Consolidated Statement – Subsequent to Date of Acquisition

Problem solving exercises (test bank)

Owl Co. and Owlet Co. – NCI in Net Assets

Owl Co. paid ₱600,000 for its 75% interest in Owlet Co. Owl elected to value NCI at fair
value. Owlet’s net identifiable assets approximated their fair values at acquisition date.
The acquisition resulted in a goodwill attributable to NCI of ₱40,000.

Since the acquisition date, Owlet has made accumulated profits of ₱800,000. There have
been no changes in Owlet’s share capital since acquisition date. The group determined
that goodwill has been impaired by ₱32,000.

A summary of the individual statements of financial positions of the entities as at the

end of reporting period is shown below:
Owl Co. Owlet Co.
Total assets 4,000,000 2,000,000

Total liabilities 800,000 480,000

Share capital 1,200,000 400,000
Retained earnings 2,000,000 1,120,000
Total liabilities and equity 4,000,000 2,000,000

Required:
a. How much is the fair value assigned to NCI at date of acquisition?
b. How much is the goodwill to be presented in the current-year consolidated financial
statements?
c. How much is the NCI in net assets?
d. How much is the consolidated retained earnings?
e. How much is the consolidated total assets?
f. How much is the consolidated total equity?

Solution:
a 75% 25%
Consolidated Parent NCI
Consideration Transfer 820,000.00 600,000.00 220,000.00
Fair Value of net assets excluding goodwill
720,000.00 540,000.00 180,000.00
Goodwill 100,000.00 60,000.00 40,000.00

PP NCI = Goodwill FVNA

600,000.00 220,000.00 100,000.00 720,000.00
820,000.00 820,000.00
Consolidated Statement – Subsequent to Date of Acquisition
Problem solving exercises (test bank)

b Consolidated Parent NCI

Goodwill, beginning 100,000.00 60,000.00 40,000.00
Impairment 32,000.00 24,000.00 8,000.00
Goodwill, ending 68,000.00 36,000.00 32,000.00
Dr. Impairment loss, Cr. Goodwill

c Assets - subsidiary 2,000,000.00

Liabilities - subsidiary 480,000.00
FVNAA - subsidiary 1,520,000.00 720000 800,000.00
Minority interest rate 25% 25% 25%
Non-controlling interest 380,000.00 180,000.00 200,000.00
Goodwill attributable to NCI 32,000.00
NCI in net assets - current year 412,000.00

d Retained earnings - parent 2,000,000.00

Impairment of goodwill - 24,000.00
Profit in subsidiary 600,000.00
Consolidated retained earnings 2,576,000.00

e Assets - parent 4,000,000.00

Assets - subsidiary 2,000,000.00
Investment in subsidiary - 600,000.00
Goodwill 68,000.00
Consolidated total assets 5,468,000.00

f Share capital - parent 1,200,000.00

Retained earnings - parent 2,576,000.00
Equity attributable to parent 3,776,000.00
NCI in net assets - current year 412,000.00
Consolidated total equity 4,188,000.00
Consolidated Statement – Subsequent to Date of Acquisition
Problem solving exercises (test bank)

Parent Company and Subsidiary Corp. – Elimination Entries

Parent Company acquired 100 percent of the stock of Subsidiary Corp. on December
31, 2010. The stockholder's equity section of Subsidiary’s balance sheet at that date is as
follows:
Common Stock P 300,000
Additional Paid-in Capital 500,000
Retained Earnings 400,000
Total P1,200,000
Parent financed the acquisition by using P880,000 cash and giving a note payable for
P400,000. Book value approximated fair value for all of Subsidiary’s assets and
liabilities except for buildings which had a fair value P60,000 more than its book value
and a remaining useful life of 10 years. Any remaining differential was related to
goodwill. Parent has an account payable to Subsidiary in the amount of P30,000.

Required:
a. Present all eliminating entries needed to prepare a consolidated statement of financial
position immediately following the acquisition.
b. What additional eliminating entry must be prepared at December 31, 2011?

Solution:
2010
Dec. 31 Common stock 300,000.00
Additional Paid-in capital 500,000.00
Retained earnings 400,000.00
Investment in Subsidiary 1,200,000.00
To eliminate IIS against equity accounts of the Subsidiary

Building 60,000.00
Goodwill 20,000.00
Investment in Subsidiary 80,000.00
To adjust Subsidiary's asset to FV and to recognize goodwill

Cash paid 880,000.00

Notes given 400,000.00
Consideration transfer 1,280,000.00
Book value of Subsidiary's equity 1,200,000.00
Excess 80,000.00
FV adjustments 60,000.00
Goodwill 20,000.00
?
PP NCI = Goodwill FVNAA
1,280,000.00 - 20,000.00 1,260,000.00
Consolidated Statement – Subsequent to Date of Acquisition
Problem solving exercises (test bank)

Accounts Payable 30,000.00

Accounts Receivable 30,000.00
To eliminate intercompany transactions

2011
Dec. 31 Depreciation (60,000/10) 6,000.00
Accumulated Depreciation 6,000.00
To depreciate the FV increment of the Building
Consolidated Statement – Subsequent to Date of Acquisition
Problem solving exercises (test bank)

Anderson and Genesis – Consolidated Total Assets and Consolidated Total Equity
Date of acquisition problem, applying subsequent to date of acquisition approach
On January 1, 2020, Anderson Corporation paid P800,000 and issued 18,000 shares of
P50 par ordinary shares with market value of P1,320,000 for all the net assets of Genesis
Corporation. In addition, Anderson paid P12,000 for registering and issuing the 18,000
shares and P20,000 for indirect costs of the business combination. Summary balance
sheet information for the companies immediately before the merger is as follows:

Anderson Corporation Genesis Corporation

Book Value Book Value Fair Value
Cash P1,400,000 P160,000 P160,000
Inventories 480,000 320,000 400,000
Other current assets 120,000 80,000 80,000
Plant assets - net 1,040,000 720,000 1,120,000
Current liabilities 640,000 120,000 120,000
Other liabilities 320,000 200,000 160,000
Ordinary shares, P50 par 1,680,000 800,000
Retained earnings 400,000 160,000

Required:
a. Consolidated total assets immediately after the merger is
b. Consolidated total shareholders’ equity after the merger is

Solution:
a Asset - Parent 3,040,000
Asset - Subsidiary 1,280,000
FV increment 480,000
Cash payment - 800,000
Acquisition related expenses - 32,000
Goodwill 640,000
Consolidated total assets 4,608,000

Cash paid 800,000

Shares issued 1,320,000
Consideration transfer 2,120,000
FVNAA - subsidiary 1,480,000
Goodwill 640,000
Consolidated Statement – Subsequent to Date of Acquisition
Problem solving exercises (test bank)

b Ordinary shares - parent 2,580,000

Share Premium - parent 420,000
Retained earnings - parent 368,000
Beginning 400,000
Acquisition related expenses - 32,000
Consolidated total shareholders equity 3,368,000
Consolidated Statement – Subsequent to Date of Acquisition
Problem solving exercises (test bank)

P Company and S Company – Consolidated comprehensive income and consolidated

income attributable to parent
On January 1, 2019, P Company acquired 80 percent of S Company's common stock for
P280,000 cash. At that date, S Company reported common stock outstanding of
P200,000 and retained earnings of P100,000, and the fair value of the noncontrolling
interest was P70,000. The book values and fair values of S Company’s assets and
liabilities were equal, except for other intangible assets which had a fair value P50,000
greater than book value and an 8-year remaining life. S Company reported the
following data for 2019 and 2020:
S Company
Year Net Income Comprehensive Income Dividends paid
2019 25,000 30,000 5,000
2020 35,000 45,000 10,000
P Company reported net income of P100,000 and paid dividends of P30,000 for both the
years.

Required:
a. Based on the preceding information, what is the amount of consolidated
comprehensive income reported for 2019?
b. Based on the preceding information, what is the amount of consolidated
comprehensive income reported for 2020?
c. Based on the preceding information, what is the amount of comprehensive
income attributable to the controlling interest for 2019?
d. Based on the preceding information, what is the amount of comprehensive
income attributable to the controlling interest for 2020?

Solutions:
a Parent Subsidiary
Net income 100,000 30,000
Depreciation (50,000/8) - 6,250
100,000 23,750

Conslidated Net Income 123,750

b Parent Subsidiary
Net income 100,000 45,000
Depreciation (50,000/8) - 6,250
100,000 38,750

Conslidated Net Income 138,750

Consolidated Statement – Subsequent to Date of Acquisition
Problem solving exercises (test bank)

c Parent Subsidiary
Net income 100,000 30,000
Depreciation (50,000/8) - 6,250
100,000 23,750

Net income - parent 100,000

Net income - subsidiary (23,750 x 80%) 19,000
Comprehensive income attributable to parent 119,000

d Parent Subsidiary
Net income 100,000 45,000
Depreciation (50,000/8) - 6,250
100,000 38,750

Net income - parent 100,000

Net income - subsidiary (23,750 x 80%) 31,000
Comprehensive income attributable to parent 131,000
Consolidated Statement – Subsequent to Date of Acquisition
Problem solving exercises (test bank)

Master Co. and Lackey Co. – Parts of Consolidated Comprehensive Income with
Downstream Intercompany sale (Sales, Cost of Sales, Profit, Comprehensive Income)
On January 1, 2019, Master Co. acquired 75% interest in Lackey Co. for ₱600,000. At this
time, Lackey’s net identifiable assets have a carrying amount of ₱720,000 which
approximates fair value. NCI was assigned a fair value of ₱220,000.

During 2019, Master sold goods to Lackey for ₱600,000, having bought them for
₱480,000. A quarter of these goods remain unsold at year-end. Goodwill on acquisition
of Lackey has been tested for impairment and found to be impaired (in total) by ₱32,000
for the current year.

The individual statements of profit or loss and other comprehensive income of the
entities for the year ended December 31, 20x1 are shown below:
Master Co. Lackey Co.
Revenue 4,000,000 2,800,000
Cost of sales (1,600,000) (1,200,000)
Gross profit 2,400,000 1,600,000
Dividend income from Cockerel Co. 40,000
Distribution costs (800,000) (400,000)
Administrative costs (320,000) (200,000)
Profit before tax 1,320,000 1,000,000
Income tax expense (384,000) (300,000)
Profit after tax 936,000 700,000
Other comprehensive income 296,000 100,000
Comprehensive income 1,232,000 800,000

Required:
a. How much is the consolidated sales?
b. How much is the consolidated cost of sales?
c. How much is the consolidated profit?
d. How much is the consolidated comprehensive income?
e. How much is the profit attributable to owners of the parent and NCI,
respectively?
f. How much is the comprehensive income attributable to owners of the parent and
NCI, respectively?
Consolidated Statement – Subsequent to Date of Acquisition
Problem solving exercises (test bank)

Solution:
a Sales - parent 4,000,000
Sales - subsidiary 2,800,000
Intercompany sales - 600,000
Consolidated Sales 6,200,000

b COS - parent 1,600,000.00

COS - subsidiary 1,200,000.00
Intercompany sales - 600,000
Unrealized gain 30,000
Consolidated COS 2,230,000.00

Intercompany sales 600,000.00

Cost of intercompany sales 480,000.00
Profit from intercompany sales 120,000.00
Unsold rate 25%
Unrealized gain 30,000.00

c Parent Subsidiary
Comprehensive income 1,232,000 800,000
Unrealized gain - 30,000
Dividends - 40,000
Impairment of goodwill - 32,000
Adjusted comperehensive income 1,162,000 768,000
Less OCI 296,000 100,000
Adjusted profit 866,000 668,000

Profit - parent 866,000

Profit - subsidiary 668,000
Consolidated profit 1,534,000

d Comprehensive income - parent 1,162,000

Comprehensive income - subsidiary 768,000
Consolidated comprehensive income 1,930,000

e Profit - parent 866,000

Profit - subsidiary (668,000 x 75%) 501,000
Profit attributable to parent 1,367,000
Profit attributable to NCI (668,000 x 25%) 167,000
Consolidated Statement – Subsequent to Date of Acquisition
Problem solving exercises (test bank)

f Comprehensive income - parent 1,162,000

Comprehensive income - subsidiary (768,000 x 75%) 576,000
Comprehensive income attributable to parent 1,738,000
Comprehensive income attributable to NCI (768,000x25%) 192,000

Parent's entries Subsidiarie's entries

Dr. Cash 600,000 Dr. Inventory 600,000
Cr. Sales 600,000 Cr. Cash 600,000

Dr. COGS 480,000 Dr. Cash ?

Cr. Inventory 480,000 Cr. Sales ?

Dr. COGS 450,000

Cr. Inventory 450,000
Elimination entries
Dr. Sales 600,000
Cr. COGS 570,000
Cr. Inventory 30,000

Subsequent entry (realized gain)

Dr. COGS 150,000
Cr. Inventory 150,000