COLLEGE OF BUSINESS AND ACCOUNTANCY

ACCOUNTING 7A
MIDTERM EXAMINATION

January 28, 2016

THURSDAY, 8:00AM-11:00AM

SET A
INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING QUESTIONS.
FULLY SHADE ONLY ONE BOX FOR EACH ITEM. STRICTLY NO ERASURES ALLOWED.
PROBLEM No. 1. You're Not My Type Jude Company has gained control over the
operations of Danielle Corporation on May 1, 2016 by acquiring 85% of its
outstanding capital stock for P2,580,000. This amount includes a control
premium of P30,000. Acquisition expenses, direct and indirect, amounted to
P83,000 and P42,000, respectively.
You're Not My Type Jude
Cash

Danielle

P3,541,500

P128,000

Accounts Receivable

300,000

325,000

Inventories

550,000

360,000

Prepaid Expenses

148,500

125,000

Land

2,350,000

879,000

Building

1,560,000

558,000

300,000

185,000

Equipment
Goodwill
Total Assets

300,000
P8,750,000

P2,860,000

Accounts Payable

P 675,000

P 253,000

Notes Payable

1,400,000

730,000

Capital stock, P50 par

3,400,000

800,000

Share Premium

1,575,000

600,000

Retained Earnings

1,700,000

477,000

P8,750,000

P2,860,000

Total Liability and Equity

The value of receivables and equipment has decreased by P25,000 and

P14,000, respectively. The fair value of inventories is now P436,000
whereas the value of land and building has increased by P471,000 and
P107,000, respectively. There was an unrecorded accounts payable amounting
to P27,000 and the fair value of notes is P738,000. The remaining life of
the equipment is two years, however, the building still has six years. The
net income of You're Not My Type Jude is P100,616 and Danielle's is P92,297
from the date of acquisition. Goodwill, if any, should be written down to
P772,384. Dividends declared by You're Not My Type Jude and Danielle at the
end of the year amounted to P20,000 and P15,000, respectively.

Ms.

Compute for the following balances:

1.Goodwill or gain from the acquisition
A. P873,000
B. P878,300
C. P887,300

D. P837,000

2. Consolidated assets on the date of acquisition

A. P11,925,000
B. P10,093,000
C. P10,218,000

D. P12,798,000

3. Consolidated shareholder's equity on the date of acquisition

A. P6,550,000
B. P6,675,000
C. P7,000,000
D. P7,500,000

4. Consolidated net income (loss) attributable to parent

A. P6,468
B. (P564,017)
C. (P560,947)
D. P9,537
5. Consolidated profit (loss)
A. (P7,285)
B. (P679,053)

C. (P3,675)

D. (P665,182)

6. NCINAS at the end of the year

A. P433,997
B. P434,538

C. P332,714

D. P343,515

7. Consolidated retained earnings at year end

A. P1,689,537
B. P1,686,567
C. P1,115,983

D. P1,119,053

8. Consolidated shareholder's equity at year end

A. P6,973,534
B. P6,974,075
C. P6,400,520

D. P7,099,075

PROBLEM No. 2.Jerelyn Company had common stock of P350,000 and retained
earnings of P490,000. Anabelle, Inc. had common stock of P700,000 and
retained earnings of P980,000. On January 1, 2016, Anabelle issued 34,000
shares of common stock with a P12 par value and a P35 fair value for all of
Jerelyn's outstanding common stock.
9. What is the goodwill from the acquisition?
A. P490,000
B. P350,000
C. -0-

D. P500,000

10.What was the consolidated net asset at the date of acquisition?

A. P3,010,000
B. P3,020,000
C. P2,870,000
D. P2,520,000
11.What was the
acquisition?
A.1,330,000

consolidated

stockholder's

B. P2,520,000

equity

C. P3,360,000

at

the

date

of

D. P2,870,000

PROBLEM No. 3. Jesseca, Inc. acquires 100% of the voting stock of Denie
Company on January 1, 2016 for P400,000. A contingent payment of P16,500
will be paid on April 15 if Denie generates cash flows from operations of
P27,000 or more in the next year. Jesseca estimates that there is a 20%
probability that Denie will generate at least P27,000 next year and uses an
interest rate of 5% to incorporate the time value of money. The fair value
of P16,500 at 5%, using a probability weighted approach is P3,142.
12.What will Jesseca record as investment in subsidiary on January 1, 2016?
A. P416,500
B. P403,142
C. P400,000
D. P427,000
PROBLEM No. 4. The balance sheet of Jong Company as of May 31, 2016 is as
follows:
Cash
P175,000
Current Liabilities
P250,000
Accounts Receivable

250,000

Mortgage Payable

450,000

Inventories

725,000

Common Stock

200,000

Share Premium

400,000

Retained Earnings

800,000

Property, Plant and

Equipment
Total Assets

950,000
P2,100,000

Total Liabilities and Equity

P2,100,00

On that date, Angelica, Inc. bought all of the oustanding stock of Jong
Company for P1,800,000. On the date of purchase, the fair market value of
Jong's inventories was P675,000 while the property, plant and equipment had
a fair value of P1,100,000. The property, plant and equipment had a
remaining life of five years. The fair values of all other assets and
liabilities of Jong Company were equal to their book values. On December
31, 2016, Jong's
net income is P250,000 and that of Angelica's is
P125,000. Goodwill, if any, should be written down by P30,000.
Compute for the following:
13.Goodwill on the date of acquisition
A. P300,000
B. P400,000
C. -0-

D. P270,000

14.Consolidated net income at year end

A. P125,000
B. P137,500
C. P365,000

D. P327,450

PROBLEM No. 5. On January 1, 2016, Mae Company acquired 80% of Eyre

Company's common stock for P280,000. At that date, Eyre reported common
stock outstanding of P200,000 and retained earnings of P100,000, and the
fair value of non-controlling interest was P70,000. The book values and
fair value of Eyre's assets and liabilities were equal, except for other
intangible assets which has a fair value P50,000 greater than book value
and an eight-year remaining life. Eyre reported the following data for 2016
and 2017
YEAR

NET INCOME

COMPREHENSIVE INCOME

DIVIDENDS PAID

2016

P25,000

P30,000

P5,000

2017

P35,000

P45,000

P10,000

Mae reported separate net income of P100,000 and paid dividends of P30,000
for both years.
15.What is the goodwill from the acquisition?
A. P121,493
B. P92,297
C. -0-

D. P121,896

16.What is the amount of consolidated comprehensive income reported for

2016?
A. P125,000
B. P119,000
C. P118,750
D. P123,750
17.What is the amount of comprehensive income
controlling interest in 2017?
A. P138,750
B. P128,750
C. P131,000
18.What is the amount of NCICNIS?
A. P7,570
B. P7,750

C. P9,000

attributable

to

the

D. P135,000
D. P10,250

PROBLEM No. 6. Christine Company acquired 70% interest in the Rona Company
for P1,420,000 when the fair value of Rona's identifiable assets and
liabilities was P1,200,000. Christine acquired 65% interest in Blessyl
Company for P300,000 when the fair value of Blessyl's identifiable assets

and liabilities was P640,000. Christine measures non-controlling interest

at the relevant share of identifiable net assets at the acquisition date.
19.What is the goodwill from the acquisition?
A. P580,000
B. P116,000
C. -0-

D. P464,000

20.What is the gain from the acquisition?

A. P580,000
B. P116,000
C. -0-

D. P464,000

PROBLEM No. 7. Lawrence Company acquires 25% of Kent Company's common stock
for P190,000 cash and carries the investment using the cost method. After
three months, Lawrence purchases another 60% of Kent's common stock for
P540,000. On this date, Kent reports identifiable net assets with carrying
value of P720,000 and fair value of P920,000. The liabilities of Kent has a
book and fair value of P280,000. Lawrence paid a control premium of P6,000
for this acquisition. A contingent payment of P16,500 will be paid if Kent
generates cash flows from operations of P27,000 or more in the next year.
Lawrence estimates that there is a 95% probability that Kent will generate
at least P27,000 next year. The fair value of the contingent consideration
is 120% of the control premium. The fair value of the 15% non-controlling
interest is P125,000.
21.How much is the Fair Value of the Subsidiary?
A. P778,200
B. P910,200
C. P772,200

D. P916,200

22.How much is the goodwill (gain) from the acquisition?

A. (P147,800)
B. (P9,800)
C. (P3,800)
D. (P141,800)
PROBLEM No. 8. On January 2, 2016, Kaykayy Corporation purchased 85% of the
outstanding shares of Nips Company for P3,060,000. At that date, Nips had
P4,000,000 of ordinary shares outstanding and retained earnings of
P1,600,000.
Nips' equipment, with a remaining life of five years is undervalued by
P380,000. The remaining assets had book values equal to their fair
values.
Kaykayy reported a separate net income in 2016 of P600,000 and paid
dividends amounting to P220,000. For the same year, Nips reported net
income of P340,000 and paid dividends of P70,000.
In 2017, Kaykayy reported net income of P1,100,000 and paid dividends
of P390,000 while Nips had a net income of P510,000 and paid dividends
of P130,000.
Kaykayy's retained earnings balance at the date of acquisition was
P3,450,000
Compute for the following:
23.Goodwill (gain) from the acquistion
A. P2,023,000
B. (P2,023,000)
C. P2,380,000

D. (P2,380,000)

24.Consolidated net income attributable to Kaykayy in 2016

A. P2,847,400
B. P953,600
C. P3,204,400
D. P824,400

25.NCINIS in 2017
A. P61,500

B. P65,100

C. P87,900

D. P89,700

C. P1,423,500

C. P1,293,300

27.2016 Consolidated Retained Earnings

A. P4,183,600
B. P6,434,400
C. P4,045,400

D. P6,077,400

28.2017 Consolidated Retained Earnings

A. P5,013,800
B. P7,402,800
C. P7,045,800

D. P5,152,000

29.2016 NCINAS
A. P569,100

B. P926,100

C. P591,900

D. P948,900

30.2017 NCINAS
A. P971,700

B. P611,100

C. P660,300

D. P990,900

26.Consolidated profit in 2017

A. P1,419,900
B. P1,358,400