CHAPTER 12

SUGGESTED ANSWERS
EXERCISES
Exercise 12 -1
1. Investment in Stun Corp.
Cost of investment (800 shares @ P200)
Book value of interest acquired as of July 1, 2006
Ordinary Share Capital (1,000 shares x P100 x 80%)
Retained Earnings [(P50,000 + 1/2 of P30,000) 80%]
Goodwill
Grossed-up Goodwill (P28,000 / 80%)
2.

Investment in Stud Corp.

Cost of investment (900 shares @ P100)
Book value of interest acquired as of July 1, 2003
Ordinary Share Capital (1,000 shares x P100 x 90%)
Retained Earnings [(P15,000 + 1/2 of P5,000) 90%]
Goodwill
Grossed-up Goodwill (P15,750 / 90%)

Exercise 12 - 2
1. Equity Method
a.
Investment in Stark Co.
Cash
b.

Investment in Stark Co.

Equity in Subsidiary Income
P30,000 x 1/2 x 75% = P11,250
Equity in Subsidiary Income
Investment in Stark Co.

c.

d.

Cash
Investment in Stark Co.
P30,000 x 75% = P22,500

P80,000
52,000

P90,000
( 15,750)

74,250
P 15,750
P 17,500

240,000
240,000
11,250
11,250
500
500
22,500
22,500
7,500

Equity in Subsidiary Income

Investment in Stark Co.

1,500

no entry
Cash

132,000
P 28,000
P 35,000
P 90,000

Equity in Subsidiary Income

Investment in Stark Co.

Cost Method
a.
Investment in Stark Co.
Cash
b.
c.

P160,000

7,500
1,500
240,000
240,000
22,500

Chapter 12 - Suggested Answers

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page 2

Dividend Revenue
Investment in Stark Co.
d.
2.

11,250
11,250

no entry

Ordinary Share Capital

APIC
RE [P20,000 + (P30,000 x 1/2)]
Total shareholders equity on date of acquisition

P200,000
50,000
35,000
P285,000
x 75%
P213,750

Book value of interest acquired

Exercise 12 3
1. Investment in Saturn Co.
Cash
Cash
Dividend Income (80,000 x 80%)
2.

Original cost of investment P800,000

3.

Minority net income = P200,000 x 20% = P40,000

4.

Minority interest, December 31, 2008:

Ordinary Share Capital
Retained Earnings = P500,000 + P200,000 P80,000
Total
Minority interest percentage
Minority interest

5.

2008
Jan.
Dec.

1
31

31

800,000
800,000
64,000
64,000

500,000
620,000
P1,120,000
x 20%
P 224,000

Investment in Saturn Co.

Cash

800,000

Investment in Saturn Co.

Equity in Subsidiary Income
P200,000 x 80% = P160,000

160,000

Cash
Investment in Saturn Co.
P80,000 x 80% = P64,000

800,000
160,000
64,000
64,000

Original cost of investment

Equity in subsidiary income
Dividends received from subsidiary
Balance of investment, December 31, 2008

P800,000
160,000
( 64,000)
P896,000

Minority net income (P200,000 x 20%)

Minority interest, January 1, 2008 (P1,000,000 x 20%)
Minority net income (see # 3)
Minority dividends (P80,000 x 20%)
Minority interest, December 31, 2008

P 40,000
P200,000
40,000
( 16,000)
P224,000

Chapter 12 - Suggested Answers

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page 3

Exercise 12 4
a. Investment in Saloon Corp.
Cash
750 shares @ P90 = P67,500

67,500
67,500

b.

Received 75 shares from Saloon Corp. as stock dividend.

shares.

c.

Cash
Investment in Saloon Corp.
825 shares @ P5 = P4,125

4,125

Investment in Saloon Corp.

Equity in Subsidiary Income
P15,000 x 75% = P11,250

11,250

d.

e.

4,125

11,250

Equity in Subsidiary Income

Investment in Saloon Corp.
P6,000 x 75% = P4,500

4,500
4,500

Exercise 12 5
Assuming the interest of Paxton is 60%
(a)
2006
2007
2008
(b)

Shares now owned and held are 825

2006
2007
2008

P300,000
P180,000
P750,000

P300,000 + (40% of P210,000)

P180,000 + (40% of P120,000)
P750,000 + (40% of P 75,000)

P384,000
P228,000
P780,000

Exercise 12 - 6
Net income (loss) from own operations:
Pastel Corp.
Sly Corp. (90%-owned)
Sty Corp. (70%-owned)
Depreciation:
Excess of cost over book value of
investment in Sly (P10,000/90%/5 yrs.)
Excess of book value over cost of
investment in Sty (P5,000/70%/5 yrs.)
Consolidated net income

Case A

Case B

Case C

P 80,000
40,500
( 10,500)

P(20,000)
45,000
49,000

P40,000
27,000
24,500
( 2,220)

________
P110,000

Exercise 12 7
1. a.
Investment in Sat Co.
Retained Earnings, Pat Co.
To record the share of Pat in the net increase
in the retained earnings of Sat.
(P70,000 - P50,000) 80% = P16,000

________
P 74,000

1,430
P90,710

16,000
16,000

Chapter 12 - Suggested Answers

b.

c.

d.

2.

(AA2.2006)

page 4

Ordinary Share Capital, Sat Co. (P200,000 x 80%)

Retained Earnings , Sat Co. (P70,000 x 80%)
Investment in Sat Co.
To eliminate 80% of stockholders equity
account balances of Sat Co.

160,000
56,000
216,000

Assets
Investment in Sat Co.
Minority Interest
To record excess of cost over book value of inv.
P208,000 - (P250,000 x 80%) = P8,000/80% = P100,000
(10,000)
Operating Expenses
Retained Earnings, Pat Co.
Assets
To record depreciation of adjustment for prior
years and current year at P1,000 per year.
Pat and Subsidiary Sat Co.
Consolidated Working Paper
For the Year Ended December 31, 2008
Pat Co.

Adj. & Eliminations

Debit
Credit

Sat Co.

10,000
8,000
2,000

1,000
2,000
3,000

Cons.
IS

Minority
Interest

Cons.
BS

Debits
Cash and Other Assets

Inv. in Sat Co. stock

Cost of Sales
Operating
Expenses
Total
Credits
Liabilities
Ordinary
Share
Capital, P100par
Retained Earnings
Sales

452,000
208,000

440,000

300,000

200,000

90,000
1,050,000

50,000
690,000

150,000

120,000

300,000
100,000

200,000
70,000

500,000
1,050,000

300,000
690,000

c. 10,000
a. 16,000

d. 3,000
b. 216,000
c. 8,000
500,000

d.

1,000

141,000
899,000
270,000

b. 160,000
b. 56,000
d . 2,000

40,000
14,000

a. 16,000
(800,000)
159,000
10,000
149,000

Minority net income

CNI

Minority interest
Total

899,000

c.
245,000

2,000
245,000

300,000
114,000

10,000
64,000

149,000
66,000
899,000

3.
Pat Co. and Subsidiary Sat Co.
Consolidated Statement of Recognized Income and Expenses
For the Year Ended December 31, 2008
Sales (P500,000 + P300,000)
Cost of Sales (P300,000 + P200,000)
Gross Profit
Operating Expenses (P90,000 + P50,000 + P1,000)
Operating Income

P800,000
500,000
P300,000
141,000
P159,000

Chapter 12 - Suggested Answers

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Less Minority Interest net income (Sales Cost of Sales Operating Expenses)
Consolidated Net Income

10,000
P149,000

4.
Pat Co. and Subsidiary Sat Co.
Consolidated Statement of Financial Position
December 31, 2008
Assets
Liabilities and Shareholders Equity
Cash and Other Assets
P899,000
Liabilities
P270,000
Minority Interest
66000
Ordinary Share Capital, P100 par
300,000
Retained Earnings
263,00
_______
Total Liabilities and
________
Total Assets
P899,000
Shareholders Equity
P899,000
Exercise 12 - 8
a.
Advances from Pallet Co.
Advances to Stall Co.

15,000

b.

Notes Receivable Discounted

Notes Receivable from Pallet Co.

10,000

Note Payable to Stall Co.

Note Receivable from Pallet Co.

5,000

Dividends Payable
Dividends Receivable

1,600

c.
d.

Exercise 12 -9
September
August
August
August
August

1
16
27
31
31

15,000
10,000
5,000
1,600

Acquired investment at a cost of P630,000.

The subsidiary declared dividends.
The subsidiary distributed declared dividends.
The parent recorded share in the reported income of the subsidiary.
The parent recorded impairment/depreciation of the excess of cost over book value
of the acquired investment.

PROBLEMS
Problem 12 - 1
Cost of investment
Book value of interest acquired :
Ordinary Share Capital (P100,000 x 80%)
Retained Earnings (P50,000 x 80%)
Excess of cost over book value
Percentage of ownership
Grossed-up excess
Allocation of excess:
Plant and equipment
Inventory
Goodwill

P280,000
P 80,000
40,000

P 50,000
20,000

120,000
P160,000
80%
P200,000
76,000
P130,000

Chapter 12 - Suggested Answers

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page 6

Expenses on the adjustment

Plant and equipment (P50,000/5 yrs.)
Goodwill impairment
Inventories
Total

2007
P10,000
5,000
20,000
P35,000

2008
P10,000
4,000
---__
P14,000

1. Journal entries on the books of the parent

2007
Jan.
1
Investment in Slow Co.
Cash
Dec.

31

31
2008
Dec.

31

31

c.

d.

2008

a.

280,000

Investment in Slow Co.

Equity in Subsidiary Income
P60,000 x 80% = P48,000

48,000

Equity in Subsidiary Income

Investment in Slow Co.

35,000

Investment in Slow Co.

Equity in Subsidiary Income
P50,000 x 80% = P40,000

40,000

Equity in Subsidiary Income

Investment in Slow Co.

14,000

2. Working paper elimination entries:

2007
a.
Ordinary Share Capital, Slow Co.
Retained Earnings, Slow Co.
Investment in Slow Co.
b.

280,000

Equity in Subsidiary Income (P48,000 P35,000)

Investment in Slow Co.

Plant and Equipment

Goodwill
Inventory
Investment in Slow Co.
Minority Interest

48,000

35,000

40,000

14,000
80,000
40,000
120,000
13,000
13,000

50,000
130,000
20,000
160,000
40,000

Cost of Sales
Operating Expenses
Plant and Equipment
Goodwill
Inventory

20,000
15,000

Ordinary Share Capital, Slow Co.

Retained Earnings, Slow Co. (P110,000 x 80%)

80,000
88,000

10,000
5,000
20,000

Chapter 12 - Suggested Answers

b.
c.

d.

3.

(AA2.2006)

page 7

Investment in Slow Co.

168,000

Equity in Subsidiary Income (P40,000 P14,000)

Investment in Slow Co.

26,000
26,000

Plant and Equipment

Goodwill
Investment in Slow Co.
Minority Interest

40,000
125,000
132,000
33,000

Operating Expenses
Plant and Equipment
Goodwill

14,000
10,000
4,000

Computation of consolidated net income

2007
Net income from own operations:
Plow Co.
Slow Co.
Impairment / depreciation / amortization
Consolidated net income

P70,000
48,000
( 35,000)
P83,000

Problem 12 - 2
Original cost of investment (book value is also P294,000)
Equity in subsidiary income 2007 (P84,000 x 70%)
Dividends received from subsidiary 2007 (P63,000 x 70%)
Balance of investment, December 31, 2007
Equity in subsidiary income - Jan. 1 - June 30, 2008 (P105,000 x 1/2 x 70%)
Balance of investment, June 30, 2008
Cost of investment sold (P345,450 x 300/2,100)
Equity in subsidiary income, July 1 - Dec. 31, 2008 (P105,000 x 1/2 x 60%)
Dividends received from subsidiary 2008(P94,500 x 60%)
Balance of investment, December 31, 2008
Problem 12 - 3
Cost of investment
Book value of interest acquired:
Ordinary Share Capital (P1,000,000 x 80%)
Retained Earnings (P1,600,000 x 80%)
Goodwill

P 800,000
1,280,000

P294,000
58,500
( 44,100)
P308,400
367,750
P345,450
( 49,350)
31,500
( 56,700)
P270,900

2,080,000
P 200,000
P 250,000

Peach Co. and Subsidiary Silver Co.

Consolidated Working Paper
For the Year Ended December 31, 2008
Eliminations
Peach Co.
Silver Co.
Debit
Credit
4,000,000

P 80,000
40,000
( 14,000)
P 106,000

P2,280,000

Grossed-up Goodwill (P200,000 / 80%)

Income Statement
Sales

2008

2,000,000

Minority
Interest

Consolidated

6,000,000

Chapter 12 - Suggested Answers

Cost of sales
Gross profit
Operating expenses

Operating income
Equity in sub. Income

Net income
MINI
NI-carried forward

(AA2.2006)

1,600,000
2,400,000
1,560,000
840,000
278,000
1,118,000

1,200,000
800,000
440,000
360,000

1,118,000

360,000

6,000,000

1,600,000

1,118,000
7,118,000
800,000
6,318,000

360,000
1,960,000
120,000
1,840,000

600,000
400,000
800,000
1,200,000
800,000
2,456,000
2,462,000

200,000
400,000
600,000

page 8

e.

10,000

b.

278,000
72,000
72,000

2,800,000
3,200,000
2,010,000
1,190,000
-----1,190,000
72,000
1,118,000

320,000

6,000,000

72,000
392,000
24,000
368,000

1,118,000
7,118,000
800,000
6,318,000

360,000

Retained Earnings
Statement

Balance, January 1
Net
incomebrought forward
Total
Less Div. declared
Balance, Dec. 31
Balance Sheet
Cash
Accounts recl
Inventories
Land
Building (net of AD)
Equipment (net of AD)

Inv. in Silver Co.

Goodwill
Total

8,718,000
604,000
196,000

AP and accrued exp.

Bonds payable
OS - Peach
(P100 par)

a. 1,280,000

c.

96,000

f.

10,000

800,000
790,000
1,400,000
1,200,000
800,000
4,456,000

2,000,000

3,200,000
360,000

c.

96,000

d.

250,000

f.

10,000

a. 2,080,000
b. 278,000
d. 200,000
e.
10,000

240,000
9,686,000
954,000
196,000

Co.

OS - Silver Co.
(P20 par)
APIC
RE-brought forward

Total
Minority interest

1,000,000

1,000,000
1,000,000

600,000
6,318,000
8,718,000

a.

800,000

200,000

1,840,000
3,200,000

368,000
2,724,000

d. 50,000
2,724,000

50,000

Peach Co. and Subsidiary Silver Co.

Consolidated Statement of Recognized Income and Expenses
For the Year Ended December 31, 2008
Sales
Cost of Sales
Gross Profit
Operating Expenses
Operating Income
Less Minority Interest net income

P6,000,000
2,800,000
P3,200,000
2,010,000
P1,190,000
72,000

600,000
6,318,000
618,000
9,636,000

Chapter 12 - Suggested Answers

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page 9

Consolidated Net Income

P1,118,000

Peach Co. and Subsidiary Silver Co.

Consolidated Statement of Financial Position
December 31, 2008
Assets
Cash
Accounts Receivable
Inventories
Land
Building (net of accumulated depreciation)
Equipment (net of accumulated depreciation)
Goodwill
Total Assets

P 800,000
790,000
1,400,000
1,200,000
800,000
4,456,000
240,000
P9,686,000

Liabilities and Shareholders Equity

Accounts Payable and Accrued Expenses
Bonds Payable (face amount - P200,000)
Minority Interest
Ordinary Share Capital, P100 par
Additional Paid-in Capital
Retained Earnings
Total Liabilities and Shareholders Equity

P 954,000
196,000
618,000
1,000,000
600,000
6,318,000
P9,686,000

Problem 12 - 4
Cost of investment
Book value of interest acquired:
Ordinary Share Capital (P600,000 x 80%)
Retained Earnings (P800,000 x 80%)
Excess of cost over book value of acquired investment
Grossed-up excess (P392,000 /80%0
Allocation of excess:
Inventories
Land
Building
Equipment
Patent (P80,000 x 80%)
Goodwill
Charges to expense for asset adjustments:
Inventories
Building
Equipment
Patent
Goodwill

P1,512,000
P480,000
640,000

1,120,000
P 392,000
P490,000

p 60,000
100,000
200,000
(150,000)
80,000

P60,000
10,000
( 15,000)
8,000
5,000

290,000
P 200,000

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page

Total

P68,000

Adjustments to Building and equipment:

Building (increase is 50%)
Cost (P520,000 x 50% )
AD (P120,000 x 50% )
Net amount

P260,000
60,000
P200,000

Equipment (decrease is 16.67%)

Cost (P940,000 x 16.67% )
AD (P 40,000 x 16.67%)
Net amount

P156,670
6,670
P150,000

Prose Co. and Subsidiary Slope Co.

Consolidated Working Paper
For the Year Ended December 31, 2008
Prose
Co.
Debits
Cash
AR
Inventories
Land
Buildings
Equipment
Inv. in Slope Co.

400,000
300,000
200,000
1,400,000
1,617,600

Slope
Co.
200,000
100,000
80,000
300,000
520,000
940,000

Adj. & Eliminations

Debit
Credit

d. 60,000
d. 100,000
d. 260,000
c.

Cost of sales
Expenses

800,000
720,000

300,000
400,000

Dividends paid

200,000

100,000

Patents
Goodwill

80,000

2,940,000

Minority
Interest

Balance
Sheet
600,000
400,000
280,000
400,000
780,000
2,183,330

60,000

d. 156,670
a. 1,120,000
b. 185,600
d. 392,000

e. 60,000
e.
8,400
f. 110,000
d. 80,000
d. 200,000

5,637,600

e.

IS
Dr. (Cr.)

1,160,000
1,238,000
c.
e.
e.

80,000
8,000
5,000

(20,000)

200,000
72,000
195,000
5,110,330

Chapter 12 - Suggested Answers

11

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page

Credits
AP & accrued exp.

248,000

AD - Bldg.
AD - Equipt.

804,000

OS - P100 par
OS - P20 par
APIC
RE - Prose Co.
RE - Slope Co.
Sales
Equity in SI
Totals

400,000

380,000
120,000
40,000

d.

6,670
e.
15,000

d.
e.
f.
f.

628,000
196,000

60,000
10,000
20,000
90,000

916,667
400,000

600,000

a. 480,000

120,000

800,000
1,200,000
2,000,000
185,600
5,637,600

800,000
1,200,000
800,000
1,000,000

a. 640,000

160,000
(3,000,000)

b. 185,600
2,940,000

MINI

60,000
542,000

CNI
Minority interest

2,285,279

d. 98,000
2,285,270

60,000
542,000
418,000
5,110,330

98,000

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
Prose Co. and Subsidiary Slope Co.
Consolidated Statement of Recognized Income and Expenses
For the Year Ended December 31, 2008
Sales
Cost of sales
Gross Profit
Expenses
Operating Income
Minority Interest net income
Consolidated Net Income

P3,000,000
1,160,000
P1,840,000
1,238,000
P 602,000
60,000
P 542,000
Prose Co. and Subsidiary Slope Co.
Consolidated Statement of Financial Position
December 31, 2008
Assets

Cash
Accounts Receivable
Inventories
Land
Buildings
Less Accumulated Depreciation
Equipment
Less Accumulated Depreciation

P 600,000
400,000
280,000
400,000
P 780,000
210,000
P2,183,330
912,330

570,000
1,271,000

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page

Patents
Goodwill
Total Assets

72,000
195,000
P3,788,000
Liabilities and Shareholders Equity

Accounts Payable and Accrued Expenses

Minority Interest
Ordinary Share Capital, P100 par
Additional Paid-in Capital
Retained Earnings (P1,200,000 + P542,000 - P200,000)
Total Liabilities and Shareholders Equity
Problem 12 - 5
1. a.
Notes Payable - Palma Corp.
Notes Receivable - Salman Co.
b.

2.

Accrued Interest on Notes Payable

Accrued Interest on Notes Receivable

Sales
Interest revenue
Expenses
Interest expense
Net income
Minority net income [(P20,000 - P17,000 - P600) x 10%]
Consolidated net income

Problem 12 6
1.
Minority net income (P100,000 x 20%)

P628,000
418,000
400,000
800,000
1,542,000
P3,788,000
10,000
10,000
600
600

P 70,000
600
( 53,000)
(
600)
P 17,000
(
240)
P 16,760
P 20,000

2.

Current assets of Pentium and Stadium

Less Dividends receivable (P20,000 x 80%)
Current assets

3.

None, since investment income is eliminated in consolidation.

4.

P1,000,000 the capital stock of Pentium.

5.

None, since the investment account is eliminated.

6.

Net income for own operation

(800,000 500,000 100,000)
Income for Stadium

P 200,000
76,000

Cost of investment
Book value of interest acquired (P500,000 x 80%)

P560,000
400,000

7.

P558,000
16,000
P542,000

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page

Excess of cost over book value

P160,000

Goodwill (P160,000 / 80%)

P200,000

8.

Goodwill
Less Impairment loss for 2007 and 2008
Goodwill as of December 31, 2008

P200,000
16,000
P184,000

9.

Beginning retained earnings of Pentium

Consolidated net income
Pentium dividends for 2008
Consolidated retained earnings at December 31, 2008

P400,000
276,000
(120,000)
P556,000

10.

Ordinary Share Capital and retained earnings of Stadium

Net income
Dividends
Adjustment in assets
Shareholders Equity of Stadium at December 31, 2008
Minority interest percentage
Minority interest at December 31, 2008

P600,000
100,000
( 50,000)
184,000
P834,000
x 20%
P166,800

MULTIPLE CHOICE
12-A

1.
2.

C
B

12-B

1.

Cost
Excess of BV over cost (14,000 x 80%)
BV of interest purchased

P290,000
11,200
P301,200

2.

P58,400 20%

P292,000

3.

Consolidated working capital (P726,000 P300,000)

Poles working capital (P436,000 P166,000)
Soles working capital

P426,000
270,000
P156,000

12-C

1.

Net income from own operations of Parker Co.

Share in Starter Co. net income (P40,000 x 85%)
Dividends received from Starter Co.
Consolidated net profit

P100,000
34,000
( 8,500)
P125,500

12-D

1.

Net income from own operations of Pentium

(P1,000,000 - P600,000 - P180,000)
Share in Systems = [P600,000 - P400,000 - P100,000}x 80%]
Depreciation of excess of cost over BV of investment
(P416,000 - P400,000) / 10 years
Consolidated net income

12-E

3. A
4. D

5.
6.

C
A

7. A

P220,000
80,000
( 1,600)
P298,400

1.

Investment cost

P756,000

2.

36,000 x 80%

P 28,800

Chapter 12 - Suggested Answers

14

12-F

page

3.

50,000 x 80%

P 40,000

4.

Investment cost
Dividends
(P60,000 + P36,000 P50,000 P50,000) x 80%
Investment balance, December 31, 2008

P756,000

Original cost of investment

Equity in subsidiary income (P60,000 x 90%)
Dividends received (P30,000 x 90%)
Balance of investment, December 31, 2008

P540,000
54,000
( 27,000)
P567,000

1.

R
B

2.

12-G

1.

2.

12-H

(AA2.2006)

3,200
P752,800

Investment cost, Jan. 1, 2005

Book value of interest acquired (P800,000 x 90%)
Excess of cost over BV

P820,000
720,000
P100,000

Equipment with 10-year life (P100,000 / 90%)

P111,111

RE Singson, Dec. 31, 2008

RE Singson, Jan. 1, 2005
Increase in RE from date of acquisition
Percentage of ownership
Pingsons share on the increase
Depreciation on the excess allocated to equipment
(P111,111 / 10 years x 4 years) x 90%
Amount needed to convert the inv. to equity basis

P400,000
200,000
P200,000
x 90%
P180,000

Pingsons separate net income

Share in Singsons net income
P160,000 x 90%
Depreciation of equipment
Consolidated net income

P500,000

40,000
P140,000

P144,000
11,111

132,889
P632,889

3.

Shareholders equity of Singson, January 1, 2008

Net income for 2008
Dividends for 2008
Adjustment in assets
Shareholders equity of Singson, December 31, 2008
Minority interest percentage
Minority interest, December 31, 2008

P1,000,000
160,000
( 100,000)
111,111
P1,171,111
x 10%
P 117,111

4.

P 100,000 x 10%

1.

Original cost of investment

Equity in subsidiary income
Amortization of excess of cost over BV of investment
P207,500 (P250,000 x 75%) = P20,000 /75% =P26,667/10
Dividends paid (2,000 shares x 75% x P20)
Carrying value of investment, December 31, 2008

P207,500
45,000

10,000

( 2,667)
( 30,000)
P219,833

Chapter 12 - Suggested Answers

15

12-I

12-J

12-K

1.

1.

2.

1.

2.

(AA2.2006)

Original cost of investment

Equity in subsidiary income:
2007 (P60,000 x 90%)
2008 (P20,000 x 90%)
Impairment loss (P800 + P1,200)
Dividends received from subsidiary:
2007 (P20,000 x 90%)
2008 (P10,000 x 90%)
Balance of investment, December 31, 2008

page

P290,000
54,000
( 18,000)
( 2,000)
( 18,000)
(
9,000)
P297,000

TSE of Saddle Co., Jan. 1, 2010 (P70,000 / 20%)

Cumulative net income for 5 years
Dividends paid
TSE of Saddle Co., Jan. 1, 2005
Percentage of interest of Paddle
Book value of acquired investment
Excess of cost over book value of investment
Cost of investment acquired
Original cost of investment
Equity in subsidiary income (P200,000 x 80%)
Impairment loss on goodwill
Dividends received (P50,000 x 80%)
Carrying value of investment, Dec. 31, 2010

P350,000
( 200,000)
50,000
P200,000
x 80%
P160,000
50,000
P210,000
P210,000
160,000
( 12,500)
( 40,000)
P317,500

Ordinary Share Capital (P75,000 x 90%)

Retained earnings (P45,000 x 90%)
Book value of Slogan shares

P 67,500
40,500
P108,000

Original cost of investment

Equity in subsidiary income (P5,000 x 90%)
Depreciation of excess of cost over BV of investment
(P2,000 / 10 years)
Dividends received from Slogan (P4,500 x 90%)
Carrying value of investment, December 31, 2008

P110,000
4,500
(
200)
( 4,050)
P110,250

3.

P4,500 x 90%

P 4,050

4.

Retained earnings, January 1

Net income from own operations
Equity in subsidiary income (P 4,500 200)
Dividends declared and paid
Consolidated RE (RE of parent), December 31, 2008

P180,000
45,000
4,300
( 30,000)
P199,300

12-L

1.

Share in net income of Starlet Co. (P100,000 x 80%)

Impairment loss on goodwill
Equity in Starlet Co. income

P 80,000
( 4,000)
P 76,000

12-M

1.

Net income of parent company because it already includes the

equity in earnings of the subsidiary

P 90,000

Total assets of Par

P 1,110,000

2.

Chapter 12 - Suggested Answers

16

(AA2.2006)

Total assets of Sub

Total
Adjustments and eliminations:
Investment in Sub
Excess of cost over BV of investment:
Cost
Book value (OS P30,000; APIC P100,000; RE P117,500)
Goodwill
Less Impairment loss
Consolidated total assets

page

350,000
P1,460,000
( 315,000)
P300,000
247,500
P 52,500
5,000

47,500
P1,192,500

3.

Retained earnings of parent company

4.
5.

D
D

P52,500 P5,000
Total Stockholders equity of parent company

12-N

1.

TSE of Polo before the combination

FMV of OS issued by Polo (200,000 x P20)
Net income of Polo and Solo
Impairment loss
Dividends paid by Polo
Consolidated shareholders equity, Dec. 31, 2008

P 6,000,000
4,000,000
1,550,000
( 100,000)
( 450,000)
P 11,000,000

12-O

1.

(P 6,500,000 + 630,000 @ 5

P 9,650,000

2.

(P 4,400,000 + 630,000 @ 3

P 6,290,000

3.

Retained Earnings of Post

4.

Net income of Post (P 1,000,000 + P 1,100,000)

P
Share in Adjusted Net income of Shaw:
Net income (P500,000 x 50%)
P 250,000 P
Impairment loss on goodwill
5,100 P

5.

12-P

1.

[(P9,000,000 + 300,000 + 500,000 350,000)

Asset adjustment
[5,040,000 (9,300,000 x 50%)] = P390,000 / 50%
Total
Percentage of ownership
Minority interest
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

P47,500
P980,000

2,100,000
244,900
2,344,900

P 9,450,00
780,000
P10,230,000
x 50%
P5,115,000

Chapter 12 - Suggested Answers

17

(AA2.2006)

x = P75,680/.86
x = P88,000
2.

NI of Sort = (P12,000) + .20 x P88,000

NI of Sort = (P12,000) + P17,600
NI of Sort = P5,600

page