Advanced Financial Accounting & Reporting Consolidated Financial Statements -Date and Subsequent to Date of Acquistion Page 9 inventory - [ong | Bullgings ond equipment less Accumvioted deprecialion — rnvesiment in Sik Corporation st. sfauty for each of the question below. indicate the appropriate total that should appear in the consolidated balance sheet immediately after the business combination on the basis of full-goodwill approach: 1 What amount of inventory will bs repurteds A. P179,000 C.P219 500 8. P200,000 D P215,000 2. What amount of goodwill will be reported? APO ©.¥°40,000 8. P28,000 D.P52.000 3. What amount of total assets will be reported? ‘A, P1,081,000 © P1,196,500 8. P1.121,000 D.P1,231.500 4, What amount of investment in Silk will be reported? APO ©. #150.500 8. P140,000 0. ?215,000 5. What lotal of liabilities will be seported? A. P265,000 © 622.000 B. P436,500 1D. P701,500 6. What amount will be reported as nor-conttolling interest? ‘A. P42,000 ©. P40,900 8. 52.500 D.P64,500 7. What amount of parent's share or controling interest in retained earnings be reported? A. P295,000 CC. P232,000 B. 268,000 9. P208,000, 8. What amount of consolidated retained eamings will be reported? ‘A. P295,000 ©. P232,000 8. P268,000 1D. P208,000 9. What amount of stockholders’ equity will be reported? ‘A. P355,000 CC. Pal9.500 B. P397,000 D.P495,000 xt Par Company owns 60% of Sub Corp.'s outstanding capital stock. On May 1, 2019, Par advanced Sub 70,000 in cash. which was stil ouistanding ci December 31. 2019. What portion of this advance should be eliminated in the preparation of the December 31. 2019 consolidated balance shee!? ‘A.P70,000 B. P42.000 ©. 26,00 D.lero xt Dean, inc. owns 100% of Roy Corporation, a consolidated subsidiary. and 80% of Wall, Inc. an unconsolidated subsidiary at December 21. Cn the same date. Dean has receivables of 200,000 trom Roy and P175,000 from Wall. In ils December 31 consolidated balance shec!, Dean should report accounts receivable from investees at APO B.P35,000 C.P175,000 D.P 235,000 atiamce biter bt Rs ra aa. ‘Get patsant, com cevate the thos thet we want te aller. AFAR-09Advanced Financial Accounting & Reporting Consolidated Financial Statemenis -Oale and Subsequent fo Date of Acquisition Page 10 xi Cobb Company's curent receivables from atfiiaied companies at December 31, 2019 are: (1) a °75,000 cash advance to Hii Corporation (Cebb owns 30% of the voting stock of Hil and accounts for the investment by the equity method). (2) a receivable of P260,000 from Vick Corporation for Administrative and selling services [Vick is 100% owned by Cobb and included in Cobb's Consolidated financial statements). and {3} a receivable of P200,000 from Ward Corporation for Merchanaise sales on credit (Ward is 90%-owned unconsolidated subsidiary of Cobb accounted for the equity method}. In the current assels section of its December 31, 2019 consolidated balance shel, Cobb should report accounts receivable from investees in the amount of, ‘A. P180,000 .9275,000) 8. P255.000 1D. P535,000 Reverse Acquisition (Takeovers) A reverse acquisition occurs when an enterprise obiains ownership of the shares of another enterprise: but. as part of the transaction, issues enough voting shares as consideration that control of the combined enterprise passes to the shareholders of the acquired enterprise. Although. legally. the enterprise that issues the shares is regarcied as the parent or continuing enterprise. the enterprise: whose former shareholders now control the combined enterprise is treated as the acquirer for reporting purposes. As a result, the issuing enterprise (the legal parent) is deemed fo be the acquiree and the company being acquired in appearance (ine legal subsidiary) is deemed to have acquired control of the assets and business of the issuing enterprise (the legal parent is effectively the acquiree while the legal subsidiary is effectively the acquirer, although the legal parent is the entity that issues shares to acauire a legal subsidiary, a reverse acquisition is offen initiated by the legal subsidiary} While not a common event, this form of business combination is often used by active non-public companies as a means fo obtain a stock exchange listing without having to go through the listing procedures established by the exchange. A takeover. of a public company that has a stock exchange listing is arranged in such G way that tne public company emerges as the legal parent, but the former shareholders of the non-public company have control of the public company. ‘Are there Non-controlling Interests in a Reverse Acquisition? Non-controlling interest is zero, i! oll oj legal subsidiary’s (the acquirer) stockholders accep! the offer to exchange their shares in the legal parent (the acquiree). if not all of legal subsidiary’s (the acquirer) stockholders agree to the exchange of shares. ihe legal subsidiary’s (the acquirer will have znon-controlling profits but not consolidated net income. Structure Entities or Variable Interest Entities (VIES) ‘A second type of controlled enterprise is o shuclured ent, also known as varlable interest enti or a special purpore enllly PFRS 10 provides guidance on when a shuchured ently (SE) should be consolidated. An SE is set bp the reporting enterprise (or “spcnsor’) fo peorin a very specific and narrow function. the difference between a subsidiary and an SE is hat an Sé is not controlled through voting power. indeed, on SE nay not even be a corporation but could instead be a parinerhip An SE alto can be created simply by Jolegoting speciic powers fo certoin indivcuas 1o 2c! on beta ot the “sponsoring” corporation ~ in effect, by Creating sor of “agency” relationship with indviauals instead of corporate entities xv Mosk, a private limited company, has orranged for Man, a public limited company, 10 acquire it os freans of obtaining a stock exchange isting. Man issues 15 milion shares fo acquite Ihe whole of the Share copilal of Mask (6 milion shares). The fair value of the net assets of Mask and Man are P30 frilion and P18 million respectively. The fair value of each of the shares of Mask is P6 and the quoted marke! price of Man's shares is P2. The share capital o! Man's 25 milion shares offer the acquistion Calculate the value of goodwillin the above axcusilion, A. P16 milion 10 milion B. P12 millon D.Pe million ‘Subsequent fo Date of Acquisition XV -Cost Model/Method versus Equity Method Pedro purchased 100% of the common stock of the Sanbuin Company on January 1, 20x4, for 500,000. On that date, the stockholders’ equity of Sanbun Company wos 380,000. On the purchase date, inventory of Sanburn Company, which was sold during 20x4, was understated by 20.000, Any remaining excess of cost over book value is alinbutable to building with a 20-year le. The reported income and dividends paid by Sanbun Company were as follows: AFAR-09(Jo) Advanced Financial Accounting & Reporting }) Consolidated Financial statements -Date rind Subsequent fo Date of Acquistion Page 11 r — ~~ ~ 4 206 | |Netincome.. eo00) P7000 widends paid... . —_ 10. 10,000 | |. Using the cost method, which of the following amounts are correc!? Investment Income Investment Accouni Balance 20x4 — P10,000 5 b.P70,000 570.000, ©. 70,000 550,000 © P10.000 550,000 Using the cost method. which ot the following amounts are comect? investment Income Investment Account Balance 20x5 December 31, 20x5 3. P10,000 500.000 b. —P70,000 570.000, ©. P70,000 580,000 a 10,000 550.000 3. Using sophisticated (full) equity mathoa, which of the following amounts are correct? Investment Income —_Invesiment Account Balance 20 December 31, 20x4 a. 55,000 555,000 b. 55,000 545,000 cc. P90,000 565.000 d.— P80,000 570.000 4. Using sophisticated (full) equity method. which of the following amounts are comect? Investment Income Investment Account Balance 20x5 December 31, 20x5 2. 55,000 F 54.000 b.—P55.000 595,000 cc. P85,000 620,000 cd. P90.000 570.000 XVI - CNI under Entity Concept (PFRS 10) For 20x6, Pyna reported P500,000 of net income from its own separate operations. This amount excludes income relating to Sync. its 80%-owned created subsidiary, which reported P100,000 of net income and declared P55,000 of dividends in 20x6, What is the consolidated net income under the economic unif/entity concept? ‘A, P536,000 1D. 600,000 B. P544,000 644,000 C. _ P580,000 XVII CNI under Parent Company Concept For 20x6, Pyna reported P500,000 of net income from its own separate operations. This amount excludes income relating to Syna, ils 30%-owned created subsidiary, which reported P100,000 of net income and declared P55,000 of dividends in 7Ux6. What is the consolidated net income under the parent company concept? ‘A. P536,000 D. 600,000 8. P544,000 . P644,000 Cc. _P580,000 | xvi Parrett Corp. bought one hundred percent of Jones Inc. on January 1, 20x4, at a price in excess of the subsidiary’s fair value. On that date, Panet!’s equipment (len-year life) had a book valve of 360,000 but @ fair value of 480,000. Jones had equipment (ten-year life) with a book value of 240,000 and a fair value of P350,000. Parrett used the cost model to record ils investment in Jones On December 31, 20x6, Panett had equipment with a book value of P250,000 and a foir valve of 400,000, Jones had equipment with a book value of P170,000 and a fair value of P320,000. What is the consolidated balance for the equipment account as of December 31, 20x6? ‘A. P710.000 ‘©. PA7S,000 8. 580,000 D. P497,000 nude ste qucity thet heaps you ree getting inte ituatlons where you need B.*** Steery man ls the erect of hs em chorata"* AFAR-09Advanced Financial Accounting & Reporting Contofidated Financial statements -Date and Subsequent fo Date of Acquistion Page 12 xix ‘On January 1, 20x4, 8B, Inc., reports net assets of P760,000 although equipment (with a 4- year life) having a book vaive of P440,000 is worth 500,000 end an unrecorded patent is valued at P45,000. HH Corporation pays P692,000 on that date for art 80 percent ownership in 88. If the patent is to be written off over a 10-year period, at what amount should it be reported on consolidated statements at December 31, 20x52 ‘A. P28,600 ©. P36,000 8. P32,400 © 40,500 Xx January 1, 2019, Payne Corp. purchased 70% of Shayne Corps P10 por commen stock for P900,000. On this date, the canying amount of Shayne’s net assets was P1,000,000. The fair values of Shayne’s identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net). which were P200,000 in excess of the canying amount. For the year ended December 31, 2019, Shayne had net income of P150,000 and paid cash dividends totalling P90,000. Excess altibutoble 10 plant assets is amortized over 10 years. in the December 31, 2019, consolidated balance sheet, non controling interest should be reported ut: AL P282.714 C.Pa7.714 8. P300,500 D. P345,500 xx Photoplasm Corporation acquired 70 percent of Spectrum Company on January 1, 2019 for 420,000. At that date Spectrum had inventory and plant assets with market values greater than book values in the amount of 50,000 and P90,000 respectively. The inventory and plant assets were assigned a remaining lite of six months and five years respectively. Assuming thal Spectrum has 2019 income and dividends of P160,000 anc P60,000, respectively and 2020 income ond dividends of 210.000 and P80,000, respectively. wnat is the balance in the non-controliing interest account at December 31, 20202 ‘A. P169.200 ©. P136,800 8. P276,000 9.223.200 xxi (On April 1, 2019, PP, Inc.. exchanges 7430.00 fair-value consideration for 70 percent of the ‘outstanding stock of RR Corporation. The remaining 30 percent of the outstanding shares Continued to trade al a collective fair value of 165,000. RR's identifiable assets ond liabilities each had book values thot equalled their fair values on April |, 2019 for a ne! total of P500,000. RR generates revenues of P600,000 and expenses of P340,000 and paid no dividends. On a December 31, 2019, Consolidated balance sheet, what amount should be reported as non-controliing interest? A. P219,000 C. P234,000 8. P237,000 1D. P250,500 xxl ‘On January 1.2019, PP Company acquired an 80 percent investment in 8 Company. The acauisition cost wos equal to PP's equity in 85's net assets at that date. On January 1, 2019, PP and $$ had felained eamings of P500,000 and P100,000, respectively. During 2019, PP had net income of 200,000, which included its equity in SS's eamings, and declared dividends of P50,000: SS had net income of Pd0,000 and declared dividends of P20,000. There were no other intercompany transactions between the parent and subsidiary. On December 31, 2019, what should the consolidated retained eomings be? ‘A. P650,000 ©. P766,000 B. 666,000 D. P7000 “Faith may be defined briefly a1 an illogical belief in the occurrence of the impossible.” Faith is @ higher facutry than reason.* “The secret of life i nat just to live, but te have something worthwhile to be not afroid of life. Believe that Ife is worth living ond your belief will help create the fact.” Develop on attitude of gratitude, and give thanks for everything that happens to you, Knowing that every step forward is @ ‘step toward achieving something bigger and better than your current situation.* “The remarkable thing we have is @ choice every day regerding the attitude we will embrace for that dey. We cannot change our past... We connot change the fact that people wi oct in a certain way. We cemot change the inevitable, The ‘nly thing we can do is play on the one srring we have, and that is our attitude. “attitude is more importont than the past, than education, than money, then circumstances, than what people do or say. It is more important than appearance, giftedness, or skil.* ‘The only way to find the limits of the possible is by going beyond them te the impossible." "Nothing great wil ever be achieved without great mean, and men are great only if they are determined to be 30. AFAR-09