Intercompany Sale of PPE Activity

Intercompany sale of PPE
Sky Corporation owns 75 percent of Earth Company's stock. On July 1, 2018, Sky sold a building to
Earth for P33,000. Sky had purchased this building on January 1, 2016, for P36,000. The building's
original eight-year estimated total economic life remains unchanged. Both companies use straight-
line depreciation. The equipment's residual value is considered negligible.
1. Based on the information provided, in the preparation of the 2018 consolidated financial
statements, building will be _____ in the eliminating entries.
a. debited for P33,000
b. debited for P36,000
c. credited for P36,000
d. debited for P3,000
2. Based on the information provided, while preparing the 2018 consolidated income statement,
depreciation expense will be:
a. debited for P750 in the eliminating entries.
b. credited for P750 in the eliminating entries.
c. credited for P1500 in the eliminating entries.
d. debited for P1500 in the eliminating entries
3. Based on the information provided, in the preparation of the 2019 consolidated income
statement, depreciation expense will be:
a. debited for P750 in the eliminating entries.
b. credited for P750 the eliminating entries.
c. credited for P1500 in the eliminating entries.
d. debited for P1500 in the eliminating entries.
Blue Corporation holds 70 percent of Black Company's voting common stock. On January 1, 2010,
Black paid P500,000 to acquire a building with a 10-year expected economic life. Black uses straight-
line depreciation for all depreciable assets. On December 31, 2015, Blue purchased the building from
Black for P180,000. Blue reported income, excluding investment income from Black, of P140,000 and
P162,000 for 2015 and 2016, respectively. Black reported net income of P30,000 and P45,000 for
2015 and 2016, respectively.
4. Based on the preceding information, the amount to be reported as consolidated net income for
2015 will be:
a. P190,000. b. P170,000. c. P175,000. d.P150,000.
5. Based on the preceding information, the amount of income assigned to the controlling
shareholders in the consolidated income statement for 2016 will be:
a. P207,000. b.P202,000. c. P212,000. d. P190,000.
On January 3, 2016, Pabebe sold equipment costing P100,000 to its 100%-owned subsidiary,
Sureness, for P80,000. At the time of the sale, the equipment had been 50% depreciated (using the
straight-line method and an assigned life of 10 years). Sureness continued depreciating the
equipment by using the straight-line method over a remaining life of 5 years.
6. What are the cost and accumulated depreciation, respectively, of this equipment in the
December 31, 2016 consolidated balance sheet?
a. P80,000 and P56,000 c. P100,000 and P16,000
b. P80,000 and P60,000 d. P100,000 and P60,000
7. What is the amount of the intercompany profit or loss that must be deferred at December 31,
2016?
a. P14,000 b. P16,000 c. P24,000 d. P30,000
8. What is the amount of the adjustment to Depreciation Expense in preparing the consolidated
worksheet at December 31, 2016?
a. P3,000 b. P4,000 c. P5,000 d. P6,000
On January 2, 2021, PLDT acquired 60% of outstanding shares of Smart Inc. with gain on bargain
purchase amounting to P 1M. The following data are provided.
 On January 2, 2021. PLDT sold a black equipment to Smart with cost of P 1M and accumulated
depreciation of P 400,000 at a selling price of P 900,000. The black equipment has original life
of 5 years.
 On July 1, 2022, Smart sold a white equipment to PLDT with cost of P 500,000 and
accumulated depreciation of P 300,000 at a selling price of P 150,000. The white equipment has
original life of 10 years.
 On year 2022, PLDT reported net income of P 5M and declare dividends of P 2M while Smart
reported net income of P 1M and declared dividends of P 500,000.
9. What is the consolidated net income attributable to parent’s shareholders for the year ended
December 31, 2022?
a. P 5,426,250 b. P 5,626,250 c. P 6,422,500 d. P 6,622,500
10. Using the same data in number 32, what is the consolidated depreciation expense of the
equipment for the year ended December 31, 2022?
a. 250,000 b. 225,000 c. 125,000 d. 112,500
11. Using the same data in number 32, what is the consolidated book value of the equipment on
December 31, 2022?
a. P 375,000 b. P 412,500 c. P 350,000 d. P 425,000
On Jan. 1, 2015, PI Co. acquired 75 percent of outstanding shares of SU Co. at book value. For the
year 2017, PI Co. purchased merchandise from SU Co. while S also purchased merchandise from PI
Co. Data regarding
intercompany sales, inventories and profit percentages are as follows:
PI Co. SU Co.
Intercompany sales P200,000 P75,000
Intercompany inventories:
January 1, 2017 20,000 10,000
December 31, 2017 15,000 20,000
Gross profit percentages on intercompany
As a percentage of selling price 60% 50%
On July 1, 2017, Su Co. sold equipment to PI Co. at a gain of P20,000. This equipment is estimated to
have a useful life of five years from the date of sale.
Income statements for the two companies for year 2005 are as follows:
PI Co. SU Co.
Sales P 1,500,000 P 400,000
Cost of sales 600,000 200,000
Expenses 300,00 100,000
Gain on sale of equipment . 20,000
P 600,000 P 120,000
12. The Minority interest income for 2017 must be
26,125 b. 19,400 c. 25,250 d. 24,125

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