MULTIPLE CHOICE: COMPUTATIONAL

Consolidation - Date of Acquisition

Problem 1.

On January 1, 2019, Petrol Co. Acquired 80% interest in Shell Inc, by issuing 5,000 shares with the fair value of P60 per share and par value of P40 per share. The financial statements of Petrol Co. And Shell Inc. Immediately before the acquisition are shown below:

PETROL CO.SHELL INC.

Cash40,00020,000

Accounts Receivable120,00048,000

Inventory160,00092,000

Equipment800,000200,000

Accumulated depreciation(80,000)(40,000)

Total assets1,040,000320,000

Accounts payable80,00024,000

Bonds payable120,000-

Share Capital 480,000200,000

Share premium160,000-

Retained earnings200,000 96,000

Total liabilities and equity1,040,000320,000

On January 1, 2019 the fair value of the assets and liabilities of Shell Inc. Were determined by appraisal, as follows

Carrying amountFair Value

Cash20,00020,000

Accounts receivable48,00048,000

Inventory92,000124,000

Equipment200,000240,000

Accumulated depreciation(40,000)(48,000)

Account Payable(24,000)(24,000)

Total net assets296,000360,000

The equipment has a remaining useful life as of 4 years from January 1, 2019.

Case #1. NCI measured at proportionate share of parent

Petrol Co. Elects to measure non-controlling interest as its proportionate share in Shell Inc. Net identifiable net assets.

1.How much is the consolidated total assets as of January 1, 2019?

a. 1,436,000b. 1,439,000c. 1,736,000d. 1,376,000

2.How much is the consolidated total equity as of January 1, 2019?

a. 1,200,000b. 1,215,000c. 1,212,000d. 1,364,000

Case#2. NCI measured at fair value.

Petrol Co. Elects the option to measure non-controlling interest at fair value and a value of P75,000 is assigned to the 20% non-controlling interest [(P300,000 / 80% ) x 20% = 75,000].

3.How much is the consolidated total assets as of January 1, 2019?

a. 1,436,000b. 1,439,000c. 1,736,000d. 1,376,000

4.How much is the consolidated total equity as of January 1, 2019?

a. 1,200,000b. 1,215,000c. 1,212,000d. 1,364,000

Consolidation subsequent to date of acquisition (Proportionate Share)

Problem #2

On January 1, 2019 Petrol Co. Acquired 80% interest in Shell Inc. By issuing 5,000 shares with fair value of P60 per share and par value of P40 per share.On acquisition date, Petrol Co. Elected to measure non-controlling interest as its proportionate share in Shell Inc, net identifiable assets.

Shell`s shareholder`s equity as of January 1, 2019 comprises the following;

(at carrying amount)

Share Capital200,000

Retained Earnings96,000

On January 1, 2019 the fair value of the assets and liabilities of Shell Inc. Were determined by appraisal, as follows

Carrying amountFair ValueFair Value

Cash20,00020,000-

Accounts receivable48,00048,000-

Inventory92,000124,00032,000

Equipment200,000240,00040,000

Accumulated depreciation(40,000)(48,000)(8,000)

Account Payable(24,000)(24,000)-

Total net assets296,000360,00064,000

The equipment has a remaining useful life as of 4 years from January 1, 2019.

During 2019 no dividends were declared by either Petrol or Shell, there were also no inter-company transactions. The group determined that there is no goodwill impairment.

Petrol`s and Shell individual financial statements at year end are shown below:

Statement of financial position

As of December 31, 2019

PETROL Co.SHELL Inc.

Cash92,000228,000

Accounts receivable300,00088,000

Inventory420,00060,000

Investment in subsidiary300,000

Equipment800,000200,000

Accumulated depreciation(240,000)(80,000)

Total assets1,672,000496,000

Accounts payable172,000120,000

Bonds payable120,000-

Share Capital680,000200,000

Share premium260,000-

Retained Earnings440,000176,000

Total liabilities and equity1,672,000496,000

Statement of profit or loss

For the year ended December 31, 2019

PETROL Co.SHELL Inc.

Sales1,200,000480,000

Cost of goods sold(660,000)(288,000)

Gross Profit540,000192,000

Depreciation expenses(160,000)(40,000)

Distribution costs(128,000)(72,000)

Interest expense(12,000)-

Profit for the year240,00080,0000

5.How much is the consolidated profit for 2019?

a. 208,000b. 280,000c. 240,000d. 296,000

6.How much is the consolidated total assets as of December 31, 2019?

a. 1,867,000b. 1,907,000c. 1,894,000d. 1,904,000

7.How much is the consolidated total equity as of December 31, 2019?

a. 1,492,000b. 1,415,000c. 1,412,000d.1.495,000

Consolidation subsequent to date of acquisition -NCI at fair value

Problem #3

On January 1, 2019 Petrol Co. Acquired 80% interest in Shell Inc. By issuing 5,000 shares with fair value of P60 per share and par value of P40 per share.On acquisition date, Petrol Co. Elected to measure non-controlling interest at fair value. A value of P75,000 is assigned to the 20% non-controlling interest [(P300,000/80%)x20% = P75,000].

Shell`s shareholder`s equity as of January 1, 2019 comprises the following;

(at carrying amount)

Share Capital200,000

Retained Earnings96,000

On January 1, 2019 the fair value of the assets and liabilities of Shell Inc. Were determined by appraisal, as follows

Carrying amountFair ValueFair Value

Cash20,00020,000-

Accounts receivable48,00048,000-

Inventory92,000124,00032,000

Equipment200,000240,00040,000

Accumulated depreciation(40,000)(48,000)(8,000)

Account Payable(24,000)(24,000)-

Total net assets296,000360,00064,000

The equipment has a remaining useful life as of 4 years from January 1, 2019.

During 2019 no dividends were declared by either Petrol or Shell, there were also no inter-company transactions. The group determined that there is no goodwill impairment.

Petrol`s and Shell individual financial statements at year end are shown below:

Statement of financial position

As of December 31, 2019

PETROL Co.SHELL Inc.

Cash92,000228,000

Accounts receivable300,00088,000

Inventory420,00060,000

Investment in subsidiary300,000

Equipment800,000200,000

Accumulated depreciation(240,000)(80,000)

Total assets1,672,000496,000

Accounts payable172,000120,000

Bonds payable120,000-

Share Capital680,000200,000

Share premium260,000-

Retained Earnings440,000176,000

Total liabilities and equity1,672,000496,000

Statement of profit or loss

For the year ended December 31, 2019

PETROL Co.SHELL Inc.

Sales1,200,000480,000

Cost of goods sold(660,000)(288,000)

Gross Profit540,000192,000

Depreciation expenses(160,000)(40,000)

Distribution costs(128,000)(72,000)

Interest expense(12,000)-

Profit for the year240,00080,0000

8.How much is the consolidated profit for 2019?

a. 208,000b. 280,000c. 240,000d. 296,000

9.How much is the consolidated total assets as of December 31, 2019?

a. 1,867,000b. 1,907,000c. 1,894,000d. 1,904,000

10.How much is the consolidated total equity as of December 31, 2019?

a. 1,492,000b. 1,415,000c. 1,412,000d.1.495,000

On January 1, 2019, R corporation purchased 80 percent of S corporation`s P10 par common stock for P975,000. On this date, the carrying amount of S`s net assets was P1,000,000. the fair values of S`s identifiable assets and liabilities were the same as their carrying amounts except for plant assets (net), which were P100,000 in excess of the carrying amount and with a remaining life of S years, For the year ended December 31, 2019, S had net income of P190,000 and paid cash dividends totaling P125,000.

1.In the January 1, 2019, consolidated balance sheet, goodwill should be reported at:

a.P0b. P75,000c. P95,000d. P175,000

2.In the December 31, 2019, consolidated balance sheet, non-controlling interest should be reported at:

b.P200,000b. P213,000c. P229,000d. P233,000

Minor Corporation reports net assets of P300,000 at book value. These assets have an estimated market value of P350,000. if Major corporation buys 80 percent ownership of Minor for P275,000.

3.Goodwill will be reported in the consolidated balance sheet in the amount of:

a.P0b. P25,000c. P35,000d. P40,000

4.The non-controlling interest will be reported in the amount of:

a.P55,000b. P60,000c. P70,000d. P71,250

5.C corporation recently purchased 80% of the stock of T Decks, Inc, for P232,000. at the date of purchased the consolidated balance sheet showed P40,000 of goodwill from the acquisition. The book value of T deck`s net assets at the time of acquisition was:

a.P192,000b. P232,000c. P240,000d. P290,000

Apex Company acquired 70% of the outstanding stock of Nadir corporation on January 2, 2019. The consolidated balance sheet prepared immediately after the business combination contained the following:

Current assets146,000Current Liabilities28,000

Fixed assets-net370,000Capital stock350,000

Goodwill8,100Retained earnings111,000

Minority interest35,100

TotalP524,000Total524,100

Of the excess payment for the investment in Nadir, P10,000 was ascribed to undervaluation of its fixed assets; the balance of the excess payment was ascribed to goodwill.

6.How much is the cost of investment paid by APEX in acquiring the 70% interest in Nadir?

a.P117,000b. P90,000c. P100,000d. P135,100

7.How much is the underlying equity of APEX in the net assets of Nadir corporation?

a.P71,900b. P90,000c. P63,800d. P81,900

Mountain Breeze Corporation acquired 70% of the outstanding common stock of Sea Breeze corporation

Mountain BreezeSea Breeze

Book ValueBook valueFair value

Assets

Cash32,00020,00020,000

Receivables-net80,00030,00030,000

Inventories70,00030,00050,000

Land100,00050,00060,000

Building-net110,00070,00090,000

Equipment-net80,00040,00030,000

Investment in Sea Breeze178,000--

Total650,00240,000280,00

Liabilities and Stockholders Equity

Accounts payable90,00080,00080,000

Other liabilities10,00050,00040,000

Capital stock, P10 par500,000100,000

Retained earnings50,00010,000

Total650,000240,000

8.Compute the consolidated Total assets on January 1, 2019

a.P712,000b. P813,000c. P818,000d. P930,000

9.Compute the Minority interests on the date of acquisition;

b.P33,000b. P45,000c. P48,000d. P72,000

10.The consolidated income statement of PP company and its 80% owned subsidiary follows:

Sales 402,000

Cost of sales246,000

Gross profit156,000

Operating expenses81,000

Consolidated net income75,000

Less: minority interest net income6,000

Profit attributable to equity Holders of parent69,000

Compute the Net income from operations of the subsidiary, and PP company, respectively.

a.P30,000; P39,000b. P30,000;45,000

c.P6,000;P75,000d. P45,000; P30,000