True/False

Indicate whether the statement is true or false.

____ 1. It is proper to refer to the financial statements of the surviving company as consolidated financial
statements.

____ 2. In a statutory consolidation the acquiree company retains their incorporation and their legal entity

____ 3. Goodwill from the combination may be recognized in the separate books of the company being
acquired

____ 4. The balances of the accounts of the surviving company’s statement of financial position items are
similar to the consolidated balances of the statement of financial position of a parent and a subsidiary
in a stock acquisition, if the controlling interest is at 100%

____ 5. Amortization of excess and impairment of goodwill will always affect the computation of the non-
controlling interest in net income

____ 6. Credit Cost of Goods Sold in the working paper to amortize allocated difference of the acquired
company’s overvalued merchandise

____ 7. Debit Share Premium in the working paper to record the cost of SEC registration and issuance of
securities

____ 8. Debit Non-controlling Interest in Net Income of Subsidiary in the working paper to decrease the
amount of the consolidated profit that will enter the consolidated retained earnings

____ 9. Credit Furniture in the working paper representing the amortization of an overvalued excess of
furniture of the acquired company

____ 10. Debit Impairment loss in the working paper representing the impairment for years one and two of
goodwill arising from acquisition

____ 11. Non-controlling interests’ share of goodwill is not recognized if the non-controlling interest is
measured as a proportion of the acquiree’s identifiable net assets

____ 12. Control premium is part of the price paid by the acquirer and is a component of the Investment in
Subsidiary Company account in the consolidated statement of financial position

____ 13. The stockholders equity of any acquired company is eliminated in the working paper
____ 14. In the preparation of consolidated financial statements the amortization of an undervalued excess of
a partially owned subsidiary should be debited to operating expenses

____ 15. The purpose of consolidated financial statements is to show the financial performance, financial
position and cash flows of the legal entity

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 16. Choose the letter of the word(s) NOT belonging or NOT related to the group regaring the
computation of Consolidated Operating Expenses
A) amortization of an undervalued excess in copyright
B) impairment of a resulting partial goodwill
C) amortization of an undervalued excess in liability
D) amortization of an overvalued excess in machinery

____ 17. Choose the letter of the word(s) NOT belonging or NOT related to the group regarding the
computation of Consolidated Net Income
A) impairment of a total goodwill
B) gain from bargain purchase
C) amortization of undervalued excess in land
D) recognition of an overvalued excess in furniture

____ 18. The undistributed earnings are computed by the following procedure except:
A) Comparing the retained earnings of subsidiary on the date of acquisition and the
retained earnings at the current period
B) Any increase/ decrease in retained earnings from the date of acquisition up to the
current period will be adjusted by cumulative amortization prior to the current
period of consolidation
C) The cumulative amortization pertains to the intercompany transactions of parent
and subsidiary
D) The undistributed earnings will be allocated between CI% and NCI%

____ 19. Eliminating entries are made to cancel the effects of intercompany transactions and are made on the
A) Working paper and books of the parent company
B) Working paper and books of both parent and subsidiary company
C) Working paper only
D) Books of both the parent and the subsidiary

____ 20. The working paper entry involving intercompany dividends are recorded by
A) Crediting the Dividend Account of the acquirer
B) Crediting Non-controlling interest in Net Asset Account
C) Debiting Dividend Account received from Subsidiary
D) Debiting Dividend Account received from Parent
____ 21. CIA Corporation purchased a 10% interest in CFA Company on January 1, 2020 as a financial asset at fair
value through OCI for a price of P120,000. On January 1, 2022, CIA Corporation purchases 7,000 additional
shares of CFA Company from existing stockholders for P945,000. This purchase increased CIA's interest to
80%. CFA Company had the following Statement of Financial Position just prior to CIA’s second purchase:
. Assets Liabilities and Equity
Current assets 495,000 Liabilities 195,000
Buildings (net) 420,000 Common stock, P30 par 300,000
Equipment (net) 300,000 Retained earnings 720,000
Total assets 1,215,000 Total liabilities and equity 1,215,000

On the date of the second purchase, CIA determines that the equipment of CFA was undervalued by P150,000
and had a 5-year remaining life. All other book values approximate fair values. Any remaining excess is
attributed to goodwill.

On January 1, 2022 Consolidated Statement of Financial Position, what is the amount of goodwill to be
reported?
A) P45,000
B) P120,000
C) P75,000
D) P180,000

____ 22. DEF Corporation paid P200,000 for a 60% interest in WXY Corporation on January 1, 2020, when WXY had
capital stock of P200,000 and retained earnings of P100,000. Fair values equaled book value. Non-controlling
interest is measured at proportionate share. During 2020, WXY had income of P30,000 and paid P10,000 of
dividends. When DEF acquired its Investment in WXY it debited the Investment in WXY account for P200,000
and credited the dividend received from WXY to an income account. Goodwill is not impaired.

On the December 31, 2020 Consolidated Statement of Financial Position of the group compute the Non-
controlling interest in net assets
A) P120,000
B) P133,333
C) P128,000
D) P145,333

____ 23. The Statement of Financial Position of P and S Corporations at the end of 2022 are summarized as follows:

P Corporation S Corporation
Assets P5,000,000 P2,000,000
Liabilities 1,500,000 500,000
Capital stock 2,500,000 1,000,000
Retained earnings 1,000,000 500,000

On January 1, 2023, P Corporation purchased 90% of S Corporation outstanding shares for P2,000,000. The
price paid includes control premium in the amount of P200,000. The fair value of S Corporation’s net assets
was P2,200,000.
 If a Consolidated Statement of Financial Position is prepared immediately after the business combination:
Compute the Stockholders’ Equity
A) P3,700,000
B) P3,720,000
C) P3,500,000
D) P5,000,000

____ 24. Parent Company acquires 25% of Subsidiary Company's ordinary shares for P380,000 cash and carries the
investment using the cost method. After three months, Parent purchases another 55% of Subsidiary's ordinary
shares for P1,100,000. The said amount excludes control premium of P55,000. On this date, Subsidiary
reports identifiable assets with carrying value of PI,800,000 and fair value of P2,300,000 and it has liabilities
with a book value and a fair value of P700,000. The fair value of the non-controlling interest is P360,000.

Compute the Goodwill valued on the fair value basis

A) P385,000
B) P350,000
C) P440,000
D) P360,000

____ 25. ACC Corporation paid P450,000 for a 90% interest in HDD Corporation on January 1, 2023. The
excess of the aggregate amount over the book value of the identifiable net assets of the acquired
company were allocated as follows: P9,000 to an undervalued equipment with a three-year
remaining useful life and P11,000 to a full goodwill. Non-controlling interest is measured at fair
value. The Statement of Comprehensive Income of ACC and HDD for 2023 are given below:

ACC HDD
Sales P1,000,000 P400,000
Dividend Income from Subsidiary 45,000
Cost of Sales (500,000) (200,000)
Depreciation expense (100,000) (60,000)
Other expense (200,000) (90,000)
Net income P245,000 P50,000

Determine the consolidated net income for 2023

A) P287,300
B) P247,000
C) P242,570
D) P242,300
____ 26. ABC Inc. was merged into XYZ, Inc. in a combination properly accounted for as purchase of interest. Their
condensed Statement of Financial Position before the combination show:

XYZ ABC
 Current assets P4,288,000 P1,627,600
Plant and equipment, net 2,654,000 1,040,000
Patents 260,000
Total assets P6,942,000 P2,927,600

Liabilities P2,704,000 P171,600

Ordinary shares (par P100) 2,600,000 1,300,000
Share premium 390,000 390,000
Retained earnings 1,248,000 1,066,000
Total liab. & stockholders’ equity P6,942,000 P2,927,600
Per independent appraiser’s report, ABC’s assets have fair market value of P1,653,600 for current assets,
P1,248,000 for plant and equipment and P338,000 for patents. ABC’s liabilities are properly valued. XYZ
purchases ABC’s net assets for P3,068,000.

Compute for the total assets in the books of the surviving company immediately after the merger.

A) P9,869,600
B) P10,181,600
C) P7,113,600
D) P4,238,000
____ 27. The Statement of Financial Position of Papa and Sese Corporations at the end of 2019 are summarized as
follows:

Papa Corporation Sese Corporation

Assets P5,000,000 P3,000,000
Liabilities 1,500,000 700,000
Capital stock 2,500,000 1,800,000
Retained earnings 1,000,000 500,000

On January 1, 2020, Papa Corporation purchased 75% of Sese Corporation outstanding shares for P2,250,000
when the fair value of Sese Corporation’s net assets was P3,200,000. NCI is measured at fair value.

If a consolidated Statement of Financial Position is prepared immediately after the business combination, the
consolidated stockholders’ equity, will be
A) P3,500,000
B) P4,300,000
C) P4,250,000
D) P4,450,000

____ 28. Quad Corporation purchases all of the net assets of Chrome, Inc. for P400,000, immediately prior to the
combination. Chrome’s net assets were carried on the books at P225,000, and Chrome had retained earnings
of P30,000. The fair value of Chrome’s net assets at the date of combination is P310,000. Quad Corporation
had retained earnings of P50,000 and no goodwill prior to the combination.
 Immediately after the combination, the combined company reports goodwill and retained earnings of:

A) P90,000, P80,000, respectively

B) P0, P 50,000 respectively
C) P0, P 80,000 respectively
D) P 90,000, P 50,000 respectively
____ 29. Silent Hill Company had ordinary shares of P350,000 and retained earnings of P490,000. Blue Town Inc. had
ordinary shares of P700,000 and retained earnings of P980,000. On January 1, 2021, Blue Town issued
34,000 ordinary shares with a P12 par value and a P35 fair value for all Silent Hill Company's outstanding
common stock. This combination was accounted for as an acquisition.

Immediately after the combination, what was the consolidated stockholders’ equity?

A) P1,190,000
B) P2,520,000
C) P1,680,000
D) P2,870,000
____ 30. On June 30, 2021, PARENT Co. acquired 80% of the outstanding shares of SUB Co. for P25 million. On this
date SUB Co.’s net assets had book value of P40 million but with a fair value of P32.5 million.The liabilities of
SUB Co has a book and fair value of P2M. PARENT Co. paid P500,000 to a financial consultant who
facilitated combination. The fair value of the non-controlling interest on this date was P6 million. Compute the
goodwill (gain from bargain price) arising from the above combination

A) P500,000
B) (P1 million)
C) P(500,000)
D) P600,000
____ 31. A condensed Statement of Financial Position at December 31, 2020 for Stride Co. follows

Carrying Value Fair Value

Current assets, including
Cash of P250,000 P1,368,000 P1,300,000
Plant Assets 1,592,500 1,500,000
Goodwill 585,000
Total Assets P3,545,500

Current Liabilities P 607,500 P 607,600

Long-term Debt 780,500 797,500
Ordinary Shares, par 20 1,000,000
Share Premium 500,000
Retained Earnings 657,500
 Total Equities P 3,545,500
On January 2, 2021, Prunes Co. paid P1,500,000 cash for the net assets of Stride Co. (excluding cash), after
which Stride Co. was dissolved. The amount excludes a reimbursement of the acquisition-related costs paid by
the acquiree company. A total of P147,500 out of pocket costs was paid on this date, P 57,500 of which were
paid by Prunes Co. and the remainder pertains to legal fees directly related to the business combination which
was paid by Stride Co.
The following questions pertain to this problem:
1. Compute the amount of goodwill recognized by the acquirer in its separate books.
2. Compute the net increase in the assets of the surviving company as a result of the business
combination

Question specifically asked for this problem is: Compute the amount of goodwill recognized by the acquirer in
its separate books
A) P265,100
B) P(355,100)
C) P105,000
D) P585,000

____ 32. A condensed Statement of Financial Position at December 31, 2020 for Stride Co. follows

Carrying Value Fair Value

Current assets, including
Cash of P250,000 P1,368,000 P1,300,000
Plant Assets 1,592,500 1,500,000
Goodwill 585,000
Total Assets P3,545,500

Current Liabilities P 607,500 P 607,600

Long-term Debt 780,500 797,500
Ordinary Shares, par 20 1,000,000
Share Premium 500,000
Retained Earnings 657,500
Total Equities P 3,545,500
On January 2, 2021, Prunes Co. paid P1,500,000 cash for the net assets of Stride Co. (excluding cash), after
which Stride Co. was dissolved. The amount excludes a reimbursement of the acquisition-related costs paid by
the acquiree company. A total of P147,500 out of pocket costs was paid on this date, P 57,500 of which were
paid by Prunes Co. and the remainder pertains to legal fees directly related to the business combination which
was paid by Stride Co.
The following questions pertain to this problem:
1. Compute the amount of goodwill recognized by the acquirer in its separate books.
2. Compute the net increase in the assets of the surviving company as a result of the business
combination

Question specifically asked for this problem is: Compute the net increase in the assets of the surviving
company as a result of the business combination
 A) P1,300,000
B) P1,167,500
C) P902,500
D) P1,257,600
____ 33. On January 2, 2020, Peter Co. purchased the net assets of Saul Co. by paying P850,000 cash and issuing
shares of stocks at P3,110,000 fair market value. Book value and fair value data on the Statement of Financial
position on January 2, 2020 immediately before the merger were as follows:

  Peter Company    Saul Company 

  Book Value Fair Value Book Value Fair Value
Cash P 4,600,000 P 4,600,000 P 300,000 P 300,000
Accts. Rec. 1,000,000 1,000,000 980,000 980,000
Inventory 1,500,000 1,300,000 710,000 600,000
Bldg. & Equip. (net) 1,800,000 1,460,000 1,520,000 1,064,000
Goodwill     90,000  
Total P 8,900,000   P3,600,000  
 
Liabilities 1,000,000 1,000,000 570,000 570,000
Common stock 1,600,000 600,000
Share Premium 900,000 960,000
Retained Earnings 5,400,000   1,470,000  
Total P 8,900,000     P3,600,000  

Peter incurred and paid legal and brokerage fees of P25,600 for business combination, share issue costs of
P23,000 and P12,000 indirect acquisition costs. On the date of acquisition, it is probable that contingent
consideration in the amount of P118,000 would be paid within the year.
The following questions pertain to this problem:
1. Compute the amount of total assets in the books of acquirer company immediately after the merger.
2. Compute the amount of stockholders’ equity in the books of acquirer company immediately after the
merger.

Question specifically asked for this problem: Compute the amount of total assets in the books of acquirer
company immediately after the merger
A) P12,637,400
B) P12,698,000
C) P13,519,400
D) P12,638,400

____ 34. On January 2, 2020, Peter Co. purchased the net assets of Saul Co. by paying P850,000 cash and issuing
shares of stocks at P3,110,000 fair market value. Book value and fair value data on the Statement of Financial
position on January 2, 2020 immediately before the merger were as follows:
   Peter Company    Saul Company 
  Book Value Fair Value Book Value Fair Value
Cash P 4,600,000 P 4,600,000 P 300,000 P 300,000
Accts. Rec. 1,000,000 1,000,000 980,000 980,000
Inventory 1,500,000 1,300,000 710,000 600,000
Bldg. & Equip. (net) 1,800,000 1,460,000 1,520,000 1,064,000
Goodwill     90,000  
Total P 8,900,000   P3,600,000  
 
Liabilities 1,000,000 1,000,000 570,000 570,000
Common stock 1,600,000 600,000
Share Premium 900,000 960,000
Retained Earnings 5,400,000   1,470,000  
Total P 8,900,000     P3,600,000  

Peter incurred and paid legal and brokerage fees of P25,600 for business combination, share issue costs of
P23,000 and P12,000 indirect acquisition costs. On the date of acquisition, it is probable that contingent
consideration in the amount of P118,000 would be paid within the year.
The following questions pertain to this problem:
1. Compute the amount of total assets in the books of acquirer company immediately after the merger.
2. Compute the amount of stockholders’ equity in the books of acquirer company immediately after the
merger.

Question specifically asked for this problem: Compute the amount of stockholders’ equity in the books of
acquirer company immediately after the merger
A) P7,900,000
B) P3,117,900
C) P11,010,000
D) P10,949,400

Completion
Complete each statement.

35. 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)

Wangyu Corporation acquired the net assets of Raven Corporation by issuing shares of stock. All of
Raven’s assets and liabilities were immediately transferred to Wangyu. Wangyu’s ordinary shares
were trading at P1,000 per share at the time of exchange. Following selected information is also
available:

Before After acquisition

 acquisition
Par value of the outstanding shares 5,000,000 7,500,000
Share Premium 1,500,000 4,000,000

Compute the par value of the shares issued__________

36. 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)

Goodtimes Company acquired 75% of Easy Company’s ordinary shares for P510,000 cash. At that
date, Easy reports identifiable assets with a book value of P1,040,000 and a fair value of P1,280,000,
and it has liabilities with a book value and fair value of P716,000.

Compute the goodwill or (gain on acquisition) arising on consolidation if non-controlling

interest is measured at fair value and that control premium of P30,000 is included in the
purchase price

37. 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)

Aldeguer Company acquired 80,000 out of 100,000 outstanding ordinary shares of Sobremonte
Company which enabled the former to obtain control of the latter at an acquisition price of
P2,500,000. The acquirer paid P250,000 acquisition related costs and P125,000 indirect costs of
business combination. At the date of acquisition, the net assets of the acquired company are
reported at P4,000,000. An asset of Sobremonte Company is overvalued by P150,000 while one
liability is undervalued by P100,000.

Compute the goodwill or (gain from bargain purchase) arising from the business combination

38. 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)

Benz Company acquired 60% of the outstanding shares of Slov Company on April 1, 2020 at a total
cost of P5,000,000. At acquisition date, Slov’s ordinary shares and retained earnings amounted to
P1,200,000 and P4,800,000, respectively. All of Slov’s assets and liabilities had fair values equal to
book values as of the acquisition date except for machinery which had a fair value of P800,000 and a
book value of P500,000. The machinery have a remaining life of six years. For 2020, Slov had the
following earnings:

Jan – March April – Dec

Net income P500,000 P1,800,000

Compute the non-controlling interest in profit

39. 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)

On January 2, 2020, GB Company acquired 80% interest in JK Company for P2,062,500 cash. On
this date the ordinary shares of JK amount to P656,000 while its retained earnings amount to
P1,593,750. Non-controlling interest is measured at fair value. Fair values of the following assets
of the acquiree exceeded their book values by: Inventories, P105,000 ; Equipment (remaining life,
10 years), P63,750. On December 31, 2020 the two companies reported the following results:

GB Company JK Company
Net income 892,500 487,500
Dividends paid 262,500 131,250

Compute the consolidated net income attributable to parent on December 31, 2020

40. 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)

A Corporation acquired an 80% interest in R Company on January 1, 2020 for P245,000. On this
date the capital stock and retained earnings of the acquired company were as follows: P175,000 and
P35,000, respectively.

The assets and liabilities of R were stated at their fair values on the date of acquisition and the
proportionate share in net identifiable assets was used to initially measure the non-controlling
interest. A uses the cost method to account for its investment in R. Net income and dividends for
2020 of R Company were: P31,500 and P17,500, respectively.
End of year evaluation indicates P2,400 impairment in goodwill.

The non-controlling interest in net assets at December 31, 2020