TOPIC: CONSOLIDATED FS-INTERCOMPANY PROFITS ON INVENTORY PROBLEM I. Palma Company had 90% ownership interest acquired several years ago in Small Company of which P800,000 was paid on January 1, 200A. The amortization of allocated excess (identifiable assets) arising from this acquisition amounted to P2,000 per year (based on the 100% or full fair value of identifiable assets). The inventories acquired from the affiliates are: Beginning Inventory P10,000 Ending inventory 16,000 An inter-company sale of merchandise was made during the year amounting to P40,000 at a gross profit rate of 25%. (the same rate consistently applied on previous years intercompany sales of merchandise) of which 60% are sold to outsiders at P35,000. The net income from own operations and dividends for 200A using the cost method were as follows: Net Income Dividends Paid Palma Company P120,000 P8,000 Small Company 70,000 6,000 Required: A. Assuming that Palma Company is the seller(downstream sales) 1. Prepare entries in the books of Palma Company to record Small’s results of operations, i.e., net income-subsidiary, dividends paid-subsidiary, amortization of allocated excess, impairment of goodwill, the realized profit in beginning inventory, and the unrealized profit in ending inventory. 2. Prepare working paper elimination entries relating to the inter-company sale of merchandise. 3. Compute the investment balance on December 31, 200A. 4. Compute the following for 200A: a. Dividend income b. Non-controlling interest in net income c. Profit attributable to Equity holders of Parents d. Consolidated/Group Net Income B. Assume that small Company is the seller (Upstream sale): 1. Prepare entries in the books of Palma Company to record Small’s results of operations, i.e., net income-subsidiary, dividends paid-subsidiary, amortization of allocated excess, impairment of goodwill, the realized profit in beginning inventory, and the unrealized profit in ending inventory. 2. Prepare working paper elimination entries relating to the inter-company sale of merchandise. 3. Compute the investment balance on December 31, 200A. 4. Compute the following for 200A: a. Dividend income b. Non-controlling interest in net income c. Profit attributable to Equity holders of Parents d. Consolidated/Group Net Income
PROBLEM II. On January 1, 2007, Par Company purchased 80% of the outstanding shares of Sub Company by paying P340,000, the Sub Company’s common stock and retained earnings on
this date amounted to P150,000 and P230,000 respectively. Also on this date, an equipment is undervalued by P20,000 with a remaining life of 10 years. On January 1, 2009, Sub Company had P150,000 of capital stock and P300,000 of retained earnings. Also on the same date, Par Company had P1,000,000 of capital stock and P700,000 of retained earnings. During the year, Par Company sold merchandise to Sub for P60,000 and in turn, purchased P40,000 from Sub Company. Inter-company sales of merchandise were made at the following gross profit rates: Sales made by parent 25% based on cost Sales made by subsidiary 20% On December 31, 2009, 30% of all inter-company sales remains in the ending inventory of the purchasing affiliates. The beginning inventory of Par Company includes P2,500 worth of merchandise acquired from Sub Company on which Sub Company reported a profit of P1,000. While the beginning inventory of Sub also includes P3,000 of merchandise acquired from Par Company at 35% mark-up. The net income from own operations and dividends for 2009 using cost method were as follows: Net Income Dividends Paid Par Company P100,000 P60,000 Sub Company 30,000 10,000 Determine the following: 1. The dividend income for 2009 should be: a. P18,330 c. P8,000 b. P10,000 d. P8,200 2. The balance of investment as of December 31, 2009 should be: a. P354,600 c. P350,330 b. P351,960 d. P340,000 3. The Non-controlling interest in net income for 2009 should be: a. P6,280 c. P5,720 b. P6,120 d. P5,320 4. The Profit attributable to Equity holders of Parent/Controlling interest in net income for 2009 should be: a. P122,600 c. P118,750 b. P118,730 d.P118,330 5. The consolidated net income for 2009 should be: a. P124,050 c. P118,570 b. P122,600 d. P118,330 6. The stockholders’ equity of subsidiary on December 31, 2009 should be: a. P450,000 c. P481,600 b. P470,000 d. P484,000 7. The Non-controlling interest (in net assets) on December 31, 2009 using proportionate basis (or partial goodwill approach) should be: a. P97,120 c. P96,320
b. P96,920
d. P73,520
8. The Non-controlling interest (in net assets) on December 31, 2009 using full fair value basis (or full-goodwill approach) should be: a. P101,320 c. P96,320 b. P96,920 d. P73,520
