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PRACTICAL ACCOUNTING PROBLEMS II
CONSOLIDATED FS AND INTERCOMPANY TRANSACTIONS
DATE SUBSEQUENT TO ACQUISITION
I
On January 2, 2011, Party Corporation purchased 80% of Summer Company’s common stock for
P810,000. P37,500 of excess is attributable to goodwill and the balance to a depreciable asset with an
economic life of ten years. Non-controlling interest is measured at its fair value on date of acquisition.
On the date of acquisition, stockholders' equity of the two companies are as follows:
Common Stock
Retained Earnings
Party Corporation
P1,312,500
1,950,000
Summer Corporation
P 300,000
525,000
On December 31, 2011, Summer Company reported net income of P131,250 and paid dividends of
P45,000 to Party. Party reported earnings from its separate operations of P356,250 and paid dividends
of P172,500. Goodwill had been impaired and should be reported at P7,500 on December 31, 2011.
1. What is the consolidated net income on December 31, 2011?
A. P447,187.50
C. P473,437.50
B. P450,000
D. P442,500
2. What is the consolidated retained earnings attributable to parent’s shareholders equity on
December 31, 2011?
A. P2,202,750
C. P2,197,500
B. P2,196,750
D. P2,599,687.50
3. What is the NCI in net income of Son Company on December 31, 2011?
A. P23,437.50
C. P23,250
B. P26,250
D. P17,250
4. What amount of NCI is to be presented in the consolidated statement of financial position on
December 31, 2011?
A. P205,312.50
C. P208,500
B. P193,125
D. P181,875
5. What is the consolidated net income attributable to parent shareholders on December 31,
2011?
A. P420,000
C. P445,500
B. P425,250
D. P450,000
II
PP Company purchased 75% of the capital stock of SS Company on December 31, 2006 at P525,000
more than the book value of its net assets. The excess was allocated to equipment in the amount of
P234,375 and to goodwill for the balance. The equipment has an estimated useful life of 10 years and
goodwill was not impaired. For four years SS Company reported cumulative earnings of P2,362,500 and
paid P682,500 in dividends. On January 2, 2011, non-controlling interest in net assets of SS Company
amounts to P984,375.
Assuming NCI is measured at estimated fair value, what is the price paid by PP Company on the date of
acquisition?
A. P2,218,125
C. P1,752,187.50
B. P1,763,437.50
D. P2,100,000
III
Please Corporation purchased 70% of Sorry Company’s outstanding stock on January 2, 2010 for
P866,250 cash. At that date, Sorry Company reported book value of its net assets as P1,050,000. The
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excess is allocated to a depreciable asset with a remaining life of 10 years. The companies reported the
following data for 2011:
Retained earnings
January 1
Net income
Dividends
Please Corporation
P1,950,000
P450,000
P187,500
Sorry Company
862,500
93,750
37,500
Non-controlling interest is measured at its estimated fair value. The following entry was included in the
eliminating entries to prepare the consolidated financial statements at December 31, 2011:
Retained earnings, 1/1 – Sorry
78,750
Non-controlling interest
78,750
1. What is the amount of retained earnings of Sorry Company on January 2, 2010/
A. P600,000
C. P581,250
B. P618,750
D. P637,500
2. What is the consolidated retained earnings attributable to parent’s shareholders equity to be
reported on January 1, 2011?
A. P2,133,750
C. P2,152,500
B. P2,212,500
D. P2,812,500
3. What is the consolidated net income attributable to parent shareholders on December 31,
2011?
A. P498,750
C. P543,750
B. P525,000
D. P476,250
4. What is the consolidated retained earnings attributable to parent’s shareholders equity at
December 31, 2011/
A. P2,238,750
C. P2,445,000
B. P2,422,500
D. P2,587,500
IV
On January 2, 2011, P Company acquired 80% interest in S company for P2,062,500 cash. On this date,
the outstanding capital stock and retained earnings of P Company and S Company are as follows:
P Company
S Company
Common stock
P1,125,000
P 656,000
APIC
750,000
Retained earnings
2,625,000
1,593,750
There was no issuance of capital stock during the year. Non-controlling interest is measured at its fair
value. Fair values of the following assets exceeded their book values as follows: Inventories, P105,000 ;
Property and equipment (useful life, 10 years), P63,750. All other assets and liabilities are fairly valued.
Goodwill, if any, is not impaired. On December 31, 2011, the two companies reported the following
operating results:
P Company
S Company
Net income
P 892,500
P 487,500
Dividends paid
262,500
131,250
1. What is the consolidated net income attributable to parent on December 31, 2011?
A. P1,275,000
C. P1,163,625
B. P1,088,400
D. P1,177,500
2. What is the consolidated stockholder’s equity to be reported in the consolidated statement of
financial position on December 31, 2011?
A. P5,325,900
C. P3,517,500
B. P6,750,000
D. P5,980,500
INTERCOMPANY PROFIT – INVENTORIES
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I
A Co. acquired 60% of the outstanding ordinary shares of B Co. on January 2, 2010. A Co. acquired it at
book value which is the same as its fair value at the date of acquisition. Income statements of A Co. and
B Co. for 2011 are as follows:
A
B
Net Sales
P 218,750
P 87,500
Cost of Sales
131,250
52,500
Gross Profit
P 87,500
P 35,000
Operating Expenses
26,250
13,125
Operating Income
P 61,250
P 21,875
Dividend Income
14,000
_
Net Income
P 75,250
P 21,875
B Co. made sales to A Co. of P28,000 in 2010 and P42,000 in 2011. A Co. reported inventory on
December 31,2010 amounting to P17,500 of which 20% comes from B Co. and inventory on December
31, 2011 amounting to P21,000 of which 30% comes from B Co. A Co. uses 30% mark up on cost and B
Co. uses 25% mark up on cost for their selling prices. A Co. and B Co. declared and paid dividends in
2011 amounting to P21,000 and P17,500 respectively. On January 1, 2011, B Co. has common stock of
P80,000; additional paid-in capital of P30,000 and retained earnings of P40,000.
How much is the consolidated net income attributable to parent shareholders’ equity and noncontrolling interest in net assets?
A. P74,039 ; P61,246
C. P77,539 ; P61,526
B. P77,539 ; P61,246
D. P74,039 ; P61,526
II
GV Company purchased 70% ownership of DL Company on January 1, 2009, at underlying book value.
While each company has its own sales forces and independent product lines, there are substantial intercorporate sales of inventory each period. The following inter-corporate sales occurred during 2010 and
2011:
Year
2010
2011
2011
Seller
GV Co.
DL Co.
GV Co.
Cost of
Product Sold
P448,000
P312,000
P350,000
Buyer
DL Co.
GV Co.
DL Co.
Sales
Price
P640,000
P480,000
P437,500
Unsold at
Year Sold
End of Year to Outsiders
P140,000
2011
P77,000
2012
P63,000
2012
The following data summarized the results of their financial operations for the year ended, December
31, 2011:
GV Company
DL Company
Sales
P3,850,000
P1,680,000
Gross profit
1,904,000
504,000
Operating Expenses
770,000
280,000
Ending Inventories
336,000
280,000
Dividend Received from affiliate
126,000
Dividend Received from non-affiliate
70,000
For the year ended 2011, compute:
1. Consolidated sales and Consolidated cost of goods sold
A. P4,612,500 ; P2,457,550
B. P4,612,500 ; P2,202,050
C. P4,612,500 ; P2,206,950
D. P5,530,000 ; P2,202,050
2. Consolidated net income attributable to parent’s shareholders equity and non-controlling interest
in net income
A. P1,301,335 ; P59,115
C. P1,476,335 ; P59,115
B. P1,476,335 ; P80,115
D. P1,350,335 ; P80,115
III
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On January 1, 2010, P Company acquired 90% of the outstanding common shares of S Company for a
price of P140,000. On that date, the stockholders’ equity of S Company was P100,000. All of the assets
and liabilities of S Company had book values approximately equalled to their fair market values except
land that was overvalued by P4,000, plant assets (with remaining life of 9 years) were undervalued by
P54,000. The net excess was due to Goodwill. For 2011, there were intercompany sales. Information
relating to sales, inventories and profit percentages are as follows:
Intercompany Sales
Intercompany Inventories
December 31, 2010
December 31, 2011
Gross profit percentage
based on cost
Net Income
P Company
P90,000
S Company
P42,000
30,000
7,200
18,000
6,000
100%
P50,000
33 1/3%
P36,000
Consolidated net income attributable to parent’s shareholders equity ; non-controlling interest on net
income
A. P90,260 ; P4,140
C. P88,130 ; P4,140
B. P90,260 ; P3,570
D. P88,130 ; P3,570
INTERCOMPANY PROFIT – PLANT ASSETS
I
On January 1, 2011, RDJ Company purchased 80% of the stocks of MCD Corporation at book value. The
stockholders’ equity of MCD Corporation on this date showed: Common stock – P1,140,000 and
Retained earnings – P980,000. On April 30, 2011, RDJ Company acquired a used machinery for P168,000
from MCD Corp. that was being carried in the latter’s books at P210,000. The asset still has a remaining
useful life of 5 years. On the other hand, on August 31, 2011, MCD Corp. purchased an equipment that
was already 20% depreciated from RDJ Co. for P690,000. The original cost of this equipment was
P750,000 and had a remaining life of 8 years. Net income of RDJ Co. and MCD Corp. for 2011 amounted
to P720,000 and P310,000. Dividends paid totalled to P230,000 and P105,000 for RDJ Co. and MCD
Corp., respectively.
On the consolidated financial statements in 2011, how much would be the:
1. Net income attributable to parent’s shareholders equity and non-controlling interest net income
A. P826,870 ; P69,280
C. P826,870 ; P62,000
B. P834,150 ; P62,000
D. P834,150 ; P69,280
2. Non-controlling interest in net assets and Carrying value of the Property and equipment
A. P472,280 ; P810,000
C. P465,000 ; P810,000
B. P465,000 ; P757,000
D. P472,280 ; P757,000
II
On January 2, 2010, PP Company purchased 70% of the stocks of SS Company at book value. On May 1,
2010, PP Company acquired a used machinery for P337,500 from SS Company that was carried in the
latter’s books at P270,000. The machinery has a remaining life of 6 years. On October 1, 2011, SS
Company purchased an equipment that was already 30% depreciated from PP Company for P570,000.
The original cost of this equipment was P900,000 and had a remaining life of 5 years.
Results of operation for the year 2011 are:
PP Company
SS Company
Net Income
P945,000
P165,000
Dividends Paid
345,000
On the consolidated income statement in 2011, what is the consolidated net income attributable to
parent’s shareholders equity?
A. P1,125,375
C. P1,178,250
B. P1,131,375
D. P1,128,375
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III
On January 1, 2011, P Corporation purchased 80% of S Company’s Outstanding stock for P775,000. At
that date, all of S Co.’s assets and liabilities had market values approximately equal to their book values
and no goodwill was included in the purchase price. The following information was available for 2011:
Income from own operations of P Corp., P187,500 ; Operating loss of S Co., P25,000 ; Dividends paid in
2011 by P Corp., P93,750 ; by S Co., P18,750. On July 1, 2011, P Corp. sold an equipment to S Company
at a gain of P31,250. The machine is expected to have a remaining useful life of 10 years from date of
sale. Also, on January 1, 2011, S Co. sold a furniture to P Corp. at a loss of P9,375. The furniture is
expected to have a remaining useful life of five years from the date of sale. Non-controlling interest is
measured at fair market value.
How much is the consolidated net income attributable to parent shareholders’ equity and noncontrolling interest in net assets?
A. P143,812.50 ; P186,500
C. P143,812.50 ; P183,500
B. P143,437.50 ; P185,000
D. P143,437.50 ; P183,500