Mid_PS2

AEC 57

Practice Set #2 (65 pts)

PART 1-THEORIES (1pt. each)
“A” if TRUE , “B” if FALSE

1. If an acquisition by a parent of a subsidiary occurs during the accounting period, adjustments

must be made for the income earned by a subsidiary before the acquisition date. - A
2. The portion of a subsidiary's net income not accruing to the parent can be referred to as a
noncontrolling interest share. - A
3. A subsidiary can be excluded from consolidation when the control does not rest with the
majority owner - A
4. The cost method of acquisition income is recognized only when the subsidiary declares
dividends.

5. When a parent losses control of a subsidiary, the retained investment in subsidiary

a. Shall be accounted for in accordance with PAS 39 on the measurement of financial asset.
b. Shall continue to be accounted for as investment in subsidiary.
c. Shall be accounted for as investment property.
d. Shall be accounted for as nonmarketable equity security

6. A subsidiary is an entity that:

a. has significant influence over a parent entity.
b. has the power to control a parent entity
c. exercises control over a parent entity
d. is controlled by another entity.

7. A single set of financial statements, that combines the separate sets of financial statements for a
number of entities, which are managed as a single economic entity, is known as:
a. consolidated financial statements.
b. new entity financial statements
c. new entity financial statements
d. a condensed financial report;

8. Company X acquires 100 percent of the voting shares of Company Y for P275,000 on December 31,
2013. The fair value of the net assets of Company X at the date of acquisition was P300,000. This is an
example of a(n):
a. bargain purchase
b. positive differential
c. revaluation adjustment
d. extraordinary loss
9. A "group" for consolidation purposes is
a. An entity, including an unincorporated entity such as partnership that is controlled by another entity.
b. A parent and all its subsidiaries
c. An entity that obtains control over other entities or businesses
d. An entity that has one or more subsidiaries

10. Consolidated financial statements are typically prepared when one entity has a controlling financial
interest in another, unless
a. Such control is likely to be temporary
b. The subsidiary is a finance entity
c. The two entities are in unrelated industries
d. The fiscal year-ends of the two entities are more than three months apart

11.If a dividend is paid out of profits that are earned after the acquisition date, it is known as:
a. a pre-acquisition dividend
b. a final dividend
c. a post-acquisition dividend
d. a temporary dividend

PART 2- COMPUTATIONS (1pt. each)

1. 14-9
2. 14-10
3. 14-21
4. On January 1, 2019, NANA Co. sells 60% out of its 80% interest in SASHA, Inc. for ₱100,000.
NANA’s remaining 20% interest in SASHA has a fair value of ₱25,000. This gives NANA significant
influence over SASHA. The statements of financial position immediately before the sale are
shown below:

Statements of financial position

As at January 1, 2019

Consolidate
NANA Co. SASHA, Inc.
d
ASSETS
Cash 23,000 57,000 80,000
Accounts receivable 75,000 22,000 97,000
Inventory 105,000 15,000 120,000
Investment in subsidiary 75,000 - -
 Equipment 200,000 50,000 260,000
Accumulated depreciation (60,000) (20,000) (84,000)
Goodwill - - 3,000

TOTAL ASSETS 418,000 124,000 476,000

LIABILITIES AND EQUITY

Accounts payable 43,000 30,000 73,000
Bonds payable 30,000 - 30,000

Total liabilities 73,000 30,000 103,000

Share capital 170,000 50,000 170,000
Share premium 65,000 - 65,000
Retained earnings 110,000 44,000 118,000
Non-controlling interest - - 20,000
Total equity 345,000 94,000 373,000

TOTAL LIAB. & EQTY. 418,000 124,000 476,000

How much is the gain (loss) on the disposal?

a.38,000 b.42,000 c.62,000 d.78,000

5. On January 1, 2019, ALUCARD Co. acquired 80% interest in BERTHOLD, Inc. by issuing 5,000
shares with fair value of ₱15 per share. On this date, BERTHOLD’s equity comprised of ₱50,000
share capital and ₱24,000 retained earnings. NCI was measured at its proportionate share in
BERTHOLD’s net identifiable assets.

BERTHOLD’s assets and liabilities on January 1, 2019 approximate their fair values except for the
following:

Fair value
BERTHOLD, Inc. Carrying Fair adjustments
amounts values (FVA)

Inventory 23,000 31,000 8,000

Equipment (4 yrs. remaining
life) 50,000 60,000 10,000
Accumulated depreciation (10,000) (12,000) (2,000)
Totals 63,000 79,000 16,000

BERTHOLD, Inc. declared and paid dividends of ₱6,000 during 2019. There was no impairment in
goodwill. The year-end individual statements of profit or loss are shown below:

Statements of profit or loss

For the year ended December 31, 2019

ALUCARD Co. BERTHOLD, Inc.

Sales 300,000 120,000
Cost of goods sold (165,000) (72,000)

Gross profit 135,000 48,000

Depreciation expense (40,000) (10,000)
Distribution costs (32,000) (18,000)
Interest expense (3,000) -
Dividend income 4,800 -
Profit for the year 64,800 20,000

How much is the profit attributable to

Owners of the parent NCI

a. 68,000 2,000
b. 64,800 5,200
c. 52,000 18,000
 d. 57,200 12,800

6. On November 2019, Parent, Inc. purchased for cash at Php15 per share all 250,000 shares of the
outstanding common stock of Siso Co. At November 30,2019, Siso’s balance sheet showed a
carrying amount of net assets od Php 3M. At that date, the fair value of Siso’s property, plant
and equipment exceeded its carrying amount by Php400,000. In its November 30, 2019,
consolidated balance sheet, what amount should Parent report as goodwill.
a.750,000 b.400,000 c.350,000 d.0
7. Print Inc. acquired 100% of Same Co. in a business combination on September 30, 2019. During
2019, Print declared quarterly dividends of Php25,000 and Same declared quarterly dividends,
of Php10,000. Under the purchase method of accounting for the business combination, what
amount should be reported as dividends declared in the December 31,2019 consolidated
statement of retained earnings?
a.100,000 b.105,000 c.130,000 d.140,000
 8. Mathilda Corp has a 90% interest in Gambit Co. while the latter has an 80% interest in Chan
Corp. For the year ended December 31,2019. The net income from own operations of these
three companies were: Mathilda- Php1M, Gambit-Php500K, and Chan-Php 250K. What is the
amount of minority interest in net income for 2019.
a.120,000 b.100,000 c.70,000 d.50,000

PART 3- LONG PROBLEMS

1. 14-3 page 117 (10pts)

2. 15-5 (15pts)
JOURNAL ENTRIES ON BONDPAPER
3. 14-14 to 14-20 Page 110 (7pts.)
4. On January 1, 2019, GRANGER Co. acquired 80% interest in HISTORIA, Inc. by issuing 5,000
shares with fair value of P30 per share and par value of P20 per share. The financial statements
of GRANGER Co. and HISTORIA, Inc. immediately after the acquisition are shown below:

  Jan. 1, 2019
GRANGER HISTORIA,
  Co. Inc.

Cash 20,000 10,000

Accounts receivable 60,000 24,000
Inventory 80,000 46,000
Investment in subsidiary 150,000
Equipment 400,000 100,000
Accumulated depreciation (40,000) (20,000)

Total assets 670,000 160,000

Accounts payable 40,000 12,000

 Bonds payable 60,000 -
Share capital 340,000 100,000
Share premium 130,000 -
Retained earnings 100,000 48,000

Total liabilities and equity 670,000 160,000

On January 1, 2019, the fair value of the assets and liabilities of HISTORIA, Inc. were determined
by appraisal, as follows:

Carrying Fair Fair value

HISTORIA, Inc.
amounts values increment
Cash 10,000 10,000 -
Accounts receivable 24,000 24,000 -
Inventory 46,000 62,000 16,000
Equipment 100,000 120,000 20,000
Accumulated depreciation (20,000) (24,000) (4,000)
Accounts payable (12,000) (12,000) -
Net assets 148,000 180,000 32,000

The equipment has a remaining useful life as of 4 years from January 1, 2019.

Requirement: Prepare the consolidated statement of financial position as at January 1, 2019.

GRANGER Co. elects to measure non-controlling interest as its proportionate share in
HISTORIA’s net identifiable assets. (5pts)
5. On January 1, 2019, Turtle Co. issued equity instruments in exchange for 75% interest in
Titan Co. On acquisition date, Turtle Co. elected to measure non-controlling interest at fair
value. Turtle Co.’s management believes that the fair value of the consideration transferred
correlates to the fair value of the controlling interest acquired and that the fair value of the
controlling interest is proportionate to the fair value of the remaining interest.

Titan Co.’s net identifiable assets have carrying amount and fair value of ₱300,000 and
₱360,000, respectively. The difference is attributable to a building with a remaining useful
life of 6 years.

The December 31, 2019 statements of financial position of Turtle Co. and Titan Co. are
summarized below:

Turtle Co. Titan Co.

ASSETS
Investment in subsidiary (at cost) 300,000 -
Other assets 1,372,000 496,000
TOTAL ASSETS 1,672,000 496,000

LIABILITIES AND EQUITY

Trade and other payables 292,000 120,000
Share capital 940,000 200,000
Retained earnings 440,000 176,000
Total equity 1,380,000 376,000
TOTAL LIABILITIES AND EQUITY 1,672,000 496,000
No dividends were declared by either entity during year. There were also no inter-company
transactions and impairment in goodwill. (5pts)

 What amount of goodwill is presented in the consolidated statement of financial position

on December 31, 2019?
 How much is the consolidated total assets as of December 31, 2019?
 How much is the non-controlling interest in the net assets of the subsidiary on December
31, 2019?
 How much is the consolidated retained earnings on December 31, 2019?
 How much is the consolidated total equity on December 31, 2019?