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Chapter 3 - Illustrations

Perfect Company acquired Son Company on January 1, 2014 for $387,500. The fair value of Son's identifiable net assets was $375,000, resulting in $12,500 of goodwill. In 2014, Perfect and Son reported consolidated net income of $36,000. The consolidated balance sheet showed total assets of $xxx and retained earnings of $xxx. In 2015, the companies again reported income and their balance sheet reflected changes from the prior year.

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0% found this document useful (1 vote)

114 views97 pages

Chapter 3 - Illustrations

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ILLUSTRATION 3-1: 100% - OWNED SUBSIDIARY: COST MODEL

Assume that Perfect Company acquires all of Son Company's common stock on January 1, 2014 for P387,50
P300,000 and a 30-day note for P87,500 (paid at maturity during 2014).

At the end of 2014, Perfect's management determines that the goodwill acquired in the acquisition with So
loss should be recognized in the consolidated income statement.

The following assets and liabilities of Son Company had book values that were different from their respectiv

Inventory……………………………………………………………………
Land…………………………………………………………………………
Equipment…………………………………………………………………
Accumulated Depreciation - Equipment…………
Building………………………………………………………………………
Accumulated Depreciation - Building……………
Bonds Payable (4 years)……………………………………………

All other assets and liabilities had book values approximately equal to their respective fair values. On Janua
Inventory is sold in 2014 and FIFO inventory costing is used.

Trial balances for the companies for the year ended December 31, 2014 are as follows:

Debits
Cash…………………………………………………………………………
Accounts Receivable……………………………………………
Inventory…………………………………………………………………
Land…………………………………………………………………………
Equipment…………………………………………………………………
Buildings……………………………………………………………………
Investment in Son Company……………………………
Cost of Goods Sold………………………………………………
Discount on Bonds Payable………………………………
Depreciation Expense…………………………………………
Goodwill Impairment loss…………………………………
Interest Expense……………………………………………………
Other expense…………………………………………………………
Dividends paid………………………………………………………
Totals……………………………………………
Credits
Accumulated Depreciation - equipment……
Accumulated Depreciation - Buildings……
Accounts Payable…………………………………………………
Bonds Payable…………………………………………………………
Common Stock, P10 par………………………………………
Retained Earnings…………………………………………………
Sales…………………………………………………………………………
Dividend Income……………………………………………………
Totals……………………………………………

In addition, the following information was available for Perfect and Son Company for the year 2015:

REQUIRED:
1. Compute the Goodwill/Bargain Purchase Gain.
2. Prepare the consolidated financial statements for the year 2014 and 2015 using the Cos
a. Consolidated Financial Performance / Income Statement
b. Consolidated Financial Position / Balance Sheet

SOLUTION:

SUMMARY 100% 0%
DATE OF ACQUISITION - As of January 1, 2014 Parent NCI
Aggregate Amount 387,500.00 -
FVINA 375,000.00 -
Goodwill/Bargain Purchase Gain 12,500.00 -

Fair Value of the Identifiable Net Assets - SUBSIDIARY

January 1, 2014 Book Value Adjustments Fair Value
Cash ? - ?
AR ? - ?
Inventory 20,000.00 5,000.00 25,000.00
Land 40,000.00 6,000.00 46,000.00
Equipment, net 70,000.00 80,000.00 150,000.00
Building, net 140,000.00 (20,000.00) 120,000.00
Accounts Payable ? - ?
Bonds Payable (100,000.00) 4,000.00 (96,000.00)
Net Assets 300,000.00 75,000.00 375,000.00

Common Stock 200,000.00

Retained Earnings 100,000.00

SUBSEQUENT DATE OF ACQUISITION

WORKING PAPER - 2014
Income Statement 100% 0% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 200,000.00 - 200,000.00
Dividend Income* - - -
Cost of Goods Sold (115,000.00) - (115,000.00)
Depreciation Expense (20,000.00) - (20,000.00)
Other Expense (15,000.00) - (15,000.00)
Separate Net Income 50,000.00 - 50,000.00
Allocated Excess
COGS (5,000.00) - (5,000.00)
Depreciation Expense (5,000.00) - (5,000.00)
Interest Expense (1,000.00) - (1,000.00)
Goodwill Impairment Loss (3,000.00) - (3,000.00)
Dividend Income* - - -
(14,000.00) - (14,000.00)
Consolidated Net Income 36,000.00 - 36,000.00

CRE NCI

Statement of Retained Earnings and NCI

NCI, 2014
Beg. Balance -
Share in the SNI -
Dividends -
Ending Balance -

Balance Sheet
Separate Separate
Parent's Balance Subsidiary's
Sheet Balance Sheet Eliminating Entries
Separate Separate
Parent's Balance Subsidiary's
Sheet Balance Sheet Eliminating Entries
Cash 122,500.00 75,000.00 -
AR 75,000.00 50,000.00 -
Inventory 100,000.00 75,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 87,500.00 70,000.00 70,000.00
Building, net 262,500.00 210,000.00 (15,000.00)
Investment in Company 387,500.00 - (387,500.00)
Goodwill - - 9,500.00
1,210,000.00 520,000.00 (317,000.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (3,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 410,000.00 120,000.00 (114,000.00)
NCI - - -
1,210,000.00 520,000.00 (317,000.00)

WORKING PAPER - 2015

Income Statement 100% 0% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 300,000.00 - 300,000.00
Dividend Income* - - -
Cost of Goods Sold (160,000.00) - (160,000.00)
Depreciation Expense (20,000.00) - (20,000.00)
Other Expense (45,000.00) - (45,000.00)
Separate Net Income 75,000.00 - 75,000.00
Allocated Excess
COGS - - -
Depreciation Expense (5,000.00) - (5,000.00)
Interest Expense (1,000.00) - (1,000.00)
Goodwill Impairment Loss - - -
Dividend Income* - - -
(6,000.00) - (6,000.00)
Consolidated Net Income 69,000.00 - 69,000.00

CRE NCI

Statement of Retained Earnings and NCI

NCI, 2015
Beg. Balance -
Share in the SNI -
Dividends -
Ending Balance -

Balance Sheet
Separate Separate
Parent's Balance Subsidiary's
Sheet Balance Sheet Eliminating Entries
Cash 157,500.00 85,000.00 -
AR 150,000.00 80,000.00 -
Inventory 180,000.00 90,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 75,000.00 65,000.00 60,000.00
Building, net 225,000.00 195,000.00 (10,000.00)
Investment in Company 387,500.00 - (387,500.00)
Goodwill - - 9,500.00
1,350,000.00 555,000.00 (322,000.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (2,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 550,000.00 155,000.00 (120,000.00)
NCI - - -
1,350,000.00 555,000.00 (322,000.00)
January 1, 2014 for P387,500, an amount P87,500 in excess of the book value. The acquisition price includes cash of

ed in the acquisition with Son Company has been impaired. Management determines that a P3,000 goodwill impairment

ifferent from their respective market values:

Son Co. Son Co.
Book Value Fair Value
…………………………………………… P 20,000 P 25,000
……………………………………………… 40,000 46,000
……………………………………………… 150,000 150,000
n - Equipment………… (80,000)
…………………………………………… 300,000 120,000
n - Building…………… (160,000)
…………………………………………… 100,000 96,000

pective fair values. On January 1, 2014, the equipment and buildings had a remaining life of 8 and 4 years, respectively.

ebits Perfect Co. Son Co.

…………………………………………… 122,500 75,000
……………………………………… 75,000 50,000
………………………………………… 100,000 75,000
…………………………………………… 175,000 40,000
…………………………………………… 200,000 150,000
…………………………………………… 600,000 450,000
any…………………………… 387,500 -
……………………………………… 170,000 115,000
le……………………………… - -
…………………………………… 50,000 20,000
………………………………… - -
……………………………………… - -
………………………………………… 40,000 15,000
……………………………………… 60,000 30,000
………………………………………… 1,980,000 1,020,000
redits
n - equipment…… 112,500 80,000
n - Buildings…… 337,500 240,000
……………………………………… 100,000 100,000
………………………………………… 200,000 100,000
……………………………………… 500,000 200,000
……………………………………… 300,000 100,000
…………………………………………… 400,000 200,000
……………………………………… 30,000 -
………………………………………… 1,980,000 1,020,000

ny for the year 2015:

ebits Perfect Co. Son Co.

…………………………………………… 157,500 85,000
……………………………………… 150,000 80,000
………………………………………… 180,000 90,000
…………………………………………… 175,000 40,000
…………………………………………… 200,000 150,000
…………………………………………… 600,000 450,000
any…………………………… 387,500 -
……………………………………… 180,000 160,000
le……………………………… - -
…………………………………… 50,000 20,000
………………………………… - -
……………………………………… - -
………………………………………… 60,000 45,000
……………………………………… 60,000 40,000
………………………………………… 2,200,000 1,160,000
redits
n - equipment…… 125,000 85,000
n - Buildings…… 375,000 255,000
……………………………………… 100,000 100,000
………………………………………… 200,000 100,000
……………………………………… 500,000 200,000
……………………………………… 410,000 120,000
…………………………………………… 450,000 300,000
……………………………………… 40,000 -
………………………………………… 2,200,000 1,160,000

2014 and 2015 using the Cost model.

me Statement

100% SUPPORTING COMPUTATION

Total Aggegrate Amount
387,500.00 Consideration Transferred
375,000.00 Cash 300,000.00
12,500.00 Notes Payable 87,500.00
387,500.00

Amortization of Allocated Excess

Excess Useful life 2014 Amortization 2015 Amortization Remarks
Inventory 5,000.00 1.00 5,000.00 - COGS
Land 6,000.00 Indefinite - - Gain / Loss
Equipment, net 80,000.00 8.00 10,000.00 10,000.00 Depreciation Exp
Building, net (20,000.00) 4.00 (5,000.00) (5,000.00) Depreciation Exp

Bonds Payable 4,000.00 4.00 1,000.00 1,000.00 Interest Exp

75,000.00 11,000.00 6,000.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2014
400,000.00 600,000.00 Sales 600,000.00
30,000.00 30,000.00 Dividend Income -
(170,000.00) (285,000.00) Total revenue 600,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (290,000.00)
(40,000.00) (55,000.00) Gross Profit 310,000.00
170,000.00 220,000.00 Operating Expense
Depreciation Exp (75,000.00)
- (5,000.00) Interest Exp (1,000.00)
- (5,000.00) Other Exp (55,000.00) (131,000.00)
- (1,000.00) Net Income before Impairment 179,000.00
- (3,000.00) Goodwill Impairment Loss (3,000.00)
(30,000.00) (30,000.00) Consolidated Net Income 176,000.00
(30,000.00) (44,000.00)
140,000.00 176,000.00 NCI share in the SNI -
Parent's share in the CNI 176,000.00
CRE Consolidated Net Income 176,000.00

Consolidated Retained Earnings, 2014

Beg. Balance 300,000.00
Parent's share in the CNI 176,000.00
Dividends (60,000.00)
Ending Balance 416,000.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet
Consolidated
Balance Sheet As of December 31, 2014
197,500.00 ASSETS
125,000.00 Cash 197,500.00
175,000.00 Accounts Receivable 125,000.00
221,000.00 Inventory 175,000.00 497,500.00
227,500.00 Land 221,000.00
457,500.00 Equipment, net 227,500.00
- Building, net 457,500.00
9,500.00 Goodwill 9,500.00 915,500.00
1,413,000.00 Total Assets 1,413,000.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
297,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 297,000.00 497,000.00
416,000.00 Common Stock 500,000.00
- Retained Earnings 416,000.00 916,000.00
1,413,000.00 Total Liabilities and SHE 1,413,000.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2015
450,000.00 750,000.00 Sales 750,000.00
40,000.00 40,000.00 Dividend Income -
(180,000.00) (340,000.00) Total revenue 750,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (340,000.00)
(60,000.00) (105,000.00) Gross Profit 410,000.00
200,000.00 275,000.00 Operating Expense
Depreciation Exp (75,000.00)
- - Interest Exp (1,000.00)
- (5,000.00) Other Exp (105,000.00) (181,000.00)
- (1,000.00) Net Income before Impairment 229,000.00
- - Goodwill Impairment Loss -
(40,000.00) (40,000.00) Consolidated Net Income 229,000.00
(40,000.00) (46,000.00)
160,000.00 229,000.00 NCI share in the SNI -
Parent's share in the CNI 229,000.00
CRE Consolidated Net Income 229,000.00

Consolidated Retained Earnings, 2015

Beg. Balance 416,000.00
Parent's share in the CNI 229,000.00
Dividends (60,000.00)
Ending Balance 585,000.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet As of December 31, 2015
242,500.00 ASSETS
230,000.00 Cash 242,500.00
270,000.00 Accounts Receivable 230,000.00
221,000.00 Inventory 270,000.00 742,500.00
200,000.00 Land 221,000.00
410,000.00 Equipment, net 200,000.00
- Building, net 410,000.00
9,500.00 Goodwill 9,500.00 840,500.00
1,583,000.00 Total Assets 1,583,000.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
298,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 298,000.00 498,000.00
585,000.00 Common Stock 500,000.00
- Retained Earnings 585,000.00 1,085,000.00
1,583,000.00 Total Liabilities and SHE 1,583,000.00
ILLUSTRATION 3-2: 100% - OWNED SUBSIDIARY: EQUITY METHOD, WITH GOODWILL IMPAIRMENT LOSS R

Assume that Perfect Company acquires all of Son Company's common stock on January 1, 2014 for P387,50
of P300,000 and a 30-day note for P87,500 (paid at maturity during 2014). At the end of 2014, Perfect's ma
has been impaired. Management determines that a P3,000 goodwill impairment loss should be recognized
Company had book values that were different from their respective market values:

Inventory…………………………………………………………………
Land……………………………………………………………………………
Equipment…………………………………………………………………
Accumulated Depreciation - Equipment……
Building……………………………………………………………………
Accumulated Depreciation - Building…………
Bonds Payable (4 years)……………………………………………

Trial balances for the companies for the year ended December 31, 2014 are as follows:

Debits
Cash…………………………………………………………………………
Accounts Receivable…………………………………………
Inventory………………………………………………………………
Land…………………………………………………………………………
Equipment………………………………………………………………
Buildings………………………………………………………………
Investment in Son Company…………………………
Cost of Goods Sold……………………………………………
Discount on Bonds Payable…………………………
Depreciation Expense………………………………………
Goodwill Impairment loss……………………………
Interest Expense………………………………………………
Other expense………………………………………………………
Dividends paid……………………………………………………
Totals…………………………………………
Credits
Accumulated Depreciation - equipment…
Accumulated Depreciation - Buildings…
Accounts Payable………………………………………………
Bonds Payable………………………………………………………
Common Stock, P10 par……………………………………
Retained Earnings………………………………………………
Sales…………………………………………………………………………
Investment Income/Equity in Subsidiary Income…
Totals…………………………………………
In addition, the following information was available for Perfect and Son Company for the year 2015:

REQUIRED:
1. Compute the Goodwill/Bargain Purchase Gain.
2. Prepare the consolidated financial statements for the year 2014 and 2015 using the equity
a. Consolidated Financial Performance / Income Statement
b. Consolidated Financial Position / Balance Sheet

SOLUTION:

SUMMARY 100% 0%
Parent NCI
Aggregate Amount 387,500.00 -
FVINA 375,000.00 -
Goodwill/Bargain Purchase Gain 12,500.00 -
Fair Value of the Identifiable Net Assets - SUBSIDIARY
January 1, 2014 Book Value Adjustments Fair Value
Cash ? - ?
AR ? - ?
Inventory 20,000.00 5,000.00 25,000.00
Land 40,000.00 6,000.00 46,000.00
Equipment, net 70,000.00 80,000.00 150,000.00
Building, net 140,000.00 (20,000.00) 120,000.00
Accounts Payable ? - ?
Bonds Payable (100,000.00) 4,000.00 (96,000.00)
Net Assets 300,000.00 75,000.00 375,000.00

Common Stock 200,000.00

Retained Earning 100,000.00

WORKING PAPER - 2014

Income Statement 100% 0% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 200,000.00 - 200,000.00
Investment Income* - - -
Cost of Goods Sold (115,000.00) - (115,000.00)
Depreciation Expense (20,000.00) - (20,000.00)
Other Expense (15,000.00) - (15,000.00)
Separate Net Income 50,000.00 - 50,000.00
Allocated Excess
COGS (5,000.00) - (5,000.00)
Depreciation Expense (5,000.00) - (5,000.00)
Interest Expense (1,000.00) - (1,000.00)
Goodwill Impairment Loss (3,000.00) - (3,000.00)
Investment Income* - - -
(14,000.00) - (14,000.00)
Consolidated Net Income 36,000.00 - 36,000.00

CRE NCI

Statement of Retained Earnings and NCI

NCI, 2014
Beg. Balance -
Share in the SNI -
Dividends -
Ending Balance -

Balance Sheet
Separate Separate
Parent's Balance Subsidiary's Eliminating
Sheet Balance Sheet Entries
Cash 122,500.00 75,000.00 -
AR 75,000.00 50,000.00 -
Inventory 100,000.00 75,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 87,500.00 70,000.00 70,000.00
Building, net 262,500.00 210,000.00 (15,000.00)
Investment in Company 393,500.00 - (393,500.00)
Goodwill - - 9,500.00
1,216,000.00 520,000.00 (323,000.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (3,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 416,000.00 120,000.00 (120,000.00)
NCI - -
1,216,000.00 520,000.00 (323,000.00)

WORKING PAPER - 2015

Income Statement 100% 0% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 300,000.00 - 300,000.00
Investment Income* - - -
Cost of Goods Sold (160,000.00) - (160,000.00)
Depreciation Expense (20,000.00) - (20,000.00)
Other Expense (45,000.00) - (45,000.00)
Separate Net Income 75,000.00 - 75,000.00
Allocated Excess
COGS - - -
Depreciation Expense (5,000.00) - (5,000.00)
Interest Expense (1,000.00) - (1,000.00)
Goodwill Impairment Loss - - -
Dividend Income* - - -
(6,000.00) - (6,000.00)
Consolidated Net Income 69,000.00 - 69,000.00

CRE NCI

Statement of Retained Earnings and NCI

NCI, 2015
Beg. Balance -
Share in the SNI -
Dividends -
Ending Balance -

Balance Sheet
Separate Separate
Parent's Balance Subsidiary's Eliminating
Sheet Balance Sheet Entries
Cash 157,500.00 85,000.00 -
AR 150,000.00 80,000.00 -
Inventory 180,000.00 90,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 75,000.00 65,000.00 60,000.00
Building, net 225,000.00 195,000.00 (10,000.00)
Investment in Company 422,500.00 - (422,500.00)
Goodwill - - 9,500.00
1,385,000.00 555,000.00 (357,000.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (2,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 585,000.00 155,000.00 (155,000.00)
NCI - -
1,385,000.00 555,000.00 (357,000.00)
GOODWILL IMPAIRMENT LOSS RECOGNIZED IN THE BOOKS OF SUBSIDIARY

k on January 1, 2014 for P387,500, an amount P87,500 in excess of the book value. The acquisition price includes cash
At the end of 2014, Perfect's management determines that the goodwill acquired in the acquisition with Son Company
ment loss should be recognized in the consolidated income statement. The following assets and liabilities of Son
t values:
Son Co. Son Co.
Book Value Fair Value
…………………………………………… P 20,000 P 25,000
……………………………………………… 40,000 46,000
……………………………………………… 150,000 150,000
tion - Equipment…… (80,000)
…………………………………………… 300,000 120,000
tion - Building………… (160,000)
)…………………………………………… 100,000 96,000

r respective fair values. On January 1, 2014, the equipment and buildings had a remaining life of 8 and 4 years,
ny goodwill has noot been impaired.

e as follows:

Debits Perfect Co. Son Co.

…………………………………………… P 122,500 P 75,000
……………………………………… 75,000 50,000
………………………………………… 100,000 75,000
…………………………………………… 175,000 40,000
…………………………………………… 200,000 150,000
………………………………………… 600,000 450,000
pany………………………… 393,500 -
……………………………………… 170,000 115,000
able………………………… - -
…………………………………… 50,000 20,000
ss…………………………… - -
…………………………………… - -
………………………………………… 40,000 15,000
……………………………………… 60,000 30,000
s………………………………………… P 1,986,000 P 1,020,000
Credits
tion - equipment… P 112,500 P 80,000
tion - Buildings… 337,500 240,000
……………………………………… 100,000 100,000
………………………………………… 200,000 100,000
r…………………………………… 500,000 200,000
……………………………………… 300,000 100,000
……………………………………………… 400,000 200,000
uity in Subsidiary Income… 36,000 -
s………………………………………… P 1,986,000 P 1,020,000
mpany for the year 2015:

Debits Perfect Co. Son Co.

…………………………………………… 157,500 85,000
……………………………………… 150,000 80,000
………………………………………… 180,000 90,000
…………………………………………… 175,000 40,000
…………………………………………… 200,000 150,000
………………………………………… 600,000 450,000
pany………………………… 422,500 -
……………………………………… 180,000 160,000
able………………………… - -
…………………………………… 50,000 20,000
ss…………………………… - -
…………………………………… - -
………………………………………… 60,000 45,000
……………………………………… 60,000 40,000
s………………………………………… 2,235,000 1,160,000
Credits
tion - equipment… 125,000 85,000
tion - Buildings… 375,000 255,000
……………………………………… 100,000 100,000
………………………………………… 200,000 100,000
r…………………………………… 500,000 200,000
……………………………………… 416,000 120,000
……………………………………………… 450,000 300,000
uity in Subsidiary Income… 69,000 -
s………………………………………… 2,235,000 1,160,000

r 2014 and 2015 using the equity method.

ome Statement

100% SUPPORTING COMPUTATION

Total Aggegrate Amount
387,500.00 Consideration Transferred
375,000.00 Cash 300,000.00
12,500.00 Notes Payable 87,500.00
387,500.00
Allocated Expenses
Excess Useful life 2014 Amortization 2015 Amortization Remarks
Inventory 5,000.00 1.00 5,000.00 - COGS
Land 6,000.00 Indefinite - - Gain / Loss
Equipment, net 80,000.00 8.00 10,000.00 10,000.00 Depreciation Exp
Building, net (20,000.00) 4.00 (5,000.00) (5,000.00) Depreciation Exp

Bonds Payable 4,000.00 4.00 1,000.00 1,000.00 Interest Exp

75,000.00 11,000.00 6,000.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2014
400,000.00 600,000.00 Sales 600,000.00
36,000.00 36,000.00 Dividend Income -
(170,000.00) (285,000.00) Total revenue 600,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (290,000.00)
(40,000.00) (55,000.00) Gross Profit 310,000.00
176,000.00 226,000.00 Operating Expense
Depreciation Exp (75,000.00)
- (5,000.00) Interest Exp (1,000.00)
- (5,000.00) Other Exp (55,000.00) (131,000.00)
- (1,000.00) Net Income before Impairment 179,000.00
- (3,000.00) Goodwill Impairment Loss (3,000.00)
(36,000.00) (36,000.00) Consolidated Net Income 176,000.00
(36,000.00) (50,000.00)
140,000.00 176,000.00 NCI share in the SNI -
Parent's share in the CNI 176,000.00
CRE Consolidated Net Income 176,000.00

Consolidated Retained Earnings

Beg. Balance 300,000.00
Parent's share in the CNI 176,000.00
Dividends (60,000.00)
Ending Balance 416,000.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet As of December 31, 2014
197,500.00 ASSETS
125,000.00 Cash 197,500.00
175,000.00 Accounts Receivable 125,000.00
221,000.00 Inventory 175,000.00 497,500.00
227,500.00 Land 221,000.00
457,500.00 Equipment, net 227,500.00
- Building, net 457,500.00
9,500.00 Goodwill 9,500.00 915,500.00
1,413,000.00 Total Assets 1,413,000.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
297,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 297,000.00 497,000.00
416,000.00 Common Stock 500,000.00
- Retained Earnings 416,000.00 916,000.00
1,413,000.00 Total Liabilities and SHE 1,413,000.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2014
450,000.00 750,000.00 Sales 750,000.00
69,000.00 69,000.00 Dividend Income -
(180,000.00) (340,000.00) Total revenue 750,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (340,000.00)
(60,000.00) (105,000.00) Gross Profit 410,000.00
229,000.00 304,000.00 Operating Expense
Depreciation Exp (75,000.00)
- - Interest Exp (1,000.00)
- (5,000.00) Other Exp (105,000.00) (181,000.00)
- (1,000.00) Net Income before Impairment 229,000.00
- - Goodwill Impairment Loss -
(69,000.00) (69,000.00) Consolidated Net Income 229,000.00
(69,000.00) (75,000.00)
160,000.00 229,000.00 NCI share in the SNI -
Parent's share in the CNI 229,000.00
CRE Consolidated Net Income 229,000.00

Consolidated Retained Earnings, 2015

Beg. Balance 416,000.00
Parent's share in the CNI 229,000.00
Dividends (60,000.00)
Ending Balance 585,000.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet As of December 31, 2014
242,500.00 ASSETS
230,000.00 Cash 242,500.00
270,000.00 Accounts Receivable 230,000.00
221,000.00 Inventory 270,000.00 742,500.00
200,000.00 Land 221,000.00
410,000.00 Equipment, net 200,000.00
- Building, net 410,000.00
9,500.00 Goodwill 9,500.00 840,500.00
1,583,000.00 Total Assets 1,583,000.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
298,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 298,000.00 498,000.00
585,000.00 Common Stock 500,000.00
- Retained Earnings 585,000.00 1,085,000.00
1,583,000.00 Total Liabilities and SHE 1,583,000.00
ILLUSTRATION 3-3: 80% - OWNED SUBSIDIARY: COST MODEL - PARTIAL GOODWILL APPROACH
Assume that on January 1, 2014, Perfect Company acquires 80% of the common stock of Son Company for
be P77,500. On that the following assets and liabilities of Son Company had book values that were different

All other assets and liabilities had book values approximately equal to their respective fair values. On Janua
respectively. Inventory is sold in 2014 and FIFO inventory costing is used. Goodwill, if any, is reduced by a P
meaning the management has determined that the goodwill arising in the acquisition of Son Company relat
impairment. Trial balances for the companies for the year ended December 31, 2014 are as follows:

Debits
Cash…………………………………………………………………………
Accounts Receivable…………………………………………
Inventory………………………………………………………………
Land…………………………………………………………………………
Equipment………………………………………………………………
Buildings………………………………………………………………
Investment in Son Company…………………………
Cost of Goods Sold……………………………………………
Discount on Bonds Payable…………………………
Depreciation Expense………………………………………
Goodwill Impairment loss……………………………
Interest Expense………………………………………………
Other expense………………………………………………………
Dividends paid……………………………………………………
Totals…………………………………………
Credits
Accumulated Depreciation - equipment…
Accumulated Depreciation - Buildings…
Accounts Payable………………………………………………
Bonds Payable………………………………………………………
Common Stock, P10 par……………………………………
Retained Earnings………………………………………………
Sales…………………………………………………………………………
Dividend Income…………………………………………………
Totals…………………………………………
In addition, the following information was available for Perfect and Son Company for the year 2015:

Debits
Cash…………………………………………………………………………
Accounts Receivable…………………………………………
Inventory………………………………………………………………
Land…………………………………………………………………………
Equipment………………………………………………………………
Buildings………………………………………………………………
Investment in Son Company…………………………
Cost of Goods Sold……………………………………………
Discount on Bonds Payable…………………………
Depreciation Expense………………………………………
Goodwill Impairment loss……………………………
Interest Expense………………………………………………
Other expense………………………………………………………
Dividends paid……………………………………………………
Totals…………………………………………
Credits
Accumulated Depreciation - equipment…
Accumulated Depreciation - Buildings…
Accounts Payable………………………………………………
Bonds Payable………………………………………………………
Common Stock, P10 par……………………………………
Retained Earnings………………………………………………
Sales…………………………………………………………………………
Dividend Income…………………………………………………
Totals…………………………………………

REQUIRED:
1. Compute the Goodwill/Bargain Purchase Gain.
2. Prepare the consolidated financial statements for the year 2014 and 2015 using the Cost m
a. Consolidated Financial Performance / Income Statement
b. Consolidated Financial Position / Balance Sheet

SOLUTION:

SUMMARY 80% 20%

Parent NCI
Aggregate Amount 310,000.00 77,500.00
FVINA 300,000.00 75,000.00
Goodwill/Bargain Purchase Gain 10,000.00 2,500.00

Fair Value of the Identifiable Net Assets - SUBSIDIARY

Common Stock 200,000.00

Retained Earning 100,000.00

WORKING PAPER - 2014

Income Statement 80% 20% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 160,000.00 40,000.00 200,000.00
Dividend Income* - - -
Cost of Goods Sold (92,000.00) (23,000.00) (115,000.00)
Depreciation Expense (16,000.00) (4,000.00) (20,000.00)
Other Expense (12,000.00) (3,000.00) (15,000.00)
Separate Net Income 40,000.00 10,000.00 50,000.00
Allocated Excess
COGS (4,000.00) (1,000.00) (5,000.00)
Depreciation Expense (4,000.00) (1,000.00) (5,000.00)
Interest Expense (800.00) (200.00) (1,000.00)
Goodwill Impairment Loss (2,500.00) - (2,500.00)
Dividend Income* - - -
(11,300.00) (2,200.00) (13,500.00)
Consolidated Net Income 28,700.00 7,800.00 36,500.00

CRE NCI

Statement of Retained Earnings and NCI

NCI, 2014
Beg. Balance 75,000.00
Share in the SNI 7,800.00
Dividends (30,000 * 20%) (6,000.00)
Ending Balance 76,800.00

Balance Sheet
Separate Separate
Parent's Balance Subsidiary's Eliminating
Sheet Balance Sheet Entries
Cash 194,000.00 75,000.00 -
AR 75,000.00 50,000.00 -
Inventory 100,000.00 75,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 87,500.00 70,000.00 70,000.00
Building, net 262,500.00 210,000.00 (15,000.00)
Investment in Company 310,000.00 - (310,000.00)
Goodwill - - 7,500.00
1,204,000.00 520,000.00 (241,500.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (3,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 404,000.00 120,000.00 (115,300.00)
NCI - - 76,800.00
1,204,000.00 520,000.00 (241,500.00)

WORKING PAPER - 2015

Income Statement 80% 20% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 240,000.00 60,000.00 300,000.00
Dividend Income* - - -
Cost of Goods Sold (128,000.00) (32,000.00) (160,000.00)
Depreciation Expense (16,000.00) (4,000.00) (20,000.00)
Other Expense (36,000.00) (9,000.00) (45,000.00)
Separate Net Income 60,000.00 15,000.00 75,000.00
Allocated Excess
COGS - - -
Depreciation Expense (4,000.00) (1,000.00) (5,000.00)
Interest Expense (800.00) (200.00) (1,000.00)
Goodwill Impairment Loss - - -
Dividend Income* - - -
(4,800.00) (1,200.00) (6,000.00)
Consolidated Net Income 55,200.00 13,800.00 69,000.00

CRE NCI

Statement of Retained Earnings and NCI

NCI, 2015
Beg. Balance 76,800.00
Share in the SNI 13,800.00
Dividends (40,000 * 20%) (8,000.00)
Ending Balance 82,600.00

Balance Sheet
Separate Separate
Parent's Balance Subsidiary's Eliminating
Sheet Balance Sheet Entries
Cash 221,000.00 85,000.00 -
AR 150,000.00 80,000.00 -
Inventory 180,000.00 90,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 75,000.00 65,000.00 60,000.00
Building, net 225,000.00 195,000.00 (10,000.00)
Investment in Company 310,000.00 - (310,000.00)
Goodwill - - 7,500.00
1,336,000.00 555,000.00 (246,500.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (2,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 536,000.00 155,000.00 (127,100.00)
NCI - - 82,600.00
1,336,000.00 555,000.00 (246,500.00)
OODWILL APPROACH
mmon stock of Son Company for P310,000. At that time, the fair value of the 20% non-controlling interest is estimated to
d book values that were different from their respective market values:
Son Co. Son Co.
Book Value Fair Value
…………………………………………… P 20,000 P 25,000
……………………………………………… 40,000 46,000
……………………………………………… 150,000 150,000
tion - Equipment…… (80,000)
…………………………………………… 300,000 120,000
tion - Building………… (160,000)
)…………………………………………… 100,000 96,000

r respective fair values. On January 1, 2014, the equipment and buildings had a remaining life of 8 and 4 years,
oodwill, if any, is reduced by a P3,125 impairment loss during 2014 based on the fair value basis (or full-goodwill),
acquisition of Son Company relates proportionately to the controlling and non-controlling interests, as does the
r 31, 2014 are as follows:

Debits Perfect Co. Son Co.

…………………………………………… 194,000 75,000
……………………………………… 75,000 50,000
………………………………………… 100,000 75,000
…………………………………………… 175,000 40,000
…………………………………………… 200,000 150,000
………………………………………… 600,000 450,000
pany………………………… 310,000 -
……………………………………… 170,000 115,000
able………………………… - -
…………………………………… 50,000 20,000
ss…………………………… - -
…………………………………… - -
………………………………………… 40,000 15,000
……………………………………… 60,000 30,000
s………………………………………… 1,974,000 1,020,000
Credits
tion - equipment… 112,500 80,000
tion - Buildings… 337,500 240,000
……………………………………… 100,000 100,000
………………………………………… 200,000 100,000
r…………………………………… 500,000 200,000
……………………………………… 300,000 100,000
……………………………………………… 400,000 200,000
………………………………………… 24,000 -
s………………………………………… 1,974,000 1,020,000
mpany for the year 2015:

Debits Perfect Co. Son Co.

…………………………………………… 221,000 85,000
……………………………………… 150,000 80,000
………………………………………… 180,000 90,000
…………………………………………… 175,000 40,000
…………………………………………… 200,000 150,000
………………………………………… 600,000 450,000
pany………………………… 310,000 -
……………………………………… 180,000 160,000
able………………………… - -
…………………………………… 50,000 20,000
ss…………………………… - -
…………………………………… - -
………………………………………… 60,000 45,000
……………………………………… 60,000 40,000
s………………………………………… 2,186,000 1,160,000
Credits
tion - equipment… 125,000 85,000
tion - Buildings… 375,000 255,000
……………………………………… 100,000 100,000
………………………………………… 200,000 100,000
r…………………………………… 500,000 200,000
……………………………………… 404,000 120,000
……………………………………………… 450,000 300,000
………………………………………… 32,000 -
s………………………………………… 2,186,000 1,160,000

r 2014 and 2015 using the Cost model.

ome Statement

100% SUPPORTING COMPUTATION

Total Aggegrate Amount
387,500.00 Consideration Transferred
375,000.00 Cash 310,000.00
12,500.00 310,000.00
Amortization of Allocated Excess
Excess Useful life 2014 Amortization 2015 Amortization Remarks
Inventory 5,000.00 1.00 5,000.00 - COGS
Land 6,000.00 Indefinite - - Gain / Loss
Equipment, net 80,000.00 8.00 10,000.00 10,000.00 Depreciation
Building, net (20,000.00) 4.00 (5,000.00) (5,000.00) Depreciation

Bonds Payable 4,000.00 4.00 1,000.00 1,000.00 Interest Exp

75,000.00 11,000.00 6,000.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2014
400,000.00 600,000.00 Sales 600,000.00
24,000.00 24,000.00 Dividend Income -
(170,000.00) (285,000.00) Total revenue 600,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (290,000.00)
(40,000.00) (55,000.00) Gross Profit 310,000.00
164,000.00 214,000.00 Operating Expense
Depreciation Exp (75,000.00)
- (5,000.00) Interest Exp (1,000.00)
- (5,000.00) Other Exp (55,000.00) (131,000.00)
- (1,000.00) Net Income before Impairment 179,000.00
- (2,500.00) Goodwill Impairment Loss (2,500.00)
(24,000.00) (24,000.00) Consolidated Net Income 176,500.00
(24,000.00) (37,500.00)
140,000.00 176,500.00 NCI share in the SNI 7,800.00
Parent's share in the CNI 168,700.00
CRE Consolidated Net Income 176,500.00

Consolidated Retained Earnings, 2014

Beg. Balance 300,000.00
Parent's share in the CNI 168,700.00
Dividends (60,000.00)
Ending Balance 408,700.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet As of December 31, 2014
269,000.00 ASSETS
125,000.00 Cash 269,000.00
175,000.00 Accounts Receivable 125,000.00
221,000.00 Inventory 175,000.00 569,000.00
227,500.00 Land 221,000.00
457,500.00 Equipment, net 227,500.00
- Building, net 457,500.00
7,500.00 Goodwill 7,500.00 913,500.00
1,482,500.00 Total Assets 1,482,500.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
297,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 297,000.00 497,000.00
408,700.00 Common Stock 500,000.00
76,800.00 Retained Earnings 408,700.00
1,482,500.00 NCI 76,800.00 985,500.00
Total Liabilities and SHE 1,482,500.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2015
450,000.00 750,000.00 Sales 750,000.00
32,000.00 32,000.00 Dividend Income -
(180,000.00) (340,000.00) Total revenue 750,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (340,000.00)
(60,000.00) (105,000.00) Gross Profit 410,000.00
192,000.00 267,000.00 Operating Expense
Depreciation Exp (75,000.00)
- - Interest Exp (1,000.00)
- (5,000.00) Other Exp (105,000.00) (181,000.00)
- (1,000.00) Net Income before Impairment 229,000.00
- - Goodwill Impairment Loss -
(32,000.00) (32,000.00) Consolidated Net Income 229,000.00
(32,000.00) (38,000.00)
160,000.00 229,000.00 NCI share in the SNI 13,800.00
Parent's share in the CNI 215,200.00
CRE Consolidated Net Income 229,000.00

Consolidated Retained Earnings, 2015

Beg. Balance 408,700.00
Parent's share in the CNI 215,200.00
Dividends (60,000.00)
Ending Balance 563,900.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet As of December 31, 2015
306,000.00 ASSETS
230,000.00 Cash 306,000.00
270,000.00 Accounts Receivable 230,000.00
221,000.00 Inventory 270,000.00 806,000.00
200,000.00 Land 221,000.00
410,000.00 Equipment, net 200,000.00
- Building, net 410,000.00
7,500.00 Goodwill 7,500.00 838,500.00
1,644,500.00 Total Assets 1,644,500.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
298,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 298,000.00 498,000.00
563,900.00 Common Stock 500,000.00
82,600.00 Retained Earnings 563,900.00
1,644,500.00 NCI 82,600.00 1,146,500.00
Total Liabilities and SHE 1,644,500.00
ILLUSTRATION 3-4: 80% - OWNED SUBSIDIARY: EQUITY METHOD - PARTIAL GOODWILL APPROACH, WITH
Assume that on January 1, 2014, Perfect Company acquires 80% of the common stock of Son Company for
be P77,500. On that the following assets and liabilities of Son Company had book values that were different

Debits
Cash…………………………………………………………………………
Accounts Receivable…………………………………………
Inventory………………………………………………………………
Land…………………………………………………………………………
Equipment………………………………………………………………
Buildings………………………………………………………………
Investment in Son Company…………………………
Cost of Goods Sold……………………………………………
Discount on Bonds Payable…………………………
Depreciation Expense………………………………………
Goodwill Impairment loss……………………………
Interest Expense………………………………………………
Other expense………………………………………………………
Dividends paid……………………………………………………
Totals…………………………………………
Credits
Accumulated Depreciation - equipment…
Accumulated Depreciation - Buildings…
Accounts Payable………………………………………………
Bonds Payable………………………………………………………
Common Stock, P10 par……………………………………
Retained Earnings………………………………………………
Sales…………………………………………………………………………
Investment Income……………………………………………
Totals…………………………………………
In addition, the following information was available for Perfect and Son Company for the year 2015:

Debits
Cash…………………………………………………………………………
Accounts Receivable…………………………………………
Inventory………………………………………………………………
Land…………………………………………………………………………
Equipment………………………………………………………………
Buildings………………………………………………………………
Investment in Son Company…………………………
Cost of Goods Sold……………………………………………
Discount on Bonds Payable…………………………
Depreciation Expense………………………………………
Goodwill Impairment loss……………………………
Interest Expense………………………………………………
Other expense………………………………………………………
Dividends paid……………………………………………………
Totals…………………………………………
Credits
Accumulated Depreciation - equipment…
Accumulated Depreciation - Buildings…
Accounts Payable………………………………………………
Bonds Payable………………………………………………………
Common Stock, P10 par……………………………………
Retained Earnings………………………………………………
Sales…………………………………………………………………………
Investment Income……………………………………………
Totals…………………………………………

SOLUTION:

SUMMARY 80% 20%

Parent NCI
Aggregate Amount 310,000.00 77,500.00
FVINA 300,000.00 75,000.00
Goodwill/Bargain Purchase Gain 10,000.00 2,500.00

Fair Value of the Identifiable Net Assets - SUBSIDIARY

Common Stock 200,000.00

Retained Earning 100,000.00

WORKING PAPER - 2014

Income Statement 80% 20% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 160,000.00 40,000.00 200,000.00
Investment Income* - - -
Cost of Goods Sold (92,000.00) (23,000.00) (115,000.00)
Depreciation Expense (16,000.00) (4,000.00) (20,000.00)
Other Expense (12,000.00) (3,000.00) (15,000.00)
Separate Net Income 40,000.00 10,000.00 50,000.00
Allocated Excess
COGS (4,000.00) (1,000.00) (5,000.00)
Depreciation Expense (4,000.00) (1,000.00) (5,000.00)
Interest Expense (800.00) (200.00) (1,000.00)
Goodwill Impairment Loss (2,500.00) - (2,500.00)
Investment Income* - - -
(11,300.00) (2,200.00) (13,500.00)
Consolidated Net Income 28,700.00 7,800.00 36,500.00

CRE NCI

Statement of Retained Earnings and NCI

NCI, 2014
Beg. Balance 75,000.00
Share in the SNI 7,800.00
Dividends (6,000.00)
Ending Balance 76,800.00

Balance Sheet
Separate Separate
Parent's Balance Subsidiary's Eliminating
Sheet Balance Sheet Entries
Cash 194,000.00 75,000.00 -
AR 75,000.00 50,000.00 -
Inventory 100,000.00 75,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 87,500.00 70,000.00 70,000.00
Building, net 262,500.00 210,000.00 (15,000.00)
Investment in Company 314,700.00 - (314,700.00)
Goodwill - - 7,500.00
1,208,700.00 520,000.00 (246,200.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (3,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 408,700.00 120,000.00 (120,000.00)
NCI - 76,800.00
1,208,700.00 520,000.00 (246,200.00)

WORKING PAPER - 2015

Income Statement 80% 20% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 240,000.00 60,000.00 300,000.00
Investment Income* - - -
Cost of Goods Sold (128,000.00) (32,000.00) (160,000.00)
Depreciation Expense (16,000.00) (4,000.00) (20,000.00)
Other Expense (36,000.00) (9,000.00) (45,000.00)
Separate Net Income 60,000.00 15,000.00 75,000.00
Allocated Excess
COGS - - -
Depreciation Expense (4,000.00) (1,000.00) (5,000.00)
Interest Expense (800.00) (200.00) (1,000.00)
Goodwill Impairment Loss - - -
Investment Income* - - -
(4,800.00) (1,200.00) (6,000.00)
Consolidated Net Income 55,200.00 13,800.00 69,000.00

CRE NCI

Statement of Retained Earnings and NCI

NCI, 2015
Beg. Balance 76,800.00
Share in the SNI 13,800.00
Dividends (8,000.00)
Ending Balance 82,600.00

Separate Separate
Parent's Balance Subsidiary's Eliminating
Sheet Balance Sheet Entries
Cash 221,000.00 85,000.00 -
AR 150,000.00 80,000.00 -
Inventory 180,000.00 90,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 75,000.00 65,000.00 60,000.00
Building, net 225,000.00 195,000.00 (10,000.00)
Investment in Company 337,900.00 - (337,900.00)
Goodwill - - 7,500.00
1,363,900.00 555,000.00 (274,400.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (2,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 563,900.00 155,000.00 (155,000.00)
NCI - 82,600.00
1,363,900.00 555,000.00 (274,400.00)
AL GOODWILL APPROACH, WITH GOODWILL IMPAIRMENT LOSS RECOGNIZED IN THE BOOKS OF SUBSIDIARY
mmon stock of Son Company for P310,000. At that time, the fair value of the 20% non-controlling interest is estimated to
d book values that were different from their respective market values:
Son Co. Son Co.
Book Value Fair Value
…………………………………………… P 20,000 P 25,000
……………………………………………… 40,000 46,000
……………………………………………… 150,000 150,000
tion - Equipment…… (80,000)
…………………………………………… 300,000 120,000
tion - Building………… (160,000)
)…………………………………………… 100,000 96,000

Debits Perfect Co. Son Co.

…………………………………………… 194,000 75,000
……………………………………… 75,000 50,000
………………………………………… 100,000 75,000
…………………………………………… 175,000 40,000
…………………………………………… 200,000 150,000
………………………………………… 600,000 450,000
pany………………………… 314,700 -
……………………………………… 170,000 115,000
able………………………… - -
…………………………………… 50,000 20,000
ss…………………………… - -
…………………………………… - -
………………………………………… 40,000 15,000
……………………………………… 60,000 30,000
s………………………………………… 1,978,700 1,020,000
Credits
tion - equipment… 112,500 80,000
tion - Buildings… 337,500 240,000
……………………………………… 100,000 100,000
………………………………………… 200,000 100,000
r…………………………………… 500,000 200,000
……………………………………… 300,000 100,000
……………………………………………… 400,000 200,000
……………………………………… 28,700 -
s………………………………………… 1,978,700 1,020,000
mpany for the year 2015:

Debits Perfect Co. Son Co.

…………………………………………… 221,000 85,000
……………………………………… 150,000 80,000
………………………………………… 180,000 90,000
…………………………………………… 175,000 40,000
…………………………………………… 200,000 150,000
………………………………………… 600,000 450,000
pany………………………… 337,900 -
……………………………………… 180,000 160,000
able………………………… - -
…………………………………… 50,000 20,000
ss…………………………… - -
…………………………………… - -
………………………………………… 60,000 45,000
……………………………………… 60,000 40,000
s………………………………………… 2,213,900 1,160,000
Credits
tion - equipment… 125,000 85,000
tion - Buildings… 375,000 255,000
……………………………………… 100,000 100,000
………………………………………… 200,000 100,000
r…………………………………… 500,000 200,000
……………………………………… 408,700 120,000
……………………………………………… 450,000 300,000
……………………………………… 55,200 -
s………………………………………… 2,213,900 1,160,000

r 2014 and 2015 using the Cost model.

ome Statement

100% SUPPORTING COMPUTATION

Bonds Payable 4,000.00 4.00 1,000.00 1,000.00 Interest Exp

75,000.00 11,000.00 6,000.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2014
400,000.00 600,000.00 Sales 600,000.00
28,700.00 28,700.00 Dividend Income -
(170,000.00) (285,000.00) Total revenue 600,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (290,000.00)
(40,000.00) (55,000.00) Gross Profit 310,000.00
168,700.00 218,700.00 Operating Expense
Depreciation Exp (75,000.00)
- (5,000.00) Interest Exp (1,000.00)
- (5,000.00) Other Exp (55,000.00) (131,000.00)
- (1,000.00) Net Income before Impairment 179,000.00
- (2,500.00) Goodwill Impairment Loss (2,500.00)
(28,700.00) (28,700.00) Consolidated Net Income 176,500.00
(28,700.00) (42,200.00)
140,000.00 176,500.00 NCI share in the SNI 7,800.00
Parent's share in the CNI 168,700.00
CRE Consolidated Net Income 176,500.00

Consolidated Retained Earnings, 2014

Beg. Balance 300,000.00
Parent's share in the CNI 168,700.00
Dividends (60,000.00)
Ending Balance 408,700.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2014
450,000.00 750,000.00 Sales 750,000.00
55,200.00 55,200.00 Dividend Income -
(180,000.00) (340,000.00) Total revenue 750,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (340,000.00)
(60,000.00) (105,000.00) Gross Profit 410,000.00
215,200.00 290,200.00 Operating Expense
Depreciation Exp (75,000.00)
- - Interest Exp (1,000.00)
- (5,000.00) Other Exp (105,000.00) (181,000.00)
- (1,000.00) Net Income before Impairment 229,000.00
- - Goodwill Impairment Loss -
(55,200.00) (55,200.00) Consolidated Net Income 229,000.00

160,000.00 229,000.00 NCI share in the SNI 13,800.00

Parent's share in the CNI 215,200.00
CRE Consolidated Net Income 229,000.00

Consolidated Retained Earnings, 2015

Beg. Balance 408,700.00
Parent's share in the CNI 215,200.00
Dividends (60,000.00)
Ending Balance 563,900.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet As of December 31, 2014
306,000.00 ASSETS
230,000.00 Cash 306,000.00
270,000.00 Accounts Receivable 230,000.00
221,000.00 Inventory 270,000.00 806,000.00
200,000.00 Land 221,000.00
410,000.00 Equipment, net 200,000.00
- Building, net 410,000.00
7,500.00 Goodwill 7,500.00 838,500.00
1,644,500.00 Total Assets 1,644,500.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
298,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 298,000.00 498,000.00
563,900.00 Common Stock 500,000.00
82,600.00 Retained Earnings 563,900.00
1,644,500.00 NCI 82,600.00 1,146,500.00
Total Liabilities and SHE 1,644,500.00
ILLUSTRATION 3-5: 80% - OWNED SUBSIDIARY: COST MODEL - FULL GOODWILL APPROACH
Assume that on January 1, 2014, Perfect Company acquires 80% of the common stock of Son Company for P31
be P77,500. On that the following assets and liabilities of Son Company had book values that were different fro

All other assets and liabilities had book values approximately equal to their respective fair values. On January 1
respectively. Inventory is sold in 2014 and FIFO inventory costing is used. Goodwill, if any, is reduced by a P3,12
meaning the management has determined that the goodwill arising in the acquisition of Son Company relates p
impairment. Trial balances for the companies for the year ended December 31, 2014 are as follows:

Debits
Cash…………………………………………………………………………
Accounts Receivable…………………………………………
Inventory………………………………………………………………
Land…………………………………………………………………………
Equipment………………………………………………………………
Buildings………………………………………………………………
Investment in Son Company…………………………
Cost of Goods Sold……………………………………………
Discount on Bonds Payable…………………………
Depreciation Expense………………………………………
Goodwill Impairment loss……………………………
Interest Expense………………………………………………
Other expense………………………………………………………
Dividends paid……………………………………………………
Totals…………………………………………
Credits
Accumulated Depreciation - equipment…
Accumulated Depreciation - Buildings…
Accounts Payable………………………………………………
Bonds Payable………………………………………………………
Common Stock, P10 par……………………………………
Retained Earnings………………………………………………
Sales…………………………………………………………………………
Dividend Income…………………………………………………
Totals…………………………………………

In addition, the following information was available for Perfect and Son Company for the year 2015:

Debits
Cash…………………………………………………………………………
Accounts Receivable…………………………………………
Inventory………………………………………………………………
Land…………………………………………………………………………
Equipment………………………………………………………………
Buildings………………………………………………………………
Investment in Son Company…………………………
Cost of Goods Sold……………………………………………
Discount on Bonds Payable…………………………
Depreciation Expense………………………………………
Goodwill Impairment loss……………………………
Interest Expense………………………………………………
Other expense………………………………………………………
Dividends paid……………………………………………………
Totals…………………………………………
Credits
Accumulated Depreciation - equipment…
Accumulated Depreciation - Buildings…
Accounts Payable………………………………………………
Bonds Payable………………………………………………………
Common Stock, P10 par……………………………………
Retained Earnings………………………………………………
Sales…………………………………………………………………………
Dividend Income…………………………………………………
Totals…………………………………………

REQUIRED:
1. Compute the Goodwill/Bargain Purchase Gain.
2. Prepare the consolidated financial statements for the year 2014 and 2015 using the Cost mod
a. Consolidated Financial Performance / Income Statement
b. Consolidated Financial Position / Balance Sheet

SOLUTION:
SUMMARY 80% 20%
Parent NCI
Aggregate Amount 310,000.00 77,500.00
FVINA 300,000.00 75,000.00
Goodwill/Bargain Purchase Gain 10,000.00 2,500.00

Fair Value of the Identifiable Net Assets - SUBSIDIARY

Common Stock 200,000.00

Retained Earning 100,000.00

WORKING PAPER - 2014

Income Statement 80% 20% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 160,000.00 40,000.00 200,000.00
Dividend Income* - - -
Cost of Goods Sold (92,000.00) (23,000.00) (115,000.00)
Depreciation Expense (16,000.00) (4,000.00) (20,000.00)
Other Expense (12,000.00) (3,000.00) (15,000.00)
Separate Net Income 40,000.00 10,000.00 50,000.00
Allocated Excess
COGS (4,000.00) (1,000.00) (5,000.00)
Depreciation Expense (4,000.00) (1,000.00) (5,000.00)
Interest Expense (800.00) (200.00) (1,000.00)
Goodwill Impairment Loss (2,500.00) (625.00) (3,125.00)
Dividend Income* - - -
(11,300.00) (2,825.00) (14,125.00)
Consolidated Net Income 28,700.00 7,175.00 35,875.00

CRE NCI

Statement of Retained Earnings and NCI

NCI, 2014
Beg. Balance 77,500.00
Share in the SNI 7,175.00
Dividends (30,000 * 20%) (6,000.00)
Ending Balance 78,675.00

Balance Sheet
Separate Separate
Parent's Balance Subsidiary's Eliminating
Sheet Balance Sheet Entries
Cash 194,000.00 75,000.00 -
AR 75,000.00 50,000.00 -
Inventory 100,000.00 75,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 87,500.00 70,000.00 70,000.00
Building, net 262,500.00 210,000.00 (15,000.00)
Investment in Company 310,000.00 - (310,000.00)
Goodwill - - 9,375.00
1,204,000.00 520,000.00 (239,625.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (3,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 404,000.00 120,000.00 (115,300.00)
NCI - 78,675.00
1,204,000.00 520,000.00 (239,625.00)

WORKING PAPER - 2015

Income Statement 80% 20% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 240,000.00 60,000.00 300,000.00
Investment Income* - - -
Cost of Goods Sold (128,000.00) (32,000.00) (160,000.00)
Depreciation Expense (16,000.00) (4,000.00) (20,000.00)
Other Expense (36,000.00) (9,000.00) (45,000.00)
Separate Net Income 60,000.00 15,000.00 75,000.00
Allocated Excess
COGS - - -
Depreciation Expense (4,000.00) (1,000.00) (5,000.00)
Interest Expense (800.00) (200.00) (1,000.00)
Goodwill Impairment Loss - - -
Dividend Income* - - -
(4,800.00) (1,200.00) (6,000.00)
Consolidated Net Income 55,200.00 13,800.00 69,000.00

CRE NCI
Statement of Retained Earnings and NCI
NCI, 2015
Beg. Balance 78,675.00
Share in the SNI 13,800.00
Dividends (40,000 * 20%) (8,000.00)
Ending Balance 84,475.00

Balance Sheet
Separate Separate
Parent's Balance Subsidiary's Eliminating
Sheet Balance Sheet Entries
Cash 221,000.00 85,000.00 -
AR 150,000.00 80,000.00 -
Inventory 180,000.00 90,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 75,000.00 65,000.00 60,000.00
Building, net 225,000.00 195,000.00 (10,000.00)
Investment in Company 310,000.00 - (310,000.00)
Goodwill - - 9,375.00
1,336,000.00 555,000.00 (244,625.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (2,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 536,000.00 155,000.00 (127,100.00)
NCI - 84,475.00
1,336,000.00 555,000.00 (244,625.00)
DWILL APPROACH
mmon stock of Son Company for P310,000. At that time, the fair value of the 20% non-controlling interest is estimated to
d book values that were different from their respective market values:
Son Co. Son Co.
Book Value Fair Value
…………………………………………… P 20,000 P 25,000
……………………………………………… 40,000 46,000
……………………………………………… 150,000 150,000
tion - Equipment…… (80,000)
…………………………………………… 300,000 120,000
tion - Building………… (160,000)
)…………………………………………… 100,000 96,000

Debits Perfect Co. Son Co.

mpany for the year 2015:

Debits Perfect Co. Son Co.

r 2014 and 2015 using the Cost model.

ome Statement
100% SUPPORTING COMPUTATION
Total Aggegrate Amount
387,500.00 Consideration Transferred
375,000.00 Cash 310,000.00
12,500.00 310,000.00

Amortization of Allocated Excess

Excess Useful life 2014 Amortization 2015 Amortization Remarks
Inventory 5,000.00 1.00 5,000.00 - COGS
Land 6,000.00 - - - Gain / Loss
Equipment, net 80,000.00 8.00 10,000.00 10,000.00 Depreciation
Building, net (20,000.00) 4.00 (5,000.00) (5,000.00) Depreciation

Bonds Payable 4,000.00 4.00 1,000.00 1,000.00 Interest Exp

75,000.00 11,000.00 6,000.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2014
400,000.00 600,000.00 Sales 600,000.00
24,000.00 24,000.00 Dividend Income -
(170,000.00) (285,000.00) Total revenue 600,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (290,000.00)
(40,000.00) (55,000.00) Gross Profit 310,000.00
164,000.00 214,000.00 Operating Expense
Depreciation Exp (75,000.00)
- (5,000.00) Interest Exp (1,000.00)
- (5,000.00) Other Exp (55,000.00) (131,000.00)
- (1,000.00) Net Income before Impairment 179,000.00
- (3,125.00) Goodwill Impairment Loss (3,125.00)
(24,000.00) (24,000.00) Consolidated Net Income 175,875.00
(24,000.00) (38,125.00)
140,000.00 175,875.00 NCI share in the SNI 7,175.00
Parent's share in the CNI 168,700.00
CRE Consolidated Net Income 175,875.00

Consolidated Retained Earnings, 2014

Beg. Balance 300,000.00
Parent's share in the CNI 168,700.00
Dividends (60,000.00)
Ending Balance 408,700.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet As of December 31, 2014
269,000.00 ASSETS
125,000.00 Cash 269,000.00
175,000.00 Accounts Receivable 125,000.00
221,000.00 Inventory 175,000.00 569,000.00
227,500.00 Land 221,000.00
457,500.00 Equipment, net 227,500.00
- Building, net 457,500.00
9,375.00 Goodwill 9,375.00 915,375.00
1,484,375.00 Total Assets 1,484,375.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
297,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 297,000.00 497,000.00
408,700.00 Common Stock 500,000.00
78,675.00 Retained Earnings 408,700.00
1,484,375.00 NCI 78,675.00 987,375.00
Total Liabilities and SHE 1,484,375.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet As of December 31, 2015
306,000.00 ASSETS
230,000.00 Cash 306,000.00
270,000.00 Accounts Receivable 230,000.00
221,000.00 Inventory 270,000.00 806,000.00
200,000.00 Land 221,000.00
410,000.00 Equipment, net 200,000.00
- Building, net 410,000.00
9,375.00 Goodwill 9,375.00 840,375.00
1,646,375.00 Total Assets 1,646,375.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
298,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 298,000.00 498,000.00
563,900.00 Common Stock 500,000.00
84,475.00 Retained Earnings 563,900.00
1,646,375.00 NCI 84,475.00 1,148,375.00
Total Liabilities and SHE 1,646,375.00
ILLUSTRATION 3-6: 80% - OWNED SUBSIDIARY: EQUITY METHOD - FULL GOODWILL APPROACH, WITH GO
Assume that on January 1, 2014, Perfect Company acquires 80% of the common stock of Son Company for
be P77,500. On that the following assets and liabilities of Son Company had book values that were different

Debits
Cash…………………………………………………………………………
Accounts Receivable…………………………………………
Inventory………………………………………………………………
Land…………………………………………………………………………
Equipment………………………………………………………………
Buildings………………………………………………………………
Investment in Son Company…………………………
Cost of Goods Sold……………………………………………
Discount on Bonds Payable…………………………
Depreciation Expense………………………………………
Goodwill Impairment loss……………………………
Interest Expense………………………………………………
Other expense………………………………………………………
Dividends paid……………………………………………………
Totals…………………………………………
Credits
Accumulated Depreciation - equipment…
Accumulated Depreciation - Buildings…
Accounts Payable………………………………………………
Bonds Payable………………………………………………………
Common Stock, P10 par……………………………………
Retained Earnings………………………………………………
Sales…………………………………………………………………………
Investment Income……………………………………………
Totals…………………………………………
In addition, the following information was available for Perfect and Son Company for the year 2015:

Debits
Cash…………………………………………………………………………
Accounts Receivable…………………………………………
Inventory………………………………………………………………
Land…………………………………………………………………………
Equipment………………………………………………………………
Buildings………………………………………………………………
Investment in Son Company…………………………
Cost of Goods Sold……………………………………………
Discount on Bonds Payable…………………………
Depreciation Expense………………………………………
Goodwill Impairment loss……………………………
Interest Expense………………………………………………
Other expense………………………………………………………
Dividends paid……………………………………………………
Totals…………………………………………
Credits
Accumulated Depreciation - equipment…
Accumulated Depreciation - Buildings…
Accounts Payable………………………………………………
Bonds Payable………………………………………………………
Common Stock, P10 par……………………………………
Retained Earnings………………………………………………
Sales…………………………………………………………………………
Investment Income……………………………………………
Totals…………………………………………

SOLUTION:

SUMMARY 80% 20%

Parent NCI
Aggregate Amount 310,000.00 77,500.00
FVINA 300,000.00 75,000.00
Goodwill/Bargain Purchase Gain 10,000.00 2,500.00

Fair Value of the Identifiable Net Assets - SUBSIDIARY

Common Stock 200,000.00

Retained Earning 100,000.00

WORKING PAPER - 2014

Income Statement 80% 20% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 160,000.00 40,000.00 200,000.00
Investment Income* - - -
Cost of Goods Sold (92,000.00) (23,000.00) (115,000.00)
Depreciation Expense (16,000.00) (4,000.00) (20,000.00)
Other Expense (12,000.00) (3,000.00) (15,000.00)
Separate Net Income 40,000.00 10,000.00 50,000.00
Allocated Excess
COGS (4,000.00) (1,000.00) (5,000.00)
Depreciation Expense (4,000.00) (1,000.00) (5,000.00)
Interest Expense (800.00) (200.00) (1,000.00)
Goodwill Impairment Loss (2,500.00) (625.00) (3,125.00)
Investment Income* - - -
(11,300.00) (2,825.00) (14,125.00)
Consolidated Net Income 28,700.00 7,175.00 35,875.00

CRE NCI

Statement of Retained Earnings and NCI

NCI, 2014
Beg. Balance 77,500.00
Share in the SNI 7,175.00
Dividends (30,000 * 20%) (6,000.00)
Ending Balance 78,675.00

Separate Separate
Parent's Balance Subsidiary's Eliminating
Sheet Balance Sheet Entries
Cash 194,000.00 75,000.00 -
AR 75,000.00 50,000.00 -
Inventory 100,000.00 75,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 87,500.00 70,000.00 70,000.00
Building, net 262,500.00 210,000.00 (15,000.00)
Investment in Company 314,700.00 - (314,700.00)
Goodwill - - 9,375.00
1,208,700.00 520,000.00 (244,325.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (3,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 408,700.00 120,000.00 (120,000.00)
NCI - 78,675.00
1,208,700.00 520,000.00 (244,325.00)

WORKING PAPER - 2015

CRE NCI

Statement of Retained Earnings and NCI

NCI, 2015
Beg. Balance 78,675.00
Share in the SNI 13,800.00
Dividends (40,000 * 20%) (8,000.00)
Ending Balance 84,475.00

Separate Separate
Parent's Balance Subsidiary's Eliminating
Sheet Balance Sheet Entries
Cash 221,000.00 85,000.00 -
AR 150,000.00 80,000.00 -
Inventory 180,000.00 90,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 75,000.00 65,000.00 60,000.00
Building, net 225,000.00 195,000.00 (10,000.00)
Investment in Company 337,900.00 - (337,900.00)
Goodwill - - 9,375.00
1,363,900.00 555,000.00 (272,525.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (2,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 563,900.00 155,000.00 (155,000.00)
NCI - 84,475.00
1,363,900.00 555,000.00 (272,525.00)
OODWILL APPROACH, WITH GOODWILL IMPAIRMENT LOSS RECOGNIZED IN THE BOOKS OF SUBSIDIARY
mmon stock of Son Company for P310,000. At that time, the fair value of the 20% non-controlling interest is estimated to
d book values that were different from their respective market values:
Son Co. Son Co.
Book Value Fair Value
…………………………………………… P 20,000 P 25,000
……………………………………………… 40,000 46,000
……………………………………………… 150,000 150,000
tion - Equipment…… (80,000)
…………………………………………… 300,000 120,000
tion - Building………… (160,000)
)…………………………………………… 100,000 96,000

Debits Perfect Co. Son Co.

…………………………………………… 194,000 75,000
……………………………………… 75,000 50,000
………………………………………… 100,000 75,000
…………………………………………… 175,000 40,000
…………………………………………… 200,000 150,000
………………………………………… 600,000 450,000
pany………………………… 314,700 -
……………………………………… 170,000 115,000
able………………………… - -
…………………………………… 50,000 20,000
ss…………………………… - -
…………………………………… - -
………………………………………… 40,000 15,000
……………………………………… 60,000 30,000
s………………………………………… 1,978,700 1,020,000
Credits
tion - equipment… 112,500 80,000
tion - Buildings… 337,500 240,000
……………………………………… 100,000 100,000
………………………………………… 200,000 100,000
r…………………………………… 500,000 200,000
……………………………………… 300,000 100,000
……………………………………………… 400,000 200,000
……………………………………… 28,700 -
s………………………………………… 1,978,700 1,020,000
mpany for the year 2015:

Debits Perfect Co. Son Co.

…………………………………………… 221,000 85,000
……………………………………… 150,000 80,000
………………………………………… 180,000 90,000
…………………………………………… 175,000 40,000
…………………………………………… 200,000 150,000
………………………………………… 600,000 450,000
pany………………………… 337,900 -
……………………………………… 180,000 160,000
able………………………… - -
…………………………………… 50,000 20,000
ss…………………………… - -
…………………………………… - -
………………………………………… 60,000 45,000
……………………………………… 60,000 40,000
s………………………………………… 2,213,900 1,160,000
Credits
tion - equipment… 125,000 85,000
tion - Buildings… 375,000 255,000
……………………………………… 100,000 100,000
………………………………………… 200,000 100,000
r…………………………………… 500,000 200,000
……………………………………… 408,700 120,000
……………………………………………… 450,000 300,000
……………………………………… 55,200 -
s………………………………………… 2,213,900 1,160,000

r 2014 and 2015 using the Cost model.

ome Statement

100% SUPPORTING COMPUTATION

Bonds Payable 4,000.00 4.00 1,000.00 1,000.00 Interest Exp

75,000.00 11,000.00 6,000.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2014
400,000.00 600,000.00 Sales 600,000.00
28,700.00 28,700.00 Dividend Income -
(170,000.00) (285,000.00) Total revenue 600,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (290,000.00)
(40,000.00) (55,000.00) Gross Profit 310,000.00
168,700.00 218,700.00 Operating Expense
Depreciation Exp (75,000.00)
- (5,000.00) Interest Exp (1,000.00)
- (5,000.00) Other Exp (55,000.00) (131,000.00)
- (1,000.00) Net Income before Impairment 179,000.00
- (3,125.00) Goodwill Impairment Loss (3,125.00)
(28,700.00) (28,700.00) Consolidated Net Income 175,875.00
(28,700.00) (42,825.00)
140,000.00 175,875.00 NCI share in the SNI 7,175.00
Parent's share in the CNI 168,700.00
CRE Consolidated Net Income 175,875.00

Consolidated Retained Earnings, 2014

Beg. Balance 300,000.00
Parent's share in the CNI 168,700.00
Dividends (60,000.00)
Ending Balance 408,700.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet As of December 31, 2014
269,000.00 ASSETS
125,000.00 Cash 269,000.00
175,000.00 Accounts Receivable 125,000.00
221,000.00 Inventory 175,000.00 569,000.00
227,500.00 Land 221,000.00
457,500.00 Equipment, net 227,500.00
- Building, net 457,500.00
9,375.00 Goodwill 9,375.00 915,375.00
1,484,375.00 Total Assets 1,484,375.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
297,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 297,000.00 497,000.00
408,700.00 Common Stock 500,000.00
78,675.00 Retained Earnings 408,700.00
1,484,375.00 NCI 78,675.00 987,375.00
Total Liabilities and SHE 1,484,375.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2015
450,000.00 750,000.00 Sales 750,000.00
55,200.00 55,200.00 Dividend Income -
(180,000.00) (340,000.00) Total revenue 750,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (340,000.00)
(60,000.00) (105,000.00) Gross Profit 410,000.00
215,200.00 290,200.00 Operating Expense
Depreciation Exp (75,000.00)
- - Interest Exp (1,000.00)
- (5,000.00) Other Exp (105,000.00) (181,000.00)
- (1,000.00) Net Income before Impairment 229,000.00
- - Goodwill Impairment Loss -
(55,200.00) (55,200.00) Consolidated Net Income 229,000.00
(55,200.00) (61,200.00)
160,000.00 229,000.00 NCI share in the SNI 13,800.00
Parent's share in the CNI 215,200.00
CRE Consolidated Net Income 229,000.00

Consolidated Retained Earnings, 2015

Beg. Balance 408,700.00
Parent's share in the CNI 215,200.00
Dividends (60,000.00)
Ending Balance 563,900.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet As of December 31, 2015
306,000.00 ASSETS
230,000.00 Cash 306,000.00
270,000.00 Accounts Receivable 230,000.00
221,000.00 Inventory 270,000.00 806,000.00
200,000.00 Land 221,000.00
410,000.00 Equipment, net 200,000.00
- Building, net 410,000.00
9,375.00 Goodwill 9,375.00 840,375.00
1,646,375.00 Total Assets 1,646,375.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
298,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 298,000.00 498,000.00
563,900.00 Common Stock 500,000.00
84,475.00 Retained Earnings 563,900.00
1,646,375.00 NCI 84,475.00 1,148,375.00
Total Liabilities and SHE 1,646,375.00
ILLUSTRATION 3-7: 80% OWNED SUBSIDIARY: COST MODEL - OTHER COMPREHENSIVE INCOME

To illustrate the consolidation process when a subsidiary reports other comprehensive income, assume during
sale. By December 31, 2015, the fair value of the securities increases to P30,000. Other than the effects of acco
information reported by Perfect Company and Son Company at December 31, 2015, is identical to that present

REQUIRED:
1. Compute the Goodwill/Bargain Purchase Gain.
2. Prepare the consolidated financial statements for the year 2014 and 2015 using the Cost mode
a. Consolidated Financial Performance / Income Statement
b. Consolidated Financial Position / Balance Sheet

SOLUTION:

SUMMARY 80% 20%

Parent NCI
Aggregate Amount 310,000.00 77,500.00
FVINA 300,000.00 75,000.00
Goodwill/Bargain Purchase Gain 10,000.00 2,500.00

Fair Value of the Identifiable Net Assets - SUBSIDIARY

January 1, 2014 Book Value Adjustments Fair Value
Cash ? - ?
AR ? - ?
Inventory 20,000.00 5,000.00 25,000.00
Land 40,000.00 6,000.00 46,000.00
Equipment, net 70,000.00 80,000.00 150,000.00
Building, net 140,000.00 (20,000.00) 120,000.00
Accounts Payabl ? - ?
Bonds Payable (100,000.00) 4,000.00 (96,000.00)
Net Assets 300,000.00 75,000.00 375,000.00

Common Stock 200,000.00

Retained Earning 100,000.00

WORKING PAPER - 2014

Income Statement 80% 20% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 160,000.00 40,000.00 200,000.00
Dividend Income* - - -
Cost of Goods Sold (92,000.00) (23,000.00) (115,000.00)
Depreciation Expense (16,000.00) (4,000.00) (20,000.00)
Other Expense (12,000.00) (3,000.00) (15,000.00)
Separate Net Income 40,000.00 10,000.00 50,000.00
Allocated Excess
COGS (4,000.00) (1,000.00) (5,000.00)
Depreciation Expense (4,000.00) (1,000.00) (5,000.00)
Interest Expense (800.00) (200.00) (1,000.00)
Goodwill Impairment Loss (2,500.00) (625.00) (3,125.00)
Dividend Income* - - -
(11,300.00) (2,825.00) (14,125.00)
Consolidated Net Income 28,700.00 7,175.00 35,875.00

CRE NCI

Statement of Retained Earnings and NCI

NCI, 2014
Beg. Balance 77,500.00
Share in the SNI 7,175.00
Dividends (30,000 * 20%) (6,000.00)
Ending Balance 78,675.00

Balance Sheet
Separate Separate
Parent's Subsidiary's Eliminating
Balance Sheet Balance Sheet Entries
Cash 194,000.00 75,000.00 -
AR 75,000.00 50,000.00 -
Inventory 100,000.00 75,000.00 -
Land 175,000.00 40,000.00 6,000.00
Equipment, net 87,500.00 70,000.00 70,000.00
Building, net 262,500.00 210,000.00 (15,000.00)
Investment in Company 310,000.00 - (310,000.00)
Goodwill - - 9,375.00
1,204,000.00 520,000.00 (239,625.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (3,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 404,000.00 120,000.00 (115,300.00)
NCI - 78,675.00
1,204,000.00 520,000.00 (239,625.00)

WORKING PAPER - 2015

Income Statement 80% 20% 100%
Share of Subsidiary's Net
Parent NCI Income (SNI)
Sales 240,000.00 60,000.00 300,000.00
Investment Income* - - -
Cost of Goods Sold (128,000.00) (32,000.00) (160,000.00)
Depreciation Expense (16,000.00) (4,000.00) (20,000.00)
Other Expense (36,000.00) (9,000.00) (45,000.00)
Separate income 60,000.00 15,000.00 75,000.00
Allocated Excess
COGS - - -
Depreciation Expense (4,000.00) (1,000.00) (5,000.00)
Interest Expense (800.00) (200.00) (1,000.00)
Goodwill Impairment Loss - - -
Investment Income* - - -
(4,800.00) (1,200.00) (6,000.00)
Consolidated Net Income 55,200.00 13,800.00 69,000.00

Unrealized gain on investments 8,000.00 2,000.00 10,000.00

63,200.00 15,800.00 79,000.00

Statement of Retained Earnings and NCI

NCI, 2015 Consolidated Retained Earnings, 2015
Beg. Balance 78,675.00 Beg. Balance
Share in the SNI 15,800.00 Parent's share in the CNI
Dividends (40,000 * 20%) (8,000.00) Dividends
Ending Balance 86,475.00 Ending Balance

Balance Sheet
Separate Separate
Parent's Subsidiary's Eliminating
Balance Sheet Balance Sheet Entries
Cash 221,000.00 65,000.00 -
AR 150,000.00 80,000.00 -
Inventory 180,000.00 90,000.00 -
Investment in AFS - 20,000.00 10,000.00
Land 175,000.00 40,000.00 6,000.00
Equipment, net 75,000.00 65,000.00 60,000.00
Building, net 225,000.00 195,000.00 (10,000.00)
Investment in Company 310,000.00 - (310,000.00)
Goodwill - - 9,375.00
1,336,000.00 555,000.00 (234,625.00)
Accounts Payable 100,000.00 100,000.00 -
Bonds Payable, net of discount 200,000.00 100,000.00 (2,000.00)
Common Stock 500,000.00 200,000.00 (200,000.00)
Retained Earnings 536,000.00 155,000.00 (127,100.00)
Accumulated OCI - - 8,000.00
NCI - - 86,475.00
1,336,000.00 555,000.00 (234,625.00)
MPREHENSIVE INCOME

mprehensive income, assume during 2015 Son Company purchases P20,000 of investments classified as available-for-
30,000. Other than the effects of accounting for Son Company's investment in securities, the financial statement
r 31, 2015, is identical to that presented in Illustration 3-3 and 3-5.

ar 2014 and 2015 using the Cost model.

ncome Statement

100% SUPPORTING COMPUTATION

Total Aggegrate Amount
387,500.00 Consideration Transferred
375,000.00 Cash 310,000.00
12,500.00 310,000.00

Amortization of Allocated Excess

Excess Useful life 2014 Amortization2015 Amortization Remarks
Inventory 5,000.00 1.00 5,000.00 - COGS
Land 6,000.00 Indefinite - - Gain / Loss
Equipment, net 80,000.00 8.00 10,000.00 10,000.00 Depreciation
Building, net (20,000.00) 4.00 (5,000.00) (5,000.00) Depreciation

Bonds Payable 4,000.00 4.00 1,000.00 1,000.00 Interest Exp

75,000.00 11,000.00 6,000.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2014
400,000.00 600,000.00 Sales 600,000.00
24,000.00 24,000.00 Dividend Income -
(170,000.00) (285,000.00) Total revenue 600,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (290,000.00)
(40,000.00) (55,000.00) Gross Profit 310,000.00
164,000.00 214,000.00 Operating Expense
Depreciation Ex (75,000.00)
- (5,000.00) Interest Exp (1,000.00)
- (5,000.00) Other Exp (55,000.00) (131,000.00)
- (1,000.00) Net Income before Impairment 179,000.00
- (3,125.00) Goodwill Impairment Loss (3,125.00)
(24,000.00) (24,000.00) Consolidated Net Income 175,875.00
(24,000.00) (38,125.00)
140,000.00 175,875.00 NCI share in the SNI 7,175.00
Parent's share in the CNI 168,700.00
CRE Consolidated Net Income 175,875.00

Consolidated Retained Earnings, 2014

Beg. Balance 300,000.00
Parent's share in the CNI 168,700.00
Dividends (60,000.00)
Ending Balance 408,700.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet As of December 31, 2014
269,000.00 ASSETS
125,000.00 Cash 269,000.00
175,000.00 Accounts Receivable 125,000.00
221,000.00 Inventory 175,000.00 569,000.00
227,500.00 Land 221,000.00
457,500.00 Equipment, net 227,500.00
- Building, net 457,500.00
9,375.00 Goodwill 9,375.00 915,375.00
1,484,375.00 Total Assets 1,484,375.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
297,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 297,000.00 497,000.00
408,700.00 Common Stock 500,000.00
78,675.00 Retained Earnings 408,700.00
1,484,375.00 NCI 78,675.00 987,375.00
Total Liabilities and SHE 1,484,375.00

Perfect and Subsidiary Co.

Consolidated
Parent's Net Net Income
Income (PNI) (CNI)
Consolidated
Parent's Net Net Income Consolidated Income Statement
Income (PNI) (CNI) As of December 31, 2015
450,000.00 750,000.00 Sales 750,000.00
32,000.00 32,000.00 Dividend Income -
(180,000.00) (340,000.00) Total revenue 750,000.00
(50,000.00) (70,000.00) Cost of Goods Sold (340,000.00)
(60,000.00) (105,000.00) Gross Profit 410,000.00
192,000.00 267,000.00 Operating Expense
Depreciation Ex (75,000.00)
- - Interest Exp (1,000.00)
- (5,000.00) Other Exp (105,000.00) (181,000.00)
- (1,000.00) Net Income before Impairment 229,000.00
- - Goodwill Impairment Loss -
(32,000.00) (32,000.00) Consolidated Net Income 229,000.00
(32,000.00) (38,000.00) unrealized gain on Investments 10,000.00
160,000.00 229,000.00 Consolidated Comprehensive Incom 239,000.00

- 10,000.00 NCI share in the SNI 15,800.00

160,000.00 239,000.00 Parent's share in the CNI 223,200.00
Consolidated Net Income 239,000.00

olidated Retained Earnings, 2015 Accumulated Other Comprehensive Income, 2015

Beg. Balance 408,700.00 Beg. Balance -
Parent's share in the CNI 215,200.00 Unrealized Gain on Investments 8,000.00
(60,000.00) Ending Balance 8,000.00
Ending Balance 563,900.00

Perfect and Subsidiary Co.

Consolidated Consolidated Balance Sheet
Balance Sheet As of December 31, 2015
286,000.00 ASSETS
230,000.00 Cash 286,000.00
270,000.00 Accounts Receivable 230,000.00
30,000.00 Inventory 270,000.00
221,000.00 Investment in AFS 30,000.00 816,000.00
200,000.00 Land 221,000.00
410,000.00 Equipment, net 200,000.00
- Building, net 410,000.00
9,375.00 Goodwill 9,375.00 840,375.00
1,656,375.00 Total Assets 1,656,375.00
200,000.00 LIABILITIES AND SHAREHOLDER'S EQUITY
298,000.00 Accounts Payable 200,000.00
500,000.00 Bonds Payable, net of discount 298,000.00 498,000.00
563,900.00 Common Stock 500,000.00
8,000.00 Retained Earnings 563,900.00
86,475.00 Accumulated OCI 8,000.00
1,656,375.00 NCI 86,475.00 1,158,375.00
Total Liabilities and SHE 1,656,375.00
ILLUSTRATION 3-8: SUBSIDIARY 'S DISPOSAL OF DIFFERENTIAL-RELATED ASSETS

To illustrate, assume that on January 1, 2014, Pluto purchases all of the Star at P100,000 more than book value
P250,000. So long as Star continues to hold the land, the P100,000 differential is assigned to Land in the conolid
P400,000.

REQUIRED:
1. Prepare the journal entries.
2. How much should be reported as Gain on:
a. Separate Financial Statements
b. Consolidated Financial Statements

SOLUTION:

JOURNAL ENTRIES
Account Title Debit Credit
Cash 400,000.00
Land 250,000.00
Gain on Sale of Land 150,000.00
####
000 more than book value. All the differential relates to land that Star had purchased earlier for
gned to Land in the conolidation workpaper. Star sells the land to an unrelated company for

Separate Consolidated
FS FS
Cash Proceeds 400,000.00 400,000.00
Land Value 250,000.00 350,000.00
Gain on Sale of land 150,000.00 50,000.00
ILLUSTRATION 3-9: DECONSOLIDATION OR DERECOGNITION OF SUBSIDIARY

Parent Corporation owns an 85% interest in Subsidiary Corporation. On December 31, 2014 in the Parent's
net assets is P1,000,000 and the carrying value of the non-controlling interest in Subsidiary (including the no
income) is P100,000. On January 1, 2015, Parent Corporation decided to sell a 50% interest in Subsidiary to
transaction, Parent loses control of Subsidiary but retains a 35% interest in the former subsidiary, valued at
35% in Subsidiary as an FVTOCI investment.

REQUIRED:
1. Compute the Gain on sale of subsidiary's stock.
2. Prepare the journal entries on deconsolidation of subsidiary.

SOLUTION:

JOURNAL ENTRIES
Cash Proceeds 600,000.00 50%
FV of the NCI 350,000.00 35%
CV of the NCI 100,000.00 15%
Total FV 1,050,000.00 100%
CV of the INA 1,000,000.00
Gain on Deemed sale 50,000.00
On December 31, 2014 in the Parent's consolidated financial statementsthe carrying value of Subsidiary's
g interest in Subsidiary (including the non-controlling interest's share of accumulated other comprehensive
d to sell a 50% interest in Subsidiary to a third party in exchange for cash of P600,000. As a result of this
rest in the former subsidiary, valued at P350,000 on that date. Parent Corporation classifies its remaining

RNAL ENTRIES
Account Title Debit Credit
Cash 600,000.00
Investment in Shares (FVTOCI) 450,000.00
Investment in Subsidiary 1,000,000.00
Gain on Deemed sale of Subsi - 50,000.00
####
ILLUSTRATION 3-10: SALE OF SUBSIDIARY - NOT RESULTING IN LOSS OF CONTROL (DILUTION) - NO ADDITI

Pare Company owns 80,000 shares of Sare Corporation's 100,000 outstanding common shares, acquired at
balance sheet presented by Pare and Sare included net assets of Sare in the amount of P600,000. On Janua
to unrelated parties for P70,000.

REQUIRED:
1. Compute the amount that will be transferred to the Additional Paid-in Capital

SOLUTION:

Cash Proceeds
Carrying Value of the NCI (P600,000*10%)
Increase in the APIC Account
OL (DILUTION) - NO ADDITIONAL SHARES ISSUED

ommon shares, acquired at book value. The December 31, 2014, consolidated
ount of P600,000. On January 1, 2015, Pare sells 10,000 shares (10%) of its Sare stock

70,000.00
60,000.00
10,000.00
ILLUSTRATION 3-11: SALE OF SUBSIDIARY - NOT RESULTING IN LOSS OF CONTROL (DILUTION) - WITH ADDITIO

Pare Company owns 80,000 shares of Sare Corporation's 100,000 outstanding common shares, acquired at boo
sheet presented by Pare and Sare included net assets of Sare in the amount of P600,000. On January 1, 2015, S
unrelated parties for P175,000.

REQUIRED:
1. Compute the amount that will be transferred to the Additional Paid-in Capital

SOLUTION:

Cash proceeds from issuance of additional shares

Less: Carrying value of NCI from issuance of additional shares:
NCI after issuance ((P600,000 + P175,000) * (45,000 shares / 125,000 shares))
NCI prior issuance (P600,000 * (20,000 shares / 100,000 shares)
Increase in the APIC Account
ROL (DILUTION) - WITH ADDITIONAL SHARES ISSUED

common shares, acquired at book value. The December 31, 2014, consolidated balance
P600,000. On January 1, 2015, Sare issues 25,000 additional shares of common stock to

175,000.00

25,000 shares)) 279,000.00

120,000.00 159,000.00
16,000.00
ILLUSTRATION 3-12: FAIR VALUE OPTION/MODEL: JOURNAL ENTRIES

To illustrate the use of the fair value model, assume that Pair Company purchases 75% of Share Company's
financial statements at the end of each calendar quarter. On March 1, 2014, Pair receives a cash dividend o
Company. On March 31, 2014 Pair Company determines the fair value of its investment in Share to be P207
following entries on its books in relation to its inventory in Share.

REQUIRED:
1. Prepare the journal entries using the Fair Value Option

SOLUTION:

JOURNAL ENTRIES
Account Title
Jan. 1, 2014 Investment in Share Company
Cash
####
March 1, 2014 Cash
Dividend Income
####
March 31, 2014 Investment in Share Company
Unrealized Gain on share
####
75% of Share Company's Common Stock on january 1, 2014 for P200,000. Pair prepares
eceives a cash dividend of P1,500 (P2,000 dividends declared and paid x 75%) from Share
ment in Share to be P207,000. During the first quarter of 2014, Pair records the

Debit Credit
200,000.00
200,000.00

1,500.00
1,500.00

7,000.00
7,000.00

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