EXERCISES

1. Paradise Corporation acquired on January 1, 2018 70% Seaside shares and paid P35,000,000 when Seaside's
shareholders' equity consisted of P25,000,000 share capital and P20,000,000 retained earnings.
Seaside reported net income of P300,000 for the year 2018 and paid dividends of P150,000 on December 1.
Required: a) Prepare journal entries, in parallel column, to record the above transactions using two methods:
equity and cost. Determine the balance of the investment account as at the end of 2018.
b) In parallel column, prepare the necessary working paper adjustment and elimination entries for
consolidation purposes.
2. Refer to no. 1. To continue, assume that for 2019 Seaside reported net income of P320,000 and paid
dividends on December 1 in the amount of P350,000.
Required: a) In parallel column, using the equity and cost methods, prepare journal entries to update the
investment account. Determine its balance as at the end of the year.
b) In parallel column, prepare the adjustment and elimination entries for consolidation purposes.

3. On January 1, 2018, Makati Corporation purchased 80% of the voting shares of Baguio Corporation. Their
trial balances on December 31, 2018 showed the following:
Makati Baguio
Cash P 79,000 P 60,000
Accounts Receivable 110,000 175,000
Dividends Receivable 52,000
Advances to Baguio 50,000
Inventory-January 1 140,000 80,000
Investment in Baguio Corp 546,000
Other Assets 534,000 465,000
Dividends 100,000 65,000
Purchases 900,000 200,000
Expenses 100,000 80,000
P 2,611,000 P1,125,000
Accounts Payable 59,000 20,000
Dividends Payable 65,000
Advances from Makati 50,000
Other Liabilities 50,000
Share Capital (par, P100) 1,000,000 500,000
Retained Earnings 400,000 100,000
Sales 1,050,000 390,000
Dividend Income 52,000 ________
P 2,611,000 P1,125,000
Inventory-December 31 P 200,000 P 100,000
Makati uses the cost method of accounting for its investment in Baguio. Included in Makati’s customer’s
account is an amount due from Baguio, P10,000.
Required: Prepare a working paper for consolidated financial statements on December 31, 2018. Support
with a table for determination and allocation of excess.

5. On January 1, 2018 Fame Corporation purchased 75% interest in Moose Corporation for P1,125,000, when its
share capital and retained earnings were P600,000 and P400,000, respectively. The assets and liabilities of
Moose Company are fairly valued except for the plant and equipment which has a book value of P1,000,000
and a market value of P1,300,000 (with a remaining life of 10 years) and the inventories which has a book
value of P250,000 and a market value of P230,000.
Fame reported net income of P800,000 for 2018 while Moose reported net income of P500,000. Parent’s
dividend policy was to pay 50% of the net income earned for the year. Moose Corporation was to do
likewise.
Required: a) Entries in the books of Fame Corporation to record the above transactions using the cost
method.
b) Working paper adjusting and eliminating entries on December 31, 2018. Support with a table
for determination and allocation of excess.
c) Compute for the non-controlling interest as at December 31.
d) Compute for consolidated net income.
b) Prepare a schedule of consolidated retained earnings for 2018 if Fame’s retained earnings on
January 1, 2018 was P1,500,000.

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4. On January 1, 2018, Makati Corporation purchased 80% of the voting shares of Baguio Corporation for
P546.000. Their trial balances on December 31, 2018 showed the following:
Makati Baguio
Cash P 79,000 P 60,000
Accounts Receivable 110,000 175,000
Dividends Receivable 52,000
Advances to Baguio 50,000
Inventory-January 1 140,000 80,000
Investment in Baguio Corporation 598,000
Other Assets 534,000 465,000
Dividends 100,000 65,000
Purchases 900,000 200,000
Expenses 100,000 80,000
P2,663,000 P1,125,000
Accounts Payable 59,000 20,000
Dividends Payable 65,000
Advances from Makati 50,000
Other Liabilities 50,000
Share Capital (par, P100) 1,000,000 500,000
Retained Earnings 400,000 100,000
Sales 1,050,000 390,000
Income from Subsidiary 104,000 ________
P 2,663,000 P1,125,000
Inventory-December 31 P 200,000 P 100,000
Makati uses the equity method of accounting for its investment in Baguio. Included in Makati’s
receivables is an amount due from Baguio for P10,000.
Required: Using T accounts prove the investment balance and the Income from Subsidiary. Prepare a working
paper for consolidation on Dec 31, 2018. Support with a table for determination and allocation of
excess.
12. A Corp. and G Corp. agreed to an affiliation as of July 1, 2018. At the end of the year, trial balance of the two
entities are as follows:
A Corp. G Corp.
Debits:
Current Assets P380,000 P 310,000
Plant Assets 450,000 410,000
Investment in G Corp. 175,250
Cost of Goods Sold 282,890 141,500
Operating Expenses 128,000 130,800
Expenses of Business Combination 54,500
Dividends, December 1, 2018 50,000 40,000
Credits:
Liabilities P250,000 P251,300
Share Capital, par P10 150,000 60,000
Share Premium 57,740 10,000
Retained Earnings, January 1 2018 444,900 327,000
Sales 582,000 384,000
Dividend Income 36,000
On July 1, A Corporation issued 5,500 shares of its common stock in exchange for majority shares of G Corp
common stock. Income was earned proportionately during the year. Use the parent approach in recognizing
goodwill/gain. Plant asset is understated by P15,000 in the books of G Corporation with a remaining useful life
of 5 years. Inventories is understated by P10,000 but only half of these were sold at the end of 2018, the rest in
2019.
Required: a) Prepare a table for determination and allocation of excess
b) Prepare the working paper for consolidation for 2018.
c) What would have been the balance of the investment account had equity method been used?

6. Refer to exercise 5. Assume that they reported the following on December 31, 2019:
Fame P850,000 and Moose P550,000.
Required: Same requirements as in exercise 5.

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7. Repeat Exercises 5 and 6 using the equity method.

8. On January 1, 2018, Bear Towers purchased 27,000 shares of Swift Corporation by issuing 9,450 of its
common shares with a market value of P80. Registration of stocks and stock certificates paid amounted to
P25,000. Business Combination expenses paid amounted to P75,000. On that date, the assets and liabilities of
Swift have market values different from the book values as follows:
Book Value Market Value
Inventories P 40,000P 30,000
Building 250,000 200,000
Patents 40,000 100,000
Land 150,000 250,000
The building has a remaining life of 5 years, the useful life of the patents is 10 years and the company is using
the FIFO method for the inventory. Trial balances at the end of 2018 are as follows:
Bear Swift
Cash P 205,000 P 70,000
Accounts Receivable 150,000 50,000
Inventories 100,000 60,000
Land 150,000
Building 340,000
Equipment 700,000 490,000
Patents 40,000
Investment in Stocks of Swift 858,600
Cost of Sales 400,000 150,000
Expenses (including business combination exp) 360,000 200,000
Dividends 100,000 50,000
Total Debits P2,873,600 P1,600,000
Liabilities P 14,000 P 250,000
Accumulated Depreciation - Building. 90,000
Accumulated Depreciation - Equipment 302,000 60,000
Share Capital, par 50 and 10 551,500 300,000
Share Premium 258,500
Retained Earnings 600,000 400,000
Sales 1,000,000 500,000
Income from Subsidiary 147,600 _______
Total Credits P2,873,600 P1,600,000
Required: a. Prove the investment balance and the income from subsidiary balance.
b. Prepare the adjustment and elimination entries. Support with a table.
c. Prepare the working paper for consolidation.

9. Refer to Exercise 8. Assume that on December 31, 2019 the trial balances for the two entities showed:
Bear Swift
Cash P 244,000 P 48,000
Accounts Receivable 240,000 25,000
Inventories 150,000 80,000
Land 150,000
Building 260,000
Equipment 800,000 633,000
Patent 45,000
Investment in Stocks of Swift. 986,400
Cost of Sales 500,000 250,000
Expenses 400,000 252,000
Dividends 150,000 60,000
Total Debits P3,470,400 P1,803,000
Liabilities P 50,000 P 140,000
Accumulated Depreciation-Building 73,000
Accumulated Depreciation-Equipment 341,000 90,000
Common Stock, par P50 551,500
par P10 300,000
Additional Paid In Capital 258,500
Retained Earnings 887,600 500,000
Sales 1,200,000 700,000
Income from Subsidiary 181,800 _______
Total Credits P3,470,400 P1,803,000
Required: same requirements as in Exercise 8.

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10. Peer International paid P198,000 for a controlling interest in Simon Corporation on January 2, 2018 when
Simon's share capital was P150,000 and its retained earnings was P80,000. All assets are at fair values except
for equipment (included in other assets) which fair value should decrease by P20,000. Estimated remaining
useful life is 4 years. Their trial balances at the end of the year appears below:
Peter Simon
Cash P 40,000 P 60,000
Receivables 33,000 50,000
Other Assets 182,000 200,000
Investment in Simon 198,000
Cost of Goods Sold 100,000 60,000
Expenses 50,000 80,000
Dividends 40,000 20,000
Liabilities (160,000) ( 60,000)
Capital Stock (200,000) (150,000)
APIC ( 20,000) -
Retained Earnings ( 45,000) ( 80,000)
Sales (200,000) (180,000)
Dividend Income ( 18,000) -
0 0
Required: a) Prepare a table for determination and allocation of excess. Use parent
approach for gain, total approach for goodwill.
b) Prepare a working paper for consolidation. Goodwill of P5,000 is
impaired at the end of the year.

11. Refer to Exercise 10. The following year the adjusted trial balances of the affiliates for 2019 are shown
below:
Peter Simon
Cash P 92,000 P 95,000
Receivables 88,000 55,000
Other Assets 174,000 190,000
Investment in Simon 198,000
Cost of Goods Sold 150,000 90,000
Expenses 80,000 60,000
Dividends 50,000 30,000
Liabilities (110,000) ( 40,000)
Capital Stock (200,000) (150,000)
APIC ( 20,000) -
Retained Earnings ( 73,000) ( 100,000)
Sales (402,000) (230,000)
Dividend Income ( 27,000) -
0 0
Required: a) Prepare a working paper for consolidation purposes.
13. The trial balances at the end of 2019 appear as follows:
A Corp. G Corp.
Debits:
Current Assets P 531,100 P 263,200
Plant Assets 410,000 380,000
Investment in G Corp. 175,250
Cost of Goods Sold 312,900 214,500
Operating Expenses 138,000 150,000
Dividends, December 1, 2019 75,000 50,000
Credits:
Liabilities P260,000 P205,000
Share Capital, par P10 150,000 60,000
Share Premium 57,740 10,000
Retained Earnings, January 1 2019 547,510 398.700
Sales 582,000 384,000
Dividend Income 45,000

Required: 1. Prepare a working paper for consolidation.

2. What would have been the balance of the investment account if the equity method

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was used by the parent in accounting for its investment in G Corp.?

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