Chapter 11

CHAPTER 11
SUGGESTED ANSWERS
EXERCISES
Exercise 11 - 1
1. a. Ordinary Share Capital, Sing Co. 100,000
Additional Paid-in Capital, Sing Co. 20,000
Retained Earnings, Sing Co. 25,000
Goodwill 15,000
Investment 160,000
Cost of interest acquired P160,000

Book value of interest acquired
(P100,000 + P20,000 + P25,000) x 100% 145,000
Goodwill P 15,000
b. Ordinary Share Capital, Sing Co. 100,000

Investment 140,000
Profit or Loss /Gain on Business Combination 10,000

(P100,000 + P80,000 - P30,000) x 100% 150,000
Negative Goodwill P 10,000
c.1 Ordinary Share Capital, Sing Co. 75,000

Goodwill 25,000
Investment 120,000
Minority Interest 6,250

(100,000 + 40,000 5,000) x 75% 101,250
Goodwill P 18,750
Grossed-up Goodwill (P18,750/75%) P 25,000

Goodwill 18,750
Investment 120,000
2.
Chapter 11 Suggested Answers (AA2.2012) page2
Goodwill 25,000
Investment 120,000
Retained Earnings 5,000

Goodwill 18,750
Investment 120,000
Retained Earnings 5,000
Minority interest::
Ordinary Share Capital P25,000
APIC 10,000
RE (1,250)
Share in goodwill (P25,000 x 25%) 6,250
P 40,000
Exercise 11 2
Case A
Ordinary Share Capital, Soya Co. 80,000
Additional Paid-in Capital, Soya Co. 24,000
Retained Earnings, Soya Co. 16,000
Goodwill 6,250
Investment 125,000
Cost P125,000
(P100,000 + P30,000 + P20,000) x 80% 120,000
Goodwill P 5,000

Goodwill 5,000
Investment 125,000
Case B
Minority Interest 667
Investment 58,000
Profit or Loss / Gain on Business Combination 2,667
Cost P58,000
(P50,000 + P20,000 + P10,000) x 75% 60,000
Grossed-up Negative goodwill (P2,000/75%) P 2,667

Investment 58,000
Case C
Investment 63,000
Profit or Loss (Gain on Bus Com) 5,000
Cost P63,000
(P80,000 + P40,000 - P10,000) x 60% 66,000
Grossed-up Negative goodwill (P3,000 / 60%) P 5,000

Investment 63,000
Profit or Loss (Gain on Bus Com) 3,000
Exercise 11 - 3
Case A
Ordinary Share Capital, Say Co. 100,000
Additional Paid-in Capital, Say Co. 50,000
Investment 140,000
Retained Earnings, Say Co. 10,000
Case B
Plant and Equipment 20,000
Investment 144,000
Cost P144,000
(P100,000 + P50,000 - P10,000) x 90% 126,000
Increase in P&E P 18,000
Total increase in plant and equipment ((P18,000/90%) P 20,000

Investment 144,000
Case C
Investment 104,000
Inventories 10,000
Cost P104,000
(P100,000 +P50,000 - P10,000) 80% 112,000
Decrease in Inventory P 8,000
Total decrease in inventory (P8,000/80%) P 10,000

Investment 104,000
Inventories 8,000
Exercise 11 - 4
a. Investment in Sax Co. P480,000
Ordinary Share Capital 400,000
Additional Paid-in Capital 80,000
Ordinary Share Capital, Sax Co. 90,000

Additional Paid-in Capital, Sox Co. 225,000
Retained Earnings, Sax Co. 90,000
Equipment 83,333
Investment in Sax Co. 480,000
Cost (4,000 x P120) P480,000

(P450,000 x 90%) 405,000
Increase in Equipment P 75,000
Total increase in equipment (P75,000/90%) P 83,333
Additional Paid-in Capital, Sox Co. 225,000
Equipment 75,000
b. Investment in Sax Co. 420,000


Additional Paid-in Capital, Sax Co. 225,000

Goodwill 16,667
Cost (3,500 x P120) P420,000

(P450,000 x 90%) 405,000
Goodwill P 15,000

Goodwill 15,000
c. Investment in Sax Co. 360,000


Inventory 25,000
Cost (3,000 x P120) P360,000

(P450,000 x 90%) 405,000
Difference P 45,000
Total adjustment (P45,000/90%) P 50,000
Decrease in inventory 25,000
Negative goodwill P 25,000

Inventory 25,000
Exercise 11 5
1. Minority interest (P90,000 P15,000*) P 75,000
Percentage of minority interest 10%
Total Shareholders Equity of Sand P 750,000
Less Ordinary Share Capital and APIC (P800,000 + P400,000) 1,200,000
Deficit of Sand P( 450,000)
*Adjustment in assets: (Land P50,000 + Goodwill P100,000) x 10%
= P150,000 x 10% = P15,000
2. Consolidated balance of land P1,145,000

Less Book value of land of Pond Co. 850,000
FMV of Sands land P 295,000
Less Excess of FMV over BV 50,000
BV of Sands land P 245,000
3. Consolidated balance of liabilities P440,000

Less Liabilities of Pond 340,000
Liabilities of Sand P100,000
4. Excess of cost over BV

Land P 50,000
Goodwill 100,000 P150,000x90% P135,000
Book value (P750,000 x 90%) 675,000
Cost of investment P810,000
5. Ordinary Share Capital (P800,000 x 10%) P 80,000

APIC (P400,000 x 10%) 40,000
RE (P450,000 x 10%) ( 45,000)
Adjustment in land and goodwill 15,000
Minority interest P 90,000
Exercise 11 - 6
a. Total stockholders equity + asset adjustment, including goodwill P187,500
Less Minority interest (in TSE and asset adjustment) 28,125
Controlling interest P159,375
Percentage of ownership acquired (P159,375/P187,500) 85%
b. Total stockholders' equity of Sill P145,350
Increase in fair value of assets:
Inventories P 3,900
Plant assets 28,500
Patents 4,500 36,900
Current fair value of net identifiable assets P182,250
c. P5,250 x 15% P787.50
d. OS = P60,000 x 15% P 9,000.00

APIC = P35,250 x 15% 5,287.50
RE = P50,100 x 15% 7,515.00
Share in asset adjustment
(P3,900 + P28,500 + P4,500 + P5,250) x 15% 6,322.50
Total P28.125.00
Exercise 11 - 7
a. Total current assets of Seeda = (P146,000 + P2,000) - P106,000 P 42,000
b. Minority interest P35,100

Less Share in asset adjustment (P10,000 + P8,100) x 30% 5,430
Minority interest in subsidiary stockholders equity P29,670
Total stockholders equity of subsidiary (P29,670 / 30%) P98,900

Exercise 11 8
1. Palomar Inventory P1,100,000
Samar Inventory at FMV 1,700,000
Consolidated inventory P2,800,000
2. Palomar Buildings and equipment P3,500,000

Samar Buildings and equipment at FMV 3,750,000
Consolidated buildings and equipment P7,250,000
3. ZERO. It is eliminated in the consolidated balance sheet.
4. Cost P2,800,000
Book value of acquired interest
(P1,000,000 + P2,000,000 P400,000 P300,000) 2,300,000
Excess of cost over BV P 500,000
Allocation of excess:
Decrease in inventory (P100,000)
Increase in buildings and equipment 250,000 150,000
Goodwill P 350,000
5. P4,000,000. The Ordinary Share Capital of Palomar, the acquiring

company.
6. P1,050,000. The Retained Earnings of Palomar, the acquiring company.

Exercise 11 - 9
Inventories 20,000
Plant Assets 80,000
Ordinary Share Capital, Santa Co. 200,000
Paid-In Capital in Excess of Par - Santa Co. 210,000
Investment in Subsidiary 420,000
Retained Earnings, Santa Co. 90,000
PROBLEMS
Problem 11 - 1
Prime Inc. and Subsidiary Slime Corp.
Working Paper for Consolidated Statement of Financial Position
January 1, 2008
Consolidated
Prime Slime Eliminations Statement of
Inc. Corp. Dr. Cr. Finl Position
Debits
Cash and Other Current Assets 400,000 300,000 700,000
Plant, Property, and Equipment 200,000 250,000 450,000
Investment in Slime Corp. 380,000 a 380,000 ------
Other Assets 30,000 20,000 50,000
Goodwill a. 110,000 110,000
1,010,000 570,000 1,310.000
Credits
Accumulated Depreciation 60,000 50,000 110,000
Liabilities 300,000 250,000 550,000
Ordinary Share Capital, Prime 400,000 400,000
Inc.
Addl Paid-In Capital, Prime, Inc 180,000 180,000

Retained Earnings, Prime, Inc. 70,000 70,000
Ordinary Share Capital, Slime 200,000 a.200,000
Corp
Addl Paid-In Capital, Slime 40,000 a. 40,000
Corp.
Retained Earnings, Slime Corp. 30,000 a. 30,000
1,010,000 570,000 380,000 380,000 1,310,000
Problem 11 - 2
Requirement 1
Cost P950,000
Book value of interest acquired:
Additional paid-in capital 100,000
Retained earnings 400,000 700,000
Excess of cost over book value P250,000
Inventory P 30,000
Land 50,000
Equipment 130,000 210,000
Goodwill P 40,000
Requirement 2
Pole Co. and Subsidiary Sole Co.
January 2, 2008
Pole Sole Eliminations Consolidated

Co. Co. Dr. Cr. St. of Fin Pos.
Debits
Cash 300,00 50,000 350,000
0
Accounts Receivable 200,00 100,000 300,000
0
Inventory 150,00 60,000 a 30,000 240,000
0
Land 70,000 a. 50,000 120,000
Equipment 600,00 470,000 a. 130,000 1,200,000
0
Investment in Sole Co. 950,000 a. 950,000
Goodwill a. 40,000 40,000
2,200,000 2,250,000
750,000
Credits
Accounts Payable 100,00 50,000 150,000
0
Ord. Share Capital, Pole Co. 600,00 600,000

0
Retained Earnings, Pole Co. 1,500.000 1,500,000
Ord. Share Capital, Sole Co. 200,000 a. 200,000
APIC, Sole Co.. 100,000 a. 100,000
Retained Earnings, Sole Co. a. 400.000
400,000
2,200.000 750,00 950,00 950,000 2,250,000
0 0
Requirement 2a
Cost P810,000
Additional paid-in capital 100,000
Retained earnings 400,000 P700,000 x 90% 630,000
Inventory P 30,000
Land 50,000
Equipment 130,000 210,000
Pole Co. and Subsidiary Sole Co.
January 2, 2008
Pole Sole Eliminations Minority Consolidated
Co. Co. Dr. Interest St. of Fin Pos
Debits
Cash 300,000 50,000 490,000
Accounts Receivable 200,000 100,000 300,000
Inventory 150,000 60,000 a 30,000 240,000
Land 70,000 a. 50,000 120,000
Equipment 600,000 470,000 a. 130,000 1,200,000
Investment in Sole Co. 950,000 a.
810,000
2,200,000 750,000 2,250,000
Credits
Accounts Payable 100,000 50,000 150,000
Ord. Share Capital, Pole Co. 600,000 600,000
Retained Earnings, Pole Co. 1,500.000 a. 1,530,000
30,000
Ord. Share Capital, Sole Co. 200,000 a. 180,000 20,000
APIC, Sole Co.. 100,000 a. 90,000 10,000
Retained Earnings, Sole Co. 400,000 a. 360.000 40,000
Minority interest 70,000 70,000
2,200.000 750,000 840,00 840,000 2,350,000
0
Problem 11 - 3
1. Inventory 30,000
Patents 50,000
Goodwill 50,000
Ordinary Share Capital, Stork 80,000
Retained Earnings, Stork 200,000

Investment 464,000
Cost P464,000
Book value of int. acquired
Retained earnings 250,000
Total P350,000
Interest acquired 80% 280,000
Gross up excess (P184,000 / 80%) P230,000
Allocation of excess;
Inventory P 30,000
Plant and equipment 100,000
Patents 50,000 180,000
Goodwill P 50,000
Inventory 30,000
Patents 50,000
Goodwill 4,000
Ordinary Share Capital, Stork 80,000
Retained Earnings, Stork 200,000
Investment 464,000
2. Inventory 30,000
Patents 50,000
Ordinary Share Capital, Stork Co. 80,000
Retained Earnings, Stork Co. 200,000
Investment 274,000
Cost P274,000
Book value of interest acquired 280,000
Excess of book value over cost P 6,000
Gross up excess (P6,000 / 80%) P 7,500

Increase in inventory P 30,000
Increase in plant & equipment 100,000
Increase in patents 50,000 180,000
Negative Goodwill P187,500
Inventory 30,000
Patents 50,000
Ordinary Share Capital, Stork Co. 80,000
Retained Earnings, Stork Co. 200,000
Investment 274,000
Problem 11 - 4
1. Investment in Stride Co. (20,000 sh @ P10) 200,000
Ordinary Share Capital (20,000 sh @ P2) 40,000
Paid-In Capital in Excess of Par 160,000
Investment in Stride Co. 30,000
Cash 30,000
2. Retained Earnings, Stride Co. 20,000

Goodwill 20,000
Ordinary Share Capital, Stride Co. 25,000

Paid-In Capital in Excess of Par, Stride Co. 50,000
Retained Earnings, Stride Co. 55,000
Current Assets 5,000
Plant Assets 40,000
Long-Term Debt 10,000
Goodwill 45,000
Investment in Stride Co. 230,000
Cost [(P20,000 x P10) + P30,000] P230,000
(P25,000 + P50,000 + P55,000) x 100% 130,000
Excess of cost over book value P 100,000
Allocation of excess;
Inventories P 5,000
Plant assets 40,000
Long-term debt 10,000 55,000
Goodwill P 45,000
Problem 11 - 5
Plow Corp. and Subsidiary Slow Co.
Working Paper for Consolidated Financial Statements
July 1, 2008
Minority Consolidated
Plow Slow Eliminations Interest Statement of
Corp. Co. Dr. Cr. Finl Position
Debits
Cash 15,000 10,000 25,000
Accounts Receivable 25,000 20,000 (f) 8,000 37,000
Notes Receivable 70,000 45,000 (b) 10,000 85,000
(e) 20,000
NR Discounted (25,000) (30,000) (d) 10,000 (25,000)
(e) 20,000
Inventories 50,000 60,000 110,000
Prepaid Expenses 15,000 8,000 23,000
Advances to Slow Co. 25,000 10,000
(g) 15,000
Investment in Slow Co. 93,400 (a) 93,400
Property and Equipment, 85,000 100,000 185,000
net
Goodwill (a) 31,000 31,000
353,400 213,000 471,000
Credits
Current Liabilities 80,000 40,000 (b) 10,000 (d) 10,000 112,000
(f) 8,000
Advances from Plow Corp. 25,000 (c ) 10,000
(g) 15,000
Loans Payable 193,400 70,000 263,400
Ordinary Share Capital , 100,000 100,000
Plow Corp.
RE, Plow Corp. (20,000) (20,000)
Ordinary Share Capital, 50,000 (a) 40,000 10,000 10,000
Slow Co.
RE, Slow Co. 28,000 (a) 22,400 5,600
Minority Interest 15,600 15,600
53,400 213,000 174,150 174,150 471,000
Cost P93,400
(P50,000 + P28,000) x 80% 62,400
MULTIPLE CHOICE
11-A 1. B
2. D
3. B
4. A
5. C
6. A
7. D
8. D
11-B 1. C Cost of investment P2,000,000

P200,000 + P400,000 +P800,000 x 100% 1,400,000
Increase in FV P150,000 P50,000 100,000
Goodwill P 500,000
11-C 1. C Cost of investment P765,000

FMV of net assets acquired (P815,000 P150,000) 665,000
Goodwill P100,000
11-D 1. B Cost of investment P2,968,000

(P7,560,000 P560,000 P3,360,000) 3,640,000
11-E 1. B Number of shares issued to Roscoe 100,000

Excess of MV over par value of stock x P8.00
APIC recognized upon merger P800,000
APIC of Tanner 650,000
APIC reflected in the Consolidated Statement of Finl Pos P1,450,000
11-F 1. C Investment (P 26,000 @ 100) 2,600,000

Ordinary Share Capital 2,600,000
11-G 1. B 1,080 (P180,000/P100) 60%
2. A Cost of investment P 161,200

[(P180,000 + P50,000 + P30,0000) x 60%] 156,000
Gross up excess (P5,200 / 60%) P 8,667
3. D (P180,000 + P50,000 + P30,000) x 40% P 104,000

(P5,200 x 40%) 2.080
Total P106,080
11-H 1. A (P120,000 P120) (P125,000 P100) 80%
2. B (P125,000 + P50,000) x 20% P35,000
3. A Cost P120,000
Book value of interest acquired (P175,000 x 80%) 140,000
Excess of book value over cost ( P20,000)
4. C
11-I 1. C Cost P 40,000

(P10,000 + P32,350) x 80% 33,880
Goodwill P 6,120

Controlling interest (P7,650 x 80%) P6,120
Minority interest (P7,650 x 20%) P1,530
2. D Ordinary Share Capital (P10,000 x 80%) P 8,000

Retained earnings (P32,350 x 80%) P 25,880
3. C (P10,000 + P32,350) x 20% P 8,470

Add Share in goodwill 1,530
Total P 10,000
4. D
11-J 1. D Cost (P100,000 x P10) P1,000,000

FMV of net tangible assets 1,400,000
Negative Goodwill reported in the consolidated statement of P 400,000
financial position as part of Parent Company Retained
Earnings
11-K 1. A Minority interest in subsidiary TSE (P550,000 x 20%) P110,000

Add Adjustment of assets
(P120,000 + P100,000 + P130,000) 20% 70,000

Total P180,000
Minority interest P110,000

Add adjustment of assets 44,000
Total P154,000
2. C Cost of investment P720,000

Book value of investment (P550,000 x 80%) 440,000
Inventory P120,000
PPE 100,000 220,000
Goodwill P60,000
11-L 1. C P100,000 20% P 500,000
2. B P500,000 x 80% P 400,000
11-M 1. A P500,000 + P45,000 P 545,000

2. A (P500,000 x 90%) + P45,000 P 495,000
11-N 1. A Cost (4,500 @ P140) P 630,000

(P500,000 + P125,000) x 90% 562,500
Excess of cost over book value treated as goodwill P 67,500
Assets of Panda and Selina [(P3.125,000 P630,000) +
P875,000)] 3,370,000
Combined assets P3,437,500
11-O 1. A
2. B Excess of cost over book value P 36,000

Land (P150,000 P100,000 ) 50,000
Goodwill P 10,000
3. C Minority interest in subsidiary TSE (P200,000 x 40%) P 80,000

Add Share in adjustment of assets (P50,000 + P 10,000) 40% 24,000
Total P104,000
11-P 1. D Total assets of Plant and Slant P5,250,000

Less: Amount paid for investments 1,425,000
Total assets to be reported in the consolidated balance sheet P3,600,000
2. B P3,000,000 + P600,000 P3,600,000
3. C Cost P1,710,000
BV of interest acquired (P750,000 +P900,000) x 80% 1,320,000

Minority interest % 20%
Share of minority interest in the adjustment P 97,000
Minority interest in subsidiary TSE 330,000
Total P427,500
11-Q 1. B Cost P3,000,000

(P200,000 + P400,000 + P1,200,000) x 100% 1,800,000
Excess of cost over book value P1,200,000
Decrease in inventories (P100,000)
Increase in PPE 200,000 100,000
Goodwill P1,100,000
2. A The retained earnings of the parent company, Plumber.
11-R 1. B Total current assets of Polka and Stress P 90,000

Excess of investment cost over its book value
allocated to inventory
Cost P60,000
Book value (P50,000 x 90%) 45,000
Portion allocated to inventory 10,000

Current assets in the consolidated balance sheet P100,000
2. D Noncurrent assets of Polka and Stress P 130,000

Excess of investment cost over its book value
allocated to goodwill (P15,000 P10,000) 5,000
Noncurrent assets in the consolidated balance sheet P 135,000
3. B Minority interest (P50,000 x 10%) P 5,000

Share in assets adjustments (P10,000 x 10%) 1,000
Total P 6,000
4. A Long-term debt of Polka, Jan. 1, 2008 P 50,000

Long-term borrowings made on Jan. 2, 2008
(P60,000 x 9/10) 54,000
Total P104,000
11-S 1. C (P1,460,000 + P20,000) P1,060,000 P420,000
2. B Minority interest P 351,000

Parent shareholders equity 4,610,000
Total P4,961,000

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CHAPTER 11

Cost of interest acquired P160,000

b. Ordinary Share Capital, Sing Co. 100,000

Cost of interest acquired P140,000

c.1 Ordinary Share Capital, Sing Co. 75,000

Cost of interest acquired P120,000

c.2 Ordinary Share Capital, Sing Co. 75,000

c.1 Ordinary Share Capital, Sing Co. 100,000

Ordinary Share Capital, Soya Co. 80,000

Ordinary Share Capital, Soya Co. 37,500

Ordinary Share Capital, Soya Co. 48,000

Ordinary Share Capital, Say Co. 90,000

Ordinary Share Capital, Say Co. 80,000

Ordinary Share Capital, Sax Co. 90,000

Cost (4,000 x P120) P480,000

b. Investment in Sax Co. 420,000

Ordinary Share Capital, Sax Co. 90,000

Retained Earnings, Sax Co. 90,000

Cost (3,500 x P120) P420,000

Ordinary Share Capital, Sax Co. 90,000

c. Investment in Sax Co. 360,000

Ordinary Share Capital, Sax Co. 90,000

Cost (3,000 x P120) P360,000

Ordinary Share Capital, Sax Co. 90,000

2. Consolidated balance of land P1,145,000

3. Consolidated balance of liabilities P440,000

4. Excess of cost over BV

5. Ordinary Share Capital (P800,000 x 10%) P 80,000

d. OS = P60,000 x 15% P 9,000.00

b. Minority interest P35,100

Total stockholders equity of subsidiary (P29,670 / 30%) P98,900

2. Palomar Buildings and equipment P3,500,000

3. ZERO. It is eliminated in the consolidated balance sheet.

5. P4,000,000. The Ordinary Share Capital of Palomar, the acquiring

6. P1,050,000. The Retained Earnings of Palomar, the acquiring company.

Addl Paid-In Capital, Prime, Inc 180,000 180,000

Pole Sole Eliminations Consolidated

Ord. Share Capital, Pole Co. 600,00 600,000

Retained Earnings, Stork 200,000

Gross up excess (P6,000 / 80%) P 7,500

2. Retained Earnings, Stride Co. 20,000

Ordinary Share Capital, Stride Co. 25,000

353,400 213,000 471,000

11-B 1. C Cost of investment P2,000,000

11-C 1. C Cost of investment P765,000

11-D 1. B Cost of investment P2,968,000

11-E 1. B Number of shares issued to Roscoe 100,000

APIC reflected in the Consolidated Statement of Finl Pos P1,450,000

11-F 1. C Investment (P 26,000 @ 100) 2,600,000

11-G 1. B 1,080 (P180,000/P100) 60%

2. A Cost of investment P 161,200

3. D (P180,000 + P50,000 + P30,000) x 40% P 104,000

11-H 1. A (P120,000 P120) (P125,000 P100) 80%

2. B (P125,000 + P50,000) x 20% P35,000

11-I 1. C Cost P 40,000

Gross up excess (P6,120 / 80%) P7,650

2. D Ordinary Share Capital (P10,000 x 80%) P 8,000

3. C (P10,000 + P32,350) x 20% P 8,470

11-J 1. D Cost (P100,000 x P10) P1,000,000

11-K 1. A Minority interest in subsidiary TSE (P550,000 x 20%) P110,000

(P120,000 + P100,000 + P130,000) 20% 70,000

Minority interest P110,000

2. C Cost of investment P720,000

11-L 1. C P100,000 20% P 500,000