CHAPTER 16

Exercise 1
Billing Rate = Gross Profit / Sales = 380,250 / 760,500 = 50%
a) None
b) Sales 175,000
Cost of Sales 175,000

c) Parker (760,500 175,000) P 585,500

Sue 450,000
Consolidated Sales P1,035,500
Parker (380,250 87,500) 380,250
Sue (225,000 175,000) 50,000
Consolidated Cost of Sales 430,250
d) Mdse Invty,Parker P412,500
Mdse Invty, Sue 90,000
Consolidated Mdse Invty P502,500

ExerciseExse 2
Unsold Goods P75,000
Cost 37,500
Unrealized Profit 37,500

a) Income from Sue 37,500

Investment in Stock 37,500

b) Sales 175,500
Cost of Sales 137,500
Merchandise Inventory 37,500

c) Parker (760,500-175,000) 585,500

Sue 450,000
Consolidated Sales P1,035,500

e) Merchandise Inv., Parker P412,500

MI, Sue (90,000 37,500) 52,500
Consolidated Mdse Invty P465,000

d) Consolidated C of S: P485,250
380,250+105,000
(137,500)
P347,750
Exercise
Exercise3 3
a) Upward Adjustment / Realized Profit (from last Year) P 37,500
Downward Adjustment / Unrealized Profit (28,000 x 50%) (14,000)
Net upward adjustment P 23,500

Investment in Stocks 23,500

Income from Subsidiary 23,500
b) Investment in Stocks 37,500
Cost of Sales 37,500
Sales 140,000
Cost of Sales 126,000
Mdse Invty 14,000
c) Sales (895,500+620,000-140,000) P1,375,500
Cost of Sales (447,750+310,000-163,500) 594,250
d)
Parker P312,450
Sue (185,000-14,000) 171,000
Consolidated Merchandise Inventory P483,450

43
Exercise 4 2010
a) Investment in Stocks 800,000
Cash 800,000
Investment In Stocks, Delilah 56,000
Income from Subsidiary (80,000 x 70%) 56,000
Income from Subsidiary (3,600 x 20%) 720
Investment In Stocks 720
b) Income from Subsidiary 55,280
Investment In stocks 55,280
Sales 10,000
Purchases 10,000
Merchandise Inventory (IS) 720
Merchandise Inventory (BS) 720
Share Capital 850,000
Retained Earnings 150,000
Goodwill 142,857
Investment In Stocks, Delilah 342,857

c) NI of P Co 320,000
Income from Subsidiary (55,280)
Net Income of S Co 80,000
Unrealized Gross Profit (720)
Consolidated Net Income 344,000

d) NCI 342,857
Add: Share in NI 24,000
NCI, Dec 31 366,857
Ex 4 2011
a) Investment In Stocks (90,000 x 70%) 63,000
Income from Subsidiary 63,000

Income from Subsidiary 1,680

Investment in Stock 1,680

Investment In Stocks 720

Income from Subsidiary 720
b) Income from Subsidiary 62,040
Investment In Stocks 62,040

Sales 25,200
Purchases 25,200

MI (IS) 1,680
MI (BS) 1,680

Investment In Stocks 720

Merchandise Inventory, Beg. 720

Share Capital 850,000

Retained Earnings 230,000
Goodwill 142,857
Investment In Stocks 856,000
NCI 366,857

c) Net Income of PCo. 450,000

Net Income of S Co. 90,000
Unrealized (1,680)
Realized 720
Income from S (62,040)
CNI 477,000

d) NCI 1/1 366,857

44
 Share in Net Income 27,000
NCI 12/31 393,857

Ex 5 80% 20%
a) Investment Cost P700,000 170,000
Subsidiary Interest (800,000 x 80%) 640,000 160,000
Excess 60,000 10,000
Revalue of Equipment (50,000+80%) 40,000 10,000
Goodwill (Parent Approach) 20,000 0

Investment Balance (Dec. 31, 09) P700,000

Share In Income (50,000 -10,000)80% 32,000
Share in Dividends (30,000 x 80%) ( 24,000)
Adjustment of share in unrealized profit
(9,000 7,200) 80% ( 1,440)
Investment Balance (Dec. 31, 2010) (Equity) P706,560
(Cost) 700,000
b) Adjustment and elimination entries: Equity Cost
Income from Subsidiary 30,560 24,000
Dividends, Silangan 24,000 24,000
Investment in Stocks 6,560
Sales 15,000 Same entry
Cost of Sales (12,000 + 1,200) 13,200
Merchandise Inventory (unrealized profit) 1,800

Expenses 10,000 Same entry

Equipment 10,000

Share Capital 500,000 Same entry

Retained Earnings 300,000
Goodwill 20,000
Equipment 50,000
Investment in Stocks, Silangan 700,000
NCI 170,000

c) Net Income of P Co. 350,000

Dividend Income (24,000)
Net Income of S Company 50,000
Depreciation (10,000)
Unrealized Gross Profit (1,800)
CNI 364,200

d) NCI in the 2010 Net Income

Net Income P50,000
Depreciation (10,000)
Unrealized Profit (9,000 7,200) (1,800)
Total 38,700
Interest x 20%
Share of Non-controlling Interest in Income P 7,640
Dividends (6,000)
NCI Jan 1 170,000
NCI 12/31 P171,640
Ex 6
a) Net Income from operation (Perlas) P568,000
Income from subsidiary (64,000+1,440-1,600) 63,840
Consolidated Net Income P631,840
* 30,000 x 1/3 = 10,000 x 20% = 2,000 x 80% = 1,600

Adjustment and elimination Entries: Equity Cost

Income from subsidiary 63,840 32,000
Dividends, Silangan 32,000 32,000
Investment in Stocks, Silangan 31,840
45
 Investment in Stocks 6,560
Retained Earnings 6,560

Investment in Stocks, Silangan 1,440

Retained Earnings 360 Same entry
Cost of Sales 1,800

Sales 30,000
Cost of Sales (24,000 + 4,000) 28,000 Same entry
Merchandise Inventory 2,000

Share Capital 500,000

Retained Earnings (220,000 x 80%) 320,000
Goodwill 520,000
Equipment 40,000
Investment in Stocks 708,000
NCI (171,640+360) 172,000

NI of S Co. 80,000
Realized Profit 1,800
Unrealized Profit (2,000)
Share of NCI in NI 79,800 X20% = 15,960
Exercise 7 75% 25%
a) Investment Cost P2,500,000 902,500
Subsidiary Interest (3,400,000 x 75%) (2,550,00) (850,000)
Preacquisition Earnings (420000 x 6/12 x 75%) ( 157,500) ( 52,500)
Gain from Bargain Purchase 207,500 0==
2010 2011
b) a. CNI: NI of P Co. 630,000 1,750,000
NI of S Co. 210,000 800,000
840,000 2,550,000

b. Share of NCI 123,750 200,000

2010 2011
c) Investment Balance (July 1) P2,500,000.00 P2,715,000
Income from Subsidiary (210,000 x 75%)+207,500 365,000.00
(400,000 x 75%) + 300,000 600,000
Share in Dividends (200,000 x 75%) / (500,000 x75%) ( 150,000.00) ( 375,000)
Investment, Dec. 31 P2,715,000.00 P2,940,000
c) Adjustment & Elimination Entries: 2010 2011
Income from Subsidiary 150,000 375,000
Dividends, Carnation 150,000 375,000
SHE, Carnation 3,400,000 3,695,000
Pre Acquisition Earnings 210,000
Investment in Stocks, Carnation 2,500,000 2,771,250
Gain on Business Combination 207,500
NCI 902,500 923,750
Gain on sale of land 75,000
Land 75,000
Investment In Carnation 56,250
Retained Earnings, Carnation (NCI) 18,750
Land 75,000

Ex 8 Arman Romy
a) Cash 36,000 Machine 36,000
Accum. Depn. 30,000 Cash 36,000
Machine 60,000
Gain from Sale 6,000 Depn. Expense 6,000
Accum. Depn. 6,000
100% 80% 20%
b) Consideration/ Implied Value 550,000 440,000 110,000
Subsidiary Interest (500,000) (400,000) (100,000)
46
 Goodwill 50,000 40,000 10,000

c) Investment in Stocks 60,000

Income from Subsidiary 60,000
(75,000 x .8)
Cash 120,000
Investment in Stocks 120,000
Income Subsidiary Inc. 5,000
Investment in Romy 5,000
Unrealized P6,000
Less Piece Meal (6,000/3 x ) 1,000
Net Unrealized Gain P5,000
d) Investment in Romy 65,000
Income from Subsidiary 55,000
Dividends 120,000
Share Capital 300,000
RE (200,000 x 80%) 200,000
Goodwill 50,000
Investment in Stocks 440,000
NCI 110,000

Machine 24,000
Gain 6,000
Accumulated Depreciation 30,000
Accumulated Depreciation 1,000
Depreciation 1,000
e) Net Income of Arman (255,000+75,000) P 330,000
Less Income from Subsidiary 55,833
Less Net Gain 5,000
Consolidated Net Income 270,000

Add Ret. Earnings, Jan. 1 Arman Co. 1,000,000

Add Net Income 255,000
Less Dividends, Arman Co. 500,000
Consolidated Ret. Earnings P 755,000
SHE, Jan. 1 P 500,000
Goodwill 50,000
Net Income 75,000
Dividends (150,000)
SHE, Dec. 31 475,000
% of Ownership 20
NCI P 95,000

Exercise 9
c) Investment in Romy 200,000
Income from Subsidiary 200,000
Cash 80,000
Investment in Romy 80,000

Investment 2,000
Income from Subsidiary 2,000 (6,000/3)
d) Income over Subsidiary 202,000
Dividends, Romy Co. 80,000
Investment in Romy 122,000

Share Capital 300,000

Retained Earnings, Romy Co. 125,000
Goodwill 50,000
Investment in Romy 380,000
NCI 95,000
Investment in Romy 5,000
Machine 24,000
Accumulated Depreciation 29,000
47
 Accumulated Depreciation 2,000
Depreciation Expense 2,000

e) CNI: Net Income of P Co 900,000

Less Income from Subsidiary (202,000)
Net Income of S Co 250,000
Realized Gain 2,000
P950,000

CRE: Ret Earnings 1/1 P 755,000

Net Income 900,000
Dividends (500,000)
P1,155,000

NCI Jan 1 P 95,000

Share in CNI 50,000
Share in dividends (20,000)
NCI Dec 31 P125,000

Exercise 10 Adjustment & Elimination Non-C

P Co. S Co. Debit Credit Interest Consolidated
INCOMESTATEMENT
Sales 1,000,000 600,000 d) 280,000 1,320,000
Cost of Goods Sold 400,000 350,000 d) 260,000 490,000
Gross Profit 600,000 250,000 830,000
Expenses 360,000 100,000 e) 1,250 458,750
Net Income 240,000 150,000 371,250
Equity over Sub. Int. 40,000 a) 40,000
Gain On Sale 30,000 e) 30,000
Minority Interest ________ _______ 30,250 30,250
NI carried forward 280,000 180,000 30,250 341,000
RETAINEDEARNINGS
Bal. Jan. 1 P Co. 600,000 600,000
S Co. 400,000 d) 320,000 80,000
NI brought forward 280,000 180,000 30,250 341,000
Less: Dividends 100,000 50,000 a) 40,000 10,000 100,000
Bal. 12/31carried forward 780,000 530,000 100,250 841,000
Financial Position
Cash 200,000 50,000 250,000
Accounts Receivable 150,000 50,000 200,000
Inventories 100,000 90,000 b) 20,000 170,000
Land 150,000 b) 147,500 297,500
Building 260,000 260,000
Equipment 700,000 490,000 e) 50,000 1,240,000
Investment in S Co. 750,000 d)750,000 0
Goodwill ________ ________ d) 90,000 90,000
Total assets 1,900,000 1,120,000 2,537,500
Liabilities 120,000 190,000 310,000
Accum. Depn. Bldg. 60,000 60,000
Accum. Depn. Equipt. 400,000 40,000 e) 1,250 e) 80,000 518,750
Capital Stock P Co. 200,000 200,000
S Co. 300,000 d) 240,000 60,000
NCI Share in AR/GW d) 47,500 47,500
APIC, P Co. 400,000 400,000
RE carried forward 780,000 530,000 100,250 841,000
NC/I ________ ________ 207,750 207,750
1,900,000 1,120,000 2,537,500

1) Table for determination & Allocation of Excess 80% 20%

Investment Cost P750,000 187,500
Sub. Int. (24,000/30,000=80%) 560,000 (140,000)
Revaluation of land (147,500 x 80%) 118,000 678,000 (29,500)
Goodwill (90,000 x 80%) P 72,000 P18,000
2) Update Investment:
Acquisition Cost 750,000
Share in Net Income 144,000
Dividends ( 40,000)
Net Unrealized Gain [30,000-(30,000/6 x 3/12)] ( 23,000)
Unrealized GP [70,000 (70,000/1.4)] ( 20,000)
Balance Under Equity Method 811,000

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Exercise 11 a) P Co. S Co. Debit Credit NCI Consolidated
INCOMESTATEMENT
Sales 1,539,500 585,000 2,124,500
Cost of Goods Sold 425,000 325,000 b) 20,000 730,000
Gross Profit 1,114,500 260,000 1,394,500
Expenses 375,000 145,000 e) 5,000 515,000
Net Inc. from Operation 739,500 115,000 879,500
Dividend 48,000 a) 48,000
NI 787,500 115,000 879,500
Minority Interest ________ _______ * 22,000 22,000
Net Inc. carried forward 787,500 115,000 22,000 857,500

RETAINEDEARNINGS
Bal. Jan. 1 P Co. 780,000 d) 61,000 841,000
S Co. 530,000 e) 5,750 100,250
c) 424,000
NI brought forward 787,500 115,000 22,000 857,500
Less: Dividends 100,000 60,000 a) 48,000 12,000 100,000
RE, end brought forward 1,467.500 585,000 110,250 1,598,500

FINANCIALPOSITION
Cash 250,000 115,000 365,000
Accounts Receivable 370,000 215,000 585,000
Inventories 125,000 45,000 170,000
Land 600,000 150,000 c) 147,500 897,500
Building 260,000 260,000
Equipment 500,000 640,000 e) 50,000 1,190,000
Investment in S Co. 750,000 c) 61,000 c) 854,000 0
c) 20,000
e) 23,000
Goodwill ________ ________ c) 90,000 90,000
Total assets 3,003,000 1,165,000 3,557,500,
Accounts Payable 337,500 155,000 492,500
Accum. Depn. Bldg. 75,000 75,000
Accum. Depn. Equipt. 450,000 50,000 e) 73,750 573,750
Common Stock P Co. 200,000 200,000
S Co. 300,000 c) 240,000 60,000
APIC, P Co. 400,000 400,000
Share of MI in AR & c) 47,500 47,500
GW
RE carried forward 1,467,500 585,000 110,250 1,598,500
CNI ________ ________ ________ ________ 217,750 217,750
3,003,000 1,165,000 1,185,250 1,185,250 3,557,500

Investment 1/1 811,000 Share in Net Income 92,000

Income from S Co. 116,000 Realized GP 20,000
Dividends (100,000) Piecemeal realization 4,000
Investment 12/31 827,000 Income from S Co. 116,000

MULTIPLE CHOICE
1. b 2. c 3. a 4. b 5. c
6. 1) b 2) c
7. 1) Answer B
2) Sales Price P40,000
Book Value 30,000
Unrealized Gain P10,000 / 5 yrs
Piecemeal realization 2,000
Net unrealized gain P 8,000 Answer B or E
8. 1) Answer A 2) Answer B
9. Unrealized Gain P50,000
Piecemeal realization 5,000
Net unrealized gain P45,000

Share of minority interest (45,000 x 40%) P 18,000

Share in net income (1,000,000 x 40%) 400,000
Minority interest in net income P382,000 Answer D
10. 2011 2012
Net income of P P320,000 P340,000
Net income of S 304,000
288,000
49
 Net unrealized gain
(156,800)
Realized gain (3,200 x 90%) ______ 3,200
P617,200 P631,200 Answer 1) e 2) d
3) a 4) c
11.
Building 560,000 Gain 160,000
Accumulated Depreciation 336,000 Less Piecemeal realization 9,600
BV 526,400 Net 150,400
Proceeds from sale 500,000 Loss from sale 26,400
Loss 26,400 Net Gain to be recognized 124,000

Exercise 12
a) Investment 1/1/12 827,000
Income from Subsidiary 119,000*
Dividends (64,000)
Investment 12/31 P882,000

b) WPE 1)Dividend Income 64,000

Dividends, S Co 64,000
2)Investment 129,000
RE, P Co. 129,000
3)Land 147,500
SHE 805,000
GW 90,000
Investment in S Co 898,000
NCI 224,500
4)Investment 19,000
NCI 4,750
Gain 23,750

*Net Income of S Co. 125,000

Realized Gain (30,000-6,250) 23,750
Total 148,250 X 85%
Income from S Co. 119,000

50