PQ2

1.Parent Company purchased an 80% interest in Subsidiary Company for P230,000 on January 1, 2004, when
Subsidiary Company had the following balance sheet:

Assets Liabilities and Equity

Current assets .................... P 100,000 Current liabilities ............... P 50,000
Property, plant, and ........... Common stock (P10 par) ... 100,000
equipment (net) ........... 200,000 Retained earnings ............... 150,000
Total assets ........................ P300,000 Total liabilities and equity .. P300,000

Any excess of the price paid over book value is attributable only to the plant assets, which have a 10-
year remaining life. Parent uses the cost method to record the investment in Subsidiary Company.

The following trial balances of the two companies were prepared on December 31, 2004:

Parent Subsidiary
Current Assets ................................................ 80,000 130,000
Property, Plant and Equipment ....................... 400,000 200,000
Accumulated Depreciation ............................ (106,000) ( 20,000)
Investment in subsidiary Company ............... 230,000
Current Liabilities .......................................... ( 60,000) ( 40,000)
Common Stock (P10 par) .............................. (300,000) (100,000)
Retained Earnings, January 1, 2004 ............... (200,000) (150,000)
Sales ............................................................... (150,000) (100,000)
Expenses ........................................................ 110,000 75,000
Dividend Income ........................................... ( 4,000)
Dividends Declared ....................................... 5,000
Total ......................................................... 0 0

The consolidated net income for 2004:

2. On January 1, 2003, P Co. acquired 70 percent of S Co. for P300,000. On that day, S Co.'s common stock and
retained earnings accounts had credit balances of P100,000 and P300,000, respectively. It was agreed that
goodwill, if any, would have an annual impairment loss of P2,000. P Co. decided to use the cost method to
account for the investment on its books. On December 31, 2005, the retained earnings accounts of P and S were
P800,000 and P400,000, respectively. Consolidated Retained Earnings on that day are:

3. Madonna Corp. has a 75% interest in Jemo Co. which is recorded on a cost basis. For the fiscal year ended
June 30, 2005, the following data were taken from their respective books:

Net income of Madonna Corp. was P125,000, while the net income of Jemo Co. was P45,000. There
was intercompany interest on bonds of P5,700. Jemo Co. paid dividend of P9,000.

How much was the consolidated net income for the fiscal year?

4. Com Corporation and Bo Corporation are sister companies. Com Corporation owns 140,000 shares of stock
out of the 200,000 shares of stock outstanding of Bo Corporation. On the other hand, Bo Corporation owns
120,000 shares out of the 600,000 shares outstanding of Com Corporation. Com Corporation announced a net
income of P84,080 for the year 2005 while Bo Corporation sustained a loss of P12,000 for the same year. The
net income and loss of both corporation were arrived at without consideration of the earnings of the affiliate.

On a consolidated basis for year 2005, and the net income or (loss) for:

5. AA Company owns 80% of the outstanding common stock of BB Company and 90% of the outstanding
common stock of CC Company. Each company's net income from its own separate operations, exclusive of
dividend income and amortization of cost over book value of net assets, is as follows:

AA Company ............................................................................. P1,000,000

BB Company .............................................................................. 100,000
CC Company .............................................................................. 10,000

Amortization of cost over book value of net assets (at 100%) on a full-year basis is P4,000 and
P2,000 for AA and BB respective.
 Calculate the consolidated net income for 2005, assuming that BB was acquired on April 1, 2005 and
CC was acquired on July 1, 2005. Assume earnings were made evenly throughout the year.

Items 6 through 8 are based on the following data:

Pri Corporation owns an 80% interest in Sed Corporation; and at December 31, 2005, Prid investment in Sed on
a cost basis was equal to 80% of Sed's stockholders equity. During 2006, Sed merchandise to Prid to P100,000 at
a gross profit to Sed of P20,000. At December 31, 2006 half of this merchandise is included in Prid's inventory,
Separate incomes for Prid and Sed 2006 are summarized as follows:
Prid Sed
Sales ..................................................................... P500,000 P300,000
Cost of sales ................................................. ........ ( 250,000) ( 200,000)
Gross profit .......................................................... P250,000 P100,000
Operating expenses .............................................. ( 125,000) ( 40,000)
Separate incomes .................................................. P125,000 P 60,000

(Adapted Based Chartered Accountants)

6. The income from Sed for 2006 is:
7.The consolidated cost of sales for 2006 is:
8. The NCI in net income for 2006 is:

Items 9 through 12 are based on the following information:

The separate incomes (which do not include investment income) of Pell Corporation and Sell Corporation, its
80% owned Subsidiary, for 2006 were determined as follows:

Pell Sell
Sales ...................................................................... P400,000 P100,000
Less Cost of sales .................................................. 200,000 60,000
Gross profit ............................................................ P200,000 P 40,000
Other expenses ....................................................... 100,000 30,000
Separate incomes ................................................... P100,000 P 10,000

During 2006 Pell sold merchandise that cost P20,000 to Sell for P40,000, and at December 31, 2006 half of these
inventory items remained unsold by Sell.
(Adapted Based Chartered Accountants)

9. The NCI in net income for 2006:

10.The consolidated sales for 2006:
11. The consolidated cost of sales for 2006:
12.The consolidated net income for 2006:

Items 13 and 14 are based on the following information:

Son is a 75%-owned subsidiary of Papa Corporation acquired by Papa at book value (also fair value) on January
2, 2004. Comparative income statements for Papa and Son for 2006 are as follows:
Papa Son
Net sales ................................................................. P500,000 P200,000
Cost of sales ........................................................... 300,000 120,000
Gross profit ............................................................ P200,000 P 80,000
Operating expenses ................................................ 60,000 30,000
Operating income ................................................... P140,000 P 50,000
Divined income ...................................................... 37,500
Net income ............................................................. P177,500 P 50,000

Additional Information
1. Son made sales to Papa of P60,000 in 2005 and P100,000 in 2006.
2. Papa's inventories at December 31, 2005 and December 31, 2006 included merchandise on which
Son reported profit of P15,000 and P24,000 during 2005 and 2006, respectively.
3. Papa has not eliminated the effect of intercompany profits in accounting for its investment in Son.
(Adapted Based Chartered Accountants)
13. The consolidated cost of sales for 2006:
14. The consolidated net income for 2006: