 20,000
*P100,000/6 x 3 years = P48,000
***P90,000/6 x 3 years = P45,000
78. b
Depreciation expense: (P50,000 - P40,000) / 10 years = P1,000 over depreciation
79. b
S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P2,000,000
Unrealized gain on sales of equipment (upstream sales) (P700,000 – P600,000) ( 100,000)
Realized gain on sale of equipment (upstream sales) through depreciation (P100,000/10) 10,000
S Company’s realized net income from separate operations……… P1,910,000
Less: Amortization of allocated excess _ 0
P1,910,000
Multiplied by: Non-controlling interest %.......... __40%
Less: NCI on goodwill impairment loss on full-goodwill . . . . . . . . . . . . . . . . . . . . . __ 0
80. d – the original cost of land

81. b – no intercompany gain or loss be presented in the CFS.
82. a
S3 Company’s net income from own operations…………………………………. P100,000
S2 Company’s net income from own operations…………………………………. 70,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
S Company’s realized net income from separate operations*…….….. P205,000 205,000
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) 35,600
S3 S2 S1
Sales price 145,000 197,000 220,000
Less: Cost 160,000 145,000 197,000
Unrealized (loss) gain ( 15,000) 52,000 23,000
Or, alternatively
S3 Company’s net income from own operations…………………………………. P100,000
Unrealized loss on sale of equipment (upstream sales) – S3 15,000
Unrealized gain on sale of equipment (upstream sales) – S2 ( 52,000)
Unrealized gain on sale of equipment (upstream sales) - S1 ( 23,000)
S Company’s realized net income from separate operations* P205,000 205,000
Total P405,000
Less: Non-controlling Interest in Net Income* * (P23,000 + P5,400 + P7,200) P 35,600
Amortization of allocated excess…………………… ____0 _ 35,600
Add: Non-controlling Interest in Net Income (NCINI) _ _35,600
**Non-controlling Interest in Net Income (NCINI) S3 S2 S1

S Company’s net income of Subsidiary Company from its own
operations (Reported net income of S Company) P 100,000 P 70,000 P 95,000
Unrealized (gain) loss on sale of land (upstream sales) 15,000 ( 52,000) ( 23,000)
S Company’s realized net income from separate operations P 115,000 P 18,000 P 72,000
Less: Amortization of allocated excess 0 0 0
P 115000 P 18,000 P 72,000
Multiplied by: Non-controlling interest %.......... 20% 30% 10%
Non-controlling Interest in Net Income (NCINI) - partial goodwill P 23,000 P 5,400 P 7,200
Less: NCI on goodwill impairment loss on full-goodwill 0 0 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 23,000 P 5,400 P 7,200
83. b
Non-controlling Interest in Net Income (NCINI) for 20y2
(Reported net income of S Company) P 40,000
Unrealized gain on sales of equipment (upstream sales) – year of sale -
(P14,500 – P9,000) / 5 years 1,100
P 41,100
84. a
**Non-controlling Interest in Net Income (NCINI) for 20y2
(Reported net income of S Company) P 135,000
Unrealized gain on sale of equipment (downstream sales)
Realized gain on sale of equipment (downstream sales) through depreciation ( 0)
P 135,000
85. a
Realized gain on sale of equipment (downstream sales) through depreciation _ 8,000
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
Total P343,800
Less: Non-controlling Interest in Net Income* *(refer to No. 80) 27,000
equity holders of parent – 20y2………….. P316,800
Net income from own operations:
Prout Sexton
Sales P1,475,000 P1,110,000
Less: Cost of goods sold 942,000 795,000
Other expenses (including depreciation) 145,000 90,000
Income tax expense __187,200 ____90,000
Net income from own operations P 200,800 P 135,000
Add: Dividend income ____80,000
Net income P 280,800 P 135,000
Sexton, 1/1/20y1
Less: Book value, 1/1/20y1
Cost, 1/1/20x1 P400,000
Unrealized gain on sale of equipment P120,000
Or, alternatively
Unrealized gain on sale of equipment (upstream sales)
Realized gain on sale of equipment (upstream sales) through depreciation ( 0)
Total P343,800
Less: Non-controlling Interest in Net Income* * (refer to No. 80) P 27,000
Add: Non-controlling Interest in Net Income (NCINI) _ _27,000
86. a – refer to No. 85

87. c
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, January 1, 20y1 (cost model) P1,300,000
Less: Downstream - net unrealized gain on sale of equipment – prior to 20y1
[P120,000 – (P8,000 x 1 year)] 112,000
Adjusted Retained Earnings – Parent 1/1/20y1 (cost model ) Son Company’s
Retained earnings that have been realized in transactions with third
parties.. P1,188,000
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 – Subsidiary, January 1, 20x9 P 800,000
Less: Retained earnings – Subsidiary, January 1, 20y1 1,040,000
Increase in retained earnings since date of acquisition P 240,000
Less: Amortization of allocated excess – 20x9 to – 20y0 0
Upstream - net unrealized gain on sale of equipment –prior to
20y1 0
P 240,000
Multiplied by: Controlling interests %................... 80%
P192,000
Less: Goodwill impairment loss 0 _192,000
Consolidated Retained earnings, January 1, 20x5 P1,380,000
Add: Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent for 20x5 316,800
Total P1,696,800
Less: Dividends declared – Parent Company for 20y1 120,000
Consolidated Retained Earnings, December 31, 20y1 P1,576,8000
Or, alternatively:
Consolidated Retained Earnings, December 31, 20y2
Retained earnings - Parent Company, December 31, 20y1 (cost model)
(P1,300,000 + P280,800 – P120,000) P1,460,800
Less: Downstream - net unrealized gain on sale of equipment – prior to
12/31/20y1 [P120,000 – (P8,000 x 2 years)] 104,000
Adjusted Retained Earnings – Parent 12/31/20x5 (cost model )
S Company’s Retained earnings that have been realized in
transactions with third parties.. P1,356,800
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 – Subsidiary, December 31, 20y2
(P1,040,000 + P135,000 – P100,000) P 1,075,000
Less: Retained earnings – Subsidiary, January 1, 20x9 800,000
Increase in retained earnings since date of acquisition P 275,000
Less: Accumulated amortization of allocated excess 0
Upstream - net unrealized gain on sale of equipment – prior to
12/31/20y2 _______0
P 275,000
Multiplied by: Controlling interests %................... 80%
P 220,000
Less: Goodwill impairment loss _____0 220,000
Consolidated Retained earnings, December 31, 20y2 P1,576,800
88. c
Non-controlling interest (fulll-goodwill), December 31, 20y2
Common stock – Subsidiary Company, December 31, 20y2…… P 1,200,000
Retained earnings – Subsidiary Company, December 31, 20y2
Retained earnings – Subsidiary Company, January 1, 20y2 P1,040,000
Add: Net income of subsidiary for 20y2 135,000
Total P1,175,000
Less: Dividends paid – 20y2 100,000 1,075,000
Stockholders’ equity – Subsidiary Company, December 31, 20x5 P 2,275,200
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (January 1, 20x4) 0
Amortization of allocated excess (refer to amortization above) : 0
Fair value of stockholders’ equity of subsidiary, December 31, 20x5…… P2,275,200
Less: Upstream - net unrealized gain on sale of equipment – prior to
12/31/20y2 _____)0
Realized stockholders’ equity of subsidiary, December 31, 20x5………. P 2,275,00
Multiplied by: Non-controlling Interest percentage…………... _ 20
Non-controlling interest (partial goodwill)………………………………….. P 455,000
89. c
Prout Sexton Consolidated
Selling price P 360,000 P300,000 P 300,000
Less: Book value : Cost P 400,000 P360,000 P 240,000
Accumulated *160,000 __240,000 **48,000 312,000 ***32,000 _208,000
Equipment, 1/1/20y1 P 120,000
(P120,000/15 x 2 yrs) __16,000
Net unrealized gain, 1/1/20y3 P 104,000 __________ _________
Gain on sale P 104,000 P( 12,000) P 92,000
*P400,000/25 x 10 years = P160,000
**P360,000/15 x 2 years = P48,000
***P240,000/15 x 2years = P400,000
90. b – refer to No. 89
91. a – refer to No. 89

Analysis:
Workpaper entries (not required)
Intercompany Sale of Equipment
Accumulated Remaining
Cost Depreciation Carrying Value Life Depreciation
Original Cost P400,000 P160,000 P240,000 15 yr P 16,000
Intercompany Selling Price 360,000 _______ 360,000 15 yr 24,000
Difference P 40,000 P160,000 P120,000 P 8,000
(1) Investment in Sexton Company 192,000

Retained Earnings - Prout 192,000
To establish reciprocity/convert to equity (.80 x (P1,040,000 - P800,000))
(2) Equipment 40,000

Beginning Retained Earnings - Prout 120,000
Accumulated Depreciation 160,000
To reduce beginning consolidated retained earnings by amount of unrealized profit at the beginning of the
year, to restate property and equipment to its book value to Prout Company on the date of the intercompany
sale.
(3) Accumulated Depreciation 16,000
Depreciation Expense 8,000
Beginning Retained Earnings - Prout 8,000
To reverse amount of excess depreciation recorded during current year and recognize an equivalent amount
of intercompany profit as realized
(4) Dividend Income 80,000

Dividends Declared 80,000
To eliminate intercompany dividends
(5) Beginning Retained Earnings – Sexton 1,040,000

Common Stock – Sexton 1,200,000
Investment in Sexton Company (P1,600,000 + P192,000) 1,792,000
Noncontrolling Interest [P400,000 + (P1,040,000 - P800,000) x .20] 448,000
To eliminate investment account and create noncontrolling interest account
Entry analysis:
Journal Entry on the books of Sexton to record the sale
Cash 300,000
Accumulated Depreciation - Fixed Assets (P360,000/15) x 2 years) 48,000
Loss on Sale of Equipment 12,000
Plant and Equipment 360,000
Workpaper eliminating entry on December 31, 20y3 consolidated statement necessary to prepare
consolidated statements:
Beginning Retained Earnings – Prout(P120,000 - P16,000) 104,000
Loss on Sale of Equipment 12,000
Gain on Sale of Equipment 92,000
Cost to the Affiliated Companies P400,000

Accumulated Depreciation Based on Original Cost ((12/25)x P400,000) 192,000
Book Value, 1/1/y3 P 208,000
Proceeds from Sale to Non-affiliate (300,000)
Gain from consolidated point of view P 92,000
Note: As of Dec. 31, 20y3, the amount of profit recorded by the affiliates on their books
(P120,000 - P12,000 = P108,000) is equal to the amount of profit considered realized in the
consolidated financial statements (P8,000 + P8,000 + P92,000) = P108,000.
92. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).

Date of Acquisition (1/1/20x4) Partial Full
Fair value of consideration given…………………….P 700,000
Less: Book value of SHE - Subsidiary):
(P300,000 + P500,000) x 80%........................... 640,000
Allocated Excess.………………………………………….P 60,000
Less: Over/Undervaluation of Assets & Liabilities
Increase in Bldg. (P75,000 x 80%)……………… 60,000
Goodwill ………….………………………………………….P 0 P 0
Amortization of allocated excess: building - P75,000 / 25 years = P3,000
Upstream Sale of Equipment (date of sale – 4/1/20x5):
Sales.......................................................................................................P 60,000
Less: Book value of equipment………………………………………………………………. 30,000
Unrealized Gain (on sale of equipment)……………………………………………………P 30,000
Realized gain on sale of equipment:

20x5: P30,000/5 years = P6,000 x 9/12 (4/1/20x5-12/31/20x5)…………………………. .P 4,500
20x6 ………………..……………………………………………………………………………P 6,000
Downstream Sale of Machinery (date of sale – 9/30/20x5):
Sales.................................................................................................................................... P75,000
Less: Book value of machinery………………………………………………………………. 40,000
Unrealized Gain (on sale of machinery)…………………………………………………… P35,000
Realized gain on sale of machinery:

20x5: P35,000/10 years = P3,500 x 3/12 (9/30/20x5-12/31/20x5)………. ……………… .P 875
20x6………….. ………………………………………………………………………………...P 3,500
93. d
Dividend paid or declared – S…………………………………………………P 50,000
x: Controlling Interest %…………………………………………………………. 80%
Dividend income of Parent……………………………………………………..P 40,000
94. d – refer to No. 95

Less: Amortization of allocated excess 3,000
P 121,500
95. d
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
Total P390,375
Less: Amortization of allocated excess…………………… 3,000
Or, alternatively
Net unrealized gain on sale of equipment (downstream sales) through
depreciation P35,000 – P875) 34,125
Total P390,375
Amortization of allocated excess…………………… 3,000 27,300

Less: Amortization of allocated excess 3,000
P 121,500
96. d – refer to No. 95 for computations

97. a
Non-controlling Interests (in net assets): 20x5 20x6
Common stock - S, 12/31..….………………………… P 300,000 P 300,000
Retained earnings - S, 12/31:
RE- S, 1/1.…………………………………………….P600,000 P 700,000
+: NI-S………………………………………………… 150,000 200,000
-: Div – S…………………………………………….. 50,000 700,000 70,000 830,000
Book value of Stockholders’ equity, 12/31…….... P1,000,000 P1,130,000
Adjustments to reflect fair value of net assets
Increase in equipment, 1/1/2010..……..… 75,000 75,000
Accumulated amortization (P3,000 per year)*.…… ( 6,000) ( 9,000)
Fair Value of Net Assets/SHE, 12/31..……………… P1,069,000 P1,196,000
Unrealized gain on sale of equipment (upstream) ( 30,000) **( 25,500)
Realized gain thru depreciation (upstream)……… 4,500 6,000
Realized SHE – S,12/31………………………………….. P1,043,500 P1,176,500
x: NCI %........................................................... ………… ___ 20% 20%
Non-controlling Interest (in net assets) – partial... P 208,700 P 235,300
+: NCI on full goodwill……..…………………………….. 0 0
Non-controlling Interest (in net assets) – full…….. P 208,700 P 235,300
* 20x5: P3,000 x 2 years; 2012: P3,000 x 3 years;
** P30,000 – P4,500 realized gain in 20x5 = P25,500.
Note: Preferred solution - since what is given is the RE – P, 1/1/20x5(beginning balance of the
current year) -
Retained earnings – Parent, 1/1/20x5 (cost)…………………………… P 800,000
-: Downstream sale – 20x4 or prior to 20x5, Net unrealized gain 0
Adjusted Retained earnings – Parent, 1/1/20x5 (cost)……………… P 800,000
Retroactive Adjustments to convert Cost to “Equity”:
Retained earnings – Subsidiary, 1/1/20x4……………………….P 500,000
Less: Retained earnings – Subsidiary, 1/1/20x5……………….. 600,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)…………P 100,000
Accum. amortization (1/1/x4– 1/1/x5): P2,000 x 1 year…….. ( 3,000)
Upstream Sale – 2010 or prior to 20x5,
Net unrealized gain……………………………..……………….( 0)
P 97,000
X: Controlling Interests %..…………………………………………… 80% 77,600
RE – P, 1/1/20x5 (equity method) = CRE, 1/1/20x5………………… P 877,600
+: CI – CNI or Profit Attributable to Equity Holders of Parent……. 363,075
-: Dividends – P………………………………………………………………….. 100,000
RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5………….. P 1,140,675
Or, if RE – P is not given on January 1, 20x5, then RE – P on December 31, 20x5 should be use.
Retained earnings – Parent, 12/31/20x5 (cost model):
(P800,000 + P340,000, P’s reported NI – P100,000)……………… P1,040,000
-: Downstream sale – 20x5 or prior to 12/31/20x5,
Net unrealized gain - (P35,000 – P875)…………………………… 34,125
Adjusted Retained earnings – Parent, 1/1/20x5 (cost model)..…… P1,005,875
Retroactive Adjustments to convert Cost to “Equity”:
Retained earnings – Subsidiary, 1/1/20x4…………………….P 500,000
Less: Retained earnings – Subsidiary, 12/31/20x5
(P600,000 + P150,000 – P50,000)..…………..……………. 700,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)……. ….P 200,000
Accumulated amortization (1/1/20x4 – 12/31/20x5):
P 3,000 x 2 years……………………………………………. .( 6,000)
Upstream Sale – 20x5 or prior to 12/31/20x5,
Net unrealized gain – (P30,000 – P4,500)……………. ( 25,500)
P 168,500
x: Controlling Interests %..………………………………………… 80% 134,800
RE – P, 12/31/20x5 (equity method) = CRE, 12/31/20x5…………. P1,140,675
98. c – refer to No. 97 computations
Correction: …. Using the same information in Nos 98 and 99 instead of 93 and 94

99. b – refer to No. 97 computations
100. d – refer to No. 97 for computations
101. b
Consolidated Stockholders’ Equity, 12/31/20x5:
Controlling Interest / Parent’s Interest / Parent’s Portion /
Equity Holders of Parent – SHE, 12/31/20x5:
Common stock – P (P only)……………………………………….. .P 1,000,000
Retained Earnings – P (equity method), 12/31/20x5…………. 1,140,675
Controlling Interest / Parent’s Stockholders’ Equity……………P2,140,675
Non-controlling interest, 12/31/20x5 (partial/full)…………………… 208,700
Consolidated Stockholders’ Equity, 12/31/20x5……………………….P2,349,375
102. d – the unrealized gain amounted to P15,000 (P60,000 – P45,000).
It should be noted that PAS 27 allow the use of cost model in accounting for investment in
subsidiary in the books of parent company but not the equity method. Since, the cost
model is presumed to be the method used, the unrealized gain of P15,000 (P60,000 –
P45,000) will not be recorded in the books of parent company, which give rise to no equity-
adjustments at year-end.
103. c
Cliff reported income P225,000
Less: Intercompany gain on truck 45,000
Plus: Piecemeal recognition of gain = P45,000/10
years ___4,500
Cliff’s adjusted income P184,500
Majority percentage 90%
Income from Cliff P166,050
104. c
Pied Imperial-Pigeon’s share of Roger’s income = (P320,000 x 90%) = P288,000

Less: Profit on intercompany sale (P130,000 - P80,000) x 90% = 45,000
Add: Piecemeal recognition of deferred profit ($50,000/4 years)90% = 11,250
Income from Offshore P254,250
105 c
P30,000 - (1/4 x P30,000) = P 22,500
106. d - P60,000 – P48,000)/4 years = P3,000

107. a
Simon, 4/1/20x4
Cost, 1/1/20x4 P50,000
Less: Accumulated depreciation : P50,000/10 years x 3/12 __1,250 48,750
Realized gain – depreciation: P19,500/9.75 years P 2,000
108. c – P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500

109. c – P19,500 / 9.75 years = P2,000
110. c – P19,500 / 9.75 years = P2,000
111. d
20x4
Share in subsidiary net income (100,000 x 90%) 90,000
Unrealized gain on sale of equipment (downstream sales) ( 19,500)
P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500 _ 1,500
Net 72,000
112. b
20x5
Net 110,000
113. d
20x6
Net 119,000
114. c
Smeder, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
115. b
20x4
Unrealized gain on sale of equipment (upstream sales); 12,000 x 80% ( 9,600)
P2,000 x 80% _ 1,600
Net 14,400
116. c
20x5
P2,000 x 80% _ 1,600
Net 27,200
117. d
Equipment 36,000
Gain 12,000
Parent – Smeder Subsidiary - Collins

Cash 84,000 Equipment 84,000
Equipment 120,000
Gain 12,000
Smeder, 1/1/20x4
Cost, 1/1/20x4 P120,000
Less: Accumulated depreciation __48,000 72,000
P12,000 / 6 years or P14,000 – P12,000
“Should be in CFS” Parent – Smeder “Recorded as” Subsidiary - Collins

(P72,000 /6 years) 12,000 (P84,000 / 6 years) 14,000
Combining the eliminating entries for 1/1/20x4 and 12/31/200x4, the net effect of
accumulated depreciation would be a net credit of P46,000 (P48,000 – P2,000).
118. c
20x4
Unrealized gain on sale of equipment ( 12,000)
Realized gain on sale of equipment through depreciation ___2,000
Net ( 10,000)
119. d
Cash 5,000
Loss 5,000
Parent – Stark Subsidiary - Parker

Cash 80,000 Land 85,000
Loss 5,000 Cash 85,000
Land 85,000
Stark Parker Consolidated

Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000
120. b – refer to No. 119 for eliminating entry
121. b
Cash 5,000
Retained earnings 5,000
122. e
20x4
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
123. d
20x4
Unrealized loss on sale of land (upstream sales): P5,000 x 90% _ 4,500
Net 184,500
124. b
Stark Parker Consolidated
Less: Book value, 5/1/20x4 _85,000 __80,000 _85,000
Unrealized gain on sale of equipment P ( 5,000) P 12,000 P 7,000
125. a – refer to No. 124 for computation

126. e – None, the loss was already recognized in the books of Stark in the year of sale - 20x4
but not in the subsequent years.
127. c
20x6
Intercompany realized loss on sale of land (upstream sales): P5,000 x 90% _ ( 4,500)
Net 193,500
Theories
1. d 6. c 11. c 16. b 21. b 26. b 31 d
2. c 7. c 12. c 17. a 22. d 27. c
3. d 8. a 13. d 18. a 23. c 28. b
4. d 9. a 14. b 19. c 24. c 29. c
5. b 10, c 15, d 20. a 25. b 30. c

Chapter 5 - Multiple Choice Problems

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Chapter 5 - Multiple Choice Problems

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Multiple Choice Problems

Combined Accumulated Depreciation P 250,000

Accumulated depreciation, 1/1/20x4 P 250,000

Combined Accumulated Depreciation P195,000

Accumulated depreciation, 1/1/20x6 (P100,000 x 50%) P 50,000

“Should be in CFS” Parent – Pylux “Recorded as” Subsidiary - Sylux

Accumulated depreciation, 1/1/20x6 P

“Should be in CFS” Parent – Poxey “Recorded as” Subsidiary - Soxey

Accumulated depreciation, 1/1/20x6 (P100,000 - P20,000) P 80,000

“Should be in CFS” Parent – Sayex “Recorded as” Subsidiary - Payex

**Non-controlling Interest in Net Income (NCINI) for 20x5

23. a - refer to No. 22 computation

28. d – the entry under the cost model would be as follows ;

Selling price P 392,000

35. c – (P22,500 x 4/15 = P6,000)

40. c Operating income reported by TLK Corporation P 85,000

Parent Books – Mortar Subsidiary Books – Granite

42. a – refer to No. 41 for computation

Eliminating entries at the end of the second year are:

Accumulated depreciation 170,000

Accumulated depreciation 170,000

**Non-controlling Interest in Net Income (NCINI) for 20x9

**Non-controlling Interest in Net Income (NCINI) for 20y0

Parent Books – Sky Subsidiary Books - Earth

54. a - refer to No. 53 for computation

58. d - P60,000 - P36,000 = P24,000 debit

70. d – P30,000 + P40,000 = P70,000

71. d – P110,000 – P30,000 = P80,000

73. d –(P100,000 + P50,000 = P150,000)

80. d – the original cost of land

**Non-controlling Interest in Net Income (NCINI) S3 S2 S1

86. a – refer to No. 85

90. b – refer to No. 89

91. a – refer to No. 89

(1) Investment in Sexton Company 192,000

(2) Equipment 40,000

(4) Dividend Income 80,000

(5) Beginning Retained Earnings – Sexton 1,040,000

Cost to the Affiliated Companies P400,000

92. d - Investment in subsidiary, 12/31/20x5 (cost model) P700,000).

Realized gain on sale of equipment:

Realized gain on sale of machinery:

94. d – refer to No. 95

**Non-controlling Interest in Net Income (NCINI) for 20x5

96. d – refer to No. 95 for computations

98. c – refer to No. 97 computations

Correction: …. Using the same information in Nos 98 and 99 instead of 93 and 94

Pied Imperial-Pigeon’s share of Roger’s income = (P320,000 x 90%) = P288,000

106. d - P60,000 – P48,000)/4 years = P3,000

108. c – P2,000 x 9/12 (April 1, 20x4 – December 31, 20x4) = P1,500

Parent – Smeder Subsidiary - Collins

“Should be in CFS” Parent – Smeder “Recorded as” Subsidiary - Collins

Parent – Stark Subsidiary - Parker

Stark Parker Consolidated

120. b – refer to No. 119 for eliminating entry

125. a – refer to No. 124 for computation

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