CALAMBA REVIEW CENTER-LAGUNA

AFAR

Intercompany
Transactions

STOCK ACQUISITION – SUBSEQUENT TO DATE OF ACQUISITION/INTERCOMPANY

SALES STOCK ACQUISITION – SUBSEQUENT TO DATE OF ACQUISITION

Problem 1:
KINGSMAN Company acquired 75% of STATESMAN Corporation on January 1, 2018. KINGSMAN Company also had
ownerships in other entities on which KINGSMAN has no significant influence nor control over those entities. Moreover,
STATESMAN Corporation has no ownership over KINGSMAN Company. For the year ended December 31, 2018,
KINGSMAN and STATESMAN reported the following with respect to dividend transactions during 2018:

KINGSMAN STATESMAN
Dividend income 210,000 160,000
Dividends declared 180,000 90,000

These dividends are to be paid on January 15, 2019. As of December 31, 2018, KINGSMAN and STATESMAN reported the
following:

KINGSMAN STATESMAN
Total Assets 380,000 220,000
Total Liabilities 220,000 130,000

1. What amount of dividend income shall be reported on the consolidated income statement for the year ended
December 31, 2018?
A. 142,500
B. 302,500
C. 280,000
D. 370,000

2. What amount of dividends payable shall be reported on the consolidated statement of financial position on
December 31, 2018?
A. 90,000
B. 112,500
C. 202,500
D. 270,000

3. What amount of total assets shall be reported on the consolidated statement of financial position on December
31, 2018?
A. 312,500
B. 380,000
C. 532,500
D. 600,000

Problem 2:
The ABC Co. owns 75% of the DEF Corp. the following figures are from their separate financial statements:

ABC: Trade receivables, P1,040,000, including P30,000 due

from DEF. DEF: Trade receivables, P215,000, including
P40,000 due from ABC.

4. What figure should appear for trade receivables in ABC’s consolidated statement of financial position?
A. 888,750
B. 1,185,000
C. 1,225,000
D. 1,255,000

Problem 3:
Pork Company acquired a 90% interest in Chicken Company on December 31, 2017 for P320,000. During 2018, Chicken
had a net income of P22,000 and paid a cash dividend of P7,000.

5. Applying the cost method would give a debit balance in the Investment in Stock of Chicken Company account
on its separate balance sheet at the end of 2018 of:
A. 335,000 B. 333,500 C. 313,700 D.
320,000

6. Applying the equity method would give a debit balance in the Investment in Stock of Chicken Company
account on its separate balance sheet at the end of 2018 of:
A. 335,000 B. 333,500 C. 313,700 D.
320,000

AFARQ Page 1 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions
7. Applying the cost method would give a debit balance in the Investment in Stock of Chicken Company account
on the consolidated balance sheet at the end of 2018 of:
A. 0
B. 320,000

AFARQ Page 2 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions

C. 333,500
D. 335,000

8. Applying the equity method would give a debit balance in the Investment in Stock of Chicken Company
account on the consolidated balance sheet at the end of 2018 of:
A. 0
B. 320,000
C. 333,500
D. 335,000
Problem 4:
On January 1, 2018, Brazil Corp. purchased 70% of the common stock of Guangzhou Company for P550,000. At that
date, Guangzhou had P575,000 of common stock outstanding and retained earnings of P185,000. Equipment with a
remaining life of 5 years had a book value of P280,000 and a fair value of P300,000. Guangzhou’s remaining assets
had book values equal to their fair values. Relevant information are as follows:

Income Dividends
from own declared and
operations paid
Brazil Corp. 2018 185,000 50,000
2019 210,000 60,000
Guangzhou Company 2018 40,000 10,000
2019 67,000 15,000

Brazil Corp.’s retained earnings balance at date of acquisition was P701,000.

9. On December 31, 2019, the consolidated net income and consolidated retained earnings are:
A. P254,100 and P1,055,300
B. P256,900 and P701,000
C. P253,700 and P1,054,500
D. P273,000 and P1,055,300

Problem 5:
On January 1, 2018, Ulysses Corp. purchased 70% of the common stock of Klaue Company for P550,000. At that date,
Klaue had P575,000 of common stock outstanding and retained earnings of P185,000. Klaue’s equipment with a
remaining life of 5 years had a book value of P280,000 and a fair value of P300,000 while Klaue’s inventory has fair
value of P10,000 in excess of its book value. Klaue’s remaining assets had book values equal to their fair values. The
net income and dividend figures for both entities for 2019 are as follows:

Ulysses Corp. Klaue Company

Net income 210,000 67,000
Dividends declared and paid 60,000 15,000

All inventory existing at date of acquisition were sold during 2018.

10. Consolidated net income for the year 2019 is:

A. 243,600
B. 254,100
C. 262,500
D. 273,000

11. Assuming the equipment was sold on April 30, 2019, how much is the consolidated net income attributable to
the parent and non-controlling interest (minority interest), respectively for the year 2019?
A. 243,600; 18,900
B. 235,200; 15,300
C. 245,700; 15,300
D. 235,200; 18,900

12. Independent to item no. 11, assuming only 60% of the inventory existing at date of acquisition were sold
during 2018 and the remainder were sold during 2019, how much is the consolidated net income attributable
to the parent and non-controlling interest (minority interest), respectively for the year 2019?
A. 243,600; 18,900
B. 239,400; 17,100
C. 240,800; 17,700
D. 240,800; 20,100

Problem 6:
AFARQ Page 3 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions

On June 30, 2018, Lyra Co. purchased 70% of the common stock of Arvie Co. for P700,000. At that date, Arvie had
P650,000 of common stock outstanding and retained earnings of P250,000. All of the purchase difference was related
to a building with a book value of P175,000 and a remaining life of 10 years. Lyra’s retained earnings balance at
December 31, 2017 was P550,000. The net income and dividend figures for both Lyra and Arvie for 2018 are as
follows:

Net income Dividends

Lyra Co. Jan. 1 – June 30 120,000 -
July 1 – December 31 155,000 70,000
Arvie Co. Jan. 1 – June 30 80,000 30,000
July 1 – December 31 100,000 -

13. On December 31, 2018, the consolidated retained earnings and NCI in the net assets of Arvie are:
A. P821,500 and P328,500
B. P822,550 and P319,950
C. P821,500 and P300,000
D. P576,500 and P319,950

Problem 7:
On June 30, 2018, Lyra Co. purchased 70% of the common stock of Arvie Co. for P700,000. At that date, Arvie had
P650,000 of common stock outstanding and retained earnings of P250,000. All of the purchase difference was related
to a building with a book value of P175,000 and a remaining life of 10 years. Lyra’s retained earnings balance at
December 31, 2017 was P550,000. For the year 2018, Lyra Co. and Arvie Co. reported net income of P275,000 and
P180,000, respectively. Lyra declared and paid dividends of P70,000 on September 30, 2018 while Arvie Co. declared
and paid dividends of P30,000 on March 31, 2018.

14. How much is the consolidated net income attributable to the parent and non-controlling interest, respectively for
the year 2018?
A. 331,000; 24,000
B. 197,000; 25,500
C. 394,000; 51,000
D. 334,500; 25,500

15. What amount of consolidated retained earnings shall be reported on December 31, 2018?
A. 814,500
B. 874,000
C. 884,500
D. 1,064,500

COMPREHENSIVE PROBLEM:
On January 1, 2018, Powell Company acquires 80% of the common stock of Scarlett Company for P372,000. At that
time, Scarlett Company’s shareholders’ equity is composed of common stock (P10 par), P240,000 and retained
earnings, P120,000. Also, the fair value of the non-controlling interest is P98,200. On the same date, the following
assets of Scarlett Company had carrying values that were different from their respective fair values:

Carrying value: Fair value:

Inventory 24,000 30,000
Land 48,000 55,200
Equipment, net 84,000 180,000
Building, net 168,000 144,000

Other assets and all liabilities of Scarlett Company had carrying values approximately equal to their respective fair values.

On January 1, 2018, the equipment and building had a remaining life of 8 and 4 years, respectively. The inventories on
January 1, 2018 were all sold during 2018 and FIFO inventory costing is used. Goodwill, if any, is impaired by P5,000
during 2018. The investment is to be accounted for using the cost method.

Both entities did not issue additional shares during 2018. Trial balances for the legal entities for the year ended 2018 are
as follows:
Powell Company: Scarlett Company:
Debit Credit Debit Credit
Cash 232,80 90,000
0
Accounts receivable, 90,000 60,000
net
Inventory, 12/31/2018 120,00 90,000
AFARQ Page 3 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions 0
Land 210,00 48,000
0
Equipment, net 105,00 84,000
0
Building, net 315,00 252,00
0 0
Investment in Scarlett 372,00
0

AFARQ Page 4 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions

Accounts payable 120,000 120,00

0
Bonds payable 240,000 120,00
0
Common stock, P10 par 600,000 240,00
0
Retained earnings, 360,000 120,00
1/1/18 0
Dividends 72,000 36,000
Sales 480,000 240,00
0
Dividend revenue 28,800
Cost of goods sold 204,000 138,000
Operating expenses 108,000 42,000
1,828,800 1,828,800 840,000 840,000
The trial balances for the legal entities for the year ended 2019 are as follows:
Powell Company: Scarlett Company:
Debit Credit Debit Credit
Cash 189,000 102,000
Accounts receivable, 180,000 96,000
net
Inventory, 12/31/2019 216,000 108,000
Trading securities 100,000 50,000
Land 210,000 48,000
Equipment, net 90,000 78,000
Building, net 270,000 234,000
Investment in Scarlett 372,000
Accounts payable 140,000 200,000
Bonds payable 240,000 120,000
Common stock, P10 par 600,000 240,000
Retained earnings, 484,800 144,000
1/1/19
Dividends 72,000 48,000
Sales 540,000 360,000
Dividend revenue 48,000 5,000
Cost of goods sold 216,000 192,000
Operating expenses 137,800 113,000
2,052,800 2,052,800 1,069,000 1,069,000

No goodwill impairment occurred during 2019.

16. Goodwill arising from business combination on January 1, 2018 is

A. 15,840 B. 25,000 C. 84,000 D.
110,200

17. How much of the goodwill is attributable to the parent and non-controlling interest, respectively?
A. 15,840; 9,160 B. 15,840; 0 C. 84,000; 26,200 D. 84,000;
0

18. How much is the (1) operating income and (2) net income of the parent for the year ended 2018?
A. (1) 196,800; (2) 196,800
B. (1) 168,000; (2) 168,000
C. (1) 196,800; (2) 168,000
D. (1) 168,000; (2) 196,800

19. How much is the consolidated net income for the year 2018?
A. 203,232 B. 211,000 C. 239,800 D.
256,800

20. How much of the 2018 consolidated net income is attributable to the parent and non-controlling interest,
respectively?
A. 202,400; 8,600 B. 168,800; 42,200 C. 203,232; 7,768 D. 191,840;
47,960

21. What amount of dividend revenue shall be presented in the (1) separate income statement and (2)
consolidated income statement for the year ended December 31, 2018?
A. 0; 0 B. 28,800; 28,800 C. 28,800; 0 D. 0;
28,800

AFARQ Page 5 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions
22. What amount of cost of goods sold shall be presented in the consolidated income statement for the year
ended December 31, 2018?
A. 204,000 B. 336,000 C. 342,000 D.
348,000

23. What amount of expenses (other than cost of goods sold) shall be presented in the consolidated income
statement for the year ended December 31, 2018?
A. 150,000 B. 156,000 C. 161,000 D.
167,000

24. What amount of inventory shall be presented on the consolidated statement of financial position on December 31,
2018?
A. 120,000 B. 204,000 C. 210,000 D. 216,000

AFARQ Page 6 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions

25. What amount of land shall be presented on the consolidated statement of financial position on December 31,
2018?
A. 248,400 B. 254,160 C. 258,000 D.
265,200

26. What amount of equipment shall be presented on the consolidated statement of financial position on December
31, 2018?
A. 177,000 B. 189,000 C. 273,000 D.
285,000

27. What amount of building shall be presented on the consolidated statement of financial position on December 31,
2018?
A. 543,000 B. 549,000 C. 567,000 D.
573,000

28. What amount of Investment in Scarlett shall be presented on the consolidated statement of financial position
on December 31, 2018?
A. 0 B. 297,600 C. 372,000 D.
378,432

29. What amount of goodwill shall be presented on the (1) separate statement of financial position and (2)
consolidated statement of financial position on December 31, 2018?
A. (1) 20,000; (2) 20,000
B. (1) 0; (2) 20,000
C. (1) 0; (2) 25,000
D. (1) 25,000; (2) 25,000

30. What amount of total assets shall be presented on the consolidated statement of financial position on December
31, 2018?
A. 1,770,000 B. 1,790,000 C. 2,142,000 D.
2,162,000

31. What amount of common stock shall be presented on the consolidated statement of financial position on
December 31, 2018?
A. 0 B. 240,000 C. 600,000 D.
840,000

32. What amount of retained earnings shall be presented on the consolidated statement of financial position on
December 31, 2018?
A. 491,232 B. 499,000 C. 583,000 D.
628,800

33. What amount of non-controlling interest shall be presented on the (1) separate statement of financial
position and (2) consolidated statement of financial position on December 31, 2018?
A. (1) 0; (2) 99,600
B. (1) 0; (2) 98,768
C. (1) 98,768; (2) 0
D. (1) 99,600; (2) 0

34. How much of the consolidated shareholders’ equity on December 31, 2018 is attributable to the controlling
interest?
A. 952,000 B. 1,091,232 C. 1,190,000 D.
1,790,000

35. What amount of dividend revenue shall be presented in the consolidated income statement for the year ended
December 31, 2019?
A. 0 B. 9,600 C. 38,400 D.
48,000

36. How much is the consolidated net income for the year 2019?
A. 205,400 B. 216,200 C. 239,000 D.
249,800

37. How much of the 2019 consolidated net income is attributable to the parent and non-controlling interest,
respectively?
A. 239,000; 10,800 B. 199,840; 49,960 C. 239,000; 1,200 D. 277,400;
10,800

38. What amount of retained earnings shall be presented on the consolidated statement of financial position on
AFARQ Page 7 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions
December 31, 2019?
A. 658,232 B. 610,232 C. 621,032 D.
669,032

39. What amount of non-controlling interest shall be presented on the consolidated statement of financial position
on December 31, 2019?
A. 0 B. 98,768 C. 99,968 D.
101,168

40. What amount of land shall be presented on the consolidated statement of financial position on December 31,
2019?
A. 217,200 B. 250,800 C. 258,000 D.
265,200

41. What amount of equipment shall be presented on the consolidated statement of financial position on December
31, 2019?
A. 144,000 B. 156,000 C. 240,000 D.
252,000

42. What amount of building shall be presented on the consolidated statement of financial position on December 31,
2019?
A. 486,000 B. 492,000 C. 504,000 D.
516,000

AFARQ Page 8 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions

43. What amount of total assets shall be presented on the consolidated statement of financial position on December
31, 2019?
A. 2,038,200 B. 2,058,200 C. 2,410,200 D.
2,430,200

INDEPENDENT ASSUMPTION: Non-controlling interest is to be measured at its proportionate share basis.

44. Goodwill arising from business combination on January 1, 2018 is
A. 15,840 B. 25,000 C. 84,000 D.
110,200

45. How much of the goodwill is attributable to the parent and non-controlling interest, respectively?
A. 15,840; 9,160 B. 15,840; 0 C. 84,000; 26,200 D. 84,000;
0

46. How much of the 2018 consolidated net income is attributable to the parent and non-controlling interest,
respectively?
A. 202,400; 8,600 B. 201,400; 9,600 C. 203,232; 7,768 D. 191,840;
47,960

47. What amount of retained earnings shall be presented on the consolidated statement of financial position on
December 31, 2018?
A. 489,400 B. 491,232 C. 583,000 D.
628,800

48. What amount of non-controlling interest shall be presented on the consolidated statement of financial position
on December 31, 2018?
A. 0 B. 91,440 C. 98,768 D.
99,600

49. What amount shall be presented as goodwill on the consolidated statement of financial position on December 31,
2018?
A. 0 B. 10,840 C. 15,840 D.
20,000

INTERCOMPANY SALE OF INVENTORIES

Problem 1:
Pretty Company owns 80% of the common stock of Smart Company. Pretty sells merchandise to Smart at 20% above
cost while Smart sells merchandise to Pretty at 30% gross profit on sales. During 2018 and 2019, intercompany
downstream sales amounted to P1,080,000 and P1,200,000, respectively and intercompany upstream sales of
P800,000 and P1,020,000, respectively. At the end of 2018, Smart had one-fifth of the goods purchased that year from
Pretty in its ending inventory while Pretty had 30% of the goods purchased that year from Smart in its ending
inventory. Pretty’s 2019 ending inventory contained two-fifths of that year’s purchases from Smart while Smart’s 2019
ending inventory contained one-fourth of that year’s purchases from Pretty. There were no intercompany sales prior to
2018.

Pretty and Smart reported the following on their separate financial statements on December 31, 2018:

Pretty Company Smart Company

Sales 12,000,000 7,500,000
Cost of goods sold 7,800,000 6,000,000
Gross profit 4,200,000 1,500,000
Operating expenses 3,480,000 1,100,000
Net income 720,000 400,000
Ending inventory 575,000 480,000

Pretty and Smart reported the following on their separate financial statements on December 31, 2019:

Pretty Company Smart Company

Sales 15,000,000 10,000,000
Cost of goods sold 10,500,000
7,000,000 Gross profit
4,500,000 3,000,000
Operating expenses 3,740,000 2,540,000
Net income 760,000 460,000
Ending inventory 795,000

620,000 Neither company

AFARQ Page 9 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions
declared dividends in either year.

1. What is the consolidated net income for 2018?

A. 813,600 B. 946,400 C. 1,012,000 D.
1,228,000

2. How much of the 2018 consolidated net income is attributable to the controlling interest?
A. 939,200 B. 946,400 C. 1,133,600 D.
1,140,800

3. How much of the 2018 consolidated net income is attributable to the non-controlling interest?
A. 65,600 B. 72,800 C. 87,200 D.
94,400

4. How much is the consolidated sales for the year ended December 31, 2018?
A. 17,620,000 B. 18,420,000 C. 18,700,000 D. 19,500,000

AFARQ Page 10 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions

5. How much is the consolidated cost of goods sold for the year ended December 31, 2018?
A. 11,812,000 B. 12,028,000 C. 13,692,000 D.
13,908,000

6. How much is the consolidated inventory on December 31, 2018?

A. 947,000 B. 1,055,000 C. 1,091,000 D.
1,163,000

7. What is the consolidated net income for 2019?

A. 1,047,600 B. 1,155,600 C. 1,284,400 D.
1,328,000

8. How much of the 2019 consolidated net income is attributable to the controlling interest?
A. 980,080 B. 1,073,680 C. 1,182,320 D.
1,221,600

9. How much of the 2019 consolidated net income is attributable to the non-controlling interest?
A. 67,520 B. 81,920 C. 102,080 D.
106,400

10. How much is the consolidated sales for the year ended December 31, 2018?
A. 22,780,000 B. 23,800,000 C. 25,000,000 D.
26,020,000

11. How much is the consolidated cost of goods sold for the year ended December 31, 2018?
A. 15,215,600 B. 15,344,400 C. 17,435,600 D.
17,564,400

12. How much is the consolidated inventory on December 31, 2018?

A. 1,242,600 B. 1,350,600 C. 1,415,000 D.
1,587,400

Problem 2:
AB Company purchased 70% ownership of XY Company on January 1, 2017, at underlying book value. While each
company has its own sales forces and independent product lines, there are substantial inter-corporate sales of
inventory each period. The following inter- corporate sales occurred during 2018 and 2019.

Year Selle Cost Buyer Sales Price Unsold Year Sold to

r of Product at Year- Outsider
Sold end
201 AB 448,000 XY 640,000 140,000 2019
8
201 XY 312,000 AB 480,000 77,000 2020
9
201 AB 350,000 XY 437,500 63,000 2020
9

The following data summarized the results of their financial operations for the year ended, December 31, 2019:

AB XY
Company Company
Profit from own operations 1,134,000 224,000
Dividend Received from affiliate 126,000 -
Dividend Received from non- - 70,000
affiliate
Ending Inventories 336,000 280,000

For the year ended 2019, compute:

13. The consolidated net income attributable to parent’s shareholders equity.
A. 1,308,335 B. 1,329,265 C. 1,350,335 D.
1,224,335

14. The consolidated net income attributable to non-controlling interest.

A. 59,115 B. 80,115 C. 96,285 D.
97,020

INTERCOMPANY SALE OF PROPERTY, PLANT AND EQUIPMENT

Intercompany Sale of Non-Depreciable Asset
Problem 1:

AFARQ Page 11 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions
ABC owns 60% of DEF’s voting stocks. The following intercompany transactions involving sale of land occurred between
ABC and DEF:
 On March 1, 2018, ABC sold a parcel of land, which was purchased on January 1, 2014 at a cost of
P2,000,000, to DEF for P3,000,000. DEF sold the said land to an unrelated party for P4,500,000 on November
30, 2019.
 On April 30, 2018, DEF sold land (cost, P500,000) to ABC for P300,000. ABC classified this land as part of its PPE.
 On June 1, 2018, ABC sold another parcel of land (cost, P1,500,000) to DEF for P900,000. DEF classified this
land as part of its PPE.
 On October 31, 2018, DEF sold another land (cost, P2,100,000) to ABC for P2,800,000. ABC sold the said land
to an unrelated party for P3,200,000 on December 31, 2019.

ABC reported net income of P5,000,000 in 2018 and P6,000,000 in 2019. DEF reported net income of P7,000,000 in
2018 and P8,000,000 in 2019. Neither company declared dividends in either year.

AFARQ Page 12 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions

ABC reported land of P10,000,000 and P25,000,000 in 2018 and 2019, respectively while DEF reported land of
P2,000,000 and P6,000,000 in 2018 and 2019, respectively.

Compute for the:

1. Consolidated net income for the year 2018.
A. 8,500,000 B. 9,200,000 C. 11,100,000 D.
12,000,000

2. 2018 Consolidated net income attributable to the controlling interest and non-controlling interest.
A. 8,500,000; 2,600,000
B. 8,460,000; 2,640,000
C. 8,300,000; 2,800,000
D. 9,200,000; 2,800,000

3. How much is the consolidated balance of land on December 31, 2018?

A. 11,100,000 B. 12,000,000 C. 12,900,000 D.
13,100,000

4. Consolidated net income for the year 2019.

A. 10,800,000 B. 12,220,000 C. 14,000,000 D.
15,700,000

5. 2019 consolidated net income attributable to the controlling interest and non-controlling interest.
A. 9,380,000; 2,920,000
B. 10,800,000; 3,200,000
C. 12,220,000; 3,480,000
D. 12,100,000; 3,600,000
Problem 2:
Lee purchased 80% interest in Chan Corp. on January 1, 2018 at a cost equal to book value and fair value. On 2018,
Chan sold land to Lee costing P1,500,000 for P1,000,000. On August 1, 2020, Lee sold the land to unrelated party for
P1,700,000.

6. If Chan Corp. reported profit of P1,200,000 for the year ended December 31, 2020, how much is the controlling
interest in the net income of subsidiary for 2020?
A. 460,000 B. 560,000 C. 1,360,000 D.
1,460,000

Intercompany Sale of Depreciable Assets

Problem 1:
PAYNE Company owns 104,000 of the 130,000 outstanding shares of SKURGE Corp. Information resulting from
intercompany sales of equipment are summarized below:

Date of Seller Sellin Original Accumulated Carrying Remaining

sale g Cost depreciation value life (from date
pric of sale)
e
3/31/2018 PAYNE 90,000 120,000 45,000 75,000 5 years
6/30/2018 SKURGE 150,00 250,000 125,000 125,00 10 years
0 0
1/1/2018 PAYNE 20,000 100,000 60,000 40,000 4 years
1/3/2018 SKURGE 15,000 72,000 43,200 28,800 8 years

Both companies use the straight-line method to depreciate equipment. PAYNE Company reported profit of P350,000
each year while SKURGE Corp. reported profit of P220,000, P240,000, and P300,000 in 2018, 2019, and 2020,
respectively. Neither company declared dividends.

1. Compute for the 2018 consolidated net income attributable to the (1) controlling interest and (2) non-controlling
interest.
A. 516,125; 44,450
B. 522,870; 43,905
C. 523,325; 43,450
D. 518,910; 41,665

2. Compute for the 2019 consolidated net income attributable to the (1) controlling interest and (2) non-controlling
interest.
A. 540,620; 48,155
B. 541,175; 47,600
C. 533,975; 48,600

AFARQ Page 13 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions
D. 536,660; 45,915

3. Assuming the equipment sold on March 31, 2018 and January 3, 2018 were sold by the buying affiliates on
September 2, 2020 and May 31, 2020 at P66,000 and P7,000, respectively, how much is the 2020 consolidated
net income attributable to the (1) controlling interest and (2) non-controlling interest?
A. 589,175; 59,600
B. 585,950; 60,950
C. 588,470; 58,430

AFARQ Page 14 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions

D. 588,620; 60,155

Problem 2:
Information for 2018 taken from the separate company income statements of Angel Company and its 60%-owned
subsidiary, Demon Corporation is presented as follows:
Ange Demo
l n
Compan Corporatio
y n
Sales 1,250,000 800,000
Gain on sale of properties - 55,500
Cost of goods sold (1,000,000) (440,000)
Depreciation expense (17,000) (13,000)
Loss on sale of equipment (15,000) -
Miscellaneous expenses (50,000) (10,000)
Profit 168,000 392,500

On April 1, 2018, Demon sold equipment with a carrying value of P30,000 to Angel for P60,000. The equipment is
expected to have a remaining useful life of five years from April 1, 2018. Moreover, Demon also sold other items of its
properties during 2018 resulting to a total gain of P25,500.

On September 30, 2018, Angel sold machinery with a carrying value of 40,000 to Demon for P25,000. The machinery
is expected to last for ten years from the date of sale.

As of December 31, 2018, Angel and Demon reported in its separate statement of financial position the following
property, plant, and equipment account balances:

Angel Demon
Property, plant, and equipment 170,000 80,000
Less: Accumulated depreciation 59,500 28,000
Balance 110,500 52,000

4. The consolidated/group depreciation expense for 2018 should be presented at what amount?
A. 25,500 B. 25,875 C. 30,000 D.
34,125

5. How much is the profit attributable to the controlling interest for 2018?
A. 386,775 B. 402,825 C. 405,825 D.
407,775

6. How much is the profit attributable to the minority interest for 2018?
A. 146,800 B. 156,850 C. 158,800 D.
162,850

7. What amount should be presented as PPE, net of accumulated depreciation on the consolidated statement of
financial position on December 31, 2018?
A. 151,625 B. 162,500 C. 166,625 D.
173,375

COMPREHENSIVE PROBLEM ON STOCK ACQUISITION:

BAM Corporation acquired 75% of the outstanding shares of TOBYLICIOUS Company on January 2, 2017 for a
consideration transferred of P8,640,000. The price paid includes a control premium amounting to P240,000. On
January 2, 2017, TOBYLICIOUS Company’s stockholders’ equity accounts were common stock, P11,400,000 and
retained earnings, P3,720,000. An appraisal of the acquired company’s assets and liabilities on the date of acquisition
revealed that there were assets with book values different from their fair values. The merchandise inventory of
TOBYLICIOUS is overstated by P360,000; land, which was undervalued by P1,800,000; equipment, which was
overvalued by P1,440,000 and patent was undervalued by P1,080,000. Inventories were all sold in 2017. The
equipment had a remaining life of 8 years while patent had a remaining life of 5 years.

During 2017, intercompany cash sales of merchandise amount to P3,960,000. The December 31, 2017 inventory
includes P288,000 from downstream sales and P252,000 from upstream sales. BAM Corporation’s mark-up was 20% of
sales while TOBYLICIOUS Company’s selling price is at 120% of cost.

On the first day of the second month of the second quarter of 2018, there was an upstream sale of land for
P5,400,000. On this date, the land was carried on the selling affiliate’s books at 4,680,000, an amount which is equal
to fair value on the date of acquisition. On the first day of the last month of the third quarter of 2018, there was a

AFARQ Page 15 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions
downstream sale of furniture for P600,000. On this date, the furniture was carried on selling affiliate’s books, net of
accumulated depreciation, at P420,000. The furniture was estimated to have a remaining life of 5 years on the date of
sale. On the first day of the last month of the year 2018, there was an upstream sale of building for P13,440,000. On
this date, the building was carried on the selling affiliate’s books, net of accumulated depreciation, at P16,320,000.
The building was estimated to have a remaining life of 8 years on the date of sale.

AFARQ Page 16 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions

During 2018, intercompany cash sales of merchandise amount to P6,480,000. The December 31, 2018 inventory
includes P540,000 from downstream sales and P720,000 from upstream sales. The acquirer accounts for its
investment account in subsidiary using the cost method. Separate trial balances on December 31, 2018 show:

BAM Corporation TOBYLICIOUS

Company
Cash 6,480,000 3,600,000
Receivables 2,040,000 1,920,000
Inventory 5,280,000 3,480,000
Furniture and fixtures, net 1,440,000 1,080,000
Equipment, net 2,280,000 1,320,000
Building, net 18,120,000 13,080,000
Machine, net 960,000 720,000
Land 11,760,000 6,000,000
Patent, net 1,320,000 480,000
Investment in TOBYLICIOUS 8,640,000
Co.
Cost of goods sold 13,800,000 4,800,000
Loss on sale of machinery 120,000 360,000
Loss on sale of building 720,000 2,880,000
Operating expenses 7,680,000 3,240,000
Dividends 4,560,000 3,840,000
85,200,000 46,800,000

Liabilities 7,860,000 5,400,000

Common stocks 22,800,000 11,400,000
Retained earnings, 1/1/2018 14,400,000 8,400,000
Sales 33,600,000 19,200,000
Gain on sale of furniture 180,000 240,000
Gain on sale of land 2,400,000 720,000
Dividend income 3,960,000 1,440,000
85,200,000 46,800,000
For 2018, compute for the following items in the consolidated financial statements:
1. Sales
A. 27,120,000 B. 33,600,000 C. 46,320,000 D.
52,800,000

2. Cost of goods sold

A. 11,991,600 B. 12,248,400 C. 18,471,600 D.
18,728,400

3. Gross profit
A. 34,200,000 B. 34,071,600 C. 34,328,400 D.
40,551,600

4. Operating expenses
A. 10,902,000 B. 10,920,000 C. 10,938,000 D.
10,974,000

5. Net income
A. 23,973,600 B. 25,077,600 C. 26,958,000 D.
27,057,600

6. Retained earnings attributable to the controlling interest.

A. 33,813,600 B. 37,477,500 C. 37,535,100 D.
40,987,500

7. Non-controlling interest in the net assets of the subsidiary (NCINAS).

A. 7,252,500 B. 7,414,500 C. 7,425,000 D.
7,432,500

8. Shareholders’ equity attributable to the parent

A. 63,787,500 B. 71,202,000 C. 75,187,500 D.
82,602,000

9. Inventory
A. 8,172,000 B. 8,400,000 C. 8,532,000 D.
8,760,000

AFARQ Page 17 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions
10. Furniture and fixtures (net)
A. 2,352,000 B. 2,376,000 C. 2,520,000 D.
2,532,000

11. Equipment (net)

A. 2,340,000 B. 2,520,000 C. 3,600,000 D.
3,780,000

12. Building (net)

A. 31,170,000 B. 31,200,000 C. 33,720,000 D. 34,050,000

AFARQ Page 18 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions

13. Land
A. 17,040,000 B. 17,760,000 C. 18,840,000 D.
19,560,000

14. Patent (net)

A. 1,800,000 B. 2,448,000 C. 2,664,000 D.
2,880,000

15. Total assets

A. 82,482,000 B. 84,462,000 C. 91,122,000 D.
93,102,000

EN
D

SUGGESTED ANSWERS
STOCK ACQUISITION – INTERCOMPANY SALE INTERCOMPANY SALE COMPREHENSIVE
SUBSEQUENT TO DATE OF INVENTORIES OF PROPERTY, PLANT PROBLEM ON STOCK
OF ACQUISITION AND EQUIPMENT ACQUISITION

AFARQ Page 19 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions 1. B 1. C Intercompany Sale of Non- 1. C
2. C 2. B Depreciable Asset 2. B
3. C 3. A 1. C 3. B
4. B 4. A 2. A 4. D
5. D 5. B 3. A 5. D
6. B 6. A 4. D 6. D
7. A 7. B 5. C 7. B
8. A 8. B 6. B 8. B
9. D 9. B 9. C
10. C 10. A Intercompany Sale of 10. A
11. B 11. B Depreciable Assets 11. B
12. C 12. A 1. D 12. D
13. A 13. C 2. A 13. C
14. D 14. B 3. C 14. B
15. A 4. B 15. B
16. B 5. B
17. A 6. A
18. D 7. A
19. B
20. C
21. C
22. D
23. C
24. C
25. D
26. C
27. B
28. A
29. B

AFARQ Page 20 of
06 23
 CALAMBA REVIEW CENTER-LAGUNA
AFAR

Intercompany
Transactions

30. B
31. C
32. A
33. B
34. B
35. B
36. D
37. A
38. A
39. C
40. D
41. C
42. B
43. B
44. A
45. B
46. B
47. A
48. B
49. B

AFARQ Page 21 of
06 23