C.2 SOULUTIONS (Problems I - XV)

Chapter 2
Problem I (Correction: Research and development should be P5,000 not P50,000)

1. Case 1: Date of Acquisition -
Investment in SS Company 315,000
Cash 300,000
Estimated Liability on Contingent Consideration 15,000
Acquisition Expense (or Retained earnings) 10,000

Cash 10,000
Case 2: Date of Acquisition -

Cash 237,500

Cash 239,400

Cash 229,500

Cash 205,200
Cash 205,000
2. Schedule of Determination and Allocated Excess: (Correction: Research and development

should be P5,000 not P50,000)
Fair value of Subsidiary:
Consideration transferred:
Cash P300,000
Contingent performance obligation __15,000
Fair value of Subsidiary P315,000
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100% _190,000
Allocated excess P125,000
Less: Over/under valuation of A and L: Inc. (Dec.)
Decrease in Inventory (P20,000 – P30,000) x 100% (P10,000)
Increase in Bldgs & Eqpt. (P76,000 – P50,000) x 100% 26,000
Increase in Customer list (P5,000 x 100%) 5,000
Increase in Favorable lease agreement (P3,000 x 100%) 3,000
Increase in Customer contract (P2,000 x 100%) 2,000
Increase in Purchased IPRD (P5,000 x 100%) 5,000 __31,000
Goodwill P 94,000

a. Proportionate Basis (Partial-goodwill Approach)
Consideration transferred – cash P 237,500 (80%)
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 80% _152,000 (80%)
Allocated excess P 85,500 (80%)
Decrease in Inventory (P20,000 – P30,000) x 80% (P 8,000)
b. Fair Value Basis (Full-goodwill Approach)
Consideration transferred – cash (P237,500 / 80%) P 296,875 (100%)
Increase in Purchased IPRD (P5,000 x 100%) _5,000 __31,000 (100%)
Goodwill – full P 75,875 (100%)

Consideration transferred - cash P 239,400 (60%)
Increase in Purchased IPRD (P5,000 x 60%) __3,000 __18,600 (60%)
Goodwill – partial P 106,800 (60%)

Consideration transferred – cash P 239,400 ( 60%)
Fair value of NCI (given)** _152,000 ( 40%)
Fair value of Subsidiary P 391,400 (100%)
Goodwill – full P 170,400 100%)
* the P11,400 control premium is computed as follows: P152,000/40% = P380,000 x 60% =
P228,000; P239,400 – P228,000 = P11,400.
**FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
NCI on FV-SHE of Subsidiary:
Book value of stockholders’ equity of subsidiary…………. ……………………………………P 190,000
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 31,000
Fair value of stockholders’ equity of subsidiary………………………………………………….P 221,000
Multiplied by: Non-controlling Interest percentage............................................................... 40%
P 88,400
Therefore, the given amount of P152,000 is higher compared to P88,400. In the event that the
amount assumed to be P79,000, therefore the higher amount of P88,400 (compared to P79,000)
should be used to determine the FV of Subsidiary.

Fair value of Subsidiary

Fair value of Subsidiary – given P 322,525 (100%)
Case 5: Date of Acquisition – Step-Acquisition

Fair value of previously held equity interest in
Subsidiary (P205,200/60% = P342,000 x 15% ___51,300 (15%)
Less: BV of SHE of SS:(P90,000+P80,000+P20,000) x 75% _142,500 (75%)
BV FV
Identifiable Assets P370,500 P484,500 P114,000
Liabilities 180,500 180,500 P -0-
Increase in Net Assets (P190,000 - P304,000) x 75% P 85,500 ___85,500 (75%)

Fair value of previously held equity interest in Subsidiary
(P205,200/60% = P342,000 x 15% 51,300 ( 15%)
Fair value of NCI (given)* __85,500 ( 25%)
BV FV
Liabilities 180,500 180,500 P -0-
Increase in Net Assets (P190,000 - P304,000) x 100% **P114,000 _114,000 (100%)
*FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
Adjustments to reflect fair value (over/ undervaluation of assets and liabilities)……….. 114,000**
P 76,000
BV FV
Liabilities 172,000 172,000 P - 0-
Bargain purchase gain – partial (P 12,500) (75%)

BV FV
Liabilities 172,000 172,000 P - 0-
Increase in Net Assets (P190,000 – P290,000 x 100% **P100,000 _100,000 (100%)
Bargain purchase gain – full (P 10,800)(100%)
P 72,500
assumed amount is P71,000, therefore the higher amount of P72,500 (compared to P71,000)
3. Working Paper Eliminating Entries

Common stock – SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Additional paid-in capital – SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Retained earnings – SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Investment in SS Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000
Eliminate investment against book value stockholders’ equity of SS Co.
Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Lease agree0ments….………………………………………………………. 3,000
Customer contract…………………………………………………………… 2,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,000
Inventory…………………………………………………………………….. 10,000
Eliminate investment against allocated excess
Schedule of Determination and Allocated Excess: (Correction: Research and
development should be P5,000 not P50,000)
Cash P300,000
Contingent performance obligation __15,000
Fair value of Subsidiary P315,000
Less: BV of SHE of SS: (P90,000 + P80,000 + P20,000) x 100% _190,000
Increase in Purchased IPRD (P5,000 x 100%) 5,000 __31,000
Goodwill P 94,000
Case 2: Date of Acquisition –

Common stock – SS Co ............................ . . . . . . . . . . . . . . . . . . . . . . 90,000
Additional paid-in capital – SS Co . ……………………. . . . . . . . . . . . 80,000
Retained earnings – SS Co …………………... . . . . . . . . . . . . . . . . . . . . 20,000
NCI/NCINAS (NCI in Net Assets) – (190,000 x 20%)…………………. 38,000

Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Lease agreements….………………………………………………………. 3,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,700
NCI/NCINAS (NCI in Net Assets): P31,000 x 20%.............................. 6,200
Inventory…………………………………………………………………….. 10,000
NCI:
FV-NCI Partial GW (or P38,000 + P6,200)...………………………………………………………..P 44,200

Proportionate Basis (Partial-goodwill Approach)
Increase in Purchased IPRD (P5,000 x 80%) _4,000 24,800 (80%)


Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,875
NCI: (P31,000 x 20%) + (P75,875 – P60,700)…………………………... 21,375
Inventory…………………………………………………………………….. 10,000
Add: NCI on Full-GW (P75,875 – P60,700)………………………………………………………… 15,175
FV-NCI - Full GW………………………………………………………………………………………..P 59,375

Fair Value Basis (Full-goodwill Approach)
Consideration transferred – cash (P237,500 / 80%) P 296,875 (100%)


Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,800
NCI/NCINAS (NCI in Net Assets): P31,000 x 40%.............................. 12,400
Inventory…………………………………………………………………….. 10,000
NCI:
FV-NCI Partial GW (or P76,000 + P12,400)...………………………………………………………P 88,400


Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,400
NCI: (P31,000 x 40%) + (P170,400 – P106,800)………….……………... 76,000
Inventory…………………………………………………………………….. 10,000
NCI:
Add: NCI on Full-GW (P170,400 – P106,800)…………………………………………………….. 63,600
FV-NCI - Full GW………………………………………………………………………………………..P 152,000

Fair value of NCI (given)** _152,000 ( 40%)
* the P11,400 control premium is computed as follows: P152,000/40% = P380,000 x 60% =
P228,000; P239,400 – P228,000 = P11,400.
**FV of NCI given or NCI on FV of SHE-S, whichever is HIGHER rule.
P 88,400
amount assumed to be P79,000, therefore the higher amount of P88,400 (compared to P79,000)


Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,750

Fair value of Subsidiary


Customer list. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000
Capitalized R&D ....................................……………………………………. 5,000
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101,525
NCI: (P31,000 x 25%) + (P101,525 – P63,750)………….……………... 45,525
Inventory…………………………………………………………………….. 10,000
NCI:
FV-NCI Partial GW…………………………...………………………………………………………..P 55,250
Add: NCI on Full-GW (P101,525 – P63,750)………………………………………………………. 37,775
FV-NCI - Full GW (P47,500 + P45,525)……………………………………………………………….P 93,025

Fair value of Subsidiary - given P 322,525 (100%)
Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,500
NCI/NCINAS (NCI in Net Assets): (P304,000-P190,000) x 25%......... 28,500
NCI:
FV-NCI Partial GW (P47,500 + P28,500)….....……………………………………………………..P 76,000
Schedule of Determination and Allocated Excess:

Fair value of previously held equity interest in
Subsidiary (P205,200/60% = P342,000 x 15% ___51,300 (15%)
BV FV
Liabilities 180,500 180,500 P -0-

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000

Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,000
NCI [(P304,000-P190,000) x 25%] + (P38,000 – P28,500)…………….. 38,000
NCI:
FV-NCI Partial GW………………………….. ...………………………………………………………P 76,000
Add: NCI on Full-GW (P38,000 – P28,500)………………………………………………………... 9,500
FV-NCI - Full GW (P47,500 + P38,000) - the NCI given per problem is the same………P 85,500

Fair value of previously held equity interest in Subsidiary
(P205,200/60% = P342,000 x 15% 51,300 ( 15%)
P 76,000
assumed amount to be P70,000, therefore the higher amount of P76,000 (compared to P70,000)
Case 6: Date of Acquisition - – Bargain Purchase Gain

a. Proportionate Basis (Partial-goodwill Approach) refer to Page 169 for reference
Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Retained earnings (bargain purchase gain –closed to RE since
only BS or real accounts are being examined)………………… 12,500
NCI (P290,000-P190,000) x 25%........................................................... 25,000
NCI:
FV-NCI-Partial Gain (P47,500 + P25,000).....………………………………………………………P 72,500

BV FV
Liabilities 172,000 172,000 P - 0-
Bargain purchase gain – partial (P 12,500) (75%)
b. Fair Value Basis (Full-goodwill Approach) – refer to Page 169 for reference
Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Retained earnings (bargain purchase gain –closed to RE since
only BS or real accounts are being examined)………………… 10,800
NCI (P74,200, given – P47,500).......................................................... 26,700
Investment in SS Co . . . . . . . . . . . . 62,500
NCI:
BV FV
Liabilities 172,000 172,000 P - 0-
Increase in Net Assets (P190,000 – P290,000 x 100% **P100,000 _100,000 (100%)
Bargain purchase gain – full (P 10,800)(100%)
P 72,500
assumed amount is P71,000, therefore the higher amount of P72,500 (compared to P71,000)
Problem II
1. Schedule of Determination and Allocation of Excess
Case 1: Date of Acquisition – January 1, 20x4
Fair value of Subsidiary (100%)
Consideration transferred P 408,000
Less: Book value of stockholders’ equity of Sia:
Common stock (P240,000 x 100%) P 240,000
Paid-in capital in excess of par (P24,000 x 100%) 24,000
Retained earnings (P96,000 x 100%) 96,000 360,000
Allocated excess (excess of cost over book value) P 48,000
Less: Over/under valuation of assets and liabilities:
Increase in inventory (P18,000 x 100%) P 18,000
Increase in land (P72,000 x 100%) 72,000
Decrease in buildings and equipment (P12,000 x 100%) ( 12,000)
Increase in bonds payable (P42,000 x 100%) ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair value) P 12,000
Case 2: Date of Acquisition - January 1, 20x4

Cash P 288,000
Common stock: 12,000 shares x P12 _ 144,000
Fair value of Subsidiary P 432,000
Common stock (P240,000 x 100%) P 240,000
Paid-in capital in excess of par (P24,000 x 100%)... 24,000
Schedule of Determination and Allocation of Excess (Partial-goodwill)
Consideration transferred……………………………….. P 360,000
Common stock (P240,000 x 80%) P 192,000
Positive excess: Partial-goodwill (excess of cost over fair value) P 43,200
Full-goodwill Approach
Schedule of Determination and Allocation of Excess (Full-goodwill)
Consideration transferred (P360,000 / 80%) P 450,000
Common stock (P240,000 x 100%) P 240,000
Decrease in buildings and equipment
(P12,000 x 100%) ( 12,000)
Positive excess: Full -goodwill (excess of cost over fair value) P 54,000

Consideration transferred
Cash………………………………………………………. P 288,000
Common stock: 12,000 shares x P12 per share….. 144,000 P 432,000
Common stock (P240,000 x 100%)………………….. P 240,000
Paid-in capital in excess of par (P96,000 x 100%).. 96,000
Retained earnings (P24,000 x 100%)………………... 24,000 360,000
Allocated excess (excess of cost over book value)…… P 72,000
Add: Existing Goodwill of SS Co. (P6,000 x 100%)……… 6,000
Adjusted allocated excess P 78,000
Alternatively, the unrecorded goodwill may also be computed by ignoring the existing
goodwill in the books of the subsidiary, thus:
Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation)
Consideration transferred……………………………………………………… P 432,000
Consideration transferred (P408,000 – P6,000)…….. P 402,000
Common stock (P240,000 x 100%) P 240,000
2. Consolidated Balance Sheet – Date of Acquisition, January 1, 20x4

Case 1
a. P1,602,000
b. P642,000
c. P600,000
d. P60,000
e. P300,000
f. P960,000
g. None, since it is wholly-owned
Assets
Cash (P420.000 – P408,000 + P60,000) P 72,000
Accounts receivables (P90,000 + P60,000) 150,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (net) – P480,000 + P360,000 – P12,000) 828,000
Goodwill (refer to Requirement 1- Case1) 12,000
Total Assets (a) P1,602,000
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable (P120,000 + P120,000) P 240,000
Bonds payable (P240,000 + P210,000) P 360,000
Premium on bonds payable (P162,000 - P120,000) 42,000 402,000
Total Liabilities (b) P 642,000
Stockholders’ Equity
Common stock, P10 par – Parent/Acquirer only P 600,000
Paid-in capital in excess of par – Parent/Acquirer only 60,000
Retained earnings – Parent/Acquirer only 300,000
Total Stockholders’ Equity P 960,000
Total Liabilities and Stockholders’ Equity P1,602,000
Case 2
a. P1,725,600
b. P642,000
c. P720,000
d. P75,600
e. P288,000
f. P1,083,600
Assets
Cash (P420.000 – P288,000 – P12,000 – P8,400) + P60,000 P 171,600
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Goodwill (refer to Requirement 1- Case 2) 36,000
Common stock, P10 par – Parent/Acquirer only* P 720,000
Paid-in capital in excess of par – Parent/Acquirer only** 75,600
Retained earnings – Parent/Acquirer only*** 288,000
Total Stockholders’ Equity P1,083,600
*P600,000 + P120,000 (12,000 shares x P10 par) = P720,000.
**P60,000 + P24,000 (12,000 shares x [P12-P10] – P8,400 = P75,600.
***P300,000 – P12,000 = P288,000.
Case 3
A. Proportionate Basis (Partial-goodwill Approach)
a. P1,666,800
b. P642,000
c. P600,000
d. P60,000
e. P285,600
f. P1,024,800
g. P79,200
Assets
Cash (P420,000 – P360,000 – P14,400 = P45,600) + P60,000 P 105,600
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (P480,000 + P360,000 – P12,000) 828,000
Goodwill – partial 43,200
Total Assets P1,666,800
Liabilities
Premium on bonds payable 42,000 402,000
Total Liabilities P 642,000
Common stock, P10 par P 600,000
Paid-in capital in excess of par 60,000
Retained earnings (P300,000 – P14,400 ) 285,600
Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent P 945,600
Non-controlling interest* 79,200
Total Stockholders’ Equity (Total Equity) P 1,024,800
*Incidentally, the non-controlling interest on the date of acquisition is computed as
follows:
Common stock – Sky company…………………………………… P 240,000
Paid-in capital in excess of par – Sky co………………………… 24,000
Retained earnings – Sky Co..………………………………………. 80,000
Book value of stockholders’ equity – Sky Co………..………….. P 360,000
Adjustments to reflect fair value (over/ undervaluation
of assets and liabilities)…………………………………………. 36,000
Fair value of stockholders’ equity of subsidiary………………… P 396,000
Multiplied by: Non-controlling Interest percentage…………... 20
Non-controlling interest (partial)………………………………….. P 79,200
B. Fair Value Basis (Full-goodwill Approach)

a. P1,677,600
b. P642,000
c. P600,000
d. P60,000
e. P285,600
f. P1,035,600
g. P90,000
Assets
Cash (P420,000 – P360,000 – P14,400 = P45,600) + P60,000 P 105,600
Liabilities
Retained earnings (P300,000 – P14,400) 285,600
Parent’s Stockholders’ Equity/Equity Attributable to the Owners of the Parent P 945,600
Non-controlling interest 90,000
*Incidentally, the non-controlling interest on the date of acquisition is computed as
follows:
Non-controlling interest (partial) – refer to Case 3A……………….. P 79,200
Add: Non-controlling interest (P54,000, full – P43,200, partial). 10,800
Non-controlling interest (full)………………………………………. P 90,000
Case 4
a. P1,725,600
b. P642,000
c. P720,000
d. P75,600
e. P288,000
f. P1,083,600
Assets
Cash (P420,000 – P288,000 – P12,000 – P8,400 = P111,600 + P54,000) P 165,600
Accounts receivables 150,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Buildings and equipment (net) – P480,000 + P360,000 – P12,000 828,000
Goodwill (P6,000 + P36,000) 42,000
Liabilities
Accounts payable P 240,000
Bonds payable P 360,000
Common stock, P10 par (P600,000 + P120,000 (12,000 shares x P10 par) P 720,000
Paid-in capital in in excess of par {P60,000 + 12,000 x [P12-P10] – P8,400} 75,600
Retained earnings (P300,000 – P12,000) 288,000
Case 5
a. P1,596,000
b. P636,000
c. P600,000
d. P60,000
e. P300,000
f. P960,000
Assets
Cash (P420,000 – P408,000 + P60,000) P 72,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Dividends payable (P6,000 – P6,000) -0-
Paid-in capital in in excess of par 60,000
Retained earnings 300,000
For Case 1
3.
January 1, 20x4
Investment in S Company…………………………………………… 408,000
Cash…………………………………………………………………….. 408,000
Schedule of Determination and Allocation of Excess (refer to Requirement 1 Case 1)
Date of Acquisition – January 1, 20x4
Less: Book value of stockholders’ equity of S:
Common stock (P240,000 x 100%)………………….. P 240,000
Increase in inventory (P18,000 x 100%)…………….. P 18,000
Increase in land (P72,000 x 100%)…………………… 72,000
(P12,000 x 100%)……………………………………... ( 12,000)
Increase in bonds payable (P42,000 x 100%)…….. ( 42,000) 36,000
Positive excess: Goodwill (excess of cost over fair
value)…………………………………………………….. P 12,000
4. WPEN
(E1) Common stock – S Co………………………………………… 240,000
Additional paid-in capital – S Co…………………………… 24,000
Retained earnings – S Co…………………………………… 96.000
Investment in S Co……………………………………… 360,000
Eliminate investment against stockholders’ equity-S Co
(E2)
Inventory…………………………………………………………. 18,000
Land……………………………………………………………… 72,000
Goodwill…………………………………………………………. 12,000
Buildings and equipment……………………………… 12,000
Premium on bonds payable……………………………… 42,000
Investment in S Co………………………………………… 48,000
Eliminate investment against allocated excess.
5.
Eliminations
Assets P Co. S Co. Dr. Cr. Consolidated
Cash*…………………………. P 12,000 P 60,000 P 72,000
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… (2) 12,000 12,000
Investment in S Co…………. 408,000 (1) 360,000
(2) 48,000 -
Total Assets P1,320,000 P600,000 P1,602,000
Common stock, P10 par……… 240,000 (1) 240,000
Paid in capital in excess of par. 60,000 60,000
Paid in capital in excess of par. 24,000 (1) 24,000
Retained earnings…………… 300,000 300,000
Retained earnings…………… _________ 96,000 (1) 96,000 __________ _________
Total Liabilities and Stockholders’
Equity P1,320,000 P600,000 P 462,000 P 462,000 P1,602,000
(1) Eliminate investment against stockholders’ equity of S Co.
(2) Eliminate investment against allocated excess.
* P420,000 – P408,000 = P12,000.
6.
Assets
Cash (P420.000 – P408,000 + P60,000) P 72,000
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Goodwill (refer to Requirement 1- Case1) 12,000
Liabilities
Common stock, P10 par – Parent/Acquirer only P 600,000
Paid-in capital in excess of par – Parent/Acquirer only 60,000
Retained earnings – Parent/Acquirer only 300,000
For Case 2
3.
January 1, 20x4
(1) Investment in S Company…………………………………………… 432,000
Cash…………………………………………………………………….. 288,000
Common stock, P10 par…………………………………………….. 120,000
Paid-in capital in excess of par……………………………………. 24,000
(2) Retained earnings (acquisition-related expense - close to
retained earnings since only balance sheets are being
examined)…………………………………………………………… 12,000
Cash……………………………………………………………………. 12,000
Acquisition- related costs.
(3) Paid-in capital in excess of par……………………………………….. 8,400
Cash……………………………………………………………………. 8,400
Costs to issue and register stocks.
Schedule of Determination and Allocation of Excess (refer to Requirement 1 Case 2)
Consideration transferred
Cash………………………………………………………. P 288,000
Common stock: 12,000 shares x P12 per share….. 144,000 P 432,000
Common stock (P240,000 x 100%)………………….. P 240,000
Add: Existing Goodwill of Sky Co. (P6,000 x 100%)……… 6,000
Adjusted allocated excess…………………………………. P 78,000
Alternatively, the unrecorded goodwill may also be computed by ignoring the existing
goodwill in the books of the subsidiary, thus:
Date of Acquisition – January 1, 20x4 (refer to previous table for details of computation)
Consideration transferred……………………………………………………… P 432,000
Less: Book value of stockholders’ equity of S……………………………….. 360,000
Allocated excess (excess of cost over book value)…………………………. P 72,000
Less: Over/under valuation of assets and liabilities…………………………… 36,000
Positive excess: Goodwill (excess of cost over fair value)…………………... P 36,000
Add: Existing Goodwill……………………………………………………………… 6,000
Positive excess: Goodwill (excess of cost over fair
value)…………………………………………………………………………… P 42,000
4.
(E1) Common stock – S Co………………………………………… 240,000
Additional paid-in capital – S Co…………………………… 24,000
Retained earnings – S Co…………………………………… 96.000
Investment in S Co……………………………………… 360,000
Eliminate investment against stockholders’ equity of S Co.
(E2) Inventory…………………………………………………………. 18,000

Land……………………………………………………………… 72,000
Goodwill…………………………………………………………. 42,000
Buildings and equipment……………………………… 12,000
Premium on bonds payable……………………………… 42,000
Investment in S Co………………………………………… 78,000
5.
Eliminations
Cash*………………………….. P 111,600 P 54,000 P 165,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment (net) 480,000 360,000 (2) 12,000 828,000
Goodwill…………………… 6,000 (2) 36,000 42,000
Investment in S Co…………. 432,000 (1) 360,000
(2) 72,000 -
Total Assets P1,443,600 P600,000 P1,725,600
Accounts payable…………… P 120,000 P120,000 P 240,000
Bonds payable………………… 240,000 120,000 360,000
Premium on bonds payable (3) 42,000 42,000
Common stock, P10 par**…..… 720,000 720,000
Additional paid in capital*** 75,600 75,600
Additional paid in capital…… 24,000 (1) 24,000
Retained earnings**** 288,000 288,000
Retained earnings…………… _________ 96,000 (1) 96,000 __________ _________
Equity P1,443,600 P600,000 P 486,000 P 486,000 P1,725,600
(1) Eliminate investment against stockholders’ equity of Sky Co.
* P420,000 – P288,000 – P12,000 – P8,400 = P111,600.
**P600,000 + P120,000 (12,000 shares x P10 par) = P720,000.
Inventories (P120,000 + P72,000 + P18,000) 210,000
Land (P210,000 + P48,000 + P72,000) 330,000
Goodwill (refer to Requirement 1- Case 2) 36,000
Liabilities
Common stock, P10 par – Parent/Acquirer only* P 720,000
Paid-in capital in excess of par – Parent/Acquirer only** 75,600
Retained earnings – Parent/Acquirer only*** 288,000
Total Stockholders’ Equity P1,083,600
*P600,000 + P120,000 (12,000 shares x P10 par) = P720,000.
**P60,000 + P24,000 (12,000 shares x [P12-P10] – P8,400 = P75,600.
***P300,000 – P12,000 = P288,000.
For Case 3
7. The following entry on the date of acquisition in the books of Parent Company:
January 1, 20x4
(1) Investment in Sky Company………………………………………… 360,000
Cash……………………………………………………………….. 360,000
Acquisition of Sia Company.
(2) Retained earnings (acquisition-related expense - close to
examined)…………………………………………………………… 14,400
Cash……………………………………………………………………. 14,400
Acquisition- related costs.

Partial-goodwill Approach
Common stock (P240,000 x 80%)……………………. P 192,000
Paid-in capital in excess of par (P96,000 x 80%).... 76,800
Retained earnings (P24,000 x 80%)……………….... 19,200 288,000
Allocated excess (excess of cost over book value)….. P 72,000
Increase in inventory (P18,000 x 80%)……………… P 14,400
Increase in land (P72,000 x 80%)……………………. 57,600
(P12,000 x 80%)……………………………………..... ( 9,600)
Increase in bonds payable (P42,000 x 80%)………. ( 33,600) 28,800
Positive excess: Partial-goodwill (excess of cost over
fair value)………………………………………………... P 43,200
The over/under valuation of assets and liabilities are summarized as follows:

Sia Co. Sia Co. Over/ Under
Book value Fair value Valuation
Inventory………………….…………….. 72,000 90,000 18,000
Land……………………………………… 48,000 120,000 72,000
Buildings and equipment (net)......... 360,000 348,000 ( 12,000)
Bonds payable………………………… (120,000) (162,000) 42,000
Less: Accumulated depreciation….. 360,000 - ( 360,000)
Net book value………………………... 360,000 348,000 ( 12,000)
Full-goodwill Approach
Consideration transferred (P360,000 / 80%)………….. P 450,000
Less: Book value of stockholders’ equity of Sky:
Common stock (P240,000 x 100%)…………………. P 240,000
Retained earnings (P24,000 x 100%)…………….... 24,000 360,000
Allocated excess (excess of cost over book value)….. P 90,000
Increase in inventory (P18,000 x 100%)…………… P 18,000
Increase in land (P72,000 x 100%)…………………. 72,000
(P12,000 x 100%)…………………………………..... ( 12,000)
Increase in bonds payable (P42,000 x 100%)……. ( 42,000) 36,000
Positive excess: Full -goodwill (excess of cost over
fair value)………………………………………………... P 54,000

Partial Goodwill
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – Sky Co……..………………………………………. 240,000
Additional paid-in capital – Sky Co…………………………………. 24,000
Retained earnings – Sky Co…………………………………………... 96,000
Investment in Sky Co………………………………………………… 288,000
Non-controlling interest (P300,000 x 20%)……………………….. 72,000
Eliminate investment against stockholders’ equity of Sky Co.
(E2) Inventory…..……………………………………………………………. 18,000

Land………………………………………………………………………. 72,000
Goodwill…………………………………………………………………. 43,200
Buildings and equipment………………………………………….. 12,000
Premium on bonds payable……………………………………… 42,000
Investment in Sky Co……………………………………………….. 72,000
Full-Goodwill
The schedule of determination and allocation of excess provides complete guidance for the
worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – Sky Co……………………………………………. 240,000
Additional paid-in capital – Sky Co……………………………. 24,000
Retained earnings – Sky Co……………………………………... 96,000
Investment in Sky Co…………………………………… 288,000
Non-controlling interest (P300,000 x 20%)………………….. 72,000
Eliminate investment against stockholders’ equity of Sky Co.
(E2) Inventory……………………………………………………………. 18,000

Land……………………………………………………………………. 72,000
Goodwill……………………………………………………………. 54,000
Buildings and equipment………………………………….. 12,000
Premium on bonds payable…………………………… 42,000
Non-controlling interest [(P30,000 x 20%) +
(P45,000 – P36,000)]……………………………. 18,000
Investment in Sky Co……………………………………….. 72,000
10. Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Partial-goodwill)
Eliminations
Assets Peer Co. Sky Co. Dr. Cr. Consolidated
Cash*…………………………. P 45,600 P 60,000 P 105,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment 480,000 360,000 (2) 12,000 828,000

Goodwill…………………… (2) 43,200 43,200
Investment in Sky Co…………. 360,000 (1) 288,000
(2) 72,000 -
Total Assets P1,305,600 P600,000 P 1,666,800
Accounts payable…………… P 120,000 P120,000 240,000
Bonds payable………………… 240,000 120,000 360,000
Premium on bonds payable (3) 42,000 42,000
Common stock, P10 par……… 600,000 600,000
Retained earnings**…………… 285,600 285,600
Retained earnings…………… 96,000 (1) 96,000
Non-controlling interest………… (1 ) 72,000
_________ _______ _________ (2) 7,200 _79,200
Equity P1,305,600 P600,000 P 493,200 P 493,200 P1,666,800
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.
• Incidentally, the non-controlling interest on the date of acquisition is computed as
follows:
Common stock – Sky company…………………………………… P 240,000
Paid-in capital in excess of par – Sky co………………………… 24,000
Retained earnings – Sky Co..………………………………………. 80,000
Book value of stockholders’ equity – Sky Co………..………….. P 360,000
Worksheet for Consolidated balance Sheet, January 1, 20x4. Date of Acquisition: 80%-Owned
Subsidiary (Full-goodwill)
Eliminations
Assets Per Co. Sia Co. Dr. Cr. Consolidated
Cash*…………………………. P 45,600 P 60,000 P 105,600
Inventory…………………. 120,000 72,000 (2) 18,000 210,000
Land……………………………. 210,000 48,000 (2) 72,000 330,000
Buildings and equipment 480,000 360,000 (2) 12,000 828,000

Goodwill…………………… (2) 54,000 54,000
Investment in Sky Co…………. 360,000 (1) 288,000
(2) 72,000 -
Total Assets P1,305,600 P600,000 P 1,677,600
Retained earnings**…………… 285,600 285,600
_________ _______ _________ (2) 18,000 _90,000
Equity P1,305,600 P600,000 P 504,000 P 504,000 P1,677,600
* P420,000 – P360,000 – P14,400 = P45,600.
**P300,000 – P14,400 = P285,600.

follows:
Add: Non-controlling interest (P54,000, full – P43,200, partial). 10,800
Non-controlling interest (full)………………………………………. P 90,000
11. The balance sheet: Partial-Goodwill

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash P 105,600
Inventories 210,000
Land 330,000
Buildings and equipment 828,000
Goodwill 43,200
Liabilities
Parent’s Stockholders’ Equity/Equity Attributable to the
Owners of the Parent P 945,600
The balance sheet: Fulll-Goodwill

Peer Company and Subsidiary
Consolidated Balance Sheet
January 1, 20x4
Assets
Cash P 105,600
Inventories 210,000
Land 330,000
Buildings and equipment 828,000
Goodwill 54,000
Liabilities
Problem III
1. The following entry on the date of acquisition in the books of Parent Company
January 1, 20x4
Investment in S Company…...…………………………………… 300,000
Common stock, P1 par…………………………………… 12,000
Paid-in capital in excess of par (P300,000 – P12,000 par).. 288,000
Acquisition of S Company.

a. Partial-goodwill Approach (Proportionate Basis)
Common stock: 12,000 shares x P25 per share…... P 300,000
Common stock (P12,000 x 80%)……………………. P 9,600
Retained earnings (P72,000 x 80%)……………….... 57,600 153,600
Increase in land (P36,000 x 80%)……………………. 28,800
Increase in buildings and equipment
(P150,000 x 80%)…………………………………...... 120,000
Increase in copyrights (P60,000 x 80%)…………….. 48,000
Increase in contingent liabilities – estimated
liability for contingencies (P6,000 x 80%)……..... ( 4,800) 196,800
Negative excess: Bargain purchase gain to controlling
interest or attributable to parent only)…………….. (P 50,400)
The over/under valuation of assets and liabilities are summarized as follows:
S Co. S Co. Over/Under
Book value Fair value Valuation
Inventory………………….……………... P 60,000 P 66,000 P 6,000
Land………………………………………. 48,000 84,000 36,000
Buildings and equipment (net)......... 222,000 372,000 150,000
Copyright……………………………….. -0- 60,000 60,000
Estimated liability for contingencies.. 0 ( 6,000) ( 6,000)
Net undervaluation……………………. P 330,000 P 576,000 P246,000
b. Full-goodwill Approach (Fair Value Basis)

Common stock: 12,000 x P25 (80%)……………… P 300,000
Fair value of NCI (given) (20%)………………………. 90,000
Fair value of subsidiary (100%)………………………. P 390,000
Common stock (P12,000 x 100%)……………………. P 12,000
Paid-in capital in excess of par (P108,000 x 100%). 108,000
Increase in land (P36,000 x 100%)…………………… 36,000
Increase in buildings and equipment
a. Partial-goodwill Approach (Proportionate Basis)
The schedule of determination and allocation of excess provides complete guidance for
the worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – S Co……………………………………………. 12,000
Additional paid-in capital – S Co………………………………. 108,000
Retained earnings – S Co………………………………………… 72,000
Investment in S Co……………………………………………… 153,600
Eliminate investment against stockholders’ equity of S Co
(E2) Inventory………………………………………………………………….. 6,000

Land……………………………………………………………………….. 36,000
Buildings and equipment……………………………………………… 150,000
Copyright……………………………………………………………….... 60,000
Estimated liability for contingencies…………………………….. 6,000
Investment in S Co……………………………………………... 146,400
Non-controlling interest (P246,000 x 20%)………………………. 49,200
Retained earnings (bargain purchase gain - closed to
examined)............................................................................. 50,400
b. Full-goodwill Approach (Fair Value Basis)

The schedule of determination and allocation of excess provides complete guidance for
the worksheet eliminating entries on January 1, 20x4:
(E1) Common stock – S Co……………………………………………. 12,000
Additional paid-in capital – S Co………………………………. 108,000
Retained earnings – S Co………………………………………… 72,000
Investment in S Co……………………………………………… 153,600
Eliminate investment against stockholders’ equity of S Co
(E2) Inventory………………………………………………………………….. 6,000

Land……………………………………………………………………….. 36,000
Buildings and equipment……………………………………………… 150,000
Copyright……………………………………………………………….... 60,000
Estimated liability for contingencies…………………………….. 6,000
Investment in S Co……………………………………………... 146,400
Non-controlling interest (P90,000 given – P38,400)…………… 51,600
Retained earnings (bargain purchase gain - closed to
examined)............................................................................. 48,000
5. Consolidated Workpaper
Subsidiary (Proportionate Basis)
Eliminations
Consolidate
Assets P Co. S Co. Dr. Cr. d
Cash………………… P 334,800 P 334,800
Accounts receivable…….. 86,400 P 24,000 110,400
Inventory…………………. 96,000 60,000 (2) 6,000 162,000
Land………………………… 120,000 48,000 (2) 36,000 204,000
Buildings and equipment (net). 744,000 222,000 (2) 150,000 1,116,000

Copyright……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1) 153,600
__________ _________ (2) 146,400 -
Total Assets P1,681,200 354,000 P1,987,200
Paid-in capital in excess of
par** 723,840 723,840
Paid-in capital in excess of par 108,000(1) (1) 108,000
Retained earnings 577,200 (2) 50,400 627,600
_________ _______ _________ (2) 49,200 _87,600
Total Liabilities and Stockholders’ Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
follows:
Common stock – S Co……….………………………………… P 12,000
Paid-in capital in excess of par – S Co…………………….. 108,000
Retained earnings – S Co……………………………………… 72,000
Book value of stockholders’ equity – S Co…………………. P 192,000
Subsidiary (Fair Value Basis)
Eliminations
Cash………………… P 334,800 P 334,800
Accounts receivable…….. 86,400 P 24,000 110,400
Inventory…………………. 96,000 60,000 (2) 6,000 162,000
Land………………………… 120,000 48,000 (2) 36,000 204,000
Buildings and equipment (net). 744,000 222,000 (2) 150,000 1,116,000

Copyright……………………... (2) 60,000 60,000
Investment in S Co…….. 300,000 (1) 153,600
__________ _________ (2) 146,400 -
Total Assets P1,681,200 P354,000 P1,987,200
Accounts payable……… P 96,000 42,000 P 138,000
Estimated liability for
contingencies… (2) 6,000 6,000
Bonds payable……… 240,000 120,000 360,000
Common stock, P1 par*…..… 44,160 44,160
Paid-in capital in excess of par** 723,840 723,840
Paid-in capital in excess of par 108,000(2) (1) 108,000
Retained earnings 577,200 (2) 48,000 625,200
_________ _______ _________ (2) 51,600 _90,000
Equity P1,681,200 P354,000 P 444,000 P 444,000 P1,987,200
(1) Eliminate investment against stockholders’ equity of Scud Co.
* P32,160 + (12,000 shares xP1 par) = P44,160.
**P435,840 + [12,000 shares x (P25 – P1)] = P723,840.
6. Consolidated Balance Sheet

Partial-goodwill Approach (Proportionate Basis)
Copyright 60,000
Liabilities
Estimated liability for contingencies 6,000
Bonds payable 360,000
Owners of the Parent P1,395,600
Total Stockholders’ Equity (Total Equity) P1,483,200
Fair Value Basis

Assets
Cash P 334,800
Inventories 162,000
Land 204,000
Buildings and equipment (net) 1,116,000
Copyright 60,000
Liabilities
Estimated liability for contingencies 6,000
Bonds payable 360,000
Owners of the Parent P1,393,200
Total Stockholders’ Equity (Total Equity) P1,483,200
Problem IV
1. P297,462 (Full-goodwill approach)
Fair value of subsidiary (100%):
Consideration transferred: Cash (P1,901,250 + P562,500) P2,463,750
Less: Control premium…………………………………………. ( 82,500)
P2,381,250/65% P3,663,462
Add: Control premium…………………………………………. ____82,500
Fair value of subsidiary ………………………………………… P3,745,962
Less: Book value of stockholders’ equity
(net assets) – Guidance Company – given per problem 2,925,000
Allocated excess………………………………………………... P 820,962
Less: Over/undervaluation of assets and liabilities:
(P75,000 + P375,000 + P73,500) 523,500
Positive excess: Goodwill P 297,462
2. P222,225 (Partial/Proportionate goodwill approach)

(P75,000 + P375,000 + P73,500) x 65% 340,275
3. P395,250 (Full-goodwill approach)

Consideration transferred: Cash (P1,901,250 + P562,500) P2,463,750
FV of NCI…………………….……………………………………. _1,380,000
Fair value of subsidiary ………………………………………… P3,843,750
Less: Book value of stockholders’ equity
(net assets) – Guidance Company – given per problem 2,925,000
Allocated excess………………………………………………... P 918,750
Less: Over/undervaluation of assets and liabilities:
(P75,000 + P375,000 + P73,500) 523,500
Problem V - None
Problem VI
1. Inventory P 140,000
2. Land P 60,000
3. Buildings and Equipment P 550,000
4. Goodwill
Fair value of consideration given P 576,000

Less; Book value of SHE 450,000
Allocated excess: P126,000
Increase / decrease in fair value (Fair value
increment) for:
Inventory P 20,000
Land (10,000)
Buildings and equipment 70,000 80,000
Goodwill P 46,000
5. Investment in AA Corporation: Nothing would be reported; the balance in the

investment account is eliminated.
Problem VII
In acquisitions, the fair values of the subsidiary's assets and liabilities are consolidated (there are
a limited number of exceptions). Goodwill is reported as P80,000, the amount that the P760,000
consideration transferred exceeds the P680,000 fair value of SS’s net assets acquired.
1. Inventory = P670,000 (P's book value plus SS fair value)

2. Land = P710,000 (P's book value plus Sun's fair value)
3. Buildings and equipment = P930,000 (P's book value plus S's fair value)
4. Franchise agreements = P440,000 P's book value plus S's fair value)
5. Goodwill = P80,000 (calculated above)
6. Revenues = P960,000 (only parent company operational figures are reported at date of
acquisition)
7. Additional Paid-in Capital = P65,000 (P's book value less stock issue costs)
8. Expenses = P940,000 (only parent company operational figures plus acquisition-related costs
are reported at date of acquisition)
9. Retained Earnings, 1/1 = P390,000 (P's book value)
Problem VIII
1. Inventory (P120,000 + P20,000) P140,000
2. Land (P70,000 – P10,000) P 60,000
3. Buildings and Equipment (P480,000 + P70,000) 550,000
4. Full-Goodwill, P57,500
Inventory P 20,000
Land (10,000)
Buildings and equipment (net) 70,000 80,000
Goodwill – full P 57,500
or,
Fair value of consideration given by Ford P470,000
Fair value of noncontrolling interest 117,500
Total fair value P587,500
Book value of Slim’s net assets P450,000
Fair value increment for:
Inventory 20,000
Land (10,000)
Buildings and equipment (net) 70,000
Fair value of identifiable net assets (530,000)
Goodwill – full P 57,500
Partial Goodwill, P46,000
Consideration transferred P470,000
Less: BV of SHE of Slim (P250,000 + P200,000) x 80% 360,000
Inventory (P20,000 x 80%) P 16,000
Land (P10,000 x 80%) ( 8,000)
Buildings and equipment (net) (P70,000 x 80%) 56,000 64,000
Goodwill – partial P 46,000
5. Investment in Slim Corporation: None would be reported;

the balance in the investment account is eliminated.
6. P830,000
Total assets:
Unadjusted total assets P750,000
Add (deduct): adjustments
Increase in inventory 20,000
Decrease in land ( 10,000)
Increase in buildings and equipment 70,000
Adjusted assets P830,000
7. P300,000 (no adjustments)

8. No available data
9. Noncontrolling Interest (P587,500 x .20) P117,500
or,
BV – SHE of SS P450,000
Adjustments to reflect fair value (P20,000 – P10,000 +P 70,000) 80,000
FV of SHE of SS P530,000
Multiplied by: NCI % 20%
NCI – partial goodwill P106,000
Add: NCI on full-goodwill (P57,500 – P46,000) 11,500
NCI – full goodwill P117,500
10. Incomplete data
Problem IX
1. P470,000 = P470,000 - P55,000 + P55,000
2. P605,000 = (P470,000 - P55,000) + P190,000
3. P405,000 = P270,000 + P135,000
4. P200,000 (as reported by GG Corporation)
Problem XI
1. Investment in Craig Company ....................................................... 950,000
Cash .............................................................................................. 950,000
2.
Consideration transferred P950,000
Less: BV of SHE of Craig (P300,000 + P420,000) 720,000
Allocated excess P 230,000
Less: Over/under valuation of A and L: Inc (Decrease)
Land (P250,000 fair – P200,000 book value P 50,000
Building (P700,000 fair – P600,000 book value) 100,000
Discount on bonds payable P280,000 fair – P300,000
book value) 20,000
Deferred tax liability (P40,000 fair – P50,000 book value) 10,000
Buildings and equipment (net) 180,000
Goodwill P 50,000
3. Adjustments on Craig books:

Land ................................................................................................... 50,000
Building .............................................................................................. 100,000
Discount on Bonds Payable ............................................................ 20,000
Goodwill ............................................................................................ 50,000
Deferred Tax Liability ........................................................................ 10,000
Retained Earnings............................................................................. 420,000
Paid-In Capital in Excess of Par .................................................. 650,000
4. Elimination entries:
Common Stock ................................................................................. 300,000
Paid-In Capital in Excess of Par ....................................................... 650,000
Investment in Craig Company................................................... 950,000
Problem XII
1.
* Man Mask
(Public Co.) (Private Co.)
Currently issued…………………… 10 M 40% 4 M 40%
Additional shares issued……….. 15 M 60% ** 6 M / 60%
Total shares………………………… 25 M 10 M
**15M/25M
FV of net assets………………………P 18 M P30 M
BV of net assets (same with FV)…. 18 M ?
Fv per share of stock……………….P 8 P 6
2.
Consideration transferred (4,000,000 shares* x P6)…………………………..P24,000,000
Less: Book value of SHE – Man: P18,000,000 x 100%.................................... 18,000,000
Allocated excess …………………………………………………………………..P 6,000,000
Less: Over/Under valuation of assets and liabilities
(book value same fair value)……………………………………………… 0
Goodwill………………………………………………………………………………P 6,000,000
Problem XIII (Assume the use of Full-Goodwill Method)

Note: This solution assumes a difference between the basis of acquired assets for accounting
and tax purposes for this stock acquisition.
1. Investment in Seely Company 570,000

2. Common Stock - Seely 80,000
Other Contributed Capital – Seely 132,000
Retained Earnings - Seely 160,000
Inventory 52,000
Land 25,000
Plant Assets 71,000
Discount on Bonds Payable 20,000
Goodwill** 127,200
Deferred Income Tax Liability* 67,200
Investment in Seely Company 570,000
Non-controlling Interest [(P570,000/.95) x .05] 30,000
*(.40 x (P52,000 + P25,000 + P71,000 + P20,000))
Problem XIV
Ø HB Country and HCO Media
Consolidation of a variable interest entity is required if a parent has a variable interest that
will
§ Absorb a majority of the entity's expected losses if they occur
§ Receive a majority of the entity's expected residual returns if they occur
Because (1) HCO Media’s losses are limited by contract, and (2) Hillsborough has the right
to receive the residual benefits of the sales generated on the HCO Media internet site
above P500,000, Hillsborough should consolidate HCO Media.
Ø TPC (Nos. 1, 2 and 3 of the requirement are part of the information)

a. The purpose of consolidated financial statements is to present the financial position
and results of operations of a group of businesses as if they were a single entity. They
are designed to provide information useful for making business and economic
decisions—especially assessing amounts, timing, and uncertainty of prospective cash
flows. Consolidated statements also provide more complete information about the
resources, obligations, risks, and opportunities of an enterprise than separate
statements.
b. An entity qualifies as a VIE and is subject to consolidation if either of the following
conditions exist.
§ The total equity at risk is not sufficient to permit the entity to finance its activities
without additional subordinated financial support from other parties. In most cases, if
equity at risk is less than 10% of total assets, the risk is deemed insufficient.
§ The equity investors in the VIE lack any one of the following three characteristics of
a controlling financial interest.
1. The direct or indirect ability to make decisions about an entity's activities through
voting rights or similar rights.
2. The obligation to absorb the expected losses of the entity if they occur (e.g.,
another firm may guarantee a return to the equity investors)
3. The right to receive the expected residual returns of the entity (e.g., the investors'
return may be capped by the entity's governing documents or other arrangements
with variable interest holders).
Consolidation is required if a parent has a variable interest that will
§ Absorb a majority of the entity's expected losses if they occur
§ Receive a majority of the entity's expected residual returns if they occur
Also, a direct or indirect ability to make decisions that significantly affect the results of
the activities of a variable interest entity is a strong indication that an enterprise has
one or both of the characteristics that would require consolidation of the variable
interest entity.
c. Risks of the construction project that has TPC has effectively shifted to the owners of the
VIE
§ At the end of the 1st five-year lease term, if the parent opts to sell the facility, and
the proceeds are insufficient to repay the VIE investors, TPC may be required to pay up
§ If lease is not renewed, TPC must either purchase the facility or sell it on behalf of
the VIE with a guarantee of Investors' (debt and equity) balances representing a risk of
decline in market value of asset
§ Debt guarantees
d. TPC possesses the following characteristics of a primary beneficiary Direct decision-
making ability (end of five-year lease term)
§ Absorb a majority of the entity's expected losses if they occur (via debt guarantees
and guaranteed lease payments and residual value)
§ Receive a majority of the entity's expected residual returns if they occur (via use of
the facility and potential increase in its market value).
Problem XV
1. Implied valuation and excess allocation for SP.
FV of VIE:
Consideration transferred by P. P 20,000
Non-controlling interest fair value __ 60,000
FV/Total business fair value of VIE P 80,000
Less: Fair value of VIE net assets [P20,000 + (P140,000 + P20,000)
+ P40,000 – P120,000) __100,000
Excess net asset value fair value/Bargain purchase gain P( 20,000)
The P20,000 excess net asset fair value is recognized by PT as a bargain purchase. All SP’
assets and liabilities are recognized at their individual fair values.
Cash P20,000
Marketing software 160,000
Computer equipment 40,000
Long-term debt (120,000)
Noncontrolling interest (60,000)
Pantech equity interest (20,000)
Gain on bargain purchase (20,000)
- 0-
2. Implied valuation and excess valuation for SP.

FV of VIE:
Consideration transferred by P. P 20,000
Non-controlling interest fair value __ 60,000
FV/Total business fair value of VIE P 80,000
Less: Fair value of VIE net assets [P20,000 + (P140,000 - P20,000)
+ P40,000 – P120,000) __60,000
Excess fair value over net assets/ Goodwill P 20,000
Noncontrolling interest fair value 60,000

Consideration transferred by Pantech 20,000
Total business fair value 80,000
Fair value of VIE net identifiable assets 60,000
Goodwill P20,000
When the business fair value of a VIE (that is a business) is greater than assessed asset
values, all identifiable assets and liabilities are reported at fair values (unless a previously
held interest) and the difference is treated as a goodwill.
Cash P20,000
Marketing software 120,000
Computer equipment 40,000
Goodwill (excess business fair value) 20,000
Long-term debt (120,000)

C.2 SOULUTIONS (Problems I - XV)

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C.2 SOULUTIONS (Problems I - XV)

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Chapter 2

Problem I (Correction: Research and development should be P5,000 not P50,000)

Acquisition Expense (or Retained earnings) 10,000

Case 2: Date of Acquisition -

Case 3: Date of Acquisition -

Case 4: Date of Acquisition -

Case 5: Date of Acquisition -

2. Schedule of Determination and Allocated Excess: (Correction: Research and development

Case 2: Date of Acquisition -

Case 3: Date of Acquisition -

b. Fair Value Basis (Full-goodwill Approach)

Case 4: Date of Acquisition -

b. Fair Value Basis (Full-goodwill Approach)

Case 5: Date of Acquisition – Step-Acquisition

b. Fair Value Basis (Full-goodwill Approach)

b. Fair Value Basis (Full-goodwill Approach)

3. Working Paper Eliminating Entries

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Case 2: Date of Acquisition –

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

b. Fair Value Basis (Full-goodwill Approach)

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

Case 3: Date of Acquisition -

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

Case 4: Date of Acquisition -

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

b. Fair Value Basis (Full-goodwill Approach)

Buildings and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Schedule of Determination and Allocated Excess: (Correction: Research and

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000

Schedule of Determination and Allocated Excess:

b. Fair Value Basis (Full-goodwill Approach)

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,000

Schedule of Determination and Allocated Excess:

Case 6: Date of Acquisition - – Bargain Purchase Gain

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Schedule of Determination and Allocated Excess:

Identifiable assets (itemized)….. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000

Case 2: Date of Acquisition - January 1, 20x4

Case 4: Date of Acquisition - January 1, 20x4

2. Consolidated Balance Sheet – Date of Acquisition, January 1, 20x4

B. Fair Value Basis (Full-goodwill Approach)

(E2) Inventory…………………………………………………………. 18,000

8. Schedule of Determination and Allocation of Excess

The over/under valuation of assets and liabilities are summarized as follows:

9. Working Paper Eliminating Entries

(E2) Inventory…..……………………………………………………………. 18,000

(E2) Inventory……………………………………………………………. 18,000

Buildings and equipment 480,000 360,000 (2) 12,000 828,000

Buildings and equipment 480,000 360,000 (2) 12,000 828,000

• Incidentally, the non-controlling interest on the date of acquisition is computed as

11. The balance sheet: Partial-Goodwill

The balance sheet: Fulll-Goodwill

2. Schedule of Determination and Allocation of Excess

b. Full-goodwill Approach (Fair Value Basis)

(E2) Inventory………………………………………………………………….. 6,000

b. Full-goodwill Approach (Fair Value Basis)