11/24/2020 Preview

BUSINESS COMBINATION

Theoretical:

1.)

Credit Merchandise Inventory – Statement of Financial Position in the working paper to eliminate the unrealized inventory profit

True

False

2.)

From a consolidated viewpoint, intercompany profit on inventory transfers within the consolidated group is always considered
realized.

True

False

3.)

In a purchase-type business combination, the stockholders’ equity section of a consolidated statement of financial position for a
parent and its partially owned subsidiary consists of the parent’s stockholders’ equity accounts only.

True

False

4.)

Subsidiary company has a receivable from its Parent company. This receivable should be separately reported in the acquired
company’s individual statement of financial position and in the parent’s consolidated statement of financial position

True

False

5.)

The amount of dividend revenue in the separate books of the acquirer company must be eliminated in the working paper in the
preparation of the consolidated financial statements

True

False

6.)

1/13
11/24/2020 Preview

Debit Loss on sale of equipment in the working paper, representing the realized loss on intercompany sale of equipment based on
the remaining useful life of the depreciable asset

True

False

7.)

In the preparation of consolidated financial statements, all the unrealized intercompany profit in the ending inventories of a partially
owned subsidiary should be eliminated

True

False

8.)

Under the cost method of accounting for business combination, in the books of the acquirer company, amortization of the allocated
difference between the fair values and book values of a purchased subsidiary’s identifiable net assets is debited to the parent
company’s expense accounts

True

False

9.)

Recognition of the realized profit in beginning inventory in the working paper from intercompany sales of merchandise in the prior
year requires a debit to Cost of Goods Sold

True

False

10.)

Downstream or upstream sale of merchandise affects the computation of the consolidated net income, consolidated merchandise
inventory and consolidated gross profit

True

False

11.)

Credit Cost of Goods Sold in the working paper to amortize allocated difference of the acquired company’s overvalued
merchandise

True

False
2/13
11/24/2020 Preview

12.)

In the working paper, unrealized intercompany gain or loss on sale of fixed assets during the year must be eliminated in full,
regardless of the date of sale per books.

True

False

13.)

Credit Accumulated Depreciation in the working paper to recognize the realized gain on intercompany sale of depreciable fixed
assets

True

False

14.)

If the intercompany sale of fixed assets is made at the beginning or any date before end of the year, as a working paper procedure,
any realize intercompany gain/loss affects the computation of consolidated operating expense.

True

False

15.)

Parent company owns 75% of the outstanding shares of Subsidiary company. During 2020, there was a downstream sale of
merchandise with a 30% gross profit. The buying affiliate sold all of these goods to outsiders in the same year. For 2020
consolidated statement of comprehensive income, sales and cost of goods sold should be reduced by the full amount of the
intercompany sales of merchandise

True

False

16.)

In case of upstream sales, unrealized profits in ending inventory from the intercompany sale of merchandise during the year are
charged to consolidated retained earnings and non-controlling interest in net assets

True

False

17.)

3/13
11/24/2020 Preview

Gain or loss on intercompany transfer of depreciable fixed assets is realized over the estimated useful life of the assets in the
consolidated financial statements

True

False

18.)

In eliminating dividends declared by the subsidiary, the portion not paid to the parent should be treated as an increase to the non-
controlling interest in net assets

True

False

19.)

The amortization of the overvalued excess of subsidiary’s depreciable fixed assets decreases consolidated operating expense and
increases the consolidated net income.

True

False

20.)

The impairment of goodwill arising from the parent company’s acquisition of stocks always affects the computation of consolidated
net income and non-controlling interest in profit

True

False

Problem Solving:

21.)

Identify the letter of your choice which best represents the answer to the query/question/statement. Some of the
questions pertain to the same problem as indicated, and in this case, a preparation of a solution on your part can assist in
answering the said questions

B Company acquired a 75% interest in Y Company in 2018. B reported net income of P720,000 in 2020 while Y reported net
income of P325,000 in 2020. During 2019, there was an upstream sales of merchandise for P76,000 at a cost of P52,000. Two-
fifths of the merchandise were later resold by the buying affiliate to outsiders for P35,000 during 2020. In 2020, B purchased
merchandise from Y for P88,000 at a profit of P32,000. One-fourth of the merchandise was resold by the buying affiliate to
outsiders for P27,000 during 2020

The following questions pertain to this problem:

4/13
11/24/2020 Preview

Question specifically asked for this problem:

A. P77,650

B. P83,650

C. P81,250

D. P82,850

22.)

Identify the letter of your choice which best represents the answer to the query/question/statement. Some of the
questions pertain to the same problem as indicated, and in this case, a preparation of a solution on your part can assist in
answering the said questions

L Company acquired inventories on April 30, 2020, from its 70% owned subsidiary, V Company. The inventories were sold for
P350,000 including the 40% gross profit on sales. Out of these inventories, 30% were sold to outsiders in 2020

Based on the above transaction, compute the realized profit attributable to non-controlling interest in 2021

A. P68,600

B. P12,600

C. P140,000

D. P29,400

23.)

Identify the letter of your choice which best represents the answer to the query/question/statement. Some of the
questions pertain to the same problem as indicated, and in this case, a preparation of a solution on your part can assist in
answering the said questions

GG Co. had the following transactions with two subsidiaries, OO (80% owned) and RR (75% owned) during 2020: OO acquired
merchandise totalling P105,000 from GG, Inc., the selling affiliate had a P31,500 gross profit. The buying affiliate had P26,250 of
this inventory on hand at year end. GG purchased merchandise totaling P420,000 from RR Corp. RR’s gross profit on the sale
was P84,000. The buying affiliate had P98,000 of this inventory remaining on December 31, 2020. Before eliminating entries, The
separate entities had combined current assets of P525,000

5/13
11/24/2020 Preview

The following questions pertain to this problem:

What amount should GG report in its December 31, 2020 Consolidated Statement of Financial Position for current assets?

ANSWER: 497525

The adjustment to compute the 2020 consolidated net income attributable to controlling interest would be a decrease of:

Question specifically asked for this problem:

The adjustment to compute the 2020 consolidated net income attributable to controlling interest would be a decrease of:

A. P21,000

B. P27,475

C. P124,250

D. P22,575

24.)

Identify the letter of your choice which best represents the answer to the query/question/statement. Some of the
questions pertain to the same problem as indicated, and in this case, a preparation of a solution on your part can assist in
answering the said questions

G Company acquired inventories on October 18, 2020, from its 90% owned subsidiary, B Company. The inventories were sold for
P890,000 including the 25% markup based on cost. Out of these inventories, 55% were unsold to outsiders

Based on the above transaction, compute the unrealized profit attributable to controlling interest in 2020

A. P80,100

B. P88,110

C. P72,090

D. P97,900

25.)

PBX Corp. owns 80% of SVC Corp.’s ordinary shares. On March 31, 2020, there was an upstream sale of
land for P800,000 with a recorded amount of P620,000. On June 1, 2020, there was a downstream sale of

6/13
11/24/2020 Preview

delivery equipment for P450,000 with a carrying amount of P300,000. The buying affiliate is to depreciate
the acquired equipment over a five-year remaining life by the straight-line method. On the other hand, on
September 30, 2021, there was an upstream sale of a slightly used computer for P85,000 with carrying
value of P100,000 and remaining life of 3 years.

Question specifically asked for this problem:

The net adjustment to compute the 2020 consolidated net income would be an increase (decrease)
of:

A. P(312,500)

B. P315,000 tama
ba to

C. P(276,500)

D. P267,500

26.)

Identify the letter of your choice which best represents the answer to the query/question/statement. Some of the
questions pertain to the same problem as indicated, and in this case, a preparation of a solution on your part can assist in
answering the said questions

PBX Corp. owns 80% of SVC Corp.’s ordinary shares. On March 31, 2020, there was an upstream sale of land for P800,000 with a
recorded amount of P620,000. On June 1, 2020, there was a downstream sale of delivery equipment for P450,000 with a carrying
amount of P300,000. The buying affiliate is to depreciate the acquired equipment over a five-year remaining life by the straight-line
method. On the other hand, on September 30, 2021, there was an upstream sale of a slightly used computer for P85,000 with
carrying value of P100,000 and remaining life of 3 years.

Question specifically asked for this problem:

The net adjustment to compute the 2021 consolidated net income attributable to controlling interest would be an increase
(decrease) of:

A. P(103,000)

B. P41,000

C. P43,750

D. P(136,250)

7/13
11/24/2020 Preview

27.)

Identify the letter of your choice which best represents the answer to the query/question/statement. Some of the
questions pertain to the same problem as indicated, and in this case, a preparation of a solution on your part can assist in
answering the said questions

The CB Company owns 65% of the HD Company. On their separate financial statements, CB Company has Receivables of
P243,750, including P6,000 due from HD and HD Company has Receivables P82,000, including P8,250 due from XY

What figure should appear for Receivables in CB’s Consolidated Statement of Financial Position?

A. P325,750

B. P319,750

C. P311,500

D. P-0-

28.)

J Corp. owns 90% of B Corp’s ordinary shares. On October 1, 2020, J Corp. acquired an equipment from B Corp. for P190,000.
The carrying amount of the equipment is P240,000 and has a remaining life of 4 years

Due to this intercompany transaction, compute the net adjustment (increase/decrease) in the consolidated net income
attributable to controlling interest for 2021

A. P12,500 decrease

B. P11,250 decrease

C. P42,187.50 increase

D. P46,875 increase

29.)

Identify the letter of your choice which best represents the answer to the query/question/statement. Some of the
questions pertain to the same problem as indicated, and in this case, a preparation of a solution on your part can assist in
answering the said questions

B Company acquired a 75% interest in Y Company in 2018. B reported net income of P720,000 in 2020 while Y reported net
income of P325,000 in 2020. During 2019, there was an upstream sales of merchandise for P76,000 at a cost of P52,000. Two-
fifths of the merchandise were later resold by the buying affiliate to outsiders for P35,000 during 2020. In 2020, B purchased
8/13
11/24/2020 Preview

merchandise from Y for P88,000 at a profit of P32,000. One-fourth of the merchandise was resold by the buying affiliate to
outsiders for P27,000 during 2020

Question specifically asked for this problem:

Compute the consolidated net income in 2020

A. P1,030,600

B. P946,950

C. P955,350

D. P952,950

30.)

GG Co. had the following transactions with two subsidiaries, OO (80% owned) and RR (75% owned) during 2020: OO acquired
merchandise totalling P105,000 from GG, Inc., the selling affiliate had a P31,500 gross profit. The buying affiliate had P26,250 of
this inventory on hand at year end. GG purchased merchandise totaling P420,000 from RR Corp. RR’s gross profit on the sale
was P84,000. The buying affiliate had P98,000 of this inventory remaining on December 31, 2020. Before eliminating entries, The
separate entities had combined current assets of P525,000

The following questions pertain to this problem:

What amount should GG report in its December 31, 2020 Consolidated Statement of Financial Position for current assets?

The adjustment to compute the 2020 consolidated net income attributable to controlling interest would be a decrease of:

Question specifically asked for this problem:

A. P552,475

B. P497,525

C. P525,000

D. P400,750

31.)

The R Company acquired an equipment on January 1, 2017 at a cost of P180,000, depreciating it over 8 years with a nil residual
value. On January 1, 2020 the M Company acquired 100% of R and estimated the fair value of the equipment at P104,000, with a
remaining life of 5 years. This fair value was not incorporated into R’s books and the depreciation expense continued to be
calculated by reference to original cost

9/13
11/24/2020 Preview

What net adjustments should be made to the carrying amount of equipment in preparing the consolidated Statement of
Financial Position for the year ended December 31, 2021? Increase or decrease?

A. P8,500 decrease

B. P5,100 decrease

C. P3,400 decrease

D. P8,500 increase

32.)

Identify the letter of your choice which best represents the answer to the query/question/statement. Some of the
questions pertain to the same problem as indicated, and in this case, a preparation of a solution on your part can assist in
answering the said questions

V Corp. owns 70% of F Corp’s ordinary shares. On August 1, 2020, F Corp. sold a machine to V Corp. for P580,000. The carrying
amount of the machine is P340,000 and has a remaining life of 8 years

Due to this intercompany transaction, compute the net adjustment (increase/decrease) in the consolidated net income
attributable to the non-controlling interest for 2020

A. P68,250 decrease

B. P87,500 decrease

C. P3,750 increase

D. P12,500 increase

33.)

Identify the letter of your choice which best represents the answer to the query/question/statement. Some of the
questions pertain to the same problem as indicated, and in this case, a preparation of a solution on your part can assist in
answering the said questions

The S Company owns 70% of the G Company. On the last day of the accounting period G sold to S a non-current asset for
P840,000. The asset originally cost P1,920,000 and at the end of the reporting period its carrying amount in G’s books was
P640,000. The group’s consolidated statement of financial position has been drafted without any adjustments in relation to this
non-current asset

What adjustments should be made to the consolidated net income attributable to controlling interest? Increase or
decrease?

10/13
11/24/2020 Preview

A. P140,000 decrease

B. P60,000 decrease

C. P200,000 decrease

D. P200,000 increase

34.)
The Q Company owns 60% of the H Company. On the last day of the third quarter, Q acquired from H a non-current asset for
P90,000. The asset originally cost P384,000 and at the end of the third quarter its carrying amount in H’s books was P128,000 with
remaining useful life of four years. The group’s consolidated statement of financial position has been drafted without any
adjustments in relation to this non-current asset

What adjustments should be made to the Consolidated Statement of Comprehensive Income figures attributable to non-
controlling interest? Net increase or net decrease?

A. P14,250 net increase

B. none

C. P21,375 net decrease

D. P35,625 net increase

Supply The Answer:

36.)

Read the instructions carefully for these type of problems as corrections on formatting will not be accepted this time.

Supply The Answer: In encoding your answer type only the amount, no comma, no peso sign, no decimal, no words must
be encoded. Example: 98750 or (98750)

MAX Co. had the following transactions with two subsidiaries, DSR Inc. (90% owned) and LDV Corp. (65% owned) during 2020:

(1) Sales on account in the amount of P735,000 to DSR Inc., with P220,500 gross profit. DSR had P185,000 of this inventory
on hand at year end.

11/13
11/24/2020 Preview

(2) Purchases of raw materials on account totaling P2,940,000 from LDV Corp. LDV’s gross profit on the sale was P588,000.
MAX Co. had P680,000 of this inventory remaining on December 31, 2020.

At the end of the year, before the working paper entries were made, MAX Co. and its two subsidiaries had combined current assets
of P6,200,000; combined sales of P14,500,000; combined cost of goods sold of P8,900,000; combined liabilities of P 7,400,000.

The following questions pertain to this problem:

What amount should MAX Co. report in its December 31, 2020 Consolidated Statement of Financial Position for
Liabilities?
ANSWER: 5195000

What amount should MAX Co. report in its December 31, 2020 Consolidated Statement of Comprehensive Income for cost
of goods sold?

ANSWER: 5416500

37.)

Read the instructions carefully for these type of problems as corrections on formatting will not be accepted this time.

Supply The Answer: In encoding your answer type only the amount, no comma, no peso sign, no decimal, no words must
be encoded. Example: 98750 or (98750)

The SCQ Company owns 70% of the GBX Company. On March 31, 2020, GBX Co. sold to SCQ Co. a non-current asset for
P1,470,000. The asset originally cost P3,360,000 and at the time of sale to the affiliated company, its carrying amount in the books
of the selling affiliate was P1,120,000. The remaining useful life of the asset is 7 years from the date of the sale to affiliate. The
group’s consolidated statement of financial position in 2020 has been drafted without any adjustments in relation to this non-current
asset.

The following questions pertain to this problem:

Compute the net decrease adjustment to consolidated net income attributable to non-controlling
interest in 2020.
ANSWER: 78125

Compute the adjustment to consolidated net income attributable to controlling interest in 2021.
ANSWER: 37500

38.)

S Corporation owns 75% of A Company’s ordinary shares. On June 30, 2020, A acquired from S an
equipment with a carrying value of P275,000 for P240,000. A is depreciating this equipment over a four-
12/13
11/24/2020 Preview

year period by the straight-line method.

The following questions pertain to this problem:

Compute the net increase adjustment to consolidated net income in 2020.

ANSWER: 30625

Compute the net increase adjustment to consolidated net income attributable to noncontrolling
interest in 2020

ANSWER: 0

39.)

40.)

13/13