CHAPTER 15

MULTIPLE CHOICE
15-1:

a
Acquisition cost
Less: Book value of interest acquired (100%)
Difference
Allocation:
Property and equipment
Other assets
Long-term debt
Goodwill

15-2:

P4,000,000
3,200,000
800,000
P(750,000)
150,000
(200,000)

c
Acquisition cost
Less: Book value of interest acquired (P280,000 x 90%)
Difference
Allocation to plant assets (P40,000 x 90%)
Goodwill

15-3:

P 350,000
252,000
98,000
(36,000)
P 62,000

c
Plant assets Pall Company
Plant assets Mall Company
Consolidated

15-4:

( 800,000)
P -0-

P 220,000
180,000
P 400,000

a
Acquisition cost
Less: Book value of interest acquired (P560,000 P70,000)
Difference
Allocation:
Inventory
P 25,000
Property and equipment
( 35,000)
Income from acquisition

P495,000
490,000
5,000
(10,000)
P( 5,000)

51

15-5:

b
Acquisition cost
Less: Book value of interest acquired (P320,000 x 80%)
Difference
Allocation:
Inventory (P20,000 x 80%)
P(16,000)
Land (P10,000 x 80%)
8,000
Mortgage payable (P5,000 x 80%)
( 4,000)
Goodwill

15-6:

15-7:

15-8:

( 12,000)
P 67,000

a
Inventory (P360,000 + P130,000)

P490,000

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

P920,000

a
Building

P180,000

Land

P 90,000

d
Sons stockholders equity
Minority interest proportionate share
Minority interest in net assets of subsidiary

15-9:

P355,000
256,000
P 79,000

P400,000
20%
P 80,000

d
Acquisition cost
Less: Book value of interest acquired (P145,000 x 75%)
Difference
Allocation to accounts payable (P5,000 x 75%)
Goodwill

P160,000
108,750
51,250
3,750
P 55,000

Therefore:
Total assets (P800,000 + P300,000 + P55,000)
Total liabilities (P250,000 + P15,000 + P160,000 + P5,000)

P1,155,000
570,000

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

52

15-11: a
Controlling (Parent) interest:
Shares acquired (P120,000 / P120)
Divided shares outstanding (P125,000 /P100)
Parents interest

1,000 shares
1,250
80%

Minority interest in net assets of subsidiary (P200,000 x 20%) P40,000

15-12: a
Goodwill
Book value of interest acquired (P100,000 / 20%) x 80%
Investment cost

P250,000
400,000
P650,000

15-13: b
Net assets on the date of acquisition (P247,095 + P43,605)
Adjustments of assets excluding goodwill:
Inventories
P6,630
Plant and equipment
48,450
Patent
7,650
Net assets at fair value

P290,700

62,730
P353,430

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

15-15: b
Acquisition cost
Less: Book value of interest acquired (P250,000 x 80%)
Difference
Allocated to plant and equipment (P50,000 x 80%)
Goodwill

P260,000
200,000
60,000
(40,000)
P 20,000

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

15-17: a (The stockholders equity of the parent only).
15-18: b (P50,000 + P10,000)
15-19: d (P380,000 + P150,000)

53

15-20: d
Cash and cash equivalent (P70,000 + P90,000)
Inventory (P100,000 + P60,000)
Property and equipment (P500,000 + P300,000)
Goodwill
Total assets

P 160,000
160,000
800,000
20,000
P1,140,000

15-21: d
Fair value of the reporting unit
Fair value of net assets (excluding goodwill)
Implied goodwill
Carrying value of goodwill (P450,000 P390,000)
Impairment loss

P 485,000
440,000
45,000
60,000
P 15,000

15-22: b
Fair value of the reporting unit
Fair value of the net assets (P590,000 P100,000)
Implied goodwill to be recorded
Carrying value of goodwill
Impairment loss

P 540,000
490,000
50,000
150,000
P 100,000

15-23: a

The amount reported is equal to Primos retained earnings of P567,000

15-24: a

100% [P138, 000 (P320, 000 P140, 000)]

15-25: a

(340,000- 200,000)

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

40,000
20,000
140,000
300,000
(40,000)
460,000

15-27: a
Net asset acquired (320,000 x 70%)
Differential allocated to inventory
Differential allocated to equipment
Differential allocation to goodwill
Minority interest (140,000 x30%)
Amount paid by Parent

224,000
40,000
100,000
10,000
(42,000)
332,000

54

PROBLEMS
Problem 15-1
a.

b.

Investment in Solo Company stock

Cash
To record acquisition of 90% (90,000 / 100,000)
of the outstanding shares of Solo.

1,080,000
1,080,000

Working paper elimination entries:

(1)

(2)

Common stock Solo

400,000
Retained earnings Solo
500,000
Investment in Solo company stock
Minority interest in net assets of subsidiary
To eliminate Solos equity accounts at date of acquisition.
Inventories
30,000
Plant assets
60,000
Goodwill
189,000
Investment in Solo company stock
Minority interest in net assets of subsidiary
To allocate difference
Computation and allocation of difference:
Acquisition cost
Less: Book value of interest acquired
Common stock (P400,000 x90%)
Retained earnings (P500,000 x 90%)
Difference
Allocation:
Inventories
Plant assets
Total
Minority interest (P90,000 x10%)
Goodwill

810,000
90,000

270,000
9,000

P1,080,000
P360,000
450,000
(30,000)
(60,000)
(90,000)
9,000

810,000
P 270,000

( 81,000)
P 189,000

55

Problem 15-2
a.

b.

c.

Investment in Straw stock

Cash
To record acquisition of 100% of Straw stock.
Acquisition cost
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 stock
To eliminate equity accounts of Straw at
date of acquisition.

100,000
320,000

Inventories
Land
Equipment
Patents
Goodwill
Buildings
Investment in Straw stock
To allocate difference.

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

420,000

150,000
180,000

56

Problem 15-3
a.

b.

c.

Investment in Soto stock

Cash
To record acquisition of 90% stock of Sotto.

950,000

Acquisition cost
Less: Book value of interest acquired (P900,000 x 90%)
Difference
Allocation:
Current assets
P 50,000
Property and equipment
(100,000)
Long-term debt
( 40,000)
Total
P( 90,000)
Minority interest (10% thereof)
9,000
Goodwill

950,000
P950,000
810,000
140,000

(81,000)
P 59,000

Working paper elimination entries:

(1)

(2)

Common stock Sotto

100,000
APIC Sotto
200,000
Retained earnings Sotto
600,000
Investment in Sotto stock
Minority interest in net assets of subsidiary
To eliminate equity accounts of Sotto at date of
acquisition.
Property, plant and equipment
100,000
Goodwill
59,000
Long-term debt
40,000
Current assets
Investment in Sotto stock
Minority interest in net assets of subsidiary
To allocate difference.

810,000
90,000

45,000
140,000
14,000

57

Problem 15-4
Paco Company and Subsidiary
Consolidated Balance Sheet
January 2, 2008
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 income from subsidiary 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:

Investment cost (20,000 shares x P6)
Less: Book value of interest acquired
Common stock
Retained earnings
Difference
Allocated to property and equipment
Income from acquisition

P120,000
P35,000
80,000

115,000
P 5,000
(25,000)
P(20,000)

Problem 15-5
Under the purchase method, the investment cost is equal to the fair value of stock issued by Palo
(P250,000) plus direct acquisition cost (P10,000) or a total of P260,000. The P20,000 stock issue
cost is treated as a reduction from the additional paid-in capital. The entry to record the
acquisition of stock is as follows:
Investment in Solo stock
Common stock, at par
Additional paid-in capital
Cash (direct acquisition cost)
Additional paid-in capital
Cash

260,000
100,000
150,000
10,000
20,000
20,000

58

Palo Company and Subsidiary

Consolidated Balance Sheet
December 31, 2008
Cash
Receivables
Inventory
Property and equipment net
Goodwill
Total assets

P 70,000
120,000
170,000
340,000
30,000
P730,000

Current liabilities
Long-term liabilities
Common stock
Additional paid-in capital
Retained earnings, 12/31
Total liabilities and stockholders equity

P 30,000
120,000
210,000
150,000
220,000
P730,000

Computation of goodwill:
Acquisition cost
Less: Book value of interest acquired (P90,000 + P100,000)
Difference
Allocated to equipment
Goodwill

P260,000
190,000
70,000
(40,000)
P 30,000

Problem 15-6
a.
Investment in Seed Company stock
Cash
To record acquisition of 100% of Seed company stock.
Allocation schedule:
Acquisition cost
Less: Book value of interest acquired
Difference
Allocation:
Inventory
Plant assets
Long-term liabilities
Income from acquisition

b.

Working paper elimination entries

(1)
Common stock Seed
Additional paid-in capital Seed
Retained earnings Seed
Investment in Seed stock
To eliminate equity accounts of Seed at
date of acquisition.
(2)

350,000
350,000
P350,000
320,000
30,000

P(20,000)
(80,000)
40,000

(60,000)
P930,000)

100,000
40,000
180,000

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

320,000

40,000
30,000
30,000

59

Pill Corporation and Subsidiary

Consolidated Working Paper
May 31, 2008 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)
Investment in Sea Company stock
Common stock
Current liabilities

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

60

Pop Corporation and Subsidiary

Working Paper for Consolidated Balance Sheet
April 30, 2008 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
Minority interest in net assets
Of subsidiary
Total

Sea
Company

Adjustments

& Eliminatio

Debit

Credit

50,000
230,000
400,000
640,000

80,000
270,000
350,000

1,300,000

560,000

2,620,000

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)312,000
(2)220,000
(2) 80,000

130,000
430,000
840,000
2,080,000
80,000
3,560,000

(2) 20,000

1,070,000

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

370,000

2,620,000

Consolidated

370,000
(50,000)

(1) 50,000

1,260,000

(1) 82,000
(2) 58,000
920,000

920,000

140,000
3,560,000

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

(2) To allocate difference, computed as follows:

(3)

Acquisition cost
Less: Book value of interest acquired (P410,000 x 80%)
Difference
Allocation:
Inventories
P( 90,000)
Plant assets
(220,000)
Long-term debt
20,000
Total
P(290,000)
Minority interest (20%
58,000
Goodwill
To eliminate intercompany receivables and payables.

P640,000
328,000
312,000

232,000
P 80,000

61

Problem 15-8
1. Acquisition cost
Less: Book value of interest acquired
Common stock
APIC
Retained earnings
Difference
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 1, 2008 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 difference.

62

Problem 15-9
1.

2.

Acquisition cost
Less: Book value of interest acquired
Common stock (P100,000 x 80%)
APIC (P200,000 x 80%)
Retained earnings (P230,000 x 80%)
Difference
Allocation
Inventory
Land
Building
Equipment
Bonds payable
Total
Minority interest (20%)
Goodwill

P500,000
P 80,000
160,000
184,000
P (20,000)
(10,000)
50,000
60,000
(50,000)
P 30,000
( 6,000)

424,000
P 76,000

24,000
P100,000

P Company and Subsidiary

Consolidated Working Paper
January 2, 2008 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.
Minority interest in net
Assets of subsidiary
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 difference

63

Problem 15-10
1.

2.

Acquisition cost
Less: Book value of interest acquired (100%)
Difference
Allocation
Inventory
Land
Equipment
Long-term investment in MS
Income from 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, 2008 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 difference

64