Session 2: Consolidation Subsequent to Acquisition (Cost Method) Coverage: 1.

. Journal entries and working paper entries under the Cost Method. 2. Computation of the CNI, NCI in NI, NI attributable to parent, NCI, and Consolidated Retained Earnings. Journal Entries a. To record the investment: Investment in Subsidiary xx Cash xx # b. To record dividend received from subsidiary: Cash xx Dividend Income xx # Working paper entries: a. To eliminate dividends declared by subsidiary: Dividend Income (Parents share) xx NCI (if applicable) xx Dividends declared by Subsidiary xx # b. To eliminate SHE accounts of subsidiary, and investment account and recognize NCI: SHE accounts of Subsidiary xx Investment in subsidiary xx NCI (If applicable) xx # c. To allocate the excess of Price paid over Book Value of Net assets acquired: Goodwill xx Assets (FV>BV) xx Liabilities (FV<BV) xx Investment in Subsidiary xx NCI (if applicable) xx Assets (FV < BV) xx Liabilities ( FV>BV) xx # d. To amortize the excess (varies). e. To recognize the NCI in NI of Subsidiary: NCI in NI of subsidiary xx NCI (NI of subsidiary from own operations x NCI %)

xx

Computation of CNI, NCI in net income of subsidiary, NI attributable to parent, consolidated retained earnings, and NCI. a. CNI, NCI in net income of subsidiary, net income attributable to parent: Parent net income Less: Dividend income from subsidiary Net income from own operations Net income of subsidiary from own: Net income, subsidiary xx Less: amortization of excess Asset (FV >BV) (xx) (FV < BV) xx Liabilities (FV>BV) xx (FV<BV) (xx) Goodwill impairment (xx) 1. Consolidated net income 2. NCI in Net Income (NI of subsidiary from own x NCI%) 3. Net income attributable to parent b. Consolidated retained earnings: Beginning Retained earnings, Parent Add: Net income attributable to parent Total Less: dividends declared by parent Consolidated retained earnings c. Non-controlling interest: Value of NCI on acquisition date NCI in dividends declared by Subsidiary NCI in Net income of subsidiary NCI balance xx (xx) xx

xx xx (xx) xx xx xx xx (xx) xx xx (xx) xx xx

Problems: 1. On January 2. 2011, Pascual Corporation purchased 80% of Suazon Companys P10 par common stock for P975, 000. On this date, the book value of Suazons net assets was P1, 000,000. The fair value of Suazons identifiable assets and liabilities were the same as the carrying amounts except for plant assets (10-year life), which were P100, 000 in excess of the carrying amount. For the year-ended December 31, 2011, Suazon had net income of P190, 000 and paid cash dividends totalling P125, 000. Required: Prepare journal entries and working paper entries. Compute for the NCI. 2. On January 2, 2011, Polo Corporation purchased 80% of Seed Companys common stock for P216, 000. P10, 000 of the excess is attributed to goodwill and the balance to a depreciable asset with an economic life of ten years. On the date of the acquisition, Seed reported common stock outstanding of P80, 000 and retained earnings of P140, 000, and Polo reported common stock outstanding of P350, 000 and retained earnings of P520, 000. On December 31, 2011, Seed reported net income of P35, 000 and paid dividends of P15, 00, Polo reported earnings of P107, 000 and paid dividends of P46, 000. Goodwill had been impaired and should be reported at P2, 000 on December 31, 2011. Required: CNI Consolidated R.E. NCI in net income of subsidiary NCI Consolidated net income to parent 3. On January 2, 2011, Pat Corporation acquired 75% of the outstanding common stock of Sol Company for P270, 000 cash. The investment was accounted for by the cost method. On January 2, 2011, Sols identifiable net assets (book value and fair value) were P300, 000. Sols net income for the year ended December 31, 2011 was P160, 000. During the year 2011, Pat received P60, 000 cash dividends from Sol. There were no other intercompany transactions. Required:Goodwill, NCI in NI, NCI 4. On January 2, 2011, Peter acquired 80% of Sellers outstanding common shares for P500, 000. Sellers book value on that date was P500, 000; there were no significant differences between the book and fair value. Goodwill is not impaired. During 2011, Peter and Seller reported the following: Peter Seller Net income from own operations P1, 000,000 P200, 000 Dividends declared and paid 300, 000 120, 000

Required: CNI, NCI in NI,CNI to parent,NCI