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Consolidated Net Income

The Pony Company acquired Stag Company in 2011 for $206,000 cash. In 2013, Pony used the cost method to account for its investment in Stag. The question asks for the consolidated retained earnings of both companies as of December 31, 2013.

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516 views1 page

Consolidated Net Income

The Pony Company acquired Stag Company in 2011 for $206,000 cash. In 2013, Pony used the cost method to account for its investment in Stag. The question asks for the consolidated retained earnings of both companies as of December 31, 2013.

Uploaded by

PJ Poliran
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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28.

The Pony Company acquired all of the outstanding stock of Stag Company on January I, 2011, for
P206,000 in cash. Stag had a book value of only P140,000 on that date. However, equipment (having an
eight-year life) as undervalued by P40,000 on Stag’s financial records. A building with a 20-year life was
overvalued by 10,000. Subsequent to the acquisition, Stag reported the following:

CI Dividends Paid
2011 50,000 10,000
2012 50,000 40,000
2013 30,000 20,000

In accounting for this investment Pony has used the cost method. Selected accounts taken from the
financial records of these two companies as of December 31, 2013, are as follows:

Pony Company Stag Company


Revenues - Operating P310,000 P104,000
Expenses 198,000 74,000
Equipment (net) 320,000 50,000
Buildings (net) 220,000 68,000
Common stock 290,000 50,000
Retained Earnings, 12/31/2013 Balance 410,000 160,000

What amount should be reporter as consolidated retained earnings at December 31, 2013?

a. P136,500
b. P137,500
c. P142,000
d. P122,000

ANSWER: B

Consolidated Net Income


Net income from own operations - Pony
(P310,000 – P198,000) P 112,000
Net income from own operations - Stag
(P104,000 – P74,000) 30,000
Amortization: Equipment (P40,000/8) P5,000
Buildings (P10,000/20) (500) ( 4,500)
Consolidated net income P 137,500

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