5.

Prepare the working paper eliminating entries for 20x4 and 20x5 for purposes of preparing consolidated balance sheet.

Consolidation Working paper – Year of Acquisition

(E1) Common stock – Son Company 240,000.00

Retained earnings - Son Company 120,000.00
Investment in Son Company 288,000.00
Non-controlling interest (360,000x20%) 72,000.00
To eliminate intercompany investment and equity accounts of subsidiary on date of acquisition; and to establish non-controlling interest (in net assets of subsidiary) on date of acquisition

(E2) Inventory 6,000.00

Accumulated depreciation – equipment 96,000.00
Accumulated depreciation – buildings 192,000.00
Land 7,200.00
Discount on bonds payable 4,800.00
Goodwill 12,000.00
Buildings 216,000.00
Non-controlling interest (P 90,000 x 20%) 18,000.00
Investment in Son Company 84,000.00
To allocate excess of cost over book value of identifiable assets acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on date of acquisition

(E3) Cost of Goods sold 6,000.00

Depreciation expense 6,000.00
Accumulated depreciation – buildings 6,000.00
Interest Expense 1,200.00
Goodwill Impairment loss 3,000.00
Inventory 6,000.00
Accumulated depreciation – equipment 12,000.00
Discount on bonds payable 1,200.00
Goodwill 3,000.00
To provide for 20x4 impairment loss and depreciation and amortization on differences between acquisition date fair value and book value of S’s identifiable assets and liabilities as follows:
COGS Depreciation/ Amortization Expense Amortization – Interest Total
Inventory Sold ₱ 6,000.00 ₱ 6,000.00
Equipment ₱ 12,000.00 ₱ 12,000.00
Buildings -6000 -₱ 6,000.00
Bonds Payable ₱ 1,200.00 ₱ 1,200.00
Total ₱ 6,000.00 ₱ 6,000.00 ₱ 1,200.00 ₱ 13,200.00

(E4) Dividend Income – Perfect Company 28,800.00

Non-controlling interest (P36,000 x 20%) 7,200.00
Dividend paid - Son Company 36,000.00
To eliminate intercompany dividends and non-controlling interest share of dividends

(E5) Sales 150,000.00

Cost of Goods Sold 150,000.00
To eliminated intercompany downstream sales

(E6) Sales 60,000.00

Cost of Goods Sold 60,000.00
To eliminated intercompany upstream sales

(E7) Cost of Goods Sold (Ending Inventory –Income Statement) 18,000.00

Inventory – Balance Sheet 18,000.00
To defer the downstream sales - unrealized profit in ending inventory until it is sold to outsiders

(E8) Cost of Goods Sold (Ending Inventory –Income Statement) 12,000.00

Inventory – Balance Sheet 12,000.00
To defer the upstream sales - unrealized profit in ending inventory until it is sold to outsiders

(E9) Non-controlling interest in Net Income of Subsidiary 6,960.00

Non-controlling interest 6,960.00
To defer the downstream sales - unrealized profit in ending inventory until it is sold to outsiders

Net Income of Subsidiary 60,000.00

Unrealized Profit – P Co. - 12,000.00
S Co.’s realized net income 48,000.00
Less: Amortization of excess - 13,200.00
Allocated excess 34,800.00
Multiplied by NCI percentage 20%
NCINI – partial goodwill ₱ 6,960.00

Consolidation Working paper – Second Year after Acquisition

(E1) Investment in S Co 192,000.00

Retained earnings – S Co 192,000.00
To provide entry to convert from the cost method to the equity method or the entry to establish reciprocity at the beginning of the year, 1/1/20x5

(E2) Common stock – Son Company 240,000.00

Retained earnings - Son Company 144,000.00
Investment in Son Company 307,200.00
Non-controlling interest (384,000x20%) 76,800.00
To eliminate intercompany investment and equity accounts of subsidiary and to establish non-controlling interest (in net assets of subsidiary) on January 1, 20x5.

(E3) Inventory 6,000.00

Accumulated depreciation – equipment 96,000.00
Accumulated depreciation – buildings 192,000.00
Land 7,200.00
Discount on bonds payable 4,800.00
Goodwill 12,000.00
Buildings 216,000.00
Non-controlling interest (P 90,000 x 20%) 18,000.00
Investment in Son Company 84,000.00
To allocate excess of cost over book value of identifiable assets acquired, with remainder to goodwill; and to establish noncontrolling interest (in net assets of subsidiary) on January 1, 20x5.

(E4) Retained Earnings P CO. 13,560.00

Non-controlling interest (13,200*20%) 2,640.00
Depreciation expense 6,000.00
Accumulated depreciation – buildings 12,000.00
Interest Expense 1,200.00
Inventory 6,000.00
Accumulated depreciation – equipment 24,000.00
Discount on bonds payable 2,400.00
Goodwill 3,000.00
To provide for years 20x4 and 20x5 depreciation and amortization on differences between acquisition date fair value and book value of S’s identifiable assets and liabilities as follows: Year 20x4 amounts
are debited to P’s retained earnings & NCI; Year 20x5 amounts are debited to respective nominal account

COGS Depreciation/ Amortization Expense Amortization – Interest

Inventory Sold ₱ 6,000.00
Equipment ₱ 12,000.00
Buildings -6000 -6000
Bonds Payable 1200 ₱ 1,200.00
Sub-Total ₱ 13,200.00 ₱ 6,000.00 ₱ 1,200.00
Multiplied by: 80%
Retained Earnings 10,560.00
Impairment Loss 3,000.00
Total ₱ 13,560.00

(E5) Dividend Income – Perfect Company 38,400.00

Non-controlling interest (P48,000 x 20%) 9,600.00
Dividend paid - Son Company 48,000.00
To eliminate intercompany dividends and non-controlling interest share of dividends

(E6) Sales 120,000.00

Cost of Goods Sold 120,000.00
To eliminated intercompany downstream sales

(E7) Sales 75,000.00

Cost of Goods Sold 75,000.00
To eliminated intercompany upstream sales

(E8) Beginning Retained Earnings – P Co. 18,000.00

Cost of Goods Sold (Ending Inventory –Income Statement) 18000
To realized profit in downstream beginning inventory deferred in the prior period

(E9) Beginning Retained Earnings - P. Co. (12,000x80%) 9,600.00

Non-controlling interest 2,400.00
Cost of Goods Sold (Ending Inventory –Income Statement) 12,000.00
To realized profit in beginning inventory deferred in the prior period.

(E10) Cost of Goods Sold (Ending Inventory –Income Statement) 24,000.00

Inventory – Balance Sheet 24,000.00
To defer the downstream sales - unrealized profit in ending inventory until it is sold to outsiders

(E11) Cost of Goods Sold (Ending Inventory –Income Statement) 6,000.00

Inventory – Balance Sheet 6,000.00
To defer the upstream sales - unrealized profit in ending inventory until it is sold to outsiders

(E12) Non-controlling interest in Net Income of Subsidiary 17,760.00

Non-controlling interest 17,760.00
To establish non-controlling interest in subsidiary’s adjusted net income for 20x5 as follows:

Realized profit in beginning inventory of P Co - 20x5 ₱ 90,000.00

Unrealized Profit – P Co. 6,000.00
S Co.’s realized net income 96,000.00
Less: Amortization of excess 7,200.00
Allocated excess 88,800.00
Multiplied by: NCI percentage 20%
NCINI – partial goodwill ₱ 17,760.00