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Assignment 2

1. Milk Company acquired 25% of Cheese Company for P875,000. Cheese Company reported net income of P1.1 million in 2016 and declared dividends of P250,000. The investment income and balance for Milk Company need to be calculated. 2. Script Company purchased a 20% interest in Breakeven Company for P60,000 in 2015. Breakeven Company reported losses from 2015-2017 and income in 2018. The investment income/loss and carrying value for each year need to be calculated. 3. Horatio Company acquired a 30% interest in Mia Company for P300,000. Mia Company reported net income of P780,000 and declared dividends in 2016

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199 views2 pages

Assignment 2

1. Milk Company acquired 25% of Cheese Company for P875,000. Cheese Company reported net income of P1.1 million in 2016 and declared dividends of P250,000. The investment income and balance for Milk Company need to be calculated. 2. Script Company purchased a 20% interest in Breakeven Company for P60,000 in 2015. Breakeven Company reported losses from 2015-2017 and income in 2018. The investment income/loss and carrying value for each year need to be calculated. 3. Horatio Company acquired a 30% interest in Mia Company for P300,000. Mia Company reported net income of P780,000 and declared dividends in 2016

Uploaded by

Shaina Santiago Alejo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1.

On January 1, 2016, Milk Company acquired 25,000 shares of the outstanding common
stock of Cheese Company for P875,000. At the time of purchase, Cheese Company had
100,000 shares outstanding. The book value of the net assets was P3,000,000 which
approximates its fair values, except for the following:
Inventory Land Building Equipment
Cost 50,000 200,000 300,000 200,000
Fair values 90,000 300,000 480,000 140,000

During 2016, Cheese Company reported net income of P1,100,000. The entire beginning
inventory was sold during 2016. Cheese Company depreciates its building and equipment
under the straight-line method. As of January 1, 2016, the building and equipment have
remaining useful lives of 10 and 5 years respectively. Dividends of P250,000 were also
declared by Cheese Company
a. Investment income in 2016
b. Investment in associate balance at December 31, 2016

2. On January 1, 2015, Script Company purchased a 20% interest in Breakeven Company and
paid P60,000. Breakeven Company’s assets equal its fair value.
In 2015 Breakeven Company reported net income of P420,000 and received dividends of
P90,000.
In 2016 and 2017 Breakeven Company reported net losses of 210,000 and 120,000
respectively.
In 2018, Breakeven Company made a recovery in its operations and reported a net income
of P140,000
Year Share in Investment income (loss) Carrying value of
Income (losses) reported in P&L Investment in Associate
2015
2016
2017
2018

3. On January 1, 2016, Horatio Company acquired a 30% interest in Mia Company for
P300,000. The net assets of Mia Company at the time of acquisition was P950,000. The
carrying amounts and the fair value of Mia Company’s assets were the same except for a
plot of land whose fair value was higher by P100,000.
Mia Company has 40,000 P8 par value ordinary shares issued and outstanding at the time
of Horatio Company’s acquisition. Likewise, Mia Company has 3,000 10% P40 par value
cumulative preference shares, all of which were outstanding throughout the year.
Mia Company reported a net income of P780,000 and declared dividends of which the
ordinary shares will receive P360,000
a. Investment income for 2016
b. Investment in associate – Mia Company at December 31, 2016

4. On January 1, 2016 Grisson Company acquired a 25% interest in LV Company and paid
P500,000. The following transactions between Grisson Company and LV Company are
provided below:
 Inventory costing P40,000 was sold by LV Company to Grisson Company for P70,000.
40% of these goods were sold by Grisson Company as of December 31, 2016.
 Inventory costing P40,000 was sold by Grisson Company to LV Company for
P130,000. 30% of these goods were sold by LV Company as of December 31, 2016.
LV Company’s net income was P900,000 and dividends declared P300,000.
a. Investment income for 2016
b. Investment in associate – LV Company at December 31, 2016.

5. Mack Company acquired a 10% interest in NY Company for P100,000 at June 1, 2016. On
December 31, 2016 the fair value of the investment amounted to P125,000
On February 11, 2017, Mack Company acquired an additional 15% interest in NY
Company for P217,500 and achieved significant influence.
The fair value of NY Company’s net assets was P1,000,000 at June 1, 2016 and P1,300,000
a. The initial measurement of the investment in associate – NY recognized on February 11,
2017
b. The amount of goodwill as a result of the investments in NY Company

6. JT Company has a 40% stake in RW Company with a carrying amount of P900,000. JT


Company sells 75% of its investment in RW Company for P750,000. The fair value of the
remaining ownership interest was P250,000
The gain (loss) included in JT Company’s profit or loss section as a result of the disposal
is

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