1. P Company acquires all of the outstanding stocks of S Company on January 1, 20x4.

On
that date, S Company owns only three assets and has no liabilities. Inventory - Book value,
P40,000; Fair value, P50,000; Equipment ( 10 year life)- Book value, P80,000; Fair value,
P75,000; and Building (20 year life)- Book value, P200,000; Fair value, P300,000. If P
Company pays P400,000 cash to S Company, What amount would be presented as the
subsidiary's building on the consolidated balance sheet at December 31, 20x6, assuming
the book value on that date is still P200,000?

a. 260,000
b. 268,000
c. 285,000
d. 200,000

Solution:
(Building FV - Building BV / Life of Building) x 3
(300,000 - 200,000 / 20) x 3
= 15,000
300,000 - 15,000 = 285,000

2. On January 1, 20x6, Kim Co. acquired all of the identifiable assets and assumed all
liabilities of Doy Co. by paying cash of P4,800,000. On this date, identifiable assets and
liabilities assumed have fair values of P7,680,000 and P4,320,000 respectively. Kim has
estimated restructuring provisions of P960,000 representing exit costs of the acquiree's
activities, and termination and relocation cost of Kim's employees. The restructuring plan is
conditional until the combination process is done. if the combination will not happen, no
restructuring costs will be incurred. How much is the goodwill (gain) on the business
combination?

a. (40,000)
b. 1,920,000
c. 1,440,000
d. 2,400,000

Solution:
Consideration 4,800,000
NCI -
Previously held equity interest in the acquiree -_____
Total 4,800,000
Fair value of net identifiable assets acquired (7,680,000 - 4,320,000) (3,360,000)
Goodwill 1,440,000

The ₱800,000restructuring provisionsare ignored because these are post-acquisition

expenses.

3. On January 1, 20x5, AA Corp. acquired the net identifiable assets of BB Co. On this date,
the identifiable assets acquired and liabilities assumed have fair values of P7,680,000 and
P4,320,000 respectively. AA Corp. incurred the following acquisition related costs : legal
fees, P48,000; due diligence costs, P480,000; general and administering costs, P96,000. As
consideration. AA Corp. transferred 9,600 of its own shares with par value of P400 and fair
value of P500 to BB's former owners. Costs of registering the shares (previously and newly
issued) amounted to P192,000 ( P24,000 pertains to listing fees of previously issued
shares). How much is the goodwill (gain) on the business combination?

a. 1,440,000
b. 720,000
c. 667,000
d. 1,400,000

Solution:
Consideration (9,600 x 500) 4,800,000
NCI -
Previously held equity interest in the acquiree -_____
Total 4,800,000
Fair value of net identifiable assets acquired (7,680,000 - 4,320,000) (3,360,000)
Goodwill 1,440,000

4. On January 1, 20x4, P Company acquired 90% ownership of S Corp. at underlying book

value. The fair value of the non controlling interest at the date of acquisition was equal to
10% of the book v of S Corp. On April 15, 20x4 , S Corp. purchased inventory from P
Company for P90,000. S Corp. sold the entire inventory to outside customers for P120,000
on Sept. 30, 20x4. P Company had produced the goods sold to S Corp at a cost of P62,000.
There were no other transactions for the two companies. What amount of cost of goods sold
will be reported in the 20x4 consolidated income statement?

a. 62,000
b. 58,000
c. 120,000
d. 90,000

5. On April 1, P Company exchanges P430,000 fair value consideration for 70% of the
outstanding stock of S Company. The remaining 30% of the outstanding shares continued to
trade at a collectible fair value of P165,000. S Company's identifiable net assets have fair
values equal to their book values on April 1 for a net total of P500,000. S generates annual
revenues of P600,000 and expenses of P360,000 and paid no dividends. On December 31,
consolidated balance sheet, what amount should be reported as non controlling interest?

a. 237,000
b. 165,000
c. 219,000
d. 234,000

Solution:
6. On January 1, 20x4, P Company acquired 90% ownership of S Corp. at underlying book
value. The fair value of the non controlling interest at the date of acquisition was equal to
10% of the book v of S Corp. On April 15, 20x4, S Corp. purchased inventory from P
Company for P90,000. S Corp. sold the entire inventory to outside customers for P120,000
on Sept. 30, 20x4. P Company had produced the goods sold to S Corp at a cost of P62,000.
There were no other transactions for the two companies. What is the net income attributable
to parent that will be reported in the 20x4 consolidated income Statement?

a. 55,000
b. 59,000
c. 58,000
d. 52,200

Solution:

7. P Company acquired an 80% interest in S Company on January 1, 20x4 for P450,000

cash when S Company has common stock of P250,000 and retained earnings of P250,000.
All excess was attributable to a plant asset with a ten year life. S Company made an income
of P50,000 in 20x4 and paid no dividends. P Company's separate income in 20x4 was
P625,000. The controlling interest in consolidated net income for 20x4 is ___

a. 660,000
b. 675,000
c. 625,000
d. 665,000

Solution:

8. On June 30, 20x4, N Corp purchased for cash at P10 per share all 100,000 shares all of
the outstanding stock of Ted Company. The total fair value of all identifiable net assets of
Ted was P1,400,000. The only non current asset is property with a fair value of P350,000.
The condensed balance sheet of N Corp and its wholly owned subsidiary on June 30,20x4
should report ___

a. a retained earnings balance that is inclusive of a gain of 350,000

b. a retained earnings balance that is inclusive of a gain of 400,000
c. goodwill of 400,000
d. a gain of 400,000

Solution:

9. P Company acquires a controlling interest in S Company in the open market for

P120,000. The P100 par value capital stock of S Company at the date of acquisition is
P125,000 and its retained earnings amounts to P50,000. The market value per share of S
Company is P120 per share. In the consolidated statement of financial position on the date
of acquisition, non controlling interest will show a balance of___

a. 50,000
b. 40,000
c. 35,000
d. 30,000

Solution:

10. In the consolidated income statement of P Corp and its 85% owned subsidiary, the non
controlling interest net income was reported at P45,000. What amount of net income did the
subsidiary have for the year?

a. 38,250
b. 300,000
c. 235,000
d. 52,941

Solution:
45,000 / 15% = 300,000

11. On June 30, 20x4, PC Company purchased all of the common stock of SC Company by
issuing 100,000 shares of its P1 par value common stock with a market value of P25/ share.
PC Company incurred P400,000 in registering and issuing costs and P250,000 in consulting
and legal fees paid in cash. The book value of SC Company's shareholders equity on the
date of acquisition was P1,000,000 consisting of capital stock of P560,000 , retained
earnings of P280,000, treasury stock of P35,000 and OCI of P195,000. The carrying values
of SC Company's reported assets and liabilities approximate fair values, but it has P700,000
in customers list, not reported on its balance sheet. Elimination entry will include a debit to
goodwill for ___

a. 1,050,000
b. 1,500,000
c. 1,200,000
d. 800,000

Solution:
12. Chap Company had common stock of P350,000 and retained earnings of P490,000.
Bay Company had common stock of P700,000 and retained earnings of P980,000. On
January 1, 20x4, Bay issued 34,000 shares of common stock with a P12 par value and a
P35 fair value for all of Chap's net assets. The combination was accounted for as
acquisition. Immediately after the acquisition, what were the consolidated net assets?

a. 1,680,000
b. 2,520,000
c. 2,030,000
d. 2,870,000

Solution:
Consolidated stockholder’s equity
Acquirer (Parent - Bay) Book Value (700,000 + 980,000) 1,680,000
Add: Newly Issued Shares (34,000 x 35 fair value) 1,190,000
Acquiree (Subsidiary - Chap) Eliminated 0____
Total 2,870,000

13. P Corp. owns 75% interest of S Company's common stock. On July 1, 20x4, P company
sold a building to S Company for P33,000. The building was purchased by P Company on
January 1, 20x2, for P36,000. The building has an original useful life of 8 years. Both
companies use straight line depreciation. In the preparation of the 20x4 consolidated
financial statements, depreciation expense will be ___

a. credited for P1,500 in the eliminating entries

b. debited for P750 in the eliminating entries.
c. debited for P1,500 in the eliminating entries
d. credited for P750 in the eliminating entries.
14. Balance sheet information for the Hope Corporation at January 1, 20x6 shows the
following : Total assets, P2,720,000; Liabilities, P1,200,000; Stockholders' equity,
P1,520,000. Hope's assets and liabilities are fairly valued except for plant assets that are
undervalued by P200,000. On January 2, 20x6, Faith Company issued 80,000 shares of its
P10 par value common stock for all of Hope's net assets and Hope was dissolved. Market
quotations for the two stocks on this date were Faith, P28 and Hope common, P19. Faith
Company paid P21,000 as direct acquisition costs .What is the goodwill (gain) on business
combination?

a. 541,000
b. 475,000
c. 520,000
d. 531,000

Solution:

15. Prior to being united in a business combination, AA Inc. and WW Co. had the following
stockholders' equity figures : AA- Common stock (P1 par), P180,000; APIC, P90,000;
retained earnings, P300,000. WW - Common stock, (P1 par) P45,000; APIC, 20,000;
retained earnings, P110,000. AA issues 51,000 new shares of its common stock valued at
P3 per share for all of the outstanding stocks of WW. Immediately after the combination,
what are the additional paid in capital and Retained earnings respectively?

a. 104,000 and 300,000

b. 110,000 and 410,000
c. 192,000 and 300,000
d. 212,000 and 410,000

Solution:

16. S Company, a 70% owned subsidiary, of P Corp reported net income of P240,000 and
paid dividends totaling P90,000 in year 3. Year 3 amortization of the difference in fair value
and book value of the identifiable assets acquired at the date of acquisition was P45,000
The non controlling interest in net income for year 3 was ___

a. 27,000
b. 13,500
c. 72,000
d. 58,500

Solution:

17. Net Co. acquires all the assets amounting to P570,000,000 and assumes the liabilities
amounting to P100,000,000 of the Uni Corp by issuing 25,000,000 shares of no par
common stock valued at P400,000,000 plus cash of P50,000,000 in a statutory merger.
Included in the agreement is a contingency guaranteeing the former shareholders of Uni
that Net shares will be worth at least P350,000,000 after one year. If not, additional shares
will be issued 4,166 to bring the total value of shares issued to P350,000,000. This
contingency is valued at P20,000,000 at the date of acquisition. At the end of the first year
following the acquisition, the 25,000,000 shares of Net's stock are worth P12 per share.
How many additional shares must Net subsequently issue to the former shareholders of
Uni?

a. 25,000,000
b. 2,083,333
c. 4,166,667
d. 0

Solution:

18. S Company has 40% of its share publicly traded on an exchange. P Company
purchases the 60% non publicly traded shares in one transaction, paying P7,560,000.
Based on the trading price of the shares of S Company at the date of gaining control, a
value of P4,800,000 is assigned to the 40% non controlling interest (or fair value of the
NCI), The fair value of S Company's identifiable net assets is P8,400,000 and a carrying
value of P6,000,000. Using the full goodwill approach, what is the amount of goodwill?

a. 0
b. 3,960,000
c. 43,000,000
d. 2,520,000

Solution:

19. Several years ago, P Company bought land from S Company, its 80% owned subsidiary
at a gain of P40,000 to S Company. The land is still owned by P Company. The consolidated
working paper for the year will require:

a. a debit to P's retained earnings for P40,000.

b. a debit to non controlling interest for P40,000.
c. a credit to land for P40,000.
d. no entry because the gain happened prior to the current year.

20. On January 1, 20x5, CC Co. acquired the net identifiable assets of DD Inc. On this date,
the identifiable assets acquired and liabilities assumed have fair values of P7,680,000 and
P4,320,000 respectively. CC incurred the following acquisition related costs :legal fees,
P48,000;due diligence costs, P480,000; and general and administrative costs, P96,000. As
consideration, CC transferred 9,600 of its own shares, par value of P400 and fair value of
P500 respectively to DD's previous owners. Costs of registering the shares (previously
issued and newly issued) amounted to P192,000 (P24,000 pertains to listing fees of
previously issued shares). How much is the total amount to be charged to profit or loss in
relation to the transaction?

a. 816,000
b. 648,000
c. 0
d. 624,000

Solution:

21. R Company paid P20,000,000 for the net assets of P Corp. and P was dissolved. P
Has no liabilities. The fair values of P's assets was P2,500,000. P's only non current assets
were land and equipment with fair value of P160,000 and P640,000 respectively. At what
value will the equipment be recorded?

a. 640,000
b. 160,000
c. 400,000
d. 240,000

22. On January 1, 20x4, P Company acquired 90% ownership of S Corp. at underlying

book value. The fair value of the non controlling interest at the date of acquisition was equal
to 10% of the book v of S Corp. On April 15, 20x4 , S Corp. purchased inventory from P
Company for P90,000. S Corp. sold the entire inventory to outside customers for P120,000
on Sept. 30, 20x4. P Company had produced the goods sold to S Corp at a cost of P62,000.
There were no other transactions for the two companies. What amount of sales will be
reported in the 20x4 consolidated income statement?

a. 90,000
b. 58,000
c. 120,000
d. 62,000

Solution:
120,000 + 90,000 - 90,000 = 120,000

23. On January 1, 20x4, P Corp acquired 80% of S Company's P10 par common stock for
P956,000. On this date, the fair value of the of the non controlling interest was P239,000
and the carrying amount of S Company's net assets was P1,000,000. The fair values of S
Company's identifiable assets and liabilities were the same as their carrying amounts
except for plant assets (net) with a remaining life of 20 years, which were P100,000 in
excess of the carrying amount . For the year ended December 31, 20x4, S Company had
net income of P190,000 and paid cash dividends totaling P125,000. In the December 31,
20x4, consolidated balance sheet, how much is the non controlling interest?

a. 252,000
 b. 251,000
c. 239,000
d. 200,000

Solution:
251,000 = 0.20 x [(956,000 + 239,000) + (190,000 - 5,000 - 125,000)]

24. On January 1, 20x4, Lester Company purchased 70% of Tony Company's P5 par
common stock for P600,000. The book value of Tony's net assets was P640,000 at that
time. The fair value of the identifiable net assets were the same as book values except for
equipment that was P40,000 in excess of the book value. On the consolidated balance
sheet, how much should be the full goodwill?

a. 0
b. 80,000
c. 177,143
d. 152,000

Solution:
Find implied value 600,000 / 0.70 = 857,143
BVE= 640,000
AAP= 217,143
Excess= (40,000)
Answer = 177,143

25. P Corporation acquired 60% interest in S Company on January 1, 20x5 for P70,000
cash when S Company had capital stock of P60,000 and retained earnings of P40,000. The
excess purchase cost was attributed to an equipment with a ten year life S Company
suffered a net loss of P10,000 in 20x5 and paid no dividends. At year end 20x5, S owed P
P12,000 on account. P's separate income for 20x5 was P150,000. What is the consolidated
income for 20x5?

a. 138,333
b. 143,000
c. 135,800
d. 136,800

Solution:
Pigeon's separate income 150,000
Less:60% of Statue's $10,000 loss (6,000) 6,000
Less: Equipment depreciation
($12,500 × 80%)/ 10 years = (1,000) 1,000__
Controlling Interest Share of Consolidated net income 143,000