Professional Documents
Culture Documents
Multiple Choice: 12-1: D. This Is Recorded When The Working Fund Is Replenished. 12-2: C
Multiple Choice: 12-1: D. This Is Recorded When The Working Fund Is Replenished. 12-2: C
Multiple Choice: 12-1: D. This Is Recorded When The Working Fund Is Replenished. 12-2: C
MULTIPLE CHOICE
12-2: c.
Sales P 700,000
Cost of goods sold:
Purchases P800,000
Merchandise inventory, end 180,000 620,000
Gross profit P 80,000
Expenses 198,000
Net income (loss) P (118,000)
12-3: b
Sales P 70,000
Cost of goods sold (P70,000 / 140%) 50,000
Gross profit P 20,000
Less: Samples (P8,000 – P6,000) P 2,000
Expenses 2,800 4,800
Net income P 15,200
12-4: a
Sales P 100,000
Cost of goods sold 72,000
Gross profit P 28,000
Expenses (P9,000 + P4,500) 13,500
Net income P 14,500
12-5: a
12-6: a
12-7: c
12-8 a
1
12-9: d
12-10: a
Home Office account balance before closing, Dec. 32, 1008 P 35,000
Net income (loss)
Sales P147,000
Cost of cost goods sold
Shipment to branch P135,000
Inventory, 12/31 18,500 116,500
Gross profit P 30,500
Expenses 13,500 17,000
Home Office account balance (Investment in Branch account balance) P 52,000
Shipment to Branch account has no beginning balance, because this was closed at the end
of 2008.
12-11: b
Jan. 1, 2008 Jan. 1, 2009
Petty cash fund P 6,000 P 6,000
Accounts receivable 86,000 98,000
Inventory 74,000 82,000
Home Office account balance P166,000 P186,000
12-12: d
12-13: a
2
12-14: a
(Branch Books) (Home Office Books)
Home Office Investment in Branch
Unadjusted balances, 12/31 P 97,350 P 84,000
Shipment in transit 6,150
Collection of HO A/R by branch 25,000
Error in recording of branch profit 900
Returns of merchandise in transit ( 6,400)
Adjusted balances, 12/31 P103,500 P103,500
12-15: a
(Branch Books) (Home Office Books)
Home Office Investment in Branch
Unadjusted balances P25,550 P27,350
Error in recording shipment to Cavity branch (12,000)
Error in recording shipment to Tagaytay branch 15,000
Branch AR collected by home office (3,000)
Merchandise returns in transit ( 1,200)
Error in recording branch profit ( 3,600)
Adjusted balances P23,750 P23,750
12-16: c
Unadjusted balance- Investment in Branch account P 85,000
Remittance in transit (10,000)
Shipment in transit (20,000)
Expenses allocated ( 5,000)
Error in recording remittance 3,000
Error in recording shipments ( 9,000)
Unadjusted balance – Home Office account P 44,000
12-17 a
(Branch Books) (Home Office Books)
Home Office Investment in Branch
Unadjusted balances P 440,000 P 496,000
Branch AR collected by Home Office ( 8,000)
Shipments in transit 32,000
Acquisition of furniture (12,000)
Merchandise returns (15,000)
Cash remittance in transit ( 5,000)
Adjusted balances P 464,000 P 464,000
3
PROBLEMS
Problem 12-1
4
Problem 12-2
1. Cash 200,000
Merchandise inventory 350,000
Home office 550,000
Cash 600,000
Accounts receivable 600,000
Sales P650,000
Cost of goods sold 425,000
Gross profit 225,000
Expenses:
Advertising expense P40,000
Sales commissions 65,000
Other expenses 45,000 150,000
Net income P 75,000
5
Problem 12-3
g. Expenses 39,900 -
Cash 39,900
h. Cash 80,100 -
Investment in branch 80,100
Expenses 27,000
Cash 27,000
j. Expenses 1,750
Acc. Depreciation 1,750
6
Closing Entries
Home Office Books Branch Books
Sales P157,500
Cost of sales
Merchandise inventory, 1/1 P 60,180
Purchases 183,750
Goods available for sale P243,930
Shipment to branch ( 75,300)
Goods available for own sale P168,630
Merchandise inventory, 12/31 ( 72,750) 95,880
Gross profit P 61,620
Expenses 41,445
Net operating income P 20,175
Branch income (loss) ( 2,100)
Net income P 18,075
Sales P 99,000
Cost of sales
Purchases P 33,750
Shipments from home office 75,300
Goods available for sale P109,050
Merchandise inventory, 12/31 35,250 73,800
Gross profit P 25,200
Expenses 27,300
Net income (loss) P( 2,100)
7
Cebu Company – Home Office
Balance Sheet
December 31, 2008
Assets
Cash P 34,800
Accounts receivable 28,575
Merchandise inventory, 12/31 72,750
Prepaid expenses 3,075
Furniture and fixtures P30,000
Less: Accumulated depreciation 8,370 21,630
Branch furniture and fixtures P12,000
Less: Accumulated depreciation 975 11,025
Investment in branch 45,825
Total assets P217,680
Assets
Cash P 6,375
Accounts receivable 18,000
Merchandise inventory, 12/31 35,250
Prepaid expenses 1,125
Total assets P61,650
8
4. Combined Financial Statements
Cebu Company
Combined Income Statement
Year Ended December 31, 2008
Sales P256,500
Cost of sales
Merchandise inventory, 1/1 P 60,180
Purchases 217,500
Goods available for sale P277,680
Merchandise inventory, 12/31 108,000 169,680
Gross profit P 86,820
Expenses 68,745
Combined net income P 18,075
Cebu Company
Balance Sheet
December 31, 2008
Assets
Cash P 41,175
Accounts receivable 47,475
Merchandise inventory 108,000
Prepaid expenses 4,200
Furniture and fixtures P42,000
Less: accumulated depreciation 9,345 32,655
Total assets P233,505
Problem 12-4
9
© CG Corporation
Combined Statement Working Paper
Year Ended December 31, 2008
Eliminations
Income
Home Statement Balance
Office Branch Debit Credit Dr (Cr) Sheet
Debits
Cash 36,000 7,000 43,000
Accounts receivable 54,000 29,000 83,000
Inventory, 1/1 45,000 18,000 63,000
Investment in branch 70,000 (2) 70,000
Equipment (net) 95,000 95,000
Purchases 540,000 540,000
Shipments from HO 145,000 (1)145,000
Expenses 90,000 20,000 110,000
Total debits 930,000 219,000
Credits
Accounts payable 27,000 4,000 31,000
Home Office 70,000 (2) 70,000
Capital stock 54,000 54,000
Retained earnings, 1/1 144,000 144,000
Sales 560,000 145,000 (705,000)
Shipments to branch 145,000 (1)145,000
Total credits 930,000 219,000
10
Problem 12-5
Income
Home Eliminations Statements Balance
Office Branch Debit Credit Dr (CR) Sheet
Debits
Cash 63,000 21,900 84,900
Notes receivable 10,500 10,500
Accounts receivable (net) 120,600 55,950 176,550
Inventories 143,700 36,300 (2)135,000 45,000
Furniture & fixtures (net) 72,150 72,150
Investment in Branch 124,050 (1)124,050
Cost of goods sold 300,750 128,700 (2)135,000 564,050
Operating expenses 104,250 32,850 137,100
Credits
Accounts payable 61,500 61,500
Common stock 300,000 300,000
Retained earnings 37,500 37,500
Home Office 124,050 (1)124,050
Sales 540,000 151,650 (691,650)
Closing Entries
Sales 151,650
Income Summary 9,900
Cost of goods sold 128,700
Operating expenses 32,850
11
Problem 12-6
b. Adjusting Entries
Problem 12-7
b. Adjusting Entries
Home Office Books Branch Books
Cash 30,000 Shipment from HO 24,000
Shipment to branch 12,000 Supplies 8,000
Investment in branch 42,000 Expenses 7,200
Accounts receivable 18,000
Home office 21,200
12
Problem 12-8
Problem 12-9
Adjusting Entries
Closing Entries
Sales 778,200
Inventory, 12/31 (P64,580 + P57,600) 122,180
Inventory, 1/1 47,800
Shipment from HO (P623,200 + P57,600) 680,800
Operating expenses 54,790
Income summary 116,990
13
(2) Home Office Books
Problem 12-1111
a. P 2,000
b. P 180,000
14
c. Journal Entries – Tarlac Branch
15
d. TARLAC BRANCH
Balance Sheet
December 31, 2008
Assets
Cash ……………………………………………. P 38,000
Inventory ………………………………………. 26,000
Equipment ……………………………………... P 122,000
Accumulated Depreciation ……………………. (4,000) 118,000
Total Assets …………………………… P 182,000
Equity
Home Office* ………………………………….. P 182,000
*Home office balance is P 180,000 as computed in Part b plus the P 2,000 net
income for the period.
16
CHAPTER 13
MULTIPLE CHOICE
13-1: c
13-2: a
13-3: c
13-4: a
13-5: b
13-6: a
17
13-7: c
13-8: d
13-9: b
13-10: c
13-11: d
13-12: b
13-13: b
18
13-16: c
Sales P270,000
Cost of goods sold
Shipments from home office (P151,200/140%) P108,000
Inventory, 1/1 (P28,350 / 140%) 20,250
Inventory, 12/31 (P25,200 / 140%) ( 18,000) 110,250
Gross profit P159,750
Expenses 90,000
Branch profit as far as the home office is concerned P 69,750
13-17: c
13-18: a
13-19: c
13-20: b
13-21: b
19
13-22: b
Sales P400,000
Cost of goods sold – cost to home office
Beginning inventory P 30,000
Shipment from home office 200,000
Ending inventory (P40,000 / 125%) ( 32,000) 198,000
Gross profit P202,000
Expenses 100,000
Branch net income as far as the home office is concerned P102,000
13-23: b
13-24: a
Sales P200,000
Cost of sales (at cost to home office)
Inventory, 1/1 (P12,000 + P4,000) P16,000
Shipments from home office 60,000
Purchases 30,000
Inventory, 12/31 [(P20,000÷133 1/3%) +P6,000] (21,000) 85,000
Gross profit P115,000
Expenses 60,000
Branch net income (actual) P 55,000
13-25: a
13-26: b
20
13-27: a
13-28: d
Sales P450,000
Cost of goods sold 141,600
Gross profit P308,400
Expenses 150,000
Combined net income P158,400
13-29: d
Sales P687,500
Cost of goods sold:
Inventory, 1/1: Home office P57,500
Branch (P22,250 / 125%) 17,800 P 75,300
Purchases 410,000
Goods available for sale P 485,300
Inventory, 12/31: Home office P71,250
Branch (P29,250/120%) 24,375 95,625 389,675
Gross profit P297,825
Expenses 241,750
Combined net income P 56,075
13-30: a
Sales P669,000
Cost of goods sold:
Inventory, 1/1:
Home office P160,000
Branch [P15,000 + (P49,000 / 122.5%)] 55,000 P215,000
Purchases 460,000
Goods available for sale P675,000
Inventory, 12/31:
Home office P110,000
Branch [P11,000 + (P52,000 / 133 1/3%)] 50,000 160,000 515,000
Gross profit P154,000
Expenses 145,000
Combined net income P 9,000
21
13-31: a
The entries made by the branch to record the interbranch transfer of merchandise are:
Books of Branch 1:
Home office 19,500
Freight in 3,500
Shipment from home office 16,000
Books of Branch 3:
Shipment from home office 16,000
Freight in 4,000
Cash 2,500
Home office 17,500
13-32: a
(Home office books) (Branch books)
Investment in branch Home office
Unadjusted balances 77,000 61,000
Error in recording shipment (10,000)
Error in recording expense 5,000
Unrecorded cash remittance (31,000) -
Adjusted balances 46,000 46,000
13-33: c
13-34: a
22
(Home office books) (Bacolod branch books)
Investment in Cebu Branch Home Office
25,000 25,000
34,300 34,300
212,500 62,500
253,000 252,700
253,000 524,800 374,500
271,800
23
PROBLEMS
Problem 13-1
Cash 105,000
Sales 105,000
24
(c) Closing Entries – Branch Books
Sales 105,000
Inventory, 12/31 25,000
Rent expense 3,000
Shipment from home office 100,000
Operating expenses 11,000
Income summary 16,000
Problem 13-2
a. Branch Books
- Equipment 50,000
Shipment from home office 60,000
Cash 10,000
Home office 120,000
- Purchases 30,000
Cash or accounts payable 30,000
- Cash 40,000
Accounts receivable 50,000
Sales 90,000
25
Home Office Books
- Cash 10,000
Investment in branch 10,000
To record cash remittance from branch
- Cash 3,000
Investment in branch 3,000
To record collection of branch receivable.
b. Income Statement
Sales P90,000
Cost of goods sold
Shipment from home office – at cost P40,000
Purchases 30,000
Goods available for sale 70,000
Ending inventory:
From home office (1/3) P13,333
From outsiders (1/4) 7,500 (20,833) 49,167
Gross profit P40,833
Expenses:
Advertising expense P 8,000
Salary expense 5,000
Rent expense 5,000 18,000
Net income P22,833
Problem 13-3
26
b. Home Office account – beginning balance P 54,000
Inventory transfer 34,500
Rent allocated 1,000
Expenses allocated 3,000
Inventory transfer (error made) 64,000
Cash transfer ( 74,000)
Home Office account – unadjusted balance P 82,500
c. Reconciliation Statement
Investment in Branch Home Office
Unadjusted balances, 1/31 P141,500 P 82,500
Unrecorded cash transfer ( 74,000)
Error in recording transfer (overstated) 18,000
Expense allocation not recorded ( 3,000)
Adjusted balances, 1/31 P 67,500 P 67,500
Problem 13-4
a. Books of Branch X
b. Books of Branch Y
27
Malakas Company
Combination Worksheet
Year Ended December 31, 2008
Credits
Accumulated depreciation 80,000 16,000 96,000
Accounts payable 37,000 15,000 52,000
Notes payable 220,000 - 220,000
Home office - 176,000 (7)207,000 (1) 17,000 -
(3) 14,000
Common stock 100,000 - 100,000
Retained earnings, 1/1 240,000 - (2) 10,000 (230,000)
Sales 529,000 127,000 (655,000)
Shipment to branch 110,000 - (6)110,000
Inventory, 12/31 209,000 42,000 (5) 16,000 (4) 14,000 (249,000)
28
(4) Inventory, 12/31 (debits) 14,000
Inventory (credits) 14,000
Shipment not yet received by the branch
Problem 13-6
a. Eliminating Entries
29
Ginto Company
Balance Sheet Working Paper
December 31, 2008
b. Ginto Company
Combined Balance Sheet
December 31, 2008
Assets
Cash P 116,000
Accounts receivable 165,000
Inventory 444,000
Land 120,000
Buildings and equipment P1,210,000
Less: Accumulated depreciation 480,000 730,000
Total assets P1,575,000
30
Problem 13-7
a. Books of Branch P
b. Books of Branch Q
Problem 13-8
Debits:
Cash = P36,000 (add the book values and include the P9,000 transfer in transit)
Accounts receivable = P118,000
Inventory, 12/31 = P151,000 (branch balance would be P81,000 when the shipment in transit is
included. This balance must be adjusted to cost of P54,000
(P81,000 ÷ 150%) and then add to home office balance of P97,000.
Investment in branch = 0 (eliminated)
Land, buildings and equipment = P460,000
Shipment from home office = 0 (eliminated)
Purchases = P429,000
Depreciation expense = P28,000 (add the two book values and the year-end allocation)
Advertising expense = P58,000 (add the two book values and the year-end allocation)
Rent expense = P30,000 (add the two book values and the year-end allocation)
Miscellaneous expense = P100,000 (add the two book values and the year-end allocation)
Inventory, 1/1 = P145,000 (branch balance is adjusted to cost of P24,000 (P36,000 / 150%),
and then added to home office balance.
Total debits = P1,555,000 (add the above totals)
31
Credits
Accumulated depreciation = P108,000
Accounts payable = P104,000
Notes payable = P180,000
Home office = 0 (eliminated)
Common stock = P60,000 (home office balance)
Retained earnings, 1/1 = P248,000 (home office balance after reduction of P12,000 unrealized
profit in beginning inventory of branch. Cost is P24,000
(P36,000 / 150%) which indicates the P12,000 unrealized.
Sales = P704,000
Shipment to branch = 0 (eliminated)
Inventory, 12/31 = P151,000
Total credits = P1,555,000 (add the above totals)
Reconciliation Statement
Investment in Branch account balance (Home office books) P177,000
Unrecorded cash transfer ( 9,000)
Adjusted balance P168,000
Problem 13-9
32
Ilocos Branch Books
Closing entries
33
Working Paper for Combined Financial Statements
December 31, 2008
Eliminations
Home Office Branch Debit Credit Combined
Income Statement
Sales 130,000 81,000 211,000
Merchandise inventory, 12/31 8,000 9,000 (3) 3,000 14,000
Shipment to branch 60,000 (2) 60,000 -
Total credits 198,000 90,000 225,000
Balance Sheet
Cash (overdraft) 39,000 (11,200) 27,800
Accounts receivable 45,000 17,000 62,000
Merchandise inventory, 12/31 8,000 9,000 (3) 3,000 14,000
Investment in branch 28,800 (1) 28,800 -
Total debits 120,800 14,800 103,800
34
Problem 13-10
Credits
Current liabilities 40,000 15,000 11,000 66,000
Capital stock 100,000 100,000
Retained earnings, Jan. 1 50,000 50,000
Home Office 45,000 30,000 A 12,000
D (87,000)
Allow. for overvaluation of
Branch inv. – Branch A 13,000 C (13,000)
Allow. for overvaluation of
Branch inv. – Branch B 12,000 C (12,000)
Sales 195,000 90,000 75,000 360,000
410,000 150,000 116,000
Net income 60,000 60,000
276,000
Investment in Investment in
Home Office Branch A Branch B
35
(2) Reconciliation of Home Office and Investment in Branch accounts.
Schedule 1:
Branch A Branch B
Sales P90,000 P75,000
Cost of sales:
Beginning inventory P18,000 P24,000
Shipment from home office 60,000 48,000
Goods available for sale 78,000 72,000
Ending inventory 21,000 27,000
Cost of sales 57,000 45,000
Gross profit 33,000 30,000
Expenses 25,000 20,000
Net profit P 8,000 P10,000
36
37
CHAPTER 14
14-1: d
14-2: b
14-3: c
14-4: d
14-5: a
37
38
14-7: d
14-8: a
14-9 a
14-10: c
Debit to expenses:
Broker’s fee P 50,000
Pre-acquisition audit fee 40,000
General administrative costs 15,000
Legal fees for business combination 32,000
Other acquisition costs 6,000
Total P 143,000
Debit to APIC
Audit fee for SEC registration of stock issue P 46,000
SEC registration fee for stock issue 5,000
Total P 51,000
38
39
14-11: d
Consideration given:
Cash P270,000
Stocks issued at fair value 330,000
Total P600,000
Less: fair value of net assets acquired:
Cash P40,000
Inventories 100,000
Other current assets 20,000
Plant assets (net) 180,000
Current liabilities (30,000)
Other liabilities (40,000) 270,000
Goodwill P330,000
14-12: d
14-13: a
14-14: c
39
40
14-15: b
14-16: c, Under the acquisition method assets are recorded at their fair values (P225.000)
14-17: d
14-19: a
14-20: d
Goodwill P 200,000
Fair value of net assets acquired 1,600,000
Price paid P1,800,000
14-21: c
40
41
14-22: a
14-23: a
B Company C Company
Consideration given P4,400,000 P638,000
Less: fair value of net assets acquired 4,150,000 370,000
Goodwill P 250,000 P268,000
14-24: a
A Company 5,250,000
B Company 6,800,000
C Company 900,000
Cash paid for acquisition costs (P20,000 + P10,000) (30,000)
Goodwill (see 14-23) 518,000
Total assets after combination 13,438,000
14-25: a
Stockholders equity before acquisition P1,300,000
Capital stock issued at par (229,000 shares x P10) 2,290,000
Additional paid-in-capital [(229,000 x 12) – 10,000] 2,738,000
Other acquisition cost (reduction from retained earnings) (20,000)
Stockholders equity after acquisition 6,308,000
14-26: 1. a
Equipment: P180,000/5 yrs. = P36,000
Building: P550,000/20 yrs. = 27,500
Total depreciation P63,500
2. b
Price paid P900,000
Less fair value of net assets acquired:
Current assets P100,000
Land 50,000
Equipment 180,000
Building 550,000
Current liabilities (150,000) 730,000
Goodwill P170,000
14-27: b
Price paid P32 M
Final fair value of net assets 28 M
Goodwill P 4 M
41
42
PROBLEMS
Problem 14-1
42
43
Problem 14-2
Problem 14-3
Computation of Goodwill
Price paid (6,000 shares x P90) P540,000
Less: fair value of net identifiable assets acquired
Total assets P550,000
Accounts payable ( 50,000) 500,000
Goodwill P 40,000
43
44
Problem 14-4
Cash 60,000
Accounts receivable 100,000
Inventory 115,000
Land 70,000
Building and equipment 350,000
Bond discount 20,000
Goodwill 95,000
Accounts payable 10,000
Bonds payable 200,000
Common stock, P10 par value 120,000
Additional paid-in capital 480,000
Computation of Goodwill
Purchase price (12,000 shares x P50) P600,000
Less: Fair value of net identifiable assets acquired
Total assets P695,000
Total liabilities ( 190,000) 505,000
Goodwill P 95,000
Problem 14-5
44
45
Problem 14-6
Problem 14-7
ASSETS
Cash and receivables P 110,000
Inventory 142,000
Land 115,000
Plant and equipment P540,000
Less: Accumulated depreciation 150,000 390,000
Goodwill 13,000
Total assets P 770,000
45
46
Problem 14-8
46
47
Problem 14-9
Cash 28,000
Accounts receivable 258,000
Inventory 395,000
Long-term investments 175,000
Land 100,000
Rolling stock 63,000
Plant and equipment 2,500,000
Patents 500,000
Special licenses 100,000
Discount on equipment trust notes 5,000
Discount on debentures 50,000
Goodwill 109,700
Allowance for bad debts 6,500
Current payables 137,200
Mortgage payables 500,000
Premium on mortgage payable 20,000
Equipment trust notes 100,000
Debenture payable 1,000,000
Common stock 180,000
APIC – common 2,340,000
Computation of Goodwill
Price paid (180,000 shares x P14) P2,520,000
Less: fair value of net identifiable assets acquired
Total assets P4,112,500
Total liabilities (1,702,200) 2,410,300
Goodwill P 109,700
47
48
48
49
Problem 14-10
Problem 14-11
49
50
50
51
Problem 14-12
Problem 14-13
Goodwill computation:
Price paid:
Cash P 400,000
Common stock (15,000 shares x P40) 600,000
Contingent consideration (P100,000 x 75%) 75,000
Total price paid 1,075,000
Less: Fair value of net assets acquired
Current assets P 256,000
Non-current assets 660,000
Current liabilities ( 162,000)
Non-current liabilities ( 440,000) 314,000
Goodwill P 716,000
51
52
Problem 14-14
(2 – a) No, because the carrying amount of the net assets of the business is less
than the recoverable of the unit.
(2 – b) Yes.
Entry:
Impairment loss 40,000
Goodwill 40,000
52
CHAPTER 15
15-1: d
15-3: c
15-4: a
15-5: a
51
15-6: a
15-7: a
Building P180,000
Land P 90,000
15-8: a
15-9: d
Therefore:
Total assets (P800,000 + P300,000 + P60,000) P1,160,000
Total liabilities (P250,000 + P155,000 + P160,000 + P5,000) 570,000
15-11: d
52
15-12: a, should be P700,000
Goodwill P250,000
FV of net assets acquired excluding goodwill (P700,000 – P150,000) 550,000
NCI (100,000)
Price paid by the Pepsi Company P700,000
15-13: b
* P43,605/P290,700 = 15%
15-15: c
53
15-20: c
Cash and cash equivalent (P70,000 + P90,000) P 160,000
Inventory (P100,000 + P60,000) 160,000
Property and equipment (P500,000 + P300,000) 800,000
Goodwill 25,000
Total assets P1,145,000
15-21: a:
Fair value per share:
New acquisition (P630,000/7,000 shares) P90
Fair value of previously owned shares (1,000* shares x P90) P 90,000 (10%)
Acquisition of new shares 630,000 (70%)
Total price paid for 80% interest P 720,000
Non-controlling interest (P720,000/80%) x 20% P 180,000
* P200,000 / P20 x 10% = 1,000 shares
15-22: c
Fair value of previously owned interest (10%) P 90,000
Price paid for new additional interest (70%) 630,000
Non-controlling interest 180,000
Total 900,000
Less fair value of net assets acquired (P910,000 – P130,000) 780,000
Goodwill P120,000
15-26: b
Cash P 40,000
Accounts receivable 20,000
Inventories (see 15-25) 140,000
Equipment (800,000 - 500,000) 300,000
Accounts payable (40,000)
Fair value of net assets P460,000
15-27: c
Goodwill P 10,000
Fair value of net assets acquired (15-26) 460,000
Total 470,000
NCI (163,000)
Price paid by Primo P 307,000
54
15-28: b
Parent NCI
Total 65% 35%
Total implied value P470,000 P307,000 P163,000
Less fair value of net assets 460,000 299,000 161,000
Goodwill P 10,000 P 8,000 P 2,000
15-29: b
Non-controlling interest should be valued at the higher amount between the following:
15-30: c
Proof:
NCI does not share a gain on the acquisition. IFRS 3 (2008) provides that the gain is
attributed to the acquirer only.
55
PROBLEMS
Problem 15-1
56
Problem 15-2
57
Problem 15-3
58
Problem 15-4
Problem 15-5
59
Problem 15-5, continued
Palo Company and Subsidiary
Consolidated Statement of Financial Position
December 31, 2011
Cash P 70,000
Receivables 120,000
Inventory 170,000
Property and equipment – net 340,000
Goodwill 20,000
Total assets P720,000
Computation of goodwill:
Consideration given P250,000
Less fair value of net assets (P290,000 – 60,000) 230,000
Goodwill P 20,000
Problem 15-6
a. Investment in Seed Company 350,000
Cash 350,000
To record acquisition of 100% of Seed company stock.
60
Problem 15-6, continued:
Pill Corporation and Subsidiary
Consolidated Working Paper
May 31, 2011 – Date of Acquisition
Problem 15-7
61
Problem 15-7, continued:
Pop Corporation and Subsidiary
Working Paper for Consolidated Balance Sheet
April 30, 2011 – Date of acquisition
62
Problem 15-8
Credits
Accounts payable 150,000 60,000 210,000
Bonds payable 290,000 (2) 50,000 240,000
Common stock – P Company 1,500,000 1,500,000
Common stock – S Company 100,000 (1)100,000
APIC – S Company 200,000 (1)200,000
Retained earnings – P Co. 1,050,000
Retained earnings – S Co. 230,000 (1)230,000 1,050,000
Total 2,700,000 880,000 640,000 640,000 3,000,000
63
Problem 15-9
* NCI is measured at its proportionate interest in S Company’s net assets because the assessed
fair value of P80,000 is smaller.
Credits
Accounts payable 150,000 60,000 210,000
Bonds payable 290,000 (2) 50,000 240,000
Common stock – P Co. 1,500,000 1,500,000
Common stock – S Co. 100,000 (1)100,000
APIC – S Co. 200,000 (1)200,000
Retained earnings – P Co. 1,050,000 1,050,000
Retained earnings – S Co. 230,000 (1)230,000
64
Problem 15-10
65
Problem 15-11
3. Land 100,000
Building 200,000
Bond discount 40,000
Goodwill 100,000
Deferred taxes 20,000
Retained earnings 840,000
Additional paid in capital 1,300,000
Problem 15-12
Supporting computations:
Entry to record the issuance of 300 shares – Books of X Company (legal parent)
66
Problem 15-12, continued:
Fair value analysis: Implied FV Parent (60%) NCI (40%)
67
CHAPTER 16
16-2: d, consolidated net income will decrease by P6,000 due to amortization of the allocated
excess (P60,000 / 10 years).
16-4: c
16-6: a
16-7: b
68
16-8: a
16-9: a
16-10: a. Under the equity method consolidated retained earnings is equal to the retained
earnings of the parent company.
16-11: c
16-12: c
69
16-14: b
16-15: b
16-16 d
70
16-17, continued:
Consolidated retained earnings
Retained earnings, Jan. 1, 2011 – Pepe P550,000
Consolidated net income attributable to parent:
Net income – Precy P275,000
Adjusted net income of Susy:
Net income of Susy P100,000
Amortization (P100,000 / 10) ÷ 2 ( 5,000) 95,000
NCI in Susy’s net income (P95,000 x 30%) (28,500) 341,500
Dividends paid – Precy ( 70,000)
Consolidated retained earnings, Dec. 31, 2011 P821,500
Non-controlling interest
NCI, June 30, 2011 P300,000
NCI in Susy’s dividends, July 1 to December 31 -0-
NCI in Susy’s net income (P100,000 – P5,000) x 30% 28,500
NCI, December 31, 2011 P328,500
16-18: a
Goodwill
Price paid P1,200,000
Less: Book value of interest acquired (P1,320,000 – P320,000) 1,000,000
Goodwill (not impaired) P 200,000
Consolidated retained earnings under the equity method is equal to the retained
earnings of the parent company, P1,240,000.
16-19: b
16-20: c
71
16-20, continued:
Consolidated retained earnings – 2011
Retained earnings, Jan. 2, 2010- Ponce P 400,000
Consolidated net income attributable to parent– 2010
Net income – Ponce P70,000
Dividend income (P30,000 x 60%) (18,000)
Solis’ net income 35,000
NCI in Solis’s net income (P35,000 x 40%) ( 14,000) 75,000
Dividends paid, 2010– Ponce (25,000)
Consolidated retained earnings, Dec. 31, 2010 P450,000
Consolidated net income attributable to parent– 2011 105,000
Dividends paid. 2011 – Ponce (30,000)
Consolidated retained earnings, Dec. 31, 2011 P525,000
16-21 b
16-22: c
72
16-24: c
16-26: a
16-27: a
Retained earnings 1/1/11- Pepe P520,000
Retained earnings 1/1/11- Sisa 230,000
Adjustment and elimination:
Date of acquisition (155,000)
Undistributed earnings to NCI (21,000)
Amortization- prior year (5,000) 49,000
Consolidated retained earnings 1/1/11 P569,000
16-28: a
Pepe company net income, 2011 P120,000
Sisa company net income, 2011 25,000
Dividend income (10,000 x 70%), 2011 (7,000)
Amortization- 2011 (5,000)
Consolidated net income P133,000
16-29: a
Consolidated retained earnings 1/1/11(see 16 – 27) P569,000
Consolidated net income attributable to parent:
Consolidated net income (see 16-28) 133,000
NCI in Sisa NI (25,000 – 5,000) 30% (6,000) 127,000
Dividend paid- Pepe company ( 50,000)
Consolidated retained earnings 12/31/11 P646,000
73
PROBLEMS
Problem 16-1
a. Eliminate dividends declared by the subsidiary against dividend income and NCI:
b. Eliminate equity accounts of the subsidiary against the investment account and
the NCI account.
74
Probem 16-1 concluded
3. Pedro Company
Consolidated Income Statement
Year Ended December 31, 2011
Sales P250,000
Expenses 191,250
Consolidated net income P 58,750
Attributable to NCI 3,750
Attributable to controlling interest P 55,000
4. Pedro Company
Statement of Retained Earnings
Year Ended December 31, 2011
5. Pedro Company
Consolidated Statement of Financial Position
December 31, 2011
Assets
Current assets P190,000
Non-current assets
Fixed assets (P662,500 – P132,250) 530,250
Total assets P720,250
75
Problem 16-2
d. Depreciate the fixed asset for the current year and one prior year:
2. Pedro Company
Consolidated Income Statement
Year Ended December 31, 2011
Sales P300,000
Expenses (P245,000 + P6,250) 251,250
Consolidated net income P 48,750
Attributable to NCI 1,750
Attributable to controlling interest P 47,000
76
Problem 16-3
Amortization Schedule
Annual
Accounts Adjustments Life Amount 2008 2009 2010 2119
Inventory 1 P 6,250 P 6,250
Amortization:
Investments 3 5,000 5,000 5,000 5,000 5,000
Buildings 20 12,500 12,500 12,500 12,500 12,500
Equipment 5 34,500 34,500 34,500 34,500 34,500
Patent 10 2,250 2,250 2,250 2,250 2,250
Trademark 10 2,000 2,000 2,000 2,000 2,000
Discount on bonds payable 5 2,500 2,500 2,500 2,500 2,500
Total P 65,000 P 65,000 P 58,750 P 58,750 P58,750
Problem 16-4
Allocation Schedule
Price paid P206,000
Less: Book value of interest acquired 140,000
Excess P 66,000
Allocation:
Equipment P(40,000)
Buildings 10,000 (30,000)
Goodwill (not impaired) P 36,000
d. Consolidated Equipment
Total book value (P320,000 + P50,000) P 370,000
Allocation 40,000
Amortization (P5,000 x 3 years) (15,000)
Total P 395,000
77
Problem 16-4 concluded
e. Consolidated Buildings
Total book value P 288,000
Allocation ( 10,000)
Amortization (P500 x 3 years) 1,500
Total P 279,500
Problem 16-5
78
Problem 16-5 concluded
Retained Earnings
Retained earnings, Jan. 1 230,000 50,000 (2) 50,000 230,000
Net income from above 80,000 30,000 95,000
Total 310,000 80,000 325,000
Dividends declared 40,000 10,000 (1) 10,000 40,000
Retained earnings, Dec. 31
Carried forward 270,000 70,000 285,000
Statement of FP
Cash 15,000 5,000 20,000
Accounts receivable 30,000 40,000 70,000
Inventory 70,000 60,000 130,000
Depreciable asset (net) 325,000 225,000 (3) 30,000 (4) 5,000 575,000
Investment in Short company 180,000 (2)150,000 -
(3) 30,000
Total 620,000 330,000 795,000
79
Problem 16-6
Retained Earnings
Retained earnings, 1/1 230,000 50,000 (2) 50,000 230,000
Net income from above 78,000 30,000 94,000
Total 308,000 80,000 324,000
Dividends declared 40,000 10,000 (1) 10,000 40,000
Retained earnings, 12/31
Carried forward 268,000 70,000 284,000
Statement of FP
Current assets 173,000 105,000 278,000
Depreciable assets 500,000 300,000 800,000
Investment in Sisa Company 120,000 (2)120,000 -
Total 793,000 405,000 1,078,000
80
Problem 16-6 - Concluded
c. Consolidated Financial Statements
Assets
Current assets P278,000
Depreciable assets P800,000
Less: Accumulated depreciation 250,000 550,000
Total assets P828,000
Sales P320,000
Expenses:
Depreciation expense P 40,000
Other expenses 180,000 220,000
Consolidated net income P100,000
NCI in net income of subsidiary 6,000
Attributable to parent P 94,000
81
Problem 16-7
Retained Earnings
Retained earnings, Jan. 1 230,000 50,000 (2) 50,000 230,000
Net income from above 61,000 20,000 62,000
Total 291,000 70,000 292,000
Dividends declared 20,000 10,000 (1) 10,000 20,000
Retained earnings, Dec. 31
carried forward 271,000 60,000 272,000
Statement of FP
Cash 37,000 20,000 57,000
Accounts receivable 50,000 30,000 80,000
Inventory 70,000 60,000 130,000
Buildings and equipment 300,000 240,000 540,000
Investment in Sebo Company 229,000 (1) 9,000 -
(2)200,000
(3) 20,000
Goodwill (3) 20,000 20,000
Total 686,000 350,000 827,000
82
Problem 16-7 - Concluded
b. Consolidated Financial Statements
Sales P450,000
Cost of goods sold 295,000
Gross profit 155,000
Expenses:
Depreciation expenses P45,000
Other expenses 48,000 93,000
Consolidated net income P 62,000
Assets
Cash P 57,000
Accounts receivable 80,000
Inventory 130,000
Buildings and equipment P540,000
Less: Accumulated depreciation 170,000 370,000
Goodwill 20,000
Total P657,000
83
Problem 16-8
Goodwill P 100,000
84
Problem 16-8, Concluded
2. P Company and Subsidiary
Consolidated Working Paper
Year Ended December 31, 2011
P S Adjustments & Eliminations Consoli-
Company Company Debit Credit dated
Income Statement
Sales 1,000,000 500,000 1,500,000
Cost of sales 400,000 150,000 (4) 30,000 580,000
Gross profit 600,000 350,000 920,000
Expenses 360,000 200,000 (4) 1,500 561,500
Operating income 240,000 150,000 358,500
Investment income 94,800 - (1) 94,800 -
Net /consolidated income 334,800 150,000 358,500
NCI in net income of
Subsidiary (5) 23,700 (23,700)
Net income carried forward 334,800 150,000 334,800
Retained earnings
Retained earnings, 1/1 600,000 400,000 (2)400,000 600,000
Net income from above 334,800 150,000 334,800
Total 934,800 550,000 934,800
Dividends declared 100,000 50,000 (1) 50,000 100,000
Retained earnings, 12/31
Carried forward 834,800 500,000 834,800
Statement of FP
Cash 200,000 100,000 300,000
Accounts receivable 150,000 50,000 200,000
Inventories 100,000 40,000 (3) 30,000 (4) 30,000 140,000
Land 150,000 (3) 50,000 200,000
Buildings (net) 200,000 (3)100,000 (4) 5,000 295,000
Equipment (net) 298,000 450,000 (4) 7,500 (3) 75,000 680,500
Patent - - (3) 40,000 (4) 4,000 36,000
Investment in S Company 810,800 (1) 54,800 -
(2)560,000
(3)196,000
Goodwill (3) 100,000 100,000
Total 1,558,800 1,090,000 1,951,500
85
Problem 16-9
Cash 8,000
Dividend income 8,000
To record dividends received from Sally (P10,000 x 80%)
86
Problem 16-9, Concluded
c. Pilar Corporation and Subsidiary
Consolidation Working Paper
December 31, 2011
Statement of FP
Cash and receivables 81,000 65,000 (5) 10,000 136,000
Inventory 260,000 90,000 350,000
Land 80,000 80,000 160,000
Buildings and equipment 500,000 150,000 (3) 50,000 700,000
Investment in Sally 160,000 (2)120,000 -
(3) 40,000
Total 1,081,000 385,000 1,346,000
87
Problem 16-10
a. Eliminating entries:
88
Problem 16-10, Concluded
Statement of FP
Cash 46,000 30,000 76,000
Accounts receivable 55,000 40,000 95,000
Inventory 75,000 65,000 140,000
Buildings and equipment 300,000 240,000 540,000
Investment in Star Company 220,000 (2)200,000
(3) 20,000
Goodwill - - (3) 8,000 8,000
Debits 696,000 375,000 859,000
89
90
CHAPTER 17
Consolidated sales
Sales – Papa P 900,000
Sales – San 500,000
Elimination of inter-company sales ( 50,000)
Consolidated sales P 1,350,000
17-2: c
17-3: d
17-4: b
90
17-5: d
17-6: d
Net income from own operation – Puzon P 200,000
Suazon’s adjusted net income from own operations:
Net income P110,000
Unrealized profit in ending inventory-
Upstream (P25,000 x 40%) ( 10,000) 100,000
Consolidated net income P 300,000
Attributable to NCI (P100,000 x 25%) (25.000)
Attributable to parent P 275,000
17-7: b
2010 2011
Net income from own operation – Pat P 500,000 P 550,000
Unrealized profit in ending inventory:
2010 (P20,000 x .40) (8,000)
2011 (P30,000 x .50) (15,000)
Realized profit in beginning inventory 8,000
Realized income 492,000 543,000
Sun net income 200,000 225,000
Consolidated net income P 692,000 P 768,000
17-8: a
91
17-9: a
Net income from own operations – Popo P 500,000
Unrealized profit in ending inventory – Downstream ( 15,000)
Realized net income from own operation – Popo P 485,000
Adjusted net income from own operations - Sotto
Net income P 360,000
Realized profit in beginning inventory-
Upstream 10,000 370,000
Consolidated net income P 855,000
Attributable to NCI (P370,000 x 5%) 18,500
Attributable to parent P 836,500
17-11: d
Gross profit rate – Short (P110,000 / P200,000) 55%
Inventories
Inventory from outsiders – Power P 5,000
Inventory from outsiders – Short 25,000
Power’s inventory acquired from Short – at cost:
[P5,000 – (P5,000 x 55%)} 2,250
Consolidated ending inventories P 32,250
Investment income
Power’s share of Short’s net income (P50,000 x 75%) P 37,500
Unrealized profit in ending inventory – upstream
(P5,000 x 55%) x 75% ( 2,063)
Realized profit in beginning inventory – upstream
(P10,000 x 55%) x 75% 4,125
Investment income, Dec. 31, 2011 P 39,562
92
17-12: b
17-13: b
93
17-14: a
2009 2010 2011
Pal Corp net income 150,000 240,000 300,000
Intercompany profit in ending inventory:
2009 (14,000) 14,000
2010 (21,000) 21,000
2011 ( 24,000)
Pal net income from own operation 136,000 233,000 297,000
Solo net income from own operation 100,000 90,000 160,000
Consolidated net income 236,000 323,000 427,000
Attributable to NCI
2009(100,000 – 14,000) x 40% 34,400
2010(90,000 +14,000 – 21,000) 40% 33,200
2011(160,000 + 21,000 – 24,000) 40% 62,800
Attributable to Parent 201,600 289,800 394,200
17-15: a
17-16: c
Total cost of goods sold (250,000 +120,000) 370,000
Adjustments due to intercompany sale:
COGS charged for intercompany sale (20,000 + 50,000) 70,000
COGS charged by: Star (30,000 – 6,000) 24,000
Polo (80,000 – 20,000) 60,000
Total 154,000
Cost of goods sold for consolidated entity:
20,000 x (24,000/30,000) (16,000)
50,000 x (60,000/80,000) (37,500) (100,500)
Consolidated cost of goods sold 269,500
17-17: c
Polo Corp. net income from own operation (105,000 – 25,000) 80,000
Unrealized profit in ending inventory-DS (6,000 x 10/30) (2,000)
Adjusted Polo Corp. net income from own operation 78,000
Star Corp. net income from own operation:
Net income 45,000
Unrealized profit in EI-US (20,000 x 30/80) (7,500)
Amortization (20,000/10 years) (2,000) 35,500
Consolidated net income 113,500
Attributable to NCI (35,500 x 40%) (14,200)
Attributable to Parent 99,300
94
17-18: a
17-19: a
Inventory-Pepsi P 30,000
Less: unrealized profit in books of Sarsi:
(135,000 – 90,000) x (30,000/135,000) (10,000) 20,000
Inventory-Sarsi P110,000
Less: unrealized profit in books of Pepsi:
(280,000 – 140,000) x (110,000/280,000) (55,000) 55,000
Consolidated inventory 12/31/11 75,000
17-20: a
17-21: b
95
17-22: b
Net income from own operations – P Company P200,000
S Co. adjusted net income:
Net income – S P30,000
Unrealized profit in ending inventory –
Upstream (P9,000 x 50/150) (3,000)
Realized profit in beginning inventory-
Upstream (P6,000 x 50/150) 2,000 29,000
Consolidated net income 229,000
Attributzble to NCI (P29,000 x 30%) 8,700
Attributable to parent P220,300
17-23: b
17-24: c
S Company:
Sales P416,000
Cost of goods sold (P400,000 x 80%) P320,000
Add write down of ending inventory 10,000 330,000
Gross profit P 86,000
17-25 a
Sales P416,000
Consolidated cost of goods sold 256,000*
Gross profit P160,000
96
17-26: a
Sales P270,000
Cost of goods sold 171,250
Gross profit 98,750
Other income -
Other expenses 47,000
Consolidated net income 51,750
Attributable to NCI 3,350
Attributable to controlling interest P 48,400
Supporting computations:
Sales:
Pablo Company P220,000
Sally Company 120,000
Intercompany sales (70,000)
Consolidated sales P270,000
Other income:
Pablo Company P 5,000
Computer services (5,000)
:
Other expenses:
Pablo Company P 40,000
Sally Company 12,000
Computer services (5,000)
Consolidated other expenses P 47,000
97
PROBLEMS
Problem 17-1
The computation of the selected consolidation balances are affected by the inter-company profit
in downstream intercompany sales as computed below:
a. Consolidated Sales
Apo P800,000
Bicol 600,000
Intercompany sales – 2011 (250,000)
Total P1,150,000
b. Cost of goods sold
Apo’s book value P 535,000
Bicol’s book value 400,000
Intercompany sales-2011 (250,000)
Realized profit in beginning inventory – 2011 ( 14,400)
Unrealized profit in ending inventory – 2011 10,000
Consolidated cost of goods sold P 680,600
c. Operating expenses
Apo P 100,000
Bicol 100,000
Total P 200,000
f. Inventory
Apo P 298,000
Bicol 700,000
Unrealized profit in ending inventory, Dec. 31, 2011 (10,000)
Consolidated inventory P 988,000
98
Problem 17-1, continued:
g. NCI
NCI, December 31, 2010 [ (P902,000/80%) x 20%] P225,500
NCI in dividends paid by Bicol (P50,000 x 20%) (10,000)
NCI in net income of subsidiary (P100,000 x 20%) 20,000
Total NCI, 12/31/11 P235,500
Problem 17-2
Schedule 1:
Cost of sales – P Company P 800,000
Purchases from S Company (600,000)
Intercompany profit in beginning inventory (P60,000 x 25%) ( 15,000)
Intercompany profit in ending inventory (P76,000 x 25%) 19,000
Total P 204,000
Cost of sales – S Company 500,000
Consolidated cost of sales P 704,000
Schedule 2:
Net income – S Company P 180,000
Realized profit in beginning inventory – Upstream 15,000
Unrealized profit in ending inventory – Upstream (19,000)
Adjusted net income P 176,000
NCI proportionate share x 25%
NCI in net income of subsidiary P 44,000
Problem 17-3
99
Problem 17-3, Continued
c. Non-controlling Interest
NCI, August 30, 2011 [(P248,000/80%) x 20%] P 62,000
NCI in subsidiary dividends [(P32,000/80%) x 20%] ( 8,000)
NCI in net income of subsidiary 9,000
NCI P 63,000
100
Problem 17-4
a. Consolidated Sales
Reported total sales (P600,000 + P510,000) P1,170,000
Intercompany sales (P140,000 + P240,000) (380,000)
Consolidated sales P 790,000
Downstream Sales
Sales 140,000
Inventory (P42,000 x 40/140) 12,000
Cost of goods sold 128,000
Upstream Sales
Sales 240,000
Inventory (P48,000 x 20/120) 8,000
Cost of goods sold 232,000
101
Problem 17-5
Income Statement
Sales 12,000,000 1,300,000 (5) 400,000 12,900,000
Dividend income 210,000 (1) 210,000 -
Total revenue 12,210,000 1,300,000 12,900,000
Cost of goods sold 7,000,000 750,000 (7) 30,000 (5) 400,000 7,380,000
Operating expenses 4,210,000 50,000 (4) 40,000 4,300,000
Total cost and expenses 11,210,000 800,000 11,680,000
Statement of Retained
Earnings
Retained earnings, January 1 5,500,000 2,200,000 (2)2,200,000 5,500,000
Net income from above 1,000,000 500,000 1,220,000
Total 6,500,000 2,700,000 6,720,000
Dividends declared - 210,000 (1) 210,000 -
Retained earnings,12/31 to BS 6,500,000 2,490,000 6,720,000
Statement of FP
Cash 810,000 170,000 980,000
Accounts receivable 425,000 445,000 (6) 25,000 845,000
Inventory 600,000 275,000 (7) 30,000 845,000
Property, plant and equipment 4,000,000 2,300,000 (3) 400,000 (4) 40,000 6,660,000
Investment in S Company 3,200,000 (2)2,800,000 -
(3) 400,000
102
Problem 17-5, Continued
Problem 17-6
103
Po Company and Subsidiary So Company
Consolidation Working Paper
Year Ended December 31, 2011
Eliminations Adjustments Consoli-
Po Company So Company Debit Credit dated
Income Statement
Sales 880,000 630,000 (6) 32,000
(8) 30,000 1,448,000
Dividend income 24,000 (2) 24,000 -
Total revenue 904,000 630,000 1,448,000
Cost of goods sold 704,000 504,000 (7) 1,320 (5) 1,350
(10) 750 (6) 32,000
(8) 700
(9) 30,000 1,146,020
Other expenses 130,000 81,000 211,000
Total cost and expenses 834,000 585,000 1,357,020
Net income 70,000 45,000 90,980
NCI in net income of Subsidiary (12) 8,990 (8,990)
Net income to retained earnings 70,000 45,000 81,990
Statement of Retained
Earnings
Retained earnings, January 1 1,105,000 140,000 (1) 8,000
(3)100,000
(5) 1,350
(8) 560 1,135,090
Net income from above 70,000 45,000 81,990
Total 1,175,000 185,000 1,217,080
Dividends declared 25,000 30,000 (2) 30,000 25,000
Retained earnings,12/31 to BS 1,150,000 155,000 1,192,080
Statement of FP
Cash 216,200 44,300 260,500
Accounts receivable 290,000 97,000 (11) 15,000 372,000
Inventory 310,000 80,000 (7) 1,320
(10) 750 387,930
Pant assets (net) 1,991,000 340,000 2,331,000
Investment in S Company 425,000 (3)320,000
(4)105,000 -
Goodwill 60,000 (4)131,250 191,250
Total assets 3,292,200 561,300 3,542,680
104
Eliminations and Adjustments
(1) Recognize NCI in subsidiary’s increase in undistributed earnings (P40,000 x 20%)
(2) Eliminate intercompany dividends.
(3) Eliminate subsidiary’s equity at date of acquisition
(4) Allocate excess to goodwill.
(5) Eliminate realized profit in beginning inventory (P9,000 x 15%) = P1,350
(Downstream)
(6) Eliminate intercompany downstream sales from April 1, 2008 to March 31, 2009,
P32,000.
(7) Eliminated unrealized profit in ending inventory (downstream), P6,000 x 22% =
P1,320.
(8) Eliminate realized profit in beginning inventory (upstream) P3,500 x 20% = P700.
(9) Eliminate intecompany upstream sales on March 31, 2009, P30,000.
(10) Eliminate unrealized profit in ending inventory (upstream), P3,000 x 25% = P750.
(11) Eliminate intercompany payables and receivables ,P10,000 + P5,000 = P15,000.
(12) Recognized non-controlling interest (NCI) in net income of subsidiary computed as
follows:
(2)
Po Company and Subsidiary So Company
Consolidated Income Statement
Fiscal Year Ended March 31, 2011
Sales P1,448,000
Cost of goods sold 1,146,020
Gross profit 301,980
Expenses 211,000
Consolidated net income P 90,980
Attributable to NCI 8,990
Attributable to controlling interest P 81,990
105
Problem 17-7
b. Intercompany Sales
Sales – P Company P2,000,000
Sales – S Company 1,000,000
Intercompany sales – 2011 (400,000)
Consolidated sales P2,600,000
106
Problem 17-7, continued:
d. Working Paper Eliminating Entries:
107
CHAPTER 18
18-1: a
Accumulated depreciation:
Time of sale P250,000
Current depreciation based on
Original cost (P500,000/10 years 50,000 P300,000
18-2: b
18-3: b
2005 2006
Net income from own operations – Prime P200,000 P250,000
Unrealized gain – Downstream (30,000) __-
Adjusted net income – Prime P170,000 P250,000
Second Company net income 100,000 150,000
Consolidated net income P270,000 P400,000
18-4: c
18-5: c
Accumulated depreciation:
Time of sale P360,000
Current depreciation (P900,000/10) 90,000 P 450,000
108
18-6: a
18-7: a
18-8: c
18-9: b
18-10: c
109
18-10, Continued:
Non-controlling interest (NCI)
NCI, January 1, 2011 [(P1,240,000/80%) x 20%) P 310,000
NCI share in dividends paid by subsidiary (P30,000 x 20%) ( 6,000)
NCI in adjusted net income (loss) of subsidiary ( 5,600)
NCI, December 31, 2011 P 198,400
18-11: a
110
18-12: a
18-13: d
2010 2011
Net income from operations – Parent P100,000 P120,000
Adjusted net income of Sub:
Net income P 60,000 P 75,000
Unrealized gain – Upstream ( 9,000) -
Realized gain: 2010 (P9,000/3) x ¼ 750
2011 (P9,000/3) - 3,000
Adjusted net income P 51,750 P 78,000
Consolidated net income P151,750 P198,000
Attributable to NCI (10,350) (15,600)
Attributable to parent P141,400 P182,400
18-14: d
111
18-15: a
PROBLEMS
Problem 18-1
Computation of the missing amounts in the working paper eliminations for P Corporation and S
Company:
(1) P640 (P3,200 x 20%)
(2) P2,560 (P3,200 x 80%)
(3) P1,600 (P800 x 2)
(4) P320 (P1,600 x 20%)
(5) P1,280 (P1,600 x 80%)
(6) P3,200 (P800 x 4)
Problem 18-2
112
Problem 18-3
Schedule 1:
Selling price – Dec. 28, 2011 P36,000
Book value (P65,000 ÷ 5) x3 26,000
Gain on sale 10,000
Unrealized gain (P25,000 – P15,000) 10,000
Total gain P20,000
Problem 18-4
113
Problem 18-5
Texas Company and Subsidiary
Consolidated Income Statement
Year Ended December 31, 2011
Sales P1,500,000
Cost of goods sold 650,000
Gross profit 850,000
Expenses (P200,000 + P100,000 – P8,000 ) 292,000
Consolidated net income P 558,000
Attributable to NCI (P150,000 x 25%) 37,500
Attributable to parent P 520,500
Problem 18-6
a. Working Paper Elimination Entries – Dec. 31, 2011
114
Problem 18-6, Continued:
b. Vincent Company and Subsidiary
Consolidation Working Paper
December 31, 2011
Statement of FP
Cash and receivables 113,000 35,000 (7) 7,000 141,000
Inventory 260,000 90,000 350,000
Land 80,000 80,000 (4) 10,000 150,000
Buildings and equipment 500,000 150,000 (5) 5,000 655,000
Investment in Jupiter Company 160,000 (2)120,000 -
(3) 40,000
Goodwill (3) 40,000 40,000
Total 1,113,000 355,000 1,336,000
115
.Problem 18-6, Continued:
c. Consolidated Financial Statements
Assets
Cash and receivables P 141,000
Inventory 350,000
Land 150,000
Buildings and equipment P655,000
Less: Accumulated depreciation 273,000 382,000
Goodwill 40,000
Total assets P1,063,000
Sales P 360,000
Cost of goods sold 200,000
Gross profit 160,000
Expenses: Depreciation P 38,000
Other expenses 20,000 58,000
Consolidated net income 102,000
Attributable to NCI 6,000
Attributable to parent P 96,000
116
Problem 18-7
Statement of FP
Inventory 130,000 50,000 (5) 12,500 (6) 12,500 175,000
(9) 5,000
Other current assets 241,000 235,000 476,000
Investment in S Company 200,000 (4)160,000
(5) 40,000
Goodwill (5) 12,500 12,500
Other long-term investments 20,000 20,000
Land 140,000 80,000 220,000
Buildings and equipment 375,000 200,000 (5) 25,000 (10) 15,000 585,000
Intangible assets 20,000 20,000
Totals 1,106,000 585,000 1,508,500
117
Problem 18-7, continued:
Determination and Allocation of Excess Schedule
Goodwill P12,500
Amortization
Inventory P12,500
Equipment (P25,000/4) 6,250
(1) To recognize NCI share in subsidiary’s adjusted prior year’s undistributed earnings
(P50,000 – P18,750) 20% = P6,250.
(2) To recognized NCI in net of subsidiary for the current year
(P105,000 + P10,000 – P5,000 – 6,250) x 20% = P20,750
(3) To eliminated intercompany dividends paid the subsidiary.
(4) To eliminate equity of the subsidiary at date of acquisition.
(5) To allocate excess.
(6) To amortize allocated excess.
(7) To eliminate intercompany sales.
(8) To eliminate beginning inventory profit.
(9) To eliminate ending inventory profit.
(10) To eliminate fixed asset gain at beginning of year.
(11) To eliminate realized gain on fixed assets.
118
Problem 18-8
Supporting computations
(1) Determination and allocation of excess schedule;
b. Operating Expenses
Operating expenses – Apex P 170,000
Operating expenses – Small 70,000
Amortization (No. 1 above) 10,000
Excess depreciation (P50,000 / 5 years) (10,000)
Consolidated P 240,000
119
c. Consolidated Net Income Attributable to Parent
Sales (after elimination of intercompany sales) P 840,000
Cost of goods sold (a) (507,000)
Operating expenses (b) (240,000)
NCI in net income of subsidiary:
Net income – Small P25,000
Realized gain on sale of building – Upstream 10,000
Adjusted net income P35,000
NCI x 40% ( 14,000)
Attributable to parent P 79,000
e. Consolidated Inventory
Inventory – Apex P 233,000
Inventory – Small 229,000
Unrealized profit in inventory – Dec. 31, 2011 ( 12,000)
Consolidated inventory P 450,000
f. Consolidated Building
Buildings – Apex P 308,000
Buildings – Small 202,000
Unrealized gain, Jan. 1, 2011 (50,000)
Realized gain, 2009– 2009 (P10,000 x 3 ) 30,000
Consolidated buildings P 490,000
g. Consolidated Patents
Patents – Small P 20,000
Allocation 120,000
Amortization, 2009 – 2011 (P10,000 x 7) ( 70,000)
Consolidated patents (net) P 70,000
120
Problem 18-9
Statement of FP
Cash 285,000 150,000 435,000
Accounts receivables (net) 430,000 350,000 (9) 75,000 705,000
Inventories 530,000 410,000 (8) 18,000 922,000
Land, buildings, and equipment 660,000 680,000 (3) 54,000 (5) 30,000 1,364,000
Investment in S Company 750,000 (2)636,000
(3)114,000
Goodwill (3) 60,000 60,000
Totals 2,655,000 1,590,000 3,486,000
121
Problem 18 – 10
. December 31 .
. 2011 2010 .
Sales P800,000 P660,000
Cost of goods sold 442,000 368,000 .
Gross profit 358,000 292,000
Operation expenses 178,000 138,000 .
Consolidated net income 180,000 154,000
NCI in net income of subsidiary 10,000 10,000 .
Attributable to equity holders of Pluto P170,000 P144,000 .
Supporting computations:
. .
. 2011 2010 .
Consolidated sales:
Combined sales P850,000 P700,000
Less: intercompany sales (50,000) (40,000) .
Consolidated sales P800,000 P660,000 .
122
123
CHAPTER 19
19-1: d.
19-2: c.
19-3: d.
September 30:
Forex rate, September 1 P 5.61
Forex rate, September 30 5.59
Decrease in forex rate P 0.02
December 31:
Forex rate, October 1 P 5.59
Forex rate, December 30 5.62
Increase in forex rate P 0.03
19-4: c.
123
19-5: a.
19-6: b.
19-7: a.
2010
Forex rate, 11/5/10 P 0.4295
Forex rate, 12/31/10 0.4245
Decrease in forex rate P 0.0050
Payable in foreign currency 50,000
Forex gain P 250
2011
Forex rate, 12/31/10 P 0.4245
Forex rate, 1/15/11 0.4345
Decrease in forex rate P 0.0100
Payable in foreign currency 50,000
Forex loss P (500)
19-10: b
124
19-11: d. forex gain (loss) on purchase commitments is based on the changes in the forward rates.
On December 31, 2010, no changes in forward rates occurred, so no forex gains (losses) are to be
recognized on December 31, 2010 under both transactions.
19-12: b.
19-13: d.
19-14: b.
19-15: a.
19-16: a. The forex gain or loss (changes in forward rates) is offset by gain or loss in firm
commitment to purchase machinery. The hedge was perfect.
19-17: 1. a
June 30: 400,000 FC x (P1.381 – P1.370) P(4,400)
July 31: 400,000 FC x (P1.385 – P1.381) (1,600)
Net forex loss P (6,000)
2. c
June 30: (P2,600 – P1,400) P1,200
July 31: [(P1.385 – P1.375) x 400,000FC] – P2,600 1,400
Net gain on option P2,600
Note that the option has expired and, therefore, there is no time value.
125
3. a
Down payment (50,000 FC x P1.350) P 67,500
Balance due (400,000 FC x P1.370) 548,000
Cost of machinery P615,500
19-18: 1. a
FCA FCB
Number of FC in commitment:
P549,600/P1,200 458,000
P297,975/P0.685 435,000
Change in spot rate from commitment date to
Transaction date:
P1.200 – P1.160 P 0.04
P0.685 – P0.692 P 0.007
Gain (loss) on commitment:
458,000 FCA x P0.04 P(18,320)
435,000 FCB x P0.007 P 3,030
2. a
FCA FCB
Receivables at spot rate at transaction date:
458,000 FCA x P1.160 P531,280
435,000 FCB x P0.692 P301,020
Receivables at spot rate at settlement date:
458,000 FCA x P1.170 535,860
435,000 FCB x P0.720 313,200
Exchange gain (loss): 4,580 12,180
19-19: 1. a
2. d
Computations: Forward
Contract Option
Prior to transaction date:
Gain (loss) on commitment [100,000 x (P1.250 – P1.320)] P (7,000) P (7,000)
Gain (loss) on hedging instrument:
Forward contract [100,000 x (P1.320 – P1.250)] 7,000
Option [100,000 x (P1.320 spot 0 P1.250 strike)] 7,000
Gain (loss) excluded from hedge effectiveness:
Forward contract [100,000 x P1.270 – P1.250)] (2,000)
Option (premium paid is all time value) - (1,200)
Effect on earnings prior to transaction date P (2,000) P (2,100)
19-20: a
12/01/11: A$70,000/P42,000 = 1.667 A$ to P1.00
12/31/11: A$70,000/P41,000 = 1.679 A$ to P1.00
19-22: a, The balance will not change, because it is denominated in Philippine peso.
19-23: a
P82,000/KRW 400,000 = P.205
The P82,000 is the amount of the peso payable to bank. This amount is computed using the
forward rate.
126
Problems
Problem 19-1
Foreign Foreign
Currency Currency
Accounts Accounts Transactions Transactions
Receivable Payable Exchange Loss Exchange Gain
Problem 19-2
127
Problem 19-2, continued:
Problem 19-3
a. No net exposure between November 1 and March 1. Michael, Inc. has hedged its foreign currency
purchase commitment with a forward contract to receive an equal number of foreign currency
units.
128
Problem 19-3, continued:
December 31: Firm commitment for merchandise 4,800
Forex gain 4,800
To record increase in fair value of the
Purchase commitment, and resultant
gain or the decrease in the forward rate.
Problem 19-4
129
Problem 19-4, continued:
August 1: Accounts payable 480,000
Forex loss (¥ 1,000,000 x P.03) 30,000
Cash (¥ 1,000,000 x P.51) 510,000
To record settlement.
Problem 19-5
Cash 1,240,000
Forward contract receivable 1,240,000
To record collection for forward contract.
130
Problem 19-6
Problem 19-7
Contract 1:
131
Problem 19-7, continued:
Contract 2:
Problem 19-8
132
Problem 19-8, continued:
June 20: Inventory- Used Equipment 21,960
Cash 21,960
To record reconditioning the equipment
(30,000 FC x P0.732)
133
Problem 19-8, continued:
Schedule 1
June 15 June 30
Number of FC 400,000 400,000
Forward rate remaining time – 1 FC P0.731 P0.737
Problem 19-9
Cash 164,000
Forward contract receivable 164,000
To record receipt of Phil. Pesos in settlement of the
forward contract receivable.
134
Problem 19-10
Current assets:
Forward contract receivable (Siam hedge: in Phil. pesos) P 168,000
Forward contract receivable (Indon hedge: 10,000,000 x P.0077) 77,000
Forward contract receivable (Speculation in Yen: 200,000 x P.670) 134,000
Change in value of firm commitment 1,000
Current liabilities:
Accounts payable (Indon account: 10,000,000 x P.0077) P 77,000
Forward contract payable (Siam hedge: 100,000 Baht x P1.690) 169,000
Forward contract payable (Speculation in Yen: payable in Phil. pesos) 130,000
Problem 19-11
a. Entry to record the purchase of the call options on November 30, 2010
135
Problem 19-11, continued:
c. Entries to record March 1, 2011, expiration of options, the sales of option, and the purchase
of oil.
Cash 30,000
Call options 30,000
Record the sale of the call options.
d. June 1, 2011, entries to record the sale of the oil and other entries:
Cash 340,000
Sales 340,000
Record the sale of 10,000 barrels
of oil at P34 per barrel
OCI 30,000
Cost of goods sold 30,000
Reclassify into earnings the other
comprehensive income from the
cash flow hedge.
136
137
CHAPTER 20
20-1: b
20-2: b
20-3: d
20-4: a
Average rate for the year is used in translating depreciation expense because this is more
reasonable estimation than the rate when the related asset was acquired (P4.80).
20-5: d
20-6: d
136
20-8: b
20-9: c
20-10: b
20-13: c
Pesos Rupee
Goodwill P42,000 35.000 (P42,000 / P1.20)
Impairment 4,340 (3,500 Rp x P1.24) 3,500
Balance P37,660 31,500
137
20-14: b
20-15: b
20-16: d
20-17: a
Phil Peso Thailand Baht
Initial inventory transfer date:
Selling price P120,000÷1.60 75,000 B
Cost (80,000)
Profit 40,000
20-19: a
Yen Exchange Rate Phil Peso
Net asset beginning 200,000 .44 88,000
Net income 200,000 .46 92,000
Net asset translated at rate:
During the year 400,000 180,000
At end of year 400,000 .48 192,000
20-21: c
Investment cost P1,210,000
Book value of interest acquired (1,100,000 x 1.10) x .80 968,000
Goodwill 242,000
138
PROBLEMS
Problem 20-1
a.
Pilipino Company
Translation Working Paper
December 31, 2011
CR – Current Rate
AR – Average Rate
HR – Historical Rate
139
Problem 20-2
CR – Current Rate
AR – Average Rate
HR – Historical Rate
140
Problem 20-2, continued:
Schedule 1:
Sales 150,000 Thailand Baht
Cost of goods sold ( 70,000)
Depreciation expense ( 10,000)
Operating expenses ( 30,000)
Net income 40,000 Thailand Baht
(b) The change in the translation adjustment of P11,500 is included as a credit in the other
comprehensive income on the Statement of Comprehensive Income. The other comprehensive
income is then accumulated and reported in the stockholders’ equity section of the consolidated
balance sheet as presented below:
Problem 20-3
Exchange Philippine
Brunei $ Rate Pesos
Cash 1.600 33 CR 52,800
Accounts receivable 2,500 33 CR 82,500
Inventory 4,000 33 CR 132,500
Plant and equipment 35,000 33 CR 1,155,000
Cost of sales 17,000 31 AR 527,000
Operating expenses 7,000 31 AR 217,000
Depreciation expense 3,000 31 AR 93,000
Dividends 1,500 32 HR 48,000
Total debits 71,600 2,307,300
141
Problem 20-3, continued:
Proof of Translation Adjustment (not required)
Translation
Brunei $ rate Philippine Pesos
Net assets at beginning of year 30,000 30 900,000
Adjustment for net assets position
during the year:
Net income 3,000 31 93,000
Dividends paid (1,500) 32 (48,000)
Net assets translated at rates
in effect for those items 945,000
Net assets at end of year 31,500 33 1,039,500
Change in translation adjustment during
Year to OCI – net increase (credit) 94,500
Accumulated OCI – translation adj. 1/1 -0-
Accumulated OCI – translation
Adjustment – 12/31 (credit) 94,500
142
Problem 20-4
UK Company
Translation Working Paper
Year Ended December 31, 2011
Exchange In
In Pounds Rate Phil. Pesos
Income Statement
Sales 90,000 P67.50 (A) 6,075,000
Cost of sales (80,000) 67.50 (A) (5,400,000)
Depreciation expense (1,500) 67.50 (A) (101,250)
Other expenses (5,750) 67.50 (A) (388,125)
Net income carried forward 2,750 185,625
Translation Code:
C = Current rate
H = Historical rate
A = Average rate
B = Balance in Philippine pesos at the beginning of the year.
F = Per Income Statement
143
Problem 20-5
Goodluck Corporation
Foreign Exchange Translation Worksheet
Year Ended December 31, 2011
Translation Code:
A = Average rate
B = Current rate
H = Historical rate
G = Given
B = Balancing amount
Problem 20-6
Direct A$ Indirect
January 1, 2010 P.03333=1 A$30=P1
December 31, 2010 P.02857=1 A$35=P1
December 31, 2011 P .025=1 A$40=P1
144
Problem 20-6, continued:
The peso strengthened during 2010 because the number of A$ one Phil. Peso could acquire
at the end of the year (35) is greater than the number of A$ that could be acquired at the
beginning of the year (30); therefore, the value of the peso has increased relative to the A$
during 2010. The peso continued to strengthen during 2011.
P.03333= average of beginning and ending exchange rates, rounded to 4 decimal points:
P.030945= [(P.03333 + P.02856) /2]
Translation
___A$___ _ Rate_ _Dollars_
Net assets, 1/1/10 A$ 500,000 P.03333 P 16,665
Adjustment for changes in
net assets during year:
Net income 220,000 P.03095 6,809
Net assets translated at:
Rates during year P 23,474
Rates at end of year A$ 720,000 P.02857 (20,570)
Change in translation
Adjustment during year (debit) P 2,904*
145
Problem 20-6, continued:
c. Translated December 31, 2011, statement of financial position:
(a)The retained earnings in pesos would begin with the December 31, 2010, peso balance
(P6,809) that would be carried forward. To this would be added 2011’s net income of
A$90,000, which is the change in retained earnings in A$ multiplied by the 2011 exchange
rate of P.02679 [(P.02857 + P.025/2)] which equals P2, 411. Therefore, translated retained
earnings on December 31, 2011, is P9, 220 (P9, 220= P6, 809 + P2, 411)
Australian Translation
Dollar _ Rate Pesos___
Net assets, 1/1/11 A$ 720,000 P.02857 P20, 570
Adjustment for changes in
net assets during year:
Net income 90,000 P.02679 2,411___
Net assets translated at:
rates during year P22, 981
Other comprehensive income-
rate at end of year A$ 810,000 P.025 (20,250)__
Change in other comprehensive
income- translation
adjustment during year (debit) P2, 731
Accumulated other comprehensive
income- translation adjustment, 1/1/11 2,904___
Accumulated other comprehensive
income- translation adjustment, 12/31/11 (debit) P5, 635
d. The P2, 731 change in the accumulated other comprehensive income- translation
adjustment during 2011 would be reported as a component of other comprehensive
income on 2011 statement of other comprehensive income.
146
147
CHAPTER 21
21-1 b
21-2 a
21-3 a
21-4 b
21-5 b
21-6 a
21-7 c
21-8 a
21-9 a
21-10 c
21-11 d
21-12 b
21-13 b
21-14 a
21-15 a
147
PROBLEMS
Problem 21-1
9. Electricity 5,000
Telephone expense – Landline 4,000
Accounts payable 50,000
Due to BIR 5,000
Cash – National Treasury – MDS 54,000
148
Problem 21-2
Building
7. Due to BIR 80
Subsidy income from national government 80
Repairs of Building
3. Accounts payable 70
Due to BIR 7
Cash – National Treasury – MDS 63
149
Problem 21-1, continued:
6. Cash – Disbursing Officer 36
Cash – National Treasury – MDS 36
8. Due to BIR 47
Cash – National Treasury – MDS 47
Land:
2. Land 100
Accounts payable 100
150
Problem 21-3
6. Prepaid rent 60
Cash – National Treasury – MDS 60
7. Electricity expense 50
Cash – National Treasury – MDS 50
151
Problem 21-3, continued:
(b) Pre-closing Trial Balance
Closing Entries:
152
Problem 21-4
Agency VV
Statement of Income and Expenses
Year Ended December 31, 2011
Income:
Subsidy income from national government P1,700
Less: Reversion of unused NCA 800 P900
Less: Expenses
Salaries and wages – Regular P 320
Personnel Economic Relief Allowance 40
Additional compensation 40
Life and retirement insurance contribution 60
Pag-ibig contribution 10
Philhealth contgribution 10
Traveling expense – Local 35
Office supplies expense 60
Electricity expense 75
Telephone expense – landline 45
Janitorial services 30
Security services 35
Repairs and maintenance – Office building 65
Depreciation – Office building 15
Depreciation – office equipment 10
Depreciation – furniture and fixtures 5
Depreciation – IT equipment and software 5 860
Net income over expenses P 40
153
Agency VV
Balance Sheet
As of December 31, 2011
ASSETS
Current Assets
Cash:
Cash in vault P 200
Cash – collecting officer 500
Cash – disbursing officer 1,000
Petty cash fund 150
Cash in bank – LCCA 350 P2,200
Receivables:
Accounts receivable P 120
Less: Allowance for doubtful accounts 20 100
Inventories:
Office supplies inventory 30
Other current assets 15
Long-term investment:
Investment in stock 400
Property, Plant and Equipment:
Land 600
Office building 650
Less: accumulated depreciation 50 600
Office equipment 250
Less: accumulated depreciation 20 230
Furniture and fixtures 110
Less: accumulated depreciation 10 100
IT equipment and software 190
Less: accumulated depreciation 25 165 1,695
Total assets 4,440
154
155
CHAPTER 22
22-2: d.
22-4: a.
Unrestricted cash contribution received from donors are to be reported as increase in net cash
provided by operation.
22-5: d.
22-6: b.
Unregistered pledges from donors are treated as revenues at the time of the pledge.
22-7: d.
22-8: a.
As of July 31, 2011, all of the funds are properly includible in the Plan Funds, for a total of
P900,000.
22-10: d.
22-11: c.
155
22-12: c.
The contributed services are debited to Salary Expense account and credited to Contribution
Revenue account.
22-13: c.
The net effect on unrestricted net assets of spending P10,000 on research is zero.
The P1,000,000 contribution from the donor, who stipulated that the contribution be invested
Indefinitely, should be reported as permanently restricted revenue.
22-15: c.
22-16: b.
22-17: a.
Cash flows from operating activities would include both the cash received from patient service
Revenue of P300,000 and the cash received from gift shop sales of P25,000.
22-18: b.
Cash received from patient revenue (collection of receivables) and from tuition revenue are both
included in the amount reported for cash flows from operating activities. The other cash receipts
would be reported as increases in cash flows provided by financing activities.
22-19: b.
Expirations of donor restrictions on temporarily restricted net assets should be reported on the
Statement of operations as net assets released from restrictions.
22-20: c.
Current funds revenues include (1) all unrestricted gifts and other unrestricted resources earned
during the reporting period, and (2) restricted current funds to the extent that such funds were
expended for current operating purpose. Therefore, the amount that should be included in current
funds revenue is:
156
Problems
Problem 22-1
2. Cash 260,000
Pledges receivable 260,000
3. Cash 40,000
Fund raising expense 5,000
Fund raising revenue 45,000
4. Investment 35,000
Cash 35,000
5. Cash 5,000
Sales – public revenue 5,000
6. Salaries 90,000
Employee fringe benefits 15,000
Payroll taxes 16,000
Supplies 7,000
Telephone 1,500
Utilities 6,000
Rent 10,000
Conference, conventions and meetings 5,000
Cost of sales to public 1,000
Miscellaneous 3,000
Cash 154,500
7. Utilities 1,000
Salaries 5,000
Accounts payable or accrued expense payable 6,000
157
Problem 22-2
Cash 3,500
Pledges receivable 3,500
To record pledges collected.
158
Problem 22-3
159
Problem 22-4
ASSETS
Current assets
Cash P 7,000
Short-term investments 217,000
Accounts receivable (net) 25,000
Publications inventory 61,000
Total current assets 310,000
Long-term investments 120,000
Plant assets (net) 33,000
Other assets 28,000
Total assets P491,000
160
Problem 22-5
Children Association
Statement of Activities
Year Ended December 31, 2011
Children Association
Statement of Financial Position
December 31, 2011
ASSETS
Cash (P40,000 + P9,000) P 40,000
Bequest and interest receivable (P5,000 + P1,000) 6,000
Pledges receivable (net) (P12,000 – P3,000) 9,000
Investments, at cost 100,000
Total assets P164,000
161
Problem 22-6
ASSETS
Current assets
Cash P 222,000
Accounts receivable (net of allowance of P5,000) 20,000
Inventories 50,000
Prepaid expenses 10,000
Total current assets P 302,000
Investments 660,000
Property, plant and equipment (net of accumulated depreciation of P140,000) 160,000
Total assets P1,122,000
162