TEST BANK
ADV ACCTG (by dayag)
BUSINESS COMBINATION (20x4 Revisions)
Statutory Mergers and Statutory Consolidation
7.
John Corporation concluded that the fair value of Carlo Company was P80,000and paid that
amount to acquire all of its net assets. Carlo reported assets with a book value of P60,000 and
fair value of P98,000 and liabilities with a book value and fair value of P23,000 on the date of
combination. John also paid P3,000 to a search firm for finder’s fees related to the acquisition.
What amount will be recorded as goodwill by John Corp.?
A. P
0
B. P5,000
C.
D.
P 8,000
P13,000
9.
1. On April 1, 20x4, Carlo Corp. paid cash of P620,000 for all of the net assets of John Company
appropriately accounted for as a merger. The recorded assets and liabilities of John Corporation
onApril 5, 20x4 follow:
Cash
Inventory
Property, plant and equipment (net of accumulated depreciation of P220,000)
Goodwill (net of accumulated amortization of P50,000)
Liabilities
Net assets
P60,000
180,000
320,000
100,000
(120,000)
P540,000
On April 1, 20x4, John’s inventory had a fair value of P150,000, and the property, plant and
equipment (net) had a fair value of P380,000. The amount of goodwill recorded in the books of
Carlo as a result of the business combination should be:
A. P150,000
B. P120,000
10.
C.
D.
P50,000
P
0
The Marc Company had these accounts at the time it was acquired by Francis Co.:
Cash
Accounts receivable
Inventories
Plant, property and equipment
Accounts payable
P 72,000
914,000
240,000
1,392,800
701,600
Francis Co. paid P2,800,000 for net assets of Marc Company. It was determined that fair market
values of inventories and plant, property, and equipment were P266,000 and P1,800,000,
respectively.
An assumed contingent liability arising from past events with a fair value amounting to P20,000
and as such amount is considered reliable measurement.
In the books of Francis Co., this transaction resulted in:
A.
B.
C.
D.
Goodwill recorded at P882,800
Goodwill recorded at P449,600
Goodwill recorded at P469,600
Current assets increased by P469,600
12.
2. On December 1, 20x4. Darlene Ltd. acquired all assets and liabilities of Shyndelle Ltd with
DarleneLtd. issuing 100,000 shares to acquire these net assets. The fair value of ShyndellesLtd’s.
assetsand liabilities at this date were:
Cash
Furniture and fittings
Accounts receivable
Plant
Accounts payable
Current tax liability
Provision for annual leave
P 50,000
20,000
5,000
125,000
15,000
8,000
2,000
The financial year for Darlene Ltd.is January- December.
The fair value of each Darlene Ltd. Share at acquisition date is P1.90. At acquisition date, the
acquirer could only determine a provisional fair value for the plant. On March 1, 20x5, Darlene
Ltd. received the final value from the independent appraisal, the fair value at acquisition date
being P131,000. Assuming the plant had a further five-year life from the acquisition date.
The amount of goodwill arising from the business combination at December 1, 20x4:
A. P15,000
B. P13,000
C.
D.
P5,000
P
0
18-27. Francis acquires assets and liabilities of Marc Company on January 1, 20x5. To obtain these
shares, Francis pays P800 (in thousands) and issues 20,000 shares of P20 par value common
stock on this date. Francis stock had a fair value of P36 per share on that date. Francis also pays
P30 (in thousands) to a local investment firm for arranging the transaction. An additional P20 (in
thousands) was paid by Francis in stock issuance costs.
The book values for both Francis and Marc as of January 1, 20x5 follow. The fair value of each
of Francis and Marc accounts is also included. In addition, Marc holds a fully amortized
trademark that still retains an P80 (in thousands) value. The figures below are in thousands. Any
related question also is in thousands.
Marc Company
Francis, Inc. Book Value Fair Value
Cash
P1,800 P160 P160
Receivables
960
360
320
Inventory
1,320
520 600
Land
600
240
Buildings (net)
2,400
440
Equipment (net)
720
200
Accounts payable
960
120
Long-term liabilities
2,280
680
Common stock
2,400
160
Retained earnings
2,160
960
260
560
150
120
600
Assuming the combination is accounted for as an acquisition, immediately after the acquisition,
in the balance sheet of Francis:
What amount will be reported for goodwill?
A. P110
B. P130
C. P140
D. P270
Using the same information above, what amount will be reported for receivables?
A. P1,320
B. P1,280
C. P1,000
D. P 920
Using the same information above, what amount will be reported for inventory?
A. P1,920
B. P1,840
C. P1,400
D. P1,240
Using the same information above, what amount will be reported for buildings (net)?
A. P2,840
B. P2,520
C. P2,280
D. P2,960
Using the same information above, what amount will be reported for equipment (net)?
A. P770
B. P670
C. P870
D. P720
Using the same information above, what amount will be reported for long-term liabilities?
A. P2,960
B. P2,880
C. P2,360
D. P2,200
Using the same information above, what amount will be reported for common stock?
A. P2,400
B. P2,560
C. P2,800
D. P2,960
Using the same information above, what amount will be reported for retained earnings?
A. P2,130
B. P2,160
C. P3,050
D. P3,120
Using the same information above, what amount will be reported for additional paid in capital?
A. P330
B. P300
C. P320
D. P350
Using the same information above, what amount will be reported for cash after the purchase
transaction?
A. P1,960
B. P1,800
29.
C. P1,750
D. P1,110
On January 1, 20x5, the fair values of Pia’s net assets were as follows:
Current Asset
Equipment
Land
Buildings
Liabilities
P200,000
300,000
100,000
600,000
160,000
On January 1, 20x5, Ruth Company purchased the net assets of Pia Company by issuing 200,000
shares of its P1 par value stock when the fair value of the stock was P6.20. It was further agrees
that Ruth’s would pay an additional amount on January 1, 20x7, if the average income during the
2-year period of 20x5-20x6 exceeded P160,000 per year. The expected value of this
consideration was calculated as P268,000; the measurement period is one year.
What amount will be recorded as goodwill on January 1, 20x5?
A. Zero
B. P200,000
C. P360,000
D. P568,000
Using the same information above, assuming that on August 1, 20x5 the contingent
consideration happens to be P340,000, what amount will then be recorded as goodwill on the
said date?
A. Zero
B. P172,000
C. P332,000
D. P540,000
Using the same information above, assuming that on January 1, 20x7, the date of settlement of
the contingent consideration clause agreement for P350,000, the entry should be:
A. Estimated liability for contingent consideration
P340,000
Loss on estimated contingent consideration
10,000
Cash
P350,000
B. Estimated liability for contingent consideration
Cash
350,000
C. Estimated liability for contingent consideration 368,000
Cash
Gain on estimated contingent consideration
350,000
350,000
18,000
D. No entry required.
35.
Mark Corporation acquired Ray Company through an exchange of common shares. All of the
Ray’s assets and liabilities were immediately transferred to Mark. Mark’s common stock was
trading at P20 per share at the time of exchange. Following selected information is also
available.
Par value of shares outstanding
Additional paid in capital
Before Acquisition
P200,000
350,000
After Acquisition
P250,000
550,000
Based on the preceding information, what number of shares was issued at the time of the
exchange?
A. P 5,000
B. P10,000
C. P12,500
D. P17,500
Using the same information above, what is the par value of Mark’s common stock?
A. P10
B. P 5
C. P 4
D. P 1
Using the same information above, what is the fair value of Ray’s net assets, if goodwill of
P56,000 is recorded?
A. P194,000
B. P244,000
C. P300,000
D. P306,000
38.
AB Corporation acquired all the assets and liabilities of RG Corporation by issuing shares of its
common stock on January 1, 20x4. Partial balance sheet data for the companies prior to the
business combination and immediately following the combination is provided:
AB Book Value
Cash
P 65,000
Accounts receivable
72,000
Inventory
33,000
Buildings and equipment (net) 400,000
Goodwill
Total Assets
P 570,000
Accounts Payable
Bonds payable
Common stock, P2 par
Additional paid-in capital
Retained earnings
Total Liabilities and Equities
P 50,000
250,000
100,000
65,000
105,000
P 570,000
RG Book Value
P 25,000
20,000
45,000
150,000
?
P 240,000
P
25,000
100,000
25,000
20,000
70,000
P 240,000
Combination
P 90,000
94,000
88,000
650,000
P
?
P
75,000
350,000
160,000
245,000
?
P
?
What number of shares did AB issue for this acquisition?
A.
B.
C.
D.
39.
80,000
50,000
30,000
17,500
At what price was AB stock trading when stock was issued for this acquisition?
A.
B.
C.
D.
P2.00
P5.63
P6.00
P8.00
40. What was the fair value of the net assets held by RG at the date of combination?
A.
B.
C.
D.
P115,000
P227,000
P270,000
P497,000
41. What amount of goodwill will be reported by the combined entity immediately following the
combination?
A.
B.
C.
D.
P 13,000
P125,000
P173,000
P413,000
42. What balance in retained earnings will the combined entity report immediately following the
combination?
A.
B.
C.
D.
P 35,000
P 70,000
P105,000
P175,000
46.
1. Companies A and B decide to consolidate. Asset and estimated annual earnings contributions are
as follows:
Co. A Co. B
Total
Net asset contribution
P300,000
P400,000
P700,000
Estimated annual earnings contribution
50,000
80,000
130,000
Stockholders of the two companies agree that a single class of stock be issued, that their
contributions be measured by net assets plus allowances for goodwill, and that 10% be
considered as a normal rate of return. Earnings in excess of the normal rate of return shall be
capitalized at 20%in calculating goodwill. It was also agreed that the authorized capital stock of
the new corporation shall be 20,000 shares with a par value of P100 a share.
The amount of goodwill credited to Co. A
A. P120,000
B. P150,000
C.
D.
P100,000
P200,000
Total contribution of Co. B (net assets plus goodwill):
A. P400,000
B. P500,000
C.
D.
P600,000
P700,000
48.
1. DG Inc., a new corporation formed and organized because of the recent consolidation of R Inc.
and G Inc., shall issue 10% participating preferred stocks with a par value of P100 for D Inc and
G Inc. net assets contributions, and common shares with a par value of P50 for the difference
between the total shares to be issued and the preferred shares to be issued. The total shares to be
issued by DG shall be equivalent to average annual earnings capitalized at 10%. Relevant data on
D Inc. and G Inc. follows:
Total Assets
Total Liabilities
Annual earnings (average)
D Inc.
P720,000
432,000
46,080
The total preferred shares to be issued by DG Inc.
A.
B.
C.
D.
8,640
5,760
2,880
7,280
The amount of goodwill to be recognized by DG Inc.
A.
B.
C.
D.
P288,000
P280,000
P864,000
P860,000
G Inc.
P921,600
345,600
69,120
CONSOLIDATED Finc’l Statement– Stock Acquisition
1-4
Company A acquires 80% of Company B for P5,000,000, carrying value of Company B net
assets at time of acquisition being P3,000,000 and fair value of these net identifiable assets being
P4,000,000.
Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial”
Goodwill:
A. P 800,000
B. P1,000,000
C. P1,800,000
D. P2,250,000
Using the same information above, the amount of non-controlling interest arising on
consolidation is to be valued on the proportionate basis or “Partial” Goodwill:
A. P600,000
B. P800,000
C. P1,250,000
D. P1,500,000
Using the same information above, the amount of goodwill arising on consolidation is to be
valued on the full (fair value) basis or “Full/Gross-up” Goodwill:
A. P800,000
B. P1,000,000
C. P1,800,000
D. P2,250,000
Using the same information above, the amount of non-controlling interest arising on
consolidation is to be valued on the full (fair value) basis or “Full/Gross-up” Goodwill:
A. P600,000
B. P800,000
9-13
C. P1,250,000
D. P1,500,000
Pine Company acquires 15 percent of Shine Company’s common stock for P1,000,000 cash and
carries the investment using the cost method. A few months later, Pine purchases another
60 percent of Shine Company’s stock for P4,320,000. At that date, Shine Company reports
identifiable assets with a book value ofP7,800,000 and a fair value of P10,200,000, and it has
liabilities with a book value and fair value of P3,800,000. The fair value of the 25% noncontrolling interest in Shine Company is P1,800,000.
Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial”
Goodwill:
A. P168,000
B. P200,000
C. P600,000
D. P800,000
Using the same information above, the amount of non-controlling interest arising on
consolidation is to be valued on the proportionate basis or “Partial” Goodwill:
A. P 600,000
B. P1,000,000
C. P1,600,000
D. P1,800,000
Using the same information above, the amount of goodwill arising on consolidation is to be
valued on the full (fair value) basis or “Full/Gross-up” Goodwill:
A. P168,000
B. P200,000
C. P600,000
D. P800,000
Using the same information above, the amount of non-controlling interest arising on
consolidation is to be valued on the full (fair value) basis or “Full/Gross-up” Goodwill:
A. P600,000
B. P1,000,000
C. P1,600,000
D. P1,800,000
Using the same information above, the amount of gain or loss should be recognized when the
additional shares are acquired:
A. Zero
B. P80,000 gain
C. P 80,000 loss
D. P136,000 loss
14-17.
1. On September 1, 20x4, Company A acquires 75% (750,000 ordinary shares) of Company B for
P7,500,000 (P10per share). In the period around the acquisition date, Company B’s shares are
trading at about P8 per share. Company A pays a premium over market because of the synergies
it believes it will get. It is therefore reasonable to conclude that the fair value of Company B’s as
a whole may not be P10,000,000. In fact, an independent valuation shows that the value of
company B is P9,700,00 (fair value of Company B). Assuming that the fair value of the net
identifiable assets is P8,000,000 ( carrying value is P6,000,000).
Goodwill arising on consolidation is to be valued on the proportionate basis or “Partial”
Goodwill:
A. P 200,000
B. P1,500,000
15.
C.
D.
P2,000,000
P2,200,000
Using the same information above, the amount of Goodwill arising on consolidation is to be
valued on the full (fair value) basis or “Full/Gross-up” Goodwill:
A. P 200,000
B. P1,500,000
17.
P1,700,000
P2,000,000
Using the same information above, the amount of non-controlling interest arising on
consolidation is to valued on the proportionate basis or “Partial” Goodwill
A. P1,500,000
B. P1,875,000
16.
C.
D.
C.
D.
P1,700,000
P2,000,000
Using the same information above, the amount of non-controlling interest arising on
consolidation is tovalued on the full (fair value) basis or “Full/Gross-up” Goodwill:
A. P1,500,000
B. P1,875,000
C.
D.
P2,000,000
P2,200,000
18-19. All the issued and outstanding common stock of Dau Company were bought by Angeles
Companyon October 1, 20x4 for P700,000. The assets and liabilities of Dau Company were:
Cash
Accounts receivable (net of P25,000 allowance for doubtful accounts)
Inventory
Property & equipment (net of P100,000 allowance for depreciation)
Accounts/ Notes Payable
P 50,000
250,000
150,000
300,000
130,000
On October 1, 20x4 the fair value of the following assets were as follows:
Accountsreceivable (net)
P235,000
Inventory
130,000
Property & equipment (net)
400,000
There is unrecorded warranty liability on prior-product sales estimated P20,000 discounted cash
flow based on estimated future cash flows.
The amount of goodwill as a result of the business combination should be:
A.
B.
C.
D.
19.
Using the same information above, the amount of goodwill in the books of Angeles Co, as a
result of the business combination should be:
A.
B.
C.
D.
20.
P 0
P 35,000
P 65,000
P100,000
P 0
P 35,000
P 65,000
P100,00
On January 1, 20x5, Lotto Company acquires 80% ownership in Dagupan Corporation for
P400,000. The fair value of the non-controlling interest at that time is determined to be
P100,000. It reports net assets with a book value of P400,000 and fair value of P460,000. Lotto
Company reports net assets with a book value of P1,200,000 and a fair value of P 1,300,000 at
that time, excluding its investment in Dagupan. What will be the amount of goodwill that would
be reported immediately after the combination under current accounting practice if the option of
full-goodwill method is used?
A. P100,000
B. P 80,000
21.
C. P60,000
D. P40,000
Mark acquired 70% of the net assets of Ray for P1.1 million. The assets of Ray have a book
value of 1.2 million and a fair market value of P1.3 million; its liabilities are P.2 million.
What is the amount of “excess of cost over book value of subsidiary” on the consolidated
balance sheet?
A. P0 million
B. P.1 million
23.
C.
D.
P.2 million
P.4 million
Rupert Corporation issued 100,000 shares of P20 for common stock for all the outstanding stock
of Rita Corporation in a business combination consummated on July 1, 20x4. Rupert Corporation
common stock was selling at P30 per share at the time of the business combination was
consummated. Out-of-pocket costs of the business combination were as follows:
Finder’s fee
P50,000
Accountant’s fee (advisory)
10,000
Legal fees (advisory)
20,000
Printing costs
5,000
SEC registration costs and fees
12,000
P97,000
The fair value of the consideration transferred accounting will be:
A. P3,097,000
B. P3,080,000
26.
C.
D.
P3,017,000
P3,000,000
Sun Inc. bought all outstanding shares of Shine Corporation on January 1, 20x4, for P700,000 in
cash. The portion of the consideration transferred results in a fair-value allocation of P35,000 to
equipment and goodwill of P88,000. At the acquisition date, Sun also agrees to pay Shine’s
previous owners and additional P110,000 on January 1, 20x6, if Shine earns a 10 percent return
on the fair value of its assets in 20x4 and 20x5. Sun’s profits exceed this threshold in both years.
Under which of the following is true?
A. The additional P110,000 payment is a reduction in retained earnings.
B. The fair value of the expected contingent payment increases goodwill at the acquisition
date.
C. Goodwill as of January 1, 20x6, increases by P110,000.
D. The P110,000 is recorded as an expense in 20x6.
30.
On June 30, 20x4, Moon Corporation purchased for cash at P10 per share all 100,000 shares of
the outstanding common stock of the River Company. The total fair value of all identifiable net
assets of River was P1,400,000. The only noncurrent asset is property with a fair value of
P350,000. The consolidated balance sheet of Moon and its wholly owned subsidiary on June 30,
20x4, should report:
A.
B.
C.
D.
33.
A retained earnings balance that is inclusive of a gain of P400,000
Goodwill of P400,000
A retained earnings balance that is inclusive of a gain of P350,000
A gain of P400,000
Pia Co. owns 80,000 shares of Rose Corp.’s 100,000 outstanding common shares, acquired at
book value. The December 31, 20x4, consolidated balance sheet presented by Pia and Rose
included netassets of Rose in the amount of P600,000. On January 1, 20x5, Pia sells 70,000
shares of Rose for P490,000. The fair value of Pia’s remaining 10% interest in Rose is P70,000.
What amount of gainor loss, if any, should be recognized on the sale of Pia’s shares resulting in
deconsolidation, and how much of that should be attributed to Pia?
Determine the gain or loss on disposal (or deconsolidation) should be:
A. P40,000 loss
B. P80,000 loss
34.
C.
D.
P10,000 gain
P80,000 gain
Darlene Ltd. Has an 80% investment in Syndelle Ltd. With a carrying amount of P80,000,000.
The fair value of Syndelle Ltd. Is P200,000,000. The following year, Darlene Ltd. Decided to
sell a 29% interest in Subsidiary to a third party in exchange for cash.
Determine the gain or loss on disposal of shares to be recognize in the profit or loss statement:
A. Zero
B. P29,000,000 gain
36.
D.
C.
P29,000,000 loss
P3,000,000 loss
John company owns 80,000 shares of Carlo Corporation’s 100,000 outstanding common shares,
acquired at book value. The December 31, 20x4, consolidated balance sheet presented by John
and Carlo included net assets of Carlo in the amount of P600,000. On January 1, 20x5, John sells
10,000shares (10%) of its Carlo stock to unrelated parties for P70,000.
Determine the gain or loss on disposal of shares to be recognized in the profit or loss statement:
A. Zero
B. P10,000 gain
C.
D.
P10,000 loss
P 5,000 loss
38.
Darlene, Inc. buys 60% of the outstanding stock of Shyndelle Inc. in an acquisition that resulted
in the acquisition of goodwill. Shyndelle 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
B. P300,000
41.
C.
D.
P380,000
P500,000
Jack company had common stock of P350,000 and retained earnings of P490,000. Jill Inc. had
common stock of P700,000 and retained earnings of P980,000. On January 1, 20x4, Jill issued
34,000 shares of common stock with a P12 par value and a P35 fair value for all of Jack
Company’s outstanding common stock. This combination was accounted for as an acquisition.
Immediately after the combination, what was the consolidated net asset?
A. P2,870,000
B. P2,520,000
C.
D.
P1,680,000
P1,190,000
42-43. Bea Company acquired 100 percent of the voting common shares of Ali Corporation, its bitter
rival, by issuing bonds with a par value and fair value of P300,000. Immediately prior to the
acquisition, Bea reported total assets of P1,000,000, liabilities of P560,000, and stockholders’
equity of P440,000. At that date, Ali reported total assets of P800,000, liabilities of P500,000,
andstockholders equity of P300,00. Included in Ali’s liabilities was an accounts payable to Bea
in the amount of P40,000, which Bea included in its accounts receivable.
Based on the preceding information, what amount of total assets did Bea report in its balance
sheet immediately after the acquisition?
A. P1,000,000
B. P1,300,000
C. P1,500,000
D. P1,800,000
Using the information above, what amount of total assets was reported in the consolidated
balance sheet immediately after acquisition?
A. P1,300,000
B. P1,760,000
C. P1,840,000
D. P1,500,000
44-52. The financial statements for Good, Inc and Best Company for the year ended December 31,
20x5, prior to Good’s business combination transaction regarding Best Co., follow (in
thousands):
Good Inc.
BestCo.
Revenues
P 1,350
P 300
Expenses
990
200
Net income
P 360
P 100
Retained earnings, 1/1
Net income
Dividends
Retained earnings, 12/31
Cash
Receivables and Inventory
Buildings (net)
Equipment (net)
Total Assets
Liabilities
Common stock
P 1,200
360
(
135)
P 1,425
P
120
600
1,350
1,050
P 3,120
P
750
540
P
(
P
200
100
0)
300
P
110
170
300
600
P 1,180
P
410
200
Additional paid-in capital
Retained earnings
Total liabilities and Stockholders’ equity
405
1,425
P 3,120
270
300
P 1,180
On December 31, 20x5, Good Inc issued P300 in debt and 15 shares of its P10 par value
common stock to the owners of Best to purchase all of the outstanding shares of that company.
Good Inc. shares had a fair value of P40 per share. Good Inc. paid P12.50 to a broker for
arranging the transaction. Good Inc. paid P17.50 in stock issuance costs. Best’s equipment was
actually worth P700 but its building were only valued at P280.
What amount is the investment recorded on Good Inc’s. books?
A. P770
B. P900
C. P912.50
D. P930
Using the same information above, compute the consolidated revenues for 20x5.
A. P1,650
B. P1,350
C. P770
D. P360
Using the same information above, compute the consolidated expenses for 20x5.
A. P 990
B. P1,002.50
C. P1,007.5
D. P1,020
Using the same information above, compute the consolidated cash account at December 31,
20x5.
A. P 230
B. P 217.50
C. P 412.50
D. P 200
Using the same information above, compute the consolidated buildings (net) account at
December 31,20x5:
A. P 1,350
B. P 1,685
C. P 1,630
D. P 1,650
Using the same information above, compute the consolidated goodwill account at December 31,
20x5:
A. P 0
B. P 50
C. P 62.5
D. P 80
Using the same information above, compute the consolidated common stock account at
December 31, 20x5:
A. P 540
B. P 690
C. P 740
D. P 1,140
Using the same information above, compute the consolidated additional paid-in capital
account at December 31, 20x5:
A. P 405
B. P 675
C. P 837.50
D. P 955
Using the same information above, compute the consolidated retained earnings account at
December 31, 20x5:
A. P1,400
B. P1,412.50
57.
C. P1,425
D. P1,712.50
On January 1, 20x4, Maru Corporation and NongCorporaton and their condensed balance sheet
are as follows:
Current Assets
Non-current Assets
Total Assets
Current Liabilities
Long-term Debt
Stockholders’ Equity
Total Liabilities & Equities
Maru Corp.
P 140,000
180,000
P320,000
P 60,000
100,000
160,000
P320,000
Nong Corp
P 40,000
80,000
P 120,000
P 20,000
100,000
P 120,000
On January 2, 20x4,Maru Corporation borrowed P120,000 and used the proceeds to obtain 80%
of the outstanding common shares of Nong Corporation. The acquisition price was considered
proportionate to Nong’s fair value. The P120,000 debt is payable in 10 equal annual principal
payments, plus interest, beginning December 31, 20x4. The excess fair value of the investment
over the underlying book value of the acquired net assets is allocated to inventory (60%) and to
goodwill (40%).
On a consolidated balance sheet as of January 2, 20x4, what should be the amount for each of the
following?
The amount of goodwill using proportionate basis (partial):
A.
B.
C.
D.
58.
Using the same information above, the amount of goodwill using full fair value (full/gross-up)
basis:
A.
B.
C.
D.
59.
P210,000
P204,000
P200,000
P180,000
Using the same information above, the amount of non-current asset using proportionate basis
(partial) in computing goodwill should be:
A.
B.
C.
D.
61.
P 0
P16,000
P20,000
P40,000
Using the same information above, the amount of current assets should be:
A.
B.
C.
D.
60.
P 0
P16,000
P20,000
P40,000
P260,000
P268,000
P276,000
P280,000
Using the same information above, the amount of non-current asset using full fair value basis
(full/gross-up) in computing goodwill should be:
A.
B.
C.
D.
62.
Using the same information above, the amount of current liabilities should be:
A.
B.
C.
D.
63.
P220,000
P208,000
P 180,000
P 100,000
Using the same information in above, the amount of stockholders’ equity using proportionate
(partial goodwill) basis to determine non-controlling interest should be:
A.
B.
C.
D.
65.
P100,000
P92,000
P80,000
P60,000
Using the same information above, the amount of non-current liabilities should be:
A.
B.
C.
D.
64.
P260,000
P268,000
P276,000
P280,000
P 160,000
P 186,000
P 190,000
P 260,000
Using the same information above, the amount of stockholders’ equity using full fair value
(full/gross-up goodwill) basis to determine non-controlling interest should be:
A.
B.
C.
D.
P160,000
P186,000
P190,000
P260,000
Subsequent to date of acquisition
69-71. Willie’s Inc. acquires all of the outstanding stock of Vina Corporation on January 1, 20x5. At
that date, Vina owns only three assets and has no liabilities:
Inventory
Equipment (10-year life)
Building (20-year life)
Book Value
P 80,000
160,000
200,000
Fair Value
P 100,000
150,000
600,000
If Willie pays P900,000 in cash for Vina, what amount would be represented as the subsidiary’s
Building in a consolidation at December 31, 20x7, assuming the book value at that date is still
P400,000?
A. P400,000
B. P510,000
C. P 570,000
D. P 600,000
Using the same information above, if Willie pays P800,000 in cash for Vina, what amount would
be represented as the subsidiary’s Building in a consolidation at December 31, 20x7, assuming
the book value at that date is still P400,000?
A. P400,000
B. P510,000
C. P570,000
D. P600,000
Using the same information above, if Willie pays P900,000 in cash for Vina, what amount would
be represented as the subsidiary’s Equipment in a consolidation at December 31, 20x7, assuming
the book value at that date is still P160,000?
A. P140,000
B. P147,000
C. P135,000
D. P160,000
76-79. Mark Company acquired 90 percent of Angel Company on January 1, 20x5, for P468,000 cash.
Angel’s stockholders’ equity consisted of common stock of P320,000 and retained earnings of
P160,000. An analysis of Angel’s net assets revealed the following:
Any excess consideration transferred over fair value is attributable to an unamortized patent with
a useful life of 5 years.
Building (10-year life)
Equipment (4-year life)
Land
Book value
P 20,000
28,000
10,000
Fair value
P16,000
36,000
24,000
In consolidation at January 1, 20x5, what adjustment is necessary for Angel’s Buildings account?
A. P4,000 increase
B. P4,000 decrease
C. P3,600 increase
D. P3,600 decrease
In consolidation at December 31, 20x5, what adjustment is necessary for Angel’s Buildings
account?
A. P 3,240 increase
B. P3,240 decrease
C. P 3,600 increase
D. P3,600 decrease
In consolidation at January 1, 20x5, what adjustment is necessary for Angel’s Land account?
A. P14,000 increase
B. P14,000 decrease
C. P12,600 increase
D. P12,600 decrease
In consolidation at December 31, 20x6, what adjustment is necessary for Angel’s Land account?
A. P 0
B. P14,000 increase
C. P12,600 increase
D. P12,600 decrease
80-84. Darlene Company acquires 80% of Juanito Company for P250,000 on January 1, 20x4. Juanito
reported common stock of P150,000 and retained earnings of P100,000 on that date. Equipment
was undervalued by P15,000 and buildings were undervalued by P20,000, each having a 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.
Juanito earn income and pays dividends as follows:
Net income
Dividends
20x4 20x520x6
P 50,000
P 60,000
20,000
25,000
P 65,000
30,000
Assume the initial value method (or cost method) is applied.
Compute Darlene’s Investment in Juanito at December 31, 20x4.
A.
B.
C.
D.
81.
Using the same information above, compute Darlene’s Investment in Juanito at December 31,
20x6?
A.
B.
C.
D.
82.
P24,000
P25,200
P28,000
P49,200
Using the same information above, compute the non-controlling interest in the net income of
Juanito at December 31, 20x5?
A.
B.
C.
D.
84.
P338,000
P312,500
P296,200
P250,000
Using the same information above, how much does Darlene report as Income from Juanito/
Dividend Income for the year ended December 31, 20x6?
A.
B.
C.
D.
83.
P250,000
P271,200
P287,200
P312,500
P 7,000
P 9,200
P11,300
P12,000
Using the same information above, compute the non-controlling interest of Juanito using fullgoodwill method at December 31, 20x5?
A.
B.
C.
D.
P
P
P
P
80,000
53,900
70,000
80,400
86.
(ICFA SY1415) On January 1, 20x4, Peter Company purchased 80% of the common stock of
Pan Company for
P316,000. On this date, Pan Company had common stock, other paid-in capital, and retained
earnings of P40,000, P120,000, and P190,000, respectively. Peter Company’s common stock
amounted to P500,000 and retained earnings of P200,000.
On January 1, 20x4, the only tangible assets of Pan that were undervalued were inventory and
building. Inventory, for which the FIFO is used.was worth P5,000 more than cost. Building
whichwas worth P15,000 more than book value, has a remaining life of 8 years, and a straight
line depreciation is used. Any remaining excess is full goodwill with an impairment for 20x4
amountingto P3,000. Pan Company reported net income of P50,000 and paid dividends of
P10,000 in 20x4, while the parent’s reported net income amounted to P100,000 and paid
dividends of P20,000.
Determine the Consolidated Net Income Attributable to Controlling Interest/Profit Attributable
to Equity Holders of Parent:
A.
B.
C.
D.
87.
Using the same information above, compute the Consolidated Net Income Attributable to
Controlling Interest/Profit Attributable to Equity Holders of Parent:
A.
B.
C.
D.
88.
P142,000
P132,125
P126,500
P124,100
P142,000
P132,125
P126,500
P124,100
Using the same information above, compute the non-controlling in Net Income / CNI attributable
to Non-controlling interest using Partial Goodwill:
A.
B.
C.
D.
P10,000
P 8,600
P 8,025
P 8,625
Using the same information above, compute the non-controlling in Net Income / CNI attributable
to Non-controlling interest using Full Goodwill:
A.
B.
C.
D.
89.
Using the same information above, compute the Equity Holders of Parent – Retained Earnings /
Controlling Interest in the Consolidated Retained Earnings
A.
B.
C.
D.
90.
P10,000
P 8,600
P 8,625
P 8,025
P200,000
P304,100
P324,100
P342,125
Using the same information above, compute the Consolidated/ Group Retained Earnings on fullgoodwill approach:
A.
B.
C.
D.
P200,000
P304,100
P324,100
P342,125
91-103.On January 1, 20x5, Euro Company acquired 90% of Pacific Company in exchange for 10,800
shares of P10 par common stock having a market value of P241,200. Euro and Pacific condensed
balance sheets were as follows:
Euro Company and Pacific Company
Balance Sheets at January 1, 20x5
(before combination)
Euro Co.
Assets
Cash
Accounts receivable (net)
Pacific Co.
P61,800
P74,800
68,400 18,200
Inventories
Equipment (net)
Patents
Total Assets
45,800
358,000
P534,000
Liabilities and stockholders’ equity
Accounts payable
Bonds payable, 10%
Common stock, P10 par
Additional paid-in capital
Retained earnings
Total liabilities and stockholders’ equity
P 8,000
200,000
200,000
30,000
96,000
P534,000
32,200
80,000
20,000
P225,200
P 13,200
100,000
30,000
82,000
P225,200
At the date of acquisition, all assets and liabilities of Pacific Company have a book value
approximately equal to their respective market values except the following as determined by
appraisal as follows:
Inventories (FIFO method)
Equipment (net – remaining life – 4 yrs.)
Patents (remaining life 10 yrs.)
Goodwill (no impairment)
P34,200
96,000
26,000
Compute the amount of partial goodwill on January 1, 20x5:
A. P5,200
B. P7,600
C. P28,800
D. P50,400
Using the same information above, compute the non-controlling interests (in net assets) on
January 1,20x5:
A. P21,200
B. P22,400
C. P23,600
D. P26,180
Using the same information above, compute the Consolidated Retained Earnings, January 1,
20x5:
A. P 96,000
B. P104,200
C. P169,800
D. P198,000
Using the same information above, compute the Equity Holders of Parent - Retained
Earnings, January 1, 20x5:
A. P 96,000
B. P104,200
C. P169,800
D. P198,000
In addition to the information above, assuming that on December 31, 20x5, the following results
were given:
Dividends Paid
Net Income
Euro Company
P 30,000
P60,400
Pacific Company
8,000
18,800
Using cost method to record results of operations, compute the investment balance on
December 31, 20x5:
A. P 0
B. P241,200
C. P244,320
D. P250,920
Using the information above, compute Dividend Income for 20x5 using cost method:
A. P 0
B. P7,200
C. P 8,000
D. P16,800
Using the same information above, compute the Non-Controlling Interest in Net Income on
December 31,20x5:
A. P 0
B. P1,080
C. P1,220 (?)
D. P1,880 (/)
Using the same information above, compute the Non-controlling Interests on December 31,
20x5:
A. P21,200
B. P22,280
C. P24,020
D. P24,600
Using the same information above, compute the Profit for the period attributable to Equity
Holders of Parent on December 31, 20x5:
A. P53,200
B. P64,180
C. P72,000
D. P88,200
Using the same information above, compute the Consolidated/ Group Net Incomeon December
31, 20x5:
A. P53,200
B. P64,180
C. P65,400
D. P88,200
Using the same information above, compute the Consolidated Retained Earnings, December
31, 20x5:
A. P129,520
B. P130,180
C. P138,800
D. P139,600
Using the same information above, compute the Equity Holders of Parent – Retained
Earnings, December 31, 20x5:
A. P129,520
B. P130,180
C. P138,800
D. P139,600
Using the same information above, compute the Consolidated Total Equity (Stockholders’
Equity) on December 31, 20x5:
A. P216,180
B. P601,380
C. P625,400
D. P634,820
104 - 105.Pete Co. acquires Dale, Inc on January 1, 20x4. The consideration transferred exceeds the fair
value of Dale’s net assets. On that date, Pete has a building with a book value of P1,200,000 and
a fair value of P1,500,000. Dale has a building with a book value of P400,000 and a fair value of
P500,000.
What amounts in the Building account appear on Dale’s separate balance sheet and on the
consolidated balance sheet immediately after acquisition?
Push-down Accounting
A. P400,000 and P1,600,000
B. P500,000 and P1,700,000
C. P400,000 and P1,700,000
D. P500,000 and P2,000,000
No push-down Accounting
A. P500,000 and P2,000,000
B. P400,000 and P1,700,000
C. P500,000 and P1,700,000
D. P400,000 and P2,000,000
112.
On January 2, 20x4, John Company acquired 80 percent of Carlo Corporation’s common stock
forP344,000 in cash. At the acquisition date, the book values and fair values of Carlo’s assets
and liabilities were equal and the fair value of the non-controlling interest was equal to 20
percent of the total book value of Carlo. The stockholders’ equity accounts of the two companies
at the acquisition date are:
Common stock, P5 par value
Additional paid –in capital
Retained earnings
Total Stockholders’ Equity
John
Carlo
P 500,000 P
300,000
350,000
P1,150,000 P
200,000
80,000
150,000
430,000
Non-controlling interest was assigned income of P11,000 in John’s consolidated income
statement for 20x4.
What will be the amount of net income reported by Carlo corporation in 20x4?
A.
B.
C.
D.
P44,000
P55,000
P66,000
P36,000
Using the same information above, what amount will be assigned to the non-controlling interest
on January 2, 20x4, in the consolidated balance sheet?
A.
B.
C.
D.
P86,000
P44,000
P68,800
P50,000
Using the same information above, what will be the total stockholders’ equity in the consolidated
balance sheet as of January 2, 20x4?
A.
B.
C.
D.
117.
P1,580,000
P1,064,000
P1,150,000
P1,236,000
Shyn Corporation’s outstanding capital stock (paid-in capital) has been P200,000 since the
company was organized in 20x3. Shyn’s retained earnings account since 20x3 is summarized as
follows:
Debit:
Dividends December 1, 20x3
Dividends December 1, 20x4
Retained Earnings
Credit:
P20,000
Net income 20x3
20,000
Net income 20x4
P50,000
70,000
Dividends December 1, 20x5
Dividends December 1, 20x6
30,000
40,000
Net income 20x5
Net income 20x6
10,000
60,000
Delle Corporation purchased 20% of Shyn’s outstanding stock on January 1, 20x5, for P300,000.
During 20x6Delle’s income, excluding its investment income from Shyn’s was P90,000.
Goodwill impairment for the year 20x3-20x6 amounted to P2,250 per year.
Compute the balance of Delle’s Investment in Shyn account at December 31, 20x6 under the cost
method:
A.
B.
C.
D.
P285,000
P295,500
P300,000
P315,000
INTERCOMPANY SALES – INVENTORY
118.
Pia Corporation owns an 80% interest in Euro Corporation; and at December 31, 20x5, Pia
investment in Euro on a cost basis was equal to 80% of Euro’s stockholders equity. During 20x6,
Euro sold merchandise to Pia to P200,000 at a gross profit to Euro of P40,000. At December 31,
20x6 half of this merchandise is included in Pia’s inventory. Separate incomes for Pia and Euro
for20x6 are summarized as follows:
Sales
Cost of sales
Gross profit
Operating expenses
Separate incomes
Pia
P1,000,000
500,000
P 500,000
250,000
P 250,000
Euro
P 600,000
400,000
P 200,000
80,000
P 120,000
The income from Euro for 20x6 is:
A. P96,000
B. P80,000
C. P16,000
D. P 0
The Consolidated/Group cost of sales for 20x6 is:
A. P920,000
B. P900,000
C. P880,000
D. P720,000
The Non-controlling interest in net income for 20x6 is:
A. P120,000
B. P 96,000
C. P24,000
D. P20,000
121-124. The separate incomes (which do not include investment income) of Pia Corporation and Rose
Corporation, its 80% owned subsidiary, for 20x5wee determined as follows:
Sales
Cost of sales
Gross profit
Other expenses
Separate incomes
Pia
P800,000
400,000
P400,000
200,000
P200,000
Rose
P200,000
120,000
P 80,000
60,000
P 20,000
During 20x6Pia sold merchandise that cost P40,000 to Rose for P80,000, and at December 31,
20x5 half of these inventory items remained unsold by Rose.
The Minority interest in net income for 20x6:
A. P 0
B. P4,000
C. P16,000
D. P20,000
The Consolidated sales for 20x6:
A. P1,000,000
B. P 960,000
C. P920,000
D. P800,000
The Consolidated cost of sales for 20x6:
A. P460,000
B. P496,000
C. P540,000
D. P600,000
The Profit attributable to Equity Holders of Parent or NCI Contributable to controlling
interest for 20x6:
A. P216,000
B. P200,000
125.
C. P196,000
D. P160,000
Income statement information for the year 20x6 for Marc Corporation and its Francis 60%
owned subsidiary, Francis Corporation, is as follows:
Sales
Cost of sales
Gross Profit
Operating expenses
Francis’s net income
Marc’s separate income
Marc
P1,800,000
800,000
P1,000,000
500,000
Francis
P700,000
500,000
P200,000
100,000
P100,000
P 500,000
Intercompany sales for 20x6 are upstream (from Francis to Marc) and total P200,000. Marc’s
December 31, 20x5 and December 31, 20x6 inventories contain unrealized profits of P10,000
and P20,000, respectively.
The consolidated sales for 20x6:
A. P1,800,000
B. P2,300,000
C. P2,380,000
D. P2,500,000
The consolidated cost of sales for 20x6:
A. P1,090,000
B. P1,100,000
C. P1,110,000
D. P1,120,000
The Profit attributable to Equity Holders of Parent or CNI Contributable to Controlling Interests
for 20x6:
A. P554,000
B. P560,000
129.
C. P564,000
D. P610,000
Mars Corporation owns an 80% interest Mallow Company acquired several years ago. Mallow
regularly sells merchandise to its parent at 125% of Mallow’s cost. Gross profit data of Mars and
Mallows for the year 20x6 are as follows:
Sales
Cost of sales
Gross Profit
Mars
P500,000
400,000
P100,000
Mallow
P400,000
320,000
P 80,000
During 20x6, Mars purchased inventory items from Mallows at a transfer price of P200,000.
Mars December 31, 20x5 and 20x6 inventories included goods acquired from Mallow of
P50,000 and P62,500, respectively.
The Consolidated sales or Mars Corporation and subsidiary for 20x6 were:
A. P900,000
B. P712,500
C. P700,000
D. P620,000
Using the same information above, the Unrealized profits in the year-end 20x5 and 20x6
inventories were:
A.
B.
C.
D.
P 50,000 and P62,500, respectively
P400,000 and P50,000, respectively
P 10,000 and P12,500, respectively
P 8,000 and P10,000, respectively
Using the same information above, the Consolidated cost of goods sold of Mars and subsidiary
for 20x6 was:
A. P512,000
B. P522,500
132.
C. P526,400
D. P528,000
Marc Co. is a manufacturer and Francis Co.., its 100%-owned subsidiary, is a retailer. The
companies are vertically integrated. Thus, Francis purchases all of its inventory from Marc. On
January 1, 20x6, Francis’s inventory was P60,000. For the year ended December 31, 20x6, its
purchases were P300,000, and its cost of sales was P333,000. Marc’s sales to Francis reflect a
50% markup on cost. Francis then resells the goods to outside entities at a 100% markup on cost.
At what amount should the intercompany inventory purchased from Marc be reported in the
consolidated balance sheet at December 31, 20x6?
A. P 6,000
B. P18,000
133.
C. P27,000
D. P92,000
Francis Company owns 80% of Ryan Corp.’s common stock. During October 20x6, Ryan sold
merchandise to Francis for P500,000. At December 31, 20x6, one-half of the merchandise
remained in Francis inventory. For 20x6, gross profit percentages were 30% for Francis and 40%
for Ryan.
The amount of unrealized intercompany profit in ending inventory at December 31,
20x6 that should be eliminated in consolidation is:
A. P 200,000
B. P 100,000
135.
C. P80,000
D. P75,000
Rose Corp. acquired a 70% interest in Bud Co. in 20x5. For the year ended December 31, 20x5
and20x6, Bud Co. reported net income of P320,000 and P360,000, respectively. During 20x5,
Bud sold merchandise to Rose Corp. for P40,000 at a profit of P8,000. The merchandise was
later resold by Rose Corp. to outsider for P60,000 during 20x6.
For consolidation purposes, what is the non-controlling interest’s share of Bud’s net income for
20x5 and 20x6, respectively?
20x5
20x6
A. P93,600
B. P 96,000
C. P 98,000
D. P106,400
P110,400
P108,000
P105,600
P100,000
INTERCOMPANY SALES – DEPRECIABLE AND NON-DEPRECIABLE ASSETS
Items 136-138 are based on the following information:
Income information for 20x6 taken from the separate company financial statements of Pia
Corporation and its 75% owned subsidiary, Ruth Corporation is presented as follows:.
Sales
Gain on sale of building
Dividend income
Cost of goods sold
Depreciation expense
Other expenses
Net income
Pia
P 500,000
10,000
37,500
( 250,000)
( 50,000)
( 100,000)
P 147,500
Ruth
P230,000
( 130,000)
( 30,000)
( 20,000)
P 50,000
Pia’s gain on sale of building relates to a building with a book value of P 20,000 and a ten-year
remaining useful life that was sold to Ruth for P30,000 on January 1, 20x6.
At what amount will the gain on sale of building appear on the consolidated/group income
statement of Pia and Ruth for the year 20x6 should be:
A. Zero
B. P2,500
C. P7,500
D. P10,000
The Consolidated/group depreciation expense for 20x6 should be:
A. P79,000
B. P80,000
(?)
C. P81,000
D. P90,000
The Profit attributable to Equity Holders of Parent or CNI Contributable to Controlling Interests
for 20x6 should be:
A. P147,500
B. P138,500(?)
C. P137,500
D. P110,000
142-145.
Marc Corporation is a 90% owned subsidiary of Francis Corporation acquired several years ago
at book value equal to fair value. For the years 20x5 and 20x6, Francis and Mark report the
following:
Francis separate income
Marc’s net income
20x5
P600,000
160,000
20x6
P800,000
120,000
The only intercompany transaction between Francis and Marc during 20x5 and 20x6 was the
January 1, 20x5 sale of land. The land had a book value of P40,000 and was sold intercompany
for P60,000, its appraised value at the time of sale.
If the land was sold by Francis to Marc (downstream sales) and that Marc still owns the land at
December 31, 20x6, compute the Profit Attributable to Equity Holders of Parent for 20x5 and
20x6:
20x5
20x6
20x5
A. P726,000
P908,000
B. P724,000
P908,000
20x6
C. P744,000
D. P724,000
P920,000
P920,000
Using the same information above, the Consolidated/group net income for 20x5 and 20x6:
20x5
20x6
20x5
A. P724,000
P908,000
B. P760,000
P920,000
20x6
C. P740,000
D. P744,000
P920,000
P920,000
Using the same information above, except that the land was sold by Marc to Francis (upstream
sales) and Francis still owns the land at December 31, 20x6, compute the Profit Attributable to
Equity Holders Of Parent or CNI Attributable to Controlling Interests for 20x5 and 20x6:
20x5
20x6
20x5
A. P726,000
P908,000
B. P724,000
P908,000
146.
P2,000
P
0
P2,000
P
0
On January 1, 20x6, Pine Corp. sold machine for P1,800,000 to Shine Corp., its wholly owned
subsidiary. Pine paid P2,200,000 for this machine, which had accumulated depreciation of
P500,000. Pine estimated a P200,000 salvage value and depreciated the machine on the straightline method over 20 years, a policy which Shine continued. In Pine’s December 31, 20x5,
consolidated balance sheet, this machine should be included in cost and accumulated
depreciation as:
A.
B.
C.
D.
148.
P920,000
P920,000
Panga Corp. owns 100% of Sinan Corp.’s common stock. On January 2, 20x5, Panga sold to
Sinan for P80,000 machinery with a carrying amount of P60,000. Sinan is depreciating the
acquired machinery over a five year life by the straight-line method. The net adjustments to
compute20x5 and 20x6 Profit Attributable to Equity Holders of Parent or CNI Attributable to
Controlling Interests before income tax would be an increase (decrease) of:
20x5
20x6
A. P( 8,000)
B. P( 8,000)
C. P(10,000)
D. P(10,000)
147.
20x6
C. P744,000
D. P724,000
Cost
P2,200,000
P2,200,000
P1,800,000
P1,700,000
Accumulated depreciation
P600,000
P580,000
P 80,000
P 85,000
On January 1, 20x6, Jhon Company purchased 90% equity of Joy Company. On January 3, 20x6.
Joy sold equipment (with original cost of P1,500,000 and carrying cost of P750,000) to Jhon for
P1,080,000. The equipment have a remaining life of three (3) years and was depreciated using
the straight-line method by both companies. In Jhon consolidated balance sheet as of December
31, 20x6,
Cost should be reported at:
A. P1,500,000
B. P1,080,000
C. P 750,000
D. P1,350,000
Accumulated depreciation should be reported at:
A. P1,000,000
C. P 750,000
B. P1,500,000
D. P1,000,000
Net Book Value should be reported at:
A. P750,000
B. P735,000
149.
On January 1, 20x6, Josh Corporation sold equipment with a three-year remaining useful life and
a book value of P50,000 to its 70%-owned subsidiary for a price of P57,500. In the consolidation
working papers for the year ended December 31, 20x6, the elimination entry concerning this
transaction will include:
A.
B.
C.
D.
150.
C. P 0
D. P500,000
A debit to equipment for P7,500.
A debit to gain on equipment for P7,500.
A credit to depreciation expense for P7,500.
A debit to gain on equipment sale for P5,000.
On January 1, 20x6, Pam Corp. sold a warehouse with a book value of P160,000 and a 20-year
remaining useful life to its wholly-owned subsidiary, Spam Corporation, for P240,000. Both Pam
and Spam use the straight-line depreciation method. On December 31, 20x6, the separate
company financial statements contained the following balances connected with the warehouse:
Gain on sale of warehouse
Depreciation expense
Warehouse
Accumulated depreciation
Pam
P80,000
Spam
P 12,000
240,000
12,000
A working paper entry to consolidate the financial statements of Pam and Spam on December
31, 20x6 will include:
A.
B.
C.
D.
153.
A debit to gain on sale of warehouse for P76,000.
A debit to gain sale of warehouse for P80,000.
A debit to accumulated depreciation for P4,000.
A credit to depreciation expense for P12,000.
Sophie Corporation is an 80% owned subsidiary of Pat Corporation. In 20x5, Sophie sold land
net cost P15,000 to Pat for 25,000. Pat held the land for eight years before reselling it in 20x6
to Eden Company, an unrelated entity, for P55,000. The consolidated income statement for Pat
and its subsidiary in 20x6, Sophie, will show a gain on the sale of land of:.
A. P40,000
B. P32,000
154.
C. P30,000
D. P24,000
Marc Co. owned 80% of Francis Corp. during 20x5, Marc sold to Francis land with a book value
of P48,000. The selling price was P70,000. In its accounting records, Marc should:
A.
B.
C.
D.
Not recognize a gain on the sale of the land since it was made to a related party.
Recognize a gain of P17,600.
Defer recognition of the gain until Francis sells the land to a third party.
Recognize a gain of P22,000.
INTERCOMPANY ACCOUNTS
155.
Pink Corp. owns 60% of Sun Corp.’s outstanding capital stock. On May 1, 20x5, Pink advanced
P140,000 in cash, which was still outstanding at December 31, 20x6. What portion of this
advance should be eliminated in the preparation of the December 31, 20x6 consolidated balance
sheet?
A. P140,000
B. P84,000
156.
During 20x6, Pine Corp. sold goods to its 80% owned subsidiary, Crest Corp. at December 31,
20x6, one-half (1/2) of these goods were included in Crest’s ending inventory. Reported 20x6
selling expenses were P2,200 and P400,000 for Pine and Crest, respectively. Pine’s selling
expenses included P100,000 in freight-out costs for goods sold to Crest. What amount of selling
expenses should be reported in Pine’s consolidated income statement?
A. P3,000,000
B. P2,960,000
157.
C. P350,000
D. P270,000
Choco Company’s current receivables from affiliated companies at December 31, 20x5 are (1) a
P150,000 cash advance to Candy Corporation (Choco owns 30% of the voting stock of Candy
and accounts for the investment by the equity method), (2) a receivable of P520,000 from Cake
Corporation for administrative and selling services (Cake is 100%-owned by Choco and is
included in Choco’s consolidated financial statements), and (3) a receivable of P400,000 from
Wheat Corporation for merchandise sales on credit (Wheat is a 90%-owned, unconsolidated
subsidiary of Choco accounted for by the equity method). In the current assets section of its
December 31, 20x5 consolidated balance sheet, Choco should report accounts receivable from
investee in the amount of:
A. P360,000
B. P310,000
161.
C. P460,000
D. P400,000
Nenita, Inc owns 100% of Vilma Corporation, a consolidated subsidiary, and 80% of Willie,
Inc., an unconsolidated subsidiary at December 31. On the same date, Nenita has receivables of
P400,000 from Vilma and P350,000 from Willie. In its December 31 consolidated balance sheet,
Nenita should report accounts receivable from investee at
A. P 0
B. P70,000
160.
C. P2,950,000
D. P2,900,000
At December 31, 20x6, Green, Inc. owned 90% of White Corp., a consolidated subsidiary, and
20% of Blue Corp., an investee over which Green cannot exercise significant influence. On the
same date, Green had receivables of P600,000 from White and P400,000 from Blue. In its
December 31, 20x6 consolidated balance sheet, Green should report accounts receivable from
affiliates of:
A. P1,000,000
B. P 680,000
158.
C. P56,000
D. P 0
C. P 550,000
D. P1,70,000
Golden Corporation owns a 70% interest in Bay Corporation, acquired several years ago at book
value. On December 31, 20x5, Bay mailed a check for P20,000 to Golden in part payment of a
P40,000 account with Golden. Golden had not received the check when its books were closed on
December 31. Golden Corporation had accounts receivable of P300,000 (including the P40,000
from Bay) and Bay had accounts receivable at P440,000 at year-end. In the consolidated balance
sheet of Golden Corporation and Subsidiary at December 31, 20x5, accounts receivable will be
shown in the amount of:
A. P740,000
B. P720,000
C. P700,000
D. P608,000
COMMON CONTROL
165.
Mr. Garcia owns four corporations. Combined financial statements are being prepared for these
corporations, which have intercompany profits of P1,000,000. What amount of these
intercompany loans and profits should be included in the combined financial statements?
A.
B.
C.
D.
Intercompany
Loans
Profits
P400,000
P 0
P400,000
P1,000,000
P 0
P 0
P 0
P1,000,000
TOA - VALIX
46-16.
1.
Consolidated financial statements are
I. The financial statements of a group presented as those of a single economic entity.
II. The financial statements presented by a parent in which the investments are accounted for on
the basis of the direct equity interest rather than on the basis of the reported results and net
assets of the subsidiary.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
2.
A “group” for consolidation purposes is
A. A parent and all of its subsidiaries.
B. An entity that has one or more subsidiaries.
C. An entity, including an unincorporated entity such as partnership, that is controlled by
another entity.
D. An entity that obtains control over entities or businesses.
4.
The following statements relate to consolidated financial statements. Which statements is
incorrect?
A. A parent shall present consolidated financial statements in which it consolidates its
investment in subsidiaries.
B. Consolidated financial statements shall include all subsidiaries of the parent.
C. A subsidiary is excluded from consolidation if the investor is a venture capital
organization, mutual fund, unit trust or similar entity.
D. A subsidiary is not excluded from consolidation even if its business activities are dissimilar
from the other entities within the group.
5.
A parent is not required to present consolidated financial statements under all of the following
conditions, except
A. When the parent is itself a wholly-owned subsidiary, or is partially-owned subsidiary and its
owners do not object to the parent not representing consolidated financial statements.
B. When the parent’s debt and equity instruments are not traded in public market.
C. When the parent has filed or it is in the process of filing its financial statements with
SEC for the purpose of issuing any class of instruments in a public market.
D. When the ultimate or any intermediate parent of the parent produces consolidated financial
statements for public use that comply with PFRS.
7.
Control is presumed to exist when the parent owns directly or indirectly through subsidiaries
A. More than half of the equity of an entity.
B. More than half of the ordinary shares of an entity.
C. More than half of the preference and ordinary shares of an entity.
D. More than half of the voting power of an entity.
8.
Control exists even if the parent owns half or less of the voting power of an entity where there is
( choose the incorrect one)
A. Power over more than half of the voting rights by virtue of an agreement with other
investors,
B. Power to govern the financial and operating policies of the entity under a statute or an
agreement.
C. Power to appoint or remove the key officers and employees of the entity.
D. Power to cast the majority of votes at meetings of the board of directors or equivalent
governing body.
10.
What is the initial measurement of an investment in subsidiary retained by the investor when
control is lost?
A. Fair value at the date when control is lost.
B. Fair value at the beginning of the reporting period
C. Carrying amount at the date when control is lost
D. Carrying amount at the beginning of the reporting period
12.
Which statement is incorrect concerning the preparation of consolidated financial statements?
A. The financial statements of the parent ant its subsidiaries shall be consolidated on a line by
line basis.
B. Intragroup balances, transactions, income and expenses shall be eliminated in full.
C. When the reporting dates of the parent and a subsidiary are different, the difference
shall be no more than six months.
D. Consolidated financial statements shall be prepared using uniform accounting policies for
like transactions and other events in similar circumstances.
15.
Which is incorrect concerning the cost method of accounting?
A. The investment is recognized at cost.
B. The investor recognizes income from investment only to the extent that the investor receives
distributions from accumulated profits of the investee arising after the date of acquisition.
C. Distributions received in excess of profits after acquisition are regarded as a reduction of the
cost of the investment.
D. The investment is initially recorded at cost and any changes in value of the investment
at each reporting date are recognized in profit or loss.
45-18
10.
An entity shall account for each business combination by applying the
A. Acquisition method only
B. Pooling method only
C. Either acquisition method or pooling method
D. Neither acquisition method nor pooling method
45-19.
12.
In a business combination achieved in stages, the acquirer shall
A. Not measure the previously held equity interest.
B. Remeasure the previously held interest at fair value with any resulting gain or loss
included in profit or loss.
C. Remeasure the previously held interest at fair value with any resulting gain or loss included
in other comprehensive income.
D. Remeasure the previously held interest at fair value with the resulting gain or loss included in
retained earnings.
13.
In a business combination, goodwill is measured as the excess of
A. The consideration transferred over the identifiable net assets acquired
B. The total of the consideration transferred and the amount of any noncontrolling interest in the
acquire over the identifiable net assets acquired.
C. The total of the consideration received and the fair value of the previously held interest in the
acquire over the identifiable net assets acquired.
D. The total consideration received, the amount of any noncontrolling interest in the
acquiree over the identifiable net assets acquired.
46-16
6.
A parent loses control of a subsidiary (choose the incorrect one)
A. When there is a change in absolute or relative ownership level.
B. When a subsidiary becomes subject to the control of a government, court, administrator or
regulator.
C. When the loss of control is the result of a contractual agreement.
D. When the subsidiary is operating under severe long-term restrictions that impair its
ability to transfer funds to the parent.
13.
The noncontrolling interests shall be presented in the consolidated statement of financial position
A. As part of the parent shareholders’ equity
B. As part of current liabilities
C. As part of the noncurrent liabilities
D. Within equity, separately from the equity of the owners of the parent.
46-17
6.
Which of the following terms best describes the financial statement of a parent in which the
investments are accounted for on the basis of the direct equity interest?
A. Single financial statements
B. Combined financial statements
C. Separate financial statements
D. Consolidated financial statements
45-20
7.
An acquirer shall at the acquisition date recognize goodwill acquired in a business combination
as anasset. Goodwill shall be accounted for as which of the following?
A. Recognize as an intangible asset and amortize over its useful lie.
B. Write off against retained earnings
C. Recognize as an intangible asset and impairment test when trigger event occurs.
D. Recognize as an intangible asset and annually impairment test or more frequently if
impairment is indicated.
10.
PFRS 3 requires that the contingent consideration of the acquired entity shall be recognized at
fair value. The existence of contingent consideration is often reflected in a lower purchase price.
Recognition of such contingent consideration shall
A. Decrease the value attributed to goodwill, thus decreasing the risk of impairment of goodwill.
B. Decrease the value attributed to goodwill, thus increasing the risk of impairment of goodwill.
C. Increase the value attributed to goodwill, thus decreasing the risk of impairment of goodwill.
D. Increase the value attributed to goodwill, thus increasing the risk of impairment of
goodwill.
FOREIGN CURRENCY
4.
On September 3, 20x3, Pia placed a noncancellable purchase order with a Japanese company for
a custom-built machine. The contract price was 1,000,000 yens. The machine was delivered on
December 23, 20x3. The invoice was dated November 13, 20x3, the shipping date (FOB
shipping point). The vendor was paid on January 7, 20x4. The spot direct exchange rates for the
Japanese yenson the respective dates are as follows:
Sept. 3, 20x3 Nov.13, 20x3 Dec. 23, 20x3Dec. 31, 20x3 Jan. 7, 20x4
P.20
P.21
P.22
P.23
P.24
What amount is the capitalizable cost of the equipment?
A. P200,000
C.
B. P210,000
D.
P220,000
P230,000
5.
What is the reportable foreign exchange gain or loss amount in Pia’s20x3 income statement?
A. P10,000 loss
C.
P30,000 loss
B. P20,000 gain
D.
P20,000 loss
6.
What is the reported value of the payable to the vendor at December 31, 20x3?
A. P200,000
C.
P220,000
B. P210,000
D.
P230,000
7.
During July 20x4, Mark Corporation had the following transactions with foreign businesses:
Vendor A
Date
7/1/10
7/10/10
7/31/10
Nature of Transaction
Billing CurrencyExchange Rate (Direct)
Imported merchandise costing 100,000
Rupees from Pakistan wholesaler
Rupee
P.82
Paid 40% of amount owed
.83
Paid remaining amount owed
.78
Customer A
7/15/10
Sold merchandise for 50,000 pound to
Syrian wholesaler
7/20/10
Received 20% payment
7/30/10
Received remaining amount owed
Pound*
P.95
.90
.91
*Syrian pound.
What is the capitalized cost of inventory purchase from the Pakistan wholesaler?
A. P 0
C.
P82,000
B. P78,000
D.
P83,000
8.
Using the same information in No.7 , what is the foreign exchange gain or loss on July 31, 20x4
transaction arising from the Pakistan wholesaler?
A. P1,000 loss
C.
P400 gain
B. P1,000 gain
D.
P400 loss
9.
Using the same information in No. 7 ,what is the foreign exchange gain or loss on July 31, 20x4
transaction arising from Pakistan wholesaler?
A. P4,000 gain
C.
P2,400 loss
B. P4,000 loss
D.
P2,400 gain
10.
Using the same information in No. ,what is the reportable sales amount in the income statement
in 20x4?
A. P38,000
C.
P45,500
B. P45,000
D.
P47,500
11.
Using the same information in No. ,what is the foreign exchange gain or loss on July 20, 20x4
transaction arising from Syrian wholesaler?
A. P500 gain
C.
P2,500 gain
B. P500 loss
D.
P2,500 loss
12.
Using the same information in No. ,what is the foreign exchange gain or loss on July 30, 20x4
transaction arising from Syrian wholesaler?
A. P1,600 loss
C.
P2,000 gain
B. P1,600 gain
D.
P2,000 loss
13.
Quezon Exports Corp. sold metal crafts to a US firm for S70,000 dollar and pertinent information
on exchange conversion rates related to this transaction were as follows:
Nov. 04
Nov. 22
Dec. 31
Jan. 06
Conversion Rate (Peso to US Dollar)
P27.40
27.50
27.60
27.00
Receipt of order
Date of shipment
Balance sheet date
Date of collection
The sale would be appropriately recorded at:
A. P1,890,000
C.
B. P1,918,000
D.
14.
P1,925,000
P1,932,000
On October 1, 20x3, Matt Co. purchased merchandise worth a total of 100,000 Swiss francs from
its Swiss supplier, payable within 30 days under an open account arrangement. Matt Co. issued a
30-day, notes payable in Swiss francs. On October 31, 20x3, Matt Co. paid the note. The
following information on spot rates (P/SF) is provided:
October 01, 20x3
October 31, 20x3
Buying
P24.03
24.10
Selling
P24.15
24.22
Matt Co.’s foreign exchange gain or loss on the transaction is:
A. P5,040 loss
C.
P12,075 gain
B. P7,000 loss
D.
P19,110 loss
15.
The accounts of Juanito International, a Philippine corporation, show P81,300 accounts
receivableand P38,900 accounts payable at December 31, 20x3, before adjusting entries are
made. In analyzing the balances reveals the following:
Accounts Receivable:
Accounts Receivable in Phil. Pesos
Receivable denominated in 20,000 foreign currency 1
Receivable denominated in 25,000 foreign currency 2
Total
P28,500
11,800
41,000
P81,300
Accounts Payable:
Payable denominated in Phil. Pesos
Payable denominated in 10,000 foreign currency 3
Payable denominated in 10,000 foreign currency 2
Total
P 6,950
7,600
24,450
P38,900
Current exchange rates for foreign currency 1, foreign currency 2, and foreign currency 3 at
December 31, 20x3 are P.66, P1.65 and P.70, respectively.
Determine the net exchange gain or loss that should be reflected in Juanito’s income statement
for 20x3 from year-end exchange adjustments.
A. P1,950
C.
P1,650
B. P(1,950)
D.
P (300)
16.
Using the same information in No. , determine the amounts at which the accounts receivable
should be included in Juanito’s December 31, 20x3:
Accounts Receivable
A. P79,332
B. P82,950
C.
D.
P134,145
P 53,658
17.
Using the same information in No. , determine the amounts at which the accounts payable
should be included in Juanito’s December 31, 20x3:
A. P64,185
C.
P27,230
B. P38,600
D.
P38,000
18.
Exchange rate is
A.
B.
C.
D.
The ratio of exchange for two currencies
The spot exchange rate at balance sheet date
The exchange rate for immediate delivery
The difference resulting from translating a given number of units of one currency into
another currency at different exchange rates.
19.
It is the currency of the primary economic environment in which the entity operates.
A. Reporting currency
C. Presentation currency
B. Functional currencyD. Foreign currency
20.
These are money held and financial assets to be received and financial liabilities to be paid in
fixed or determinable amount of money.
A. Foreign currency loansC. Monetary items
B. Long-term items
D. Nonmonetary items
21.
Which statement is incorrect?
A. Functional currency is the currency of the primary economic environment in which he entity
operates.
B. Foreign currency is a currency other than the functional currency of the entity.
C. Presentation currency is the currency in which the financial statements are presented.
D. Net investment in a foreign operation is the amount of the reporting entity’s interest in
the total assets of that operation.
22.
A foreign currency transaction is a transaction which is denominated or requires settlement in a
foreign currency and includes
I. Purchase and sale of goods and services whose price is denominated in a foreign currency.
II. Borrowing and lending of funds when the amounts payable or receivable are denominated in a
foreign currency.
A. I only
B. II only
23.
C. Both I and II
D. Neither I nor II
Initially, a foreign currency transaction shall be recorded by applying to the foreign currency
amount
A.
B.
C.
D.
24.
The spot exchange rate at the date of transaction
The closing rate at the end of reporting period
The average exchange rate during the year
The spot rate at the date of the settlement of the transaction.
Foreign currency monetary items are subsequently translated at
A. Closing rate C. Forward rate
B. Historical rate
D. Spot exchange rate
25.
Nonmonetary items that are measured in terms of the historical cost denominated in a foreign
currency shall be reported using the
A. Exchange rate at the date of transaction
B. Closing rate
26.
C. Average rate
D. Spot exchange rate
Exchange differences arising from foreign currency transactions shall
A.
B.
C.
D.
Be recognized in profit or loss of the period in which they arise
Be recognized as component of other comprehensive income
Be deferred and amortized over a reasonable period
Not be recognized
Exchange differences arising on a monetary item that forms part of a reporting entity’s net
investment in a foreign operation shall be recognized
I. In profit or loss in the separate financial statements of the reporting entity or the individual
statements of the foreign operation.
II. In other comprehensive income in the consolidated financial statements of the reporting
entity and the foreign operation and recognized in profit or loss on disposal of the net
investment.
27.
A. I only
B. II only
28.
C. Both I and II
D. Neither I nor II
The following statements relate to the recognition of exchange differences in respect of foreign
currency transactions reported in an entity’s functional currency. Which statement is true?
I. Any exchange difference on the settlement of a monetary item shall be recognized in profit or
loss.
II. Any exchange difference on the translation of a monetary item at a rate different from that
used at initial recognition shall be recognized in other comprehensive income.
A. I only
B. II only
29.
C. Both I and II
D. Neither I nor II
It is a subsidiary, associate, joint venture or a branch of a reporting entity whose activities are
based or conducted in a country or currency other than that of the reporting entity.
A. Multinational company C. Foreign entity
B. Foreign operationD. Affiliated company
30.
In translating financial statements of a foreign operation, assets and liabilities are translated at
A. Closing rateC. Forward rate
B. Spot rate
D. Historical rate
31.
In translating the financial statements of foreign operation, income and expenses are translated at
A. Closing rate
C. Exchange rate at the date of transaction
B. Average rate
D. Forward rate
32.Exchange differences arising from the translation of financial statements of a foreign operation shall
be accounted for as
A.
B.
C.
D.
Translation gain or loss as component of other comprehensive income
Translation gain or loss as component of profit or loss
Translation gain or loss as component of other comprehensive income
Transaction gain or loss as component of profit or loss
DERIVATIVES
24-19.
1. It is a financial instrument that derives its value from another underlying item such as a share
price, exchange rate or interest rate.
A. Derivative
B. Financial asset
2.
Financial liability
Equity instrument
Which of the following is not a derivative?
A.
B.
C.
D.
3.
C.
D.
Interest rate swap agreement
Futures contract
Option
Regular way purchase or sale
The characteristics of a derivative include (choose the incorrect one)
A. The value of the derivative changes in response to the change in an “underlying” variable.
B. A derivative has no notional amount.
C. The derivative requires either no initial net investment or a little net investment than would
be required for other types of contracts that have a similar response to changes in market
factors.
D. The derivative is settled at a future date by a net cash payment.
4.
An example of a notional amount is
A. Number of barrels of oil
B. Interest rate
5.
C.
D.
An average daily temperature
All of the above could be underlying
An agreement between two parties to exchange a specified amount of a commodity, security of
foreign currency at a specified date in the future with the price or exchange rate being set now is
referred to as
A. Interest swap
B. Forward contract
7.
Currency swap
Share price
Which one is underlying?
A. A credit rating
B. A security price
6.
C.
D.
C.
D.
Futures contract
Option
A contract, traded on an exchange, that allows a company to buy specified quantity of
commodity or a financial security at a specified price on a specified future date is referred to as
A. Interest rate swap
C.
Futures contract
B. Forward contract
8.
Option
A contract giving the owner the right, but not the obligation, to buy or sell an asset at a specified
price any time during a specified period in the future is referred as
A. Interest rate swap
B. Forward contract
9.
D.
C.
D.
Futures contract
Option
Which is incorrect concerning an option?
A. A call option is the right to purchase an asset at a specified price during an indefinite period
at some future time.
B. A put option is the right to sell an asset at a specified price during a definite period at some
future time.
C. An option is a right and not an obligation to purchase or sell an asset.
D. An option requires no payment.
10.
Derivatives are measured at
A. Fair value
B. Cost
C.
D.
Fair value less cost to sell
Higher between fair value and cost
24-20.
1. All of the following are characteristics of a derivative except
A. It is acquired or incurred by the entity for the purpose of generating a profit from
short-term fluctuations in market factors.
B. Its value changes in response to the change in a specified underlying.
C. It requires no initial investment or an initial net investment.
D. It is settled at a future date.
2.
The basic purpose of derivative financial instruments is to manage some kind of risk such as all
of the following except
A. Share price movement
B. Interest rate variation
3.
Interest rate risk
Exchange rate risk
C.
D.
Interest rate risk
Exchange rate risk
Which of the following risk is inherent in an interest rate swap agreement?
I. The risk of exchanging a lower interest rate for a higher interest rate.
II. The risk of nonperformance by the counterparty to the agreement.
A. I only
B. II only
6.
C.
D.
Uncertainty about the future market value of an asset is referred to as
A. Price risk
B. Credit risk
5.
Currency fluctuations
Uncollectibility of accounts receivable
Uncertainty that the party on the other side of an agreement will abide by the terms of the
agreement is referred to as
A. Price risk
B. Credit risk
4.
C
D.
C.
D.
Both I and II
Neither I nor II
In exchange for the right inherent in an option contract, the owner of the option will typically pay
a price.
A.
B.
C.
D.
7.
Only when a call option is exercised.
Only when a put option is exercised.
When either a call option or a put option is exercised.
At the time the option is received regardless of whether the option is exercised or not.
Which type of contract is unique in that it protects the owner against unfavorable movement in
the price or rate while allowing the owner to benefit from favorable movement?
A. Interest rate swap
B. Forward contract
8.
Strike price
Intrinsic value
C.
D.
On the money
Out of the money
Which choice best describes the information that should be disclosed related to derivative
contracts?
A. Fair value only
B. Notional amount only
114.
C.
D.
If the price of the underlying is greater than the strike or exercise price, the call option is
A. At the money
B. In the money
10.
Futures contract
Option
An entity enters into a call option contract with an investment bank on December 31, 20x3. This
contract gives the entity the option to purchase 10,000 shares at P100 per share. The option
expires on April 30, 20x4 the shares are trading at P100 per share on December 31, 20x3, at
which time the entity pays P40,000 for the call option. The P40,000 paid by the entity to the
investment bank is referred to as
A. Option premium
B. Notional amount
9.
C.
D.
C.
D.
Both fair value and nominal amount
Neither fair value nor nominal amount
On March 1, 20x4, Cherry Corporation entered into a firm commitment to purchase specialized
equipment from the Ruby trading company for Y80,000,000 on June 1. The exchange rate on
March 1, is Y100 = P1. To reduce the exchange rate risk that could increase the cost of the
equipment in pesos, Cherry pays P20,000 for a call option contract. This contract gives Cherry
the option to purchase Y80,000,000 at an exchange rate of Y 100 = P1 on June 1. On June 1, the
exchange rate is Y105=P1. How much did Cherry save by purchasing the call option (answers
rounded to the nearest peso)?
A.
B.
C.
D.
P20,000
P27,619
P47,619
Cherry would have been better off not to have purchased the call option.