Illustration: Consolidation Date of Acquisition

On January 1, 20x1, Papa Corp. acquired Son Corp. by issuing 5,000 shares for all outstanding shares of Son Corp with
fair value of P500/share and par of P200/share. The financial statements of Papa Corp. and Son Corp. immediately
before the combination are shown below:

Papa Corp. Son Corp.

BV FV Increase BV FV Increase
Cash 500,000 500,000 300,000 300,000
Accounts Receivable 300,000 300,000 100,000 100,000
Inventory 400,000 500,000 100,000 200,000 150,000 (50,000)
Land 2,000,000 2,200,000 200,000 1,000,000 1,100,000 100,000
Building 4,000,000 4,200,000 200,000 1,500,000 1,700,000 200,000
Accumulated Depreciation-B (1,000,000) (1,100,000) (100,000) (500,000) (600,000) (100,000)
Equipment 1,500,000 1,600,000 100,000 500,000 400,000 (100,000)
Accumulated Depreciation-E (500,000) (400,000) (100,000) (100,000) (80,000) 20,000
Accounts Payable (200,000) (200,000) (500,000) (500,000)
Bonds Payable (1,500,000) (1,600,000) (100,000) (600,000) (500,000) 100,000
Share Capital (3,000,000) (1,000,000)
Share Premium (1,000,000) (500,000)
Retained Earnings (1,500,000) (400,000)

TOTAL NET IDENTIFIABLE 2,070,000

ASSETS

Direct Acquisition cost 10,000

Stock Issuance cost 15,000

P500/share P400/share
1. Prepare Journal Entries to record investment in the books of the acquirer company.
Investment in Son Corp. 2,500,000 Investment in Son Corp. 2,000,000
Share Capital 1,000,000 Share Capital 1,000,000
Share Premium 1,500,000 Share Premium 1,000,000

Acquisition Expense 10,000 Acquisition Expense 10,000

Share Premium 15,000 Share Premium 15,000
Cash 25,000 Cash 25,000

2. Prepare Consolidation Journal Entries.

Share Capital 1,000,000 Share Capital 1,000,000
Share Premium 500,000 Share Premium 500,000
Retained Earnings 400,000 Retained Earnings 400,000
Land 160,000 Land 160,000
Building 200,000 Building 200,000
Accum. Dep.-E 20,000 Accum. Dep.-E 20,000
Discount on Bonds Payable 100,000 Discount on Bonds Payable 100,000
Goodwill 430,000 Gain on bargain purchase 70,000
Inventory 50,000 Inventory 50,000
Accum. Dep.-B 100,000 Accum. Dep.-B 100,000
Equipment 100,000 Equipment 100,000
Investment in Son. Corp 2,500,000 Investment in Son. Corp 2,000,000
 Papa Corp.
Consolidated statement of financial position
As of January 1, 20x1
ASSETS ASSETS
Cash 775,000 Cash 775,000
Accounts Receivable 400,000 Accounts Receivable 400,000
Inventory 550,000 Inventory 550,000
Land 3,100,000 Land 3,100,000
Building 5,700,000 Building 5,700,000
Accumulated Depreciation-B 1,600,000 Accumulated Depreciation-B 1,600,000
Equipment 1,900,000 Equipment 1,900,000
Accumulated Depreciation-E 580,000 Accumulated Depreciation-E 580,000
Goodwill 430,000 Goodwill 0
TOTAL ASSETS 10,675,000 TOTAL ASSETS 10,245,000
LIABILITIES AND EQUITY LIABILITIES AND EQUITY
Accounts Payable 700,000 Accounts Payable 700,000
Bonds Payable 2,000,000 Bonds Payable 2,000,000
Share Capital 4,000,000 Share Capital 4,000,000
Share Premium 2,485,000 Share Premium 1,985,000
Retained Earnings 1,490,000 Retained Earnings 1,560,000
TOTAL LIABILITIES AND EQUITY 10,675,000 TOTAL LIABILITIES AND EQUITY 10,245,000

Illustration: Consolidation Subsequent to Date of Acquisition

On January 1, 20x1, Papa Corp. acquired Son Corp. by issuing 4,000 shares for 80% outstanding shares of Son Corp with
fair value of P500/share and par of P200/share. On acquisition date, Papa corp. elected to measure non-controlling
interest at the fair value.

Direct Acquisition cost 10,000

Stock Issuance cost 15,000

Additional information:
1. Papa corp. uses FIFO method for inventory valuation.
2. Building has a remaining useful life of 10 years.
3. Equipment has a remaining useful life of 5 years.
4. Bonds payable is payable after 4 years.

PAPA CORP SON CORP

Dividends receivable 64,000 Dividends 80,000
Dividend income 64,000 Dividends payable 80,000

PAPA CORP SON CORP

Profit 180,000 120,000
Dividend 100,000 80,000

P500/share P400/share
1. Prepare Journal Entries to record investment in the books of the acquirer company.
Investment in Son Corp. 2,000,000 Investment in Son Corp. 1,600,000
Share Capital 800,000 Share Capital 800,000
Share Premium 1,200,000 Share Premium 800,000
Acquisition Expense 10,000 Acquisition Expense 10,000
 Share Premium 15,000 Share Premium 15,000
Cash 25,000 Cash 25,000

2. Prepare Consolidation Journal Entries.

Share Capital 1,000,000 Share Capital 1,000,000
Share Premium 500,000 Share Premium 500,000
Retained Earnings 400,000 Retained Earnings 400,000
Land 160,000 Land 160,000
Building 200,000 Building 200,000
Accum. Dep.-E 20,000 Accum. Dep.-E 20,000
Discount on Bonds Payable 100,000 Discount on Bonds Payable 100,000
Goodwill 430,000 Gain on bargain purchase 56,000
Inventory 50,000 Inventory 50,000
Accum. Dep.-B 100,000 Accum. Dep.-B 100,000
Equipment 100,000 Equipment 100,000
Investment in Son. Corp 2,000,000 Investment in Son. Corp 1,600,000
Non-controlling interest 500,000 Non-controlling interest 400,000

Dividends payable 64,000 Dividends payable 64,000

Dividends receivable 64,000 Dividends receivable 64,000

Dividend income 64,000 Dividend income 64,000

Non-controlling interest 16,000 Non-controlling interest 16,000
Dividends 80,000 Dividends 80,000

Inventory 50,000 Inventory 50,000

Depreciation Expense 10,000 Depreciation Expense 10,000
Accum. Dep. E 16,000 Accum. Dep. E 16,000
Interest Expense 25,000 Interest Expense 25,000
Cost of Goods Sold 50,000 Cost of Goods Sold 50,000
Accum. Dep. B 10,000 Accum. Dep. B 10,000
Depreciation Expense 16,000 Depreciation Expense 16,000
Discount on BP 25,000 Discount on BP 25,000

NCI in NI of subsidiary 30,200 NCI in NI of subsidiary 30,200

Non-controlling interest 30,200 Non-controlling interest 30,200