Chapter 16 Advacc2

I-Cost Model/ Method versus Equity Method
Large company purchased 75% of small company on January 1,20x4 for P600, 000 when the
statement of financial position for small showed common shares of P400, 000 and retained
earnings of 100,000. On that date, the inventory of small was overvalued by 40,000 and a
patent with a remaining life of 5 years was overvalued by 70,000.retained earnings of large
on January 1,10x4 amounted to 473,750
Small reported the following subsequent to January 1,10x4:
YEAR NET INCOME DIVEDENDS PAID

20x4………………………… P 80,000 P 25,000
20x5 (loss) ……………… (35,000) 10,000
20x6………………………… 90,000 40,000
A test for goodwill impairment on December 31, 20x6. Indicated a loss of 19, 300 being
recorded for 20x6 on the consolidated income statement.
Large uses the cost method to account for its investment in Small and reported the following
for 20x6 for its separate-entity statement of changes in equity:
Retained earnings, beginning ……………………………........... P 500,000

Net income ………………………………………………………………… 200,000
Dividends…………………………………………………………………….. ( 70,000 )
Retained earnings, endings ………………………………………. P 630,000
In contrast, using the equity method the changes in retained earnings for 20x6:
Retained earnings, beginning…………………………………………….. P 498,500

Net income …………………………………………………………………………. 233,525
Dividends …………………………………………………………………………… ( 70,000 )
Retained earnings, ending ………………………………………………….. P 662,025
Required
1. Prepare the cost method and equity method journal entries of Large for each year.
2. Determined the investment balance and the income amount for each under the cost
method and equity method.
3. Determine the:
a. Partial-goodwill (proportionate basis) on January 1,20x6
b. Full-good will (fair value basis) on January 1,20x6
c. Annual amortization for 20x4,20x5, and 20x6
d. Non-controlling interest on January 1,20x6
e. Consolidated retained earnings on January 1 ,20x6
4. Computed the following on the consolidated financial statements for the year ended
December 31, 20x6
a. Partial-goodwill (proportionate basis) on January 1,20x6
b. Full-good will (fair value basis)
c. Non-controlling interest
d. Profit attributable to Large’s shareholder
e. Profit attributable to non-controlling interest
f. Consolidated Net Income
g. Retained earnings
5. Reconcile from cost method to equity method the December 21,20x6 balances of:
a. Investment balance
b. Retained earnings
II- Cost Model/Method versus Equity Method

When Pill Company. acquired 85% of Sill Corporation on January 1,20x4, for P238,000, the
imputed acquisition differential ( or allocated excess based on 100% ) of P 60,000 composed
of P20,000 due to undervalued equipment (with 10 year life) and the balance was allocated
entirely to goodwill. On December 31, 20x4, a goodwill impairment loss of P1, 500 was
recognized. Still reported a net income of P40, 000 and paid dividends of P9, 000 in 20x4.
Required:
A. Assuming Pill reported a 20x4 separate bet income of P55, 000 and declared P5, 000
dividends:
1. Using cost model, compute the following:
a. Consolidated net income attribute to Pill's shareholders for 20x4.
b. Consolidated net income attribute to non - controlling interest that would appear on
the 20x4 consolidated income statement.
c. Consolidated net income.
d. If the retained earnings of Pill on the date of acquisition (i.e., January 1,20x4)
amounted to P75, 000, the:
d. 1. Retained earnings - Pill, January 1,20x4.
d. 2. Retained earnings - Pill, December 31, 20x4.
d. 3. Consolidated retained earnings, December 31,20x4.
e. Investment in Sill on December 31, 20x4
2. Using equity method, compute the following:
b. Consolidated net income attribute to non - controlling interest that would appear on
the 20x4 consolidated income statement.
d. 2. Retained earnings - Pill, December 31,20x4.
e. Investment in Sill on December 31, 20x4.
3. Reconcile the investment balance, December 31,20x4 from cost model (No. 1e
above) to equity method (NO. 2e above).
B. Assuming Pill declared P5, 000 dividends for 20x4:
4. Using cost model and Pill reported a 20x4 net income of P62, 650, compute the
following.
b. Consolidated net income attribute to non - controlling interest that would
appear on the 20x4 consolidated income statement.
d. 2. Retained earnings - Pill, December 31, 20x4.
5. Using equity method and Pill reported a 20x4 net income of P 86,725 the following:
b. Consolidated net income attribute to non - controlling interest that would appear
on the 20x4 consolidated income statement.
amounted to P 75, 00 ,the:
d. 2. Retained earnings - Pill, December 31,20x4.
6. Reconcile the investment balance, December 31,20x4 from cost model (No. 4e
above) to equity method (No. 2 above).
lll – Cost Model/Method

Pen Company acquired an 85% interest in silk Corp. on December 31, 20x4, for P646, 000.
On that date, Silk had common of shares P 500,000 and retained earnings of P100, 000. The
imputed acquisition differential was allocated P 70,000 to inventory, with the balance to
patents being amortized over 10 years. Silk reported of P30, 000 in 20x5 and P52, 000 in
20x6. While no dividends were declared in 20x5, Silk declared dividends of P15, 000 in
recordedP45, 000 in 2016. Pen’s retained earnings on December 31, 20x6, P 91,000.
Required: Compute the following

1. Non-controlling interest in profit for 20x5 and 20x6.
2. Consolidated profit attributable to Pen’s shareholders for 20x5 and 20x6.
3. Consolidated retained earnings at December 31, 20x6.
4. Non-controlling interest at December 31, 20x6.
5. Consolidated patents at December 31, 20x6.
IV – Equity Method
Davis Inc. acquired a controlling interest of 80% of Martin Inc. for P300, 000 on January 1,
20x4, when Martin’s common stock and retained earnings were carried at P 180,000 and
P60,000 respectively. On that date, Martin’s book values approximated its fair market values,
with the exception of the company’s inventories and a Patent held by Martin. The patent,
which had an estimated remaining useful life of ten years, had a fair market value which was
P20, 000 higher than its book value. Martin’s inventories on January 1, 20x4 were estimated
to have a fair value that was P16, 000 higher than their book value.It was predicted that
Martin’s goodwill impairment test, which was to be conducted on December 31, 20x5,
would result in a loss equal to 10% of the goodwill (regardless of the amount at the date of
acquisition being recorded). During 20x4, Martin reported a net income of
P 60,000 and paid P 12,000 in dividends. Martin’s 20x5 net income and dividends were
P 72,000 and P 15,000 respectively. Martin uses straight-line amortization for all of its assets.
Davis, Inc. retained earnings on December 1, 20x5, were P 80,000
Required: Compute the following:
1. Non-controlling interest in profit for 20x4 and 20x5.
2. Consolidated profit attributable to Pen’s shareholders for 20x4 and 20x5.
3. Consolidated retained earnings at December 31, 20x5.
4. Non-controlling interest at December 31, 20x5.
5. Goodwill balance on December 31, 20x4 and 20x5.
6. Consolidated patents at December 31, 20x5.
V – Cost Model/ Method versus Equity Method
MM Company acquired an 80 percent interest in TL Company on January 1, 20x4. MM paid P

664,000 in cash to the owners of TL to acquire these shares. In addition, the remaining 20
percent of TL shares continued to trade at a total value of P 166,000 both before and after
MM’s acquisition.
On January 1, 20x4, TL reported a book value of P 600,000 (Common Stock = P 300,000;

Additional Paid-In Capital = P 90,000; Retained Earnings = P210,000). Several of TL’s building
that had a remaining life of 20 years was undervalued by a total of P 80,000.
During the next three years, TL reported the following figures:
Year Net Income Dividends Paid

20x4 ………………………………………………………… P 70,000 P 10,000
20x5 ………………………………………………………… 90,000 15,000
20x6 ………………………………………………………… 100,000 20,000
Required: Determine the appropriate answers for each of the following questions:
1. What amount of excess depreciation expense would be recognized in the
consolidated financial statements for the initial years following the acquisition?
2. If a consolidated balance sheet is prepared as of January 1, 20x4, what amount of
partial and full-goodwill that would be recognized?
3. If a consolidation worksheet is prepared as of January 1, 20x4, what are the
eliminating entries under the partial-goodwill and full-goodwill approach?
4. On the separate financial records of the parental company, what amount of
investment in subsidiary and investment income would be reported for 20x4
under the:
a. Cost model (or initial value method)
b. Equity method
5. On the parent company’s separate financial records, what would be the December
31, 20x6 balance for the investment in TL company and investment income
account under the:
a. Cost model (or initial value method)
b. Equity method
6. As of December 31, 20x5, MM Buildings account on its separate record has a
balance of P 800,000 and TL has a similar account with a P 300,000 balance. What
would be the consolidated balance of the Buildings account?
7. What would be the balance of consolidated goodwill as of December 31, 20x6?
8. Assume that the parent company has been applying the cost model for this
investment. On December 31, 20x6, the separate financial statements for the two
companies present the following information:
MM Company TL Company
Common Stock ……………………………………. P 500,000 P 300,000
Additional paid-in capital ……………………. 280,000 90,000
What will be the consolidated balance of each of these accounts?
9. Assume that the parent company has been applying the equity method for this
investment. On December 31, 20x6, the separate financial statements for the two
companies present the following information:
MM Company TL Company
Common Stock ………………………………. P 500,000 P 300,000
Additional paid-in capital ……………….. 280,000 90,000
Retained earnings ………………………….. 620,000 425,000
What will be the consolidated balance of each of these accounts?
Vl – Parent Company and Consolidation amounts

QQ Corporation acquired 80 percent of TT Company’s common stock on December 31, 20x4,
at underlying book value. The book values and fair values of TT’s asset and liabilities are
equal, and the fair value of non-controlling interest was equal to 20 percent of the total
book value of TT. TT provided the following trial balance data at December 31, 20x4.
Debit Credit
Cash …………………………………………………. P 28,000
Accounts Receivable………………………... 65,000
Inventory …………………………………………. 90,000
Building and Equipment (net)…………… 210,000
Cost of Goods Sold……………………………. 105,000
Depreciation Expense……………………….. 24,000
Other Operating Expenses………………… 31,000
Dividends Declared ………………………….. 15,000
Accounts Payable …………………………….. P 33,000
Common Stock…………………………………… 90,000
Retained Earnings …………………………….. 130,000
Sales………………………………………………….. ________ 195,000
Total………………………………………………….. P 568,000 P 568,000
Required:
1. How much did QQ pay to purchase its shares to TT?
2. If consolidated financial statements are prepared at December 31, 20x4,
what amount will be assigned to the controlling interest in the consolidated
balance sheet?
3. If QQ reported income of P 143,000 from its separate operations for 20x4,
what amount of consolidation net income will be reported for 20x4?
4. If QQ had purchased its ownership with TT on January 1, 20x4, at
underlying book value and QQ reported income of P 143,000 from its
separate operations for 20x4, what amount of consolidated net income for
20x4?
VII – Computation of Consolidated Balances
On January 1, 20x4, PS Corporation acquired 80 percent of the 100,000 outstanding voting

shares of SR, Inc. in exchange for P31.25 per share cash. The remaining 20 percent of SR’s
shares continued trade for P30.00 both before and after PS’s acquisition. On January 1, 20x4,
SR’s book and fair values were as follows:
Book Fair Remaining

Values Values life
Current assets ………………………… 80,000 80,000
Buildings and equipment ……….. 1,250,000 1,000,000 5 years
Trademarks ……………………………. 700,000 900,000 10 years
Patented Technology ……………. 940,000 2,000,000 4 years
P 2,970,000
Current liabilities …………………... 180,000 180,000

Long-term notes payable ………. 1,500,000 1,500,000
Common stock ……………………… 50,000
Additional paid-in capital………. 500,000
Retained earnings ………………… 740,000
P 2,970,000
In addition, PS assigned a P 600,000 value to certain unpatented technologies recently

developed by SR. These technologies were estimated to have a 3-year remaining life.
During 20x4, SR paid a P30,000 dividends to its shareholders. The companies reported the
following revenues and expenses from their separate operations for the year ending
December 31, 20x4.
PS SR
Revenues ……………………………. 3,000,000 1,400,000
Expenses ……………………………. 1,750,000 600,000
Required:
1. What total value should PS assign to its SR acquisition in its January 1, 20x4,
consolidated balance sheet?
2. What valuation principle should PS, use to report each of SR’s identifiable assets and
liabilities in its January 1, 20x4, consolidated balance sheet?
3. For years subsequent to acquisition, how will SR’s identifiable assets and liabilities be
valued in PS’ consolidated reports?
4. How much goodwill resulted from PS’ acquisition of SR?
5. What is the 20x4 consolidated income and what amounts are allocated to the
controlling and non-controlling interests?
6. What is the non-controlling interest amount reported in December 31, 20x4,
consolidated balance sheet?
7. Assume instead that, based on its share prices, SR’s January 1, 20x4, total fair value
was assessed at P 2,250,000. How would the reported amounts or SR’s assets change
on acquisition-date consolidated balance sheet?
VIII – Computation of Consolidated Balances

Following are several account balances taken from the records of KL and RR as of December
31, 20x4. A few asset accounts have been omitted here. All revenues, expenses, and
dividends occurred evenly throughout the year. Annual tests have indicated no goodwill
impairment.
KL RR
Sales ……………………………………………………… P (800,000) P (500,000)
Cost of goods sold …………………………………. 400,000 280,000
Operating expenses ………………………………. 200,000 100,000
Investment income ……………………………….. Not given -0-
Retained earnings, 1/1 ………………………….. 1,400,000 700,000
Dividends ………………………………………………. 80,000 20,000
Trademarks …………………………………………… 600,000 200,000
Royalty agreements ……………………………… 700,000 300,000
Licensing agreements …………………………... 400,000 400,000
Liabilities ………………………………………………. (500,000) (200,000)
Common stock (P 10 par value) ……………. (400,000) (100,000)
Additional paid-in capital ……………………… (500,000) (600,000)
On July 1, 20x4, KL, acquired 80 percent of RR for P 1,330,000 in fair value consideration. In
addition KL agreed to pay contingent consideration to the former owners of RR if certain
performance measures were achieved over the next three years. KL assessed a P 30,000 fair
value for the contingent performance obligation as of the acquisition date.
On July 1, 20x4, RR’s assets and liabilities had book values equal to their fair value except for
some trademarks (with 5-year remaining lives) that were undervalued by P 150,000. KL
estimated RR’s total fair value at P 1,630,000 on July 1, 20x4.
Required: For a consolidation prepared at December 31, 20x4, what balances would be
reported for the following?
Expenses Buildings
Dividends paid Goodwill
Sales Consolidated Net Income (CNI)
Equipment Retained earnings
Depreciation Expense Controlled Interest in CNI
Equipment Non-controlling Interests in CNI
Sales Trademarks
Subsidiary’s Net Income Retained Earnings
IX – Consolidated Balances
Following are the individual financial statements for BB and DD for the year ending
December 31, 20x4:
BB DD
Sales……………………………………………….. P (600,000) P (300,000)
Cost of Goods Sold………………………….. 300,000 140,000
Operating Expenses………………………… 174,000 60,000
Dividend Income…………………………….. (24,000) -0-
Net Income…………………………………. P (150,000) P (100,000)
Retained Earnings, 1/1/x4………………. P (700,000) P (400,000)
Net Income……………………………………… (150,000) (100,000)
Dividends paid…………………………………. 80,000 40,000
Retained Earnings, 12/13/x9………… P (770,000) P (460,000)
Cash and Receivables………………………. P 250,000 P 100,000

Inventory…………………………………………. 500,000 190,000
Investment in DD……………………………. 526,000 -0-
Buildings (net)…………………………………. 524,000 600,000
Equipment (net)……………………………… 400,000 400,000
Total Assets………………………………….. P 2,200,000 P 1,290,000
Liabilities………………………………………… P (800,000) (490,000)
Common Stock……………………………….. (630,000) (340,000)
Retained earnings 12/31//x4………….. (770,000) (460,000)
Total Liabilities and Equity……………. P 2,200,000 P 1,290,000
BB acquired 60 percent of DD on April 1, 20x4, for P 526,000. On that date, equipment (with
a 5-year life) was overvalued by P 30,000. Also on that date, the fair value of the 40 percent
n0n-contrilling interest was P 300,000. DD earned income early during the year paid but
received the entire dividend on November 1, 20x4.
Required:
1. Determine the consolidated balance for each of the following accounts as of
December 31, 20x4.
-Revenues -Consolidated net income (CNI)
-Cost of Goods Sold -Non-controlling interest in (NCNI)
-Operating Expenses -Controlling interest in CNI
2. Determine the consolidated balance for each of the following accounts as of
December 31, 20x4.
-Goodwill -Buildings net)
-Equipment (net) -Dividends paid
-Common Stock
X – Cost versus Equity Method: Computation of Consolidated Net income

AA Corporation owns 75 percent of KR’s Company common stock, acquired at underlying
book value on January 1, 20x4. At acquisition date, the book values and fair values of KR’s
assets and liabilities were equal, and the fair value of the non-controlling interest was equal
to 25 percent of the total book value of KR. The income statements for AA and KR for 20x4
include the following amounts:
AA Corporation KR Corporation
Sales ……………………………………………. P 528,000 P 150,000
Dividend income …………………………. 9,000
Total income ……………………………….. P 537,000 P 150,000
Less: Cost of Goods sold ……………… P 380,000 P 87,000
Depreciation Expense …………………. 32,000 20,000
Other Expenses …………………………… 66,000 23,000
Total Expenses ……………………………. P 478,000 P 130,000
Net Income …………………………………. P 59,000 P 20,000
AA uses the cost method in accounting for its ownership of KR, KR paid dividends of P12,000
in 20x4.
Required:
1. What amount should AA report in its income statement as income from its
investment in KR using equity-method accounting?
2. What amount of income should be assigned to non-controlling interest in the
consolidated income statement for 20x4?
3. What amount should AA report as consolidated net income for 20x4?
4. Why should AA not report consolidated net income of P79,000 (P59,000 + P20,000)
for 20x4?
XI – Computation of Consolidated Net Income and Retained Earnings

QQ Corporation acquired 70 percent of NN’s company stock on January 1, 20x4, for
P105,000. At that date, the fair value of the non-controlling interest was equal to 30 percent
of the book value of NN Company. The companies reported the following stockholders’
equity balances immediately after the acquisition.
QQ Corporation NN Company
Common Stock ………………………………… P 120,000 P 30,000
Additional Paid-in capital ………………… 230,000 80,000
Retained Earnings …………………………… 290,000 40,000
Total ………………………………………………. P 640,000 P 150,000
QQ and NN reported 20x4 operating incomes of P90,000 and P35,000 and dividend
payments of P30,000 and P10,000 respectively.
Required:
1. Compute the amount reported as net income by each company for 20x4, assuming
QQ uses equity method of accounting for its investment in NN.
2. Compute consolidated net income for 20x4.
3. Compute the reported balance in retained earnings at December 31, 20x4, for both
companies
4. Compute the consolidated balance in retained earnings at December 31, 20x4.
5. How would the computation of consolidated retained earnings at December 31,
20x4, change if QQ uses the cost method in accounting for its investment in NN?
XII – Equity Method

TT Company acquired all of JJ Company’s outstanding stock on January 1, 20x4, for P206,000
in cash. JJ had a book value of only P140,000 on that date. However, equipment (having an
eight-year life) was undervalued by P54,000 on JJ’s financial records. A building with a 20-
following:
Net Income Dividends Paid

20x4 …………………………. P 50,000 P 10,000
20x5 …………………………. 60,000 48,000
20x6 …………………………. 30,000 20,000
In accounting for this investment, TT has used the equity method. Selected accounts taken
from the financial records of these two companies as of December 31, 20x6, follow:
TT Company JJ Company
Revenues-Operating …………………………….. P (310,000) P (104,000)
Expenses……………………………………………….. 198,000 74,000
Equipment (net)……………………………………. 320,000 50,000
Buildings (net)………………………………………. 220,000 68,000
Common Stock……………………………………… 290,000 50,000
Retained Earnings………………………………… 410,000 160,000
Required: Determine and explain the following account balances of December 31, 20x6:
1. Investment in JJ Company (on TT’s individual financial records)
2. Equity in Subsidiary Earnings (on TT’s individual financial records)
3. Consolidated Net Income
4. Consolidated Equipment (net)
5. Consolidated Buildings (net)
6. Consolidated Goodwill (net)
7. Consolidated Common Stock
8. Consolidated Retained Earnings, 12/31/20x6
XIII – 80% Owned Subsidiary: Cost Model – Consolidated Financial Statements (Partial
Goodwill or Proportionate Basis Approach)
Assume at January 1,20x4, Pascual Company acquires 80% of the common stock of Sax
Company for P 372,000. At that time, the fair value of 20% no-controlling interest is
estimated to be P93,000. On that the following assets and liabilities of Sax Company had
book values that were different from their respective market values:
Sax Co. Book value Sax Co. Fair Value

Inventory………………………………………………… P 24,000 P 30,000
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)…………………………. 120,000 115,000
All 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 8 and 4 years,
respectively. Inventory is sold and FIFO inventory costing is used. Goodwill, if any, is reduced
by a P 3,750 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 non-controlling interest, as does the
impairment.
Trial balances for the companies for the year ended December 31, 204 are as follows:
Debit Pascual Co. Sax 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 to Sax Company………………… 372,000 -
Cost of Goods Sold………………………………. 204,000 138,000
Discount 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 P1,224,000
Credits
Accumulated depreciation-equipment.. P 135,000 P 96,000
Accumulated depreciation-buildings … 405,000 288,000
Accounts payable …………………………….. 120,000 120,000
Bonds payable ………………………………….. 240,000 120,000
Common stock, P 10 par …………………… 600,000 240,000
Retained earnings …………………………….. 360,000 120,000
Sales …………………………………………………. 480,000 240,000
Dividend income ………………………………. 28,000 -
Totals …………………………………………. P 2,368,800 P1,224,000
From the trial balances presented above the following summary for 20x4 results of
operations are as follows:
Pascal Co. Sax 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 expenses………………….. 48,000 18,000
Net income from its own separate op. P168.000 P 60,000
Add: Dividend Income………… 28,800 -
Net Income………………………… P 196,000 P 60,000
The trial balances for the companies for the year ended December 31, 20x5 are follows:
Debit Pascual Co. Sax 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 Sons Company 372,000 -
Cost of Goods Sold……………… 216,000 192,000
Discount on Bonds Payable… - -
Depreciation Expense…………. 60,000 24,000
Interest Expense…………………
Other Expenses………………….. 72,000 54,000
Dividends paid…………………… 72,000 48,000
Totals……………………………… P 2,623,000 P 1,392,000
Credit
Accumulated depreciation-equip. P 150,000 P 102,000
Accumulated depreciation-buildings 450,000 360,000
Accounts Payable……………………… 120,000 120,000
Bonds Payable…………………………... 240,000 120,000
Common Stock, P10 par……………. 600,000 240,000
Retained earnings……………………… 484,800 144,000
Sales………………………………………….. 540,000 360,000
Dividend income………………………… 48,000 -
Totals…………………………………….. P 2,624,000 P 1,392,000
Further, the following information available for Pascal and Sax Company based on the above
trial balance for the year 20x5
Pascal Co. Sax Co.
Sales........................................................................ P 540,000 P 360,000
Less: Cost of goods sold………………………..………… 216,000 192,000
Gross profit…………………………………………………………. P 314,000 P 168,000
Less: Depreciation expense………………………………... 60,000 24,000
Other expense....................................................... 72,000 54,000
Net income from its own separate operations…... P 192,000 P 90,000
Add: Dividend Income……………………………………………,… 38,400 -
Net income................................................................ P 230,400 90,000
Dividends paid…….…………………………………………… P 72,000 P 48,000
No goodwill impairment loss for 20x5

Required: Using cost model:
1. Prepare journal entry to record investment in the books of the acquirer company.
2. Prepare schedule for determination and allocated excess.
3. Prepare the working paper eliminating entries for 20x4 and 20x5 for purposes of
preparing consolidated balance sheet.
4. Prepare a consolidated work paper 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
6. Determine the following items for December 31, 20x4 and December 31, 20x5:
a. Controlling Interests in Consolidated Net Income
b. Non-controlling Interests in Consolidated Net Income
c. Consolidated Net Income
d. Consolidated Retained Earnings
e. Non-controlling Interests
f. Consolidated Stockholders Equity
XIV - 80% - Owned Subsidiary: Cost Model - Consolidated Financial Statements

( Full Goodwill or Fair Value Basis)
Refer to the same data in Problem XIII for determination of separate net income,
computation of full goodwill, amortization of allocated excess and impairment of goodwill.
Required : Using cost model:
1. Prepare journal entry to record investment in the book of the acquirer company.
3. Prepare the working paper eliminating entries for 20x4 and20x5 for purposes of preparing
consolidated balance sheet.
4. Prepare a consolidated work paper on December 31, 20x4 and 20x5.
5. Determine the following items for January 1, 20x4:
b. Non-controlling Interests.
a. Controlling Interests n Consolidated Net Income
XV - 80% Owned Subsidiary: Equity Method, Partial-goodwill, with Goodwill Impairment
Loss Recognized in the books of Subsidiary
Assume that on January 1, 20x4, Patton Company acquires 80% of the common stock of
Savage Company for P 372,000. At that tome, the fait value of the 20% non-controlling
interest is estimated to be P 93,000. On that the following assets and liabilities of Savage
Company had book values that were different from their respective market values:
Savage Co. Savage Co.

Book Value Fair Value
Inventory…………………………………………………………….. P 24,000 30,000
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 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 the fair value basis ( or full-
goodwill), meaning the management has determined that the goodwill arising in the
acquisition
of Savage Company relates proportionally to the controlling and non-controlling interests,
as does the impairment.
Trial balances for the companies for the ended December 31, 20x4 are as follows:
Debits Patton Co. Savage Co.
Cash............................................... P 232,800 P 90,000
Accounts receivables...................... 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 Son Company......... 377,640
Cost of goods sold................. 204,000 138,000
Discount on bonds payable................ - -
Depreciation expense............ 60,000 24,000
Interest expense................................
Other expenses................................. 48,000 18,000
Dividends paid............................. 72,000 36,000
Totals....................................... P 2,374,440 P1,224,000
Credits
Accumulated depreciation-equipment............. P 135,000 P 96,000
Accumulated depreciation-buildings…………….. 405,000 288,000
Accounts payable.................................. 120,000 120,000
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
Investment income..... 34,440 -
Totals.......... P 2,374,440 P 1,224,000
From the trial balances presented above the following summary for 20x4 results of
operations as follows:
Patton Co. Savage 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 it's own separate operations… P 168,000 P 60,000
Add: Investment income........................................ 34,440
Net income................................. P 202,440 P 60,000
The trial balances for the companies for the year ended December 31, 20x5 are as follows:
Debits Patton Co. Savage Co.

Cash........................................................ P 265,200 P 102,000
Accounts receivables....................... 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 Son Company.................... 405,480 -
Cost of goods sold.................................... 216,000 192,000
Discount on bonds payable.........................
Depreciation expense…………………………………..... 60,000 24,000
Interest expense...........................................
Other expenses............................................. 72,000 54,000
Dividends paid.............................................. 72,000 48,000
Total......................................... P 2,656,680 P 1,392,000
Credits
Accumulated depreciation-equipment.................... P150,000 P102,000
Accumulated depreciation-buildings…………….. 405,000 306,000
Accounts payable..................................... 120,000 120,000
Bonds payable.................................................... 240,000 120,000
Common stock, P10 par..................................... 600,000 240,000
Retained earnings............................................... 490,000 144,000
Sales......................................................... 540,000 360,000
Investment income................................... 66,240 -
Total....................................................... P 2,656,680 P 1,392,000
Further, the following information available for Patton and Savage Company based on the
above trial balance for the year 20x5
Patton Co. Savage 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 it's own separate operations....... P 257,000 P 90,000
Add: Investment income....……………………………… 66,240 -
Net income...………………………………………………… P 202,440 P 60,000
No goodwill impairment loss for 20x5.

Required: Using equity method:
1. Prepare journal entry to record investment in the books of the acquirer company.
3. Prepare the working paper eliminating entries for 20x4 and 20x5 for purpose of preparing
consolidated balance sheer.
4. Prepare a consolidated work paper on December 31, 20x4 and December 31, 20x5
b. Non- Controlling Interests
a. Controlling Interests in Consolidated Net Income
e. Consolidated Stockholders Equity
XVI - 80% Owned Subsidiary: Equity Method, Full-goodwill, With Goodwill

Impairment Loss Recognized in the books of Subsidiary Refer to the same data in Problem
XV for determination of separate net income, computation of full-goodwill, amortization of
allocated excess, and impairment of goodwill
Required: Using equity method:
1. Prepare journal entry to record investment in the book of the acquirer company.
3. Prepare the working paper eliminating entries for 20x4 and20x5 for purposes of preparing
consolidated balance sheet.
4. Prepare a consolidated work paper on December 31, 20x4 and 20x5.
b. Non-controlling Interests.
a. Controlling Interests n Consolidated Net Income
XVII - Deconsolidation or Derecognition of Subsidiary
Porsche Corporation owns an 85% interests in Saab Corporation. On December 31, 20x4 in
the Porsche consolidated financial statements the carrying value of Saab's net asset is
P 1,200,000 and the carrying value of the non-controlling interest in Saab (including the non-
controlling interest's share of accumulated other comprehensive income) is P120,000. On
January 1, 20x5 Porsche Corporation decided to sell a 50% interest in Saab to a third party in
exchange for cash of P720,000. As a result of this transaction, Porsche loses control of
subsidiary but retains a 35% interest in the former subsidiary, valued at P420,000 on that
date.
Required: Determine any gain or loss on disposal or deconsolidation
XVIII - Sale of Subsidiary - Not Resulting in Loss of Control (Dilution) - No additional shares
Issued
Palmer Company owns 96,000 shares of stevens Corporation’s 120,000 outstanding
common shares, acquired at book value. The December 31, 20x4, consolidated balance
sheet presented by Palmer and stevens included net assets of stevens in the amount of
P720,000. On January 1, 20x5. Palmer sells 12,000 shares (10%) of its Sare stock to
unrelated parties for P84,000.
Required: Determine any gain or loss on dilution.
XIX - Sale of Subsidiary - Not Resulting in Loss of Control (Dilution) - With additional shares
Issued.
Patis Company owns 96,000 shares of Salt Corporations 120,000 outstanding common
shares, required at book value. The December 31, 20x4, consolidated balance sheet
presented by Patis and Salt included net assets of Salt in the amount of P720,000. On
January 1, 20x5,
Slat issues 30,000 additional shares of common stock unrelated parties for P210,000.
Required: Determine the additional paid-in capital arising from sale of subsidiary shares.
XX - Step Acquisition
On January 1, 20x4, MM Inc., exchanged P178,000 for 25 percent of AD Corporation. MM
appropriately applied the equity method to this investment. At January 1. the book values of
AD’s assets and liabilities approximated their fair values.On June 30, 20x4, MM paid
P560,000 for an additional 70 percent of AD thus increasing its averall ownership to 95
percent. The price paid for the 70 percent acquisition was proportionate to AD’s total fair
value. At June 30, the carrying values of AD’s assets and liabilities
approximated their values. Any remaining excess fairvalue was attributed to goodwill.
AD reports the following amounts at December 31, 20x4 (credit balances shown in
parenthesis):
Revenues.....……………………………… P (210,000)
Expenses.....……………………………… 140,000
Retained earnings, January 1………………… (200,000)
Dividends, October 1...…………………………… 20,000
Common stock..…………………………… (500,000)
AD’s revenue and expenses were distributed evenly throughout the year and no
charges in AD’s stock have occured.
Required: Using the acquisition method, compute the following:
1. The acquisition-date fair value of AD to be included in MM's consolidated financial
statements.
2. The revaluation gain (or loss) reported by MM for it's 25 percent investment in AD on June
30.
3. The amount of goodwill recognized by MM on it's December 31 balance sheet (assume no
impairments have been recognized).
4. The non-controlling interest amount reported by MM on it's:
a. June 30 consolidated balance sheet
b. December 31, consolidated balance sheet.
MULTIPLE CHOICE PROBLEMS

1. On January 1, 20x4 Company purchased 70% of Stock Corporations P5 par common stock
for P600,000. The book value of stock net assets was P640,000 at that time. The fair value of
stocks identifiable net assets were the same as their book value except for equipment that
was P40,000 in excess of the book value. In the January 1, 20x4 consolidated balance sheet,
full-goodwill would be reported at.
a. P152,000 c. P80,000
b. P177,143 d. -0-
Use the following information for question 2 and 3:

Beatty, Inc. acquires 100% of the voting stock of Gataux Company on January 1, 20x4 for
P500,000 cash. A contingent payment of P12,000 will be paid on April 1, 20x5 if Gataux
generates cash flows from operations of P26,500 or more in the next year. Beatty estimates
that there is a 30% probability that Rhine will generate at least P26,500 next year and uses
an interest rate of 4% to incorporate the time value of money. The fair value of P12,000 at
4% using a probability weighted approach is P3,461.
2. Under PFRS 3, what will Beatty record as the acquisition price on January 1, 20x4?
a. P500,0000 d. P515,461
b. P503,461 e. P526,500
c. P512,000
3. Assuming Gataux generates cash flow from operations of P27,200 in 20x4, how will
Beatty record the P12,000 payment of cash on April 1, 20x5 according to PFRS 3?
a. Debit Contingent performance obligation P3,461, debit Goodwill P8,539
and Credit Cash P12,000
b. Debit Contingent performance obligation P3,461,debit Loss from contingent
performance obligation P8,539 and Credit Cash P12,000
c. Debit Goodwill, credit Cash, P12,000
d. Debit Goodwill P27,200 credit contingent performance obligation P15,200 and
Credit Cash P12,000.
e. No entry
4. Park Company acquired a 90% interest in Southwestern Company on December 31,20x4
for P320,000. During 20x5 Southwestern had a net income of P22,000 and paid a cash
dividend of P7,000. Applying the cost method would give a debit balance in the investment
in Stoxk of Southwestern Company account at the end of 20x5 of:
a. P335,000 c. P313,700
b. P333,500 d. P320,000
Cost Method
5. Pendleton Company acquired a 70% interest in Sunflower Company on December 31,
20x4 for P380,000. During 20x5 Sunflower had a net income of P30,000 and paid a cash
dividend of P10,000. Applying the cost method would give a debit balance in the investment
in Stock of Sunflower Company account at the end of 20x5 of:
a. P400,000 c. P373,000
b. P394,000 d. P380,000
6. On 5/1/x6, Pyne Inc. formed Syne Inc. investing P500,000 cash for 20x6, Syne reported
net income of P65,000 and declared and paid cash dividends of P25,000. Under the cost
method, what appears in the parents separate 20x6 income statement -not the
consolidated income statement?
a. P25,000 c. P65,000
b. P40,000 d. P90,000
On 5/1x6 Podex acquired 100% of Sodex’s outstanding common stock in a business
combination. Both companies have a December 31 year-end. Selected information for each
company follows:
Podex Sodex
Net income from own separate operations
(exclusive of earnings recorded under the
equity method or the cost method):
4 months ended 4/30/x6 P 600,00 P 100,000
8 months ended 12/31/x6 1,400,000 300,000
P 2,000,000 P 400,000
Dividends declared:
4 months ended 4/30/x6 P 300,000 P 60,000
8 months ended 12/31/x6 500,000 120,000
P 800,000 P 180,000
Amortization of cost in excess of book value

for 2006 ( recorded in the general ledger) P 40,000
7. Determine the parents net income for 20x6 under the cost method.
8. Determine the consolidated net income for 20x6.
9. Taguchi Ltd. owns 80% of Shag. co. Shag declared and paid P100,000 in dividend. Taguchi
uses the cost method to record its investment in Shag. In preparing
Taguchi's consolidated financial statements, what entry must be made with respect to the
dividends?
a. Dividend income................................ 80,000
Dividends declared.................... 80,000
b. Dividend income............................... 80,000
Non-controlling interest................... 20,000
c. Non-controlling interest.................... 20,000
d. Dividend income................................ 100,000
10. The following accounts are as they appear on the separate company financial
statements of a parent and its 100% owned subsidiary (created in 20x1) at the end of 20x6
Parent Subsidiary
Equity in net income (of subsidiary)................ P 7,000
Investment in subsidiary................................. 280,000
Common stock................................................ 100,000 P 25,000
Additional paid-in capital................................ 900,000 175,000
Retained earnings……………………………………….. 390,000 80,000
Dividends declared......................................... (55,000) (3000)
What would be the parent's retained earnings balance of 12/31/x6 if it used the cost
method of accounting?
a. P306,000 d. 393,000
b. P307,000 e. 394,000
c. P310,000
11. The following accounts are as they appear on the separate company financial
statements of a parent and its 100% owned subsidiary (created in 20x1) at the end of 20x6:
Parent Subsidiary
Equity in net income (of subsidiary)........ P 7,000
Investment in subsidiary.................... 280,000
Common stock......................................... 100,000 P 25,000
Additional paid-in capital.................. 900,000 175,000
Retained earnings............................ 390,000 80,000
Dividends declared.......................... (55,000) (3000)
What would be the parents investment in subsidiary balance at 12/31/x6 if it used the cost
method of accounting?
12.The following accounts or amounts were taken from the separate company financial
statements of a parent and its 100% owned subsidiary (created in 20x6) at the end of 20x6:
Parent Subsidiary
Dividend net income (of subsidiary)........ P 50,000
Investment in subsidiary........... 400,000
Common stock......... 100,000 P 5,000
Additional paid-in capital......... 500,000 395,000
Retained earnings.......... 210,000 240,000
Dividends declared......... (140,000) (50,000)
Net income........ 180,000 80,000
What amount should be reported for consolidated retained earnings at the end of 20x6?
a. P210,000 d. 450,000
b. P240,000 e. None of the above
c. P290,000
13. For 20x6, a 100% owned subsidiary reported (a) net income of P75,000 and (b) dividends
declared of P15,000 (P10,000 of which was paid in 20x6). What amount appears in the
parent's separate income statement for 20x6 under the cost method of accounting?
a. P10,000 d. 65,000
b. P15,000 e. 75,000
c. P60,000
14.The following accounts or amounts were taken from the separate company
financial statements of a parent and its 100% owned subsidiary (created in 20x1) at the end
of 20x6:
Parent Subsidiary
Dividend net income (of subsidiary)........ P 10,000
Investment in subsidiary....................... 100,000
Common stock..................................... 400,000 P 2,000
Additional paid-in capital................... 100,000 98,000
Retained earnings.................................. 360,000 (40,000)
Dividends declared........................... (80,000) (10,000)
Additional information:
Reported Net income.......................... 160,000 (22,000)
What amount should be reported for consolidated retained earnings at the end of 20x6?
a. P310,000 d. 360,000
c. P350,000
Use the following information for questions 15 and 16:

On January 1, 20x3, RR Corporation acquired 75% of the outstanding shares of JJ, Inc. at a
cost of P150,000. No purchase price discrepancy/fair value adjustment arose in relation to
the purchase. During the next two fiscal years, JJ, Inc. reported net income and dividends as
follows ( investment is recorded and reported under the cost model).
Fair value of investment

Year Net Income Dividends in JJ at year-end
20x3................. P40,000 P30,000 P180,000
20x4................. 30,000 40,000 P160,000
15. What income/gains and losses will RR, Inc. report from its investment in JJ, Inc. in its net
income from continuing operations for 20x3 and 20x4:
20x3 20x4 20x3 20x4
a. P 0 P 0 c. P22,500 P30,000
b. P22,500 P22,500 d. P30,000 P30,000
16. What would be the balance of investment in JJ Inc. at the end of each fiscal year
assuming that the investment is recorded and reported under the cost model:
20x3 20x4 20x3 20x4
a. P150,000 P150,000 c. P172,500 P50,000
b. P150,000 P172,500 d. P130,000 P130,000
Use the following information for questions 17 to 20:
On May 1, 20x4, Peters Company purchased 80% of the common stock of Smith Company
for P50,000. Additional data concerning these two companies for years 20x4 and 20x5
20x4 20x5
Peters Smith Peters Smith
Common stock P100,000 P25,000 P100,000 P25,000
Other contributed capital 40,000 10,000 40,000 10,000
Retained earnings, 1/1 80,000 10,000 129,000 53,000
Net income (loss) 64,000 45,000 37,500 (5000)
Cash dividends (11/30) 15,000 2,000 5,000 -0-
Any difference between book value and the book implied by the purchase price
relates to Smith Company’s land. Peters Company uses the cost method to record \its
investment.
17. Calculate controlling interest in consolidated net income for 20x4

a. P62,400 c. P86,400
b. P64,000 d. P98,400
18. Calculate controlling interest in consolidated net income for 20x5
a. P31,900 c. P33,500
b. P32,500 d. P37,500
19. Calculate controlling interest in consolidated retained earnings for 20x4
a. P129,000 c. P157,000
b. P151,400 d. P182,500
20. Calculate controlling interest in consolidated retained earnings for 20x5.

a. P151,400 c. P179,900
b. P161,500 d. P184,400

On January 1, 20x4 Plimsol Company acquired 100 percent of Shipping Corporation's voting
shares, at underlying book value. Plimsol uses the cost method in accounting for it's
investment in Shipping. Shipping's retained earnings was P75,000 on the date of acquisition.
On December 31, 20x4, the trial balance data for the two companies are as follows:
Plimsol Company Shipping Corporation

Debit Credit Debit Credit
Currents Assets. P 100,000 P 75,000
Depreciable Assets (net) 200,000 150,000
Investment in shipping stock 125,000
Depreciation expense 20,000 15,000
Other expenses 60,000 45,000
Dividends declared 25,000 15,000
Current Liabilities 40,000 P 25,000
Long-term debt 75,000 50,000
Common stock 100,000 50,000
Retained 150,000 75,000
Earnings
Sales 150,000 100,000
Dividend income 15,000
Total P530,000 P530,000 P300,000 P300,000
21. What amount of net income will be reported in the consolidated financial
statements preparedon December 31, 20x4?
a. P100,000 c. P110,000
b. P85,000 d. P125,000
22. What amount of total assets will be reported in the consolidated balance sheet prepared
on December 31, 20x4?
a. P425,000 c. P650,000
b. P525,000 d. P630,000
23. What amount of retained earnings will be reported in the consolidated balance sheet
prepared on December 31, 20x4?
a. P235,000 c. P310,000
b. P210,000 d. P225,000
24. What amount of total Liabilities will be reported in the consolidated balance sheet
prepared on December 31, 20x4?
a. P525,000 c. P125,000
b. P115,000 d. P190,000
25.What amount of total stockholders equity will be reported in the consolidated balance
sheet prepared on December 31, 20x4?
a. P190,000 c. P460,000
b. P335,000 d. P310,000
Equity Method
Prime industries acquired an 80 percent interest in Sands Company by purchasing 24,000 of
it's 30,000 outstanding shares of common stock at book value of P105,000 on January 1,
20x4. Sands reported net income in 20x4 of P45,000 and in 20x5 of P60,000 earned evenly
throughout the respective years. Prime received P12,000 dividends from Sands in 2014 and
P18,000 in 20x5. Prime uses the equity method to record its investment.
26. Prime should be record investment from Sands during 20x5 of:
a. P18,000. c. P48,000
b. P60,000 d. P33,600
27. The balance of Prime’s investment in Sands account at December 31, 20x5 is:
a. P105,000. c. P159,000
b. P136,600 d. P165,000
28. On 4/1/x6 Patz acquired 90% of Satz's outstanding common stock for P500,000 cash. For
20x6, Satz reported P30,000 of net income each quarter and declared
dividends of P10,000 each quarter. Also for 20x6, Patz recorded P10,000 of
amortization of cost in excess of book value in its general ledger.
What should be the carrying value of Pat'z Investment under the equity method at 1/31/x6
a. P544,000 d. P563,000
b. P545,000 e. P571,000
c. P 562,000
29. On 4/1/x6, Patz acquired 90% of Satz's outstanding common stock for P500,000 cash.
For 20x6. Satz reported P30,000 of net income each quarter and declared dividends of
10,099 each quarter. Also for 20x6. Patz recorded P10,000 of amortization of cost in excess
of book value in its general ledger.
What amount appears in Patz 20x6 income statement if it accounts for it's investment in
Sat'z under the equity method?
a. P17,000 d. P72,000
b.P 27,000 e. P81,000
c. P71,000
On January 1, 20x4 , Puma Corporation acquired 30 percent of Slume reported net assets of
P450,000 valued at historical cost and P500,000 stated at fair value. The difference was due
to the increased value of buildings with a remaining life of 10 years. During 20x4 Slume
reported net income of 25,000 and paid dividends of P10,000, Puma uses the equity
method.
30. What will be the balance in the investment account as of Dec 31, 20x4?
a. P150,000 c. 154,500
b. 157,500 d. 153,000
31. What amount of investment income will be reported by Puma for the year 20x4?
a. P7,500 c. P4,500
b. P6,000 d. P25,000
32. The following accounts were taken from the separate company financial statements of a
parent and its 100%-owned subsidiary (created in 20x1) at the end of 20x6:
Parent Subsidiary
Equity in net income (of subsidiary)………………………………….. P 80,000
Investment in subsidiary…………………………………………………….. 640,000
Common stock …………………………………………………………………….100,000 P 5,000
Additional paid in capital………………………………………………….... 500,000 395,000
Retained Earnings ……………………………………………………………… 450,000 240,000
Dividends declared…………………………………………………………… (140,000) (50,000)
What amount should be reported for consolidated retained earnings at the end of 2006?
a. P450,000 d. 690,000
c. P530,000
33. Gordon Corporation acquired 80 percent of Patrick Company on May 1. At the
acquisition date, Patrick’s inventory had a book and market value of P230,000 and P260,000
respectively while plant assets(net) had a book and market value of P 590,000 and P650,000
respectively. During the year, Patrick has net income of P 150,000. Assuming the inventory
and plant assets had an estimated remaining life of six months and 10 years, respectively,
what is the impact of the purchase differential amortization equity method journal entry on
investment Income.
a. P27,200 increase c. P34,000 increase
b. P127,200 decrease d. P34,000 decrease
34. Payne Corporation acquired 70 percent of Davidson Company on September 1. At the
acquisition date. Davidson inventory had a book and market value of P160,000 and
P190,000, respectively while long term debt had an estimated remaining life of six months
and five years respectively, what is the impact of the purchase differential amortization
equity method journal entry on investment income.
a. 18,600 increase c . 13,020 increase
b. 18,600 decrease d. 13,020 decrease
The following information for question 35-45:
Following are selected accounts for Green Corporation and Vega Company as of December
31, 20x4. Several of Green's accounts have been omitted
Green Vega
Revenues …………………………………………………………………………….. P 900,000 P500,000
Cost of good sold……………………………………………………………………. 360,000 200,000
Depreciation expense ……………………………………………………………. 140,000 40,000
Other expenses ……………………………………………………………………… 100,000 60,000
Investment income…………………………………………………………………. ?
Retained earnings, 1/1/x4………………………………………………………. 1,350,000 1,200,000
Dividends ……………………………………………………………………………. 195,000 80,000
Current assets ………………………………………………………………………. 300,000 1,380,000
Land …………………………………………………………………………………….. 450,000 180,000
Buildings (net) ……………………………………………………………………. 750,000 280,000
Equipment (net) ……………………………………………………………………. 300,000 500,000
Liabilities ………………………………………………………………………………. 600,000 620,000
Common Stock ……………………………………………………………………. 450,000 80,000
Additional paid-in capital ……………………………………………………. 75,000 320,000
Green obtained 100% of Vega on January 1, 20x0, by issuing 10,509 shares of its P10 par
value common stock with a fair value of P95 per share. On January 1, 20x0. Vega's land was
undervalued by P40,000, its buildings were overvalued by P30,000 and equipment was
undervalued by P80,000. The buildings have a 20 year life and the equipment was has a 10-
year life. P50,009 was attributed to an recorded trademark with a 16-year remaining life.
There was goodwill associated with this investment. Assume the use of equity method.
35. Compute the book value of Vega at January 1, 20x0.

a. P997,500 d. P1,600,000
b. P857,500 e. P827,500
c. 1,200,000
36. Compute the December 31,20x4, consolidated revenues.
a. P1,400,000 d. P1,590,375
b. P800,000 e. 1,390,375
c. P1,200,000
37. Compute the December 31, 20x4, Consolidated total expenses.
a. P620,000 d. P909,625
b. P280,000 e. P1,390,375
c. P900,000
38. Compute the December 31, 20x4, Consolidated buildings.
a. P1,037,500 d. P1,022,500
b. P1,006,500 e. P1,012,509
c. P1,000,000
39. Compute the December 31, 20x4, Consolidated equipment
a. P800,000 d. P760,00
b. P808,000 e. P848,000
c. P840,000
39. Compute the December 31, 20x4, Consolidated equipment
a. P800,000 d. P760,000
b. P808,000 e. P848,000
c. P840,000
40. Compute the December 31, 20x4, Consolidated land.
a.P220,000 d. P630,000
b. P180,000 e. P450,000
c. P670,000
41. Compute the December 31, 20x4, Consolidated trademark.
a. P50,000 d. P34,375
b. P46,875 e. P37,500
c. P 0
42. Compute the December 31, 20x4, consolidated common stock.
a. P450,000 d. P635,000
b. P530,000 e. P525,000
c. P1,102,000
41. Compute the December 31, 20x4, Consolidated trademark.
a. P50,000 d. P34,375
b. P46,875 e. P37,500
c. P 0
42. Compute the December 31, 20x4, consolidated common stock.
a. P450,000 d. P635,000
b. P530,000 e. P525,000
c. P1,102,000
43.Compute the December 31, 20x4, Consolidated additional paid-in capital.

a. P75,000 d. P942,500
b. P210,000 e. P525,000
c. P1,102,500
44.Compute the December 31, 20x4, Consolidated retained earnings.
a. P1,645,375 d. P2,845,375
b. P1,350,000 e. P1,265,375
c. P1,565,375
45. Compute the equity in Vega's income reported by Green for 20x4.
a. P500,000 d. P200,000
b. P300,000 e. P290,375
c.P190,375
On 9/30/x6, Punn issued shares of its voting common stock in exchange for all the
outstanding common stock of Sunn in a business combination appropriately accounted for
under the purchase method. Both companies have a December 31- year-end. Selected
information for each company as follows:
Punn Sunn
Net income from own separate operations
(exclusive of earnings recorded under either
the equity method or the cost method):
9 months ended 9/30/x6 P4,500,000 P 600,000
3 months ended 12/31/x6 1,500,000
200,000
P6,000,000
P800,000
Dividends declared:
9 months ended 9/30/x6 P3,000,000 P 300,000
3 months ended 12/31/x6 1,400,000 100,000
P 4,400,000 P 400,000
Amortization of cost in excess
of book value for 20x6 P 60,000
46. What is the parent's net income for 20x6 under the equity method?
a. P6,140,000 d. P6,800,000
b. P6,200,000 e. None of the above.
c. P6,740,000
47. What is the increase in the parent's Retained Earnings account during 20x6 as a result of
acquiring Sunn using equity method.
a. P140,000 d. P300,000
c.P240,000
Use the following information for question 48 to 50 :
On January 1,20x4,Climber Corporation acquired 90 percent of Wisden Corporation for
P180,000 cash. Wisden reported net income of P30,000 and dividends of P10,000 for 20x4,
20x5 and 20x6. On January 1,20x4, Wisden reported common stock outstanding bf of
P100,000 and retained earnings of P60,000, and fair value of the non-controlling interest
was P20,000. It held land with a book value of P30,000 and a market value of P35,000 and
equipment with a book value of P50,000 and a market value of P60,000 and the date of
combination. The remainder of differential acquisition was attributable to an increase in the
value of patents, which had a remaining useful life of five years. All depreciable assets held
by Wisden at the date of acquisition had a remaining economic life of five years. Climber
uses the equity method in accounting for its investment in Wisden
48. The increase in the fair value of patents held by wisden is?
a. P20,000 c. P15,000
b. P25,000 d. P5,000
49. What balance would Climber report as its investment in Wisden at January 1, 20x5
a. P230,000 c. P234,000
b. P180,000 d. P203,000
50. What balance would Climber report as its investment in Wisden at January 1, 20x6
a. P251,100 c. P215,100
b. P224,100 d. P234,000
Cost method versus Equity Method
Pedro purchased 100% of the common stock of the Sanburn Company on January 1, 2014,
for P500,000. On that date, the stockholders equity of Sanburn Company was P380,000 On
the purchase date, Inventory of Sanburn Company, which was sod during 20x4, was
understated by P20,000. Any remaining excess of cost over book value is attributable to
patent with a 20-year life. The reported income and dividends paid by Sanburn Company
were as follows:
20x4 20x5
Net Income …………………………………………………………………………… P80,000 P90,000
Dividends paid ………………………………………………………… 10,000
10,000
51. Using the cost method, which of the following amounts are correct ?
Investment income Investment Account Balance
20x4 December 31, 20x4
a. P10,000 P500,000
b. P70,000 P570,000
c. P70,000 P550,000
d. P10,000 P550,000
52. Using sophisticated (full) equity method. which of the following amounts ate correct
Investment income Investment Account Balance
20x4 December 31, 20x4
a. P55,000 P550,000
b. P55,000 P545,000
c. P75,000 P565,000
d. P80,000 P570,000
Use the following information for question 53 to 75:

Bell Company acquires 80% of Demers Company for P500,000 on January 1, 20x4. Demers
reported common stock of P300,000 and retained earnings of P200,000 on that date.
Equipment was undervalued by P30,000 and buildings were undervalued by P40,000, each
having 10 year remaining life, Any excess consideration transferred over fair value was
attributed to goodwill with an indefinite life. Based on an annual review, goodwill has not
been impaired. Demers earns income and pays dividends as follows:
20x4 20x5 20x6
Net income …………………………………………….. P100,000 P120,000 P130,000
Dividends ………………………………………………. 40,000 50,000 60,000
Assume the cost model or initial value method is applied.

53. Compute Bell's investment in Demers of December 31,20x4.
a. P500,000 d. P524,400
b. P574,400 e. P532,000
c. P625,000
54. Compute Bell's investment in Demers of December 31,20x5.
a. P625,000 d. P500,000
b. P664,000 e. P572,000
c. P592,000
55.Compute Bell's investment in Demers of December 31,20x4.
a. P592,400 d. P676,000
b. P500,000 e. P620,000
c. P625,000
56. How much does Bell report as Income from Demers for the year ended December 31,
20x4?
a. P32,000 d. P 42,400
b. P74,400 e. P41,000
c. P73,000
57.How much does Bell report as Income from Demers for the year ended December 31,
20x5?
a. P90,400 d. P50,000
b. P40,000 e. P56,000
c. P89,000
58. How much does Bell report as Income from Demers for the year ended December 31,
20x6?
a. P 48,000 d. P 97,000
b. P56,000 e. P50,400
c. P98,400
59. Compute the non-controlling interest in the net income of Demers
a. P 12,000 d. P 20,000
b. P 10,600 e. P 14,400
c. P18,600
60. Compute the non-controlling interest in the net income of Demers at December 31,
20x5.
a. P18,400 d. P24,000
b. P14,000 e. P12,600
c. P22,600
20x6.
a. P24,600 d. P20,400
b. P14,000 e. P12,600
c. P26,000
62. Compute the non-controlling interest of Demers at December 31, 20x4
a. P13,5600 d. P100,000
b. P80,000 e. P110,600
c. P117,000
a. P26,000 d. P14,960
b. P106,000 e. P148,200
c. P109,200
a. P107,800 d. P50,000
b. P140,000 e. P160,800
c. P80,000
For the items 65-75 : assume equity method is applied.
65. Compute Bell's investment in Demers at December 31, 20x4
a. P580,000 d. P522,400
b. P574,400 e. P541,000
c. P548,000
a. P577,200 d. P580,000
b. P664,800 e. P572,000
c. P592,800
a. P639,000 d. P676,000
b. P643,200 e. P620,000
c. P676,000
68. How much does Bell report as Income for Demers for the year ended December 31,
20x4?
a. P74,400 d. P41,000
b. P73,000 e. P80,000
c. P42,400
20x5?
a. P90,400 d. P56,000
b. P89,000 e. P96,000
c. P50,490
20x6?
a. P50,400 d. P 97,000
b. P56,000 e. P104,000
c. P98,400
20x4 ?
a. P20,000 d. P10,600
b. P12,000 e. P14,400
c. P18,600
71. Compute the non-controlling interest in the net income of Demers at December 31, 20x5
?
a. P18,400 d. P24,000
b. P14,400 e. P12,600
c. P22,600
?
a. P20,400 d. P14,000
b. P26,600 e. P12,600
c. P24,600
73. Compute the non-controlling interest of Demers at December 31, 20x4.
a. P135,600 d. P100,000
b. P117,000 e. P110,000
c. P112,000
20x5.
a. P107,000 d. P149,600
b. P126,000 e. P148,200
c. P109,200
.
a. P107,800 d. P160,800
b. P140,000 e. P146,800
c. P165,800
Use the following information for question 76 to 99

Peer, Inc. acquires 60 percent of Sea-Breeze Corporation for P 414,000 cash on January 1,
20x2. The remaining 40 percent of the Sea Breeze shares traded near a total value of
P 276,000 both before and after the acquisition date. On January 1, 20x2 , Sea-Breeze had
the following assets and liabilities ( assuming the use of goodwill approach)

Current assets P 150,000 P 150,000
Land 200,000 200,000
Buildings (net) - 6 year life 300,000 360,000
Equipment (net) - 4 year life 300,000 280,000
Patent ( 10 year life) 0 100,000
Liabilities (400,00) (400,000)
Net P550,000 P690,000
Common stock P480,000
Retained earnings 70,000
The companies’ financial statements for the year ending December 31, 20x5. follow the
retained earnings . 1/1/20x5 for Peer under the cost model amounted to P 700,000
Peer Sea-Breeze
Revenues P(600,000) P(300,000)
Operating Expense 410,000 210,000
Investment Income _(_? ) _0
Net Income P( ? ) P (90,000)
Peer Sea-Breeze
Retained earnings, 1/1/x5 P( ?) P (300,000)
Net Income P( ?) (90,000)
Dividends paid 92,000 70,000
Retained earnings, 12/31/x5 P ( ?) P( ?)
(Current asset 330,000 100,000

Land 220,000 200,000
Building (net) 700,000 200,000
Equipment (net) 400,000 500,000
Investment in Sea-Breeze ? ___
Total assets P ? P1,000,000
Liabilities (500,000) (200,000)

Common stock (724,000) (480,000)
Retained earnings, 12/31/x5 ( ?) (320,000)
Total Liabilities and equities ( ?) (1,000,000)
For items 76 to 87 , use the cost model :

76. The investment in sea-Breeze on December 31, 20x5 amounted to
a. Nil or Zero c. P528,000
b. P414,000 d. P690,000
77. The investment income in Sea-Breeze on December 31, 20x5 amounted to :
b. P42,000 d. P54,000
78. What is the consolidated net income for 20x5 and what amounts are attributable to the
controlling and non-controlling interest ?
a. Nil or zero c. P235,000
b. P30,000 d. P265,000
79. What is the profit attributable to equity holders of parent company for the 20x5 and
what amounts are attributable to the controlling of non-controlling interests?
b. P30,000 d. P265,000
80. What is the non - controlling interest in consolidated net income ?
b. P30,000 d. P265,000
81. What is the parent's portion of consolidated net income?
a. P700,000 c. P811,000
b. P720,000 d. Cannot be determined
82. Compute the consolidated retained earnings as of January 1, 20x5.
a. P700,000 c. P811,000
83. The amount needed to convert the cost model to equity method on the January 1, 20x5
(if any) to determine the consolidate retained earnings on the said date should be :
a. Zero c. P138,000
b. P111,000 d. P140,000
84. What is the parent portion of consolidated retained earnings as of December 31, 20x5 ?
a. P700,000 c. P843,000
b. P811,000 d. P954,000
85. Compute the consolidated earnings as of December 31, 20x5
a. P700,000 c. P843,000
b. P811,000 d. P954,000
86. Compute the non- controlling interest on December 31, 20x5 ?
a. P296,000 c. P352,000
b. P320,000 d. P954,000
87. Compute the consolidated equity on December 31, 20x5.
a. P1,887,000 c. P2,030,000
b. P1,919,000 d. P2,054,000
For Items 88 to 99. use the equity method:
88. The investment in Sea-Breeze on December 31, 20x5 amounted to:
b. P414,000 d. P690,000
89. The investment income in Sea-Breeze on December 31, 20x5 amounted to:
b. P42,000 d. P54,000
90. What is the consolidated net income for 20x5 and what amounts are attributable to the
controlling and non- controlling interest ?
b. P30,000 d. P265,000
91. What is the profit attributable to equity holders of parent company for 20x5 and what
amounts are attributable to the controlling and non-controlling interest
b. P30,000 d. P265,000
92. What is the non-controlling interest consolidated net income?
b.P30,000 d. P265,000
93. What is the parent portion of consolidated retained earnings as of January 1, 20x5?
a. P700,000 c. P811,000
94. Compute the consolidated retained earnings as of January 1, 20x5.
a. P700,000 c. P811,000
95. The amount needed to convert the cost model to equity method on the January 1, 20x5
( if any ) should be; 20x5 (if any) to determine the consolidated retained earnings on the said
date should be:
a. Zero c. P138,000
b. P111,000 d. P140,000
96. What is the parent's portion of consolidated retained earnings as of December 31, 20x5?
a. P700,000 c. P843,000
b. P811,000 d. P954,000
97. Compute the consolidated retained earnings as of December 31,20x5.
a. P700,000 c. P843,000
b. P811,000 d. P954,000
98. Compute the non-controlling interest on December 31, 20x5.
a. P296,000 c. P352,000
b. P320,000 d. P376,000
99. Compute the consolidated equity on December 31, 20x5.
a. P1,887,000 c. P2,030,000
b. P1,919,000 d. P2,054,000
Conversion from Cost Model to Equity Method:
100. P Company purchased 80% of the outstanding common stock of S Company on May 1,
20x5 for a cash payment of 1,272,000. S Company's December 31, 20x4 balance sheet
reported common stock of P800,000 and retained earnings of P540,000. During the calendar
year 20x5 . S Company earned 840,000 evenly throughout the year and declared a dividend
of 300,000 on November 1.
What is the amount needed to establish reciprocity under the cost method in the
preparation of a consolidated workpaper on December 31, 20x6?
a. P 208,000 c. P248,000
b. P 260,000 d.P432,000
101. P Company purchased 90% of the outstanding common stock of S Company on January
1, 20x4, S Company's stockholders equity at various date was :
1/1/20x4 1/1/20x6 12/31/20x6

Common stock ………………………………….. P200,000 P200,000 P200,000
Retained Earmings …………………………….. 60,000 190,000 230,000
Total …………………………………………. P260,000 P390,000 P430,000
The work paper entry to Establish reciprocity under the cost method in the preparation of a
consolidated statements workpaper on December 31, 20x6 should include a credit to
company's retained earnings of
a. P 40,000 c. P 130,000
b. P 117,000 d. P 153,000
Items 102 and 103 are based on the following information :

Parent Corporation acquire 70 percent of Subsidiary had equipment ( ten year remaining
life) with a market value and book value of P80,000 and P60,000 respectively. Subsidiary's
income in 20x5 and 20x6 were P15,000 and P22,000, respectively while dividends paid were
P6,000 and P9,000, respectively. Parent accounts for the investment under the cost method.
102. What is the amount needed to establish reciprocity under the cost method in the
preparation of a consolidated work paper on December 31, 20x7?
a. P12,600 c. P25,900
b. P15,400 d. P33,600
103. What amount of adjustment to the investment account is necessary to convert the cost
method investment account (and retained earnings account) to the equity method balance
at December 31, 20x6 ( or January 1, 20x7)?
a. P12,600 c. P25,900
b. P15,400 d. P33,600
104. Trawler Corporation purchased 80 percent of Riptide Enterprises on January 1, 20x5. At
that date, Riptide had a building (20 year remaining life) with a market value and book value
of P310,000 and P220,000 respectively. Riptide's income in 20x5 and 20x6 were P84,000 and
P105,000 , respectively while dividends paid were P30,000 and P50,000, respectively,
Trawles accounts for the investment under the cost method. What amount of adjustment to
the investment account is necessary to convert the cost method investment account to the
equity method balance at December 31, 20x6?
a. P148,000 c. P140,800
b. P80,000 d.P188,800

On April 30, 20x4, HH, Inc. established a 100%-owned subsidiary known as Tiny, Inc. HH, Inc.
invested P550,000 in the shares of Tiny. Tiny has no other shares outstanding. Since its
establishment, Tiny has had the following earnings and paid the following dividends:
Year Net Income Dividends
20x4.......................................... P( 60,000 ) -
20x5.......................................... 70,000 P 18,000
20x6.......................................... 46,000 42,000
20x7.......................................... 110,000 54,000
Total P 166,000 P 144,000

105. Determine the amount of Tiny, Inc. earnings that will be reported as investment by HH,
Inc. in 20x7 under the cost model:
a. None c. P 114,000
b. P 110,000 d. P 116,000
106. Calculate the balance of the investment in Tiny, Inc. account on HH, Inc.'s books on
December 31, 20x5, assuming that HH, Inc.'s maintains investment account on the equity
basis:
a. P 436,000 c. P602,000
b. P550,000 d. P716,000
107. The adjusting entry required to convert from the cost to the equity method that will
have to make December 31, 20x7
a. Investment in Tiny 52,000
Retained earnings beg. 4,000
Dividend revenue 54,000
Equity in subsidiary income 110,000
b. Investment in Tiny 56,000
c. Retained earnings beg. 56,000
d. Dividend revenue 110,000
108. In the consolidated income statement of Wattlebird Corporation and its 85% owned
Forest subsidiary, then non-controlling interest income was reported at P45,000. What
amount of net income did the Forest have for the year?
a. P52,941 c. P235,000
b. P38,250 d. P300,000
109. Pigeon Corporation acquired a 60% interest in Home Company on January 1, 20x5, for
P70,000 cash when Home had Capital Stock of P 60,000 and Retained Earnings of P40,000.
All excess purchase cost was attributable to equipment with a 10-year (straight-line) life.
Home suffered a P 10,000 net loss in 20x5 and paid no dividends. At year-end 20x5, Home
owed Pigeon P 12,000 on account. Pigeon's separate income for 20x5 was P 150,000.
Consolidated net income for 20x5 was:
a. P135,800 c. P143,000
b. P136,800 d. P138,333
110. Simple Company, a 70%-owned subsidiary of Punter Corporation, reported net income
of P240,000 and paid dividends totaling P90,000 during Year 3. Year 3 amortization of
differences between current fair values and carrying amounts of Simple's identifiable net
assets at the date of the business combination was P45,000. The non-controlling interest in
net income of Simple for Year 3 was
a. P58,500 c. P27,000
b. P13,500 d. P72,000
111. Pinta Company acquired an 80% interest in Strummer Company on January 1, 20x4, for
P270,000 cash when Strummer Company had common stock of P150,000 and retained
earnings of P150,000. All excess was attributable to plant assets with a 10-year life.
Strummer Company made P30,000 in 20x4 and paid no dividends. Pinta Company's separate
income in 20x4 was P375,000. Controlling interest in consolidated net income for 20x4 is:
a. P405,000 c. P396,000
b. P399,000 d. P375,000
112. Sleepy Company, a 70%-owned subsidiary of Pickle Corporation, reported net income of
P600,000 and paid dividends totaling P225,000 during Year 3. Year 3 amortization of
differences between current fair values and carrying amounts of Sleepy's identifiable net
assets at the date of the business combination was P112,500. The non-controlling interest in
consolidated net income of Sleepy for Year 3 was
a. P146,250 c. P67,500
b. P33,750 d. P180,00
113. Primer Company acquired an 80% interest in SealCoat Company on January 1, 20x4, for
P450,000 cash when SealCoat Company had common stock of P250,000 and retained
earnings of P250,000. All excess was attributable to plant assets with a 10-year life. SealCoat
Company made P50,000 in 20x4 and paid no dividends. Primer Company's separate income
in 20x4 was P625,000. The controlling interest in consolidated net income for 20x4 is:
a. P675,000 c. P660,000
b. P665,000 d. P625,000
Use the following information from questions 14 to 16:

114. Denber Co. acquired 60% of the common stock of Kailey Corp. on September 1, 20x4.
For 20x4, Kailey reported revenues of P800,000 and expenses of P620,000. The annual
amount of amortization related to this acquisition was P15,000. Denber Co. accounts for its
consolidations according PFRS 3.
In consolidation, the total amount of expenses related to Kailey and to Denber's
acquisition of Kailey for 20x4 is determined to be
a. P206,667 d. P620,000
b. P211,667 e. P635,000
c. P221,667
115. The impact of the consolidation on consolidated net income for 20x4 is determined to
be:
a. P31,000 d. P60,000
b. P33,000 e. P39,000
c. P55,000
116. The non-controlling interest's share of Denber's income for 20x4 is calculated to be
a. P22,000 d. P66,000
b. P24,000 e. P72,000
c. P48,000
117. On January 1, 20x4, Chamberlain Corporation pays P388,000 for a 60 percent
ownership in Neville. Annual excess fair-value amortization of P15,00 results from the
acquisition. On December 31, 20x5, Neville reports revenues of P400,000 and expenses of
P300,000 and Chamberlain reports revenues of P700,000 and expenses of P400,000. The
parent figures contain no income from the subsidiary.What is consolidated net income
attributable to the controlling interest?
a. P231,000 c. P366,000
b. P351,000 d. P400,000
118. On January 1, 20x4, HH Inc., reports net assets of P880,000 although a patent (with a
10-year life) having a book value of P330,000 is now worth P400,000. NN Corporation pays
P840,000 on the date for an 80 percent ownership in HH. On December 31, 20x5, HH reports
total expenses of P621,000 while NN reports expenses of P714,000. What is the
consolidated total expense balance?
a. P1,197,800 c. P1,342,000
b. P1,335,000 d. P1,349,000
119. Keefe, Inc., a calendar-year corporation, acquires 70% of George Company on
September 1, 20x4 and an additional 10% on April 1,20x5. Total annual amortization of
P6,000 relates to the first acquisition. George reports the following figures for 20x5:
Revenues.......................................................................... P500,000
Expenses.......................................................................... 400,000
Retained earnings, 1/1/20x5............................................. 300,000
Dividends paid................................................................. 50,000
Common stock................................................................. 200,000
Without regard for this investment, Keefe earns P300,000 in net income during 20x5. All net
income is earned evenly throughout the year m. What is the controlling interest in
consolidated net income for 20x5?
a. P371,500 c. P373,300
b. P372,850 d. P394,000
120. For 20x6, Pyna reported P500,000 of net income from its own separate operations. This
amount excludes in income relating to Syna, 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 unit concept?
a. P536,000 d. P600,000
b. P544,000 e. P644,000
c. P580,000
121. For 20x6, Pyna reported P500,000 of net income from its own separate operations. This
amount excludes income relating to Syna, 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 parent company concept?
a. P536,000 d. P600,000
b. P544,000 e. P644,000
c. P580,000
On January 1, 20x4, Bristol Company acquired 80 percent of Animation Company's common
stock for P280,000 cash. At that date, Animation reported common stock outstanding of
P200,000 and retained earnings of P100,000, and the fair value of the non-controlling
interest was P70,000. The book values and fair values of Animation's assets and liabilities
were equal, except for other intangible assets which had a fair value P50,000 greater than
book value and an 8-year remaining life. Animation reported the following data for 20x4 and
20x5:
Comprehensive Dividends
Net Income Income paid
20x4 P 25,000 P 30,000 P 5,000
20x5 35,000 45,000 10,000

Bristol reported net income of P100,000 and paid dividends of P30,000 for both the years
122. What is the amount of consolidated comprehensive income reported for 20x4?
a. P118,750 c. P125,000
b. P123,750 d. P130,000
123. What is the amount of consolidated comprehensive income reported for 20x5?
a. P145,000 c. P138,750
b. P135,000 d. P128,750
124. What is the amount of comprehensive income attributable to the controlling interest
for 20x4?
a. P123,750 c. P119,000
b. P118,750 d. P104,000
125. What is the amount of comprehensive income attributable to the controlling interest
for 20x5?
a. P138,750 c. P128,750
b. P131,000 d. P135,000
126. Red Co. acquired 100% of Green Inc. on October 1, 20x4. On January 1, Green had an
inventory with a book value of P42,000 and a fair value of P52,000. This inventory had not
yet been sold at December 31, 20x4. Green had a building with a book value of P200,000
and a fair value of P390,000. Green had an equipment with a book value of P350,000 and a
fair value of P280,000. The building had a 10-year remaining useful life and the equipment
had a 5-year remaining useful life. How much amortization expense will be on the
consolidated financial statements for the year ended on December 31, 20x4 related to the
acquisition of Green?
a. P43,000 c. P15,000
b. P33,000 d. P 5,000
127. Elimination due to allocated excess (acquisition differential) reduces Investment in
Shure by:
a. P29,500,000 c. P34,000,000
b. P33,000,000 d. P36,000,000
128. Elimination due to allocated excess (acquisition differential) increases Goodwill by:
a. P30,300,000 c. P29,500,000
b. P30,500,000 d. P28,500,000
129. The first examination of RR Corporation's financial statement was made for the year
ended December 31, 20x4. The auditor found that RR had acquired another company on
January 1, 20x4, and had recorded goodwill of P100,000 in connection with this acquisition.
Although a friend of the auditor believes the goodwill will last no more than five years, RR's
management has found no impairment of goodwill during 20x4. In its 20x4 financial
statements RR should report:
Amortization Expense Goodwill
a. P 0 P100,000
b. P100,000 P 0
c. P 20,000 P 80,000
d. P 0 P 0
130. Little Corporation acquired 60 percent of Lord Enterprises on June 1, 20x5. At that date
Lord had inventory with a market value P80,000 greater than book value and plant assets
(net) with a market value P192,000 greater than book value. The estimated remaining life of
the inventory and the plant assets are four months and 10 years, respectively. What is the
amount of purchase differential amortization is recognized in worksheet elimination number
3 in 20x5?
a. Cost of Goods Sold P80,000 debit; Depreciation Expense P11,200 debit
b. Cost of Goods Sold P80,000 credit; Depreciation Expense P11,200 credit
c. Cost of Goods Sold P80,000 debit; Depreciation Expense P19,200 debit
d. Cost of Goods Sold P80,000 credit; Depreciation Expense P19,200 credit
131. Johnson, Incorporated acquired 90 percent of Nemec Enterprises on November 1, 20x5.
At that date Nemec had inventory with a market value P60,000 greater than book value and
long-term debt with a market value P15,000 less than book value. Inventory has a remaining
life of six months and the long-term debt matures in five years. What is the amount of
purchase differential amortization is recognized in worksheet elimination number 3 in 20x6?
a. Cost of Goods Sold P20,000 debit; Interest Expense P500 debit
b. Cost of Goods Sold P20,000 debit; Interest Expense P500 credit
c. Cost of Goods Sold P40,000 debit; Interest Expense P3,000 debit
d. Cost of Goods Sold P40,000 debit; Interest Expense P3,000 credit
132. Toni Company is an 80 percent subsidiary of Nathan Industries. At the acquisition date
(January 1, 20x5), Toni Company's plant assets (net) had a book and market value of
P180,000 and P250,000, respectively. Assuming the plant assets have a ten year remaining
life, what is the beginning purchase differential created in worksheet elimination number 1
for the 20x8 consolidated financial statements?
a. P49,000 c. P222,000
b. P42,000 d. P229,000
133. Robertson Corporation is a 90 percent subsidiary of MacNeil, Incorporated. At the
acquisition date (May 1, 20x5), Robertson's plant assets (net) had a book and market value
of P260,000 and P380,000, respectively. Assuming the plant assets have ten year life, what is
the beginning purchase differential created in worksheet elimination number 1 for the 20x8
consolidated financial statements?
a. P84,000 c. P88,000
b. P72,000 d. P76,000
135. The equipment of a subsidiary acquired January 1, 20x5 has a cost and accumulated
depreciation of P300,000 and P170,000, respectively. The equipment is appraised at
P320,000 at the acquisition date. Assuming the equipment has a 10-year remaining life,
what is the worksheet elimination #1 adjustment to the equipment account in 20x7?
a. P20,000 debit c. P190,000 debit
b. P20,000 credit d. P190,000 credit
what is the worksheet elimination #1 adjustment to the accumulated depreciation account
in 20x7?
a. P190,000 c. P132,000
b. P150,000 d. P152,000
what is the amount of the purchase differential amortization to depreciation expense in
20x7?
a. P17,000 c. P2,000
b. P19,000 d. P15,000
138. The building of a subsidiary acquired January 1, 20x5 has a cost and accumulated
depreciation of P450,000 and P105,000, respectively. The building is appraised at P405,000
at the acquisition date. Assuming the equipment has a twenty-year remaining life, what is
the worksheet elimination #1 adjustment to the building account in 20x7?
a. P60,000 debit c. P45,000 debit
b. P60,000 credit d. P45,000 credit
at the acquisition date. Assuming the equipment has a twenty-year remaining life, what is at
the worksheet elimination #1 adjustment to the accumulated depreciation account in 20x7?
a. P54,000 c. P38,000
b. P105,000 d. P99,000
at the acquisition date. Assuming the equipment has a twenty-year remaining life, what is
the amount of the purchase differential amortization to depreciation expense in 20x7?
a. P3,000 c. P2,000
b. P5,250 d. P17,250
141. Bailey, Inc., buys 60 percent of the outstanding stock of Luebs, Inc. Luebs owns a piece
of land that cost P200,000 but was worth P500,000 at the acquisition date. What value
should be attributed to this land in a consolidated balance sheet at the date of takeover?
a. P120,000 c. P380,000
b. P300,000 d. P500,000
142. 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, Parrett's equipment (ten-year life) had a
book value of P360,000 but a fair value of P480,000. Jones had equipment (ten-year life)
with a book value of P240,000 and fair value of P350,000. Parrett used the cost model to
record its investment in Jones. On December 31, 20x6, Parrett had a equipment with a book
value of P250,000 and a fair value of P400,000. 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 c. P475,000
b. P580,000 d. P497,000
143. Goehler, Inc. acquires all of the voting stock of Kenneth, Inc. on January 4, 20x4, at a
price in excess of Kenneth's fair value. On that date, Kenneth has equipment with a book
value of P90,000 and a fair value of P120,000 (10-year remaining life). Goehler has
equipment with a book value of P800,000 and a fair value of P1,200,000 (10-year remaining
life). On December 31, 20x5, Goehler has equipment with a book value of P975,000 but a
fair value of P1,350,000 and Kenneth has equipment with a book value of P105,000 but a
fair value of P125,000. If Goehler applies the cost model or the initial value method in
accounting for Kenneth, what is the consolidated balance for the equipment account as of
December 31, 20x5?
a. P1,080,000 d. P1,468,000
b. P1,104,000 e. P1,475,000
c. P1,100,000
144. On January 1, 20x4, Brendan, Inc., reports net assets of P760,000 although equipment
(with a fouryear life) having a book value of P440,000 is worth P500,000 and an unrecorded
patent is valued at P45,000. Hope Corporation pays P692,000 on that date for an 80 percent
ownership in Brendan. 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, 20x5?
a. P28,800 c. P36,000
b. P32,400 d. P40,500
Use the following information from questions 145 to 149:

Watkins, Incorporated acquired all of the outstanding stock of Glen Corporation on January
1, 20x4. On that date, Glen owns only three assets and has no liabilities.
Inventory. . . . . . . . . . . . . . . . . . . P 40,000 P 50,000
Equipment (10-year life) . . . . . . 80,000 75,000
Building (20-year life) . . . . . . . . 200,000 300,000
145. If Watkins pays P450,000 in cash for Glen, what amount would be represented as the
subsidiary's Building in a consolidation at December 31, 20x6, assuming the book value at
that date is still P200,000?
a. P200,000 c. P290,000
b. P285,000 d. P295,000
subsidiary's Building in a consolidation at December 31, 20x6, assuming the book value at
a. P200,000 c. P268,000
b. P260,000 d. P295,000
subsidiary's Equipment in a consolidation at December 31, 20x6, assuming the book value at
a. P70,000 c. P75,000
b. P73,500 d. P76,500
148. If Watkins pays P450,000 in cash for Glen, what allocation should be assigned to the
subsidiary's Equipment in preparing for consolidation at December 31, 20x6, assuming the
book value on that date is still P80,000?
a. P3,500 c. P73,500
b. P5,000 d. P75,000
149. If Watkins pays P300,000 in cash for Glen, at what amount would the subsidiary's
Building be represented in a January 2, 20x4 consolidation?
a. P225,000 c. P279,000
b. P273,000 d. P300,000

McGuire company acquired 90 percent of Hogan Company on January 1, 20x4, for P234,000
cash. Hogan's stockholders' equity consisted of commons stock of P160,000 and retained
earnings of P80,000. An analysis of Hogan's net assets revealed the following:
Buildings (10-year life). . . . . . . . . . . . . . . . . P 10,000 P 8,000
Equipment (4-year life). . . . . . . . . . . . . . . . 14,000 18,000
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 12,000
Any excess consideration transferred over fair value is attributable to an unamortized patent
with a useful life of 5 years.
150. In consolidation at January 1, 20x4, what adjustment is necessary for Hogan's Buildings
account?
a. P2,000 increase d. P1,800 decrease
b. P2,000 decrease e. No change
c. P1,800 increase
151. In consolidation at December 31, 20x4, what adjustment is necessary for Hogan's
Buildings account?
c. P1,800 increase
Buildings account?
c. P1,600 increase
153. In consolidation at January 1, 20x4, what adjustment is necessary for Hogan's
Equipment account?
b. P4,000 increase e. No change
c. P3,600 increase
Equipment account?
c. P2,700 increase
Equipment account?
c. P1,800 increase
156. In consolidation at January 1, 20x4 what adjustment is necessary for Hogan's Land
account?
b. P7,000 decrease e. P8,000 decrease
c. P6,300 increase
157. In consolidation at December 31, 20x4 what adjustment is necessary for Hogan's Land
account?
a. P 0 d. P6,300 increase
b. P7,000 increase e. P8,000 decrease
c. P6,300 decrease
158. In consolidation at December 31, 20x5, what adjustment is necessary for Hogan's Land
account?
a. P 0 d. P6,300 increase
b. P7,000 increase e. P6,300 decrease
c. P7,000 decrease
159. In consolidation at January 1, 20x4, what adjustment is necessary for Hogan's Patent
account?
a. P 0 d. P9,900
b. P6,300 e. P11,000
c. P7,000
160. In consolidation at December 31, 20x4, what net adjustment is necessary for Hogan's
Patent account?
a. P 0 d. P7,700
b. P5,600 e. P11,000
c. P7,000
161. In consolidation at December 31, 20x5, what net adjustment is necessary for Hogan's
Patent account?
a. P 0 d. P6,600
b. P4,200 e. P8,800
c. P5,500

On January 1, Parent Company acquired 90% of Subsidiary Company in exchange for 5,400
shares of P10 par common stock having a market value of P120,600. Parent and Subsidiary
condensed balance sheets on January 1, were as follows:
Assets Parent Subsidiary
Company Company
Cash .............................................................. P 30,900 P 37,400
Accounts receivable, net .............................. 34,200 9,000
Inventories ................................................... 22,900 16,100
Equipment, net ............................................ 179,000 40,000
Patents ........................................................ - 10,000
Total Assets ............................................... P267,000 P112,600
Liabilities and Equities
Accounts payable ..................................... P 4,000 P 6,600
At the date of acquisition (using partial goodwill approach), all assets and liabilities of
Subsidiary Company have book value approximately equal to their respective market values
except the following as determined by appraisal as follows:
Inventories .............................................................. P17,100
Equipment (net-remaining life 4 years) ................... 48,000
Patents (remaining life 10 years) ............................. 13,000

162. The amount of goodwill on January 1:
a. P 2,600 c. P 14,400
b. P 3,800 d. P 25,200
163. The non-controlling interest on January 1:
a. P 10,600 c. P 11,800
b. P 11,200 d. P 13,090
164. The equity holders of parent (or controlling interest) -retained earnings on January 1:
a. P 48,000 c. P 84,900
b. P 52,100 d. P 89,000
165. The consolidated retained earnings on January 1:
a. P 48,000 c. P 84,900
b. P 52,100 d. P 89,000
166. For the year ended December 31, the following results were given:
Dividends Paid Net Income
Parent Company............ P 15,000 P 30,200
Subsidiary Company..... 4,000 9,400

The investment balance on December 31:
a. P 0 c. P 122,160
b. P120,000 d. P 125,460
167. Using the same information in No. 166, compute the Dividend Income for the year:
a. P 0 c. P 4,000
b. P 3,600 d. P 8,400
168. Using the same information in No. 166, the non-controlling interest in net income on
December 31:
a. P 0 c. P 610
b. P 540 d. P 940
169. Using the same information in No. 166, the non-controlling on December 31:
a.P 10,600 c. P 12,010
b. P 11,140 d. P 12,300
170. Using the same information in No. 166, the profit attributable to equity holders of
parent (or controlling interest in consolidated net income) on December 31:
a. P 26,600 c. P 36,000
b. P 32,090 d. P 44,100
171. Using the same information in No. 166, the Consolidated/Group Net Income on
December 31:
a. P 26,600 c. P 32,700
b. P 32,090 d. P 44,100
172. Using the same information in No. 166, the equity holders of parent (or controlling
interest) retained earnings on December 31:
a. P 64,760 c. P 69,400
b. P 65,090 d. P 69,400
173. Using the same information in No. 166, the consolidated retained earnings on
December 31:
a. P 64,760 c. P 69,400
b. P 65,090 d. P 69,800
174. Using the same information in No. 166, the consolidated total equity on December 31:
a. P 108,090 c. P 312,700
b. P 300,690 d. P 317,410
On January 1, 20x4, RR Corporation acquired 80 percent of SS Corporation’s P10 par
common stock for P956,000. On this date, the fair value of the non-controlling interest was
P239,000, and the carrying amount of SS’s net assets was P1,000,000. The air values of SS’s
identifiable assets and liabilities were the as their carrying amounts except for plant assets
(net) with a remaining life of 20 years, which were P100,000 in excess of carrying amount.
For the year ended December 31, 20x4, SS had net income of P190,000 and paid cash
dividends totaling P125,000.
175. In January 1, 20x4, consolidated balance sheet, the amount of goodwill reported should
be:
a. P - 0 - c. P 95,000
b. P 76,000 d. P 156,000
176. In December 31, 20x4, consolidated balance sheet, the amount of non-controlling
interest reported should be:
a. P 200,000 c. P 251,000
b. P 239,000 d. P 252,000
West Company acquired 60 percent of Solar Company for P300,000 when Solar’s book value
was P400,000. The newly comprised 40 percent non-controlling interest had an assessed fair
value of P200,000. Also at acquisition date, Solar had a trademark (with a 10-year life) that
was undervalued in the financial records by P40,000. Two years later, the following figures
are reported by these two companies (stockholders’ equity accounts have been omitted):
West Co. Solar Solar
Book Value Book Value Fair Value
Current assets P 620,000 P 300,000 P 320,000
Trademarks 260,000 200,000 280,000
Patented technology 410,000 50,000 150,000
Liabilities (390,000) (120,000) (120,000)
Revenues (900,000) (400,000)
Expenses 500,000 300,000
Investment income Not given
177. What is the consolidated net income before allocation to the controlling and non-
controlling interests?
a. P 400,000 c. P 491,600
b. P 486,000 d. P 500,000
178. Assuming Solar Company has paid no dividends, what are the non-controlling interest’s
share of the subsidiary’s income and the ending balance of the non-controlling interest in
the subsidiary?
a. P 26,000 and P230,000 c. P 34,400 and P280,800
b. P 28,800 and P252,000 d. P 40,000 and P252,000
179. What is the consolidated trademarks balance?
a. P 508,000 c. P 520,000
b. P 514,000 d. P 540,000
180. On April 1, PP, Inc., exchanges P430,000 fair-value consideration for 70 percent of the
outstanding stock of RR Corporation. The remaining 30 percent of the outstanding shares
Continued to trade at a collective fair value of P165,000. RR’s identifiable assets and
liabilities each had book values that equaled their fair values on April 1 for a net total of
P500,000. RR generates annual (12-month) revenues of P600,000 and expenses of P360,000
and paid no dividends. On December 31 consolidated balance sheet, what amount should
be reported as non-controlling interest?
a. P 219,000 c. P 234,000
b. P 237,000 d. P 250,500
181. January 1, 20x4, Payne Corp. purchased 70% of Shayne Corp.’s P10 par common stock
for P900,000. On this date, the carrying 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
amount. For the year ended December 31, 20x4, Shayne had net income of P150,000 and
paid cash dividends totaling P90,000. Excess attributable to plant assets is amortization over
10 years.
In December 31, 20x4, consolidated balance sheet, non-controlling interest should be

reported at:
a. P 282,714 c. P 397,714
b. P 300,500 d. P 345,500
Use the following from questions 182 and 183:
On January 2, 20x4, PP Company acquired 75 percent of KK Company’s outstanding common
stock. Selected balance sheet data at December 31, 20x4, are as follows
PP KK
Total Assets P420,000 P180,000
Liabilities P120,000 P60,000
Common Stock 100,000 50,000
Retained Earnings 200,000 70,000
P420,000 P180,000
182. In PP's December 31, 20x4, consolidated balance sheet, what amount should be
repeted as non-controlling interest in net assets?
a. P -0- c. P45,000
b. P30,000 d. P105,000
183. In its consolidated balance sheert at December 31, 20x4, what amount should PP reort
as common stock outstanding?
a. P -0- c. P45,000
b. P30,000 d. P105,000
184. Powell Enterprises acquited 80 percent of Sullivan Company on January 1, 20x5 for
P250,000. At that date, Sullivsn's inventory and plant assets (net) had market values in
excess of book values in the amounts of P30,000 and P80,000, respectively.The estimsted
remaining life of the inventory and plant assets were four months and eight years,
respectively. Assume that Sullivan has 2005 income and dividends of P210,000 and
P80,000,respectively, what is the balance in the non-controlling Interest account at
December 31,20x6?
a. P169,200 c. P54,500
b. P70,500 d. P242,000
185. Photoplasm Corporation acquired 70 percent of Spectrum Company on January 1, 20x5
for P420,000. At this date Spectrum had inventory and plant assets with market values
greater than book values in the amount of P50,000 and P80,000, respectively. The estimated
remaining life of the inventory and plant assets were four monhs and eight years
respectively. Assuming that Spectrum has 20x5 income and dividends of P600,000 and
P60,000, respectively and 20x6 income and dividends of P210,000 and P80,000, respectively,
whst is the balance in the non-controlling Interest account at December 31,20x6?
a. P169,200 c. P136,800
b. P276,000 d. P223,200
186. On January 1, 20x4, PP Company acquired an 80 percent investment in SS Company.
The acquisition cost was equal to PP's equity in SS's net asset at that date. On January 1,
20x4, PP and SS has retained earnings of P500,000 and P100,000, respectively. During 20x4,
PP had net income of P200,000, which included its equity in SS's earning, and declared
dividends of P50,000; SS had net income of P40,000 and declared dividemds at P20,000.
There were no other intercompany transactions between the parent and subsidiary. On
December 31, 20x4, what should the consolidated retained esrnings be?
a. P650,000 c. P766,000
b. P666,000 d. P770,000
Push-down Accounting
On 4/1/x6, Pullco acquired 100% of Strapco's outstanding common stock for P500,000 cash.
For 20x6, Strapco reported the following items:
Net Income Dividends Declared
First quarter P 40,000 P 30,000
Remainder of year 150,000 90,000

P190,000 P120,000
187. In addition, amortization of cost in excess of book value for 20x6 was P20,000. Assume
non-controlling push-down accounting is used. Under the equity method, what is the
carrying value of the Investment account at 12/31/x6?
a. P500,000 d. P570,000
b. P540,000 e. P630,000
c. P550,000
Miscellaneous
189. Pahl Corporation owns a 60% interest in Sauer Corporation, acquired at book value
equal to fair value at the beginning of 20x4. On December 20, 20x4 Sauer declares dividends
of P80,000, and the dividend remain unpaid at year end. Pahl has not recorded the
dividends receivable at December 31. A consolidated balance sheet.
a. Enter the P80,000 dividends receivable in the consolidated balance sheet l.
b. Enter P48,000 dividends receivable in the consolidated balance sheet.
c. Reduce the dividend payable account to P32,000 in the consolidated balance
sheet.
d. Eliminate the dividend payable account in the consolidated balance sheet.
190. Jordan, Inc., holds 75 percent of the outstanding stock of Paxson Corporation. Paxson
currently owes Jordan P400,00 for inventory acquired over the past few months. In
preparing consolidated financial statemens, what amount of debt should be eliminated?
a. P -0- c. P300,000
b. P100,000 d. P400,000
191. Bird Corporation has several subsidiaries that are included in its consolidated financial
statements and several other investments in corporations that are not consolidated. In its
year-end trial balance, the following intercompany balances appear. Ostrich Corporation is
the unconsolidated company; the rest are consolidated.
Due from Pheasant Corporation P 25,000
Due from Turkey Corporation 5,000
Cash advance to Skylark Company 8,000
Cash advance to Starling 15,000
Current receivable from Ostrich 10,000
What amount should Bird report as intercompany receivables on its consolidated balance
sheet?
a. P -0- c. P30,000
b. P10,000 d. 63,000
THEORIES
1. An investor adjusts the investment account for the amortization of any difference
between cost and book value under the
a. cost method
b. complete equity method
c. partial equity method
d. complete and partial equity methods
2. On the consolidated statement of cash flows, the parent's acquisition of additional shares
of the subsidiary's stock directly from the subsidiary is reported as
a. an investing activity
b. a financing activity
c. an operating activity
d. none of these
3. Under the cost method, the workpaper entry to establish reciprocity
a. Debits Retained Earnings - S Company
b. Credits Retained Earnings - S Company
c. Debits Retained Earnings - P Company
d. Credit Retained Earnings - P Company
4. Under the cost method, the investment account is reduced when
a. there is a liquidating dividend
b. the subsidiary declares a cash dividend
c. the subsidiary incurs a net loss
d. None of these
5. The parent company records its share of a subsidiary's income by
a. crediting Investment in S Company under the partial equity method
b. crediting Equity in subsidiary income under both the cost and partial equity methods
c. debiting Equity in Subsidiary Income under the cost method
d. None of these
6. In years subsequent to the year of acquisition, an entry to establish reciprocity is made
under the
a. complete equity method
b. cost method
c. partial equity method
d. complete and partial equity methods
7. A parent company received dividends in excess of the parent company's share of the
subsidiary's earnings subsequent to the date of the investment. How will parent company's
investment account be affected by those dividends under each of the following accounting
methods?
Cost Method Fair Value Model
a. No effect Decrease
b. Decrease No effect
c. No effect No effect
d. Decrease Decrease
8. Consolidated net income for a parent company and its partially owned subsidiary is best
defined as the parent company's
a. recorded net income
b.recorded net income plus the subsidiary's recorded net income
c. recorded net income plus the subsidiary's recorded net income
d. income from independent operations plus subsidiary's income resulting from
transactions with outside parties
9. In the preparation of a consolidated statements work paper, dividend income recognized
by a parent company for dividends distributed by its subsidiary is
a. include with parent company income from other sources to constitute consolidated
net income
b. assigned as a component of the non-controlling interest
c. allocated proportionately to consolidated net income and the non-controlling
interest
d. eliminated
10. In the preparation of a consolidated statement of cash flows using the indirect method
of presenting cash flows from operating activities, the amount of the non-controlling interest
in consolidated income is
a. combined with the controlling interest in consolidated net income
b. deducted from the controlling interest in consolidated net income
c. reported asa significant noncash investing and financing activity in the notes.
d. reported as a component of cash flows from financing activities
11. A parent company uses the partial equity method to account for an investment in
common stock of its subsidiary. A portion of the dividends received this year were in excess
of the parent company's share of the subsidiary's earnings subsequent to the date of the
investment. The amount of dividend income that should be reported in the parent
company's separate income statement should be
a. Zero
b. the total amount of dividends received this year
c. the portion of the dividends received this year that were in excess of the parent's
share of the subsidiary's earnings subsequent to the date of investment
d. the portion of the dividends received this year that were NOT excess of the parent's
share subsidiary's earnings subsequent to the date of the investment
12. Which one of the following describes a difference in how the equity method is applied
under GAAP than under IFRS?
a. the equity method is generally applied to limited partnershis under IFRS for
investments of more than 3% to 5% whereas GAAP adopts a "significant influence"
principle
b. IFRS requires uniform accounting policies, whereas GAAP does not.
c. significant influence is presumed if the investor has 20% or more of the voting rights
in a corporate investee under GAAP, where as IFRS adopts a "facts and
circumstances" approach that looks beyond the voting rights percentage
d. GAAP requires consideration of potential voting rights on currently exercisable of
convertible intruments, whereas IFRS does not.
13. When the implied value exceeds the aggregate fair value of identifiable net assets, the
residual differenceis accounted for as
a. excess for implied over fair value
b. a deferred credit
c. difference between implied and fair value
d. goodwill
14. Under which set of circumstances would it not be appropriate to assume the value the
non-controlling shares is the same as the controlling shares?
a. The acquisition is for less than 100% of the subsidiary
b. The fair value of the non-controlling shares can be inferred form the value implied by
the acquisitio price
c. Active market prices for shares not obtained by the acquirer imply a different value
d. The amount of the "control premium" cannot be determined
15. When the value implied by the purchase price of a subsidiary is in excess of the fair value
of identifiable net assets, the workpaper entry to allocate the difference between implied
and book value includes a
1. debit to different between implied and book value
2. credit to excess of implied over fair value
3. credit to difference between implied and book value
a. 1 c. 3
b. 2 d. Both 1 and 2
16. If the fair value of the subsidiary's identifiable net assets exceeds both the book value
and the value implied by the purchase price, the workpaper entry to eliminate the
investment account
a. debits excess of fair value over implied value
b. debits difference between implied and fair value
c. debits difference between implied and book value
d. credits differencebetween implied and book value
17. The entry to amortize the amount of difference between implied and book value
allocated to an unspecified intangible is recorded
1. on the subsidiary's books
2. on the parent's books
3. on the consolidated statements workpaper
a. 1 c. 3
b. 2 d. Both 2 and 3
18. The excess of fair value over implied value must be allocated to reduce proportionally
the fair values initially assigned to
a. current assets
b. noncurrent assets
c. both current and noncurrent assets
d. none of the above
19. The SEC requires the use use of push down accounting when ownership change is
greater than
a. 50% c. 90%
b. 80% d. 95%
20. Under push down accounting, the work paper entry to eliminate the investment account
includes a
a. debit to goodwill
b. debit to revaluation capital
c. credit to revaluation capital
d. debit to revaluation assets
21. In a business combination accounted for as an acquisition, how should the excess of fair
value of identifiable net assets acquired over implied value be treated?
a. Amortized as a credit to income over a period not to exceed forty years
b. Amortized as a change to expense over a period not to exceed forty years
c. Amortized directly to retained earnings over a period not to exceed forty years
d. Recognized as an ordinary gain in the year of acquisition
22. Goodwill represents the excess of the implied value of an acquired company over the
a. aggregate fair values of identifiable assets less liabilities assumed.
b. aggregate fair values of tangible assets less liabilities assumed
c. aggregate fair values of intangible assets less liabilities assumed
d. book value of an acquired company
23. In preparing consolidated working papers, beginning retained earnings of the parent
company will be adjusted in years subsequent to acquisition with an elimination entry
whenever:
a. a non-controlling interest exists.
b. it does not reflect the equity method
c. the cost method has been used only
d. the complete equity method is in use.
24. Dividends declared by a subsidiary are eliminated against dividend income recorded by
the parent under the
a. partial equity method
b. equity method
c. cost method
d. equity and partial equity methods
25. What is the effect if an unconsolidated subsidiary is accounted for by the equity method
but consolidated statements are being prepared for the parent company and other
subsidiaries?
a. All of the unconsolidated subsidiary's accounts will be included individually in the
consolidated statements.
b. The consolidated retained earnings will not reflect the earnings of the
unconsolidated subsidiary
c. The consolidated retained earnings will be the same as if the subsidiary had been
included in the consolidation
d. Dividend revenue from the unconsolidated subsidiary will be reflected in
consolidated net income
26. Which of the following statements applying to the use of the equity method versus the
cost method is true?
a. The equity method is required when one firm owns 20% or more of the common
stock of another firm
b. If no dividends were paid by subsidiary, the investment account would have the
same balance under both methods
c. The method used has no significance to consolidated statements
d. An advantage of the equity method is no amortization of the excess adjustment
needs to be made on the consolidated worksheet
27. In consolidated financial statements, it is expected that:
a. Dividends declared equals the sum of the total parent company's declared dividends
and the total subsidiary's declared dividends
b. Retained Earnings equals the sum of the controlling interest's separate retained
earnings and the non-controlling interest's separate retained earnings
c. Common stock equals the sum of the parent company's outstanding shares and the
subsidiary's outstanding shares.
d. Net income equals the sum of the income distributed to the controlling interest in
consolidated distributed to the non-controlling interest.
28. How is the portion of consolidated earnings to be assigned to non-controlling interest in
consolidated financialstatements determined?
a. The net income of the parent is subtracted from the subsidiary's net income to
determine the non-controlling interest
b. The subsidiary's net income is extended to the non-controlling interest
c. The amount of the subsidiary's earnings is multiplied by the non-controlling's
percentage ownership and is adjustedfor the excess cost amortization applicable to
the NCI.
d. The amount of consolidated earnings determined on the consolidated working
papers is multiplied by the non-controlling interest percentage at the balance-sheet
date.
29. Alpha purchased an 80% interest in Beta on June 3p, 20x4. Both Alpha's and Beta's
reporting periods end December 31. Which of the following representsthe controlling
interest in consolidated net income for 20x4?
a. 100% of Alpha's July 1-December 31 income plus 80% of Beta's July 1-December 31
income
b. 100% of Alpha's July 1-December 31 income plus 100% of Beta's July 1-December 31
income
c. 100% of Alpha's January 1-December 31 income plus 80% of Beta's July 1-December
31 income
d. 100% of Alpha's January 1-December 31 income plus 80% of Beta's January 1-
December 31 income
30. In a mid-year purchase when the subsidiary's books are are not closed until the end of
the year , the purchased income account contains the parent's share of the
a. Subsidiary's income earned for the entire year.
b. Subsidiary's income earned fromthe beginning of the year to the date of acquisition.
c. Subsidiary's income earned from the date of acquisition to the end of the year.
d. Consolidated Net Income.
31. What is a basic premise of the acquisition method regarding accounting for non-
controlling interest?
a. Consolidated financial statements should be primarily for the benefit of the parent's
company's stockholders.
b. Consolidated financial statements should be produced only if both the parent and
the subsidiary are in the same basic industry.
c. A subsidiary is an invisible part of a business combination and should be included in
its entirely regardless of the degree of ownership.
d. Consolidated financial statements should not report a non-controlling interest
balance because these outside owners do not hold stock in the parent company.
32. JJ Company acquired 85 percent of MR Company on April 1. On December 31,
consolidated income statement, how should JJ account for MR's revenues and expenses that
occured before April 1.
a. Include 100 percent of MR's revenues and expenses and deduct the pre-acquisition
portion as non-controlling interest in net income.
b. Exclude 100 percent of the pre-acquisition revenues and 100 percent of the pre-
acquisition expenses from their respective consolidated totals.
c. Exclude 15 percent of the pre-acquisition revenues and 15 percent of the pre-
acquisition expenses from consolidated expenses.
d. Deduct 15 percent of the net combined revenues and expenses relating to the pre-
acquisition period from consolidated net income
33. A parent buys a 32 percent of a subsidiary in one year and then buys an additional 40
percent in the next year. In a step acquisition of this type, the original 32 percent acquisition
should be
a. maintained at its initial value.
b. adjusted to its equity method balance at the date of the second acquisition.
c. adjusted to fair value at the date of the second acquisition with a resulting gain or
loss recorded.
d. adjusted to fair value at the date of the second acquisition with a resulting
adjustment to additional paid-in capital.
34. Goodwill is:
a. Seldom reported because it is too difficultto measure
b. Reported when more than book value is paid in purchasing another company
c. Reported when the fair value of the acquire is greater than the fair value of the net
identifiable assets acquired
d. Generally smaller for small companies and increases in amount as the companies
acquired increase in size.
35. If AA Company acquires 80 percent of the stock of BB Company on January 1, 20x2,
immediately after the acquisition:
a. Consolidated retained earnings will be equal to the combined retained earnings of
the two companies.
b. Goodwill will be reported in the consolidated balance sheet.
c. AA Company's additional paid-in capital may be reduce to permit the carry forward
of BB Company Retained Earnings.
d. Consolidated retained earnings and AA Company retained earnings will be the same.
36. Which of the following statements is correct?
a. The non-controlling shareholder's claim of the subsidiary's net assets is based on the
book value of the subsidiary's net assets
b. Only the parent's portion of the difference between book value and fair value of the
subsidiary's assets is assigned to those assets.
c. Goodwill represents the differences between book value of the subsidiary's net
assets and the amount paid by the parent to buy ownership.
d. Total assets reported by the parent generally will be less than total assets reported
on the consolidated balance sheet.
37. Which of the following statements is correct?
a. Foreihn Foreign subsidiaries do not need to be consolidated if they are reported as a
separate operating group under segment reporting.
b. Consolidated retained earnings do not include the non-controlling interest's claim on
the subsidiary's retained earnings.
c. The non-controlling shareholders' claim should be adjusted for changes in the fair
value of the subsidiary assets but should not include goodwill.
d. Consolidation is expected any time the investor holds significant influence over the
investee.
38. A 70 percent owned subsidiary company declares and pays a cash dividend. What effect
does the dividend have on the retained earnings and non-controlling interest balances in the
parent company's consolidated balance sheet?
a. No effect on either retained earnings or non-controlling interest.
b. No effect on retained earningsand a decrease in non-controlling interest
c. Decreases in both retained earnings and non-controllinginterest
d. A decrease in retained earnings and no effect on non-controlling interest.
39. How is the portion of consolidated earnings to be assigned to the non-controlling
interest in consolidated financial statements determined?
a. The parent's net income is subtracted from the subsidiary's net income to determine
the non-controlling interest.
b. The subsidiary's net income is extended to the non-controlling interest.
c. The amount of the subsidiary's earnings recognized for the consolidation purposes is
multiplied by the non-controlling interest's percentage of ownership.
d. The amount of consolidated earnings on the consolidated work papers is multiplied
by the non-controlling interest percentage on the balance sheet date.
40. Which of the following observation is NOT consistent with the use of push down
accounting?
a. The revaluation capital account is part of the subsidiary's stockholders ' equity.
b. No differential arises in the consolidation process
c. Revaluation capital account is eliminated in preparingconsolidated statements.
d. Eliminating entries related to the differential are needed in the workpapers.
41. When companies employ push-down accounting:
a. the consolidated financial statements will appear exactly as if push-down accounting
had not been used.
b. a special account called Revaluation Capital will appear in the consolidated balance
sheet.
c. all consolidation elimination entries are made on the book of the subsidiary rather
than in consolidated workpaper.
d. it means that the subsidiary is not substantially wholly owned by the parent.
42. Which of the following statements is false regarding push-down accounting?
a. Push-down accounting simplifies the consolidation process.
b. Push-down accounting provides better information for internal evaluation.
c. Push-down accounting must be applied for combinations under a pooling of
interests.
d. Push-down proponents argue that a change in ownership creates a new basis for
subsidiary assets and liabilities.
43. When a company applies the initial value method in accounting for its investment in a
subsidiary and the subsidiary report income less than dividends paid, what entry would be
made for a consolidated worksheet?
a. Retained Earnings
Investment in subsidiary
b. Investment in subsidiary
Retained Earnings
c. Investment in subsidiary
Equity in subsidiary's income
d. Retained Earnings
Additional paid-in capital

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I-Cost Model/ Method versus Equity Method

YEAR NET INCOME DIVEDENDS PAID

Retained earnings, beginning ……………………………........... P 500,000

Retained earnings, beginning…………………………………………….. P 498,500

II- Cost Model/Method versus Equity Method

lll – Cost Model/Method

Required: Compute the following

V – Cost Model/ Method versus Equity Method

MM Company acquired an 80 percent interest in TL Company on January 1, 20x4. MM paid P

On January 1, 20x4, TL reported a book value of P 600,000 (Common Stock = P 300,000;

During the next three years, TL reported the following figures:

Year Net Income Dividends Paid

What will be the consolidated balance of each of these accounts?

What will be the consolidated balance of each of these accounts?

Vl – Parent Company and Consolidation amounts

VII – Computation of Consolidated Balances

On January 1, 20x4, PS Corporation acquired 80 percent of the 100,000 outstanding voting

Book Fair Remaining

Current liabilities …………………... 180,000 180,000

In addition, PS assigned a P 600,000 value to certain unpatented technologies recently

VIII – Computation of Consolidated Balances

Cash and Receivables………………………. P 250,000 P 100,000

X – Cost versus Equity Method: Computation of Consolidated Net income

XI – Computation of Consolidated Net Income and Retained Earnings

XII – Equity Method

Net Income Dividends Paid

Sax Co. Book value Sax Co. Fair Value

Pascal Co. Sax Co.

Debit Pascual Co. Sax Co.

Sales........................................................................ P 540,000 P 360,000

Less: Cost of goods sold………………………..………… 216,000 192,000

Gross profit…………………………………………………………. P 314,000 P 168,000

Less: Depreciation expense………………………………... 60,000 24,000

Other expense....................................................... 72,000 54,000

Net income from its own separate operations…... P 192,000 P 90,000

Add: Dividend Income……………………………………………,… 38,400 -

Net income................................................................ P 230,400 90,000

Dividends paid…….…………………………………………… P 72,000 P 48,000

No goodwill impairment loss for 20x5

XIV - 80% - Owned Subsidiary: Cost Model - Consolidated Financial Statements

Savage Co. Savage Co.

Patton Co. Savage Co.

Debits Patton Co. Savage Co.

Patton Co. Savage Co.

No goodwill impairment loss for 20x5.

XVI - 80% Owned Subsidiary: Equity Method, Full-goodwill, With Goodwill

MULTIPLE CHOICE PROBLEMS

Use the following information for question 2 and 3:

Amortization of cost in excess of book value

Use the following information for questions 15 and 16:

Fair value of investment

17. Calculate controlling interest in consolidated net income for 20x4

20. Calculate controlling interest in consolidated retained earnings for 20x5.

Use the following information for questions 21 to 25:

Plimsol Company Shipping Corporation

35. Compute the book value of Vega at January 1, 20x0.

43.Compute the December 31, 20x4, Consolidated additional paid-in capital.

Use the following information for question 53 to 75:

Assume the cost model or initial value method is applied.

Use the following information for question 76 to 99

Book Value Fair Value

(Current asset 330,000 100,000

Liabilities (500,000) (200,000)