Chapter 14 – Consolidated Statement of Financial Position – Date of Acquisition Page 1 of 4

PROBLEM 14-1
On May 1, 2017, Polo Corporation paid P1,080,000 to stockholders of Solo Company for 90% of
Solo’s 100,000 outstanding shares of no-par common stock but with a fair value of P12 per
share. In addition, Polo Corporation paid acquisition-related costs of the combination totaling
P50,000 on that date. Book values and current values of Solo Company’s identifiable net assets
on May 1, 2017, were as follows:

Common stock P 400,000

Retained earnings 500,000
Total net assets at book value 900,000
Add: Difference between current fair value and book
value
Inventories 30,000
Property and equipment (net) 60,000
Total current fair value of identifiable net assets P 990,000

Required:
1. Prepare journal entries for Polo Corporation on May 1, 2017 to record the acquisition of
stock from Polo Company.
2. Prepare a working elimination entry for Polo Corporation and subsidiary on May 1, 2017.

SOLUTION:
1. Investment in Solo Company stock 1,080,000
Cash 1,080,000
To record acquisition of 90% of the outstanding shares of Solo.

Retained earnings – Polo Company 50,000

Cash 50,000
To record acquisition-related costs direct to retained earnings of Polo
Company.
Chapter 14 – Consolidated Statement of Financial Position – Date of Acquisition Page 2 of 4

2. Working paper elimination entries:

(1) Common stock – Solo 400,000

Retained earnings – Solo 500,000
Investment in Solo Company stock 810,000
Non-controlling interest 90,000
To eliminate Solo’s equity accounts at date of acquisition.

(2) Inventories 30,000

Property and Equipment 60,000
Goodwill 210,000
Investment in Solo Company stock 270,000
Non-controlling interest 30,000
To allocate excess

Determination and Allocation of Excess Schedule:

Total Parent (90%) NCI (10%)

Company fair value P1,200,000 P1,080,000 P120,000*
Less BV of interest acquired:
Common stock 400,000
Retained earnings 500,000
Total equity 900,000 P 900,000 P900,000
Interest acquired 90% 10%
Book value P 810,000 P 90,000
Excess P 300,000 P 270,000 P 30,000
Adjustments:
Inventory (30,000)
Plant assets (60,000)
Goodwill P 210,000

* (P1,080,000/90%) x 10% = P120,000

Chapter 14 – Consolidated Statement of Financial Position – Date of Acquisition Page 3 of 4

PROBLEM 14-2
The January 1, 2017 statement of financial position of Sotto Company at book and market
values are as follows:

Book Value Fair Value

Current assets P 800,000 P 750,000
Property and equipment (net) 900,000 1,000,000
Total assets P 1,700,000 P 1,750,000

Current liabilities P 300,000 P 300,000

Long-term liabilities 500,000 460,000
Common stock, P1 par 100,000
Additional paid-in capital 200,000
Retained earnings 600,000
Total liabilities and stockholders’ equity P 1,700,000

Pedro Company paid P950,000 in cash for 80% of Sotto Company’s common stock. Pedro
Company also paid P80,000 of professional fees to effect the combination. The fair value of the
NCI is assessed to be P230,000.

Required:
1. Prepare journal entry on Pedro Company’s books to record the acquisition of the Sotto
Company’s stock.
2. Prepare a determination and allocation of excess schedule.
3. Prepare the working paper elimination entries.

SOLUTION
1.
Investment in Sotto Company 950,000
Cash 950,000
To record acquisition of 80% stock of Sotto.

Retained earnings – Pedro Company 80,000

Cash 80,000
To record acquisition costs.

2. Price paid by the Parent Company P950,000

Non-controlling interest (NCI) 230,000
Total 1,180,000
Less: Book value of net assets 900,000
Excess 280,000
Allocation:
Current assets P 50,000
Property and equipment (100,000)
Long-term debt ( 40,000) ( 90,000)
Goodwill P190,000
Chapter 14 – Consolidated Statement of Financial Position – Date of Acquisition Page 4 of 4

3. Working paper elimination entries:

(1) Common stock – Sotto 100,000

APIC – Sotto 200,000
Retained earnings – Sotto 600,000
Investment in Sotto stock 720,000
Non-controlling interest 180,000
To eliminate equity accounts of Sotto at date ofacquisition.

(2) Property and equipment 100,000

Goodwill 190,000
Long-term debt 40,000
Current assets 50,000
Investment in Sotto stock 230,000
Non-controlling interest 50,000
To allocate excess