E.T.

YUCHENGCO COLLEGE OF BUSINESS

Academic Year 2016 - 2017

CHAPTER 17 AND 18 PROBLEMS

Teresa Bautista
Christine Joy Carmona
Maria Isabella Lim
Ruth Mercolita

Homework submitted to
Prof. Edward Lirio, CPA
In partial fulfilment of the requirements for the degree of
Bachelor of Science in Accountancy
 CHAPTER 17
Problem VI 80%-Owned Subsidiary: Cost Method Consolidated Financial
Statements Elimination of Downstream and Upstream Intercompany Sale of Inventory,
Unrealized Profit in Ending Inventory / With Goodwill Impairment Loss Recognized in
the books of Subsidiary (Partial Goodwill or Proportionate Basis)

YEAR 2014
Requirement 1

Journal Entries: (2014)

1. Investment in Son Company 372,000
Cash 372,000
To record acquisition of Son Company.

2. Cash 28,800
Dividend Income (36,000 x 80%) 28,800
To record dividends from Son Company.

Requirement 2

Schedule of Determination and Allocation of Excess

Date of Acquisition January 1, 2014

Consideration Transferred P 372,000

Book Value of Shareholders Equity of Son Co.:
Common Stock (240,000 x 80%) P 192,000
Retained Earnings (120,000 x 80%) 96,000 (288,000)
Allocated Excess P 84,000
Fair Value Adjustments:
Inventory [(P30,000-P24,000) x 80%] P 4,800
Land [(P55,200-P48,000) x 80%] 5,760
Equipment [(P180,000-P84,000) x 80%] 76,800
Buildings [(P144,000-P168,000) x 80%] (19,200)
Bonds Payable [(P115,200-P120,000) x 80%] 3,840 72,000
Goodwill - Partial P 12,000
 The over/under valuation of assets and liabilities are summarized as follows:

Son Co. Book Son Co. Fair (Over) Under

Value Value Valuation
Inventory P 24,000 P 30,000 P 6,000
Land 48,000 55,200 7,200
Equipment (net) 84,000 180,000 96,000
Buildings (net) 168,000 144,000 (24,000)
Bonds Payable (120,000) (115,200) 4,800
Total P 204,000 P 294,000 P 90,000

The buildings and equipment will be further analyzed for consolidation purposes as follows:
Son Co. Book Son Co. Fair Increase or
Value Value (Decrease)
Equipment P 180,000 P 180,000 0
Less: Accumulated Depreciation 96,000 - (96,000)
Net Book Value P 84,000 P 180,000 P 96,000

Son Co. Book Son Co. Fair Increase or

Value Value (Decrease)
Buildings P 360,000 P 144,000 (P 216,000)
Less: Accumulated Depreciation 192,000 - (192,000)
Net Book Value P 168,000 P 144,000 (P 24,000)

A Summary of Depreciation and Amortization Adjustments is as follows:

Account Adjustments to be Over / Life Annual Current Year 2015

amortized Under Amount (2014)
Inventory P 6,000 1 P 6,000 P 6,000 -
Equipment (net) 96,000 8 12,000 12,000 12,000
Buildings (net) (24,000) 4 (6,000) (6,000) (6,000)
Bonds Payable 4,800 4 1,200 1,200 1,200
P 13,200 P 13,200 P 7,200
Requirement 3
Eliminating Entries: (2014)

1. Common Stock Son Co. 240,000

Retained Earnings Son Co. 120,000
Investment in Son Co. 288,000
Non-controlling Interest (360,000 x 20%) 72,000

2. Inventory 6,000
Accumulated Depreciation Equipment 96,000
Accumulated Depreciation Buildings 192,000
Land 7,200
Discount on bonds payable 4,800
Goodwill 12,000
Buildings 216,000
Non-controlling Interest (90,000 x 20%) 18,000
Investment in Son Co. 84,000

3. Cost of Goods Sold 6,000

Depreciation Expense 6,000
Accumulated Depreciation Buildings 6,000
Interest Expense 1,200
Goodwill Impairment Loss 3,000
Inventory 6,000
Accumulated Depreciation Equipment 12,000
Discount on Bonds Payable 1,200
Goodwill 3,000

4. Dividend Income 28,800

Non-controlling Interest (36,000 x 20%) 7,200
Dividends Paid Son Co. 36,000

5. Sales (Downstream) 150,000

Cost of Goods Sold 150,000

6. Sales (Upstream) 60,000

Cost of Goods Sold 60,000

7. Cost of Goods Sold (150,000 x 60% x 20%) 18,000

Inventory 18,000

8. Cost of Goods Sold (60,000 x 50% x 40%) 12,000

Inventory 12,000

9. Non-controlling Interest in Net Income of Son Co. 6,960

Non-controlling Interest ** 6,960
Requirement 4
Perfect Company
Worksheet
December 31, 20x4

Income Statement Perfect Son DR CR Consolidated

Sales P 480,000 P 240,000 (5) 150,000 P 510,000
(6) 60,000
Dividend Income 28,800 - (4) 28,800 -
Total Revenue P 508,800 P 240,000 P510,000
Cost of Goods Sold P 204,000 P 138,000 (3) 6,000 (5) 150,000 168,000
(7) 18,000 (6) 60,000
(8) 12,000
Depreciation Expense 60,000 24,000 (3) 6,000 90,000
Interest Expense - - (3) 1,200 1,200
Other Expenses 48,000 18,000 66,000
Goodwill Impairment Loss - - (3) 3,000 3,000
Total Cost & P 312,000 P 180,000 P 328,200
Expenses
Net Income P 196,800 P 60,000 P 181,800
NCI NI - - (9) 6,960 (6,960)
Net Income to R/E P 196,800 P 60,000 P 174,840

Statement of Retained Earnings

R/E, 1/1/x4
Perfect Company P 360,000 P 360,000
Son Company P 120,000 (1) 120,000
Net income, from above 196,800 60,000 174,840
Total P556,800 P180,000 P534,840
Dividends paid
Perfect Company 72,000 72,000
Son Company - 36,000 (4) 36,000 -
R/E, 12/31/x4 to Balance Sheet P484,800 P144,000 P 462,840

Balance Sheet
Cash P 232,800 P 90,000 P 322,800
Accounts receivable 90,000 60,000 150,000
Inventory 120,000 90,000 (2) 6,000 (3) 6,000 180,000
(7) 18,000
(8) 12,000
Land 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable (2) 4,800 (3) 1,200 3,600
Goodwill (2) 12,000 (3) 3,000 9,000
Investment in Son Co. 372,000 (1) 288,000 -
(2) 84,000
Total P1,984,800 P1,008,000 P2,394,600
 P 135,000 P 96,000 (2) 96,000 (3) 12,000 P147,000
Accum. Depreciation -
Equipment
Accum. Depreciation - 405,000 288,000 (2) 192,000 495,000
Buildings (3) 6,000
Accounts Payable 120,000 120,000 240,000
Bonds Payable 240,000 120,000 360,000
Common Stock, P10 par 600,000 600,000
Common Stock, P10 par 240,000 (1) 240,000 -
R/E, from above 484,800 144,000 462,840
Non-controlling interest (4) 7,200(1) 72,000 89,760
(2) 18,000
__________ (9) 6,960
Total P1,984,800 P1,008,000 P 983,160 P 983,160 P2,394,600

Requirement 5

Balances: January 1, 2014

a. Consolidated Retained Earnings

Retained earnings P Company, January 1, 2014 P 360,000

b. Non-controlling interest (partial-goodwill), January 1, 2014

Common stock Subsidiary Company P 240,000
Retained earnings Subsidiary Company 120,000
Stockholders equity Subsidiary Company P 360,000
Adjustments to reflect fair value 90,000
Fair value of stockholders equity of subsidiary, January 1, 2014 P 450,000
Multiplied by: Non-controlling Interest percentage 20%
Non-controlling interest (partial) P 90,000

c. Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 360,000
Parents Stockholders Equity / CI - SHE P 960,000
NCI, 1/1/2014 P 90,000
Consolidated SHE, 1/1/2014 P 1,050,000
Requirement 6
Balances: December 31, 2014

Consolidated Net Income for 2014

P Companys net income from own/separate operations P 168,000
Unrealized profit in ending inventory of S Company (downstream) (18,000)
P Companys realized net income from separate operations P 150,000
S Companys net income from own operations P 60,000
Unrealized profit in ending inventory of S Company (upstream) (12,000)
S Companys realized net income from separate operations P 48,000
Total P 198,000
Less:
Non-controlling Interest in Net Income P 6,960
Amortization of allocated excess 13,200
Goodwill impairment 3,000
Controlling Interest in Consolidated Net Income P 174,840
Add: Non-controlling Interest in Net Income (NCINI) 6,960
Consolidated Net Income for 2014 P 181,800

a. Controlling Interest in Consolidated Net Income P 174,840

b. Non-controlling Interest in Consolidated Net Income (NCINI) P 6,960
c. Consolidated Net Income for 2014 P 181,800
d. Consolidated Retained Earnings for 2014
Retained earnings - P Company P 360,000
Add: Controlling Interest in Consolidated 174,840
Total P 534,840
Less: Dividends paid P Company for 2014 72,000
Consolidated Retained Earnings, December 31, 2014 P 462,840
e. Non-controlling interest (partial-goodwill), Dec 31, 2014
Common stock Subsidiary Company Dec 31, 2014 P 240,000
Retained earnings Subsidiary Company, Dec 31, 2014
Retained earnings, Jan 1, 2014 P 120,000
Add: Net income of subsidiary for 2014 60,000
Total P 180,000
Less: Dividends paid 2014 36,000 144,000
Stockholders equity Subsidiary Company, Dec 31, 2014 P 384,000
Adjustments to reflect fair value 90,000
Amortization of allocated excess (13,200)
Fair value of stockholders equity of subsidiary, Dec 31, 2014 P 460,000
Less: Unrealized profit- P Company (upstream sales) 12,000
 Realized stockholders equity of subsidiary Dec 31, 2014 P 448,800
Multiplied by: Non-controlling Interest percentage 20%
Non-controlling interest (partial-goodwill) P 89,760

f. Consolidated Stockholders Equity

Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 462,840
Parents Stockholders Equity / CI SHE, 12/31/2014 P 1,062,840
NCI, 12/31/2014 89,760
Consolidated SHE, 12/31/2014 P 1,152,600

YEAR 2015
Requirement 3

Journal Entries (2015)

Cash 38,400
Dividend Income (48,000 x 80%) 38,400
Record dividends from Son Co.

On the books of Son Co.:

Dividends Paid 48,000
Cash 48,000

Eliminating Entries (2015)

Retained Earnings -Son Co. 1/1/20x5 144,000

Retained Earnings -Son Co. 1/1/20x4 (120,000)
Increase in Retained Earnings 24,000
Multiplied: CI % 80%
Adjustment P 19,200

1. Investment in Son Co. 19,200

Retained Earnings - Perfect Co. 19,200

2. Common stock - Son Co. 240,000

Retained Earnings - Son C0. 144,000
Investment in Son Co. (384,000 x 20%) 307,200
Non-controlling interest (384,000 x 20%) 76,800
3. Inventory 6,000
Accumulated depreciation - equipment 96,000
Accumulated depreciation - buildings 192,000
Land 7,200
Discount on bonds Payable 4,800
Goodwill 12,000
Buildings 216,000
Non-controlling interest (90,000 x 20%) 18,000
Investment in Son Co. 84,000

(2014) Retained Depreciation / Amortization -

Earnings Amortization Interest
Inventory sold 6,000
Equipment 12,000 12,000
Buildings (6,000) (6,000)
Bonds Payable 1,200 1,200
Sub-total 13,200 6,000 1,200
Multiply 80%
To Retained Earnings 10,560
Impairment loss 3,000
Total 13,560

4. Retained Earnings - Perfect Co.

[(13,200 x 80%) + 3,000} 13,560
Non-controlling interest (13,200 x 20%) 2,640
Depreciation expense 6,000
Accumulated depreciation - buildings 12,000
Interest expense 1,200
Inventory 6,000
Accumulated depreciation - equipment 24,000
Discount on bonds payable 2,400
Goodwill 3,000

5. Dividends Income -Perfect Co. 38,400

Non-controlling interest (48,000 x 20%) 9,600
Dividends Paid - Son Co. 48,000

6. Sales (downstream) 120,000

Cost of Goods Sold 120,000

7. Sales (upstream) 75,000

Cost of Goods Sold 75,000
8. Retained Earnings, beg. - Perfect Co. 18,000
Cost of Goods Sold 18,000

9. Retained Earnings, beg. - Perfect Co. (12,000 x 80%) 9,600

Non-controlling interest 2,400
Cost of Goods Sold 12,000

10. Cost of Goods Sold 24,000

Inventory 24,000

11. Cost of Goods Sold 6,000

Inventory 6,000

12. Non-controlling Interest in Net Income of Son Co. 17,760

Non-controlling interest 17,760

Realized profit 12,000

Unrealized profit (6,000)
Son Co.'s Reallized Net Income 90,000
Less: Amortization of allocated excess 7,200
88,800
Multiply: NCI % 20%
Non-controlling interest in Net Income (NCINI)
- Partial Goodwill P 17, 760
Requirement 4
Perfect Company
Worksheet
December 31, 2015

Income Statement Perfect Son DR CR Consolidated

Sales P 540,000 P 360,000 (6) 120,000 P 705,000
(7) 75,000
Dividend Income 65,040 - (4) 65,040 -
Total Revenue P 605,040 P 360,000 P705,000
Cost of Goods Sold P 216,000 P 192,000 (10) 24,000 (6) 120,000 213,000
(11) 6,000 (7) 75,000
(8) 18,000
(9) 12,000
Depreciation Expense 60,000 24,000 (3) 6,000 90,000
Interest Expense - - (3) 1,200 1,200
Other Expenses 72,000 54,000 126,000
Goodwill Impairment Loss - - -
Total Cost & P 348,000 P 270,000 P 430,200
Expenses
Net Income P 257,040 P 90,000 P 274,800
NCI NI - - (5) 17,760 -17,760
Net Income to R/E P 257,040 P 90,000 P 308,448

Statement of Retained
Earnings

R/E, 1/1/14
Perfect Company P 462,840 P 462,840
Son Company P 144,000 (1) 144,000
Net income, from above P 257,040 90,000 257,040
Total P719,880 P234,000 P719,880
Dividends paid
Perfect Company 72,000 72,000
Son Company - 48,000 (4) 48,000 -
R/E, 12/31/14 to Balance Sheet P647,880 P186,000 P 647,880

Balance Sheet
Cash P 265,200 P 114,000 P 367,200
Accounts receivable 180,000 96,000 276,000
Inventory 216,000 108,000 (10) 294,000
24,000
(11) 6,000
 Land 210,000 48,000 (2) 7,200 265,200
Equipment 240,000 180,000 420,000
Buildings 720,000 540,000 (3) 216,000 1,044,000
Discount on bonds payable (2) 3,600 (3) 1,200 2,400
Goodwill (2) 11,250 11,250
Investment in Son Co. 376,680 (8) 18,000 (1) 307,200 -
(9) 9,600 (3) 70,440
(4) 26,640
Total P2,207,880 P1,074,000 P2,680,050

Accum. Depn - Equipment P 150,000 P 102,000 (2) 84,000 (3) 12,000 P180,000
Accum. Depn - Buildings 450,000 306,000 (2) 198,000 552,000
(3) 6,000
Accounts Payable 120,000 120,000 240,000
Bonds Payable 240,000 120,000 360,000
Common Stock, P10 par 600,000 600,000
Common Stock, P10 par 240,000 (1) 240,000 -
R/E, from above 647,880 186,000 647,880
Non-controlling interest (4) 9,600 100,170
(9) 2,400 (1) 76,800
(2) 17,610
(14) 17,760
Total P2,207,880 P1,074,000 P 1,048,650 P 1,048,650 P2,680,050

Requirement 6
Balance on December 31, 2015:

a. CI-CNI P257,040

Consolidated Net Income for 20x5

P Companys net income from own/separate operations P192,000
Realized profit in beginning inventory of S Company 18,000
(downstream sales)
Unrealized profit in ending inventory of S Company (_24,000)
(downstream sales)
P Companys realized net income from separate operations P186,000
S Companys net income from own operations P 90,000
Realized profit in beginning inventory of P Company 12,000
(upstream sales)
Unrealized profit in ending inventory of P Company ( 6,000)
(upstream sales)
Son Companys realized net income from separate operations P 96,000 96,000
Total P282,000
 Less: Amortization of allocated excess
7,200
Consolidated Net Income for 20x5 P274,800
Less: Non-controlling Interest in Net Income* * 17,760
Controlling Interest in Consolidated Net Income
P257,040

b. NCI-CNI, P 17,760

Non-controlling Interest in Net Income (NCINI) for 20x5

S Companys net income of Subsidiary Company from its P 90,000
own operations

Realized profit in beginning inventory of P Company 12,000

(upstream sales)
Unrealized profit in ending inventory of P Company ( 6,000)
(upstream sales)
S Companys realized net income from separate operations P 96,000
Less: Amortization of allocated excess 7,200
P88,800
Multiplied by: Non-controlling interest %
20%
Non-controlling Interest in Net Income (NCINI) partial P 17,760
goodwill

c. CNI, P274,800

Consolidated Net Income for 20x5

P Companys net income from own/separate operations P192,000
Realized profit in beginning inventory of S Company 18,000
(downstream sales)
Unrealized profit in ending inventory of S Company (_24,000)
(downstream sales)
P Companys realized net income from separate operations P186,000
S Companys net income from own operations P 90,000
Realized profit in beginning inventory of P Company 12,000
(upstream sales)
Unrealized profit in ending inventory of P Company (upstream ( 6,000)
sales)
S Companys realized net income from separate operations P 96,000 96,000
Total P282,000
Less: Non-controlling Interest in Net Income* * P 17,760
Amortization of allocated excess 7,200 24,960
Controlling Interest in Consolidated Net Income P257,040
Add: Non-controlling Interest in Net Income (NCINI) _ 17,760
Consolidated Net Income for 20x5 P274,800
d. Consolidated Retained earnings, P647,880

Consolidated Retained Earnings, December 31, 20x5

Retained earnings - Parent Company, 12/31/20x5 P643,200
Less: Unrealized profit in ending inventory of S Company
(downstream sales) 20x5
24,000
Adjusted Retained Earnings Parent 12/31/20x5
P619,200
Adjustment to convert from cost model to equity method for
purposes of consolidation or to establish reciprocity:/Parents
share in adjusted net increased in subsidiarys retained
earnings:
Retained earnings Subsidiary, 12/31/20x5 P186,000
Less: Retained earnings Subsidiary, January 1, 20x4
120,000
Increase in retained earnings since date of acquisition P 66,000
Less: Accumulated amortization of allocated excess
20x4 and 20x5 (P11,000 + P6,000) 20,400
Unrealized profit in ending inventory of P Company
(upstream sales) 20x5
6,000
P 39,600
Multiplied by: Controlling interests %
80%
P 31,680
Less: Goodwill impairment loss, partial goodwill
3,000 28,680
Consolidated Retained earnings, December 31, 20x5 P647,880

e. NCI, P97,920

Non-controlling interest (partial-goodwill), December 31, 20x5

Common stock Subsidiary Company, 12/31/20x5 P240,000
Retained earnings Subsidiary Company, 12/31/20x5
Retained earnings Subsidiary Company, January 1, P144,000
20x5*
Add: Net income of subsidiary for 20x5 90,000
Total P234,000
Less: Dividends paid 20x5 48,000
186,000
Stockholders equity Subsidiary Company, 12/31/20x5 P426,000
 Adjustments to reflect fair value - (over) undervaluation of
assets and liabilities, date of acquisition (January 1, 20x4) 90,000
Amortization of allocated excess
20x4 P 13,200
20x5 7,200 ( 20,400)
Fair value of stockholders equity of subsidiary, 12/31/20x5 P495,600
Less: Unrealized profit in ending inventory of P Company
(upstream sales)
6,000
Realized stockholders equity of subsidiary, 12/31/20x5 P489,600
Multiplied by: Non-controlling Interest percentage
20
Non-controlling interest (partial goodwill) P 97,920

f. Consolidated SHE, P1,345,800

Consolidated SHE:
Stockholders Equity
Common stock, P10 par P 600,000
Retained earnings 647,880
Parents Stockholders Equity / CI SHE, 12/31/20x4 P1,247,880
NCI, 12/31/20x4 ___97,920
Consolidated SHE, 12/31/20x5 P1,345,800