ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)

Problem 1

Pony Corporation purchased all the ordinary shares of Tail Company on January 1, 2023 for P180,000. On that date,
the book value of the net assets reported by Tail Company was P150,000. The entire excess was assigned to
depreciable assets with a 6-year remaining economic life from January 1, 2023.

The adjusted trial balance for the two companies on December 31, 2023, are as follows:

Pony Corporation Tail Company

Debit Credit Debit Credit
Cash 15,000 5,000
Accounts Receivable 30,000 40,000
Inventory 70,000 60,000
Depreciable Assets (net) 325,000 225,000
Investment in Subsidiary – Tail Co. 180,000
Depreciation Expense 25,000 15,000
Other Expenses 105,000 75,000
Dividends Declared 40,000 10,000
Accounts Payable 50,000 40,000
Notes Payable 100,000 120,000
Ordinary Shares 200,000 100,000
Retained Earnings 230,000 50,000
Sales 200,000 120,000
Dividend Income 10,000
Total 835,000 835,000 430,000 430,000

Pony uses the cost method in accounting for its investment in subsidiary – Tail Co. Tail Co. Dividends were declared
and paid on December 31, 2023.

Required:
a. Prepare the eliminating entries needed as of December 31, 2023 to complete a consolidation working paper.
b. Prepare a consolidation working paper as of December 31, 2023.

Computation of Goodwill/Income from Acquisition:

? ?
Less: ? ?
? ?
? ?
? -

Working Paper Elimination Entries:

At Date of Acquisition:
January 1, 2023:

? ?
? ?
? ?
#to eliminate equity accounts of Tail at Date of Acq.

? ?
? ?
#to allocate the BCVR

ABC301| RCA CPA 2023 – Accounting for Consolidated Financial Statements – Subsequent to Date of Acquisition (Practice Problems)
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ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)

At Year-End:
December 31, 2023

Dividend Income – Pony Corp. ?

Dividends Declared – Tail Co. ?
#to eliminate intercompany dividends

Depreciation Expense ?
Depreciable Assets (net) ?
#to record amortization of excess BCVR

Pony Corporation and Subsidiary

Working Paper for Consolidated Financial Statements
December 31, 2023

Eliminations and Adjustments

Pony Corp. Tail Co. Consolidated
Debit Credit
Income Statement:
Sales ? ? ?
Dividend Income ? ? ? ?
Total Revenue ? ? ?
Depreciation Expense ? ? ? ?
Other Expenses ? ? ?
Total Cost and Expenses ? ? ?
Net Consolidated Income ? ? ?

Net Income Carried forward: 80,000 30,000 95,000

Statement of Retained Earnings:

Retained Earnings, 1/1 ? ? ? ?
Net Income from above ? ? ?
Total ? ? ?
Dividends Declared ? ? ? ?
Retained Earnings, 12/31 270,000 70,000 285,000

Statement of Financial Position:

Cash ? ? ?
Accounts Receivable ? ? ?
Inventory ? ? ?
Depreciable Assets (net) ? ? ? ? ?
Investment in Subsidiary – Tail Co. ? ?
?
Total 620,000 330,000 795,000

Accounts Payable ? ? ?
Notes Payable ? ? ?
Ordinary Shares ? ? ? ?
Retained Earnings ? ? 285,000
Total ? ? 195,000 195,000 ?

ABC301| RCA CPA 2023 – Accounting for Consolidated Financial Statements – Subsequent to Date of Acquisition (Practice Problems)
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ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)

Problem 2

Kathryn Corporation purchased 80 percent of the voting shares of Daniel Company on January 1, 2023, at underlying
book value. Kathryn uses the cost method in accounting for its ownership of Daniel Company. On December 31,
2023, the trial balances of the two companies are as follows:

Kathryn Corporation Daniel Company

Debit Credit Debit Credit
Current Assets 173,000 105,000
Depreciable Assets 500,000 300,000
Investment in Subsidiary – Daniel Co. 120,000
Depreciation Expense 25,000 15,000
Other Expenses 105,000 75,000
Dividends Declared 40,000 10,000
Accumulated Depreciation 175,000 75,000
Current Liabilities 50,000 40,000
Long-Term Debt 100,000 120,000
Ordinary Shares 200,000 100,000
Retained Earnings 230,000 50,000
Sales 200,000 120,000
Dividend Income 8,000
963,000 963,000 505,000 505,000

Required:

a. Give all the eliminating entries required as of December 31, 2023, to prepare the consolidated financial
statements.
b. Prepare the consolidation working paper.
c. Prepare a consolidated statement of financial position, statement of comprehensive income and retained
earnings statement for 2023.

Computation of Goodwill/Income from Acquisition:

? ?
? ?
? ?
Less: ? ?
? -

Working Paper Elimination Entries:

At Date of Acquisition:
January 1, 2023:

? ?
? ?
? ?
? ?
#to eliminate equity accounts of Tail at Date of Acq.

At Year-End:
December 31, 2023

? ?
? ?
? ?
#to eliminate intercompany dividends

ABC301| RCA CPA 2023 – Accounting for Consolidated Financial Statements – Subsequent to Date of Acquisition (Practice Problems)
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ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)

Kathryn Corporation and Subsidiary

Working Paper for Consolidated Financial Statements
December 31, 2023

Eliminations and
Pony Corp. Tail Co. Adjustments Consolidated
Debit Credit
Income Statement:
? ? ? ?
? ? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?

Net Income Carried forward: 78,000 30,000 100,000

Statement of Retained Earnings:

? ? ? ? ?
? ? ? ?
Total ? ? ?
? ? ? ? ?
? 268,000 70,000 290,000

Statement of Financial Position:

? ? ? ?
? ? ? ?
? ? ? ? ?

Total ? ? ?

? ? ? ?
? ? ? ?
? ? ? ?
Ordinary Shares ? ? ? ?
Retained Earnings ? ? ?
Noncontrolling Interest (NCI) ? ? ?

Total 793,000 405,000 160,000 160,000 1,078,000

ABC301| RCA CPA 2023 – Accounting for Consolidated Financial Statements – Subsequent to Date of Acquisition (Practice Problems)
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ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)

Kathryn Corporation and Subsidiary

Consolidated Statement of Financial Position
December 31, 2023

Assets
? ?
? ?
Less: ? ?
Total Assets ?

Liabilities and Equity

? ?
? ?
? ?
Retained Earnings ?
Noncontrolling Interest (NCI) ?
Total Liabilities and Equity 828,000

Kathryn Corporation and Subsidiary

Consolidated Statement of Comprehensive Income
For the period ended December 31, 2023

Sales ?
Total Revenue 320,000

Less: Expenses:
Depreciation Expense ?
Other Expenses ?
Total Cost and Expenses ?

Consolidated Comprehensive Income 100,000

Kathryn Corporation and Subsidiary

Consolidated Statement of Retained Earnings
For the period ended December 31, 2023

Retained Earnings, 1/1 ?

Add: Net Consolidated Income ?
Total ?
Less: Dividends Declared 40,000
Consolidated Retained Earnings, 12/31 ?

ABC301| RCA CPA 2023 – Accounting for Consolidated Financial Statements – Subsequent to Date of Acquisition (Practice Problems)
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ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)

Problem 3

Andrea Corporation acquired 80 percent ownership of Brillantes Company on January 1, 2023 for P160,000. On that
date Brillantes reported retained earnings of P50,000 and had P100,000 of ordinary shares outstanding. Andrea
Corporation used the cost method in recording its investment in Brillantes Co.

Trial Balance date for the two-companies on December 31, 2023, are as follows:

Andrea Corporation Brillantes Cmpany

Debit Credit Debit Credit
Cash and Receivables 81,000 65,000
Inventory 260,000 90,000
Land 80,000 80,000
Buildings and Equipment 500,000 150,000
Investment in Subsidiary – Brillantes Co. 160,000
Cost of Goods Sold 120,000 50,000
Depreciation Expenses 25,000 15,000
Inventory Losses 15,000 5,000
Dividends Declared 30,000 10,000
Accumulated Depreciation 205,000 105,000
Accounts Payable 60,000 20,000
Notes Payable 200,000 50,000
Ordinary Shares 300,000 100,000
Retained Earnings, 1/1 298,000 90,000
Sales 20,000 100,000
Dividend Income 8,000

1,271,000 1,271,000 465,000 465,000

Additional Information:
1. On the date of combination, the fair value of Brillantes’ depreciable assets was P50,000 above book value.
The excess assigned to depreciable assets should be written off over the following 10-year period.
2. There was P10,000 of intercorporate receivables and payables at the end of 2023.

Required:
a. Give all journal entries recorded by Andrea Corporation related to its investment in subsidiary – Brillantes
Co.
b. Give all eliminating entries needed to prepare the consolidated statements for 2023.
c. Prepare the consolidation working paper.

Computation of Goodwill/Income from Acquisition:

Investment Cost/Acquisition Cost ?

Value of NCI (Implied/Proportionate Share Method) ?
Total Consideration ?
Less: Book Value of Interest Acquired: ?
Business Combination Valuation Reserve (BCVR) ?
Allocated to Depreciable Assets ?
Goodwill/Income from Acquisition -

Alternative Computation:

Investment Cost/Acquisition Cost ?

Less: Book Value of Interest Acquired (80%) ?
Business Combination Valuation Reserve (BCVR) ?
Allocated to Depreciable Assets (80%) ?
Goodwill/Income from Acquisition -

ABC301| RCA CPA 2023 – Accounting for Consolidated Financial Statements – Subsequent to Date of Acquisition (Practice Problems)
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ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)

Working Paper Elimination Entries:

At Date of Acquisition:
January 1, 2023:

? ?
? ?
? ?
? ?
#to eliminate equity accounts of Brillantes at Date of
Acquisition

? ?
? ?
? ?
#to record allocation of BCVR

At Year-End:
December 31, 2023

? ?
Noncontrolling Interest (NCI) ?
? ?
#to eliminate intercompany dividends

? ?
Accumulated Depreciation – Building and Equipment ?
#to record amortization of excess BCVR

? ?
? ?
#to eliminate intercompany receivables and payables

NCI in the CI of Subsidiary* ?

Noncontrolling Interest (NCI) ?
#to record the share of NCI from the CI of Subsidiary

*Computation of NCI in the CI of Subsidiary

Net Income – Subsidiary ?

Less: Amortization ?
Adjusted Net Income of Subsidiary ?
Multiply by: NCI Share 20%
NCI in the Comprehensive Income of Subsidiary 5,000

ABC301| RCA CPA 2023 – Accounting for Consolidated Financial Statements – Subsequent to Date of Acquisition (Practice Problems)
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ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)

Andrea Corporation and Subsidiary

Working Paper for Consolidated Financial Statements
December 31, 2023

Eliminations and Adjustments

Pony Corp. Tail Co. Consolidated
Debit Credit
Income Statement:
? ? ? ?
? ? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ? ?
? ? ? ?
? ? ? 235,000
? ? ? ?
? ? (5,000)

Net Income carried forward: 48,000 30,000 60,000

Statement of Retained Earnings

? ? ? ? ?
? ? ? 60,000
Total ? ? ?
? ? ? ? ?
? ? ? ?

Statement of Financial Position:

? ? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ? ?
? ? ? ?
?
Total ? ? ?

? ? ? ? ?
? ? ? ? ?
? ? ? ?
? ? ? ? ?
? 316,000 110,000 368,000
? ? ? 43,000
?
?
Total 1,081,000 ? 230,000 230,000 1,346,000

ABC301| RCA CPA 2023 – Accounting for Consolidated Financial Statements – Subsequent to Date of Acquisition (Practice Problems)
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ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)

Problem 4

Trial balance data for Pawn Corporation and Star Company on December 31, 2023 are as follows:

Pawn Corporation Star Company

Debit Credit Debit Credit
Cash 46,000 30,000
Accounts Receivable 55,000 40,000
Inventory 75,000 65,000
Equipment 300,000 240,000
Investment in Subsidiary – Star Co. 220,000
Cost of Goods Sold 20,000 135,000
Depreciation Expense 25,000 20,000
Other Expenses 21,000 10,000
Dividends Declared 20,000 20,000
Accumulated Depreciation 130,000 85,000
Accounts Payable 20,000 30,000
Taxes Payable 50,000 35,000
Ordinary Shares 200,000 150,000
Retained Earnings, 1/1 262,000 60,000
Sales 350,000 200,000
Dividend Income 20,000
1,032,000 1,032,000 560,000 560,000

Pawn Corporation purchased all of the Star Company’s shares on January 1, 2022 for P220,000. Star Company’s
Retained Earnings balance at the date of acquisition was P50,000. The total excess is assigned to Goodwill. At
December 31, 2022, the management of Pawn Corporation reviewed the amount attributable to goodwill and
concluded goodwill had been impaired and should be reported at P8,000. No further impairment occurred during
2023. Pawn Corporation uses the cost method in accounting for its investment in Star Company.

Required:
Present all eliminating entries needed to prepare consolidated financial statements for the year 2023, and prepare
the consolidation working paper in good form for December 31, 2023.

Computation of Goodwill/Income from Acquisition:

Investment Cost/Acquisition Cost 220,000

Less: Book Value of Interest Acquired: 200,000
Business Combination Valuation Reserve (BCVR) 20,000
Allocation: None (Direct to Goodwill) -
Goodwill/Income from Acquisition 20,000

Working Paper Elimination Entries:

At Date of Acquisition:
January 1, 2022:

? ?
? ?
?. ?
#to eliminate equity accounts of Star at Date of
Acquisition

? ?
? ?
#to record allocation of BCVR

ABC301| RCA CPA 2023 – Accounting for Consolidated Financial Statements – Subsequent to Date of Acquisition (Practice Problems)
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ACCOUNTING FOR BUSINESS COMBINATIONS (ABC301)

At Year-End (Second Year):

December 31, 2023

Dividend Income – Pawn Corp. ?

Dividends Declared – Star Co. ?
#to eliminate intercompany dividends

Retained Earnings, 1/1 ?

Goodwill ?
#to record goodwill impairment at Dec. 31, 2022

Pawn Corporation and Subsidiary

Working Paper for Consolidated Financial Statements
December 31, 2023

Eliminations and Adjustments

Pawn Corp.
Income Statement:
? ?
? ?
? ?
? ?
? ?
? ?
? ?
? ?
Star Co. Consolidated
Debit Credit
? ?
? ? ?
? ?
? ?
? ?
? ?
? ?
? ?

Net Income carried forward: 54,000 35,000 69,000

Statement of Retained Earnings:

? ? ? ? ?
?
? ? ? ?
Total ? ? ?
? ? ? ? ?
? 296,000 75,000 ?

Statement of Financial Position:

? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ?
? ? ?
?
? ? ? 12,000

Total 696,000 375,000 ?

? ? ? ?
? ? ? ?
? ? ? ?
? ? ? ? ?
Retained Earnings ? ? 313,000

Total ? ? 863,000

ABC301| RCA CPA 2023 – Accounting for Consolidated Financial Statements – Subsequent to Date of Acquisition (Practice Problems)
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