Uni II – B.

Consolidated Financial Statements Subsequent to Date of Acquisition

Activity 1 - Problem:

Pure Corporation acquired an 80% interest in Sincere Corporation on January 2, 2020 for P 2,520,000. On this date , the
share capital and retained earnings of the two companies below:

Pure Corp. Sincere Corp.

Share capital P 6,000,000 P 2,250,000
Retained Earnings 3,000,000 450,000

On January 2, 2020, the assets and liabilities of Sincere Corporation were stated at their fair values except for inventory
whish is undervalued by P 50,000 and machinery which is undervalued by
P 225,000 (remaining life is 5 years) NCI interest is measured at its fair value on the date of acquisition.

The following is the summary of the 2020 and 2021 transactions of the affiliated companies:
2020 2021
Net Income
Pure Corporation 1,000,000 1,500,000
Sincere Corporation 700,000 800,000
Dividends declared and paid
Pure Corporation 500.000 600,000
Sincere Corporation 200,000 400,000

As of December 31, 2021 goodwill was determined to be impaired by P 20,000.

REQUIRED: 1. Prepare the Determination and Allocation of Excess Schedule

2. Prepare the working papers elimination entries for 2020 and 2021.
3. Compute for the following:
a) Consolidated net income attributable to parent for 2015 and 2016
b) Consolidated Retained earnings for 2015 and 2016
c) NCI for 2015 and 2016
d) Consolidated Stockholders’ Equity for 2015 and 2016

1) Determination and Allocation of Excess Schedule:

Total Parent (80%) NCI at FV (20%
Fair value of Subsidiary 3,150,000 2,520,000 630,000
Less: Book value of net assets acquired:
Share Capital 2,250,000
Retained Earnings 450,000
Total 2,700,000 2,160,000 540,000
Excess: 450,000 360,000 90,000
Allocations:
Inventory ( 50,000)
Machinery (225,000)

Goodwill 175,000

2015 2016-2017
Inventory 50,000
Machinery 45,000 45,000
95,000 45,000
2) Working Paper Elimination Entries on:
December 31, 2020: December 31, 2021:
1) Dividend Income 160,000 1) Dividend Income 320,000
NCI 40,000 NCI 80,000
Dividend declared 200,000 Dividend declared 400,000
To eliminate intercompany To eliminate
dividend & NCI share of intercompany
dividends
dividend & NCI share of
dividends

2) Share capital 2,250,000 2) Share capital 2,250,000

Retained Earnings 450,000 Retained Earnings 450,000
Investment in 2,160,000 Investment in 2,160,000
Sincere Corp.. Sincere Corp..
NCI 540,000 NCI 540,000
# #
3) Inventory 50,000 3) Inventory 50,000
Machinery 225,000 Machinery 225,000
Goodwill 175,000 Goodwill 175,000
Investment in 360,000 Investment in 360,000
Sincere Corp Sincere Corp
NCI 90,000 NCI 90,000
Allocation of excess Allocation of
excess

4) Cost of goods sold 50,000 4) Retained Earnings S 81,000

Co. 1/1/16
Expenses 45,000 NCI 81,000
Inventory 50,000 #
Machinery 45,000 Undistributed earnings: 500,000
Amortization. Amortization 95,000
Adjusted 405,000
NCI (20%) 81,000
5) NCI in net income of S 121,000
NCI 121,000
# 5) Retained Earnings S 95,000
Co.
Expenses 45,000
Net income of Sincere 700,000 Inventory 50,000
Amortization (95,000) Machinery 90,000
Adjusted net income 605,000 Amortization.

NCI in net income of S Corp. 121,000 6) NCI in net income 147,000

(20%)
NCI 147,000
#

7) Impairment loss 20,000

Goodwill 20,000
#

________________NCI________________ ____________NCI_______________
40,000 : 540,000 80,000 : 540,000
: 90,000 : 90,000
: 121,000 : 81,000
40,000 : 751,000 80,000 : 858,000
711,000 Balance 778,,000 Balance

Net Assets 1/1/15 2,700,000

 Undistributed earnings 2015: 500,000 Net income of Sincere 800,000
Net Assets at BV 12/31/13 3,200,000 Amortization (45,000)
Unamortized excess (450,000- 355,000 Impairment of goodwill (20,000)
95,000)
Net Assets at FV 12/31/13 3,555,000 Adjusted net income 735,000
NCI 20% 711,000 NCI in net income (20%) 147,000

Net Assets 1/1/16 3,200,000

Undistributed earnings 2015: 400,000
Net Assets at BV 12/31/16 3,600,000
Unamortized excess (450,000- 290,000
160,000)
Net Assets at FV 12/31/13 3,890,000
NCI 20% 778,000

Activity 2 – Multiple Choice Problems

1. STI Company owns 80% of RNB, Inc.’s common stock . During 2020, STI sold to RNB P 550,000
of inventory on the same terms as sales made to third parties. RNB sold all of the inventory
purchased from STI in 2020. The following information pertains to SS and PP’s sales for 2020:

STI RNB
Sales P 2,000,000 P 1, 700,000
Cost of sales __1,100,000 950,000
Gross Profit P 900,000 P 750,000

What amount PP report as cost of sales in 2020 consolidated income statement?

a) P 2,050,000 b) P 1, 640,000 c) P 1, 500,000 d) P 1,200,000

2. On January 1, 2020, Brendan, Inc. reports net assets of P 760,000 although ( equipment with a
four-year life) having a book value of P 440,000 is worth P 500,000 and unrecorded patent is
valued at P 45,000. Brandon Corporation pays P 692,000 on that date for an 80% ownership in
Brendan Inc.

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, 2020?

a) P 40,500 b) P 36,000 c) P 32,400 d) P 28,000

3. . Park Company owns 60% of Swan Company’s outstanding ordinary shares . On May 1 2020, Park
advanced Swan P 70,000 in cash, which was still outstanding at December 31, 2020. What portion
of this advance should be eliminated in the preparation of the December 31, 2020 consolidated
statement of financial positiont?
a) P 0 b) P 28,000 c) P 42,000 d) P 70,000

For 4 – 5:
The consolidated income statement of WENWEN Company and its 80% owned subsidiary follows:
Sales P 402,000
Cost of goods sold 246,000
Gross Profit P 156,000
Operating Expenses 81,000
Combined net income P 75,000
Less: NCI in net income 6,000
Consolidated Net income P 69,000

4. The net income from own operation of the Subsidiary:

a) P 45,000 b) P 30,000 c) P 15,000 d) P 6,000

5. The net income from own operation of WENWEN Company is:

a) P 75,000 b) P 45,000 c) P 39,000 d) P 30,000
6. Pete Enterprises owns 60% of the outstanding stock of Susie Company, which it purchased for
P50, 000 above the underlying book value of P720, 000 on December 31, 2020. The purchase
difference was related to equipment For the year 2021, Susie included in its net income P90,000 of
unrealized gain on a year-end sale of depreciable assets to Pete. The NCI of Susie was assigned
P12, 000 of income in the 2021 consolidated financial statements. The excess allocated
to equipment is amortized over 10 years.

What is the net income reported by Susie for 2015?

a) P155,000 b. P150,000 c. P125,000 d. P120,000
7. ABC owns 70% of DEF Company’s outstanding ordinary shares. DEF, in turn, owns 20% investment
in JKL. During 2015, ABC earned a net income of P 320,600 from its own operations while DEF
suffered a loss of P 60,000, excluding its share in the earnings of affiliates, if any. JKL reported net
income of P 43,500 DEF declared dividends of P 25,000 from its accumulated profits in previous
years.

The consolidated profit for the year 2020 is:

a) P 284,690 b) P 269,300 c) P 267,190 d) P 261,100

8. On January 1, 2020, Parent Company purchased 32,000 shares of the 40,000 outstanding shares of
Subsidiary Company at a price of P 1,200,000 with an excess of P 30,000 over the book value of
Subsidiary Company’s net assets. P 13,000 of the excess is attributed to an undervalued equipment
with a remaining useful life of eight years from the date of acquisition and the rest of the amount is
attributed to goodwill. For the year 2020, Parent Company reported a net income of P 750,000 and
paid dividends of P 180,000. While Subsidiary Company reported a net income of P 240,000 and
paid dividends to Parent Company amounting to P 39,000. Goodwill was not impaired in 2020. The
retained earnings of Parent Company at the end of 2020 per books is P 1,025,000. Parent Company
uses the cost method to account for its investment in Subsidiary Company. Non-controlling interest is
measured at fair market value.

The non-controlling interest in net assets of Subsidiary Company on December 31, 2020 is:
a) P 339,875 b) P 337,925 c) P 336,475 d) P 334,525

9. On June 30, 2020, Part Company purchased 70% of the common stock of Steam Company for
P 700,000. At that date , Steam had P 650,000 of common stock outstanding and retained earnings
of P 250,000. All of the purchase difference was related to a building with a book value of P 175,000
and a remaining life of 10 years Part’s retained earnings balance at December 31, 2020 was
P 755,000. The income and dividend figures for both Part and Steam for 2020 are as follows:
Income Dividends
Part (own operations) 275,000 70,000
Steam: Jan. 1 to June 30 80,000 30,000
July 1 to Dec. 31 100,000 ---

On December 31, 2020, the consolidated retained earnings is:

a) P 1,026,500 b) P 1,021,500 c) P 856,500 d) P 821,500

For 10 – 14:
On January 2, 2020, Perry Corporation purchases 80% of Sub company’s common stock for
P 3,240,000. P 150,000 of the excess is attributable to goodwill and the balance to a depreciable asset
with an economic life of tem years. Non-controlling interest is measured at its fair value on date of acquisition. On the date
of acquisition, stockholders’ equity of the two companies are as follows:
Perry Corporation Sub Company
Common stock P 5,250,000 P 1,200,000
Retained Earnings 7,800,000 2,100,000

On December 31, 2020, Sub Company reported net income of P 525,000 and paid dividends of
P 180,000 to Perry. Perry reported earnings from its separate operations of P 1,425,000 and paid
dividends of P 690,000. Goodwill had been impaired and should ben reported at P 30,000 on
December 31, 2020.

10. What is the non-controlling interest in net income of Sub Company on December 31, 2020?
a) P 105,000 b) P 93,750 c) P 93,000 d) P 69,000
11. What is the consolidated net income on December 31, 2020?
a) P 1,893,750 b) P 1,800,000 c) P 1,788,750 d) P 1,770,000

12. What is the consolidated net income attributable to parent shareholders on December 31, 2020?
a) P 1,800,000 b) P 1,782,000 c) P 1,701,000 d) P 1,680,000
13. What is the consolidated retained earnings attributable to parent’s shareholders equity on December
31, 2020?
a) P 10,398,750 b) P 8,811,000 c) P 8,790,000 d) P 8,787,000

14. What amount of NCI is to be presented in the consolidated statement of financial position on
December 31, 2020?
a) P 834,000 b) P 821,250 c) P 772,500 d) P 727,500

15. Atlas Corporation acquired an 80% interest in URC Company on January 1, 2020 for P 1,225,000.
On this date the capital stock and retained earnings of the two companies were as follows:
Atlas URC
Capital Stock P 3,150,000 P 875,000
Retained Earnings 1,400,000 175,000

The assets and liabilities of URC were stated at their fair values when Atlas acquired its 80% interest
and the proportionate share in net identifiable assets was used to initially measure the non-
controlling interest . Atlas uses the cost method to account for its investment in URC. Net income
and dividends for 2018 for the affiliated companies were:

Atlas URC
Net income P 525,000 P 157,500
Dividends declared 315,000 87,500
Dividends payable December 31, 2020 157,500 43,750

The consolidated dividends payable at December 31, 2020:

a) P 201,250 b) P 166,250 c) P 157,500 d) P 0

On April 1, 2020, SDD Corp. acquired 80% of the outstanding stocks of RDD Corp. for P 2,500,000.

RDD Corp. stockholders’ equity at the end of 2020 were as follows: Common stock, P 80 par,
P 2,000,000; Additional paid-in capital, P500,000 and Retained Earnings, P 750,000.The fair value of the non-controlling
interest is P 685,000. All the assets of RDD were fairly valued except for its inventories which are overvalued by P 90,000,
Land which is undervalued by P50,000 and Patent which is undervalued by P 125,000. The said patent has a remaining
useful life of five years .Both companies use the straight line method for depreciation and amortization.

Shareholders’ equity of SDD Corp. on December 3, 2020 is composed of: Common Stock, P 50 par,
P 3,500,000, Additional Paid-in Capital P 750,000 and Retained Earnings, P 2,460,000.Goodwill, if any, should be
decreased by P 22,500 at year-end. No additional issuance of capital stocks occurred.

For the two years ended, December 31, 2020 and 2021, ADD Corp. and BDD Corp. reported the following:
SDD Corp. RDD Corp.
2020 2021 2020 2021
Net income from own P 525,000 P 550,000 P 485,000(from date of P 520,000
operations acquisition)
Dividend declared at 50,000 35,000 35,000 50,000
year-end

On December 31, 2020:

16.. The non-controlling interest in net assets of subsidiary:

a) P 788,150 b) P 781,150 c) P 718,510 d) P 701,320
17. Consolidated shareholders’ equity:
a) ) P 7,865,750 b) P 7,893,750 c) P 7,491,150 d) P7,112,600
End