FINANCIAL

PROBLEM 1:
CUTE,Inc., a calendar year corporation, acquires 70% of AKO Company on September 1, 2017 and an additional
10% on April 1, 2018. Total annual amortization of P6,000 relates to the first acquisition. AKO reports the
following figures for 2018:
Revenues P500,000
Expenses 400,000
Retained earnings, 1/1/20x5 300,000
Dividends paid 50,000
Common Stock 200,000
Without regard for this investment,CUTE earns P300,000 in net income during 2018. All net income is earned
evenly throughout the year. What is the controlling interest in consolidated net income for 2018?

PROBLEM 2:
NO acquired all of the outstanding stock of NAME on January 1, 2014, by issuing 10,000 shares of its own
common stock. This stock was valued at 47 per share while having a par value of 30 per share.The issued stocks
remain unchanged during the years.
On the date of purchase, NAME reported the net asset book value of 360,000, although its buildings and
equipment were undervalued by 60,000. This property was assumed to have a six-year remaining life with no
salvage value. While a ten-year remaining life trademark with an amount of 50,000 has been recognized.

CONSOLIDATIONS: SUBSEQUENT YEARS

NO Company NAME Company

12/31/18 12/31/18
Revenues 610,000 370,000
Cost of Goods Sold 380,000 220,000
Depreciation Expense 270,000 140,000
Amortization Expense 115,000 80,000
Dividend Income 5,000
Net Income 230,000 150,000

Retained Earnings, 1/1/18 880,000 490,000

Net Income (above) 230,000 150,000
Dividends Paid 90,0000
Retained Earnings, 12/31/18 1,020,000 640,000

Cash 110,000 20,000

Receivables 380,000 220,000
Inventory 560,000 280,000
Investment in NAME Co 470,000 0
Land 460,000 340,000
Buildings and equipment (net) 920,000 380,000
Total assets 2900,000 1,240,000

Liabilities 780,000 470,000

Preferred Stock 300,000 0
Common Stock 500,000 100,000
Additional paid-in capital 300,000 30,000
Retained earnings, 12/31/18 1,020,000 640,000
Total liabilities and equities 2,900,000 1,240,000

Prepare a consolidation worksheet for these two companies as of December 31, 2018.
PROBLEM 3:
At the end of 2018, QUALI Company’s stockholders equity includes common stock of 500,000 and
additional paid in capital of 300,000.QUALI purchased a 70% interest in AKO Company on January
1, 2018, when the non-controlling interest in AKO had a fair value of 90,000. No differential arose
from the business combination. During 2018, AKO report net income of 20,000 and declares
dividend of 5,000. The 2018 consolidated balance sheet includes retained earnings of 630,000
(controlling interest portion).

Determine the consolidated equity on December 31, 2018.

PROBLEM 4:
WALANG Company, buys all of the outstanding stock of PANGALAN Company on January 1, 2014.
Annual excess amortization of P12,000 results from this purchase transaction. On the date of the
takeover, WALANG reported retained earnings of P400,000 while PANGALAN reported a
P200,000 balance. WALANG reported income of P40,000 in 2014 and P50,000 in 2015 and paid
10,000 in dividends each year. PANGALAN reported net income of P20,000 in 2014 and P30,000
in 2015 and paid P5,000 in dividends each year.
Assume that WALANG's reported income does include income derived from the subsidiary.

If the parent uses the cost method of accounting investment in subsidiary, what are the
consolidated retained earnings on December 31, 2015?
ANSWERS:
PROBLEM 1
Net income from own operations;
Parent – CUTE P 300,000
Subsidiary - AKO (P500,000 – P400,000) 100,000
P 400,000
Less: Amortization of allocated excess 6,000
Impairment of goodwill (if any) 0
Consolidated/Group Net Income P 394,000

Less: Non-controlling interest in Net Income

Subsidiary net income from own operations:
1/1/2018 - 4/1/2018 (3 months):
P100,000 x 3/12 = P25,000 x 30% P 7,500
4/1/2018 – 12/31/2018 (9 months):
P100,000 x 9/12 = P75,000 x 20% 15,000
Total P 22,500

Less: Amortization of allocated excess:

1/1/2018 – 4/1/2018 (3 months)
P6,000 x 3/12 = P1,500 x 30% 450
4/1/2018 – 12/31/2018 (9 months)
P6,000 x 9/12 = P4,500 x 20% 900
Impairment of goodwill (if any):
First 3 months: P 0 x 30% 0
Remaining 9 months: P 0 x 20% 0 21,150
CNI attributable to the controlling interest (CI-CNI)/ Profit
attributable to equity holders of parent P372,850

PROBLEM 2:

Purchase price........................................................... 470,000

Book value of subsidiary .......................................... (360,000)
Excess cost over book value ................................... 110,000
Excess cost assigned to specific
accounts based on fair value

Annual Excess Life Amortizations

Buildings and equipment 60,000 6 yrs. 10,000
Trademark 50,000 10 yrs. 5,000
Total 110,000 15,000
The parent company is apparently applying the cost method: only dividend income is recognized
during the current year and the investment account retains its original 470,000 balance. Therefore,
both the subsidiary's change in retained earnings during 2016–2017 as well as the amortization for
that period must be brought into the consolidation.
NAME's retained earnings January 1, 2018 ............................................... 490,000
Retained earnings at date of purchase (360,000-100,000-30,000)................... (230,000)
Increase since date of purchase ................................................................... 260,000
Excess amortization expenses (15,000 x 4 years) .................................... (60,000)
Conversion to equity method for years prior to 2018
(Change in Investment) .................................................................... 200,000

*(ATTACHMENT : AT THE LAST PAGE)

PROBLEM 3:

Consolidated Equity:
Attributable to Equity Holders’ of Parent/ Controlling Interest:
Common stock 500,000
Additional paid-in capital 300,000
Retained earnings 630,000
Equity Holders of Parent/Controlling Interest 1,430,000
Non- Controlling interest:
(90,000+(20,000-5,000) X 30% 94,500

Consolidated Equity 1,524,500

PROBLEM 4:

WALANG's retained earnings at the date of takeover P400,000

Add: Reported net income of WALANG:
2014 and 2015 (40,000+50,000) 90,000
Less: Dividends paid for 2 years (10,000 x 2) ( 20,000)
Add: Undistributed net Income of PANGALAN for 2 years
(20,000 + 30,000-5,000-5,000) 40,000
Annual excess amortization for 2 years (12,000 X 2) 24,000
Consolidated Retained Earnings, December 31,2015 P486,000
 NO COMPANY AND CONSOLIDATED SUBSIDIARY
Consolidation Worksheet
For Year Ending December 31, 2018
Consolidation Entries Consolidated
Accounts NO NAME Debit Credit Totals
Revenues 610,000 370,000 980,000
Cost of goods sold 270,000 140,000 410,000
Depreciation expense 115,000 80,000 10,000 205,000
Amortization expense 5,000 5,000
Dividend income (5,000) -0- 5,000 -0-
Net income 230,000 150,000 360,000

Retained earnings, 1/1/18 880,000 200,000 1,080,000

490,000 -0-
Net income (above) 230,000 150,000 360,000
Dividends paid 90,000 5,000 5,000 90,000
Retained earnings, 12/31/18 1,020,000 635,000 1,350,000

Cash 110,000 15,000 125,000

Receivables 380,000 220,000 600,000
Inventory 560,000 280,000 840,000
Investment in NAME Co. 470,000 -0- 200,000 560,000 -0-
110,000
Land 460,000 340,000 800,000
Buildings and equipment 920,000 380,000 60,000 50,000 1,310,000
Trademark -0- -0- 50,000 25,000 25,000
Total assets 2,900,000 1,235,000 3,700,000

Liabilities 780,000 470,000 1,250,000

Preferred stock 300,000 -0- 300,000
Common stock 500,000 100,000 100,000 500,000
Additional paid-in capital 300,000 30,000 30,000 300,000
Retained earnings 12/31/18 1,020,000 635,000 430,000 1,350,000
60,000
Total liabilities and equity 2,900,000 1,235,000 3,700,000