MODULE 5

Problem 1
On January 1, 2014, Padre Company purchased 90% of the outstanding shares of Salve Company by
paying P693,000. On that date, Salve Company had P300,000 of capital stock and P400,000 of
retained earnings. Excess, if any, is attributable to undervalued machinery with a remaining life of 20
years. All other assets and liabilities of Salve Company had book value approximated their fair market
values.
On January 2, 2014, there is an intercompany sale of equipment for P42,000. The cost and
accumulated depreciation are P70,000 and P40,000, respectively. The equipment has a remaining life
of six (6) years.
The net income from own operations and dividends paid of Padre Company and its subsidiary are as
follows (fiscal year ends December 31)

Company Net income 14 Net income 15 Dividends 14 Dividends 15

Padre P160,000 P120,000 P10,000 P7,000
Salve P70,000 P40,000 P12,000 P8,000

Required:
Assuming that Padre Company is the seller (downstream sale), in the books of Padre Company
Using cost method,
1.The investment account on December 31, 2014 and 2015
2.The dividend account on December 31, 2014 and 2015.

Using equity method, assuming the investment balance on January 1, 2019 amounted to P810,000
3.The investment account on December 31, 2014 and 2015
4.The equity in subsidiary income or net earnings account on December 31, 2014 and 2015

Assuming that Padre Company is the seller (downstream sale), in the consolidated financial
statements of Padre Company and Salve Company
5.The investment account on December 31, 2014 and 2015
6.The dividend income account on December 31, 2014 and 2015 if cost method is used
7.The equity in subsidiary income or net earnings account on December 31, 2014 and 2015 if equity
method is used
8.The profit attributable to equity holders of parent/controlling interest in consolidated net income
for 2014 and 2015
9.The noncontrolling interest in net income for 2014 and 2015
10.Consolidated/group net income for 2014 and 2015

Assuming that Salve Company is the seller (upstream sale), in the books of Padre Company
Using cost method,
11.The investment account on December 31, 2014 and 2015.
12.The dividend account on December 31, 2014 and 2015.

Using equity method, assuming the investment balance on January 1, 2019 amounted to P810,000
13.The investment account on December 31, 2014 and 2015
14.The equity in subsidiary income or net earnings account on December 31, 2014 and 2015

Assuming that Salve Company is the seller (downstream sale), in the consolidated financial
statements of Padre Company and Salve Company
15.The investment account on December 31, 2014 and 2015
16.The dividend income account on December 31, 2014 and 2015 if cost method is used
17.The equity in subsidiary income or net earnings account on December 31, 2014 and 2015 if equity
method is used
18.The profit attributable to equity holders of parent/controlling interest in consolidated net income
for 2014 and 2015
19.The noncontrolling interest in net income for 2014 and 2015
20. Consolidated/group net income for 2014 and 2015