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On December 31, 20x5, Paper Co. purchased 60% of the outstanding common shares of Book Ltd. for P760,000 in shares and P200,000 in cash. The

On December 31, 20x5, Paper Co. purchased 60% of the outstanding common shares of Book Ltd. for P760,000 in shares and P200,000 in cash. The statements of financial position of Paper and Book immediately before the acquisition and issuance of the notes payable were as follows (in 000s):

Paper __ ____Book___ _

Book Fair Book Fair

Value Value Value Value

Cash P360 P360 P200 P200

Accounts receivable 520 500 380 380

Inventory 800 880 400 360

Capital assets 1,820 2,000 1,420 1,640

P3,500 P2,400

.

Accounts payable P 380 P380 P260 P260

Long-term liabilities 1,200 1,200 1000 1000

Common shares 500 600

Retained earnings 1,420 540

P3,500 P2,400

The difference in the carrying value and the fair value of the capital assets for Book relates to its office building. This building has an estimated 20 years remaining of useful life.

During 20x6, the year following the acquisition, the following occurred:

  • Throughout the year, Book purchased merchandise of P800,000 from Paper. Paper's gross margin is 30% of selling price. At December 31, 20X6, Book still owed Paper P250,000 on this merchandise. 75% of this merchandise was resold by Book prior to December 31, 20x6.
  • Throughout the year, Book sold merchandise to Paper totalling P500,000. The gross margin in these products is 25%. At the end of 20X6, Paper had not yet resold 60% of this merchandise.
  • Management fees were paid to Paper from Book totalling P250,000.
  • Book paid dividends of P250,000 at the end of 20x6 and Paper paid dividends of P500,000.

During 20x7, the following occurred:

  • Throughout the year, Book purchased merchandise of P1,000,000 from Paper. Paper's gross margin is 30% of selling price. At December 31, 20x6, Book still owed Paper P150,000 on this merchandise. 85% of this merchandise was resold by Book prior to December 31, 20x7.
  • Throughout the year, Book sold merchandise to Paper totalling P650,000. The gross margin in these products is 25%. At the end of 20x6, Paper had not yet resold 40% of this merchandise.
  • Management fees were paid to Paper from Book totalling P250,000.
  • Book paid dividends of P250,000 at the end of 20x7 and Paper paid dividends of P500,000.
  • Paper uses the cost method to report its investment in Book.

Statements of Financial Position

As at December 31,20x7

(in thousands of Pesos)

Assets

Paper

Book

Cash

P 50

P 210

Accounts Receivable

575

410

Inventories

825

430

Capital assets, net

2,870

1,760

Investment in Book

960

_______

Total assets

P 5,280

P 2,810

Liabilities

Accounts payable

P 465

P 325

Long term liabilities

1,290

950

Common shares

1,260

600

Retained Earnings

2,265

935

Total liabilities and shareholders' equity

P 5,280

P 2,810

Statements of Comprehensive Income

For the year ended December 31, 20x7

(in thousands of Pesos)

Paper

Book

Sales

P 2,520

P 2,400

Management fees

250

Dividend income

150

______

P 2,920

2,400

Cost of sales

P 800

P 1,200

Depreciation and amortization expenses

670

325

Management fees expense

250

Other expenses

460

135

P1,930

P 1,910

Net income

P 990

P 490

Statements of Changes in Equity Retained Earnings Section

For the year ended December 31,20X7

(in thousands of Pesos)

Paper

Book

Retained earnings, December 31, 20X6

P 1,775

P 695

Net income

990

490

Dividends declared

( 500)

( 250)

Retained earnings, December 31, 20X7

P 2,265

P 935

The full-goodwill arising from acquisition on December 31, 20x5 amounted to:

The amount of goodwill on December 31, 20x7 amounted to

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