HOME OFFICE, BRANCH , AND AGENCY

1. Manila Home Company ships and bills merchandise to its provincial branch at cost. The
branch
carries its own accounts receivable and makes its own collections. The branch also pays
its expenses.

The transactions for 20x3 are reflected in the branch trial balance that follows:

Debit Credit
Cash P11,900
Manila Home Co. Current P90,000
Shipments from Manila Home Co. 120,000
Accounts Receivable 62,500
Expenses 8,100
Sales 112,500
Total P202,500 P202,500

The net profit of the branch

A. P22,500
B. P21,300
C. P14,400
D. P12,400

The Branch Current account in the home office books:

A. P 90,000
B. P134,400
C. P104,400
D. P 80,000

2. On December 31, 20x3, the following data are in the records of theDau branch of the Den
Co.:

Petty Cash P 94,500

Accounts Receivable, Dec. 31, 20x2 85,200
Merchandise Inventory, Dec. 31, 20x2 75,500
Accounts Receivable, Dec 31, 20x3 88,800
Merchandise Inventory, Dec. 31, 20x3 81,000
Sales 272,700
Sales returns
4,800
Accounts receivable written off 2,000
Shipments from Home Office 220,600
Expenses (paid by Home Office) 22,500
 If all cash collections in 20x3 were remitted to Home Office, the total remittances
amounted to:
A. P262,300
B. P266,800
C. P264,300
D. P267,100

BUSINESS COMBINATION – STATUTORY MERGERS AND STATUTORY

CONSOLIDATIONS

1. BB Inc., DD Inc., and GG Inc. agree to consolidate. It was agreed that the new
corporation will issue a single class of stock at P100 par value. The new shares will be
exchanged for net assets transferred taking into account the effect of goodwill represented
by annual earnings in excess of 6% on asset contributions, capitalized at 20%. Goodwill
calculations are made only for the purpose of making an equitable allotment of the new
shares among the constituent corporations. Their assets and estimated annual earnings
follow:

Asset Contributions Earnings Contributions

BB P200,000 P30,000
DD 300,000 30,000
GG 500,000 40,000

If the new corporation is to be issued 1,000 shares, how will these be distributed among
BB, DD,
and GG, respectively?
BB DD GG
A. 200 300 500
B. 300 300 400
C. 450 300 250
D. 242 300 458

2. Companies Y and Z decide to consolidate. Asset and estimated annual earnings

contributions are as follows:

Co.Y Co. Z Total

Net asset contribution P300,000 P400,000 P700,000
Estimated annual earnings contribution 50,000 80,000 130,000

Stockholders of the two companies agree that a single class of stock be issued, that their
contributions be measured by net assets plus allowances for goodwill, and that 10% be
considered as a normal rate of return. Earnings in excess of the normal rate of return shall
be capitalized at 20% in calculating goodwill. It was also agreed that the authorized
 capital stock of the new corporation shall be 20,000 shares with a par value of P100 a
share.

The amount of goodwill credited to Company Y:

A. P100,000
B. P150,000
C. P200,000
D. P250,000

The total contribution of Company Z (net assets plus goodwill):

A. P400,000
B. P500,000
C. P600,000
D. P300,000

MERGER
10. On April 1, 20x3, AA Corp paid cash of P620,000 for all of the net assets of ZZ
Company
appropriately accounted for as a merger. The recorded assets and liabilities of ZZ
Company on
April 5, 20x3 follow:

Cash P 60,000
Inventory 180,000
Property, plant and equipment (net of accumulated depreciation
of P220,000) 320,000
Goodwill ( net of accumulated amortization of P50,000) 100,000
Liabilities (120,000)
Net assets P
540,000

On April 1, 20x3, ZZ’s inventory had a fair values of P150,000, and the property, plant
and
equipment (net) had a fair value of P380,000.

The amount of goodwill recorded in the books of AA as a result of the business

combination should be:
A. P150,000
B. P120,000
C. P 50,000
D. 0

11. Beauty Company had these accounts at the time it was acquired by Pretty Co.:

Cash P 36,000
 Accounts receivable 457,000
Inventories 120,000
Plant, property and equipment 696,400
Accounts payable 350,000

Pretty Co. paid P1,400,000 for net assets of Beauty Co. It was determined that fair market
values of inventories and plant, property, and equipment were P133,000 and P900,000,
respectively.

An assumed contingent liability with a fair value amounting to P10,000 and such
amounts is
considered a reliable measurement. Also, a P25,000 future losses or
reorganization/restructuring
costs are expected to be incurred as a result of the business combination.

In the books of Pretty Co., this transaction resulted in:

A. Goodwill recorded at P441,000
B. Goodwill recorded at P224,800
C. Goodwill recorded at P234,800
D. Current assets increased by P234,800

Items 77 through 79 are based on the following data:

Pia Corporation owns an 80% interest in Rose Corporation; and at December 31, 20x3,
Pia investment in Rose on a cost basis was equal to 80% of Rose’s stockholder’s equity.
During 20x3, Rose sold merchandise to Pia to P100,000 at a gross profit to Rose of
P20,000. At December 31, 20x4 half of this merchandise is included in Pia’s inventory.
Separate incomes for Pia and Rose for 20x4 are summarized as follows:
Pia Rose
Sales P500,000 P300,000
Cost of sales (250,000) (200,000)
Gross Profit P250,000 P100,000
Operating expenses 125,000 (40,000)
Separate incomes P125,000 P 60,000

The Income from Rose for 20x4 is:

A. P48,000 C. P8,000
B. P40,000 D. P 0

The Consolidated/group cost of sales for 20x4 is:

A. P460,000 C. P440,000
B. P450,000 D. P360,000

The non-controlling interest in net income for 20x4 is:

A. P60,000 C. P12,000
B. P48,000 D. P10,000
FOREIGN CURRENCY

4. On September 3, 20x3, Pia placed a noncancellable purchase order with a Japanese

company for a custom-built machine. The contract price was 1,000,000 yens. The
machine was delivered on December 23, 20x3. The invoice was dated November 13,
20x3, the shipping date (FOB shipping point). The vendor was paid on January 7, 20x4.
The spot direct exchange rates for the Japanese yens on the respective dates are as
follows:

Sept. 3, 20x3 Nov.13, 20x3 Dec. 23, 20x3Dec. 31, 20x3 Jan. 7, 20x4
P.20 P.21 P.22 P.23 P.24

What amount is the capitalizable cost of the equipment?

A. P200,000 C. P220,000
B. P210,000 D. P230,000

6.What is the reportable foreign exchange gain or loss amount in Pia’s20x3 income statement?
A. P10,000 loss C. P30,000 loss
B. P20,000 gain D. P20,000 loss
C.

CONSOLIDATED FINANCIAL STATEMENTS – STOCK ACQUISITION

Date of acquisition

1. On August 1, 20x3. Yellow Company paid P1,240,000 for all the issued and outstanding
common shares of Green, Inc. The basic financial information of Green Inc. as of said
date registered asfollows:

Cash P120,000
Inventory 360,000
Property and Equipment (net of accumulated depreciation,P440,000) 640,000
Goodwill 200,000
Bonds Payable (240,000)

The following information is relevant:

- Green owns its factory which is included in the accounts at P100,000 and no
adjustment had been made to recognize the valuation of P220,000 put on the property
when it was professionally revalued on July 15, 20x3.
- The fair values of Green’s inventory on August 1, 20x3 is estimated to be P60,000
less than its book value at that date.

The amount of goodwill generated therefrom:

A. Zero
B. P300,000
C. P240,000
 D. P100,000

2. The balance sheet of Blue Company as of December 31, 20x3 is as follows:

Assets Liabilities & Stockholders’ Equity

Cash P 175,000 Current liabilities P

250,000
Accounts receivable 250,000 Mortgage payable
450,000
Inventories 725,000 Common stock
200,000
Property, plant & equipment 950,000 Additional paid in capital
400,000
Retained earnings
800,000 P2,100,000
P2,100,000

On December 31, 20x3, Blue Company bought all the outstanding stock of Red Company
for
P1,800,000 cash. On the date of purchase, the fair value of Blue inventories was
P675,000, while
the fair value of Blue’s property, plant and equipment was P1,100,000. The fair values of
all other assets and liabilities of Blue company were equal to their book values.

Compute the amount of goodwill in the books of Red Company.

A. P300,000
B. P200,000
C. P100,000
D. P 0

Compute the amount of goodwill in the consolidated balance sheet.

A. P300,000
B. P200,000
C. P100,000
D. P 0