CHAPTER 17

MULTIPLE CHOICES - COMPUTATIONAL

17-1:

b
Consolidated sales
Sales Papa
Sales San
Elimination of inter-company sales
Consolidated sales

900,000
500,000
(
50,000)
P 1,350,000

Consolidated cost of goods sold

Cost of goods sold Papa
Cost of goods sold San
Eliminations:
Realized profit in beginning inventory
Unrealized profit in ending inventory
Intercompany purchases
Consolidated cost of goods sold
17-2:

(
P

P
P
P

P 200,000
P200,000
37,500
(11,000)

17-7:

P 300,000
(50,000)
250,000
(150,000)
P 100,000

d
Pardos share of Santos net income (P300,000 x 75%)
Unrealized profit in ending inventory Upstream
(P200,000 x 25%/125%) x 75%
Realized profit in beginning inventory Upstream
(P150,000 x 25%/125%) x 75%
Investment income account balance, Dec. 31, 2011

17-6:

226,500
P 426,500
67,950
P 358,550

b
Net income from own operations- Patton
Unrealized profit in ending inventory DS (P200,000 x .25)
Adjusted net income for own operations Patton
Solis net loss from own operations
Consolidated net income

17-5:

60,000
( 10,000)
50,000
20%
10,000

d
Net income from own operation Pat
Adjusted net income of Susan:
Net income Susan
Realized profit in beginning inventory
(P112,000 x 50%/150%)
Unrealized profit in ending inventory
(P33,000 x 50%/150%)
Consolidated net income
Attributable to NCI (P226,500 x 30%)
Attributable to parent

17-4:

4,000)
10,000
( 50,000)
636,000

c
Net income Sisa
Unrealized profit in ending inventory upstream
Adjusted net income Sisa
NCI proportionate share
NCI in net income of subsidiary

17-3:

490,000
190,000

d
Net income from own operation Puzon
Suazons adjusted net income from own operations:
Net income
P110,000
Unrealized profit in ending inventoryUpstream (P25,000 x 40%)
( 10,000)
Consolidated net income
Attributable to NCI (P100,000 x 25%)
Attributable to parent
b

2010

P 225,000
( 30,000)
22,500
P 217,500
P 200,000

100,000
P 300,000
(25.000)
P 275,000
2011

90

Net income from own operation Pat

Unrealized profit in ending inventory:
2010 (P20,000 x .40)
2011 (P30,000 x .50)
Realized profit in beginning inventory
Realized income
Sun net income
Consolidated net income
17-8:

P 550,000

(8,000)
492,000
200,000
P 692,000

(15,000)
8,000
543,000
225,000
P 768,000

a
Net income from own operation Pip
Adjusted net income from own operation - Sol
Net income
Realized profit in beginning inventoryUpstream (P40,000 x 40%)
Unrealized profit in ending inventoryUpstream (P70,000 x 30%)
Consolidated net income - 2011

17-9:

P 500,000

P 400,000
P 250,000
16,000
( 21,000)

a
Net income from own operations Popo
Unrealized profit in ending inventory Downstream
Realized net income from own operation Popo
Adjusted net income from own operations - Sotto
Net income
P 360,000
Realized profit in beginning inventoryUpstream
10,000
Consolidated net income
Attributable to NCI (P370,000 x 5%)
Attributable to parent

P 500,000
( 15,000)
P 485,000

370,000
P 855,000
18,500
P 836,500

17-10: d, should be P(19,200).

Net income Sand Company
Realized profit in beg. Inventory (P120,000 x .20)
Unrealized profit in ending inventory (P360,000 x .20)
Amortization of allocated excess P1.000,000 / 5)
Adjusted net loss Sand Company
NCI (P48,000 x 40%)
17-11: d
Gross profit rate Short (P110,000 / P200,000)
Inventories
Inventory from outsiders Power
Inventory from outsiders Short
Powers inventory acquired from Short at cost:
[P5,000 (P5,000 x 55%)}
Consolidated ending inventories
Investment income
Powers share of Shorts net income (P50,000 x 75%)
Unrealized profit in ending inventory upstream
(P5,000 x 55%) x 75%
Realized profit in beginning inventory upstream
(P10,000 x 55%) x 75%
Investment income, Dec. 31, 2011

245,000
P 645,000

P200,000
24,000
(72,000)
(200,000)
P(48,000)
P(19,200)
55%
P

5,000
25,000
2,250
P 32,250
P 37,500
( 2,063)
4,125
P 39,562

Investment in Short Company

Acquisition cost (P80,000 x 80%)
Unrealized profit in ending inventory
Realized profit in beginning inventory
Investment in Short Company, Dec. 31, 2011

P 60,000
( 2,063)
4,125
P 62,062

NCI in Short companys net income

Shorts net income from own operations
Realized profit in beginning inventory (P10,000 x 55%)
Unrealized profit in ending inventory (P5,000 x 55%)
Adjusted net income from own operations
NCI proportionate share
NCI in Shorts net income

P 50,000
5,500
( 2,750)
P 52,750
25%
P 13,187.50

91

17-12: b
Gross profit rate of Sit (P200,000 / P500,000)
Net income from own operations Pit
Adjusted net income of Sit:
Net income
Realized profit in beginning inventoryUpstream (P40,000 x 40%)
Unrealized profit in ending inventoryUpstream (P25,000 x 40%)
Consolidated net income
Attributable to NCI (P81,000 x 10%)
Attributable to parent

40%
P 200,000
P 75,000
16,000
( 10,000)

81,000
P 281,000
( 8,100)
P 272,900

17-13: b
Gross profit of Sir (P120,000 / P400,000)

30%

Consolidated cost of sales

Cost of sales Pig
Cost of sales Sir
Eliminations:
Realized profit in beginning inventory (P70,000 x 30%)
Unrealized profit in ending inventory (P60,000 x 30%)
Intercompany purchases
Consolidated cost of sales
Consolidated net income
Net income from own operations Pig
Sirs adjusted net income:
Net income
Realized profit in beginning inventory
Unrealized profit in ending inventory
Consolidated net income
Attributable to NCI (P83,000 x 10%)
Attributable to parent
17-14: a
Pal Corp net income
Intercompany profit in ending inventory:
2009
2010
2011
Pal net income from own operation 136,000
Solo net income from own operation
Consolidated net income
Attributable to NCI
2009(100,000 14,000) x 40%
2010(90,000 +14,000 21,000) 40%
2011(160,000 + 21,000 24,000) 40%
Attributable to Parent

600,000
280,000

( 21,000)
18,000
(200,000)
P 677,000
P 200,000

P 80,000
21,000
(18,000)

83,000
283,000
(8,300)
P 274,700

2009
150,000

2010
240,000

(14,000)

14,000
(21,000)

233,000
100,000
236,000

297,000
90,000
323,000

2011
300,000
21,000
( 24,000)
160,000
427,000

34,400
33,200
201,600

289,800

62,800
394,200

17-15: a
Total sales
Intercompany sales (30,000 + 80,000)
Consolidated sales
17-16: c
Total cost of goods sold (250,000 +120,000)
Adjustments due to intercompany sale:
COGS charged for intercompany sale (20,000 + 50,000)
COGS charged by: Star (30,000 6,000)
Polo (80,000 20,000)
Total
Cost of goods sold for consolidated entity:

600,000
(110,000)
490,000

370,000
70,000
24,000
60,000
154,000

92

20,000 x (24,000/30,000)
50,000 x (60,000/80,000)
Consolidated cost of goods sold

(16,000)
(37,500) (100,500)
269,500

17-17: c
Polo Corp. net income from own operation (105,000 25,000)
80,000
Unrealized profit in ending inventory-DS (6,000 x 10/30)
(2,000)
Adjusted Polo Corp. net income from own operation
78,000
Star Corp. net income from own operation:
Net income
45,000
Unrealized profit in EI-US (20,000 x 30/80)
(7,500)
Amortization (20,000/10 years)
(2,000)
35,500
Consolidated net income
113,500
Attributable to NCI (35,500 x 40%)
(14,200)
Attributable to Parent
99,300
17-18: a
Pepsi net income from own operation
Sarsi net income
Unrealized profit in EI (45,000 x 60/180)
Consolidated net income
Attributable to NCI (75,000 x 30%)
Attributable to Parent-2011

160,000

90,000
(15,000)

75,000
235,000
(22,500)
212,500

17-19: a
Inventory-Pepsi
Less: unrealized profit in books of Sarsi:
(135,000 90,000) x (30,000/135,000)
Inventory-Sarsi
Less: unrealized profit in books of Pepsi:
(280,000 140,000) x (110,000/280,000)
Consolidated inventory 12/31/11

P 30,000
(10,000)
P110,000

20,000

(55,000)

55,000
75,000

17-20: a
Cost of goods sold on sale of inventory on hand-1/1/10:
[45,000 x (120,000/180,000)]
Cost of goods sold on purchases from Sarsi- 2010
[(135,000 30,000) x (90,000/135,000)]
Cost of goods sold on purchases from Pepsi- 2010
[(280,000 110,000) x (140,000/280,000)]
Consolidated cost of goods sold-2011

30,000
70,000
85,000
185,000

17-21: b
Pepsi net income
Sarsi net income
Realized profit in beginning inventory - 2011
Unrealized profit in ending inventory- Sarsi
Unrealized profit in ending inventory- Pepsi
Consolidated net income 2011
17-22: b
Net income from own operations P Company
S Co. adjusted net income:
Net income S
Unrealized profit in ending inventory
Upstream (P9,000 x 50/150)
Realized profit in beginning inventoryUpstream (P6,000 x 50/150)
Consolidated net income
Attributzble to NCI (P29,000 x 30%)
Attributable to parent

220,000
85,000
15,000
(10,000)
(55,000)
255,000
P200,000
P30,000
(3,000)
2,000

29,000
229,000
8,700
P220,300

17-23: b
NCI, December 31, 2010 [(P245,000/70%) x 30%]
NCI in subsidiary dividends (P20,000 x 30%)

P105,000
( 6,000)

93

NCI in net income of subsidiary

NCI in S Company, December 31, 2011

8,700
P107,700

17-24: c
P Company (P400,000 x 20%)
S Company:
Sales
Cost of goods sold (P400,000 x 80%)
Add write down of ending inventory
Gross profit
17.25

P 80,000
P416,000
P320,000
10,000

330,000
P 86,000

a
Sales
Consolidated cost of goods sold
Gross profit
* Purchases at cost (P400,000 x 80%)
Less ending inventory at cost (P80,000 x 80%)
Consolidated cost of goods sold

P416,000
256,000*
P160,000
P320,000
64,000
P256,000

Note that cost is lower than market

17-26: a
Sales
Cost of goods sold
Gross profit
Other income
Other expenses
Consolidated net income
Attributable to NCI
Attributable to controlling interest

P270,000
171,250
98,750
47,000
51,750
3,350
P 48,400

Supporting computations:
Sales:
Pablo Company
Sally Company
Intercompany sales
Consolidated sales

P220,000
120,000
(70,000)
P270,000

Consolidated cost of goods sold:

Pablo Company
Sally Company
Intercompany sales
Realized profit in beginning inventory (P15,000 x 25%)
Unrealized profit in ending inventory (P20,000 x 25%)
Consolidated costs of goods sold

P150,000
90,000
( 70,000)6
( 3,750)
5.000
P171,250

Other income:
Pablo Company
Computer services
:
Other expenses:
Pablo Company
Sally Company
Computer services
Consolidated other expenses
NCI in net income of Sally
Net income
Realized profit in beginning inventory (upstream)
Unrealized profit in ending inventory (upstream)
Adjusted net income
NCI proportionate share
NCI

5,000
(5,000)

P 40,000
12,000
(5,000)
P 47,000
P 35,000
3,750
(5,000)
P 16,750
20%
P 3,35

Problem 17-1

94

The computation of the selected consolidation balances are affected by the inter-company profit in
downstream intercompany sales as computed below:
Unrealized profit in ending inventory, Dec. 31, 2010 Downstream
Intercompany profit (P120,000 P72,000)
Inventory left at year end
Unrealized profit, Dec. 31, 2010

P 48,000
x 30%
P 14,400

Unrealized profit in ending inventory, Dec. 31, 2011 Downstream

Intercompany profit (P250,000 P200,000)
Inventory left at year end
Unrealized profit, Dec. 31, 2011

P 50,000
x 20%
P 10,000

a.

b.

c.

Consolidated Sales
Apo
Bicol
Intercompany sales 2011
Total
Cost of goods sold
Apos book value
Bicols book value
Intercompany sales-2011
Realized profit in beginning inventory 2011
Unrealized profit in ending inventory 2011
Consolidated cost of goods sold
Operating expenses
Apo
Bicol
Total

d.

Dividend Income 0 (eliminated)

e.

NCI in Net Income of Subsidiary (P100,000 x 20%)

f.

Inventory
Apo
Bicol
Unrealized profit in ending inventory, Dec. 31, 2011
Consolidated inventory

Problem 17-1, continued:

g.
NCI
NCI, December 31, 2010 [ (P902,000/80%) x 20%]
NCI in dividends paid by Bicol (P50,000 x 20%)
NCI in net income of subsidiary (P100,000 x 20%)
Total NCI, 12/31/11

P800,000
600,000
(250,000)
P1,150,000
P 535,000
400,000
(250,000)
( 14,400)
10,000
P 680,600
P 100,000
100,000
P 200,000

P 20,000
P 298,000
700,000
(10,000)
P 988,000

P225,500
(10,000)
20,000
P235,500

Problem 17-2
P Company and Subsidiary
Consolidated Income Statement
Year Ended December 31, 2011
Sales (P2,000,000 + P1,000,000 P600,000)
Cost of goods sold (Schedule 1)
Gross profit
Expenses
Income before income tax
Provision for income tax
Consolidated net income after income tax
Attributable to NCI (Schedule 2)
Attributable to parent
Schedule 1:
Cost of sales P Company
Purchases from S Company
Intercompany profit in beginning inventory (P60,000 x 25%)
Intercompany profit in ending inventory (P76,000 x 25%)
Total

P2,400,000
704,000
1,696,000
600,000
1,096,000
440,000
656,000
44,000
P 612,000
P

800,000
(600,000)
( 15,000)
19,000
P 204,000

95

Cost of sales S Company

500,000
Consolidated cost of sales
Schedule 2:
Net income S Company
Realized profit in beginning inventory Upstream
Unrealized profit in ending inventory Upstream
Adjusted net income
NCI proportionate share
NCI in net income of subsidiary

704,000

180,000
15,000
(19,000)
176,000
x 25%
44,000

P
P

Problem 17-3
a.

Working Paper Eliminating Entries

(1)

Dividend income
NCI (20%)
Dividends declared- D (P32,000 / 80%)
To eliminate intercompany dividends.

32,000
8,000
40,000

Problem 17-3, Continued

(2)

(3)

(4)

Common stock S
Retained earnings S
Investment in S Co. stock
NCI
To eliminate equity accounts of S on the date of
acquisition.

90,000
220,000

NCI
Retained earnings, Jan. 1
Cost of goods sold
To eliminate realized profit in beginning inventory
Sales

4,000
16,000
20,000
150,000

Cost of goods sold

Inventory, Dec. 31 (P45,000 x 33.33%)
To eliminated intercompany sales and unrealized
profit in ending inventory.
(5)

248,000
62,000

NCI in net income of subsidiary

NCI
To establish minority interest in net income of S Co.
computed as follows:
Sales
Cost and expenses (P140,000 +P20,000)
Net income
Realized profit in beginning inventory Upstream
Unrealized profit in ending inventory Upstream
Adjusted net income
NCI proportionate share
NCI in net income of subsidiary

b.

Consolidated Net Income

P Company net income from own operations (P250,000 P32,000)
S Company adjusted net income
Consolidated net income

c.

Non-controlling Interest
NCI, August 30, 2011 [(P248,000/80%) x 20%]
NCI in subsidiary dividends [(P32,000/80%) x 20%]
NCI in net income of subsidiary
NCI

135,000
15,000

9,000
9,000
P200,000
160,000
40,000
20,000
(15,000)
P 45,000
x 20%
P 9,000
P 218,000
45,000
P 263,000
P 62,000
( 8,000)
9,000
P 63,000

96

Problem 17-4
a.

b.

Consolidated Sales
Reported total sales (P600,000 + P510,000)
Intercompany sales (P140,000 + P240,000)
Consolidated sales

P1,170,000
(380,000)
P 790,000

Consolidated Cost of Goods Sold

Cost of goods sold:
Pato (P660,000 / 140%)
Sales (P510,000 / 120%
Amount to be eliminated (P128,000 + P232,000) see entry below
Total

471,429
425,000
( 360,000)
P 536,429

Elimination of intercompany sales and intercompany profit in inventory:

Downstream Sales
Sales
Inventory (P42,000 x 40/140)
Cost of goods sold

140,000

Upstream Sales
Sales
Inventory (P48,000 x 20/120)
Cost of goods sold
c.

d.

12,000
128,000

240,000
8,000
232,000

Consolidated Net Income

Net income from own operations Pato
Unrealized profit in ending inventory Downstream
Adjusted net income Pato
Adjusted net income of Sales Co.
Net income
Unrealized profit in ending inventory Upstream
Consolidated net income

P 70,000
(12,000)
P 58,000
P20,000
(8,000)
12,000
P 70,000

Consolidated Inventory, Dec. 31, 2011

Inventory reported Pato
Inventory reported Sales
Unrealized profit in ending inventory (P8,000 + P12,000)
Consolidated inventory

P 48,000
42,000
(20,000)
P 70,000

Problem 17-5
P Company and Subsidiary S Company
Consolidation Working Paper
Year Ended December 31, 2011
Eliminations
P Company
Income Statement
Sales
Dividend income
Total revenue
Cost of goods sold
Operating expenses
Total cost and expenses
Net income to retained
earnings

12,000,000

S Company
1,300,000

210,000

Debit

Adjustments
Credit

(5)
400,000
(1)
210,000

Consolidated
12,900,000
-

12,210,000
7,000,000

1,300,000
750,000

4,210,000

50,000

11,210,000

800,000

11,680,000

1,000,000

500,000

1,220,000

(7)
30,000
(4)
40,000

(5)
400,000

12,900,000
7,380,000
4,300,000

Statement of Retained
Earnings

97

Retained earnings, January 1

Net income from above
Total
Dividends declared

5,500,000
1,000,000
6,500,000
-

2,200,000
500,000
2,700,000
210,000

Retained earnings,12/31 to
BS

6,500,000

2,490,000

Statement of FP
Cash
Accounts receivable

810,000
425,000

170,000
445,000

Inventory

600,000

275,000

Property, plant and

equipment
Investment in S Company

4,000,000

2,300,000

Total assets

9,035,000

3,1900,000

35,000

100,000

Common stock

1,000,000

400,000

Additional paid in capital

1,500,000

200,000

Retained earnings from

above

6,500,000

2,490,000

9,035,000

3,190,000

Accounts payable

(2)2,200,000
(1)
210,000

5,500,000
1,220,000
6,720,000
6,720,000

(3)
400,000

3,200,000

(6)
25,000
(7)
30,000
(4)
40,000
(2)2,800,000
(3)
400,000

980,000
845,000
845,000
6,660,000
-

9,330,000
(6)
25,000
(2)
400,000
(2)
200,000

110,000
1,000,000
1,500,000
6,720,000

3,905,000

3,905,000

9,330,000

Eliminations and Adjustments

(1)
Eliminate intercompany dividends
(2)
Eliminate subsidiarys equity balances
(3)
Allocate excess to equipment
(4)
Amortize allocated excess to equipment
(5)
Eliminate intercompany sale of P400,000
(6)
Eliminate intercompany trade balances of P25,000
(7)
Eliminate intercompany profit (30%) applicable to P100,000 (P400,000 P300,000)
of intercompany goods in P Company.
Problem 17-5, Continued
Determination and Allocation of Excess Schedule
Price paid by the parent
Less book value of interest acquired (100%)
Common stock S Company
Additional paid in capital S Company
Retained earnings, Jan. 1 S Company
Excess allocated to equipment

P3,200,000
P

Amortization (P400,000/10)

400,000
200,000
2.200,000

2,800,000
P 400,000
P

40,000

Note: There is no NCI since this is a wholly-owned subsidiary.

Problem 17-6
Determination and Allocation of Excess Schedule:
Price paid by the parent (80%)
Non-controlling interest [(P425,000/80%) x 20%]
Total
Less book value of interest acquired:

P425,000
106,250
531,250

98

Common stock So
APIC So
Retained earnings
Total equity
Interest acquired
Excess allocated to goodwill

P200,000
100,000
100,000
P400,000
80%

320,000
P131,250

Fair Value Analysis:

Company fair value

Fair value of net assets excluding goodwill
Goodwill

Company
Implied
Fair Value

Parent
Price
(80%)

NCI
Value
(20%)

P531,250
400,000
P131,250

P425,000
320,000
P105,000

P106,250
80,000
P 26,250

Po Company and Subsidiary So Company

Consolidation Working Paper
Year Ended December 31, 2011
Eliminations
Income Statement
Sales

Po Company

So Company

880,000

630,000

Dividend income
Total revenue
Cost of goods sold

24,000
904,000
704,000

630,000
504,000

Other expenses
Total cost and expenses
Net income
NCI in net income of
Subsidiary
Net income to retained
earnings

130,000
834,000
70,000

81,000
585,000
45,000

Statement of Retained
Earnings
Retained earnings, January 1

70,000

(7)
(10)

1,320
750

(5) 1,350
(6) 32,000
(8)
700
(9) 30,000

8,990

45,000

140,000

70,000
1,175,000
25,000
1,150,000

45,000
185,000
30,000
155,000

216,200
290,000
310,000

44,300
97,000
80,000

Pant assets (net)

Investment in S Company

1,991,000
425,000

340,000

Goodwill
Total assets

60,000
3,292,200

561,300

Accounts payable
Common stock
Additional paid in capital
Retained earnings from
above
Non-controlling interest

642,200
250,000
1,250,000
1,150,000

106,300
200,000
100,000
155,000

Statement of FP
Cash
Accounts receivable
Inventory

(6) 32,000
(8) 30,000
(2) 24,000

(12)

1,105,000

Net income from above

Total
Dividends declared
Retained earnings,12/31 to
BS

Debit

ConsoliAdjustments
Credit

dated
1,448,000
1,448,000

1,146,020
211,000
1,357,020
90,980
(8,990)
81,990

(1) 8,000
(3)100,000
(5) 1,350
(8)
560
(2) 30,000

(11) 15,000
(7) 1,320
(10)
750

(4)131,250

(3)320,000
(4)105,000

(11) 15,000
(3)200,000
(3)100,000
(2)

6,000

1,135,090
81,990
1,217,080
25,000
1,192,080

260,500
372,000
387,930
2,331,000
191,250
3,542,680
733,500
250,000
1,250,000
1,192,080

(1)

8,000

99

(NCI)

(8)

3,292,200

561,300

140

659,360

(3) 80,000
(4) 26,250
(12) 8,990
659,360

117,100
3,542,680

Eliminations and Adjustments

(1)
Recognize NCI in subsidiarys increase in undistributed earnings (P40,000 x 20%)
(2)
Eliminate intercompany dividends.
(3)
Eliminate subsidiarys equity at date of acquisition
(4)
Allocate excess to goodwill.
(5)
Eliminate realized profit in beginning inventory (P9,000 x 15%) = P1,350 (Downstream)
(6)
Eliminate intercompany downstream sales from April 1, 2008 to March 31, 2009, P32,000.
(7)
Eliminated unrealized profit in ending inventory (downstream), P6,000 x 22% = P1,320.
(8)
Eliminate realized profit in beginning inventory (upstream) P3,500 x 20% = P700.
(9)
Eliminate intecompany upstream sales on March 31, 2009, P30,000.
(10)
Eliminate unrealized profit in ending inventory (upstream), P3,000 x 25% = P750.
(11)
Eliminate intercompany payables and receivables ,P10,000 + P5,000 = P15,000.
(12)
Recognized non-controlling interest (NCI) in net income of subsidiary computed as follows:
Net income of So Company
Realized profit in beginning inventory (upstream)
Unrealized profit in ending inventory (upstream)
Adjusted income
NCI share
NCI in net income of subsidiary

P45,000
700
(750)
P44,950
20%
P 8,990

(2)
Po Company and Subsidiary So Company
Consolidated Income Statement
Fiscal Year Ended March 31, 2011
Sales
Cost of goods sold
Gross profit
Expenses
Consolidated net income
Attributable to NCI
Attributable to controlling interest

P1,448,000
1,146,020
301,980
211,000
P
90,980
8,990
P
81,990

Problem 17-7
a.

b.

Unrealized Profit in Beginning Inventory

Beginning inventory - Downstream
Gross profit rate (P240,000/ P400,000)
Unrealized profit in beginning inventory

P 100,000
x 60%
P 60,000

Unrealized Profit in Ending Inventory

Ending inventory Downstream (P200,000 x 80%)
Gross profit rate
Unrealized profit in ending inventory

P 160,000
x 60%
P 96,000

Intercompany Sales
Sales P Company
Sales S Company
Intercompany sales 2011
Consolidated sales

P2,000,000
1,000,000
(400,000)
P2,600,000

Intercompany Cost of Sales

Cost of sales P Company
Cost of sales S Company
Intercompany purchases
Intercompany profit in beginning inventory
Intercompany profit in ending inventory
Consolidated cost of sales
c.

Parents interest (40,000 shares / 50,000 shares)

800,000

600,000

(400,000)
( 60,000)
96,000
P1,036,000
80%

100

P Company Entries 2011:

(1)
Investment in S Company stock
Income from subsidiary
To record Ps share of S Co. income
(P120,000 x 80%)
(2)

96,000

Cash

96,000

48,000

Investment in S Company stock

To record dividends received from S
(P60,000 x 80%)
(2)

48,000

Income from subsidiary

Investment in S Company
To adjust income from subsidiary for intercompany
profit in :
Ending inventory
Beginning inventory
Net adjustment

36,000

36,000

(96,000)
60,000
( 36,000)

Problem 17-7, continued:

d.
Working Paper Eliminating Entries:
(1)

(2)

e.

Income from subsidiary

NCI (P60,000 x 20%)
Dividends declared S
Investment in S Company
To eliminate intercompany dividends.

60,000
12,000

Common stock S Co.

Retained earnings S Co.
Investment in S Company stock
NCI
To eliminate equity accounts of S Company as of
beginning of year.

500,000
860,000

(3)

Goodwill

(4)

Retained earnings Jan. 1

60,000
Cost of sales
To eliminate realized profit in beginning inventoryDownstream.

(5)

Cost of sales
Inventories
To eliminate unrealized profit in ending inventoryDownstream.

Investment in S Company
To allocate excess to goodwill.

60,000

(6)

Sales

(7)

Accounts payable
50,000
Accounts receivable
To eliminate intercompany payables and receivables.

(8)

NCI in net income of subsidiary

NCI
To recognize NCI share in S Company net income
(P120,000 x 20%)

1,088,000
272,000

60,000

60,000

96,000
96,000

400,000

Cost of sales
To eliminate intercompany sales.

Consolidated Net Income

Net Income from own operations P Company
Realized profit in beginning inventory
Unrealized profit in ending inventory
Adjusted net income P Compay
S Company net income
Consolidated net income

60,000
12,000

400,000

50,000
24,000

(P480,000 P60,000)

24,000

P420,000
60,000
( 96,000)
P384,000
120,000
P504,000

101