Palma Company had 90% ownership interest acquired several years ago in Small Company. The 

amortization of allocated excess (identifiable assets) arising from this acquisition amounted to P2,000 per

year (based on the 100% or full fair value of identifiable assets). The inventories acquired from the affiliates

are:

Beginning Inventory P 10,000

Ending Inventory 16,000

An inter-company sale of merchandise was made during the year amounting to P40,000 at a gross profit

rate of 25% based on sales (the same rate consistently applied on previous years inter-company sales of

merchandise) of which 60% are sold to outsiders at P35,000.

The net income from own operations and dividends for 2021 were as follows:

Net Income Dividends Paid

Palma Company P120,000 P 8,000

Small Company 70,000 6,000

Required:

A. Assuming that Palma Company is the seller (Downstream Sale), in the books of Palma Company: Using

Cost Model/Method, assuming the investment balance on January 1, 2021 amounted to P800,000:

1. The investment account on December 31, 2021.

2. The dividend income account on December 31, 2021.

Using Equity Method, assuming the investment balance on January 1, 2021 amounted to P810,000: 3.

The investment account balance on December 31, 2021.

4. The equity in subsidiary income or net earnings account on December 31, 2021.

B. Assuming that Palma Company is the seller (Downstream Sale), in the consolidated financial statements

of Palma Company and Small Company:

5. The investment account on December 31, 2021.

6. The dividend income account on December 31, 2021, if cost model/method is used.

7. The equity in subsidiary income or net earnings account on December 31, 2021, if equity method is

used.

8. The Profit Attributable to Equity Holders of Parent/Controlling Interest (Parent's Interests) in

Consolidated Net income for 2021.

9. The Non-controlling interest in net income for 2021.

10. Consolidated/Group Net Income for 2021.

C. Assuming that Small Company is the seller (Upstream Sale), in the books of Palma Company:

Using Cost Model/Method, assuming the investment balance on January 1, 2019 amounted to P800,000:

11. The investment account on December 31, 2021.

12. The dividend income account on December 31, 2021.

Using Equity Method, assuming the investment balance on January 1, 2021 amounted to P810,000:

13. The investment account on December 31, 2021.

14. The equity in subsidiary income or net earnings account on December 31, 2021.

D. Assuming that Small Company is the seller (Upstream Sale), in the consolidated financial statements of

Palma Company and Small Company:

15. The investment account on December 31, 2021.

16. The dividend income account on December 31, 2021 if cost model/method is used.

17. The equity in subsidiary income or net earnings account on December 31, 2021, if equity method is

used.

18. The Profit Attributable to Equity Holders of Parent/Controlling Interest (Parent's Interests) in

Consolidated Net income for 2021

19. The Non-controlling interest in net income for 2021.

20. Consolidated/Group Net Income for 2021.