Unit II – Consolidated Financial Statements

B. Consolidated Financial Statements Subsequent to Date of Acquisition

Problem:

On January 1, 2020, P company purchased 24,000 shares of S Company in the open market for
P 806,000 when the net assets of S company includes common stock P 300,000, APIC, P 100,000 and Retained
Earnings, P 400,000. On that date, the following assets of S Company had book values that were different from their
respective market values:

Book value Fair market value

Inventory P 100,000 P 130,000
Land 250,000 300,000
Building (net) 200,000 300,000
Equipment (net) 250,000 175,000
Patent - 40,000

All other assets and liabilities had book values approximately equal to their respective market values. On January 1, 2020,
the building had a remaining useful life of 20 years, Equipment and the patent had remaining useful life of 10 years each.
FIFO inventory cost is used. Goodwill impairment for 2020 is
P 2,500 . The company uses the cost method in recording its investment. NCI is measured at its fair value on the date of
acquisition.

Trial balance data for the 2 companies on December 31, 2020 are as follows:

P company S company
Debit Credit Debit Credit
Cash P 200,000 P 165,000
Accounts Receivable 150,000 205,000
Inventory 100,000 150,000
Land 300,000 250,000
Building 800,000 200,000
Equipment 700,000 250,000
Patent --- ----
Investment in S Company 806,000
Cost of Sales 400,000 150,000
Dividend declared 150,000 50,000
Expenses 360,000 200,000
Accumulated Depreciation – Building 300,000 50,000
Accumulated Depreciation – Equipment 402,000 125,000
Accounts Payable 174,000 145,000
Bonds Payable 400,000
Common Stock – P company 600,000
Common Stock – S Company (P 10 par) 300,000
Additional Paid-in Capital – P company 300,000
Additional Paid-in Capital – S company 100,000
Retained Earnings - P Company 750,000
Retained Earnings – S company 400,000
Sales 1,000,000 500,000
Dividend income __________ 40,000 __________ __________
P 3,966,000 P 3,966,000 P 1,620,000 P 1,620,000
Trial balance data for the 2 companies on December 31, 2021 are as follows:
P company S company
Debit Credit Debit Credit
Cash P 180,000 P 170,000
Accounts Receivable 280,000 225,000
Inventory 256,000 200,000
Land 300,000 250,000
Building 800,000 200,000
Equipment 700,000 250,000
Patent --- ----
Investment in S Company 806,000
Cost of Sales 625,000 250,000
Dividend declared 200,000 100,000
Expenses 455,000 275,000
Accumulated Depreciation – Building 340,000 60,000
Accumulated Depreciation – Equipment 472,000 150,000
Accounts Payable 250,000 120,000
Bonds Payable 400,000
Common Stock – P company 600,000
Common Stock – S Company 300,000
Additional Paid-in Capital – P company 300,000
Additional Paid-in Capital – S company 100,000
Retained Earnings - P Company 880,000
Retained Earnings – S company 500,000
Sales 1,280,000 690,000
Dividend income _________ 80,000 __________ ________
P 4,602,000 P 4,602,000 P 1,920,000 P 1,920,000

REQUIRED:
1. Give all the journal entries recorded by P Company during 2020 and 2021 related to its investment in S
company.
2. Prepare the Determination and Allocation of Excess Schedule.
3. Give all eliminating entries needed to prepare consolidated statements for 2020 – 2021.

Req. 1: Solution: Journal Entries – P Company books:

2020
Jan. 1 Investment in S Co. 806,000
Cash 806,000
80% interest acquired

Dec. 31 Cash 40,000

Dividend Income 40,000
Dividend received

2021 Cash 80,000

Dividend income 80,000
Dividend received
Req. 2: Solution: Determination and Allocation of Excess Schedule.
Determination and Allocation of Excess:
Fair value Parent (80%) NCI (20%)
Fair value of subsidiary 1,007,500 806,000 201,500
Book value of interest acquired:
Common Stock 300,000
APIC 100,000
Retained Earnings 400,000
Total Equity 800,000
Book value of interest acquired 640,000 160,000
Allocated Excess 207,500 166,000 41,500
Adjustments of identifiable assets:
Inventory ( 30,000)
Land ( 50,000)
Building (net) (100,000)
Equipment 75,000
Patent ( 40,000)
Total (145,000) (116,000) (29,000)
Goodwill 62,500 50,000 12,500

Amortization: 2020 2021-2030

Inventory ( 30,000) 30,000
Land ( 50,000)
Building ( 100,000/20) 5,000 5,000
Equipment ( 75,000/10) ( 7,500) (7,500)
Patent ( 40,000 / 10) 4,000 4,000
31,500 1,500

Req. 3: Solution: Working Papers Elimination Entries ( 2020 and 2021)

2020 Debit Credit 2021 Debit Credit

1) Dividend Income 40,000 1) Dividend Income 80,000
NCI 10,000 NCI 20,000
Dividend declared 50,000 Dividend declared 100,000
# #

2) Common Stock – S Co. 300,000 2) Common Stock – S Co. 300,000

APIC – S Co. 100,000 APIC – S Co. 100,000
Retained Earnings – S Co. 400,000 Retained Earnings – S Co. 400,000
Investment in S Co. 640,000 Investment in S Co. 640,000
NCI 160,000 NCI 160,000
# #
3) Inventory 30,000
3) Inventory 30,000 Land 50,00
Land 50,00 Building 100,000
Building 100,000 Patent 40,000
Patent 40,000 Goodwill 62,500
Goodwill 62,500 Equipment 75,000
Equipment 75,000 Investment in S. 166,000
Investment in S. 166,000 NCI 41,500
NCI 41,500 #
# 4) RE – S Co. 1/1/21 13,200
NCI 13,200
4) Cost of goods sold 30,000 #
Expenses 1,500 To compute:
Equipment 7,500 RE 1/1/20 400,000
Inventory 30,000 RE 12/31/20 500,000
Building 5,000 Inc in retained earnings 100,000
Patent 4,000 Less: amortization of excess 31,500
Amortization Impairment of goodwill
( 2,500 2.500 34,000
5) Impairment loss 2,500 Undistributed earnings 66,000
Goodwill 2,500 Assignable to NCI ( 20%) 13,200
#
5) RE – S co. 1/1/21 31,500
6) NCI in net income of S 23,200 Expenses 1,500
NCI 23,200 Equipment 15,000
# Inventory 30,000
Building 10,000
To compute: Patent 8,000
1) NCI in net income of S Amortization
Net income of S 150,000
Less: amortization 31,500 6) RE – S company 1/1/21 2,500
Impairment (2,500 x 20%) 2,500 34,000 Goodwill 2,500
Adjusted net income 116,000 #
X 20%
NCI in net income of S 23,200 7) NCI in net income of S 32,700
NCI 32,700
2) Consolidated Net Income: #
P,s net income 240,000 To compute
S’ net income 150,000 1) NCI in net income of S.
Amortization (31,500) Net income of S 165,000
Adjusted net income of S 118,500 Less: amortization 1,500
Total 358,500 Adjusted net income 163,500
Less: impairment goodwill 2,500 X 20%
CNI 356,000 NCI in net income of S 32,700
Attributable to:
NCI 23,200 2) Consolidated Net Income:
Parent 332,800 P,s net income 200,000
S’ net income 165,000
3. Consolidated RE: Amortization (1,500)
RE – P Co. 1/1/13 750,000 Adjusted net income of S 163,500
Add: attributable to parent 332,800 CNI 363,500
Total 1,082,800 Attributable to:
Less dividend paid 150,000 NCI 32,700
932,800 Parent 330,800

3) Consolidated Retained Earnings:

RE – P Co. 1/1/21 880,000
4: Net Assets of S – 12/31/20 f.v. attributable to parent 330,800
NA – S Co. 1/1/20 800,000 Total 1,210,800
Inc. in undistributed earnings 100,000 Less dividend paid 150,000
NA at BV 12/31/20 – S Co. 900,000 Consolidated RE 12/31/21 1,060,800
Unamortized excess ( 207,500 – 34,000) 173,500
NA S Co. @ FV 12/31/20 1,073500 4: Net Assets of S–12/31/21 f.v.
NA – S Co. 1/1/21 800,000
NCI ( 20%) 214,700 Inc. in undistributed earnings
2020 100,000
2021 65,000 165,000
NA at BV 12/31/21 – S Co. 965,000
Unamortized excess ( 207,500 – 35,500) 172,000
NA S Co. @ FV 12/31/21 1,137,000

NCI ( 20%) 227,400

 P Company and Subsidiary
Working Paper Consolidate Financial Statements
Year Ended December 31, 2020

P S Eliminations
company Company Debit Credit Consolidated
Statement of CI
Sales 1,000,000 500,000 1,500,000
Dividend income 40,000 _______ 1) 40,000 __________
Total Revenue 1,040,000 500,000 1,500,000

Cost of Sales 400,000 150,000 4) 30,000 580,000

Impairment loss 5) 2,500 2,500
Expenses 360,000 200,000 4) 1,500 561,500
Total costs & expenses 760,000 350,000 1,144,000
Net/Consolidated Income 280,000 150,000 356,000
NCI in Net income of Subsidiary ________ _______ 6) 23,200 (23,200)
CI to Retained Earnings 280,000 150,000 332,800

Statement of Retained Earnings

Retained Earnings, Jan. 1
P Company 750,000 750,000
S Company 400,000 2) 400,000
CI from SCI (above) 280,000 150,000 332,800
Total 1,030,000 550,000
Dividends declared:
P Company 150,000 (150,000)
S Company ________ 50,000 1) 50,000 ________
Retained Earnings Dec. 31, 2020
to SFP 880,000 500,000 932,800

Statement of Financial Position

Cash P 200,000 P 165,000 365,000
Accounts Receivable 150,000 205,000 355,000
Inventory 100,000 150,000 3) 30,000 4) 30,000 250,000
Land 300,000 250,000 3) 50,000 600,000
Building 800,000 200,000 3) 100,000 4) 5,000 1,095,000
Accum. Depreciation – Building (300,000) (50,000) (350,000)
Equipment 700,000 250,000 4) 7,500 3) 75,000 882,500
Accum. Dep. – Equipment (402,000) (125,000) (527,000)
Patent --- ---- 3) 40,000 4) 4,000 36,000
Goodwill 3) 62,500 5) 2,500 60,000
2) 640,000 -----
Investment in S Company 806,000 _______ 3) 166,000 ________
Total Assets 2,354,000 1,045,000 2,766,500

Accounts Payable 174,000 145,000 319,000

Bonds Payable 400,000 400,000
Common Stock – P company 600,000 600,000
Common Stock –S Co. (P 10 par) 300,000 2) 300,000
APIC – P company 300,000 300,000
APIC – S company _______ 100,000 2) 100,000
Retained Earnings from SRE 880,000 500,000 932,800
1) 10,000 2) 160,000
NCI 3) 41,500 214,700
_________ _______ 6) 23,200 ________
Total Liabilities and Equity 2,354,000 1,045,000 2,766,500
 P Company and Subsidiary
Working Paper Consolidate Financial Statements
Year Ended December 31, 2021
P S Eliminations
company Company Debit Credit Consolidated
Statement of CI
Sales 1,280,000 690,000 1,970,000
Dividend income 80,000 ________ 1) 80,000 __________
Total Revenue 1,360,000 690,000 1,280,000

Cost of Sales 625,000 250,000 875,000

Expenses 455,000 275,000 5) 1,500 731,500
Total costs & expenses 1,080,000 525,000 1,606,500
Net/Consolidated Income 280,000 165,000 363,500
NCI in Net income of Subsidiary 7) 32,700 (32,700)
CI to Retained Earnings 280,000 165,000 330,800
Statement of Retained Earnings
Retained Earnings, Jan. 1
P Company 880,000 880,000
S Company 500,000 2) 400,000
5) 31,500
6) 2,500 52,800
4) 13,200
CI from SCI (above) 280,000 165,000 330,800
Total 1,160,000 665,000
Dividends declared:
P Company 200,000 (200,000)
S Company ________ 100,000 1) 100,000 ________
Retained Earnings Dec. 31, 2020 1,063,600
to SFP 960,000 565,000
Statement of Financial Position
Cash P 180,000 P 170,000 350,000
Accounts Receivable 280,000 225,000 505,000
Inventory 256,000 200,000 3) 30,000 5) 30,000 456,000
Land 300,000 250,000 3) 50,000 600,000
Building 800,000 200,000 3) 100,000 5) 10,000 1,090,000
Accum. Depreciation – Building (340,000) (60,000) (400,000)
Equipment 700,000 250,000 5) 15,000 3) 75,000 890,000
Accum. Dep. – Equipment (472,000) (150,000) (622,000)
Patent --- ---- 3) 40,000 5) 8,000 32,000
Goodwill 3) 62,500 6) 2,500 60,000
2) 640,000 -----
Investment in S Company 806,000 _______ 3) 166,000 ________
Total Assets 2,510,000 1,085,000 2,961,000
Accounts Payable 250,000 120,000 370,000
Bonds Payable 400,000 400,000
Common Stock – P company 600,000 600,000
Common Stock –S Co. (P 10 par) 300,000 2) 300,000
APIC – P company 300,000 300,000
APIC – S company 100,000 2) 100,000
Retained Earnings from SRE 960,000 565,000 1,063,600
1) 20,000 2) 160,000
NCI 3) 41,500 227,400
7) 32,700
4) 13,200
_________ _______
Total Liabilities and Equity 2,510,000 1,085,000 1,278,900 1,278,900 2,961,000
Consolidated Financial Statements Subsequent to Date of Acquisition
Activity 1 - Problem:

Pure Corporation acquired an 80% interest in Sincere Corporation on January 2, 2020 for P 2,520,000. On this date , the
share capital and retained earnings of the two companies below:

Pure Corp. Sincere Corp.

Share capital P 6,000,000 P 2,250,000
Retained Earnings 3,000,000 450,000

On January 2, 2020, the assets and liabilities of Sincere Corporation were stated at their fair values except for inventory
whish is undervalued by P 50,000 and machinery which is undervalued by
P 225,000 (remaining life is 5 years) NCI interest is measured at its fair value on the date of acquisition.

The following is the summary of the 2020 and 2021 transactions of the affiliated companies:
2020 2021
Net Income
Pure Corporation 1,000,000 1,500,000
Sincere Corporation 700,000 800,000
Dividends declared and paid
Pure Corporation 500.000 600,000
Sincere Corporation 200,000 400,000

As of December 31, 2021 goodwill was determined to be impaired by P 20,000.

REQUIRED: 1. Prepare the Determination and Allocation of Excess Schedule

2. Prepare the working papers elimination entries for 2020 and 2021.
3. Compute for the following:
a) Consolidated net income attributable to parent for 2020 and 2021
b) Consolidated Retained earnings for 2020 and 2021
c) NCI for 2015 and 2016
d) Consolidated Stockholders’ Equity for 2020 and 21
Activity 2 – Multiple Choice Problems
1. STI Company owns 80% of RNB, Inc.’s common stock . During 2020, STI sold to RNB P 550,000
of inventory on the same terms as sales made to third parties. RNB sold all of the inventory
purchased from STI in 2020. The following information pertains to SS and PP’s sales for 2020:

STI RNB
Sales P 2,000,000 P 1, 700,000
Cost of sales __1,100,000 950,000
Gross Profit P 900,000 P 750,000

What amount PP report as cost of sales in 2020 consolidated income statement?

a) P 2,050,000 b) P 1, 640,000 c) P 1, 500,000 d) P 1,200,000

2. On January 1, 2020, Brendan, Inc. reports net assets of P 760,000 although ( equipment with a
four-year life) having a book value of P 440,000 is worth P 500,000 and unrecorded patent is
valued at P 45,000. Brandon Corporation pays P 692,000 on that date for an 80% ownership in
Brendan Inc.

If the patent is to be written -off over a 10-year period, at what amount should it be reported on
consolidated statements at December 31, 2020?

a) P 40,500 b) P 36,000 c) P 32,400 d) P 28,000

3. . Park Company owns 60% of Swan Company’s outstanding ordinary shares . On May 1 2020, Park
advanced Swan P 70,000 in cash, which was still outstanding at December 31, 2020. What portion
of this advance should be eliminated in the preparation of the December 31, 2020 consolidated
statement of financial position?
a) P 0 b) P 28,000 c) P 42,000 d) P 70,000

For 4 – 5:
The consolidated income statement of WENWEN Company and its 80% owned subsidiary follows:
Sales P 402,000
Cost of goods sold 246,000
Gross Profit P 156,000
Operating Expenses 81,000
Combined net income P 75,000
Less: NCI in net income 6,000
Consolidated Net income P 69,000

4. The net income from own operation of the Subsidiary:

a) P 45,000 b) P 30,000 c) P 15,000 d) P 6,000

5. The net income from own operation of WENWEN Company is:

a) P 75,000 b) P 45,000 c) P 39,000 d) P 30,000

6. Pete Enterprises owns 60% of the outstanding stock of Susie Company, which it purchased for
P50, 000 above the underlying book value of P720, 000 on December 31, 2020. The purchase
difference was related to equipment For the year 2021, Susie included in its net income P90,000 of
unrealized gain on a year-end sale of depreciable assets to Pete. The NCI of Susie was assigned
P12, 000 of income in the 2021 consolidated financial statements. The excess allocated
to equipment is amortized over 10 years.

What is the net income reported by Susie for 2021?

a) P155,000 b. P150,000 c. P125,000 d. P120,000
7. ABC owns 70% of DEF Company’s outstanding ordinary shares. DEF, in turn, owns 20% investment
in JKL. During 2015, ABC earned a net income of P 320,600 from its own operations while DEF
suffered a loss of P 60,000, excluding its share in the earnings of affiliates, if any. JKL reported net
income of P 43,500 DEF declared dividends of P 25,000 from its accumulated profits in previous
years.

The consolidated profit for the year 2020 is:

a) P 284,690 b) P 269,300 c) P 267,190 d) P 261,100

8. On January 1, 2020, Parent Company purchased 32,000 shares of the 40,000 outstanding shares of
Subsidiary Company at a price of P 1,200,000 with an excess of P 30,000 over the book value of
Subsidiary Company’s net assets. P 13,000 of the excess is attributed to an undervalued equipment
with a remaining useful life of eight years from the date of acquisition and the rest of the amount is
attributed to goodwill. For the year 2020, Parent Company reported a net income of P 750,000 and
paid dividends of P 180,000. While Subsidiary Company reported a net income of P 240,000 and
paid dividends to Parent Company amounting to P 39,000. Goodwill was not impaired in 2020. The
retained earnings of Parent Company at the end of 2020 per books is P 1,025,000. Parent Company
uses the cost method to account for its investment in Subsidiary Company. Non-controlling interest is
measured at fair market value.

The non-controlling interest in net assets of Subsidiary Company on December 31, 2020 is:
a) P 339,875 b) P 337,925 c) P 336,475 d) P 334,525

9. On June 30, 2020, Part Company purchased 70% of the common stock of Steam Company for
P 700,000. At that date , Steam had P 650,000 of common stock outstanding and retained earnings
of P 250,000. All of the purchase difference was related to a building with a book value of P 175,000
and a remaining life of 10 years Part’s retained earnings balance at December 31, 2020 was
P 755,000. The income and dividend figures for both Part and Steam for 2020 are as follows:
Income Dividends
Part (own operations) 275,000 70,000
Steam: Jan. 1 to June 30 80,000 30,000
July 1 to Dec. 31 100,000 ---

On December 31, 2020, the consolidated retained earnings is:

a) P 1,026,500 b) P 1,021,500 c) P 856,500 d) P 821,500

For 10 – 14:
On January 2, 2020, Perry Corporation purchases 80% of Sub company’s common stock for
P 3,240,000. P 150,000 of the excess is attributable to goodwill and the balance to a depreciable asset
with an economic life of tem years. Non-controlling interest is measured at its fair value on date of acquisition. On the
date of acquisition, stockholders’ equity of the two companies are as follows:

Perry Corporation Sub Company

Common stock P 5,250,000 P 1,200,000
Retained Earnings 7,800,000 2,100,000

On December 31, 2020, Sub Company reported net income of P 525,000 and paid dividends of
P 180,000 to Perry. Perry reported earnings from its separate operations of P 1,425,000 and paid
dividends of P 690,000. Goodwill had been impaired and should ben reported at P 30,000 on
December 31, 2020.

10. What is the non-controlling interest in net income of Sub Company on December 31, 2020?
a) P 105,000 b) P 93,750 c) P 93,000 d) P 69,000

11. What is the consolidated net income on December 31, 2020?

a) P 1,893,750 b) P 1,800,000 c) P 1,788,750 d) P 1,770,000

12. What is the consolidated net income attributable to parent shareholders on December 31, 2020?
a) P 1,800,000 b) P 1,782,000 c) P 1,701,000 d) P 1,680,000

13. What is the consolidated retained earnings attributable to parent’s shareholders equity on December 31, 2020?
a) P 10,398,750 b) P 8,811,000 c) P 8,790,000 d) P 8,787,000
14. What amount of NCI is to be presented in the consolidated statement of financial position on
December 31, 2020?
a) P 834,000 b) P 821,250 c) P 772,500 d) P 727,500

15. Atlas Corporation acquired an 80% interest in URC Company on January 1, 2020 for P 1,225,000.
On this date the capital stock and retained earnings of the two companies were as follows:
Atlas URC
Capital Stock P 3,150,000 P 875,000
Retained Earnings 1,400,000 175,000

The assets and liabilities of URC were stated at their fair values when Atlas acquired its 80% interest
and the proportionate share in net identifiable assets was used to initially measure the non-
controlling interest . Atlas uses the cost method to account for its investment in URC. Net income
and dividends for 2018 for the affiliated companies were:

Atlas URC
Net income P 525,000 P 157,500
Dividends declared 315,000 87,500
Dividends payable December 31, 2020 157,500 43,750

The consolidated dividends payable at December 31, 2020:

a) P 201,250 b) P 166,250 c) P 157,500 d) P 0

On April 1, 2020, SDD Corp. acquired 80% of the outstanding stocks of RDD Corp. for P 2,500,000.

RDD Corp. stockholders’ equity at the end of 2020 were as follows: Common stock, P 80 par,
P 2,000,000; Additional paid-in capital, P500,000 and Retained Earnings, P 750,000.The fair value of the non-controlling
interest is P 685,000. All the assets of RDD were fairly valued except for its inventories which are overvalued by P 90,000,
Land which is undervalued by P50,000 and Patent which is undervalued by P 125,000. The said patent has a remaining
useful life of five years .Both companies use the straight line method for depreciation and amortization.

Shareholders’ equity of SDD Corp. on December 3, 2020 is composed of: Common Stock, P 50 par,
P 3,500,000, Additional Paid-in Capital P 750,000 and Retained Earnings, P 2,460,000.Goodwill, if any, should be
decreased by P 22,500 at year-end. No additional issuance of capital stocks occurred.

For the two years ended, December 31, 2020 and 2021, ADD Corp. and BDD Corp. reported the following:
SDD Corp. RDD Corp.
2020 2021 2020 2021
Net income from own P 525,000 P 550,000 P 485,000(from date of P 520,000
operations acquisition)
Dividend declared at 50,000 35,000 35,000 50,000
year-end

On December 31, 2020:

16. The non-controlling interest in net assets of subsidiary:

a) P 788,150 b) P 781,150 c) P 718,510 d) P 701,320

17. Consolidated shareholders’ equity:

a) ) P 7,865,750 b) P 7,893,750 c) P 7,491,150 d) P7,112,600

End