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Advac Guerero Chapter 15 Sol Man

Management Accounting (Polytechnic University of the Philippines)

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CHAPTER 15

MULTIPLE CHOICES - COMPUTATIONAL

15-1: d

Price paid P4,000,000

Less fair value of net assets acquired (P6,100 – P2,800) 3,300,000
Goodwill P 700,000

15-2: a

Price paid P 450,000

Non-controlling interest (P450,000/90%) x 10% 50,000
Total 500,000
Less fair value of net assets acquired (P360,000 – P40,000) 320,000
Goodwill P 180,000

15-3: c

Plant assets – Pall Company (at book value) P 220,000

Plant assets – Mall Company (at fair value) 180,000
Consolidated P 400,000

15-4: a

Price paid P 495,000

Less fair value of net assets acquired:
Cash P 60,000
Inventory 125,000
Property and equipment 385,000
Liabilities ( 70,000) 500,000
Gain on acquisition P ( 5,000)

15-5: a

Price paid P350,000

Non-controlling interest (P350,000/80%) x 20% 87,500
Total 437,500
Less fair value of net assets excluding goodwill 330,000
Goodwill P107,500

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15-6: a

Inventory (P360,000 + P130,000) P490,000

Plant and equipment (P500,000 + P420,000) P920,000

15-7: a

Building (at fair value) P180,000

Land (at fair value) P 90,000

15-8: a

Price paid P480,000

NCI [(P480,000/80%) x 20%] 120,000
Total 600,000
Less fair value of net assets acquired 450,000
Goodwill P150,000

15-9: d

Price paid P160,000

Non-controlling interest (P160,000/80%) x 20% 40,000
Total 200,000
Less fair value of net assets acquired (P300,000 – P160,000) 140,000
Goodwill P 60,000

Therefore:
Total assets (P800,000 + P300,000 + P60,000) P1,160,000
Total liabilities (P250,000 + P155,000 + P160,000 + P5,000) 570,000

15-10: b (P900,000 x 1%)

15-11: d

Number of shares acquired (P120,000/P120) 1,000

Divided by outstanding shares of Soda (P125,000/P100) 1,250
Controlling interest 80%

Non-controlling interest [(P120,000/80%) x 20%} P30,000

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15-12: a

Goodwill P250,000
FV of net assets acquired excluding goodwill (P700,000 – P150,000) 550,000
NCI (100,000)
Price paid by the Pepsi Company P700,000

15-13: b

Price paid (P247,095 + P69,955) P317,050

NCI [(P317,050/85%) x 15%*) 55,950
Total 373,000
Less net assets at fair value excluding goodwill:
Net assets at book value P290,700
Inventories 6,630
Plant and equipment 48,450
Patent 7,650 353,430
Goodwill P 19,570

* P43,605/P290,700 = 15%

15-14: d (P500,000 + P300,000)

15-15: b

Price paid P260,000

NCI [(P260,000/80%) x 20%] 65,000
Total 325,000
Less fair value of net acquired (P450,000 – P210,000) 240,000
Goodwill P 85,000

15-16: a (The retained earnings of the parent only).

15-17: b

Controlling interest (Stockholders’ equity of the parent) P550,000

Non-controlling interest (per no. 15-15) 65,000
Stockholders equity 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) P 160,000
Inventory (P100,000 + P60,000) 160,000
Property and equipment (P500,000 + P300,000) 800,000
Goodwill 85,000
Total assets P1,205,000

15-21: a:
Fair value per share:
New acquisition (P630,000/7,000 shares) P90

Fair value of previously owned shares (1,000* shares x P90) P 90,000 (10%)
Acquisition of new shares 630,000 (70%)
Total price paid for 80% interest P 720,000
Non-controlling interest (P720,000/80%) x 20% P 180,000
* P200,000 / P20 x 10% = 1,000 shares

15-22: c
Fair value of previously owned interest (10%) P 90,000
Price paid for new additional interest (70%) 630,000
Non-controlling interest 180,000
Total 900,000
Less fair value of net assets acquired (P910,000 – P130,000) 780,000
Goodwill 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 P 40,000
Accounts receivable 20,000
Inventories (see 15-25) 140,000
Equipment (800,000 - 500,000) 300,000
Accounts payable (40,000)
Fair value of net assets P460,000

15-26: d 100% - (P163,000/P460,000) = 65% rounded

15-27: d

Goodwill P 10,000
Fair value of net assets acquired (15-25) 460,000
Total 470,000
NCI (163,000)
Price paid by Primo P 307,000

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15-28: b

Parent NCI
Total 65% 35%
Company implied value P470,000 P307,000 P163,000
Less fair value of net assets 460,000 299,000 161,000
Goodwill P 10,000 P 8,000 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) P512,000

NCI 134,000
Total 646,000
Less fair value of net assets acquired excluding goodwill:
Cash P 20,000
Inventory 400,000
Equipment 500,000
Current liabilities ( 250,000) 670,000
Gain on acquisition P(24,000)

Proof:

Total Parent (80%) NCI (20%)

Fair value of the company P646,000 P512,000 P134,000

Fair of net assets excluding goodwill 670,000 536,000 134,000
Gain on acquisition P(24,000) P(24,000) 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 1,080,000

Cash 1,080,000
To record acquisition of 90%
of the outstanding shares of Solo.

Retained earnings – Polo Company 50,000

Cash 50,000
To record acquisition-related costs direct to
Retained earnings of Polo Company.

b. Working paper elimination entries:

(1) Common stock – Solo 400,000

Retained earnings – Solo 500,000
Investment in Solo company stock 810,000
Non-controlling interest 90,000
To eliminate Solo’s equity accounts at date of acquisition.

(2) Inventories 30,000

Plant assets 60,000
Goodwill 210,000
Investment in Solo company stock 270,000
Non-controlling interest 30,000
To allocate excess

Determination and Allocation of Excess Schedule:

Total Parent (80%) NCI (10%)

Company fair value P1,200,000 P1,080,000 P120,000*
Less BV of interest acquired:
Common stock 400,000
Retained earnings 500,000
Total equity 900,000 P 900,000 P900,000
Interest aquired 90% 10%
Book value P 810,000 P 90,000
Excess P 300,000 P 270,000 P 30,000
Adjustments:
Inventory (30,000)
Plant assets (60,000
Goodwill P 210,000

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

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Problem 15-2

a. Investment in Straw Company 600,000

Cash 600,000
To record acquisition of 100% of Straw stock.

b. Price paid P600,000

Less: Book value of interest acquired (100%) 420,000
Difference 180,000
Allocation (100%:
Inventories P( 40,000)
Land ( 80,000)
Building 150,000
Equipment ( 20,000)
Patents ( 20,000) ( 10,000)
Goodwill P170,000

c. Working paper elimination entries:

(1) Common stock – Straw 100,000

Retained earnings – Straw 320,000
Investment in Straw Company 420,000
To eliminate equity accounts of Straw at
date of acquisition.

(2) Inventories 40,000

Land 80,000
Equipment 20,000
Patents 20,000
Goodwill 170,000
Buildings 150,000
Investment in Straw Company 180,000
To allocate excess.

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Problem 15-3

a. Investment in Soto Company 950,000

Cash 950,000
To record acquisition of 80% stock of Sotto.

Retained earnings – Pedro Company 80,000

Cash 80,000
To record acquisition costs.

b. Price paid by the Parent Company P950,000

Non-controlling interest (NCI) 230,000
Total 1,180,000
Less: Book value of net assets 900,000
Excess 280,000
Allocation:
Current assets P 50,000
Property and equipment (100,000)
Long-term debt ( 40,000) ( 90,000)
Goodwill P190,000

c. Working paper elimination entries:

(1) Common stock – Sotto 100,000

APIC – Sotto 200,000
Retained earnings – Sotto 600,000
Investment in Sotto stock 720,000
Non-controlling interest 180,000
To eliminate equity accounts of Sotto at date of
acquisition.

(2) Property, plant and equipment 100,000

Goodwill 190,000
Long-term debt 40,000
Current assets 50,000
Investment in Sotto stock 230,000
Non-controlling interest 50,000
To allocate excess

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Problem 15-4

Paco Company and Subsidiary

Consolidated Statement of Financial Position
January 2, 2013

Current assets P475,000

Property, plant and equipment 285,000
Other assets 70,000
Total assets P830,000

Current liabilities P280,000

Mortgage payable 85,000
Common stock 200,000
Additional paid-in capital 65,000
Retained earnings (including gain on acquisition of P20,000) 200,000
Total liabilities and stockholders’ equity P830,000

Computation of income from acquisition:

Consideration given (20,000 shares x P6) P120,000
Less fair value of net assets:
Current assets P100,000
Property and equipment 85,000
Other assets 40,000
Current liabilities (60,000)
Mortgage payable (25,000) 140,000
Gain on acquisition P(20,000)

Problem 15-5

The entry to record the acquisition of stock is as follows:

(a) Investment in Solo stock 250,000

Common stock, at par 100,000
Additional paid-in capital 150,000
To record acquisition of stock.

(b) Retained earnings – Polo 10,000

Additional paid-in capital 20,000
Cash 30,000
To record acquisition-related costs.

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Problem 15-5, continued

Palo Company and Subsidiary
Consolidated Statement of Financial Position
December 31, 2013
Cash P 70,000
Receivables 120,000
Inventory 170,000
Property and equipment – net 340,000
Goodwill 20,000
Total assets P720,000

Current liabilities P 30,000

Long-term liabilities 120,000
Common stock 210,000
Additional paid-in capital (P20,000 + P150,000 – P20,000) 150,000
Retained earnings, 12/31 (P220,000 – P10,000) 210,000
Total liabilities and stockholders’ equity P720,000

Computation of goodwill:
Consideration given P250,000
Less fair value of net assets (P290,000 – 60,000) 230,000
Goodwill P 20,000

Problem 15-6
a. Investment in Seed Company 350,000
Cash 350,000
To record acquisition of 100% of Seed company stock.

Determination and Allocation of Excess schedule:

Price paid P350,000
Less: Book value of interest acquired 320,000
Excess 30,000
Allocation:
Inventory P(20,000)
Plant assets (80,000)
Long-term liabilities 40,000 (60,000)
Income from acquisition P(30,000)

b. 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 320,000
To eliminate equity accounts of Seed Company

(2) Inventory 20,000

Plant assets 80,000
Long-term debt 40,000
Investment in Seed stock 30,000
Retained earnings – Pill (income from acquisition) 30,000
To allocate excess

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Problem 15-6, continued:

Pill Corporation and Subsidiary
Consolidated Working Paper
May 31, 2013 – Date of Acquisition

Pill Seed Eliminations & adjustment Conso-

Corporation Company Debit Credit lidated
Assets
Cash 200,000 10,000 210,000
Accounts receivable 700,000 60,000 760,000
Inventories 1,400,000 120,000 (2) 20,000 1,540,000
Investment in Seed company 350,000 (1)320,000 -
(2) 30,000
Plant assets 2,850,000 610,000 (2) 80,000 3,540,000
Total 5,500,000 800,000 6,050,000

Liabilities & Stockholders’

Equity
Current liabilities 500,000 80,000 580,000
Long-term debt 1,000,000 400,000 (2) 40,000 1,440,000
Common stock:
Pill 1,500,000 1,500,000
Seed 100,000 (1)100,000
Additional paid-in capital
Pill 1,200,000 1,200,000
Seed 40,000 (1) 40,000
Retained earnings
Pill 1,300,000 (2) 30,000 1,330,000
Seed 180,000 (1)180,000
Total 5,500,000 800,000 420,000 420,000 6,050,000

Problem 15-7

a. Accounts Receivable 70,000

Cash 70,000

b. Investment in Sea Company stock 600,000

Common stock ((30,000 shares x P20) 600,000

Retained earnings – Pop Corporation 40,000

Common stock 30,000
Current liabilities 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 Sea Adjustments & Eliminatio Consoli-

Corporation Company Debit Credit dated
Assets
Cash 50,000 80,000 130,000
Accounts receivable – net 230,000 270,000 (3) 70,000 430,000
Inventories 400,000 350,000 (2) 90,000 840,000
Investment in Sea Company 600,000 (1)328,000 -
(2)272,000
Plant assets 1,300,000 560,000 (2)220,000 2,080,000
Goodwill (2) 50,000 50,000
Total 2,580,000 1,260,000 3,530,000

Liabilities & Stockholders’

Equity
Current liabilities 380,000 250,000 (3) 70,000 560,000
Long-term debt 800,000 600,000 (2) 20,000 1,420,000
Common stock
Pop 1,070,000 1,070,000
Sea 100,000 (1)100,000
Additional paid-in capital 360,000 (1)360,000
Retained earnings
Pop 330,000 330,000
Sea (50,000) (1) 50,000

NCI (1) 82,000 150,000

(2) 68,000
Total 2,580,000 1,260,000 890,000 890,000 3,530,000

(1) To eliminate equity accounts of Sea Company on the date of acquisition.

(2) To allocate difference, computed as follows:
Price paid P600,000
NCI (P600,000/80%) x 20% 150,000
Total 750,000
Less: Book value of net assets of Sea 410,000
Excess 340,000
Allocation:
Inventories P( 90,000)
Plant assets (220,000)
Long-term debt 20,000 (290,000)
Goodwill P 50,000
(3) To eliminate intercompany receivables and payables.

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Problem 15-8

1. Price paid P500,000

Less book value of interest acquired
Common stock P100,000
APIC 200,000
Retained earnings 230,000 530,000
Excess ( 30,000)
Allocation:
Inventory P( 20,000)
Land ( 10,000)
Building 50,000
Equipment 60,000
Bonds payable ( 50,000) 30,000

2. P Company and Subsidiary

Consolidated Working Paper
January 2, 2013 – Date of acquisition

P S Adjustments & Eliminations Consoli-

Company Company Debit Credit dated
Debits
Cash 300,000 50,000 350,000
Accounts receivable 200,000 100,000 300,000
Inventory 200,000 80,000 (2) 20,000 300,000
Land 100,000 50,000 (2) 10,000 160,000
Building 600,000 400,000 (2) 50,000 950,000
Equipment 800,000 200,000 (2) 60,000 940,000
Investment in S Company 500,000 (2) 30,000 (1)530,000 -
Total 2,700,000 880,000 3,000,000

Credits
Accounts payable 150,000 60,000 210,000
Bonds payable 290,000 (2) 50,000 240,000
Common stock – P Company 1,500,000 1,500,000
Common stock – S Company 100,000 (1)100,000
APIC – S Company 200,000 (1)200,000
Retained earnings – P Co. 1,050,000
Retained earnings – S Co. 230,000 (1)230,000 1,050,000
Total 2,700,000 880,000 640,000 640,000 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 P500,000

NCI (20% of FV of S Co’s net assets excluding GW (P500,000 x 20%) 100,000*
Total 600,000
Less book of net assets 530,000
Excess 70,000
Allocation
Inventory P (20,000)
Land (10,000)
Building 50,000
Equipment 60,000
Bonds payable (50,000) 30,000
Goodwill 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

P S Adjustments & Eliminations Consoli-

Company Company Debit Credit dated
Debits
Cash 300,000 50,000 350,000
Accounts receivable 200,000 100,000 300,000
Inventory 200,000 80,000 (2) 20,000 300,000
Land 100,000 50,000 (2) 10,000 160,000
Building 600,000 400,000 (2) 50,000 950,000
Equipment 800,000 200,000 (2) 60,000 940,000
Investment in S Company 500,000 (1)424,000 -
(2) 76,000
Goodwill (2)100,000 100,000
Total 2,700,000 880,000 3,100,000

Credits
Accounts payable 150,000 60,000 210,000
Bonds payable 290,000 (2) 50,000 240,000
Common stock – P Co. 1,500,000 1,500,000
Common stock – S Co. 100,000 (1)100,000
APIC – S Co. 200,000 (1)200,000
Retained earnings – P Co. 1,050,000 1,050,000
Retained earnings – S Co. 230,000 (1)230,000

NCI (2) 6,000 (1)106,000 100,000

Total 2,700,000 880,000 716,000 716,000 3,100,000
(1) To eliminate equity accounts of S Company
(2) To allocate excess

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Problem 15-10

1. Price paid P542,000

Less book value of interest acquired (100%): 670,000
Excess (128,000)
Allocation
Inventory P (10,000)
Land (40,000)
Equipment 20,000
Long-term investment in MS (15,000) ( 45,000)
Gain on acquisition P(173,000)

2. P Company and Subsidiary

Consolidated Working Paper
January 2, 2013 – Date of acquisition

P S Adjustments & Eliminations Consoli-

Company Company Debit Credit dated
Assets
Cash 100,000 100,000 200,000
Accounts receivable 200,000 150,000 350,000
Inventory 150,000 130,000 (2) 10,000 290,000
Land 50,000 80,000 (2) 40,000 170,000
Equipment 300,000 200,000 (2) 20,000 480,000
Investment in S Company 542,000 (2)128,000 (1)670,000 -
Long-term investment in MS 100,000 125,000 (2) 15,000 240,000
Total 1,442,000 785,000 1,730,000

Liabilities & Stockholders’

Equity
Accounts payable 175,000 115,000 290,000
Common Stock – P Co. 400,000 400,000
Common Stock – S Co. 200,000 (1)200,000
APIC – P Co. 200,000 200,000
Retained earnings – P Co. 667,000 (2)173,000 840,000
Retained earnings – S Co. 470,000 (1)470,000
Total 1,442,000 785,000 863,000 863,000 1,730,000

(1) To eliminate equity accounts of S Company.

(2) To allocate excess

Problem 15-11

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1. Investment in Sun Company 1,900,000

Cash 1,900,000

2. Price paid P1,900,000

Less book value of interest acquired:
Common stock P 600,000
Retained earnings 840,000 1,440,000
Excess 460,000
Allocation:
Land (100,000)
Building (200,000)
Bond payable (bond discount) ( 40,000)
Deferred taxes ( 20,000) (360,000)
Goodwill P 100,000

3. Land 100,000
Building 200,000
Bond discount 40,000
Goodwill 100,000
Deferred taxes 20,000
Retained earnings 840,000
Additional paid in capital 1,300,000

4. Common stock 600,000

Additional paid in capital 1,300,000
Investment in Sun Company
1,900,000

Problem 15-12

Supporting computations:

Fair value of existing X Company equity (200 shares P50) P10,000

P Company interest in X Company [300/(300 + 200)] 60%
Acquisition price P 6,000

Entry to record the issuance of 300 shares – Books of X Company (legal parent)

Investment in P Company 6,000

Common stock (300 shares x P2) 600
APIC 5,400

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Problem 15-12, continued:

Fair value analysis: Implied FV Parent (60%) NCI (40%)

Company fair value P10,000 P6,000 P4,000

Fair value of net assets excluding goodwill 6,000 3,600 2,400
Goodwill P 4,000P2,400 P1,600

1. Distribution and allocation of excess schedule:

Implied FV Parent (60%) NCI (40%)

Fair value of subsidiary P10,000 P6,000 P4,000

Less book value of interest acquired:
Common stock P2 par 4,000
APIC 1,600
Retained earnings 2,000
Total 4,000 P4,000 P4,000
Interest acquired 60% 40%
Book value P2,500 P1,600
Excess 6,000 P3,600 P2,400
Allocated to Non-current assets ( 2,000)
Goodwill P 4,000

2. X Company and Subsidiary P Company

Consolidated Statement of Financial Position
December 31, 2013

Assets Liabilities and Equity

Current assets P 4,000 Non-current liabilities P 6,000

Non-current assets 16,000 Common stock (300 shares x P2) 600
Goodwill 4,000 APIC 1,400*
Retained earnings 6,000**
NCI 10,000***
Total assets P24,000 Total liabilities and equity P24,000

* Total paid in capital of P Company (P200 + P1800) P2,000

New shares issued (300 shares x P2) 600
APIC P1,400

** Retained earnings of the legal subsidiary – P Company

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

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