CONSOLIDATED FINANCIAL STATEMENTS - SUBSEQUENT TO ACQUISITION

(Year 1)

Arkin Corporation acquired 60% of the outstanding shares of Sharp Company on

January 2, 2019 for a consideration transferred of P4,320,000. The Non-controlling
interest is measured at fair value. On the date of acquisition, the related cost of
business combination amounted to P80,000. On January 2, 2019, Sharp Company’s
stockholders’ equity accounts were: Ordinary Shares, P4,700,000 and Retained
Earnings, P1,860,000. An examination of the acquired company’s assets and liabilities
on the date of acquisition, revealed that there were assets with book values different
from their fair values. The merchandise inventory of Sharp is undervalued by
P180,000; land, which was undervalued by P200,000; equipment, which was
overvalued by P120,000 and copyright was undervalued by P90,000. Inventories were
all sold in 2019. The equipment had a remaining life of 8 years while copyright had a
remaining life of 5 years. Goodwill is impaired in the amount of P30,000 in year 1.

ARKIN Corporation SHARP Company

Cash P 3,240,000 P 1,800,000
Trade Receivable 1,020,000 960,000
Merchandise Inventory 2,640,000 740,000
Furniture, net 720,000 540,000
Equipment, net 1,140,000 660,000
Building, net 9,060,000 4,540,000
Machinery, net 480,000 360,000
Land 5,880,000 3,000,000
Copyright, net 660,000 240,000
Investment in Sharp Co. 4,320,000
Cost of Goods Sold 6,900,000 3,840,000
Loss on sale of machinery 60,000 180,000
Expenses 3,840,000 1,620,000
Dividends Declared 2,280,000 1,920,000
P 42,240,000 P 20,400,000
========= =========
Liabilities P 3,570,000 P 2,700,000
Ordinary Shares 12,600,000 4,700,000
Retained Earnings, 01/02/19 7,200,000 1,860,000
Sales 16,800,000 9,940,000
Gain on sale of furniture 90,000 120,000
Dividend Revenue 1,980,000 1,080,000
P 42,240,000 P 20,400,000
=========== ===========

The acquirer corporation accounts for its investment account in subsidiary in the
separate financial statements using the cost method. For 2019, prepare the
consolidated financial statements:
Computation of Goodwill/Gain from Bargain Purchase

Aggregate amount of:

Price paid P4,320,000 (60%)

Recognized amount of NCI 2,880,000 (40%) P7,200,000

SHE of Sharp Co./BV of Identifiable Net Assets on the Date of Acquisition:

Ordinary shares P4,700,000
Share premium -
Retained earnings 1,860,000 P6,560,000
Add: Undervalued excess of merchandise 180,000
Undervalued excess of land 200,000
Overvalued excess of equipment (120,000)
Undervalued excess of copyright 90,000
Identifiable NA at FV 6,910,000
Full Goodwill 290,000

Amortization of Excess Schedule

Excess Amortization
Year 1 Years 2-5
Years 6-8
Undervalued excess of merchandise P 180,000 P180,000 - -
Undervalued excess of land 200,000 - - -
Overvalued excess of equipment (120,000) (15,000) (15,000)
(15,000)
Undervalued excess of copyright 90,000 18,000 18,000 -_______
P350,000 P183,000 3,000 (15,000)

Determination and Allocation Schedule of Goodwill and Impairment

Controlling Non-Controlling
Aggregate amount: P4,320,000 P2,880,000
Identifiable NA at FV (4,146,000) (2,764,000)
Goodwill P 174,000 P 116,000
Impairment 18,000 12,000
Entry in the Books of Arkin. Corporation:

Investment in Sharp Co. 4,320,000

Cash 4,320,000
# price paid for the 60% ownership of outstanding shares

Expense 80,000
Cash 80,000
# payment of acquisition related cost

Cash 1,152,000
Dividend Income 1,152,000
# dividends received from Sharp Co.

Working Paper Entries:

1. To eliminate the SHE of the acquired company at the date of acquisition:

Ordinary Shares 4,700,000

Retained Earnings 1,860,000
Investment in Sharp Co. 3,936,000
NCINAS 2,624,000

2. To recognize FV differentials on the date of acquisition:

Merchandise Inventory 180,000

Land 200,000
Copyright 90,000
Equipment 120,000
Investment in Sharp Co. 210,000
NCINAS 140,000

3. To eliminate any pre-existing goodwill of the acquired company

-0-

4. To recognize the resulting goodwill on the date of acquisition

Goodwill 290,000
Investment in Sharp Co. 174,000
NCINAS 116,000
5. To recognize the amortization of excess in year 1

Cost of Goods Sold 180,000

Merchandise Inventory 180,000

Equipment 15,000
Operating Expense 3,000
Copyright 18,000

6. To recognize the impairment of goodwill in year 1

Impairment loss 30,000

Goodwill 30,000

7. To eliminate the intercompany dividends in year 1

Dividend Income 1,152,000

NCINAS 768,000
Dividend Declared – Sharp Co. 1,920,000

8. To distribute the total consolidated net income between controlling and non-
controlling interest in year 1

Non-Controlling Interest in Net Income (NCINIS) 2,114,800

Non-Controlling Interest in Net Income (NCINAS) 2,114,800
 Computation of Non-Controlling Interest in Net Income

Net Income of Sharp Co. per books P5,500,000

Add/Deduct: WP adjustments:
Amortization of excess, net ( 183,000)
Impairment of Goodwill (30,000)
Adjusted Net Income of Sharp Co. P5,287,000
X 40%
NCINIS P2,114,800

Computation of Consolidated Net Income (Total)

Net Income of Arkin Corp. per books P8,070,000

Net Income of Sharp Co. per books 5,500,000

Add/Deduct: WP adjustments:
Amortization of excess, net ( 183,000)
Impairment of Goodwill (30,000)
Intercompany dividend revenue (1,152,000)
CNI (Total) P12,205,000
Less: NCINIS 2,114,800 WP#8

CNI Attributable to Controlling Interest P10,090,200

Computation of Consolidated Retained Earnings

Retained Earnings of Arkin Corp. 1/2/2019 per books P 7,200,000

Add: CNI – Attributable to Controlling Interest 10,090,200
Deduct: Dividends declared by Arkin Corp. (2,280,000)
CRE P15,010,200
Computation of Non-Controlling Interest in Net Assets

SHE of Sharp Co. 1/2/2019 per books P6,560,000

Add: Net Income of Sharp Co. in 2019 5,500,000
Deduct: Dividends declared by Sharp Co, in 2019 (1,920,000)
SHE of Sharp Co. 12/31/2019 per books P10,140,000

Add/Deduct: WP adjustments:
Add: Excess, net (date of acquisition) 350,000
Deduct: Amortization of excess, net (183,000)
Add: Goodwill 290,000
Deduct: Impairment of Goodwill (30,000)
SHE of Sharp Co. as adjusted P10,567,000
X 40%
NCINAS P 4,226,800

or

NCINAS (date of acquisition) P2,880,000

Add: NCINIS in 2019 2,114,800
Deduct: Dividends declared by Sharp at 40% (768,000)
NCINAS (12/31/2019) P4,226,800

Computation of Consolidated SHE

Ordinary Shares of Arkin Corp., per books P12,600,000

Share Premium of Arkin Corp., per books -
Consolidated Retained Earnings 15,010,200
NCINAS 4,226,800
CSHE P31,837,000

Computation of Total Consolidated Liabilities

Total Liabilities of Arkin Corp. per books P3,570,000

Total Liabilities of Sharp Co. per books 2,700,000 P 6,270,000
P38,107,000
==========

Computation of Total Consolidated Assets

 Total Assets of Arkin Corp. per books P29,160,000
Total Assets of Sharp Co. per books 12,840,000

Add/Deduct: WP adjustments:
Deduct: Investment in Sharp Co. (4,320,000)
Add: Excess, net 350,000
Deduct: Amortization, net (183,000)
Add: Goodwill 290,000
Deduct: Impairment (30,000) P38,107,000

==========
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Sales P26,740,000
Less: Cost of Goods Sold (10,920,000) WP#5
Gross Profit P15,820,000
Less: Expenses (5,493,000) WP#5 and 6
Add: Dividend Revenue 1,908,000 WP#7
Add: Gain on sale of furniture 210,000
Less: Loss on sale of machinery (240,000)
CNI P12,205,000
Attributable to Non-Controlling 2,114,800
Attributable to Controlling 10,090,200

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

ASSETS
Cash P5,040,000
Trade Receivable 1,980,000
Merchandise Inventory 3,380,000 WP#2 and 5
Furniture, net 1,260,000
Equipment, net 1,695,000 WP#2 and 5

Building, net 13,600,000

Machinery, net 840,000
Land 9,080,000 WP#2
Copyright, net 972,000 WP#2 and 5

Goodwill 260,000 WP#4 and 6

P38,107,000

========
LIABILITIES
Liabilities P 6,270,000

STOCKHOLDERS’ EQUITY
Ordinary Shares P12,600,000
Retained Earnings 15,010,200
Non-Controlling Interest in Net Assets 4,226,800 P31,837,000
P38,107,000
========

-end of foundation problem-