CENTER FORACCOUNTANCYREVIEW&TRAINING

ES T A B L I S H E D 2003
2ndFlr.,ManangoBldg., City Road., Centro East, Santiago City, Philippines; Mobile No.: 09108298588

PRACTICAL ACCOUNTING II
Jimmy I. Peru, MBM, MICB, CPA

BUSINESS COMBINATION & INTERCOMPANY TRANSACTIONS

1. On January 2, 2014, Arlene Corporation purchase * Dividend of D in 2013 is 220,000; 2014 is

80% of Ailyn Company’s outstanding shares for 390,000. Dividend of C in 2013 is 70,000; 2014 is
648,000. 30,000 of the excess is attributable to good 130,000
will and the balance to an equipment with an
economic useful life of 10 years. Non controlling * D’s retained earnings balance at the date of
interest is measured at its fair value on the date of acquisition was 3,450,000
acquisition. On the date of acquisition, stockholders
equity of the two companies were as follows: A. How much are the consolidated retained earnings
attributable to controlling interest in 2014?
Arlene Co. Ailyn Co. a. 5,272,400 b. 5,333,200
Ordinary shares 1,050,000 240,000 c. 5,238,400 d. 5,232,400
Retained earnings 1,560,000 420,000
B. Share of D Corporation in the adjusted and
On Demeber 31, 2014, Ailyn Company reported net undistributed earnings of C Company in 2013?
income of 105,000 and paid dividends of 36,000 to a. 211,200 b. 155,200
Arlene. Arlene reported earnings from its separate c. 216,000 d. 182,400
operations of 285,000 and paid dividends of
138,000. Goodwill had been impaired and should be C. How much is the consolidated profit in 2014?
reported at 6,000 on December 31, 2014 a. 1,343,200 b. 1,438,000
c. 1,430,000 d. 1,464,000
A. What is the non controlling interest in profit of
Ailyn Company on December 31, 2014? D. How much is the non controlling interest in net
a. 21,000 b. 13,800 assets in 2014?
c. 18,750 d. 18,600 a. 1,295,600 b. 1,250,000
c. 1,302,400 d. 1,289,500
B. What is the consolidated profit attributable to
parent shareholders on December 31, 2014? 3. Jim’s Corporation acquired 80% of the
a. 340,200 b. 360,000 outstanding common stock of Coffee Company on
c. 336,000 d. 356,400 June 1, 2013 for 586,250

C. What is the consolidated retained earnings * Coffee Company’s stockholder’s equity

attributable to parent’s shareholders equity on components at the end of this year are as follows:
December 31, 2014? Ordinary shares, 100 par, 250,000, APIC 112,500,
a. 1,757,400 b. 2,079,750 Retained earnings 222,500.
c. 1,762,200 d. 1,758,000
* Non-controlling interest is measured at fair value.
D. What amount of non controlling interest is to be
presented in the consolidated statement of financial * All the assets of Coffee were fairly valued, except
position on December 31, 2014? for inventories, which are overstated by 11,000, and
a. 164,250 b. 145,500 equipment, which was understated by 15,000.
c. 166,800 d. 154,500 Remaining useful life of equipment is 4 years.

2. On January 02, 2013, D Corporation purchased
80% of the outstanding shares of C Company for
4,750,000. At that date, C had 4,000,000 of ordinary
shares outstanding and retained earnings of
1,600,000.
* Both companies use the straight line method for
depreciation and amortization. Stockholders equity
of Jim on January 01, 2013 is composed of Ordinary
shares 750,000, share premium 175,000, retained
earnings 525,000

* C’s equipment with a remaining life of 5 years had
a book value of 2,250,000 and a fair value of
2,630,000. C’s remaining asset had a book value
equal to their fair values.
* All intangibles except goodwill are expected to
have a remaining life of 8 years.
* The income and dividends figures for both D and C
are as follows: Net Income of D in 2013 is 900,000;
2014 is 1,100,000. Net income of C in 2013
340,000; 2014 is 510,000
* Fair value of non-controlling interest on the date
of acquisition is 117,500.
* Goodwill, if any, should be written down by
14,225 at year end
* Net income for the first year of parent and
subsidiary are 75,000 and 42,500 (from the date of
acquisition) respectively.
* Dividends declared at the end of the year
amounted to 20,000 and 15,000. During the year,
there was no issuance of new ordinary shares

Vel June C. De Leon PA II Page 1

A. What is the balance of the non controlling interest Power Co. Solar Inc.
in net assets of subsidiary on December 31, 2013? Sales 25,000,000 14,000,000
a. 145,167.50 b. 127,242.50 Cost of sales 15,000,000 8,400,000
c. 124,242.50 d. 121,917.50 Gross profit 10,000,000 5,600,000
Operating Expenses 6,000,000 3,800,000
B. What is the amount of consolidated shareholder’s Operating Profit 4,000,000 1,800,000
equity? Loss on sale of
a. 1,520,345.00 b. 1,642,262.50 Office equipment 18,000
c. 1,462,262.5 d. 1,644,587.50 Dividend revenue 40,000
Net Income 4,000,000 1,822,000
4. Pure Corporation acquired an 80% interest in
Sincere Company on January 02, 2013 for Compute the following amounts for/as of December
2,520,000. On this date, the share capital and 31, 2014
retained earnings of the two companies follows:
A. Consolidated gross profit
Pure Co. Sincere Co. a. 19,632,000 b. 15,712,000
Share Capital 1,050,000 240,000 c. 15,632,000 d. 15,584,000
Retained earnings 1,560,000 420,000
B. Consolidated net income attributable to Parent
On January 02, 2013, the assets and liabilities of a. 6,183,300 b. 6,369,000
Sincere Co. were stated at their fair value except for c. 6,169,800 d. 6,191,300
machinery which is undervalued by 225,000
(remaining life is 3 years). September 30, 2013, C. Non-controlling interest in Net Income
Sincere sold merchandise to Pure at an inter- a. 189,700 b. 185,700
company profit of 150,000, 25% was still unsold at c. 188,200 d. 184,200
year end. Likewise, on October 1, 2014, Sincere
purchased merchandise from Pure for 3,600,000. D. Consolidated Operating Expense
The selling affiliate included a 20% mark up on cost a. 9,800,000 b. 9,788,000
on this sale. Only 75% of these purchases had been c. 9,803,000 d. 9,789,500
sold to unrelated parties as of December 31, 2014.
As of December 31, 2014, goodwill was determined 6. On January 1, 2013, P Company purchased 80%
to be impaired by 60,000. of S Company’s outstanding stock for 620,000. At
that date, all of S Company’s assets and liabilities
The following is the summary of the 2014 had market values approximately equal to their book
transactions of the affiliated companies: value and no goodwill was included in the purchase
price. The following information was available for
Pure Co. Sincere Co. 2013: Income from own operations of P Corporation,
Net Income 1,500,000 600,000 75,000; by S Company to P Corporation, 12,000.
Dividends declared
and paid 600,000 180,000 On July 1, 2013, there was a downstream sale of
equipment at a gain of 25,000. The equipment is
On the 2014 consolidated financial statements, how expected to have a remaining useful life of 10 years
much would be the: from the date of sale. Also, on January 1, 2013,
there was an upstream sale of furniture at a loss of
A. Net income attributable to Parent 7,500. The furniture is expected to have a useful life
a. 1,638,000 of five years from the date of sale. Non-controlling
b. 1,708,500 interest is measured at fair market value.
c. 1,608,000
d. 1,686,000 A. How much is the consolidated net income
attributable to parent shareholders’ equity?
B. Non Controlling interest in net income a. 97,250 b. 115,050
a. 70,500 b. 100,500 c. 112,250 d. 103,050
c. 82,500 d. 85,500
7. On July 01, 2013, Issue Company purchased 80%
5. On January 02, 2013, Power Company acquired of the outstanding shares of Intrigue Company at a
90% of the outstanding shares of Solar Inc., at book cost of 1,600,000. On that date, Intigue had
value. During 2013 and 2014, intercompany sales 1,000,000 of capital stock and 1,400,000 of retained
amounted to 2,000,000 and 4,000,000 respectively. earnings. For 2013, Issue had income of 560,000
Power Company consistently recognized a 25% mark from its separate operations and paid dividends of
up based on cost while Solar Inc. had a 25% gross 300,000. For 2013, Intrigue reported income of
profit on sales. The inventories of the buying 130,000 and paid dividends of 60,000. All the assets
affiliate, which all came from inter – company and liabilities of Intrigue have a book value equal to
transactions show: their respective fair market values. Assume income
was earned evenly throughout the year except for
12/2013 12/2014 the intercompany transaction on October 1. On
Power 240,000 160,000 October 1, 2013, Issue purchased equipment from
Solar 100,000 40,000 Intrigue for 200,000. The book value of the
equipment on that date was 240,000. The loss of
On October 01, 2013 Solar Inc., purchased a piece of 40,000 is reflected in the income of Intrigue
land costing 1,000,000 from Power Company for indicated above. The equipment is expected to have
1,500,000. On December 01, 2014 Solar Inc., sold a useful life of 5 years from the date of sale.
this land to unrelated party for 1,500,000. On the
other hand, on July 01, 2014, Solar Inc., sold a used A. In the December 31, 2013 consolidated statement
photo-copier with a carrying value of 60,000 and of financial position, how much is the consolidated
remaining useful life of 3 years to Power Company net income attributable to the parent company?
for 42,000. a. 642,400 b. 930,400
c. 946,400 d. 962,400
Separate Statement of Comprehensive Income for
the two companies for the year 2014 as follows;

Vel June C. De Leon PA II Page 2

Vel June C. De Leon PA II Page 3