Pact acquired 80% of the equity shares of Sact on 1 July Year 1, paying P3.

00
for each share acquired. This represented a premium of 20% over the market price of
Sact’s shares at that date. Sact’s shareholders’ funds (equity) as at 31 March Year 2 were:

Equity shares of P1 each 100,000

Retained earnings at 1 April Year 1 80,000
Profit for the year ended 31 March 40,000 120,000
Year 2
220,000

The only fair value adjustment required to Sact’s net assets on consolidation was a
P20,000 increase in the value of its land. Pact’s policy is to value non-controlling
interests at fair value at the date of acquisition. For this purpose the market price of
Sact’s shares at that date can be deemed to be representative of the fair value of the
shares held by the non-controlling interest
How much is the profit attributable to the Controlling Interest?

40,000 32,000 24,000 8,000

General Feedback
Pact and Sact
Profit reported by subsidiary 40,000.00
Multiply by number of months with control 9/12
Multiply by percentage of
ownership 80%
Profit attributable to Controlling
Interest 24,000.00
*It was assumed that no further equity transactions transpired from the acquisition date
since no data is available.

Zuma Corporation and its subsidiary reported consolidated net income of P320,000 for
the year ended December 31, Year 1. Zuma owns 80 percent of the common shares of its
subsidiary, acquired at book value. Noncontrolling interest was assigned income of
P30,000 in the consolidated income statement for Year 1. What is the amount of separate
operating income reported by Zuma for the year? P170,000 P150,000 P120,000
P200,000
General Feedback
Zuma Corporation
Consolidated Income 320,000.00
Less: Adjusted Subsidiary Income
(30,000/20%) (150,000.00)
Parent company's adjusted separate income 170,000.00
Pact acquired 80% of the equity shares of Sact on 1 July Year 1, paying P3.00
for each share acquired. This represented a premium of 20% over the market price of
Sact’s shares at that date. Sact’s shareholders’ funds (equity) as at 31 March Year 2 were:

Equity shares of P1 each 100,000

Retained earnings at 1 April Year 1 80,000
Profit for the year ended 31 March Year 2 40,000 120,000
220,000

The only fair value adjustment required to Sact’s net assets on consolidation was a
P20,000 increase in the value of its land. Pact’s policy is to value non-controlling
interests at fair value at the date of acquisition. For this purpose the market price of
Sact’s shares at that date can be deemed to be representative of the fair value of the
shares held by the non-controlling interest. Sub Company sells all its output at 20 percent
above cost to Par Corporation. Par purchases all its inventory from Sub. The incomes
reported by the companies over the past three years are as follows:

Year Sub Company’s Net Income Par Corporation’s Operating Income

Year 1 150,000 225,000
Year 2 135,000 360,000
Year 3 240,000 450,000

Sub Company sold inventory for P300,000, P262,500 and P337,500 in the years Year 1,
Year 2, and Year 3 respectively. Par Company reported ending inventory of P105,000,
P157,500 and P180,000 for Year 1, Year 2, and Year 3 respectively. Par acquired 70
percent of the ownership of Sub on January 1, Year 1, at underlying book value. The fair
value of the noncontrolling interest at the date of acquisition was equal to 30 percent of
the book value of Sub Company.

What will be the income assigned to controlling interest for Year 2?

P448,375 P495,000 P486,250 P615,37

General Feedback
Profit - Par, Year 2 360,000.00
Share in Profit - Sub, Year 2 94,500.00
Share in RGP in beginning Inventory
(105,000/120%*20%*70%) 12,250.00
Share in DGP in Ending Inventory
(157,500/120%*20%*70%) (18,375.00)
Profit - Equity Holders of Parent 448,375.00

Roland Company acquired 100 percent of Garros Company's voting shares in Year 1.
During Year 2, Garros purchased tennis equipment for P30,000 and sold them to Roland
for P55,000. Roland continues to hold the items in inventory on December 31, Year 2.
Sales for the two companies during Year 2 totaled P655,000, and total cost of goods sold
was P420,000. Which of the following observations will be true if no adjustment is made
to eliminate the intercorporate sale when a consolidated income statement is prepared for
Year 2? Sales would be overstated by P30,000 Cost of goods sold will be
understated by P25,000 Net income will be overstated by P25,000 Consolidated net
income will be unaffected
General Feedback
Roland Company
If NO adjustment is made for the inter-company
sales:
Statement A is
Overstatement in Sales 55,000.00 FALSE
Overstatement in Cost of Goods Statement B is
Sold 55,000.00 FALSE
Overstatement in Ending Inventory 25,000.00
Statement C is
Overstatement in Profit 25,000.00 TRUE

Pact acquired 80% of the equity shares of Sact on 1 July Year 1, paying P3.00
for each share acquired. This represented a premium of 20% over the market price of
Sact’s shares at that date. Sact’s shareholders’ funds (equity) as at 31 March Year 2 were:

Equity shares of P1 each 100,000

Retained earnings at 1 April Year 1 80,000
Profit for the year ended 31 March 40,000 120,000
Year 2
220,000

The only fair value adjustment required to Sact’s net assets on consolidation was a
P20,000 increase in the value of its land. Pact’s policy is to value non-controlling
interests at fair value at the date of acquisition. For this purpose the market price of
Sact’s shares at that date can be deemed to be representative of the fair value of the
shares held by the non-controlling interest.

What would be the carrying amount of the non-controlling interest of Sact in

the consolidated statement of financial position of Pact as at 31 March Year 2?

P58,00 P56,000 P54,000 P50,000

General Feedback
Pact and Sact
 Equity shares, March 1, Year 2 (# of
shares) 100,000.00
Multiply by: NCI percentage 20%
NCI held shares 20,000.00
Multiply by: FV/Share (P3 / 120%) 2.50
NCI - Net asset, at acquisition* 50,000.00
Share in profit (40,000 * 9/12 * 20%) 6,000.00
Share in dividends -
NCI - Net asset, March 31, Year 2 56,000.00

On January 1, Year 1, Wilhelm Corporation acquired 90 percent of Kaiser Company's

voting stock, at underlying book value. The fair value of the noncontrolling interest was
equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity
method in accounting for its ownership of Kaiser. On December 31, Year 2, the trial
balances of the two companies are as follows:
Wilhelm Corporation Kaiser Company
Debit Credit Debit Credit
Current Assets 200,000 140,000
Depreciable Assets 350,000 250,000
Investment in Kaiser 162,000
Company Stock
Depreciation Expense 27,000 10,000
Other Expenses 95,000 60,000
Dividends Declared 20,000 10,000
Accumulated Depreciation 118,000 80,000
Current Liabilities 100,000 80,000
Long-Term Debt 100,000 50,000
Common Stock 100,000 50,000
Retained Earnings 150,000 100,000
Sales 250,000 110,000
Income from Subsidiary 36,000
Based on the preceding information, what amount would be reported as retained earnings
in the consolidated balance sheet prepared at December 31, Year 2?
314,000 294,000 150,000 424,000
General Feedback
Wilhelm Corporation
Retained Earnings - Parent 150,000.00
Profit - Parent
Sales 250,000.00
Depreciation Expense (27,000.00)
Other expenses (95,000.00) 128,000.00
Dividends Declared - Parent (20,000.00)
Retained Earnings - Parent, Ending 258,000.00
 Parent's share in Subsidiary Profit -
2009 36,000.00
Retained Earnings - Equity Holders
of Parent 294,000.00

Parker Corp. owns 80% of Smith Inc.’s common stock. During 2017, Parker sold
Smith 250,000 of inventory on the same terms as sales made to third parties. Smith
sold all of the inventory purchased from Parker in 2017. The following information
pertains to Smith and Parker’s sales for 2017:
Parker Smith
Sales 1,000,000 700,000
Cost of sales 400,000 350,000
600,000 350,000

What amount should Parker report as cost of sales in it s 2017 consolidated income
statement?
750,000 680,000 500,000 430,000
General Feedback
500,000

Wilmslow acquired 80% of the equity shares of Zeta on 1 April Year 1 when Zeta’s
retained earnings were P200,000. During the year ended 31 March Year 2, Zeta
purchased goods from Wilmslow totalling P320,000. At 31 March Year 2, one quarter
of these goods were still in the inventory of Zeta. Wilmslow applies a mark-up on cost
of 25% to all of its sales. At 31 March Year 2, the retained earnings of Wilmslow and
Zeta were P450,000 and P340,000 respectively.

What would be the amount of retained earnings in Wilmslow’s consolidated statement

of financial position as at31 March Year 2?
P706,000 P546,000 P542,000 P498,0
General Feedback
Wilmslow
Retained Earnings, end - Parent - separate FS 450,000.00
Unrealized gross profit on Downstream sales
[(320,000/4)/125%)*25%] (16,000.00)
Share in adjusted profit of
Subsidiary
Subsidiary reported profit [(340,000-
200,000)*80%] 112,000.00
Consolidated Retained Earnings 546,000.00
On January 1, Year 1, Wilhelm Corporation acquired 90 percent of Kaiser Company's
voting stock, at underlying book value. The fair value of the noncontrolling interest was
equal to 10 percent of the book value of Kaiser at that date. Wilhelm uses the equity
method in accounting for its ownership of Kaiser. On December 31, Year 2, the trial
balances of the two companies are as follows:
Wilhelm Corporation Kaiser Company
Debit Credit Debit Credit
Current Assets 200,000 140,000
Depreciable Assets 350,000 250,000
Investment in Kaiser 162,000
Company Stock
Depreciation Expense 27,000 10,000
Other Expenses 95,000 60,000
Dividends Declared 20,000 10,000
Accumulated Depreciation 118,000 80,000
Current Liabilities 100,000 80,000
Long-Term Debt 100,000 50,000
Common Stock 100,000 50,000
Retained Earnings 150,000 100,000
Sales 250,000 110,000
Income from Subsidiary 36,000
Based on the preceding information, what amount would be reported as total
stockholder's equity in the consolidated balance sheet at December 31, Year 2?
P412,000 P394,000 P542,000 P348,000
General Feedback
Common Stock 100,000.00
Retained Earnings - Equity Holders
of Parent 294,000.00
Non-Controlling Interest
Common Stock - Subsidiary 50,000.00 *Note: Since no
Retained Earnings, Beg - additional information is
Subsidiary 100,000.00 provided as to equity
Subsidiary Profit - Current Year 40,000.00 transaction after
Subsidiary Dividend Declared (10,000.00) acquisition, it is assumed
Subsidiary Net Assets, ending 180,000.00 that no subsequent
issuance or acquisition of
shares transpired
Mutiply by: NCI percentage 0.10 18,000.00 subsequent to acquisition
Total Stockholders' Equity 412,000.00

During 2017, Pard Corp. sold goods to its 80%-owned subsidiary, Seed Corp. At December 31,
2017, one-half of these goods were included in Seed’s ending inventory. Reported 2017 selling
expenses were 1,100,000 and 400,000 for Pard and Seed, respectively. Pard’s selling expenses
included 50,000 in freight-out costs for goods sold to Seed.

What amount of selling expenses should be reported in Pard’s 2017 consolidated income
statement?

1,500,000 1,480,000 1,475,000 1,450,000

General Feedback
1,450,000