ACP 312 Accounting for Business Combination

Competency Exam

On January 1, 2024, Parent Company purchased 80% of the Subsidiary Company in exchange for 10,800
shares of P10 par value common stock, which had a market value of P241,200. The condensed balance
sheets of both the Parent and Subsidiary as of January 1, 2024, were as follows:

Parent Subsidiary
ASSETS
Cash 61,800 74,800
Accounts Receivable (net) 68,400 18,200
Inventories 45,800 32,200
Equipment 358,000 80,000
Patents 20,000
Total Assets 534,000 225,200

LIABILITIES AND EQUITIES

Accounts Payable 8,000 13,200
Bonds Payable 200,000
Common Stock, P10 par 200,000 100,000
Additional Paid in Capital 30,000 30,000
Retained Earnings 96,000 82,000
Total Liabilities and Equities 534,000 225,200

At the date of acquisition (using full goodwill approach), all assets and liabilities of Subsidiary company have
book value approximately equal to their respective market values except the following as determined by
appraisal as follows:

Inventories 34,200
Equipment (remaining life of 4 years) 96,000
Patents (remaining life of 10 year) 26,000
For the year ended December 31, 2024, the following results were given:
Parent Subsidiary
Sales 900,000 420,000
Cost of goods sold 540,000 250,000
Gross profit 360,000 170,000
Expenses 315,000 125,000
Dividend income 24,000
Net income 69,000 45,000
During the year, the following intercompany transactions happened:
(a) Parent Company sold inventory costing P80,000 for P100,000 to Subsidiary Company. Only 80% of
the inventory was sold to unaffiliated entity.
(b) Subsidiary Company sold inventory to Parent Company for P50,000 with gross profit rate based on
sales of 30%. At year-end, P10,000 of the inventory remained.
(c) Declared dividends by Parent = 40,000
Requirements:
1) Prepare entries in the books of the parent.
a. To record acquisition.
b. To record income from investment under cost method.

2) Prepare working paper elimination entries.

a. To eliminate dividend income.
b. To eliminate investment in subsidiary.
c. To recognize changes in values and goodwill.
d. To recognize increases in expenses due to change in values.
e. To eliminate intercompany sales.
f. To eliminate unrealized profit in ending inventory of Subsidiary Company.
g. To eliminate unrealized profit in ending inventory of Parent Company.
h. To recognize the share of NCI in the net income of subsidiary.

3) Prepare the working paper for consolidated financial statements

4) Prepare the following consolidated financial statements:

a. Statement of Comprehensive Income and Retained Earnings
b. Statement of Financial Position
 POINTS
CRITERIA SCORE
5 4 3 2 1

Consolidated
Consolidated Consolidated
financial Consolidated Consolidated
financial financial
statements and all financial statements financial statements
statements and statements and
ACCURACY necessary journal and journal entries and journal entries X 4 / 20
journal entries journal entries
entries were were prepared with were prepared with
were prepared with were prepared with
prepared 3 to 4 errors. 5 to 6 errors.
1 to 2 errors. more than 6 errors.
accurately.

Consolidated
Consolidated Consolidated Consolidated financial
Consolidated
financial financial statements financial statements statements was not
financial
statements was was prepared but was prepared but completely
COMPLETENESS statements and all X 4 / 20
prepared but with 1 with 3 to 4 journal with 5 to 6 journal prepared and more
journal entries
to 2 journal entries entries not entries not than 6 journal
were prepared.
not prepared. prepared. prepared. entries were not
prepared.

Consolidated
Consolidated Consolidated
financial Consolidated Consolidated
financial financial
statements and all financial statements financial statements
statements and statements and
NEATNESS necessary journal and journal entries and journal entries X 2 / 10
journal entries journal entries
entries were were prepared with were prepared with
were prepared with were prepared with
prepared with no 3 to 4 erasures. 5 to 6 erasures.
1 to 2 erasures. more than 6 errors.
erasures.

TOTAL ___ / 50
Req 1
a. 1/1/2024 Investment in Subsidiary Company 241,200
Common stock
Additional paid-in capital

b. 12/31/2024 Cash 24,000

Dividend income

Req 2
a. 12/31/2024 Dividend income 24,000
NCI 6,000
Dividends declared

b. 12/31/2024 Common stock 100,000

Additional paid-in capital 30,000
Retained earnings 82,000
Investment in Subsidiary Company
NCI

c. 12/31/2024 Inventory 2,000

Equipment 16,000
Patent 6,000
Goodwill 65,500
Investment in Subsidiary Company
NCI

d. 12/31/2024 Cost of goods sold 2,000

Operating expenses 4,600
Inventory
Equipment
Patent

e. 12/31/2024 Sales 150,000

Cost of goods sold

f. 12/31/2024 Cost of goods sold 4,000

Inventory

g. 12/31/2024 Cost of goods sold 3,000

Inventory

h. 12/31/2024 NCI in CI of subsidiary 7,080

NCI
108,000
133,200

24,000

30,000

169,600
42,400

71,600
17,900

2,000
4,000
600

150,000

4,000

3,000

7,080
Parent Company and Subsidiary
Working Paper for Consolidated Financial Statements
For the Year Ended December 31, 2024

Subsidiary Elimination
Parent Company Company Ref. #
Statement of CI
Sales 900,000 420,000 e
Dividend income 24,000 a
Total revenue 924,000 420,000
Cost of goods sold 540,000 250,000 d,f,g
Operating expenses 315,000 125,000 d
Total cost and expenses 855,000 375,000
Consolidated CI 69,000 45,000
NCI in CI of subsidiary h
CI to RE 69,000 45,000

Statement of Retained Earnings

Retained earnings, Jan. 1 96,000 82,000 b
CI, from above 69,000 45,000
Total 165,000 127,000
Dividends declared 40,000 30,000
Retained earnings, Dec. 31 to BS 125,000 97,000

Statement of Financial Position

Cash 90,800 89,800
Accounts receivable (net) 68,400 18,200
Inventories 45,800 32,200 c
Equipment 358,000 80,000 c
Patents - 20,000 c
Investment in Subsidiary Company 241,200
Goodwill c
Total assets 804,200 240,200

Accounts payable 8,000 13,200

Bonds payable 200,000 -
Common stock, P10 par 308,000 100,000 b
Additional paid in capital 163,200 30,000 b
Retained earnings from above 125,000 97,000
NCI a
Total liabilities and equity 804,200 240,200
Eliminations & Adjustments Consolidated
Debit Ref. # Credit Amount

150,000 1,170,000
24,000 -
1,170,000
9,000 e 150,000 649,000
4,600 444,600
1,093,600
76,400
7,080 7,080
69,320

82,000 96,000
69,320
165,320
a 30,000 40,000
125,320

180,600 903,000
86,600 433,000
2,000 d,f,g 9,000 71,000 355,000
16,000 d 4,000 450,000 ###
6,000 d 600 25,400 127,000
b,c 241,200 - -
65,500 65,500 327,500
879,100

21,200
200,000
100,000 308,000
30,000 163,200
125,320
6,000 b,c,h 67,380 61,380
502,180 502,180 879,100
- -
 Parent Company and Subsidiary
Consolidated Statement of Comprehensive Income and Retained Earnings
Year Ended December 31, 2024

Sales ₱ 1,170,000
Cost of goods sold 649,000
Gross profit ₱ 521,000
Operating expenses 444,600
Consolidated CI ₱ 76,400
NCI in CI of subsidiary 7,080
Attributable to parent company ₱ 69,320
Retained earnings, January 1 96,000
Dividends declared - 40,000
Retained earnings, December 31 ₱ 125,320

Parent Company and Subsidiary

Consolidated Statement of Financial Position
Year Ended December 31, 2024
ASSETS
Current assets
Cash ₱ 180,600
Accounts receivable (net) 86,600
Inventories 71,000
Total current assets ₱ 338,200
Noncurrent assets
Equipment ₱ 450,000
Patents 25,400
Goodwill 65,500
Total noncurrent assets ₱ 540,900

TOTAL ASSETS ₱ 879,100

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
Accounts payable ₱ 21,200
Bonds payable 200,000
Total liabilities ₱ 221,200
Stockholders' equity
Common stock, P10 par ₱ 308,000
Additional paid in capital 163,200
Retained earnings from above 125,320
Total controlling interest 596,520
Non-controlling interest 61,380
Total shareholders' equity ₱ 657,900

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ₱ 879,100