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CONSOLIDATED FS –

SUBSEQUENT TO DATE
OF ACQUISITION
Chapter 16
Consolidated Net Income (CNI)

Consolidated Net Income =


Total earnings of all companies
consolidated,
less any income recorded by the parent
from the consolidating companies.
Equity approach
Parent Company Net Income P 120,000
Dividend income from subsidiary ( 20,000)
Net Income from own operation P 100,000
Subsidiary net income from own operation 50,000
Consolidated Net Income P 150,000
Attributable to NCI (50,000 X 20%) 10,000
Attributable to Parent P 140,000
Elimination entry for wholly owned
subsidiary if acquired at book value
Dr. Dividend Income XXX
Cr. Dividends Declared-Subsidiary XXX

Dr. Common Stock-Subsidiary XXX


Dr. Retained Earnings-Subsidiary XXX
Cr. Investment in Subsidiary XXX
Elimination entry for partially owned
subsidiary if acquired at book value
Dr. Dividend Income(80%) XXX
Dr. NCI (20%) XXX
Cr. Dividends Declared-Subsidiary XXX

Dr. Common Stock-Subsidiary XXX


Dr. Retained Earnings-Subsidiary XXX
Cr. Investment in Subsidiary XXX (80%)
Cr. NCI XXX (20%)

Dr. NCI in net income of subsidiary XXX


Cr. NCI (subsidiary income x 20%) XXX
Procedures to eliminate inter-company
transactions when acquisition is other than
book value.
1. Eliminate intercompany dividends and recognize NCI share
of subsidiary’s dividends declared.
2. Eliminate equity accounts of subsidiary at date of
acquisition against investment account and NCI.
3. Allocate excess to the specific assets and liabilities of the
subsidiary.
4. Amortize the allocated excess except goodwill
5. Assign income of subsidiary to NCI.
Exercise 1
Parent Corporation acquired 80% of the outstanding common stock of Subs Company on January 2,
2010 for P1,437,000. Subs Company’s stockholders’ equity on January 2, 2010 were as follows:
Common Stock, P100 par P656,250; APIC, P262,500; Retained Earnings P525,000.
Non-controlling interest is measured on January 2, 2010 at fair value. Current fair value of Subs
Company’s identifiable net assets exceeded their book values as follows:
Inventories P78,750; Plant Assets (10yr. economic life) P131,250; Patents (5yr. economic life) P52,500.
Both Parent Corporation and Subs Company include depreciation expense and amortization in operating
expenses. Both companies use the straight-line method for depreciation and amortization. No
impairment of goodwill is to be recognized. Prior to acquisition the common stock of Parent Corporation
is P900,000, APIC P375,000 and Retained Earnings P750,000.
For 2 years ended Dec 31, Parent Company and Subs Company reported the ff. operation results:
Net Income Dividends
Parent Co. Subs Co. Parent Co. Subs Co.
2010 P 262,500 P 210,000 P 65,625 P 26,250
2011 131,250 315,000 210,000 196,875
Exercise 1 (continued)
■ Prepare all journal entries required on the books of Parent Company during 2010
and 2011 to account for its investment in Subs Company and Subs Company’s
operating results using the cost method.
■ Prepare working paper elimination entries for consolidated financial statements on
Dec 31, 2010 and Dec 31, 2011.
■ Compute the following on Dec 31 2010 and 2011
– Non controlling interest
– Consolidated net income attributable to parent
– Consolidated retained earnings
Exercise 2
On Jan. 2, 2011, Paz Corporation acquired 60% of the
outstanding shares of Sin Company for P540,000. The book
value and fair value of these shares was P480,000. Any
excess of the investment cost over the book value of interest
acquired has a maximum life of 20 years. For 2011, Sin
reported net income of P200,000 and paid dividends of
P80,000. Compute for the investment in Sin Company stock
account on Paz’s books under equity method on Dec 31,2011.
Answer

Acquisition Cost P540,000


Dividends received from sub
(80,000 x 60%) ( 48,000)
Share in NI (200k x 60%) 120,000
Amortization of excess
(540k-480k) / 20yrs ( 3,000)
Investment in Sin Company Dec 31 P609,000
Exercise 3
On January 2, 2011, Pat Corporation acquired 75% of the
outstanding common stock of Sol Company for P270,000
cash. The investment was accounted for by the cost
method. On January 2, 2011, Sol’s identifiable net assets
(book value and fair value) were P300,000. Sol’s net
income for the year ended December 31, 2011 was
P160,000. During the year 2011, Pat received P60,000
cash dividends from Sol. There were no other inter-company
transactions. The balance of the non-controlling interest
account on December 31, 2011 is how much?
Answer
SHE- subsidiary, beginning P300,000
NI - subsidiary 160,000
Dividends declared(60k/0.75) ( 80,000)
SHE – subsidiary, end P380,000
Add excess of FV on BV -
Less Amortization (-)
Add: Goodwill 60,000
Less: Impairment ( - )
SHE – subsidiary, adjusted P440,000
% of NCI 25%
NCI at year end P110,000
Alternative Solution
NCI at date of acquisition P 90,000
Add: NCI net income (160,000x25%) 40,000
Less: Dividends declared for NCI
(60,000 / 75% x 25%) (20,000)
NCI at year end P110,000
Exercise 4
Puno Corporation owned 90% interest in a purchased
subsidiary, Salas Company, which was accounted for by the
cost method. During year 2011, Puno had income, of
P145,000, and Salas had a net income of P120,000. Salas
declared and paid a P40,000 dividend during year 2011.
There were no differences between the current fair values and
book values of Salas identifiable net assets on the date of the
business combination, and there was no goodwill in the
business combination. What is the consolidated net income of
Puno Corporation and subsidiary for the year 2011?
Answer

Net income – parent P145,000


Net income – subsidiary 120,000
Less: Amortization ( - )
Less: Impairment ( - )
Add: income from acquisition -
Intercompany dividends 40kx90%( 36,000)
Consolidated Net Income 229,000
Exercise 5
On January 2, 2011, Peter Co. acquired 80% of Seller’s outstanding
common stock for P500,000. Seller’s book value on that date was
P500,000; there were no significant differences between the market
value and book value of Seller’s net assets. Goodwill if any, is not
impaired. During 2011, Peter and Seller reported the ff:
Peter Seller
NI from own operations P1,000,000 P200,000
Dividends declared 300,000 120,000
Compute for the consolidated net income attributable to parent for
2011.
Answer
Net income – parent P1,000,000
Net income – subsidiary 200,000
Less: Amortization ( - )
Less: Impairment ( - )
Add: income from acquisition -
Intercompany dividends ( - )
Consolidated Net Income 1,200,000
NCI-NIS (200k x 20%) ( 40,000)
Consolidated Net Income attributable 1,160,000
to parent
Exercise 6
Pop Inc. purchases all of the outstanding stock of Son Corporation, on January 2, 2009,
for P310,000. Equipment with a 10-year life was undervalued on Son’s financial record
by P38,000. Goodwill resulting from this combination is P56,000.
Son reported net income of P150,000 in 2009 and P180,000 in 2010. Dividends of
P60,000 were paid in each of these two years. Selected account balances as of
December 31,2011, for the two companies follow:
Pop Son
Revenues P 900,000 P 700,000
Expenses 400,000 500,000
Income from Subsidiary not given -
R.E. 1/1/11 700,000 500,000
Dividends paid 110,000 60,000
IF the equity method has been used, what is the balance of the Investment in Son stock
account in the books of Pop at the end of 2011?
Answer

2009 2010 2011


Investment in Son, Jan. 1 P310,000 P396,200 P512,400
Pop’s share of Son’s N.I. (100%) 150,000 180,000 200,000
Dividends received (100%) ( 60,000) (60,000) ( 60,000)
Amortization of allocated
difference to Eqpt (P38,000 / 10) ( 3,800) ( 3,800) ( 3,800)
Investment in Son, Dec. 31 P396,200 P512,400 P648,600
Exercise 7

For the year ended February 28, 2011, Sy Company, the


90% owned purchased subsidiary of Pe Corporation,
declared a dividend of P100,000 and had net income of
P300,000. Also for that year, amortization of the current
fair value differences of Sy’s identifiable net assets was
P60,000. The balance of NCI in Net Income of Subsidiary
Account on February 28, 2011 is how much?
Answer

Sy’s net income P300,000


Amortization of allocated difference ( 60,000)
Adjusted net income of Sy P240,000

Non-controlling interest in net income of subsidiary (P240,000 x 10%)


P 24,000
Exercise 8
The post closing balances of the Retained Earnings accounts of Pant
Corporation and its 80% owned subsidiary, Short Company, on
February 28, 2011, were as follows (there were no intercompany
profits and losses):
Pant Corporation:
R.E. P1,600,000 R.E. of subsidiary 80,000
Short Company:
R.E. P 460,000
How much is the consolidated retained earnings of Pant Corporation
and subsidiary under the equity method on February 28, 2011?
Answer
Under the equity method consolidated retained
earnings is equal to the retained earnings of the
parent company. (P1,600,0000).
Exercise 9
On January 2, 2011, Puzon Corporation purchased an 80% investment in
Suarez Company. The purchase price was equal to Puzon’s equity in Suarez’s
net assets at that date.
On January 2, 2011, Puzon and Suarez had retained earnings of P500,000
and P100,000, respectively. During 2011,
(1) Puzon had net income of P200,000, which included its equity in Suarez’s
dividends, and declared dividends of P50,000;
(2) Suarez had net income of P40,000 and declared dividends od P20,000;
and
(3) there were no other intercompany transactions.
On December 31, 2011, how much should the consolidated retained
earnings be?
Answer

Retained earnings, Jan. 2, 2011 – Puzon P500,000


Consolidated net income attributable to parent:
Net income – Puzon P200,000
Net income – Suarez 40,000
Dividend income (P20,000 x 80%) (16,000)
NCI-NIS (P40,000 x 20%) ( 8,000) 216,000

Dividends paid – Puzon ( 50,000)


Consolidated retained earnings, Dec. 31, 2011 P666,000
Exercise 10
On April 1, 2010, Palawan Inc. paid P1,700,000 for all
the issued and outstanding common stock of Samar
Corporation. On that date, the total cost and the total
fair value of Samar’s net assets are P1,260,000 and
P1,300,000 respectively. In Palawan’s March 31,
2011, consolidated statement of financial position,
what is the amount of goodwill that should be reported
as a result of the business combination?
Answer

Acquisition cost P1,700,000


Less: FV of Identifiable net assets (P1,300,000)
Goodwill (no impairment) 400,000
Exercise 11
On January 2, 2011, Pascual Corporation purchased 80% of Suazon
Company’s P10 par common stock for P975,000. On this date, the book
value of Suazon’s net assets was P1,000,000. The air value of
Suazon’s identifiable net assets were the same as their carrying
amounts except for plant assets (10, yr life), which were P100,000 in
excess of the carrying amount. For the year ended December 31, 2011,
Suazon had net income of P190,000 and paid cash dividends totaling
P125,000. In the December 31, 2011 consolidated statement of
financial position, non-controlling interest (NCI) should be reported
at____.
Answer

Net assets of Suazon, Jan. 2, 2011 P1,000,000


NI – subsidiary 190,000
Dividends declared – subsidiary ( 125,000)
Net assets of Suazon, Dec. 31, 2011 P1,065,000
Goodwill 118,750
Excess of FV over BV (100,000) 100,000
Accumulated Amortization (100,000 /10 years) (10,000)
Adjusted net assets of Suazon, Dec 31, 2011 1,273,750
Non-controlling interest in net assets of subsidiary (1,273,750 x 20%)
P 254,750
Exercise 12
Presto Corporation purchased 90% of the outstanding
stock of Stork Company on March 21, 2011, at book
value. Stork reported net income of P80,000 for the
year 2011 and paid no dividends. Prior to the
acquisition by Presto, Stork has 2011 revenues of
P95,000 and expenses of P72,000. Presto reported
income of P140,000 from its own operations for 2011.
Consolidated net income attributable to parent for
2011 is _____.
Answer

Presto’s net income from own operations P140,000


Presto’s share of Stork’s net income (P80,000 – P23,000) 57,000
NCI NIS (P57,000 x 10%) ( 5,700)
Consolidated net income attributable to parent P191,300
Exercise 13
Pablo Corporation purchased 95% of the outstanding common stock of Siso Company on
January 2, 2010, for P600,000. The purchase price was P20,000 above the book value of the
shares acquired, all related to goodwill.
Pablo accounts for its investment in Siso using the cost method. Siso’s net income and
dividends during the next two years were as follows:
Net income Dividends
2010 P80,000 P10,000
2011 P110,000 P 30,000
Based on the date given above, the working paper needed to prepare consolidated financial
statements for 2011 will include elimination entries for the ff:
Investment in Siso Company ____; Dividend Income _______.
Answer

Investment in Siso stock (at acquisition cost) P600,000

Dividend income (P30,000 x 95%) P 28,500


Exercise 14
On January 2, 2010, Pepe Corporation purchased 70% of the common stock of Sison Company
for P550,000. At that date, Sison had P575,000 of common stock outstanding and retained
earnings of P185,000. Equipment with a remaining life of 5 years had a book value of
P280,000 and a fair value of P300,000. Sison’s remaining assets had book values equal to
their fair values. All intangibles except goodwill are expected to have remaining lives of 10
years. The income and dividend figures for both Pepe and Sison are as follows:
Income(own operations) Dividends
Pepe: 2010 P185,000 P50,000
2011 210,000 60,000
Sison: 2010 40,000 10,000
2011 67,000 15,000
Pepe’s retained earnings at the date of acquisition was P701,000. Compute for the
consolidated net income and consolidated retained earnings , Dec. 31, 2011.
Answer

Consolidated net income:


Pepe’s net income from own operations P210,000
Sison’s adjusted net income:
Net income -2011 P67,000
Amortization of allocated difference
to equipment (P20,000 / 5) 4,000 63,000
Consolidated net income P273,000
Answer
Consolidated retained earnings:
Pepe’s retained earnings, Jan.2, 2010 P701,000
Consolidated net income attributable to parent– 2010
Pepe’s NI from own operations P185,000
Sison’s adjusted NI;
Net income – 2010 P40,000
Amortization -2010 4,000 36,000
NCI NIS (P36,000 x 30%) (10,800) 210,200
Dividends paid ,2010 - Pepe ( 50,000)
Pepe’s retained earnings, Jan. 2, 2011 P861,200
Consolidated net income attributable to parent– 2011:
Consolidated net income (see previous ans) P273,000
NCI NIS [(67,000 -4,000) x 30%] ( 18,900) 254,100
Dividends paid, 2011 – Pepe ( 60,000)
Consolidated retained earnings, Dec. 31, 2011 P1,055,300
Exercise 15
On June 30, 2011, Precy Inc. purchased 70% of the common stock of Susy
Company for P700,000. At that date, Susy had P650,000 of common stock
outstanding and retained earnings of P250,000. All of the purchase difference
was related to a building with a book value of P175,000 and a remaining life of
10 years. Precy’s retained earnings balance at December 31, 2010 was
P550,000. The income and dividend figures for both Precy and Susy for 2011
are as follows:
Income (own operations) Dividends
Precy P275,000 P70,000
Suzy Jan1-Jun30 80,000 30,000
Jul1-Dec31 100,000 0
Compute for the consolidated retained earnings and NCI for Dec 31, 2011.
Answer
Acquisition cost P700,000
Less: Book value of interest acquired 630,000
Allocated to building P 70,000

Consolidated retained earnings


Retained earnings, Jan. 1, 2008 – Pepe P550,000
Consolidated net income attributable to parent:
Net income – Precy P275,000
Adjusted net income of Susy:
Net income of Susy P100,000
Amortization (P70,000 / 10) ÷ 2 ( 3,500) 96,500
NCI NIS (P96,500 x 30%) (28,950) 342,550
Dividends paid – Precy ( 70,000)
Consolidated retained earnings, Dec. 31, 2008 P822,550

Minority interest in net assets of subsidiary


Stockholders’ equity of Susy, June 30, 2008 P 900,000
Increase in earnings- net income (7/1 to 12/31) 100,000
Stockholders’ equity, Dec. 31, 2008 P1,000,000
Unamortized difference (P70,000 – P3,500) 66,500
Adjusted net assets of Susy, Dec. 31, 2008 P1,066,500
NCI in net assets of subsidiary (P1,066,500 x 30%) P 319,950
Exercise 16
On January 2, 2011, Polo Corp. purchase 80% of Seed Company’s common stock for
P216,000. P10,000 of the excess is attributable to goodwill and the balance to a
depreciable asset with an economic life of 10 years. On the date of acquisition Seed
reported common stock outstanding of P80,00 and retained earnings of P140,000,
and Polo reported common stock outstanding of P350,000 and retained earnings of
P520,000.
On Dec. 31, 2011, Seed reported net income of P35,000 and paid dividends of
P15,000, Polo reported earnings from its separate operations of P95,000 and paid
dividends of P46,000. Goodwill had been impaired and should be reported at P2,000
on December 31, 2011.
Compute for
CNI CRE NCI-NIS NCI-NAS CNI attributable to parent
Answer
Net income of Subs. P35,000
Amortization40k/10 yrs (4,000)
Impairment of goodwill (8,000)
Adjusted NI of Sub P23,000
X % of NCI 20%
NCI-NIS P4,600
Answer
Net Income of Parent 95,000
Net Income of Sub. 35,000
Amortization 40k/10yrs ( 4,000)
Impairment (8,000)
Intercompany div (15k x 80%) (12,000)
Consolidated Net Income P106,000
NCI-NIS ( 4,600)
CNI- attributable to parent P 101,400
Answer
RE, beg parent P 520,000
CNI-att. To parent 101,400
Div. Declared by parent (46,000)
Consolidated RE P575,400
Answer
SHE beg. Subs. P 220,000
NI –subs. 35,000
Dividends ( 15,000)
SHE end subs 240,000
Excess of FV over BV 40,000
Less amortization ( 4,000)
Add goodwill 10,000
Less impairment ( 8,000)
SHE adjusted 278,000
x % of NCI 20%
NCI-NAS 55,600
Answer

NCI net assets P54,000


NCI-NIS 4,600
Less div. dec. for NCI
(15,000 x 20%) (3,000)
NCI-net assets P55,600
Exercise 17
Pepe Corporation purchased 70% of Sisa Company’s ownership on January 1 2010, and paid
P231,000. At that date, Sisa reported the book value of its net assets as P280,000. The purchase
difference is allocated to a depreciable asset with a remaining life of 10 years. The companies
reported the ff. data for 2011:
R.E. Jan 1 2011 2011 Net Income 2011 Dividends
Pepe Corp. P 520,000 P 120,000 P 50,000
Sisa 230,000 25,000 10,000

The ff. entry was included in the eliminating entries used to prepare the consolidated financial
statement at Dec 31, 2011:
Dr. Retained Earnings, 1/1 – Sisa 21,000
Cr. Non-Controlling Interest 21,000
■ What amount of retained earnings did Sisa report on January 1,
2010?
■ What amount should be reported as consolidated retained earnings
at January 1, 2011?
■ What amount should be reported as consolidated net income for
2011?
■ What amount should be reported as consolidated net income
attributable to parent on 2011?
■ What amount should be reported as consolidated retained earnings
at December 31, 2011?
Answer
Eliminating entry NCI-NIS P 21,000 ÷ 30% = P 70,000 Adjusted Net Income of Subsidiary

Net Income – Subsidiary ? 75,000


Amortization 50k ÷ 10yrs ( 5,000)
Impairment (-)
Adjusted Net Income –Subsidiary 70,000

Retained Earnings, Jan 1 2010 ? 155,000


Net Income – Subsidiary 75,000
Retained Earnings, Dec 31, 2010 230,000
Answer

Retained Earnings Jan 1 2011 – Parent P520,000


CNI – attributable to parent ( 70k x 70%) 49,000
Consolidated Retained Earnings Jan 1 2011 569,000

“ No need to deduct dividends declared by parent since the given Retained Earnings is
already as of Jan 1, 2011. (Dividends already deducted)”
Answer
Net income – parent P120,000
Net income – subsidiary 25,000
Less: Amortization ( 5,000)
Less: Impairment ( - )
Add: income from acquisition -
Intercompany dividends 10kx70% ( 7,000)
Consolidated Net Income 133,000
NCI-NIS (20,000 x 30%) (6,000)
Consolidated Net Income --------------
attributable to parent 127,000
Answer

Consolidated Retained earnings Jan 1, 2011 569,000


CNI- parent 127,000
Dividends declared – parent (50,000)
Consolidated Retained Earnings Dec 31, 2011 646,000

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