CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING GERMAN / LIM / VALIX / K. DELA CRUZ / MARASIGAN

SELFTEST

Numbers 1, 2 and 3

AA Co. bought the net assets of BB Co. by issuing 120,000 shares at P10 par. The fair value of the shares
were 2,550,000. Immediately before the acquisition the following balances were ascertained for BB Co.

Book Value Fair Value

Current assets 1,000,000 1,100,000
Non-current assets 1,500,000 2,200,000
Liabilities 300,000 300,000
Ordinary shares 2,000,000
Retained earnings 200,000

AA Co. also incurred the following costs:

 Professional fees to arrange business combination P27,000
 SEC registration P12,000
 Printing and issuing of stock certificates P3,000

1. What is the result of the business combination?

A. 450,000
B. (450,000)
C. 350,000
D. (350,000)

2. What is the additional paid in capital recorded by AA Co.?

A. 1,330,000
B. 1,350,000
C. 1,335,000
D. 1,365,000

3. What is the net increase / (decrease) in the retained earnings of AA Co.?

A. 450,000
B. 408,000
C. (27,000)
D. 423,000

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Numbers 4 and 5

Papa Company’s stockholders’ equity as of December 31, 2021 is P7,308,000. On January 1, 2022 Papa
acquires 30% of Son Company’s ordinary shares for P540,000 cash and by issuing its own shares with a
fair value of P1,350,000. Papa acquired significant influence over Son as a result of the stock acquisition.
After four months, Papa purchases another 60% of Son’s ordinary shares for a cash payment of
P3,942,000. On this date, Son reports identifiable assets with carrying value of P6,480,000 and fair value
of P11,520,000 and it has liabilities with a book value and a fair value of P3,240,000.

At the acquisition date, net loss reported by Son for the four-month ended amounted to P900,000. The
fair value of the 10% non-controlling interest is P1,296,000. Non-controlling interest is valued using the
proportionate basis. Papa also paid the following: P90,000 for legal fees, P72,000 for finder’s fee,
P77,400 for accountant’s fee, P64,800 for audit fee for SEC registration of stock issued and P19,800 for
printing of stock certificates.

4. What is the result of the business combination on the date of acquisition?

A. (1,071,000) gain on bargain purchase
B. (1,890,000) gain on bargain purchase
C. (1,539,000) gain on bargain purchase
D. 3,501,000 goodwill

5. Immediately after the business combination, how much is the consolidated shareholders'
equity?
A. 9,954,000
B. 10,782,000
C. 10,431,000
D. 9,243,000

Numbers 6, 7, 8, 9 and 10

On January 2, 2021, Bucky Corporation purchase 80% of Sam Company’s common stock for P216,000.
P10,000 of the excess is attributable to goodwill and the balance to a depreciable asset with an economic
life of 10 years. On date of acquisition, Sam reported common stock outstanding of P80,000, and retained
earnings of P140,000, and Bucky reported common stock outstanding of P350,000 and retained earnings
of P520,000.

On December 31, 2021, Sam reported comprehensive income of P35,000 and paid dividends of P15,000,
Bucky reported CI of P107,000 and paid dividends of P46,000. Goodwill had been impaired and should
be reported at P2,000 on December 31, 2021.

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6. What is the consolidated CI on December 31, 2021?

A. 126,000
B. 124,000
C. 118,000
D. 118,250

7. What is the consolidated CI attributable to parent on December 31, 2021?

A. 118,250
B. 112,000
C. 111,800
D. 113,400

8. On December 31, 2021, how much is the NCI in the CI of the subsidiary?
A. 5,400
B. 6,200
C. 4,600
D. 6,250

9. What is the consolidated retained earnings on December 31, 2021?

A. 587,400
B. 586,000
C. 585,800
D. 591,800

10. What is the balance of NCI on December 31, 2021?

A. 54,750
B. 48,500
C. 57,200
D. 55,600

Numbers 11 and 12

On January 1, 2021, PPAR Corp purchased 55% of the outstanding common shares of SPAR Corp for
P41,756,000 cash. The shareholders equity of PPAR and SPAR on this date amounted to P100 million
and P81 million respectively. Also on this date, the inventories of SPAR were deemed to be overstated by
P1 million. Half of these inventories were sold to third parties by SPAR during 2021, and the remaining
half during 2022.

During the year of acquisition, PPAR sold goods costing P300,000 to SPAR for P500,000 credit. At the
end of the year, half of these goods are still in the warehouse of SPAR. Consequently, SPAR sold goods
costing P100,000 to PPAR for P150,000 cash during the same year. None of these goods were sold to
third parties by PPAR before the end of the year. Net income of PPAR and SPAR in their separate 2021
income statements were P30,000,000 and P27,000,000, respectively.

11. How much is the consolidated net income attributable to parent during the year 2021?
A. 47,466,500
B. 47,241,500
C. 45,222,500
D. 44,997,500

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12. How much is the consolidated cost of goods sold during the year 2021 if the cost of goods sold
of PPAR and SPAR in their separate statements of profits and losses are P10,000,000 and
P8,000,000, respectively?
A. 18,150,000
B. 17,500,000
C. 17,350,000
D. 17,000,000

Numbers 13, 14 and 15

On January 1, 2021, PATIENCE CORP purchased 90% of the outstanding voting shares of STRENGTH
CORP for P10,350,000 cash. The non-controlling interest was measured using its proportionate share in
the fair value of the net assets of the subsidiary. The net assets of STRENGTH on this date amounted to
P12 million, but inventories were noted to be overstated by P1 million. All these inventories were sold by
STRENGTH CORP to third parties during 2021.

At the beginning of 2022, PATIENCE CORP’s inventory balance included goods purchased from
STRENGTH CORP for P120,000. Also on this day, STRENGTH CORP’s inventory balance included
goods purchased from PATIENCE CORP for P50,000.

During 2022, PATIENCE generated a total of P20,000,000 in sales revenue, 5% of which were
transactions with STRENGTH. On the other hand, STRENGTH generated P10,000,000 sales revenue,
10% of which were transactions with PATIENCE. Goodwill was also assessed to be impaired for
P100,000 during 2022. Dividends amounting to P4,000,000 and P2,000,000 were declared during 2022
by PATIENCE and STRENGTH, respectively.

At the end of 2022, PATIENCE CORP’s inventory balance included goods purchased from STRENGTH
CORP for P144,000. Also at the end of 2022, STRENGTH CORP’s inventory balance included goods
purchased from PATIENCE CORP for P65,000.

The gross profit rates of PATIENCE and STRENGTH were consistently maintained at 30% and 25%
based on sales, respectively, throughout the years. The net income of PATIENCE and STRENGTH for
2022 amounted to P18,000,000 and P8,000,000, respectively.

13. How much is the consolidated net income attributable to parent for 2022?
A. 23,290,100
B. 24,280,000
C. 24,290,100
D. 25,090,100

14. How much is the consolidated inventory balance as of the end of 2022 if the inventory balances of
PATIENCE and STRENGTH in their separate statements of financial position are P5,000,000 and
P4,000,000, respectively?
A. 8,000,000
B. 8,944,500
C. 8,989,500
D. 9,000,000

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15. How much is the consolidated cost of goods sold for the year 2022?
A. 18,510,500
B. 19,489,500
C. 19,510,500
D. 21,510,500

Numbers 16 and 17
On January 1, 2020, Smeder Company, an 80% owned subsidiary of Collins Inc., transferred equipment
with a 10-year life (six of which remain with no salvage value) to Collins in exchange for P84,000 cash.
At the date of transfer, Smeder's records carried the equipment at a cost of P120,000 less accumulated
depreciation of P48,000. Straight-line depreciation is used. Smeder reported net income of P28,000 and
P32,000 for 2020 and 2021, respectively.

16. Compute the realized gain recognized in the consolidated financial statements relating to the
intercompany sale of equipment for 2020.
A. 36,000
B. 2,000
C. 0
D. 12,000

17. Compute non-controlling interest in subsidiary’s net income for 2020.

A. 3,600
B. 4,000
C. 3,200
D. 5,600

Number 18
Shine Company, an 80% owned subsidiary of Perfect Inc., sold land to Perfect on June 1, 2020, for
P60,000, the land originally cost Shine P65,000. Shine reported net income of P200,000, P180,000 and
P220,000 for 2020, 2021 and 2022, respectively. Perfect sold the land it purchased from Shine in 2020
for P72,000 in 2022 to unaffiliated entity.
Compute the non-controlling interest in profit in 2021.
A. 41,000
B. 36,000
C. 37,000
D. 35,000

Number 19
BRB Corp. owns 70% of PCV Corp’s ordinary shares. On August 1, 2020, PCV Corp. sold a machine
to BRB Corp. for P3,480,000. The carrying amount of the machine is P2,040,000 and has a remaining
life of 8 years.
Due to this intercompany transaction, how much will be debited or credited to Depreciation
Expense in the 2021 working paper?
A. 180,000 credit
B. 75,000 debit
C. 75,000 credit
D. 180,000 debit

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Number 20
Stark Company, a 90% owned subsidiary of Parker Inc., sold land to Parker on May 1, 2020, for P80,000,
the land originally cost Stark P85,000. Stark reported net income of P200,000, P180,000 and P220,000
for 2020, 2021 and 2022, respectively. Parker sold the land it purchased from Stark in 2020 for P92,000
in 2022 to outsiders.
Which of the following will be included in a consolidation entry for 2020?
A. Debit loss for 5,000
B. Debit gain for 5,000
C. Credit loss for 5,000
D. Credit gain for 5,000
END

Suggested Answers:

1. B 6. C 11. B 16. B
2. C 7. D 12. D 17. A
3. D 8. C 13. A 18. B
4. C 9. A 14. B 19. A
5. B 10. D 15. C 20. C

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