PROBLEM 7

Pro b le m VIII
Schedule of Determination and Allocation of Excess

Date of acquisition- January 1,20x4

Cost of investment P2,016,000
Less: Book value of stockholders’ equity of AA :
Common stock (P3,600,000 x 30%) P1,080,000
Retained Earnings (P1,080,000 x 30%) 324,000 1,404,000
Allocated excess (excess of cost over book value) P 612,000
Less: Over/ undervaluation of assets and liabilities:
Increase in inventory (P240,000 x 30%) P72,000
Increase in land (P960,000 x 30%) 288,000
Increase in building(P600,000 x 30%) 180,000
Decrease in equipment (P840,000 x 30%) (252,000)
Increase in bonds payable (P120,000 x 30%) (36,000) 252,000
Positive excess: Goodwill(excess of cost over fair value) P 360,000

The over/undervaluation of assets and liabilities are summarized as follows:

Accounts AA Co. AA Co. Fair value (Over) Under Valuation

Book Value
Inventories (sold in 20x4) P 1,200,000 P 1,440,000 P 240,000
Land 1,080,000 2,040,000 960,000
Buildings-net( 10 yr 1,800,000 2,400,000 600,000
remaining life)
Equipment-net( 7 yr 1,440,000 600,000 ( 840,000)
remaining life)
Bonds payable (due (1,200,000) (1,320,000) (120,000)
January 1,2019
Net P 4,320,000 P 5,160,000 P 840,000
A summary or depreciation and amortization adjustment is as follows:

Account adjustment to Over 30% there of Life Current

be amortized /under Year(20x4)
Inventories (sold in P 240,000 P 72,000 1 P 72,000
20x4)
Land 960,000 288,000 - -
Buildings-net (10 year 600,000 180,000 10 18,000
remaining life
Equipment-net(7 year (840,000) (252,000) 7 (36,000)
remaining life)
Bonds payable(due (120,000) (36,000) 5 ( 7,200)
January 1, 20x9)
Net P 840,000 P252,000 P 46,800

The following are entries recorded by the parent in 20x4 in relation to its investment in joint
venture:
January 1, 20x4:
(1) Investment in Joint Venture (AA company) 2,016,000
Cash 2,016,000
Acquired 30% joint control in AA Company.
January 1, 20x4- December 31, 20x4
(2) Cash 216,000
Investment in Joint Venture (P720,000 x 30%) 216,000
Record dividends from AA Company.
December 31, 20x4:
(3) Investment in Joint Venture (AA company) 432,000
Investment income (P1,440,000 X 30%) 432,000
Record share in net income of AA Company.
December 31, 20x4:
(4) Investment income 46,800
Investment in Joint Venture (AA company) 46,800
Record amortization of allocated excess of inventory, equipment, building and bonds payable.
 Thus, the investment balance and investment income in the books of SS Company is as
follows:
Investment in Joint venture (AA Company)
Cost, 1/1/x4 P 2,016,000
NI of SS (1,440,000 x 30%) 432,000
Less: Dividends of SS (720,000 x 30%) ( 216,000)
Amortization (46,800)
Balance , 12/31/x4 P 2,185,200
Investment Income (equity in net earnings)
NI of SS (P 1,440,000 x 30%) P432,000
Less: Amortization 46,800
Balance 12/31/20x14 P385,200

To check the balance of investment in Joint Venture ( AA Company)

AA Company’s Stockholder Equity, 12/31/20x4:
Common stock P3,600,000
Retained Earnings
Retained earnings 1/1/20x4 P 1,080,000
Net income – 20x4 1,440,000
Dividends-20x4 (720,000) 1,800,000
Book value of stockholders’ equity of AA Company , 12/31/20x4 P5,400,000
Multiplied by: Interest in Joint venture 30%
Book Value of interest in joint venture P1,620,000
Add: Unamortized allocated excess-(30% there of 205,200
P252,000-46,800, amortization)
Goodwill 360,000
INVESTMENT IN JOINT VENTURE (AA COMPANY) – EQUITY METHOD P 2,185,200