QUIZ 2:

PROBLEM 1
The following statement of financial position were prepared for HIJ Corp. and NOP Co. on January
1, 2010, just before they entered into a business combination.
HIJ Corp. NOP Co.
Cash P210,000 P 5,000
Accounts receivable 75,000 20,000
Merchandise inventory 200, 000 50,000
Building and equipment 400,000 100,000
Accumulated depreciation (100,000) (25,000)
Goodwill _________ 50,000
Total Assets 785,000 200,000

Accounts payable 125,000 70,000

Bonds payable 200,000 30,000
Common stock
P30 par value 210,000
P20 par value 50,000
Additional paid-in capital 50,000 10,000
Retained earnings 200,000 40,000
Total Liabilities & Stockholders’ 785,000 200,000
equity

On that date, the fair market value of NOP’s inventories and building and equipment were P78,000
and P124,000 respectively, while bonds payable has a fair value of P42,000. The fair market values
of all other assets and liabilities of NOP (except for goodwill) were equal to their book values. HIJ
Corp. acquired the net assets of NOP CO. by issuing 2,500 shares of its P30 par value common
stock (current fair value P36 per share) and purchase price in cash amounting to P12,000.
Contingent consideration that is determinable (probable and reasonably estimated) amount to
P2,000. Additional cash payments made by HIJ Corp. in completing the acquisition were: Legal
fees for contract business combination, P8,000, Accounting and legal fees for SEC registration,
P11,000, Printing costs of stock certificates, P6,000; Finder’s fee, P7,000, Indirect cost, P5,000.

As a result of the business combination, the amount of total assets and total liabilities, respectively,
in the books of the surviving company

PROBLEM 2
The following statement of financial position were prepared for HIJ Corp. and NOP Co. on January
1, 2010, just before they entered into a business combination.
HIJ Corp. NOP Co.
Cash P210,000 P 5,000
Accounts receivable 75,000 20,000
Merchandise inventory 200, 000 50,000
Building and equipment 400,000 100,000
Accumulated depreciation (100,000) (25,000)
Goodwill _________ 50,000
Total Assets 785,000 200,000

Accounts payable 125,000 70,000

Bonds payable 200,000 30,000
Common stock
P30 par value 210,000
P20 par value 50,000
Additional paid-in capital 50,000 10,000
Retained earnings 200,000 40,000
 Total Liabilities & Stockholders’ 785,000 200,000
equity

On that date, the fair market value of NOP’s inventories and building and equipment were P78,000
and P124,000 respectively, while bonds payable has a fair value of P42,000. The fair market values
of all other assets and liabilities of NOP (except for goodwill) were equal to their book values. HIJ
Corp. acquired the net assets of NOP CO. by issuing 2,500 shares of its P30 par value common
stock (current fair value P36 per share) and purchase price in cash amounting to P12,000.
Contingent consideration that is determinable (probable and reasonably estimated) amount to
P2,000. Additional cash payments made by HIJ Corp. in completing the acquisition were: Legal
fees for contract business combination, P8,000, Accounting and legal fees for SEC registration,
P11,000, Printing costs of stock certificates, P6,000; Finder’s fee, P7,000, Indirect cost, P5,000.

As a result of the business combination, the amount of common stock, additional paid-in capital
and retained earnings, respectively, in the books of the surviving company

PROBLEM 3
A condensed balance sheet at July 1, 2010 and the related current fair value data for DEF Company
are presented below:
Carrying value Fair value
Current assets P 184,000 P 202,250
Property and equipment 296,250 345,000
Patent 29,250 24,000
Total assets P 509,500

Current liabilities P 53,750 53,750

Non-current liabilities 140,000 148,750
Capital stock, P20 par value 105,000
Retained earnings 210,750
Total liabilities and stockholders’ equity P 509,500

On August 1, 2010, LMN Corporation issued 4,450 shares of its P29 par value common stock (fair
value, P45 per share) and P125,500 cash for the net assets of DEF Company. of the P116,250
acquisition related costs paid by LMN Corporation on August 1, 2010, P20,000 were stock
issuance cost.
How much is the goodwill (gain on acquisition) to be recorded by LMN Corp,?

PROBLEM 4
A condensed balance sheet at July 1, 2010 and the related current fair value data for DEF Company
are presented below:
Carrying value Fair value
Current assets P 184,000 P 202,250
Property and equipment 296,250 345,000
Patent 29,250 24,000
Total assets P 509,500

Current liabilities P 53,750 53,750

Non-current liabilities 140,000 148,750
Capital stock, P20 par value 105,000
Retained earnings 210,750
Total liabilities and stockholders’ equity P 509,500
On August 1, 2010, LMN Corporation issued 4,450 shares of its P29 par value common stock (fair
value, P45 per share) and P125,500 cash for the net assets of DEF Company. of the P116,250
acquisition related costs paid by LMN Corporation on August 1, 2010, P20,000 were stock
issuance cost.

What is the net increase in the stockholders’ equity in the books of LMN Corp. as a result of the
business combination?

PROBLEM 5
The following statement of financial position were prepared for HIJ Corp. and NOP Co. on January
1, 2010, just before they entered into a business combination.
HIJ Corp NOP Co.
Cash P 210,000 P 5,000
Accounts receivable 75,000 20,000
Merchandise inventory 200,000 50,000
Building and equipment 400,000 100,000
Accumulated depreciation (100,000) (25,000)
Goodwill - 50,000
Total Assets P 785,000 P 200,000

Accounts payable P 125,000 P 70,000

Bonds payable 200,000 30,000
Common stock
P30 par value 210,000
P20 par value 50,000
Additional paid-in capit 50,000 10,000
Retained earnings 200,000 40,000
Total Liabilities & Stockholders’
equity P 785,000 P 200,000

On that date, the fair market value of NOP’s inventories and building and equipment were P78,000
and P124,000 respectively, while bonds payable has a fair value of P42,000. The fair market values
of all other assets and liabilities of NOP (except for goodwill) were equal to their book values. HIJ
Corp. acquired the net assets of NOP CO. by issuing 2,500 shares of its P30 par value common
stock (current fair value P36 per share) and purchase price in cash amounting to P12,000.
Contingent consideration that is determinable (probable and reasonably estimated) amount to
P2,000. Additional cash payments made by HIJ Corp. in completing the acquisition were: Legal
fees for contract business combination, P8,000, Accounting and legal fees for SEC registration,
P11,000, Printing costs of stock certificates, P6,000; Finder’s fee, P7,000, Indirect cost, P5,000.

As a result of the business combination, the amount of common stock, additional paid-in capital
and retained earnings, respectively, in the books of the surviving company

PROBLEM 6
On December 31, 2010, the following figures were taken from the trial balance of LM Company
and QR Company:

LM QR
Cash P80,000 P20,000
Receivables 60,000 60,000
Inventory 100,000 70,000
Property and equipment - net 200,000 100,000
Goodwill - 30,000
Current liabilities 20,000 10,000
Long-term liabilities 70,000 50,000
Common Stock 110,000 100,000
Additional paid-in capital 20,000 -
Retained earnings 220,000 120,000

On December 31, 2010, LM issues 10,000 shares of its P10 par value stock for all of the
outstanding shares of QR. LM’s stock had a P25 per share fair market value. LM also paid the
following: P25,000 for broker’s fee, P20,000 for pre-acquisition audit fee, P21,500 for legal fees,
P18,000 for audit fee for SEC registration of stock issue and P5,500 for printing of stock
certificates. QR holds an equipment that is worth P40,000 more than its current book value. The
retained earnings of QR on January 1, 2010 amounted to P70,000.

How much is the consolidated assets at acquisition date?

PROBLEM 7
On October 1, 2010, Penny Company acquired 80% of the outstanding common stock of Sunny
Company for P720,000. Non-controlling interest is recorded at estimated fair value. The working
paper elimination entry for Penny Company and subsidiary Sunny Company on October 1, 2010
was as follows:

Common stock - Sunny Company 150,000

APIC - Sunny Company 180,000
Retained earnings - Sunny 270,000
Company
Plant assets 75,000
Goodwill ?
Investment in Son 720,000
Company
Non-controlling interest ?
What amounts of goodwill and non-controlling interest (NCI) be reported in the consolidated
statement of financial position on October 1, 2010

PROBLEM 8
On June 1, 2010, Pony Inc. acquired most of the outstanding common stock of Sumo Company
for cash. The incomplete working paper elimination entries on that date for the consolidated
statement of financial position of Pony Inc. and its subsidiary are shown below:

E(1) Stockholders ‘equity - Sumo 872,100

Investment in Sumo 741,285
NCI 130,815
E(2) Inventories 19,890
Equipment 145,350
Patent 22,950
Goodwill ?
Investment in Sumo 209,865
NCI ?

Assuming NCI is measured at fair value, what is the amount of goodwill to be reported in the
consolidated balance sheet on June 1, 2010?

PROBLEM 9
Kim Company purchased 24,000 shares of stocks of Jenna Company for P64 per share. Just prior
to the purchase, Jenna Company has the following statement of financial position:

Assets Liabilities and Equity

Cash P 60,000 Current liabilities P 750,000
Inventory 840,000 Common stock, P5 par 150,000
Equipment 1,200,000 APIC 390,000
 Goodwill 300,000 Retained earnings 1,110,000
Total P2,400,000 Total P2,400,000

Kim Company believes that the inventory has a fair value of P1,200,000 and that the equipment
is worth P1,500,000.
What is the amount of non-controlling interest in the consolidated statement of financial position
on the date of acquisition?

PROBLEM 10
On January 2, 2010, Polo Corporation purchase 80% of Son Company’s common stock for
P324,000. P15,000 of the excess is attributable to goodwill and the balance to a depreciable asset
with an economic life of ten years. Non-controlling interest is measured at its fair value on date
of acquisition. On the date of acquisition, stockholders’ equity of the two companies are as
follows:

Polo Corporation Son Corporation

Common Stock P525,000 P120,000
Retained earnings 780,000 210,000

On December 31,2010, Son Company reported net income of P52,500 and paid dividends of
P18,000 to Polo. Polo reported earnings from its separate operations of P142,500 and paid
dividends of P69,000. Goodwill had been impaired and should be reported at P3,000 on
December 31,2010.

What is the consolidated net income on December 31,2010?

What is the consolidated retained earnings on december 31,2010?
What is the NCI in net income of Son Company on December 31,2010?
What amount of NCI is to be presented in the consolidated balanse sheet on December 31,2010?
What is the consolidated net income attributable to parent shareholders on December 31,2010?

PROBLEM 11
PP company purchase 75 % of the capital stock of SS company on December 31, 2005 at
P210,000 more the book value of its net assets. The excess was allocated to equipment in the
amount of P93,750 and to goodwill for the balance. the equipment has an estimated useful life
of 10 years and goodwill was not impaired. For four years SS Company reported cumulative
earnings of P945,000 and paid P273,000 in dividends. On January 2, 2010, non-controlling
interest in net asset of SS company amounts to P393,750.

Assuming NCI is measured at estimated fair value,what is the price paid by PP company on the
date of acquisition?

PROBLEM 12
Pepe corporation purchase 70% of Sisa company’s outstanding stock on January 2, 2009 for
P346,500 cash. At the date, Sisa company reported book value of its net assets as P420.000. The
excess is allocated to a depreciable asset with a remaining life of 10 years. The companies
reported the following data for 2010:
Retained Earnings
January 1 Net income Dividends
Pepe corporation P780,000 P180,000 P75,000
Sisa 345,000 37,500 15,000

Non-controling is measured at its estimated fair value. The following entry was included in the
eliminating entries to prepare the consolidated financial statements at December 31,2010:
Retained earnings,1/1-Sisa 31,500
non-controlling interest 31,500

What is the amount of retained earnings of Sisa company on January 2, 2009?

What is the consolidated retained earnings to be reported on January 1, 2010?
What is the consolidated net income attributable to parent shareholders on December 31, 2010?
What is the consolidated retained earnings at December 31,2010?

PROBLEM 13
Gordon Ltd., a 100% owned British subsidiary of a Philippine parent company, reports its
financial statements in local currency, the British pound. A local newspaper published the
following Philippine exchange rates from the British pound to peso at year-end:

Current Rate Php67.50

Historical rate (acquisition) 67.70
Average rate 67.55
Inventory (FIFO) 67.60

Which currency ratio should Gordon use to convert its income statement to Philippine peso at
year-end?

PROBLEM 14
On January 1, 2009, Kiner Company formed a foreign branch. The branch purchased merchandise
at a cost of 720,000 foreign currency units (FCU) on February 15, 2009. The purchase price was
equivalent to P180,000 on this date. The branch’s inventory at December 31, 2009, consisted
solely of merchandise purchased on February 15, 2009, and amounted to 240,000 FCU. The
exchange rate was 6 FCU to Php1 on December 31, 2009, and the average rate of exchange was 5
FCU to Php1 for 2009. Assume that the FCU is the functional currency of the branch. In Kiner’s
December 31, 2009 balance sheet, the branch inventory balance of 240,000 FCU should be
translated to Philippine Peso at

PROBLEM 15
The France Company owns a foreign subsidiary with 2,400,000 local currency units (LCU) of
property, plant, and equipment before accumulated depreciation at December 31, 2009. Of this
amount, 1,500,000 LCU were acquired in 2007 when the rate of exchange was 1.5 LCU to P1, and
900,000 LCU were acquired in 2008 when the rate of exchange was 1.6 LCU to P1. The rate of
exchange in effect at December 31, 2009, was 1.9 LCU to P1. The weighted average of exchange
rates which were in effect during 2009 was 1.8 LCU to P1. Assuming that the property, plant, and
equipment are depreciated using the straight-line method over a 10-year period with no salvage
value, how much depreciation expense relating to the foreign subsidiary’s property, plant, and
equipment should be charged in France’s income statement for 2009? Assume the Philippine Peso
is the functional currency.

PROBLEM 16
Certain balance sheet accounts in a foreign subsidiary of the Brogan Company at December 31,
2009, have been remeasured into Philippine pesos as follows:

Rate translated at
Current Historical
Equity securities carried at cost P100,000 110,000
Marketable equity securities carried at
current market price 120,000 125,000
Inventories carried at cost 130,000 132,000
Inventories carried at net realizable value 80,000 84,000
P430,000 P451,000
What amount should be shown in Brogan’s balance sheet at December 31, 2009, as a result of the
above information?

PROBLEM 17
Post, Inc. had a credit translation adjustment of P30,000 for the year ended December 31, 2009.
The functional currency of Post’s subsidiary is the currency of the country in which it is located.
Additionally, Post had a receivable from a foreign customer payable in the local currency of the
customer. On December 31, 2009, this receivable for 200,000 local currency units (LCU) was
correctly included in Post’s balance sheet at P110,000. When the receivable was collected on
February 15, 2010, the Phil. peso equivalent was P120,000. In Post’s 2010 consolidated income
statement, how much should be reported as foreign exchange transaction gain?

END