Chap 15

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Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 1 of 17

PROBLEM 15-1
The Pony Company acquired all of the outstanding stock of Stag Company on January 1, 2015, for P206,000 in
cash. Stag Company has a book value of only P140,000 on that date. However, equipment (having an
eightyear life) was undervalued by P40,000 on Stag Company’s financial records. A building with a 20-year life
was overvalued by P10,000. Subsequent to the acquisition, Stag Company reported the following:
CI Dividends paid
2015 P 50,000 P 10,000
2016 60,000 40,000
2017 30,000 20,000
In accounting for this investment, Pony Company uses the cost method. Selected accounts taken from the
financial records of these two companies as of December 31, 2017, are as follows:
Pony Company Stag Company
Revenues – operating P 310,000 P 104,000
Expenses 198,000 74,000
Equipment (net) 320,000 50,000
Buildings (net) 220,000 68,000
Common stock 290,000 50,000
Retained earnings, 12/31/2017 balance 410,000 160,000
Required:
Determine the following account balances as of December 31, 2017:
1. Investment in Stag Company (on Pony Company’s individual financial records)
2. Non-controlling interest
3. Consolidated CI
4. Consolidated equipment (net)
5. Consolidated buildings (net)
6. Consolidated goodwill (net)
7. Consolidated common stock
8. Consolidated retained earnings

SOLUTION:

Allocation Schedule
Price paid P206,000
Less: Book value of interest acquired 140,000
Excess P 66,000
Allocation:
Equipment P(40,000)
Buildings 10,000 (30,000)
Goodwill (not impaired) P 36,000

1. Investment in Stag Company – 12/31/17 (at acquisition cost) P 206,000

2. Non-controlling interest P -0-

3. Consolidated CI
CI from own operations – Pony (P310,000 – P198,000) P 112,000
CI from own operations – Stag (P104,000 – P74,000) 30,000
Amortization: Equipment (P40,000/8) P5,000
Buildings (P10,000/20) (500) ( 4,500)
Consolidated CI P 137,500
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 2 of 17

4. Consolidated Equipment
Total book value (P320,000 + P50,000) P 370,000
Allocation 40,000
Amortization (P5,000 x 3 years) (15,000)
Total P 395,000

5. Consolidated Buildings
Total book value P 288,000
Allocation ( 10,000)
Amortization (P500 x 3 years) 1,500
Total P 279,500

6. Consolidated Goodwill (not impaired) P 36,000

7. Consolidated Common Stock (Pony) P 290,000

8. Consolidated Retained Earnings


Retained earning, Dec. 31, 2017 – Pony P 410,000
Add: Pony’s share of Stag’s adjusted increase in earnings
Net earnings – 2017 (P30,000 – P20,000) P10,000
Amortization ( 4,500) 5,500
Retained earnings, December 31, 2017 P 415,500
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 3 of 17

PROBLEM 15-2
Pony Corporation purchased all the common shares of Short Company on January 1, 2017 for P180,000. On
that date, the book value of the net assets reported by Short Company was P150,000. The entire excess was
assigned to depreciable assets with a 6-year remaining economic life from January 1, 2017.

The adjusted trial balances for the two companies on December 31, 2017, are as follows:

PONY CORPORATION
Debit Credit
Cash P 15,000
Accounts Receivable 30,000
Inventory 70,000
Depreciable assets (net) 325,000
Investment in Short Company stock 180,000
Depreciation expense 25,000
Other expenses 105,000
Dividends declared 40,000
Accounts payable P 50,000
Notes payable 100,000
Common stock 200,000
Retained earnings 230,000
Sales 200,000
Dividend income ________ 10,000
P 835,000 P 835,000
SHORT COMPANY
Debit Credit
Cash P 5,000
Accounts Receivable 40,000
Inventory 60,000
Depreciable assets (net) 225,000
Depreciation expense 15,000
Other expenses 75,000
Dividends declared 10,000
Accounts payable P 40,000
Notes payable 120,000
Common stock 100,000
Retained earnings 50,000
Sales ________ 120,000
P 430,000 P 430,000

Pony Corporation uses the cost method in accounting for its investment in Short Company. Short Company
dividends were declared and paid on December 31, 2017.

Required:
1. Prepare the eliminating entries needed as of December 31, 2017 to complete a consolidated workpaper.
2. Prepare a three-part consolidation workpaper as of December 31, 2017.
SOLUTION:

1. Working Paper Elimination Entries, Dec. 31, 2017


Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 4 of 17

(1) Dividend income 10,000 Dividends


declared – Short 10,000
To eliminate inter-company dividends.

(2) Common stock – Short 100,000


Retained earnings – Short 50,000
Investment in Short Company 150,000
To eliminate intercompany investment and equity accounts of Short at date of
acquisition

(3) Depreciable asset 30,000


Investment in Short Company 30,000
To allocate excess

(4) Depreciation expense 5,000


Depreciable assets 5,000
To amortize allocated excess to identifiable assets

2. Pony Corporation and Subsidiary Consolidation Working Paper


December 31, 2017

Pony Short Adjustment & Eliminations


Consolidated
Corporation Company Debit Credit
Statement of CI
Sales 200,000 120,000 320,000
Dividend income 10,000 ______ (1) 10,000 0
Total Revenue 210,000 120,000 320,000
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 5 of 17

Depreciation 25,000 15,000 (3) 5,000 45,000


Other expenses 105,000 75,000 180,000
Total 130,000 90,000 225,000
CI 80,000 30,000 95,000

Retained Earnings
Retained earnings, Jan 1 230,000 50,000 (2) 50,000 230,000
CI from above 80,000 30,000 95,000
Total 310,000 80,000 325,000
Dividends declared 40,000 10,000 (1) 10,000 40,000
Retained earnings, Dec 31 270,000 70,000 285,000

Statement of FP
Cash 15,000 5,000 20,000
Accounts Receivable 30,000 40,000 70,000
Inventory 70,000 60,000 130,000
Depreciable asset (net) 325,000 225,000 (3)30,000 (4) 5,000 575,000
Investment in Short Company 180,000 (2)150,000 0
______ ______ (3) 30,000 ______
Total 620,000 330,000 795,000

Accounts Payable 50,000 40,000 90,000


Notes Payable Common 100,000 120,000 220,000
Stock:
Pony 200,000 200,000
Short 100,000 (2)100,000
Retained earnings, Dec 31 270,000 70,000 285,000
Total 620,000 330,000 795,000

PROBLEM 15-3
Popo Corporation purchased 80 percent of the voting stock of Sisa Company on January 1, 2017, at underlying
book value. Popo Corporation uses the cost method in accounting for its ownership of Sisa Company. On
December 31, 2017, the trial balances of the two companies are as follows:

POPO CORPORATION
Debit Credit
Current assets P 173,000
Depreciable assets 500,000
Investment in Sisa Company stock 120,000
Depreciation expense 25,000
Other expenses 105,000
Dividends declared 40,000
Accumulated depreciation P 175,000
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 6 of 17

Current liabilities 50,000


Long-term debt 100,000
Common stock 200,000
Retained earnings 230,000
Sales 200,000
Dividend income ________ 8,000
P 963,000 P 963,000
SISA COMPANY
Debit Credit
Current assets P 105,000
Depreciable assets 300,000
Depreciation expense 15,000
Other expenses 75,000
Dividends declared 10,000
Accumulated depreciation P 75,000
Current liabilities 40,000
Long-term debt 120,000
Common stock 100,000
Retained earnings 50,000
Sales ________ 120,000
P 505,000 P 505,000

Required:
1. Give all the eliminating entries required as of December 31, 2017, to prepare consolidated financial
statements.
2. Prepare a three-part consolidation workpaper.
3. Prepare a consolidated statement of financial position, statement of CI and retained earnings statement
for 2017.

SOLUTION:
1. Working Paper Elimination Entries
(1) Dividend income 8,000
NCI 2,000
Dividends declared – Sisa 10,000 To eliminate intercompany dividends.

(2) Common stock – Sisa 100,000


Retained earnings – Sisa 50,000
Investment in Sisa stock 120,000
NCI 30,000
To eliminate equity accounts of Sisa and the investment account for Popo’s share
and recognize NCI on date of acquisition

(3) NCI in CI of subsidiary 6,000


NCI 6,000
To recognize NCI in subsidiary’s adjusted net income
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 7 of 17

2. Popo Corporation and Subsidiary


Consolidated Working Paper
December 31, 2017

Popo Sisa Adjustment & Eliminations


Consolidated
Corporation Company Debit Credit
Statement of CI
Sales 200,000 120,000 320,000
Dividend income 8,000 ______ (1)8,000 0
Total Revenue 208,000 120,000 320,000
Depreciation expense 25,000 15,000 40,000
Other expenses 105,000 75,000 180,000
Total expenses 130,000 90,000 220,000
CI 78,000 30,000 100,000
NCI in CI of Subsidiary ______ ______ (3)6,000 (6,000)
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 8 of 17

CI carried forward 78,000 30,000 94,000

Retained Earnings
Retained earnings, Jan 1 230,000 50,000 (2)50,000 230,000
CI 78,000 30,000 94,000
Total 308,000 80,000 324,000
Dividends declared 40,000 10,000 (1)10,000 40,000
Retained earnings, Dec 31 268,000 70,000 284,000

Statement of FP
Current assets 173,000 105,000 278,000
Depreciable assets 500,000 300,000 800,000
Accumulated Depreciation 175,000 75,000 (250,000)
Investments in Sisa Company 120,000 ______ (2)120,000 0
Total 618,000 330,000 828,000

Current liabilities 50,000 40,000 90,000


Long-term debt 100,000 120,000 220,000
Common stock 200,000 100,000 (2)100,000 200,000
Retained earnings, Dec 31 268,000 70,000 284,000
NCI (1)2,000 (2)30,000 34,000
______ ______ (3)6,000 ______
Total 618,000 330,000 828,000

3. Consolidated Financial Statements

Popo Corporation and Subsidiary


Consolidated Statement of Financial Position
December 31, 2017

Assets
Current assets P278,000
Depreciable assets P800,000
Less: Accumulated depreciation 250,000 550,000
Total assets P828,000
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 9 of 17

Liabilities and Stockholders’ Equity


Current liabilities P 90,000
Long-term debt 220,000
Total liabilities 310,000
Stockholders’ Equity
Common stock P200,000
Retained earnings, 12/31 284,000
Minority interest in net assets of subsidiary 34,000 518,000
Total liabilities and stockholders’ equity P828,000

Popo Corporation and Subsidiary


Consolidated Statement of CI
Year Ended December 31, 2017

Sales P320,000
Expenses:
Depreciation expense P 40,000
Other expenses 180,000 220,000
Consolidated CI P100,000
NCI in CI of subsidiary 6,000
Attributable to parent P 94,000

Popo Corporation and Subsidiary


Consolidated Retained Earnings
Year Ended December 31, 2017

Retained earnings, Jan. 1 – Popo P230,000


Consolidated CI attributable to parent 94,000
Total P324,000
Dividends paid – Popo 40,000
Consolidated retained earnings, Dec. 31 P284,000
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 10 of 17

PROBLEM 15-4
Trial balance data for Palo Corporation and Sebo Company on December 31, 2017, are as follows:

PALO CORPORATION
Debit Credit
Cash P 37,000
Accounts Receivable 50,000
Inventory 70,000
Buildings and Equipment 300,000
Investment in Sebo Company Stock 229,000
Cost of Goods Sold 210,000
Depreciation Expense 25,000
Other Expenses 23,000
Dividends Declared 20,000
Accumulated Depreciation P 105,000
Accounts Payable 40,000
Taxes Payable 70,000
Common Stock 200,000
Retained Earnings, January 1 230,000
Sales 300,000
Investment Income ________ 19,000
P 964,000 P 964,000

SEBO COMPANY
Debit Credit
Cash P 20,000
Accounts Receivable 30,000
Inventory 60,000
Buildings and Equipment 240,000
Cost of Goods Sold 85,000
Depreciation Expense 20,000
Other Expenses 25,000
Dividends Declared 10,000
Accumulated Depreciation P 65,000
Accounts Payable 20,000
Taxes Payable 55,000
Common Stock 150,000
Retained Earnings, January 1 Sales 50,000
________ 150,000
P 490,000 P 490,000
Palo Corporation purchased all the shares of Sebo Company on January 1, 2017 for P220,000. The full excess is
assigned to goodwill.

Required:
Prepare consolidation workpaper in good form as of December 31, 2017, and prepare a consolidated
statement of CI, retained earnings statement, and statement of financial position.
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 11 of 17

SOLUTION:

NOT REQUIRED:

(1) Investment income 19,000


Dividends declared – Sebo 10,000
Investment in Sebo Company 9,000
To eliminate inter-company dividends.

(2) Common stock – Sebo 150,000


Retained earnings – Sebo 50,000
Investment in Sebo Company 200,000
To eliminate intercompany investment and equity accounts of Sebo at date of
acquisition

(3) Goodwill 20,000


Investment in Sebo Company 20,000
To allocate excess
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 12 of 17

Palo Sebo Adjustment & Eliminations


Consolidated
Corporation Company Debit Credit
Statement of CI
Sales 300,000 150,000 450,000
Investment income 19,000 ______ (1)19,000 0
Total revenues 319,000 150,000 450,000
Cost of goods sold 210,000 85,000 295,000
Depreciation expense 25,000 20,000 45,000
Other expenses 23,000 25,000 48,000
Total cost and expenses 258,000 130,000 388,000
CI 61,000 20,000 62,000

Retained earnings
Retained earnings, Jan 1 230,000 50,000 (2)50,000 230,000
CI 61,000 20,000 62,000
Total 291,000 70,000 292,000
Dividends declared 20,000 10,000 (1)10,000 20,000
Retained earnings, Dec 31 271,000 60,000 272,000

Statement of FP
Cash 37,000 20,000 57,000
Accounts receivable 50,000 30,000 80,000
Inventory 70,000 60,000 130,000
Buildings and equipment 300,000 240,000 540,000
Accumulated depreciation 105,000 65,000 170,000
Investment in Sebo Company 229,000 (1)9,000 0
(2)200,000
(3)20,000
Goodwill ______ ______ (3)20,000 20,000
Total 581,000 285,000 657,000

Accounts payable 40,000 20,000 60,000


Taxes payable 70,000 55,000 125,000
Common stock 200,000 150,000 (2)150,000 200,000
Retained earnings, Dec 31 271,000 60,000 272,00
Total 581,000 285,000 657,000
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 13 of 17

Consolidated Financial Statements

Palo Corporation and Subsidiary


Consolidated Statement of CI
Year Ended December 31, 2017

Sales P450,000
Cost of goods sold 295,000
Gross profit 155,000
Expenses:
Depreciation expenses P45,000
Other expenses 48,000 93,000
Consolidated CI P 62,000

Palo Corporation and Subsidiary


Consolidated Retained Earnings
Year Ended December 31, 2017

Retained earnings, January 1 – Palo P230,000


Consolidated CI 62,000
Total 292,000
Dividends paid – Palo 20,000
Retained earnings, December 31 P272,000

Palo Corporation and Subsidiary


Consolidated Statement of Financial Position
December 31, 2017

Assets
Cash P 57,000
Accounts receivable 80,000
Inventory 130,000
Buildings and equipment P540,000
Less: Accumulated depreciation 170,000 370,000
Goodwill 20,000
Total P657,000

Liabilities and Stockholders’ Equity


Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 14 of 17

Accounts payable P 60,000


Taxes payable 125,000
Common stock 200,000
Retained earnings, Dec. 31 272,000
Total P657,000

PROBLEM 15-5
Trial balance data for Porno Corporation and Star Company on December 31, 2017 are as follows:

PORNO CORPORATION
Debit Credit
Cash P 46,000
Accounts Receivable 55,000
Inventory 75,000
Equipment 300,000
Investment in Star Company (at cost) 220,000
Cost of Goods Sold 270,000
Depreciation Expense 25,000
Other Expenses 21,000
Dividends Declared 20,000
Accumulated Depreciation P 130,000
Accounts Payable 20,000
Taxes Payable 50,000
Common Stock 200,000
Retained Earnings, January 1 262,000
Sales 350,000
Dividend Income __________ 20,000
P 1,032,000 P 1,032,000
STAR COMPANY
Debit Credit
Cash P 30,000
Accounts Receivable 40,000
Inventory 65,000
Equipment 240,000
Cost of Goods Sold 135,000
Depreciation Expense 20,000
Other Expenses 10,000
Dividends Declared 20,000
Accumulated Depreciation P 85,000
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 15 of 17

Accounts Payable 30,000


Taxes Payable 35,000
Common Stock 150,000
Retained Earnings, January 1 Sales 60,000
________ 200,000
P 560,000 P 560,000
Porno Corporation purchased all of Star Company’s shares on January 1, 2016 for P220,000. Star Company’s
retained earnings balance at the date of acquisition was P50,000. The total excess is assigned to goodwill. At
December 31, 2016, the management of Porno Corporation reviewed the amount attributed to goodwill and
concluded goodwill had been impaired and should be reported at P8,000. No further impairment occurred
during 2017. Porno Corporation uses the cost method in accounting for its investment in Star Company.

Required:
Present all eliminating entries needed to prepare consolidated financial statements for the year 2017, and
prepare three-part consolidation workpaper in good form as of December 31, 2017.

SOLUTION:

Determination and Allocation of Excess Schedule (not required)

Price paid P220,000


Less book value of interest acquired:
Common stock – Star Company P150,000
Retained earnings, 1/1 – Star Company 50,000 200,000
Goodwill P 20,000

Eliminating entries:

E(1) Dividend Income 20,000


Dividends Declared 20,000
To eliminate inter-company dividends.
E(2) Common Stock – Star Company 150,000
Retained Earnings, January 1 50,000
Investment in Star Company Stock 200,000
To eliminate equity accounts of Star and the investment account for Porno’s
share

E(3) Goodwill 8,000


Retained Earnings, January 1 12,000
Investment in Star Company 20,000
Assign excess at beginning of year
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 16 of 17

Porno Corporation and Star Company


Consolidated Working Paper
December 31, 2017

Porno Star Adjustment & Eliminations


Consolidated
Corporation Company Debit Credit
Statement of CI
Sales 350,000 200,000 550,000
Dividend income 20,000 0 (1)20,000 0
Total 370,000 200,000 550,000
Cost of goods sold 270,000 135,000 405,000
Depreciation expense 25,000 20,000 45,000
Other expenses 21,000 10,000 31,000
Total cost and expenses 316,000 165,000 481,000
CI 54,000 35,000 69,000

Retained earnings
Retained earnings, Jan 1 262,000 60,000 (2)50,000 260,000
(3)12,000
CI 54,000 35,000 20,000 69,000
Total 316,000 95,000 329,000
Dividends declared 20,000 20,000 (1)20,000 20,000
Retained earnings, Dec 31 296,000 75,000 309,000

Statement of FP
Chapter 15 – Consolidated Financial Statements – Subsequent to Date of Acquisition Page 17 of 17

Cash 46,000 30,000 76,000


Accounts receivable 55,000 40,000 95,000
Inventory 75,000 65,000 140,000
Buildings and equipment 300,000 240,000 540,000
Accumulated depreciation 130,000 85,000 215,000
Investment in Star Company 220,000 (2)200,000
(3)20,000
Goodwill ______ ______ (3)8,000 8,000
Total 566,000 290,000 644,000

Accounts payable 20,000 30,000 50,000


Taxes payable Common 50,000 35,000 85,000
stock:
Porno Corporation 200,000 200,000
Star Company 150,000 (2)150,000
Retained earnings 296,000 75,000 309,000
Total 566,000 290,000 644,000

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