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Price paid P 700,000

Less: Fair value of net assets acquired (P600,000 – P188,000) 412,000


Goodwill P 288,000
Avon’s assets 2,000,000
Bell’s assets at fair value 600,000
Total assets P2,888,000

14-10: c

Debit to expenses:
Broker’s fee P 50,000
Pre-acquisition audit fee 40,000
General administrative costs 15,000
Legal fees for business combination 32,000
Other acquisition costs 6,000
Total P 143,000

Debit to APIC
Audit fee for SEC registration of stock issue P 46,000
SEC registration fee for stock issue 5,000
Total P 51,000

Price paid P2,550,000


Less: Fair value of net assets acquired
Current assets P1,100,000
Plant assets 2,200,000
Liabilities ( 300,000) 3,000,000
Income from acquisition P( 450,000)

APIC: [(P2,550,000 – P1,200,000) - P35,000*] P1,315,000


*Costs of SEC registration P12,000
Cost of issuing stock certificates 3,000
Documentary stamp tax 20,000
Total P35,000

14-6: a (at fair value at date of acquisition)

14-7: d

Abel net income, January to December (P80,000 + P1,320,000) P1,400,000


Cain net income, April to December 400,000
Total net income P1,800,000

14-8: a

Price paid P 800,000


Less: Fair value of net assets acquired

90
Cash P 160,000
Inventory 380,000
Property, plant and equipment 1,120,000
Liabilities Price paid
P 700,000
Less: Fair value of net assets acquired (P600,000 – P188,000) 412,000
Goodwill P 288,000
Avon’s assets 2,000,000
Bell’s assets at fair value 600,000
Total assets P2,888,000

14-10: c

Debit to expenses:
Broker’s fee P 50,000
Pre-acquisition audit fee 40,000
General administrative costs 15,000
Legal fees for business combination 32,000
Other acquisition costs 6,000
Total P 143,000

Debit to APIC
Audit fee for SEC registration of stock issue P 46,000
SEC registration fee for stock issue 5,000
Total P 51,000

Price paid P2,550,000


Less: Fair value of net assets acquired
Current assets P1,100,000
Plant assets 2,200,000
Liabilities ( 300,000) 3,000,000
Income from acquisition P( 450,000)

APIC: [(P2,550,000 – P1,200,000) - P35,000*] P1,315,000


*Costs of SEC registration P12,000
Cost of issuing stock certificates 3,000
Documentary stamp tax 20,000
Total P35,000

14-6: a (at fair value at date of acquisition)

14-7: d

Abel net income, January to December (P80,000 + P1,320,000) P1,400,000


Cain net income, April to December 400,000
Total net income P1,800,000

91
14-8: a

Price paid P 800,000


Less: Fair value of net assets acquired
Cash P 160,000
Inventory 380,000
Property, plant and equipment 1,120,000
Liabilities Price paid
P 700,000
Less: Fair value of net assets acquired (P600,000 – P188,000) 412,000
Goodwill P 288,000
Avon’s assets 2,000,000
Bell’s assets at fair value 600,000
Total assets P2,888,000

14-10: c

Debit to expenses:
Broker’s fee P 50,000
Pre-acquisition audit fee 40,000
General administrative costs 15,000
Legal fees for business combination 32,000
Other acquisition costs 6,000
Total P 143,000

Debit to APIC
Audit fee for SEC registration of stock issue P 46,000
SEC registration fee for stock issue 5,000
Total P 51,000

Price paid P2,550,000


Less: Fair value of net assets acquired
Current assets P1,100,000
Plant assets 2,200,000
Liabilities ( 300,000) 3,000,000
Income from acquisition P( 450,000)

APIC: [(P2,550,000 – P1,200,000) - P35,000*] P1,315,000


*Costs of SEC registration P12,000
Cost of issuing stock certificates 3,000
Documentary stamp tax 20,000
Total P35,000

14-6: a (at fair value at date of acquisition)

14-7: d

92
Abel net income, January to December (P80,000 + P1,320,000) P1,400,000
Cain net income, April to December 400,000
Total net income P1,800,000

14-8: a

Price paid P 800,000


Less: Fair value of net assets acquired
Cash P 160,000
Inventory 380,000
Property, plant and equipment 1,120,000
Liabilities Total
P450,000

20-4: a

Depreciation expense (H$ 12,000 x P5.80) P 69,600


Bad debts (H$ 8,000 x P5.80) 46,400
Rent (H$ 20,000 x P5.80) 116,000
Total P232,000

Average rate for the year is used in translating depreciation expense because this is more
reasonable estimation than the rate when the related asset was acquired (P4.80).

CHAPTER 21

MULTIPLE CHOICES - COMPUTATIONAL

21-1 b

21.2 a

21.3 a

21.4 b

21.5 b

21.6 a

21.7 c

21.8 a

21.9 a

21.10 c

21.11 d

93
21.12 b

21.13 a

21.14 a

Excess of income over expenses P 200


Depreciation 70
Increase in due from national government agencies ( 10)
Increase in prepaid rent ( 15)
Increase in accounts payable 30
Total P450,000

20-4: a

Depreciation expense (H$ 12,000 x P5.80) P 69,600


Bad debts (H$ 8,000 x P5.80) 46,400
Rent (H$ 20,000 x P5.80) 116,000
Total P232,000

Average rate for the year is used in translating depreciation expense because this is more
reasonable estimation than the rate when the related asset was acquired (P4.80).

CHAPTER 21

MULTIPLE CHOICES - COMPUTATIONAL

21-1 b

21.15 a

21.16 a

21.17 b

21.18 b

21.19 a

21.20 c

21.21 a

21.22 a

21.23 c

21.24 d

21.25 b

94
21.26 b

21.27 a

21.28 a

Excess of income over expenses P 200


Depreciation 70
Increase in due from national government agencies ( 10)
Increase in prepaid rent ( 15)
Increase in accounts payable 30
Total P450,000

20-4: a

Depreciation expense (H$ 12,000 x P5.80) P 69,600


Bad debts (H$ 8,000 x P5.80) 46,400
Rent (H$ 20,000 x P5.80) 116,000
Total P232,000

Average rate for the year is used in translating depreciation expense because this is more
reasonable estimation than the rate when the related asset was acquired (P4.80).

CHAPTER 21

MULTIPLE CHOICES - COMPUTATIONAL

21-1 b

21.29 a

21.30 a

21.31 b

21.32 b

21.33 a

21.34 c

21.35 a

21.36 a

21.37 c

21.38 d

95
21.39 b

21.40 b

21.41 a

21.42 a

Excess of income over expenses P 200


Depreciation 70
Increase in due from national government agencies ( 10)
Increase in prepaid rent ( 15)
Increase in accounts payable 30
Total P450,000

20-4: a

Depreciation expense (H$ 12,000 x P5.80) P 69,600


Bad debts (H$ 8,000 x P5.80) 46,400
Rent (H$ 20,000 x P5.80) 116,000
Total P232,000

Average rate for the year is used in translating depreciation expense because this is more
reasonable estimation than the rate when the related asset was acquired (P4.80).

CHAPTER 21

MULTIPLE CHOICES - COMPUTATIONAL

21-1 b

21.43 a

21.44 a

21.45 b

21.46 b

21.47 a

21.48 c

21.49 a

21.50 a

21.51 c

21.52 d

96
21.53 b

21.54 b

21.55 a

21.56 a

Excess of income
CI from own operations- Patton P 300,000
Unrealized profit in ending inventory – DS (P200,000 x .25) (50,000)
Adjusted CI for own operations – Patton 250,000
Solis net loss from own operations (150,000)
Consolidated CI P 100,000

17-5: d

Pardo’s share of Santos’ CI (P300,000 x 75%) P 225,000


Unrealized profit in ending inventory – Upstream
(P200,000 x 25%/125%) x 75% ( 30,000)
Realized profit in beginning inventory – Upstream
(P150,000 x 25%/125%) x 75% 22,500
Investment income account balance, Dec. 31, 2013 P 217,500

17-6: d
CI from own operation – Puzon P 200,000
Suazon’s adjusted CI from own operations:
CI P110,000
Unrealized profit in ending inventory-
Upstream (P25,000 x 40%) ( 10,000) 100,000
Consolidated CI P 300,000
Attributable to NCI (P100,000 x 25%) (25.000)
Attributable to parent P 275,000

17-7: b
2012 2013
CI from own operation – Pat P 500,000 P 550,000
Unrealized profit in ending inventory:
2012 (P20,000 x .40) (8,000)
2013 (P30,000 x .50) (15,000)
Realized profit in beginning inventory 8,000
Realized CI 492,000 543,000
Sun CI 200,000 225,000
Consolidated CI P 692,000 P 768,000

17-8: a

CI from own operation – Pip P 400,000


Adjusted CI from own operation - Sol

97
CI P 250,000
Realized profit in beginning inventory-
Upstream (P40,000 x 40%) 16,000
Unrealized profit in ending inventory-
Upstream (P70,000 x 30%) ( 21,000) 245,000
Consolidated CI – 2013 P 645,000

17-9: a
CI from own operations – Popo P 500,000
Unrealized profit in ending inventory – Downstream ( 15,000)
Realized CI from own operation – Popo P 485,000
Adjusted CI from own operations - Sotto
CI P 360,000
Realized profit in beginning inventory-
Upstream 10,000 370,000
Consolidated CI P 855,000
Attributable to NCI (P370,000 x 5%) 18,500
Attributable to parent P 836,500

17-10: d
CI – Sand Company P200,000
Realized profit in beg. Inventory (P120,000 x .20) 24,000
Unrealized profit in ending inventory (P360,000 x .20) (72,000)
Amortization of allocated excess P1.000,000 / 5) (200,000)
Adjusted net loss – Sand Company P(48,000)
NCI (P48,000 x 40%) P(19,200)

17-11: d
Gross profit rate – Short (P110,000 / P200,000) 55%

Inventories
Inventory from outsiders – Power P 5,000
Inventory from outsiders – Short 25,000
Power’s inventory acquired from Short – at cost:
[P5,000 – (P5,000 x 55%)} 2,250
Consolidated ending inventories P 32,250

Investment income
Power’s share of Short’s CI (P50,000 x 75%) P 37,500
Unrealized profit in ending inventory – upstream
(P5,000 x 55%) x 75% ( 2,063)

98
Realized profit in beginning inventory – upstream
(P10,000 x 55%) x 75% 4,125
Investment income, Dec. 31, 2013 P 39,562

Investment in Short Company


Acquisition cost (P80,000 x 80%) P 60,000
Unrealized profit in ending inventory ( 2,063)
Realized profit in beginning inventory 4,125
Investment in Short Company, Dec. 31, 2013 P 62,062

NCI in Short company’s CI


Short’s CI from own operations P 50,000
Realized profit in beginning inventory (P10,000 x 55%) 5,500
Unrealized profit in ending inventory (P5,000 x 55%) ( 2,750)
Adjusted CI from own operations P 52,750
NCI proportionate share 25%
NCI in Short’s CI P 13,187.50

17-12: b

Gross profit rate of Sit (P200,000 / P500,000) 40%

CI from own operations – Pit P 200,000


Adjusted CI of Sit:
CI P 75,000
Realized profit in beginning inventory-
Upstream (P40,000 x 40%) 16,000
Unrealized profit in ending inventory-
Upstream (P25,000 x 40%) ( 10,000) 81,000
Consolidated CI P 281,000
Attributable to NCI (P81,000 x 10%) ( 8,100)
Attributable to parent P 272,900

17-13: b

Gross profit of Sir (P120,000 / P400,000) 30%

Consolidated cost of sales


Cost of sales – Pig P 600,000
Cost of sales – Sir 280,000
Eliminations:
Realized profit in beginning inventory (P70,000 x 30%) ( 21,000)
Unrealized profit in ending inventory (P60,000 x 30%) 18,000
Intercompany purchases (200,000)
Consolidated cost of sales P 677,000

Consolidated CI
CI from own operations – Pig P 200,000
Sir’s adjusted CI:
CI P 80,000
Realized profit in beginning inventory 21,000

99
Unrealized profit in ending inventory (18,000) 83,000
Consolidated CI 283,000
Attributable to NCI (P83,000 x 10%) (8,300)
Attributable to parent P 274,700

17-14: a
2011 2012 2013
Pal Corp CI 150,000 240,000 300,000
Intercompany profit in ending inventory:
2011 (14,000) 14,000
2012 (21,000) 21,000
2013 ( 24,000)
Pal CI from own operation 136,000 233,000 297,000
Solo CI from own operation 100,000 90,000 160,000
Consolidated CI 236,000 323,000 427,000
Attributable to NCI
2011(100,000 – 14,000) x 40% 34,400
2012(90,000 +14,000 – 21,000) 40% 33,200
2013(160,000 + 21,000 – 24,000) 40% 62,800
Attributable to Parent 201,600 289,800 394,200

17-15: a

Total sales 600,000


Intercompany sales (30,000 + 80,000) (110,000)
Consolidated sales 490,000

17-16: c
Total cost of goods sold (250,000 +120,000) 370,000
Adjustments due to intercompany sale:
COGS charged for intercompany sale (20,000 + 50,000) 70,000
COGS charged by: Star (30,000 – 6,000) 24,000
Polo (80,000 – 20,000) 60,000
Total 154,000
Cost of goods sold for consolidated entity:
20,000 x (24,000/30,000) (16,000)
50,000 x (60,000/80,000) (37,500) (100,500)

100
Consolidated cost of goods sold 269,500

17-17: c
Polo Corp. CI from own operation (105,000 – 25,000) 80,000
Unrealized profit in ending inventory-DS (6,000 x 10/30)
(2,000)
Adjusted Polo Corp. CI from own operation 78,000
Star Corp. CI from own operation:
CI 45,000
Unrealized profit in EI-US (20,000 x 30/80) (7,500)
Amortization (20,000/10 years) (2,000) 35,500
Consolidated CI 113,500
Attributable to NCI (35,500 x 40%) (14,200)
Attributable to Parent 99,300

17-18: a

Pepsi CI from own operation 160,000


Sarsi CI 90,000
Unrealized profit in EI (45,000 x 60/180) (15,000) 75,000
Consolidated CI 235,000
Attributable to NCI (75,000 x 30%) (22,500)
Attributable to Parent-2013 212,500

17-19: a

Inventory-Pepsi P 30,000
Less: unrealized profit in books of Sarsi:
(135,000 – 90,000) x (30,000/135,000) (10,000) 20,000
Inventory-Sarsi P110,000
Less: unrealized profit in books of Pepsi:
(280,000 – 140,000) x (110,000/280,000) (55,000) 55,000
Consolidated inventory 12/31/13 75,000

17-20: a

Cost of goods sold on sale of inventory on hand-1/1/12:


[45,000 x (120,000/180,000)] 30,000
Cost of goods sold on purchases from Sarsi- 2012
[(135,000 – 30,000) x (90,000/135,000)] 70,000
Cost of goods sold on purchases from Pepsi- 2012
[(280,000 – 110,000) x (140,000/280,000)] 85,000
Consolidated cost of goods sold-2013 185,000

17-21: b

101
Pepsi CI 220,000
Sarsi CI 85,000
Realized profit in beginning inventory - 2011 15,000
Unrealized profit in ending inventory- Sarsi (10,000)
Unrealized profit in ending inventory- Pepsi (55,000)
Consolidated CI – 2013 255,000

17-22: b
CI from own operations – P Company P200,000
S Co. adjusted CI:
CI – S P30,000
Unrealized profit in ending inventory –
Upstream (P9,000 x 50/150) (3,000)
Realized profit in beginning inventory-
Upstream (P6,000 x 50/150) 2,000 29,000
Consolidated CI 229,000

Attributable to NCI (P29,000 x 30%) 8,700


Attributable to parent P220,300

17-23: b

NCI, December 31, 2012[(P245,000/70%) x 30%] P105,000


NCI in subsidiary dividends (P20,000 x 30%) -2013 ( 6,000)
NCI in CI of subsidiary 8,700
NCI in S Company, December 31, 2013 P107,700

17-24: c

P Company (P400,000 x 20%) P 80,000

S Company:
Sales P416,000
Cost of goods sold (P400,000 x 80%) P320,000
Add write down of ending inventory 10,000 330,000
Gross profit P 86,000

17.25 a

102
Sales P416,000
Consolidated cost of goods sold 256,000*
Gross profit P160,000

* Purchases at cost (P400,000 x 80%) P320,000


Less ending inventory at cost (P80,000 x 80%) 64,000
Consolidated cost of goods sold P256,000

Note that cost is lower than market

17-26: a

Sales P270,000 (1)


Cost of goods sold 171,250 (2)
Gross profit 98,750
Other income - (3)
Other expenses 47,000 (4)
Consolidated CI 51,750
Attributable to NCI 3,350 (5)
Attributable to controlling interest P 48,400

Supporting computations:

(1) Sales:
Pablo Company P220,000
Sally Company 120,000
Intercompany sales (70,000)
Consolidated sales P270,000

(2) Consolidated cost of goods sold:


Pablo Company P150,000
Sally Company 90,000
Intercompany sales ( 70,000)6
Realized profit in beginning inventory (P15,000 x 25%) ( 3,750)
Unrealized profit in ending inventory (P20,000 x 25%) 5.000
Consolidated costs of goods sold P171,250

(3) Other income:


Pablo Company P 5,000

103
Computer services (5,000)
:
(4) Other expenses:
Pablo Company P 40,000
Sally Company 12,000
Computer services (5,000)
Consolidated other expenses P 47,000

(5) NCI in CI of Sally


CI P 35,000
Realized profit in beginning inventory (upstream) 3,750
Unrealized profit in ending inventory (upstream) (5,000)
Adjusted CI P 16,750
NCI proportionate share 20%
NCI P 3,350

PROBLEMS

Problem 17-1

The computation of the selected consolidation balances are affected by the inter-company profit
in downstream intercompany sales as computed below:

Unrealized profit in ending inventory, Dec. 31, 2012 – Downstream


Intercompany profit (P120,000 – P72,000) P 48,000
Inventory left at year end x 30%
Unrealized profit, Dec. 31, 2012 P 14,400

Unrealized profit in ending inventory, Dec. 31, 2013 – Downstream


Intercompany profit (P250,000 – P200,000) P 50,000
Inventory left at year end x 20%
Unrealized profit, Dec. 31, 2013 P 10,000

a. Consolidated Sales
Apo P800,000
Bicol 600,000
Intercompany sales – 2013 (250,000)
Total P1,150,000
b. Cost of goods sold
Apo’s book value P 535,000
Bicol’s book value 400,000
Intercompany sales-2013 (250,000)
Realized profit in beginning inventory – 2013 ( 14,400)

104
Unrealized profit in ending inventory – 2013 10,000
Consolidated cost of goods sold P 680,600
c. Operating expenses
Apo P 100,000
Bicol 100,000
Total P 200,000

d. Dividend Income – 0 (eliminated)

e. NCI in CI of Subsidiary (P100,000 x 20%) P 20,000

f. Inventory
Apo P 298,000
Bicol 700,000
Unrealized profit in ending inventory, Dec. 31, 2013 (10,000)
Consolidated inventory P 988,000

Problem 17-1, continued:


g. NCI
NCI, December 31, 2012 [ (P902,000/80%) x 20%] P225,500
NCI in dividends paid by Bicol (P50,000 x 20%) (10,000)
NCI in CI of subsidiary (P100,000 x 20%) 20,000
Total NCI, 12/31/13 P235,500

Problem 17-2

P Company and Subsidiary


Consolidated Statement of Comprehensive Income
Year Ended December 31, 2013

Sales (P2,000,000 + P1,000,000 – P600,000) P2,400,000


Cost of goods sold (Schedule 1) 704,000
Gross profit 1,696,000
Expenses 600,000
Income before income tax 1,096,000
Provision for income tax 440,000
Consolidated CI after income tax 656,000
Attributable to NCI (Schedule 2) 44,000
Attributable to parent P 612,000

Schedule 1:
Cost of sales – P Company P 800,000
Purchases from S Company (600,000)
Intercompany profit in beginning inventory (P60,000 x 25%) ( 15,000)
Intercompany profit in ending inventory (P76,000 x 25%) 19,000
Total P 204,000
Cost of sales – S Company 500,000
Consolidated cost of sales P 704,000

105
Schedule 2:
CI – S Company P 180,000
Realized profit in beginning inventory – Upstream 15,000
Unrealized profit in ending inventory – Upstream (19,000)
Adjusted CI P 176,000
NCI proportionate share x 25%
NCI in CI of subsidiary P 44,000

Problem 17-3

a. Working Paper Eliminating Entries

(1) Dividend income 32,000


NCI (20%) 8,000
Dividends declared- D (P32,000 / 80%) 40,000
To eliminate intercompany dividends.

Problem 17-3, Continued

(2) Common stock – S 90,000


Retained earnings – S 220,000
Investment in S Co. stock 248,000
NCI 62,000
To eliminate equity accounts of S on the date of
acquisition.

(3) NCI 4,000


Retained earnings, Jan. 1 16,000
Cost of goods sold 20,000
To eliminate realized profit in beginning inventory

(4) Sales 150,000


Cost of goods sold 135,000
Inventory, Dec. 31 (P45,000 x 33.33%) 15,000
To eliminated intercompany sales and unrealized
profit in ending inventory.

(5) NCI in net income of subsidiary 9,000


NCI 9,000
To establish NCI in CI of S Co.
computed as follows:
Sales P200,000
Cost and expenses (P140,000 +P20,000) 160,000
CI 40,000
Realized profit in beginning inventory – Upstream 20,000
Unrealized profit in ending inventory – Upstream (15,000)
Adjusted CI P 45,000
NCI proportionate share x 20%

106
NCI in CI of subsidiary P 9,000

b. Consolidated CI
P Company CI from own operations (P250,000 – P32,000) P 218,000
S Company adjusted CI 45,000
Consolidated CI P 263,000

c. Non-controlling Interest
NCI, August 30, 2013 [(P248,000/80%) x 20%] P 62,000
NCI in subsidiary dividends [(P32,000/80%) x 20%] ( 8,000)
NCI in CI of subsidiary 9,000
NCI P 63,000

Problem 17-4

a. Consolidated Sales
Reported total sales (P600,000 + P510,000) P1,170,000
Intercompany sales (P140,000 + P240,000) (380,000)
Consolidated sales P 790,000

b. Consolidated Cost of Goods Sold


Cost of goods sold:
Pato (P660,000 / 140%) P 471,429
Sales (P510,000 / 120% 425,000
Amount to be eliminated (P128,000 + P232,000) see entry below ( 360,000)
Total P 536,429

Elimination of intercompany sales and intercompany profit in inventory:

Downstream Sales
Sales 140,000
Inventory (P42,000 x 40/140) 12,000
Cost of goods sold 128,000

Upstream Sales
Sales 240,000
Inventory (P48,000 x 20/120) 8,000
Cost of goods sold 232,000

c. Consolidated Comprehensive Income


CI from own operations – Pato P 70,000
Unrealized profit in ending inventory – Downstream (12,000)
Adjusted CI – Pato P 58,000
Adjusted CI of Sales Co.

107
CI P20,000
Unrealized profit in ending inventory – Upstream (8,000) 12,000
Consolidated CI P 70,000

d. Consolidated Inventory, Dec. 31, 2013


Inventory reported – Pato P 48,000
Inventory reported – Sales 42,000
Unrealized profit in ending inventory (P8,000 + P12,000) (20,000)
Consolidated inventory P 70,000

Problem 17-5

P Company and Subsidiary S Company


Consolidation Working Paper
Year Ended December 31, 2013

Eliminations Adjustments Consoli-


P Company S Company Debit Credit dated

Statement of CI
Sales 12,000,000 1,300,000 (5) 400,000 12,900,000
Dividend income 210,000 (1) 210,000 -
Total revenue 12,210,000 1,300,000 12,900,000
Cost of goods sold 7,000,000 750,000 (7) 30,000 (5) 400,000 7,380,000
Operating expenses 4,210,000 50,000 (4) 40,000 4,300,000
Total cost and expenses 11,210,000 800,000 11,680,000

CI to retained earnings 1,000,000 500,000 1,220,000

Statement of Retained
Earnings
Retained earnings, January 1 5,500,000 2,200,000 (2)2,200,000 5,500,000
CI from above 1,000,000 500,000 1,220,000
Total 6,500,000 2,700,000 6,720,000
Dividends declared - 210,000 (1) 210,000 -
Retained earnings,12/31 to BS 6,500,000 2,490,000 6,720,000

Statement of FP
Cash 810,000 170,000 980,000
Accounts receivable 425,000 445,000 (6) 25,000 845,000
Inventory 600,000 275,000 (7) 30,000 845,000
Property, plant and equipment 4,000,000 2,300,000 (3) 400,000 (4) 40,000 6,660,000
Investment in S Company 3,200,000 (2)2,800,000 -
(3) 400,000

Total assets 9,035,000 3,1900,000 9,330,000

108
Accounts payable 35,000 100,000 (6) 25,000 110,000
Common stock 1,000,000 400,000 (2) 400,000 1,000,000
Additional paid in capital 1,500,000 200,000 (2) 200,000 1,500,000
Retained earnings from above 6,500,000 2,490,000 6,720,000

9,035,000 3,190,000 3,905,000 3,905,000 9,330,000

Eliminations and Adjustments


(1) Eliminate intercompany dividends
(2) Eliminate subsidiary’s equity balances
(3) Allocate excess to equipment
(4) Amortize allocated excess to equipment
(5) Eliminate intercompany sale of P400,000
(6) Eliminate intercompany trade balances of P25,000
(7) Eliminate intercompany profit (30%) applicable to P100,000 (P400,000 – P300,000)
of intercompany goods in P Company.

Problem 17-5, Continued

Determination and Allocation of Excess Schedule

Price paid by the parent P3,200,000


Less book value of interest acquired (100%)
Common stock – S Company P 400,000
Additional paid in capital – S Company 200,000
Retained earnings, Jan. 1 – S Company 2.200,000 2,800,000
Excess allocated to equipment P 400,000

Amortization (P400,000/10) P 40,000

Note: There is no NCI since this is a wholly-owned subsidiary.

Problem 17-6

Determination and Allocation of Excess Schedule:

Price paid by the parent (80%) P425,000


Non-controlling interest [(P425,000/80%) x 20%] 106,250
Total 531,250
Less book value of interest acquired:
Common stock – So P200,000
APIC – So 100,000
Retained earnings 100,000
Total equity P400,000
Interest acquired 80% 320,000
Excess allocated to goodwill P131,250

109
Fair Value Analysis:
Company Parent NCI
Implied Price Value
Fair Value (80%) (20%)

Company fair value P531,250 P425,000 P106,250


Fair value of net assets excluding goodwill 400,000 320,000 80,000
Goodwill P131,250 P105,000 P 26,250

Po Company and Subsidiary So Company


Consolidation Working Paper
Year Ended December 31, 2013
Eliminations Adjustments Consoli-
Po Company So Company Debit Credit dated
Statement of CI
Sales 880,000 630,000 (6) 32,000
(8) 30,000 1,448,000
Dividend income 24,000 (2) 24,000 -
Total revenue 904,000 630,000 1,448,000
Cost of goods sold 704,000 504,000 (7) 1,320 (5) 1,350
(10) 750 (6) 32,000
(8) 700
(9) 30,000 1,146,020
Other expenses 130,000 81,000 211,000
Total cost and expenses 834,000 585,000 1,357,020
CI 70,000 45,000 90,980
NCI in CI of Subsidiary (12) 8,990 (8,990)
CI to retained earnings 70,000 45,000 81,990

Statement of Retained
Earnings
Retained earnings, January 1 1,105,000 140,000 (1) 8,000
(3)100,000
(5) 1,350
(8) 560 1,135,090
CI from above 70,000 45,000 81,990
Total 1,175,000 185,000 1,217,080
Dividends declared 25,000 30,000 (2) 30,000 25,000
Retained earnings,12/31 to BS 1,150,000 155,000 1,192,080

Statement of FP
Cash 216,200 44,300 260,500
Accounts receivable 290,000 97,000 (11) 15,000 372,000
Inventory 310,000 80,000 (7) 1,320
(10) 750 387,930
Pant assets (net) 1,991,000 340,000 2,331,000

110
Investment in S Company 425,000 (3)320,000
(4)105,000 -
Goodwill 60,000 (4)131,250 191,250
Total assets 3,292,200 561,300 3,542,680

Accounts payable 642,200 106,300 (11) 15,000 733,500


Common stock 250,000 200,000 (3)200,000 250,000
Additional paid in capital 1,250,000 100,000 (3)100,000 1,250,000
Retained earnings from above 1,150,000 155,000 1,192,080
Non-controlling interest (NCI) (2) 6,000 (1) 8,000
(8) 140 (3) 80,000
(4) 26,250
(12) 8,990 117,100
3,292,200 561,300 659,360 659,360 3,542,680

Eliminations and Adjustments


(1) Recognize NCI in subsidiary’s increase in undistributed earnings (P40,000 x 20%)
(2) Eliminate intercompany dividends.
(3) Eliminate subsidiary’s equity at date of acquisition
(4) Allocate excess to goodwill.
(5) Eliminate realized profit in beginning inventory (P9,000 x 15%) = P1,350
(Downstream)
(6) Eliminate intercompany downstream sales from April 1, 2012 to March 31, 2013,
P32,000.
(7) Eliminated unrealized profit in ending inventory (downstream), P6,000 x 22% =
P1,320.
(8) Eliminate realized profit in beginning inventory (upstream) P3,500 x 20% = P700.
(9) Eliminate intecompany upstream sales on March 31, 2013, P30,000.
(10) Eliminate unrealized profit in ending inventory (upstream), P3,000 x 25% = P750.
(11) Eliminate intercompany payables and receivables ,P10,000 + P5,000 = P15,000.
(12) Recognized non-controlling interest (NCI) in CI of subsidiary computed as follows:

CI of So Company P45,000
Realized profit in beginning inventory (upstream) 700
Unrealized profit in ending inventory (upstream) (750)
Adjusted CI P44,950
NCI share 20%
NCI in CI of subsidiary P 8,990

(2)
Po Company and Subsidiary So Company
Consolidated Statement of Comprehensive Income
Fiscal Year Ended March 31, 2013

Sales P1,448,000

111
Cost of goods sold 1,146,020
Gross profit 301,980
Expenses 211,000
Consolidated CI P 90,980
Attributable to NCI 8,990
Attributable to controlling interest P 81,990

Problem 17-7

a. Unrealized Profit in Beginning Inventory


Beginning inventory - Downstream P 100,000
Gross profit rate (P240,000/ P400,000) x 60%
Unrealized profit in beginning inventory P 60,000

Unrealized Profit in Ending Inventory


Ending inventory – Downstream (P200,000 x 80%) P 160,000
Gross profit rate x 60%
Unrealized profit in ending inventory P 96,000

b. Intercompany Sales
Sales – P Company P2,000,000
Sales – S Company 1,000,000
Intercompany sales – 2013 (400,000)
Consolidated sales P2,600,000

Intercompany Cost of Sales


Cost of sales – P Company P 800,000
Cost of sales – S Company 600,000
Intercompany purchases (400,000)
Intercompany profit in beginning inventory ( 60,000)
Intercompany profit in ending inventory 96,000
Consolidated cost of sales P1,036,000

c. Parent’s interest (40,000 shares / 50,000 shares) 80%

P Company Entries – 2013:


(1) Investment in S Company stock 96,000
Income from subsidiary 96,000

112
To record P’s share of S Co. income
(P120,000 x 80%)

(2) Cash 48,000


Investment in S Company stock 48,000
To record dividends received from S
(P60,000 x 80%)

(2) Income from subsidiary 36,000


Investment in S Company 36,000
To adjust income from subsidiary for intercompany
profit in :
Ending inventory (96,000)
Beginning inventory 60,000
Net adjustment ( 36,000)

Problem 17-7, continued:


d. Working Paper Eliminating Entries:

(1) Income from subsidiary 60,000


NCI (P60,000 x 20%) 12,000
Dividends declared – S 60,000
Investment in S Company 12,000
To eliminate intercompany dividends.

(2) Common stock – S Co. 500,000


Retained earnings – S Co. 860,000
Investment in S Company stock 1,088,000
NCI 272,000
To eliminate equity accounts of S Company as of
beginning of year.

(3) Goodwill 60,000


Investment in S Company 60,000
To allocate excess to goodwill.

(4) Retained earnings – Jan. 1 60,000


Cost of sales 60,000
To eliminate realized profit in beginning inventory-
Downstream.

(5) Cost of sales 96,000


Inventories 96,000
To eliminate unrealized profit in ending inventory-
Downstream.

(6) Sales 400,000

113
Cost of sales 400,000
To eliminate intercompany sales.

(7) Accounts payable 50,000


Accounts receivable 50,000
To eliminate intercompany payables and receivables.

(8) NCI in CI of subsidiary 24,000


NCI 24,000
To recognize NCI share in S Company CI
(P120,000 x 20%)

e. Consolidated Comprehensive Income


CI from own operations – P Company (P480,000 – P60,000) P420,000
Realized profit in beginning inventory 60,000
Unrealized profit in ending inventory ( 96,000)
Adjusted CI – P Compay P384,000
S Company CI 120,000
Consolidated CI P504,000

114

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