AA2 2008e Ch06 Solution by Vicente

ADVANCED ACCOUNTING VOLUME 2Solution Manual

CHAPTER 6CONSOLIDATED STATEMENTS - Changes in Interest

in Subsidiary and Mutual HoldingsKEY TERMS REVIEW

1. k 3. f 5. c 7. n 9. b 11. a 13. t 15. p2. g 4. i 6. j 8. q 10. m 12. r 14. s

QUESTIONS1. (a) Eliminations will be based on the ownership interest of the parent at the date of consolidation, or 90% But computation of

the parent's share in the increase or decrease in subsidiary retained earnings from date of acquisition of control to date of consolidation has to be made.(b) Since consolidated statements will be prepared, the parent will share in increases and decreases of subsidiary earnings

from the date of first acquisition under the equity method. The equity method is used once ownership interest is 20% or more so that significant influence could be exercised by the investor. Once this condition exists, the investor will recognize changes in the retained earnings of the investee with a debit or credit to investment account.

2. (a) If the equity method is used by the parent, once it sells a portion of the investment, there is a need to etermine the carrying value of such portion at the date of sale, considering the changes that have taken place in the earnings of the subsidiary, to determine if any gain or loss exists.(b) Under the cost method, the original cost of the investment will be the basis in determining any gain of loss using FiFo or

specific identification method.3. Even if the sale of subsidiary shares came from the second lot, under the equity method, both lots will have the same unit

carrying value at the date of sale. The elimination entry therefore will use only the percentage interest of the parent at the date of consolidation. The date of acquisition of the shares sold will not matter, since increases and decreases in subsidiary retained earnings would have been reflected at the date working papers for consolidated statements will be prepared.

4. (a-1) Upon the additional stock issue by the subsidiary, the parent does not make an entry, but takes note of the decrease in its ownership interest. The additional issue of shares by the subsidiary will decrease the percentage of ownership by the parent.(a-2) Under the cost method, such additional stock issue by the subsidiary will not affect the cost of the investment.(b) Under the equity method, the elimination entry for consolidated statements will reflect the reduced ownership interest of the parent in the working papers.

5. When Travel, Inc. acquires 50,000 shares of its stock on the market, automatically the percentage ownership of the parent is increased since the outstanding shares of Travel, Inc. will decrease. 400,000 shares owned by the parent will be divided by a reduced number of outstanding shares. No entry is made at the time of retirement of the shares but the increased ownership interest will be used in the working papers elimination entry.

6. In the working papers for consolidated balance sheet, the treasury shares may be regarded as retired shares, thereby reducing the common stock and paid in capital balances of the Moson Company.

7. (a) Upon sale of the treasury stock, Cash is debited and Treasury stock credited with another credit to Paid in capital in excess of cost of treasury stock.(b) No entry is made by the parent upon sale by subsidiary of its treasury stock, but the increased percentage of ownership will be used in the working papers for consolidated statements.

8. In direct ownership, the parent controls the subsidiary by actually acquiring more than 50% of its voting shares. Indirect ownership exists, when this subsidiary is also a parent of a third company, so indirectly the first parent has indirect ownership over the third entity. Referring to the diagram below, Company A has direct ownership in Company, 80% and indirect ownership in Company C. 48%.

80% 60%Company A ------ Company B ----- Company C

9. (a) In the working papers for consolidated balance sheet, Sub-parent investment in the subsidiary will first reflect the adjusted balance after considering its share of subsidiary earnings and dividends before elimination entries will be made at the date of consolidation.(b) If the investments in the subsidiaries were made by the subparent prior to control by the parent, then theinvestment accounts would already have reflected the adjustments prior to preparation of working papers for consolidated balance sheet.

10. (a) Since acquisition of B's 90% interest by A was in 20X2, and C's interest by B in 20X4, 72% (90% X 80%) of C's retained earnings will be presented as part of the controlling interest, this is what is called indirect ownership interest of A over C.(b) Since acquisition of 90% of B by A was in 20X8 and on the same date B acquired 80% of C, A does not haveany indirect ownership interest of C's retained earnings as of this date.

CHAPTER 687


11. No, because Company T is owned by R and S by 40% each only. R and S's net assets are to be included in the consolidated statement of Q.

12. When the term reciprocal or mutual holdings is used it means that a parent holds controlling interest in a subsidiary, while a subsidiary in turn holds ownership interest in the parent.

13. (a) If two affiliates with reciprocal holdings would be preparing a consolidated balance sheet, the parent's shares held by the subsidiary may be viewed either as (1) retired shares when preparing working papers, or (2) as treasury stocks. (b)Since the affiliates prepare consolidated statements because even if legally they are separate entities, from an economic viewpoint they are considered as belonging to the same entity. Reciprocal accounts are therefore eliminated. As treasury stocks, because it is as if the parent bought its own shares, because the parent and the subsidiary is considered one economic entity.(c) I support the second view as mentioned above, since the shares have not been actually retired.

14. When two affiliates have mutual holdings and recognize the earnings of each other, then algebraic computations such as simultaneous equations will be used to find the share of each others earnings. For example, if P 0wns 90% of B and B has 10% of A, then the real earnings of A will be its actual earnings P plus its share of B's profit. While that of B will be its actual profit plus its share of P's profit.

15. Paulo's 500 shares held by Pablo Company, Paulo's subsidiary will be shown as long term investment on Pablo's balance sheet.

EXERCISES1. (a) Investment carried under equity method:

Dec. 31, 20X6: Investment in Mario stocks……………..4,500 Equity in subsidiary income…….. 4,500

Cash……………………………………3,000 Investment in Mario stocks………. 3,000

Dec. 31, 20X7: Investment in Mario stocks…………….18,000 Equity in subsidiary income………. 18,000

Cash……………………………………. 9,000 Investment in Mario stocks……….. 9,000

(b) Investments carried at cost:Dec. 31, 20X6: No entry for share in subsidiary income

Cash……………………………………. 3,000Dividend income……………… 3,000

Dec. 31, 20X7: No entry for share in subsidiary incomeCash…………………………………….18,000

Dividend income……………… 18,0002. (a) To record sale of 2,000 shares of investment:

Cash…………………………………….36,000Investment in Ronaldo Co. stock 31,600Gain on sale of investment……. 4,400

Book value per share = 152,000 - 1,900 9,500 = P15.80

15.80 X 2,000 = 31,600(b) To record share of subsidiary income:

Investment in Ronaldo Co. stock………28,500Equity in subsidiary income… 28,500

3. Elimination entries, Dec. 31, 20X7:1) Retained earnings - Co. H……………….40,000

Investment in Co. R stock…………. 40,0002) Goodwill………………………………..56,000 Common stock - Co. R…………………80,000 Retained earnings - Co. R………………40,000

Investment in Co. R stock…………. 176,0003) Common stock - Co. S………………….80,000 Investment in Co. S stock………….. 60,000

Retained earnings - Co. S………….. 20,000

Balances December 31, 20X7:Common stock - Co. H P250,000Retained earnings - Co. H 160,000Common stock - Co. R -minority interest 30,000

CHAPTER 688


Retained earnings - Co. R -minority interest 6,000Common stock - Co. S - minority interest 20,000Retained earnings - Co. S - minority interest ( 2,600)Retained earnings -Co. R, accruing to parent (16,000)Retained earnings- Co. S, accruing to parent 9,600

4. Entries on the books of Star Company:Dec. 31, 20X6 Dec. 31, 20X7

Equity in Waldo, Inc. .loss……….31,666.67 Investment in Waldo, Inc. stock35,000 Investment in Waldo, Inc. stock 31,666.67 Equity in Waldo, Inc. income 35,000 Computation of % of ownership: March 1 to Sept. 1 = 6 months at 70%

Sept. 1 to Dec. 31 = 4 months at 85%Jan 1 to June 30 = 6 months at 85%July 1 to Dec. 31 = 6 months at 90%

5. (a) To record sale of 50 shares at 90:Cash……………………………… 4,500 Investment in Waldo, Inc stock 4,250 Gain on sale of investment….. 250

(b) 20X6: Equity in Waldo, Inc. loss 31,666.67 Investment in Waldo, Inc. stock 31,666.67

20X7: Investment in Waldo, Inc. stock 34,000 Equity in Waldo, inc. income 34,000

6. (a) Elimination required on the working papers, December 31, 20X7:Assuming that 9,000 shares were acquired at 10:

Common stock-Torejo Co………….72,000Retained earnings-Torejo Co………20,250

Excess of book value……. 2,250Investment in Torejo Co. stock 90,000

(b) Cost (based on assumption)… …………………P90,000 Book value: Common stock 80,000

Retained earnings (20,000 + 2,500) 22,500

Total……………………………..........…102,500 % of ownership................................... .9 92,250

Excess of book value over cost P 2,250 ( c) Minority interest: Common stock……………………P8,000

Retained earnings……………….. 2,750 P10,750(d) Subsidiary retained earnings accruing to parent:

Retained earnings, Dec. 31………………P27,500Retained earnings, March 1: Balance , Jan.1 P20,000 Income from Jan to Mar. 1 2,500 22,500

Increase in retained earnings…………….P 5,000% of ownership .90Accruing to parent………………………. P 4,500

7. (a) Nov. 1, 20X7: Cash…………………………………..7,500 Investment in Torejo Co. stock 5,000 Gain on sale of investment….. 2,500

(b) Dec. 31, 20X7: 1) Common stock-Torejo Co. 68,000 Retained earnings-Torejo Co. 21,250

Investment in Torejo Co. stock 85,000Excess of bookvalue over cost* 4,250

2) Goodwill or excess of book value over cost:

Cost of investment…………………..P85,00085% of P105,000…………………. . 89,250Excess of book value over cost* P 4,250

CHAPTER 689


* Under IFRS 3, this is taken up as negative goodwill which will be shown as gain in the income statement.3) Minority interest:

Common stock…………….……….P12,000Retained earnings………………….. 4,125Total P16,125

4) Subsidiary earnings accruing to parent:Retained earnings, end…………….. .P27,500Retained earnings, beg…………….. . 25,000Increase…………………… ………. .P 2,500% ownership .85Subsidiary earnings accruing to parentP 2,125

8. (a) Books of parent, investment carried at equity:20X7: Investment in Ever ready Co. stock…………14,750

Equity in Ever Ready Co. income…….. 14,75020,000/12 = 1,667; 1,667 X 11 = 18,333(75%) + (60% of 1,667)

= 14,750.(b) No entry on books of parent if investment is carried under cost method.

9. (a) additional shares acquired by parent (equity method):Investment in Ever Ready Co. stock……………20,000

Equity in Ever Ready Co. income……. 20,000(b) no entry if cost method is used.

10. (a) Huerta’s entries under equity method:

20X7: (1) Investment in Pacific stock………13,500Equity in Pacific income…… 13,500

(2) Cash…………………………….10,800Investment in Pacific stock… 10,800

(b) Cost method: (1) No entry for share in subsidiary income(2) Cash…………………………….10,800

Dividend income…………… 10,800 ( c) Goodwill computation:

Cost of investment…………………….P150,000Book value of interest acquired:90% of P120,000…………………….. 108.000

Goodwill…………………….P 42,000

(d) Huerta’s retained earnings, cost method:Retained earnings, 20X0………………P100,000Subsidiary dividends in 20X7

90% of 12,000 10,800Subsidiary retained earnings accruing toparent: R. E. , 20X7………P23,000

R. E. 20X0……. 20,000 Increase……….P 3,000 % of ownership .9 2,700

Huerta’s retained earnings, Dec. 31, 20X7 P 113,500

11. (a-1) Elimination, July 1, 20X7:Common stock……………..90,000Premium on stock………….18,000Retained earnings ………….69,300

Excess of book value over cost* 42,300Investment in Sera, Inc. stock 135,000

The foregoing figures are derived from the following balances for working papers purposes:CHAPTER 690


Common stock Treasury stock Premium Retained earnings balances 120,000 18,000 24,000 75,000 treasury stock (20,000) (18,000)( 4,000) 2,000 balances used 100,000 - 20,000 77,000

(a-2) Excess of book value over cost is P42,300: Cost of investment…………………..P135,000 90% of 197,000…………………… . 177,300 Excess of book value over cost*…P 42,300

Minority interest:Common stock………………P10,000Premium on stock…………… 2,000Retained earnings…………… 7,700

Total……………….P19,700

(b) Equity method is used ( Subsidiary sells treasury stock at 14:% of ownership is reduced to 75% from 90%.Subsidiary balances after treasury stock sale:

common stock treasury stock premium retained earningsbefore 120,000 18,000 24,000 75,000 sale (18,000) 10,000Balances

after sale 120,000 - 34,000 75,000

Equity in net assets before treasury stock sales 90% of 201,000………P180,900Equity in net assets after treasury stock sale 75% of 229,000.………… 171,750

Decrease in parent’s equity as a result of change in interest…P 9,150

12. (a) Investments are carried at equity:Books of Cuneta Gaba20X6:Investment in Gaba stock…………..126,000 Cash…………………………… 126,000

Dividend receivable……………….. 9,000 Investment in Gaba stock…….. 9,000

Investment in Gaba stock………….. 18,000 Equity in Gaba income……….. 18,000

20X7:Investment in Harpa stock…………. 72,000 Cash…………………………… 72,000

Dividend receivable………………. 9,000 8,000 Investment in subsidiary stock 9,000 8,000

Investment in subsidiary stock……. 36,900 16,000 Equity in subsidiary income 36,900 16,000

(b) Investments carried at cost:20X6: no entry for subsidiary income shareDividend receivable……………….. 9,000 Dividend income………………. 9,00020X7: no entry for subsidiary income share of parentDividend receivable……………….. 9,000 8,000 Dividend income………………. 9,000 8,000

13. Entries on parent’s and sub-parent’s books-

CHAPTER 691


(a) under equity method: Parent’s books Sub-parent’s books 20X7: Investment in Subsidiary stock.. 6,000

Equity in subsidiary income 6,000

Investment in subsidiary stock 27,900 Equity in subsidiary income 27,900

Cash…………………………… 13,500 8,000 Investment in subsidiary stock 13,500 8,000

(b) 20X7: Investment in Subsidiary stock.. 12,000 Equity is subsidiary income 12,000

Cash………………………….. 8,000 Investment in subsidiary stock 8,000

Investment in subsidiary stock 16,650 Equity in subsidiary income 16,650

Cash…………………………… 13,500 Investment in subsidiary income 13,500

14. Under cost method:(a) 20X7: Cash……………………………. 13,500 8,000

Dividend income…………… 3,500 8,000

(b) 20X7: Cash……………………………. 13,500 8,000 Dividend income………… 13,500 8,000

15. (a) Controlling interest retained earnings in consolidated balance sheet, Dec. 31, 20X7:Cost method: P’s retained earnings, Dec. 31, 20X7………. P3,000,000

G’s retained earnings accruing to parent:Balance, end. ……………….. 40,000Balance, beg…………………(200,000)

Increase..…………………….(240,000)% of ownership .9G’s R.E. accruing to F………. 216,000

F’s retained earnings accruing to P:Balance, end………………… 496,000Balance, beg. .... ………………300,000Subsidiary (140,000 x .9) 126,000Total 426,000Increase…………......…………. 70,000% of ownership .9F’s R.E. accruing to P....……… 63,000

P’s controlling interest in consolidated balance sheet is P3,063,000

(b) Minority interest retained earnings: Company G P 4,000 Company F 49,600

Total P53,600

16. (a) Retained earnings - Co. A…….3,750 Inventory………………… 3,750

(b) Retained earnings - Co. A……3,750 Inventory………………… 3,750

( c) Retained earnings- Co. A……3,375 Retained earnings - Co. B….. 375

CHAPTER 692


Inventory………………. 3,750

(d) Retained earnings - Co. C…… 750 Retained earnings - Co. A …. 3,000 Inventory………………. 3,750

17. (a) Equity method: Cost of investment in Luis P 64,000 Cost of investment in Mario P 9,000 Less - 90% of 110,000 99,000 Less 10% of 140,000 14,000 Excess of book value over cost 35,000 Excess of book value over cost 5,000Note: All excess of book value over cost (since the assumption is that book value approximates cost) will be shown as gain in the income statement (IFRS 3). Let P = Mario’s increase in retained earnings (Mario’s income + Luis’ accruing to Mario) S = Luis’ increase in retained earnings (Luis’ income + Mario’s accruing to Luis)

P = 20,000 + .8S S = 5,000 + .1P = 20,000 + .8(5,000 + .1P) = 5,000 + .1(26,086.96) = 20,000 + 4,000 + .08P = 5,000 + 2,608.70 = 24,000 /.92 = 7,608.70 = 26,086.96

(1) Investment in Luis stock………..6,086.96 Equity in Luis’ income……… 6,086.96

(2) Investment in Mario stock………2,608.70 Equity in Mario income……. 2,608.70

(b) Cost method: Minority interest: Common stock …….P20,000 Retained earnings 3,521.74 Total …………...…P 23,521.74

18. (a) Earnings of Co. Y and Co. Z after recognition by each company of earnings of the other:

Y = 100,000 + .8Z Z = 40,000 + .25Y = 100,000 + .8(40,000 + .25Y) = 40,000 + .25(134,693.87) = 100,000 + 32,000 + .2Y = 73,673.47 = 132,000 / .98 = 134,693.87

(b) P140,000 distributed as dividends; P100,000 by Co. Y and P40,000 by Co. Z, amount to be received by Z’s outside stockholders will be:

Out of Y’s dividends, Z will receive (100,000 X .25) or 25,000Z”s outside stockholders (25,000 X .20) or P 5,000

Out of Z’s dividends, outside stockholders will receive (40,000 X .2) 8,000 Total that outside stockholders will receive from Z as dividends P13,000

19. (a) Total controlling interest on consolidated balance sheet, Dec. 31, 20X7:Retained earnings balances on Dec. 31, 20X7:

A = 50,000 + .9(B) B = (10,000) + .05(A - 30,000) = 50,000 + .9[ (9,424.08)] = (10,000) + .05 (50,000 +.9B - 30,000) = 50,000 - 8,481.68 = (10,000) + 2,500 + .045B - 1,500 = 41,518.32 = (9,000) / .955 = (9,424.08)

Total controlling interest retained earnings, Dec. 31, 20X7:Common stock…………………P200,000.00Retained earnings…………….. 41,518.32

Total………………….P241,518.32(b) Total minority interest on consolidated balance sheet, Dec. 31, 20X7:

Common stock…………………P10,000.00Retained earnings…………….. (942.41)

Total…………………P 9,057.59

CHAPTER 693


PROBLEMSPROBLEM 6-1

KANO COMPANY AND SUBSIDIARY KOALA COMPANYWorking Papers for Consolidated Balance Sheet

December 31, 20X7Kano Koala Eliminations Consolidated

Balance SheetDebits Dr. Cr. Dr. Cr.

Investment in Koala Co. stock 265,500 Elim. 82.5% of common stock a)247,500 Elim. 75% of P7,500 deficit,1/2/X7 b) 5,625 Elim. 7.5% of P10,000 R.E. 7/1/X7 c) 750 Goodwill (P27,727 at 100%) 22,875Other assets 645,000 475,000 1,120,000

910,000 475,000 CreditsLiabilities 230,500 160,000 390,500Common stock, Kano Company 500,000 500,000Retained earnings, Kano Company 180,000 180,000Common stock, Koala Company 300,000 Eliminate 82.5% a)247,500 Minority interest, 17.5% 52,500Retained earnings, Koala Company 15,000 Eliminate 75% as above b) 5,625 Elim. 7.5% Minority interest, c) 750 17.5% of P15,000 2,625 Retained earnings to parent 17,250

910,500 475,000 253,875 253,875 1,142,875 1,142,875

Retained earnings, July 1, 20X7:Deficit, January 1, 20X7 (P7,500)Estimated earnings, Jan. 1 to July 1, 20X7, 6/12 of P35,000 17,500 Retained earnings, July 1, 20X7 P 10,000

KANO COMPANY AND SUBSIDIARY KOALA COMPANYConsolidated Balance Sheet

December 31, 20X7Assets P1,120,000 Liabilities P 390,500Goodwill 27,727 Stockholders’ equity:

Minority interest: Common stock P 52,500 Retained earnings 7,477 59,977 Controlling interest: Common stock P500,000 Retained earnings 197,250 697,250

Total assets P1,147,727 Total liabilities & stockholders’ equity P1,147,727

PROBLEM 6-2

COMPANY A AND SUBSIDIARY COMPANIES B AND CWorking Papers for Consolidated Balance Sheet

December 31, 20X7

Co. A Co. B Co. C EliminationsConsolidatedBalance Sheet

Debits Dr. Cr. Dr. Cr.Cash 64,000 40,000 15,000 119,000Notes receivable 30,000 30,000 20,000 g) 20,000 60,000Accounts receivable 60,000 50,000 40,000 150,000

CHAPTER 694


Inventories 110,000 91,000 65,000 266,000Investment in Co. B stock 192,000 Elim. 90% of common stock a)135,000 Elim. 60% of R.E., P45,000 (1) b) 27,000 Elim. 30% of R.E., P52,500 (2) b) 15,750 Goodwill (P15,833 at 100%) 14,250Investment in Co. C stock 105,000 Elim. 75% of common stock c)135,000 Elim. 75% of P37,500 deficit (3) d) 28,125 Negative goodwill 1,875Bonds of Co. B (face, P28,000) 19,000 f) 1,000 f) 20,000Plant and equipment 200,000 150,000 100,000 450,000Dividends receivable (4) 8,100 e) 8,100

788,100 362,000 240,000 CreditsNotes payable 74,000 35,000 20,000 g) 20,000 109,000Dividends payable 28,000 9,000 e) 8,100 28,900Accounts payable 60,000 55,000 70,000 185,000Bonds payable 50,000 f) 20,000 30,000Discount on bonds payable (4,000) f) 1,600 2,400Preferred stock, Co. A 100,000 100,000Common stock, Co. A 300,000 300,000Retained earnings, Co. A (4) 226,100 226,100Common stock, Co. B 150,000 Eliminate 90% a)135,000 Minority interest, 10% 15,000Retained earnings, Co. B 66,000 f) 600 Elim. 90% as above b) 42,750 Minority interest, 10% of P65,400 6,540 Retained earnings to parent 16,110Common stock, Co. C 180,000 Eliminate 75% c)135,000 Minority interest, 25% 45,000Deficit, Co. C (30,000) Eliminate 75% as above d) 28,125 Minority interest, 25% (P30,000) 7,500 Retained earnings to parent 5,625

788,100 361,000 240,000 370,575 370,575 1,068,150 1,068,150Note:(1) Co. B retained earnings, Dec. 31, 20X6: P95,000 less P50,000 reported in common stock as a result of stock dividends.(2) Co. B retained earnings, April 1, 20X7: Retained earnings balance, Dec. 31, 20X6 as above P45,000 Add - estimated earnings, Jan. 1 to Apr. 1 (3/12 of P30,000) 7,500 Retained earnings balance, April 1, 20X7 P52,500(3) Co. C deficit, April 1, 20X7:

Deficit, Dec. 31, 20X6 P40,000Deduct - estimated earnings (3/12 of P10,000 income) 2,500 Deficit, April 1, 20X7 P37,500

(4) Dividends receivable and the parent company’s retained earnings are increased for the dividend declaredby Co. B, 90% of P9,000 or P8,100.

COMPANY A AND SUBSIDIARY COMPANIES B AND C

Consolidated Balance SheetDecember 31, 20X7

Assets Liabilities & Stockholders’ EquityCurrent assets: Current liabilities: Cash P119,000 Notes payable P109,000 Notes receivable 60,000 Dividends payable 28,900 Accounts receivable 150,000 Accounts payable 185,000 P

322,900

CHAPTER 695


Inventories 266,000 P 595,000 Bonds payable P 30,000Plant and equipment 450,000 Less-discount on bonds 2,400 27,60

0Goodwill 15,833 Total liabilities P

350,500Stockholders’ equity: Minority interest: Common stock P 60,000 Deficit 623 60,623 Controlling interest: Preferred stock P100,000 Common stock 300,000 Retained earnings 249,710 649,710


PROBLEM 6-3[ERRATA: The labeling of the Columnar should be Co. P, Co. A, and Co. B, respectively]

COMPANY P AND SUBSIDIARY COMPANIES A AND BConsolidated Balance Sheet

December 31, 20X7Assets P1,113,500 Liabilities P267,500Goodwill 32,368 Stockholders’ equity:

Minority interest: Common stock P 25,000 Paid in capital 4,000 Retained earnings

12,618 41,618

Controlling interest: Common stock P 500,000 Paid in capital 150,00

0 Retained earnings 186,75

0 836,750


COMPANY P AND SUBSIDIARY COMPANIES A AND BWorking Papers for Consolidated Balance Sheet

December 31, 20X7

Co. P Co. A Co. B EliminationsConsolidatedBalance Sheet

Debits Dr. Cr. Dr. Cr.Investment in Co. A 105,000 Eliminate 95% of common stock a)95,000 Elim. 70% of P15,000 deficit b)10,500 Elim. 25% of P12,500 deficit b) 3,125 Goodwill (P24,868 at 100%) 23,625Investment in Co. B 135,000 Eliminate 80% of commons stock c)80,000 Elim. 80% of paid in capital, P20,000 d)16,000 Elim. 30% of P35,000 R.E. e)10,500 Elim. 50% of P45,000 R.E. e)22,500 Goodwill (P7,500 at 100%) 6,000Other assets 698,500 150,000 265,000 1,113,500

938,500 150,000 265,000Credits

Liabilities 120,000 52,500 95,000 267,500Common stock, Co. P 500,000 500,000Paid in capital, Co. P 150,000 150,000Retained earnings, Co. P 168,500 168,500Common stock, Co. A 100,000

CHAPTER 696


Eliminate 95% a)95,000

Minority interest, 5% 5,000Deficit, Co. A ( 2,500) Eliminate 95% as above b)13,625 Minority interest, 5% x P2,500 def. 125 Retained earnings to parent 11,250Common stock, Co. B 100,000 Eliminate 80% c)80,000 Minority interest, 20% 20,000Paid in capital, Co. B 20,000 Eliminate 80% as above d)16,000 Minority interest, 20% 4,000Retained earnings, Co. B 50,000 Eliminate 80% as above e)33,000 Minority interest, 20% of P50,000 10,000 Retained earnings to parent 7,000

938,500 150,000 265,000 237,625 237,625 1,143,250 1,143,250

Footnotes to working papers:(1) Co. A deficit, Sept. 1 20X6:

Deficit, Jan.1 20X6 (P20,000)Estimated earnings, Jan.1 to Sept. 1 (8/12 of P7,500 income) 5,000 Deficit, September 1, 20X6 (P15,000)

(2) Co. B retained earnings, April 1, 20X7:Retained earnings, January 1, 20X7 P 40,000Estimated earnings Jan. 1 to Apr. 1 (3/12 of P20,000) 5,000 Retained earnings, April 1, 20X7 P 45,000

PROBLEM 6 - 4

DURAN COMPANY AND SUBSIDIARY COMPANIES ELMA AND FULLASWorking Papers for Consolidated Balance Sheet

December 31, 20X7

Duran Elma Fullas EliminationsConsolidatedBalance Sheet

Debits Dr. Cr. Dr. Cr.Investment in Elma Co. 172,000 Elim. 90% of common stock a)135,000 Elim. 80% of P12,500 R.E. b) 10,000 Elim. 3-1/3% of P15,000 R.E. b) 500 Elim. 6-2/3% of P45,000 R.E. b) 3,000 Goodwill (P26,111 at 100%) 23,500Investment in Fullas Co. 98,500 Elim. 85% of common stock c) 85,000 Elim. 75% of P5,000 R.E. d) 3,750 Elim. 10% of P7,500 deficit d) 750 Goodwill (P12,353) 10,500Other assets 389,000 275,000 145,000 809,000

659,500 275,000 145,000Credits

Liabilities 164,000 80,000 50,000 294,000Common stock, Duran Co. 400,000 400,000Retained earnings, Duran Co. 95,500 95,500Common stock, Elma Co. 150,000 Eliminate 90% a)135,000

CHAPTER 697


Minority interest, 10% 15,000

Retained earnings, Elma Co. 45,000 Eliminate 90% as above b) 13,500 Minority interest, 10% of P45,000 4,500 Retained earnings to parent 27,000Common stock, Fullas Co. 100,000 Eliminate 85% as above c) 85,000 Minority interest, 15% 15,000Deficit, Fullas Co. ( 5,000) Eliminate 85% as above d) 3,000 Minority interest, 15% of P5,000 def. 750 Retained earnings to parent 7,250

659,500 275,000 145,000 237,500 237,500 851,000 851,000

(1) Elma Co. retained earnings, April 1, 20X6: Retained earnings, January 1, 20X6 P10,000

Add estimated earnings Jan.1 to Apr.1 (3/12 of P10,000 income) 2,500 Retained earnings, April 1, 20X6 P12,500(2) Elma Co. retained earnings, July 1, 20X6:

Retained earnings, January 1, 20X6 P10,000Add estimated earnings jan. 1 to July 1 (6/12 of P10,000 income) 5,000Retained earnings, July 1, 20X6 P15,000

(3) Elma Co. retained earnings, November 1, 20X7:Retained earnings, January 1, 20X7 P20,000Add estimated earnings, Jan. 1 to Nov. 1 (10/12 of P30,000 ) 25,000 Retained earnings, November 1, 20X7 P45,000

(4) Fullas Co. deficit, July 1, 20X7:Deficit, January 1, 20X7 P10,000Deduct estimated earnings Jan. 1 - Jul 1 (6/12 of P5,000 income) 2,500 Deficit, July 1, 20X7 P 7,500

DURAN COMPANY AND SUBSIDIARIES ELMA AND FULLAS COMPANYConsolidated Balance Sheet

December 31, 20X7Assets P809,00

0Liabilities P294,000

Goodwill 38,464 Stockholders’ equity: Minority interest: Common stock P 30,000 Retained earnings 8,214 38,214 Controlling interest: Common stock P400,000 Retained earnings 115,250 515,250

Total assets P847,464

Liabilities & stockholders’ equity P847,464

PROBLEM 6-5

COMPANY W AND SUBSIDIARY COMPANIES X, Y, AND ZWorking Papers for Consolidated Balance Sheet

December 31, 20X7

Co. W Co. XCo. Y Co. Z Eliminations

Consolidated Balance Sheet

Debits Dr. Cr. Debit (Credit)Investment in Co. X 71,600 Elim. 80% of common stock a)80,000 Elim. 80% of paid in capital b) 8,000 Elim. 80% of P30,000 deficit c)24,000 Goodwill (P9,500 at 100%) 7,600

CHAPTER 698


Investment in Co. Y 68,000 Elim. 95% of common stock d)95,000 Elim. 85% of P35,000 deficit e)29,750 Elim 10% of P55,000 deficit (1) e) 5,500 Goodwill (P8,684 at 100%) 8,250Investment in Co. Z (2) 148,500 Elim. 90% of common stock f)90,000 Elim. 75% of P75,000 R. E. (3) g)56,250 Elim. 15% of P70,000 R.E. (4) g)10,500 Negative goodwill (8,250) Inventories 120,000 55,000 50,

000 75,000 i)17,000 283,000

Plant and equipment (net) 100,000 80,000 100,000 j) 5,100 274,900Co. X bonds (face, P20,000) 20,400 h)20,400Other assets 200,000 115,000 105,

000130,000 k)65,000 485,000

728,500 250,000 155,000

305,000

CreditsBonds payable 100,000 h)20,000 (80,000)Discount on bonds payable (4,000) h) 800 3,200 Other liabilities 238,500 34,000 100,

000150,000 k)65,000 (457,500)

Common stock, Co. W 250,000 (250,000)Retained earnings, Co. W 240,000 i) 8,000 (232,000)Common stock, Co. X 100,000 Eliminate 80% a)80,000 Minority interest, 20% (20,000)Paid in capital, Co. X 10,000 Eliminate 80% as above b) 8,000 Minority interest, 20% ( 2,000)Retained earnings, Co. X 10,000 h) 1,200

i) 7,000j) 5,100

Eliminate 80% as above c)24,000 Minority interest, 20%(P10,000 - P13,300) 660 Retained earnings to parent (21,360)Common stock, Co. Y 100,

000 Eliminate 95% d)95,000 Minority interest, 5% ( 5,000)Deficit, Co. Y (45,

000)i) 2,000

Eliminate 95% as above e)35,250 Minority interest, 5% (P47,000 2,350

deficit) Retained earnings to parent 9,400Common stock, Co. Z 100,000 Eliminate 90% f)90,000 Minority interest, 10% (10,000)Retained earnings, Co. Z 55,000 Eliminate 90% as above g)66,750 Minority interest, 10% of P55,000 ( 5,500) Retained earnings to parent 17,250

728,500 250,000 155,000

305,000 507,300 507,300 -0-

CHAPTER 699


(1) Co. Y deficit, May 1 20X7:

Deficit, January 1, 20X7 P60,000Deduct estimated earnings Jan.1 to May 1 (4/12 of P15,000 net income) 5,000 Deficit, May 1, 20X7 P55,000

(2) Investment in Co. Z and parent company retained earnings increased by P5,000 to correct for error in crediting entire proceeds from sale of Co. Z stock to investment account:

Proceeds from sale: 100 shares at P210 each P21,000Original cost of shares: 100 at P160 16,000 Gain on sale of stock requiring charge to investment in Co. Z and credit to retained earnings of Co. W P 5,000

(3) Co. Z retained earnings, April1, 20X6:Retained earnings, January 1, 20X6 P60,000Add estimated earnings Jan.1 to April 1 (3/12 of P60,000 income) 15,000 Retained earnings, April 1, 20X6 P75,000

(4) Co. Z retained earnings. Sept. 1, 20X7:

Retained earnings, January 1, 20X7 P100,000Deduct estimated loss, Jan. 1 to Sept. 1 (8/12 of P45,000 net loss) 30,000 Retained earnings, September 1, 20X7 P 70,000

(5) Inventory reduction for intercompany profit:

Merchandise Sold BySales Price

Intercompany Profit 20%

Co. W P40,000 P 8,000Co. X 35,000 7,000Co. Y 10,000 2,000

Total profit to be eliminated P17,000

(6) Plant and equipment reduction for intercompany profit:

Sales price CostIntercompany

Profit 20%Plant and equipment (acquired from Co. X) P30,000 P6,000 P24,000Allowance for depreciation (7/1/X6 - 12/31/X7) 4,500 900 3,600

P25,500 P5,100 P20,400

COMPANY W AND SUBSIDIARY COMPANIES X, Y, AND ZConsolidated Balance Sheet

December 31, 20X7Assets Liabilities & Stockholders’ Equity

Inventories P 283,000 Liabilities:Plant and equipment (net) 274,900 Bonds payable P80,000Other assets 485,000 Less - Discount on bonds 3,200 P 76,800Goodwill 18,184 Other liabilities 457,500

Total liabilities P 534,300Stockholders’ equity: Minority interest: Common stock P 35,000 Paid in capital 2,000 Retained earnings 4,824 41,824 Controlling interest: Common stock P250,000 Retained earnings 234,960 484,960

Total assets P1,061,084 Liabilities & stockholders’ equity P1,061,084

CHAPTER 6100


PROBLEM 6 - 6[ERRATUM: Common Stock, P100 par, for all Co. P, Co. R, and Co. S](1)

January 1, 20X7:Retained earnings, Co. P 9,600 Investment in Co. R 9,600Co. P interest in Co. R equity just prior to sale of stock by Co. R: 80% of P300,000 (1,600 shares owned; 2,000 shares outstanding) P240,000Ownership interest in Co. R after sale of stock: 64% of P360,000 (1,600 owned, 2,500 outstanding) 230,400 Decrease in interest as a result of sale of shares P 9,600

July 1, 20X7:Retained earnings Co. P 1,250 Investment in Co. S 1,250Co. P interest in Co. S equity just prior to sale by Co. S: 83-1/3% of P156,000* (1,250 shares owned1,500 shares outstanding) P130,000Interest in Co. S equity after sale of stock: 62-1/2% of P206,000 (1,250 shares owned, 2,000 shares outstanding) 128,750 Decrease in ownership interest due to sale of stock P 1,250 * Deficit, Jan. 1 20X7, P9,000 increased by earnings , Jan.1 to July 1 (6/12 of P30,000 net income for the year) of P15,000 = retained earnings balance , July 1, 20X7 of P6,000 plus common stock of P150,000. 19,200December 31, 20X7: 19,200Investment in Co. R

Retained earnings Co. PCo. P share of Co. R profit for 20X7:Shares outstanding, 2,500; shares owned, 1,600; ownership interest = 64%. 64% of net income of P30,000 net income is P19,600.

Investment in Co. S 21,875Retained earnings Co. P 21,875

Co. P share of Co. S profit for 20X7:Jan. 1 to June 20: shares outstanding, 1,500; shares owned, 1,250; ownership interest = 83-1/3%. 83-1/3% of P15,000

Net income for half year P12,500July 1 to Dec. 31: shares outstanding, 2,000; shares owned, 1,250; ownership inerest, 62.5%. 62.5% of P15,000 net income for half year 9,375 Total share in net income for one year P21,875

COMPANY P AND SUBSIDIARY COMPANIES R AND SWorking Papers for Consolidated Balance Sheet

December 31, 20X7

Co. P Co. R Co. S EliminationsConsolidated Balance

SheetDebits Dr. Cr. Dr. Cr.

Investment in Co. R 214,600 Elim. 64% of common stock a)160,000 Elim. 64% of paid in capital b) 6,400 Elim. 64% of retained earnings c) 83,200 Negative goodwill 35,000Investment in Co. S 160,625 Elim. 62.5% of common stock d)125,000 Elim. 62.5% of retained earnings e) 13,125 Goodwill (P36,000 at 100%) 22,500Other assets 1,250,000 565,000 425,000 f)100,000 2,140,000

1,625,225 565,000 425,000 Credits

CHAPTER 6101


Liabilities 645,000 175,000 204,000 f)100,000 924,000

Common stock, Co. P 600,000 600,000Paid in capital, Co. P 50,000 50,000Retained earnings, Co. P 330,225 330,225Common stock, Co. R 250,000 Eliminate 64% g)160,000 Minority interest, 36% 90,000Paid in capital, Co. R 10,000 Eliminate 64% b) 6,400 Minority interest, 36% 3,600 Retained earnings, Co. R 130,000 Eliminate 64% c) 83,200 Minority interest, 36% 46,800Common stock, Co. S 200,000 Eliminate 62.5% d)125,000 Minority interest, 37.5% 75,000Retained earnings, Co. S 21,000 Eliminate 62.5% e) 13,125 Minority interest, 37.5% 7,875

1,625,225 565,000 425,000 487,725 487,725 2,162,500 2,162,500(1) Proof of negative goodwill, Co. R:

Investment balance, Jan.1, 20X7 (before increase in common stock of Co. R) P205,000;Equity of parent, Jan. 1, 20X7, 80% of (P200,000 + P100,000) or P240,000; P240,000 - P205,000 = P35,000.

(2) Proof of goodwill, Co. S:Investment balance, Jan. 1, 20X7 (before increase in common stock of Co. S) P140,000; equity of parent, Jan. 1, 20X7, 83-1/3% of (P150,000 - P9,000) or P117,500;P117,500 - P140,000 = P22,500.

COMPANY P AND SUBSIDIARY COMPANIES R AND S Consolidated Balance Sheet

December 31, 20X7 Assets P2,140,000 Liabilities P 924,000Goodwill 36,000 Stockholders’ equity:

Minority interest: Common stock P165,000 Paid in capital 3,600 Retained earnings 68,175 236,775 Controlling interest: Common stock P600,000 Paid in capital 50,000 Retained earnings 365,225 1,105,225


PROBLEM 6-7

CARO, INC. AND SUBSIDIARIES SOLO COMPANY AND WESO COMPANYWorking Papers for Consolidated Balance Sheet

December 31, 20X7

Caro, Inc. Solo Co. Weso Co EliminationsConsolidated Balance

SheetDebits Dr. Cr. Dr. Cr.

Investment in Solo Co. 300,000 Elim. 100% of P300,000 a)300,000

common on acquisition dateInvestment in Weso Co. 300,000 Elim. 100% of P300,000 common on acquisition date b)300,000Other assets 5,575,000 2,650,000 993,750 9,218,750

6,175,000 2,650,000 993,750

CHAPTER 6102


CreditsLiabilities 1,825,000 850,000 650,000 3,325,000

Common stock, Caro, Inc. 2,500,000 2,500,000Paid in capital, Caro, Inc. 1,000,000 1,000,000Retained earnings, Caro, Inc. 850,000 850,000Common stock, Solo Co. 360,000 Eliminate as above a)300,000 Minority interest, 16-2/3% 60,000Paid in capital, Solo Co. 90,000 Minority interest, 16-2/3% of P90,000 15,000 Retained earnings to parent 75,000Retained earnings, Solo Co. 1,350,000 Minority interest, 16-2/3% of P1,350,000 225,000 Retained earnings to parent 1,125,000Common stock, Weso Co. 375,000 Eliminate as above b)300,000 Minority interest, 20% 75,000Paid in capital, Weso Co. 18,750 Minority interest, 20% (P18,750) 3,750 Retained earnings to parent 15,000Deficit, Weso Co. (50,000) Minority interest, 20% of P50,000 deficit 10,000 Retained earnings to parent 40,000

6,175,000 2,650,000 993,750 600,000 600,000 9,268,750 9,268,750

CARO, INC. AND SUBSIDIARIES SOLO COMPANY AND WESO COMPANYConsolidated Balance Sheet

December 31, 20X7Assets P9,218,750 Liabilities P3,325,000

Stockholders’ equity: Minority interest: Common stock P 135,000 Paid in capital 18,750 Retained earnings 215,000 368,750 Controlling interest: Common stock P2,500,000 Paid in capital 1,000,000 Retained earnings 2,025,000 5,525,000


PROBLEM 6 - 8

WILLIAM COMPANY AND SUBSIDIARY WILFREDO COMPANYWorking Papers for Consolidated Balance Sheet

December 31, 20X7

William Wilfredo EliminationsConsolidatedBalance Sheet

Debits Dr. Cr. Dr. Cr.Investment in Wlfredo Co. 230,000 Ekim. 90% of P100,000 common a)90,000 stock bal. Date of acquisition Elim. 90% of P33,500 paid in cap. b)30,150 Elim. 90% of P75,000 acc. earn c)67,500 Goodwill (P47,056 at 100%) 42,350Other assets 2,235,000 360,000 2,595,000

2,465,000 360,000 CreditsLiabilities 600,000 115,000 715,000Common stock, William Co. 1,000,000 1,000,000Paid in capital, William Co. 350,000 350,000

CHAPTER 6103


Accumulated earnings, William Co. 515,000 515,000Common stock, Wlfredo Co. 120,000 Eliminate as above a)90,000 Minority interest, 25% 30,000Paid in capital, Wilfredo Co. 42,000 Eliminate as above b)30,150 Minority interest, 25% of P42,000 10,500 Accumulated earnings to parent 1,350Accumulated earnings, Wilfredo Co. 83,000 Eliminate as above c)67,500 Minority interest, 25% of P83,000 20,750 Accumulated earnings to parent 5,250

2,465,000 360,000 187,650 187,650 2,642,600 2,642,600

Restatement of equity balances of Wilfredo Co. as of July 1, 20X2:Common stock

issuedPaid in capitalPremium on issued stock

Paid in capitalfrom stock

re-acquisition

Accumulatedearnings

Treasurystock

Balance P120,000 P30,000 - P75,000 P16,500Cancellation of treasury stock bal. ( 20,000) ( 5,000) P8,500 - (16,500)

P100,000 P25,000 P8,500 P75,000 -Note: Paid in capital balances are combined for the purpose of eliminations on the working papers.

WILLIAM COMPANY AND SUBSIDIARY WILFREDO COMPANYConsolidated Balance Sheet


Minority interest: Common stock P 30,000 Paid in capital 10,500 Accumulated earnings 25,456 65,956 Controlling interest: Common stock P1,000,000 Paid in capital 350,000 Accumulated earnings 511,100 1,861,100


PROBLEM 6-9[ERRATUM: 200(4) Co. B, 10,000 shares @P24/sh](1) Exchange of stock based upon current market value of shares

Market value of Co. A shares P20Market value of Co. B shares 24Distribution of shares, 24:20, or 6 shares of Co. A for every 5 shares of Co. B.Shares held by minority interest of Co. B 18,000Shares of Co. A to be issued in exchange for shares of Co. B held by minority interest, 6(18,000/5) 21,600

(2) Exchange of stock based upon book value of sharesBook value of stock, June 30 P1,415,000 P1,230,000Amount paid on purchase of stock from dissenting stockholders 8,000 240,000Balance P1,407,000 P 990,000 Reduction in consolidated book value of Co. A stock resulting from stock reacquisition by Co. B: Equity in Co. B before stock reacquisition, 72% of P1,230,000 P885,600 Equity in Co. B after stock reacquisition, 72/90 or 80% of P990,000 792,000 93,600Adjusted book value P1,313,400 P 990,000

CHAPTER 6104


Number of shares outstanding 79,600 90,000Adjusted book value per share P16.50 P11.00Distribution of shares 11.00/16.50, or 2 shares of Co. A for every 3 shares of Co. B.Shares held by minority interest of Co. B 18,000Shares of Co. A to be issued in exchange for shares of Co. B held by minority interest 2(18,000/3) 12,000

PROBLEM 6-10(1) December 31, 20X5

Goodwill: Investment balance, 12/31/X5 P128,000 Equity in subsidiary equity, date of acquisition 1/1/X5: Subsidiary equity P150,00

0 Ownership interest 80% Equity acquired 120,000 Goodwill, 12/31/X5 (at 100%, P10,000) P 8,000

Retained earnings: Parent retained earnings balance, 12/31/X5 P160,000 Add: Retained earnings increase accruing to parent company since acquisition: Subsidiary retained earnings balance, 12/31/X5 P62,000 Subsidiary retained earnings balance 1/31/X5 50,000 Increase in subsidiary retained earnings since acquis. P12,000 Ownership interest 80% Retained earnings increase accruing to parent since acquisition 9,600 Retained earnings, 12/31/X5 P169,600

Minority interest: Subsidiary common stock, 12/31/X5 P100,000 Subsidiary retained earnings, 12/31/X5 62,000 Total subsidiary equity, 12/31/X5 P162,000 Minority interest percentage 20% Minority interest, 12/31/X5 P 32,400

(2) December 31, 20X6Goodwill: Investment balance, 12/31/X6 P119,000 Add: gain on sale of 50 shares (1), reduction in investment bal. 1,000 Corrected investment balance P120,000 Equity in subsidiary at date of acquisition, 1/1/X5: Subsidiary equity P150,00

0 Ownership interest 75

% Equity as of date of acquisition on remaining 750 shares 112,500 Goodwill, 12/31/X6 (100%, P10,000) P 7,500

(1) Gain on sale: proceeds from sale, P128,000 less P119,000, or P9,000; cost of shares sold: 50/800 of P128,000 or P8,000. P9,000 less P8,000 = P1,000 gain on sale.

Retained earnings: Parent retained earnings balance, 12/31/X6 P148,000 Add: gain on sale of subsidiary stock on 1/1/X6 1,000 Corrected parent retained earnings balance 12/31/X6 P149,000 Add: retained earnings increase accruing to parent since acquisition date: Subsidiary retained earnings balance, 12/31/X6 P70,000 Subsidiary retained earnings balance, 1/1/X5 50,000 Increase in subsidiary R.E. since acquisitio, date P20,000 Ownership interest 75% 15,000

CHAPTER 6105


Retained earnings, 12/31/X6 P164,000

Minority interest: Subsidiary common stock, 12/31/X6 P100,000 Subsidiary retained earnings, 12/31/X6 70,000 Total subsidiary equity, 12/31/X6 P170,000 Minority interest percentage 25% Minority interest, 12/31/X6 P 42,500

(3) December 31, 20X7Goodwill, 12/31/X6 (as in No. 2) P7,500 Add: goodwill through investment on 1/1/X7: Investment (P140,000 less P119,000) P21,000 Equity acquired: 10% of P170,000 subsidiary equity as of 1/1/X7 17,000 Increase in goodwill 4,000 Goodwill, 12/31/X7 P11,500

Retained earnings: Parent retained earnings balance, 12/31/X7 P155,000 Add: Gain on sale of subsidiary stock on 1/1/X6 1,000 Corrected parent retained earnings balance P156,000 Add: Retained earnings increase accruing to parent since acq. Jan. 1 20X5 to Dec. 31, 20X6: Subsidiary retained earnings balance 12/31/X6 P70,000 Subsidiary retained earnings balance 1/1/X5 50,000 Increase in subsidiary retained earnings P20,000 Ownership percentage 75% 15,000 Jan. 1, 20X7 to Dec. 31, 20X7: Subsidiary retained earnings, 12/31/X7 P80,000 Subsidiary retained earnings, 1/1/X7 70,000 Increase in subsidiary retained earnings for the year P10,000 Ownership percentage 85% 8,500 Retained earnings, 12/31/X7 P179,500Minority interest: Subsidiary common stock, 12/31/X7 P100,000 Subsidiary retained earnings, 12/31/X7 80,000 Total subsidiary equity P180,000 Minority interest percentage 15% Minority interest, 12/31/X7 P 27,000

PROBLEM 6-11*ERRATA: (1) Add one line:

Purchaser Seller Inventory Seller's CostN M 4,500 P4,200

(2) Balance, Jan. 1, 20X7Net Profit (Loss) - 20X7 and not 20X6

COMPANY L AND SUBSIDIARIES COMPANY M AND COMPANY NWorking Papers for Consolidated Balance Sheet

December 31,20X7

Co. L Co. M Co. N EliminationsConsolidatedBalance Sheet

Debits Dr. Cr. Dr. Cr.Cash in banks 86,000 12,500 35,000 133,500Notes receivable 18,000 6,000 8,000 32,000Accounts receivable (less allow.) 52,000 13,000 34,000 99,000Inventories 89,500 16,000 51,000 f) 6,400* 150,100Investment in Co. M 80,800 Elim. 85% of common stock a)51,000

CHAPTER 6106


Elim. 30% of P10,000 deficit b) 3,000 Elim. 40% of P3,500 R.E. b) 1,400 Elim. 15% of P7,100 R.E. b) 1,065 Goodwill (P35,688 at 100%) 30,335Investment in Co. N 149,320 Correction for entry on shares sold (1) c) 120 Elim. 80% of common stock d)80,000 Elim. 80% of retained earnings e)52,800 Goodwill (P20,500 at 100%) 16,400Plant and equipment (Less allow.) 225,000 56,500 101,000 382,500

700,620 104,000 229,000Credits

Notes payable 9,000 8,000 12,000 29,000Accounts payable 73,600 22,400 46,200 142,200Accrued liabilities 5,320 2,600 4,800 12,720Common stock, Co. L 400,000 400,000Retained earnings, Co. L 212,700 c) 120 212,580Common stock, Co. M 60,000 Eliminate 85% a)51,000 Minority interest,15% 9,000Retained earnings, Co. M 11,000 f) 3,900 Eliminate 85% as above b) 535 Minority interest, 15% of

P7,100 (P11,000 - P3,900) 1,065 Retained earnings to parent 6,570Common stock, Co. N 100,000 Eliminate 80% d)80,000 Minority interest, 20% 20,000Retained earnings, Co. N 66,000 f) 2,500 Eliminate 80% e)52,800 Minority interest, 20% of P66,000 less P500 10,700

700,620 104,000 229,000 193,320 193,320 843,835 843,835

Computation of correction for entry on 100 shares of Co. N sold: Cost, 3/31/X7, 100/900 X P162,000 P 18,000 Profit taken up, 4/1/X7 - 10/1/X7, 10% of P13,200 1,320 Total P 19,320 Less: dividend received 6/15/X7, 10% of P12,000 1,200 Carrying value of shares P 18,120 Less: amount credited to investment account on sale of stock 18,000 Required decrease in investment account P 120

Computation of elimination for intercompany profits on inventories:Seller’s Intercompany profit

Purchaser Seller Inventory cost M Co. N Co. TotalP1,600 P1,600

L N 5,000 4,500 P 500 500N M 4,500 4,200 300 300M N 13,000 11,000 2,000 2,000N M 16,000 14,000 2,000 2,000

Total elimination P3,900 P 2,500 P6,400

COMPANY L AND SUBSIDIARIES COMPANY M AND COMPANY NConsolidated Balance Sheet

December 31, 20X7Assets Liabilities & Stockholders’ Equity

Current assets: Current liabilities: Cash in banks P133,500 Notes payable P 29,000 Notes receivable 32,000 Accounts payable 142,200 Accounts receivable , 99,000 Accrued liabilities 12,720 P183,920

CHAPTER 6107


net Inventories 150,100 P414,600 Stockholders’ equity:Plant and equipment, net 382,500 Minority interest:Goodwill 56,188 Common stock P 29,000

Retained earnings 21,218 50,218 Controlling interest: Common stock P400,000 Retained earnings 219,150 619,150

Total assets P853,288 Total liabilities & stockholders’ equity

P853,288

PROBLEM 6-12RICO COMPANY AND SUBSIDIARIES SUAREZ COMPANY AND TODA COMPANY

Working Papers for Consolidated Balance SheetDecember 31, 20X7

Rico Co.Suarez

Co. Toda Co. EliminationsConsolidated Balance

SheetDebits Debit Credit Debit Credit

Current assets 152,500 150,000 105,000 407,500Investment in Suarez Co. stock 220,000 Correction for shares sold a) 4,000 Elim. 80% of common stock b)160,000 Elim. 80% of ret. earnings c) 48,000 Goodwill (P20,000 at 100%) 16,000Advance to Suarez Co. 25,000 f) 25,000Investment in Toda Co. stock 214,000 Elim. 90% of common stock d) 90,000 Elim. 80% of P145,000 R.E. e)116,000 Elim. 10% of P165,000 R.E. e) 16,500 Negative goodwill 8,500Advance to Toda Co. 40,000 f) 40,000Buildings and equipment 170,000 235,000 405,000

651,500 320,000 340,000Credits

Accounts Payable 235,000 40,000 25,000 300,000Due to Parent Company 25,000 40,000 f) 65,000Common Stock, Rico Co. 300,000 300,000Retained earnings, Rico Co. 116,500 a) 4,000 120,500Common stock, Suarez Co. 200,000 Eliminate 80% b)160,000 Minority interest, 20% 40,000Retained earnings, Suarez Co. 55,000 Eliminate as above c) 48,000 Minority interest, 20%(55,000) 11,000 Retained earnings to parent 4,000Common stock, Toda Co. 100,000 Eliminate 90% d) 90,000 Minority interest, 10% 10,000Retained earnings, Toda Co. 175,000 Eliminate as above e)132,500 Minority interest, 10%(75,000) 17,500 Retained earnings to parent 25,000

651,500 320,000 340,000 499,500 499,500 832,500 832,500

CHAPTER 6108


(a) Computation of correction for entry on sale of Suarez shares: Investment balance P220,000 Add back proceeds from sale credited to account 32,000 Total cost of 1,800 shares P252,000

Cost per share, P252,000 / 1,800 P 140 Amount credited to investment account on sale of 200 sh. at P160 P 32,000 Cost of shares, 200 at P140 28,000 Required increase in investment account and in Retained earnings of Rico Co. P 4,000

(1)RICO COMPANY AND SUBSIDIARIES SUAREZ COMPANY AND TODA COMPANY

Consolidated Balance SheetDecember 31, 20X7

Current assets P407,500 Accounts payable P300,000

Buildings and equipment 405,000 Stockholders’ equity:Goodwill (net) 20,000 Minority interest:

Common stock P 50,000

Retained earnings 32,500 82,500 Controlling interest: Common stock P300,00

0 Retained earnings 150,000 450,000

Total assets P832,500 Total liabilities & stockholders’ equity P832,500

(2)RICO COMPANY AND SUBSIDIARIES SUAREZ COMPANY AND TODA COMPANY

Statement of Consolidated Retained EarningsFor the Year Ended December 31, 20X7

Retained earnings balance, Rico Co. 1/1/X7 P166,500Add: Correction to retained earnings for gain on sale of Suarez

stock 4,000

Profits of subsidiaries accruing to parent: Net profit of Rico Co. P20,000 Net profit , Suarez Co. P15,000 Accruing to parent 80% 12,000 Net profit, Toda Co. 40,000 Accruing to parent ; 80% of P20,000 (1/1 to 6/30)

16,000

90% of P20,000 (7/1 to 12/31) 18,000 66,000 P236,500

Deduct: Retained earnings decrease due to dividends: Rico Co. P70,000 Suarez Co. P20,000 Less charge to minority interest 4,000 16,000 Toda Co. P10,000 Less charge to minority interest 1,000 9,000 95,000 Consolidated retained earnings, Dec. 31, 20X7 P141,500

PROBLEM 6-13

COMPANY X AND SUBSIDIARY COMPANIESConsolidated Balance Sheet


Minority interest: Common stock P 120,000 Premium on issue of stock 5,000 Retained earnings 84,778 209,778

CHAPTER 6109


Controlling interest: Common stock P1,000,000 Retained earnings 40,500 1,040,500


COMPANY X AND SUBSIDIARY COMPANIESWorking Papers for Consolidated Balance Sheet

December 31, 20X7

Co. X Co. Y Co. Z EliminationsConsolidatedBalance Sheet

Debits Dr. Cr. Dr. Cr.Investment in Co. Y stock 600,000 Elim. 80% of common stock a)400,000 Elim. 80% of P85,000 R.E. (1) b) 68,000 Goodwill (P165,000 at 100%) 132,000Investment in Co. Z stock 187,500 Elim. 75% of common stock c)150,000 Elim. 75% of Premium on stock d) 37,500Investment in Co. Z Co. stock 85,000 Elim. 15% of common stock e) 30,000 Elim. 15% of premium on stock f) 7,500 Elim. 15% of P180,000 R.E. g) 27,000 Goodwill (P22,778 at 100%) 20,500Other assets 640,000 637,500 560,000 1,837,500

1,325,000 825,000 560,000Credits

Liabilities 350,000 265,000 160,000 775,000Common stock, Co. X 1,000,000 1,000,000Deficit, Co. X ( 25,000) 25,000Common stock, Co. Y 500,000 Eliminate 80% a)400,000 Minority interest, 20% 100,000Retained earnings, Co. Y 60,000 h)112,500 Eliminate as above b) 68,000 Minority interest, 20% (P172,500) 34,500 Retained earnings to parent 70,000Common stock, Co. Z 200,000 Elim. 75%(owned by Co. Y) c)150,000 Elim. 15%(owned by Co. X) e) 30,000 Minority interest, 10% 20,000Premium on issue of stock, Co. Z 50,000 Eliminate 75% (Co. Y) d) 37,500 Eliminate 15% (Co. Z) f) 7,500 Minority interest, 10% 5,000Retained earnings, Co. Z 150,000 Eliminate as above g) 27,000 Minority interest , 10%(P150,000) 15,000 R.E. to Co. Y, 75% of P150,000 h)112,500 R.E. to Co. X, 15% of P30,000 4,500(P180,000 R.E. 1/1/X7 - P150,000R.E. 12/31/X7)

1,325,000 825,000 560,000 832,500 832,500 2,019,500 2,019,500

(1) Deficit, Jan. 2, 20X6, P20,000, adjusted for increase in retained earnings as a result of holdings in Co. Z; Jan. 2, 20X0 to Jan. 2, 20X6, 75% of P140,000 increase in retained earnings, or P105,000 = retained earnings balance on Jan. 2, 20X6, P85,000.

PROBLEM 6-14

CHAPTER 6110


COMPANY P AND SUBSIDIARY COMPANIESConsolidated Balance Sheet

December 31, 20X7Assets P652,000 Liabilities P 285,000Goodwill 20,556 Stockholders’ equity:

Minority Interest: Common stock P

12,500 Premium on common stock 2,500 Retained earnings 2,456 17,45

6 Controlling interest: Common stock P300,00

0 Premium on common 60,000 Retained earnings 10,600 370,600

Total assets P673,056 Total liabilities & stockholders’ equity P673,056

COMPANY P AND SUBSIDIARY COMPANIESWorking Papers for Consolidated Balance Sheet

December 31, 20X7Co. P Co. A Co. B Eliminations Cons. Balance Sheet

Debits Dr. Cr. Dr. Cr.Investment in Co. A stock 125,000 Elim. 90% of common stock a) 90,000 Elim. 90% of premium on stock a) 22,500 Elim. 60% of P15,000 deficit b) 9,000 Elim. 30% of P10,000 R.E. 1/1/X3 b) 3,000 Goodwill (P20,556 at 100%) 18,500Investment in Co. B stock 7,500 Eliminate 15% of common stock c) 7,500Investment in Co. B stock 40,000 Eliminate 80% of common stock d) 40,000Other assets 367,500 210,000 75,000 652,500

500,000 250,000 75,000 Credits

liabilities 145,000 95,000 45,000 285,000Common stock, Co. P 300,000 300,000Premium on common stock 60,000 60,000Deficit, Co. P (5,000) 5,000Common stock, Co. A 100,000 Eliminate 90% a) 90,000 Minority interest, 10% 10,000Premium on common stock, Co. A 25,000 Eliminate 90% a) 22,500 Minority interest, 10% 2,500Retained earnings, Co. A 30,000 e) 16,000 Eliminate as above b) 6,000 Minority interest 10% of P14,000 1,400 Retained earnings to parent 18,600Common stock, Co. B 50,000 Eliminate 15% (owned by Co. P) c) 7,500 Eliminate 80% (owned by Co. A) d) 40,000 Minority interest, 5% 2,500Deficit, Co. B (20,000) Minority interest 5% of P20,000 deficit 1,000 R.E. to Co. P 15% of P20,000 def. 3,000 R.E. to Co. A 80% of P20,000 def. e)16,000

500,000 250,000 75,000 185,000 185,000 680,000 680,000

CHAPTER 6111


PROBLEM 6-15

LANO COMPANY AND SUBSIDIARY COMPANIESWorking Papers for Consolidated Balance Sheet

December 31, 20X7

Lano Co. Merto Co.Nomer

Co. EliminationsConsolidatedBalance Sheet

Debits Debit Credit Debit CreditInvestment in Merto Co.(42,000sh) 315,000 Elim. 84% of common stock a)210,000 Elim. 84% of P67,000 R.E. 1/2/X6* b) 56,280 Goodwill (P58,000 at 100%) 48,720Investment in Nomer Co.(16,000 sh) 160,000 Elim. 80% of common, P120,000** c) 96,000 Elim. 80% of P35,000 APIC e) 28,000 Elim. 80% of P7,500 R.E. 7/1/X5*** d) 6,000 Goodwill (P37,500 at 100%) 30,000Other assets 1,400,000 400,000 320,000 2,120,000

1,715,000 560,000 320,000Credits

Liabilities 480,000 214,500 140,000 834,500Common stock, Lano Co. 1,000,000 1,000,000Retained earnings, Lano Co. 235,000 235,000Common stock, Merto Co. 250,000 Eliminate 84% a)210,000 Minority interest, 16% 40,000Retained earnings, Merto Co. 95,500 f) 14,000 Eliminate 84% as above b) 56,280 Minority interest, 16% of P109,500 17,520 Retained earnings to Lano Co. 35,700Common stock, Nomer Co. 120,000 Eliminate 80% c) 96,000 Minority interest, 20% 35,000 24,000Paid in capital, Nomer Co. e) 28,000 Eliminate 80% 7,000 Minority interest, 20% 25,000Retained earnings, Nomer Co. d) 6,000 Eliminate 80% as above 5,000 Minority interest, 20% of P25,000 f) 14,000 Retained earnings to Merto Co. 1,715,000 560,000 320,000 410,280 410,280 2,198,720 2,198,720

* Retained earnings. 1/2/X6 per books, P73,000 less decrease in retained earnings as a result of holdings in Nomer, 7/1/X5 to 12/31/X5, 80% of loss of P7,500 (6/12 of P15,000) or P6,000 = P67,000 retained earnings, 1/2/X6.

** Deficit, 12/31/X4, P30,000 add loss for period 12/31/X4 to 7/1/X5, P7,500 = P37,500 deficit, 7/1/X5 Common stock, Nomer Co., date of acquisition, P200,000 less transfer to paid in capital, P35,000 and to retained earnings, P45,000 =

P120,000. *** Deficit at date of acquisition, P37,500 less transfer from common stock account, P45,000 = P7,500

LANO COMPANY AND SUBSIDIARY COMPANIESConsolidated Balance Sheet


Minority interest: Common stock P 64,000 Paid in capital 7,000 Retained earnings 39,300 110,300 Controlling interest: Common stock P1,000,000 Retained earnings 270,700 1,270,700

CHAPTER 6112



CHAPTER 6113

AA2 2008e Ch06 Solution by Vicente

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