EASY NO. 5
BTS Company acquired all of the outstanding shares of B igBang Company by issuing its own P15 par value ordinary shares totaling 46,667 shares at m arket price of P 15.70. BTS Company had t he following expenditures incurred: Finder’s fee paid
P 50,000
Pre-acquisition audit fee/accounting due diligence, 30% was paid
40,000
General administrative costs
15,000
Legal fees for the combination paid
32,000
Audit and legal fees for SEC registration of share issue
46,000
Listing fees paid for the shares issued
10,000
Other share issuance costs paid (inclusive of any tax cost)
10,000
Other indirect costs paid
16,000
Documentary stamp tax (DST) paid on the original issuance The total amount debited to expense should be Answer: P163,000
3,500
EASY NO. 6
The following balance sheets accounts were prepared for X Company and Y Company on January 1, 2017, just before they entered into a business combination: X COMPANY Book Value Fair Value 150,000 150,000 150,000 150,000 400,000 600,000 800,000 870,000 (200,000)
Y COMPANY Book Value Fair Value 10,000 10,000 40,000 40,000 100,000 245,000 200,000 250,000 (50,000) 100,000 140,000 140,000 60,000 85,000
Cash Accounts receivable Merchandise inventory Building and equipment Accumulated depreciation Goodwill Accounts payable 100,000 100,000 Bonds payable 400,000 440,000 Common stock P10 par 300,000 Common stock P5 par 100,000 Additional paid in capital 100,000 20,000 Retained earnings 400,000 80,000 X Company acquired the net assets o f Y Company by issuing 10,000 shares of stocks. Additional cash payments made by X Company in completing the acquisition were: Broker’s fee paid to firm that located to Y Co. Cost to register and issue stocks Professional fee paid to accountants Professional fee paid to lawyers Professional fee paid to official valuers Indirect acquisition costs
10,000 40,000 20,000 20,000 20,000 15,000
Calculate the total stockholders’ equity of X Company immediately after the combination. Answer: P1,075,000
EASY NO. 7
MARU Corporation was merged into COY Company in a c ombination properly accounted for as acquisition. Their condensed balance sheets before the combination are:
Current assets Property and equipment, net Patents Total assets Liabilities Capital stock, par P100 Share premium Retained earnings Total liabilities
MARU Company P3,228,000 4,654,000 P7,942,000
COY Company P1,627,600 1,040,000 260,000 P2,927,600
P3,704,000 2,600,000 390,000 1,248,000 P7,942,000
P171,600 2,927,600 350,000 1,106,000 P2,927,600
Per appraisal’s report, COY assets have fair value of: Current assets Property plant and equipment Patents
P1,653,600 1,248,000 338,000
MARU Company purchases the net assets of COY Company for P3,168,000 cash. What is the total assets of MARU Corporation after the combination? Answer: P8,113,600
EASY NO. 8
Companies Oro and Plata are being consolidated to form Diamante Corporation. Their asset and earnings contribution are as follows:
Net tangible assets Expected annual earnings
ORO 500,000 50,000
PLATA 300,000 28,000
Companies Oro and Plata agreed to t he issuance of two classes of capital stock by Diamante Corporation, that is, 6% fully participating preferred stock (par P100) for the net tangible assets and common stock (par P50) for goodwill. Goodwill shall be equal to earnings c apitalized at 8% minus net tangible assets. Calculate the number of preferred and common shares to be issued, respectively, to the combining companies. (Two answers are required. Mark a slash sign betw een them.) Answer: 8,000 preferred; 3,000 common stock
EASY NO. 9
Chu Company acquired a 40% interest in Wawa Company for P1,700,000 on January 1, 2017. The shareholers’ equity of Wawa Company on January 1 and December 31, 2017 is presented below:
Share capital Revaluation surplus Retained earnings
January 1 3,000,000 1,000,000
December 31 3,000,000 1,300,000 1,500,000
On January 1, 2017, all the identifiable assets and liabilities of Wawa Company were recorded at fair value. Wawa Company reported profit of P650,000, after income tax expense of P350,000 ad paid dividends of P150,000 to shareholders during the current year. The revaluation surplus is the result of the re valuation of land by Wawa Company on December 31, 2017. Additionally, depreciation is provided by Wawa Company on the diminishing balance method whereas Chu Company uses the straight line. Had Wawa used the straight line, the acc umulated depreciation would be increased by P200,000. The tax rate is 35% Cu Company should report its investment in associate on December 31, 2017 at Answer: P2,420,00 EASY NO. 10
On January 1, 2016, Jonah Company acquired 30% of the voting share capital of another entity for P2,000,000 which was equal to the carrying amount of interest acquired. The investee re ported net income of P800,000 for 2014 and paid dividend of P500,000 on December 31, 2016. The investee reported net income of P1,000,000 for the six months ended June 30, 2017 and P2,500,000 for the year ended December 31, 2017 but paid no dividend during 2015. On July 1, 2017, the investor sold half of the investment for P1,500,000. The fair value of the retained investment was P1,600,000 on July 1, 2015 and P1,900,000 on December 31, 2017. The retained investment is to be held as nontrading measured at FVTOCI. What total amount should be reported in the company’s profit or l oss related to the investment? Answer: P710,000 EASY NO. 11
On January 1, 2017, HHH, I II, and JJJ (all are corporations) establish a joint undertaking to manufacture a product they agree to share equally. Each will contribute P200,000 into the operation; HHH and III are to contribute cash while JJJ is to contr ibute equipment with a carrying value of 215,000 and fair value of P200,000. At what amount will each of the operators show the equipment in JO in its (1) January 1, 2017 ad in its (2) December 31, 2017 balance sheets? (2) P60,000
EASY NO. 12
On January 1, 2017, ABC Company signed a joint venture agreement with another venture for the production of CDs. DEF Corp. is established to carry o n the businesss venture, with each venture contributing P1,000,000 for equal shares in the company’s 160,000 P12.50 par value shares. They will share profits equally. On December 31, 2017 , the financials of DEF Corp. follow: COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS Revenue
P
Expenses Net income
400,000 308,000
P
92,000
Retained earnings, January 1, 2017
0
Retained earnings, December 31, 2017 P
92,000 BALANCE SHEET December 31, 2017
Cash Accounts receivable Inventory Plant, Property, Equipment Accumulated depreciation Total
P72,000 320,000 500,000 1,880,000 (100,000) P2,672,000
Liabilities Share Capital Retained earnings
P580,000 2,000,000 92,000
P2,672,000
The financial statements of ABC Company for the same period, before the adjustment for its share of DEF’s net income, follows:
Revenues Expenses Profit Share capital Retained earnings Liabilities Totals
P8,640,000 7,424,000 1,216,000 2,400,000 736,000 672,000 P5,024,000
Cash Accounts receivable Inventory Plant, Property and Equipment Accumulated Depreciation Investment in Joint Venture Total
P408,000 384,000 672,000 3,120,000 (560,000) 1,000,000 P5,024,000
Determine the amount of retained earnings to be reported by ABS in its balance sheet at December 31, 2017.
Answer: P1,998,000 EASY NO. 13
A, B, and C are joint operators of JOINT OPERATION D (each having an equal share in interest). On January 1, 2016, A sells equipment having a book value of P51,200 to the OPERATION for P128,000. The equipment had an estimated useful economic life of 5 years at that date. At what amount will A show this equipment at its balance sheet at December 31, 2016? Answer: P13,653 EASY NO. 14
In December 2017, Papa and Lorenzo contribute P5,000 each to buy and sell apples during the Christmas season and divide profits in the ratio of 4:6, respectively. Cash purchases amount to P7,000, expenses are P1,900 and cash sales are P11,000. The unsold fruits are taken by Papa and are charged to him for P560 or 70% of cost. How much is the net income of the joint venture? Answer: P2,660: B, C, and D only AVERAGE NO. 7
On January 2, 2016, Parker Company, a medium-sized entity acquired 25% of t he equity of each of entities, A, B and C for P100,000, P150,000 and P280,000. Parker Company has significant influence over entities A, B and C. Transaction costs of 1% of the purchase price of the shares were incurred by Parker Company. On December 31, 2016, A company declared and paid dividends of P10,000. On December 31, 2016, B Company declared a dividend of P80,000 for the year ended 2016 which will be paid in 201 7. For the year ended December 31, 2016, A Company and B Company recognized profits of P50,000 and P180,000 respectively. However, C Company recognized a loss of P200,000 for the year 2016. Published price quotations do not exist for the shares of entities A, B and C. Using appropriate valuation techniques, Parker Company determined the fair value of its investments in entities A, B a nd C at December 31, 2016 as P130,000, P290,000 and P150,000, respectively. Costs to sell are estimated at 5% of the fair value of the investments. Parker Company has no subsidiaries and therefore does not produce consolidated financial statements. If Parker Company uses the cost model in measuring its investment in associates, at what amount should the investment in A, B and C, respectively, be reported in its December 31, 2016 statement of financial position? Answer: P101,000, P151,500, P142,500
AVERAGE NO. 8
Colorado has a 10% holding in Darweesh Establishment. Each of the seven o ther investors in Darweesh holds between 10% and 20% o f its equity. The Darweesh Establishment owns a fleet of ships that is used by all investors to transport their own products around the world. The operation of Darweesh and of its fleet is the subject of a detailed agreement among all the investors. Colorado has a director on the board of Darweesh but, in accordance with the agreement, the entity is directed by one of the other investors. How should this investment be classified? a.
A subsidiary
b. An associate c.
Probably a joint operation
d. Probably a joint venture Answer: C AVERAGE NO. 9
HFR Ltd. Has a 12% holding in t he shares of ABC Ltd. In addition, HFR has, through one of its subsidiaries, an option to buy 13% more shares in ABC. Although the exercise price is in the money, HFR does not have the intention and the financial ability to exercise this option. How should this investment be classified? a.
A subsidiary
b. An Associate c.
A joint arrangement
d. None of these categories Answer: B AVERAGE NO. 10
On January 2, 2016, A Company acquired a 30% interest in B Company at a cost of P2,000,000. Investor A Company has significant influence over B Company/ During the year ended December 31, 2016, B Company reported a post-tax profit of P800,000 and paid dividend of P72,000. B Company also recognized foreign exchange losses of P160,000 and unrealized gain on equity investment of P200,000 in other comprehensive income. On January 2, 2017, B Company has rights issue that investor A Company does not participate in. The rights issue brings in an additional P700,000 in cash and dilutes investor A Company’s interest in B Company to 25%. What amount of dilution gain or loss should A Company
recognize in January 2, 2017? Answer: P194,733
AVERAGE NO. 11
TERESA and BEATRIZ in a joint venture, contributed P30,000 each in order to purchase merchandise which were sold in lots at a closing-out sale. They agree to divide their profits equally and each shall record her purchases, sales and ex penses in her own books. After almost all merchandise had been sold, they wind up their venture The following are the venture tr ansactions:
Purchases of merchandise Expenses paid from JT Venture Cash JT Venture credit balances Undisposed merchandise upon termination of JV
TERESA P30,000 3,000 (24,000) 900
BEATRIZ P30,000 3,900 (21,000) 1,400
All transactions for the joint venture are in cash. The venturers are to take over the unsold merchandise at cost. Calculate the net profit of the joint venture undertaking. Answer: P47,300 AVERAGE NO. 12
MENCHU and OSANG in a joint venture, contributed P24,000 each in order to purchase canned goods which were sold by lots at a closing-out sale. They agreed to divide their profits equally and e ach shall record his purchases, sales and expenses in his own books. After selling almost all the canned goods, they wind up their venture. The following are t he venture transactions: Joint Venture credit balances were OSANG (P19,200) and MENCHU (P16,800). Expenses paid from Joint Venture cash were P2,400 by OSANG and P3,120 by MENCHU. Cost of unsold canned goods which OSANG and MENCHU agreed to assume were P720 and P1,120 respectively. In the final settlement, the amount due to OSANG including her investment was: Answer: P42,200
AVERAGE NO. 13
An investor has the following accounts with an associate: Investment in ordinary shares Investment in preference shares Account receivable Loans receivable – unsecured Loans receivable – secured
P5,000,000 2,000,000 200,000 1,000,000 500,000
The investor’s interest in an associate for purposes of recognizing its share of losses of an associate is
the carrying amount of the investment in the associate determined using the equity method a nd any long-term interests that, in substance, form part of the entity’s net investment in the associate. The investor’s ‘interest in associate’ is Answer: P8,000,000 AVERAGE NO. 14
D, E and F formed a joint venture. D is to act as manager and is designated t record the joint venture transactions in his books. As manager, D is allowed a m anagement fee of P12,000. Profts and losses are to be divided equally. The following balances appear at the end o f 2017 before adjustments for venture inventory and distribution of profits and losses:
Joint venture cash E, capital F, capital
Debit P48,000 3,000
Credit
P27,000
The venture is terminated on Decem ber 31, 2017 with unsold merchandise. Assuming that the joint venture profit is P5 ,000, what is the unadjusted balance of the joint venture account before the distribution of profit? (Indicate debit or c redit) Answer: P5,400
AVERAGE NO. 15
A, B, and C formed a joint venture to sell fruits during the Christmas season. The following joint venture account reflects the transactions of the venture in the books of manager A. Joint Venture 2017 Nov. 5 Merchandise – C 17 Merchandise – B 22 Freight in -- A Dec. 3 Purchases – A 13 Expenses -- A
P12,750 10,500 525 5,250 600
Nov. 18 Cash sales – A Dec. 12 Cash sales – A 28 Merchandise -- B
P30,600 6,300 1,815
The contractual arrangements include distribution of gains and losses as follows: A, 50%; B, 30%; and C, 20%. The venture is completed and terminated on December 31, 2017. How much should B receive in the final settlement? Answer: 4,545
