Accounting for Business Combinations
Arnel N. Moran
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATION – SUBSEQUENT TO DATE OF ACQUISITION
P Corporation acquired 80% ownership of S Company on January 1, 2021 for
P160,000. On that date, S Company reported retained earnings of P50,000 and had
P100,000 of common stocks outstanding. P Company used the cost method of in
recording its Investment in S Company.
Trial balance data for the two companies on December 31, 2021, are as follows:
Cash and receivables
Inventory
Land
Buildings and equipment
Investment in S Company
Cost of goods sold
Depreciation expense
Inventory losses
Dividends declared
Accumulated depreciation
Accounts payable
Notes payable
Common Stock
Retained earnings, 1/1
Sales
Dividend income
P Company
Debit
Credit
P81,000
260,000
80,000
500,000
160,000
120,000
25,000
15,000
30,000
P205,000
60,000
200,000
300,000
298,000
200,000
8,000
P1,271,000
P1,271,000
S Company
Debit
Credit
P65,000
90,000
80,000
150,000
50,000
15,000
5,000
10,000
P105,000
20,000
50,000
100,000
90,000
100,000
P465,000
P465,000
Additional information:
1. On the date of combination, the fair value of Sally’s depreciable assets was
P50,000 above book value. The excess assigned to depreciable assets should
be written off over the following 10-year period.
2. There was P10,000 of intercorporate receivables and payables at the end of
2021.
Entries recorded by P Company related to its Investment
(acquisition and dividend)
Investment in subsidiary
160,000
Cash
To record acquisition of 80% shares of S Company.
Cash
8,000
Dividend income
To record dividends received from S Company.
in
S
Company:
160,000
8,000
Give all eliminating entries needed to prepare consolidated statements for 2021:
1 Dividend income
8,000
NCI
2,000
Dividends declared – S Company
10,000
2 Common Stock-S Company
RE-S Company
Investment in S Company
NCI
100,000
50,000
3 Building
Investment in S Company
50,000
120,000
30,000
40,000
NCI
10,000
4 Retained earnings (prior year)
Depreciation expense
Acc. Dep-bldg
5,000
5,000
5 Accounts payable
Accounts receivble
10,000
6 NCI-NIS (30,000-5,000)*20%
NCI
5,000
7 Retained earnings-S Company[(50,000-90,000)-5,000]*20%
NCI
7,000
10,000
10,000
5,000
7,000
Prepare a three-part consolidation working paper as of December 31, 2021:
P
S
Company
Company
Statement of CI
Sales
Dividend income
Total revenue
200,000
8,000
208,000
100,000
Cost of goods sold
Depreciation expense
Inventory losses
Total cost and expenses
Net /consolidated CI
120,000
25,000
15,000
160,000
48,000
50,000
15,000
5,000
70,000
30,000
(1)8,000
Retained
earnings
statement
Retained earnings, 1/1
CI from above
Total
Dividends declared
Retained
earnings,
12/31
carried forward
Statement of FP
Cash and receivables
Inventory
Land
Buildings and equipment
Investment in S Company
Total
Accumulated
depreciation
Accounts payable
Notes payable
170,000
45,000
20,000
235,000
65,000
(4)5,000
(6)5,000
48,000
30,000
298,000
90,000
48,000
346,000
30,000
316,000
30,000
120,000
10,000
110,000
81,000
260,000
80,000
500,000
160,000
65,000
90,000
80,000
150,000
1,081,000
385,000
205,000
105,000
60,000
200,000
20,000
50,000
Consolidated
300,000
300,000
100,000
NCI in CI of
subsidiary
CI carried forward
Adjustments
& Eliminations
Debit
Credit
(5,000)
60,000
(2)50,000
(4)5,000
(7)7,000
326,000
(1)10,000
(5)10,000
(3)50,000
(2)120,000
(3)40,000
60,000
386,000
(30,000)
356,000
136,000
350,000
160,000
700,000
-
1,346,000
(4)10,000
(5)10,000
320,000
70,000
250,000
Common stock
Retained earnings from
above
NCI
Total
300,000
316,000
100,000
110,000
(2)100,000
(1)2,000
1,081,000
385,000
300,000
356,000
(2)30,000
(3)10,000
(6)5,000
(7)7,000
50,000
1,346,000