Acc8fsconso Sdoa2019
Acc8fsconso Sdoa2019
Acc8fsconso Sdoa2019
COLLEGE OF ACCOUNTANCY
ADVANCED ACCOUNTING II
ACQUISITION OF STOCKS – SUBSEQUENT TO DATE OF ACQUISITION
CONSOLIDATED FINANCIAL STATEMENTS
Problem A. On January 1, 2019 MEGA INC acquires 75% of the outstanding stocks of WORLD CO for
P675,000 which is inclusive of control premium amounting to P25,000. On the same lay, MEGA INC
paid P100,000 for the acquisition-related costs. Furthermore, examination of subsidiary’s assets and
liabilities revealed that all assets and liabilities are recorded at fair value except for the following: book
value of inventory is P60,000 while its fair value is P68,000 (90% of these merchandise were sold in
2019); land’s fair value is P30,000 more than its book value; and the book value of the equipment exceeds
its fair value in the amount of P50,000. The equipment’s economic life is 5 years and the companies use
the straight-line-method. The non-controlling interest is measured at fair value in the amount of P220,000.
The following are the Statement of Financial Position of both entities as at January 1, 2019 right before
the business combination happened:
MEGA INC WORLD CO
Cash P 1,250,000 P 120,000
Accounts receivable 27,000 56,000
Inventories 80,000 60,000
Equipment 330,000 312,500
Land 898,000 530,000
TOTAL ASSETS P 2,585,000 P 1,078,500
During the years 2019 and 2020, the results of operations for both companies revealed the following:
MEGA INC WORLD CO
2019 2020 2019 2020
Sales P 800,000 P 810,000 P 500,000 P490,000
Less: Cost of sales (500,000) (530,000) (220,000) (250,000)
Gross profit P 300,000 P 280,000 P 280,000 P240,000
Other Income 50,000 80,000 20,000 50,000
Operating expenses (215,000) (204,000) (213,500) (197,000)
NET INCOME P 135,000 P 156,000 P 86,500 P 93,000
Additional Information:
Operating expenses presented by MEGA INC in 2019 includes the acquisition-related costs
incurred at January 1, 2019.
In 2019, goodwill was impaired in the amount of P12,000, while in 2020, it was impaired in the
amount of P9,000. They were recognized in their respective year of Impairment.
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Continuation of Problem A……….
The following are the unconsolidated statement of financial positions of P and WORLD CO on December
31, 2019 and December 31, 2020, respectively:
MEGA INC WORLD CO
2019 2020 2019 2020
Cash 580,000 630,000 180,000 200,000
Accounts receivable 90,000 320,000 50,000 30,000
Inventories 85,500 90,000 95,000 110,000
Equipment, net 326,000 118,000 250,000 320,000
Land 898,000 898,000 530,000 530,000
Investment in WORLD CO 675,000 675,000
TOTAL ASSETS 2,654,500 2,731,000 1,105,000 1,190,000
Additional Information:
Requirement:
Compute the following for the years ended 2019 and 2020 under the cost method:
1. Consolidated cash
2. Consolidated accounts receivable
3. Consolidated Inventories
4. Consolidated equipment,net
5. Consolidated Land
6. Consolidated total assets
7. Consolidated accounts payable
8. Consolidated notes payable
9. Consolidated total liabilities
10. Consolidated common stock
11. Consolidated additional paid-in capital
12. Consolidated retained earnings
13. Non-controlling interest in net assets
14. Consol. Net income attributable to parent
15. Non-controlling interest in net income
16. Consolidated stockholder’s equity
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TEST YOURSELF
Problem 1
JELAI Corporation purchased 70% of the outstanding capital stock of TONI POH Corporation on April
1, 2014, at book value. TONI POH reported net income of 477,000 for the year ended 2014 and declared
and paid 23,000 cash dividends on December 31. 2014. JELAI reported income of 350,000 from its own
operations in 2014.
2. Consolidated net income attributable to the controlling interest for 2014 is…
3. Consolidated net income attributable to the non-controlling interest for 2014 is…
Problem 2.
On January 1, 2016, PUTO Corporation purchased 60% of the common stock of TAHO
Corporation for P318,000. At that time, TAHO Corporation had P490,000 of ordinary share outstanding
and retained earnings of P210,000. On acquisition date, the book values of TAHO Corporation’s assets
and liabilities approximated their fair values except for the following: Inventory’s fair value is P15,000
less than its book value; Equipment with a remaining life of 72 months had a book value and a fair value
of P300,000 and P330,000, respectively; the book value of Notes Payable (Maturity date is December 31,
2019) is P20,000 more than its fair value; and Bonds Payable (Maturity date is January 1, 2023) had a fair
value and book value of P455,500 and P410,000,respectively. The non-controlling interest is measured at
fair value. The fair value of the NCI on January 1, 2016 is P274,000. The net income and dividend figures
for both PUTO and TAHO are as follows:
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9. 2017 consolidated net income attributable to the controlling interest.
10. 2018 consolidated net income attributable to the controlling interest.
11. 2016 consolidated net income attributable to the non-controlling interest.
12. 2017 consolidated net income attributable to the non-controlling interest.
13. 2018 consolidated net income attributable to the non-controlling interest.
14. Consolidated retained earnings as of December 31, 2017.
15. Consolidated retained earnings as of December 31, 2018.
16. NCI to be presented on the 2017 consolidated financial statements.
17. NCI to be presented on the 2018 consolidated financial statements.
Problem3
PK Company purchases 22,500 shares of SB Corp. from its existing stockholders for 2,911,500 on
January 1, 2014, when SB Corp.’s stockholders’ equity consisted of ordinary shares, accumulated profits
and losses, and share premium of 1,300,000, 550,000 and 650,000 respectively. The amount paid by PK
Company includes a control premium of 81,000. On acquisition date, PK Company’s retained earnings
had a balance of 525,000. Also, on that date, the book values of SB Corp’s assets and liabilities
approximated their fair values except for the following: Inventory’s fair value is 322,000 while its book
value is 278,000; the book value of building and equipment exceeds their fair values by 166,000 and
225,000, respectively; Land’s fair value is 393,000 more than its book value; Long-term notes payable is
undervalued by 140,000l; and Bond’s payable’s book value is 250,000 while its fair value is 150,000
more than its fair value. The remaining 25% of inventories were sold in 2015. The land was sold during
2014. The remaining useful life of the building is 6 years while the equipment is 8 years. The equipment
was sold in 2015. The maturity dates of the bonds and notes are on December 31, 2018 and January 1,
2020, respectively. The full goodwill approach is used to measure the non-controlling interest. The
following is the separate balance sheets of the two entities on December 31, 2014 and December 31,
2015, respectively.
SB Corp. PK Company
2014 2015 2014 2015
Cash 779,000 410,000 630,000 1,035,000
Accounts Receivable 321,000 400,000 133,000 278,000
Merchandise Inventories 620,000 780,000 390,000 522,000
Equipment, net 400,000 650,000 400,000 560,000
Building, net 550,000 730,000 575,000 575,000
Land 620,000 620,000 1,050,000 820,000
Investment in SB Corp. --- --- 2,911,500 2,911,500
TOTAL ASSETS 3,290,000 3,590,000 6,089,500 6,701,500
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PK Company accounts its investment in SB Corp. using cost method.
For the years ended 2014 and 2015, the dividends declared and paid by PK Company are 235,000
and 295,000, respectively.
For the years ended 2014 and 2015, the net income of SB Corp. are 350,000 and 395,000,
respectively
Goodwill was not impaired in 2014 but in 2015, it was impaired in the amount of 150,000.
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