Chapter 13

CHAPTER 13 SUGGESTED ANSWERS

EXERCISES Exercise 13 - 1 1. 2006 Sales Cost of Sales

2007 2008 2. 3.

2006 2006

2007

20,000

Retained Earnings, Parent Inventory

20,000

Retained Earnings, Parent Cost of Sales

20,000

Sales Cost of Sales

60,000

Sales Cost of Sales

60,000

20,000 20,000 20,000 60,000 60,000

Cost of Sales Inventory P20,000 x 25%

5,000

Retained Earnings, Parent Cost of Sales

5,000

Equity in Subsidiary Income Investment in Surigao Co. P42,000 x 40%/140% = P12,000

2008

60,000

Cost of Sales Inventory

Exercise 13 - 2 1. 2006 Investment in Surigao Co. Equity in Subsidiary Income P200,000 x 75% = P150,000

2007

60,000

5,000

5,000

150,000 150,000 12,000 12,000

Investment in Surigao Co. Equity in Subsidiary Income P350,000 x 75% = P262,500

262,500

Investment in Surigao Co. Equity in Subsidiary Income. P400,000 x 75% = P300,000

300,000

Investment in Surigao Co. Equity in Subsidiary Income

262,500

300,000

12,000 12,000

Chapter 13 - Suggested Answers

2.

Consolidation elimination entries 2006 Equity in Subsidiary Income Investment in Surigao Co. Cost of Sales Inventory 2007

Equity in Subsidiary Income Investment in Surigao Co. Retained Earnings, Parent Inventory

2008

Equity in Subsidiary Income Investment in Surigao Co. Investment in Surigao Co. Cost of Sales

Exercise 13 – 3 a. Sales Cost of Sales b.

Cost of Sales Inventory P80,000 x 20% = P16,000

Exercise 13 – 4 a. Equity in Subsidiary Income Investment in Selecta Co. b. c.

d.

Sales Cost of Sales

page 2

138,000 138,000 12,000 12,000 262,500 262,500 12,000 12,000 312,000 312,000 12,000 12,000 200,000 200,000 16,000 16,000

212,000 212,000 1,000,000 1,000,000

Cost of Sales Inventory from Presto = P40,000 x 60% = P24,000 from Selecta = P80,000 x 50% = P40,000

64,000

Investment in Selecta Co. Retained Earnings, Selecta Co. (P50,000 x 20%) Cost of Sales from Presto = P 60,000 x 60% = P36,000 from Selecta = P100,000 x 50% = P50,000

76,000 10,000

Exercise 13 -5 Share in net income of Santolan Co. (P360,000 x 80%) Impairment loss on goodwill Unrealized profit on ending inventory (P32,000 x 33 1/3%/133 1/3%) x 80%

64,000

86,000

P288,000 ( 4,000) (

6,400)

Chapter 13 - Suggested Answers

page 3

Realized profit on beginning inventory (P242,000 x 40%/104%) Equity in subsidiary income

69,143 P346,743

Exercise 13 - 6 1. Original cost of the equipment to Paredes Co. Accumulated depreciation as of December 31, 2008 (P2,000,000 x 6/20) Book value of equipment as of December 31, 2008 2.

Elimination entries a. Gain on Sale of Equipment Equipment Accumulated Depreciation – Equipment b.

300,000 200,000 500,000

Accumulated Depreciation – Equipment Operating Expenses

20,000 20,000

Exercise 13 - 7 a. Sales Cost of Sales

100,000 100,000

Cost of Sales Inventory P40,000 x 25% = P10,000 b. c.

P2,000,000 600,000 P1,400,000

10,000 10,000

Gain on Sale of Machinery Machinery

600,000 600,000

Cost of Sales Inventory

12,000 12,000

Exercise 13 - 8 (2) Consolidated net income Net income from own operations: Princess Inc. Stella Co. Unrealized gain on sale of machine Realized gain on sale of machine Total 3.

P 800,000 800,000 ( 240,000) 40,000 P1,400,000

Book value of the machine to Princess Inc. at the time of sale Less Depreciation for 2008 based on original book value Book value of equipment as of December 31, 2008 Exercise 13 - 9 1. Share in net income of Sultan Co. (P4,000,000 x 80%) Impairment loss on goodwill Unrealized gain on sale of machine (P400,000 x 80%) Realized gain on sale of machine [(P400,000 / 5 yrs x 1/2) x 80%] Equity in subsidiary income

(1) Minority interest net income P200,000 ______ P200,000 P960,000 160,000 P800,000 P3,200,000 ( 20,000) ( 320,000) 32,000 P2,892,000

Chapter 13 - Suggested Answers

2.

Net income from own operations of Porter Co. Equity in subsidiary income (see # 1) Consolidated net income

3.

Minority interest, January 1 (P2,000,000 x 20%) Minority interest net income: Share in adj. of assets (P400,000 /80% x 20%) Share in net income of Sultan Co.(P4,000,000 x 20%) Unrealized gain on sale of machine (P400,000 x 20%) Realized gain on sale of machine (P40,000 x 20%) Minority interest dividends (P1,000,000 x 20%) Minority interest, December 31

4.

page 4

P 8,000,000 2,892,000 P10,892,000 P400,000 P100,000 800,000 ( 80,000) 8,000

Original cost of investment Equity in subsidiary income Dividends received (P1,000,000 x 80%) Balance of investment, December 31, 2008

Exercise 13 - 10 a. Equity in Subsidiary Income Investment in Success Co. b. c.

d. e. f.

728,000 ( 200,000) P1,028.000

Sales Cost of Sales Investment in Success Co. Retained Earnings, Success Co. Cost of Sales P40,000 x 33 1/3% /133 1/3% = P10,000

P2,000,000 2,892,000 ( 800,000) P4,092,000 61,250 61,250 400,000 400,000 7,500 2,500 10,000

Cost of Sales Inventory

15,000

Gain of Sale of Equipment Equipment

80,000

Equipment Operating Expenses P80,000 / 8 yrs.

10,000

Exercise 13 -11 Net income from own operations: Pomelo Corp. Santol Co. (P140,000 x 90%) Singkamas Corp. (P160,000 x 60%) Unrealized gross profit on ending inventory of Pomelo Corp. - seller Singkamas Corp. (P50,000 x 25% x 60%) Santol Co. - seller Pomelo Corp. (P100,000 x 30%) Unrealized gain on sale of machinery to Singkamas Corp. by Santol Co. (P80,000 x 90%)

15,000 80,000 10,000

P240,000 126,000 96,000 ( 7,500) ( 30,000) ( 72,000)

Chapter 13 - Suggested Answers

page 5

Consolidated net income

P352,500

PROBLEMS Problem 13 - 1 Platinum Corp. and Subsidiary Silver Co. Consolidated Statement of Recognized Income and Expenses For the Year Ended December 31, 2008 Sales (P3,000,000 - P400,000) P2,600,000 Cost of Sales* 905,000 Gross Margin P1,695,000 Expenses 1,040,000 Operating Income P 655,000 Less Minority Interest net income** 43,750 Consolidated Net Income P 611,250 *

**

Combined cost of sales Realized gross profit on beginning inventory (P40,000 x 33 1/3%/133 1/3%) Unrealized gross profit on ending inventory (P60,000 x 33 1/3%/133 1/3%) Intercompany sales Consolidated cost of sales Minority interest net income (P180,000 + P10,000 - P15,000) x 25%

P1,300,000 (

10,000)

15,000 ( 400,000) P 905,000 P 43,750

Problem 13 - 2 1. Minority interest net income Unrealized gross profit on ending inventory of Pedrito Co. purchased from Salome Co. (P22,000 x 25%/125% x 20%) Unadjusted share in net income of Salome Co. Minority interest percentage Net income of Salome Co. Unadjusted share in net income of Salome Co. Unrealized gross profit on ending inventory of Pedrito Co., seller - Salome Co. (P22,000 x 25%/125% x 80%) Salome Co., seller - Pedrito Co. P15,000 x 20%/120%) Equity in subsidiary income 2.

3.

Minority interest, December 31, 2008 Add Unrealized gross profit on ending inventory of Pedrito Co. purchased from Salome Co. Total Minority interest percentage

P 26,180 880 P 27,060 ÷ 20% P135,300 x 80% P108,240 ( 3,520) ( 2,500) P102,220 P82,420

Net assets of Salome Co., December 31, 2008

880 P83,300 ÷ 20% P416,500

Net assets of Salome Co., December 31, 2008 Less: Net income for 2008 Net assets of Salome Co., January 1, 2008 Book value (80%) Excess due to undervaluation of land

P416,500 135,300 P281,200 P224,960 25,000

Chapter 13 - Suggested Answers

page 6

Cost of investment Problem 13 -3 a. Sales Cost of Sales b.

c.

P249,960

700,000 700,000

Retained Earnings, Pamela Co. Cost of Sales (P24,000 x 25/125 = P4,800)

4,800

Retained Earnings, Pamela Co. Retained Earnings, Salve Co. Cost of Sales P15,000 x 33 1/3%/133 1/3% = P3,750

3,375 375

Cost of Sales Inventory P30,000 x 25%/125% = P6,000 P20,000 x 33 1/3%/133 1/3% = P5,000 P6,000 + P5,000 P11,000

11,000

4,800

3,750

11,000

Problem 13 - 4 Pentagon Co. and Subsidiary Sexagon Co. Consolidated Statement of Recognized Income and Expenses For the Year Ended December 31, 2008 Sales (P4,600,000 - P1,000,000) Cost of Sales* Gross Margin Expenses (P1,664,000 - P6,000) Operating Income Less Minority net income** Net Income

*

**

Combined cost of sales Unrealized gross profit on ending inventory of Pentagon (P40,000 x 50%) Sexagon (P100,000 x 60%) Realized gross profit on beginning inventory of Pentagon (P60,000 x 50%) Sexagon (P80,000 x 60%) Intercompany sales Consolidated cost of sales Share in net income of Sexagon (P276,000 x 20%) Realized gross profit on beginning inventory of Pentagon (P30,000 x 20%) Unrealized gross profit on ending inventory of Pentagon (P20,000 x 20%) Unrealized gain of sale of equipment by Sexagon (P60,000 x 20%)

P3,600,000 1,002,000 P2,598,000 1,658,000 P 940,000 46,400 P 893,600

P2,000,000 20,000 60,000 ( 30,000) ( 48,000) ( 1,000,000) P1,002,000 P55,200 6,000 ( 4,000) ( 12,000)

Chapter 13 - Suggested Answers

page 7

Realized gain on sale of equipment by Sexagon (P6,000 x 20%) Minority interest net income Problem 13 - 5 Cost of investment Book value of interest acquired: Ordinary Share Capital (P600,000 x 80%) APIC (P400,000 x 80%) Retained Earnings (P400,000 x 80%) Excess

1,200 P46,400 P1,200,000 P480,000 320,000 320,000 P

Grossed-up excess – goodwill (P80,000 / 80%) Impairment of goodwill (P4,000 x 2 years, 2006 and 2007

1,120,000 80,000 P100,000 P 8,000

Balance of goodwill, Jan. 1, 2008

P92,000 Poland Co. and Subsidiary Sweden Co. Consolidated Working Paper For the Year Ended December 31, 2008

Poland Co. Income Statement Sales Cost of Sales

Sweden Co.

1,600,000 800,000

400,000 300,000

Gross Margin Expenses Operating Income (loss)

800,000 440,000 360,000

100,000 160,000 ( 60,000)

Equity in sub. income

1,600 361,600

( 60,000)

Net income (loss) MINI NI (loss)- carried forward

Retained Earnings Statement Bal, Jan. 1, 2008: Poland Co. Sweden Co. NI (loss) - brought forward

Total Less Div. declared: Poland Co. Bal, Dec. 31, 2008 Balance Sheet Cash Accounts Receivable Inventories Equipment (net) Inv. in Sweden Co.

Adj. & Eliminations Debit Credit e. 360,000 g. 11,000 d.

4,000

b.

1,600

Minority Interest

1,640,000 681,000

e. 360,000 f. 70,000

959,000 604,000 355,000

(6,600) 361,600

( 60,000)

1,142,400

355,000 ( 6,600) 361,600

1,142,400 600,000

a. 480,000 f. 6,000

114,000

361,600 1,504,000

( 60,000) 540,000

(6,600)

160,000 1,344,000

540,000

107,400

300,000 180,000 120,000 654,400 1,289,600

Consolidated

100,000 60,000 80,000 1,500,000

h. 40,000 g. 11,000 f. 64,000

a.1,280,000 b. 1,600

361,600 1,504,000 160,000 1,344,000

400,000 200,000 189,000 2,154,400

Chapter 13 - Suggested Answers

Goodwill Total AP and accrued exp OS – Poland Co. OS - Sweden Co. APIC -Sweden Co. RE-brought forward Minority interest

page 8

c. 92,000 2,544,000 400,000 800,000 1,344,000

1,740,000 200,000

c. d.

88,000 3,031,400 560,000 800,000

h. 40,000

600,000 400,000 540,000

a. 480,000 a. 320,000 c.

2,544,000

72,000 4,000

1,740,000

1,858,600

120,000 80,000 107,400 20,000

20,000 1,858,600

1,344,000 327,400 3,011,400

Explanation of adjusting and elimination entries: a. b. c. d. e. f. g. h.

To eliminate 80% of stockholders' equity of subsidiary. To eliminate equity in subsidiary income To recognize balance of goodwill as of Jan. 1, 2008. To recognize impairment of goodwill for 2008. To eliminate intercompany sales. To recognize realized gross profit on beginning inventories of Poland, seller - Sweden(P120,000 x 33 1/3%/133 1/3%) Sweden, seller - Poland(P80,000 x 100%/200%) To eliminate unrealized gross profit on ending inventories of Poland, seller - Sweden (P12,000 x 33 1/3%/133 1/3%) Sweden, seller - Poland (P16,000 x 100%/200%) To eliminate intercompany receivable and payable.

P30,000 P40,000 P3,000 P8,000

Computation of minority net income: Unadjusted share in net income (loss) of Sweden Co. (P60,000 x 20%) Realized gross profit on beginning inventory of Poland Co. (P30,000 x 20%) Unrealized gross profit on ending inventory of Poland Co. (P3,000 x 20%) Minority interest net income (loss) Problem 13 -6 Palladium Co. and Subsidiary Stadium Co. Consolidated Working Paper For the Year Ended December 31, 2008 Palladium Company

Stadium Company

1,000,000 400,000 600,000 400,000 200,000 25,000 28,000 253,000

500,000 300,000 200,000 140,000 60,000

Adj. & Eliminations Debit Credit

Minority Interest

P(12,000)` 6,000 ( 600) P( 6,600)

Consolidated

Income Statement

Sales Cost of sales Gross margin Expenses Operating income Gain on sale of equit. Equity in sub. income

Net income MINI NI (loss)- carried forward Retained Earnings Statement

1,500,000 700,000 800,000 535,000 265,000

e. 5,000 d. 25,000 b. 28,000

60,000 12,000

253,000

60,000

265,000 12,000 253.000

Chapter 13 - Suggested Answers

Balance, Jan. 1, 2008: Palladium Co. Stadium Co. NI - brought forward

Total Less Dividends declared: Palladium Co. Stadium Co. Balance, Dec. 31, 2008 -

Balance Sheet Cash Accounts receivable Inventories Land Building Equipment Inv. in Stadium Co.

Total

Accounts payable Acc. depr. - bldg. Acc. depr. - equipt. OS - Palladium Co. OS - Stadium Co. APIC - Palladium Co. RE-brought forward Total

page 9

1,526,500 253,000 1,779,500

1,526,500 430,000 60,000 490,000

a. 344,000

86,000 12,000 98,000

253,000 1,779,500

200,000

200,000

1,579,500

30,000 460,000

150,000

100,000

250,000

130,000 200,000 300,000 200,000 651,500 548,000

100,000 100,000

230,000 300,000 300,000 200,000 1,176,500

2,179,500

800,000

2,456,500

151,000 20,000 29,000 250,000

10,000

161,000 20,000 154,000 250,000

500,000

80,000 250,000

150,000 1,579,500 2,179,500

460,000 800,000

c. 24,000

d. 25,000 c. 24,000

e.

5,000

6,000 92,000

a. 544,000 b. 28,000

d. 50,000

a. 200,000

50,000 92,000

651,000

1,579,500

150,000 1,579,500

651,000 142,000

Minority interest

142,000 2,456,500

Explanation of adjusting and elimination entries a. To eliminate 80% of shareholders' equity accounts of Stadium Co. b. To eliminate equity in subsidiary income. c. To eliminate dividends from subsidiary. d. To eliminate unrealized gain on sale of equipment e. To recognize gain on sale of equipment. Problem 13 - 7 Cost of investment Book value of acquired investment: Ordinary Share Capital (P300,000 x 80%) Retained earnings (P90,000 x 80%) Excess

P360,000 P240,000 72,000

312,000 P 48,000

Chapter 13 - Suggested Answers

Grossed-up excess – goodwill (P$8,000 / 80%) Impairment of goodwill Adjusting and elimination entries a. Investment Retained Earnings, Pluto Co. To record share in the net increase in retained earnings of Saturn Inc. P225,000 + (9% of P300,000) - P80,000 = P172,000 P172,000 - P90,000 = P82,000 x 80% = P65,600 b.

c.

d.

e.

f.

g.

h.

page 10

P 60,000 P 2,400 65,600 65,600

Ordinary Share Capital, Saturn Co. (P300,000 x 80%) Retained Earnings, Saturn Co. (P172,000 x 80%) Investment To eliminated 80% of stockholders' equity of Saturn Inc.

240,000 137,600

Goodwill Investment Minority Interest To record the excess of cost over book value of investment attributed to goodwill.

60,000

Retained Earnings, Pluto (P2,400 x 3 years) Expenses Goodwill To record amortization of goodwill of prior years and current year. Sales Cost of Goods Sold To eliminate intercompany sale of merchandise.

377,600

48,000 12,000

7,200 2,400 9,600

300,000 300,000

Retained Earnings, Pluto Corp. Cost of Goods Sold To record realized gross profit on beginning inventory of Saturn Inc. P90,000 - P30,000 = P60,000 x 25% = P15,000

15,000

Cost of Goods Sold Inventories To eliminate unrealized gross profit on ending inventories of Saturn, Inc. P90,000 x 25% = P22,500

22,500

Accounts Payable Accounts Receivable To eliminate intercompany receivable and payable. P63,000 + P45,000 = P108,000

15,000

22,500

108,000 108,000

Chapter 13 - Suggested Answers

i.

j.

k.

l.

m.

page 11

Retained Earnings, Pluto Plant and Equipment To eliminate unrealized gain on sale of building.

36,000

Accumulated Depreciation – Building Expenses Retained Earnings, Pluto (P1,800 x 2.5 yrs.) To record amortization of unrealized gain on sale of building of prior years and current year. P36,000 / 20 yrs. = P1,800 per year

6,300

36,000

1,800 4,500

Notes Payable Notes Receivable To eliminate intercompany note receivable and payable.

24,000 24,000

Other Current Liabilities Other Current Assets To eliminate intercompany interest receivable and payable. P24,000 x 12% x 6/12 = P1,440

1,440 1,440

Dividends Payable Retained Earnings, Saturn Inc. P300,000 x 9% x 80% = P21,600

21,600 21,600

Problem 13 - 8 Net income from own operations: Paloma Selma (100% x P120,000) Solita (90% x P96,000) Sandara (80% x P80,000) Realized gross profit on beginning inventory of Paloma, seller- Sandara (P6,400 x 80%) Unrealized gross profit on ending inventory of Paloma, seller - Sandara (P4,000 x 80%) Sandara, seller - Selma (P640,000 x 20% x 25% x 100%)) seller - Solita (P40,000 x 20% x 20% x 90%) Consolidated net income

P240,000 120,000 86,400 64,000 5,120 ( 3,200) ( 32,000) ( 1,440) P478,880

Problem 13 - 9 Polaroid Co. and Subsidiary Solar Co. Consolidated Working Paper For the Year Ended December 31, 2008 Polaroid Solar Adj. & Eliminations Company Company Debit Credit Income Statement Sales Cost of sales Gross margin

1,000,000 400,000 600,000

500,000 f. 250,000 300,000 h. 60,000 200,000

f. 250,000 g. 30,000

Minority Interest

Consolidated 1,250,000 480,000 770,000

Chapter 13 - Suggested Answers

page 12

Expenses Operating income Dividend incomesubsidiary Net income MINI

390,000 210,000 24,000

140,000 60,000

234,000

60,000

NI (loss)- carried forward

234,000

Retained Earnings Statement Bal., Jan. 1, 2008: Polaroid Co. Solar Co. NI – brought forward Total Less Div. declared: Polaroid Co. Solar Co. Bal, Dec. 31, 2008carried forward Balance Sheet Cash Accounts receivable Inventories Land Building (net) Equipment (net) Inv. in Solar Co.

AP and accrued exp Bonds payable (FVP100,000) OS – Polaroid Co. OS – Solar Co. APIC – Polaroid Co. RE-brought forward Minority interest Total

2,500

532,500 237,500

c. 24,000 12,000 60,000

1,367,500 234,000

430,000 60,000

1,601,500

490,000

e. 7,500 g. 30,000 b. 344,000

a. 224,000

237,500 12,000 225,500

1,554,000 86,000 12,000

225,500

98,000

1,779,500

200,000

200,000 30,000

1,401,500

460,000

150,000 130,000 200,000 300,000 200,000 651,500 370,000

100,000 100,000 100,000

c.

24,000

6,000 92,000

i. h.

a. 224,000 d. 62,500

2,001,500

800,000

151,000 49,000

90,000

1,579,500

250,000 195,000 240,000 300,000 200,000 1,151,500

35,000 60,000

500,000

Goodwill Total

e.

b. 544,000 d. 50,000 e. 10,000

52,500 2,389,000

i.

35,000

206,000 49,000

250,000

250,000 250,000

150,000 1,401,500

460,000

2,001,500

800,000

Explanation of adjusting and elimination entries:

b. 200,000

50,000 92,000

1,239,500

d. 12,500 1,239,500

12,500

150,000 1,579,500 154,500 2,389,000

Chapter 13 - Suggested Answers

page 13

a.

To recognize share of Polaroid Co. in the net increase in the retained earnings account balance of Solar Co. RE, Jan. 1, 2008 P430,000 RE, Jan. 1, 2006 (P400,000 – P250,000) 150,000 Net increase in retained earnings P280,000 Share of Polaroid Co. (P280,000 x 80%) P224,000

b. c. d. e. f. g. h. i.

To eliminate 80% of stockholders' equity account of Solar Co. To eliminate dividend income of Polaroid Co. To record goodwill arising from the acquisition on January 1, 2006. To record amortization of goodwill for the period 2006 to 2007 and for 2008. To eliminate intercompany sales. To record realized gross profit on beginning inventory of Solar Co. To eliminate unrealized gross profit on ending inventory of Solar Co. To eliminate intercompany receivable and payable.

Computation of goodwill Cost of acquired investment Book value of acquired investment (P400,000 x 80%) Excess Grossed-up excess – goodwill (P50,000/80%)

P370,000 320,000 P 50,000 P 62,500

Computation of consolidated net income and minority net income Consolidated net income Net income from own operations: Polaroid Co. P234,000 Solar Co. 48,000 Impairment of goodwill ( 2,500) Realized gross profit on beginning inventory 30,000 Unrealized gross profit on ending inventory ( 60,000) Dividend income from Solar ( 24,000) Total P225,500

Minority int. net income P12,000

______ P12,000

MULTIPLE CHOICE 13-A

1. 2. 3. 4.

A D C A

13-B

1.

A

13-C

1. 2. 3.

B A C

1.

B

13-D

5. 6. 7. 8.

A C A C

(P100,000 – P80,000) + [(P150,000 – P100,000) x 80%] Net income from own operations: Palacio

P152,000

Chapter 13 - Suggested Answers

page 14

Silahis (P92,000 x 100%) Sultan (P64,000 x 90%) Unrealized gross profit on ending inventory of Palacio on purchases from Silahis (P1,200 x 100%) from Sultan (P2,600 x 90%) Realized gross profit on beginning inventory of Palacio on purchases from Silahis (P2,400 x 100%) from Sultan (P2,000 x 90%) Consolidated net income 13-E

13-F

1.

1. 2.

D

Net income from own operations: Pearl Sapphire (P200,000 x 70%) Unrealized gross profit on ending inventory of Sapphire (P180,000 x 40% x 20%/120%) Consolidated net income

D D

Consolidated net income Net income from own operations: Pancho Sanchez Realized gross profit on beginning invty. of Pancho Unrealized gross profit on ending invty. of Pancho (P40,000 x 20% x 25%/125%) Sanchez (P100,000 x 20% x 25%/125%) Total

13-G

13-H

1.

D

1.

D

2.

D

3.

D

( (

( (

1,200) 2,340)

2,400 1,800 P302,260 P200,000 140,000 ( 12,000) P328,000 Minority net income

P120,000 56,000

P14,000

640

160

1,280) 4,000) P171,360

Net income from own operations: Panay Sta. Ana (P75,000 x 80%) Unreallized gross profit on ending inventory of Sta. Ana (P60,000 x 20%) Unrealized gain on construction of warehouse by Sta. Ana (P30,000 x 80%) Realized gain on warehouse (P30,000 / 5 yrs. x 80%) Consolidated net income Consolidated net income Net income from own operations: Pureza Sta. Mesa Impairment of goodwill Realized gross profit on beginning inventory of Sta. Mesa (P4,800 x 25%/125%) Unrealized gross profit on ending inventory of Sta. Mesa (P9,000 x 25%/125%) Total

92,000 57,600

P200,000 80,000 ( 4,000)

( 320) ______ P13,840 P 90,000 60,000 ( 12,000) ( 24,000) 4,800 P118,800 Minority int.

net income P20,000

960 ( 1,800) P275,160

Equity in subsidiary income (P275,160 - P200,000)

______ P20,000 P 75,160

Chapter 13 - Suggested Answers

13-I

13-J

page 15

4.

C

Minority interest, January 1, 2008 (P400,000 x 20%) Adjustment of assets (P80,000/80% x 20%) Minority interest net income Minority interest dividends (P20,000 x 20%) Minority interest, December 31, 2008

P 80,000 20,000 20,000 ( 4,000) P116,000

5.

D

Original cost of investment Equity in subsidiary income Dividends received from Sta. Mesa (P20,000 x 80%) Balance of investment, December 31, 2008

P400,000 75,160 ( 16,000) P459,160

1.

D

Unadjusted share in the NI of San Simon (P200,000 x 80%) Impairment of goodwill Unrealized profit on ending inventory of San Simon (P18,000 x 25%/125%) Realized profit on beginning inventory of San Simon (P9,600 x 25%/125%) Equity in San Simon Co.'s net income for 2008

1.

B

P160,000 ( 8,000) (

3,600)

1,920 P150,320

Minority interest net income Add Unrealized GP on Ending Inventory of Panasonic Co. (36,000 x 25%/125% = P7,200 x 20%) Unadjusted share in Net Income of Panasonic Co. Minority interest percentage Net income of Supersonic Co. Controlling interest Unadjusted share of Panasonic in net income of Supersonic Unrealized GP on ending inventory of Panasonic Co. (P7,200 x 80%) Unrealized GP on ending inventory of Supersonic Co. (P24,000 x 20%/120%) Equity in subsidiary net income

P 30,560 1,440 P 32,000 ÷ 20% P 160,000 x 80% P 128,000 ( 5,760) ( 4,000) P 118,240

2.

D

Minority interest, Dec. 31, 2008 Less Minority interest net income Minority interest, January 1, 2008 Percentage of minority interest Net assets of Supersonic Co., Jan. 1, 2008 Add Net income of Supersonic Co. for 2008 Net assets of Supersonic Co., Dec. 31, 2009

P158,560 30,560 P120,000 ÷ 20% P640,000 160,000 P800,000

3.

B

Net assets of Supersonic Co., Jan. 1, 2008 Percentage of interest acquired Book value of investment acquired Excess of cost over book value of investment Price paid for investment

P640,000 x 80% P512,000 20,000 P532,000

4.

A

Original cost of investment Equity in subsidiary income

P532,000 118,240

Chapter 13 - Suggested Answers

page 16

Balance of investment, Dec. 31, 2008 13-K

1.

13-L

A

2007

1. C

Unadjusted share in net income of Soriaga Co. 2007 - P320,000 x 30% 2008 - P360,000 x 30% Gross profit on merchandise sold by Soriaga Co. to Pasadena Corp. in 2007 and sold by Pasadena in 2008 (P8,000 x 30%) Minority net income Subsidiary net income in 2006 Eliminate profit in transfer of land

P 96,000 P108,000 ( 2,400) P 93,600

Percentage of ownership Parent’s income from subsidiary 2. A 3. 4. 5. 6. 7. 8. 9. 10. 11. 1. C

13-N

1. D 2. D

3.

B

1.

D

2.

2,400 P110,400 P60,000 ( 10,000) P50,000 x 80% P40,000

P80,000 x 80% = P64,000

B A C A D C B D D

13-M

13-O

P650,240 2008

D

Original cost of P750,000 Consolidated Net Income Net income from own operations: Pateros Co. Santiago Co. Unrealized gain on sale of machinery to Pateros by Santiago (P300,000 - P250,000) Realized gain on sale of machinery (P50,000/8 years = P6,250) Total

P120,000 67,200

P16,800

( 40,000)

( 10,000)

5,000 P152,200

1,250 P 8,050

Book value of machinery, Jan. 1, 2008 Less Depreciation expense for 2008 (P250,000/8 years) Book value of machinery, Dec. 31, 2008

Net income from own operations: Portero Sotero Unrealized gain on sale of machine Realized gain on sale of machine (P30,000/6 years)

Minority Net Income

P250,000 31,250 P218,750

Consolidated Net Income

Minority Net Income

80,000 80,000 ( 30,000)

P 20,000

P

5,000

_______

Chapter 13 - Suggested Answers

Total 3.

13-P

1.

A

B

3.

D

4.

D

13-Q

1.

C

13-R

1.

A

1.

C

P 20,000 P 90,000 ( 15,000) P 75,000

Consolidated Net Income

Minority Net Income

Net income from own operations: Pedro Co. P 800,000 Sixto Co. 320,000 Impairment of goodwill ( 16,000) Unrealized gain on sale of equipment ( 80,000) Realized gain on sale of equipment (P80,000/5 x 9/12) 12,000 Total P 1,036,000 Equity in subsidiary income (P1,036,000 - P800,000)

______ P 80,000 P 236,000

Minority interest, Jan. 1, 2008 (P1,600,000 x 20%) Share in assets adjustments (P320,000 / 80% x 20%) Minority interest net income Minority interest dividends (P80,000 x 20%) Minority interest, Dec. 31, 2008

P 320,000 80,000 80,000 ( 16,000) P 464,000

Unrealized gain on sale of machinery Realized gain (P20,000/5 years) Net adjustments 13-S

P 135,000

Book value of machine, Jan. 1, 2008 Less Depreciation for 2008 (P90,000/6 years) Book value of machine, Dec. 31, 2008

D

2.

page 17

2007 (P20,000) 4,000 (P16,000)

Reported subsidiary net income Eliminate intercompany profit on transfer of equipment Realized gain on sale of equipment

P 80,000

2008 P -----4,000 P4,000

Minority interest percentage Minority net income

P400,000 ( 100,000) 20,000 P320,000 x 40% P128,000

2.

B

P300,000 – (P30,000 x 3)

P210,000

3.

B

P3,000,000 + (P2,000,000 – P100,000 + P20,000)

P4,920,000

4.

B

(P1,200,000 – P200,000) + P800,000

P1,800,000 Minority Net Income

5.

Consolidated Net Income

A Net income from own operations: Parch Starch Unrealized profit on transfer of equipt. Realized profit on transfer of equipt. Impairment of goodwill

P750,000 240,000 ( 60,000) 12,000 ( 30,000) P912,000

P160,000 ( 40,000) 8,000 P128,000

Chapter 13 - Suggested Answers

6. 7.

B A

The retained earnings of Parch of P4,210,000 (P900,000 + P100,000 + P200,000 + P210,000) x 40%

page 18

P564,000