Module 36.

1 Quizzer 3 – Intercompany Sale of Inventory

Pendon

Problem 1

Par Corporation owns 80 percent of Sit’s common stock. During 2021, Par sold Sit P750,000 of
inventory on the same terms as sales made to third parties. Sit sold 100 percent of the inventory
purchased from Par in 2021. The following information pertains to Sit’s and Par’s sales for 2021:
Par Sit

Sales P 3,000,000 P 2,100,000

Cost of P 1,200,000 P 1,050,000
Sales

1. What amount should Par report as cost of sales in its 2021 consolidated income statement?
a. P2,250,000
b. P2,040,000
c. P1,500,000
d. P1,290,000

2. What amount should Par report as sales in its 2021 consolidated income statement?
a. 5,100,000
b. 4,500,000
c. 4,350,000
d. 3,000,000

Problem 2

Car Company had the following transactions with affiliated parties during 2021:

• Sales of P180,000 to Den, with P60,000 gross profit. Den had P45,000 of this inventory on
hand at year-end. Car owns a 15 percent interest in Den and does not exert significant
influence.
• Purchases of raw materials totaling P720,000 from Ken Corporation, a wholly owned
subsidiary. Ken’s gross profit on the sale was P144,000. Car had P180,000 of this inventory
remaining on December 31, 2021.

Before eliminating entries, Car had consolidated current assets of P960,000. What amount should
Car report in its December 31, 2021, consolidated balance sheet for current assets?

a. P960,000
b. P951,000
c. P924,000
d. P303,000

Problem 3

Pan Corporation owns 75 percent of the voting common stock of Sat Corporation, acquired at book
value during 2021. Selected information from the accounts of Pan and Sat for 2021 are as follows:

Pan Sat

Sales 1,800,000 1,000,000

Cost of 980,000 380,000
Sales

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Module 36.1 Quizzer 3 – Intercompany Sale of Inventory

During 2022 Pan sold merchandise to Sat for P100,000, at a gross profit to Pan of P40,000. Half of this
merchandise remained in Sat’s inventory at December 31, 2022. Sat’s December 31, 2021, inventory
included unrealized profit of P8,000 on goods acquired from Pan.

1. In a consolidated income statement for Pan Corporation and Subsidiary for the year 2022,
consolidated sales should be:
a. P2,900,000
b. P2,800,000
c. P2,725,000
d. P2,700,000

2. In a consolidated income statement for Pan Corporation and Subsidiary for the year 2022,
consolidated cost of sales should be:
a. P1,372,000
b. P1,360,000
c. P1,272,000
d. P1,248,000
Problem 4

Par Corporation owns an 80 percent interest in Sel Corporation acquired several years ago. Sel
regularly sells merchandise to its parent at 125 percent of Sel’s cost. Gross profit data of Par and Sel
for 2022 are as follows:

Par Sel

Sales 1,000,000 800,000

Cost of 800,000 640,000
Sales

During 2022, Par purchased inventory items from Sel at a transfer price of P400,000. Par’s December
31, 2021 and 2022, inventories included goods acquired from Sel of P100,000 and P125,000,
respectively. Assume Par sells the inventory purchased from Sel in the following year.

1. Consolidated sales of Par Corporation and Subsidiary for 2022 were:

a. P1,800,000
b. P1,425,000
c. P1,400,000
d. P1,240,000

2. The unrealized profits in the year-end 2021 and 2022 inventories were:
a. P100,000 and P125,000, respectively
b. P80,000 and P100,000, respectively
c. P20,000 and P25,000, respectively
d. P16,000 and P20,000, respectively

3. Consolidated cost of goods sold of Par Corporation and Subsidiary for 2022 was:
a. P1,024,000
b. P1,045,000
c. P1,052,800
d. P1,056,000
Problem 5

Pat Corporation owns 70 percent of Sue Company’s common stock, acquired January 1, 2022. Patents
from the investment are being amortized at a rate of P20,000 per year. Sue regularly sells merchandise
to Pat at 150 percent of Sue’s cost. Pat’s December 31, 2022, and 2023 inventories include goods

Property of PREMIERE CPA Review and Professional Development Center – October 2020
Module 36.1 Quizzer 3 – Intercompany Sale of Inventory

purchased intercompany of P112,500 and P33,000, respectively. The separate incomes (do not include
investment income) of Pat and Sue for 2013 are summarized as follows:

Pat Sue

Sales 1,200,000 800,000

Cost of Sales 600,000 500,000
Other 400,000 100,000
Expenses

Total consolidated income should be allocated to controlling and noncontrolling interest shares in the
amounts of:
a. P344,550 and P61,950, respectively
b. P358,550 and P60,000, respectively
c. P346,500 and P60,000, respectively
d. P346,500 and P67,950, respectively
Problem 6

The Bakun Company holds a 70% interest in The Buguias Company. At the current year end Bakun
holds inventory purchased from Buguias for P270,000 at cost plus 20%. The group's consolidated
statement of financial position has been drafted without any adjustments in relation to this holding of
inventory. Under IFRS 3 Consolidated financial statements, what adjustments should be made to the
draft consolidated statement of financial position figures for non-controlling interest and retained
earnings?

Non-controlling interest Retained earnings

a. No change Reduce by P45,000
b. No change Reduce by P54,000
c. Reduce by P16,200 Reduce by P37,800
d. Reduce by P13,500 Reduce by P31,500

Problem 7

Son is a 75%-owned subsidiary of Papa Corporation acquired at book value (also fair value) on
January 2, 2016. Comparative income statements for Papa and son for 2018 are as follows:

Papa Son
Net Sales P500,000 P200,000
Cost of sales 300,000 120,000
Gross Profit P200,000 P80,000
Operating Expenses 60,000 30,000
Operating Income P140,000 P50,000
Dividend Income 37,500 ________
Net Income P170,500 P50,000

Additional information:

• Son made sales to Papa of P60,000 in 2017 and P100,000 in 2018

• Papa’s inventories at December 31, 2017 and December 31, 2018 included merchandise on
which Son reported profit of P15,000 and P24,000 during 2017 and 2018 respectively.
• Papa has not eliminated the effect of intercompany profits in accounting for its investment in
Son.

Property of PREMIERE CPA Review and Professional Development Center – October 2020
Module 36.1 Quizzer 3 – Intercompany Sale of Inventory

The Consolidated cost of sales for 2018 amounted to:

a. P420,000
b. P344,000
c. P329,000
d. P305,000

2. The Profit attribute to equity holders of Parent for 2018 amounted to:
a. P170,750
b. P177,500
c. P188,750
d. P190,000
Problem 8
On January 1, 2019, LOL acquired 60% of outstanding ordinary shares of ML at a gain on bargain
purchase of P40,000. For the year ended December 31, 2020, LOL and ML reported the following:

LOL ML
Revenue 2,000,000 1,000,000
COGS 1,200,000 700,000

Additional information:
• During 2019, LOL sold inventory to ML at a selling price of P280,000 with gross profit rate of
40% based on cost.
• During 2020, ML sold inventory to LOL at a selling price of P400,000 with gross profit rate of
30% based on sales during 2020.
• On December 31, 2019, 25% of the goods coming from LOL remained in ML’s inventory but all
were eventually sold to third persons during 2020.
• As of December 31, 2020, 40% of the goods coming from ML were eventually sold to third
persons.
• For the year ended December 31, 2020, LOL reported net income of P500,000 while ML
reported net income of P200,000 and distributed dividends of P50,000.

1. What is the consolidated sales revenue for the year ended December 31, 2020?
A. 2,600,000
B. 2,320,000
C. 3,000,000
D. 2,720,000

2. What is the consolidated gross profit for the year ended December 31, 2020?
a. 1,120,000
b. 1,048,000
c. 1,028,000
d. 1,152,000

3. What is the noncontrolling interest in net income for the year ended December 31, 2020?
a. 100,800
b. 59,200
c. 51,200
d. 88,000

4. What is the consolidated net income attributable to parent’s shareholders for the year ended
December 31, 2020?
a. 766,800
b. 596,800
c. 606,800
d. 626,800

Property of PREMIERE CPA Review and Professional Development Center – October 2020