Question
Pure Corporation acquired an 80% interest in Sincere Company on January 2, 2012 for P2,520,000. On this date, the share capital and retained earnings of
Pure Corporation acquired an 80% interest in Sincere Company on January 2, 2012 for P2,520,000. On this date, the share capital and retained earnings of the two companies follow:
Pure Corp.
Sincere Co.
Share Capital
P6,000,000
P2,250,000
Retained earnings
3,000,000
450,000
On January 2, 2012, the assets and liabilities of Sincere Co. were stated at their fair values except for machinery which is undervalued by P225,000 (remaining life is 3 years). On September 30, 2012, Sincere sold merchandise to Pure at an inter-company profit of P150,000; 25% was still unsold at year-end. Likewise, on October 1, 2013, Sincere purchased merchandise from Pure for P3,600,000. The selling affiliate included a 20% mark-up on cost on this sale. Only 75% of these purchases had been sold to unrelated parties as of December 31, 2013. As of December 31, 2013, goodwill was determined to be impaired by P60,000.
The following is the summary of the 2013 transactions of the affiliated companies:
Pure Corp.
Sincere Co.
Net Income
P1,500,000
P600,000
Dividends declared and paid
600,000
180,000
On the 2013 separate financial statements, The net income attributable to Subsidiary amounts to 100,500
TRUE OR FALSE?
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