1-10 Erico acquires assets and liabilities of Mariel Company on January 1, 20x5.

To obtain these shares,

Erico pays P800 (in thousands) and issues 20,000 shares of P20 par value common stock on this date.
Erico stock had a fair value of P36 per share on that date. Erico also paysP30 (in thousands) to a local
investment firm for arranging the transaction. An additional P20 (in thousands) was paid by Erico in
stock issuance costs.

The book values for both Erico and Mariel as of January 1, 20x5 follow. The fair value of each of Erico
and Mariel accounts is also included. In addition, Mariel holds a fully amortized trademark that still
retains an P80 (in thousands) value. The figures below are in thousands. Any related question also is in
thousands.

Mariel Paderes Company

Erico Inc. Book Value Fair Value
Cash P 1,800 P 160 P 160
Receivables 960 360 320
Inventory 1,320 520 600
Land 600 240 260
Buildings (net) 2,400 440 560
Equipment (net) 720 200 150
Account Payable 960 120 120
Long-term liabilities 2,280 680 600
Common stock 2,400 160
Retained earnings 2,160 960

Assuming the combination is accounted for as an acquisition, immediately after the acquisition, in the
balance sheet of Erico:

1. What amount will be reported for goodwill?

a. P100 c. P140
b. P130 d. P270
2. Using the same information above, what amount will be reported for receivables?
A. P1,320 C. P1,000
B. P1,280 D. P 920
3. Using the same information above, what amount will be reported for inventory?
A. P1,920 C. P1,400
B. P1,840 D. P1,240
4. Using the same information above, what amount will be reported for buildings (net)?
A. P2,840 C. P2,280
B. P2,520 D. P2,960
5. Using the same information above, what amount will be reported for equipment (net)?

A. P770 C. P870
 B. P670 D. P720

6. Using the same information above, what amount will be reported for long-term liabilities?
A. P2,960 C. P2,360
B. P2,880 D. P2,200
7. Using the same information above, what amount will be reported for common stock?
A. P2,400 C. P2,800
B. P2,560 D. P2,960
8. Using the same information above, what amount will be reported for retained earnings?

A. P2,130 C. P3,050

B. P2,160 D. P3,120

9. Using the same information above, what amount will be reported for additional paid in capital?
A. P330 C. P320
B. P300 D. P350
10. Using the same information above, what amount will be reported for cash after the purchase
transaction?
A. P1,960 C. P1,750
B. P1,800 D. P1,110

11-12 The Delta Company purchased an 80% interest in the Midwest Company for

$550,000 on January 1, 19X1, when Midwest had the following balance sheet: Assets

Accounts receivable. $ 50,000

Inventory.................................................... 120,000

Land.........................................................80,000

Building..................................................... 270,000

Equipment.................................................... 80,000

Total. $600,000

========

Liabilities and Equity

Current liabilities $100,000

Common stock, $5 par. 50,000

Paid-in excess of par. 150,000

Retained earnings. 300,000

Total. $600,000

The inventory is understated by $20,000 and is sold during 19X1. The building has a market value of
$300,000 and a 10-year remaining life. The equipment has a market value of $120,000 and a remaining
life of 5 years. Any remaining excess is attributed to goodwill with a 20-year life.

On December 31, 19X4, Midwest has the following stockholders' equity: Common stock, $5 par. $
50,000

Paid-in excess of par. 150,000

Retained earnings. 550,000

During 19X5, Midwest had a net income of $100,000 and paid $10,000 in dividends.

Assume that Delta uses the sophisticated equity method to record its investment in Midwest.

11. Prepare a determination and distribution of excess schedule as of January 1, 19X1.

12. Prepare the eliminations and adjustments that would be made on the December 31, 19X5,
consolidated worksheet to eliminate the investment in Midwest. Distribute and amortize any
excess.

13. In 20x5, Punco sold inventory costing P60,000 to its 100%-owned subsidiary, Sunco, for
P100,000. At 12/31/x5, P20,000 of this inventory was reported in Sunco's balance sheet. In
20x60 Sunco resold this inventory for P30,000. What is the unrealized intercompany profit at
12/31/x5?

a. P8,000 c. P20,000 e. None of the above

b. P10,000 d. P30,000

14. In 20x5, Pimco sold inventory costing P45,000 to its 100%-owned subsidiary, Simco, for P75,000.
At 12/31/X5, P15,000 of this inventory was reported in Simco's balance sheet. In 20x6, Simco
resold this inventory for P25,000. What is the unrealized intercompany profit at 12/31/x5?

a. P6,000 c. P16,000 e. None of the above

b. P10,000 d. P20,000

15. ln 20x6, Semco resold for P40,000 inventory that it had acquired in 20x5 from its parent
company, Pemco, for P32,000. Pemco's cost was P25,000. In consolidation at the end of 20x6,
which of the following accounts is credited in consolidation?
 a. Intercompany Cost of Soles for P32,000.

b. Cost of Sales for P7,000

c. Inventory for P32,000.

d. Cost of Sales for P8,000

16. In 20x6, Pulco acquired inventory from its 75%-owned subsidiary, Sulco, for P250 000. Sulco's
cost was P200,000. At 12/31/X6, Pulco reported P40,000 of intercompany-acquired inventory in
its balance sheet. The amount by which the 2006 consolidated net income that accrues to the
controlling will be lower as a result of this being an intercompany transaction is

a. P6,000 c. P30,000 e. None of the above

b. P8,000 d. P40,000

17. In its consolidated 20x6 financial statements, Pozak recognized P37,000 of intercompany profit
relating to upstream inventory sales from its 75%-owned subsidiary (Sozak). Of this amount,
P7,000 pertained to intercompany profit deferred at 12/31/0x5. During 20x6, downstream
intercompany sales totaled P100,000 (Pozak's cost was P60,000). What amount was credited to
Inventory in consolidation at 12/31/X6? (Hint: Prepare the analysis of unrealized profit for the
2006 transfers-this is possible from the information given.)

a. P0 c. P10,000 e. None of the above

b. P7,000 d. P30,000

18. In 20x6, Semco resold for P55,000 inventory that it had acquired in 20x5 from its parent, Pemco,
for P30,000. Pemco’s cost was P40,000. Which account is credited in consolidation at 12/31/x6?

a. Intercompany Cost of Sales for P40,000

b. Cost of Sales for P10,000

c. Inventory for P10,000

d. Cost of Sales for P15,000

e. None of the above

19. On December 1, 20x4. Darlene Ltd. acquired all assets and liabilities of Shyndelle Ltd with
Darlene Ltd. issuing 100,000 shares to acquire these net assets. The fair value of Shyndelles
Ltd’s. assets and liabilities at this date were: Cash P 50,000Furniture and fittings 20,000Accounts
receivable 5,000Plant 125,000Accounts payable 15,000Current tax liability 8,000Provision for
annual leave 2,000The financial year for Darlene Ltd.is January-December. The fair value of each
Darlene Ltd. Share at acquisition date is P1.90. At acquisition date, the acquirer could only
determine a provisional fair value for the plant. On March 1, 20x5, Darlene Ltd. received the
final value from the independent appraisal, the fair value at acquisition date being P131,000.
 Assuming the plant had a further five-year life from the acquisition date. The amount of
goodwill arising from the business combination at December 1, 20x4:

A. P15,000
B. P5,000
C. P13,000
D. P 0

20. John Corporation concluded that the fair value of Carlo Company was P80,000and paid that
amount to acquire all of its net assets. Carlo reported assets with a book value of P60,000 and
fair value of P98,000 and liabilities with a book value and fair value of P23,000 on the date of
combination. John also paid P3,000 to a search firm for finder’s fees related to the acquisition.
What amount will be recorded as goodwill by John Corp.?

A. P 0
B. P 8,000
C. P5,000
D. P13,000

21. The Marc Company had these accounts at the time it was acquired by Francis Co.: Cash P
72,000; Accounts receivable 914,000; Inventories 240,000;Plant, property and equipment
1,392,800Accounts payable 701,600Francis Co. paid P2,800,000 for net assets of Marc
Company. It was determined that fair market values of inventories and plant, property, and
equipment were P266,000 and P1,800,000, respectively. An assumed contingent liability arising
from past events with a fair value amounting to P20,000and as such amount is considered
reliable measurement. In the books of Francis Co., this transaction resulted in:

A. Goodwill recorded at P882,800

B. Goodwill recorded at P449,600
C. Goodwill recorded at P469,600
D. Current assets increased by P469,600