PrE 1 Accounting for Business Combination

Finals: Quiz No. 1 - November 25, 2023

Name:___________________________________________ Score:___________________

Directions: Read each question carefully and identify the best answer for each of the following questions.
STRICTLY NO ERASURES ALLOWED. (5 points each question)

Problem 1
On January 1, 2020, Weylbert Company purchased 80% of the outstanding shares of Seynab Inc. for ₱16,000,000.
Weylbert also paid ₱500,000 as direct costs attributable to the acquisition. Weylbert was also obliged to pay
additional ₱400,000 to the stockholders of Seynab at the end of the year if Seynab maintained existing profitability
and it is highly probable that this would be achieve. The fair value of the contingent consideration is ₱400,000. NCI
is measured at proportionate share.

Weylbert Company Seynab Inc.

(Book value) (Book value) (Fair value)
Cash ₱18,000,000 ₱1,500,000 ₱1,500,000
Trade receivables 6,500,000 3,500,000 3,300,000
Inventories 9,500,000 5,000,000 4,600,000
Building – net 20,000,000 10,000,000 12,000,000
Other assets 1,200,000 800,000 800,000
Total assets ₱55,200,000 ₱20,800,000

Current liabilities ₱22,200,000 ₱2,000,000

Share capital 30,000,000 15,000,000
Retained earnings 3,000,000 3,800,000
Total Liabilities and Equity ₱55,200,000 ₱20,800,000

Compute the appropriate amount of the following on the date of acquisition:

1. Investment in Subsidiary on Weylbert Company’s financial statements. Answer: ₱16,400,000

2. Goodwill on the consolidated balance sheet Answer: ₱240,000
3. Consolidated shareholder’s equity Answer: ₱36,540,000
4. Consolidated total assets Answer: ₱61,140,000

Problem 2

On January 1, 2011, Obtuse Co. acquired 30% ownership interest in Subsurd Inc. for ₱400,000. The investment was
accounted for equity method. From 2011 to the end of 2013, Obtuse recognized ₱200,000 net share in the profits of
the associate and ₱40,000 share in dividends. On January 1, 2014, Obtuse acquired additional 50% ownership
interest for ₱3,200,000. As of this date, Obtuse has identified the following:

 Previously held interest’s fair value is equal to the book value;

 Subsurd’s net identifiable assets have a fair value of ₱4,200,000;
 Obtuse elected to measure non-controlling interests at fair value;
 Independent valuation shows that the value of Subsurd Inc is ₱4,150,000.

5. How much is the goodwill on the date of acquisition? Answer: ₱400,000

Problem 3
On January 3, 2022, Billy Company purchased eighty percent of Jeen Company’s outstanding common stock for
₱810,000. ₱37,500 of the excess is attributable to goodwill and the balance to a depreciable asset with economic life
of ten years. The noncontrolling interest is measured at fair value on the date of acquisition. Billy accounted the
investment in subsidiary at Cost method. Selected balance sheet data as at January 3, 2022, are as follows:

Billy Jeen
Ordinary shares ₱ 1,312,500 ₱ 300,000
Retained earnings 1,950,000 525,000

On December 31, 2022, Jeen Company reported net income of ₱131,250 and paid dividends of ₱56,250. Billy
Company reported earnings of ₱401,250 and paid dividends of ₱172,500. No impairment on goodwill as of
December 31, 2022.

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Determine the following:
6. How much is the consolidated profit attributable to parent on December 31, 2022? Answer ₱449,250
7. How much is the consolidated profit on December 31, 2022? Answer ₱472,500
8. How much is the consolidated profit attributable to NCI on December 31, 2022? Answer ₱23,250
9. What amount of NCI should be presented on consolidated balance sheet? Answer ₱214,500
10. What amount of retained earnings should be presented on consolidated balance sheet? Answer ₱2,226,750

Problem 4
On January 1, 2020, Joshua Distributors purchased 1,200 shares of Anthony Wholesalers, Inc., capital stock for
₱200,000. On this date, Anthony Wholesalers, Inc., had capital stock of ₱150,000 and retained earnings of ₱50,000.
Book values were equal to fair values for all assets and liabilities of the subsidiary except land and building. NCI is
to be valued at partial goodwill. Information provided by an appraisal survey completed shortly after the investment
indicated the following:
Replacement cost Fair value
Land ₱ 50,000 ₱ 50,000
Building - net 280,000 130,000

The original estimate of service life in respect to the building remained unchanged by the appraisal, that is, original
estimate, 20 years; remaining life, 10 years.

The December 31, 2021, trial balances are shown below:

Anthony
Joshua Distributors Wholesalers, Inc.
Inventory, Jan 1. ₱ 50,000 ₱ 20,000
Land 800,000 40,000
Buildings 400,000 200,000
Cash 90,000 135,000
Investment in Anthony Whalers, Inc. 200,000 -
Dividend declared 10,000 5,000
Purchases 200,000 70,000
Operating expenses, including depreciation 50,000 10,000
Accumulated depreciation ( 100,000) ( 120,000)
Liabilities ( 296,000) ( 20,000)
Common stock (₱100, par) ( 742,000) ( 150,000)
Retained earnings ( 358,000) ( 70,000)
Sales ( 300,000) ( 120,000)
Dividend income ( 4,000) -
₱ - ₱ -

Joshua Distributors uses the cost method to account for its investment in Anthony Wholesalers, Inc. The Inventory
of Joshua Distributors and Anthony Wholesalers as at December 31, 2021 amounted to ₱75,000 and ₱10,000,
respectively.

In preparing the consolidated financial statements of Joshua and Anthony Whalers at December 31, 2021, the
following will appear:

11. Consolidated net income Answer ₱102,000

12. Consolidated net income attributable to controlling shareholders Answer ₱96,600
13. Consolidated retained earnings Answer ₱444,600
14. Noncontrolling interest Answer ₱49,400
15. Consolidated shareholder’s equity Answer ₱1,246,000
16. Consolidated liabilities Answer ₱326,000
17. Consolidated assets Answer ₱1,572,000

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Problem 5
The consolidated balance sheet of Mitsubibi Corporation and Toyot-Na Corp. as of December 31, 2023, contains the
following accounts and balances:

Mitsubibi Corporation and its Subsidiary

Consolidated Balance Sheet
As at December 31, 2023

Cash ₱ 190,000
Trade receivables 700,000
Inventories 1,100,000
Building – net 2,900,000
Other assets 850,000
Goodwill 390,000
Total assets ₱ 6,130,000

Current liabilities ₱ 1,430,000

Share capital 3,500,000
Retained earnings 800,000
Noncontrolling interest 400,000
Total Liabilities and Equity ₱ 6,130,000

Mitsubibi Corporation acquired its 90% interest in Toyot-Na Corp. on January 1, 2023, when Toyot-Na Corp. had
₱1,500,000 of Capital Stock and ₱700,000 of Retained Earnings. Toyot-Na's net assets had fair values equal to their
book values when Mitsubibi acquired its interest. No changes have occurred in the amount of outstanding stock
since the date of the business combination and the Group measured the minority interest at partial goodwill.
Mitsubibi uses the equity method of accounting for its investment.

Determine the following:

18. Mitsubibi 's stockholders' equity on December 31, 2023. Answer ₱4,300,000
19. Cost of Mitsubibi 's purchase of Toyot-Na on January 1, 2023. Answer ₱2,370,000
20. Toyot-Na's stockholders' equity on December 31, 2023. Answer ₱4,000,000
21. Mitsubibi 's Investment in Toyot-Na account balance at December 31, 2023. Answer ₱3,990,000

Problem 6
Partners Company purchased 75% of the capital stock of Subsidy Company on December 31, 2019 at ₱525,000
more the book value of its net assets. The excess was allocated to equipment in the amount of ₱234,375 and to
goodwill for the balance. The equipment has an estimated useful life of 10 years and goodwill was not impaired. For
four years Subsidy Company reported cumulative earnings of ₱2,362,500 and paid ₱682,500 in dividends. On
January 2, 2024, noncontrolling interest in net asset of Subsidy Company amounts to ₱984,375.

22. Assuming NCI is measured at estimated fair value, what is the price paid by Partners Company on the date
of acquisition? Answer ₱1,763,437.50

Problem 7
Phapi Corporation acquired 80% of the outstanding common stock of Muh Mii Company June 1, 2022 for
₱2,345,000.

 Muh Mii Company's stockholder's equity components at the end of this year are as follows: Ordinary Share
100 par, ₱1,000,000, Share Premium ₱450,000, Retained Earnings ₱890,000
 All the assets of Muh Mii were fairly valued, except for inventories, which are overstated by ₱44,000, and
equipment, which was understated by ₱60,000. Remaining useful life of equipment is 4 years.
 Non-controlling interest is measured at fair value.
 Both companies use the straight-line method for depreciation and amortization. Stockholder's equity of
Phapi on June 1, 2022 is composed of Ordinary Share ₱3,000,000, Share Premium ₱700,000, Retained
Earnings ₱2,100,000.
 Fair value of non-controlling interest on the date of acquisition is ₱470,000. Goodwill, if any, should be
written down by ₱56,900 at year-end.
 Net Income for the first year of parent and subsidiary are ₱300,000 and ₱170,000 from date of acquisition
respectively.
 Dividends declared amounted to ₱80,000 and ₱60,000. During the year, there was no issuance of new
ordinary shares.

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 23. What is the balance of the noncontrolling interest in net assets of Muh Mii Company on December 31,
2022? Answer ₱496,970
24. How much is the total shareholder’s equity presented in the consolidated financial statements as at
December 31, 2022? Answer ₱6,578,350

Problem 8
Dermative Company has the following information collected in order to prepare a cash flow statement and uses the
indirect method for Cash flow from operations. The annual report year end is December 31, 2022.

Dividends paid to NCI ₱ 170,000

Depreciation expense 800,000
Controlling interest share in consolidated net income 3,250,000
Increase in Accounts payable 260,000
Amortization of Patent 100,000
Decrease in Accounts receivable 570,000
Increase in inventories 720,000
Gain on sale of equipment 450,000
Noncontrolling interest share in consolidated net income 270,000
Proceeds from Note payable 900,000
Proceeds from sale of equipment 950,000

25. Determine the Net Cash Flow from Operating Activities on the Consolidated Cash Flows. Answer:
₱4,080,000

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