CHAPTER 12 Simplified)

CHAPTER 12
MULTIPLE CHOICE
12-1: d. This is recorded when the working fund is replenished.
12-2: c.
Sales P 700,000
Cost of goods sold:
Purchases P800,000
Merchandise inventory, end 180,000 620,000
Gross profit P 80,000
Expenses 198,000
Net income (loss) P (118,000)
12-3: b
Sales P 70,000
Cost of goods sold (P70,000 / 140%) 50,000
Less: Samples (P8,000 – P6,000) P 2,000
Expenses 2,800 4,800
Net income P 15,200
12-4: a
Sales P 100,000
Cost of goods sold 72,000
Expenses (P9,000 + P4,500) 13,500
Net income P 14,500
12-5: a
12-6: a
12-7: c
12.8 a
Shipment of merchandise to home office P 80,000
Equipment sent to home office 50,000
Expenses assigned to branch by the home office 8,000
Cash remittance to home office (40,000)
Home office account balance P 98,000
12-9: d
12-10: a
Home Office account balance before closing, Dec. 31, 2008 P 35,000
Net income (loss)
Sales P147,000
Cost of cost goods sold
Shipment to branch P135,000
Inventory, 12/31 18,500 116,500
Expenses 13,500 17,000
Home Office account balance (Investment in Branch account balance) P 52,000
Shipment to Branch account has no beginning balance, because this was closed at the end
of 2008.
12-11: b
Jan. 1, 2008 Jan. 1, 2009

Petty cash fund P 6,000 P 6,000
Accounts receivable 86,000 98,000
Inventory 74,000 82,000
1
Home Office account balance P166,000 P186,000
12-12: d
(Branch Books) (Home Office Books)
Home Office Investment in Branch
Unadjusted balances, Dec. 31 P 21,320 P 38,600
Remittance in transit (10,400)
Shipment in transit 7,280
Cash collections of home office ( 400)
Adjusted balances, Dec. 31 P 28,200 P 28,200
12-13: a
Unadjusted balance – Investment in Branch account, 12/31 P430,000
Charge for advances by president (5,500)
Erroneous entry for merchandise allowance ( 600)
Share in advertising expense (9,000)
Unadjusted balance – Home Office account, 12/31 P414,900
12-14: a
Unadjusted balances, 12/31 P 97,350 P 84,000
Collection of HO A/R by branch 25,000
Error in recording of branch profit 900
Returns of merchandise in transit ( 6,400)
Adjusted balances, 12/31 P103,500 P103,500
12-15: a
Unadjusted balances P25,550 P27,350
Error in recording shipment to Cavity branch (12,000)
Error in recording shipment to Tagaytay branch 15,000
Branch AR collected by home office (3,000)
Merchandise returns in transit ( 1,200)
Error in recording branch profit ( 3,600)
Adjusted balances P23,750 P23,750
12-16: c
Unadjusted balance- Investment in Branch account P 85,000
Shipment in transit (20,000)
Expenses allocated ( 5,000)
Error in recording remittance 3,000
Error in recording shipments ( 9,000)
Unadjusted balance – Home Office account P 44,000
( Branch Books) (HomeOffice Books)

Unadjusted balances, P 44,000 P 85,000
Expenses allocated 5,000 Unrecorded HO collection of
AR (3,000)
Error in recording shipments 9,000
Adjusted balances P 75,000 P 75,000
12.17 a
Unadjusted balances P 440,000 P 496,000
Branch AR collected by Home Office ( 8,000)
Shipments in transit 32,000
Acquisition of furniture (12,000)
Merchandise returns (15,000)
2
Cash remittance in transit ( 5,000)
Adjusted balances P 464,000 P 464,000
PROBLEMS
Problem 12-1
Home Office Books Branch Books
1. Investment in branch 30,000 Cash 30,000

Cash 30,000 Home office 30,000
2. Investment in branch 75,000 Shipment from home office 75,000

Shipment to branch 75,000 Home office 75,000
3. No entry Purchases 10,000

Accounts payable 10,000
4. No entry Accounts receivable 125,000

Sales 125,000
5. Shipment to branch 2,000 Home office 2,000

Investment in branch 2,000 Shipment from home office 2,000
6. No entry Cash 105,000

Accounts receivable 105,000
7. No entry Accounts payable 7,000

Cash 7,000
8. No entry Salaries 10,000

Rent 5,000
Utilities 2,000
Other operating expenses 12,000
Cash 29,500
9. Investment in branch 7,500 Depreciation 1,500

Accumulated dep’n 7,500 Rent 5,000
Insurance 1,000
Home office 7,500
10. Cash 65,000 Home office 65,000

Investment in branch 65,000 Cash 65,000
11. Cash 3,000 Home office 3,000

Investment in branch 3,000 Accounts receivable 3,000
12. Investment in branch 10,000 Sales 125,000

Branch income 10,000 Inventory, end 5,000
Shipment from HO 73,000
Purchases 10,000
Salaries 10,000
Rent 10,000
Utilities 2,000
Other operating expenses 12,500
Home office 10,000
Problem 12-2
a. Books of the Branch
1. Cash 200,000
Merchandise inventory 350,000
Home office 550,000
3
2. Merchandise inventory 400,000
3. Accounts receivable 650,000

Sales 650,000

Cash 600,000
4. Advertising expense 40,000

Sales commission 65,000
Other expense 45,000
Cash 150,000
5. Accounts payable 370,000

Home office 120,000
Cash 490,000
b. Manila Sales – Naga Branch

Income Statement
Year Ended December 31, 2008
Sales P650,000
Gross profit 225,000
Expenses:
Advertising expense P40,000
Sales commissions 65,000
Other expenses 45,000 150,000
Net income P 75,000
c. Manila Sales – Naga Branch

Balance Sheet
December 31, 2008
Cash P160,000 Accounts payable P 30,000

Accounts receivable 50,000 Home office 505,000
Total assets P535,000 Total liabilities and capital P535,000
Problem 12-3

(1) Adjusting Entries
a. Investment in branch 63,750 Cash 63,750

b. Investment in branch 75,300 Shipment from HO 75,300

c. Accounts receivable 157,500 Accounts receivable 99,000

Sales 157,500 Sales 99,000
d. Purchases 183,750 Purchases 33,750

Accounts payable 183,750 Accounts payable 33,750
e. Cash 170,400 Cash 80,100

Accounts receivable 170,400 Accounts receivable 80,100
Home office 80,100

Cash 80,100
4
f. Accounts payable 186,000 Accounts payable 18,375
Cash 186,000 Cash 18,375
g. Expenses 39,900 -
Cash 39,900
Furniture & fixtures – branch 12,000 Home office 12,000

h. Cash 80,100 -
Investment in branch 80,100
Expenses 27,000
Cash 27,000
i. Retained earnings 15,000

Cash 15.000
j. Expenses 1,750
Acc. Depreciation 1,750
k. Investment in branch 975 Expenses 975

Acc. Dep’n – Br. F & F 975 Home office 975
l. Prepaid expenses 375 Prepaid expenses 1,125

Expenses 375 Expenses 1,125
m. Expenses 150 Expenses 450

Accrued expenses 150 Accrued expenses 450
Closing Entries
n. Sales 157,500 Sales 99,000

Shipments to branch 75,300 Merchandise inv., 12/31 35,250
Merchandise inv., 12/31 72,750 Income summary 2,100
Merchandise inv. 1/1 60,180 Purchases 33,750
Purchases 183,750 Shipment from HO 75,300 Expenses
41,445 Expenses 27,300
Income summary 20,175
o. Branch loss 2,100 Home office 2,100

Investment in branch 2,100 Income summary 2,100
p. Income summary 2,100

Branch loss 2,100
q. Income summary 18,075

Retained earnings 18,075
3. Individual Financial Statements
Cebu Company – Home Office

Income Statement
Sales P157,500
Cost of sales
Merchandise inventory, 1/1 P 60,180
Purchases 183,750
Goods available for sale P243,930
Shipment to branch ( 75,300)
5
Goods available for own sale P168,630
Merchandise inventory, 12/31 ( 72,750) 95,880
Expenses 41,445
Net operating income P 20,175
Branch income (loss) ( 2,100)
Net income P 18,075
Cebu Company – Branch

Income Statement
Sales P 99,000
Cost of sales
Purchases P 33,750
Shipments from home office 75,300
Merchandise inventory, 12/31 35,250 73,800
Expenses 27,300
Net income (loss) P( 2,100)
Cebu Company – Home Office

Balance Sheet
December 31, 2008
Assets
Cash P 34,800
Merchandise inventory, 12/31 72,750
Prepaid expenses 3,075
Furniture and fixtures P30,000
Less: Accumulated depreciation 8,370 21,630
Branch furniture and fixtures P12,000
Less: Accumulated depreciation 975 11,025
Total assets P217,680
Liabilities and Stockholders’ Equity

Liabilities
Accrued expenses P 2,025
Total liabilities P 33,975
Stockholders’ Equity
Capital stock P 75,000
Retained earnings 108,705 183,705
Total liabilities and stockholders’ equity P217,680
Cebu Company – Branch

Balance Sheet
December 31, 2008
Assets
Cash P 6,375
Merchandise inventory, 12/31 35,250
Liabilities and Capital

Accounts payable P 450
Home office 15,375
Total liabilities and capital P61,650
4. Combined Financial Statements
6
Cebu Company
Combined Income Statement
Sales P256,500
Cost of sales
Merchandise inventory, 1/1 P 60,180
Purchases 217,500
Merchandise inventory, 12/31 108,000 169,680
Expenses 68,745
Combined net income P 18,075
Cebu Company
Balance Sheet
December 31, 2008
Assets
Cash P 41,175
Furniture and fixtures P42,000
Less: accumulated depreciation 9,345 32,655

Accrued expenses P 2,475
Capital stock 75,000
Problem 12-4
Branch Books Home Office Books

(a) and (b) Closing Entries
Sales 145,000 Sales 560,000

Inventory, 12/31 60,000 Inventory, 12/31 90,000
Inventory, 1/1 18,000 Shipments to branch 145,000
Shipments from HO 145,000 Inventory, 1/1 45,000
Expenses 20,000 Purchases 540,000
Income summary 23,000 Expenses 90,000
Income summary 22,000 Investment in branch 22,000

Home office 22,000 Branch income 22,000
Branch income 22,000


© CG Corporation
Combined Statement Working Paper
Eliminations
Income
Home Statement Balance
Office Branch Debit Credit Dr (Cr) Sheet
Debits
7
Cash 36,000 7,000 43,000
Accounts receivable 54,000 29,000 83,000
Inventory, 1/1 45,000 18,000 63,000
Investment in branch 70,000 (2) 70,000
Equipment (net) 95,000 95,000
Purchases 540,000 540,000
Shipments from HO 145,000 (1)145,000
Expenses 90,000 20,000 110,000
Total debits 930,000 219,000
Inventory 12/31 (BS) 150,000

Total assets 371,000
Credits
Accounts payable 27,000 4,000 31,000
Home Office 70,000 (2) 70,000
Capital stock 54,000 54,000
Retained earnings, 1/1 144,000 144,000
Sales 560,000 145,000 (705,000)
Shipments to branch 145,000 (1)145,000
Total credits 930,000 219,000
Inventory, 12/31 (IS) 90,000 60,000 (150,000)

215,000 215,000
Net income 142,000 142,000
Total liabilities & equity 371,000
1. To eliminate shipments to branch and shipments from HO

2. To eliminate reciprocal accounts.
Problem 12-5
(1) Oro Company

Working Paper for Combined Statements
Income
Home Eliminations Statements Balance
Office Branch Debit Credit Dr (CR) Sheet
Debits
Cash 63,000 21,900 84,900
Notes receivable 10,500 10,500
Accounts receivable (net) 120,600 55,950 176,550
Inventories 143,700 36,300 (2)135,000 45,000
Furniture & fixtures (net) 72,150 72,150
Investment in Branch 124,050 (1)124,050
Cost of goods sold 300,750 128,700 (2)135,000 564,050
Operating expenses 104,250 32,850 137,100
Totals 939,000 275,700 389,100
Credits
Accounts payable 61,500 61,500
Common stock 300,000 300,000
Home Office 124,050 (1)124,050
Sales 540,000 151,650 (691,650)
Totals 939,000 275,700 289,050 289,050
Net Income 9,900 (9,900)

389,100
(1) To eliminate shipments
(2) To eliminate reciprocal accounts.
8
Closing Entries
2. Branch Books 3. Home Office Books
Sales 151,650
Income Summary 9,900
Operating expenses 32,850
Home Office 9,900 Branch loss 9,900

Income summary 9,900 Investment in Branch 9,900

Branch loss 9,900
Problem 12-6
a. Investment in Branch account (Home Office Books)

Unadjusted balance P138,200
Error in recording cash transfer, April 8 ( 45,000)
Cash transfer recorded in subsequent year, Dec. 31 ( 15,000)
Error in recording allocated depreciation, Dec. 31 6,000
Adjusted balance P 84,200
Home Office account (Branch Books)

Unadjusted balance P(93,000)
Error in recording salary allocation, April 5 ( 200)
Error in recording inventory transfer, July 6 12,000
Unrecorded allocated depreciation, Dec. 31 ( 3,000)
Adjusted balance P(84,200)
b. Adjusting Entries

Other income 45,000 Salary expense 200
Investment in branch – Home office 200
Rizal 45,000

Investment in branch- Shipments from HO 12,000
Rizal 15,000
Investment in branch 6,000 Depreciation expense 3,000

Accumulated dep’n 6,000 Home office 3,000
Problem 12-7
a. Investment in Branch account (Home Office Books)

Unadjusted balance, Dec. 31 P166,400
Cash remittance in transit (30,000)
Merchandise returns in transit (12,000)
Adjusted balance, Dec. 31 P124,400
Home Office account (Branch Books)

Unadjusted balance, Dec. 31 P103,200
Error in recording expense 7,200
Supplies charged to branch 8,000
Collection of branch receivable ( 18,000)
Adjusted balance, Dec. 31 P124,400
b. Adjusting Entries
9
Cash 30,000 Shipment from HO 24,000
Shipment to branch 12,000 Supplies 8,000
Investment in branch 42,000 Expenses 7,200
Home office 21,200
Problem 12-8
(1) Reconciliation Statement

(Home Office Books) (Branch Books)
Investment in Branch Home Office
Unadjusted balances, 1/31 P59,720 P 43,268

Advertising charged to branch 480
Home office AR collected by branch 600
Shipment in transit ( 180)
Error in recording receipt of merchandise ( 432)
Understatement of depreciation (12,800)
Remittance in transit, 1/31 P47,088 P 47,088

Retained earnings 432 Advertising 480
Cash 12,800 Shipments from HO 3,520
Accounts receivable 600 Shipment from HO 180
Investment in branch 12,632 Home office 3,820
Problem 12-9
(1) Branch Books
Adjusting Entries
Shipment from home office 57,600

Operating expenses (P4,200 + P3,900) 8,100
Home office 65,700
Closing Entries
Sales 778,200
Inventory, 12/31 (P64,580 + P57,600) 122,180
Inventory, 1/1 47,800
Shipment from HO (P623,200 + P57,600) 680,800

Home office 116,900
(2) Home Office Books
Accounts receivable 470

Investment in branch 330
Cash (P20,000 + P19,200) 800

Branch income 116,900
(3) Reconciliation Statement
10
(Investment in Branch) (Home Office)
Unadjusted balances, 12/31 P 206,344 P 140,974
Error in recording remittance to branch 20,000
Expenses charged to branch 8,100
Branch net income 116,990 116,990
Freight erroneously charged to branch ( 470)
Cash remittance in transit to HO ( 19,200)
Adjusted balances, 12/31 P 323,664 P 323,664
Problem 12-1111
a. P 2,000
Sales (P 27,000 + P 33,000 + P 26,000) …………………. P 86,000

Cost of Goods Sold (P 36,000 + P 18,000) ………………. (54,000)
Gross Profit ……………………………………………… P 32,000
Rent Expense …………………………………………….. P 4,000
Property Tax Expense …………………………………… 5,000 Depreciation Expense
…………………………………… 4,000
Miscellaneous Expense …………………………………. 11,000
General Corporate Expense ……………………………… 6,000 (30,000)
Net Income ……………………………………………… P 2,000
b. P 180,000
Initial Transfers …………………………………………. P 188,000

June Inventory Shipment ……………………………….. 18,000
Property Tax Payment ………………………………….. 5,000
September Inventory Shipment ………………………… 26,000
Expense Allocation …………………………………….. 6,000
Cash Transfer …………………………………………... (63,000)
Balance in Home Office/Branch Accounts (correct) ….. P 180,000
c. Journal Entries – Tarlac Branch
1/10/08 Cash …………………………………. 30,000

Inventory ……………………………. 36,000
Equipment …………………………… 122,000
Home Office …………………… 188,000
1/20/08 Rent Expense ………………………… 4,000
Cash ……………………………. 4,000
2/1/08 Cash ………………………………….. 27,000
Sales …………………………… 27,000
Cost of Goods Sold ………………….. 18,000
Inventory ………………………. 18,000
4/1/08 Cash …………………………………. 33,000
Sales …………………………... 33,000
Cost of Goods Sold …………………. 18,000
Inventory ……………………… 18,000
5/1/08 Miscellaneous Expenses ……………. 7,000
Cash …………………………... 7,000
6/5/08 Inventory ……………………………. 18,000
Home office …………………... 18,000
7/6/08 Property Tax Expense ………………. 5,000
Home Office ………………….. 5,000
9/9/08 Inventory …………………………… 26,000
Home Office …………………. 26,000
10/1/08 Cash ………………………………… 26,000
Sales …………………………. 26,000
Cost of Goods Sold ……………….. 18,000
Inventory …………………….. 18,000
11/1/08 Miscellaneous Expenses …………... 4,000
Cash …………………………. 4,000
11
12/22/08 Home Office ……………………… 63,000
Cash …………………………. 63,000
12/31/08 Depreciation Expense ……………. 4,000
Accumulated depreciation ….. 4,000
12/31/08 General Corporate Expenses ……… 6,000
Home Office ………………….. 6,000
d. TARLAC BRANCH
Balance Sheet
December 31, 2008
Assets
Cash ……………………………………………. P 38,000
Inventory ………………………………………. 26,000
Equipment ……………………………………... P 122,000
Accumulated Depreciation ……………………. (4,000) 118,000
Total Assets …………………………… P 182,000
Equity
Home Office* ………………………………….. P 182,000
*Home office balance is P 180,000 as computed in Part b plus the P 2,000 net income for the period.
12
CHAPTER 13
MULTIPLE CHOICE
13-1: c
13-2: a
Goods available for sale:
At billed price (P30,000 + P180,000) P210,000
At cost (P210,000 / 120%) 175,000
Balance of Allowance for Overvaluation account before adjustment P 35,000
13-3: c
Inter-company inventory profit (IIP) before closing P 66,000
Less: IIP from shipment from home office
Billed price P300,000
Cost (P300,000 / 120%) 250,000 50,000
IIP from beginning inventory at billed price P 16,000
Divided by ÷ 20%
Cost of branch’s beginning inventory P 80,000
13-4: a
Billed Price % Cost Overvaluation
Beginning inventory from HO P15,000 150% P10,000 P 5,000
Shipments 110,000 150% 73,333 36,667
Balance before adjustment P41.667
Ending inventory from HO 5,000 150% 3,333 1,667
Required adjustments P40,000
13-5: b
Shipment to branch, at billed price P375,000
Shipping cost 2,000
Total cost P377,000
Sold (50%) 188,500
Inventory P188,500
13-6: a
Shipment to branch, at cost P312,500
Shipping cost 2,000
Sold (50%) 157,250
Inventory, at billed price P157,250
13-7: c
Home office account balance after closing branch profit P765,000
Less: branch profit 130,000
Investment in branch account balance before closing branch profit P635,000
13-8: d
Branch ending inventory, at billed price P 50,000
Acquired from home office, at billed price:
Cost (P6,000 / 20%) P30,000
Mark-up 6,000 36,000
Purchased from outsiders P 14,000
13-9: b
Cost of goods sold – Home office P590,000
Cost of goods sold – Branch:
Less: overvaluation (P110,000 – P90,000) 20,000 280,000
Combined cost of goods sold P870,000
13-10: c
13
13-11: d
Overvaluation of branch ending inventory acquired from HO:
Billed price P 28,600
Cost (P28,600 / 130%) 22,000
Adjusted balance of allowance for overvaluation account P 6,600
13-12: b
Shipment from home office P 90,000
Expenses 17,000
Cash remittance to home office (70,000)
Home Office account balance before closing P 37,000
13-13: b
Shipment to branch, at cost P 72,000
Ending inventory, at cost (P70,000 / 30%) ( 21,600)
Cost of goods sold P 50,400
Freight (P6,000 x P50,400/P72,000) 4,200
Total P 54,600
13-14: b (20% of P30,000)
13-15: b (P151,200 / 140%)
13-16: c
Sales P270,000
Cost of goods sold
Shipments from home office (P151,200/140%) P108,000
Inventory, 1/1 (P28,350 / 140%) 20,250
Inventory, 12/31 (P25,200 / 140%) ( 18,000) 110,250
Gross profit P159,750
Expenses 90,000
Branch profit as far as the home office is concerned P 69,750
13-17: c
Unsold merchandise P 60,000

Less: Merchandise acquired from home office, at billed price 45,000
Merchandise acquired from outsiders P 15,000
Merchandise acquired from home, at cost (P7,500 / 20%) 37,500
Branch inventory at cost, 12/31 P 52,500
13-18: a
Branch inventory, 1/1 P 54,600

Acquired from home office – at billed price:
Overvaluation [P99,900 – (P390,000 – P300,000)] P 9,900
Cost (P9,900 / 30%) 33,000 42,900
Purchases from outsiders P 11,700
13-19: c
Acquired from home office [(P60,000 x 80%) ÷ 120%] P 40,000

Acquired from outsiders (P60,000 x 20%) 12,000
Branch inventory, 12/31 – at cost P 52,000
13-20: b
Sales (P148,000 + P144,000) P192,000
Cost of sales – at cost to home office:
Shipment from home office (P108,000 / 120%) P90,000
Purchases 52,000
Inventory, 12/31 (no. 19 above) (52,000) 90,000
Expenses (P76,000 + P24,000) 100,000
Branch net income (actual) P 2,000
13-21: b
14
Allowance for overvaluation account balance P 57,500
Overvaluation on the shipment (P200,000 x 25%) 50,000
Overvaluation on the branch beginning inventory P 7,500
Cost of branch beginning inventory (P7,500 / 25%) 30,000
Branch beginning inventory – at billed price P 37,500
13-22: b
Sales P400,000
Cost of goods sold – cost to home office
Beginning inventory P 30,000
Ending inventory (P40,000 / 125%) ( 32,000) 198,000
Expenses 100,000
Branch net income as far as the home office is concerned P102,000
13-23: b
Branch inventory, 1/1 P 20,000
Acquired from home- at billed price
Overvaluation [P24,000 – (P80,000 – P60,000)] P 4,000
At cost [(P4,000 ÷ (P20,000 / P60,000)] 12,000 16,000
Acquired from outsiders P 4,000
13-24: a
Sales P200,000
Cost of sales (at cost to home office)
Inventory, 1/1 (P12,000 + P4,000) P16,000
Purchases 30,000
Inventory, 12/31 [(P20,000÷133 1/3%) +P6,000] (21,000) 85,000
Expenses 60,000
Branch net income (actual) P 55,000
13-25: a
Inventory, 1/1 P 75,000
Overvaluation ( 72,500)
Cost of goods available for sale P362,500
Percentage of mark-up (P72,500 / P362,500) 20%
13-26: b
13-27: a
Billing percentage above cost (P20,000 / P80,000) 25%
Branch inventory, 6/1 – at cost (P12,000 / 125%) P 9,600

Home office inventory, 6/1 40,000
Purchases 160,000
Inventory, 6/30 – at cost:
Branch (P10,000 / 125%) P 8,000
Home office 60,000 68,000
Combined cost of goods sold P141,60
13-28: d
Sales P450,000
Expenses 150,000
Combined net income P158,400
13-29: d
Sales P687,500
Cost of goods sold:
15
Inventory, 1/1: Home office P57,500
Branch (P22,250 / 125%) 17,800 P 75,300
Purchases 410,000
Goods available for sale P 485,300
Inventory, 12/31: Home office P71,250
Branch (P29,250/120%) 24,375 95,625 389,675
Expenses 241,750
13-30: a
Sales P669,000
Cost of goods sold:
Inventory, 1/1:
Home office P160,000
Branch [P15,000 + (P49,000 / 122.5%)] 55,000 P215,000
Purchases 460,000
Inventory, 12/31:
Home office P110,000
Branch [P11,000 + (P52,000 / 133 1/3%)] 50,000 160,000 515,000
Expenses 145,000
13-31: a
The entries made by the branch to record the interbranch transfer of merchandise are:
Books of Branch 1:
Home office 19,500
Freight in 3,500
Books of Branch 3:
Freight in 4,000
Cash 2,500
Home office 17,500
Therefore the home office would make the following entry:

Investment in Branch 3 17,500
Excess freight 2,000
Investment in Branch 1 19,500
13-32: a
(Home office books) (Branch books)
Investment in branch Home office
Unadjusted balances 77,000 61,000
Error in recording shipment (10,000)
Error in recording expense 5,000
Unrecorded cash remittance (31,000) -
Adjusted balances 46,000 46,000
13-33: c
13-34: a
Home office books Cebu branch books Bacolod branch books
Inv in Bacolod 25,000 Home office 25,000 Cash 25,000
Inv in Ceb 25,000 Cash 25,000 Home office 25,000
Inv in Bacolod 34,300 Home office 34,300 Cash 34,300

Inv in Cebu 34,300 SD 700 Home office 34,300
AR 35,000
Inv in Bacolod 62,500 Home office 212,500 Expenses 62,500

Expenses 150,000 Expenses 37,500 Home office 62,500
Inv in Cebu 212,500 Cash 250,000
16
Inv in Cebu 253,000 Freight in 3,000
S to branch 200,000 S from HO 250,000
Allowance 50,000 Home office 253,000
Cash 3,000
Inv in Bacolod 252,700 Home office 253,000

Excess freight 300 S from H 253,000
Inv in Cebu 253,000
(Home office books) (Bacolod branch books)

Investment in Cebu Branch Home Office
25,000 25,000
34,300 34,300
212,500 62,500
253,000 252,700
253,000 524,800 374,500
271,800
PROBLEMS
Problem 13-1
(a) Journal Entries
(1) Investment in branch 18,000 Equipment 18,000

(2) Investment in branch 3,000 Rent expense 3,000

(3) Investment in branch 100,000 Shipment from HO 100,000

Allowance for over-Valuation 20,000
(4) No entry Operating expenses 11,000

Cash 11,000
Cash 105,000
Sales 105,000
(5) Cash 60,000 Home office 60,000

(b) Working Paper Elimination Entries

(1) Home office 61,000
To eliminate reciprocal accounts computed
as follows:
Equipment purchased P 18,000
Rent paid 3,000
Inventory shipped 100,000
Cash transfer ( 60,000)
Balance P 61,000
(2) Shipment to branch 80,000

Allowance for overvaluation of branch inventory 20,000
To eliminate inter-company shipments
(3) Inventory, 12/31 (Income statement) 5,000

Inventory, 12/31 (Balance Sheet) 5,000
To reduce inventory, 12/31 to cost.
17
(c) Closing Entries – Branch Books
Sales 105,000
Inventory, 12/31 25,000
Rent expense 3,000

Home office 16,000
Problem 13-2
a. Branch Books
- Equipment 50,000
Cash 10,000
Home office 120,000
- Purchases 30,000
Cash or accounts payable 30,000
- Prepaid rent 10,000

Home office 10,000
- Cash 40,000
Sales 90,000
- Advertising expense 8,000

Salary expense 5,000
Cash 13,000
- Home office 10,000

Cash 10,000
- Home office 3,000

- Rent expense 5,000

Prepaid rent 5,000
Home Office Books

- Investment in branch 120,000
Equipment 50,000
Shipment to branch 40,000
Allowance for overvaluation of branch inventory 20,000
Cash 10,000
To record assets sent to branch
- Investment in branch 10,000

Cash 10,000
To record rent expense of the branch
- Cash 10,000
To record cash remittance from branch
- Cash 3,000
To record collection of branch receivable.
18
b. Income Statement
Sales P90,000
Cost of goods sold
Shipment from home office – at cost P40,000
Purchases 30,000
Goods available for sale 70,000
Ending inventory:
From home office (1/3) P13,333
From outsiders (1/4) 7,500 (20,833) 49,167
Expenses:
Advertising expense P 8,000
Salary expense 5,000
Rent expense 5,000 18,000
Net income P22,833
Problem 13-3
a. Investment in Branch account – beginning balance P 86,000

Inventory transfer 34,500
Rent allocated 1,000
Expenses allocated 3,000
Transportation allocated 3,000
Unadjusted balance – Investment in Branch account P141,500
b. Home Office account – beginning balance P 54,000

Rent allocated 1,000
Expenses allocated 3,000
Inventory transfer (error made) 64,000
Home Office account – unadjusted balance P 82,500
c. Reconciliation Statement
Investment in Branch Home Office
Unadjusted balances, 1/31 P141,500 P 82,500
Unrecorded cash transfer ( 74,000)
Error in recording transfer (overstated) 18,000
Expense allocation not recorded ( 3,000)
Adjusted balances, 1/31 P 67,500 P 67,500
Problem 13-4
a. Books of Branch X
Freight-in 300
Home office 5,300
Home office 5,800

Shipment from office 5,800
b. Books of Branch Y
Freight-in 600
Home office 5,600
c. Books of the Home Office\

Investment in branch – X 5,300
Shipment to branch – X 5,000
Cash 300
Investment in branch – Y 5,000

Inter-branch freight expense 600
19
Investment in branch – X 5,600
Shipment to branch – X 5,000

Shipment to branch – Y 5,000
Problem 13-5
Malakas Company
Combination Worksheet
Adjustments and Income Retained

Eliminations Statement Earnings Balance
Malakas Davao Debit Credit Dr (Cr) Dr (Cr) Sheet
Debits
Cash 25,000 18,000 43,000
Inventory, 12/31 209,000 42,000 (4) 14,000 (5) 16,000 249,000
Investment in branch 207,000 - (7)207,000
Land, bldg, and equipment 340,000 112,000 452,000
Shipment from office - 96,000 (3) 14,000 (6)110,000
Purchases 348,000 - 348,000
Depreciation expense 25,000 8,000 33,000
Advertising expense 36,000 15,000 (1) 9,000 60,000
Rent expense 12,000 5,000 (1) 6,000 23,000
Miscellaneous expense 40,000 20,000 (1) 2,000 62,000
Inventory, 1/1 175,000 35,000 (2) 10,000 200,000
Total debits 1,525,00 376,000 877,000
0
Credits
Accumulated depreciation 80,000 16,000 96,000
Notes payable 220,000 - 220,000
Home office - 176,000 (7)207,000 (1) 17,000 -
(3) 14,000
Common stock 100,000 - 100,000
Retained earnings, 1/1 240,000 - (2) 10,000 (230,000)
Sales 529,000 127,000 (655,000
)
Shipment to branch 110,000 - (6)110,000
Inventory, 12/31 209,000 42,000 (5) 16,000 (4) 14,000 (249,000
)
Combined net income (179,000 (179,000)

)
Combined retained earnings (409,000) (409,000)
Totals 1,525,00 376,000 388,000 388,000 877,000

0
Adjustments and Elimination Entries

(1) Advertising expense 9,000
Rent expense 6,000
Miscellaneous expenses 2,000
Home office 17,000
Unrecorded expenses allocated to the branch
(2) Retained earnings, 1/1 10,000

Inventory, 1-1 10,000
To eliminate unrealized inventory profit of preceding year
(3) Shipment from home office 14,000

Home office 14,000
20
Unrecorded shipments
(4) Inventory, 12/31 (debits) 14,000

Inventory (credits) 14,000
Shipment not yet received by the branch
(5) Inventory, 12/31 (debits) 16,000

Inventory (credits) 16,000
To reduce ending inventory to cost
(6) Shipment to branch 110,000

To eliminate inter-company shipments

To eliminate reciprocal accounts
Problem 13-6
a. Eliminating Entries
Investment in branch – Silver 395,000

Investment in branch – Opal 260,000
(3) Unrealized intra-company profit – Silver 20,000

Unrealized intra-company profit – Opal 16,000
Inventory – from home office 36,000
(4) Inventory 90,000

Inventory – from home office 90,000
(5) Unrealized intra-company profit – Silver 40,000

Equipment 40,000
Ginto Company
Balance Sheet Working Paper
December 31, 2008
Home Silver Opal Eliminations

Office Branch Branch Debit Credit Combined
Cash 81,000 20,000 15,000 116,000
Accounts receivable 100,000 40,000 25,000 165,000
Inventory 260,000 50,000 44,000 (4) 90,000 444,000
Inventory – from home office 70,000 56,000 ( 3) 36,000
(4) 90,000
Land 70,000 30,000 20,000 120,000
Buildings and equipment 700,000 350,000 200,000 (5) 40,000 1,210,000
Investment in branch – Silver 395,000 (1)395,000
Investment in branch – Opal 260,000 (2)260,000
Total debits 1,866,000 560,000 360,000 2,055,000
Accumulated depreciation 280,000 120,000 80,000 480,000

Accounts payable 110,000 45,000 20,000 175,000
Bonds payable 400,000 400,000
Common stock 300,000 300,000
Home office - 395,000 260,000 (1)395,000
(2)260,000
Unrealized intra-company profit
Silver 60,000 (3) 20,000
(5) 40,000
Opal 16,000 (3) 16,000
Total credits 1,866,000 560,000 360,000 821,000 821,000 2,055,000
21
b. Ginto Company
Combined Balance Sheet
December 31, 2008
Assets
Cash P 116,000
Inventory 444,000
Land 120,000
Buildings and equipment P1,210,000
Total assets P1,575,000

Liabilities
Accounts payable P 175,000
Bonds payable 400,000
Common stock P 300,000
Retained earnings 700,000 1,000,000
Total liabilities and stockholders’ equity P1,575,000
Problem 13-7
a. Books of Branch P

Freight-in 50
Home office 8,050
Home office 8,120

Freight-in 50
Cash 70
b. Books of Branch Q
Freight-in 80
Home office 8,080
c. Books of Home Office

Investment in branch – P 8,050
Shipment to branch – P 8,000
Cash 50
Investment in branch – Q 8,080

Inter-branch freight expense 40
Investment in branch – P 8,120
Shipment to branch - P 8,000

Shipment to branch – Q 8,000
Problem 13-8
Debits:
Cash = P36,000 (add the book values and include the P9,000 transfer in transit)
Accounts receivable = P118,000
Inventory, 12/31 = P151,000 (branch balance would be P81,000 when the shipment in transit is included. This balance
must be adjusted to cost of P54,000 (P81,000 ÷ 150%) and then add to home office balance of P97,000.
Investment in branch = 0 (eliminated)
Land, buildings and equipment = P460,000
Shipment from home office = 0 (eliminated)
Purchases = P429,000
22
Depreciation expense = P28,000 (add the two book values and the year-end allocation)
Advertising expense = P58,000 (add the two book values and the year-end allocation)
Rent expense = P30,000 (add the two book values and the year-end allocation)
Miscellaneous expense = P100,000 (add the two book values and the year-end allocation)
Inventory, 1/1 = P145,000 (branch balance is adjusted to cost of P24,000 (P36,000 / 150%), and then added to home office balance.
Total debits = P1,555,000 (add the above totals)
Credits
Accumulated depreciation = P108,000
Accounts payable = P104,000
Notes payable = P180,000
Home office = 0 (eliminated)
Common stock = P60,000 (home office balance)
Retained earnings, 1/1 = P248,000 (home office balance after reduction of P12,000 unrealized profit in beginning inventory of branch.
Cost is P24,000 (P36,000 / 150%) which indicates the P12,000 unrealized.
Sales = P704,000
Shipment to branch = 0 (eliminated)
Inventory, 12/31 = P151,000
Total credits = P1,555,000 (add the above totals)
Reconciliation Statement
Investment in Branch account balance (Home office books) P177,000
Unrecorded cash transfer ( 9,000)
Adjusted balance P168,000
Home Office account balance (Branch books) P123,000

Inventory transfer in transit 21,000
Expense allocated not yet recorded 24,000
Adjusted balance P168,000
Problem 13-9
Home Office Books

Case A Case B Case C
(1) Investment in branch 60,000 75,000 90,000
Shipment to branch 60,000 60,000 60,000
Unrealized inventory profit - 15,000 30,000
(2) Cash 61,200 61,200 61,200

Investment in branch 61,200 61,200 61,200
Closing entries:
(3) Sales 130,000 130,000 130,000
Inventory, 12/31 8,000 8,000 8,000
Shipment to branch 60,000 60,000 60,000
Purchases 150,000 150,000 150,000
Expenses 17,200 17,200 17,200
Income summary 30,800 30,800 30,800
(4) Investment in branch 13,000
Branch income summary 13,000
Branch income summary 500 14,000
Investment in branch 500 14,000
Unrealized inventory profit 13,500 27,000

Branch income summary 500 14,000
Income summary 13,000 13,000
43,800 43,800 43,800

Income summary 43,800 43,800 43,800
Retained earnings
Ilocos Branch Books
Case A Case B Case C
(1) Shipment from home office 60,000 75,000 90,000

Home office 60,000 75,000 90,000
23
(2) Accounts receivable 81,000 81,000 81,000
Sales 81,000 81,000 81,000
(3) Cash 64,000 64,000 64,000

(4) Expenses 14,000 14,000 14,000

Cash 14,000 14,000 14,000
(5) Home office 61,200 61,200 61,200

Cash 61,200 61,200 61,200
Closing entries
(6) Sales 81,000 81,000 81,000

Inventory 12/31 6,000 7,500 9,000
Shipment from HO 60,000 75,000 90,000
Expenses 14,000 14,000 14,000
Income summary 13,000 500 14,000
(7) Income summary 13,000

Home office 13,000
Home office 500 14,000

Income summary 500 14,000
Working Paper for Combined Financial Statements

December 31, 2008
Eliminations
Home Office Branch Debit Credit Combined
Income Statement
Sales 130,000 81,000 211,000
Merchandise inventory, 12/31 8,000 9,000 (3) 3,000 14,000
Shipment to branch 60,000 (2) 60,000 -
Total credits 198,000 90,000 225,000
Shipment from home office 90,000 (2) 90,000 -

Purchases 150,000 150,000
Expenses 17,200 14,000 31,200
Total debits 167,200 104,000 181,200
Net income(loss) carried forward 30,800 (14,000) 43,800
Retained Earnings Statement

Net income (loss) from above 30,800 (14,000) 43,800
Retained earnings, 12/31 -
Carried forward 30,800 (14,000) 43,800
Balance Sheet
Cash (overdraft) 39,000 (11,200) 27,800
Merchandise inventory, 12/31 8,000 9,000 (3) 3,000 14,000
Investment in branch 28,800 (1) 28,800 -
Total debits 120,800 14,800 103,800
Accounts payable 20,000 20,000

Unrealized inventory profit 30,000 (2) 30,000 -
Retained earnings, from above 30,800 (14,000) 43,800
Home office 28,800 (1) 28,800 -
Total credits 120,800 14,800 121,800 121,800 103,800
24
Problem 13-10
(1) Consolidated Working Paper

Home Adj. & Elim. Income Balance
Office Branch A Branch B (dr) Cr Statement Sheet
Debits
Cash 33,000 22,000 13,000 68,000
Inventories 70,000 21,000 15,000 A (12,000)
B 8,000 110,000
Other current assets 50,000 25,000 23,000 98,000
Investment in Branch A 45,000 D 45,000
Investment in Branch B 42,000 D 42,000
Cost of sales * 80,000 57,000 45,000 B (8,000) (165,000)
C 25,000
Expenses 90,000 25,000 20,000 (135,000)
410,000 150,000 116,000 276,000
Credits
Current liabilities 40,000 15,000 11,000 66,000
Retained earnings, Jan. 1 50,000 50,000
Home Office 45,000 30,000 A 12,000
D (87,000)
Allow. for overvaluation of
Branch inv. – Branch A 13,000 C (13,000)
Allow. for overvaluation of
Branch inv. – Branch B 12,000 C (12,000)
Sales 195,000 90,000 75,000 360,000
410,000 150,000 116,000
Net income 60,000 60,000
276,000
 Book value of cost of sales from home office and branches

Investment in Investment in
Home Office Branch A Branch B
Inventory, January 1, P 80,000 P 18,000 P24,000

Purchases 160,000
Shipment to branch ( 90,000)
Shipment from home office 60,000 36,000
Goods available for sale P150,000 P 78,000 P 60,000
Inventory, Dec. 31 ( 70,000) ( 21,000) (15,000)
Cost of sales P 80,000 P 57,000 P 45,000
(2) Reconciliation of Home Office and Investment in Branch accounts.

Books of Home Office Books of Books of
Investment Investment Branch A Branch B
In Branch A In Branch B Home Office Home Office
Unadjusted balances, Dec.31 P 45,000 P 42,000 P 45,000 P 30,000
Shipments in transit to Branch B 12,000
Branch Profit (Schedule 1) 8,000 10,000 8,000 10,000
Adjusted balances, December 31 P 53,000 P 52,000 P 53,000 P 52,000
Schedule 1:
Branch A Branch B
Sales P90,000 P75,000
Cost of sales:
Beginning inventory P18,000 P24,000
25
Shipment from home office 60,000 48,000
Goods available for sale 78,000 72,000
Ending inventory 21,000 27,000
Cost of sales 57,000 45,000
Gross profit 33,000 30,000
Expenses 25,000 20,000
Net profit P 8,000 P10,000
CHAPTER 14
MULTIPLE CHOICE
14-1: a
Purchase price (8,000 shares x P30) P240,000
Direct acquisition cost 4,000
Contingent consideration 5,000
Acquisition cost P249,000
14-2: a
Purchase price P250,000
Less: Fair value of net assets acquired 180,000
Goodwill P120,000
14-3: c
Purchase price (100,000 shares x P36) P3,600,000
Contingent consideration 20,000
Acquisition cost P3,720,000
14-4: b
Less: goodwill recorded 6,120,000
Fair value of net assets acquired P24,180,000
Capital stock issued (at par) P30,000,000
14-5: c
Purchase price P2,550,000
Legal fees 25,000
Less: Fair value of net assets acquired
Current assets P1,100,000
Plant assets 2,200,000
Liabilities ( 300,000) 3,000,000
Income from acquisition P( 425,000)
14-6: a (at fair value at date of acquisition)
14-7: d
Abel net income, January to December (P80,000 + P1,320,000) P1,400,000
Cain net income, April to December 400,000
Total net income P1,800,000
14-8: a
Acquisition cost P 800,000
Less: Fair value of net assets acquired
Cash P 160,000
Inventory 380,000
Property, plant and equipment 1,120,000
Liabilities ( 360,000) 1,300,000
26
Income from acquisition P (500,000)
14.9 a
Less: Fair value of net assets acquired (P600,000 – P188,000) 412,000
Goodwill P 288,000
Avon’s assets 2,000,000
Bell’s assets at fair value 600,000
14-10: b
Debit to Investment in Stock
Broker’s fee P 50,000
Pre-acquisition audit fee 40,000
Legal fees for the combination 32,000
Total P 122,000
Debit to expenses:
General administrative costs P 15,000
Other indirect costs 6,000
Total P 21,000
Debit to APIC
Audit fee for SEC registration of stock issue P 46,000
SEC registration fee for stock issue 5,000
Total P 51,000
14-11: d
Acquisition costs:
Cash P200,000
Stocks issued at fair value 330,000
Contingent liabilities 70,000
Total P600,000
Less: fair value of net assets acquired:
Cash P40,000
Inventories 100,000
Other current assets 20,000
Plant assets (net) 180,000
Current liabilities (30,000)
Other liabilities (40,000) 270,000
Goodwill P330,000
Total assets after combination:

Total assets before combination P 760,000
Cash paid (200,000)
Registration and issuance costs of shares issued ( 30,000)
Polo’s assets after combination P 530,000
Assets acquired at fair values 340,000
Goodwill 330,000
Total assets after combination P1,200,000
14-12: d
Less: Fair value net assets acquired 1,350,000
Goodwill P 50,000
14-13: a
Less: Fair value of net identifiable assets acquired:
Current assets P 80,000
Non-current assets 120,000
Liabilities ( 20,000) 180,000
Income from acquisition P(20,000)
Non- current assets P120,000
27
14-14: c
Less: Fair value of identifiable assets acquired:
Cash P 60,000
Liabilities (135,000) 487,500
Goodwill P112,500
14-15: b
Less: Fair value of identifiable assets acquired 800,000
Goodwill P 200,000
MM’s net assets at book value 1,200,000
PP’s net assets at fair value 800,000
Total assets after combination P2,200,000
14-16: c, Under the purchase method assets are recorded at their fair values (P225.000)
14-17: d
Capital stock issued at par (10,000 shares x P10) P100,000
APIC (10,000 shares x P40) 400,000
Total P500,000
14-18: d, net assets are recorded at their fair values.
14-19: a
Income from acquisition P 100,000
Fair value of net assets acquired (P2,000,000 – P400,000) 1,600,000
Acquisition cost 1,500,000
Shares to be issued (P1,500,000 ÷ P40) 37,500 shares
14-20: d
Goodwill P 200,000
Fair value of net assets acquired 1,600,000
Shares to be issued (P1,800,000 ÷ P40) 45,000 shares
14-21:
Total assets of Pablo before acquisition at book value P 700,000
Total assets acquired from Siso at fair value (100,000 +440,000) 540,000
Total assets 1,240,000
Less: cash paid (15,000 + 25,000) 40,000
Total assets after cash payment 1,200,000
Goodwill to be recognized (Sched 1) 195,000
Total assets after combination 1,395,000
Sched 1: Acquisition cost:

Purchase price (30,000 shares x P20) 600,000
Direct cost 25,000
Contingent consideration 50,000 675,000
Fair value of net assets acquired (540,000 – 60,000) 480,000
Goodwill 195,000
14-22:
Stockholders equity before acquisition 650,000
Capital stock issued at par (30,000 shares x P10) 300,000
APIC (50,000 +300,000) – 15,000 335,000
Stockholders equity after acquisition 1,285,000
14-23: a
B Company C Company
28
Acquisition cost P4,400,000 P638,000
Less: fair value of net assets acquired 4,150,000 370,000
Goodwill P 250,000 P268,000
Total goodwill recorded (250,000 + 268,000) 518,000
14-24: a
A Company 5,250,000
B Company 6,800,000
C Company 900,000
Cash paid for combination expenses (30,000)
Goodwill (see 14-23) 518,000
Total assets after combination 13,438,000
14-25: a
Stockholders equity before acquisition P1,300,000
Capital stock issued at par (229,000 shares x P10) 2,290,000
Additional paid-in-capital [(229,000 x 12) – 10,000] 2,738,000
Indirect cost (reduction from retained earnings) (20,000)
Stockholders equity after acquisition 6,308,000
PROBLEMS
Problem 14-1
1. Books of Big Corporation

Inventories 140,000
Property, plant and equipment 300,000
Current liabilities 50,000
Income from acquisition 5,000
Cash 505,000
To record acquisition of net assets of Small.
Computation of Income from Acquisition:

Acquisition cost (P500,000 + P5,000) P505,000
Less: Fair value of net identifiable assets acquired:
Accounts receivable P120,000
Inventories 140,000
Current liabilities ( 50,000) 510,000
2. Books of Small Corporation
Cash 500,000
Inventories 100,000
To record sale of net assets to Big.
Common stock 200,000

Cash 500,000
To record liquidation of the corporation.
Problem 14-2
Cash 50,000
Inventory 150,000
Building and equipment – net 300,000
Patent 200,000
Cash 570,000
Income from acquisition 100,000
To record acquisition of the net assets at fair values.
29
Computation of Income from Acquisition
Less: Fair value of net identifiable assets acquired
Accounts payable ( 30,000) 670,000
Problem 14-3
Cash and receivables 50,000

Inventory 200,000
Building and equipment 300,000
Goodwill 65,000
Common stock, P10 par value 60,000
Additional paid-in capital 480,000
Cash 25,000
To record acquisition of net assets acquired.
Computation of Goodwill
Less: fair value of net identifiable assets acquired
Accounts payable ( 50,000) 500,000
Goodwill P 65,000
Problem 14-4
(1) Cash 60,000

Inventory 115,000
Land 70,000
Bond discount 20,000
Goodwill 108,000
Common stock, P10 par value 120,000
Cash (P10,000 + P3,000) 13,000
To record purchase of net assets of Tan.
Professional fees (P10,000 + P3,000) 13,000
Total liabilities ( 190,000) 505,000
Goodwill P108,000
(2) Additional paid-in capital 6,000

Cash 6,000
To record costs of issuing and registering of shares issued
(P5,000 + P1,000)
(3) Expenses 9,000

Cash 9,000
To record indirect acquisition costs.
Problem 14-5
30
1. Common stock:: P200,000 + (8,000 shares x P10) P280,000
2. Cash and receivables: P150,000 + P40,000 190,000
3. Land: P100,000 + P85,000 185,000
4. Building and equipment – net: P300,000 + P230,000 530,000
5. Goodwill: (8,000 shares x P50) - P355,000 45,000
6. APIC: P20,000 + (8,000 shares x P40) 340,000
7. Retained earnings 330,000
Problem 14-6
Combined Balance Sheet

After acquisition
Based on P40/share Based on P20/share

Cash and receivables P 350,000 P 350,000
Inventory 645,000 645,000
Building and equipment 1,050,000 1,050,000
Accumulated depreciation (200,000) (200,000)
Goodwill 180,000 -
Total assets P2,025,000 P1,845,000
Accounts payable P 140,000 P 140,000

Bonds payable 485,000 485,000
Common stock P10 Par value 450,000 450,000
Additional paid-in capital 550,000 250,000
Retained earnings(including income from acquisition) 400,000 520,000
Total liabilities and stockholders’ equity P2,025,000 P1,845,000
Computation of Goodwill – Based on P40 per share:

Acquisition cost (15,000 shares x P40) P600,000
Less: Fair value of net identifiable assets (P545,000 – P125,000) 420,000
Goodwill P180,000
Computation of Income from Acquisition – Based on P20 per share:

Acquisition cost (15,000 shares x P20) P300,000
Less: Fair value of net identifiable assets 420,000
Income from acquisition (added to retained earnings of Red) P(120,000)
Problem 14-7
(a) Combined Balance Sheet

January 1, 2008
ASSETS
Cash and receivables P 110,000
Inventory 142,000
Land 115,000
Plant and equipment P540,000
Goodwill 13,000
Total assets P 770,000
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities P 100,000
Capital stock, P20 par value 214,000
Capital in excess of par 216,000
Total liabilities and stockholders’ equity P 770,000
(P217,000 – P20,000) 197,000
Goodwill P 13,000
31
(b) Stockholders’ Equity section
(1) With 1,100 shares issued
Capital stock: P200,000 + (1,100 shares x P20) P222,000

Capital in excess of par: P20,000 + (1,100 x P280) 328,000
Total P790,000
Capital stock: P200,000 + (1,800 shares x P20) P 236,000

Total P1,000,000
Capital stock: P200,000 + (3,000 shares x P20) P260,000

Total P1,360,000
Problem 14-8
2007 (a) 2008 2009

Revenue P1,400,000 P1,800,000 (b) P2,100,000
Net income 500,000 545,000 © 700,000
Earnings per share P 5.00 P 4.84 (d) P 5.60 (e)
(a) Separate figures for Dollar Transport only.

(b) P2,000,000 – P200,000
(c) P620,000 - P55,000
(d) P545,000 / 112,000 shares (100,000 + 125,000) ÷ 2
(e) P700,000 / 125 shares
Problem 14-9
a. Books of Peter Industries
Cash 28,000
Inventory 395,000
Long-term investments 175,000
Land 100,000
Rolling stock 63,000
Plant and equipment 2,500,000
Patents 500,000
Special licenses 100,000
Discount on equipment trust notes 5,000
Discount on debentures 50,000
Goodwill 244,700
Allowance for bad debts 6,500
Current payables 137,200
Mortgage payables 500,000
Premium on mortgage payable 20,000
Equipment trust notes 100,000
Debenture payable 1,000,000
APIC – common 2,298,000
Cash (direct acquisition cost) 135,000
To record acquisition of assets and liabilities at fair values.
32
Less: fair value of net identifiable assets acquired
Total liabilities (1,702,200) 2,410,300
Goodwill P 244,700
Expenses 42,000
Cash 42,000
To record indirect cost.
b. Books of HCC:
Common stock 7,500

APIC – Common 4,500
Treasury stock 12,000
To record retirement of treasury stock.
P7,500 = P5 x 1,500 shares
P4,500 = P12,000 – P7,500
Investment in stock - Peter 2,520,000

Allowance for bad debts 6,500
Accumulated depreciation 614,000
Current payable 137,200
Mortgage payable 500,000
Equipment trust notes 100,000
Debentures payable 1,000,000
Discount on bonds payable 40,000
Cash 28,000
Inventory 381,000
Land 55,000
Rolling stock 130,000
Plant and equipment 2,425,000
Patents 125,000
Special licenses 95,800
Gain on sale of assets and liabilities 1,189,900
To record sale of assets and liabilities to Peter.

APIC – Common 495,500
APIC – Retirement of preferred 22,000
Retained earnings 1,410,000
Investment in stock – Peter 2,520,000
To record retirement of HCC stock and distribution of
Peter Industries stock:
P592,500 = P600,000 - P7,500
P495,500 = P500,000 – P4,500
P1,410,000 = P220,000 + P1,189,900
Problem 14-10
a. Increase in capital stock (P240,00 – P200,000) P 40,000

Increase in APIC (P420,000 – P60,000) 360,000
Value of shares issued P 400,000
b. Total assets after combination P1,130,000

Total assets of Subic before combination 650,000
Total fair value of assets of Clark before combination P 480,000
Total liabilities after combination P220,000

Total liabilities of Subic before combination (140,000) ( 80,000)
Fair value of Clark’s net assets (including goodwill) P 400,000
33
Less: Goodwill 55,000
Fair value of Clark’s net assets before combination P 345,000
c. Par value of common stock after combination P 240,000

Par value of common stock before combination 200,000
Increase in par value P 40,000
Divided by par value per share ÷ P5
Number of shares issued 8,000 shares
d. Value of shares computed in (a) P 400,000

Number of shares issued computed in © ÷ 8,000
Market price per share P 50
Problem 14-11
a. Inventory reported by Son at date of combination was P70,000

(325,000 – P20,000 – P55,000 – P140,000 – P40,000)
b. Fair value of total assets reported by Son:
Fair value of cash P 20,000

Fair value of accounts receivable 55,000
Fair value of inventory 110,000
Buildings and equipment reported following purchase P570,000
Buildings and equipment reported by Papa (350,000) 220,000
Fair value of Son’s total assets P405,000
c. Market value of Son’s bond:
Book value reported by Son P100,000

Bond premium reported following purchase 5,000
Market value of bond P105,000
d. Shares issued by Papa Corporation:
Par value of stock following acquisition P190,000

Par value of stock before acquisition (120,000)
Increase in par value of shares outstanding P 70,000
Divide by par value per share ÷ P5
Number of shares issued 14,000
e. Market price per share of stock issued by Papa Corporation
Par value of stock following acquisition P190,000

Additional paid-in capital following acquisition 262,000 P452,000
Par value of stock before acquisition P120,000

Additional paid-in capital before acquisition 10,000 (130,000)
Market value of shares issued in acquisition P322,000
Divide by number of shares issued ÷ 14,000
Market price per share P 23.00
f. Goodwill reported following the business combination:
Market value of shares issued by Papa P322,000

Fair value of Son’s assets P405,000
Fair value of Son’s liabilities:
Bond payable 105,000
Fair value of liabilities (135,000)
Fair value of Son’s net assets (270,000)
Goodwill recorded in business combination P 52,000
Goodwill previously on the books of Papa 30,000
Goodwill reported P 82,000
g. Retained earnings reported by Son at date of combination was P90,000
34
(P325,000 – P30,000 – P100,000 – P50,000 – P55,000)
h. Papa’s retained earnings of P120,000 will be reported.
i. 1. Investment account 17,000

Cash 26,800
2. Goodwill previously computed P82,000

Merger costs added to investment account 17,000
Total goodwill reported P99,000
3. Additional paid-in capital reported following combination P262,000

Stock issue costs (9,800)
Total additional paid-in capital reported P252,200
CHAPTER 15
MULTIPLE CHOICE
15-1: a
Less: Book value of interest acquired (100%) 3,200,000
Difference 800,000
Allocation:
Property and equipment P(750,000)
Other assets 150,000
Long-term debt (200,000) ( 800,000)
Goodwill P -0-
15-2: c
Less: Book value of interest acquired (P280,000 x 90%) 252,000
Difference 98,000
Allocation to plant assets (P40,000 x 90%) (36,000)
Goodwill P 62,000
15-3: c
Plant assets – Pall Company P 220,000
Plant assets – Mall Company 180,000
Consolidated P 400,000
15-4: a
Less: Book value of interest acquired (P560,000 – P70,000) 490,000
Difference 5,000
Allocation:
Inventory P 25,000
Property and equipment ( 35,000) (10,000)
15-5: b
Difference P 79,000
Allocation:
Inventory (P20,000 x 80%) P(16,000)
Land (P10,000 x 80%) 8,000
Mortgage payable (P5,000 x 80%) ( 4,000) ( 12,000)
Goodwill P 67,000
15-6: a
Inventory (P360,000 + P130,000) P490,000
Plant and equipment (P500,000 + P420,000) P920,000
35
15-7: a
Building P180,000
Land P 90,000
15-8: d
Son’s stockholders’ equity P400,000
Minority interest proportionate share 20%
Minority interest in net assets of subsidiary P 80,000
15-9: d
Difference 51,250
Allocation to accounts payable (P5,000 x 75%) 3,750
Goodwill P 55,000
Therefore:
Total assets (P800,000 + P300,000 + P55,000) P1,155,000
Total liabilities (P250,000 + P15,000 + P160,000 + P5,000) 570,000
15-10: b (P900,000 x 1%)
15-11: a
Controlling (Parent) interest:
Shares acquired (P120,000 / P120) 1,000 shares
Divided shares outstanding (P125,000 /P100) ÷ 1,250
Parent’s interest 80%
Minority interest in net assets of subsidiary (P200,000 x 20%) P40,000
15-12: a
Goodwill P250,000
Book value of interest acquired (P100,000 / 20%) x 80% 400,000
Investment cost P650,000
15-13: b
Net assets on the date of acquisition (P247,095 + P43,605) P290,700
Adjustments of assets excluding goodwill:
Inventories P6,630
Plant and equipment 48,450
Patent 7,650 62,730
Net assets at fair value P353,430
15-14: d (P500,000 + P300,000)
15-15: b
Difference 60,000
Allocated to plant and equipment (P50,000 x 80%) (40,000)
Goodwill P 20,000
15-16: a (The retained earnings of the parent only).
15-17: a (The stockholders’ equity of the parent only).
15-18: b (P50,000 + P10,000)
15-19: d (P380,000 + P150,000)
15-20: d
Cash and cash equivalent (P70,000 + P90,000) P 160,000
Inventory (P100,000 + P60,000) 160,000
Property and equipment (P500,000 + P300,000) 800,000
36
Goodwill 20,000
15-21: d
Fair value of the reporting unit P 485,000
Fair value of net assets (excluding goodwill) 440,000
Implied goodwill 45,000
Carrying value of goodwill (P450,000 – P390,000) 60,000
Impairment loss P 15,000
15-22: b
Fair value of the reporting unit P 540,000
Fair value of the net assets (P590,000 – P100,000) 490,000
Implied goodwill to be recorded 50,000
Carrying value of goodwill 150,000
Impairment loss P 100,000
15-23: a The amount reported is equal to Primo’s retained earnings of P567,000

15-24: a 100% – [P138, 000 ÷ (P320, 000 ÷ P140, 000)]
15-25: a (340,000- 200,000)
15-26: b
Cash 40,000
Inventories (see 15-25) 140,000
Equipment (800,000 - 500,000) 300,000
Accounts payable (40,000)
Fair value of net assets 460,000
15-27: a
Net asset acquired (320,000 x 70%) 224,000
Differential allocated to inventory 40,000
Differential allocated to equipment 100,000
Differential allocation to goodwill 10,000
Minority interest (140,000 x30%) (42,000)
Amount paid by Parent 332,000
PROBLEMS
Problem 15-1
a. Investment in Solo Company stock 1,080,000

Cash 1,080,000
To record acquisition of 90% (90,000 / 100,000)
of the outstanding shares of Solo.
b. Working paper elimination entries:
(1) Common stock – Solo 400,000

Retained earnings – Solo 500,000
Investment in Solo company stock 810,000
Minority interest in net assets of subsidiary 90,000
To eliminate Solo’s equity accounts at date of acquisition.
(2) Inventories 30,000

Plant assets 60,000
Goodwill 189,000
Investment in Solo company stock 270,000
To allocate difference
Computation and allocation of difference:

Less: Book value of interest acquired
Common stock (P400,000 x90%) P360,000
37
Retained earnings (P500,000 x 90%) 450,000 810,000
Difference P 270,000
Allocation:
Inventories (30,000)
Plant assets (60,000)
Total (90,000)
Minority interest (P90,000 x10%) 9,000 ( 81,000)
Goodwill P 189,000
Problem 15-2
a. Investment in Straw stock 600,000

Cash 600,000
To record acquisition of 100% of Straw stock.
b. Acquisition cost P600,000

Less: Book value of interest acquired (100%) 420,000
Difference 180,000
Allocation (100%:
Inventories P( 40,000)
Land ( 80,000)
Building 150,000
Equipment ( 20,000)
Patents ( 20,000) ( 10,000)
Goodwill P170,000
c. Working paper elimination entries:
(1) Common stock – Straw 100,000

Retained earnings – Straw 320,000
Investment in Straw stock 420,000
To eliminate equity accounts of Straw at
date of acquisition.

Land 80,000
Equipment 20,000
Patents 20,000
Goodwill 170,000
Buildings 150,000
Investment in Straw stock 180,000
To allocate difference.
Problem 15-3
a. Investment in Soto stock 950,000

Cash 950,000
To record acquisition of 90% stock of Sotto.
b. Acquisition cost P950,000

Difference 140,000
Allocation:
Current assets P 50,000
Property and equipment (100,000)
Long-term debt ( 40,000)
Total P( 90,000)
Minority interest (10% thereof) 9,000 (81,000)
Goodwill P 59,000
c. Working paper elimination entries:
(1) Common stock – Sotto 100,000

APIC – Sotto 200,000
Retained earnings – Sotto 600,000
38
Investment in Sotto stock 810,000
To eliminate equity accounts of Sotto at date of
acquisition.
(2) Property, plant and equipment 100,000

Goodwill 59,000
Long-term debt 40,000
Current assets 45,000
Investment in Sotto stock 140,000
Problem 15-4
Paco Company and Subsidiary

Consolidated Balance Sheet
January 2, 2008
Current assets P475,000

Other assets 70,000
Current liabilities P280,000

Retained earnings (including income from subsidiary of P20,000) 200,000
Computation of income from acquisition:

Investment cost (20,000 shares x P6) P120,000
Common stock P35,000
Difference P 5,000
Allocated to property and equipment (25,000)
Problem 15-5
Under the purchase method, the investment cost is equal to the fair value of stock issued by Palo (P250,000) plus direct acquisition cost
(P10,000) or a total of P260,000. The P20,000 stock issue cost is treated as a reduction from the additional paid-in capital. The entry to
record the acquisition of stock is as follows:
Investment in Solo stock 260,000

Common stock, at par 100,000
Cash (direct acquisition cost) 10,000

Cash 20,000
Palo Company and Subsidiary

December 31, 2008
Cash P 70,000
Receivables 120,000
Inventory 170,000
Property and equipment – net 340,000
Goodwill 30,000
39
Long-term liabilities 120,000
Retained earnings, 12/31 220,000
Computation of goodwill:
Less: Book value of interest acquired (P90,000 + P100,000) 190,000
Difference 70,000
Allocated to equipment (40,000)
Goodwill P 30,000
Problem 15-6
a. Investment in Seed Company stock 350,000

Cash 350,000
To record acquisition of 100% of Seed company stock.
Allocation schedule:
Less: Book value of interest acquired 320,000
Difference 30,000
Allocation:
Inventory P(20,000)
Long-term liabilities 40,000 (60,000)
Income from acquisition P930,000)
b. Working paper elimination entries

(1) Common stock – Seed 100,000
Additional paid-in capital – Seed 40,000
Retained earnings – Seed 180,000
Investment in Seed stock 320,000
To eliminate equity accounts of Seed at
date of acquisition.
(2) Inventory 20,000

Plant assets 80,000
Investment in Seed stock 30,000
Retained earnings – Pill (income from acquisition) 30,000
Pill Corporation and Subsidiary

Consolidated Working Paper
May 31, 2008 – Date of Acquisition
Pill Seed Eliminations & adjustment Conso-

Corporation Company Debit Credit lidated
Assets
Cash 200,000 10,000 210,000
Inventories 1,400,000 120,000 (2) 20,000 1,540,000
Investment in Seed company 350,000 (1)320,000 -
(2) 30,000
Plant assets 2,850,000 610,000 (2) 80,000 3,540,000
Total 5,500,000 800,000 6,050,000
Liabilities & Stockholders’

Equity
Current liabilities 500,000 80,000 580,000
Long-term debt 1,000,000 400,000 (2) 40,000 1,440,000
Common stock:
Pill 1,500,000 1,500,000
40
Seed 100,000 (1)100,000
Additional paid-in capital
Pill 1,200,000 1,200,000
Seed 40,000 (1) 40,000
Retained earnings
Pill 1,300,000 (2) 30,000 1,330,000
Seed 180,000 (1)180,000
Total 5,500,000 800,000 420,000 420,000 6,050,000
Problem 15-7
a. Accounts Receivable 70,000

Cash 70,000
b. Investment in Sea Company stock 600,000

Common stock ((30,000 shares x P20) 600,000
Investment in Sea Company stock 40,000

Common stock 30,000
(c) Pop Corporation and Subsidiary

Working Paper for Consolidated Balance Sheet
April 30, 2008 – Date of acquisition
Pop Sea Adjustments & Eliminatio Consoli-

Corporation Company Debit Credit dated
Assets
Cash 50,000 80,000 130,000
Accounts receivable – net 230,000 270,000 (3) 70,000 430,000
Inventories 400,000 350,000 (2) 90,000 840,000
Investment in Sea Company 640,000 (1)328,000 -
(2)312,000
Plant assets 1,300,000 560,000 (2)220,000 2,080,000
Goodwill (2) 80,000 80,000
Total 2,620,000 1,260,000 3,560,000

Equity
Current liabilities 380,000 250,000 (3) 70,000 560,000
Long-term debt 800,000 600,000 (2) 20,000 1,420,000
Common stock
Pop 1,070,000 1,070,000
Sea 100,000 (1)100,000
Additional paid-in capital 360,000 (1)360,000
Retained earnings
Pop 370,000 370,000
Sea (50,000) (1) 50,000
Minority interest in net assets
Of subsidiary (1) 82,000 140,000
(2) 58,000
Total 2,620,000 1,260,000 920,000 920,000 3,560,000
(1) To eliminate equity accounts of Sea Company on the date of acquisition.

(2) To allocate difference, computed as follows:
Difference 312,000
Allocation:
Total P(290,000)
41
Minority interest (20% 58,000 232,000
Goodwill P 80,000
(3) To eliminate intercompany receivables and payables.
Problem 15-8
1. Acquisition cost P500,000

APIC 200,000
Difference ( 30,000)
Allocation:
Inventory P( 20,000)
Land ( 10,000)
Building 50,000
Equipment 60,000
Bonds payable ( 50,000) 30,000
2. P Company and Subsidiary
January 1, 2008 – Date of acquisition
P S Adjustments & Consoli-

Eliminations
Company Company Debit Credit dated
Debits
Cash 300,000 50,000 350,000
Inventory 200,000 80,000 (2) 20,000 300,000
Land 100,000 50,000 (2) 10,000 160,000
Building 600,000 400,000 (2) 50,000 950,000
Equipment 800,000 200,000 (2) 60,000 940,000
Investment in S Company 500,000 (2) 30,000 (1)530,000 -
Total 2,700,000 880,000 3,000,000
Credits
Bonds payable 290,000 (2) 50,000 240,000
Common stock – P Company 1,500,000 1,500,000
Common stock – S Company 100,000 (1)100,000
APIC – S Company 200,000 (1)200,000
Retained earnings – P Co. 1,050,000
Retained earnings – S Co. 230,000 (1)230,000 1,050,000
Total 2,700,000 880,000 640,000 640,000 3,000,000
(1) To eliminate equity accounts of S Company.

(2) To allocate difference.
Problem 15-9

Common stock (P100,000 x 80%) P 80,000
APIC (P200,000 x 80%) 160,000
Difference P 76,000
Allocation
Inventory P (20,000)
Land (10,000)
Building 50,000
Equipment 60,000
Bonds payable (50,000)
Total P 30,000
Minority interest (20%) ( 6,000) 24,000
Goodwill P100,000
42
Eliminations
Debits
Cash 300,000 50,000 350,000
Inventory 200,000 80,000 (2) 20,000 300,000
Land 100,000 50,000 (2) 10,000 160,000
Building 600,000 400,000 (2) 50,000 950,000
Equipment 800,000 200,000 (2) 60,000 940,000
Investment in S Company 500,000 (1)424,000 -
(2) 76,000
Goodwill (2)100,000 100,000
Total 2,700,000 880,000 3,100,000
Credits
Bonds payable 290,000 (2) 50,000 240,000
Common stock – P Co. 1,500,000 1,500,000
Common stock – S Co. 100,000 (1)100,000
APIC – S Co. 200,000 (1)200,000
Retained earnings – P Co. 1,050,000 1,050,000
Retained earnings – S Co. 230,000 (1)230,000
Minority interest in net
Assets of subsidiary (2) 6,000 (1)106,000 100,000
Total 2,700,000 880,000 716,000 716,000 3,100,000
(1) To eliminate equity accounts of S Company

(2) To allocate difference
Problem 15-10

Less: Book value of interest acquired (100%) 670,000
Difference (128,000)
Allocation
Inventory P (10,000)
Land (40,000)
Equipment 20,000
Long-term investment in MS (15,000) ( 45,000)

Eliminations
Assets
Cash 100,000 100,000 200,000
Inventory 150,000 130,000 (2) 10,000 290,000
Land 50,000 80,000 (2) 40,000 170,000
Equipment 300,000 200,000 (2) 20,000 480,000
Investment in S Company 542,000 (2)128,000 (1)670,000 -
Long-term investment in MS 100,000 125,000 (2) 15,000 240,000
Total 1,442,000 785,000 1,730,000

Equity
43
Common Stock – P Co. 400,000 400,000
Common Stock – S Co. 200,000 (1)200,000
APIC – P Co. 200,000 200,000
Retained earnings – P Co. 667,000 (2)173,000 840,000
Retained earnings – S Co. 470,000 (1)470,000
Total 1,442,000 785,000 863,000 863,000 1,730,000
(1) To eliminate equity accounts of S Company.

(2) To allocate difference
CHAPTER 16
MULTIPLE CHOICE
16-1: d, because no impairment of goodwill is recognized.
16-2: d, consolidated net income will decrease due to amortization of the allocated difference
which is not the goodwill (P60,000 / 10 years).
16-3: d, computed as follows:

Subsidiary’s net income P150,000
Amortization of the allocated difference ( 20,000)
Minority interest in net income of subsidiary P130,000
16-4: c
Difference P 60,000
Cost Method Equity Method

Acquisition cost P540,000 P540,000
Parent’s share of subsidiary’s net income - 120,000
Dividends received from subsidiary - ( 48,000)
Amortization of allocated difference (P60,000/20) - ( 3,000)
Investment account balance, Dec. 31, 2008 P540,000 P609,000
16-5: a
Net assets of Sol, January 2, 2008 P300,000
Increase in earnings:
Net income P160,000
Dividends paid (P60,000 / 75%) 80,000 80,000
Net assets of Sol, Dec. 31, 2008 P380,000
Minority interest in net assets of subsidiary (P380,000 x 25%) P 95,000
16-6: a
Puno’s net income P145,000
Dividend income (P40,000 x 90%) (36,000)
Salas’ net income 120,000
Consolidated net income P229,000
16-7: d
Peter’s net income from own operation P1,000,000
Peter’s share of Seller’s net income 200,000
MINIS (P200,000 x 25%) ( 50,000)
Consolidated net income attributable to parent P1,150,000
44
16-8: a
2006 2007 2008
Investment in Son, Jan. 1 P310,000 P396,200 P512,400
Pop’s share of Son’s net income (100%) 150,000 180,000 200,000
Dividends received (100%) ( 60,000) (60,000) ( 60,000)
Amortization of allocated difference to
Equipment (P38,000 / 10) ( 3,800) ( 3,800) ( 3,800)
Investment in Son, Dec. 31 P396,200 P512,400 P648,600
16-9: a
Sy’s net income P300,000
Amortization of allocated difference ( 60,000)
Adjusted net income of Sy P240,000
Minority interest in net income of subsidiary (P240,000 x 10%) P 24,000
16-10: a. Under the equity method consolidated retained earnings is equal to the retained
earnings of the parent company.
16-11: c
Retained earnings, Jan. 2, 2008 – Puzon P500,000
Consolidated net income attributable to parent:
Net income – Puzon P200,000
Net income – Suarez 40,000
MINIS (P40,000 x 20%) ( 8,000) 216,000
Dividends paid – Puzon ( 50,000)
Consolidated retained earnings, Dec. 31, 2008 P666,000
16-12: c
Less: Book value of interest acquired 1,260,000
Allocation due to undervaluation of net assets ( 40,000)
Goodwill ( not impaired) P 400,000
16-13: d
Net assets of Suazon, Jan. 2, 2008 P1,000,000
Increase in earnings (P190,000 – P125,000) 65,000
Net assets of Suazon, Dec. 31, 2008 P1,065,000
Unamortized difference to plant assets (P100,000 – P10,000) 90,000
Adjusted net assets of Suazon, Dec. 31, 2008 P1,175,000
Minority interest in net assets of subsidiary (1,175,000 x 20%) P 231,000
16-14: b
Presto’s net income from own operations P140,000
Presto’s share of Stork’s net income (P80,000 – P23,000) 57,000
MINIS (P57,000 x 10%) ( 5,700)
Consolidated net income attributable to parent P191,300
16-15: b
Investment in Siso stock (at acquisition cost) P600,000
Dividend income (P30,000 x 5%) P 1,500
16-16 d
Consolidated net income:
Pepe’s net income from own operations P210,000
Sison’s adjusted net income:
Net income -2008 P67,000
Amortization of allocated difference
to equipment (P20,000 / 5) 4,000 63,000
45
Consolidated retained earnings:
Pepe’s retained earnings, Jan.2, 2007 P701,000
Consolidated net income attributable to parent– 2007
Pepe’s NI from own operations P185,000
Sison’s adjusted NI;
Net income – 2007 P40,000
Amortization -2007 4,000 36,000
MINIS (P36,000 x 30%) (10,800) 210,200
Dividends paid ,2007 - Pepe ( 50,000)
Pepe’s retained earnings, Jan. 2, 2008 P861,200
Consolidated net income attributable to parent– 2008:
Consolidated net income (see above) P273,000
MINIS (P63,000 x 30%) ( 18,900) 254,100
Dividends paid, 2008 – Pepe ( 60,000)
Consolidated retained earnings, Dec. 31, 2008 P1,055,300
16-17: b
Allocated to building P 70,000
Consolidated retained earnings

Retained earnings, Jan. 1, 2008 – Pepe P550,000
Net income – Precy P275,000
Adjusted net income of Susy:
Net income of Susy P100,000
Amortization (P70,000 / 10) ÷ 2 ( 3,500) 96,500
MINIS (P96,500 x 30%) (28,950) 342,550
Dividends paid – Precy ( 70,000)
Minority interest in net assets of subsidiary

Stockholders’ equity of Susy, June 30, 2008 P 900,000
Increase in earnings- net income (7/1 to 12/31) 100,000
Stockholders’ equity, Dec. 31, 2008 P1,000,000
Unamortized difference (P70,000 – P3,500) 66,500
Adjusted net assets of Susy, Dec. 31, 2008 P1,066,500
Minority interest in net assets of subsidiary (P1,066,500 x 30%) P 319,950
16-18: a
Goodwill
Less: Book value of interest acquired (P1,320,000 – P320,000) 1,000,000
Goodwill (not impaired) P 200,000
Consolidated retained earnings under the equity method is equal to the retained earnings of the parent company, P1,240,000.
16-19: b
Net income – Pablo P130,000
Sito’s net income 70,000
MINIS (P70,000 x 30%) (21,000)
Consolidated net income attributable to parent P151,000
16-20: c
Consolidated net income – 2008
Net income – Ponce P 90,000
Solis’ net income 40,000
MINIS (P40,000 x 40%) (16,000)
Consolidated net income attributable to parent – 2008 P105,000
46
Consolidated retained earnings – 2008
Retained earnings, Jan. 2, 2007- Ponce P 400,000
Consolidated net income attributable to parent– 2007:
Net income – Ponce P70,000
Solis’ net income 35,000
MINIS (P35,000 x 40%) ( 14,000) 75,000
Dividends paid, 2007– Ponce (25,000)
Consolidated net income attributable to parent– 2008 105,000 Dividends paid.
2008 – Ponce (30,000)
16-21 a
Less: Book value of interest acquired (220,000 x 80%) 176,000
Difference 40,000
Allocated to:
Depreciable assets (30,000 ÷ 80%) (37,500)
Minority interest ( 37,500 x 20%) 7,500 (30,000) = 80%
Goodwill 10,000
Polo net income from own corporation P 95,000

Seed net income from own operation:
Net income 35,000
Amortization (37,500 ÷ 10%) (3,750) 31,250
Total 126,250
Goodwill impairment lost (8,000)
Consolidated net income 118,250
16-22: a
Retained earnings 1/1/08 – Polo P520,000
Consolidated net income attributed to parent:
MINI (35,000 – 3,750) x 20% 6,250 112,000
Total 632,000
Dividends paid- Polo (46,000)
Consolidated retained earnings 12/31/08 586,000
16-23: a (35,000 – 3750) x 20%
16-24: a
Seed stockholders equity, January 2, 2008 (80,000 + 140,000) 220,000
Undistributed earnings – 2008 (35,000 – 15,000) 20,000
Unamortized difference (37,500 - 3750) 33,750
Seed stockholders equity (net asset), December 31, 2008 273,750
MINAS (273,750 × 20%) 54,750
16-25: a (see no. 16-22)
16-26: a
Acquisition cost 231,000
Less: Book value of interest acquired (280,000 x 70%) 196,000
Difference 35,000
Allocation:
to depreciable assets (50,000)
MINAS (30%) 15,000 35,000
Retained earnings, 1/1/08-Sisa company 230,000

Retained earnings, 1/1/07-Sisa company (squeeze) 155,000
Increase 75,000
Amortization- prior years (50,000 ÷ 10 years) (5,000)
Adjusted increase in earnings of Sisa (21,000/30% ) 70,000
16-27: a
47
Retained earnings 1/1/08- Pepe 520,000
Retained earnings 1/1/08- Sisa 230,000
Adjustment and elimination:
Date of acquisition (155,000)
Undistributed earnings to MINAS (21,000)
Amortization- prior year (5,000) 49,000
16-28: a
Pepe company net income 120,000
Sisa company net income 25,000
Dividend income (10,000 x 70%) (7,000)
Amortization- 2008 (5,000)
16-29: a
Consolidated retained earnings 1/1/08(see 16 – 27) 569,000
Consolidated net income (see 16-28) 133,000
MINIS (25,000 – 5,000) 30% (6,000) 127,000
Dividend paid- Pepe company (50,000)
PROBLEMS
Problem 16-1
a. Since Pasig paid more than the P240,000 fair value of Sibol’s net assets, all allocations are based on fair value with the excess of
P10,000 assigned to goodwill. The amortizations of the allocated difference are as follows:
Annual
Allocated to Allocation Life Amortization
Building P 50,000 10 years P 5,000

Equipment (20,000) 5 years (4,000)
Building:
Allocation, Jan. 1, 2004 P 50,000
Amortization during past years -2004 to 2005 (P5,000 x 2) (10,000)
Amortization for the current year – 2006 ( 5,000)
Allocation, Dec. 31, 2006 P 35,000
Equipment
Allocation, Jan. 1, 2004 P(20,000)
Amortization during past years – 2004 to 2005 (P4,000 x 2) 8,000
Amortization for the current year – 2006 4,000
Allocation, Dec. 31, 2006 P( 8,000)
b. Since Pasig paid P20,000 less than the P240,000 fair value of Sibol’s net assets, a negative difference arises. Under PFRS 3
(Business combination), the allocation of the negative difference to the non-current assets, excluding long-term investments in
marketable securities is no longer permitted. The negative difference is immediately amortized in profit or loss (income from
acquisition). Therefore, the allocation assigned to building and equipment is the same as in (a) above.
c. Same as in (a) above. Except that the negative goodwill amortized to income is P60,000.
d. Neither allocations nor amortization are found in a pooling of interests.
Problem 16-2
a. No entry is to be recorded by Holly during 2005 under the cost method.
Allocation schedule – Date of acquisition

Difference P240,000
Allocation:
Inventory P ( 5,000)
48
Land (75,000)
Equipment (60,000)
Discount on notes payable (50,000)
Total P(190,000)
Minority interest (10%) 19,000 171,000
Amortization of differential:
Inventory sold P 5,000
Land sold 75,000
Equipment (P60,000/15 years) 4,000
Discount on notes payable 7,500
Total P91,500
b. Working paper elimination entries
(1) Common stock – State 500,000

Premium on common stock – State 100,000
Retained earnings – State 120,000
Investment in State stock 648,000
To eliminate equity accounts of State on the date
of acquisition.
(2) Inventory 5,000

Land 75,000
Equipment 60,000
Goodwill 69,000
Investment in State stock 240,000
(3) Cost of goods sold 5,000

Gain on sale of land 75,000
Operating expenses (depreciation) 4,000
Interest expense 7,500
Inventory 5,000
Land 75,000
Equipment 4,000
To amortize allocated difference.
(4) Minority interest in net asset of subsidiary 2,350
Minority interest in net income of subsidiary 2,350
To recognize minority share in the net income (loss)
of State.
Computed as follows:
Net income P 68,000
Adjustments for total amortization 91,500
Adjusted net income (loss) P(23,500)
Minority interest share (P23,500 x 10%) P 2,350
Problem 16-3
a. Consolidated Buildings
Profit Company (at book value) P 900,000
Simon Corporation (at fair value) 560,000
Amortization of differential (P120,000 / 6 years) ( 20,000)
Total P1,440,000
b. Consolidated Retained Earnings, Dec. 31, 2008

Retained earnings, Jan. 1 – Profit Company P 600,000
Consolidated net income (per c below) 380,000
Dividends paid – Profit Company (80,000)
Total P 900,000
49
c. Consolidated net income, Dec. 31, 2008
Total revenues (P700,000 + P400,000) P1,100,000
Total expenses (P400,000 + P300,000) (700,000)
Amortization ( 20,000)
Total P 380,000
d. Consolidated Goodwill [(P680,000 – P480,000)- P120,000] P 80,000
Problem 16-4
Allocation Schedule
Difference P 66,000
Allocation:
Equipment P(40,000)
Buildings 10,000 (30,000)
a. Investment in Stag Company – 12/31/06 (at acquisition cost) P 206,000
b. Minority Interest in Net Assets of Subsidiary (MINAS) P -0-
c. Consolidated Net Income

Net income from own operations – Pony (P310,000 – P198,000) P 112,000
Net income from own operations – Stag (P104,000 – P74,000) 30,000
Amortization ( 4,500)
Total P 137,500
d. Consolidated Equipment
Total book value (P320,000 + P50,000) P 370,000
Allocation 40,000
Amortization (P5,000 x 3 years (15,000)
Total P 395,000
e. Consolidated Buildings
Total book value P 288,000
Allocation ( 10,000)
Amortization (P500 x 3 years) 1,500
Total P 279,500
f. Consolidated Goodwill (not impaired) P 36,000
g. Consolidated Common Stock (Pony) P 290,000
h. Consolidated Retained Earnings

Retained earning, Dec. 31, 2008 – Pony P 410,000
Add: Pony’s share of Stag’s adjusted increase in earnings
Net earnings – 2008 (P30,000 – P20,000) P10,000
Amortization ( 4,500) 5,500
Total P 415,500
Problem 16-5
a. Retained Earnings, Dec. 31, 2008 – Sison

Stockholders’ equity, Dec. 31, 2008 – Sison (P232,000/40%) P 580,000
Stockholders’ equity, Jan. 1, 2005 – Sison (500,000)
Increase in earnings P 80,000
50
Retained earnings, Jan. 1, 2005 – Sison 200,000
Retained earnings, Dec. 31, 2008 – Sison P 280,000
b. Consolidated Retained Earnings – Dec. 31, 2008

Retained earnings, Jan. 1, 2005 - Perez P 600,000
Net income – 2005 to 2008 100,000
Dividends paid – 2005 to 2008 ( 45,000)
Retained earnings, Dec. 31, 2008 P 655,000
Add: Perez share of adjusted net increase in Sison’s
Retained earnings P80,000
Amortization (P8,333 x 4) (33,332)
Adjusted P46,668
Perez interest 60% 28,000
Total P 683,000
Allocation Schedule
Difference P 50,000
Allocation:
Depreciable assets (P50,000 / 60%) P(83,333)
Minority interest (40%) 33,333 (50,000)
Amortization per year (P83,333/10 years) P 8,333
Problem 16-6
a. Working Paper Elimination Entries, Dec. 31, 2008
(1) Dividend income 10,000

Dividends declared – Short 10,000
To eliminate intercompany dividends.
(2) Common stock – Short 100,000

Retained earnings – Short 50,000
Investment in Short Company 150,000
To eliminate equity accounts of Short at
date of acquisition
(3) Depreciable asset 30,000

Investment in Short Company 30,000
(4) Depreciation expense 5,000

Depreciable asset 5,000
To amortize allocated difference
b. Pony Corporation and Subsidiary

Consolidation Working Paper
December 31, 2008
Pony Short Adjustments & Consoli-

Eliminations
Income Statement
Sales 200,000 120,000 320,000
Dividend income 10,000 (1) 10,000 -
Total 210,000 120,000 320,000
Depreciation 25,000 15,000 (3) 5,000 45,000
Other expenses 105,000 75,000 180,000
Total 130,000 90,000 225,000
Net income carried forward 80,000 30,000 95,000
Retained Earnings
51
Retained earnings, Jan. 1 230,000 50,000 (2) 50,000 230,000
Net income from above 80,000 30,000 95,000
Total 310,000 80,000 325,000
Dividends declared 40,000 10,000 (1) 10,000 40,000
Retained earnings, Dec. 31
Carried forward 270,000 70,000 285,000
Balance Sheet
Cash 15,000 5,000 20,000
Inventory 70,000 60,000 130,000
Depreciable asset (net) 325,000 225,000 (3) 30,000 (4) 5,000 575,000
Investment in Short stock 180,000 (2)150,000 -
(3) 30,000
Total 620,000 330,000 795,000

Notes payable 100,000 120,000 220,000
Common stock
Pony 200,000 200,000
Short 100,000 (2)100,000
From above 270,000 70,000 285,000
Total 620,000 330,000 195,000 195,000 795,000
Problem 16-7
a. Working Paper Elimination Entries

Dividends declared – Sisa 10,000
(2) Common stock – Sisa 100,000

Retained earnings – Sisa 50,000
Investment in Sisa stock 120,000
(3) Minority interest in net income of subsidiary 6,000

b. Popo Corporation and Subsidiary

December 31, 2008
Popo Sisa Adjustments & Consoli-
Eliminations
Income Statement
Sales 200,000 120,000 320,000
Total revenue 208,000 120,000 320,000
Other expenses 105,000 75,000 180,000
Total expenses 130,000 90,000 220,000
Net income 78,000 30,000 100,000
MI in net income of Sub. (3) 6,000 ( 6,000)
Retained Earnings
Retained earnings, 1/1 230,000 50,000 (2) 50,000 230,000
Total 308,000 80,000 324,000
Retained earnings, 12/31
Carried forward 268,000 70,000 284,000
52
Balance Sheet
Current assets 173,000 105,000 278,000
Depreciable assets 500,000 300,000 800,000
Investment in Sisa stock 120,000 (2)120,000 -
Total 793,000 405,000 1,078,000

Current liabilities 50,000 40,000 90,000
Long-term debt 100,000 120,000 220,000
Common stock 200,000 100,000 (2)100,000 200,000
Retained earnings , 12/31
From above 268,000 70,000 284,000
MI in net assets of Subsidiary (1) 2,000 (2) 30,000 34,000
(3) 6,000
Total 793,000 405,000 166,000 166,000 1,078,000
c. Consolidated Financial Statements
Popo Corporation and Subsidiary

December 31, 2008
Assets
Current assets P278,000
Depreciable assets P800,000

Total liabilities P310,000
Retained earnings, 12/31 284,000
Minority interest in net assets of subsidiary 34,000 518,000

Consolidated Income Statement
Sales P320,000
Expenses:
Depreciation expense P 40,000
Minority interest in net income of subsidiary 6,000
Consolidated net income attributable to parent P 94,000

Consolidated Retained Earnings
Retained earnings, Jan. 1 – Popo P230,000

Consolidated net income attributable to parent 94,000
Total P324,000
Dividends paid – Popo 40,000
Consolidated retained earnings, Dec. 31 P284,000
Problem 16-8
53
a. Palo Corporation and Subsidiary
December 31, 2008
Palo Sebo Adjustments & Consoli-

Eliminations
Income Statement
Sales 300,000 150,000 450,000
Investment Income 19,000 (1) 19,000 -
Total revenues 319,000 150,000 450,000
Cost of goods sold 210,000 85,000 295,000
Other expenses 23,000 25,000 48,000
Total cost and expenses 258,000 130,000 388,000
Retained Earnings
Retained earnings, Jan. 1 230,000 50,000 (2) 50,000 230,000
Total 291,000 70,000 292,000
carried forward 271,000 60,000 272,000
Balance Sheet
Cash 37,000 20,000 57,000
Inventory 70,000 60,000 130,000
Buildings and equipment 300,000 240,000 540,000
Investment in Sebo stock 229,000 (1) 9,000 -
(2)200,000
(3) 20,000
Goodwill (3) 20,000 20,000
Total 686,000 350,000 827,000

Taxes payable 70,000 55,000 125,000
Common stock 200,000 150,000 (2)150,000 200,000
from above 271,000 60,000 272,000
Total 686,000 350,000 239,000 239,000 827,000
b. Consolidated Financial Statements
Palo Corporation and Subsidiary

Sales P450,000
Expenses:
Depreciation expenses P45,000
Consolidated net income P 62,000

Retained earnings, January 1 – Palo P230,000
54
Total 292,000
Dividends paid – Palo 20,000
Retained earnings, December 31 P272,000

December 31, 2008
Assets
Cash P 57,000
Inventory 130,000
Buildings and equipment P540,000
Goodwill 20,000
Total P657,000

Taxes payable 125,000
Retained earnings, Dec. 31 272,000
Total P657,000
Problem 16-9

Less: Book value of interest acquired (80%)
Common stock (P300,000 x 80%) P240,000
Difference P196,000
Allocation:
Land ( 50,000)
Building (100,000)
Equipment 75,000
Patents ( 40,000)
Total P(145,000)
Working Paper Elimination Entries - December 31, 2006(not required)
(1) Investment income 94,800

Dividends declared – S 50,000
Investment in S Company 54,800
(2) Common stock – S 300,000

Retained earnings, Jan. 1 – S 400,000
Investment in S Co. 560,000

Land 50,000
Building 100,000
Patents 40,000
Goodwill 80,000
Equipment 75,000
Investment in S Company 196,000
Inventory 30,000
Equipment (P75,000 / 10) 7,500
55
Expenses (amortization) 1,500
Buildings (P100,000 / 20) 5,000
Patents (P40,000 / 10) 4,000

To established minority share in subsidiary net income.
Net income – S Co. P150,000
Amortization 31,500
Adjusted net income P118,500
MINIS (P118,500 x 20%) P 23,700


Eliminations
Income Statement
Sales 1,000,000 500,000 1,500,000
Cost of sales 400,000 150,000 (4) 30,000 580,000
Gross profit 600,000 350,000 920,000
Expenses 360,000 200,000 (4) 1,500 561,500
Operating income 240,000 150,000 358,500
Investment income 94,800 - (1) 94,800 -
Net /consolidated income 334,800 150,000 358,500
MI interest in net income of
Subsidiary (5) 23,700 (23,700)
Retained earnings
Retained earnings, 1/1 600,000 400,000 (2)400,000 600,000
Total 934,800 550,000 934,800
Carried forward 834,800 500,000 834,800
Balance Sheet
Cash 200,000 100,000 300,000
Inventories 100,000 40,000 (3) 30,000 (4) 30,000 140,000
Land 150,000 (3) 50,000 200,000
Buildings (net) 200,000 (3)100,000 (4) 5,000 295,000
Equipment (net) 298,000 450,000 (4) 7,500 (3) 75,000 680,500
Patent - - (3) 40,000 (4) 4,000 36,000
Investment in S Co. stock 810,800 (1) 54,800 -
(2)560,000
(3)196,000
Goodwill (3) 80,000 80,000
Total 1,558,800 1,090,000 1,931,500

Common stock 200,000 300,000 (2)300,000 200,000
Additional paid-in capital 400,000 - 400,000
from above 834,800 500,000 834,800
MI in net assets of subsidiary (1) 10,000 (2)140,000 182,700
(3) 29,000
(5) 23,700
Total 1,558,800 1,090,000 466,200 466,200 1,931,500
56
Problem 16-10
a. Investment in Sally Products Co. 160,000

Cash 160,000
To record acquisition of 80% stock of Sally.
Cash 8,000
Dividend income 8,000
To record dividends received from Sally (P10,000 x 80%)
b. Working Paper Eliminating Entries – Dec. 31, 2008
Allocation schedule:
Difference 40,000
Allocated to building and equipment P (50,000)

Dividends declared – Sally 10,000
(2) Common stock – Sally 100,000

Retained earnings, 1/1 –Sally 50,000
Investment in Sally Products 120,000
(3) Building and equipment 50,000

Investment in Sally Products 40,000
(4) Depreciation expense 5,000

Accumulated depreciation – Bldg 5,000
(5) Accounts payables 10,000

Cash and receivables 10,000

Net income – Sally P30,000
Amortization (5,000)
MINIS (P25,000 x 20%) P 5,000
c. Pilar Corporation and Subsidiary

December 31, 2008
Pilar Sally Wood Adjustments & Consoli-

Eliminations
Corporation Products Debit Credit dated
Income Statement
Sales 200,000 100,000 300,000
Total revenue 208,000 100,000 300,000

57
Depreciation expense 25,000 15,000 (4) 5,000 45,000
Inventory losses 15,000 5,000 20,000
Net /consolidated income 48,000 30,000 65,000
MI interest in net income of

subsidiary (MINIS (6) 5,000 (5,000)
Retained earnings statement

Retained earnings, 1/1 298,000 90,000 (2) 50,000 338,000
Total 346,000 120,000 398,000
carried forward 316,000 110,000 368,000
Balance Sheet
Cash and receivables 81,000 65,000 (5) 10,000 136,000
Inventory 260,000 90,000 350,000
Land 80,000 80,000 160,000
Buildings and equipment 500,000 150,000 (3) 50,000 700,000
Investment in Sally 160,000 (2)120,000 -
(3) 40,000
Total 1,081,000 385,000 1,346,000
Accumulated depreciation 205,000 105,000 (4) 5,000 315,000

Accounts payable 60,000 20,000 (5) 10,000 70,000
Notes payable 200,000 50,000 250,000
Common stock 300,000 100,000 (2)100,000 300,000
Retained earnings from above 316,000 110,000 368,000
MI in net assets if subsidiary (1) 2,000 (2) 30,000 43,000
(3) 10,000
(6) 5,000
Total 1,081,000 385,000 230,000 230,000 1,346,000
Problem 16-11
a. Eliminating entries:
E(1) Dividend Income 20,000

Dividends Declared 20,000
Eliminate dividend income from subsidiary.
E(2) Common Stock – Star Company 150,000

Retained Earnings, January 1 50,000
Differential 20,000
Investment in Star Company Stock 220,000
Eliminate investment balance at date
of acquisition.
E(3) Goodwill 8,000

Retained Earnings, January 1 12,000
Differential 20,000
Assign differential at beginning of year
Porno Corporation and Star Company

Consolidated Workingpaper
December 31, 2008
58
Light Star Eliminations
_____Item_____ Corporation Company Debit Credit Consolidated
Income Statement
Sales 350,000 200,000 550,000
Dividend income 20,000 - (1) 20,000 _______
Credits 370,000 200,000 550,000
Other expenses 21,000 10,000 31,000
Debits (316,000) (165,000) __ - ____ (481,000)
Net income, carry forward 54,000 35,000 20,000 - 69,000

Retained earnings, Jan. 1 262,000 60,000 (2) 50,000
(3) 12,000 260,000
Net income, from above 54,000 35,000 20,000 69,000
316,000 95,000 329,000
Dividends declared (20,000) (20,000) ___ - (1) 20,000 (20,000)
Retained earnings, Dec. 31,
carry forward 296,000 75,000 82,000 20,000 309,000
Balance Sheet
Cash 46,000 30,000 76,000
Inventory 75,000 65,000 140,000
Buildings and equipment 300,000 240,000 540,000
Investment in Star Company
stock 220,000 (2)220,000
Differential (2) 20,000 (3) 20,000
Goodwill - - (3) 8,000 8,000
Debits 696,000 375,000 859,000

Accounts payable ` 20,000 30,000 50,000
Taxes payable 50,000 35,000 85,000
Common stock
Light Corporation 200,000 200,000
Star Company 150,000 (2)150,000
Retained earnings, from above 296,000 75,000 82,000 20,000 309,000
Credits 696,000 375,000 260,000 260,000 859,000
59
CHAPTER 17
MULTIPLE CHOICE
17-1: B
Consolidated sales
Sales – Papa P 900,000
Sales – San 500,000
Elimination of inter-company sales ( 50,000)
Consolidated sales P 1,350,000
Consolidated cost of goods sold

Cost of goods sold – Papa P 490,000
Cost of goods sold – San 190,000
Eliminations:
Realized profit in beginning inventory ( 4,000)
Unrealized profit in ending inventory 10,000
Intercompany purchases ( 50,000)
Consolidated cost of goods sold P 636,000
17-2: c
Net income – Sisa P 60,000

Unrealized profit in ending inventory – upstream ( 10,000)
Adjusted net income – Sisa P 50,000
Minority interest in net income of subsidiary P 10,000
17-3: d
Net income from own operation – Pat P 200,000

Pat’s share of adjusted net income of Susan:
Net income – Susan P200,000
Realized profit in beginning inventory
(P112,000 x 50%/150%) 37,500
Unrealized profit in ending inventory
(P33,000 x 50%/150%) (11,000) 226,500
Attributable to minority interest (P226,500 x 30%) 67,950
Attributable to parent P 358,550
60
17-4: b
Net income from own operations- Patton P 300,000

Unrealized profit in ending inventory – DS (P200,000 x .25) (50,000)
Realized income 250,000
Solis net loss (150,000)
17-5: d
Pardo’s share of Santos’ net income (P300,000 x 75%) P 225,000

Unrealized profit in ending inventory – Upstream
(P200,000 x 25%/125%) x 75% ( 30,000)
Realized profit in beginning inventory – Upstream
(P150,000 x 25%/125%) x 75% 22,500
Investment income account balance, Dec. 31, 2008 P 217,500
17-6: d
Net income from own operation – Puzon P 200,000
Suazon’s adjusted net income:
Net income P110,000
Unrealized profit in ending inventory-
Upstream (P25,000 x 40%) ( 10,000) 100,000
MINIS (P100,000 x 25%) (25.000)
17-7: b
2008 2009
Net income from own operation – Pat P 500,000 P 550,000
Unrealized profit in ending inventory:
2008 (P20,000 x .40) (8,000)
2009 (P30,000 x .50) (15,000)
Realized profit in beginning inventory 8,000
Realized income 492,000 543,000
Sun net income 200,000 225,000
Consolidated net income P 692,000 P 768,000
17-8: a
Net income from own operation – Pip P 400,000

Adjusted net income of Sol:
Net income P 250,000
Realized profit in beginning inventory-
Upstream (P40,000 x 40%) 16,000
Upstream (P70,000 x 30%) ( 21,000) 245,000
Consolidated net income - 2008 P 645,000
17-9: a
Net income from own operations – Popo P 500,000
Unrealized profit in ending inventory – Downstream ( 15,000)
Realized separate net income – Popo P 485,000
Popo’s share of Sotto’s adjusted net income:
Net income P 360,000
Upstream 10,000 370,000
MINIS (P370,000 x 5%) ( 18,500)
17-10: a
Stockholders’ equity – Sands, Dec. 31, 2008 P5,500,000

Unamortized difference (P1,000,000 – P200,000) 800,000
Adjusted stockholders’ equity (net assets) – Sands P6,300,000
61
Minority interest in net assets of subsidiary (P6,300,000 x 40%) P2,520,000
17-11: d
Gross profit rate – Short (P110,000 / P200,000) 55%
Inventories
Inventory from outsiders – Power P 5,000
Inventory from outsiders – Short 25,000
Power’s inventory acquired from Short – at cost:
[P5,000 – (P5,000 x 55%)} 2,250
Consolidated ending inventories P 32,250
Investment income
Power’s share of Short’s net income (P50,000 x 75%) P 37,500
Unrealized profit in ending inventory – upstream
(P5,000 x 55%) x 75% ( 2,063)
Realized profit in beginning inventory – upstream
(P10,000 x 55%) x 75% 4,125
Investment income, Dec. 31, 2008 P 39,562
Investment in Short Company

Acquisition cost (P80,000 x 80%) P 60,000
Unrealized profit in ending inventory ( 2,063)
Investment in Short Company, Dec. 31, 2008 P 62,062

Stockholders’ equity, Dec. 31, 2006 – Short P 80,000
Realized profit in beginning inventory (P10,000 x 55%) 5,500
Unrealized profit in ending inventory (P5,000 x 55%) ( 2,750)
Adjusted net assets of Short, Dec. 31, 2006 P 82,750
Minority interest 25%
MINAS P 20,687.50
17-12: b
Gross profit rate of Sit (P200,000 / P500,000) 40%
Net income from own operations – Pit P 200,000
Adjusted net income of Sit:
Net income P 75,000
Upstream (P40,000 x 40%) 16,000
Upstream (P25,000 x 40%) ( 10,000) 81,000
MINIS (P281,000 x 10%) ( 8,100)
17-13: b
Gross profit of Sir (P120,000 / P400,000) 30%
Consolidated cost of sales

Cost of sales – Pig P 600,000
Cost of sales – Sir 280,000
Eliminations:
Realized profit in beginning inventory (P70,000 x 30%) ( 21,000)
Unrealized profit in ending inventory (P60,000 x 30%) 18,000
Intercompany purchases (200,000)
Consolidated cost of sales P 677,000
Consolidated net income

Net income from own operations – Pig P 200,000
Pig’s share of Sir’s adjusted net income:
Net income P 80,000
Unrealized profit in ending inventory (18,000) 83,000
62
MINIS (P83,000 x 10%) (8,300)
17-14: a
2006 2007 2008
Pal Corp net income 150,000 240,000 300,000
Intercompany profit in ending inventory:
2006 (14,000) 14,000
2007 (21,000) 21,000
2008 ( 24,000)
Pal net income from own operation 136,000 233,000 297,000
Solo net income from own operation 100,000 90,000 160,000
Consolidated net income 236,000 323,000 427,000
MINIS:
2006(100,000 – 14,000) x 40% 34,400
2007(90,000 +14,000 – 21,000) 40% 33,200
2008(160,000 + 21,000 – 24,000) 40% 62,800
Consolidated NI attributable to Parent 201,600 289,800 394,200
17-15: a
Acquisition cost 252,000
Less: book value of interest acquired (400,000 x 60%) 240,000
Difference 12,000
Allocated to Equipment ( 20,000)
MINAS (40%) 8,000 (12,000)
Total sales 600,000

Intercompany sales (30,000 + 80,000) (110,000)
Consolidated sales 490,000
17-16: c
Total cost of goods sold (250,000 +120,000) 370,000
Adjustments due to intercompany sale:
COGS charged for intercompany sale (20,000 + 50,000) 70,000
COGS charged by: Star (30,000 – 6,000) 24,000
Polo (80,000 – 20,000) 60,000
Total 154,000
Cost of goods sold for consolidated entity:
20,000 x (24,000/30,000) (16,000)
50,000 x (60,000/80,000) (37,500) (100,500)
Consolidated cost of goods sold 269,500
17-17: c
Polo Corp. net income from own operation (105,000 – 25,000) 80,000
Unrealized profit in ending inventory-DS (6,000 x 10/30) (2,000)
Adjusted Polo Corp. net income from own operation 78,000
Star Corp. net income from own operation:
Net income 45,000
Unrealized profit in EI-US (20,000 x 30/80) (7,500)
Amortization (20,000/10 years) (2,000) 35,500
MINIS (35,500 x 40%) (14,200)
Attributable to Parent 99,300
17-18: a
Pepsi net income from own operation 160,000
Sarsi net income 90,000
Unrealized profit in EI (45,000 x 60/180) (15,000) 75,000
MINIS (75,000 x 30%) (22,500)
Consolidated net income attributable to Parent-2007 212,500
17-19: a
Inventory-Pepsi P 30,000
63
Less: unrealized profit in books of Sarsi:
(135,000 – 90,000) x (30,000/135,000) (10,000) 20,000
Inventory-Sarsi P110,000
Less: unrealized profit in books of Pepsi:
(280,000 – 140,000) x (110,000/280,000) (55,000) 55,000
Consolidated inventory 12/31/08 75,000
17-20: a
Cost of goods sold on sale of inventory on hand-1/1/08:
[45,000 x (120,000/180,000)] 30,000
Cost of goods sold on purchases from Sarsi- 2008
[(135,000 – 30,000) x (90,000/135,000)] 70,000
Cost of goods sold on purchases from Pepsi- 2008
[(280,000 – 110,000) x (140,000/280,000)] 85,000
Consolidated cost of goods sold-2008 185,000
17-21: b
Pepsi net income 220,000
Sarsi net income 85,000
Realized profit in beginning inventory - 2008 15,000
Unrealized profit in ending inventory- Sarsi (10,000)
Unrealized profit in ending inventory- Pepsi (55,000)
PROBLEMS
Problem 17-1
a. Consolidated Net Income

Net income from own operations – P Company P200,000
S Co. adjusted net income:
Net income – S P30,000
64
Unrealized profit in ending inventory –
Upstream (P9,000 x 50/150) (3,000)
Upstream (P6,000 x 50/150) 2,000 29,000
b. Minority Interest in Net Income of Subsidiary

Adjusted net income - S Co. P 29,000
Minority interest x 30%
Problem 17-2

Net income from own operations – P Co. P100,000
Realized profit in beginning inventory – Downstream
(P10,500 x 40/140) 3,000
S Company adjusted net income:
Upstream (P8,000 x 25%) (2,000) 88,000

Adjusted net income – S Co. P88,000
MINIS P17,600
c. Minority Interest in Net Assets of Subsidiary

Stockholder’s equity , Jan. 1, 2008 – S Company P350,000
Increase in earnings – 2008 (P90,000 – P35,000) 55,000
Unrealized profit in ending inventory – Upstream (2,000)
Stockholder’s equity, Dec. 31, 2008 – S Company P403,000
MINAS P 80,600
Problem 17-3
a. Net Assets, Dec. 31, 2008 – S Co.

Minority interest per consolidated balance sheet, 12/31 P158,560
Unrealized profit in ending inventory – Upstream
(P36,000 x 25/125) x 20% 1,440
Minority interest per books – S Co. P160,000
Divided by ÷ 20%
Net assets- S Co. P800,000
b. Price Paid
Net assets – S Co., Dec. 31, 2008 P800,000
Net income – S Co. (160,000)
Net assets – S Co., Jan. 1, 2008 P640,000
Parent’s interest x 80%
Book value of interest acquired P512,000
Difference 20,000
Price paid P532,000
Problem 17-4
The computation of the selected consolidation balances are affected by the inter-company profit in downstream intercompany sales as
computed below:
65
Unrealized profit in ending inventory, Dec. 31, 2007 – Downstream
Intercompany profit (P120,000 – P72,000) P 48,000
Inventory left at year end x 30%
Unrealized profit, Dec. 31, 20057 P 14,400
Unrealized profit in ending inventory, Dec. 31, 2008 – Downstream

Intercompany profit (P250,000 – P200,000) P 50,000
Inventory left at year end x 20%
Unrealized profit, Dec. 31, 2008 P 10,000
a. Consolidated Sales
Apo P800,000
Bicol 600,000
Intercompany sales – 2008 (250,000)
Total P1,150,000
b. Cost of goods sold
Apo’s book value P 535,000
Bicol’s book value 400,000
Intercompany sales-2008 (250,000)
Realized profit in beginning inventory – 2008 ( 14,400)
Unrealized profit in ending inventory – 2008 10,000
Consolidated cost of goods sold P 680,600
c. Operating expenses
Apo P 100,000
Bicol 100,000
Total P 200,000
d. Dividend Income – 0 (eliminated)
e. Minority Interest in Net Income of Subsidiary (P100,000 x 30%) P 30,000
f. Inventory
Apo P 298,000
Bicol 700,000
Unrealized profit in ending inventory, Dec. 31, 2008 (10,000)
Consolidated inventory P 988,000
g. Minority Interest in Net Assets of Subsidiary
Stockholders’ equity , Jan. 1, 2008 – Bicol P 950,000
Increase in earnings in 2008 (P100,000 – P50,000) 50,000
Stockholders’ equity, Dec. 31, 2008 – Bicol P1,000,000
MINAS P 300,000
Problem 17-5
P Company and Subsidiary

Sales (P2,000,000 + P1,000,000 – P600,000) P2,400,000

Cost of goods sold (Schedule 1) 704,000
Gross profit 1,696,000
Expenses 600,000
Income before income tax 1,096,000
Provision for income tax 440,000
Consolidated net income after income tax 656,000
Attributable to minority interest (Schedule 2) 44,000
Schedule 1:
Cost of sales – P Company P 800,000
Purchases from S Company (600,000)
Intercompany profit in beginning inventory (P60,000 x 25%) ( 15,000)
Intercompany profit in ending inventory (P76,000 x 25%) 19,000
Total P 204,000
Cost of sales – S Company 500,000
66
Consolidated cost of sales P 704,000
Schedule 2:
Net income – S Company P 180,000
Realized profit in beginning inventory – Upstream 15,000
Adjusted net income P 176,000
MINIS P 44,000
Problem 17-6
a. Working Paper Eliminating Entries

Minority interest in net assets of subsidiary (20%) 8,000
Dividends declared- D (P32,000 / 80%) 40,000
(2) Common stock – S 90,000

Retained earnings – S 220,000
Investment in S Co. stock 248,000
To eliminate equity accounts of S on the date of
acquisition.
(3) Minority interest in net assets of subsidiary 4,000

Retained earnings, Jan. 1 16,000
To eliminate realized profit in beginning inventory
(4) Sales 150,000

Inventory, Dec. 31 (P45,000 x 33.33%) 15,000
To eliminated intercompany sales and unrealized
profit in ending inventory.

To establish minority interest in net income of S Co.
computed as follows:
Sales P200,000
Cost and expenses (P140,000 +P20,000) 160,000
Net income 40,000
MINIS P 9,000
b. Consolidated Net Income

Net income from own operations (P250,000 – P205,000) P 45,000
S Company adjusted net income 45,000
c. Minority Interest in Net Assets of Subsidiary (MINAS)

Stockholders’ equity, Dec. 31, 2008 – S Company P 310,000
Adjusted net income – 2008 45,000
Adjusted net assets, Dec. 31, 2008 – S Co. P 355,000
MINAS P 71,000
Problem 17-7
67
a. Consolidated Sales
Reported total sales (P600,000 + P510,000) P1,170,000
Intercompany sales (P140,000 + P240,000) (380,000)
Consolidated sales P 790,000
b. Consolidated Cost of Goods Sold

Cost of goods sold:
Pato (P660,000 / 140%) P 471,429
Sales (P510,000 / 120% 425,000
Amount to be eliminated (P128,000 + P232,000) see entry below ( 360,000)
Total P 536,429
Elimination of intercompany sales and intercompany profit in inventory:
Downstream Sales
Sales 140,000
Inventory (P42,000 x 40/140) 12,000
Upstream Sales
Sales 240,000
Inventory (P48,000 x 20/120) 8,000

Net income from own operations – Pato P 70,000
Unrealized profit in ending inventory – Downstream (12,000)
Adjusted net income – Pato P 58,000
Add: Adjusted net income of Sales Co.
Net income P20,000
Unrealized profit in ending inventory – Upstream (8,000) 12,000
d. Consolidated Inventory, Dec. 31, 2008

Inventory reported – Pato P 48,000
Inventory reported – Sales 42,000
Unrealized profit in ending inventory (P8,000 + P12,000) (20,000)
Problem 17-8
a. Unrealized Profit in Beginning Inventory

Beginning inventory - Downstream P 100,000
Gross profit rate (P240,000/ P400,000) x 60%
Unrealized profit in beginning inventory P 60,000
Unrealized Profit in Ending Inventory

Ending inventory – Downstream (P200,000 x 80%) P 160,000
Gross profit rate x 60%
Unrealized profit in ending inventory P 96,000
b. Intercompany Sales
Sales – P Company P2,000,000
Sales – S Company 1,000,000
Intercompany sales – 2008 (400,000)
68
Consolidated sales P2,600,000
Intercompany Cost of Sales

Cost of sales – P Company P 800,000
Cost of sales – S Company 600,000
Intercompany purchases (400,000)
Intercompany profit in beginning inventory ( 60,000)
Intercompany profit in ending inventory 96,000
Consolidated cost of sales P1,036,000
c. Parent’s interest (40,000 shares / 50,000 shares) 80%
P Company Entries – 2008:

(1) Investment in S Company stock 96,000
Income from subsidiary 96,000
To record P’s share of S Co. income
(P120,000 x 80%)
(2) Cash 48,000

Investment in S Company stock 48,000
To record dividends received from S
(P60,000 x 80%)
(2) Income from subsidiary 36,000

To adjust income from subsidiary for intercompany
profit in :
Ending inventory (96,000)
Beginning inventory 60,000
Net adjustment ( 36,000)
d. Working Paper Eliminating Entries:
(1) Income from subsidiary 60,000

(P60,000 x 20%) 12,000
Dividends declared – S 60,000
(2) Common stock – S Co. 500,000

Retained earnings – S Co. 860,000
Investment in S Company stock 1,088,000
To eliminate equity accounts of S Company as of
beginning of year.
(3) Goodwill 60,000

To allocate difference to goodwill.
(4) Retained earnings – Jan. 1 60,000

Cost of sales 60,000
To eliminate realized profit in beginning inventory-
Downstream.
(5) Cost of sales 96,000

Inventories 96,000
To eliminate unrealized profit in ending inventory-
Downstream.
69
(6) Sales 400,000
Cost of sales 400,000
To eliminate intercompany sales.
(7) Accounts payable 50,000

To eliminate intercompany payables and receivables.

To establish minority share of S net income
(P120,000 x 20%)
e. Consolidated Net Income

Net Income from own operations – P Company (P480,000 – P60,000) P420,000
Unrealized profit in ending inventory ( 96,000)
Adjusted net income – P Compay P384,000
S Company net income 120,000
CHAPTER 18
MULTIPLE CHOICE
18-1: a
Equipment – at original cost P500,000
Accumulated depreciation:
Time of sale P250,000
Current depreciation based on
Original cost (P500,000/10 years 50,000 P300,000
18-2: b
Net income – Sol P100,000

Unrealized gain on sale of computer, Dec. 31 ( 30,000)
Minority interest in net income of subsidiary (MINIS) P 21,000
18-3: b
2005 2006
Net income from own operations – Prime P200,000 P250,000
Unrealized gain – Downstream (30,000) __-
Realized net income – Prime P170,000 P250,000
Second Company net income 100,000 150,000
Consolidated net income P270,000 P400,000
18-4: c
Net income – Saw P100,000

Unrealized loss-Upstream 12,000
Realized loss ((P12,000 / 5) x 6/12 ( 1,200)
Adjusted net income – Saw P110,800
Minority interest in net income of subsidiary (P110,800 x 25%) P 27,700
18-5: c
Equipment – at original cost P1,000,000
Accumulated depreciation:
70
Time of sale P360,000
Current depreciation (P900,000/10) 90,000 P 450,000
18-6: a
Adjusted net income – Susie (P12,000 / 40%) P 30,000

Add back: Unrealized gain – Upstream 90,000
Net income of Susie – 2008 P120,000
18-7: a
Original cost P100,000

Amount debited to Truck account (48,000)
Selling price of the truck – Amount paid P 52,000
18-8: c
Net income – Po P200,000

Unrealized gain, Dec. 31 – DS (30,000)
Net income from own operation – Po 270,000
Net income of So 180,000
Consolidated net income, Dec. 31, 2008 P350,000
MINIS (P180,000 x 20%) (36,000)
Attributable to parent P314,000
18-9: b
Stockholders’ equity, Jan. 1, 2008 – Sy P1,000,000

Stockholders’ equity, Dec. 31, 2008 – Sy P1,035,000
18-10: b

Net income – Pink P300,000
Unrealized gain, July 1- Downstream ( 50,000)
Realized gain, Dec. 31 (P50,000 / 10) x 6/12 2,500
Realized net income – Pink P252,500
Soda’s adjusted net loss:
Net loss P(40,000)
Unrealized loss, 1/1 – Upstream 15,000
Realized loss, 12/31 (P15,000/5) ( 3,000) (28,000)
MI in net loss of subsidiary (P28,000 x 20%) 5,600

Net assets, Jan. 1, 2008 (P1,240,000 / 80%) P1,550,000
Decrease in earnings:
Net loss P40,000
Dividends paid 30,000 ( 70,000)
Net assets, Dec. 31, 2008 P1,480,000
Unrealized loss, Dec. 31 (Upstream) ( 12,000)
Adjusted net assets, Dec. 31, 2008 P1,468,000
71
18-11: a
Net assets, Dec. 31, 2008

Minority interest, Dec. 31, 2008 P188,960
Add: MI share of unrealized profit in ending inventory -Upstream
(P36,000 x 20%) x 20% 1,440
MI share of unrealized gain on sale of equipment- Upstream
(P60,000 x 20%) – (P12,000 / 5) 9,600
Minority interest before adjustment P200,000
Net assets – Steve, Dec.31, 2008 (P200,000 / 20%) P1,000,000
Investment in Steve Company stock – Equity method

Acquisition cost:
Net assets, Dec. 31, 2008 P1,000,000
Less: net income – steve
MINIS P36,960
MI share of unrealized profit in ending
Inventory – Upstream 1,440
MI share of unrealized gain on sale of
Equipment – Upstream 9,600
MINIS per book P48,000
Divided by 20% 240,000
Net assets, Jan. 1, 2008 P 760,000
Parent’s proportionate share x 80%
Book value of interest acquired P 608,000
Add: difference 20,000
Purchase price (acquisition cost) P 628,000
Add: Investment income
Peter’s share of Steve net income (P240,000 x 80%) P 192,000
Unrealized profit in ending inventory – Downstream
(P24,000 x 20%/120%) x 100% ( 4,000)
Unrealized profit in beginning inventory – Upstream
(P36,000 x 25/125%) x 80% ( 5,760)
Unrealized gain on sale of equipment – Upstream
(P48,000 – 9,600) ( 38,400)
Investment in Steve Company, Dec. 31, 2008 P 771,840
18-12: a
Net income from own operations – Pipe P400,000

Pipe’s share of Smoker’s adjusted net income:
Net income P100,000
Unrealized gain, July 1, 2008 – Upstream (50,000)
Realized gain, Dec. 31, 2008 (P50,000/5)x ½ 5,000 55,000
18-13: d
2007 2008
Net income from operations – Parent P100,000 P120,000
Parent’s share of adjusted net income of Sub:
Net income P 60,000 P 75,000
Unrealized gain – Upstream ( 9,000) -
Realized gain: 2007 (P9,000/3) x ¼ 750
2008 (P9,000/3) - 3,000
Adjusted net income P 51,750 P 78,000
Consolidated net income P151,750 P198,000
MINIS (10,350) (15,600)
Attributable to parent P141,400 P182,400
72
18-14: d
Investment in Sili Company stock – Equity method

Investment income net of dividends – 2005 to 2007:
Increase in earnings (P500,000 – P200,000) x 75% 225,000
Investment income, Dec. 31, 2007:
Share of Sili’s net income (P60,000 x 75%) 45,000
Unrealized gain on sale of land – Downstream (15,000)
Unrealized loss on sale of building – Downstream 10,000
Realized loss on sale of building (P10,000 / 5) x 75% ( 1,500) 38,500
Investment income, Dec. 31, 2008:
Share of Sili’s net income (P70,000 x 75%) 52,500
Realized loss (P10,000 / 5) (2,000) 50,500
Dividends received:
2007: (P10,000 x 75%) 7,500
2008: (P20,000 x 75%) 15,000 (22,500)
Investment in Sili Company stock, Dec. 31, 2008 P791,500
18-15: a
Investment in Saw Company stock, Dec. 31, 2008

Investment income – 2002 to 2006:
Increase in earnings (P500,000 – P300,000) x 90% 180,000
Investment income – 2007 (see above) 101,250
Investment income – 2008:
Power’s share of Saw’s net income (P120,000 x 90%) P108,000
Realized loss on sale of warehouse (P20,000/2) x 90% (9,000) 99,000
Dividends received:
2007: ( P20,000 x 90%) P 18,000
2008: ( P30,000 x 90%) 27,000 (45,000)
Investment in Saw Company stock account balance 12/31/08 P885,250
73
PROBLEMS
Problem 18-1
Computation of the missing amounts in the working paper eliminations for P Corporation and S Company:
(1) P640 (P3,200 x 20%)
(2) P2,560 (P3,200 x 80%)
(3) P1,600 (P800 x 2)
(4) P320 (P1,600 x 20%)
(5) P1,280 (P1,600 x 80%)
(6) P3,200 (P800 x 4)
Problem 18-2
Unrealized gain on sale of equipment, Dec. 31 – Downstream (30,000)
Adjusted net income – P Co, P170,000
S Company net income 180,000
b. Minority interest in net income of subsidiary (P180,000 x 20%) P 36,000
c. Minority Interest in Net Assets of Subsidiary:

Stockholders’ equity, Jan. 1, 2008 – S Company P 900,000
Stockholders’ equity, Dec. 31, 2008 – S Company P1,020,000
Problem 18-3
Pony Corporation and Subsidiary

Sales (P500,000 + P300,000) P800,000

Gain on sale of machinery (schedule 1) 20,000
Total revenue 820,000
Cost of sales P200,000 + P130,000) 330,000
Expenses:
Depreciation (P50,000 +P30,000 – P5,000) P 75,000
Other expenses (P80,000 + P140,000) 220,000 295,000
Attributable to minority interest (P190,000 + P5,000) +10,000) x 25% (28,750)
74
Schedule 1:
Selling price – Dec. 28, 2008 P36,000
Book value (P65,000 ÷ 5) x3 26,000
Gain on sale 10,000
Unrealized gain (P25,000 – P15,000) 10,000
Total gain P20,000
Problem 18-4

Adjusted net income of S Company:
Unrealized gain, 4/1/08 - Upstream ( 30,000)
Realized gain, 12/31/08 (P30,000/5) x 9/12 4,500 124,500
MINIS (P124,500 x 20%) (24,900)
b. Minority Interest in Net Assets of Subsidiary

Stockholders’ equity , Jan. 1, 2008 – S Company P800,000
Increase in adjusted earnings – 2008:
Net earnings (P150,000 – P50,000) P100,000
Unrealized gain – 12/31 (P30,000 – P4.500) (25,500) 74,500
Stockholders’ equity, Dec. 31, 2008 P874,500
MINAS P114,900
Problem 18-5
a. Consolidated Net Income - 2008

Net income from own operations – BJ P300,000
Gain on sale of machine, July 1 - Downstream (50,000)
Realized gain, Dec. 31 (P50,000 / 10) x 6/12 2,500
Adjusted net income – BJ P252,500
Net income (loss) of DK:
Net income (loss) – DK P(40,000)
Loss on sale of truck , Jan. 1 - Upstream 15,000
Realized loss, Dec. 31 (P15,000 / 5) ( 3,000) (28,000)

Net loss from own operations – DK P (40,000)
Upstream loss on sale of truck 15,000
Realized loss on sale of truck ( 3,000)
Adjusted net loss P ( 28,000)
MI in net loss of subsidiary P ( 5,600)
Net assets, Jan. 1, 2006 (P1,240,000 / 80%) P1,550,000
Increase in earnings (loss) -2006 (P40,000 + P30,000) (70,000)
Net assets, Dec. 31, 2006 P1,480,000
Unrealized loss – Upstream (P15,000 – P3,000) 12,000
Adjusted net assets P1,492,000
MINAS P 298,400
Problem 18-6
Texas Company and Subsidiary

Sales P1,500,000
75
Expenses (P200,000 + P100,000 – P8,000 ) 292,000
Attributable to minority interest (P150,000 x 25%) 37,500
Adjustment for expenses (depreciation) = P40,000 / 5 years.
Problem 18-7
a. Leo Company and Subsidiary

Consolidated Balance Sheet Working Paper
December 31, 2007
Leo Taurus Adjustments & Consoli-

Eliminations
Company Corporation Debit Credit dated
Cash and receivables 101,000 20,000 121.000
Inventory 80,000 40,000 120,000
Land 150,000 90,000 (2) 10,000 250,000
Building and equipment 400,000 300,000 (3) 9,000 709,000
Investment in stock –Taurus 141,000 (3) 15,000 (1)150,000 -
(2) 6,000
Total debits 872,000 450,000 1,200,000
Accumulated depreciation 135,000 85,000 (3) 24,000 244,000

Notes payable 200,000 90,000 290,000
Common stock 100,000 200,000 (1)200,000 100,000
Retained earnings 347,000 50,000 (1) 50,000 347,000
MI in net assets in Subsidiary (1)100,000 104,000

(2) 4,000
Total 872,000 450,000 1,200,000
(1) To eliminate equity accounts of subsidiary

(2) To intercompany gain on sale of land.
(3) To eliminate intercompany gain on sale of equipment debited to Investment account and restore equipment to its original book
value.
b. Leo Company and Subsidiary

December 31, 2008
Cash and receivables P121,000

Inventory 120,000
Land 250,000
Building and equipment P709,000
Accounts payable P115,000

Notes payable 290,000
Common stock stock 100,000
Total liabilities and equity P956,000
Problem 18-8
76
a. Working Paper Elimination Entries – Dec. 31, 2008

Dividends declared – Jupiter 5,000
To eliminate intercompany dividends
(2) Common stock – Jupiter 100,000

Retained earnings – Jupiter 50,000
Investment in Jupiter stock 120,000
To eliminate equity accounts of Jupiter as of the
date of acquisition
(3) Goodwill 40,000

Investment in Jupiter Stock 40,000
To allocate difference to goodwill

Land 10,000
To eliminate unrealized gain on sale of land – Upstream.
(5) Gain on sale of equipment 20,000

Accumulated depreciation 25,000
To eliminate gain on sale of equipment
(6) Accumulated depreciation 2,000

Depreciation 2,000
To adjust excess depreciation
(7) Accounts payable 7,000

To eliminate intercompany payables and receivables.

(P40,000 – 10,000) x 20%
77
b. Vincent Company and Subsidiary
December 31, 2008
Vincent Jupiter Adjustments & Consoli-

Eliminations
Income Statement
Sales 240,000 120,000 360,000
Gain on sale of equipment 20,000 (5) 20,000 -
Total revenues 264,000 120,000 360,000
Depreciation 25,000 15,000 (6) 2,000 38,000
Other expenses 15,000 5,000 20,000
Net/consolidated income 84,000 40,000 102,000
MI in net income of subsidiary (8) 6,000 (6,000)

Retained earnings, Jan.1 294,000 105,000 (2) 50,000 341,000
(4) 8,000
Total 378,000 145,000 437,000
Carried forward 348,000 140,000 407,000
Balance Sheet
Cash and receivables 113,000 35,000 (7) 7,000 141,000
Inventory 260,000 90,000 350,000
Land 80,000 80,000 (4) 10,000 150,000
Buildings and equipment 500,000 150,000 (5) 5,000 655,000
Investment in Jupiter stock 160,000 (2)120,000 -
(3) 40,000
Goodwill (3) 40,000 40,000
Total 1,113,000 355,000 1,336,000
Accumulated depreciation 205,000 45,000 (6) 2,000 (5) 25,000 273,000

Accounts payable 60,000 20,000 (7) 7,000 73,000
Bonds payable 200,000 50,000 250,000
Common stock 300,000 100,000 (2)100,000 300,000
Retained earnings from above 348,000 140,000 407,000
MI in net assets of subsidiary (1) 1,000 (2) 30,000 33,000
(4) 2,000 (8) 6,000
Total 1,113,000 355,000 245,000 245,000 1,336,000
78
c. Consolidated Financial Statements
Vincent Company and Subsidiary

December 31, 2008
Assets
Cash and receivables P 141,000
Inventory 350,000
Land 150,000
Buildings and equipment P655,000
Goodwill 40,000
Liabilities and Stockholders’ equity

Liabilities
Minority interest in net assets of subsidiary 33,000 740,000
Total liabilities and stockholders’ equity P1,063,000

Sales P 360,000
Expenses: Depreciation P 38,000
Attributable to minority interest 6,000

Retained earnings, Jan. 1 – Vincent P 294,000

Retained earnings, Jan. 1 – Jupiter 47,000
Total 341,000
Consolidated net income attributable to parent 96,000
Dividends declared – Vincent ( 30,000)
Consolidated retained earnings P 407,000
Problem 18-9
(a) P100,000 (the common stock of Phantom only)
(b) P140,000
© P250,000 (P593,000 – P343,000)
79
(d) P100,000 (P126,000 – P35,000) + [(P25,000 + P85,000) - P101,000]
(e) 0
(f) Purchase price, Jan. 1, 2008 P105,000

Undistributed earnings from 1/1/05 to 1/1/08:
(P80,000 – P30,000) x 60% 30,000
Undistributed income for 2008 (P30,000 – P20,000) x 60% 6,000
Total P141,000
Adjustments:
Unrealized gain on sale of land – Downstream (g) (7,000)
Unrealized gain on sale of equipment – Upstream
(P9,000 – P3,000) x 60% (3,600)
Adjusted Investment account balance, Dec. 31, 2008 P 70,400
(g) P7,000 (P70,000 + P90,000) – P153,000
(h) 0
(i) P510,000 [P345,000 + P150,000 + (P60,000 – P45,000)]
(j) P278,000 = P180,000 + P80,000 + [(P60,000/5) x 4 ]

Less [(P45,000 / 3) x 2 years]
(k) Retained earnings, Dec. 31, 2008 P380,000

Less: Share of unrealized profit on sale of equipment:
Gain record [P45,000 – (P60,000 x 3/5)] P9,000
Realized in 2008 (P9,000 / 3) 3,000
Unrealized P6,000
Phantoms’ interest x 60% 3,600
Consolidated retained earnings P376,400
(l) Net income – Shadow, 2008 (P250,000 – P220,000) P 30,000

Realized gain on sale of building c Dec. 31, 2006 – Upstream 3,000
Problem 18-10
Supporting computations
(1) Allocation schedule (purchase price) P 372,000

Allocated to patents (P120,000 x 60%) ( 72,000)
Goodwill P 90,000
Amortization of patents (P120,000 / 12) P 10,000
(2) Unrealized gain on intercompany sale of building – Upstream, Jan. 1, 2006:

Unrealized gain at date of sale (P80,000 – P30,000) P 50,000
Realized gain (P50,000 / 5) x 2 years (20,000)
Unrealized gain as of Jan. 1, 2008 P 30,000
(3) Realized profit from intercompany sale of inventory – Downstream, 1/1/08:

Remaining inventory as of Dec. 31, 2007 P 50,000
Gross profit rate on sales – 2007 (P30,000 / P150,000) x 20%
Realized profit as of Jan. 1, 2008 P 10,000
80
(4) Unrealized profit from intercompany sale of inventory – Downstream, 12/31/08
Remaining inventory as of Dec. 31, 2008 P 40,000
Gross profit rate on sales – 2008 (P48,000 / P160,000) x 30%
Unrealized profit as of Dec. 31, 2008 P 12,000
Consolidated balances – 2008
a. Cost of goods Sold

Cost of goods sold – Apex P 460,000
Cost of goods sold – Small 205,000
Intercompany sale of inventory – 2008 (160,000)
Realized profit on beginning inventory ( 10,000)
Unrealized profit on ending inventory 12,000)
b. Operating Expenses
Operating expenses – Apex P 170,000
Operating expenses – Small 70,000
Amortization (No. 1 above) 10,000
Excess depreciation (P50,000 / 5 years) (10,000)

Sales (after elimination of intercompany sales) P 840,000
Cost of goods sold (a) (507,000)
Operating expenses (b) (240,000)
Minority interest in net income of subsidiary:
Net income – Small P25,000
Realized gain on sale of building – Upstream 10,000
Minority interest x 40% ( 14,000)
d. Consolidated Retained Earnings, Jan. 1, 2008

Retained earnings, Jan. 1, 2008 – Apes P 690,000
Amortization of patents – 2002 to 2007 (P10,000 x 6) (60,000)
Unrealized profit on inventory, 2007 – Downstream (10,000)
Unrealized gain on sale of building, 1/1/08 - Upstream (P30,000 x 60%) (18,000)
Consolidated retained earnings, Jan. 1, 2008 P 602,000
e. Consolidated Inventory
Inventory – Apex P 233,000
Inventory – Small 229,000
Unrealized profit in inventory – Dec. 31, 2008 ( 12,000)
f. Consolidated Building
Buildings – Apex P 308,000
Buildings – Small 202,000
Unrealized gain, Jan. 1, 2006 (50,000)
Realized gain, 2006 – 2008 (P10,000 x 3 ) 30,000
Consolidated buildings P 490,000
g. Consolidated Patents
Patents – Small P 20,000
Allocation 120,000
Amortization, 2002 – 2008 (P10,000 x 7) ( 70,000)
Consolidated patents (net) P 70,000
81
h. Consolidated Common Stock = P300,000 (Apex common stock)
i. Minority Interest in Net Assets of Subsidiary

Stockholders’ equity – Small, Dec. 31, 2008 (P100,000 + P420,000) P 520,000
Unrealized gain on sale of building, Dec. 31,2008 – Upstream (20,000)
Adjusted net assets, Dec. 31, 2008 P 500,000
Problem 18-11
a. Working Paper Elimination Entries

Investment in Duke 6,000
To adjust Investment account for unrealized profit
in inventory on Dec. 31, 2005 (P10,000 x 60%)
(2) Income from Duke Company 84,000

Dividends declared – Duke 60,000
(3) Common stock – Duke 320,000

APIC – Duke 90,000
Retained earnings, 1/1 – Duke 620,000
Investment in Duke (60%) 618,000
Minority interest in net assets of subsidiary (40%) 412,000
To eliminate equity accounts of Duke as of beginning of year.
(4) Goodwill 100,000

To allocate difference
(5) Impairment loss 5,000

Goodwill 5,000
To reduce goodwill for impairment.
(6) Sales 200,000

To eliminated intercompany sales
(7) Investment in Duke 6,000

To eliminate realized profit in beginning inventory – Upstream

Inventory 12,000
To eliminate unrealized profit in ending inventory – Upstream
(9) Investment in Duke 40,000

Land 40,000
To eliminate gain on sale of land – Downstream
(10) Liabilities 40,000

82
To eliminate intercompany debt.

(P140,000 + 10,000 – P12,000 – P5,000) x 40%

Net income – Duke P140,000
Unrealized profit in ending inventory – Upstream ( 12,000)
Impairment loss ( 5,000)
Adjusted net income – Duke P133,000
MINIS P 53,200

Stockholders’ equity, 1/1/08 – Duke (P320,000 + P90,000 + 620,000)P1,030,000
Increase in earnings – 2008 (P140,000 – P60,000) P80,000
Unrealized profit in ending inventory (12,000)
Goodwill impairment loss ( 5,000) 73,000
Adjusted net assets, 12/31/08 P1,103,000
MINAS P 441,200
d. Consolidated Net Income

Net income from own operations – Baron (P284,000 – P84,000) P 200,000
Unrealized gain on sale of land (10,000)
Adjusted net income- Baron P 190,000
Adjusted net income of Duke (P133,000 x 60%) 133,000
Problem 18 – 12
Pluto Corporation and Subsidiary Star Corporation

Comparative Consolidated Income Statement
Years Ended December 31, 2007 and 2008
. December 31 .
. 2008 2007 .
Sales P800,000 P660,000
Cost of goods sold 442,000 368,000 .
Gross profit 358,000 292,000
Operation expenses 178,000 138,000 .
Consolidated net income 180,000 154,000
Minority interest in net income of subsidiary 10,000 10,000 .
Attributable to equity holders of Pluto P170,000 P144,000 .
Supporting computations:
. .
. 2008 2007 .
Consolidated sales:
Combined sales P850,000 P700,000
Less: intercompany sales (50,000) (40,000) .
Consolidated sales P800,000 P660,000 .
Consolidated cost of goods sold:

Combined costs of good sold P490,000 P400,000
Intercompany sales (50,000) (40,000)
Unrealized profit in ending inventory 10,000 8,000
Unrealized profit in beginning inventory (8,000) .
Consolidated cost of goods sold P442,000 P368,000 .
Consolidated operating expenses
83
Combined operating expenses P180,000 P140,000
Realized gain on sale of equipment (P10,000/.2) (2,000) (2,000) .
Consolidated operating expenses P178,000 P138,000 .
Minority interest in net income of subsidiary

Star Company’s reported net income P65,000 P50,000
Gain on upstream sale of land (5,000)
Unrealized gain in upstream, inventory sales (10,000) .
Realized net income P50,000 P50,000
Minority interest 20% 20% .
Minority interest in net income of subsidiary P10,000 P10,000 .
CHAPTER 19
Multiple Choice
19-1: d.
Direct exchange rate:

December 1 1 ÷ 2.22 yen = P 0.45
December 31 1 ÷ 2.70 yen = 0.37
Decrease in forex rate P 0.08
Forex gain (200,000 yen x P0.08) P 16,000
19-2: c.
Forex rate, December 1 P 0.45

Forex rate, December 31 0.47
Increase in forex rate P 0.02
Forex gain (1,500,000 yen x P0.02) P 30,000
19-3: d.
84
September 30:
Forex rate, September 1 P 5.61
Forex rate, September 30 5.59
Forex gain (200,000 hkg.$ x P0.02) P 4,000
December 31:
Forex rate, October 1 P 5.59
Forex rate, December 30 5.62
Increase in forex rate P 0.03
Forex loss (200,000 hkg.$ x P0.03) P (6,000)
19-4: c.
Forex loss on importation of merchandise:

Peso equivalent, January 10, 2004 P 600,000
Peso equivalent, April 20, 2004 608,000
Forex loss (increase) P (8,000)
Forex loss on notes payable:

Peso equivalent, September 1, 2004 P 3,000,000
Peso equivalent, December 31, 2004 3,200,000
Forex loss on principal P (200,000)
Add: Forex loss on interest
Based on P 3,2000,000 P 120,000
Based on P 300,000,000 (P3,000,000x10%x4/12) 100,000 20,000
Forex loss P (220,000)
Total forex loss (P 8,000 + P220,000) P (228,000)
19-5: a.
Direct forex rate – Transaction date (P 1 ÷ $0.018) P 55.5555

Direct forex rate – Balance sheet date (P 1 ÷ $0.017) 58.8235
Direct forex rate – Settlement date (P 1 ÷ $0.020) 50.0000
Forex gain (loss), 2004

Transaction date ($10,000 x P55.5555) P 555,555
Balance sheet ($10,000 x P 58.8235) 588,235
Forex loss (increase) P ( 32,680)
Forex gain (loss), 2005

Balance sheet date ($10,000 x P58.8235) P 588,235
Settlement data ($10,000 x P 50.00) 500,000
Forex gain (decrease) P 88,235
19-6: b.
Adjusted value of accounts receivable, 6/30 P 315,000

Peso equivalent, 7/27 300,000
19-7: a.
2004
Forex rate, 11/5/04 P 0.4295
Forex rate, 12/31/04 0.4245
Payable in foreign currency 50,000
Forex gain P 250
85
2005
Forex rate, 12/31/04 P 0.4245
Forex rate, 1/15/05 0.4345
Payable in foreign currency 50,000
Forex loss P (500)
19-8: a. (1000,000 FC x P 0.85)
19-9: c. (50,000 FC x P 0.6498)
19-10: b
Forward rate, 3/31/04 P 0.25

Selling spot rate, 4/30/04 0.22 Decrease
P 0.03
Forward contract receivable 100,000 FC
Forex loss P 3,000
19-11: d. forex gain (loss) on purchase commitments is based on the changes in the forward rates.
Forward rates – December 31, 2004 P .0055

90-day forward rate .0055
On December 31, 2004, no changes in forward rates occurred, so no forex gains (losses) are to be
recognized on December 31, 2004 under both transactions.
19-12: b.
Forward contract receivable (P100,000 Baht x P1.650) P 165,000

Spot rate (100,000 Baht x P1.600) 160,000
19-13: d.
Import transaction – Based on spot rates:

12/31/04: Forex loss [1,000,000 Francs x (P6.01 – P6.16)] P (150,000)
Forward Contract – Based on forward rates:
12/31/04: Forex gain [1,000,000 Francs x (P6.06 – P6.07)] P 10,000
Net forex loss P (140,000)

19-14: b.
12/31/04: Forex gain [$5,000 x (P56.50 – P56.60)] P 500

3/31/04 : Forex loss:
Forward contract receivable ($5,000 x P56.60) P 283,000
Settlement at spot rate ($5,000 x P56.32) 281,600 (1,400)
Net forex loss P (900)
19-15: a.
Increase in forward rates:

Forward contract receivable, 11/1/04 (10,000 fc x P.78) P 7,800
Forward contract receivable, 12/31/04 (10,000 fc x P82) 8,200
Forex loss P (400)
19-16: b. Increase in forward rates [100,000 x (P.90 – P.93)]
86
19-17: c
Gain from increase in intrinsic value of put option 100
Loss from decrease in fair value of available for sale securities (100)
Loss from decrease in time value of the option (60)
Net loss on hedging activity 12/31/07 (60)
19-18: a
19-19: a
12/01/08: A$ 70,000/P42,000= 1.667 A$ to P1.00
12/31/08: A$ 70,000/P41,700= 1.679 A$ to P1.00
19-20: a, A$70,000 x P.57 (December 31 forward rate)
19-21: a, The balance will not change, because it is denominated in Philippine peso.
19-22: a
P82,000/KRW 400,000 = P.205
The P82,000 is the amount of the peso payable to bank. This amount is computed using the forward rate.
Problems
87
Problem 19-1
Foreign Foreign
Currency Currency
Accounts Accounts Transactions Transactions
Receivable Payable Exchange Loss Exchange Gain
Case 1 NA P 160,000 (a) NA P 20,000 (b)
Case 2 P 38,000 © NA NA P 2,000 (d)
Case 3 NA P 13,500 (e) P 1,500 (f) NA
Case 4 P 6,250 (g) NA P 1,250 (h) NA
(a) $40,000 x P4.00

(b) $40,000 x (P4.00 – P4.50)
(c) $20,000 x P1.90
(d) $20,000 x (P1.90 – P1.80)
(e) $30,000 x P.45
(f) $30,000 x (P.45 – P.40)
(g) $2,500,000 x P.0025
(h) $2,500,000 x (P.0025 – P.003)
Problem 19-2
a. May 1 Inventory (or purchases) 800,000

Foreign purchases denominated in
Philippine pesos.
June 20 Accounts payable 800,000

Cash 800,000
Settlement.
July 1 Accounts receivable 500,000

Sales 500,000
Foreign sales denominated in
Philippine pesos.
August 10 Cash 500,000

Collections.
b. May 1 Inventory (or purchases) 800,000

Foreign purchases denominated in yen:
P800,000 / P.40 = 2,000,000 yen
June 20 Foreign currency transaction loss 100,000

P900,000 = 2,000,000 yen x P.45
800,000 = 2,000,000 yen x P.40
P100,000
88
Cash or foreign currency 900,000
Settlement denominated in yen.
July 1 Accounts receivable 500,000

Sales 500,000
Foreign sale denominated in Hongkong $
P500,000 / P5.20 = 96,154 Hkg $
August 10 Accounts receivable 1,924

Foreign currency transaction gain 1,924
P501,924 = 96,154 Hkg. $ x P 5.22
500,000 = 96,154 Hkg. $ x P 5.20
P 1,924
Cash or foreign currency 501,924

Collections
Problem 19-3
a. No net exposure between November 1 and March 1. Michael, Inc. has hedged its foreign currency purchase commitment with a
forward contract to receive an equal number of foreign currency units.
b. November 1: Forward contract receivable 3,076,800

Forward contract payable 3,076,800
To record forward contract at forward rate:
240,000 Ringgit x P12.82
December 31: Forex loss 4,800

Forward contract receivable 4,800
To record forex loss for the decrease in
forward rate, P240,000 x P.02
December 31: Firm commitment for merchandise 4,800

Forex gain 4,800
To record increase in fair value of the
Purchase commitment, and resultant
gain or the decrease in the forward rate.
March 1: Forward contract payable 3,076,800

Cash 3,076,800
To record settlement of forward contract.
Cash (240,000 x P12.86) 3,086,400

Forex loss (240,000 x P.02) 4,800
Forward contract receivable 3,091,200
To record receipt of 240,000 Ringgit when
the spot rate is P12.86.
Firm commitment for merchandise 4,800

Forex gain 4,800
To record change in value of the firm
89
commitment.
Purchases (240,000 x P12.82)3,076,800

Firm commitment for merchandise 9,600
Cash 3,086,400
To record purchases of merchandise.
Problem 19-4
June 1: Purchases 460,000

To record purchases (¥ 1,000,000 x P.46).
Forward contract receivable (fc) 480,000

Forward contract payable 480,000
To record purchase of ¥ 1,000,000 for delivery
in 60 days at forward rate of P.48.
June 30: Forex loss 20,000

To record forex loss for the increase in spot
rate, ¥ 1,000,000 x (P.46 – P.48)

Forex gain 20,000
To record forex gain for the increase
in forward rate, ¥ 1,000,000 x (P.48 – P.50).
August 1: Accounts payable 480,000

Forex loss (¥ 1,000,000 x P.03) 30,000
Cash (¥ 1,000,000 x P.51) 510,000
To record settlement.
Cash (¥ 1,000,000 x P.51) 510,000

Forex gain 10,000
To record receipt of ¥ 1,000,000 at spot rate

Cash 480,000
Problem 19-5
December 1: Accounts receivable 1,280,000

Sales 1,280,000
To record sale (100,000 Rial x P12.80).

Forward contract payable (fc) 1,240,000
To record forward contract to sell 100,000 Rial
at a 90-day forward rate of P12.40.
December 31: Forex loss 10,000

To adjust receivable for the decrease in spot rate
and record forex loss, 100,000 Rial x (P12.80 – P 12.70).
90
Forex loss 20,000
Forward contract payable (FC) 20,000
To record forex gain for the increase in forward rate,
100,000 Rial x (P12.40 – P12.60).
March 1: Cash 1,290,000

Forex gain(100,000 Rial x P.20) 20,000
Accounts receivable 1,270,000
To record collection of accounts receivable at spot rate.
Forward contract payable (FC) 1,260,000

Forex loss 30,000
Cash (100,000 Rial x P12.60) 1,290,000
To record delivery of 100,000 Rial.
Cash 1,240,000
To record collection for forward contract.
Problem 19-6
October 1: Forward contract receivable 17,400

Forward contract payable (fc) 17,400
(15,000 Baht x P1.16)
December 31: Forex loss 150

Forward contract payable (fc) 150
15,000 Baht x (P1.16 – P1.17).
Firm commitment for materials 150

Forex gain 150
To record increase in fair value of sales
commitment.
April 1: Cash 17,400

To record collection of forward contract.

Forex gain 150
Cash /fc (15,000 Baht x P1.16) 17,400
To record delivery of 15,000 Baht at forward rate
of P1.16.
Forex loss 150

Firm commitment for materials 150
Cash/fc (15,000 Baht x P1.18) 17,700

Sales 17,700
To record sales.
Problem 19-7
Contract 1:
October 1: Forward contract receivable (fc) 160,000

To record forward contract to buy ¥400,000 at P40.
91
December 31: Forward contract receivable (fc) 4,000
Forex gain 4,000
To record forex gain for the increase in forward
rate of P.01.
April 1: Cash (¥ 400,000 x P.43) 172,000

Forex gain 2,000
To record receipt of ¥400,000 at spot rate of
P.43.

Cash 160,000
To record payment of forward contract.
Contract 2:
December 1: Forward contract receivable 9,200

To record forward contract to sell 2 million Rupiah
at P.0046.
December 31: Forward contract payable 200

Forex gain 200
To record forex gain for the decrease in forward
Rate by P.0001.
March 1: Cash 9,200


Forex loss 800
Cash 9,800
To record payment of 2 million Rupiah at spot
rate of P.0049.
Problem 19-8
1. Investment in Siam 1,920,000

Cash 1,920,000
To record purchase of 40% of Siam Company.
Cash 123,200
Investment in Siam 123,200
To record dividends from Siam for 20 x 1 (P308,000 x 40%)
Investment in Siam 243,200

Other comprehensive income-translation adjustment 128,800
Income from Siam 372,000
To record income from Siam for 20x1 computed as follows:
Share of reported income (P930,000 x 40%) P 372,000
Share of equity adjustment (P322,000 x 40%) 128,800
2a. Cash (fc) 1,860,000

Loans payable (fc) 1,860,000
To record loan of 1,200,000 NT dollar at P1.55.
b. Loan payable (fc) 60,000

Other comprehensive income-translation adjustment 60,000
To adjust loan to current rate (P1.55 – P1.50) x 1,200,000.
c. Interest expense 91,500

Interest payable (fc) 90,000
Forex gain 1,500
92
To accrue interest expense (1,200,000 x 10% x ½ year x P1.525)
And record interest payable (1,200,000 x 10% x ½ year x P 1.50).
Problem 19-9
1. Cash (fc) 168,000

Accounts receivable (fc) 167,000
Forex gain 1,000
To record collection of 100,000 Baht from Queens Company.

Forex loss 1,000
Cash (fc) 168,000
To record delivery of 100,000 Baht in settlement of the
forward contract denominated in Baht.
Cash 164,000
To record receipt of Phil. Pesos in settlement of the
forward contract receivable.
2. Forward contract payable 76,000

Cash 76,000
To record payment of forward contract payable.
Cash (fc) 75,000

Forex loss 500
To record collection of forward contract receivable:
(10,000,000 Rupiah x P.00750)
Accounts payable (fc) 75,500

Cash (fc) 75,000
Forex gain 500
To record payment of accounts payable to Indon Co.
(1,000,000 Rupiah x P.00750)
Problem 19-10
1. Schedule of forward contract items at December 31, 2004 balance sheet.
Current assets:
Forward contract receivable (Siam hedge: in Phil. pesos) P 168,000
Forward contract receivable (Indon hedge: 10,000,000 x P.0077) 77,000
Forward contract receivable (Speculation in Yen: 200,000 x P.670) 134,000
Change in value of firm commitment 1,000
Current liabilities:
Accounts payable (Indon account: 10,000,000 x P.0077) P 77,000
Forward contract payable (Siam hedge: 100,000 Baht x P1.690) 169,000
Forward contract payable (Speculation in Yen: payable in Phil. pesos) 130,000
2. Forex gain or loss for 2004:
Indon: P2,000 loss on account payable offset by P2,000 gain on
93
Forward contract receivable P -
Siam: Forex loss is offset by the change in the value of firm

commitment -
Speculation: The speculation is accounted for at the forward rate

throughout the life of the contract. Therefore, the forward
contract receivable is adjusted to P 134,000 (the rate for
60-day futures at December 31 and the P4,000 gain is
recognized). 4,000
Forex gain for 2004 in the income statement P 4,000
Problem 19-11
a. Entry to record the purchase of the call options on November 30, 2007
November 30, 2007

Call Options 20,000
Cash 20,000
Purchase call options for 10,000 barrels
of oil at a premium of P2 per barrel for
March 1, 2008. The options are at the money
of P30 per barrel; therefore, the entire
P20,000 is time value
b. Adjusting entry on December 31, 2007:
December 31, 2007

Loss on hedge activity 14,000
Call options 14,000
Record the decrease in the time value
of the options to current earnings.
Call options 10,000

Other comprehensive income 10,000
Record the increase in the intrinsic value
of the options to other comprehensive income.
c. Entries to record March 1, 2008, expiration of options, the sales of option, and the purchase of oil.
March 1, 2008
Loss on hedge activity 6,000

Call options 6,000
Record the decrease in the time value
of the options to current earnings.
The options have expired.
Call options 20,000
Other comprehensive income 20,000
Record the increase in the intrinsic value
of the options to other comprehensive income.
Cash 30,000
Call options 30,000
Record the sale of the call options.
Oil inventory 330,000

Cash 330,000
Record the purchase of 10,000 barrels
of oil at the spot price of P33 per barrel.
d. June 1, 2008, entries to record the sale of the oil and other entries:
June 1, 2008
Cash 340,000
94
Sales 340,000
Record the sale of 10,000 barrels
of oil at P34 per barrel

Oil inventory 330,000
Recognize the cost of the oil sold.
Other comprehensive income- reclassification 30,000

Reclassify into earnings the other
comprehensive income from the cash flow hedge.
CHAPTER 20
MULTIPLE CHOICE
20-1: b
Bad debt expense (S$ 6,000 x P28.20) P169,200

Amortization of patents (S$ 4,000 x P28.20) 112,800
Rent expense (S$ 10,000 x P28.20) 282,000
Total P564,000
Average rate (P28.20) is used to translate all expenses since this is a reasonable
estimation.
20-2: b
Machinery [(24,000 Ringgit ÷ 10) x P10.42] P 25,008

Equipment [(12,000 Ringgit ÷ 10) x P10.42] 12,504
Total depreciation P 37,512
20-3: d
Accounts receivable P120,000

Property and equipment (net) 275,000
Total P450,000
20-4: a
Depreciation expense (H$ 12,000 x P5.80) P 69,600

Bad debts (H$ 8,000 x P5.80) 46,400
Rent (H$ 20,000 x P5.80) 116,000
Total P232,000
95
Average rate for the year is used in translating depreciation expense because this is more reasonable estimation than the rate
when the related asset was acquired (P4.80).
20-5: d
[25,000 LCU x (1 ÷ 2)]
20-6: d
Long-term receivable: [1,500,000 LCU x (1 ÷ 1.5 LCU)] P1,000,000
Long-term debt: [2,400,000 LCU x (1 ÷ 1.5 LCU)] P1,600,000
20-7: b (NT Dollar 10,000 x P1.70)
20-8: b
Beginning inventory 40,000 Rupee

Purchases 300,000
Goods available for sale 340,000
Ending inventory 30,000
Cost of goods sold 310,000 Rupee
Translated cost of goods sold (310,000 Rupee x P.5745) P178,095
20-9: c
NZ Dollar Rate Phil Peso

Net assets, 1/1/05 20,000 P15 P300,000
Increase in net assets:
Net income, 2005 (30,000 – 20,000) 10,000 P19 190,000
Net assets 12/31/05 30,000 P490,000
Net assets at current rate 30,000 P21 630,000
Translation adjustment, 2005 (positive) P140,000
20-10: b
Equipment [800,000 x (1 ÷ 50)] P16,000
Accumulated depreciation [560,000 x (1 ÷ 50)] P11,200
Depreciation [80,000 x (1÷ 50)] P 1,600
20-11: a (25,000 Rupee x P1.24)
20-12: d (5,000 Rupee x P1.30)
20-13: c
Investment cost, Jan. 1, 2005 P402,000

Less: Book and fair value of net assets acquired
(300,000 Rp x P1.20) 360,000
Goodwill P 42,000
Pesos Rupee
Goodwill P42,000 35.000 (P42,000 / P1.20)
Impairment 4,340 (3,500 Rp x P1.24) 3,500
Balance P37,660 31,500
Translated balance (31,500 Rp x P1.32) P41,580
96
Less: umimpaired goodwill 37,660
Translation adjustment P 3,920
20-14: b
Translation adjustment from translating the trial balance P12,000 Cr

Translation adjustment from translating goodwill (per 20-13) 3,920 Cr
Total translation adjustment P15,920
20-15: b
Investment in Subsidiary account, Jan. 1, 2005 P1,600,000

Share in subsidiary net income [(800,000 yen x 70%) x P.57] 319,200
Translation adjustment (P25,000 x 70%) 17,500
Share of subsidiary dividends [(50,000 yen x 70%) x P.59] ( 20,650)
Investment in Subsidiary account, December 31, 2005 P1,916,050
20-16: d
20-17: a
Phil Peso Thailand Baht
Initial inventory transfer date:
Selling price P120,000÷1.60 75,000 B
Cost (80,000)
Profit 40,000
Balance sheet date (75,000 x 1.70) 127,500 75,000 B
20-18: a (P127,500 – 40,000)
20-19: a
Yen Exchange Rate Phil Peso
Net asset beginning 200,000 .44 88,000
Net income 200,000 .46 92,000
Net asset translated at rate:
During the year 400,000 180,000
At end of year 400,000 .48 192,000
Translation adjustment (credit) (12,000)
20-20: a (70,000 rupee x P1.50)
20-21: c
Investment cost P1,210,000
Book value of interest acquired (1,100,000 x 1.10) x .80 968,000
Goodwill 242,000
PROBLEMS
Problem 20-1
a.
Pilipino Company
Translation Working Paper
December 31, 2005
Yen Exchange Rate Phil. Pesos

Cash 40,000 .40 CR 16,000
97
Accounts receivable 120,000 .40 CR 48,000
Inventory 100,000 .40 CR 40,000
Plant and equipment 700,000 .40 CR 280,000
Cost of sales 360,000 .425 AR 153,000
Operating expenses 140,000 .425 AR 59,500
Depreciation expenses 60,000 .425 AR 25,500
Total 1,520,000 622,000
Accumulated Other Comprehensive Income -
Translation Adjustment 25,000
Total debits 647,000
Accumulated depreciation 240,000 .40 CR P96,000

Accounts payable 80,000 .40 CR 32,000
Common stock 200,000 .44 HR 88,000
Retained earnings, Jan. 1 400,000 .44 HR 176,000
Sales 600,000 .425 AR 255,000
Total credits 1,5200,000 647,000
CR – Current Rate
AR – Average Rate
HR – Historical Rate
b. Proof of Translation Adjustment
Yen Translation Rate Phil. Pesos

Net assets at beginning of year 600,000 .44 264,000
Adjustment for changes in net assets
Position during year
Net income for the year 40,000 .425 17,000
Net assets translated at rates in effect
For those items 281,000
Net assets at end of year 640,000 .40 256,000
Change in translation adjustment during year
(to OCI) – net decrease (debit) 25,000
Accumulated OCI – translation adjustment,1/1 -0-
Accumulated OCI – translation adjustment,

Dec. 31 (debit) 25,000
Problem 20-2
(1) Trial Balance Translation

Thailand Translation Philippine
Baht Rate Pesos
Cash 7,000 1.60 CR 11,200
Accounts receivable (net) 20,000 1.60 CR 32,000
Receivable from Davao 5,000 1.60 CR 8,000
Inventory 25,000 1.60 CR 40,000
Plant and equipment 100,000 1.60 CR 160,000
Cost of goods sold 70,000 1.50 AR 105,000
Depreciation expense 10,000 1.50 AR 15,000
Operating expenses 30,000 1.50 AR 45,000
Dividends paid 15,000 1.54 HR 23,000
Total debits 282,000 439,300
Accumulated depreciation 10,000 1.60 CR 16,000

Accounts payable 12,000 1.60 CR 19,200
Bonds payable 50,000 1.80 CR 80,000
Common stock 60,000 1.46 HR 87,600
Sales 150,000 1.50 AR 225,000
Total 282,.000 427,800
98
Accumulated other comprehensive
Income – Translation adj. (credit) 11,500
Total credits 439,300
CR – Current Rate
AR – Average Rate
HR – Historical Rate
(2) Proof of Translation Adjustment
Thailand Translation Philippine

Baht Rate Pesos
Net assets at beginning of year 60,000 1.46 87,600
Adjustments for changes in net
asset position during year:
Net income for year (sch. 1) 40,000 1.50 60,000
Dividends paid (15,000) 1.54 (23,100)
Net assets translated at:
Rates during year 124,500
Rates at end of year 85,000 1.60 136,000
Change in OCI – translation adj.
during year – Net increase 11,500
Accumulated OCI – translation
adjustment – Jan. 1 -0-
Change in OCI – translation
adjustment, Dec. 31 (credit) 11,500
Schedule 1:
Sales 150,000 Thailand Baht

Cost of goods sold ( 70,000)
Depreciation expense ( 10,000)
Operating expenses ( 30,000)
Net income 40,000 Thailand Baht
(b) The change in the translation adjustment of P11,500 is included as a credit in the other comprehensive income on the Statement
of Comprehensive Income. The other comprehensive income is then accumulated and reported in the stockholders’ equity section of the
consolidated balance sheet as presented below:
Net assets P136,000
Common stock P 87,600

Retained earnings, Dec. 31 36,900
Accumulated Other Comprehensive Income 11,500
Total P136,000
Problem 20-3
a. Translation Work paper
Exchange Philippine
Brunei $ Rate Pesos
Cash 1.600 33 CR 52,800
Accounts receivable 2,500 33 CR 82,500
Inventory 4,000 33 CR 132,500
Plant and equipment 35,000 33 CR 1,155,000
Cost of sales 17,000 31 AR 527,000
Operating expenses 7,000 31 AR 217,000
Depreciation expense 3,000 31 AR 93,000
Dividends 1,500 32 HR 48,000
Total debits 71,600 2,307,300
Accumulated depreciation 9,000 31 AR 297,000
99
Accounts payable 2,600 33 CR 85,800
Common stock 20,000 30 HR 600,000
Retained earnings, Jan. 1 10,000 30 HR 300,000
Sales 30,000 31 AR 930,000
Total 71,600 2,212,800
Accumulated OCI – Translation
Adjustment 94,500
Total credits 2,307,300
Proof of Translation Adjustment (not required)
Translation rate
Brunei $ Philippine Pesos
Net assets at beginning of year 30,000 30 900,000
Adjustment for net assets position
during the year:
Net income 3,000 31 93,000
Dividends paid (1,500) 32 (48,000)
Net assets translated at rates
in effect for those items 945,000
Net assets at end of year 31,500 33 1,039,500
Change in translation adjustment during
Year to OCI – net increase (credit) 94,500
Accumulated OCI – translation adj. 1/1 -0-
Accumulated OCI – translation
Adjustment – 12/31 (credit) 94,500
b. Parent Company entries affecting Investment in Moslem Co. (equity method)
Jan. 2: Investment in Moslem Co. 900,000

Cash 900,000
To record investment cost.
Oct. 15: Cash 48,000

Investment in Moslem Co. 48,000
To record dividends received
Dec. 31: Investment in Moslem Co. 93,000

Investment income 93,000
To record equity in income of Moslem
Investment in Moslem Co. 94,500

Other Comprehensive Income – Translation
adjustment 94,500
To record parent’s share of change in translation
Adjustment
100
Problem 20-4
UK Company
Translation Working Paper
Exchange In
In Pounds Rate Phil. Pesos
Income Statement
Sales 90,000 P67.50 (A) 6,075,000
Cost of sales (80,000) 67.50 (A) (5,400,000)
Depreciation expense (1,500) 67.50 (A) (101,250)
Other expenses (5,750) 67.50 (A) (388,125)
Net income carried forward 2,750 185,625

Balance, 1/1 2,500 B 119,500
Net income from above 2,750 F 185,625
Balance, 12/31 5,250 305,125
Balance Sheet
Cash 2,500 67.60 (C) 169,000
Accounts receivable 4,000 67.60 (C) 270,400
Inventories, at cost 5,500 67.60 (C) 371,800
Prepaid expenses 750 67.60 (C) 50,700
Property, plant and equipment (net) 9,000 67.60 (C) 608,400
Total assets 21,750 1,470,300
Accounts payable 3,500 67.60 (C) 236,600

Current portion of long-term debt 500 67.60 (C) 33,800
Long-term debt 7,500 67.60 (C) 507,000
Capital stock 5,000 67.20 (H) 336,000
Retained earnings from above 5,250 1,418,525
Total
Cumulative translation adjustment:
Balance, 1/1 50,000
Current translation adjustment G 1,775
Balance, 12/31 51,775
Total liabilities and stockholders’ equity 21,750 1,470,300
Translation Code:
C = Current rate
H = Historical rate
A = Average rate
B = Balance in Philippine pesos at the beginning of the year.
F = Per Income Statement
Problem 20-5
Goodluck Corporation
Foreign Exchange Translation Worksheet
Trial Trial Income Balance

Balance Exchange Balance Statement Sheet
(In Pounds) Rate (In Pesos) (In Pesos) (In Pesos)
Cash 15,000 0.95 C 14,250 14,250
101
Marketable securities 25,000 0.95 C 23,750 23,750
Accounts receivable 60,000 0.95 C 57,000 57,000
Inventories 80,000 0.95 C 76,000 76,000
Property, plant and equip-net 420,000 0.95 C 399,000 399,000
Cost of goods sold 150,000 0.90 A 135,000 135,000
Depreciation expense 40,000 0.90 A 36,000 36,000
Other expenses 10,000 0.90 A 9,000 9,000
Totals 800,000 750,000 180,000 570,000
Accounts payable 50,000 0.95 C 47,500 47,500

Current portion of LT debt 40,000 0.95 C 38,000 38,000
Long-term debt 120,000 0.95 C 114,000 114,000
Sales 200,000 0.90 A 180,000 180,000
Other revenues 50,000 0.90 A 45,000 45,000
Capital stock 250,000 0,87 H 217,500 217,500
Retained earnings, 1/1 90,000 G 70,000 70,000
FC translation adjustment
Balance, 1/1 G 1,500 1,500
Current year B 36,500 36,500
Net income B (45,000) 45,000
Totals 800,000 750,000 180,000 570,000
Translation Code:
A = Average rate
B = Current rate
H = Historical rate
G = Given
B = Balancing amount
Problem 20-6
a. Direct and indirect exchange rates
Direct A$ Indirect
January 1, 2007 P.03333=1 A$30=P1
December 31, 2007 P.02857=1 A$35=P1
December 31, 2008 P .025=1 A$40=P1
The peso strengthened during 2007 because the number of A$ one Phil. Peso could acquire at the end of the year (35) is greater than
the number of A$ that could be acquired at the beginning of the year (30); therefore, the value of the peso has increased relative to
the A$ during 2007. The peso continued to strengthen during 2008.
b. Translated December 31, 2007, balance sheet:
Subsidiary’s Direct Translated

Trial Balance ExchangeTrial Balance
_ (in A$)__ Rate ( in $)___
Cash A$ 100,000 P.02857 P 2,857
Receivables 400,000 P.02857 12,857
Inventory 680,000 P.02857 19,428
Fixed assets 1,000,000 P.02857 28,570
Total R 2,230,000 P 63,712
Accumulated other
comprehensive income –
translated adjustment (debit)
Total debits 2,903
P 66,615
Current payables A$ 260,000 P.02857 P 7,428

Long-term debt 1,250,000 P.02857 35,713
Common stock 500,000 P.03333 16,665
Retained earnings 220,000 P.03333 6,809
102
Total credits A$2,230,000 P 66,615
P.03333= average of beginning and ending exchange rates, rounded to 4 decimal points: P.030945= [(P.03333 + P.02856) /2]
(Not required: Proof of translation adjustment (debit) of P 2,903)
Translation
___A$___ _ Rate_ _Dollars_
Net assets, 1/1/07 A$ 500,000 P.03333 P 16,665
Adjustment for changes in
net assets during year:
Net income 220,000 P.03095 6,809
Rates during year P 23,474
Rates at end of year A$ 720,000 P.02857 (20,570)
Change in translation
Adjustment during year (debit) P 2,904*
*Difference of P1 (P 2,904 – P 2,903) due to rounding of exchange rates.
c. Translated December 31, 2008, balance sheet:
Subsidiary’s Direct Translated

Trial Balance Exchange Trial Balance
(in A$) __Rate (in P)__
Cash A$ 80,000 P.025 P 2,000
Receivables 550,000 P.025 13,750
Inventory 720,000 P.025 18,000
Fixed assets 900,000 P.025 22,500__
Accumulated other A$ 2,250,000 P56,250
comprehensive income-
translation adjustment (debit) 5,635___
Total debits P61,885
(a)The retained earnings in pesos would begin with the December 31, 2007, peso balance (P6,809) that would be carried
forward. To this would be added 2008’s net income of A$90,000, which is the change in retained earnings in A$ multiplied by the
2008 exchange rate of P.02679 [(P.02857 + P.025/2)] which equals P2, 411. Therefore, translated retained earnings on December 31,
2008, is P9, 220 (P9, 220= P6, 809 + P2, 411)
(Not required: Proof of translation adjustment (debit) of P5, 635)
Australian Translation
Dollar _ Rate Pesos___
Net assets, 1/1/08 A$ 720,000 P.02857 P20, 570
Adjustment for changes in
net assets during year:
Net income 90,000 P.02679 2,411___
rates during year P22, 981
Other comprehensive income-
rate at end of year A$ 810,000 P.025 (20,250)__
Change in other comprehensive
income- translation
adjustment during year (debit) P2, 731
income- translation adjustment, 1/1/08 2,904___
income- translation adjustment, 12/31/08 (debit) P5, 635
103
d. The P2, 731 change in the accumulated other comprehensive income- translation adjustment during 2008 would be
reported as a component of other comprehensive income on 2008 statement of other comprehensive income.
CHAPTER 21
MULTIPLE CHOICE
21-1 b
21.2 a
21.3 a
21.4 b
21.5 b
21.6 a
21.7 c
21.8 a
21.9 a
21.10 c
21.11 d
21.12 b
21.13 b
21.14 a
21.15 a
Excess of income over expenses P 200

Depreciation 70
Increase in due from national government agencies ( 10)
Increase in prepaid rent ( 15)
Increase in accounts payable 30
Cash provided by operating activities P 275
PROBLEMS
Problem 21-1
1. Memo entry in the RAOPS, RAOMO, RAOCO and RAOFE.
2. Cash – National Treasury – MDS 2,000,000
104
Subsidy Income from National Government 2,000,000
3. Memo entry in the RAOPS, RAOMO, RAOCO and RAOFE.
4. Office equipment 50,000

5. Cash – Disbursing Officer 40,000

Cash – National Treasury – MDS 40,000
6. Salaries and wages – Regular 44,000

Personal economic relief allowance (PERA) 3,000
Additional compensation 3,000
Due to BIR 3,500
Due to GSIS 5,500
Due to Pag-ibig 400
Due to Philhealth 600
Cash – Disbursing Officer 40,000
7. Due to GSIS 5,500

Due to Pag-ibig 400
8. Life and retirement contribution 5,500

Pag-ibig contribution 400
Philhealth contribution 600
9. Electricity 5,000
Telephone expense – Landline 4,000
Due to BIR 5,000
10. Due to BIR 4,500

Subsidy income from national government 4,500
11. Cash – Collecting Officer 90,000

Sales revenue 40,000
Permit fees 30,000
Miscellaneous income 20,000
12. Cash in Bank – Local currency – Current account 90,000

Cash – Collecting Officer 90,000
Problem 21-2
Building
1. Memo entry in RAOCO.
2. Advances to contractor 240

Cash – National Treasury – MDS 240
3. Construction in progress – Other Public Infrastructure 400

Advances to contractor 240
Accounts payable 160
4. Accounts payable 160

Due to BIR 40

105
Due to BIR 40
Cash – National Treasury 360
7. Due to BIR 80
Subsidy income from national government 80
8. Office Building 800

Construction in progress – OPI 800
Repairs of Building
1. Memo entry in RAOCO.
2. Construction materials inventory 70

Accounts payable 70
Due to BIR 7

Construction materials inventory 60
5. Memo entry in the RAOCO
6. Cash – Disbursing Officer 36


Due to BIR 4
Cash – Disbursing Officer 36
8. Due to BIR 47
9. Office building 100

Construction in progress – OPI 100
Land:
1. Memo entry in the RAOCO, P100.
2. Land 100

Due to BIR 10
106
Problem 21-3
(a) Journal Entries:
1. Memo entry in the Registry of Obligations and Allotments.
2. Cash – National Treasury – MDS 2,500

3. Memo entry in Registry of Obligations and Allotments.
4. Office equipment 120

5. IT equipment and software 30

Accounts payable 30
6. Prepaid rent 60
7. Electricity expense 50
8. Telephone expense – Landline 40

9. Petty cash fund 45


Due to BIR 12

12. Due to BIR 12

13. Cash – Collecting Officer 50

Other service income 10
Sales revenue 40
14. Cash in bank – LCCA 50

Cash – Collecting Officer 50
107
(b) Pre-closing Trial Balance
Petty cash fund 45

Cash in Bank – Local Currency – Current Account 50
Prepaid rent 60
Office equipment 120
IT equipment and software 30
Sales revenue 40
Electricity expense 50
Telephone expense – landline 40
Total 2,562 2,562
© Adjusting Entries
(1) Depreciation – Office equipment & software 20

Depreciation – IT equipment 5
Accumulated depreciation – Office equipment 20
Accumulated depreciation – IT equip & software 5
(2) Rent expense 30

Prepaid rent 30
Closing Entries:
(1) Unused National Clearing Account (NCA)

NCA received during the year 2,500

Less: MDS check issued 333
Unused NCA 2,167
(2) Income accounts:

Sales revenue 40
Income and expense summary 395
(3) Expense accounts:

Income and expense summary 90
(4) Income and expense summary 305

Retained operating surplus 305
(5) Retained operating surplus 305

Government equity 305
Problem 21-4
Agency VV
Statement of Income and Expenses
Income:
Subsidy income from national government P1,700
Less: Reversion of unused NCA 800 P900
Less: Expenses
108
Salaries and wages – Regular P 320
Personnel Economic Relief Allowance 40
Additional compensation 40
Life and retirement insurance contribution 60
Pag-ibig contribution 10
Philhealth contgribution 10
Traveling expense – Local 35
Office supplies expense 60
Janitorial services 30
Security services 35
Repairs and maintenance – Office building 65
Depreciation – Office building 15
Depreciation – office equipment 10
Depreciation – furniture and fixtures 5
Depreciation – IT equipment and software 5 860
Net income over expenses P 40
Agency VV
Balance Sheet
As of December 31, 2008
ASSETS
Current Assets
Cash:
Cash in vault P 200
Cash – collecting officer 500
Cash – disbursing officer 1,000
Petty cash fund 150
Cash in bank – LCCA 350 P2,200
Receivables:
Accounts receivable P 120
Less: Allowance for doubtful accounts 20 100
Inventories:
Office supplies inventory 30
Other current assets 15
Long-term investment:
Investment in stock 400
Property, Plant and Equipment:
Land 600
Office building 650
Less: accumulated depreciation 50 600
Office equipment 250
109
Furniture and fixtures 110
IT equipment and software 190
Less: accumulated depreciation 25 165 1,695
Total assets 4,440
LIABILITIES AND EQUITY

Liabilities
Current liabilities
Due to BIR 50
Due to GSIS 30
Due to Pag-ibig 25
Other payables 15 330
Equity:
Government equity 4,110
Total liabilities and equity 4,440
CHAPTER 22
Multiple Choice
22-1: b. (P500,000 – P300,000)
22-2: d.
The total tuition fees for educational and general purposes.
22-3: d. (P1,240,000 – P160,000)
22-4: a.
Unrestricted cash contribution received from donors are to be reported as increase in net cash
provided by operation.
22-5: d.
The remaining contribution of P5,000 on December 31, 2004.
22-6: b.
Unregistered pledges from donors are treated as revenues at the time of the pledge.
22-7: d.
Patient revenues P 5,000,000

Nursing services 1,000,000
Professional services 500,000
Total revenues P 6,500,000
Less: Staff discounts P50,000
Allowances 230,000
Third party payors 800,000 1,080,000 Net revenues
P 5,420,000
Bad debts are treated in the usual manner as expense.
22-8: a.
110
As of July 31, 2004, all of the funds are properly includible in the Plan Funds, for a total of
P900,000.
22-9: c. (P800,000 – P110,000)
22-10: d.
Patient revenues (net of charity care) P 600,000

Less: contractual adjustments 200,000
Net patient service revenues P 400,000
22-11: c.
22-12: c.
The contributed services are debited to Salary Expense account and credited to Contribution
Revenue account.
22-13: c.
The net effect on unrestricted net assets of spending P10,000 on research is zero.
22-14: b. (P5,000,000 + P50,000)
The P1,000,000 contribution from the donor, who stipulated that the contribution be invested
Indefinitely, should be reported as permanently restricted revenue.
22-15: c.
22-16: b.
Both are treated as a financing activity on the statement of cash flows.
22-17: a.
Cash flows from operating activities would include both the cash received from patient service
Revenue of P300,000 and the cash received from gift shop sales of P25,000.
22-18: b.
Cash received from patient revenue (collection of receivables) and from tuition revenue are both
included in the amount reported for cash flows from operating activities. The other cash receipts
would be reported as increases in cash flows provided by financing activities.
22-19: b.
Expirations of donor restrictions on temporarily restricted net assets should be reported on the
Statement of operations as net assets released from restrictions.
22-20: c.
Current funds revenues include (1) all unrestricted gifts and other unrestricted resources earned
during the reporting period, and (2) restricted current funds to the extent that such funds were
expended for current operating purpose. Therefore, the amount that should be included in current
funds revenue is:
Unrestricted gifts received:

Expended P600,000
Not expended 75,000
Restricted gifts received
Expended 100,000
111
Total P775,000
Problems
Problem 22-1
1. Pledges receivable 300,000

Allowance for uncollectible pledges 10,000
Contribution revenue 270,000
2. Cash 260,000
Pledges receivable 260,000
3. Cash 40,000
Fund raising expense 5,000
Fund raising revenue 45,000
4. Investment 35,000
Cash 35,000
5. Cash 5,000
Sales – public revenue 5,000
6. Salaries 90,000
Employee fringe benefits 15,000
Payroll taxes 16,000
Supplies 7,000
Telephone 1,500
Utilities 6,000
Rent 10,000
Conference, conventions and meetings 5,000
Cost of sales to public 1,000
Miscellaneous 3,000
Cash 154,500
7. Utilities 1,000
Salaries 5,000
Accounts payable or accrued expense payable 6,000
8. Fund Balance - Unrestricted 10,000

Fund balance – Restricted to purchases
of new equipment. 10,000
Problem 22-2
112
(1) Accounts receivable 80,000
Patient service revenues 80,000
To record gross patient service revenue for the month
at full rates.

Patient service revenues 2,500
To record receivable from Social Medicare.
Contractual adjustments 6,000

To record contractual adjustments allowed.
Doubtful accounts 8,000

Allowance for doubtful accounts 8,000
To provide allowances for doubtful accounts.
(2) Salaries expense 9,800

Contribution revenues 9,800
To record donated services (10,000 – 200).
(3) Pledges receivable 5,000

Contribution revenues 5,000
To record pledges received from donors.
Cash 3,500
Pledges receivable 3,500
To record pledges collected.
Provisions for doubtful pledges 800

Allowance for doubtful pledges 800
To provide doubtful pledges.
(4) Cash 3,000

Fund balance 3,000
To record receipt of cash from restricted fund.
Plant assets 3,000

Cash 3,000
To record acquisition of new surgical equipment.
Problem 22-3
Plant Fund Ledger Account:
(1) Equivalent 50,000

Fund Balance 50,000
To record acquisitions of computers from unrestricted fund.
(2) Buildings 2,000,000

Cash 250,000
113
Mortgage notes payable 1,750,000
To record construction of new building financed in
part by 5% mortgage note payable.
Quasi-Endowment Fund Ledger Account:
(3) Cash 110,000

Investments 100,000
Payable to Unrestricted fund 10,000
To record sale of investments at a gain, the use of
which is unrestricted.
Unrestricted Fund Ledger Account:
(1) Undesignated fund balance 50,000

Cash 50,000
To record acquisitions of computers to be carried in
Plant Fund.
(2) Cash 2,000,000

Contribution revenues 2,000,000
To record receipt of unrestricted gift.
(3) Receivable from quasi-endowment fund 10,000

To record investment gain receivable.
Problem 22-4
Nonprofit Trade Association

Statement of Activities
Year Ended June 30, 2004
Revenues and Gains:

Membership dues P184,000
Conferences and meetings 321,000
Publications and advertising sales 143,000
Special assessments 50,000
Investment income, including net gains 11,000
Total P709,000
Expenses:
Member services P 56,000
Conferences and meetings 166,000
Technical services 218,000
Communications 61,000
General administration 154,000
114
Membership development 27,000 682,000
Increase in unrestricted net assets 27,000
Net assets, beginning of year 285,000
Net assets, end of year P312,000
Nonprofit Trade Association

Statement of Financial Position
June 30, 2004
ASSETS
Current assets Cash
P 7,000
Short-term investments 217,000
Accounts receivable (net) 25,000
Publications inventory 61,000
Total current assets 310,000
Other assets 28,000
LIABILITIES AND NET ASSETS

Current liabilities
Accounts payable and accrued liabilities P 48,000
Deferred membership dues 131,000
Total current liabilities 179,000
Net assets (unrestricted) 312,000
Total liabilities and net assets P491,000
Problem 22-5
Children Association
Statement of Activities
Changes in unrestricted net assets:

Revenues and gains:
Contributions P320,000
Membership dues 25,000
Program service fees 30,000
Total unrestricted revenues and gains P385,000
Expenses:
Programs P270,000
Management and general expenses 47,000
Fund raising 8,000 325,000
Increase in unrestricted net assets P 60,000
Changes in temporarily restricted net assets:
Contributions P 15,000
Expenses:
Management and general expenses P 4,000
Fund raising expenses 1,000 5,000
Increase in temporarily restricted net assets P 10,000
Increase in net assets P 70,000
Net assets, beginning of year (P12,000 + P26,000 + P3,000) 41,000
Net assets, end of year P111,000
115
Children Association
December 31, 2004
ASSETS
Cash (P40,000 + P9,000) P 40,000
Bequest and interest receivable (P5,000 + P1,000) 6,000
Pledges receivable (net) (P12,000 – P3,000) 9,000
Investments, at cost 100,000

Liabilities P 51,000
Accounts payable and accrued liabilities (P50,000 + P1,000) 2,000
Deferred revenues P 53,000
Total liabilities
Net assets:
Unrestricted (P38,000 + P60,000) P 98,000
Temporarily restricted (P3,000 + P10,000) 13,000
Total net assets P111,000
Total liabilities and net assets P164,000
Problem 22-6
San Pedro Hospital

June 30, 2004
ASSETS
Current assets
Cash P 222,000
Accounts receivable (net of allowance of P5,000) 20,000
Inventories 50,000
Total current assets P 302,000
Investments 660,000
Property, plant and equipment (net of accumulated depreciation of P140,000) 160,000

LIABILITIES
Current liabilities:
Accrued expenses 17,000
Deferred revenues 11,000
Current portion of long-term debt 24,000
Total current liabilities P 97,000
NET ASSETS
Unrestricted P 148,000
Temporarily restricted 232,000
Permanently restricted 520,000
Total net assets P 900,000
Total liabilities and net assets P1,122,000
116

CHAPTER 12 Simplified)

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CHAPTER 12 Simplified)

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CHAPTER 12

12-1: d. This is recorded when the working fund is replenished.

Jan. 1, 2008 Jan. 1, 2009

( Branch Books) (HomeOffice Books)

Home Office Books Branch Books

1. Investment in branch 30,000 Cash 30,000

2. Investment in branch 75,000 Shipment from home office 75,000

3. No entry Purchases 10,000

4. No entry Accounts receivable 125,000

5. Shipment to branch 2,000 Home office 2,000

6. No entry Cash 105,000

7. No entry Accounts payable 7,000

8. No entry Salaries 10,000

9. Investment in branch 7,500 Depreciation 1,500

10. Cash 65,000 Home office 65,000

11. Cash 3,000 Home office 3,000

12. Investment in branch 10,000 Sales 125,000

a. Books of the Branch

3. Accounts receivable 650,000

Cost of goods sold 425,000

4. Advertising expense 40,000

5. Accounts payable 370,000

b. Manila Sales – Naga Branch

c. Manila Sales – Naga Branch

Cash P160,000 Accounts payable P 30,000

Home Office Books Branch Books

a. Investment in branch 63,750 Cash 63,750

b. Investment in branch 75,300 Shipment from HO 75,300

c. Accounts receivable 157,500 Accounts receivable 99,000

d. Purchases 183,750 Purchases 33,750

e. Cash 170,400 Cash 80,100

Home office 80,100

Furniture & fixtures – branch 12,000 Home office 12,000

i. Retained earnings 15,000

(2) Adjusting Entries

k. Investment in branch 975 Expenses 975

l. Prepaid expenses 375 Prepaid expenses 1,125

m. Expenses 150 Expenses 450

n. Sales 157,500 Sales 99,000

o. Branch loss 2,100 Home office 2,100

p. Income summary 2,100

q. Income summary 18,075

3. Individual Financial Statements

Cebu Company – Home Office

Cebu Company – Branch

Cebu Company – Home Office

Liabilities and Stockholders’ Equity

Cebu Company – Branch

Liabilities and Capital

4. Combined Financial Statements

Liabilities and Stockholders’ Equity

Branch Books Home Office Books

Sales 145,000 Sales 560,000

Income summary 22,000 Investment in branch 22,000

Branch income 22,000

Income summary 142,000

Inventory 12/31 (BS) 150,000

Inventory, 12/31 (IS) 90,000 60,000 (150,000)

Total liabilities & equity 371,000

1. To eliminate shipments to branch and shipments from HO

(1) Oro Company

Totals 939,000 275,700 389,100

Totals 939,000 275,700 289,050 289,050

Net Income 9,900 (9,900)