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PRACTICAL ACCOUNTING PROBLEMS II BUSINESS COMBINATION

SUBSEQUENT TO ACQUTSmON
.-ri -- : & INTE RCOMPANY TRANSACTIONS

FIRST PROBTEM
On January 2, 2OLg, Phillips Corporation purchase 8O/o of Signage Company's outstanding shares for
P648,000. P30,000 of the excess is attributable to goodwill and the balance to an equipment with an
economic life of ten years. Non-controlling interrist ls measured at its falr value on date of aCquisltion.
On the date of acquisition, stockholdei's' equity of the two companies were as follows:

Phitlips Corporation Sig/1#e C-o-rrry1any

Ordinary shares P1,050,000 P' a4o,o00

Retained barnings 1,560,000 {20,000
,

Qn December 3i, 2013, Signage Company reported net income of P105,000 and paid dividends of
P36,000 to Phillips. Phillips reported earnings from its _se-parate operations of P285,000 and paid
dividends of P138,000. Goodwill had been impaired and should be reported at P6,000 on December 31,
2073. \
L. What is the non-controlling interest in profit of Signagd Company on December 31, 20L3?

h P2L,000

.i ,.8c, P13,8oo
P1.8,750
[ 'i,'

'" D. P1'8.800
i r'^
,.!' ti
I

2. What is the conleilidated profit attributable to parbnt shareholders. on Decembe.r/3L,2013?

..(
A P340,200.
.<
B P360,000
c, P336,000
D. P355,400

3. What is the consolidated retained earnlngs attributable to parent's shareholders equlty

December 3t,20t3? r i.
,l.-.,;."
'
A. PL,757,400
B, P2,079,750
ci PL,762,20O
D. P1,758,000

What amount of non-controlling interest ls to be presented in the consolidated statement of

financial position on December 3L, 2013?

A, Pt64,25O
B. P145,500
c.' P166,800
D. P154,500

..t.Y.,
 Page 2

SECOND PROBLEM

On January Z, of the outstanding shares of C Cor.nPany for

2O!2, D Corporation purchased 80%
p4,750,000. At that date; c had P4,000,000 of ordinary shares outstanding and retained earnings of
P1,600,000.

C,s equipment with a remaining life of 5 irears had a book value of P2,25O,000 and a fair value of
P2,630,000. C's remaining assets had book values equal to their fair values'
years'
o All intangibles except goodwill are expected to have remaining lives of 8
a The income and dividend figures for both D and C are as follows: Net income
of D in 20tZ is
is P510,000'
P900,000 ;2013 is P1",100,000. Net income of C in 2012 is P340,000 ;2013
' Dividends of D in 2012 is p220,000 ;z}t} is P390,c00. Dividends of C in 2072is
P70,000; 201'3 is
P130,000.
D's retained earnings balance at the date of acquisition was P3;450,000.

interest in 2013?
I. How much is the consolidated retained earnings attributable to controlling
A P5,272,40O i
B. P5,333,200 , ''.
Q" P5,238,400 :, ; , ' I

I D. P5,232,4O0
of C Company in 2012
t?' Share of D Corporation in the adjusted and undistributed earnings
A. Pzyt?po
B. p155,200"
c. P216,000 '
D. P182,400
:
,, I

3. How much is the consolidated profit in 20L3?

t A. P1,343,200
B P1,438,000
rc. P1,430,000 ''', ,.,,
I
D. P1,464,000 .,1i

4. How much is the'non-controlling intere st in net assdts in 2013?

A P1,295,600 -";'i'j^-
B. P1,250,000
c. P1,302,400
D, P1,289,500

THIRD PROBTEM
common stock of Synergy Company on June 1'
Positive CorPoration acquired 80% of the outstanding
2013 for P586,250.

at the end of this-year are as follows:

o sy.nergy company's stockholder's^equity components
prtz'soo' Retained Earnings P222'5oo'
ordinary shares, P100 par, P250,000;Rpic

o Non.controlling interest is measured at fair value'

which are overstated by

o of synergy were fairly valued, except for inventories,
Al[ the assets useful life of
p11,000, and equipment, which was understated by P15,000' Remaining
equipment is 4 Yea!'s.'
1.

and amortization' stockholder's

o Both companies use th6 straightline method for depreciation premium
equity of Positive on January 1, 2013 is composed
of Ordinary shares P75O'000' Share
P175,000, Retained Earnings P525,000'
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Page 3
o Fair value of non-controlling interest on the date of acquisition is P117,500

o Goodwill, if any, should be written down by Pt4,225 atyear-end.

o Net Income for the first year of parent and subsldiary are P75,000 and P42,5b0 ( from date of
acquisition) respectively.

o Dividends declared at the end of the year amounted to P20,000 and P15,000. During the year,
there was no issuance of new ordinary shares.

1. What is the balance of the non-controlling interest in net assets of subsidiary on December 31,
20L3?

A. P745tL67.5O
B. P127,242.50
c. P724,242.50
D. P121,917,50

2, What is the amount of consolidated shareholder's equity?

A. P1,52O,345
B. P1,642,262.50
c. PL,462,262.5O
D. P1,644,597.50

' : FOURTH PROBLEITI

Pure Corporation acquired an 80% interest in Sincere Company on lanuary 2, ZOLZ for p2,52O,O00. On
this date, the shaie capital and retained earnings of the two companies follow:
. r.-i,
,.
Sincere Co.
Share Capital'.'i p6,000,000 . ,. P2,250,C00
Retained Earnings 3,000,000 '45o,ooc
:j
On January 2,20!2,ttre a$lets and liabilities of Sincere Co. were'stiterl at their fair values except for
machinery which is undervalued by P225,000 (remaining life is 3 yearsi. On September 30;2012,
Sincere sold merchandise to Pure at an inter-company profit of p1-50,000;25%was still unsold at year-
end. Likewise, on October !, 2O!3, Sincere purchasecl merchandise from pure for p3,600,000. The
selfing affiliate included a 20o/o mark-up on coii on this sale. gnly 75% ofthese purchases had been sold
to unrefated parties as of December 31; 2013. As of Decembe r 3!,2ox,3, goorJwill was determined,to be
impaired by F60,000.

The following is the surhmary of the 2013 transactions of the affiliate,J companies:

Pure Corp. Sincere Cc.

Net Income P1,500,000 P60C1,000
Dividends declared and paid 600,000 190,000

on.the 2013 consolidated financial staternents, how much would be the:

1. Net income attributable to parent

A. P1,639,000
B. P1,709,500
c. P1,609,000 ,

D. P1,696,000
 Page 4
2. Non-controlling interest in net income

A. P70,500
B. P100,500
c. P82,500
D. P85,500-

FIFTH PROBLEM
On January 2,20L2, Power Company acquired g0% ofthe outstanding shares of Solar Inc. at book value.
During 2012 and 20i.3, intercompany sales amounted to p2,000,000 and F4,000,000, respectively.
Power Company consistently recognized a 25% mark-up based on cost while Solar: Inc. had a 25% gross
profit on sales' The inventories of the buying affifiate, which alt came from inter:company transactions
show:

December 3L,20t2 December 31,2013

Power P240,000 P160,000
Solar 100,000 40,000

On October l,2O!2, Solar Inc., purchased a piece of land costing p1,000,000 from power Company for
P1,500,000. On December 1, 2013, Solar Inc., sold this land
to unrelated party for P1,500,000. On the
other hand, on July 7,2O!3,Solar Inc., sold a used photo-copier with a carrying value of P60,000 and
remaining life of 3 years to power Company for p42,000.

Separate Statement of Comprelrensive lncome

for the two companies for the year 2013 follow:

. .:-t !
Power Company Solar lnc.
Sales
P25,0O0,000 P14,000,000
Cost ofSales " '
. , (15.q00.0001 ( 8.400.0@)
Gross profit ,.., 'P:1O,000,000 P 5,600,000
Operating Expensei,. (E.ooo.oool (3.800.000)
uperating profit il, P 4,000,000 P 1,800,000
Loss on Sale of Office Etluipment '( 18,000)
Dividend Revenue
40,000
Net Income
P4,000,0000 P 1,82?,000

Compute the following amounts for/asof

December 3j.,2013

L. Consolidated Gross profit

A. P19,632,000
B, P15,71z,ooo
c. P1_q,632,000
D. P15,5g4,000

2. Consolidated Net Income attributable

to parent

A, P6,183,300
g. P6,369,000
c, P6,16g,g00
D P6,1g1.,300
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Page
3. Non-controlling interest in Net Income -
5

A. P189,700
B. P185,700
c. P199,200
D. P794,200

4. Consolidated Operating Expense

A. P9,900,000
B. P9,799,000
C^ P9,803;000
D. P9,799,500

on Januarv t. zorz,p corporation purchaser:'#,i::::Tilnr,,

outstandins stock ror p620,000. At
that date' all of 5 companyfs assets and liabilities
had market values .ooror'rlri to their book
and no goodwillwas included in the purchase "qrrr
:1|-ott price. The following information'*.r ru.lnor" ro,.
2012: lncome from-iwn operations of P corporation, p150,000
; operating loss or s compa;;, ;;;;;
Dividends paid in 2OI2 by p Corporation, p75,000
; by S Company to p Corporation, p12,000.

on July t'2oL2, there was a downstream sale of

equipment at a gain of p25,000. The equipment ls
expected to have a remaining useful life
of 10 years from the date of sale. Also, on January L, 2012,
there was an upstream sarc or furniture r,
r fur,niture is expected to have a useful
'"rr"ip;,;;;,';;"
life of flve years from the date of sale. Non-controlling
interest is measured at fair market value.

1' How much is the consolidated nQt income

attributable to parent shareholders, equity?
.f-

A. P97,250
'rn
B, P115,050
:'i.
c. Pt72,250
D. ptog,oso \

,
on July l' 2oL3' lssue company purchased
SEVENTHPRQETEM
80% of the outstanding shares of Intrigue company
of P1'600'000' on that date, Intrigue had P1,000,000 at a cost
of capital stock and p1,400,000 of retained
earnings' For 2al3' lssue had income
of P560,000 from its separate operations and paid dividends
P300,00o' For 2o!3,Intrigue reported of
income of p130,000 rno paii oiui;;".,
equa'l to their respective fair market";;;;;;.
and liabilities of Intrigue have book values
^;;ilrr;
values, Assume income
was earned evenly throughout the year
except for the intercompany transactio,
october r' 2073, lssue purchased an equipment oil; ;.--;;
from lntrigu e for p2oo,o00. The",book value of the
equipment on that date was P24o,ooo.
The loss of pqa,auJ ir r"rrr.i"o'nlan.,n.ome
indicated above' The equipment is of lntrigue
expected to have a useful,life of 5 years fronr
the date of sale.

7' ln the December 31, 2oL3 consolidated statement of financial position, how much is the
consolidated net income attributabte
to the conrpany?
la-rent
4..P642,400
B. P930,400
c P946,400
/

D. Pg62,4OO
-end ol hdndouts-