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Problem:

ASSIGNMENT 00 N ame: Date: On January 1, 20x4, P Company acquires 80% of the common stock of 8 Company for P372,000. At that time, the following assets and liabilities of 8 Company had book values that were different from their respective market values: $00.13!] SCO.|F![ Inventory P24,000 P30,000 Land 40,000 55,200 Equipment 100,000 180,000 Accum.depreciation equ'pment ............... (96,000} Buildings ............................................. 360,000 144,000 Accum.depreciation buildings ......................... (192,000) Bonds payable (5 years) .................................. 120,000 115,200 All other assets and liabilities had book values approximately equal to their respective fair values. On January 1, 20:4, the equipment and buildings had a remaining life of 4 and 0 years respectively. Inventory is sold in 20x4 and FIFO inventory costing is used. Goodwill, if any, is reduced annually by a P3,EIJO impairment loss. The were no intercompany sales prior to 20:4, information resulting from intercompany sales of equipment are summarized below Date of sale Seller Selling Price Orig. Cost Accum. Degr. Remaining Life 44'1f20x4 P Go. P90,000 P120,000 P45,000 6 years 02:90:64 S 00. 60,000 72,000 43,200 4 years Additional information rcsutting from intercompany sales, ending inventory and goss profit rates are summarized below: m Sales of P Go. to 3 Co. 12131 Intercomany Invty of 8 Co. lntercomgany Profit on Sales 2014 P1 50,000 60% 25% 20:15 1 20,000 00% 20% Sales of 3 Co. to P Co. 12131 Intercomany Invty of P Co. lntercompany Profit on Sales 20x4 P60,000 50% 20% 2015 75,000 40% 4096 Trial balances for the companies for the year ended December 31, 20x4 are as follows: Debits P Co. 8 00. Cash ...................................................... 232,800 90,000 Accounts receivable 90,000 60,000 Inventory ...................................... 120,000 90,000 Land ...... 210,000 40,000 Equipment ...... 240,000 180,000 Building ...................................... 720,000 540,000 Investment in 3 Co. 372,000 Cost of goods sold 204,000 130,000 Depreciation expense 60,000 24,000 Other expenses 48,000 10,000 Dividends paid 72,000 36,000 Totals 2,360,800 1,224,000 Credits Accum. Depreciation equipment 135,000 96,000 Accum. Depreciation buildings 405,000 280,000 Accounts pay able .......................... 105,000 80,800 Bonds payable ...................................... 240,000 120,000 Common stock, P10 par .......................... 600,000 240,000 Retained earnings .......................... 360,000 120,000 Sales .................................................. 400,000 240,000 Gain on sale of equipment ..................... 15,000 31,200 Dividend income .......................................... 20,000 . Totals 2,360,800 1,224,000 Assignment Page 1 ASSIGNMENTOB Trial balances for the companies for the year ended December 31, 20:5 are as follows: Debits P Co. S Co. Cash ...................................................... 265.200 102.000 Accounts receivable 180.000 96.000 Inventory ...................................... 216.000 103.000 Land ...... 210.000 48.000 Equipment ...... 240. 000 180.000 Building ...................................... 720.000 540.000 Investment in 3 Co. 372.000 Cost oi goods sold 216.000 192.000 Depreciation expense 60.000 24.000 Other expenses ...................................................... 72.000 54.000 Dividends paid ...................................................... 72.000 48.000 Totals 2.623.200 1.392.000 Credits Accum. Depreciation equipment 150.000 102.000 Accum. Depreciation - buildings 450.000 306.000 Accounts payable .......................... 105.000 83.000 Bonds payable ...................................... 240.000 120.000 Common stock, P10 par .......................... 600.000 240.000 Retained earnings .......................... 499.800 175.200 Sales .................................................. 540.000 360.000 Dividend income .......................... 33.400 . Totals 2.623.200 1.392.000 REQUIRED: Using cost model -full goodwill method. prepare the consolidated working paper entries for the following: a. December 31. 20x4 b. December 31. 20x5 Assignment Page 2 CONSOLIDATION SUBSEQUENT TO ACQUISITION DATE (Cost Method) Practice Problem 03 Sale of Depreciable Asset On January 1, 2018 Arman Co. acquired for P400,000, 80% interest from Romy Co. when its stockholders' equity amounted to P500,000. On July 1, 2018 Romy Co. purchased one Arman Co.'s machine for P35,000. The machine has an original cost of P60,000 and was already 50% depreciated. Its remaining life at the date of sale was 3 years. The following additional data were given: Arman Co. Romy Co. Capital Stock, Jan. 1, 2018 1,000,000 300,000 Retained Earnings Jan. 1, 2018 1,000,000 200,000 Net Income from Operation 250,000 75,000 Gain from Sale of Machine 5,000 Dividends 500,000 150,000 Requirement 1 - Prepare consolidation working paper elimination and adjusting entries at the end of 2018. Arman Co.'s Regular Books: 1. Investment in Romy Co. 400,000 Cash 400,000 # 2. Cash 120,000 Dividend Revenue from Subsidiary 120,000 (150,000 x 80%) Arman Co.'s Working Paper: (Adjustment and elimination entries) 1. Dividend Revenue from Subsidiary 120,000 Non-controlling Interest 30,000 Dividend, Romy Co. 150,000 2. Capital Stock, Romy Co. 300,000 Retained Earnings, Romy Co. 200,000 Investment in Romy Co. 400,000 Non-controlling Interest 100,000 Reference Page 1# 3. Machinery 25,000 Gain on Sale 5,000 Accum. Depreciation 29,167 Depreciation Expense 833 (5,000 / 3) x 6/12 = 833 4. NCI profit P15,000 Non-controlling interest P15,000 (75,000 x 20%) # Take note that the net amount of intercompany profit that is deferred is P4,167 computed as P5,000 less P833. The adjustment on depreciation expense represents realized gain (benefit received as a result of use of the asset) Requirement 2 - Assume that in 2019 Romy Co. reported the same amount of income and dividends as in the prior year. Prepare consolidation working paper elimination and adjusting entries at the end of 2019 Arman Co.'s Regular Books: 1 . Cash 120,000 Dividend Revenue from Subsidiary 120,000 # Arman Co.'s Working Paper: (Adjustment and elimination entries) 1 Retained Earnings, P Co. 60,000 Investment in S Co. 60,000 ((200T+75T-150T) - 200T) x 80% 2. Capital Stock, Romy Co. 300,000 Retained Earnings, Romy Co. 125,000 Investment in Romy Co. 340,000 Non-controlling Interest 85,000 # 3. Dividend Revenue from Subsidiary 120,000 Non-controlling Interest 30,000 Dividend, Romy Co. 150,000 Reference Page 24. Machinery 25,000 Retained earnings 4,167 Accum. Depreciation 27,500 Depreciation Expense 1,667 5. NCI profit 15,000 Non-controlling interest 15,000 (75,000 x 20% # Requirement 3 - Assume instead that on July 1, 2018 it was Arman Co. who purchased one Romy Co.'s machine for P35,000. All other information was the same. Prepare consolidation working paper elimination and adjusting entry relating to the inter- company sale of machine for 2019 Machinery 25,000 Retained earnings (4, 167 x 80%) 3,334 Non-controlling interest (4, 167 x 20%) 833 Accum. Depreciation 27,500 Depreciation Expense 1,667 # Requirement 4 - Following the assumption in Requirement 3, how much would the NCI profit for 2018? (Round-off nearest peso) NCI profit P14,167 Non-controlling interest P14,167 ((75,000 - 5,000 + 833) x 20%) Requirement 4 - Following the assumption in Requirement 3, how much would the NCI profit for 2019? (Round-off nearest peso) NCI profit 15,333 Non-controlling interest 15,333 ((75,000 + 1,667) x 20%) Reference Page 3