Problem 1

On December 31, 2014, Paolo Corporation acquired 90 percent of the ordinary shares of Sandy Inc. for P1,243,200, P336,000 in excess of the book value of the shares acquired accounted for as follows: P7,000 relates to the increased value of Sandys inventory, P105,000 relates to the increased value of Sandys land, P84,000 relates to the increased value of Sandys equipment, and P70,000 was associated with a change in the value of Sandys notes payable due to increasing interest rates. Sandys equipment had a remaining life of 15 years from the date of combination. The entire inventory held by Sandy at the end of 2014 was sold during 2015. The land to which the differential relates was also sold during the year for a large gain. The amortization of the differential relating to Sandys notes payable was P10,500 for 2015.

At the date of combination, Sandy reported accumulated profits of P168,000, ordinary shares outstanding of P700,000, and premium on ordinary shares of P140,000. For the year 2015, Sandy reported net income of P95,200 but paid no dividends. Paolo accounts for its investment in Sandy using the cost method.

Required:

Prepare all elimination entries that would have been included in the consolidated statements worksheet to prepare a full set of consolidated financial statements for the year 2015.

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