Bshs Case Study
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Problem:On January 1, 2014, Acosta, Inc. reports net assets of P760,000 although (equipment with a four-year life) having a book value of P440,000 is worth P500,000 and unrecorded patent is valued at P45,000. EdimerCorporation pays P692,000 on that date for an 80 percent ownership in Acosta, Inc. If the patent is to be written-off over a 10-year period, at what amount should it be reported on consolidated statements at December 31, 2017?a. P28,000 c. P36,000b. P32,400 d. P40,500Solution: (c)Patent, December 31, 2017:Patent fair value at January 1, 2016P45,000Amortization for 2 years (10 year life):P45,000/10 years = P4,500/year x 2 years(9,000)Patent reported amount December 31, 2017P36,000(Dayag, A.J., 2015 Ed., Problem #76)Quing Corp. holds 70% interest in Namo Corp. in 2017. At the current year-end, Quing holds inventory purchased from Namo for P270,000 at a cost plus 20%. The group’s consolidated statement of financial position has been drafted without any adjustments in relation to this holding of inventory.What adjustment should be made to the draft consolidated statement of financial position figures for non-controlling interest and retained earnings? Non-controlling interest Retained EarningsA Reduce by P13500 Reduce by P31500B No change Reduce by P54000C No change Reduce by P45000D Reduce by P16200 Reduce by P37800SOLUTION: Ending inventory of Quing (parent) P270,000Multiplied by: Mark-up of Subsidiary 20/120Unrealized profit in ending inventory of Quing P45000Non-controlling interest ( 30% x P45,000) P13500Controlling interest (70% x P45000) P31500On January 1, 2016, Harry, Inc. reports net assets of P880,000 although a patent (with a 10-year life) having a book value of P330,000 is now worth P400,000. Newt Corporation pays P840,000 on that date for an 80 percent ownership interest in Newt. On December 31,2017, Harry reports total expenses of P621,000 and Newt reports a expenses of P714,000. What is the consolidated total expense balance on December 31,2017?
P1,197,800 c. P1,342,000P1,335,0000 d. P1,349,000Solution:(c)Harry expense – 2017………………………………………………….. P510,000Newt expenses – 2017………………………………………………. P182,000Amortization of allocated excess (P300,000 – P260,000)……………………………………..… 40,000Amortization of allocated excess for 3 years (P400,000 – 330,000) ……………………………………..…. (12,000) 210,000Consolidated total expense for 2017……………………………….. P1,342,000(Practical Accounting 2, 2015 ed., A.J. Dayag, Chapter 10, problem 78)On January 1, 2017 Iris Company paid P900, 000 for an 80% interest in Lyndie Company at a price of P30, 000 less than the underlying book value. The excess was allocated to overvalued equipment with a three-year remaining useful life.The net incomes of Iris and Lyndie from their own operations for 2017 are as follows:Iris P400, 000Lyndie 100, 000What is the consolidated comprehensive income on December 31, 2017/P476, 000P490, 000P510, 000P474, 000SolutionTotal comprehensive income from own operation – Iris P400, 000Total comprehensive income from own operation – Lyndie 100, 000Amortization of excess book value over cost (P30, 000/3) 10, 000Consolidated total comprehensive income P510, 000At the end of 2016, Banana Company’s stockholders’ equity includes common stock of P500, 000 and additional paid-in-capital of P300, 000. Banana purchased a 70 percent interest in Kevin Company on January 1, 2016, when the non-controlling interest in Kevin had a fair value of P90, 000. No differential arose from the business combination. During 2016, Kevin reports net income of P20, 000 and declares dividend of P5, 000. The 2016 consolidated balance sheet includes retained earnings of P630, 000 (controlling interest portion).