CASES

CASE 1

Petrel Corporation acquired a 60% interest in Salt Corporation on January 1, 2013, at a

cost equal to book value and fair value. Salt reports net income of P 880,000 for 2013.
Petrel regularly sells merchandise to Salt at 120% of Petrel’s cost. The intercompany
sales information for 2013 is as follows:

Intercompany sales at selling price P

672,000
Value of merchandise remaining unsold by Salt 132,000

(a) Determine the unrealized profit in Salt’s inventory at December 31,

2013.

unrealized profit
Unsold Inventory 132,000.00
Multiply: rate 0.20
Unrealized profit in Salt's inventory 26,400.00

CASE 2

Tem Corporation acquired an 80% interest in Harbor Corporation several years ago when
Harbor’s book values and fair values were equal. Separate company income statements
for Tem and Harbor for the year ended December 31, 2014 are summarized as follows:

Term Harbor
Sales Revenue P 1,000,000 P
600,000

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 Income from Harbor 80,000
Cost of Goods Sold (600,000) (300,00
0)
Expenses (200,000) (200,00
0)
Net Income P 280,000 P 100,000

During 2013 Tem sold merchandise that cost P 120,000 to Harbor for P 180,000. Half of
this merchandise remained in Harbor’s inventory at December 31, 2013. During 2014,
Tem sold merchandise that cost P 150,000 to Harbor for P 225,000. One-third of this
merchandise remained in Harbor’s December 31, 2014 inventory.

Prepare a consolidated income statement for Tem Corporation and Subsidiary

for 2014.

Tem Corporation and Subsidiary

Consolidated Income Statement
For the Year Ended December 31, 2014

Sales P 1,450,000.0
0
Less: Cost of Sales 745,000.0
Gross Profit Less: 0
705,000.0
0

Other Expenses 400,000.0

Consolidated Net Income 0
P 305,000.0
Net Income Attributable to:
0

Non-controlling interest P 61,000.0

0
244,000.0
0
Controlling interest P 305,000.0
Consolidated Net Income 0

CASE 3

Pan Corporation owns an 80 percent interest in the ordinary shares of She Corporation,
acquired several years ago at book value. Pan regularly sells merchandise to She.
Information relevant to the intercompany sales and profits of Pan and She for 2011,
2012, and 2013 is as follows:

2011 2012 2013

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 Sales to She P 300,000 P 360,000 P 600,000
Unrealized profit in She’s inventory at
90,000 120,000 60,000
December 31
She’s separate income 1,500,000 1,650,000 1,425,000
Pan’s separate income (does not
900,000 1,200,000 1,050,000
include investment income

Prepare a schedule showing consolidated net income for each year.

2011 2012 2013
Pan's Income from own operation 900,000.00 1,200,000.00 1,050,000.0
0
She's Income from own operation 1,500,000.00 1,650,000.00 1,425,000.0
Add: Realized profit on She's Inventory, 0
beginning - 90,000.00 120,000.0
Less: Realized profit on She's Inventory, 0
Ending (90,000.00) (120,000.00) (60,000.00
Net Income )
2,310,000.00 2,820,000.00
2,535,000.00
2

CASE 4

Pan Corporation acquired 100% interest of Seal Corporation’s outstanding voting

ordinary shares on January 1, 2013 for P 660,000 cash. The shareholders’ equity of Seal
on this date consisted of P 300,000 capital stock and P 300,000 retained earnings. The
difference between the price paid by Pane and the underlying equity acquired in Seal
was allocated P 30,000 to Seal’s undervalued inventory, and the remainder to patents
with a five-year write-off period. Seal sold undervalued inventory items during 2013.

Pan made sales of P 100,000 to Seal at a gross profit of P 40,000 during 2013, and
during 2014, Pane made sales of P 120,000 to Seal at a gross profit of P 48,000. One-
half the 2013 sales were inventoried by Seal at year-end 2013, and one-fourth of the
2014 sales inventoried by Seal at year-end 2014. Seal owed Pane P 17,000 on accounts
at December 31, 2014. Separate financial statements for Pane and Seal for 2014 are
summarized as follows:

Combined Income and Retained Earnings

Statements for the year ended Dec. 31, Pane Se
al
2014
P 800,000
Sales
102,000 P 400,000
Income from Seal
(400,000)
Cost of sales
(110,000) (200,000)
Depreciation expense
(192,000) (40,000)
Other expenses
P 200,000 60,000
Net Income
600,000 P 100,000
Retained Earnings, beg.
(100,000) 380,000

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 Dividends
(50,000)
Retained Earnings, end
P 700,000 P 430,000

Statement of Financial Position at December 31, 2014

Cash P 54,000 P
37,000
Accounts receivable 90,000 60,000
Inventories 100,000 80,000
Other assets 70,000 90,000
Investment in Seal 736,000
Land 50,000 50,000
Building - net 200,000 150,0
00
Equipment - net 500,000 400,0
00
Total assets P 1,800,000 P867,0
00

Accounts payable P 160,000 P

47,000
Other liabilities 340,000 90,000
Capital stock, P 10 par 600,000 300,0
00
Retained Earnings 700,000 430,0
00
Total equities P 1,800,000 P
867,000

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 Prepare eliminating entries needed to prepare the consolidated financial
statements for Pane Corporation and Subsidiary for the year ended December
31, 2014.

Eliminating Entries
E(1) Income from Seal 102,000.00

Dividends Declared-Seal 50,000.00

Investment in Seal 52,000.00

E(2) Ordinary Share-Seal 300,000.00

Retained Earnings-Seal 380,000.00
Investment in Seal 680,000.00

E(3) Patent 24,000.00

Investment in Seal 24,000.00

Other Expense
E(4) 6,000.00
Patent 6,000.00

E(5) Sales 120,000.00

Cost of Sales 120,000.00

E(6) Investment in Seal 20,000.00

Cost of Sales 20,000.00

E(7) Cost of Sales 12,000.00

Inventories 12,000.00

CASE 5

Patty Corporation acquired 75% interest in Sue Corporation for P 300,000 cash on
January 1, 2014 when Sue’s shareholders’ equity consisted of P 150,000 capital stock
and P 50,000 retained earnings. The fair value of Sue’s asset and liabilities were equal to
their book values on this date, and any goodwill is not amortized.

During 2014 Patty sold inventory items to Sue for P 80,000, and at December 31, 2014
Sue’s inventory included items on which there were P 10,000 unrealized profits. During
2015 Patty sold inventory items to Sue for P 130,000, and at December 31, 2015 Sue’s
inventory included items on which there were P 20,000 unrealized profits. On December
31, 2015 Sue owed Patty P 15,000 on account for merchandise purchase.

The financial statements of Patty and Sue Corporations at and for the year ended
December 31, 2015 are summarized as follows:

Combined Income and Retained Earnings

Statements for the year ended Dec. 31, Patty 2014 Sue

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 Sales P 600,000 P 400,000
Income from Sue 102,500
Cost of sales (270,000) (210,000)
Operating expenses (145,000) (40,000)
Net Income P 287,500 P 150,000
Retained earnings, beg. 182,500 90,000
Dividends (150,000) (50,000)
Retained earnings, end P 320,000 P 190,000
Statement of Financial Position at December 31,
2015 P 30,000
Cash P 85,000 100,0
Trade receivables – net 165,00 00
Dividends receivable 0
Inventories 15,000 80,000
Investment in Sue 60,000
Land 385,00 50,000
Building – net 0 100,0
Equipment – net 80,000 00
Total Assets 230,00
0 140,000
200,00 P
Accounts payable
0 500,000
Dividends payable
P1,220,00
Other liabilities 0 P 100,000
Ordinary shares, P 10 par
20,000
Retained earnings P 40,000
Total equities 225,000 150,0
70,000 00
155,00
0 190,000
450,00 P
0 500,000
320,00
0
P1,220,00
0

a) Compute for the following balances:

1. Goodwill (if full goodwill method is applied)

Sync
Total Pen
Company
Implied Fair Corporation
(Subsidiary
Value (parent 90%)
10%)
Company fair value
400,000.00 300,000.00 100,000.00
Less: Fair value of net asset acquired
200,000.00 150,000.00 50,000.00

Goodwill
200,000.00 150,000.00 50,000.00

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 2. Consolidated sales

Consolidated Sales

Patty Corporation's sales P 600,000.00

130,000.00 470,000.0
Less: Intercompany Sales (Downstream)
P 0
400,000.0
0
Sue Corporation's sales
870,000.0
Consolidated Sales P 0

3. Consolidated cost of sales

Consolidated Cost of Sales

Patty Corporation's Cost of Sales P 270,000.00

20,000.00
Add: Unrealized Profit in Ending Inventory of
Sue Less:

130,000.00
4. Intercompany Sales (downstream sales)
Consolidated inventory

Consolidated Inventories
Realized Profit in Beginning Inventory of
Patty Corporation's Ending Inventories 10,000.00
Sue P 60 ,000.00 150,000.00
Less: Unrealized Profit in Ending Inventories of
Sue 20 ,000.00 P 40 ,000.00
Sue Corporation's
Sue Corporation's Cost of Sales
Ending Inventories 210,000.00
80 ,000.00

Consolidated
Consolidated Cost of Sales
Inventories
P P 360,000.00
120,000.00

5. Non – controlling Interest Income

Non-controlling Interest in Net Income

Sue Company's Net Income from own operation 150,000.00

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 Multiply: NCI interest 25%
Non-controlling Interest in Net Income 37,500.00

6. Non – controlling Interest

Non-controlling Interest (Full goodwill) for December

31, 2015
Ordinary Share-Sue Corporation, December 31,
2015 P 150,000.0
Retained Earnings-Sue Corporation, December 0
31, 2015
Retained earnings-Sue Corporation, January
31, 2015 P 90,000.00

Add: Net Income for 2015 150,000.00

Total
240,000.00
190,000.0
Less: Dividends paid-2015 50,000.00 0
Fair Value of Sue Corporation, December 31,
2015 340,000.0
0
Multiply: NCI interest 25%

Non-controlling Interest (partial goodwill)

85,000.00
Add: Non-controlling interest on full goodwill 50,000.00
135,000.0
Non-controlling interest (Full-Goodwill) 0

7. Consolidated retained earnings, December 31, 2015

Consolidated Shareholder's Equity

Ordinary Share-Patty Corporation P
450,000.00
Add: Consolidated Retained Earnings, December 31, 2014
Total 320,000.00

770,000.00
Less: Non-controlling Interest
Consolidated Shareholder's Equity 135,000.00

635,000.00

b) Prepare eliminating entries needed to prepare consolidated financial

statements for the year ended December 31, 2015.

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 Eliminating Entries
E(1) Income from Sue 102,500.00
NCI 12,500.00
Dividends declared-Sue
50,000.00
Investment in Sue
65,000.00

E(2) Ordinary share 150,000.00

Retained earnings 90,000.00
Goodwill 200,000.00
Investment in sue 330,000.0
0
NCI 110,000.0
0

E(3) Sales 130,000.00

Cost of Sales 130,000.0
0

E(4) Investment in Sue 10,000.00

Cost of Sales
10,000.00

E(5) Cost of Sales 20,000.00

Inventories
20,000.00

E(6) Accounts Payable 15,000.00

Accounts Receivable
15,000.00

E(7) Dividends Payable 15,000.00

Dividends Receivable
15,000.00

E(8) NCI in CI 37,500.00

NCI
37,500.00

CASE 6

Proctor Corporation acquired its 90% interest in Samuel Corporation at its book value of
P 360,000 on January 1, 2014 when Samuel had a capital stock of P 300,000 and
retained earnings of P 100,000. The December 31, 2014 and 2015 inventories of Proctor
included merchandise acquired from Samuel of P 30,000 and P 40,000 respectively.
Samuel realizes a gross profit of 40% on all merchandise sold. During 2014 and 2015,
sales by Samuel to Proctor were P 60,000 and P 80,000 respectively. Summary adjusted
trial balances for Proctor and Samuel at December 31, 2015 follows:

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 Debits Proctor
Samuel
Cash P 100,000 P 20,000
Receivables – net 200,000 50,000
Inventories 240,000
Plant assets 100,000
Investments in Samel 250,000
Cost of sales 480,000
Other expenses 435,000
Dividends 800,000
390,000
340,000
160,000
100,000
Credits
50,000
Accounts payable
P 2,465,600 P
Other liabilities 1,250,000
Capital stock, P 10
par

Retained Earnings
Sales P 150,000 P 90,000
60,000 60,000
Income from Samuel
500,000
300,000
369,200
150,000
1,300,000 650,000
86,400
__________
P 2,465,600 P
1,250,000

a) Compute for the following:

▪ Realized profit on inventories in 2015

Realized profit on Inventories in 2015

30,000.0
Beginning Inventories, Proctor
P 0
80,000.0
Add: Purchases from Samuel
0
40,000.0
Less: Ending Inventories, Proctor 0
70,000.0
Total 0
Multiply: Gross Profit Rate 40%
28,000.0
Realized Profit P 0

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 ▪ Unrealized profit on inventories in 2015

Unrealized profit on Inventories in 2015

40,000.0
Ending Inventories, Proctor P 0
Multiply: Gross Profit Rate 40%
16,000.0
Unrealized Profit P 0

▪ Consolidated cost of sales

Consolidated Cost of Sales

Proctor Corporation's Cost of Sales P 800,000.00

Samuel Corporation's Cost of Sales P 390,000.00

Add: Unrealized Profit in Ending Inventory of
Polly 16,000.00
Less:

Intercompany Sales (upstream sale) 80,000.00

Realized Profit in Beginning Inventory of
Polly 12,000.00 314,000.00
1,114,000.0
Consolidated Cost of Sales P 0

▪ Consolidated inventories for 2015

Consolidated Inventories
Proctor Corporation's Ending Inventories
P 240,000.00
Samuel Corporation's Ending Inventories
P 100,000.00
Less: Unrealized Profit in Ending Inventories

of Polly 16,000.00 84,000.00

Consolidated Inventories
324,000.0
P 0

▪ Consolidated sales

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 Consolidated Sales

Proctor Corporation's sales

P 1,300,000.00
Samuel Corporation's sales P 650,000.00

80,000.00
Less: Intercompany Sales (Upstream Sale) 570,000.00

Consolidated Sales P 1,870,000.00

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 ▪ Consolidated net income

Consolidated Net Income

Proctor Corporation's CI from own

P 160,000.00
Operation
Samuel Corporation's CI from own Operation P 100,000.00
Add: Realized pofit in Beginning Inventory in
Proctor 12,000.00
Less: Unrealized profit in Ending Inventory in
Proctor (16,000.00)
Samuel Corporation's Realized CI from
own operation P 96,000.00 96,000.00

Total P
256,000.00
Less: Non-controlling Interest in Net
9,600.00
Income

P
Profit Attributable to Parent 246,400.00
Add: Non-controlling Interest in Net
9,600.00
Income
256,000.00
Consolidated Net Income P

▪ Non-controlling interest income for 2015

Non-controlling Interest in Net Income

Samuel Corporation's Net Income from own operation 100,000.00

Add: Realized Profit in Beginning Inventory from Proctor 12,000.00

Less: Unrealized Profit in Ending Inventory From proctor (16,000.00)

Samuel Corporation’s Realized Net Income 96,000.00

Multiply: NCI interest 10%
Non-controlling Interest in Net Income 9,600.00

▪ Non-controlling interest for 2015

200,000.0
Less: Dividends paid-2015 50,000.00 0
Non - controlling Interest for December 31, 2015
Fair Value of Samuel Corporation, December
Ordinary Share - Samuel Corporation, December
31, 2015 500,000.0
31 , 2015 P 300,000.00
Less: Unrealized
Retained Earnings - Profit
Samuelin Ending Inventory
Corporation, 0
From proctor
December 31, 2015 (16,000.00
Realized
RetainedStockholder's
earnings Equity
- Samuel of Samuel
Corporation, )
January 31, 2015 P 150,000.00
Corporation 484,000.0
Add: Net Income for 2015 100,000.00

Total 250,000.00
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 0
Multiply: NCI interest 10%
48,400.0
Non-controlling Interest 0

▪ Consolidated retained earnings, end

Consolidated Shareholder's Equity

Ordinary Share-Proctor Corporation 500,000.00

515,600.00
Add: Consolidated Retained Earnings, December 31, 2014
Total
1,015,600.00
48,400.00
Less: Non-controlling Interest
Consolidated Shareholder's Equity 967,200.00

b) Prepare eliminating entries needed to prepare consolidated financial

statements for a year ended December 31, 2015.

Eliminating Entries

E(1) Income from Samuel 86,400.00

NCI
5,000.00
Dividends Declared-Samuel 50,000.00
41,400.00
Investment in Samuel

E(2) Ordinary Share-Samuel 300,000.00

Retained Earnings-Samuel 150,000.00

405,000.0
Investment in Samuel
0
45,000.00
NCI

E(3) Sales
80,000.00
Cost of Sales 80,000.00

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 E(4) Investment in Samuel 10,800.00

NCI 1,200.00

Cost of Sales 12,000.00

E(5) Cost of Sales 16,000.00

Inventory 16,000.00

E(6) NCI in CI 9,600.00

NCI 9,600.00

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