Kindness
Group 2
2019-0025 – Dula, Dave
2019-0121 – Pamintuan, Rica
2019-0087 – Morales, Kella Elaija
2019-0218 – Pangan, Joel
Theoretical
1. In stock acquisition resulting in a parent company — subsidiary relationship, differences between
current fair values and book values of the subsidiary's identifiable net assets on the date of acquisition
are:
A. Disregarded
B. Entered in the accounting records of the subsidiary
C. Accounted for in appropriately titled ledger accounts in the parent company's accounting records.
D. Provided in a working paper elimination
Answer: D
Provided in a working paper elimination
2. Consolidated financial statements are prepared when a parent-subsidiary relationship exists, in
recognition of the accounting principle or concept of:
A. Materiality
B. Entity
C. Reliability
D. Going concern
Answer: B
Entity
3. In acquisition of stock resulting in a parent-subsidiary relationship, the parent company's Investment in
Subsidiary Stock account balance is:
A. Allocated to individual asset and liability accounts in a parent company journal entry B. Eliminated with
a working paper elimination for the working paper.
C. Displayed among noncurrent assets in the consolidated statement of financial position. D. Used as a
basis for adjusting the subsidiary's asset and liability account. balance in the subsidiary's books to current
fair values.
Answer: B
Eliminated with a working paper elimination for the working paper.
4. Working paper eliminations are entered in:
a. Both the parent company's and the subsidiary's accounting record
b. Neither the parent company's nor the subsidiary's accounting records
c. The parent company's accounting records only
d. The subsidiary's accounting records only
Answer: B
Neither the parent company's nor the subsidiary's accounting records
5. On the date of acquisition of stock the difference between the fair values and book values of the
subsidiary's identifiable net assets are:
a. Included in a working paper elimination
b. Recognized in the applicable asset and liability accounts of the subsidiary
c. Recognized in the applicable asset and liability accounts of the parent
d. Accounted for in some other manner
Answer: D
Accounted for in some other manner
6. Consolidated financial statements are intended primarily for the use of:
a. Stockholders of the parent company
b. Taxing authorities
c. Management of the parent company
d. Creditors of the parent company
Answer: D
Creditors of the parent company
7. How is the non-controlling interest displayed in a consolidated statement of financial position?
a. As a separate item between liabilities and stockholder’s equity
b. As a deduction from goodwill if any
c.
By means of a note to consolidated financial statements
d. As a separate item in the stockholders’ equity section
Answer: C
By means of a note to consolidated financial statements
8. Sulu Company, a subsidiary acquired for cash, owned equipment with a fair value higher than the book
value as of the date of acquisition. A consolidated statement of financial position prepared immediately
after the acquisition would include this difference in:
a. Goodwill
b. Retained Earnings
c.
Income Statement
d. Equipment
Answer: D
Equipment
9. Palawan Company acquired a subsidiary for cash in acquisition combination on January 2, 2013. The
price paid was greater than the fair value of the subsidiary's net assets. The subsidiary owned inventory
with a fair value greater than its cost. A consolidated statement of financial position prepared immediately
after the combination would:
a. Include part of the excess as cost of goods sold
b. Include at least some of the excess as part of the inventory
c.
Include all the excess as part of goodwill
d. Not include the excess
Answer: C
Include all the excess as part of goodwill
10. Pasig corporation acquired a subsidiary in combination accounted for as a purchase. The fair market
value of the identifiable net assets acquired exceeds the price paid. Under International Financial
Reporting Standard IFRS 3 the difference should be recognized as:
a. Income from acquisition
b. A reduction of the amounts to non-current assets
c.
Goodwill
d. Pro-rated reduction of the amounts assigned to all assets
Answer: C
Goodwill
11. The stockholder’s equity section of a consolidated statement of financial position for a parent and its
partially owned subsidiary consists of:
a. The parent’s stockholder’s equity accounts
b. The parent’s and the subsidiary’s stockholder’s equity accounts
c.
The parent’s equity accounts and the non-controlling interest
d. The parent’s equity accounts, the subsidiary’s equity accounts and the non-controlling
interest
Answer: A
The parent’s stockholder’s equity accounts
12. The retained earnings that appears of the consolidated statement of financial position of a parent
company and its 60% owned subsidiary is
a. The parent company’s retained earnings plus 100% of the subsidiary’s retained earnings
b. The parent company’s retained earnings plus 60% of the subsidiary’s retained earnings.
c. The parent company’s retained earnings
d. Pooled retained earnings
Answer: D
e. Pooled retained earnings
Computational
15-1: On July 1, 2013; Sony Company purchased all the outstanding stock of Aiwa for P4,000,000. At that
time, Aiwa's statement of financial position showed net assets of P2,500,000. Aiwa's assets and liabilities
had fair market values different from their book values, as follows:
Book Value
Fair Value
Property and equipment - net P
P5,000,000
P5,750,000
Other assets
500,000
350,000
Long-term debt
3,000,000
2,800,000
As a result of the combination above, what amount, if any, will be shown as goodwill in the July 1, 2013,
consolidated statement of financial position of Sony Company and its wholly owned subsidiary, Aiwa
Company?
A. P 0
B. P600,000
C. P800,000
D. P700,000
Answer: D
Solution:
Price paid
Less fair value of net assets acquired (P6,100 – P2,800)
Goodwill
P4,000,000
3,300,000
P 700,000
15-2: On the day of acquisition Sub Inc. had the following assets and liabilities:
Book Value
Fair Value
Current assets
P100,000
P100,000
Plant assets (net)
220.000
260,000
Liabilities
(40,000)
(40,000)
Pub Company paid P450,000 for 90% of the outstanding voting stock of Sub. The goodwill in the
consolidated statement of financial position at acquisition is:
A. P180,000
B. P130,000
C. PI 70,000
D. P220,000
Answer: A
Solution:
Price paid
P 450,000
Non-controlling interest (P450,000/90%) x 10%
50,000
Total
500,000
Less fair value of net assets acquired (P360,000 – P40,000)
320,000
Goodwill
P 180,000
15-3: On the day of acquisition Pall and Mall had the following assets and liabilities
Paul Company
Alan Company
Book Value
Fair value
Book Value
Fair Value
Current assets
P140,000
P140,000
P10.000
P10,000
Plant assets (net)
220,000
340,000
130,000
180,000
Liabilities
(100,000)
(100,000)
(50,000)
(50,000)
Pall Company paid P140,000 in cash for 80% of the outstanding stock of Mall Company. In the
consolidated statement of financial position at acquisition, plant assets should be shown at what
amount?
A. P350,000
B. P390,000
C. P400,000
D. P520,000
Answer: C
Solution:
Plant assets – Pall Company (at book value)
Plant assets – Mall Company (at fair value)
Consolidated
P 220,000
180,000
P 400,000
15-4: On December 31, 2013. Ping Inc. paid P495,000 cash for all the outstanding stock of Sing Company.
Sing's assets and liabilities on that day were as follows:
Cash
P60,000
Inventory
150,000
Property and equipment (net of Acc.Dep ofP100,000) 350.000
Liabilities
70,000
On the day of business combination, the fair value of the inventory was P125,000 and the fair value of
the property and equipment (net) was P385,000. The goodwill (income from acquisition) resulting from
this acquisition amounts to:
A. (P5,000)
B. P85,000
C. P40,000
D. P 5,000
Answer: A
Solution:
Price paid
Less fair value of net assets acquired:
P 495,000
Cash
Inventory
Property and equipment
Liabilities
Gain on acquisition
P 60,000
125,000
385,000
( 70,000)
500,000
P (5,000)
15-5: On January 1, 2013, Pop Company acquired 80% of the outstanding stock of Sap Company for
P350,000 in cash. Relevant information for Sap on this day is as follows:
Common' stock, P100 par
P220,000
Retained earnings
100,000
Book Value
Fair Value
Inventory
P100,000
P120,000
Land
150,000
240,000
Goodwill
10,000
—
Mortgage payable
35,000
30,000
The consolidated statement of financial position on January 1, 2013, should show the following amounts
of goodwill.
A. P107,500
B. P117,500
C. P 97,500
D. P 0
Answer: A
Solution:
Price paid
Non-controlling interest (P350,000/80%) x 20%
Total
Less fair value of net assets excluding goodwill
Goodwill
P350,000
87,500
437,500
330,000
P107,500
15-6: Panay Company purchased 100 percent of the common stock of Sulu Company on January 1, 2013,
for P400,000. Selected accounts from Panay's statement of financial position at the date of combination
are as follows:
Inventory
P360,000
Plant and equipment (net)
500,000
Common stock
420,000
Retained earnings
550,000
Selected accounts from the statement of financial position of Sulu at acquisition are as follows:
Inventory
120,000
Plant and equipment (net)
440,000
Common stock
175,000
Additional paid-in capital
225,000
Retained earnings
(30,000)
On the date of purchase, Sulu's inventory and plant and equipment had fair values of P130,000 and
P420,000, respectively. Immediately after the combination, the amounts to be reported for inventory
and plant and equipment in the consolidated statement of financial position are:
A. P490,000 for inventory and P920,000 for plant and equipment.
B. P360,000 for inventory and P940,000 for plant and equipment.
C. P480,000 for inventory and P920,000 for plant and equipment
D. P490,000 for inventory and P500,000 for plant and equipment.
Answer: A
Solution:
Inventory (P360,000 + P130,000)
Plant and equipment (P500,000 + P420,000)
P490,000
P920,000
15-7: On December 31, 2013, Sisa Company held the following assets.
Fair Value
Book Value
Current assets
P190,000
P180,000
Building
180,000
150,000
Land
90,000
70,000
On this date, Pilo Company purchased all of Sisa Company's common stock for P440,000.
What amounts will Sisa's building, and land be reported in the consolidated statement of financial
position prepared at the date of combination
Building Land
A. P180,000; P90,000
B. P150,000; P70,000
C. P160,000; P90,000
D. P166,667; P83,333
Answer: A
Solution:
Building (at fair value)
Land (at fair value)
P180,000
P 90,000
15-8: On October 1, 2013, Par Company acquired 80% of the outstanding common stock of Son
Company for P480,000. The working paper elimination entry for Par Company and subsidiary on October
I, 2013, was as follows:
Common stock - Son Company
100,000
APIC - Son Company
120,000
Retained earnings - Son Company
180,000
Plant assets
50,000
Goodwill
?
Investment in Son Company
480,000
Non-controlling interest
?
Non-controlling interest is recorded at estimated fair value. What amounts of Goodwill and noncontrolling interest (respectively) be reported in the consolidated statement of financial position
prepared at the date of acquisition?
A. P150,000 P1;20,000
B. P120,000; P 90,000
C. PI 50,000; P 90,000
D. P120,000; P150,000
Answer: A
Solution:
Price paid
NCI [(P480,000/80%) x 20%]
P480,000
120,000
Total
Less fair value of net assets acquired
Goodwill
600,000
450,000
P150,000
15-9: On July 1, 2013, Pepe Company borrowed P160,000 to purchase 80 percent of the outstanding
common stock of Sara Company. This loan, carrying a 12 percent annual rate, is payable in 10 annual
installments beginning July 1, 2014. Summarized portions of Pepe's and Sara's statement of financial
position as of June 30, 2013, are as follows:
Pepe Company
Sara Company
Total assets
P800,000
P300,000
Total liabilities
250,000
155,000
Total stockholders' equity
550,000
145,000
The book values of Sara's assets and liabilities approximated market values except for accounts payable,
which had a fair value that was P5,000 more than the book value. Any remaining difference is
attributable to goodwill. The amounts to be recorded on the consolidated statement of financial position
on July 1, 2013, for total assets and total liabilities respectively are.
A. P1,025,000; P586,750
B. P1,100,000; P565,000
C. P1,151, 000; P408,750
D. P1,160, 000; P570,000
Answer: D
Solution:
Price paid
P160,000
Non-controlling interest (P160,000/80%) x 20%
40,000
Total
200,000
Less fair value of net assets acquired (P300,000 – P160,000)
140,000
Goodwill
P 60,000
Therefore:
Total assets (P800,000 + P300,000 + P60,000)
Total liabilities (P250,000 + P155,000 + P160,000 + P5,000)
P1,160,000
570,000
15-10: On December 31, 2013, Palo Company paid P990,000 for 99% of the outstanding common stock
of Sota Company. The remaining 1% was held by a stockholder who was unwilling to sell the stock.
Sota's nct assets had a book value of P850,000 and a fair market value of P900,000 when it was
acquired by Palo. If Sota uses push-down accounting, the non-controlling interest should be reported at:
a. P 8,500
b. P9,000
c. P 9,900
d. P10,000
ANSWER: B
Solution: P900,000 x 1% = P9,000
15-11: Pita Company acquires a controlling interest in Soda Company in the open market for P120,000.
The P100 par value capital stock of Soda Company at the date of acquisition is P125,000 and its retained
earnings amounts to P50,000. The market value per share of Soda Company is P120 per share. In the
consolidated statement of financial position on the date of acquisition, noncontrolling interest would show
a balance of:
a. P40,000
b. P35,000
c. P17,500
d. P30,000
ANSWER: D
Solution:
Number of shares acquired (P120,000/P120)
1,000
Divided by outstanding shares of Soda (P125,000/P100)
1,250
Controlling interest
80%
Non-controlling interest [(P120,000/80%) x 20%}
P30,000
15-12: On December 1, 2013, Pepsi Company purchased an 80 percent interest in Sarsi Company. On
that date, the book values and fair values of Sarsi Company's assets and liabilities were the same. A
consolidated statement of financial position prepared on that date is as follows:
Assets
Current assets
P200,000
Property, plant and equipment (net)
500,000
Goodwill
250,000
Total
P950,000
Liabilities and Stockholders' Equity
Current liabilities
P150,000
Non-controlling interest
100,000
Common stock
200,000
Retained earnings
500,000
Total
P950,000
The price paid by Pepsi Company for its 80 percent investment in Soda Company is:
a. P700,000
b. P250,000
c. P850,000
d. P600,000
ANSWER: A
Solution: Goodwill
SP250,000
FV of net assets acquired excluding goodwill (P700,000 – P150,000)
NCI
Price paid by the Pepsi Company
550,000
(100,000)
P700,000
15-13: On June 1, 2013, Paco, Inc. acquired most of the outstanding common stock of Sota Company for
cash. The incomplete working paper elimination entries on that date for the consolidated statement of
financial position of Paco, Inc. and its subsidiary are shown below:
E(1)
E(2)
Stockholders' Equity - Sota Company
290, 700
Investment in Sota Company
247,095
NCI
43,605
Inventories
6,630
Equipment
48,450
Patent
7,650
Goodwill
?
Investment in Sota Company
69,955
NCI
?
Assuming NCl is measured at fair value, what is the amount of goodwill to be reported in consolidated
statement of financial position on June 1, 2013?
a.
b.
c.
d.
P20,000
P19,570
P25,000
P10,000
ANSWER: B
Solution: Price paid (P247,095 + P69,955)
NCI [(P317,050/85%) x 15%*)
Total
Less net assets at fair value excluding goodwill:
Net assets at book value
Inventories
Plant and equipment
Patent
Goodwill
P317,050
55,950
373,000
P290,700
6,630
48,450
7,650 353,430
P 19,570
Consider the following information for the questions below:
Statement of financial position for Puro Corporation and Sato Company on December 31, 2013, are given
below:
Puro
Sato
Corporation
Company
Cash and cash equivalents
P 70,000
P 90,000
Inventory
100,000
60,000
Property and equipment (net)
500,000
250,000
Investment in Sato Company
260,000
Total assets
P930,000
P400,000
Current liabilities
P180,000
P 60,000
Long-term liabilities
200,000
90,000
Common stock
300,000
100,000
Retained earnings
250,000
150,000
Total liabilities and stockholders' equity
P930,000
P400,000
Puro Corporation purchased 80 percent ownership of Sato Company on December 31, 2013, for
P260,000. On that date, Sato Company's property and equipment had a fair value of P50,000 more than
the book value shown, while its long-term liabilities has a market value of P150,000. All other book values
approximated fair value. In the consolidated statement of financial position on December 31, 2013:
15-14: What amount of total property and equipment will be reported?
a. P500,000
b. P750,000
c. P790,000
d. P800,000
ANSWER: D
Solution: P500,000 + P300,000 = P800,000
15-15: What amount of goodwill will be reported?
a. P
0
b. P85,000
c. P25,000
d. P60,000
ANSWER: B
Solution: Price paid
NCI [(P260,000/80%) x 20%]
Total
Less fair value of net acquired (P450,000 – P210,000)
Goodwill
P260,000
65,000
325,000
240,000
P 85,000
15-16: What amount of consolidated retained earnings will be reported?
a.
b.
c.
d.
P250,000
P280,000
P370,000
P400,000
ANSWER: A. (The retained earnings of the parent only).
15-17: What amount of total stockholders’ equity will be reported?
a.
b.
c.
d.
P550,000
P615,000
P750,000
P800,000
Answer: B
Controlling interest (Stockholders’ equity of the parent)
P550,000
Non-controlling interest (per no. 15-15)
Stockholders’ equity
15-18: What amount of non-controlling interest will be reported?
a.
b.
c.
d.
P 65,000
P 60,000
P110,000
P160,000
Answer: A
(Refer to 15-15)
15-19: What amount of total liabilities will be reported?
65,000
P615,000
a.
b.
c.
d.
P240,000
P290,000
P590,000
P530,000
Answer: C
(P380,000 + P210,000)
15-20: What amount of the total assets will be reported?
a.
b.
c.
d.
P1,205,000
P1,070,000
P1,145,000
P1,140,000
Answer: A
Cash and cash equivalent (P70,000 + P90,000)
P 160,000
Inventory (P100,000 + P60,000)
160,000
Property and equipment (P500,000 + P300,000)
800,000
Goodwill
85,000
Total assets
P1,205,000
15-21: Pacman Corporation purchased a 10% interest in Hoya Company on January 2,2008, as an
available for sale investment for a price of P80,000. On January 2, 2013, Pacman Corporation purchases
7,000 additional shares of Hoya Company from existing shareholders for P630,000. The purchase raised
Pacman's interest to 80%. Hoya Company had the following statement of financial position just prior to
Pacman's second purchase:
Assets
Liabilities and Equity
Current assets
P330,000
Buildings (net)
280,000
Common Stock, P20 par
200,000
Equipment (net)
200,000
Retained Earnings
480,000
Total Assets
P810,000
Liabilities
Total Liabilities & Equity
P130,000
P810,000
On the date of the second purchase, Pacman determines that Hoya's equipment was undervalued by
P100,000 and had a 5-year remaining life. All other book values approximate fair values. Any remaining
excess is attributed to goodwill.
What is the estimated fair value of the 20% non-controlling interest on January 2, 2013?
a. P180,000
b. P188,750
c.
P172,000
d. P168,000
Answer: A
Fair value per share:
New acquisition (P630,000/7,000 shares)
P90
Fair value of previously owned shares (1,000* shares x P90) P 90,000 (10%)
Acquisition of new shares
630,000 (70%)
Total price paid for 80% interest
P 720,000
Non-controlling interest (P720,000/80%) x 20%
P 180,000
* P200,000 / P20 x 10% = 1,000 shares
5-22: Using the data in 15-21, what is the amount of goodwill to be reported in consolidated statement of
financial position on January 2, 2013?
a. P 60,000
b. P 53,750
c. P120,000
d. P110,000
Answer: C
Fair value of previously owned interest (10%)
P 90,000
Price paid for new additional interest (70%)
630,000
Non-controlling interest
180,000
Total
900,000
Less fair value of net assets acquired (P910,000 – P130,000)
780,000
Goodwill
P120,000
Items 15-23 to 15-27 were based on the following data:
Primo Corporation acquired majority of the stock of Sonia Company on January 2, 2013, and a
consolidated statement of financial position was prepared. Partial statement of financial position for
Primo, Sonia, and the consolidated entity follow:
Primo Corporation and Sonia Company
Partial Statement of Financial Position
January 2, 2013
Primo
Sonia
Consolidated
Accounts
Corporation
Company
Entity
Cash and cash equivalents
P100,000
P 40,000
P140,000
Accounts receivable
80,000
20,000
100,000
Inventory
200,000
100,000
340,000
Equipment
500,000
200,000
800,000
Investment in Sonia Company
?
Goodwill
__________
__________
10,000
Total
P
?
P360,000
P1,390,000
Accounts payable
P 70,000
P 40,000
P110,000
Bonds payable
300,000
Common stock
?
150,000
250,000
Retained earnings
567,000
170,000
?
Non-controlling interest
_________
__________
163,000
Total
P
P360,000
P1,390,000
?
300,000
15-23: What amount of retained earnings is reported in the consolidated statement of financial position?
a. P567,000
b. P737,000
c.
P577,000
d. P747,000
Answer: A
The amount reported is equal to Primo’s retained earnings of P567,000
15-24 What is the fair value of inventory held by Sonia on January 2, 2013?
a.
b.
c.
d.
140,000.00
128,000.00
157,142.85
138,000.00
Answer: A
(340,000- 200,000)
15-25 What is the fair value of Sonia’s net assets at January 2,2013?
a.
b.
c.
d.
420,000
460,000
329,000
430,000
Answer: B
Cash
Accounts receivable
Inventories (see 15-25)
Equipment (800,000 - 500,000)
Accounts payable
Fair value of net assets
P 40,000
20,000
140,000
300,000
(40,000)
P460,000
15-26 What percentage of ownership in Sonia Company does Primo hold? (rounded)
a. 70%
b. 75%
c. 60%
d. 65%
Answer: D
100% - (P163,000/P460,000) = 65% rounded
15-27 What amount did Primo pay to acquire the stock on January 2, 2013?
a.
b.
c.
d.
332,000
322,000
307,000
300,000
Answer: D
Goodwill
Fair value of net assets acquired (15-25)
Total
NCI
Price paid by Primo
P 10,000
460,000
470,000
(163,000)
P 307,000
15-28 What is the allocation of Goodwill?
a.
b.
c.
d.
Controlling Interest
NCI
6,500
8,000
6,000
7,000
3,500
2000
4,000
3,000
Answer: B
Parent
NCI
Company implied value
Less fair value of net assets
Goodwill
Total
P470,000
460,000
P 10,000
65%
P307,000
299,000
P 8,000
35%
P163,000
161,000
P 2,000
15-29 On June 10, 2013, Kim Company purchases 8,000 shares of Jenna Company for P64 per
share. Just prior to the purchase, Jenna company has the following statement of financial position:
Assets
Liabilities and Equity
Cash
P20,000
Current Liabilities
P250,000
Inventory
280,000
Common stock; P5 par
50,000
Equipment
400,000
APIC
130,000
Goodwill
100,000
Retained Earnings
370,000
Total assets
P800,000
Total Liabilities & Equity
P800,000
On June 10, 2013, Jenna’s inventory has a fair value of P400,000 and that the equipment is worth
P500,000
What is the amount of non-controlling interest in the consolidated statement of financial position on
the date of acquisition?
a.
b.
c.
d.
P128,000
P134,000
P120,000
P125,000
Answer: B
Non-controlling interest should be valued at the higher amount between the following:
At estimated fair value (P512,000/80%) x 20%
P128,000
At proportionate share of acquiree’s net identifiable assets (P670,000 x 20%) 134,000
Therefore, NCI is measured at P134,000.
15-30 Using the data in 15-29, what is the amount of goodwill (gain on acquisition) to be reported in
the consolidated statement of financial position on the date of acquisition?
a.
b.
c.
d.
P (30,000)
P 30,000
P (24,000)
P 24,000
Answer: C
Price paid (8,000 shares x P64)
NCI
Total
Less fair value of net assets acquired excluding goodwill:
Cash
P 20,000
Inventory
400,000
Equipment
500,000
Current liabilities
(250,000)
Gain on acquisition
P512,000
134,000
646,000
670,000
P (24,000)
Proof:
Total
Fair value of the company
P646,000
Fair of net assets excluding goodwill 670,000
Gain on acquisition
P (24,000)
Parent (80%)
NCI (20%)
P512,000
536,000
P (24,000)
P134,000
134,000
P -
NCI does not share a gain on the acquisition. IFRS 3 (2008) provides that the gain is
attributed to the acquirer only.
Straight Problems
Problem 15-1
On May 1, 20 3, Polo Corporation paid P1,080,000 to stockholders of Solo Company for 90% of Solo's
100,000 outstanding shares of no-par common stock but with a fair value per share; in addition, Polo
paid acquisition-related costs of the combination totaling P50,000 on that date. Book values and current
values of Solo's identifiable net assets on May 1, 2013, were as follows:
Common stock
P400,000
Retained earnings
500,000
Total net assets at book value
P900000
Add: Differences between current fair value and book value:
Inventories (FIFO)
30,000
Property and equipment (net)
60,000
Total current fair value of identifiable net assets
P990,000
Required:
a. Prepare journal entries for Polo Corporation on May 1, 2013, to record the acquisition of stock from
Solo Company.
b. Prepare a working elimination entry for Polo Corporation and subsidiary on May 1, 2013.
Solution:
a.
Investment in Solo Company stock
Cash
To record acquisition of 90%
of the outstanding shares of Solo.
Retained earnings – Polo Company
Cash
To record acquisition-related costs direct to
Retained earnings of Polo Company.
b.
1,080,000
1,080,000
50,000
50,000
Working paper elimination entries:
(1)
Common stock – Solo
400,000
Retained earnings – Solo
500,000
Investment in Solo company stock
Non-controlling interest
To eliminate Solo’s equity accounts at date of acquisition.
810,000
90,000
(2)
Inventories
Plant assets
Goodwill
Investment in Solo company stock
Non-controlling interest
To allocate excess
30,000
60,000
210,000
270,000
30,000
Determination and Allocation of Excess Schedule:
Total Parent (80%) NCI (10%)
Company fair value
P1,200,000
P1,080,000
P120,000*
Less BV of interest acquired:
Common stock 400,000
Retained earnings
500,000
Total equity
900,000
P 900,000
P900,000
Interest acquired
90%
10%
Book value
P 810,000
P 90,000
Excess
P 300,000
P 270,000
P 30,000
Adjustments:
Inventory
(30,000)
Plant assets
(60,000
Goodwill
P 210,000
* (P1,080,000/90%) x 10% = P120,000
Problem 15-2
The June 1, 2013, statement of financial position of Straw Company at book value and fair market values
are as follows:
Book Value
Fair Value
Current assets
P240,000
P280,000
Land
20,000
100,000
Building and equipment (net)
400,000
270,000
Patents
10,000
30,000
Total assets
P670,000
P680,000
Liabilities
P250,000
P250,000
Common stock
100,000
Retained earnings
320,000
430,000
Total liabilities and stockholders' equity
P670,000
P680,000
On June 1, 2013, Pepsi, Inc. purchased all of Straw Company's stock for P600,000.
Required:
a. Prepare journal entry on the books of Pepsi, Inc. to record the stock acquisition.
b. Prepare a schedule showing the determination and allocation of the excess.
c. Prepare the working paper elimination entries.
Solution:
a.
b.
c.
Investment in Straw Company
Cash
To record acquisition of 100% of Straw stock.
Price paid
Less: Book value of interest acquired (100%)
Difference
Allocation (100%:
Inventories
Land
Building
Equipment
Patents
Goodwill
600,000
600,000
P600,000
420,000
180,000
P( 40,000)
( 80,000)
150,000
( 20,000)
( 20,000)
( 10,000)
P170,000
Working paper elimination entries:
(1)
Common stock – Straw
100,000
Retained earnings – Straw
320,000
Investment in Straw Company
420,000
To eliminate equity accounts of Straw at
date of acquisition.
(2)
Inventories
40,000
Land
80,000
Equipment
20,000
Patents
20,000
Goodwill
170,000
Buildings
150,000
Investment in Straw Company
180,000
To allocate excess.
Problem 15-3
The January 1, 2013, statement of financial position of Sotto Company at book and market values are as
follows:
Book Value
Fair Value
Current assets
P 800,000
P 750,000
Property and equipment (net)
900,000
1,000,000
Total assets
P1,700,000
P1,750,000
Current liabilities
P 300,000
P 300,000
Long-term liabilities
500,000
460,000
Common stock, Par
P1 100,000
Additional paid-in capital
200,000
Retained earnings
600,000
Total liabilities and stockholders' equity
P1,700,000
Pedro Company paid P950,000 in cash for 80% of Sotto Company's common stock. Pedro Company also
pays P80,000 of professional fees to affect the combination. The fair value of the NCI is assessed to be
P230,000.
Required:
a. Prepare journal entry on Pedro's books to record the acquisition of the Sotto stock
b. Prepare a determination and allocation of excess schedule.
c. Prepare the working papa elimination entries.
Solution:
a.
b.
Investment in Soto Company
Cash
To record acquisition of 80% stock of Sotto.
950,000
Retained earnings – Pedro Company
Cash
To record acquisition costs.
80,000
Price paid by the Parent Company
Non-controlling interest (NCI)
Total
Less: Book value of net assets
Excess
P950,000
230,000
1,180,000
900,000
280,000
Allocation:
Current assets
Property and equipment
Long-term debt
Goodwill
c.
950,000
80,000
P 50,000
(100,000)
( 40,000)
( 90,000)
P190,000
Working paper elimination entries:
(1)
(2)
Common stock – Sotto
100,000
APIC – Sotto
200,000
Retained earnings – Sotto
600,000
Investment in Sotto stock
Non-controlling interest
To eliminate equity accounts of Sotto at date of
acquisition.
Property, plant and equipment
Goodwill
Long-term debt
100,000
190,000
40,000
720,000
180,000
Current assets
Investment in Sotto stock
Non-controlling interest
To allocate excess
50,000
230,000
50,000
Problem 15-4
Paco Company purchased 100 percent of the common stock of Sucat Company by issuing 20,000 shares
of Paco P5 par value common stock. The market value of the stock issued on the date of combination,
January 2, 2013 was P6 per share. Summarized statement of financial position data at December 31,
2013 are as follows:
Paco
Sucat
Current assets
P375,000
P100,000
Property and equipment
270,000
75,000
Other assets
30,000
40,000
Total debits
P675,000
P215,000
Current liabilities
P220,000
60,000
Mortgage payable
60,000
25,000
Accumulated depreciation
70,000
15,000
Common stock
100,000
35,000
Additional paid-in capital
45,000
Retained earnings
180,000
80,000
Total credits
P675,000
P215,000
On the date of combination, Sucat's property and equipment had a fair value of P85,000.
The book value of all other assets approximated fair value.
Required:
Prepare a consolidated statement of financial position immediately following the acquisition.
Paco Company and Subsidiary
Consolidated Statement of Financial Position
January 2, 2013
Current assets
Property, plant and equipment
Other assets
Total assets
P475,000
285,000
70,000
P830,000
Current liabilities
Mortgage payable
Common stock
Additional paid-in capital
Retained earnings (including gain on acquisition of P20,000)
Total liabilities and stockholders’ equity
P280,000
85,000
200,000
65,000
200,000
P830,000
Computation of income from acquisition:
Consideration given (20,000 shares x P6)
Less fair value of net assets:
Current assets
Property and equipment
Other assets
Current liabilities
Mortgage payable
Gain on acquisition
Problem 15-5
P120,000
P100,000
85,000
40,000
(60,000)
(25,000)
140,000
P(20,000)
On December 31, 2013, Polo Company and Solo Company have the following statement of financial
position:
Polo
Solo
P 80,000
P20,000
Receivables
60,000
60,000
Inventory
100,000
70,000
Property and equipment (net)
200,000
100,000
Total assets
P440,000
P250,000
Current liabilities
P 20,000
10,000
Long-term liabilities
70,000
50,000
Common stock
110,000
90,000
Additional paid-in capital
20,000
Retained earnings
220,000
100,000
Total liabilities and stockholders' equity
P440,000
P250,000
Cash
On December 31, 2013, Polo issued 10,000 shares of its P10 par value stock for all of the outstanding
shares of Solo. Polo's stock had a P25 per share fair market value. Polo also paid P10,000 in
professional fees for the combination and P20,000 stock issuance costs. Solo holds equipment worth
P40,000 more than its current book value. The retained earnings of Solo on January 1, 2013 amounted to
P70,000.
Required:
Prepare consolidated statement of financial position as of December 31, 2013.
The entry to record the acquisition of stock is as follows:
(a)
(b)
Investment in Solo stock
Common stock, at par
Additional paid-in capital
To record acquisition of stock.
250,000
Retained earnings – Polo
Additional paid-in capital
Cash
10,000
20,000
100,000
150,000
30,000
To record acquisition-related costs.
Palo Company and Subsidiary
Consolidated Statement of Financial Position
December 31, 2013
Cash
Receivables
Inventory
Property and equipment – net
Goodwill
Total assets
P 70,000
120,000
170,000
340,000
20,000
P720,000
Current liabilities
Long-term liabilities
Common stock
Additional paid-in capital (P20,000 + P150,000 – P20,000)
Retained earnings, 12/31 (P220,000 – P10,000)
Total liabilities and stockholders’ equity
P 30,000
120,000
210,000
150,000
210,000
P720,000
Computation of goodwill:
Consideration given
Less fair value of net assets (P290,000 – 60,000)
Goodwill
P250,000
230,000
P 20,000
Problem 15-6
Separate statement of financial positions of Pill Corporation and Seed Company on May 31, 2013,
together with current fair values of Seed's identifiable net assets, are as follows:
Seed Company
Pill Corporation
Book Values
Fair Values
P 550,000
P 10,000
P 10,000
700,000
60,000
60,000
Inventories
1,400,000
120,000
140,000
Plant assets (net)
2,850,000
610,000
690,000
Total assets
P 550,000
P800,000
Current liabilities
80,000
P500,000
80,000
Long-term debt
1,000,000
400,000
Common stock, P10 par
1,500,000
100,000
Additional paid-in capital
1,200,000
40,000
Assets
Cash
Accounts receivable (net)
Liabilities and stockholders’ equity
440,000
Retained earnings
1,300,000
180,000
Total liabilities and stockholders' equity
P5,500,000
P800,000
On May 31, 2013, Pill acquired all 10,000 shares of Seed's outstanding stock by paying P350,000 cash to
Seed's stockholders.
Required:
a.Prepare journal entries for Pill Corporation to record the acquisition of Seed Company stock on May 31,
2013.
Investment in Seed Company
Cash
To record acquisition of 100% of Seed company stock.
350,000
Determination and Allocation of Excess schedule:
Price paid
Less: Book value of interest acquired
Excess
Allocation:
Inventory
P(20,000)
Plant assets
(80,000)
Long-term liabilities
40,000
Income from acquisition
350,000
P350,000
320,000
30,000
(60,000)
P(30,000)
b. Prepare consolidation working paper for Pill Corporation and subsidiary on May 31, 2013.
Working paper elimination entries
(1)
Common stock – Seed
100,000
Additional paid-in capital – Seed
40,000
Retained earnings – Seed
180,000
Investment in Seed stock
To eliminate equity accounts of Seed Company
(2)
Inventory
20,000
Plant assets
80,000
Long-term debt
Investment in Seed stock
Retained earnings – Pill (income from acquisition)
To allocate excess
320,000
40,000
30,000
30,000
Pill Corporation and Subsidiary
Consolidated Working Paper
May 31, 2013 – Date of Acquisition
Assets
Cash
Accounts receivable
Pill
Corporatio
n
Seed
Compan
y
200,000
700,000
10,000
60,000
Eliminations
Debit
& adjustment
Credit
Consolidated
210,000
760,000
Inventories
Investment in Seed company
1,400,000
120,000
350,000
(1)320,000
(2) 30,000
Plant assets
2,850,000
610,000
Total
5,500,000
800,000
Liabilities & Stockholders’
Equity
Current liabilities
Long-term debt
500,000
1,000,000
80,000
400,000
Common stock:
Pill
1,500,000
Seed
Additional paid-in capital
Pill
(2) 20,000
(2) 80,000
3,540,00
0
6,050,00
0
(2) 40,000
(1)100,000
1,200,000
1,300,000
Seed
Total
5,500,000
580,000
1,440,00
0
1,500,00
0
100,000
Seed
Retained earnings
Pill
1,540,00
0
-
1,200,00
0
40,000
180,000
800,000
(1) 40,000
(1)180,000
420,000
(2) 30,000
1,330,00
0
420,000
6,050,00
0
Problem 15-7
On April 30, 2013, Pop Corporation issued 30,000 shares of its no-par value common stock having a
current fair value of P20 a share for 8,000 shares of Sea Company's P10 par common stock. Acquisitionrelated costs of the business combination, paid by Sea on behalf of Pop on April 30, 2013, were as
follows:
Professional fees relating to business combination
P40,000
SEC registration costs
30,000
Separate statement of financial positions of the two companies on April 30, 2013, prior to the business
combination, were as follows:
Pop Corporation
Sea Company
Assets
Cash
P 50,000
P 150,000
Account receivable (net)
230,000
200,000
Inventories
400,000
350,000
Plant assets (net)
1,300,000
560,000
Total
P1,980,000
P1,260,000
P 310,000
P 250,000
Long-term term debt
800,000
600,000
Common stock
500,000
100,000
Liabilities and Stockholders’ Equity
Current liabilities
Additional paid-in capital
Retained earnings (deficit)
Total
360,000
370,000
(50,000)
P1,980,000
P1,260,000
Current far values of Sea's identifiable net assets were the same as their book values, except for the
following:
Current Fair Values
Inventories
P440,000
Plant assets (net)
780,000
Long-term debt
620,000
NCI is measured at estimated fair value.
Required:
a. Prepare journal entry for Sea on April 30, 2013, to record it payment of out-of pocket costs of the
business combination on behalf of Pop Corporation.
b.
Prepare journal entries for Pop Corporation to record the business combination with Sea
Company on April 30, 2013.
c.
Prepare consolidation working paper for consolidated statement of financial position of Pop
Corporation and subsidiary on April 30, 2013.
Answer:
A.
Accounts Receivable
70,000
Cash
B.
70,000
Investment in Sea Company stock
600,000
Common stock ((30,000 shares x P20)
600,000
Retained earnings – Pop Corporation
40,000
Common stock
30,000
Current liabilities
70,000
C.
Pop Corporation and Subsidiary
Working Paper for Consolidated Balance Sheet
April 30, 2013 – Date of acquisition
Pop
Sea
Adjustment
s
&
Eliminatio
Consoli-
Corporatio
n
Company
Debit
Credit
dated
Cash
50,000
80,000
Accounts receivable – net
230,000
270,000
Inventories
400,000
350,000
Assets
130,000
(3) 70,000
(2) 90,000
430,000
840,000
Investment
Company
in
Sea
600,000
(1)328,000
-
(2)272,000
Plant assets
1,300,000
560,000
Goodwill
Total
2,580,000
1,260,000
Current liabilities
380,000
250,000
Long-term debt
800,000
600,000
(2)220,000
2,080,000
(2) 50,000
50,000
3,530,000
Liabilities & Stockholders’
Equity
(3) 70,000
560,000
(2) 20,000
1,420,000
Common stock
Pop
1,070,000
Sea
Additional paid-in capital
1,070,000
100,000
(1)100,000
360,000
(1)360,000
Retained earnings
Pop
330,000
Sea
330,000
(50,000)
(1) 50,000
NCI
(1) 82,000
150,000
(2) 68,000
Total
2,580,000
1,260,000
890,000
890,000
(1) To eliminate equity accounts of Sea Company on the date of acquisition.
(2) To allocate difference, computed as follows:
Price paid
P600,000
NCI (P600,000/80%) x 20%
150,000
Total
750,000
Less: Book value of net assets of Sea
410,000
Excess
340,000
Allocation:
Inventories
P( 90,000)
Plant assets
(220,000)
Long-term debt
20,000
(290,000)
3,530,000
Goodwill
P 50,000
(3) To eliminate intercompany receivables and payables.
Problem 15-8
On January 2, 2013, P Company purchased 100 percent of the outstanding common stock of Company
for P500,000 payable in cash. On that date, the assets and liabilities of Company had fair market values
as indicated below. Statement of financial positions of the companies on January 2, 2013 are also
indicated below.
Book Values
P Company
S Company
S Company
Fair Market
Values
Cash
P300,000
P 50,000
P 50,000
Accounts receivable
200,000
100,000
100,000
Inventory
200,000
80,000
100,000
Land
100,000
50,000
60,000
Building (net of accumulated depreciation)
600,000
400,000
350,000
Equipment (net of accumulated depreciation)
800,000
200,000
140,000
Investment in S company
500,000
_________
P2,700,000
P 880,000
P150,000
P 60,000
P 60,000
290,000
240,000
Total
Accounts payable
8% bonds payable (P300,000 face amount)
Common stock – P Company
1,500,000
Common stock – S Company
100,000
Additional paid-in capital – S Company
200,000
Retained Earnings – P Company
1,050,000
Retained Earnings – S Company
__________
230,000
Totals
P2,700,000
P880,000
1. Prepare the D&A of excess schedule to compute goodwill. If any.
2. Prepare a consolidated working paper.
Answer:
1. Price paid
P500,000
Less book value of interest acquired
Common stock
P100,000
APIC
200,000
Retained earnings
230,000
Excess
530,000
( 30,000)
Allocation:
Inventory
P( 20,000)
Land
( 10,000)
Building
50,000
Equipment
60,000
Bonds payable
( 50,000)
30,000
2. P Company and Subsidiary
Consolidated Working Paper
January 2, 2013 – Date of acquisition
P
S
Adjustments
&
Eliminations
Consoli-
Company
Company
Debit
Credit
dated
Cash
300,000
50,000
350,000
Accounts receivable
200,000
100,000
300,000
Inventory
200,000
80,000
(2) 20,000
300,000
Land
100,000
50,000
(2) 10,000
160,000
Debits
Building
600,000
400,000
(2) 50,000
950,000
Equipment
800,000
200,000
(2) 60,000
940,000
Investment in S Company
500,000
(1)530,000
-
Total
2,700,000
880,000
3,000,000
150,000
60,000
210,000
(2) 30,000
Credits
Accounts payable
Bonds payable
290,000
Common
Company
stock
–
P
Common
Company
stock
–
S
1,500,000
100,000
(1)100,000
200,000
(1)200,000
230,000
(1)230,000
880,000
640,000
1,050,000
Retained earnings – S Co.
Total
240,000
1,500,000
APIC – S Company
Retained earnings – P Co.
(2) 50,000
2,700,000
1,050,000
640,000
3,000,000
(1) To eliminate equity accounts of S Company.
(2) To allocate excess
Problem 15.9
Using the statement of financial positions that appear in Problern 15-8, assume that only 80 percent of the
outstanding stock of Company was acquired by P Company for P500,000 payable in cash. All other
information in the problem is unchanged.
Required:
1. Prepare the D&A of excess schedule assuming NCI is measured at fair value of P80,000.
2. Prepare a consolidated working paper.
Answer:
1.
Price paid
P500,000
NCI (20% of FV of S Co’s net assets excluding GW (P500,000 x 20%) 100,000*
Total
600,000
Less book of net assets
530,000
Excess
70,000
Allocation
Inventory
P (20,000)
Land
(10,000)
Building
50,000
Equipment
60,000
Bonds payable
(50,000)
Goodwill
30,000
P100,000
* NCI is measured at its proportionate interest in S Company’s net assets because the assessed
fair value of P80,000 is smaller.
2.
P Company and Subsidiary
Consolidated Working Paper
January 2, 2013 – Date of acquisition
P
S
Adjustments
&
Eliminations
Consoli-
Company
Company
Debit
Credit
dated
Cash
300,000
50,000
350,000
Accounts receivable
200,000
100,000
300,000
Inventory
200,000
80,000
(2) 20,000
300,000
Land
100,000
50,000
(2) 10,000
160,000
Building
600,000
400,000
(2) 50,000
950,000
Equipment
800,000
200,000
(2) 60,000
940,000
Investment in S Company
500,000
(1)424,000
-
Debits
(2) 76,000
Goodwill
Total
(2)100,000
2,700,000
880,000
100,000
3,100,000
Credits
Accounts payable
150,000
Bonds payable
Common stock – P Co.
60,000
290,000
210,000
(2) 50,000
1,500,000
1,500,000
Common stock – S Co.
100,000
(1)100,000
APIC – S Co.
200,000
(1)200,000
Retained earnings – P Co.
1,050,000
Retained earnings – S Co.
1,050,000
230,000
NCI
(1)230,000
(2)
Total
240,000
2,700,000
880,000
6,000
(1)106,000
100,000
716,000
716,000
3,100,000
(1) To eliminate equity accounts of S Company
(2) To allocate excess
15-10 On January 2, 2013, Perez company purchased 100 percent of its outstanding common stock of
Santos Company for 542,000 payables in cash. On that date, the assets and liabilities of Santos
Company had fair market values of as indicated below. Statements of Financial positions of the
companies on January 2,2013 are also indicated below.
Santos Company
Book Values
Fair Market Values
Perez Company
Santos Company
Cash
P100,000
P100,000
P100,000
Accounts Receivable
200,000
150,000
150,000
Inventory
150,000
130,000
140,000
Equipment (net)
300,000
200,000
180,000
Investment in S Company
542,000
Long term investment in MS
100,000
125,000
140,000
P1,442,000
P785,000
Accounts Payable
P175,000
P115,000
Common Stock – P company
400,000
Totals
Common Stock- S company
P115,000
200,000
Additional paid in capital – P company 200,000
Retained earnings – P company 667,000
Retained earnings- S company
Totals
470,000
P1,442,000
P785,000
Required:
1.Prepare the determination and allocation of excess schedule to compute goodwill/ gain on acquisition.
2. Prepare a consolidated working paper
Answer:
1.
Price paid
Less book value of interest acquired (100%):
Excess
Allocation
Inventory
P (10,000)
Land
(40,000)
Equipment
20,000
Long-term investment in MS
(15,000)
Gain on acquisition
2.
Assets
Cash
P542,000
670,000
(128,000)
( 45,000)
P(173,000)
P Company and Subsidiary
Consolidated Working Paper
January 2, 2013 – Date of acquisition
P
S
Company
Compan
y
100,000
100,000
Adjustment
s
Debit
&
Eliminations
Credit
Consolidated
200,000
Accounts receivable
Inventory
Land
Equipment
Investment in S Company
Long-term investment in MS
Total
Liabilities & Stockholders’
Equity
Accounts payable
Common Stock – P Co.
Common Stock – S Co.
APIC – P Co.
Retained earnings – P Co.
Retained earnings – S Co.
Total
200,000
150,000
50,000
300,000
542,000
100,000
1,442,000
175,000
400,000
150,000
130,000
80,000
200,000
125,000
785,000
(2) 10,000
(2) 40,000
(2)128,000
(2) 15,000
115,000
200,000
290,000
400,000
(1)200,000
200,000
667,000
1,442,000
(2) 20,000
(1)670,000
470,000
785,000
350,000
290,000
170,000
480,000
240,000
1,730,000
(1)470,000
863,000
(2)173,000
200,000
840,000
863,000
1,730,000
1. To eliminate equity accounts of S Company.
2. To allocate excess
15-11 On January 2,2013, Pol Inc. purchases all outstanding shares of Sun Company for P1,900,000. It
has been decided that Sun Company will push down accounting principles account for this transaction.
The current statement of financial position is state at historical cost.
The following statement of financial position is prepared for Sun Company on January 2, 2013:
Assets
Liabilities & Equity
Current asset:
Current Liabilities
Cash
P160,000
Long term liabilities
P180,000
Accounts receivable
520,000
Bonds payable
600,000
Prepaid expenses
40,000
Deferred Taxes
Property, plant, and equipment
Stockholder’s equity
Land
400,000
Common stock, 10 par
600,000
Building (net)
1,200,000
Retained earnings
840,000
Total assets
P2,320,000
Total liabilities and equity
P2,320,000
Required:
1.
2.
3.
4.
Record the investment
Prepare the determination and allocation of excess schedule
Record the adjustment on the books of Sun Company
Prepare entries that would be made on the consolidated working paper to eliminate the
investment account
Answer:
1.
2.
3.
4.
Investment in Sun Company
Cash
Price paid
Less book value of interest acquired:
Common stock
Retained earnings
Excess
Allocation:
Land
Building
Bond payable (bond discount)
Deferred taxes
Goodwill
Land
Building
Bond discount
Goodwill
Deferred taxes
Retained earnings
Additional paid in capital
Common stock
Additional paid in capital
Investment in Sun Company
1,900,000
1,900,000
P1,900,000
P 600,000
840,000
1,440,000
460,000
(100,000)
(200,000)
( 40,000)
( 20,000)
(360,000)
P 100,000
100,000
200,000
40,000
100,000
20,000
840,000
1,300,000
600,000
1,300,000
1,900,000
15-12 P company acquired a controlling interest in X company. P company had the following statement of
financial position on the acquisition data:
P company (the acquirer) – Legal Subsidiary
Statement of Financial Position
December 31, 2013
Assets
Liabilities & Equity
Current Assets
Non-current assets
P 2,000
10,000
Total assets
P12,000
Non-current liabilities
Common stock, P2 par
APIC
Retained earnings
Total liabilities and equity
P 4,000
200
1,800
6,000
P12,000
X Company had the following statement of financial position on the acquisition date:
P company (the acquirer) – Legal Parent
Statement of Financial Position
December 31, 2013
Assets
Liabilities & Equity
Current Assets
Non-current assets
P 2,000
4,000
Total assets
P 6,000
Non-current liabilities
Common stock, P2 par
APIC
Retained earnings
Total liabilities and equity
P 2,000
400
1,600
2,000
P 6,000
The fair value of the non-current assets of X company is P6,000. The shareholders of P company
requested 300 X company shares in exchange for all their 100 shares. This is an exchange ratio of 3 to 1.
The fair value of a share of X company is P50.
Answer:
Supporting computations:
Fair value of existing X Company equity (200 shares P50)
P Company interest in X Company [300/(300 + 200)]
Acquisition price
P10,000
60%
P 6,000
Entry to record the issuance of 300 shares – Books of X Company (legal parent)
Investment in P Company
Common stock (300 shares x P2)
APIC
Problem 15-12, continued:
6,000
600
5,400
Fair value analysis:
Implied FV
Parent (60%)
NCI (40%)
Company fair value
Fair value of net assets excluding goodwill
Goodwill
P10,000
6,000
P 4,000
P6,000
P4,000
1.
3,600
Fair value of subsidiary
Less book value of interest acquired:
Common stock P2 par
APIC
Retained earnings
Total
Interest acquired
Book value
Excess
Allocated to Non-current assets
Goodwill
NCI (40%)
P10,000
4,000
1,600
2,000
4,000
P6,000
P4,000
P4,000
60%
P2,500
6,000
P4,000
40%
P1,600
P3,600
P2,400
( 2,000)
P 4,000
Liabilities and Equity
Current assets
Non-current assets
600
Goodwill
P 4,000
16,000
Total assets
P24,000
**
Parent (60%)
X Company and Subsidiary P Company
Consolidated Statement of Financial Position
December 31, 2013
Assets
*
P1,600
Distribution and allocation of excess schedule:
Implied FV
2.
2,400
P2,400
4,000
Non-current liabilities
P 6,000
Common stock (300 shares x P2)
APIC
Retained earnings
NCI
Total liabilities and equity
Total paid in capital of P Company (P200 + P1800)
New shares issued (300 shares x P2)
APIC
Retained earnings of the legal subsidiary – P Company
*** The remaining shares of the original C Company equity.
1,400*
6,000**
10,000***
P24,000
P2,000
600
P1,400