On January 1, 2014, ABC Company acquires 80% of the common stock of XYZ Company for P372,000. At that time, the fair value of the 20% non-controlling interest is estimated to be P93,000. ABC and XYZ’s retained earnings were P360,000 and P120,000, respectively. On that date, the following assets and liabilities of XYZ Company had book values that were different from their respective market values:
Book values Fair values Differences
Inventory 24,000 30,000 6,000
Land 48,000 55,200 7,200
Equipment 180,000 180,000 96,000
Accumulated depreciation-equipment (96,000)
Buildings 360,000 144,000 (24,000)
Accumulated depreciation-buildings (192,000)
Bonds payable (4 years) 120,000 115,200 4,800

All other assets and liabilities had book values approximately equal to their respective fair values. On January 1, 2014, the equipment and buildings had a remaining life of 8 and 4 years, respectively. Inventory is sold in 2014 and FIFO inventory costing is used. Goodwill, if any, is reduced by a P3,750 impairment loss during 2014 based on the fair value basis. On September 30, 2014, XYZ sold merchandise to ABC and at an inter-company profit of P150,000; 25% was still unsold at year-end. Likewise, on October 1, 2015, XYZ purchased merchandise from ABC for P36,000. The selling affiliate included a 20% mark-up on cost on this sale. Only 75% of these purchases had been sold to unrelated parties as of December 31, 2015. On July 1, 2014, ABC sold an equipment with a book value of P80,000 and a 20-year remaining useful life to XYZ, for P100,000. Both ABC and XYZ use the straight-line depreciation method. On December 31, 2015, XYZ sold the equipment to unrelated entity for 90,000. On December 31, 20x5, intercompany accounts payable and receivable arising from intercompany sales was fully settled. No additional shares issued from the time of acquisition until December 31, 2015.

Trial balances for the companies for the year ended December 31, 20x5 are as follows:
ABC Company Lyn Company
Cash 302,000 184,000
Accounts receivable 150,000 90,000
Inventory 150,000 92,000
Trading Securities 722,000
Land 210,000 48,000
Equipment 240,000 250,000
Accumulated depreciation-equipment (135,000) (100,000)
Buildings 720,000 540,000
Accumulated depreciation-buildings (405,000) (288,000)
Investment in Lyn Company 372,000
Total Assets 2,326,000 816,000

Accounts payable 551,200 109,000
Bonds payable 500,000 300,000
Common stocks, P10 600,000 240,000
Retained earnings 674,800 167,000
Total Liabilities and Equities 2,326,000 816,000

Retained earnings, beginning 484,800 130,000
Net income 262,000 85,000
Dividends paid (72,000) (48,000)
Retained earnings, ending 674,800 167,000

Sales 540,000 360,000
Cost of goods sold (216,000) (192,000)
Gross profit 324,000 168,000
Loss on sale of equipment (5,000)
Gain on sale of equipment 20,000
Dividend income 50,000
Depreciation expense (60,000) (24,000)
Other expense (72,000) (54,000)
Net income 262,000 85,000

Requirement: Prepare working paper entries and consolidated financial statements.

Answer rating: 100% (QA)

Consolidated Balance Sheet as at 31st December 2015 Cash 486000 Account Receivable ... View the full answer