Colegio de San Juan de Letran

College of Business Administration and Accountancy

151 Muralla St., Intramuros, Manila

ADVANCED FINANCIAL ACCOUNTING and REPORTING PART 2

QUIZ – CONSOLIDATED & SEPARATE F.S.: INTERCOMPANY TRANSACTIONS

Name (SN, GN, MN) Year and Section Date Score

Instructions (For strict compliance): Read the following questions very carefully and write your final answer before
the number. All computations must be in good form using your worksheet. NO ERASURES ALLOWED on your final
answers. No solution, no credit.

PROBLEMS
For numbers 1 & 2:
The Flash Corp. has a 70% interest in the outstanding shares of The Arrow Co. On January 1, 2017, The Arrow Co. sold to The
Flash a machinery for P360,000. The machinery was acquired by The Arrow four years ago at P500,000, estimated life of 10
years. In 2017, The Flash and The Arrow reported net income of P500,000 and P200,000, respectively. Dividends declared
and paid by The Arrow in 2017 amounted to P50,000.

1. Determine the consolidated net income for 2017.

a. P525,000 b. P611,000 c. P615,000 d. P539,000

2. Using the same information in No. 1, how much is the non-controlling interest in net income of subsidiary (NCINIS)
in 2017?
a. P1,293,200 b. P1,390,700 c. P1,299,200 d. P1,396,700

P Company has an 80% interest in S Company in the last quarter of 2017. On November 5, 2017, P Company sold inventory
costing P80,000 to S Company for P100,000. S Company sold 75% of the inventory to an unaffiliated company before
December 31, 2017, at 20% mark-up on cost. The companies had no other transactions during 2017.

3. The elimination entry to eliminate the intercompany profit includes:

a. Debit to Cost of Sales of P30,000 c. Credit to Inventory of P20,000
b. Debit to Cost of Sales of P5,000 d. Credit to Inventory of P6,000

For numbers 4 & 5:

On January 1, 2018, Pet Company purchased 80% of the shares of Sam Company at book value. The shareholders’ equity of
Sam Company on that date showed: Ordinary Shares – P570,000 and Retained earnings – P490,000. On April 30, 2018, Pet
acquired used machinery for P84,000 from Sam that was being carried in the latter’s books at P105,000. The asset still has a
remaining useful life of 5 years. On the other hand, on August 31, 2018, Sam purchased an equipment that was already 20%
depreciated from Pet for P345,000. The original cost of this equipment was P375,000 and had a remaining life of 8 years. Net
income of Pet Company and Sam Company for 2018 amounted to P360,000 and P155,000. Dividends paid totaled to
P115,000 and P52,500 for Pet and Sam, respectively.
On the consolidated financial statements in 2018, how much would be the:

4. Net income attributable to parents’ shareholders’ equity and the non-controlling interest in the net income of
subsidiary (NCINIS)
a. P413,435; P34,640 c. P417,075; P31,000
b. P417,075; P34,640 d. P413,435; P31,000

5. Non-controlling interest in net asset of subsidiary (NCINAS) and the carrying value of Property and Equipment.
a. P236,140; P405,000 c. P232,500; P378,500
b. P236,140; P378,500 d. P232,500; P405,000

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P Company owns 60% of S Company’s net assets. On December 31, 2017, S Company owes P Company P800,000 for cash
advance.

6. In preparing consolidated balance sheet on that date, what amount of the advance should be eliminated?
a. P800,000 b. P480,000 c. P320,000 d. Zero

For numbers 7 & 8:

P Company acquired 4,000 shares of the outstanding stock of S Company for P1,200,000 on January 1, 2017. P Company
also paid P100,000 direct costs related to the combination. On this date, the stockholders’ equity of S Company consisted
of: Ordinary Shares (P100 par), P500,000; and Retained Earnings, P600,000. The carrying values of S Company identifiable
assets and liabilities are equal to their fair market values. At the beginning of the year, P Company sold equipment costing
P100,000 with accumulated depreciation of P50,000 to S Company for P120,000. P Company was depreciating the
equipment for 10 years with no salvage value using straight-line method and S Company continued the same method. At
the end of the year, P Company reported net income of P300,000 and paid dividends of P250,000 while S Company reported
net income of P200,000 and paid dividends of P10 per share. The parent company measures its non-controlling interest
using the proportionate method.

7. The consolidated net income on December 31, 2017 is

a. P474,000 b. P500,000 c. P372,000 d. P404,000

8. The balance of Non-controlling interest (NCI) at December 31, 2017 is

a. P252,000 b. P200,000 c. P248,000 d. P250,000

For numbers 9 & 10:

Party Corporation owns an 80% interest in S Company acquired several years ago. S Company regularly sells merchandise to
its parent at 125% of its cost. Gross profit of Party and S Company for the year 2017 are:
Party Corp. S Company
Sales P1,000,000 P800,000
Cost of Goods Sold 800,000 640,000
Gross Profit P 200,000 P160,000

During 2017, Party Corporation purchased inventory items from S Company at a transfer price of P400,000. Party’s December
31, 2016 and 2017 inventories included goods acquired from S Company of P100,000 & P125,000, respectively.

9. The amount of consolidated sales for the year ended December 2017 was:
a. P1,800,000 b. P1,400,000 c. P1,425,000 d. P1,240,000

10. The 2017 working paper elimination entries will include a

a. Debit to Cost of Sales of P20,000 c. Debit to NCI of P4,000
b. Credit to Sales of P400,000 d. Credit to COS of P25,000

Pan Corp. owns 75% of the voting ordinary shares of Sat Corp. acquired at book value during 2016. Selected information
from the accounts of Pan and Sat for 2017 are as follows:
Pan Corp. Sat Corp.
Sales P900,000 P500,000
Cost of sales 490,000 190,000

During 2017, Pan sold merchandise to Sat for P50,000 at a gross profit to Pan of P20,000. Half of this merchandise remained
in Sat Corp.’s inventory at December 31, 2017. Sat’s December 31, 2016 inventory included unrealized profit of P4,000 on
goods acquired from Pan.

11. Determine the consolidated cost of sales.

a. P686,000 b. P680,000 c. P624,000 d. P636,000

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Snowy Corporation is an 80% owned subsidiary of Power Corporation. In 2019, Snowy sold Land that cost P3,500,000 to
Power Corporation for P5,500,000. Power Corp. held the land for three years before reselling it in 2022 to an unrelated entity
for P7M.

12. The 2022 consolidated income statement for Power Corp and its subsidiary, Snowy Corp, will recognize a gain on
the sale of land is:
a. P2,000,000 b. P3,500,000 c. P1,500,000 d. Zero

For numbers 13 & 14:

P Company acquired 90% interest in S Company at a time when S Company’s book values of net assets were equal to fair
market values. On January 2, 2017, S Company sold a machine with a P30,000 book value to P Company for P60,000. P
Company depreciates the machine over 10 years using the straight line method. Income statement information for P
Company and S Company are as follows:
P Company S Company
Sales P1,200,000 P700,000
Gain on Machinery 30,000
Cost of Sales 500,000 190,000
Depreciation Expense 300,000 90,000
Other Expenses 120,000 300,000

13. The Consolidated Net Income for 2017 is

a. P403,000 b. P415,000 c. P388,000 d. P390,700

14. The book value of the machine on December 31, 2017 consolidated balance sheet is
a. P30,000 b. P54,000 c. P27,000 d. P60,000

For numbers 15 & 16:

Sure Corporation, a 75% own subsidiary of Pretty Corporation sells inventory to its parent at 125% of cost, while Pretty
Corporation sells merchandise to its subsidiary at 120% of cost. Inventories of the two companies for 2017 are as follows:

Pretty Corp. Sure Corp.

Beginning inventory P400,000 P250,000
Ending inventory 500,000 200,000

Pretty Corporation’s beginning and ending inventories include merchandise acquired from Sure Corporation of P150,000 and
P200,000, respectively. Sure Corporation also reported beginning and ending inventories from Pretty Corporation of P80,000
and P60,000, respectively.

15. If Sure Corporation reported a net income for 2017 of P300,000, the non-controlling interest on subsidiary net
income is
a. P76,000 b. P72,500 c. P72,917 d. P75,000

16. In the consolidated balance sheet, inventories should be reported at

a. P650,000 b. P660,000 c. P700,000 d. P654,667

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