FOREWORD

Firstly, we praise to God for His blessing along the journey of wrapping up this module. We
also thank to our lecturers and all the parties involved in giving attention and advice at their
best for making this module clear and qualified.

Advanced Accounting 2 is the continuance of Advanced Accounting 1 as it covers deeper and

broader level of accounting than the basic one in Advanced Accounting 1. This course is
expected to assist students in getting more understanding by applying the theory into practice
through all the cases provided.

This module has been compiled in a way that these purposes might be achieved. It contains the
key elements of each chapter, followed by specific comprehensive exercises to be solved and
discussed each meeting with a lab assistant.

At last, we apologize for any words or mistakes occurred in this module and hope this module
will be helpful to explore the nature of Advanced Accounting 2.

Sincerely,

Assistant Lab Team

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 TABLE OF CONTENT

FOREWORD .............................................................................................................................................................. 1
TABLE OF CONTENT ............................................................................................................................................. 2
INTRODUCTION ...................................................................................................................................................... 3
MODULE 1 CHAPTER 1: BUSINESS COMBINATIONS .................................................................................... 6
MODULE 2 CHAPTER 2: STOCK INVESTMENTS—INVESTOR ACCOUNTING AND REPORTING .. 11
MODULE 3 CHAPTER 3: AN INTRODUCTION TO CONSOLIDATED FINANCIAL STATEMENTS ........15
MODULE 4 CHAPTER 4: CONSOLIDATION TECHNIQUES AND PROCEDURES ..................................... 20
MODULE 5 CHAPTER 5: INTER COMPANY PROFIT TRANSACTION – INVENTORIES ......................... 29
MODULE 6 CHAPTER 6: INTERCOMPANY PROFIT TRANSACTIONS –PLANT ASSETS....................... 33
MODULE 7 CHAPTER 7: INTERCOMPANY PROFIT TRANSACTIONS – BONDS......................................39
MODULE 8 CHAPTER 8: CONSOLIDATIONS – CHANGES IN OWNERSHIP INTERESTS .......................49
MODULE 9 CHAPTER 9: INDIRECT AND MUTUAL HOLDINGS ................................................................. 55

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 INTRODUCTION

A. Description

Accounting lab is linked and inseparable with each of its main course (theory).
Accounting lab is intended for students to better comprehend the concepts related to its
main course through exercises and cases.
Every accounting lab is worth 0 credits and has a duration of 130 minutes, scheduled
face-to-face and equaling 2 credits.

B. General Instructional Objective

After taking this course and finishing all the materials, students are expected to be able
to identify/explain/calculate/analyze the following concepts:

1. Business Combinations

2. Stock Investments - Investor Accounting and Reporting

3. Introduction to consolidated financial statement

4. Consolidations techniques and procedures

5. Intercompany Profit transactions - Inventories

6. Intercompany Profit transactions—Plant Assets

7. Intercompany Profit transactions – Bonds

8. Consolidations - Changes in Ownership Interests

C. Lecturing Activities
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1. Students are directed to be actively involved during the learning activity in class.

2. To facilitate the teaching and learning activity, students are required to read the
reference book or related materials. Students can also read the summarized theory
available in every module.

3. The exercises compiled in this module are just a part of what is taught in theory
class.

4. Students are obligated to individually finish each exercise given in this module,
according to the lab assistant’s instructions, do quizzes as well as the mid and final
test according to the schedule given.

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D. Class Rules

1. Attendance

At least attend 14 sessions from 16 sessions or equal to 85% attendance.

2. Lateness

>15 Minutes regarded as absent

3. Permission Exception

1. Formal permission from university or faculty

2. Hospitalized (maximum 2 weeks)

3. Sudden pass away of core family member (with supported documents).

E. Grading Composition

The final grade is the sum of the student’s theory and lab score with a composition of
85% theory class and 15% lab course.
Below are the components of the lab course grading:

Mid-Test : 35% Absence : 10%

Final-Test : 35% KAT : 10%

Quiz : 10%

F. Grading Scale

Score Grade

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90 A

85 A-

80 B+

75 B

70 B-

65 C+

60 C

55 C-

40 D

< 40 E

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G. OUTLINE OF THE INSTRUCTION PROGRAM (SAP)
Below is the SAP of accounting lab for Advance Accounting 2

Week Module Material Type Video Title Chapter

Module 1 - Business
1 1 Business Combinations Video Combinations (Part 1 1
& 2)

Module 2 - Stock
Stock Investments: Investor Investments: Investor
2 2 Video 2
Accounting and Reporting Accounting and
Reporting

Introduction to Consolidated
3 3 Tatap Muka 3
Financial Statement

Module 4 -
Consolidations Techniques and Consolidations
4 4 Video 4
Procedures Techniques and
Procedures

Consolidations Techniques and

5 4 Tatap Muka 4
Procedures

Module 5 -
Intercompany Profit
Intercompany Profit Transactions
6 5 Video Transactions – 5
- Inventories
Inventories (Part 1 &
2)

Intercompany Profit
7 5 Tatap Muka 5
Transactions - Inventories

8 MID TEST

Module 6 -
Intercompany Profit
9 6 Video Intercompany Profit 6
Transactions—Plant Assets
Transactions - Plant

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 Assets

Intercompany Profit
10 6 Tatap Muka 6
Transactions—Plant Assets

Module 7 -
Intercompany Profit Transactions
11 7 Video Intercompany Profit 7
– Bonds
Transactions – Bonds

Intercompany Profit Transactions

12 7 Tatap Muka 7
– Bonds

Consolidations - Changes in
13 8 Tatap Muka 8
Ownership Interests

14 9 Indirect and Mutual Holdings Tatap Muka 9

15 6-9 Review for Final - Test Tatap Muka 6-9

16 FINAL TEST

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 MODULE 1
CHAPTER 1: BUSINESS COMBINATIONS

Problem 1-1
Patrick Company issued 480,000 shares of $20 par common stock with a fair value of $10,250,000
for all the voting common stock of Spongebob Company. In addition, Patrick Company incurred the
following costs:

Legal fees to arrange the business combination $100,000

Cost of SEC registration, including accounting and legal fees $48,000
Cost of printing and issuing net stock certificates $12,000
Indirect costs of combining, including allocated overhead and executive $80,000
salaries

Immediately before the acquisition in which Spongebob Company was dissolved, Spongebob’s assets
and equities were as follows (in thousands):

Book Value Fair Value

Current Assets 4,000 4,400
Plant Assets 6,000 8,800
Liabilities 1,200 1,200
Common Stock 8,000 -
Retained Earning 400 -

Required:
a. Prepare all journal entries on Patrick’s books to record the acquisition.
b. If the fair value of common stock was $12,500,000 instead of $10,250,000, prepare all journal
entries on Patrick’s books to record the acquisition.

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Problem 1-2
Comparative balance sheets for Polar and Solar Corporation at December 31, 2019 are as follows (in
thousands):

Polar Solar
Current Assets 1040 480
Land 400 800
Buildings-net 2,400 800
Equipment-net 1,760 1,920
Total assets 5,600 4,000
Current Liabilities 400 480
Capital stock, $10 par 4,000 1,600
Additional paid-in capital 400 1,120
Retained earnings 800 800
Total liabilities & equities 5,600 4,000

On January 2, 2020 Polar issues 120,000 shares of its stock with a market value of $40 per share for
all the outstanding shares of Solar Corporation in an acquisition. Solar is dissolved. The recorded
book values reflect fair values, expect for the buildings of Polar, which have a fair value of
$3,200,000, and the current assets of Solar, which have a fair value of $800,000.

Polar pays the following expenses in connection with the business combination:

Costs of registering and issuing securities $120,000

Other direct costs of combination 200,000

Required:
Prepare the balance sheet of Polar Corporation immediately after the acquisition.

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Problem 1-3
Pim Corporation paid $10,000,000 for Sim Corporation’s voting common stock on January 2, 2020,
and Sim was dissolved. The purchase price consisted of 200,000 shares of Pim’ common stock with
a market value of $8,000,000, plus $2,000,000 cash. In addition, Pim paid $200,000 for registering
and issuing the 100,000 shares of common stock and $400,000 for other costs of combination.
Balance sheet information for the companies immediately before the acquisition is summarized as
follows (in thousands):

Pim Sim
Book value Book value Fair value
Cash $12,000 $ 960 $960
Accounts receivable - net 5,200 1,440 1,440
Notes receivable - net 6,000 1,200 1,200
Inventories 10,000 1,680 2,000
Other current assets 2,800 720 800
Land 8,000 400 800
Buildings - net 36,000 2,400 4,800
Equipment - net 40,000 3,200 2,400
Total assets $120,000 $12,000 $14,400
Accounts payable $4,000 $1,200 $1,200
Mortgage payable - 10% 20,000 2,800 2,400
Capital stock, $10 par 40,000 4,000
Other paid-in capital 32,000 2,400
Retained earnings 24,000 1,600
Total Liabilities and Equities $120,000 $12,000

Required:
1. Prepare journal entries for Pim Corporation to record its acquisition of Sim Corporation,
including all allocation to individual asset and liability accounts.
2. Prepare a balance sheet for Pim Corporation on January 2, 2020, immediately after the
acquisition and dissolution of Sim.

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 MODULE 2
CHAPTER 2: STOCK INVESTMENTS: INVESTOR ACCOUNTING AND
REPORTING

Problem 2-1
Pon Corporation paid $ 600,000 for a 30% interest in Son Corporation’s outstanding
common stock on Jan 1, 2018. The book values and fair values of Son’s asset and liabilities
on Jan 1, along with amortization data, are as follows:

Book values Fair Value

Asset
Cash 850,000 850,000
Account receivable- net 900,000 900,000
Inventories (sold in 2018) 350,000 525,000
Other current assets 250,000 250,000
Land 500,000 650,000
Buildings-net (10-year remaining life) 800,000 675,000
Total asset 3,650,000 3,850,000
Equities

Accounts payable 600,000 600,000

Other current liabilities 250,000 250,000
Bonds payable (due Jan 1, 2024) 1,200,000 1,100,000
Capital stock 1,100,000
Retained earnings 500,000
Total equities 3,650,000

Son Corporation reported net income of $1,000,000 for 2018 and paid dividends of $400,000.
Required:
1. Prepare a schedule to allocate the investment fair values/book value differentials relating
to Pon’s investment in Son.
2. Calculate Pon’s income from Son for 2018.
3. Determine the balance of Pon’s Investment in Son account at Dec 31, 2018.

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Problem 2-2
Arb Corporation issued 130,000 shares of $10 par common stock with a total market value of
$1,500,000 to purchase 40% ownership of Tee Corporation on January 1, 2019. Tee Corporation has
net assets of $4,000,000 at the beginning of the year. The information relating to the difference between
fair value and book value acquired on January 1, 2019 is shown below:

Undervalued inventories (sold in 2019) $ 10,000

Overvalued equipment (8-year remaining life) 20,000
Overvalued account payable (paid in 2019) 15,000
Overvalued note payable (due in 10 years) 20,000

Tee Corporation declared dividends of $250,000 and reported $2,000,000 net income for the
year.

Required:
1. Determine the unamortized excess on the date of the acquisition and goodwill/bargain
purchase occurred.
2. Prepare all the necessary journal entries for Arb Corporation in 2019.
3. Calculate the investment in Tee’s balance on December 31, 2019.

Homework
Refer to problem 2, redo all the requirements with this new information:

Overvalued inventories (sold in 2019) $ 10,000

Undervalued equipment (10-year remaining life) 20,000
Overvalued account payable (paid in 2019) 15,000
Undervalued note payable (due in 10 years) 20,000

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 MODULE 3
CHAPTER 3: AN INTRODUCTION TO CONSOLIDATED FINANCIAL
STATEMENTS
Problem 3-1
Pin Corporation acquired 90 percent interest in Sin Corporation on January 2, 2019, for $3,600,000.
On this date the capital stock and retained earnings of the two companies as follows (in thousands):
Pin Sin
Capital stock $ 3,600 $ 1,000
Retained earnings 1,600 200

The assets and liabilities of Sin Corporation were stated at fair values equal to book values when Pin
Corporation acquired its 90 percent interest. Pin uses the equity method to account for its investment
in Sin Corporation.
Net income and dividends for 2019 for the affiliated companies were as follows (in thousands):
Pin Sin
Net income $ 600 $ 180
Dividends declared 360 100
Dividends payable Dec 180 50
31,2019

Required:
Calculate the amounts at which the following items should appear in the consolidated balance sheet
on Dec 31,2019.
1. Capital stock
2. Goodwill
3. Consolidated retained earnings
4. Non-controlling interest
5. Dividends payable

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 Problem 3-2
Bertia PLC acquires 80 percent of Cecil PLC for $2,080,000 on January 1, 2016. The book value of
Cecil PLC’s assets and liabilities are equal to the fair values. Cecil PLC reports net income of
$500,000 during the year. Dividends of $200,000 are declared by Cecil PLC on December 31. These
dividends are to be paid next year. The balance sheets of Bertia PLC
and Cecil PLC on December 31, 2016, are as follows (in thousand):

Bertia PLC Cecil PLC

Cash $300 $80

Accounts receivable $400 $200
Dividend receivable $160 -
Equipment – net $1,000 $800
Building – net $2,000 $1,000
Land $1,600 $1,400
Investment in Cecil PLC $2,320

Accounts Payable $500 $80

Dividends payable $100 $200
Notes Payable $1,000 $400
Capital stock $2,000 $1,000
Retained earnings $4,180 $1,800

Bertia PLC accounts payable includes $100,000 owed to Cecil PLC.

Required:
Prepare consolidated balance sheet workpapers for Bertia PLC and subsidiary on December 31,
2016.

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 Problem 3-3
Comparative income statements of Pen Corporation and Sun Corporation for the year ended
December 31,2019 are:
Pen Sun
Sales $ 3,200 $ 1,000
Income from Sun 207 -
Total revenue 3407 1,000
Less: Cost of goods sold 1,800 400
Operating expenses 800 300
Total expenses 2,600 700
Net income $ 807 $ 300

Sun is a 90 percent owned subsidiary of Pen, acquired by Pen for $1,620,000 on January 1,2019,
when Sun’s stockholders’ equity at book value was $1,400,000. The excess of the cost of Pen
investment in Sun over book value acquired was allocated to $60,000 to undervalued inventories that
were sold in 2019, $40,000 to undervalued equipment with a four-year remaining useful life, and the
remainder to goodwill.

Required:
Prepare a consolidated income statement for Pen Corporation and Subsidiary for the year ended
December 31,2019.

Problem 3-4
Pot Corporation acquired a 70 percent interest in Sot Corporation on January 1, 2019, for $5,600,000,
when Sot’s stockholders’ equity consisted of $4,000,000 capital stock and $2,400,000
retained earnings. On this date, the book value of Sot’s assets and liabilities was equal to the fair
value, except for inventories that were undervalued by $160,000 and sold in 2019, and plant assets
that were undervalued by $640,000 and had a remaining useful life of eight years from January 1.
Sot’s net income and dividends for 2019 were $560,000 and $80,000, respectively.

Separate-company balance sheet information for Pot and Sot Corporations on December 31, 2019,
follows (in thousands):

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 Pot Sot
Cash $480 $160
Accounts receivable-customers 3,520 1,600
Accounts receivable from Pot - 80
Dividends receivable 56 -
Inventories 4,000 2,560
Land 800 1,200
Plant assets-net 5,600 2,800
Investment in Sot 5,768 -
Total Assets $20,224 $8,400
Accounts Payable-suppliers $2,400 $640
Account payable to Sot 80 -
Dividends payable 320 80
Long-term debt 4,800 800
Capital stock 8,000 4,000
Retained earnings 4,624 2,880
Total Liabilities and Equity $20,224 $8,400

Required:
Prepare consolidated balance sheet work papers for Pot Corporation and Subsidiary on December
31,2019

Pot Corporation & Subsidiary Consolidation Workpapers As Of Dec 31, 2019

Adjustments Consolidated
Debit Credit Statements

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Advanced Accounting 2 Module | Odd Term 2021-2022 | 18
 MODULE 4
CHAPTER 4: CONSOLIDATION TECHNIQUES AND PROCEDURES

Problem 4-1

Par Corporation acquired all of Sub Corporation’s outstanding common stock on January 1, 2018, for
$800,000 cash. The stockholder’s equity of Sub on this date consisted of $500,000 capital stock and
$100,000 retained earnings. The difference between fair value of Sub and the underlying equity
acquired in Sub was assigned $5,000 to Sub’s undervalued inventory (sold during 2018), $15,000 to
undervalued buildings (10 years remaining useful life), and $20,000 to undervalued equipment (5
years remaining useful life).
On December 31, 2018, Sub’s accounts payable include $10,000 owed to Par. Separate financial
statements for Par and Sub for 2018 are summarized as follows (in thousands):
Par Sub
Combined Income and Retained Earnings Statements for the
Year Ended December 31
Sales $ 800 $ 700
Income from Sub 139.5
Cost of sales (300) (400)
Depreciation expense (150) (60)
Other expenses (160) (140)
Net income 329.5 100
Add: Retained earnings, Jan 1 300 100
Deduct: Dividends (200) (50)
Retained earnings, Dec 31 $ 429.5 $ 150
Balance Sheet at December 31
Cash $ 96 $ 70
Accounts receivable—net 100 80
Dividends receivable 20 -
Inventories 114 110
Land 50 100
Buildings—net 140 160
Equipment—net 370 330
Investment in Sub 889.5 -

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 Total assets $ 1,779.5 $ 850

Accounts payable $ 200 $ 85

Dividends payable 100 20
Other liabilities 50 95
Capital stock, $10 par 1,000 500
Retained earnings 429.5 150
Total liabilities and equities $ 1,779.5 $ 850

Required:
Prepare the adjustments and eliminations journal entries needed on December 31, 2018

Problem 4-2

Panda Corporation acquired 100% interest in Salmon Corporation for $3,400,000 on January 1,
2018, when Salmon’s stockholders’ equity consisted of $2,000,000 capital stock and $250,000
retained earnings. The excess fair value over book value acquired was assigned to plant assets
that were undervalued by $500,000 and to goodwill. The undervalued plant assets had a 5 years
useful life. Panda’s account receivable includes $50,000 owed by Salmon. Financial statements
of Panda and Salmon Corporations for 2019 are summarized as follows:

Panda Salmon
Combined Income and Retained Earnings Statements for the
Year Ended December 31
Sales $ 9,000 $ 3,000
Income from Salmon 500
Cost of sales (6,000) (1,500)
Operating expenses (1,900) (900)
Net income 1,600 600
Add: Retained earnings, Jan 1 1,220 500
Deduct: Dividends (1,000) (200)
Retained earnings, Dec 31 $ 1,820 $ 900
Balance Sheet at December 31
Cash $ 60 $ 150

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 Accounts receivable—net 260 200
Dividends receivable 100 -
Inventories 820 600
Other current assets 800 50
Land 1,470 300
Plant assets—net 3,100 2,300
Investment in Salmon 3,450 -
Total assets $ 10,060 $ 3,600

Accounts payable $ 240 $ 150

Dividends payable - 100
Other liabilities 1,000 450
Capital stock 7,000 2,000
Retained earnings 1,820 900
Total liabilities and equities $ 10,060 $ 3,600

Required:
Prepare the adjustments and eliminations journal entries needed on December 31, 2019.

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Problem 4-3
Park Corporation purchased 80 percent of the outstanding voting common stock of Sec
Corporation on January 2, 2018, for $2,520,000 cash. The stockholder’s equity of Sec at this time
consisted of $1,800,000 capital stock and $600,000 retained earnings.
The difference between fair value of Sec and the underlying equity acquired in Sec was due to a
$150,000 undervaluation of Sec’s inventory, a $250,000 overvaluation of Sec’s buildings and
unrecorded patents with a 20-year remaining life.
The undervalued inventory was sold by Sec during 2018, and the overvalued buildings had a
remaining useful life for 25 years. Straight-line depreciation is used. Sec owed Park $48,000 on
accounts payable at December 31, 2018.
The separate financial statements of Park and Sec Corporations at and for the year ended
December 31, 2018, are as follows (in thousands):

Park Sec
Combined Income and Retained Earnings Statements for the
Year Ended December 31
Sales $ 2,400 $ 1,320
Income from Sec 238
Cost of sales (960) (480)
Depreciation expense (480) (240)
Other expenses (306) (120)
Net income 892 480
Add: Retained earnings, Jan 1 1,200 600
Deduct: Dividends (480) (240)
Retained earnings, Dec 31 $ 1,612 $ 840
Balance Sheet at December 31
Cash $ 624 $ 360
Trade receivables—net 366 480
Dividends receivable 96 -
Inventories 480 360
Land 180 360
Buildings—net 780 840
Equipment—net 2,400 1,200
Investment in Sec 2,566 -
Total assets $ 7,492 $ 3,600

Accounts payable $ 480 $ 600

Dividends payable 1,200 120
Other liabilities 600 240
Advanced Accounting 2 Module | Odd Term 2021-2022 | 22
 Capital Stock 3,600 1,800
Retained earnings 1,612 840
Total liabilities and equities $ 7,492 $ 3,600

Required: Prepare consolidation workpapers for Park Corporation and Subsidiary at and for
the year ended December 31, 2018

Park Corporation & Subsidiary

Consolidation Workpapers
For The Year Ended Dec 31, 2018
Adjustments Consolidated
Debit Credit Statements

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Problem 4-4

Pim Corporation purchased 75 percent of the outstanding voting stock of Sim Corporation for
$4,800,000 on January 1, 2014. Sim’s stockholders’ equity on this date consisted of the
following (in thousands):
Capital stock, $10 par $2,000
Additional paid in capital 1,200
Retained earnings Dec 31,2010 1,600
Total stockholders’ equity $4,800

The excess fair value of the net assets acquired was assigned 10 percent to undervalued
inventory (sold in 2014), 40 percent to undervalued plant assets with a remaining useful life of
eight years, and 50 percent to goodwill.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 24

Comparative trial balances of Pim Corporation and Sim Corporation on December 31, 2018 are
(in thousands):

Pim Sim
Other assets-net $7,530 $5,200
Investment in Sim-75% 4,680 -
Expenses (including cost of 6,370 1,200
sales)
Dividends 1,000 400
TOTAL $19,580 $6,800
Capital stock, %10 par $6,000 $2,000
Additional paid in capital 1,700 1,200
Retained earnings 3,340 1,600
Sales 8,000 2,000
Income from Sim 540 -
TOTAL $19,580 $6,800

Required:
Determine the amounts that would appear in the consolidated financial statements
of Pim Corporation and Subsidiary for the following items:
1. Goodwill on December 31, 2018
2. Non-controlling interest share for 2018
3. Consolidated retained earnings on December 31, 2017
4. Consolidated retained earnings on December 31, 2018
5. Consolidated net income for 2018

Advanced Accounting 2 Module | Odd Term 2021-2022 | 25

 MODULE 5
CHAPTER 5: INTER COMPANY PROFIT TRANSACTION ±
INVENTORIES
Elimination journal entries for:
x Intercompany Profit Transaction

Sales Method Eliminate Realized profit journal Unrealized profit

transaction journal journal
DOWNSTREAM Sales xxx Investment in S xxx COGS xxx
COGS xxx COGS xxx Inventories xxx
UPSTREAM Sales xxx Investment in S xxx COGS xxx
COGS xxx NCI xxx Inventories xxx
COGS xxx

x Intercompany Loss Transaction

Sales Method Eliminate Realized profit journal Unrealized profit

transaction journal journal
DOWNSTREAM Sales xxx COGS xxx Inventories xxx
COGS xxx Investment in S xxx COGS xxx
UPSTREAM Sales xxx COGS xxx Inventories xxx
COGS xxx NCI xxx COGS xxx
Investment in S xxx

Advanced Accounting 2 Module | Odd Term 2021-2022 | 26

Problem 5-1

Pony Bhd acquired 90% of Sony Bhd outstanding stocks on January 1st 2018, when the book value
of Sony Bhd’s net identifiable assets were equal to fair value. Information regarding inventory
transactions between Pony Bhd and Sony Bhd is as follows:
a. In 2020, Sony Bhd sold inventories of $5,000,000 to Pony Bhd (20% gross profit). At the
end of the year, $200,000 inventories purchased from Sony Bhd remained in Pony Bhd
b. In 2021, Pony Bhd sold inventories of $8,000,000 to Sony Bhd. The gross profit on the sale
was 10%. At the end of the year, $100,000 inventories from Pony Bhd were not sold to
outside parties by Sony Bhd.
During 2021, no dividends were paid by Sony Bhd. Trial balances for both companies for the year
ended December 31st, 2021 are as follows (in thousands):

Debits Pony Bhd Sony Bhd

Cash 1,200 800
Accounts receivable 2,000 300
Dividends receivable 90 0
Inventory 1,000 2,300
Land 2,500 1,300
Equipment 1,200 500
Investment in Sony Bhd 3,474 0
Cost of sales 6,200 3,900
Other expenses 200 400
Dividends 200 100
Total $ 18,064 $ 9,600

Credits Pony Bhd Sony Bhd

Accounts Payable 900 600
Dividends payable 0 100
Common stock 6,000 2,500
Retained Earnings 2,764 1,300
Sales 8,400 5,100
Total $ 18,064 $ 9,600

Required:
Prepare consolidation workpapers for Pony Bhd and Subsidiary for the year ended December
31st, 2021.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 27

Problem 5-2

Pan acquired 100% of Sun Corporation’s outstanding voting common stock on January 1, 2018,
for $1,320,000 cash. Sun’s stockholders’ equity on this date consisted of $600,000 capital stock
and $600,000 retained earnings. The difference between the fair value of Sun and the
underlying equity acquired in Sun was allocated $60,000 to Sun’s undervalued inventory and
the remainder to goodwill. The undervalued inventory items were sold by Sun during 2018.

Pan sold inventory items to Sun for $200,000 at a gross profit of $80,000 during 2018; during
2019, Pan made sales of $240,000 to Sun at a gross profit of $96,000. One-half of the 2018
sales were inventoried by Sun at the year-end 2018, and one-fourth the 2019 sales were
inventoried by Sun at the year-end 2019. Sun owed Pan $34,000 on account on December 31,
2019.

The separate combined income and retained earnings of Pan and Sun Corporations for the year
ended December 31, 2019, are summarized as follows.

Pan Sun
Sales $ 1,600 $ 800
Income from Sun 216
Cost of sales (800) (400)
Depreciation expense (220) (80)
Other expenses (384) (120)
Net income 412 200
Add: Retained earnings, Jan 1 1,212 760
Deduct: Dividends (200) (100)
Retained earnings, Dec 31 $ 1,424 $ 860

Required:

Prepare the adjustments and eliminations journal entries needed on December 31, 2019.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 28

Problem 5-3

Pal Corporation purchased an 80 percent interest in Sal Corporation for $1,200,000 on January
1, 2018, at which time Sal’s stockholders’ equity consisted of $1,000,000 common stock and
$400,000 retained earnings. The excess fair value over book value was goodwill. Comparative
income statements for the two corporations for 2019 are as follows:

Pal Sal

Sales $3,000 $2,000

Income from Sal 232 -

Cost of sales (1,800) (1,500)

Depreciation expense (270) (80)

Other expenses (180) (120)

Net income $982 $300

Dividends of Pal and Sal for all of 2019 were $600,000 and $200,000, respectively.
During 2018 Sal sold inventory item to Pal for $160,000. This merchandise cost Sal $100,000,
and one-third of it remained in Pal’s December 31, 2018, inventory. During 2019 Sal’s sales to
Pal were $180,000. This merchandise cost Sal $120,000, and one-half of it remained in Pal’s
December 31, 2019, inventory.

Required:
Prepare a consolidated income statement for Pal Corporation and Subsidiary for the year
ended December 31, 2019.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 29

 MODULE 6
CHAPTER 6: INTERCOMPANY PROFIT TRANSACTIONS ±
PLANT ASSETS

Intercompany Profits on Non-depreciable Plant Assets

Journals:

Interco. Profit Elim 1 Elim 2 Elim 3

DOWNSTREAM Gain on sale of land Investment in Subs. Investment in Subs

Cr. Land Cr. Land Cr. Gain on sale of land

UPSTREAM Gain on sale of land Investment in Subs. Investment in Subs

Cr. Land Cr. NCI Cr. NCI
Cr. Land Cr. Gain on sale of land

Interco. Loss Elim 1 Elim 2 Elim 3

DOWN Land Land Loss on sale of Land

STREAM Cr. Loss on sale of Cr. Investment in Cr. Investment in Subs
Land Subs.

UP Land Land Loss on sale of Land

STREAM Cr. Loss on sale of Cr. Investment in Cr. Investment in Subs

Land Subs. Cr. NCI

Cr. NCI

Advanced Accounting 2 Module | Odd Term 2021-2022 | 30

Intercompany Profits on Depreciable Plant Assets

Journals:

Interco. Elim 1 (Current Elim 2 (Subsequent Elim 3 (Sale Year)

Profit Year) Year)

DOWN Gain on sale of Eq. Investment in Subs. Investment in Subs.

STREAM Cr. Equipment Accum. Depr. Accum. Depr.
Cr. Equipment Cr. Gain on sale of Eq.

Accum. Depr. Cr. Accum. Depr. Cr. Accum. Depr. Cr.

Depr. Exp. Depr. Exp. Depr. Exp.

UPSTRE Gain on sale of Eq. Investment in Subs. Investment in Subs.

AM Cr. Equipment Accum. Depr. Accum. Depr.
NCI NCI

Cr. Equipment Cr. Gain on sale of

Eq.

Accum. Depr. Cr. Accum. Depr. Cr. Accum. Depr. Cr.

Depr. Exp. Depr. Exp. Depr. Exp.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 31

Interco. Elim 1 (Current Elim 2 (Subsequent Elim 3 (Sale Year)
Loss Year) Year)

DOWN Equipment Equipment Loss on sale of Eq.

STREAM Cr. Loss on sale of Investment in Subs. Investment in Subs.
Equipment Cr. Accum. Depr. Cr. Accum. Depr.

Depr. Exp. Depr. Exp. Depr. Exp.

Cr. Accum. Depr. Cr. Accum. Depr. Cr. Accum. Depr.

UPSTREAM Equipment Equipment Loss on sale of Eq.

Cr. Loss on sale of Investment in Subs. Investment in Subs.
Equipment Accum. Depr. Accum. Depr.
Cr. NCI Cr. NCI

Depr. Exp. Depr. Exp. Depr. Exp.

Cr. Accum. Depr. Cr. Accum. Depr. Cr. Accum. Depr.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 32

Problem 6-1

Smith Corporation is a 80 percent-owned subsidiary of Beam Corporation, acquired several

years ago at book value equal to fair value. For 2018 and 2019, Beam and Smith report the
following:
2018 2019
Beam's Separate Income (excluding Income from $540,000 $720,000
Smith)
Smith's Net Income 180,000 140,000

The only intercompany transaction between Beam and Smith during 2018 and 2019 was the sale
of land on January 1, 2018. The land had a book value of $50,000 and was sold intercompany
for $80,000, its appraised value at the time of sale.

Required:
1. Assume that the land was sold by Beam to Smith and that Smith still owns the land on
December 31, 2019.
a. Calculate controlling share of consolidated net income for 2018 and 2019.
b. Calculate non-controlling interest share for 2018 and 2019.
2. Assume that the land was sold by Smith to Beam and Beam still holds the land on
December 31, 2019.
a. Calculate controlling share of consolidated net income for 2018 and 2019.
b. Calculate non-controlling interest share for 2018 and 2019.
3. Prepare the related journals.

Problem 6-2

Roger Corporation acquired a 70 percent interest in Smile Corporation on January 1, 2018, for
$350,000, at which time Smile’s capital stock and retained earnings were $200,000 and
$120,000 respectively. The fair value/book value differential is goodwill. Financial statements
for Roger and Smile for 2019 are as follows (in thousands):

Advanced Accounting 2 Module | Odd Term 2021-2022 | 33

 Combined Income and Retained Earnings Statement
Roger Smile
For the Year Ended December 31, 2019

Income Statement

Sales $560 $240

Income from Smile 40.5 -

Gain on sale of land 4 -

Cost of Sales (220) (140)

Operating expenses (156) (30)

Net income 228.6 70

Add: Retained earnings, Jan 1, 2019 200 125

Less: Dividend (140) (30)

Retained earnings, Dec 31, 2019 $288.5 $165

Balance Sheet
Cash $140 $50
Accounts Receivable 200 100
Dividends Receivable 21 -
Inventories 80 42
Land 140 68
Buildings-net 300 120
Machinery-net 350 125
Investment in Smile 356.25 -
$1,587.25 $505
Accounts Payable 220 78
Dividends Payable 98 21
Other Liabilities 180 41
Capital Stock 800.75 200
Retained Earnings 288.5 165
$1,404 $400

Advanced Accounting 2 Module | Odd Term 2021-2022 | 34

ADDITIONAL INFORMATION
1. Roger sold inventory items to Smile for $50,000 during 2018 and $64,000 during 2019.
Smile’s inventories at December 31, 2018 and 2019, included unrealized profits of $8,000
and $15,000, respectively.
2. On July 1, 2018, Roger sold machinery with a book value of $32,000 to Smile for $42,000.
The machinery had a useful life of 4 years at the time of sale, and straight-line depreciation
is used.
3. During 2019, Roger sold land with a book value of $20,000 to Smile for $24,000.
4. Roger’s accounts receivable on December 31, 2019, includes $14,000 due from Smile.
5. Roger uses the equity method for its 70% interest in Smile.

Required:
Calculate:
a. Calculate income from subsidiary and non-controlling interest share for the year ended
December 31,2019.
b. Prepare the elimination journals for the year ended, 2019.
c. Prepare the elimination journals for the year ended, 2018, assuming dividends declared
and paid on 2018 was $28,000.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 35

Problem 6-3

Sheep Corporation is a 90 percent-owned subsidiary of Pine Corporation, acquired several

years ago at book value equal to fair value. For 2018 and 2019, Pine and Sheep report the
following:
2018 2019
Pine's Separate Income (excluding Income from $480,000 $620,000
Sheep)
Sheep's Net Income 140,000 175,000

The intercompany transactions between Pine and Sheep during 2018 and 2019 was:
a) On October 1, 2018, there was a sale of machinery with a book value of $50,000 and
was sold intercompany for $72,000. The machinery had a useful life of 5 years at the
time of sale, and straight-line depreciation is used.
b) On April 1, 2019, there was a sale of truck with a book value of $64,000 and was sold
intercompany for $80,000. The truck had a useful life of 4 years at the time of sale, and
straight-line depreciation is used.

Required:
1. Assume that the machine and truck was sold by Pine to Sheep and that Sheep still owns
them at December 31, 2019.
c. Calculate controlling share of consolidated net income for 2018 and 2019.
d. Calculate non-controlling interest share for 2018 and 2019.

2. Assume that the machine and truck was sold by Sheep to Pine and Pine still holds them at
December 31, 2019.
c. Calculate controlling share of consolidated net income for 2018 and 2019.
d. Calculate non-controlling interest share for 2018 and 2019.

3. Prepare the related journals.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 36

 MODULE 7
CHAPTER 7: INTERCOMPANY PROFIT TRANSACTIONS ±
BONDS

Intercompany Bond Transactions

The gain or loss at constructive retirement is recognized over the life of the bonds.
Journals:

Interco.
Profit Elim 1 (year of redemption) Elim 2 (subsequent year)

DOWN Bonds Payable XX Bonds Payable XX

STREAM Cr. Gain on redemption of bonds XX Cr. Investment in Subsidiary XX
Investment in bonds XX Investment in bonds XX

Interest income XX Interest income XX

Cr. Gain on redemption of bonds XX Cr. Investment in Subsidiary XX
Interest expense XX Interest expense XX

Interest Payable XX Interest Payable XX

Cr. Interest Receivable XX Cr. Interest Receivable XX

UP Bonds Payable XX Bonds Payable XX

STREAM Cr. Gain on redemption of bonds XX Cr. Investment in Subsidiary XX
Investment in bonds XX NCI XX
Investment in bonds XX

Interest income XX Interest income XX

Cr. Gain on redemption of bonds XX Cr. Investment in Subsidiary XX
Interest expense XX NCI XX
Interest expense XX

Interest Payable XX Interest Payable XX

Cr. Interest Receivable XX Cr. Interest Receivable XX

Advanced Accounting 2 Module | Odd Term 2021-2022 | 37

 Interco.
Loss Elim 1 (year of redemption) Elim 2 (subsequent year)

DOWN Loss on redemption of bonds XX Investment in Subsidiary XX

STREAM Bonds Payable XX Bonds Payable XX
Cr. Investment in bonds XX Cr. Investment in bonds XX

Interest income XX Interest income XX

Loss on redemption of bonds XX Investment in Subsidiary XX
Cr. Interest expense XX Cr. Interest expense XX

Interest Payable XX Interest Payable XX

Cr. Interest Receivable XX Cr. Interest Receivable XX

UP Loss on redemption of bonds XX Investment in Subsidiary XX

STREAM Bonds Payable XX Noncontrolling Interest XX
Cr. Investment in bonds XX Bonds Payable XX
Cr. Investment in bonds XX

Interest income XX Interest income XX

Loss on redemption of bonds XX Investment in Subsidiary XX
Cr. Interest expense XX Noncontrolling Interest XX
Cr. Interest expense XX

Interest Payable XX Interest Payable XX

Cr. Interest Receivable XX Cr. Interest Receivable XX

Advanced Accounting 2 Module | Odd Term 2021-2022 | 38

Problem 7-1
The separate trial balance for Pop and Sam, its 90 percent-owned subsidiary, for the year ended
2018 is as follows:

Debits Pop Sam

Cash $ 2,100 $ 1,800
Accounts receivable 3,000 1,200
Interest receivable 0 75
Inventory 3,300 2,100
Land 5,700 2,400
Equipment—net 3,300 4,200
Building—net 6,000 4,200
Investment in Pop bonds 0 1,380
Investment in Sam 10,800 0
Cost of sales 8,400 7,200
Interest expense 300 0
Other expenses 3,300 2,100
Dividends 900 300
TOTAL $ 47,100 $ 26,955
Credits
Accounts payable $ 4,110 $ 2,790
Interest payable 150 0
10% bonds payable 3,000 0
Common stock 15,000 6,000
Retained earnings 10,140 6,255
Sales 14,400 11,100
Gain on sale of land 0 600
Gain on sale of equipment 300 0
Interest income 0 210
TOTAL $ 47,100 $ 26,955

Advanced Accounting 2 Module | Odd Term 2021-2022 | 39

Additional information:
1. Pop acquired Sam when the book value of its identifiable assets equaled to the fair value.
2. Intercompany merchandise sale during 2018 by Pop to Sam was $2,400,000 while
unrealized profit of $300,000 remained in the ending inventory.
3. Pop purchased land from Sam with book value of $2,400,000 for $3,000,000 in 2018,
Pop holds the land until 2019.
4. Sam purchased equipment from Pop for $2,100,000 on December 31, 2018.
The gain from selling this equipment was $300,000.
5. On January 1, 2018, Sam purchased half of Pop’s 10 percent outstanding bonds that were
originally issued at par for $1,320,000. The bonds will mature on January 1, 2021. The
bonds paid interest every January 1 and July 1.

Required:
Prepare a consolidated workpapers for Pop Corporation and Subsidiary for the year ended
December 31, 2018.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 40

 Adjustments Consolidated
Debit Credit Statements

Advanced Accounting 2 Module | Odd Term 2021-2022 | 41

Advanced Accounting 2 Module | Odd Term 2021-2022 | 42
Problem 7-2
On January 1, 2018, Pon acquired 80 percent of San for $16,000,000 when the total shareholders
equity from San was $20,000,000. Below is the trial balance information of both companies for
the year ended December 31, 3017:

Debits Pon San

Cash $ 3,000 $ 4,000
Accounts receivable 6,000 3,800
Interest receivable 200 0
Inventory 3,200 3,600
Land 4,000 8,400
Equipment—net 4,200 2,200
Building—net 12,000 4,000
Investment in San bonds 1,900 0
Investment in San 14,720 0
Cost of sales 22,200 17,600
Interest expense 0 400
Other expenses 3,400 4,200
Dividends 1,000 1,600
TOTAL $ 75,820 $ 49,800
Credits
Accounts payable $ 3,520 $ 1,800
Interest payable 0 200
10% bonds payable 0 1,800
Common stock 20,000 10,000
Retained earnings 24,000 10,000
Sales 28,000 24,000
Gain on sale of building 0 2,000
Interest income 300 0
TOTAL $ 75,820 $ 49,800

Advanced Accounting 2 Module | Odd Term 2021-2022 | 43

Additional information:
1. During 2018, San sold inventory to Pon for $3,000,000 with gross profit of 20%. One- third
of this inventory remained at Pon.
2. On April 2018, Pon purchased a building from San by paying $10,000,000
cash. The building had useful life of 10 years. San depreciated the building using the strai
ght-line method. Right before the sale, San recorded the building on its book
for $8,000,000.
3. On January 1, 2018, San had $2,000,000 par of 10 percent bonds with unamortized discount
of $400,000. These bonds matured on January 1, 2020. These bonds pay interest every
January 1. At this date, Pon purchased all of San’s bonds with a price of $1,800,000.

Required:
Prepare a consolidated workpapers for Pon Corporation and Subsidiary for the year ended
December 31, 2018.

Adjustments Consolidated
Debit Credit Statements

Advanced Accounting 2 Module | Odd Term 2021-2022 | 44

Advanced Accounting 2 Module | Odd Term 2021-2022 | 45
 MODULE 8
CHAPTER 8: CONSOLIDATIONS ±CHANGES IN OWNERSHIP
INTERESTS
Problem 8-1

On July 1, 2019, Pet Corporation acquired 75 percent of Sin Corporation for $3,750,000.
Sin stockholders’ equity on July 1, 2019 was $4,775,000. The trial balance for both companies
for the year ended December 31,2019 is as follows (in thousand):

Debit Pet Sin

Cash $ 1,200 $ 900

Account Receivable $ 2,000 $1,100

Dividend Receivable $ 112,5 -

Inventory $ 300 $ 1,300

Land $ 1,200 $ 2,400

Equipment $ 3,000 $ 350

Investment in Sin $ 3,637,5 -

Cost of Sales $ 3,900 $ 2,700

Other Expense $ 1,100 $ 950

Dividend - $ 250

Total $ 16,450 $ 9,950

Credit

Account Payable $ 2,200 $ 550

Dividend Payable $0 $ 150

Common Stock $ 5,000 $ 3,000

Retained Earnings $ 1,850 $ 1,300

Advanced Accounting 2 Module | Odd Term 2021-2022 | 46

Sales $ 7,400 $ 4,800

Gain on sale of land - $ 150

Total $ 16,450 $ 9,950

Advanced Accounting 2 Module | Odd Term 2021-2022 | 47

Additional Information:
1. The book value of Sin net identifiable assets at the acquisition date was equal to the fair
value, except for inventory that was overvalued by $100,000. The inventory was sold
in 2019.
2. On August 1, 2019, Sin sold land to Pet with a gain of $150,000. Sin sold land to outside
party in 2021.
3. Sin declared dividend $100,000 and $150,000 on March 1, 2019, and December 31,
2019, respectively.
4. Sin income and expense occurred proportionately during the year.

Required:
Prepare a workpaper to consolidate the financial statement of Pet and subsidiary for the year
ended December 31, 2019.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 48

 Adjustments Consolidated
Debit Credit Statements

Advanced Accounting 2 Module | Odd Term 2021-2022 | 49

Problem 8-2
Pon Corporation owns a controlling interest in Son Corporation. The balance of Pon
Corporation’s “Investment in Son” account at December 31st 2020 was $436,000 which consisted
of 80% Son’s $500,000 stockholders’ equity on that date plus $36,000 goodwill.
On May 1st 2021, Pon decided to sell its 10% interest in Son (one-eight of its total holdings)
for $100,000. During 2021, Son had net income of $150,000 and declared dividends of $80,000
on July 1st 2011.

Required:
Using the actual date of sale assumption AND beginning of the year sale assumption,
determine the followings:
1. Gain or loss on sale of the 10% interest
2. Pon’s “Income from Son” for 2021
3. Balance of Pon’s “Investment in Son” account at December 31st 2021

Problem 8-3
Pop Corporation purchased 480,000 shares of Son Corporation’s common stock (80%
interest) for $10,600,000 on January 1, 2016. The $1,000,000 excess of investment fair value over
book value acquired was attributed to goodwill.
On January 1, 2018, Son sold 200,000 previously unissued shares of common stock to the
public for $30 per share. Son’s stockholders’ equity on January 1, 2016, when Pop acquired its
interest, and on January 1, 2018, immediately before and after the issuance of additional shares,
was as follows (in thousands):

Advanced Accounting 2 Module | Odd Term 2021-2022 | 50

 January 1st 2016 January 1st 2018 January 1st 2018
(Before Issuance) (After Issuance)
Common Stock, $10 par $ 6,000 $ 6,000 $ 8,000
Other paid-in capital 2,000 2,000 6,000
Retained earnings 4,000 5,000 5,000
TOTAL $12,000 $13,000 $19,000

Required:
1. Calculate the balance of Pop’s Investment in Son account on January 1, 2018, before the
additional stock issuance.
2. Determine Pop’s percentage interest in Son on January 1, 2018, immediately after the
additional stock issuance.
3. Prepare a journal entry on Pop’s books to adjust for the additional share issuance on January
1, 2018, if gain or loss is not recognized.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 51

 MODULE 9
CHAPTER 9: INDIRECT AND MUTUAL HOLDINGS

Problem 9-1: Indirect Holdings ±Father-Son-Grandson

The affiliation structure for Peter Corporation and its subsidiaries is as follows:

The incomes and dividends of the affiliates in 2017 are as follows:

Peter Saki Tomo
Separate Income $100,000 $50,000 $40,000
Separate $60,000 $30,000 $20,000
Dividend

Required:
a. Prepare the income allocation schedule for Peter Corporation and its subsidiaries
b. Prepare all journal entries required on the books of Peter and Saki to account of their
investment for 2017 on an equity basis.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 52

 Problem 9-2: Indirect Holdings ±Connecting Affiliates Structure
Petra Corporation owns a 70 percent interest in Sol Corporation and a 60 percent interest in
Takeo Corporation. In addition, Sol Corporation owns a 20 percent interest in Takeo. During
2019, Petra, Sol, and Takeo had earnings from their own operations of $70,000, $35,000, and
$20,000, respectively; and declared dividends of $40,000, $20,000, and $10,000,
respectively. The following table summarizes data relevant to the investment of Pet and Sal:

3HWUD¶VLQYHVWPHQWLQ
3HWUD¶VLQYHVWPHQWLQ
6RO¶VLQYHVWPHQW
Sol (70%) Acquired Takeo (60%) Takeo (20%)
Jan 1, 2018 Acquired Jan 1, 2017 Acquired Jan 1, 2014
Fair Value / Cost $176,400 $97,200 $22,400
Less: Book Value ($164,400) ($85,200) ($22,400)
Goodwill $12,000 $12,000 -
Investment
Balance Dec 31,
2018
Fair Value / Cost $176,400 $97,200 $22,400
Add: Share of $7,000 $18,000 $16,000
Investees’ pre-
2019 less
dividends
Balance $183,400 $115,200 $38,400
December 31,
2018

Petra’s separate earnings of $70,000 included an unrealized gain of $10,000 from the sale of
land to Sol during 2019. Sol’s separate earnings of $35,000 included an unrealized profit of
$5,000 on inventory items sold to Petra for $15,000 during 2019 that remained in Petra’s
December 31, 2019, inventory.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 53

Required:
a. Prepare the income allocations schedule to show controlling and non-controlling shares
for 2019.
b. Prepare all journal entries required on the books of Petra and Sol to account of their
investment for 2019 on an equity basis.
c. Prepare the adjusting and eliminating entries needed to consolidate the financial
statements of Petra Corporation and subsidiaries for the year ended 2019.

Additional information:
Peter Saki Tomo
Retained Earnings, January 1, $223,000 $50,000 $80,000
2019
Capital Stock $400,000 $200,000 $100,000

Problem 9-3: Mutual Holdings ±Parent Mutually Owned

Polly Corporation acquired a 70 percent interest in Seo Corporation for $238,000 on January 1,
2016, when Seo’s equity consisted of $200,000 capital stock and $50,000 retained earnings.
The excess is due to a patent amortized over a 10-year period. At $9,000 per year. Polly
accounted for its investment in Seo during 2016 as follows:

Investment cost, January 1, 2016 $238,000

Income from Seo [($40,000 - $9,000)] x 70% $21,700
Dividend from Seo ($20,000 x 70%) ($14,000)

Investment Balance Dec 31, 2016 $245,700

On January 2, 2017, Seo acquired 10 percent interest in Polly at $60,000 fair value equal to
book value. No inter-company profit transactions have occurred. Incomes and dividends for
2017 were as follows:

Polly Seo
Separate Income $120,000 $50,000
Dividend $60,000 $30,000

Advanced Accounting 2 Module | Odd Term 2021-2022 | 54

Required:
a. Determine the balance of Polly’s Investment in Seo on December 31, 2017, if the
treasury stock approach is used for Seo’s investment in Polly; and prepare all journal
entries needed!
b. Compute controlling and noncontrolling interest shares of consolidated net income if the
conventional approach is used for Seo’s investment in Polly; also determine the amount
of Polly’s income from Seo and the balance in Polly’s Investment
in Seo account at December 31, 2017!

Problem 9-4: Mutual Holdings ±Connecting Affiliates Mutually Owned

A Schedule of intercompany investment interests and separate earnings for Parker Corporation,
Sally Corporation, and Taylor Corporation is presented as follows:
Percentage Percentage Separate
interest in interest in Earnings
Sally Taylor Current
Year
Parker Corporation 80% 50% $400,000
Sally Corporation - 20% $200,000
Taylor Corporation 10% - $100,000

Required:
a. Compute controlling interest share and noncontrolling interest share of consolidated net
income assuming no investment differences between fair value and book value or
unrealized profit
b. Compute controlling interest share and noncontrolling interest share assuming $20,000
unrealized inventory profits on Taylor’s sales to Sally and a $40,000 gain on Parker’s
sale of land to Sally.

Advanced Accounting 2 Module | Odd Term 2021-2022 | 55

Homework: Indirect Holdings ±Income Allocation Schedule
The affiliation structure of Adaro Ltd. and its subsidiaries is as follows:

The incomes and dividends of the affiliates in 2019 are as follows (in thousands):

Adaro Waskita Happy Bill

Separate Income $680 $340 $170 $80
Separate $110 $55 $35 $16
Dividend

Below is the summary of the intercompany transactions occurred:

1. Ending balance of inventory at Happy included a $14,000 profit from Waskita.
2. Ending balance of inventory at Adaro included a $5,000 loss from Bill.
3. Waskita sold land at a gain of $30,000 in 2019 to Adaro who still held the land.
4. Waskita sold land at a gain of $15,000 in 2019 to Bill who sold it to a third party a
the end of the year at a gain of $8,000 not recorded yet.

Required:
Prepare the income allocation schedule for Adaro Ltd. and its affiliates, as well as the related
journals!

Advanced Accounting 2 Module | Odd Term 2021-2022 | 56