CHAPTER 15 MULTIPLE CHOICE 15-1: a Acquisition cost Less: Book value of interest acquired (100%) Difference Allocation: Property and equipment Other assets Long-term debt Goodwill 15-2: P4,000,000 3,200,000 800,000 P(750,000) 150,000 (200,000) c Acquisition cost Less: Book value of interest acquired (P280,000 x 90%) Difference Allocation to plant assets (P40,000 x 90%) Goodwill 15-3: P 350,000 252,000 98,000 (36,000) P 62,000 c Plant assets – Pall Company Plant assets – Mall Company Consolidated 15-4: ( 800,000) P -0- P 220,000 180,000 P 400,000 a Acquisition cost Less: Book value of interest acquired (P560,000 – P70,000) Difference Allocation: Inventory P 25,000 Property and equipment ( 35,000) Income from acquisition P495,000 490,000 5,000 (10,000) P( 5,000) 51 15-5: b Acquisition cost Less: Book value of interest acquired (P320,000 x 80%) Difference Allocation: Inventory (P20,000 x 80%) P(16,000) Land (P10,000 x 80%) 8,000 Mortgage payable (P5,000 x 80%) ( 4,000) Goodwill 15-6: 15-7: 15-8: ( 12,000) P 67,000 a Inventory (P360,000 + P130,000) P490,000 Plant and equipment (P500,000 + P420,000) P920,000 a Building P180,000 Land P 90,000 d Son’s stockholders’ equity Minority interest proportionate share Minority interest in net assets of subsidiary 15-9: P355,000 256,000 P 79,000 P400,000 20% P 80,000 d Acquisition cost Less: Book value of interest acquired (P145,000 x 75%) Difference Allocation to accounts payable (P5,000 x 75%) Goodwill P160,000 108,750 51,250 3,750 P 55,000 Therefore: Total assets (P800,000 + P300,000 + P55,000) Total liabilities (P250,000 + P15,000 + P160,000 + P5,000) P1,155,000 570,000 15-10: b (P900,000 x 1%) 52 15-11: a Controlling (Parent) interest: Shares acquired (P120,000 / P120) Divided shares outstanding (P125,000 /P100) Parent’s interest 1,000 shares ÷1,250 80% Minority interest in net assets of subsidiary (P200,000 x 20%) P40,000 15-12: a Goodwill Book value of interest acquired (P100,000 / 20%) x 80% Investment cost P250,000 400,000 P650,000 15-13: b Net assets on the date of acquisition (P247,095 + P43,605) Adjustments of assets excluding goodwill: Inventories P6,630 Plant and equipment 48,450 Patent 7,650 Net assets at fair value P290,700 62,730 P353,430 15-14: d (P500,000 + P300,000) 15-15: b Acquisition cost Less: Book value of interest acquired (P250,000 x 80%) Difference Allocated to plant and equipment (P50,000 x 80%) Goodwill P260,000 200,000 60,000 (40,000) P 20,000 15-16: a (The retained earnings of the parent only) 15-17: a (The stockholders’ equity of the parent only) 15-18: b (P50,000 + P10,000) 15-19: d (P380,000 + P150,000) 53 15-20: d Cash and cash equivalent (P70,000 + P90,000) Inventory (P100,000 + P60,000) Property and equipment (P500,000 + P300,000) Goodwill Total assets P 160,000 160,000 800,000 20,000 P1,140,000 15-21: d Fair value of the reporting unit Fair value of net assets (excluding goodwill) Implied goodwill Carrying value of goodwill (P450,000 – P390,000) Impairment loss P 485,000 440,000 45,000 60,000 P 15,000 15-22: b Fair value of the reporting unit Fair value of the net assets (P590,000 – P100,000) Implied goodwill to be recorded Carrying value of goodwill Impairment loss P 540,000 490,000 50,000 150,000 P 100,000 15-23: a The amount reported is equal to Primo’s retained earnings of P567,000 15-24: a 100% – [P138, 000 ÷ (P320, 000 ÷ P140, 000)] 15-25: a (340,000- 200,000) 15-26: b Cash Accounts receivable Inventories (see 15-25) Equipment (800,000 - 500,000) Accounts payable Fair value of net assets 40,000 20,000 140,000 300,000 (40,000) 460,000 15-27: a Net asset acquired (320,000 x 70%) Differential allocated to inventory Differential allocated to equipment Differential allocation to goodwill Minority interest (140,000 x30%) Amount paid by Parent 224,000 40,000 100,000 10,000 (42,000) 332,000 54 PROBLEMS Problem 15-1 a b Investment in Solo Company stock Cash To record acquisition of 90% (90,000 / 100,000) of the outstanding shares of Solo 1,080,000 1,080,000 Working paper elimination entries: (1) (2) Common stock – Solo 400,000 Retained earnings – Solo 500,000 Investment in Solo company stock Minority interest in net assets of subsidiary To eliminate Solo’s equity accounts at date of acquisition Inventories 30,000 Plant assets 60,000 Goodwill 189,000 Investment in Solo company stock Minority interest in net assets of subsidiary To allocate difference Computation and allocation of difference: Acquisition cost Less: Book value of interest acquired Common stock (P400,000 x90%) Retained earnings (P500,000 x 90%) Difference Allocation: Inventories Plant assets Total Minority interest (P90,000 x10%) Goodwill 810,000 90,000 270,000 9,000 P1,080,000 P360,000 450,000 (30,000) (60,000) (90,000) 9,000 810,000 P 270,000 ( 81,000) P 189,000 55 Problem 15-2 a b c Investment in Straw stock Cash To record acquisition of 100% of Straw stock Acquisition cost Less: Book value of interest acquired (100%) Difference Allocation (100%: Inventories Land Building Equipment Patents Goodwill 600,000 600,000 P600,000 420,000 180,000 P( 40,000) ( 80,000) 150,000 ( 20,000) ( 20,000) ( 10,000) P170,000 Working paper elimination entries: (1) (2) Common stock – Straw Retained earnings – Straw Investment in Straw stock To eliminate equity accounts of Straw at date of acquisition 100,000 320,000 Inventories Land Equipment Patents Goodwill Buildings Investment in Straw stock To allocate difference 40,000 80,000 20,000 20,000 170,000 420,000 150,000 180,000 56 Problem 15-3 a b c Investment in Soto stock Cash To record acquisition of 90% stock of Sotto 950,000 Acquisition cost Less: Book value of interest acquired (P900,000 x 90%) Difference Allocation: Current assets P 50,000 Property and equipment (100,000) Long-term debt ( 40,000) Total P( 90,000) Minority interest (10% thereof) 9,000 Goodwill 950,000 P950,000 810,000 140,000 (81,000) P 59,000 Working paper elimination entries: (1) (2) Common stock – Sotto 100,000 APIC – Sotto 200,000 Retained earnings – Sotto 600,000 Investment in Sotto stock Minority interest in net assets of subsidiary To eliminate equity accounts of Sotto at date of acquisition Property, plant and equipment 100,000 Goodwill 59,000 Long-term debt 40,000 Current assets Investment in Sotto stock Minority interest in net assets of subsidiary To allocate difference 810,000 90,000 45,000 140,000 14,000 57 Problem 15-4 Paco Company and Subsidiary Consolidated Balance Sheet January 2, 2008 Current assets Property, plant and equipment Other assets Total assets P475,000 285,000 70,000 P830,000 Current liabilities Mortgage payable Common stock Additional paid-in capital Retained earnings (including income from subsidiary of P20,000) Total liabilities and stockholders’ equity P280,000 85,000 200,000 65,000 200,000 P830,000 Computation of income from acquisition: Investment cost (20,000 shares x P6) Less: Book value of interest acquired Common stock Retained earnings Difference Allocated to property and equipment Income from acquisition P120,000 P35,000 80,000 115,000 P 5,000 (25,000) P(20,000) Problem 15-5 Under the purchase method, the investment cost is equal to the fair value of stock issued by Palo (P250,000) plus direct acquisition cost (P10,000) or a total of P260,000 The P20,000 stock issue cost is treated as a reduction from the additional paid-in capital The entry to record the acquisition of stock is as follows: Investment in Solo stock Common stock, at par Additional paid-in capital Cash (direct acquisition cost) Additional paid-in capital Cash 260,000 100,000 150,000 10,000 20,000 20,000 58 Palo Company and Subsidiary Consolidated Balance Sheet December 31, 2008 Cash Receivables Inventory Property and equipment – net Goodwill Total assets P 70,000 120,000 170,000 340,000 30,000 P730,000 Current liabilities Long-term liabilities Common stock Additional paid-in capital Retained earnings, 12/31 Total liabilities and stockholders’ equity P 30,000 120,000 210,000 150,000 220,000 P730,000 Computation of goodwill: Acquisition cost Less: Book value of interest acquired (P90,000 + P100,000) Difference Allocated to equipment Goodwill P260,000 190,000 70,000 (40,000) P 30,000 Problem 15-6 a Investment in Seed Company stock Cash To record acquisition of 100% of Seed company stock Allocation schedule: Acquisition cost Less: Book value of interest acquired Difference Allocation: Inventory Plant assets Long-term liabilities Income from acquisition b Working paper elimination entries (1) Common stock – Seed Additional paid-in capital – Seed Retained earnings – Seed Investment in Seed stock To eliminate equity accounts of Seed at date of acquisition (2) 350,000 350,000 P350,000 320,000 30,000 P(20,000) (80,000) 40,000 (60,000) P930,000) 100,000 40,000 180,000 Inventory 20,000 Plant assets 80,000 Long-term debt Investment in Seed stock Retained earnings – Pill (income from acquisition) To allocate difference 320,000 40,000 30,000 30,000 59 Pill Corporation and Subsidiary Consolidated Working Paper May 31, 2008 – Date of Acquisition Pill Corporation Seed Company Assets Cash Accounts receivable Inventories Investment in Seed company 200,000 700,000 1,400,000 350,000 10,000 60,000 120,000 Plant assets Total 2,850,000 5,500,000 610,000 800,000 500,000 1,000,000 80,000 400,000 Liabilities & Stockholders’ Equity Current liabilities Long-term debt Common stock: Pill Seed Additional paid-in capital Pill Seed Retained earnings Pill Seed Total Eliminations & adjustment Debit Credit (2) 20,000 (1)320,000 (2) 30,000 (2) 80,000 210,000 760,000 1,540,000 3,540,000 6,050,000 (2) 40,000 1,500,000 580,000 1,440,000 1,500,000 100,000 (1)100,000 40,000 (1) 40,000 180,000 800,000 (1)180,000 420,000 1,200,000 1,200,000 1,300,000 5,500,000 Consolidated (2) 30,000 1,330,000 420,000 6,050,000 Problem 15-7 a b Accounts Receivable Cash Investment in Sea Company stock Common stock ((30,000 shares x P20) Investment in Sea Company stock Common stock Current liabilities 70,000 70,000 600,000 600,000 40,000 30,000 70,000 60 Pop Corporation and Subsidiary Working Paper for Consolidated Balance Sheet April 30, 2008 – Date of acquisition Pop Corporation Assets Cash Accounts receivable – net Inventories Investment in Sea Company Plant assets Goodwill Total Liabilities & Stockholders’ Equity Current liabilities Long-term debt Common stock Pop Sea Additional paid-in capital Retained earnings Pop Sea Minority interest in net assets Of subsidiary Total Sea Company Adjustments & Eliminatio Debit Credit 50,000 230,000 400,000 640,000 80,000 270,000 350,000 1,300,000 560,000 2,620,000 1,260,000 380,000 800,000 250,000 600,000 (3) 70,000 100,000 360,000 (1)100,000 (1)360,000 (3) 70,000 (2) 90,000 (1)328,000 (2)312,000 (2)220,000 (2) 80,000 130,000 430,000 840,000 2,080,000 80,000 3,560,000 (2) 20,000 1,070,000 560,000 1,420,000 1,070,000 370,000 2,620,000 Consolidated 370,000 (50,000) (1) 50,000 1,260,000 (1) 82,000 (2) 58,000 920,000 920,000 140,000 3,560,000 (1) To eliminate equity accounts of Sea Company on the date of acquisition (2) To allocate difference, computed as follows: Acquisition cost Less: Book value of interest acquired (P410,000 x 80%) Difference Allocation: Inventories P( 90,000) Plant assets (220,000) Long-term debt 20,000 Total P(290,000) Minority interest (20% 58,000 Goodwill (3) To eliminate intercompany receivables and payables P640,000 328,000 312,000 232,000 P 80,000 61 Problem 15-8 Acquisition cost Less: Book value of interest acquired Common stock APIC Retained earnings Difference Allocation: Inventory Land Building Equipment Bonds payable P500,000 P100,000 200,000 230,000 P( 20,000) ( 10,000) 50,000 60,000 ( 50,000) 530,000 ( 30,000) 30,000 P Company and Subsidiary Consolidated Working Paper January 1, 2008 – Date of acquisition P Company Debits Cash Accounts receivable Inventory Land Building Equipment Investment in S Company Total Credits Accounts payable Bonds payable Common stock – P Company Common stock – S Company APIC – S Company Retained earnings – P Co Retained earnings – S Co Total S Company Adjustments & Eliminations Debit Credit 300,000 200,000 200,000 100,000 600,000 800,000 500,000 2,700,000 50,000 100,000 80,000 50,000 400,000 200,000 150,000 60,000 290,000 (2) 50,000 100,000 200,000 (1)100,000 (1)200,000 230,000 880,000 (1)230,000 640,000 (2) 20,000 (2) 10,000 (2) 30,000 (2) 50,000 (2) 60,000 (1)530,000 880,000 Consolidated 350,000 300,000 300,000 160,000 950,000 940,000 3,000,000 210,000 240,000 1,500,000 1,500,000 1,050,000 2,700,000 640,000 1,050,000 3,000,000 (1) To eliminate equity accounts of S Company (2) To allocate difference 62 Problem 15-9 Acquisition cost Less: Book value of interest acquired Common stock (P100,000 x 80%) APIC (P200,000 x 80%) Retained earnings (P230,000 x 80%) Difference Allocation Inventory Land Building Equipment Bonds payable Total Minority interest (20%) Goodwill P500,000 P 80,000 160,000 184,000 P (20,000) (10,000) 50,000 60,000 (50,000) P 30,000 ( 6,000) 424,000 P 76,000 24,000 P100,000 P Company and Subsidiary Consolidated Working Paper January 2, 2008 – Date of acquisition Debits Cash Accounts receivable Inventory Land Building Equipment Investment in S Company Goodwill Total Credits Accounts payable Bonds payable Common stock – P Co Common stock – S Co APIC – S Co Retained earnings – P Co Retained earnings – S Co Minority interest in net Assets of subsidiary Total Adjustments & Eliminations Debit Credit P Company S Company 300,000 200,000 200,000 100,000 600,000 800,000 500,000 50,000 100,000 80,000 50,000 400,000 200,000 2,700,000 880,000 150,000 60,000 290,000 (2) 50,000 100,000 200,000 (1)100,000 (1)200,000 230,000 (1)230,000 880,000 (2) 6,000 716,000 (2) 20,000 (2) 10,000 (2) 50,000 (2) 60,000 (1)424,000 (2) 76,000 (2)100,000 350,000 300,000 300,000 160,000 950,000 940,000 100,000 3,100,000 210,000 240,000 1,500,000 1,500,000 1,050,000 2,700,000 Consolidated 1,050,000 (1)106,000 716,000 100,000 3,100,000 (1) To eliminate equity accounts of S Company (2) To allocate difference 63 Problem 15-10 Acquisition cost Less: Book value of interest acquired (100%) Difference Allocation Inventory Land Equipment Long-term investment in MS Income from acquisition P542,000 670,000 (128,000) P (10,000) (40,000) 20,000 (15,000) ( 45,000) P(173,000) P Company and Subsidiary Consolidated Working Paper January 2, 2008 – Date of acquisition Assets Cash Accounts receivable Inventory Land Equipment Investment in S Company Long-term investment in MS Total Liabilities & Stockholders’ Equity Accounts payable Common Stock – P Co Common Stock – S Co APIC – P Co Retained earnings – P Co Retained earnings – S Co Total P Company S Company 100,000 200,000 150,000 50,000 300,000 542,000 100,000 1,442,000 100,000 150,000 130,000 80,000 200,000 175,000 400,000 115,000 125,000 785,000 200,000 Adjustments & Eliminations Debit Credit (2) 10,000 (2) 40,000 (2)128,000 (2) 15,000 470,000 785,000 200,000 350,000 290,000 170,000 480,000 240,000 1,730,000 290,000 400,000 (1)200,000 200,000 667,000 1,442,000 (2) 20,000 (1)670,000 Consolidated (1)470,000 863,000 (2)173,000 200,000 840,000 863,000 1,730,000 (1) To eliminate equity accounts of S Company (2) To allocate difference 64 ... (40,000) P 20,000 15- 16: a (The retained earnings of the parent only) 15- 17: a (The stockholders’ equity of the parent only) 15- 18: b (P50,000 + P10,000) 15- 19: d (P380,000 + P150,000) 53 15- 20: d Cash... 50,000 150 ,000 P 100,000 15- 23: a The amount reported is equal to Primo’s retained earnings of P567,000 15- 24: a 100% – [P138, 000 ÷ (P320, 000 ÷ P140, 000)] 15- 25: a (340,000- 200,000) 15- 26:... (P800,000 + P300,000 + P55,000) Total liabilities (P250,000 + P15,000 + P160,000 + P5,000) P1 ,155 ,000 570,000 15- 10: b (P900,000 x 1%) 52 15- 11: a Controlling (Parent) interest: Shares acquired (P120,000