CHAPTER 15.doc

CHAPTER 15 MULTIPLE CHOICES - COMPUTATIONAL 15-1:

d Price paid Less fair value of net assets acquired (P6,100 – P2,800) Goodwill

15-2:

a Price paid Non-controlling interest (P450,000/90%) x 10% Total Less fair value of net assets acquired (P360,000 – P40,000) Goodwill

15-3:

P 220,000 180,000 P 400,000

a Price paid Less fair value of net assets acquired: Cash Inventory Property and equipment Liabilities Gain on acquisition

15-5:

P 450,000 50,000 500,000 320,000 P 180,000

c Plant assets – Pall Company (at book value) Plant assets – Mall Company (at fair value) Consolidated

15-4:

P4,000,000 3,300,000 P 700,000

P 495,000 P 60,000 125,000 385,000 ( 70,000)

500,000 P ( 5,000)

a Price paid Non-controlling interest (P350,000/80%) x 20% Total Less fair value of net assets excluding goodwill Goodwill

P350,000 87,500 437,500 330,000 P107,500

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15-6:

15-7:

15-8:

a Inventory (P360,000 + P130,000)

P490,000

Plant and equipment (P500,000 + P420,000)

P920,000

a Building (at fair value)

P180,000

Land (at fair value)

P 90,000

a Price paid NCI [(P480,000/80%) x 20%] Total Less fair value of net assets acquired Goodwill

15-9:

P480,000 120,000 600,000 450,000 P150,000

d Price paid Non-controlling interest (P160,000/80%) x 20% Total Less fair value of net assets acquired (P300,000 – P160,000) Goodwill

P160,000 40,000 200,000 140,000 P 60,000

Therefore: Total assets (P800,000 + P300,000 + P60,000) Total liabilities (P250,000 + P155,000 + P160,000 + P5,000)

P1,160,000 570,000

15-10: b (P900,000 x 1%) 15-11: d Number of shares acquired (P120,000/P120) Divided by outstanding shares of Soda (P125,000/P100) Controlling interest

1,000 1,250 80%

Non-controlling interest [(P120,000/80%) x 20%}

P30,000

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15-12: a Goodwill FV of net assets acquired excluding goodwill (P700,000 – P150,000) NCI Price paid by the Pepsi Company

P250,000 550,000 (100,000) P700,000

15-13: b Price paid (P247,095 + P69,955) NCI [(P317,050/85%) x 15%*) Total Less net assets at fair value excluding goodwill: Net assets at book value Inventories Plant and equipment Patent Goodwill

P317,050 55,950 373,000 P290,700 6,630 48,450 7,650

353,430 P 19,570

* P43,605/P290,700 = 15% 15-14: d (P500,000 + P300,000) 15-15: b Price paid NCI [(P260,000/80%) x 20%] Total Less fair value of net acquired (P450,000 – P210,000) Goodwill

P260,000 65,000 325,000 240,000 P 85,000

15-16: a (The retained earnings of the parent only). 15-17: b Controlling interest (Stockholders’ equity of the parent) Non-controlling interest (per no. 15-15) Stockholders equity

P550,000 65,000 P615,000

15-18: a (refer to 15-15) 15-19: c (P380,000 + P210,000)

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15-20: a Cash and cash equivalent (P70,000 + P90,000) Inventory (P100,000 + P60,000) Property and equipment (P500,000 + P300,000) Goodwill Total assets 15-21: a: Fair value per share: New acquisition (P630,000/7,000 shares) Fair value of previously owned shares (1,000* shares x P90) Acquisition of new shares Total price paid for 80% interest Non-controlling interest (P720,000/80%) x 20%

P 160,000 160,000 800,000 85,000 P1,205,000

P90 P 90,000 (10%) 630,000 (70%) P 720,000 P 180,000

* P200,000 / P20 x 10% = 1,000 shares

15-22: c Fair value of previously owned interest (10%) Price paid for new additional interest (70%) Non-controlling interest Total Less fair value of net assets acquired (P910,000 – P130,000) Goodwill

P 90,000 630,000 180,000 900,000 780,000 P120,000

15-23: a

The amount reported is equal to Primo’s retained earnings of P567,000

15-24: a

(340,000- 200,000)

15-25: b Cash Accounts receivable Inventories (see 15-25) Equipment (800,000 - 500,000) Accounts payable Fair value of net assets 15-26: d

P 40,000 20,000 140,000 300,000 (40,000) P460,000

100% - (P163,000/P460,000) = 65% rounded

15-27: d Goodwill Fair value of net assets acquired (15-25) Total NCI Price paid by Primo

P 10,000 460,000 470,000 (163,000) P 307,000

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15-28: b

Company implied value Less fair value of net assets Goodwill

Total P470,000 460,000 P 10,000

Parent 65% P307,000 299,000 P 8,000

NCI 35% P163,000 161,000 P 2,000

15-29: b Non-controlling interest should be valued at the higher amount between the following: At estimated fair value (P512,000/80%) x 20% P128,000 At proportionate share of acquiree’s net identifiable assets (P670,000 x 20%) 134,000 Therefore, NCI is measured at P134,000. 15-30: c Price paid (8,000 shares x P64) NCI Total Less fair value of net assets acquired excluding goodwill: Cash P 20,000 Inventory 400,000 Equipment 500,000 Current liabilities ( 250,000) Gain on acquisition

P512,000 134,000 646,000

670,000 P(24,000)

Proof: Total Fair value of the company Fair of net assets excluding goodwill Gain on acquisition

P646,000 670,000 P(24,000)

Parent (80%)

NCI (20%)

P512,000 536,000 P(24,000)

P134,000 134,000 P -

NCI does not share a gain on the acquisition. IFRS 3 (2008) provides that the gain is attributed to the acquirer only.

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PROBLEMS Problem 15-1 a.

Investment in Solo Company stock Cash To record acquisition of 90% of the outstanding shares of Solo.

1,080,000 1,080,000

Retained earnings – Polo Company Cash To record acquisition-related costs direct to Retained earnings of Polo Company. b.

50,000 50,000

Working paper elimination entries: (1)

(2)

Common stock – Solo 400,000 Retained earnings – Solo 500,000 Investment in Solo company stock Non-controlling interest To eliminate Solo’s equity accounts at date of acquisition. Inventories Plant assets Goodwill Investment in Solo company stock Non-controlling interest To allocate excess

810,000 90,000

30,000 60,000 210,000 270,000 30,000

Determination and Allocation of Excess Schedule: Company fair value Less BV of interest acquired: Common stock Retained earnings Total equity Interest aquired Book value Excess Adjustments: Inventory Plant assets Goodwill

Total P1,200,000 400,000 500,000 900,000 P 300,000

Parent (80%) P1,080,000

NCI (10%) P120,000*

P 900,000 90% P 810,000 P 270,000

P900,000 10% P 90,000 P 30,000

(30,000) (60,000 P 210,000

* (P1,080,000/90%) x 10% = P120,000

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Problem 15-2 a.

b.

c.

Investment in Straw Company Cash To record acquisition of 100% of Straw stock. Price paid Less: Book value of interest acquired (100%) Difference Allocation (100%: Inventories Land Building Equipment Patents Goodwill

600,000 600,000 P600,000 420,000 180,000 P( 40,000) ( 80,000) 150,000 ( 20,000) ( 20,000)

( 10,000) P170,000

Working paper elimination entries: (1)

(2)

Common stock – Straw Retained earnings – Straw Investment in Straw Company To eliminate equity accounts of Straw at date of acquisition.

100,000 320,000

Inventories Land Equipment Patents Goodwill Buildings Investment in Straw Company To allocate excess.

40,000 80,000 20,000 20,000 170,000

420,000

150,000 180,000

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Problem 15-3 a.

Investment in Soto Company Cash To record acquisition of 80% stock of Sotto. Retained earnings – Pedro Company Cash To record acquisition costs.

b.

c.

Price paid by the Parent Company Non-controlling interest (NCI) Total Less: Book value of net assets Excess Allocation: Current assets Property and equipment Long-term debt Goodwill

950,000 950,000 80,000 80,000 P950,000 230,000 1,180,000 900,000 280,000 P 50,000 (100,000) ( 40,000)

( 90,000) P190,000

Working paper elimination entries: (1)

(2)

Common stock – Sotto 100,000 APIC – Sotto 200,000 Retained earnings – Sotto 600,000 Investment in Sotto stock Non-controlling interest To eliminate equity accounts of Sotto at date of acquisition. Property, plant and equipment Goodwill Long-term debt Current assets Investment in Sotto stock Non-controlling interest To allocate excess

720,000 180,000

100,000 190,000 40,000 50,000 230,000 50,000

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Problem 15-4 Paco Company and Subsidiary Consolidated Statement of Financial Position January 2, 2013 Current assets Property, plant and equipment Other assets Total assets

P475,000 285,000 70,000 P830,000

Current liabilities Mortgage payable Common stock Additional paid-in capital Retained earnings (including gain on acquisition of P20,000) Total liabilities and stockholders’ equity

P280,000 85,000 200,000 65,000 200,000 P830,000

Computation of income from acquisition: Consideration given (20,000 shares x P6) Less fair value of net assets: Current assets Property and equipment Other assets Current liabilities Mortgage payable Gain on acquisition

P120,000 P100,000 85,000 40,000 (60,000) (25,000)

140,000 P(20,000)

Problem 15-5 The entry to record the acquisition of stock is as follows: (a)

(b)

Investment in Solo stock Common stock, at par Additional paid-in capital To record acquisition of stock.

250,000

Retained earnings – Polo Additional paid-in capital Cash To record acquisition-related costs.

10,000 20,000

100,000 150,000

30,000

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Problem 15-5, continued Palo Company and Subsidiary Consolidated Statement of Financial Position December 31, 2013 Cash Receivables Inventory Property and equipment – net Goodwill Total assets

P 70,000 120,000 170,000 340,000 20,000 P720,000

Current liabilities Long-term liabilities Common stock Additional paid-in capital (P20,000 + P150,000 – P20,000) Retained earnings, 12/31 (P220,000 – P10,000) Total liabilities and stockholders’ equity

P 30,000 120,000 210,000 150,000 210,000 P720,000

Computation of goodwill: Consideration given Less fair value of net assets (P290,000 – 60,000) Goodwill

P250,000 230,000 P 20,000

Problem 15-6 a. Investment in Seed Company Cash To record acquisition of 100% of Seed company stock.

350,000

Determination and Allocation of Excess schedule: Price paid Less: Book value of interest acquired Excess Allocation: Inventory P(20,000) Plant assets (80,000) Long-term liabilities 40,000 Income from acquisition

b.

350,000

P350,000 320,000 30,000

(60,000) P(30,000)

Working paper elimination entries (1) Common stock – Seed 100,000 Additional paid-in capital – Seed 40,000 Retained earnings – Seed 180,000 Investment in Seed stock To eliminate equity accounts of Seed Company (2)

Inventory 20,000 Plant assets 80,000 Long-term debt Investment in Seed stock Retained earnings – Pill (income from acquisition) To allocate excess

320,000

40,000 30,000 30,000

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Problem 15-6, continued: Pill Corporation and Subsidiary Consolidated Working Paper May 31, 2013 – Date of Acquisition Pill Corporation

Seed Company

Assets Cash Accounts receivable Inventories Investment in Seed company

200,000 700,000 1,400,000 350,000

10,000 60,000 120,000

Plant assets Total

2,850,000 5,500,000

610,000 800,000

500,000 1,000,000

80,000 400,000

Liabilities & Stockholders’ Equity Current liabilities Long-term debt Common stock: Pill Seed Additional paid-in capital Pill Seed Retained earnings Pill Seed Total

Eliminations

& adjustment

Debit

Credit

(2) 20,000 (1)320,000 (2) 30,000 (2) 80,000

210,000 760,000 1,540,000 3,540,000 6,050,000

(2) 40,000

1,500,000

580,000 1,440,000 1,500,000

100,000

(1)100,000

40,000

(1) 40,000

180,000 800,000

(1)180,000 420,000

1,200,000

1,200,000

1,300,000 5,500,000

Consolidated

(2) 30,000

1,330,000

420,000

6,050,000

Problem 15-7 a. b.

Accounts Receivable Cash Investment in Sea Company stock Common stock ((30,000 shares x P20) Retained earnings – Pop Corporation Common stock Current liabilities

70,000 70,000 600,000 600,000 40,000 30,000 70,000

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Problem 15-7, continued: Pop Corporation and Subsidiary Working Paper for Consolidated Balance Sheet April 30, 2013 – Date of acquisition Pop Corporation Assets Cash Accounts receivable – net Inventories Investment in Sea Company Plant assets Goodwill Total Liabilities & Stockholders’ Equity Current liabilities Long-term debt Common stock Pop Sea Additional paid-in capital Retained earnings Pop Sea

Sea Company

Adjustments

& Eliminatio

Debit

Credit

50,000 230,000 400,000 600,000

80,000 270,000 350,000

1,300,000

560,000

2,580,000

1,260,000

380,000 800,000

250,000 600,000

(3) 70,000

100,000 360,000

(1)100,000 (1)360,000

(3) 70,000 (2) 90,000 (1)328,000 (2)272,000 (2)220,000 (2) 50,000

1,070,000

560,000 1,420,000 1,070,000

330,000

2,580,000

130,000 430,000 840,000 2,080,000 50,000 3,530,000

(2) 20,000

330,000 (50,000)

(1) 50,000

1,260,000

(1) 82,000 (2) 68,000 890,000

NCI Total

Consolidated

890,000

150,000 3,530,000

(1) To eliminate equity accounts of Sea Company on the date of acquisition. (2) To allocate difference, computed as follows:

(3)

Price paid NCI (P600,000/80%) x 20% Total Less: Book value of net assets of Sea Excess Allocation: Inventories P( 90,000) Plant assets (220,000) Long-term debt 20,000 Goodwill To eliminate intercompany receivables and payables.

P600,000 150,000 750,000 410,000 340,000

(290,000) P 50,000

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Problem 15-8 1. Price paid Less book value of interest acquired Common stock APIC Retained earnings Excess Allocation: Inventory Land Building Equipment Bonds payable

P500,000 P100,000 200,000 230,000 P( 20,000) ( 10,000) 50,000 60,000 ( 50,000)

530,000 ( 30,000)

30,000

2. P Company and Subsidiary Consolidated Working Paper January 2, 2013 – Date of acquisition P Company Debits Cash Accounts receivable Inventory Land Building Equipment Investment in S Company Total Credits Accounts payable Bonds payable Common stock – P Company Common stock – S Company APIC – S Company Retained earnings – P Co. Retained earnings – S Co. Total

S Company

Adjustments

& Eliminations

Debit

Credit

300,000 200,000 200,000 100,000 600,000 800,000 500,000 2,700,000

50,000 100,000 80,000 50,000 400,000 200,000

150,000

60,000 290,000

(2) 50,000

100,000 200,000

(1)100,000 (1)200,000

230,000 880,000

(1)230,000 640,000

(2) 20,000 (2) 10,000 (2) 30,000

(2) 50,000 (2) 60,000 (1)530,000

880,000

Consolidated 350,000 300,000 300,000 160,000 950,000 940,000 3,000,000 210,000 240,000 1,500,000

1,500,000 1,050,000 2,700,000

640,000

1,050,000 3,000,000

(1) To eliminate equity accounts of S Company. (2) To allocate excess

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Problem 15-9 1.

Price paid NCI (20% of FV of S Co’s net assets excluding GW (P500,000 x 20%) Total Less book of net assets Excess Allocation Inventory P (20,000) Land (10,000) Building 50,000 Equipment 60,000 Bonds payable (50,000) Goodwill

P500,000 100,000* 600,000 530,000 70,000

30,000 P100,000

* NCI is measured at its proportionate interest in S Company’s net assets because the assessed fair value of P80,000 is smaller. 2.

P Company and Subsidiary Consolidated Working Paper January 2, 2013 – Date of acquisition

Debits Cash Accounts receivable Inventory Land Building Equipment Investment in S Company Goodwill Total Credits Accounts payable Bonds payable Common stock – P Co. Common stock – S Co. APIC – S Co. Retained earnings – P Co. Retained earnings – S Co. NCI Total

Adjustments

& Eliminations

Debit

Credit

P Company

S Company

300,000 200,000 200,000 100,000 600,000 800,000 500,000

50,000 100,000 80,000 50,000 400,000 200,000

2,700,000

880,000

150,000

60,000 290,000

(2) 50,000

100,000 200,000

(1)100,000 (1)200,000

230,000

(1)230,000

880,000

(2) 6,000 716,000

(2) 20,000 (2) 10,000 (2) 50,000 (2) 60,000 (1)424,000 (2) 76,000 (2)100,000

350,000 300,000 300,000 160,000 950,000 940,000 100,000 3,100,000 210,000 240,000 1,500,000

1,500,000 1,050,000

2,700,000

Consolidated

1,050,000 (1)106,000 716,000

100,000 3,100,000

(1) To eliminate equity accounts of S Company (2) To allocate excess

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Problem 15-10 1.

2.

Price paid Less book value of interest acquired (100%): Excess Allocation Inventory Land Equipment Long-term investment in MS Gain on acquisition

P542,000 670,000 (128,000) P (10,000) (40,000) 20,000 (15,000)

( 45,000) P(173,000)

P Company and Subsidiary Consolidated Working Paper January 2, 2013 – Date of acquisition

Assets Cash Accounts receivable Inventory Land Equipment Investment in S Company Long-term investment in MS Total Liabilities & Stockholders’ Equity Accounts payable Common Stock – P Co. Common Stock – S Co. APIC – P Co. Retained earnings – P Co. Retained earnings – S Co. Total

P Company

S Company

100,000 200,000 150,000 50,000 300,000 542,000 100,000 1,442,000

100,000 150,000 130,000 80,000 200,000

175,000 400,000

115,000

125,000 785,000

200,000

Adjustments

& Eliminations

Debit

Credit

(2) 10,000 (2) 40,000 (2)128,000 (2) 15,000

470,000 785,000

200,000 350,000 290,000 170,000 480,000 240,000 1,730,000

290,000 400,000 (1)200,000

200,000 667,000 1,442,000

(2) 20,000 (1)670,000

Consolidated

(1)470,000 863,000

(2)173,000

200,000 840,000

863,000

1,730,000

(1) To eliminate equity accounts of S Company. (2) To allocate excess

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Problem 15-11 1. 2.

3.

4.

Investment in Sun Company Cash Price paid Less book value of interest acquired: Common stock Retained earnings Excess Allocation: Land Building Bond payable (bond discount) Deferred taxes Goodwill Land Building Bond discount Goodwill Deferred taxes Retained earnings Additional paid in capital Common stock Additional paid in capital Investment in Sun Company 1,900,000

1,900,000 1,900,000 P1,900,000 P 600,000 840,000 (100,000) (200,000) ( 40,000) ( 20,000)

1,440,000 460,000

(360,000) P 100,000

100,000 200,000 40,000 100,000 20,000 840,000 1,300,000 600,000 1,300,000

Problem 15-12 Supporting computations: Fair value of existing X Company equity (200 shares P50) P Company interest in X Company [300/(300 + 200)] Acquisition price

P10,000 60% P 6,000

Entry to record the issuance of 300 shares – Books of X Company (legal parent) Investment in P Company Common stock (300 shares x P2) APIC

6,000 600 5,400

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Problem 15-12, continued:

Fair value analysis:

Implied FV

Company fair value Fair value of net assets excluding goodwill Goodwill 1.

Parent (60%)

NCI (40%)

P10,000 P6,000 P4,000 6,000 3,600 2,400 P 4,000P2,400 P1,600

Distribution and allocation of excess schedule: Implied FV Parent (60%)

Fair value of subsidiary Less book value of interest acquired: Common stock P2 par APIC Retained earnings Total Interest acquired Book value Excess Allocated to Non-current assets Goodwill 2.

P10,000 4,000 1,600 2,000 4,000 6,000 ( 2,000) P 4,000

NCI (40%)

P6,000

P4,000

P4,000 60% P2,500 P3,600

P4,000 40% P1,600 P2,400

X Company and Subsidiary P Company Consolidated Statement of Financial Position December 31, 2013 Assets

Liabilities and Equity

Current assets Non-current assets Goodwill

P 4,000 16,000 4,000

Total assets

P24,000

Non-current liabilities Common stock (300 shares x P2) APIC Retained earnings NCI Total liabilities and equity

*

Total paid in capital of P Company (P200 + P1800) New shares issued (300 shares x P2) APIC

**

Retained earnings of the legal subsidiary – P Company

P 6,000 600 1,400* 6,000** 10,000***

P24,000

P2,000 600 P1,400

*** The remaining shares of the original C Company equity.

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