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Module 5 - Intercompany Transactions (Hand - Outs 1)

The document is a module for an accounting course focusing on business combinations, specifically detailing problem exercises related to consolidated financial statements. It includes scenarios involving acquisitions, intercompany transactions, and the preparation of consolidated income statements and balance sheets. Students are required to analyze financial data from multiple companies and calculate various accounting metrics for consolidation purposes.

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Kim Crisha Aguinaldo
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31 views2 pages

Module 5 - Intercompany Transactions (Hand - Outs 1)

The document is a module for an accounting course focusing on business combinations, specifically detailing problem exercises related to consolidated financial statements. It includes scenarios involving acquisitions, intercompany transactions, and the preparation of consolidated income statements and balance sheets. Students are required to analyze financial data from multiple companies and calculate various accounting metrics for consolidation purposes.

Uploaded by

Kim Crisha Aguinaldo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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UNIVERSITY OF THE EAST – Caloocan

College of Business Administration


Department of Accountancy, Business Law and Taxation
Accounting for Business Combinations (BSA 3203)
Module 5 – Problem Exercises 1

Name: _________________________________________________Yr. and Section: ____________________


Instructions: In the following questions, provide the best answer that corresponds to the question.
Provide solutions in good form.

Part I – Problems

Problem 1
Apo Company acquired 80% of Bicol Company on December 31, 2022. Based on the purchase price,
goodwill of P300,000 was recognized. The 2023 financial statements are as follows:

Apo Company Bicol Company


Sales P 800,000 P 600,000
Cost of Goods Sold ( 535,000 ) ( 400,000 )
Operating Expenses ( 100,000 ) ( 100,000 )
Dividend Income 40,000 0
Comprehensive Income P 205,000 P 100,000

Retained Earnings, Jan. 1, 2023 P 1,300,000 P 850,000


Comprehensive Income 205,000 100,000
Dividends Paid ( 100,000 ) ( 50,000 )
Retained Earnings, Dec. 31, 2023 P 1,405,000 P 900,000

Cash and receivables P 405,000 P 300,000


Inventory 298,000 700,000
Investment in Bicol Company (Cost Method) 902,000 0
Fixed Assets 1,000,000 600,000
Accumulated Depreciation ( 300,000 ) ( 200,000 )
Totals P 2,305,000 P 1,400,000

Liabilities P 600,000 P 400,000


Ordinary Share Capital 300,000 100,000
Retained Earnings 1,405,000 900,000
Totals P 2,305,000 P 1,400,000

Apo Company sells inventory costing P72,000 to Bicol Company during 2022 for P120,000. At year’s
end, 30% is left. Apo sells inventory costing P200,000 to Bicol during 2023 for P250,000. At year’s end,
20% is left.

Required:
Under these circumstances, what are the consolidated balances for the following accounts?
1. Sales.
2. Cost of Goods Sold.
3. Operating Expenses.
4. Dividend Income.
5. Non-Controlling Interest in Comprehensive Income of Subsidiary.
6. Inventory.
7. Total Non – Controlling Interests, December 31, 2023
Page 1 of 2
Problem 2
On January 1, 2023, P Company acquired 75% of the outstanding shares of S Company at book value.
P Company accounts for its investment under the cost method.

During 2025, P Company purchased merchandise from S Company in the amount of P600,000 at
billed prices. S Company shipped this merchandise at 33 1/3 percent above its cost. This price was also
used for shipments in 2024. The inventories of P Company included merchandise at billed prices from
S Company as follows:
January 1, 2025 P 60,000
December 31, 2025 76,000

Statement of Comprehensive Income for the two companies for the year 2025 are as follows:
P Company S Company
Sales P 2,000,000 P 1,000,000
Cost of Sales 800,000 500,000
Gross Profit 1,200,000 500,000
Expenses 400,000 200,000
Operating income before taxes 800,000 300,000
Dividend Income 132,000
Income before income taxes 932,000 300,000
Provision for income taxes 320,000 120,000
NCI in Comprehensive Income of Subsidiary
Comprehensive Income P 612,000 180,000

Required:
1. Prepare the consolidated statement of comprehensive income on December 31, 2025.

Problem 3
Pato Corporation owns 80% of the shares of Sales Company. At the end of 2025, Pato Corporation and
Sales Company reported the following partial operating results and inventory balances:
Pato Corporation Sales Company
Total Sales P 665,000 P 510,000
Sales to Sales Company 140,000
Sales to Pato Corporation 240,000
Comprehensive Income 20,000
Operating Income (excluding dividend income from 70,000
Sales Company)
Inventory on hand, December 31, 2025 purchased from:
Sales Company 48,000
Pato Corporation 42,000
Pato Corporation regularly prices its products at cost plus a 40% mark-up for profit. Sales Company
prices its sales at cost plus a 20% mark-up. The total sales reported by Pato and Sales include both
intercompany sales to non-affiliates.
Required:
1. What amount of sales will be reported in the consolidated statement of comprehensive income
for 2025?
2. What amount of cost of goods sold will be reported in the 2025 consolidated statement of
comprehensive income?
3. What amount of consolidated comprehensive income will be reported for 2025?
4. What balance will be reported for inventory in the consolidated statement of financial position
for December 31, 2025?

“That in all things, GOD maybe glorified”

Page 2 of 2

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