VI.

80% Owned-Subsidiary: Cost Model – Full Goodwill Approach; Downstream and Upstream of
Property, Unrealized Gain and Realized Gain on Sale

On January 1, 20x4, P Company acquires 80% of the common stock of S Company for P372,000. At that time,
the fair value of the 20% non-controlling interest is estimated to be P93,000. On that the following assets and
liabilities of S Company had book values that were different from their respective market values:
Book Value Fair Value
Inventory P24,000 P30,000
Land 48,000 55,200
Equipment 180,000 180,000
Accumulated Depreciation – Equipment (96,000)
Buildings 360,000 144,000
Accumulated Depreciation – Buildings (192,000)
Bonds Payable (4 years) 120,000 115,200

All the other assets and liabilities had book values approximately equal to their respective fair values.

On January 1, 20x4, the equipment and buildings had a remaining life of 8 and 4 years, respectively. Inventory
is sold in 20x4 and FIFO inventory costing is used. Goodwill, if any, is reduced by a P3,750 impairment loss
during 20x4 based on their fair value basis (or full-goodwill), meaning the management has determined that the
goodwill arising in the acquisition of Son Company relates proportionately to the controlling and noncontrolling
interest, as does the impairment.
There were no intercompany sales prior to 20x4, information resulting from intercompany sales of equipment
are summarized below:

Date of Sale Seller Selling Price Original Cost Acc. Dep Book Value Remaining life
April 1, 2014 P Co. P90,000 P120,000 P45,000 P75,000 5 years
Jan 2, 2014 S Co. 60,000 72,000 43,200 28,800 8 years

Trial balances for the companies for the year ended December 31, 20x4 are as follows:
Debits P Co. S Co.
Cash P 232,800 P 90,000
Accounts Receivable 90,000 60,000
Inventory 120,000 90,000
Land 210,000 48,000
Equipment 240,000 180,000
Buildings 720,000 540,000
Investment in S Company 372,000 -
Cost of Goods Sold 204,000 138,000
Discounts on bonds payable
Depreciation Expense 60,000 24,000
Interest Expense
Other Expenses 48,000 18,000
Goodwill impairment loss
Dividends paid 72,000 36,000
Totals P 2,368,800 P 1,224,000
 Credits
Accumulated Depreciation – Equipment P 135,000 P 96,000
Accumulated Depreciation – Buildings 405,000 288,000
Accounts Payable 105,000 88,800
Bonds Payable 240,000 120,000
Common stock, P10 par 600,000 240,000
Retained earnings 360,000 120,000
Sales 480,000 240,000
Gain on sale of equipment 15,000 31,200
Dividend Income 28,800
Totals P 2,368,800 P 1,224,000

From the trial balances presented above, the following information available for P and S Company for the year
20x4:

P Co. S Co.
Sales P 480,000 P 240,000
Less: Cost of Goods Sold 204,000 138,000
Gross Profit P 276,000 P 102,000
Less: Depreciation Expense 60,000 24,000
Other Expense 48,000 18,000
Net income from its own operation P 168,000 P 60,000
Add: Dividend income 28,800 -
Net income P 196,800 P 60,000
Dividends paid P 72,000 P 36,000

The trial balances for the companies for the year ended December 31, 20x5 are as follows:

Debits P Co. S Co.

Cash P 265,200 P 102,000
Accounts Receivable 180,000 96,000
Inventory 216,000 108,000
Land 210,000 48,000
Equipment 240,000 180,000
Buildings 720,000 540,000
Investment in S Company 372,000 -
Cost of Goods Sold 216,000 192,000
Discounts on bonds payable
Depreciation Expense 60,000 24,000
Interest Expense
Other Expenses 72,000 54,000
Goodwill impairment loss
Dividends paid 72,000 48,000
Totals P 2,623,200 P 1,392,000

Credits
Accumulated Depreciation – Equipment P 150,000 P 102,000
Accumulated Depreciation – Buildings 450,000 306,000
Accounts Payable 105,000 88,800
Bonds Payable 240,000 120,000
Common stock, P10 par 600,000 240,000
Retained earnings 499,800 175,200
Sales 540,000 360,000
Dividend Income 38,400
 Totals P 2,623,200 P 1,392,000

Further, the following information available for Porter and Salem Company based on the trial balance for the
year 20x5:

P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of Goods Sold 216,000 192,000
Gross Profit P 324,000 P 168,000
Less: Depreciation Expense 60,000 24,000
Other Expense 72,000 54,000
Net income from its own operation P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000

No goodwill impairment loss for 20x5.

Required: Using cost model – Full Goodwill

1. Prepare journal entry to record investment in the books of the acquirer company
2. Prepare schedule of determination and allocated excess
3. Prepare the working paper eliminating entries for 20x4 and 20x5 for the purpose of preparing
consolidating balance sheet.
4. Prepare a consolidated workpaper on December 31, 20x4 and December 31, 20x5.
5. Determine the following items for January 1, 20x4:
a. Consolidated Retained Earnings
b. Non-controlling interests
c. Consolidated Stockholders’ Equity
d. Cost of equipment, accumulated depreciation and net book value
6. Determine the following items for December 31, 20x4 and December 31, 20x5:
a. Controlling interests in Consolidated net income
b. Non-controlling interest in Consolidated net income
c. Consolidated net income
d. Consolidated Retained Earnings
e. Non-controlling interests
f. Consolidated stockholders’ equity
g. Cost of equipment, accumulated depreciation and net book value