Advanced Accounting Vol 2 2014 Edition Baysa-Lupisan

CHAPTER 1
SUGGESTED ANSWERS
EXERCISES
Exercise 1 - 1
1. Direct cost Expense
3. Indirect cost Expense
4. Cost of issuing and registering securities Reduction in additional paid in capital
5. Cost of issuing and registering securities Reduction in additional paid in capital
6. Cost of arranging and registering debt Bond issue cost
7. Cost of arranging and registering debt Bond issue cost
Exercise 1 - 2
Consideration transferred (10,000 sh x P120) P1,200,000
Fair value of net assets acquired 450,000
Goodwill P 750,000
Exercise 1 - 3
1. Consideration transferred P 500,000
FMV of net assets acquired 600,000
Gain on Bargain Purchase/Negative Goodwill P 100,000
2. Negative goodwill is recognized in the profit or loss.
Exercise 1 - 4
1. Assets 6,000,000
Goodwill 550,000
Liabilities 1,675,000
Ordinary Share Capital (325,000 x P10) 3,250,000
Paid-In Capital in Excess of Par (325,000 x P5) 1,625,000
Consideration transferred (325,000 x P15) P4,875,000
FMV of net assets acquired (P6,000,000 - P1,675,000) 4,325,000
Goodwill P 550,000
2. Assets 10,000,000
Goodwill 225,000
Liabilities 4,525,000
Ordinary Share Capital (475,000 x P5) 2,375,000
Additional Paid-in Capital (475,000 x 7) 3,325,000
Consideration transferred (475,000 x 12) P 5,700,000

FMV of net assets acquired (P10,000,000 – P4,525,000) 5,475,000
Goodwill P 225,000
Chapter 1 – AA2 (2014 edition) page 2
Exercise 1 -5
Requirement 1
Accounts Receivable 120,000
Inventories 140,000
Property. Plant, and Equipment 300,000
Goodwill 40,000
Cash 550,000
Current Liabilities 50,000
Consideration transferred P550,000

Goodwill P 40,000
Expenses of Business Combination 5,000

Cash 5,000
Requirement 2
Cash 550,000
Inventories 100,000
Property, Plant, and Equipment 280,000
Retained Earnings 100,000
Ordinary Share Capital 200,000

Cash 550,000
Exercise 1 – 6
1. Accounts Receivable 120,000
Inventories 140,000
Property Plant and Equipment 300,000
Goodwill 60,000
Cash 550,000
Estimated Liability for contingent Consideration 20,000

Contingent consideration P100,000 x 20% 20,000
Total P570,000
Goodwill P 60,000
2. Goodwill (P60,000 – P20,000) 40,000

Estimated Liability for Contingent Consideration 40,000
3. Goodwill 15,000
4. Estimated Liability for Contingent Consideration 5,000

Goodwill 5,000

Loss on Estimated Liability for contingent Consideration 30,000
Cash 100,000
Exercise 1 – 7
1. Current Assets 575,000
Plant Assets 1,200,000
Patent 50,000
Long term Liabilities 450,000
Cash 300,000
Ordinary Share Capital 50,000 x 5 par 250,000
Additional Paid in Capital 50,000 x P9 450,000
Gain on Bargain Purchase 75,000
Consideration transferred:
Cash P 300,000
Ordinary Share Capital 50,000 x P14 700,000
Total P1,000,000
FMV of net assets acquired 1,075,000
Gain in Bargain Purchase P 75,000

Additional Paid in Capital 50,000
Cash 125,000
2. Plant Assets (P1,500,000 – P1,200,000) 300,000

Cash P 300,000
Total P1,000,000
3. Current Assets 575,000

Plant Assets 1,200,000
Patent 50,000
Long term Liabilities 450,000
Cash 300,000
Ordinary Share Capital 50,000 x 5 par 250,000

Additional Paid in Capital 50,000 x P9 450,000
Paid in Capital for Contingent Consideration 30,000
Cash P 300,000
Stock Contingent Consideration 30,000
Total P1,030,000
Paid in Capital for Contingent Consideration 30,000

Ordinary Share Capital 5,000 x 5par 25,000
4. Additional Paid in Capital 20,000

Prior to the termination of the contingency, the stock contingency is described through a
footnote.

14 – 10 = P4 x 50,000 = P200,000/10 = 20,000 shs.
Prior to the termination of the contingency, the stock contingency is described through a
footnote.
Exercise 1- 8
No. 1 No. 2
Consideration transferred P50,000,000 P50,000,000
Non-controlling interest
P42,500,000 x 20% 8,500,000
P50,000,000 – P12,000,000/80% x 20% 9,500,000
Total P58,500,000 P59,500,000
Fair market value of net assets acquired 42,500,000 42,500,000
Goodwill P16,000,000 P17,000,000
Exercise 1 – 9
1. P4,800,000/60% x 20% = P1,600,000
2. Fair value of net assets P7,700,000

Book value of net assets 6,900,000
Undervaluation of net assets P 800,000
3 Consideration transferred P4,800,000

Fair value of previously held equity interest 1,600,000
Fair value of non controlling interest 1,600,000

Total P8,000,000
FMV of net assets 7,700,000
Goodwill P 300,000
4. Fair value of previously held equity interest P1,600,000

Cost of 20% interest 1,200,000
Gain on the acquisition P 400,000
5. Consideration transferred P4,800,000/

60%
Remeasured fair value of net assets P8,000,000
x 20%
Non controlling interest P1,600,000
Exercise 1 - 10
1. Assets, other than goodwill 550,000
Goodwill 196,000
Liabilities 230,000
Co. A Co. B Co. C Total

Net asset contribution P 90,000 P120,000 P110,000 P320,000
Goodwill contribution
Average earnings P 16,000 P 20,000 P 22,000
Normal earnings 10,800 14,400 13,200
Excess earnings P 5,200 P 5,600 P 8,800
Capitalization rate 10% 10% 10%
Goodwill P 52,000 P 56,000 P 88,000 196,000
Total contribution P142,000 P176,000 P198,000 P516,000
Share capital distribution 14,200 sh 17,600 sh 19,800 sh 51,600 sh
2. Assets 550,000
Liabilities 230,000
Co. A 142,000/516,000 x 32,000 sh 8,806 sh
Co. B 176,000/516,000 x 32,000 sh 10,915 sh
Co. C 198,000/516,000 x 32,000 sh 12,279 sh
Exercise 1 - 11
Total contribution (P50,000 / 10%) P500,000
Net asset contribution equal to preference shares issued 400,000
Goodwill contribution equal to ordinary shares issued P100,000
Preference Share Capital (P400,000/P100) 4,000 shares

Ordinary Share Capital (P100,000/P50) 2,000 shares
Exercise 1 - 12
1. 1,500 shares/2,000 shares x 100 shares = 75 shares
2. 1,500 shares x P150 = P225,000
3. 1,000 shares x P150 = P150,000
4. P500,000/2,000 shares x 100 shares = P 25,000
PROBLEMS
Problem 1 - 1
1. Cash 100,000
Inventory 140,000
Goodwill 35,000
Land 120,000
Long-term Investment in Marketable Securities 140,000
Equipment 180,000
Accounts Payable 115,000
Ordinary Share Capital (6,000 @ 50) 300,000
APIC 450,000

Goodwill P 35,000

Cash 203,000
2. Investment in Canada Co. (6,000 x P125) 750,000

Ordinary Share Capital (6,000 x P50) 300,000
Additional Paid - In Capital (6,000 x P75) 450,000

Expenses 140,000
Cash 203,000
Problem 1 - 2
1. Land 30,000
Goodwill 30,000
2. Cash 100,000
Inventory 140,000
Land 120,000
Long term Investment 140,000
Equipment 180,000
Goodwill 135,000
Paid in Capital from Contingent Consideration 100,000

Ordinary Share Capital (6,000 @ 50) 300,000
APIC 450,000
Consideration transferred 6,000 @ 125 P750,000

Stock Contingent Consideration 100,000
Total P850,000
Goodwill P135,000
Cash 203,000
Paid in Capital from Contingent Consideration 100,000

Ordinary Share Capital 1,000 @ P50 50,000

Prior to the termination of the contingency, the stock contingency is described through a footnote.

125 – 100 = 25 x 6,000 = P150,000/100 = 1,500
Prior to the termination of the contingency, the stock contingency is described through a footnote.
Problem 1 - 3
1. Investment in Share Capital (75,000 @ P14) 1,050,000
Ordinary Share Capital (75,000 @ P10) 750,000
Ordinary Share Premium(75,000 x P4) 300,000
2. Additional Paid-in Capital (40,000 @ P4) = P160,000

Retained Earnings zero
Problem 1 - 4
1. Cash 3,000
Inventories 20,000
Non Current Marketable Securities 55,000
Property Plant and Equipment 50,000
Land 28,000
Goodwill 52,000
Long Term Debt 20,000

Cash 160,000
Cash P160,000
Contingent Consideration P80,000 x 40% 32,000
Total P192,000
Goodwill P 52,000
2. Goodwill 18,000
3. Goodwill 5,000
4. Goodwill 5,000

Loss on Estimated Contingent Consideration 20,000
Cash 80,000
Problem 1 - 5
1 FMV of net assets of Commander Co. [(P200,000 + P800,000) - P200,000] P800,000
MV of share capital of General Co. ÷ P40
No. of shares to be issued 20,000 sh
Share exchange ratio (20,000 sh/10,000 sh) 2:1
2 Investment in Commander Co. (20,000 x P40) 800,000

Ordinary Share Capital (20,000 x P10) 200,000
Paid - In Capital in Excess of Par (20,000 x P30) 600,000
Problem 1 - 6
Company A Company B Company C Total
Net tangible assets P400,000 P200,000 P1,000,000 P1,600,000
Expected annual earnings 60,000 40,000 100,000 200,000
Rate of return on net tangible
Assets 15% 20% 10%
Ratio of earnings distribution
before combination 30% 20% 50% 100%
Share distribution (earnings
capitalized at 8%)
Preference shares 4,000 sh 2,000 sh 10,000 sh 16,000 sh
Ordinary shares 3,500 sh 3,000 sh 2,500 sh 9,000 sh
Earnings distribution:
Preference shares a. P20,000 P10,000 P50,000 P 80,000
b. 20,000 10,000 50,000 80,000
c. 32,000 16,000 80,000 128,000
Ordinary shares a. P 7,778 P 6,667 P 5,555 P 20,000

b. 17,500 15,000 12,500 45,000
c. 28,000 24,000 20,000 72,000
Total a. P27,778 P16,667 P55,555 P100,000

b. 37,500 25,000 62,500 125,000
c. 60,000 40,000 100,000 200,000
Ratio of earnings distribution
after combination a. 27.78% 16.67% 55.55% 100%
b. 30.00% 20.00% 50.00% 100%
c. 30.00% 20.00% 50.00% 100%
Problem 1 - 7
Requirement 1
Plan A
Assets, other than Goodwill 6,000,000

Goodwill 1,000,000
Ordinary Share Capital, P10 par 7,000,000
Co.D Co. E Co. F Total

Net asset contribution P3,000,000 P1,500,000 P1,500,000 P6,000,000
Goodwill contribution
Est. annual earnings P 300,000 P 165,000 P 135,000
Normal earnings 240,000 120,000 120,000
Excess earnings P 60,000 P 45,000 P 15,000
Capitalization rate 12% 12% 12%
Goodwill P 500,000 P 375,000 P 125,000 1,000,000
Total contribution P3,500,000 P1,875,000 P1,625,000 P7,000,000
Ordinary share dist. 350,000 sh 187,500 sh 162,500 sh 700,000 sh
Plan B
Assets, other than Goodwill 6,000,000
Goodwill 2,000,000
Preference Share Capital, P10 par 6,000,000
Co. D Co. E Co. F Total

Total contributions
(Earnings/8%) P4,000,000 P2,200,000 P1,800,000 P8,000,000
Net asset contribution 3,750,000 2,062,500 1,687,500 7,500,000
Goodwill contribution P 250,000 P 137,500 P 112,500 P 500,000
Preference share dist.
equal to NA cont. 375,000 sh 206,250 sh 168,750 sh 750,000 sh
Ordinary share dist.
equal to earnings cont. 25,000 sh 13,750 sh 11,250 sh 50,000 sh
Requirement 2
Plan A
Co. D 350,000/700,000 x P600,000 P300,000
Co. E 187,500/700,000 x P600,000 160,714
Co. F 162,500/700,000 x P600,000 139,286
P600,000
Plan B
Preference Ordinary Total
Regular dividends at 6% P450,000 P 30,000 P480,000
Balance – P120,000 x 7,500/8,000 112,500 112,500
P120,000 x 500/8,000 7,500 7,500
Total P562,500 P37,500 P600,000
Dividends per share P .75 P .75
Co. D Co. E Co. F TOTAL
Preference Share Capital P281,250.00 P154,687.50 P126,562.50 P562,500.00
Ordinary Share Capital 18,750.00 10,312.50 8,437.50 37,500.00
Total P300,000.00 P165,000.00 P135,000.00 P600,000.00
MULTIPLE CHOICE
1- A. 1. A 6. A 11. D 16. C
2. B 7. A 12. C 17. A
3. C 8. A 13. A 18. B
4. C 9. D 14. C 19. B
5. D 10. C 15. C 20. C
1– B 1. B Consideration transferred P80,000

Fair market value of net assets acquired 90,000
Gain on Bargain Purchase/Negative Goodwill P10,000
1–C 1. C Consideration transferred P2,650,000

FMV of net assets
(P1,890,000 + P2,900,000 – P1,140,000) 3,650,000
Credit to profit and loss P 1,000,000
1– D 1. C Consideration transferred P3,068,000

FMV of net assets acquired
(P3,239,600 – 171,600) 3,068,000
Goodwill Zero
1–E 1. C Retained Earnings of the surviving company remains the same since no
part of the acquired company’s Retained Earnings is recorded upon
combination.
1– F 1. D Total assets of Pacino before the combination P1,097,500

Assets acquired from Lucky 1,733,250
Goodwill recorded upon combination 850,000
Total assets after the combination P3,680,750
Consideration transferred (200,000 sh @ P11) P2,200,000

Net assets acquired (P1,733,250 – P383,250) 1,350,000
Goodwill P 850,000
1-G 1. C Customers Lists P 90,000

Research and Development 220,000
Operating Lease 25,000
Goodwill P335,000
1-H 1. B
1–I 1. A The retained earnings of the acquiring company
2. D APIC in shares issued to the 3 acquired co. (P100,000 x 2) P200,000

APIC of Co. U 15,000
P215,000
1– J 1. B Amount paid plus the contingent consideration that is recognized because

the contingent consideration is probable and can be reasonably estimated at
the date of acquisition.
1- K 1. A P285 – P200 = P85 million
1- L 1. B P200 – P145 = P55 million. The P160 million fair value is beyond the one
year measurement period.
1- M 1. D P2,200,000 – (P2,000,000 x 80%) = P600,000
1- N 1. D (1) P100 + (P85 x 20%)= P117 – P85 = P32 million

(2) (P100 – P24)/80% x 20% = P19 + P100 – P85 = P34 million
1- O 1. D P900,000 – (P1,200,000 x 60%) = P180,000

Gain on bargain purchase is reported in the income statement
1- P 1. C 50,000 @ P18= P900,000
1- Q 1. C P90 – P82 = P8 gain on bargain purchase recognized in profit and loss
1 – R. 1. D Average earnings P 50,000

Normal earnings (P300,000 x 8%) 24,000
Excess earnings P 26,000
Goodwill (P26,000/10%) P260,000
2. D Average earnings P 80,000

Normal earnings (P400,000 x 8%) 32,000
Excess earnings P 48,000
Goodwill (P48,000/10%) P480,000

Net asset contribution 400,000
Total contribution P880,000
1–S 1. D JPE = [P25,000 – (P250,000 x 6%)]/10% P 100,000

FPJ = [P14,000 – (P150,000 x 8%)]/10% 50,000
Total goodwill P 150,000
1–T 1. A Average earnings P300,000

Normal earnings (P1,200,000 x 10%) 120,000
Excess earnings P180,000
Capitalization rate ÷25%
Goodwill P720,000
2. A Consideration transferred P1,500,000

FMV of net assets acquired
(P520,000 + P1,480,000 – P800,000) 1,200,000
Goodwill P 300,000
1–U 1. C Abner Bertha Charlie

Expected annual earnings P 36,000 P 80,000 P 96,000
Capitalization rate ÷ 8% ÷ 8% ÷ 8%
Total contribution P450,000 P1,000,000 P1,200,000
Asset contribution equal to
preference shares 400,000 800,000 800,000
Goodwill equal to ord. sh P 50,000 P 200,000 P 400,000
Par value of ord. shares ÷ P10 ÷ P10 ÷ P10
Ordinary shares dist. 5,000 sh 20,000 sh 40,000 sh
1–V 1. B (P3,800,000 - P2,500,000)/P100 13,000 sh

2. D Excess earnings = P481,000 – (P1,300,000 x 15%) P 286,000
Goodwill equal to par value of ordinary share
to be issued = P286,000/20% P1,430,000
Premium on ordinary share = P1,430,000 x 50% P 715,000
1– W 1. C Frannie Giselle Hazel Total

Earnings contribution P 30,000 P 30,000 P 40,000 P 100,000
Normal earnings 12,000 18,000 30,000 60,000
(6%)
Excess earnings P 18,000 P 12,000 P 10,000 P 40,000
Capitalization rate ÷ 20% ÷ 20% ÷ 20% ÷ 20%
Goodwill P 90,000 P 60,000 P 50,000 P 200,000
Asset contribution 200,000 300,000 500,000 1,000,000
Total contribution P290,000 P360,000 P550,000 P1,200,000
Share capital dist.
290/1,200 x 1,000 242 sh
360/1,200 x 1,000 300 sh

550/1,200 x 1,000 458 sh 1,000 sh
1– X 1. A Polar Quickie Robot Total

Estimated earnings P 41,250 P 75,000 P 33,750 P 150,000
Normal earnings 22,500 45,000 22,500 90,000
(6%)
Excess earnings P 18,750 P 30,000 P 11,250 P 60,000
Capitalization rate ÷ 20% ÷ 20% ÷ 20% ÷ 20%
Goodwill P 93,750 P150,000 P 56,250 P 300,000
Asset contribution 375,000 750,000 375,000 1,500,000
Total contribution P458,750 P900,000 P431,250 P1,800,000
Share capital dist %
458,750/1,800,000 26%
900,000/1,800,000 50%
431,250/1,800,000 24%
1–Y 1. B Ordinary Share Capital P250,000

Par value per share ÷ P50
Number of shares outstanding 5,000
4,000 sh / 5,000 sh .80
1–Z 1. D FMV of net assets equal of MV of share capital P2,000,000

MV per share ÷P100
Number of shares to be issued 20,000 sh
AA2 - CHAPTER 2
SUGGESTED ANSWERS
EXERCISES
Exercise 2 - 1
a. Ordinary Share Capital, Sing Co. 100,000
Additional Paid-in Capital, Sing Co. 20,000
Retained Earnings, Sing Co. 25,000
Goodwill 15,000
Investment 160,000

Book value of interest acquired
(P100,000 + P20,000 + P25,000) x 100% 145,000
Goodwill P 15,000
b. Ordinary Share Capital, Sing Co. 100,000

Investment 140,000
Profit or Loss /Gain on Bargain Purchase 10,000

(P100,000 + P80,000 - P30,000) x 100% 150,000
Negative Goodwill P 10,000
c. Ordinary Share Capital, Sing Co. 100,000

Goodwill 18,750
Investment 120,000
Non-controlling Interest 33,750

Non-controlling interest (135,000 x 25%) 33,750
Total P153,750
FV of net assets (P100,000 + P40,000 – P5,000) 135,000
Goodwill P 18,750
Exercise 2 – 2
1. Case A
Ordinary Share Capital, Soya Co. 100,000
Additional Paid-in Capital, Soya Co. 30,000
Retained Earnings, Soya Co. 20,000
Goodwill 5,000
Investment 125,000
Non-controlling Interest (P150,000 x 20%) 30,000

Book value of interest acquired 800/1,000 = 80%
(P100,000 + P30,000 + P20,000) x 80% 120,000
Goodwill P 5,000
Case B
Investment 58,000
Profit or Loss / Gain on Bargain Purchase 2,000
Non-controlling Interest (80,000 x 25%) 20,000

Book value of interest acquired 375/500 = 75%
(P50,000 + P20,000 + P10,000) x 75% 60,000
Case C
Investment 63,000

Book value of interest acquired 480/800 = 60%
(P80,000 + P40,000 – P10,000) x 60% 66,000
2. Case A
Goodwill 5,000
Investment 125,000

Non-controlling interest 125,000-5,000/80% x 20% 30,000
Total P155,000
FV of net assets 150,000
Goodwill P 5,000
Case B
Investment 58,000

Non-controlling interest (58,000-4,000/75% x 25%) 18,000
Total P76,000
Case C
Investment 63,000

Non-controlling interest (63,000 – 3,000/60% x 40%) 40,000
Total P103,000
Exercise 2 - 3
Case A
Ordinary Share Capital, Say Co. 100,000
Additional Paid-in Capital, Say Co. 50,000
Investment 140,000
Retained Earnings, Say Co. 10,000
Case B
Plant and Equipment 20,000
Investment 144,000

(P100,000 + P50,000 - P10,000) x 90% 126,000
Excess of cost over book value P 18,000
Increase in plant and equipment ((P18,000/90%) P 20,000
Case C
Investment 104,000
Inventories 10,000
(P100,000 +P50,000 – P10,000) 80% 112,000

Decrease in inventory (P8,000/80%) P 10,000
Case D
Goodwill 10,800
Investment 78,000

(P100,000 + P50,000 - P10,000) x 48% 67,200
Goodwill P 10,800
Exercise 2 - 4
a. Investment in Sax Co. (4,000 @ P120) 480,000
Additional Paid-in Capital 80,000
Ordinary Share Capital, Sax Co. 100,000

Additional Paid-in Capital, Sox Co. 250,000
Retained Earnings, Sax Co. 100,000
Equipment 83,333
Investment in Sax Co. 480,000
Non-controlling Interest (450,000 + 83,333 x 10%) 53,333
Consideration transferred (4,000 x P120) P480,000

(P450,000 x 90%) 405,000
Increase in equipment (P75,000/90%) P 83,333
b. Investment in Sax Co. (3,500 @ P120) 420,000


Additional Paid-in Capital, Sax Co. 250,000
Goodwill 15,000

(P450,000 x 90%) 405,000
Goodwill P 15,000
c. Investment in Sax Co. 360,000

Additional Paid-in Capital, Sax Co. 250,000
Inventory 25,000
Non-controlling Interest (450,000 -25,000 x 10% 42,500
(P450,000 x 90%) 405,000
Excess of book value over cost P 45,000
Decrease in Inventory (P25,000 x 90%) 22,500
Negative goodwill P 25,000
Exercise 2 – 5
1. Non-controlling interest (P90,000 – (P50,000 x 10%=P5,000) P 85,000
Percentage of non-controlling interest ÷ 10%
Total Shareholders’ Equity of Sand P 850,000
Less Ordinary Share Capital and APIC (P800,000 + P400,000) 1,200,000
Deficit of Sand P( 350,000)
2. Consolidated balance of land P1,145,000

Less Book value of land of Pond Co. 850,000
FMV of Sand’s land P 295,000
Less Excess of FMV over BV 50,000
BV of Sand’s land P 245,000
3. Consolidated balance of liabilities P440,000

Less Liabilities of Pond 340,000
Liabilities of Sand P100,000
4. Excess of cost over BV

Land (50,000 x 90%) P 45,000
Goodwill 100,000 P145,000
Book value (P850,000 x 90%) 765,000
Consideration transferred (Cost of investment) P910,000
5. Total shareholders’ equity of Sand P850,000

Increase in fair value of Land 50,000
Fair value of identifiable net assets P900,000
x 10%
Non-controlling interest P 90,000
Exercise 2 - 6
a. Total shareholders’ equity + asset adjustment, excluding goodwill P182,500

Less Non-controlling interest (in TSE and asset adjustment) 27,375
Controlling interest P155,125
Percentage of ownership acquired (P155,125/P182,500) 85%
b. Total shareholders' equity of Sill (P60,000 + P35,000 + P50,100) P145,600

Increase in fair value of assets:
Inventories P 3,900
Plant assets 28,500
Patents 4,500 36,900
Current fair value of net identifiable assets P182,500
c. Zero. Non-controlling interest is measured at the proportionate share in the

fair value of the identifiable net assets
d. P182,500 x 15% = P27,375
Exercise 2 - 7
1. Total current assets of Seeda = (P146,000 + P2,000) - P106,000 P 42,000
2. Non-controlling interest P35,100

Less Share in asset adjustment (P10,000 x 30%) 3,000
Non-controlling interest in subsidiary shareholders’ equity P32,100/
30%
Total shareholders’ equity of subsidiary (P32,100 / 30%) P107,000
Exercise 2 – 8
1. Palomar Inventory P1,100,000
Samar Inventory at FMV 1,700,000
Consolidated inventory P2,800,000
2. Palomar Buildings and equipment P3,500,000

Samar Buildings and equipment at FMV 3,750,000
Consolidated buildings and equipment P7,250,000
3. ZERO. It is eliminated in the consolidated statement of financial position.
4. Consideration transferred P2,800,000

Book value of acquired interest
(P1,000,000 + P2,000,000 – P400,000 – P300,000 goodwill of Samar) 2,300,000
Excess of cost over BV P 500,000
Allocation of excess:
Decrease in inventory (P100,000)
Increase in buildings and equipment 250,000 150,000
Goodwill P 350,000
5. P4,000,000. The Ordinary Share Capital of Palomar, the acquiring

company.
6. P1,050,000. The Retained Earnings of Palomar, the acquiring company.
Exercise 2 - 9
Inventories 20,000
Plant Assets 80,000
Ordinary Share Capital, Santa Co. 200,000
Paid-In Capital in Excess of Par - Santa Co. 210,000
Investment in Subsidiary 420,000
Retained Earnings, Santa Co. 90,000
Exercise 2 – 10 Market value of Planet Corp share is P50 per share

1.
Solar Planet
Currently issued shares 300,000 60% 100,000
Additional shares issued 200,000 40% 66,667
Total shares 500,000 100% 166,667
Fair value of consideration transferred 66,667 sh @ P50 = P3,333,350
2. Consideration transferred 66,667 x P50 P3,333,350

Book value of Solar shareholders’ equity 2,000,000
Excess of book value over cost P1,333,350
Increase in plant assets 1,000,000
Goodwill P 333,350
3. P6,000,000 + P4,000,000 = P10,000,000
4. P1,000,000 of Solar + P1,000,000 increase in plant assets = P2,000,000
5. 500,000shares. P100,000 of Planet + (66,667sh @ P50 = P3,333,350 = P3,433,350
PROBLEMS
Problem 2 - 1
Prime Inc. and Subsidiary Slime Corp.
Working Paper for Consolidated Statement of Financial Position
January 1, 2014
Consolidated
Prime Slime Eliminations Statement of
Inc. Corp. Dr. Cr. Finl Position
Debits
Cash and Other Current Assets 400,000 300,000 700,000
Plant, Property, and Equipment 200,000 250,000 450,000
Investment in Slime Corp. 380,000 a 380,000 ------
Other Assets 30,000 20,000 50,000

Goodwill a. 110,000 110,000
1,010,000 570,000 1,310.000
Credits
Accumulated Depreciation 60,000 50,000 110,000
Liabilities 300,000 250,000 550,000
Ordinary Share Capital, Prime Inc. 400,000 400,000
Add’l Paid-In Capital, Prime, Inc 180,000 180,000
Retained Earnings, Prime, Inc. 70,000 70,000
Ordinary Share Capital, Slime Corp 200,000 a.200,000
Add’l Paid-In Capital, Slime Corp. 40,000 a. 40,000
Retained Earnings, Slime Corp. 30,000 a. 30,000
1,010,000 570,000 380,000 380,000 1,310,000
Problem 2 - 2
Requirement 1
Book value of interest acquired:
Ordinary Share Capital P200,000
Additional paid-in capital 100,000
Retained earnings 400,000 700,000
Excess of cost over book value P250,000
Inventory P 30,000
Land 50,000
Equipment 130,000 210,000
Goodwill P 40,000
Requirement 2
Pole Co. and Subsidiary Sole Co.
January 2, 2014
Pole Sole Eliminations Consolidated
Co. Co. Dr. Cr. St. of Fin Pos.
Debits
Cash 300,000 50,000 350,000
Accounts Receivable 200,000 100,000 300,000
Inventory 150,000 60,000 a. 30,000 240,000
Land 70,000 a. 50,000 120,000
Equipment 600,000 470,000 a. 130,000 1,200,000
Investment in Sole Co. 950,000 a. 950,000
Goodwill a. 40,000 40,000
2,200,000 750,000 2,250,000
Credits
Accounts Payable 100,000 50,000 150,000
Ordinary Share Capital, Pole Co. 600,000 600,000
Retained Earnings, Pole Co. 1,500.000 1,500,000
Ordinary Share Capital, Sole Co. 200,000 a. 200,000

APIC, Sole Co.. 100,000 a. 100,000
Retained Earnings, Sole Co. 400,000 a. 400.000
2,200.000 750,000 950,000 950,000 2,250,000
Requirement 3a
Retained earnings 400,000 P700,000 x90% 630,000
Inventory P 30,000
Land 50,000
Equipment 130,000 P210,000x90% 189,000
Requirement 3b
Non controlling interest P700,000 + P210,000 P910,000 x 10% = P91,000

January 2, 2014
Debits Co. Co. Dr. St. of Fin Pos
Cash 440,000 50,000 490,000
Inventory 150,000 60,000 a 30,000 240,000
Land 70,000 a. 50,000 120,000
Equipment 600,000 470,000 a. 130,000 1,200,000
2,200,000 750,000 2,350,000
Credits
Ord. Share Capital, Pole Co. 600,000 600,000
Retained Earnings, Pole Co. 1,500.000 a. 9,000 1,509,000
Ord. Share Capital, Sole Co. 200,000 a. 200,000
APIC, Sole Co.. 100,000 a. 100,000
Retained Earnings, Sole Co. 400,000 a. 400,000
Non-controlling interest a. 91,000 91,000
2,200.000 750,000 910,000 910,000 2,350,000

Retained earnings 400,000 P700,000 x40% 280,000
Chapter 2 – AA2 (2014 edition) page
10
Inventory P 30,000
Land 50,000
Equipment 130,000 P210,000x40% 84,000

January 2, 2014
Debits Co. Co. Dr. St. of Fin Pos
Cash 850,000 50,000 900,000
Inventory 150,000 60,000 a 30,000 240,000
Land 70,000 a. 50,000 120,000
Equipment 600,000 470,000 a. 130,000 1,200,000
Goodwill a. 36,000 36,000
2,200,000 750,000 2,796,000
Credits
Ord. Share Capital, Pole Co. 600,000 600,000
Retained Earnings, Pole Co. 1,500.000 1,500,000
Ord. Share Capital, Sole Co. 200,000 a. 200,000
APIC, Sole Co.. 100,000 a. 100,000
Retained Earnings, Sole Co. 400,000 a. 400,000
Non-controlling interest a. 546,000
546,000
2,200.000 750,000 946,000 946,000 2,796,000
Non controlling interest (P700,000 + P 210,000) x 60% = P546,000
Problem 2 - 3
1. Inventory 30,000
Patents 50,000
Goodwill 50,000
Ordinary Share Capital, Stork 100,000
Retained Earnings, Stork 250,000
Investment 464,000
Non-controlling Interest (P464,000/80% x 20% = P116,000) 116,000

Non controlling Interest 116,000
Total P580,000
Fair value of net assets
P50,000 + P30,000 + P50,000 + P400,000 + P50,000 - 50,000 530,000
Goodwill P 50,000
11
2. Inventory 30,000
Patents 50,000
Ordinary Share Capital, Stork Co. 100,000
Retained Earnings, Stork Co. 250,000
Investment 274,000
Non-controlling Interest (P274,000/80% x 20% ) 68,500
Non controlling Interest 68,500
Total P342,500
Fair value of net assets 530,000
Gain on bargain purchase P187,500
Problem 2 - 4
1. Investment in Stride Co. (20,000 sh @ P10) 200,000
Ordinary Share Capital (20,000 sh @ P2) 40,000
Paid-In Capital in Excess of Par 160,000
Paid in Capital in Excess of Par 10,000

Cash 30,000
2. Retained Earnings, Stride Co. 20,000

Goodwill 20,000
Ordinary Share Capital, Stride Co. 25,000

Paid-In Capital in Excess of Par, Stride Co. 50,000
Retained Earnings, Stride Co. 55,000
Current Assets 5,000
Plant Assets 40,000
Long-Term Debt 10,000
Goodwill 15,000
Investment in Stride Co. 200,000
Consideration transferred (P20,000 x P10) P200,000
Book value of int. acquired
(P25,000 + P50,000 + P55,000) 130,000
Allocation of excess;
Inventories P 5,000
Plant assets 40,000
Long-term debt 10,000 55,000
Goodwill P 15,000
Problem 2 – 5 Plow Corp. and Subsidiary Slow Co.

Working Paper for Consolidated Financial Statements
July 1, 2014
Consolidated
12
Plow Slow Eliminations Statement of

Debits Corp. Co. Dr. Cr. Fin’l Position
Cash 15,000 10,000 25,000
Accounts Receivable 25,000 20,000 (f) 8,000 37,000
Notes Receivable 70,000 45,000 (b) 10,000 85,000
(e) 20,000
NR Discounted (25,000) (30,000) (d) 10,000 (25,000)
(e) 20,000
Inventories 50,000 60,000 110,000
Prepaid Expenses 15,000 8,000 23,000
Advances to Slow Co. 25,000 © 10,000
(g) 15,000
Investment in Slow Co. 93,400 (a) 93,400
Property and Equipment, net 85,000 100,000 185,000
Goodwill (a) 31,000 31,000
353,400 213,000 471,000
Credits
Current Liabilities 80,000 40,000 (b) 10,000 (d) 10,000 112,000
(f) 8,000
Advances from Plow Corp. 25,000 (c ) 10,000
(g) 15,000
Loans Payable 193,400 70,000 263,400
Ordinary Share Capital , Plow Corp. 100,000 100,000
RE, Plow Corp. (20,000) (20,000)
Ordinary Share Capital, Slow Co. 50,000 (a) 50,000
RE, Slow Co. 28,000 (a) 28,000
Non-controlling Interest (a) 15,600 15,600
353,400 213,000 174,150 174,150 471,000

(P50,000 + P28,000) x 80% 62,400
Goodwill P31,000
Non controlling Interest (P50,000 + P28,000) x 20% = P15,600
MULTIPLE CHOICE
2-A 1. B 6. C 11. D 16. B

2. D 7. A 12. D 17. D
3. B 8. C 13. D 18. A
4. D 9. D 14. A 19. D
5. A 10. B 15. B 20. C
2-B C Consideration transferred P2,000,000

P200,000 + P400,000 +P800,000 x 100% 1,400,000
Increase in FV P150,000 – P50,000 100,000
13
Goodwill P 500,000
2-C C Consideration transferred P765,000

FMV of net assets acquired (P815,000 – P150,000) 665,000
Goodwill P100,000
2-D B Consideration transferred P2,968,000

(P7,560,000 – P560,000 – P3,360,000) 3,640,000
2-E D Number of shares issued to Roces 100,000

Excess of MV over par value of share capital x P8.00
APIC recognized upon merger P800,000
APIC of Tante 650,000
APIC reflected in the Consolidated Statement of Fin’l Pos P1,450,000
2-F C Investment (P 26,000 @ 100) 2,600,000

Ordinary Share Capital 2,600,000
2-G 1. B 1,080 ÷ (P180,000/P100) 60%
2. A Consideration transferred P 161,200

[(P180,000 + P50,000 + P30,0000) x 60%] 156,000
3. B (P180,000 + P50,000 + P30,000) x 40% P 104,000
2-H 1. A (P120,000 ÷ P120) ÷ (P125,000 ÷ P100) 80%
2. C (P125,000 + P50,000) x 20% P35,000
3. A Consideration transferred P120,000

Book value of interest acquired (P175,000 x 80%) 140,000
Negative goodwill ( P20,000)
4. D
2-I 1. A Consideration transferred P 40,000

Fair value of interest acquired
(P10,000 + P32,350) x 80% 33,880
Goodwill P 6,120
2. C Ordinary Share Capital P 10,000

Retained earnings P 32,350
3. C (P10,000 + P32,350) x 20% P 8,470
4. D
14
2-J D Consideration transferred (P100,000 x P10) P1,000,000

FMV of net tangible assets 1,400,000
Negative Goodwill – reported in the consolidated statement of P 400,000
financial position as part of Parent Company Retained
Earnings
2-K 1. C Non-controlling interest in subsidiary TSE P134,000

(P450,000 + 120,000 + 100,000 x 20%)
2. C Consideration transferred P620,000

Book value of investment (P450,000 x 80%) 360,000
Inventory 120,000
PPE 100,000 220,000 x80% 176,000
Goodwill P84,000
2-L 1. A P100,000 ÷ 20% P 500,000
2. A P500,000 x 80% P 400,000
2-M 1. D P500,000 + P45,000 P 545,000

2. B (P500,000 x 90%) + P45,000 P 495,000
2-N C Consideration transferred (4,500 @ P140) P 630,000

(P500,000 + P125,000) x 90% 562,500
Excess of cost over book value treated as goodwill P 67,500
Assets of Panda and Selina [(P3,125,000 – P630,000) +
P875,000)] 3,370,000
Combined assets P3,437,500
2-O 1. D
2. C Consideration transferred P 180,000

Non-controlling interest (P180,000 – P24,000/60% x 40%) 104,000
Total P284,000
Fair value of identifiable net assets 250,000
Goodwill P 34,000
3. C Non-controlling interest (180,000-24,000/60% x 40%) P 104,000
2-P 1. B Total assets of Plant and Slant (P3,000,000 + P2,250,000) P5,250,000

Less: Amount paid for investments 1,425,000
Total assets to be reported in the consolidated balance sheet P3,600,000
15
2. B P3,000,000 + P600,000 P3,600,000
3. C 60,000 @ 25/80% X 20% P375,000
2-Q 1. B Non-controlling interest 3,000,000 – 300,000/75% x 25% P 900,000

Consideration transferred 2,000,000
Total P2,900,000
Fair value of identifiable net assets 1,900,000
Goodwill P1,000,000
2. A The retained earnings of the parent company, Plumber.
3. C P200,000 + P400,000 + P1,200,000 – P100,000 – P200,000 x 52%

2-R 1. C Total current assets of Polka and Stress P 90,000
Excess of investment cost over its book value allocated to inventory
Book value (P50,000 x 90%) 45,000
15,000 x 60% = 9,000/ 90% 10,000
Current assets in the consolidated balance sheet P100,000
2. C Non-current assets of Polka and Stress P 130,000
Excess of investment cost over its book value
allocated to goodwill (P15,000 – P9,000) 6,000
Non-current assets in the consolidated balance sheet P 136,000
3. C P50,000 + 10,000 x 10% P 6,000
4. C Long-term debt of Polka, Jan. 1, 2008 P 50,000

Long-term borrowings made on Jan. 2, 2008
(P60,000 x 9/10) 54,000
Total P104,000
2-S 1. C (P1,460,000 + P20,000) – P1,060,000 P420,000
2. C Non-controlling interest P 229,750

Parent shareholders’ equity 4,610,000
Total P4,839,750
2-T B 920,000 – 50,000 + 190,000 – 12,000 P1,048,000
2–U A Consideration transferred 400,000 x P6 P2,400,000

Book value of interest acquired 1,800,000
Goodwill P 600,000
16
July June
Currently issued shares 1,500,000 60% 600,000
Additional shares issued 1,000,000 40% 400,000
Total shares 2,500,000 100% 1,000,000
15/25 = 60%
AA2 - CHAPTER 3
SUGGESTED ANSWERS
EXERCISES
Exercise 3 -1
1. Investment in Stun Corp.
Consideration transferred (800 shares @ P200) P160,000
Book value of interest acquired as of July 1, 2014
Ordinary Share Capital (1,000 shares x P100 x 80%) P80,000
Retained Earnings [(P50,000 + 1/2 of P30,000) 80%] 52,000 132,000
Goodwill P 28,000
2. Investment in Star Corp.

Consideration transferred (900 shares @ P100) P 90,000
Book value of interest acquired as of July 1, 2014
Ordinary Share Capital (1,000 shares x P100 x 90%) P90,000
Retained Earnings [(P15,000 + 1/2 of P5,000) 90%] ( 15,750) 74,250
Goodwill P 15,750
Exercise 3 - 2
Cost Method
a. Investment in Stark Co. 1,500/2,000 = 75% 240,000
Cash 240,000
b. no entry
c. Cash P30,000 x 75% 22,500

Dividend Revenue P30,000 x 6/12 = P15,000 x 75% 11,250
Investment in Stark Co. 11,250
d. no entry
2. Ordinary Share Capital P200,000

APIC 50,000
RE [P20,000 + (P30,000 x 1/2)] 35,000
Total shareholders’ equity on date of acquisition P285,000
x 75%
Book value of interest acquired P213,750
Exercise 3 –3
1. Investment in Saturn Co. 800,000
Cash 800,000
Cash P80,000 x 80% 64,000

Dividend Revenue 64,000
2. Original cost of investment – P800,000
3. Non-controlling interest net income = P200,000 x 20% = P40,000
4. Non-controlling interest, December 31, 2014:

Ordinary Share Capital P 500,000
Retained Earnings = P500,000 + P200,000 – P80,000 620,000
Total P1,120,000
Non-controlling interest percentage x 20%
Exercise 3 – 4
a. Investment in Saloon Corp. 67,500

Cash 67,500
750 shares @ P90 = P67,500
b. No entry
c. Received 75 shares from Saloon Corp. as share capital dividend. Shares now owned and held are
825 shares.
d. Cash 4,125
Dividend Revenue 4,125
825 shares @ P5 = P4,125
e. No entry
Exercise 3 – 5
2013 P90,000 x 60% P 54,000

2014 P180,000 x 60% P108,000
2015 P135,000 x 60% P 81,000
Exercise 3 - 6
Case A Case B Case C
Net income (loss) from own operations:
Pastel Corp. P 80,000 P(20,000) P40,000
Sly Corp. (90%-owned) (13,500) 45,000 27,000
Sty Corp. (70%-owned) 31,500 49,000 24,500
Depreciation:
Excess of cost over book value of
investment in Sly (P9,000/90%/5 yrs.) ( 2,000)
Excess of book value over cost of
investment in Sty (P3,500/70%/5 yrs.) ________ ________ 1,000
Consolidated net income P 98,000 P 74,000 P90,500
Exercise 3 – 7
1. a. Investment in Sat Co. 16,000
Retained Earnings, Pat Co. 16,000
To record the share of Pat in the net increase
in the retained earnings of Sat.
(P70,000 - P50,000) 80% = P16,000
b. Ordinary Share Capital, Sat Co. 200,000

Retained Earnings , Sat Co. 70,000
Assets 10,000
Investment in Sat Co. P208,000 + P16,000 224,000
Non-controlling Interest P280,000 x 20% 56,000
To eliminate shareholders’ equity balances and
establishing non-controlling interest.
208,000 – (250,000 x 80%) = 8,000/80% = 10,000
c. Operating Expenses 1,000

Retained Earnings, Pat Co. 2,000
Assets 3,000
To record depreciation of adjustment for prior
years and current year at P1,000 per year.
2. Pat and Subsidiary Sat Co.

Consolidated Working Paper
For the Year Ended December 31, 2014
Adj. & Eliminations Cons. Non-cont Cons.
Debits Pat Co. Sat Co. Debit Credit IS Interest SFP
Cash & Other Assets 452,000 440,000 b. 10,000 c. 3,000 899,000
Investment in Sat 208,000 a. 16,000 b. 224,000
Cost of Sales 300,000 200,000 500,000
Operating Exp. 90,000 50,000 c. 1,000 141,000
Total 1,050,000 690,000 899,000
Credits
Liabilities 150,000 120,000 270,000
OSC, P100par 300,000 200,000 b. 200,000 300,000
Ret. Earnings 100,000 70,000 b. 70,000 a. 16,000 114,000

c. 2,000
Sales 500,000 300,000 (800,000)
1,050,000 690,000
Consolidated NI 159,000
Non-cont. int. NI 9,800 9,800
NI attrib. to parent 149,200 149,200
Non-cont. int. b. 56,000 56,000 65,800
Total 245,000 245,000 899,000
NCI net income (300,000 -200,000-50,000-1,000) x 20% = 9,800
3.
Pat Co. and Subsidiary Sat Co.
Consolidated Income Statement
Sales (P500,000 + P300,000) P800,000
Cost of Sales (P300,000 + P200,000) 500,000
Gross Profit P300,000
Operating Expenses (P90,000 + P50,000 + P1,000) 141,000
Consolidated Net Income P159,000
Less Non-controlling Interest net income 9,800
Net Income Attributable to Pat Co. P149,200
4.
Pat Co. and Subsidiary Sat Co.
Consolidated Statement of Financial Position
December 31, 2014
Assets Liabilities and Shareholders’ Equity
Cash and Other Assets P899,000 Liabilities P270,000
Ordinary Share Capital, P100 par 300,000
Total Assets P899,000 Total liabilities and shareholders’ Equity P899,000
Exercise 3 - 8
a. Advances from Pallet Co. 15,000
Advances to Stall Co. 15,000
b. Notes Receivable Discounted 10,000

Notes Receivable from Pallet Co. 10,000
c. Note Payable to Stall Co. 5,000

Note Receivable from Pallet Co. 5,000
d. Dividends Payable 1,600

Dividends Receivable 1,600
PROBLEMS
Problem 3 – 1
1. Investment in Stow Co. 280,000
Cash 280,000

Book value of interest acquired :
Ordinary Share Capital (P100,000 x 80%) P 80,000
Retained Earnings (P50,000 x 80%) 40,000 120,000
Plant and equipment P 50,000
Inventory 20,000 70,000x 80% 56,000
Goodwill P104,000
Expenses on the adjustment
2014 2015
Plant and equipment (P50,000/5 yrs.) P10,000 P10,000
Goodwill impairment 5,000 4,000
Inventories 20,000 ---__
Total P35,000 P14,000
2. Working paper elimination entries:

2014 a. Ordinary Share Capital, Slow Co. 100,000
Retained Earnings, Slow Co. 50,000
Inventories 20,000
Goodwill 104,000
Investment in Slow Co. 280,000
100,000 +50,000+50,000+20,000 x 20% = 44,000
c. Cost of Sales 20,000

Operating Expenses 15,000
Goodwill 5,000
Inventory 20,000
2015 a. Ordinary Share Capital, Slow Co. 100,000

Retained Earnings, Slow Co. 50,000
Inventory 20,000
Goodwill 104,000
Investment in Slow Co. 280,000
b. Retained Earnings, Plow Co. 35,000

Inventory 20,000
Goodwill 9,000
3. Computation of consolidated net income

2014 2015
Net income from own operations:
Plow Co. P70,000 P 80,000
Slow Co. 60,000 50,000
Impairment / depreciation / amortization ( 35,000) ( 14,000)
Consolidated net income P95,000 P 116,000
Problem 3 - 2
Consideration transferred P2,280,000
Ordinary Share Capital (P1,000,000 x 80%) P 800,000
Retained Earnings (P1,600,000 x 80%) 1,280,000 2,080,000
Goodwill P 200,000
Peach Co. and Subsidiary Silver Co.

Adj. and Eliminations Non-cont Consolidated
Peach Co. Silver Co. Debit Credit Interest St. of FP
Income Statement
Sales 4,000,000 2,000,000 6,000,000
Cost of sales 1,600,000 1,200,000 2,800,000
Gross profit 2,400,000 800,000 3,200,000
Operating expenses 1,560,000 440,000 c. 10,000 2,010,000
Operating income 840,000 360,000 1,190,000
Non-cont. interest NI 72,000 72,000
NI-carried forward 840,000 360,000 72,000 1,118,000
Retained Earnings St.
Bal. January 1 6,000,000 1,600,000 b. 1,600,000 6,000,000
NI brought forward 840,000 360,000 72,000 1,118,000
Dividend fr. Subsidiary 96,000 a. 96,000
Total 6,936,000 1,960,000 72,000 7,118,000
Less Div. declared 800,000 120,000 a. 96,000 24,000 800,000
Balance, Dec. 31 6,136,000 1,840,000 48,000 6,318,000
St. of Financial Position
Cash 600,000 200,000 800,000
Accounts Receivable 400,000 400,000 d. 10,000 790,000
Inventories 800,000 600,000 1,400,000
Land 1,200,000 1,200,000
Building (net of AD) 800,000 800,000
Equipment (net of AD) 2,456,000 2,000,000 4,456,000
Inv. in Silver Co. 2,280,000 b. 2,280,000
Goodwill b. 200,000 c. 10,000 190,000
Total 8,536,000 3,200,000 9,636,000
AP and accrued exp. 604,000 360,000 d. 10,000 954,000
Bonds payable 196,000 196,000
OS - Peach Co. P100 par 1,000,000 1,000,000
OS - Silver Co. P20 par 1,000,000 b. 1,000,000
APIC 600,000 600,000
RE-brought forward 6,136,000 1,840,000 48,000 6,318,000

Non-cont. Interest b. 520,000 520,000 568,000
Total 8,536,000 3,200,000 2,916,000 2,916,000 568,000 9,636,000

Sales P6,000,000
Cost of Sales 2,800,000
Gross Profit P3,200,000
Operating Expenses 2,010,000
Consolidated Net Income P1,190,000
Non-controlling Interest net income P 72,000
Net Income Attributable to Peach Co. P1,118,000

December 31, 2014
Assets
Cash P 800,000
Inventories 1,400,000
Land 1,200,000
Building (net of accumulated depreciation) 800,000
Equipment (net of accumulated depreciation) 4,456,000
Goodwill 190,000
Total Assets P9,636,000
Liabilities and Shareholders’ Equity
Accounts Payable and Accrued Expenses P 954,000

Bonds Payable (face amount - P200,000) 196,000
Retained Earnings 6,318,000
Total Liabilities and Shareholders’ Equity P9,636,000
Problem 3 – 3
Requirement No. 1
1,400,000 x 80% 1,120,000
Excess of cost over book value of acquired investment P 392,000
Inventories P 60,000
Land 100,000
Building 200,000
Equipment (150,000)
Patent 80,000 290,000 x 80% 232,000
Goodwill P 160,000
Requirement No. 2
Prose Co. and Subsidiary Slope Co.
Prose Slope Adj. & Eliminations IS Non-cont Consolidated
Debits Co. Co. Debit Credit Dr. (Cr.) Interest St. of FP

Cash 400,000 200,000 600,000
Accounts Receivable
300,000 100,000 400,000
Inventories 200,000 80,000 b. 60,000 c. 60,000 280,000
Land 300,000 b. 100,000 400,000
Buildings 520,000 b. 260,000 780,000
Equipment 1,400,000 940,000 b. 156,670 2,183,330
Inv. in Slope Co. 1,512,000 b. 1,512,000
Cost of sales 800,000 300,000 c. 60,000 1,160,000
Expenses 720,000 400,000 c. 8,000 1,238,000
d. 110,000
Dividends paid 200,000 100,000 a. 80,000 (20,000) 200,000
Patents b. 80,000 c. 8,000 72,000
Goodwill b. 160,000 c. 5,000 155,000
5,532,000 2,940,000 5,070,330
Credits
AP & accrued exp. 248,000 380,000 628,000
AD - Bldg. 120,000 b. 60,000 210,000
c. 10,000
d. 20,000
AD - Equipt. 804,000 40,000 b. 6,670 d. 90,000 912,330
c. 15,000
OS - P100 par 400,000 400,000
OS - P20 par 600,000 b. 600,000
APIC 800,000 800,000
RE - Prose Co. 1,200,000 1,200,000
RE - Slope Co. 800,000 b. 800,000
Sales 2,000,000 1,000,000 (3,000,000)
Dividend fr. Sub 80,000 a. 80,000
NCI Net Income 47,400 47,400
NI attr. to Prose 554,600 554,600
Non-cont. Int. b. 338,000 338,000 365,400
Totals 5,637,600 2,940,000 2,339,670 2,339,670 5,070,000
NCI 600,000 + 800,000+290,000 x 20% = 338,000
Charges to expense for asset adjustments:

Inventories P60,000
Building 10,000
Equipment ( 15,000)
Patent 8,000
Goodwill 5,000
Total P68,000
Adjustments to Building and equipment:
Building (increase is 50%)
Cost (P520,000 x 50% ) P260,000
AD (P120,000 x 50% ) 60,000
Net amount P200,000
Equipment (decrease is 16.67%)

Cost (P940,000 x 16.67% ) P156,670
AD (P 40,000 x 16.67%) 6,670
Net amount P150,000
Current year depreciation based on book value:

Building = (P520,000 – P120,000) / 20 yrs. = P20,000
Equipment = (P940,000 – P40,000) / 10 yrs. = P90,000
Requirement No. 3
Sales P3,000,000
Cost of sales 1,160,000
Gross Profit P1,840,000
Expenses 1,238,000
Consolidated Net Income P 602,000
Non-controlling Interest net income P 47,400
Net Income Attributable to Prose P 554,600

December 31, 2014
Assets
Cash P 600,000
Inventories 280,000
Land 400,000
Buildings P 780,000
Less Accumulated Depreciation 210,000 570,000
Equipment P2,183,330
Less Accumulated Depreciation 912,330 1,271,000
Patents 72,000
Goodwill 155,000
Total Assets P3,748,000
Liabilities and Shareholders’ Equity
Accounts Payable and Accrued Expenses P628,000
Ordinary Share Capital, P100 par 400,000
Retained Earnings (P1,200,000 + P554,600 - P200,000) 1,554,600
Total Liabilities and Shareholders’ Equity P3,748,000
Problem 3 - 4
1. a. Notes Payable - Palma Corp. 10,000
Notes Receivable - Salman Co. 10,000
b. Accrued Interest on Notes Payable 600

Accrued Interest on Notes Receivable 600
2. Sales P 70,000
Interest revenue 600
Expenses ( 53,000)
Interest expense ( 600)
Consolidated Net income P 17,000
Non-controlling Interest net income [(P20,000 - P17,000 - P600) x 10%] ( 240)
Net income attributable to Palma Corp. P 16,760
Problem 3 – 5
1. Non-controlling interest net income (400,000-240,000-60,000 x 20%) P 20,000
2. Consolidated net income 800,000+400,000-500,000-240,000-100,000-60,000-6,000 P294,000
3. Current assets of Pentium and Stadium P470,000

Less Dividends receivable (P20,000 x 80%) 16,000
Current assets P454,000
4. Consideration transferred P560,000

Book value of interest acquired 500,000 x 80% 400,000
Goodwill P160,000
5. None, since the dividend revenue received from Stadium is closed to RE.
6. Beginning retained earnings of Pentium P260,000

Net income attributable to parent 294,000 -20,000 274,000
Pentium dividends for 2015 (120,000)
Consolidated retained earnings at December 31, 2015 P414,000
7. P1,000,000 – the share capital of Pentium.
8. 600,000+100,000-50,000 x 20% P130,000

9. None, since the investment account is eliminated.
10. Goodwill P160,000

Less impairment loss for 2014 and 2015 16,000
Goodwill as of December 31, 2015 P144,000
MULTIPLE CHOICE
Change 3-A No. 20 from 30% to 70%
3-A 1. C 5. C 9. A 13. B 17. B
2. B 6. A 10. C 14. D 18. C
3. B 7. C 11. D 15. B 19. B
4. A 8. A 12. C 16. C 20. A
3-B 1. B Consideration transferred P290,000

Excess of BV over cost 14,000
BV of interest acquired P304,000
2. A P58,400 ÷ 20% P292,000
3. B Consolidated working capital (P726,000 – P300,000) P426,000

Pole’s working capital (P436,000 – P166,000) 270,000
Sole’s working capital P156,000
3-C A Net income from own operations of Parker Co.100,000 - 8,500 P 91,500
Starter Co. net income 40,000
Consolidated net income P131,500
3-D 1. D Net income from own operations of Pentium

(P1,000,000 - P600,000 - P180,000) P220,000
Systems NI [P600,000 - P400,000 - P100,000] 100,000
Depreciation of excess of cost over BV of investment
(P416,000 - P400,000) / 80%/10 years ( 2,000)
Consolidated net income P 318,000
3-E 1. C 60,000-50,000+36,000 x 80% P 36,800
2. B Consideration transferred P756,000

Liquidating Dividends
(P60,000 + P36,000 – P50,000 – P50,000) x 80% 3,200
Investment balance, December 31, 2015 P752,800
3-F B 60,000 x 10% P 6,000
3-G Consideration transferred, Jan. 1, 2011 P820,000

Book value of interest acquired (P800,000 x 80%) 640,000

Excess of cost over BV P180,000
Equipment with 10-year life (P180,000 / 80% = 225,000/10 = 22,500

1. D RE – Singson, Dec. 31, 2013 P400,000
RE – Singson, Jan. 1, 2011 ( 200,000)
Depreciation on the excess allocated to equipment
P225,000 / 10 years x 3 years (67,500)
Net increase in Retained Earnings of Singson P132,500
Pingson’s share on the increase X 80%
Amount needed to convert the investment to equity basis P106,000
2. B Pingson’s separate net income P500,000
Singson’s net income 160,000 – 22,500 137,500
3. B Shareholders’ equity of Singson, January 1, 2014 P1,000,000

Net income for 2014 160,000
Dividends for 2014 ( 100,000)
Adjustment in assets 225,000
Depreciation 22,500 x 4 ( 90,000)
Shareholders’ equity of Singson, December 31, 2014 P1,195,000
Non-controlling interest percentage x 20%
Non-controlling interest, December 31, 2014 P 239,000
4. B P 100,000 x 20% P 20,000
3-H C Total shareholders’ equity on acquisition P250,000

Net Income 60,000
Dividends P2,000 x 20 (40,000)
Adjustment in Plant assets P208,500 – P187,500 = P21,000/75% 28,000
Differential Adjustment for Depreciation P28,000/10 ( 2,800)
Total shareholders’ equity December 31, 2014 P295,200
x 25%
3-I A Zero, eliminated
3-J 1. A TSE of Saddle Co., Jan. 1, 2014 (P70,000 / 20%) P350,000

Cumulative net income for 5 years ( 200,000)
Dividends paid 50,000
TSE of Saddle Co., Jan. 1, 2009 P200,000
Percentage of interest of Paddle x 80%
Book value of acquired investment P160,000
Excess of cost over book value of net assets 50,000
2. A 50,000 – 12,500 P 37,500

3-K 1. C Ordinary Share Capital (P75,000 x 90%) P 67,500

Retained earnings (P45,000 x 90%) 40,500
Book value of Slogan shares P108,000
2. C Consideration transferred P110,700

Book value of interest acquired 108,000
Excess of cost over book value P 2,700/
90%
P 3,000
3. C P4,500 x 90% P 4,050
Change 3-K No. 4 choice B to P199,200

4. B Retained earnings, January 1 P180,000
Net income from own operations 45,000
Share in subsidiary income (P 4,500 – 300) 4,200
Dividends declared and paid ( 30,000)
Consolidated RE (RE of parent), December 31, 2014 P199,200
3-L B Consideration transferred P 800,000

Book value of interest acquired 900,000 x 80% 720,000
Goodwill P 80,000
300,000 + (100,000 x 80%) – 4,000 = P376,000
3-M 1. B 80,000 -10,000 = 70,000 +35,000 – 5,000 P 100,000
2. C Total assets of Par P 1,110,000

Total assets of Sub 350,000
Total P 1,460,000
Adjustments and eliminations:
Investment in Sub ( 300,000)
Excess of cost over BV of investment:
Cost P300,000
Book value (OS – P30,000; APIC -
P100,000; RE – P115,000) 245,000
Goodwill P 55,000
Less Impairment loss 5,000 50,000
Consolidated total assets P1,210,000
3. A Retained earnings of parent company
4. C P55,000 – P5,000 P 50,000
5. A Total Stockholders’ equity of parent company P980,000
3-N C TSE of Polo before the combination P 6,000,000

FMV of OS issued by Polo (200,000 x P20) 4,000,000
Net income of Polo and Solo 1,550,000

Impairment loss ( 100,000)
Dividends paid by Polo ( 450,000)
Consolidated shareholders’ equity, Dec. 31, 2014 P 11,000,000
3-O B P3,000,000 X 7/10 = P2,100,000
3-P D Preston Expenses P 1,242,000

Seldon Expenses P 1,428,000
Differential adjustment:
(P800,000 – P660,000)/10 14,000 1,442,000
Consolidated Total Expenses P 2,684,000
3-Q 1. A P 6,500,000 + 630,000 @ 5 P 9,650,000
2. B P 4,400,000 + 630,000 @ 3 P 6,290,000
3. A Retained Earnings of Post
4. D Net income of Post (P 1,000,000 + P 1,100,000) P 2,100,000

Adjusted Net income of Shaw:
Net income P 500,000
Impairment loss on goodwill 5,100 494,900
P 2,594,900
5. B [(P9,000,000 + 300,000 + 500,000 – 350,000) P 9,450,000
X 40%
P3,780,000
3-R 1. A P1,000,000
2. A P1,000,000
3. A P120,000 x 80% = P96,000
4. C Subsidiary net income P240,000

Differential adjustment P60,000 + P80,000/10 14,000
P226,000
x 20%
P 45,200
5. D Ordinary share capital P 600,000

Retained earnings Jan 1, 2013 P400,000
Net income P200,000 + P240,000 + P260,000 700,000
Dividends P80,000 + P100,000 + P120,000 (300,000) 800,000
Book value P1,400,000
Adjustment of Equipment and Building to fair value 140,000
Addl depreciation P140,000/10 = P14,000 x 3 (42,000)
Goodwill P1,000,000/80% - P1,000,000 – P140,000 110,000
P1,608,000
x 20%
3-S D Let x = Net income of Port

x = P84,080 + .70 of NI of Sort
NI of Sort = (P12,000) + .20x
x = P84,080 + .70 [(P12,000) + .20x]

x = P84,080 - P8,400 + .14x
x = P75,680 + .14x
x = P75,680/.86
x = P88,000
3-T B 2,000,000 – 800,000 x 80% P960,000
3-U A 3,600,000 x 25% P900,000
3-V 1. B Net income from own operation:

Peter Corp. P600,000
Seller Co. P1,000,000 – P800,000 200,000
Amortization (12,000)
Non-controlling interest net income:
200,000 x 3/12 x 30% P15,000
200,000 x 9/12 x 20% 30,000
Differential adjustment:
P12,000 x 3/12 x 30% (900)
P12,000 x 9/12 x 20% (1,800) 42,300
Consolidated net income attributable to controlling int. P745,700
2. D
AA2 - CHAPTER 4
SUGGESTED ANSWERS
EXERCISES
Exercise 4 – 1
1. 2014 Sales 60,000
Cost of Sales 60,000
2. 2014 Sales 60,000


Inventory 20,000
2015 Retained Earnings, Parent 20,000

Inventory 20,000

3. 2014 Sales 60,000

Cost of Sales 5,000

Inventory 5,000
P20,000 x 25%

Cost of Sales 5,000
Exercise 4 - 2
1. 2014, 2015 and 2016 no entry under the cost method.
2. Consolidation elimination entries

2014 Sales 140,000
Cost of Sales P42,000/P140,000 x P40,000 12,000

Inventory 12,000

Inventory 12,000

3. 2014 2015 2016

Reported Net income P200,000 P350,000 P400,000
Unrealized profit (12,000) (12,000) 12,000
Realized net income P188,000 P388,000 P412,000
25% 25% 25%
NCI net income P 47,000 P 84,500 P103,000

Exercise 4 – 3
a. Sales 200,000
Cost of Sales P40,000/P200,000 = 20% 200,000
b. Cost of Sales 16,000

Inventory 16,000
P80,000 x 20% = P16,000
Exercise 4 – 4
a. Dividend Revenue 192,000
Dividends 192,000
b. Sales P600,000 + P400,000 1,000,000

Cost of Sales 1,000,000

Inventory 64,000
from Presto = P40,000 x 60% = P24,000
from Selecta = P80,000 x 50% = P40,000
d. Retained Earnings, Parent 76,000

Retained Earnings, Subsidiary P50,000 x 20% 10,000
from Presto = P 60,000 x 60% = P36,000
from Selecta = P100,000 x 50% = P50,000
Exercise 4 -5
Pasay Santolan Cons. NI
Net income from own operations P400,000 P360,000 P760,000
Impairment loss on goodwill ( 4,000) ( 4,000)
Unrealized profit on ending inventory
P32,000 x 33 1/3%/133 1/3% ( 8,000) ( 8,000)
Realized profit on beginning inventory
P227,500 x 40%/140% 65,000 65,000
Consolidated net income P461,000 P352,000 P813,000
NCI net income P352,000 x 20% P 70,400

Share in Subsidiary NI P352,000 x 80% 281,600
NI attributable to parent company P742,600
Exercise 4 - 6
1. Original cost of the equipment to Paredes Co. P2,000,000
Accumulated depreciation as of December 31, 2014 (P2,000,000 x 6/20) 600,000
Book value of equipment as of December 31, 2014 P1,400,000
2. Elimination entries
a. Gain on Sale of Equipment 300,000
Equipment 200,000
Accumulated Depreciation – Equipment 500,000
b. Accumulated Depreciation – Equipment 20,000

P300,000/15 = P20,000
Exercise 4 - 7
a. Sales 100,000

Inventory 10,000
P40,000 x 25% = P10,000
b. Gain on Sale of Machinery P3,000,000 – P2,400,000 600,000

Machinery 600,000
c. Cost of Sales P60,000 – P48,000 12,000

Inventory 12,000
Exercise 4 - 8
Requirement 1 and 2 Non-controlling
Consolidated interest
net income net income
Princess Inc. P 800,000
Stella Co. 1,000,000 P200,000
Unrealized gain on sale of machine ( 240,000)
Realized gain on sale of machine P240,00/6 40,000 ______
Total P1,600,000 P200,000
3. Book value of the machine to Princess Inc. at the time of sale P960,000
Less Depreciation for 2014 based on original book value P960,000/6 160,000
Book value of equipment as of December 31, 2014 P800,000
Exercise 4 - 9
1. Porter Sultan Cons. NI
Net income from own operation P8,000,000 P4,000,000 P12,000,000
Impairment loss on goodwill ( 20,000) ( 20,000)

Unrealized gain on sale of machine (400,000) ( 400,000)
Realized gain on sale of machineP400,000/5
80,000 80,000
Consolidated net income P7,980,000 P3,680,000 P 11,660,000
2. Non-controlling interest, January 1 (P2,000,000 x 20%) P400,000
Non-controlling interest net income
P3,680,000 x 20% 736,000
Non-controlling interest dividends (P1,000,000 x 20%) ( 200,000)
Non-controlling interest, December 31 P 936.000
Exercise 4 - 10
a. Dividend Revenue 60,000
Dividends 60,000
b. Sales 400,000
c. Retained Earnings, Paradise Co 7,500

Retained Earnings, Success Co. 2,500
Cost of Sales P40,000 x 1/3 x ¾ 10,000
d. Cost of Sales P60,000 x 1/3 x ¾ 15,000

Inventory 15,000
e. Gain of Sale of Equipment 80,000

Equipment 80,000
f. Equipment 10,000
Operating Expenses P80,000/8 10,000
Exercise 4 -11
Pomelo Corp. P240,000
Santol Co. (P140,000 x 90%) 126,000
Singkamas Corp. (P160,000 x 60%) 96,000
Unrealized gross profit on ending inventory of
Pomelo Corp. - seller Singkamas Corp. (P50,000 x 25% x 60%) ( 7,500)
Santol Co. - seller Pomelo Corp. (P100,000 x 30%) ( 30,000)
Unrealized gain on sale of machinery to Singkamas Corp. by Santol Co.
(P80,000 x 90%) ( 72,000)
Net income attributable to parent P352,500
PROBLEMS
Problem 4 - 1
Platinum Corp. and Subsidiary Silver Co.
Sales (P6,000,000 – P800,000) P5,200,000
Cost of Sales* 1,810,000

Gross Margin P3,390,000
Expenses 2,080,000
Consolidated Net Income P1,310,000
Non-controlling Interest net income** 70,000
Net Income Attributable to parent P1,240,000
* Combined cost of sales P2,600,000
Realized gross profit on beginning inventory
(P80,000 x 33 1/3%/133 1/3%) ( 20,000)
Unrealized gross profit on ending inventory
(P120,000 x 33 1/3%/133 1/3%) 30,000
Intra-group sales ( 800,000)
Consolidated cost of sales P1,810,000
** Non-controlling interest net income
(P360,000 + P20,000 – P30,000) x 20% P 70,000
Problem 4 - 2
1. Non-controlling interest net income P 26,180
Unrealized gross profit on ending inventory of Pedrito Co.
purchased from Salome Co. (P22,000 x 25%/125% x 20%) 880
Unadjusted share in net income of Salome Co. P 27,060
Non-controlling interest percentage ÷ 20%
Net income of Salome Co. P135,300
2. Non-controlling interest, December 31, 2014 P82,420

Add Unrealized gross profit on ending inventory of Pedrito Co.
purchased from Salome Co. 880
Total P83,300
Net assets of Salome Co., December 31, 2014 P416,500
3. Net assets of Salome Co., December 31, 2014 P416,500

Less: Net income for 2014 135,300
Net assets of Salome Co., January 1, 2014 P281,200
Book value (80%) P224,960
Excess due to undervaluation of land 25,000
Consideration transferred/cost of investment P249,960
Problem 4 -3
a. Sales 700,000
b. Retained Earnings, Pamela Co. 4,800

Cost of Sales 4,800
(P24,000 x 25/125 = P4,800)
Retained Earnings, Pamela Co. 3,375

Retained Earnings, Salve Co. 375

Cost of Sales 3,750
P15,000 x 33 1/3%/133 1/3% = P3,750

Inventory 11,000
P30,000 x 25%/125% = P6,000

P20,000 x 33 1/3%/133 1/3% = P5,000
P6,000 + P5,000 P11,000
Problem 4 - 4
Pentagon Co. and Subsidiary Sexagon Co.
Sales (P4,600,000 - P1,000,000) P3,600,000

Cost of Sales* 1,002,000
Gross Margin P2,598,000
Expenses (P1,664,000 - P6,000) 1,658,000
Consolidated Net Income P 940,000
Non-controlling net income** P 46,400
Net Income attributable to parent P 893,600
* Combined cost of sales P2,000,000

Pentagon (P40,000 x 50%) 20,000
Sexagon (P100,000 x 60%) 60,000
Realized gross profit on beginning inventory of
Pentagon (P60,000 x 50%) ( 30,000)
Sexagon (P80,000 x 60%) ( 48,000)
Intra-group sales ( 1,000,000)
Consolidated cost of sales P1,002,000
** Share in net income of Sexagon (P276,000 x 20%) P55,200
Realized gross profit on beginning inventory of
Pentagon (P30,000 x 20%) 6,000
Pentagon (P20,000 x 20%) ( 4,000)
Unrealized gain of sale of equipment by Sexagon
(P60,000 x 20%) ( 12,000)
Realized gain on sale of equipment by Sexagon
(P6,000 x 20%) 1,200
Non-controlling interest net income P46,400
Problem 4 - 5
Ordinary Share Capital (P600,000 x 80%) P480,000

APIC (P400,000 x 80%) 320,000
Retained Earnings (P400,000 x 80%) 320,000 1,120,000
Goodwill P 80,000
Impairment of goodwill (P4,000 x 2 years, 2013 and 2014 P 8,000
Balance of goodwill, Jan. 1, 2015 P72,000
Poland Co. and Subsidiary Sweden Co.

Poland Co. Sweden Adj. & Eliminations Non-cont. Consolidated
Co. Debit Credit Interest Statements
Income Statement
Sales 1,600,000 400,000 d) 360,000 1,640,000
Cost of Sales 800,000 300,000 f) 11,000 d) 360,000 681,000
e) 70,000
Gross Margin 800,000 100,000 959,000
Expenses 440,000 160,000 c) 4,000 604,000
Oper. Income (loss) 360,000 ( 60,000) 355,000
Net income (loss) 360,000 ( 60,000) 355,000
Non-cont. int. NI (6,600) ( 6,600)
NI (loss) carried forward 360,000 ( 60,000) 361,600
Retained Earnings St.
Bal, Jan. 1, 2015:
Poland Co. 1,054,400 c) 8,000 a) 160,000 1,142,400
e) 64,000
Sweden Co. 600,000 b) 600,000
e) 6,000 6,000
NI (loss) - brought forw. 360,000 ( 60,000) (6,600) 361,600
Total 1,414,000 540,000 1,504,000
Less Div. declared:
Poland Co. 160,000 160,000
Bal, Dec. 31, 2015 - 1,254,400 540,000 12,600 1,344,000
Stat. of Fin. Pos.

Cash 300,000 100,000 400,000
Accounts Rec. 180,000 60,000 g) 40,000 200,000
Inventories 120,000 80,000 f) 11,000 189,000
Equipment (net) 654,400 1,500,000 2,154,400
Inv. In Sweden Co. 1,200,000 a) 160,000 b) 1,360,000
Goodwill b) 80,000 c) 12,000 68,000
Total 2,454,400 1,740,000 3,011,400
AP & accrued exp 400,000 200,000 g) 40,000 560,000
OS, Poland Co. 800,000 800,000
OS, Sweden Co. 600,000 b) 600,000
APIC, Sweden Co. 400,000 b) 400,000
RE-brought forw. 1,254,400 540,000 (12,600) 1,344,000
Non-cont. interest b) 320,000 320,000 307,400

2,454,000 1,740,000 2,333,000 2,333,000 3,011,400
Explanation of adjusting and elimination entries:
a. To take up the share on the increase in Retained earnings of the subsidiary.

b. To eliminate subsidiary shareholders’ equity accounts.
c. To recognize impairment of goodwill since acquisition date.
e. To eliminate intra-group sales.
f. To recognize realized gross profit on beginning inventories of
Poland, seller - Sweden(P120,000 x 33 1/3%/133 1/3%) P30,000
Sweden, seller - Poland(P80,000 x 100%/200%) P40,000
g. To eliminate unrealized gross profit on ending inventories of
Poland, seller - Sweden (P12,000 x 33 1/3%/133 1/3%) P3,000
Sweden, seller - Poland (P16,000 x 100%/200%) P8,000
h. To eliminate intra-group receivable and payable.
Computation of non-controlling interest net income:

Unadjusted share in net income (loss) of Sweden Co. (P60,000 x 20%) P(12,000)`
Realized gross profit on beginning inventory of Poland Co. (P30,000 x 20%) 6,000
Unrealized gross profit on ending inventory of Poland Co. (P3,000 x 20%) ( 600)
Non-controlling interest net income (loss) P( 6,600)
Problem 4 -6
Palladium Co. and Subsidiary Stadium Co.
Palladium Stadium Adj. & Eliminations Non-con. Consolidated
Company Company Debit Credit Interest Statements
Income Statement
Sales 1,000,000 500,000 1,500,000
Cost of sales 400,000 300,000 700,000
Gross margin 600,000 200,000 800,000
Expenses 400,000 140,000 e) 5,000 535,000
Operating income 200,000 60,000 265,000
Gain on sale of equip 25,000 e) 25,000
Dividend Revenue 24,000 c) 24,000
Net income 249,000 60,000 265,000
Non-cont. Int. NI 12,000 12,000
NI (loss)- carried forw. 249,000 60,000 253.000
Retained Earnings Stat.

Balance, Jan. 1, 2016:
Palladium Co. 1,302,500 a) 224,000 1,526,500

Stadium Co. 430,000 b)430,000
NI - brought forward 249,000 60,000 12,000 253,000
Total 1,551,500 490,000 1,779,500
Less Dividends declared:
Palladium Co. 200,000 200,000

Stadium Co. 30,000 c) 24,000 6,000
Balance, Dec. 31, 2016 - 1,351,500 460,000 6,000 1,579,500
Stat of Financial Position
Cash 150,000 100,000 250,000

Accounts rec 130,000 100,000 230,000
Inventories 200,000 100,000 300,000
Land 300,000 300,000
Building 200,000 200,000
Equipment 651,500 500,000 d) 25,000 1,176,500
Inv. in Stadium Co. 320,000 a) 224,000 b)544,000
Total 1,951,500 800,000 2,456,500
Accounts payable 151,000 10,000 161,000
Acc. depr. - bldg. 20,000 20,000
Acc. depr. - equipt. 29,000 80,000 e) 5,000 d) 50,000 154,000
OS, Palladium Co. 250,000 250,000
OS, Stadium Co. 250,000 b)250,000
APIC, Palladium 150,000 150,000
RE-brought forward 1,351,500 460,000 6,000 1,579,500
Non-controlling int. b)136,000 136,000 142,000
Total 1,951,500 800,000 983,000 983,000 2,456,500
Explanation of adjusting and elimination entries

a. To take up the share on the increase in subsidiary retained earnings.
b. To eliminate subsidiary shareholders’ equity accounts.
c. To eliminate dividends from subsidiary.
d. To eliminate unrealized gain on sale of equipment
e. To recognize gain on sale of equipment.
Problem 4 - 7
Cost of investment P360,000
Book value of acquired investment:
Ordinary Share Capital (P300,000 x 80%) P240,000
Retained earnings (P90,000 x 80%) 72,000 312,000
Goodwill P 48,000
Impairment of goodwill P 2,400
Adjusting and elimination entries

a. Investment 65,600
Retained Earnings, Pluto Co. 65,600
To record share in the net increase in retained
earnings of Saturn Inc.
P225,000 + (9% of P300,000) - P80,000 = P172,000
P172,000 - P90,000 = P82,000 x 80% = P65,600
b. Ordinary Share Capital, Saturn Co. 300,000

Retained Earnings, Saturn Co. 172,000
Goodwill 48,000
Investment 425,600
To eliminated subsidiary stockholders' equity accounts
c. Retained Earnings, Pluto (P2,400 x 3 years) 7,200

Expenses 2,400
Goodwill 9,600
To record amortization of goodwill inlc. prior years
d. Sales 300,000
Cost of Goods Sold 300,000
To eliminate intra-group sale of merchandise.
e. Retained Earnings, Pluto Corp. 15,000

To record realized gross profit on beginning
inventory of Saturn Inc.
P90,000 - P30,000 = P60,000 x 25% = P15,000
f. Cost of Goods Sold 22,500

Inventories 22,500
To eliminate unrealized gross profit on ending
inventories of Saturn, Inc.
P90,000 x 25% = P22,500
g. Accounts Payable 108,000

To eliminate intercompany receivable and payable.
P63,000 + P45,000 = P108,000
h. Retained Earnings, Pluto 36,000

To eliminate unrealized gain on sale of building.
i. Accumulated Depreciation – Building 6,300

Expenses 1,800
Retained Earnings, Pluto (P1,800 x 2.5 yrs.) 4,500
To record amortization of unrealized gain on sale
of building of prior years and current year.
P36,000 / 20 yrs. = P1,800 per year
j. Notes Payable 24,000

Notes Receivable 24,000
To eliminate intercompany note receivable and
payable.
k. Other Current Liabilities 1,440

Other Current Assets 1,440

To eliminate intercompany interest receivable and
payable.
P24,000 x 12% x 6/12 = P1,440
l. Dividends Payable 21,600

Retained Earnings, Saturn Inc. 21,600
P300,000 x 9% x 80% = P21,600
Problem 4 - 8
Paloma P240,000
Selma (100% x P120,000) 120,000
Solita (90% x P96,000) 86,400
Sandara (80% x P80,000) 64,000
Realized gross profit on beginning inventory of Paloma, seller- Sandara
(P6,400 x 80%) 5,120
Paloma, seller - Sandara (P4,000 x 80%) ( 3,200)
Sandara, seller - Selma (P640,000 x 20% x 25% x 100%)) ( 32,000)
seller - Solita (P40,000 x 20% x 20% x 90%) ( 1,440)
Net income attributable to Paloma P478,880
Problem 4 - 9
Polaroid Co. and Subsidiary Solar Co.
Polaroid Solar Adj. & Eliminations Non-con Consolidated
Company Company Debit Credit Interest Financial Statem
Income Statement
Sales 1,000,000 500,000 e) 250,000 1,250,000
Cost of sales 400,000 300,000 g) 60,000 e) 250,000 480,000
f) 30,000
Gross margin 600,000 200,000 770,000
Expenses 390,000 140,000 d) 2,500 532,500
Operating income 210,000 60,000 237,500
Dividend Revenue 24,000 c) 24,000
Net income 234,000 60,000 237,500
Non-cont. Int. NI 12,000 12,000
NI (loss)- carried forward 234,000 60,000 225,500
Retained Earnings Statem
Bal., Jan. 1, 2015:

Polaroid Co. 1,367,500 d) 7,500 a) 224,000 1,554,000
f) 30,000
Solar Co. 430,000 b) 430,000

NI brought forward 234,000 60,000 12,000 225,500
Total 1,601,500 490,000 1,779,500
Less Div. declared:
Polaroid Co. 200,000 200,000
Solar Co. 30,000 c) 24,000 6,000
Bal, Dec. 31, 2015 car. forw 1,401,500 460,000 6,000 1,579,500
Stat of Financial Position
Cash 150,000 100,000 250,000

Accounts receivable 130,000 100,000 h) 35,000 195,000
Inventories 200,000 100,000 g) 60,000 240,000
Land 300,000 300,000
Building (net) 200,000 200,000
Equipment (net) 651,500 500,000 1,151,500
Inv. in Solar Co. 370,000 a) 224,000 b) 594,000
Goodwill b) 50,000 d) 10,000 40,000
Total 2,001,500 800,000 2,376,500
AP and accrued exp 151,000 90,000 h) 35,000 206,000

Bonds payable 49,000 49,000
OS, Polaroid Co. 250,000 250,000
OS, Solar Co. 250,000 b) 250,000
APIC, Polaroid Co. 150,000 150,000
RE-brought forward 1,401,500 460,000 6,000 1,579,500
Non-cont. interest b) 136,000 136,000 142,000
Total 2,001,500 800,000 1,239,500 1,239,500 2,376,500
Explanation of adjusting and elimination entries:

a. To recognize share of Polaroid Co. in the net increase in the retained earnings account
balance of Solar Co.
RE, Jan. 1, 2015 P430,000
RE, Jan. 1, 2013 (P400,000 – P250,000) 150,000
Net increase in retained earnings P280,000
Share of Polaroid Co. (P280,000 x 80%) P224,000
b. To eliminate subsidiary shareholders' equity account.

c. To eliminate dividend income of Polaroid Co.
d. To record amortization of goodwill for the period 2013 to 2014 and for 2015.
e. To eliminate intra-group sales.
f. To record realized gross profit on beginning inventory of Solar Co.
g. To eliminate unrealized gross profit on ending inventory of Solar Co.
h. To eliminate intra-group receivable and payable.
Computation of goodwill
Book value of acquired investment (P400,000 x 80%) 320,000
Goodwill P 50,000
Computation of consolidated net income and non-controlling interest net

income
Net income Non-contr. int.
Attrib. to parent net income
Polaroid Co. P234,000
Solar Co. 48,000 P12,000
Impairment of goodwill ( 2,500)
Realized gross profit on beginning inventory 30,000
Unrealized gross profit on ending inventory ( 60,000)
Dividend income from Solar ( 24,000) ______
MULTIPLE CHOICE
4-A 1. A 6. A 11. B 16. C

2. B 7. A 12. A 17. B
3. A 8. B 13. A 18. A
4. D 9. A 14. B 19. B
5. C 10. C 15. C 20. C
4-B D P220,000 + P80,000
4-C 1. B
2. A
3. D P150,000 – P80,000 = P70,000
4-D D Net income from own operations:

Palacio P152,000
Silahis 92,000
Sultan 64,000
Unrealized gross profit on ending inventory of Palacio
on purchases from Silahis ( 1,200)
from Sultan ( 2,600)
Realized gross profit on beginning inventory of Palacio
on purchases from Silahis 2,400
from Sultan 2,000
4-E C Net income from own operations:

Pearl P200,000
Sapphire 200,000
Unrealized gross profit on ending inventory of Sapphire
(P180,000 x 40% x 20%/120%) ( 12,000)
4-F 1. A NI attributable Non-cont.
2. C to parent Interest NI
3. C Net income from own operations:
Pancho P120,000
Sanchez 56,000 P14,000
Realized gross profit on beginning invty.
of Pancho 640 160
Unrealized gross profit on ending invty. of
Pancho (P40,000 x 20% x 25%/125%) ( 1,280) ( 320)
Sanchez (P100,000 x 20% x 25%/125%) ( 4,000) ______
4-G B Net income from own operations:

Panay P 90,000
Sta. Ana 75,000
Unrealized gross profit on ending inventory of Sta. Ana
(P60,000 x 20%) ( 12,000)
Unrealized gain on construction of warehouse by Sta. Ana (30,000)
Realized gain on warehouse (P30,000 / 5 yrs. 6,000
Change 4-H No. 3 letter D choice to P295,160
4-H 1. D NI attributable Non-cont int.
to parent net income

2. B Net income from own operations:
Pureza P200,000
3. D Sta. Mesa 80,000 P20,000
Realized gross profit on beginning inventory
of Sta. Mesa (P4,800 x 25%/125%) 960
Unrealized gross profit on ending inventory
of Sta. Mesa (P9,000 x 25%/125%) ( 1,800) ______
4. C Non-controlling interest, January 1, 2014 (P400,000 x 20%) P 80,000

Non-controlling interest net income 20,000
Non-controlling interest dividends (P20,000 x 20%) ( 4,000)
Non-controlling interest, December 31, 2014 P 96,000
4-I C Net income from own operation P400,000

Unadjusted share in the NI of San Simon
(P200,000 x 80%) 160,000
Unrealized profit on ending inventory of San Simon
(P18,000 x 25%/125%) ( 3,600)
Realized profit on beginning inventory of San Simon
(P9,600 x 25%/125%) 1,920
Net income attributable to parent for 2014 P550,320
4-J 1. D Non-controlling interest net income P 30,560

Add Unrealized GP on Ending Inventory of Panasonic Co.
(36,000 x 25%/125% = P7,200 x 20%) 1,440

Unadjusted share in Net Income of Supersonic Co. P 32,000
Net income of Supersonic Co. P 160,000
2. D Non-controlling interest, Dec. 31, 2014 P158,560

Less Non-controlling interest net income 30,560
Non-controlling interest, January 1, 2014 P120,000
Percentage of non-controlling interest ÷ 20%
Net assets of Supersonic Co., Jan. 1, 2014 P640,000
Add Net income of Supersonic Co. for 2014 160,000
Net assets of Supersonic Co., Dec. 31, 2014 P800,000
3. C Net assets of Supersonic Co., Jan. 1, 2014 P640,000

Percentage of interest acquired x 80%
Book value of investment acquired P512,000
Excess of cost over book value of investment 20,000
Price paid for investment P532,000
4-K A 2014 2015
Unadjusted share in net income of Soriaga Co.
2014 - P320,000 x 30% P 96,000
2015 - P360,000 x 30% P108,000
Gross profit on merchandise sold by Soriaga
Co. to Pasadena Corp. in 2014 and sold by
Pasadena in 2015 (P8,000 x 30%) ( 2,400) 2,400
Non-controlling interest net income P 93,600 P110,400
4-L D 520,000 x 25/125 x 20% = P28,800

X 80% = P83,200
4-M 1. A Subsidiary net income in 2013 P60,000

Eliminate profit in transfer of land ( 10,000)
P50,000
Percentage of ownership X 80%
Parent’s income from subsidiary P40,000
2. B P80,000 x 80% = P64,000
3. C P100,000 + P10,000 = P110,000 x 80% = P88,000

4. A
5. C
6. C
7. D
8. C
9. C
10. D
4–N C Original cost of P750,000

NI attributable Non-cont
4- O 1. A to Parent interest N I
2. B Pateros Co. P120,000
Santiago Co. 67,200 P16,800
Unrealized gain on sale of machinery to
Pateros by Santiago (P300,000 - P250,000) ( 40,000) ( 10,000)
Realized gain on sale of machinery
(P50,000/8 years = P6,250) 5,000 1,250
Consolidated net income P160,250 P152,200 P 8,050
3. B Book value of machinery, Jan. 1, 2014 P250,000

Less Depreciation expense for 2014 (P250,000/8 years) 31,250
Book value of machinery, Dec. 31, 2014 P218,750
4-P 1. D to parent interest N I
Portero P 80,000
2. D Sotero 80,000 P 20,000
Unrealized gain on sale of machine ( 30,000)
Realized gain on sale of machine
(P30,000/6 years) 5,000 _______
Consolidated net income P155,000 P 135,000 P 20,000
3. B Book value of machine, Jan. 1, 2014 P 90,000

Less Depreciation for 2014 (P90,000/6 years) ( 15,000)
Book value of machine, Dec. 31, 2014 P 75,000
4-Q 1. B to parent interest NI
2. B Pedro Co. P 800,000
Sixto Co. 320,000 P 80,000
3. B Impairment of goodwill ( 16,000)
Unrealized gain on sale of equipment ( 80,000)
Realized gain on sale of equipment
(P80,000/5 x 9/12) 12,000 ______
Consolidated net income P1,116,000 P 1,036,000 P 80,000
4. C Non-controlling interest, Jan. 1, 2014 (P1,600,000 x 20%) P 320,000

Non-controlling interest net income 80,000
Non-controlling interest dividends (P80,000 x 20%) ( 16,000)
Non-controlling interest, Dec. 31, 2014 P 384,000
4-R D P405,000 + P45,000 = P450,000/P150,000 = 3 yrs
4-S A 2014 2015

Unrealized gain on sale of machinery (P20,000) P ------
Realized gain (P20,000/5 years) 4,000 4,000
Net adjustments (P16,000) P4,000
4–T C 500,000 -360,000 = 140,000 x 75% = 105,000
4-U C 2,000,000 – 1,250,000 = 750,000
4-V B Depreciation based on cost 400,000/8 = 50,000 per year

Carrying value 400,000 -150,000 = 250,000
Depreciation based on fair value 230,000/5 = 46,000
Carrying value 230,000 – 46,000 = 184,000
End of 2014 End of 2015
Based on Cost 200,000 150,000
Base on fair value 184,000 138,000
Difference 16,000 12,000
1
AA2 - CHAPTER 5
SUGGESTED ANSWERS
EXERCISES
Exercise 5 - 1
1. Property, Plant and Equipment 2,250,000

Revaluation Surplus 2,250,000
2. Revaluation Surplus 800,000

Exercise 5 - 2
Books of Contina Co.

Note Payable 3,000,000
Interest Payable 300,000
Cash 120,000
Land 1,200,000
Gain on Transfer of Land 600,000
Gain on Extinguishment of Liability 1,380,000
Books of Maunlad Bank

Cash 120,000
Land 1,800,000
Bad Debts Expense 1,380,000
Note Receivable 3,000,000
Interest Receivable 300,000
Exercise 5 - 3
Books of Walana Co.

Note Payable 8,000,000
Ordinary Share Capital (40,000 sh @ P50) 2,000,000
Preference Share Capital (20,000 sh @ P100) 2,000,000
Ordinary Share Premium (40,000 sh @P30) 1,200,000
Preference Share Premium (20,000 sh @ P20) 400,000
Books of Masagana Corp.

Investment in Equity Securities – Ordinary Shares 3,200,000
Investment in Equity Securities – Preference Shares 2,400,000
Note Receivable 8,000,000
Exercise 5 - 4
Carrying value of the obligation:

Face value P7,500,000
Unamortized premium 210,000
Accrued interest 750,000
Total P8,460,000
NOTE: the bonds will be due Dec. 31, 2018
Books Peligro Co. (debtor)
1. no entry
Total future cash payments:
Interest (P7,500,000 x 5% x 5 years) 1,875,000
Total P9,375,000
Total future cash payments is greater than carrying value; hence no entry.
2. Bonds Payable 7,500,000

Premium on Bonds Payable 210,000
Restructured Obligation 6,750,000

Total P6,750,000
Carrying value of obligation 8,460,000
Gain on extinguishment of liability P1,710,000
3. Bonds Payable 7,500,000

Premium on Bonds Payable 210,000

Total P7,150,000
Books of Creditor
1. Bad Debts Expense 2,355,431

Allowance for Uncollectible Accounts 1,605,431
PV of principal payment at historical rate of 10%

(P7,500,000 x .6209) P4,656,750
PV of interest payment at historical rate of 10%.
(P7,500,000 x 2.5% = P187,500 x 7,7217) 1,447,819
Total P6,104,569
Carrying value of receivable 8,460,000
Loss / bad debts expense P2,355,431
2 Bad Debts Expense 3,928,567


(P4,500,000 x .6209) P2,794,050
(P4,500,000 x 5% = P225,000 x 7,7217) 1,737,383
Total P4,531,433
3. Bad Debts Expense 3,770,970


(P5,500,000 x .6209) P3,414,950
(P5,500,000 x 3% = P165,000 x 7,7217) 1,274,080
Total P4,689,030
Exercise 5 - 5
Book Appraised Est. Amount Loss (Gain) on

Value Assets Value Available Realization
Free assets:
P44,000 Finished goods P49,000 P49,000 (P 5,000)

33,000 Work in process:
Est. value upon completion P70,000
Costs to complete:
Materials (10,000)
labor and other costs (17,000) 43,000 43,000 (10,000)
40,000 Materials
Required to complete WIP P10,000
Balance, est. to realize 27,000 37,000 37,000 3,000
Exercise 5 - 6
When there are mutual debts between a bankrupt and a creditor, one balance is set off against the other and
only the difference is recognized for purpose of settlement. Therefore:
(1) Under the heading "Unsecured Creditors", the cash in the savings account with AB Bank,
P70,000, will be applied against the cash overdraft in the checking account with AB Bank,
P90,000, and the overdraft excess of P20,000 will be extended to the "Amount Unsecured"
column;
(2) Under the heading "Free Assets", the cash overdraft in the checking account with CD
Bank, P30,000, will be applied against the cash balance representing sinking fund
accumulation with CD Bank, P330,000, and the sinking fund excess of P300,000 will be
extended to the "Estimated Amount Available" column.
Book values of the asset and liability items would be listed in the "Book Value" columns within the sections
indicated above, with subtraction items being reported as negative balances in the "Book Value" columns.
Exercise 5 - 7
Book Appraised Est. Amount Loss (Gain) on

Assets pledged with fully secured creditors:
P20,000 (a) Mercury stock (200 shares) P22,000 (P 2,000)
Less Claim (see contra) 21,000 P 1,000
Assets pledged with partly secured creditors:

90,000 (d) Accounts receivable (deducted contra) 40,000 50,000
Free assets:
40,000 (a) Mercury stock (400 shares) P22,000 22,000 ( 2,000)
40,000 (b) Work in process:
Materials ( 1,000)
Labor ( 4,000) 31,000 31,000 9,000
24,000 (c ) Materials
Required to complete WIP P 1,000

Balance, est. to realize 25,000 26,000 26,000 ( 2,000)
Book Amount
Value Liabilities and Stockholders' Equity Unsecured
P21,000 Fully secured creditors:
Claims (deducted contra) P21,000
Partly secured creditors:

45,000 Notes payable P45,000
Less security: Accounts receivable (see contra) 40,000 P 5,000
Exercise 5 - 8
Cameron Company, Debtor
Deficiency Statement
Estimated losses on realization of assets:

Accounts receivable P13,200
Inventories 48,000
Prepaid insurance and other prepaid expenses 1,200
Machinery and equipment 40,000
Goodwill and patents 90,000 P192,400
Additional liabilities:
Liquidation costs P10,000
Contingent liabilities 15,000 25,000
Estimated gross loss P217,400
Deduct:
Estimated gains on realization of assets:
Land and buildings 45,000
Estimated net loss P172,400
Loss to be borne by owners:
Capital stock P200,000
Less deficit 31,000 169,000
Estimated deficiency to unsecured creditors P 3,400
Exercise 5- 9
Clippers Company, Debtor
Statement of Affairs
November 30, 2014
Creditors
With Fully Partly
Liabilities Priority Secured Secured Unsecured
Mortgage payable P200,000
Notes payable P 80,000 P 20,000
Liabilities with priority P 30,000
Unsecured liabilities 210,000
Totals P 30,000 P200,000 P 80,000 P230,000
Assets Available to Creditors

With Fully Partly
Assets Priority Secured Secured Unsecured
Land and buildings P200,000 P120,000
Furniture and equipment P 80,000
Other assets 90,000
Creditors with priority ( 30,000)
Totals P 30,000 P200,000 P 80,000 P180,000
Total unsecured creditors P230,000

Estimated amount available to unsecured creditors without priority 180,000
Estimated amount payable per peso of unsecured liability (P180,000/P230,000) P .78
PROBLEMS
Problem 5 -1
1.
Books of Mahina Co.
Mortgage Note Payable 6,000,000
Land 2,500,000
Gain on Transfer of Land 2,250,000
Books of Malakas Corp.

Land 4,750,000
Mortgage Note Receivable 6,000,000
2.
Books of Mahina Co.
Ordinary Share Capital 2,000,000
Ordinary Share Premium 2,500,000

Investment in Equity Securities 4,500,000
Mortgage Note Receivable 6,000,000
3.
Books of Mahina Co.
No entry

PV of principal payment
(P6,000,000 x .7513) P4,507,800
CV of receivable 6,000,000
Bad debts expense P1,492,200
4.
Books of Mahina Co.

Interest (P4,000,000 x 6% x 3 years) 720,000
Total P4,720,000


(P4,000,000 x .7513) P3,005,200
PV of interest payment at historical rate of 10%
(P4,000,000 x 6% = P240,000 x 2.4869( 621,725
Total PV P3,626,925
CV of receivable 6,000,000
Bad debts expense P2,373,075
Problem 5 -2
Broadway
Statement
January
Estimated Loss (Gain)
Book Appraised Amount on
P60,000 Merchandise inventory P P
42,000 18,,000
Less Claim: Note payable and accrued interest
(see contra) 40,400 P 1,600
36,000 Delivery equipment (deducted contra) P 8,000
28,000
Free assets:
9,700 Cash 9,700 9,700
41,000 Notes receivable and accrued interest 26,800 26,800 14,200
87,000 Accounts receivable 75,000 75,000 12,000
20,000 Merchandise inventory 14,000 14,000 6,000
8,000 Furniture and fixtures 9,000 9,000 (1,000)
50,000 Goodwill 0 0 50,000
1,000 Prepaid insurance 0 0 1,000
P 108,200
Estimated amount available P136,100
Creditors with priority (see contra) 12,800
Estimated amount available to unsecured creditors
without priority (approximately P.71 on the peso) P123,300
Estimated deficiency to unsecured creditors 49,900
P312,700 P173,200
Company
of Affairs
31, 2014
Book Amount
Creditors with priority:
Estimated liquidation expenses P12,000
P 800 Accrued salaries and wages 800
Total (deducted contra) P12,800
Fully secured creditors:
400 Add Accrued interest on notes payable 400
900 Add Accrued interest on notes payable 900
Total P30,900
Less security; Delivery equipment (see contra) 28,000 P 2,900
Unsecured creditors:
300 Add accrued interest on notes payable 300 30,300
136,000 Accounts payable 136,000
Notes receivable discounted 4,000
Shareholders' equity:
100,000 Share capital
10,000 Premium on share capital
(35,700) Deficit
P312,700 Total unsecured liabilities P173,200
Problem 5 – 2 – Req. 2
Broadway Company, Debtor

January 31, 2014

Merchandise inventory P 24,000
Delivery equipment 8,000
Notes receivable and accrued interest 14,200
Accounts receivable 12,000
Goodwill 50,000
Prepaid insurance 1,000 P109,200
Estimated liquidation expenses P 12,000
Notes receivable discounted 4,000 16,000
Deduct:
Furniture and fixtures 1,000
Share capital P100,000
Premium on share capital 10,000
P110,000
Less deficit 35,700 74,300
Problem 5-3 (Req. 1)

Crooked
Statement
July
P60,000 Land P140,000 P20,000
100,000 Buildings
Less claim: First mortgage bonds and accrued
interest (see contra) 123,000 P17,000
42,000 Finished goods (deducted contra) P 36,000 6,000
Free assets:
8,100 Cash 8,100 8,100
42,000 Finished goods 36,000 36,000 6,000
70,000 Work in process:
Less cost to complete 30,000 50,000 50,000 20,000
40,000 Materials 28,000 28,000 12,000
40,000 Patterns, jigs, and tools 8,000 8,000 32,000
70,000 Machinery and equipment 16,000 16,000 54,000
2 Intangibles 5,000 5,000 ( 4,998)
2,000 Prepaid insurance 0 0 2,000
P153,002

Estimated amount available to unsecured creditors _______
without
priority (approximately P0.75 on the peso) P207,600
_______ Estimated deficiency to unsecured creditors 68,200
P553,102 P275,800
Company
of Affairs
1, 2014
Book Amount
P 7,700 Accrued wages 8,500
Total (deducted contra) P 33,500
120,000 First mortgage bonds P120,000
3,000 Add Accrued interest on mortgage bonds 3,000
50,000 Notes payable P 50,000
1,200 Add Accrued interest on notes payable 1,200
P 51,200
Less security: Finished goods (see contra) 36,000 P 15,200
3.600 Accrued interest on notes 3,600 80,600
Shareholders" equity:
31,000 Additional paid-in capital

(120,398) Deficit
_______ _______
Problem 5–3 (Req. 2)
Crooked Company
July 1, 2014

Land and buildings P 20,000
Finished goods 12,000
Accounts receivable 6,000
Work in process 20,000
Materials 6,000
Patterns, jigs, and tools 32,000
Prepaid insurance 2,000 P158,000
Estimated liquidation expenses P25,000
Accrued wages 800 25,800
Deduct:

Intangibles 4,998

P231,000
Less Deficit 120,398 110,602
Problem 5 – 3 (Req. 3)
Crooked Company
Summary of Estimated Payments to Creditors
July 1, 2014
Percentage Amount to
Payment Claim be Paid
Estimated liquidation expenses 100% P 25,000 P 25,000
Accrued wages 100 8,500 8,500
P 33,500
First mortgage bond 100% P120,000 P120,000
Accrued interest on bonds 100 3,000 3,000
P123,000
Notes payable ----- P 50,000 --------
Accrued interest on notes payable ----- 1,200 --------
P 51,200
Secured 100% 36,000 P 36,000
Unsecured 75 P 15,200 11,400

P 47,400
Notes payable 75% P 77,000 P 57,750
Accrued interest on notes payable 75 3,600 2,700
Accounts payable 75 180,000 135,000
P195,450
Note relative to "Summary of Estimated Payments to Creditors": Estimated payment on the unsecured
portion of the notes of P11,400, and on the remaining unsecured liabilities, P195,450, results in a total of
206,850, which is p750 less than the estimated amount to become available to unsecured creditors as
reported by the statement of affairs. The discrepancy emerges because the estimated amount available as
determined by the statement is actually slightly more than the 75% figure and the resulting discrepancy is
not objectionable, however, in view of the fact that the data are presented as estimates and a refinement of
such data would suggest a degree of accuracy that is not attainable.
Problem 5 - 4
Payless
Statement
June
P 80,000 Accounts receivable P 80,000
Less claim; Notes payable (see contra) 60,000 P20,000
26,000 Land P 50,000 (P 24,000)
180,000 Buildings 200,000 ( 40,000)
240,000 Machinery 150,000 90,000
Total P420,000
Less claim: Mortg.and accrued int. (see contra) 264,800 155,200

40,000 Marketable securities P 38,000 2,000
Accrued interest 400 ( 400)

Free assets:
4,000 Cash P 3,000 3,000 1,000
60,000 Accounts receivable P60,000
Add credit balance (see contra) 10,000 70,000 70,000
120,000 Finished goods 100,000 100,000 20,000
80,000 Materials, expected to be realized as
finished goods P140,000
Less cost to complete 20,000 120,000 120,000 ( 40,000)
40,000 Goodwill 0 40,000
10,000 Prepaid expenses 0 ______ 10,000
P 58,600
Creditors with priority 83,000
Estimated amount available to unsecured creditors P385,200
w/o priority
P880,000 P421,600
(2) Estimated settlement per peso of unsecured liabilities: estimated amount available, P385,200,
divided by total unsecured liabilities, P421,600, 91% or P0.91 on the peso.
Corporation
of Affairs
30, 2014
Book Amount
P 30,000 Withheld taxes payable P 30,000
Employer payroll taxes payable 1,000
30,000 Accrued wages 30,000
Estimated liquidation expenses 20,000
Auditor's fee for liquidation work 2,000

60,000 Notes payable (deducted contra) P 60,000
260,000 Mortgages payable P260,000

Add Accrued interest 4,800

Less security: Marketable securities and accrued interest
(see contra) 38,400 P 1,600
170,000 Notes payable 170,000
Accounts receivable (credit balances) 10,000
Unbilled auditor's fee 10,000
Estimated liability on pending damage suit 100,000
(40,000) Retained earnings (deficit)
________ _______
P880,000 Total unsecured liabilities P421.600
Problem 5 – 5
Mackintosh
Statement
November
P105,000 Land P250,000 (P 15,000)
130,000 Buildings
Less claim, mort. payable, and accrued interest
(see contra) 205,000 P 45,000
90,000 Investments (deducted contra) 55,000 35,000
Free assets:
31,500 Cash 31,500 31,500
230,000 Inventories 145,000 145,000 85,000
110,000 Machinery and equipment (net) 30,000 30,000 80,000
100,000 Goodwill 0 0 100,000
303,750
Estimated amount available to unsecured creditors P322,050
w/o priority
P921,500 P362,500
(2) Estimated amount available, P322,050, divided by total unsecured liabilities, P362,500, equals
estimated amount payable on claims, 89% or 89 centavos on the dollar.
Company
of Affairs
01, 2014
Book Amount
Taxes payable 4,000
Wages payable 1,700
P200,000 Mortgage payable P200,000

Add Accrued interest 5,000
Add accrued interest 2,500
Total P 82,500
Less security: Investments (see contra) 57,000 P 27,500
50,000 Additional paid-in capital
(143,500) Retained earnings (deficit)
CORRECTION: Additional paid-in capital is P50,000 instead of P40,000.
2.
Mackintosh Company
November 1, 2014

Accounts receivable P 18,750
Inventories 85,000
Investments 35,000
Goodwill 100,000 P318,750
Taxes payable 4,000
Wages payable 1,700
Accrued interest on notes payable 2,500
Accrued interest on mortgage 5,000 43,200
Deduct:
Land and buildings 15,000
P450,000
Less deficit 143,500 306,500
1
AA2 - CHAPTER 6
SUGGESTED ANSWERS
EXERCISES
Exercise 6-1
Trustee's Books
a. Purchases 30,000
Trustee's Certificates Payable 30,000
b. Accounts Receivable 160,000

Sales 160,000
c. Corporation Liability paid - Accounts Payable, Old 24,000

Cash 24,000
d. Trustee's Certificates Payable 17,000

Cash 17,000
e. Cash 28,000
Allowance for Doubtful Accounts, Old* 3,000
Accounts Receivable, Old 31,000
f. Cash 92,000
Allowance for Doubtful Accounts* 1,300
g. Corporation Liability Paid - Notes Payable, Old 30,000

Corporation Liability Paid - Accrued Interest on NP, Old 300
Corporation - Interest Expense on NP, Old 600
Cash 30,900
h. Cash 11,200
Accumulated Depreciation - Furniture and Fixtures 8,000
Corporation - Loss on Sale of Furniture and Fixtures 800
Furniture and Fixtures 20,000
*Corporation Uncollectible Accounts Expense

may also be used.
Exercise 6 - 2
It is assumed in the following solution that all expenses and losses of the debtor are to be reflected
on the debtor's books. It is further assumed that the debtor recognized the liquidation of liabilities
of P30,000 by the trustee at the time such debt was paid.
Trustee's Books
a. Rowina Co. - Debtor 32,000
Rowina Co. - Loss on Sale of Investments 32,000
b. Sales 160,000
Income Summary 40,000
c. Income Summary 20,000

Rowina Co. - Debtor 20,000
d. Rowina Co. - Debtor 30,000

Liabilities Paid - Robinson co. 30,000
Company's Books
a. Loss on Sale of Investments 32,000
Henry Ly, Trustee 32,000
b. Henry Ly, Trustee 20,000


Loss on Sale of Investments 32,000
Interest on Mortgage 5,000
d. Retained Earnings 37,000

Exercise 6 - 3
Trustee's Books
a. Corporation Liability Paid - Notes Payable, Old 40,000

Corporation Liability Paid - Accrued Int. on NP, Old 300
Golden City, Debtor 700
Cash 41,000
b. Cash 60,000
Investments 45,000
Golden City, Debtor 15,000
c. Corporation Liability Paid - Bonds Payable 100,000

Cash 63,500
d. Cash 3,200
Accumulated Depreciation - Plant and Equipment 3,200
e. Income Summary 12,400


Corporation Liability Paid - Notes Payable, Old 40,000
Corporation Liability Paid - Accrued Int. on NP, Old 300
Corporation Liability Paid - Bonds Payable 100,000
Company's Books
a. Notes Payable 40,000
Accrued Interest on Notes Payable 300
Interest Expense 700
Trustee 41,000
b. Trustee 15,000
Gain on Sale of Investments 15,000
c. Bonds Payable 100,000

Interest Expense 1,500
Trustee 63,500
Gain on Bond Retirement 38,000
d. Loss on Sale of Plant and Equipment 5,600

Trustee 5,600
e. Trustee 12,400
Profit from Trusteeship Operations 12,400
Gain on Sale of Investments 15,000

Gain on Bond Retirement 38,000
Profit from Trusteeship Operations 12,400
Loss on Sale of Plant and Equipment 5,600
Interest Expense 2,200
Exercise 6 - 4
Assignee's Books
a. Corporation Liability Paid - Mortgage Note, Old 80,000

Corporation - Loss on Settlement with Creditors 50,000
Land and Building 130,000
b. Corporation Liability Paid - Trade Accounts Payable 70,000

Cash 41,000
Corporation - Gain on Settlement with Creditors 29,000
Corporation - Gain on Settlement with Creditors 29,000
Corporation - Loss on Settlement with Creditors 50,000
d. Panther Co., Debtor 228,000

Corporation Liability Paid - Mortgage Note, Old 80,000
Corporation Liability Paid - Trade Accounts Payable 70,000
Company's Books
a. Trade Accounts Payable 70,000
Mortgage Note 80,000
E. Baylor, Assignee 150,000
b. Retained Earnings 78,000

E. Baylor, Assignee 78,000

d. Capital Stock 100,000

PROBLEMS
Problem 6 –1
a. Cash 11,500
Notes Receivable, Old 50,000
Accrued Interest on Notes Receivable, Old 800
Merchandise Inventory 80,000
Dick Corp. Stock 30,000
Allowance for Uncollectible Accounts, Old 2,600
Accumulated Depreciation – Furniture and Fixtures 7,500
Slowly Corp., Debtor 322,200
b1 Accounts Receivable 280,000

Sales 280,000
b2. Purchases 160,000

b3. Cash 156,000

Sales Returns and Allowances 6,000
Sales Discount 8,000
b4. Cash 49,120

Corporation - Loss on Notes Receivable, Old 2,000
Corporation - Loss on Accrued Int. on NR, Old 200
Accrued Interest on Notes Receivable, Old 800
Interest Income 520
b5. Cash 110,000

Allowance for Uncollectible Accounts, Old 2,600
Corporation - Loss from Uncollectible Accounts, Old 17,400
b6. Cash 24,000

Dick corp. Stock (1,000 shares x P20) 20,000
Corporation - Gain on Sale of Dick Corp. Stock 4,000
b7. Accounts Payable 66,000

Cash 25,000
Notes Payable 36,000
Purchase Returns and Allowances 4,000
Purchase Discounts 1,000
b8. Corporation Liability Paid- Notes Payable, Old 50,000

Corporation Liability Paid - Accrued Int. on NP, Old 2,100
Corporation - Interest Expense on Notes, Old 700
Cash 52,800
b9. Corporation Liability Paid - Accounts Payable, Old 130,000

Cash 130,000
b10. Selling Expenses 37,000

General Expenses 46,600
Cash 83,600
c1. Income Summary 80,000

c2. Merchandise Inventory 66,500

c3. Uncollectible Accounts Expense (P110,000 x 2%) 2,200

Allowance for Uncollectible Accounts 2,200
c4. Depreciation - Furniture and Fixtures 2,000

(P30,000 x 10% x 8/12)
c5. Selling Expenses 500

General Expenses 600
Accrued Selling Expenses 500
Accrued General Expenses 600
c6. Corporation - Interest Expense on Notes, Old 300
c7. Interest Expense 400

c8. Sales 280,000

Purchase Returns and Allowances 4,000
Purchase Discount 1,000
Interest Income 520
Purchases 160,000
Sales Returns and Allowances 6,000
Sales Discount 8,000
Selling Expenses 37,500
General Expenses 47,200
Uncollectible Accounts Expense 2,200
Depreciation - Furniture and Fixtures 2,000
Interest Expense 400

Corporation - Gain on Sale of Dick Corp. Stock 4,000
Corporation - Interest Expense on Notes, Old 1,000
Corporation - Loss on Notes Receivable, Old 2,000
Corporation - Loss on Accrued Int. on NR, Old 200
Corporation - Loss from Doubtful Accounts, Old 17,400
c10. Slowly Corp., Debtor 7,880

c11. Slowly Corp., Debtor 182,100

Corporation Liability Paid - Notes Payable, Old 50,000
Corporation Liability Paid - Accrued Int. on NP, Old 2,100
Corporation Liability Paid - Accounts Payable, Old 130,000
d. Slowly Corp., Debtor 132,220


Cash 59,220
Dick Corp. Stock (500 shares) 10,000
Corporation's Books
(The transactions on the corporation's books are numbered to correspond
with the transactions on the trustee's books)
a. AC Maayos, Trustee 322,200

Cash 11,500
Accrued Interest on Notes Receivable 800
Dick Corp. Stock 30,000
b8. Notes Payable 50,000

Accrued Interest on Notes Payable 2,100
AC Maayos, Trustee 52,100

c10. Retained Earnings 7,880

AC Maayos Trustee 7,880
d. Cash 59,220
Dick Corp. Stock (500 shares) 10,000
Allowance for Doubtful Accounts 2,200

Problem 6 -1
Requirement 2 (a)
Slowly Corporation, Debtor
AC Maayos, Trustee
Statement of Financial Position
December 31, 2014
Assets
Current assets:
Cash P59,220
Less Allowance for doubtful accounts 2,200 107,800
Merchandise inventory 66,500 P233,520
Furniture and fixtures P30,000
Less Accumulated depreciation 9,500 20,500
Investments:
Dick Corporation stock 10,000
Total assets P264,020
Liabilities and Shareholders' Equity

Current liabilities:
Notes payable P56,000
Accounts payable 94,000
Accrued selling expenses 500
Accrued general expenses 600
Accrued interest on notes payable 700 P151,800
Ordinary share capital P100,000
Retained earnings (P20,100 - P7,880) 12,220 112,220
Total shareholders' equity P264,020

Problem 6 -1
Requirement 2(b)
Slowly Corporation, Debtor
AC Maayos, Trustee
Income Statement
For the Period May 1 to December 31, 2014
Gross sales P280,000

Less: Sales returns and allowances P 6,000
Sales discount 8,000 14,000
Net sales P266,000
Cost of goods sold:
Merchandise inventory, May 1 P 80,000
Purchases P160,000
Less: Purchase returns and allow. P4,000
Purchase discount 1,000 5,000 155,000
Merchandise available for sale P235,000
Less Merchandise inventory, December 31 66,500 168,500
Gross profit P 97,500
Operating expenses:
Selling expenses P 37,500
General expenses 47,200
Uncollectible accounts expense 2,200
Depreciation - furniture and fixtures 2,000 88,900
Operating income P 8,600
Other revenue and expense items:
Interest income P 520
Interest expense 400 120
Income from trustee's operations P 8,720
Corporation revenue and expense items:
Corporation expenses:
Interest expense on notes, old P 1,000
Uncollectible accounts expense 17,400 P 18,400

Corporation losses:
Loss on notes receivable, old P2,000
Loss on accrued int. on NR, old 200 2,200
Total corporation expenses and losses P20,600
Less corporation gains:
Gain on sale of Dick Corp. stock 4,000
Net corporation loss 16,600
Decrease in retained earnings P 7,880
Problem 6 -2
Requirement 1
Trustee's Books
a. Cash 8,000
Cash Surrender Value of Life Insurance 9,400
Accumulated Depreciation - Furniture and Fixtures 600
Cory and Fidel, Debtors 120,000
b1. Accounts Receivable Pledged 40,000

b2 Cash 28,800
Interest and Finance Charges 1,200
Loan from Acro Finance Company 30,000
Loan: P28,800/(100% - 4%) = P30,000
b3. Partnership Liability Paid - Notes Payable, Old 15,000

Partnership Liability Paid - Accrued Int. on NP 600
Partnership - Interest Expense on Notes, Old 100
Cash 15,700
b4. Cash 15,000

Partnership - Uncollectible Accounts Expense 1,900
Accounts Receivable, Old (P56,900 - P40,000 pledged) 16,900
b5. Cash 5,000

b6. Partnership Liability Paid - Accounts Payable, Old 69,400

Cash 31,000
Installment Notes Payable 38,400
b7. Cash 40,000

Accounts Receivable Pledged 40,000
b8. Loan from Acro Finance Company 30,000

Interest and Finance Charges 300
Cash 30,300
Interest = P30,000 x 6% x 2/12 = P300.
b9. Purchases 80,000

b10. Accounts Receivable 150,000

Sales 150,000
b11. Operating Expenses 25,000

Cash 25,000
b12. Installment Notes Payable (P3,200 x 11) 35,200

Partnership - Interest Expense on Installment Notes 880
Cash 36,080
FV of installment notes = P38,400/12 = P3,200
Interest = P3,200 x 5% [1/12(1+2+3+4+5+6+7+8+
9+10+11)] = P880
b13. Trustee's Expenses and Fees 13,000

Cash 7,000
Due to Ferdie, Trustee 6,000
b14. Cash 122,800


Cash 56,000
c1. Operating Expenses 1,520

Accrued Operating Expenses 1,520

c3. Merchandise Inventory 33,000

c4. Depreciation - Furniture and Fixtures 360

c5. Uncollectible Accounts Expense 1,360

P27,200 x 5% = P1,360
c6. Partnership - Interest Expense on Installment Notes 160

P3,200 x 5% = P160
c7. Sales 150,000

Purchases 80,000
Trustee's Expenses and Fees 13,000
Depreciation - Furniture and Fixtures 360
Uncollectible Accounts Expense 1,360
Interest and Finance Charges 1,500

Partnership - Interest Expense on Notes, Old 100
Partnership - Interest on Installment Notes 1,040

Cornie and Fidelie, Debtor 19,520
c10. Cornie and Fidelie, Debtor 85,000

Partnership Liability Paid - Notes Payable, Old 15,000
Partnership Liability Paid - Accrued Int. on NP 600
Partnership Liability Paid - Accounts Payable, Old 69,400
d. Cornie and Fidelie, Debtor 54,520

Accrued Interest on Installment Notes 160
Due to Ferdinie, Trustee 6,000
Cash 18,520
Partnership Books
(The transactions on the partnership books are numbered to correspond with
the transactions on the trustee's books)
a. Ferdinie, Trustee 120,000
Cash 8,000
b3. Notes Payable 15,000

Ferdinie, Trustee 15,600

c. Ferdinie, Trustee 19,520

Cornie, Capital (P19,520 x 20/35) 11,154
Fidelie, Capital (P19,520 x 15/35) 8,366
d. Cash 18,520
Accrued Interest on Installment Notes 160
Due to Ferdie, Trustee 6,000
Problem 6 -2 Requirement 2(a)

Cornie and Fidelie,, Debtor
Ferdinie, Trustee
June 30, 2015
Assets
Current assets:
Cash P 18,520
Less Allowance for doubtful accounts 1,360 25.840

Merchandise inventory 33,000 P 77,360
Long-term investment:
Cash surrender value of life insurance 9,400
Furniture and fixtures P 3,600
Less Accumulated depreciation 960 2,640
Total assets P 89,400
Liabilities and Partners' Capital

Liabilities:
Accounts payable P 24,000
Installment on notes payable 3,200
Accrued interest on installment notes 160
Due to Ferdinie, Trustee 6,000
Total liabilities P 34,880
Partners' capital:
Cornie, capital P 31,154
Fidelie, capital 23,366
Total partners' capital 54,520
Total liabilities and partners' capital P 89,400
Problem 6 - 2 (Req. 2b)

Cornie and Fidelie, Debtor
Ferdinie, Trustee
Income Statement
For the Fiscal Year Ended June 30, 2015
Sales P150,000
Cost of goods sold:
Merchandise inventory, July 1, 2014 P 35,200
Purchases 80,000
Less Merchandise inventory, June 30, 2005 33,000 82,200
Gross profit P67,800
Operating expenses 41,240
Operating income P26,560
Other expenses:
Interest and finance charges 1,500
Income from trustee's operations P25,060
Partnership revenue and expense items:
Uncollectible accounts expense P 4,400
Interest expense on notes, old 100
Interest expense on installment notes 1,040 5,540
Increase in partners' capital P19,520
Problem 6 - 3
Winala Stores, Inc. Debtor
Pamana, Trustee
Income Statement
For Six Months Ended December 31, 2014
Sales P401,000
Cost of goods sold:
Merchandise inventory, July 1 P 50,600
Purchases 252,800
Less Merchandise inventory, December 31 41,500 261,900
Gross profit P139,100
Operating expenses:
Selling expenses P 45,600
General expenses 28,220
Depreciation 10,980
Trustee's expenses 3,000 87,800
Income from trustee's operations P 51,300
Interest expense P 8,000
Uncollectible accounts expense 15,000
Total corporation expenses 23,000
Increase in retained earnings P 28,300
Winala Stores, Inc. Debtor

Pamana, Trustee
December 31, 2014
Assets
Current assets:
Cash P 56,840
Accounts receivable, old 75,600
Accounts receivable, new 79,360
Merchandise inventory 41,500 P253,300
Fixtures P183,000
Less Accumulated depreciation 35,000 148,000
Intangible asset:
Trademark 25,000
Liabilities
Accounts payable, new P 39,200
Mortgage payable 100,000
Total liabilities P139,200
Shareholders' Equity
Less Deficit 12,900
Total shareholders' equity 287,100
Total liabilities and shareholders' equity P426,300
Problem 6-4
Universal Company, Debtor

P. Cesar, Trustee
Balance Sheet
November 20, 2014
Assets
Cash P268,400
Accounts receivable P800
Less Allowance for doubtful accounts 800 ------
Liabilities
Bank overdraft P 2,000
Bank loans 210,000
Poker, Inc. 60,000
Acceptances 46,000
Total liabilities P544,000
Shareholders' Equity (Deficiency)

Contributed capital:
Preference shares P200,000
Ordinary shares 200,000
Total contributed capital P400,000
Retained earnings - deficit 675,600
Total shareholders' equity (deficiency) (275,600)
Total liabilities and shareholders' equity P268,400
Universal Company, Debtor

P. Cesar, Trustee
Income Statement
For the Period April 28 to November 20, 2014
Sales P150,000
Cost of goods sold 120,000
Gross profit P 30,000
Operating and general expenses (including materials and
supplies used, P18,000) 140,000

Operating loss P110,000
Other revenue:
Rental income P 2,000
Unclaimed wages 1,000
Interest income 400 3,400
Loss from trustee's operations P106,600
Corporation losses:
Loss on cancellation of insurance P 1,400
Loss on realization of goods and supplies 42,000
Loss on sale of machinery and equipment 540,000
Interest on city taxes 800
P584,200
Interest on mortgage 4,000
Uncollectible accounts expense 800
P589,000
Less Corporation gains:
Proceeds from surrender of insurance
policy on life of manager P2,000
Gain from reduction of accounts payable 14,000
Gain on machinery lease settlement 4,000 20,000 569,000
Decrease in retained earnings P675,600
Chapter 6 – AA2 (2014 edition)
Problem 6 - 3
Winala Stores, Inc., Debtor
Pamana , Trustee
Work Sheet
December 31, 2014
Eliminations and
Trial Balance Adjustments Income Statement Balance Sheet
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Corporation's Books
Pamana, Trustee 350,800 (1)350,800
Mortgage payable 100,000 100,000
Share capital 300,000 300,000
Deficit 41,200 41,200
Interest expense 8,000 8,000
Trustee's Books
Cash 56,840 56,840
Accounts receivable, old 75,600 75,600
Accounts receivable, new 79,360 79,360
Merchandise inventory 50,600 (2) 41,500 (2) 50,600 41,500
Fixtures 183,000 183,000
Accumulated depreciation 35,000 35,000
Trademark 25,000 25,000
Accounts payable, new 39,200 39,200
DEF Stores, Inc., debtor 428,800 (1)428,800
Sales 401,000 401,000
Purchases 252,800 252,800
Depreciation 10,980 10,980
Selling expenses 45,600 45,600
General expenses 28,220 28,220
Trustee's expenses 3,000 3,000
Winala Stores, Inc., liabilities paid - AP, old 70,000 (1) 70,000
Winala Stores, Inc. liabilities paid - int. on 8,000 (2) 8,000
mortgage
Winala Stores, Inc. - loss form AR, old 15,000 15,000
1,304,000 1,304,000
Income summary (2) 50,600 (2) 41,500 50,600 41,500
520,900 520,900 414,200 442,500 502,500 474,200
Increase in retained earnings 28,300 28,300
442,500 442,500 502,500 502,500
Problem 6 -4
Universal company, Debtor
P. Cesar, Trustee
Work Sheet
April 28 - November 20, 2014
Trial Balance Transactions and Statement of

April 28, 2014 Adjustments Eliminations Income Statement Financial Position
Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Corporation's Books
P. Cesar, Trustee 1,685,400 (b)214,000 (j)944,000
(e)440,00
(f) 9,400
(g) 64,000
(h) 14,000
Accounts payable 220,000 (b) 14,000 (d) 20,000 226,000
Bank overdraft 2,000 2,000
Bank loans 210,000 210,000
Poker, Inc. 500,000 (e)440,000 60,000
Acceptances 46,000 46,000
Collateral notes payable 9,400 (f) 9,400
Lease-machinery 60,000 (g) 60,000
Accrued interest on lease 4,000 (g) 4,000
City taxes accrued 8,000 (b) 8,000
Mortgage on machinery 200,000 (b)200,000
Accrued interest on mortgage 6,000 (b) 6,000
Preference shares 200,000 200,000
Ordinary shares 200,000 200,000
Retained earnings 20,000 (d) 20,000
Trustee's Books
Cash 1,600 (a)607,600 (b)340,800 268,400
Receivables, old 2,800 (a) 2,000 800,
Allowance for doubtful (a) 800 800
accounts
Finished goods 200,000 (a) 80,000
©120,000
Materials and supplies 30,000 (a) 12,000
(c ) 18,000
Goods on consignment (out) 440,000 (e)440,000
Employees' bonds 9,400 (f) 9,400
Prepaid insurance 1,600 (a) 1,600

Machinery and equipment 1,014,600 (a)954,600
(g) 60,000
Acc. depr. – mach. & equipt. 14,600 (a) 14,600
Universal Company, debtor 1,685,400 (j)1,685,400
3,385,400 3,385,400
Corporation - Loss upon
cancellation of insurance (a) 1,400 1,400
Corporation - Proceeds from
surrender of insurance
policy on life of manager (a) 2,000 2,000
Corporation - Loss on
realization
of goods and supplies on (a) 42,000 42,000
hand
Corporation - Loss on sale of
machinery and equipment (a)540,000 540,000
Sales (a)150,000 150,000
Rental income (a) 2,000 2,000
Unclaimed wages (a) 1,000 1,000
Interest income (a) 400 400
Corporation - Uncollectible
accounts expense, old (a) 800 800
Corporation liability paid - city
taxes accrued (b) 8,000 (j) 8,000
Corporation liability paid -
interest on city taxes (b) 800 800
mortgage on machinery (b)200,000 (j)200,000
accrued int. on mortgage (b 6,000 (j) 6,000
Corporation - interest on mortg. (b) 4,000 4,000
Operating and general expenses (b)122,000 122,000
Cost of goods sold (c)120,000 120,000
Materials and supplies used (c) 18,000 18,000

Poker, Inc. (e)440,000 (j)440,000
employee's bond returned (f) 9,400 (j) 9,400
lease of machinery (g) 60,000
accrued int. on lease of mach. (g) 4,000
Corporation - gain on machinery
lease settlement (g) 4,000
Accounts payable (h) 14,000
Corporation - gain from red.
of accounts payable (h) 14,000
2,974,000 2,974,000 1,685,400 1,685,400 849,000 173,400 269,200 944,800
Decrease in retained earnings 675,600 675,600
849,000 849,000 944,800 944,800
1
AA2 - CHAPTER 7
SUGGESTED ANSWERS
Exercise 7 - 1
Walana Co., Debtor

C. Gonzales, Trustee
Statement of Realization and Liquidation
For the Month Ended December 31, 20__
Assets
Assets to be realized: Assets realized:

Receivables, old P180,000 (2) Receivables, old P 92,500
Merchandise inventory, Dec. 1 200,000 (2) Receivables, new 2,250
Assets acquired: Assets not realized:
(3) Receivables, old 9,000 Receivables, old 84,250
Receivables, new 6,750
Merchandise inventory, Dec. 31 112,500
Liabilities
Liabilities not liquidated: Liabilities to be liquidated:

Accounts payable, old 275,000 Accounts payable 275,000
Revenues and Expenses
Supplementary charges: Supplementary credits:

(4) Purchases 3,750 (1) Sales for cash 120,000
(5) Expenses 7,000 (3) Sales on account 9,000
P749,750
Net gain 26,250
Total P776,000 Total P776,000
Cash
20___ 20__
Dec. 1 Balance P 60,000 Dec. 1-31 (4) Payments for
1-31 (1) Cash sales of merchandise
merchandise 120,000 purchased P 3,750
(2) Collections of (5) Payment of expenses 7,000
receivables 94,750 Dec. 31 Balance 264,000
P274,750 P274,750
20__
Jan. 1 Balance P264,000
Share Capital
20__
Dec. 1 Balance P250,000
Retained Earnings
20____ 20____
Dec. 1 Balance P 10,000 Dec. 31 Net gain for December P26,250
Walana Co., Debtor

Balances per Statement of Realization and Liquidation
December 31, 20__
Assets Liabilities and Shareholders' Equity

Cash P264,000 Liabilities not liquidated P275,000
Assets not realized 277,250 Share capital 250,000
_______ Retained earnings 16,250
Total liabilities and
Total assets P541,250 shareholders' equity P541,250
Exercise 7 -2
a. Dr. Accounts Receivable - "Assets acquired" 125,000

Cr. Sales - "Supplementary credits" 125,000
b. Dr. Cash - Cash Schedule 67,500

Cr. Accounts Receivable - "Assets realized" 67,500
No entry is needed for the accounts written off; the balance of accounts receivable of ___
is reduced by P2,500 and is entered in the "Assets to be realized" section.
c. Dr. Cash - Cash Schedule 82,000

Cr. Securities - "Assets realized" 82,000
d. Dr. Purchases - "Supplementary charges" 87,500

Cr. Accounts Payable - "Liabilities assumed" 87,500
e. Dr. Accrued Selling Expenses - "Liabilities liquidated" 4,000

Dr. Selling Expenses - "Supplementary charges" 19,750
Cr. Cash 23,750
f. No entry is needed for the depreciation; the balance of furniture and fixtures is reduced by
P1,375 and is entered in the "Assets to be realized" section.
g Dr. Truck - "Assets acquired" 11,000

Cr. Cash - "Cash schedule" 6,000
Cr. Truck - "Assets realized" 5,000
h. Dr. Accounts Payable - "Liabilities liquidated" 49,000

Cr. Cash - Cash Schedule 49,000
Exercise 7 - 3
Liabilities
Unsecured
Assets Fully Partially With Without Owners'
Cash Noncash Secured Secured Priority Priority Equity
Beg. Balances 12,000 590,000 200,000 175,000 54,000 150,000 23,000
Sale of inventory 30,000 (25,000) (5,000)

Collection of rec'l 39,000 (54,000) (19,000)
Payment of loan (12,000) (12,000)
Equipment rental 15,000 (15,000)
Sale of securities 22,500 (18,000) 4,500
Depreciation on mach. (3,200) (3,200)
Payment of accounts pay (25,000) (25,000)
Sale of machinery 36,000 (45,000) (9,000)
Payment of loan (36,000) (36,000)
Reclassification of loan (14,000) 14,000
Balances 66,500 444,800 113,000 175,000 83,000 150,000 (23,700)
2.
Estimated Dividend
Liabilities and Owner’s Equity Book Value Distribution Payout %
Fully secured liabilities
(50,000 – 36,000 = 14,000) 113,000 113,000 100%
Partially secured liabilities 175,000 175,000 100%
Unsecured liabilities:
With priority 83,000 83,000 100%
Without priority 150,000 39,000 26%
410,000 410,000
1
AA2 - CHAPTER 8
SUGGESTED ANSWERS
Exercise 8 - 1
Jan. 5 Purchases 4,151,000

Accounts Payable 4,151,000
70,000 x P59.30
Mar. 9 Purchases 16,780

100,000 x P.1678
May 10 Accounts Payable 4,151,000

Foreign Exchange Gain or Loss 21,000
Cash 4,172,000
70,000 x P59.60 = P4,172,000
16 Accounts Payable 16,780

Cash 15,500
100,000 x P.1550
Exercise 8 -2
Mar. 14 Merchandise Inventory 1,057,000

Accounts Payable 1,057,000
20,000 x P52.85
Apr. 10 Merchandise Inventory 45,822

60,000 x P.7637
14 Accounts Payable 1,057,000

Cash 1,055,000
20,000 x P52.75
May 10 Accounts Payable 45,822

Cash 48,750
60,000 x P.8125
Exercise 8 - 3
May 22 Accounts Receivable 54,085

Sales 54,085
10,000 x P5.4085
May 31 Accounts Receivable 8,516

Sales 8,516
40,000 x P.2129
June 22 Cash 55,015

Foreign Exchange Gain or Loss 930
10,000 x P5.5015 = P55,015
30 Cash 8,540
Foreign Exchange Gain or Loss 24
Exercise 8 -4
Jack Company
Income Statement
Italian Translation Philippine

Lira Rate Peso
Sales 300,000 .51168 153,504
Cost of goods sold 200,000 .51168 102,336
Gross profit 100,000 51,168
Operating expenses 55,000 .51168 28,142
Profit 45,000 23,026
Jack Company
December 31, 2014
Assets
Lira Rate Peso
Cash 9,500 .51278 4,872
Accounts receivable 25,000 .51278 12,820
Inventories 30,000 .51278 15,383
Land 40,000 .51278 20,511
Building, net 85,500 .51278 43,843
Machinery, net 22,500 .51278 11,538
Total assets 212,500 108,967
Accounts payable 15,000 .51278 7,692

Long-term debt 50,000 .51278 25,639
Ordinary share capital 115,000 58,482

Retained earnings 32,500 16,632
Translation adjustment ______ 522
Total liabilities and shareholders' equity 212,500 108,967
Supporting computations:
A. Ordinary share capital

110,000 x .50859 55,945
5,000 x .50732 2,537
58,482
B. Retained earnings
Lira Rate Peso
Beginning balance ------ --------
Profit 45,000 .51168 23,026
Dividends (12,500) .51155 ( 6,394)
Ending balance 32,500 16,632
B. Translation adjustment
Lira Rate Peso
Net assets, beginning 110,000 .50859 55,945
Add (deduct):
Profit 45,000 .51168 23,026
Dividends ( 12,500) .51155 ( 6,394)
Ordinary shares issued 5,000 .50732 2,537
Net assets, end - before adjustment 147,500 75,114
Net assets, end - after adjustment 147,500 .51278 75,636
Translation adjustment 522
Exercise 8 - 5
Gold Company
December 31, 2014
Assets
US Translation Philippine
Dollars Rate Peso
Cash 105,000 55.50 5,827,500
Accounts receivable 170,000 55.50 9,435,000
Land 100,000 55.50 5,550,000
Building, net 50,000 55.50 2,775,000
Total assets 425,000 23,587,500

Accounts payable 10,000 55.50 555,000

Long-term debt 155,000 55.50 8,602,500
Ordinary share capital 225,000 56.50 12,712,500
Retained earnings 35,000 1.977,500
Translation adjustment ______ 260,000
Total liabilities and sharholders' equity 212,500 23,587,500
Gold Company
Income Statement
Dollars Rate Peso
Revenue 355,000 56.00 19,880,000
Operating expenses 250,000 56.00 14,000,000
Profit 105,000 5,880,000
B. Retained earnings
Dollars Rate Peso
Beginning balance ------ --------
Profit 105,000 56.00 5,880,000
Dividends (70,000) 55.75 ( 3,902,500)
Ending balance 35,000 1,977,500
B. Translation adjustment
Dollars Rate Peso
Net assets, beginning 225,000 56.50 12,712,500
Add (deduct):
Profit 105,000 56.00 5,880,000
Dividends ( 70,000) 55.75 ( 3,902,500)
Net assets, end - before adjustment 260,000 14,690,000
Net assets, end - after adjustment 260,000 55.50 14,430,000
Translation adjustment 260,000
MULTIPLE CHOICE
8-A 1. A 5. C
2, A 6. D
3. A 7. D
4. B (all are dated 2014) 8. B
8-B 1. D 250,000 yen x (P.22- P.19) P7,500 gain
8-C 1. D P480,000 – P560,000 = P80,000 loss

NOTE: December 31, 2008 should be December 31, 2014
July 1, 2009 should be July 1, 2015
8-D 1. D Foreign exchange transaction loss on:

Payment of purchases (P960,000 - P900,000) P 60,000
Principal amount of loan
(P5,200,000 – P5,000,000) 200,000
Interest on loan (P260,000 - P250,000) 10,000
Total P 270,000
NOTE: 2008 should be 2014

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CHAPTER 1

2. Negative goodwill is recognized in the profit or loss.

Consideration transferred (475,000 x 12) P 5,700,000

Consideration transferred P550,000

Expenses of Business Combination 5,000

Ordinary Share Capital 200,000

Consideration transferred P550,000

2. Goodwill (P60,000 – P20,000) 40,000

Estimated Liability for Contingent Consideration 15,000

4. Estimated Liability for Contingent Consideration 5,000

5. Estimated Liability for Contingent Consideration 70,000

Expenses of Business Combination 75,000

2. Plant Assets (P1,500,000 – P1,200,000) 300,000

3. Current Assets 575,000

Ordinary Share Capital 50,000 x 5 par 250,000

Paid in Capital for Contingent Consideration 30,000

4. Additional Paid in Capital 20,000

5. Additional Paid in Capital 100,000

2. Fair value of net assets P7,700,000

3 Consideration transferred P4,800,000

Fair value of non controlling interest 1,600,000

4. Fair value of previously held equity interest P1,600,000

5. Consideration transferred P4,800,000/

Co. A Co. B Co. C Total

Preference Share Capital (P400,000/P100) 4,000 shares

Consideration transferred P750,000

Additional Paid in Capital 63,000

2. Investment in Canada Co. (6,000 x P125) 750,000

Additional Paid in Capital 63,000

Paid in Capital from Contingent Consideration 100,000

Consideration transferred 6,000 @ 125 P750,000

Paid in Capital from Contingent Consideration 100,000

3. Additional Paid in Capital 100,000

4. Additional Paid in Capital 75,000

2. Additional Paid-in Capital (40,000 @ P4) = P160,000

Long Term Debt 20,000

5. Estimated Liability for Contingent Consideration 60,000

2 Investment in Commander Co. (20,000 x P40) 800,000

c. 32,000 16,000 80,000 128,000

Ordinary shares a. P 7,778 P 6,667 P 5,555 P 20,000

Total a. P27,778 P16,667 P55,555 P100,000

Assets, other than Goodwill 6,000,000

Co.D Co. E Co. F Total

Co. D Co. E Co. F Total

1– B 1. B Consideration transferred P80,000

1–C 1. C Consideration transferred P2,650,000

1– D 1. C Consideration transferred P3,068,000

1– F 1. D Total assets of Pacino before the combination P1,097,500

Consideration transferred (200,000 sh @ P11) P2,200,000

1-G 1. C Customers Lists P 90,000

1–I 1. A The retained earnings of the acquiring company

2. D APIC in shares issued to the 3 acquired co. (P100,000 x 2) P200,000

1– J 1. B Amount paid plus the contingent consideration that is recognized because

1- K 1. A P285 – P200 = P85 million

1- M 1. D P2,200,000 – (P2,000,000 x 80%) = P600,000

1- N 1. D (1) P100 + (P85 x 20%)= P117 – P85 = P32 million

1- O 1. D P900,000 – (P1,200,000 x 60%) = P180,000

1- P 1. C 50,000 @ P18= P900,000

1- Q 1. C P90 – P82 = P8 gain on bargain purchase recognized in profit and loss

1 – R. 1. D Average earnings P 50,000

2. D Average earnings P 80,000

Goodwill (P48,000/10%) P480,000

1–S 1. D JPE = [P25,000 – (P250,000 x 6%)]/10% P 100,000

1–T 1. A Average earnings P300,000