Prada Corporation acquired 75% of Salvatore Company on January 2, 2017 for P287,400. Salvatore's identifiable net assets exceeded their book values, including inventories by P15,750 and plant assets by P26,250, while patents were understated by P10,750. In 2017, Prada reported net income of P178,000 and dividends of P102,000, while Salvatore reported P15,000 net income and P5,000 dividends. Prada must record the business combination and consolidation entries for its investment in Salvatore.
Prada Corporation acquired 75% of Salvatore Company on January 2, 2017 for P287,400. Salvatore's identifiable net assets exceeded their book values, including inventories by P15,750 and plant assets by P26,250, while patents were understated by P10,750. In 2017, Prada reported net income of P178,000 and dividends of P102,000, while Salvatore reported P15,000 net income and P5,000 dividends. Prada must record the business combination and consolidation entries for its investment in Salvatore.
Prada Corporation acquired 75% of Salvatore Company on January 2, 2017 for P287,400. Salvatore's identifiable net assets exceeded their book values, including inventories by P15,750 and plant assets by P26,250, while patents were understated by P10,750. In 2017, Prada reported net income of P178,000 and dividends of P102,000, while Salvatore reported P15,000 net income and P5,000 dividends. Prada must record the business combination and consolidation entries for its investment in Salvatore.
Prada Corporation acquired 75% of Salvatore Company on January 2, 2017 for P287,400. Salvatore's identifiable net assets exceeded their book values, including inventories by P15,750 and plant assets by P26,250, while patents were understated by P10,750. In 2017, Prada reported net income of P178,000 and dividends of P102,000, while Salvatore reported P15,000 net income and P5,000 dividends. Prada must record the business combination and consolidation entries for its investment in Salvatore.
Problem
1:
Prada
Corporation
acquired
75%
of
the
outstanding
shares
of
Salvatore
Company
on
January
2,
2017
for
P287,400
excluding
control
premium
of
P20,000.
Salvatore
Company’s
shareholders’
equity
on
January
2,
2017
were
as
follows:
Ordinary
shares,
P100
par,
P131,400;
Share
premium,
P52,500;
Retained
earnings,
P105,000.
Non-‐‑controlling
interest
is
measured
on
January
2,
2017
at
fair
value.
The
fair
value
of
the
non-‐‑controlling
interest
amount
to
P90,000.
Current
fair
value
of
non-‐‑controlling
interest
amount
to
P90,000.
Current
fair
value
of
Salvatore’s
identifiable
net
assets
exceeded
their
book
values
as
follows:
Inventories,
P15,750
(1/3
were
sold
in
2017);
Plant
assets
(economic
life
of
10
years),
P26,250,
while
the
book
value
of
Patents
exceeded
their
fair
value
(economic
life
of
5
years),
P10,750.
Both
Prada
and
Salvatore
include
depreciation
expense
and
amortization
expense
in
operating
expenses.
Both
companies
use
the
straight
line
method
for
depreciation
and
amortization.
Prior
to
acquisition
the
ordinary
shares
of
Prada
Corporation
is
P180,000.
Additional
paid-‐‑in
capital
is
P75,000
and
Retained
earnings
is
P150,000.
For
the
year
ended
December
31,
Prada
Company
and
Salvatore
Company
reported
the
following
results
of
operations:
2017
Prada
Salvatore
Net
Income
178,000
15,000
Dividends
102,000
5,000
1. Prepare
all
journal
entries
in
the
books
of
Prada
Company
during
2017
to
account
for
its
investment
in
Salvatore
Company
and
Salvatore’s
operating
results
using
the
cost
model.
2. Prepare
the
working
paper
elimination
entries
for
consolidated
financial
statements
on
December
31,
2017?
3. Compute
the
following
on
December
31,
2017:
a. Non
controlling
interest
in
net
income
b. Non
controlling
interest
in
net
assets
c. Consolidated
net
income
attributable
to
parent
d. Consolidated
retained
earnings
e. Consolidated
shareholders’
equity
Problem
2:On
January
2,
2017,
Proenza
Company
acquired
80%
of
Schouler
Company’s
ordinary
shares
for
P810,000.
P37,500
of
the
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
fair
value
on
date
of
acquisition.
On
the
date
of
acquisition,
shareholders’
equity
of
the
two
companies
were
as
follows:
Proenza
Schouler
Ordinary
shares
1,312,500
300,000
Retained
earnings
1,950,000
525,000
On
December
31,
2017,
Schouler
Company
reported
net
income
of
P131,250
and
paid
dividends
of
P45,000
to
Proenza.
Proenza
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,
2017.
1. How
much
is
the
consolidated
profit
on
December
31,
2017?
A. P447,187.50
B. P473,473.50
C. P450,000
D. P442,500
2. How
much
is
the
consolidated
retained
earnings
attributable
to
parent’s
shareholders’
equity
on
December
31,
2017?
A. P2,202,750.00
B. P2,197,500.00
C. P2,196,750.00
D. 2,599,687.50
3. How
much
is
the
non-‐‑controlling
interest
in
profit
of
Schouler
Company
on
December
31,
2017?
A. P23,439.50
B. P23,250.00
C. P26,250.00
D. P17,250.00
4. What
amount
of
non-‐‑controlling
interest
is
to
be
presented
in
the
consolidated
statement
of
financial
position
on
December
31,
2017?
A. P205,312.50
B. P208,500.00
C. P193,125.00
D. P181,875.00
5. How
much
is
the
consolidated
profit
attributable
to
parent
shareholders
on
December
31,
2017?
A. P420,000.00
B. P445,500.00
C. P425,250.00
D. P450,000.00
Problem
3:Phelan
Company
purchased
75%
of
the
ordinary
shares
of
Sophie
Company
on
December
31,
2012
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,
Sophie
Company
reported
cumulative
earnings
of
P2,362,500
and
paid
P682,500
in
dividends.
On
January
2,
2017,
non-‐‑controlling
interest
in
net
assets
of
Sophie
Company
amounts
to
P984,375.
Assuming
non-‐‑controlling
interest
is
measured
at
fair
value,
what
is
the
price
paid
by
Phelan
Company
on
the
date
of
acquisition?