AC15

QUIZ 02
AARON JAMES AGUILAR
Accounting for Business Combination
QUIZ - 01

1. A, B and C’s operation has just ended. B, the appointed manager, had the following accounts in his
books before closing entries:
Dr. JO – Cash – 800
Cr. Payable to A – 105
Cr. Payable to C – 200

The joint operation’s profit was P420. B took the unsold inventory costing P30.

Requirement: Compute for the balance in Joint Operation account before distribution of profit.
a. P495
b. P450
c. P390
d. P885

Solution: C
Profit (credit balance) 420 Joint Operation
Unsold merchandise 30 390 Initial balance before profit distribution (squeeze)
Balance of JO before distribution of profit (squeeze figure) 390 30 Unsold merchandise
420 Profit

2. On January 1, 2013, Red, White and Blue (the joint operators) jointly buy a helicopter for
P30million cash. The Joint arrangement includes the following agreements:
- The parties are the joint owners of the helicopter.
- The helicopter is at the disposal of each party for 70 days each year.
- The parties may decide to use the helicopter or lease it to a third party
- The maintenance and disposal of the helicopter require the unanimous consent of the
parties.
- The contractual arrangement is for the expected life (20 years) of the helicopter and can be
change only if all the parties agree. The residual value of the helicopter is P2million.
- Revenues and expenses are to be shared equally among the joint operators.

In 2013 the parties paid P300,000 to meet the costs of maintaining the helicopter. In 2013 each party
also incurred costs of running the helicopter when they made use of the helicopter (e.g. Red
incurred costs of P200,000 on pilot fees, aviation fuel and landing costs). In 2013, the parties earned
rental income of P2.5 million by renting the helicopter to others.

Requirement: What is the net income (loss) of the joint operation on December 31, 2013?
a. P700,000
b. P500,000
c. P800,000
d. P2,000,000

Solution: B
Accounting for Business Combination
QUIZ - 01

Rental Income 2,500,000

Operating expenses (300K + 200K) - 500,000
Depreciation expense (30M/20 years) - 1,500,000
Net Income 500,000

(Problem for question for 3 and 4) On January 1, 2020, L and P Corporation jointly purchase a bullet
train for P20,000,000. The contractual arrangement to operate such public transport is 25 years which is
the expected life of the said bullet train. There is no residual value. During 2020, the operators incurred
maintenance cost paid to B Corporation amounting to P500,000. The revenue for the year as reported
by management of the joint operation amounted to P2,000,000

3. What is the entry in the books of L Corporation on January 1, 2020 to account its interest or
investment?
a. Dr. Cash in JO – 20,000,000, Cr. Cash – 20,000,000
b. Dr. Cash in JO – 20,000,000, Dr. Equipment in JO – 10,000,000, Cr. Cash – 20,000,000
c. Dr. Equipment in JO – 10,000,000, Cr. Cash in JO – 10,000,000
d. Dr. Equipment in JO – 20,000,000, Cr. Cash – 20,000,000

Solution: C

4. How is the share in of P Corporation in the net income of the operation?

a. 250,000
b. 750,000
c. 1,000,000
d. 1,500,000

Solution: A
Revenue 2,000,000
Expenses 1,500,000
Maintenance 500,000
Depreciation (20M/20years) 1,000,000
Net profit 500,000
Times ratio (50% to L and 50% to P) 50%
Share in profit 250,000

5. On January 2, 2020, JSM Co. entered into a joint arrangement classified as joint venture. For an
investment of P500,000, JSM Co. obtained 40% interest in Joint Venture, Inc. During the year,
Joint Venture Inc. reported profit of P1,000,000 and other comprehensive income of P500,000,
for a total comprehensive income of P1,500,000. Joint Venture, Inc. declared dividends of
P600,000 during the year.

Requirement: How much is the share in profit of the joint venture?

Accounting for Business Combination
QUIZ - 01

a. 200,000
b. 360,000
c. 400,000
d. 500,000

Solution: C
Profit 1,000,000
Times interest in joint venture 40%
Share in profit 400,000

(Problem for questions 6 to 8) Patti Company holds 80% of the common stock of Shannon, Inc. In the
current year, Patti reports sales of P10,000,000 and cost of goods sold of P7,500,000. For the same
period, Shannon has P200,000 and cost of goods sold of P160,000. During the year, Patti sold
merchandise to Shannon for P60,000 at a price based on normal mark-up. At the end of the year,
Shannon still possesses 30 percent of inventory.

6. Compute consolidated sales

a. 10,200,000
b. 10,000,000
c. 10,260,000
d. 10,140,000

Solution: D
Revenue - Patti 10,000,000
Revenue - Shannon 200,000
Intercompany sales - 60,000
Consolidated sales 10,140,000

7. Compute consolidated cost of goods sold

a. 7,604,500
b. 7,603,500
c. 7,720,000
d. 7,664,500

Solution: A
Accounting for Business Combination
QUIZ - 01

COGS - Patti 7,500,000

COGS - subsidiary 160,000
Intercompany sales - 60,000
Unrealized gain* 4,500
Consolidated COGS 7,604,500

Unrealized gain*
Ending inventory (60K X 30%) 18,000
Gross profit rate (10M-7.5)/10M = 25% 25%
Unreazlied gross profit 4,500

8. Compute consolidated gross profit

a. 2,540,000
b. 2,535,500
c. 2,460,500
d. 2,545,500

Solution: B
Consolidated Sales 10,140,000
Consolidated COGS 7,604,500
Consolidated gross profit 2,535,500

9. Guerrero Corp. owns 65% of Pedro Corp ordinary shares. On June 1, 2013, there was an
upstream sale of an equipment for P 1,080,000. The carrying amount of the equipment is P
1,260,000 and has a remaining life of 8 years. How much is the net effect in the computation of
the consolidated profit attributable to NCI?
a. P 166,875 increase
b. P 108,468.75 decrease
c. P 108,468.75 increase
d. P 58,406.25 increase

Solution D
Accounting for Business Combination
QUIZ - 01

Sold 1,080,000.00
CA - Equipment 1,260,000.00
Unrealized loss 180,000.00
Non-controlling interest 35%
63,000.00

FV 180,000.00
Useful life 8
Annual Depreciation 22,500.00
Monthly Depreciation 1,875.00
Depreciation for 7mos 13,125.00
Non-controlling interest 35%
4,593.75

Net effect 58,406.25

10. The SG Company owns 95% of the outstanding shares of GX Company. On December 31, 2013,
there was an upstream sale of depreciable fixed asset for P 1,380,000. The asset originally cost P
2,880,000 and at the end of the reporting period its carrying amount in the books of the selling
affiliate was P 1,050,000. The group’s consolidated statement of financial position has been
drafted without any adjustments in relation to this non-current asset. What adjustments should
be made to the consolidated statement of financial position figures for non-current assets and
retained earnings?
a. Non-current asset increase by P1,550,000 and Retained earnings increase by P1,425,000
b. Non-current asset reduce by P330,000 and Retained earnings reduce by P330,000
c. Non-current asset reduce by P330,000 and Retained earnings reduce by P313,000
d. Non-current asset increase by P1,500,000 and Retained earnings increase by P1,500,000

Solution: C
Sold 1,380,000
CA - Fixed Asset 1,050,000
Adjustment in non-current asset 330,000
Multiply to controlling interest 95%
Adjustment to retained earnings 313,500