CPA REVIEW SCHOOL OF THE PHILIPPINES

MANILA

PRACTICA.L ACCOUNTING PROBLEMS

aJERRERO GERMAN
stY I DE. JESUS uM TERRER

II

BI,SINESS COMBINATION
SUESEQUENT TO ACQUTSTTToN
& INTE RCOMPAN Y TRANSACTIONS

FIRST PROBTEM

for
On January 2,20L3, phillips Coi"p,:ration purchase 80% af Signage Company's outstanding shares
p64g,000, p30.000 of the excess is attriSutable tc goociwill and the balance to an equipment with an
economic life of ten years. Non-controlling interest is measured at its fair value on date of acquisition'
On the date of acouisitii.rrt, stocl.lhoiders' equity of the two companies were as follows:
PhillipsCorporcrion SignageCompany
Ordinary shares
Retained 'oarnii'tgs

P1,050,c00

240,000
470,OAA

1,560,000

of
On DecemOer 31,203,3, Signage Conrpany reported net income of P105,000 and paid dividends
p36,000 to phillips. phillips repoi-ted earnings from its separate operations of P285,000 and paid
on December 31,
dividencls of p138,000. Goodwill had been impaire.d anci should be reported at P6,000
2013

t.

Z.

3.

What is the non-controlling interest in profit of Signage Company on December 31,201'3?

A

P21,000

B.

P13,800

P18,750

D.

P18,60C

\Uhat is the consoliciut"6 p;ofit atiributable tc paren. shareholders on Decernber 31, 2013?
A.

P34A 200

B.

P360,000

C.

P336,0rJ0

P356,400

What is the consolidated retained earnings attilbutable

December

4.

31,2013?

A.

P1-,757,404

B,

P2,479,754

c.

?1,762,2A0

D.

P1,758,000

to parent's shareholders equity

on

What aniount of non-controliing interest is to be presented in the consolidated statement of

financial position on December 31, 2013?
P1_64,25C
B.

Pl45,5t)0

C.

P166,830

D.

Pr.54,500

FA

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Page

On January 2,2A!2, D Corporation purchasea 80% of the outstanding shares of C Company for
P4,750,000. At that date, C had P4,000,000 o1'ordinary shares outstanding and retained earnings of
P1,600,000,

= l,'' r

C's equipment with a rernaining life of 5 years had a book vaiue of P2,250,000 and a fair value of
P2,630,000. C's remalning assets had book values equal to their fair values,
All intangibles except goodwill are expected to have remaining lives of 8 years.

,
.-' o
o
'
.

:..:

The income and dividend figures for both D and C are as follows: Net income of D in 2012
P900,000-; 2013 is P1,100,000. Net income of C in 2012 is P340,000 ;2a13 is P510,000.
Dividends of D in 20L2 is P220,000 ; 2013 is P390,000. Dividends of C in 2012 is P70,000 ; 2013

-1.

is

P130,000.

D's retained earnings balance at the date cf acquisition was P3,450,000.

1.
.;,
_1: ),,

is

How much is the consolidated retainclearnings attributable to controlling interest in 2013?

A.
B
. -C

?5,272,400
P5,333,200
P5,238,400

2. i$f"*ql? Corporation
A. P21.1.,204
B. P155,200

in the adjusteo ancl unCistribr.rted earnings of C Company in 2012

'a-

3. How much

is

r\ P1,343,200
B. p1,.439,000
e,' P1,430,000
D P1,,464,A00

4.

'i:.-

-1,,... | .' .'

the consolidated piofif in ?A13?

1i.a,r

,r Ir,Jr i., ,,..,*-i

..r:-,

-:
-! :.

;,.,;. i'ri -

,*,r,i.

How much is the non-controlling interest in net assets in 2013?

P1,295,600
P1,250,000
PL,302,400
P1,299,500

A.
B.
c.
D.

TI.JIRD PROBLEM

Positive Corporation acquireci 80% af the outstancling conrrnon stock of Synergy Company on June 1,
201"3

for P586,250.

Synergy Company's stockholder's equity components at the end of this year are as follows:
Ordinary shares, P100 par, P250,000, APIC P112,500, Retained Earnings pZ22,5OO.

Non-controlling interest is measured ai fair value.

All the assets of Synergy were fairl,,, 'talued except for inventories, which are overstated by
P11,,000, and equipment, which was understated by P15,000. Remaining useful life of
equipment is 4 years.

Both companies use the straight-line method for depreciation and amortization, Stockholder's
equity of Positive on January t,2011is co,nposed of Ordinary shares P750,000, Share premium
P175,000, Retained Earnings P525,000.

FA2- 74cV

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Page 3

Fair value of non-controliing interest on the date of acquisition is P117,500.

Goodwill, if any, should be written down by PL4,225 at year-end.

l.let lncome for the first lrear of parent and subsidiary are P75,000 and P42,500 ( from date of
acquisition) respe.tively.

Dividends declared at the end o'i'the year amcunted to P20,000 and P15,000' During the year,
there was no issuance of new o:dinary shares.

L,

What is the balance of the non-controllinB i,'itere;t in net assets of sub::idiary on Decernber 3L,
20L3?

A.
B.
c
D.
2.

P145,167.50
Pr2V,242.50
P124,242.5{)

P12i,917.50

What is the amcunt of consolidatr:d shareholder's equity?

A.
B.
c.
D.

PL,520,345
F1,642,262.54
P1,162,262.50
P1,644,587.50

FOURTLIPROBLEM

Pure Corporation acquirecj an 80% interest in Sincere Cornpany on January 2,ZOLZ tor P2,520,O00. On
this date, the sha:e capital arrd ret::ineC i'.:arnings o'the iivr; companies foll(-'w:

Corp.
P6,C00,000
Share Capital
Retained Earnings 3,000,000
Pure

Sincere Co'
P2,250,C00

450,000

On January ?, )-O1.2, the assets and iiabilities of Sincere Co. were statecl at their fair values except for

machinery which is undervalued by P225,000 (remainrng iife is 3 years). On September 3A, 20!2,
Sincere sold merchandise to Pure at an inter-company profit of P150,000;25%was still unsold at yearend. Likewise, on October 1, 20L3, Sincere purchased mercltanclise from Pure for P3,600,000. The

sellingaffriiaieiocludeC a2O%marli-uponcostonthr;sale. OrrlyT5%ofihesepurchaseshadbeensold

to unrelated parties as of December -lL, 201-3. As :f Dece mber 31, 2013, goodwill was determined to be
impaired by P60,000.
The following is the summary cf the 2013 transactions of tne aifiiiateC companies:

Corp.
Net lncome
P3.,500,000
Dividends declared and paid
60C,0C0
Pure

Sincere Co.
P600,000
180,0C0

On the 2013 consrrlidaied financiai ,rtaiements rlo!./ ff;rJ(ih-'Aould be

1.

tiie:

Net incorne attributable to Parent

A.
B.
c.

P1,638,00C

D.

P1,686,000

P1,708,500
P1.,508,000

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2.

Page 4
Non-controlling interest in net income

A.
B.

c.

P70,500
P100,500
P92,500

D.

P95,500

FIFTH PROBLEM

On January 2, 2At2, Power Company acquired

gOYo

of the outstanding shares of Solar lnc. at book value.

During 2012 and 2013, intercompany sales amounted to P2,000,000 and p4,000,000, respectively.
Power Company consistently recognized a25% mark-up based on cost while Solar lnc. had a 25% gross
profit on sales, The inventories of the buying affiliate, which al! came from inter-company transactions
show:

31.,20t2
p240,00O
100,000

December

Power
Solar
On October

December 3i., 20i_3

p160,000
40,000

a piece of land costing p1,000,000 from power Company for

Pl',500,000. On December 1., 2013, Solar lnc., sold this land to unrelated party for Pl,,5OO,0O0. On the
other hand, on July i,2Ot3, Solar lnc., sold a used photc-copier with a carrying value of P60,000 and
remaining life of 3 years to Power Company for P42,OOA.
1-,

201-2, Solar lnc., purchased

Separate Statement of Comprehensivr lncorre for the two contpanies for the year 2013 follow:
Power
Sales

Cost of Sales
Gross Profit

Company

Solar lnc.

P25,000,000 P14,000,000
(1s.000,0c0) ( 8,400,000)
P10,000,000 P 5,600,000

Loss on Sale of Office Equipment

(5.000.000) (3,80Q,900)
P 4,C00,000 P 1,800,000
( 18,000)

Dividend Revenue
Net lncome

P4,C00,0000

Operating Expenses
Operating Profit

40,000
P 1,922,000

Compute the following amounts for/asof December 31, 20i3

1.

Consolidated Gross profit

A. P19,532,000
B. P1.5,712,000
c. P15,632,000
D.

2.

P15,594,000

Consoliclated Net lncome attributai:le to parent

A. P6,193-300
B. P6,369,000

c.

P6,1,69,g00

D.

P6,191,300

PAfr- 7407

Page

3.

Non-controlling interest in Net lncome

A,
B.

4.

P199,700
P185,700

c,

P189,200

D.

P1.94,200

Consolidated Operating Expense

A.
B.

P9,900,000
P9,799,000

c.

P9,903,000

D.

P9,799,500

SIXTH PROBLEM

On January 1, 2012, P Corporation purchased 809/o of S Company's outstanding stock for P620,000' At
that date, alt of S Company's assets and liabilities had market values approximately equal to their book
values and no goodwill was included in the purchase price. The following intbrmation was available for
201.2: lncome from own operations

of

P Corporation, P150,000 ; Operating ioss

Dividends paid in 2012 by P Corporation, P75,000; by

of

S Company, P20,000'

Company to P Corporation, P1.2,000.

july !,20L2, there was a downstream sale'of equipment at a gain of P25,000. -lhe equipment is
expected to have a remaining useful life of 10 years frorn the date cf sale. Aiso, or: January L,201'2,
there was an upstream sale of furniture at a loss of P7,500. The furniture is expected to have a useful
On

life of five years from the clate of sale. Non-controlling interest is measured at fair market value.

1.

How much is the consolidated net income attributable to parerrt shareholders' equity?

A. P97,250
B. P],15,050

c.

P112,250

D. P103,050
-i,

SEVENTH PROBLEM

On July L, 201i, lssue Company purchased 80% of the outstanding shales of lntrigue Company at a cost

of

Pl',600,000. On

that date, tntrigue had pi.,000,000 of capital stock and P1,400,000 of retained

earnings. For 2013, lssue hacl income of p550,000 from its separ3te opei'ations and paid dividends of
P300,000. For 2013, lntrigue reported income
of P130,000 anct pa;d rjividends of P60,000, Allthe assets
and liabitities of lntrigue have book velues
equal to 16sir pElpJ.ctive fair market ,r,alues. Assume income
was earned evenly throughout the year except for the intercompany transacticrr on October 1. On
October l-, 2013, lssue purchased an equipment from tntrigue for ?2AA,000. The book value of the
equipment on that date was P240,000. The loss of p40,000 is reflected in the income of lntrigue
indicated above. The equipment is expected
to have useful.!ife of 5 years from the clate of sale.
a

1' ln the December 31' 20'13 consolidated

statement

of financial pr:sition' how much is the

consolidated rret income attributable to the parent company?

A. P642,400
B. P930,400

c.

P946,400

D. P962,400

PAfl-ruCI7