CHAPTER 17

MULTIPLE CHOICE
17-1: B Consolidated sales Sales Papa Sales San Elimination of inter-company sales Consolidated sales Consolidated cost of goods sold Cost of goods sold Papa Cost of goods sold San Eliminations: Realized profit in beginning inventory Unrealized profit in ending inventory Intercompany purchases Consolidated cost of goods sold 17-2: c Net income Sisa Unrealized profit in ending inventory upstream Adjusted net income Sisa Minority interest proportionate share Minority interest in net income of subsidiary 17-3: d Net income from own operation Pat Pats share of adjusted net income of Susan: Net income Susan P200,000 Realized profit in beginning inventory (P112,000 x 50%/150%) 37,500 Unrealized profit in ending inventory (P33,000 x 50%/150%) (11,000) Consolidated net income Attributable to minority interest (P226,500 x 30%) Attributable to parent 17-4: b Net income from own operations- Patton Unrealized profit in ending inventory DS (P200,000 x .25) Realized income Solis net loss Consolidated net income P 300,000 (50,000) 250,000 (150,000) P 100,000 P 200,000 P 60,000 ( 10,000) P 50,000 20% P 10,000 P 900,000 500,000 ( 50,000) P 1,350,000 P 490,000 190,000 ( 4,000) 10,000 ( 50,000) P 636,000

226,500 P 426,500 67,950 P 358,550

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17-5:

d Pardos share of Santos net income (P300,000 x 75%) Unrealized profit in ending inventory Upstream (P200,000 x 25%/125%) x 75% Realized profit in beginning inventory Upstream (P150,000 x 25%/125%) x 75% Investment income account balance, Dec. 31, 2008 P 225,000 ( 30,000) 22,500 P 217,500 P 200,000 P110,000 ( 10,000) 100,000 P 300,000 (25.000) P 275,000 2009 P 550,000 (15,000) 8,000 543,000 225,000 P 768,000

17-6:

d Net income from own operation Puzon Suazons adjusted net income: Net income Unrealized profit in ending inventoryUpstream (P25,000 x 40%) Consolidated net income MINIS (P100,000 x 25%) Attributable to parent b Net income from own operation Pat Unrealized profit in ending inventory: 2008 (P20,000 x .40) 2009 (P30,000 x .50) Realized profit in beginning inventory Realized income Sun net income Consolidated net income

17-7:

2008 P 500,000 (8,000) 492,000 200,000 P 692,000

17-8:

a Net income from own operation Pip Adjusted net income of Sol: Net income P 250,000 Realized profit in beginning inventoryUpstream (P40,000 x 40%) 16,000 Unrealized profit in ending inventoryUpstream (P70,000 x 30%) ( 21,000) Consolidated net income - 2008 P 400,000

245,000 P 645,000 P 500,000 ( 15,000) P 485,000

17-9:

a Net income from own operations Popo Unrealized profit in ending inventory Downstream Realized separate net income Popo Popos share of Sottos adjusted net income: Net income P 360,000 Realized profit in beginning inventoryUpstream 10,000 MINIS (P370,000 x 5%) Attributable to parent

370,000 ( 18,500) P 836,500

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17-10: a Stockholders equity Sands, Dec. 31, 2008 P5,500,000 Unamortized difference (P1,000,000 P200,000) 800,000 Adjusted stockholders equity (net assets) Sands P6,300,000 Minority interest in net assets of subsidiary (P6,300,000 x 40%)P2,520,000 17-11: d Gross profit rate Short (P110,000 / P200,000) Inventories Inventory from outsiders Power Inventory from outsiders Short Powers inventory acquired from Short at cost: [P5,000 (P5,000 x 55%)} Consolidated ending inventories Investment income Powers share of Shorts net income (P50,000 x 75%) Unrealized profit in ending inventory upstream (P5,000 x 55%) x 75% Realized profit in beginning inventory upstream (P10,000 x 55%) x 75% Investment income, Dec. 31, 2008 Investment in Short Company Acquisition cost (P80,000 x 80%) Unrealized profit in ending inventory Realized profit in beginning inventory Investment in Short Company, Dec. 31, 2008 Minority interest in net assets of subsidiary Stockholders equity, Dec. 31, 2006 Short Realized profit in beginning inventory (P10,000 x 55%) Unrealized profit in ending inventory (P5,000 x 55%) Adjusted net assets of Short, Dec. 31, 2006 Minority interest MINAS 17-12: b Gross profit rate of Sit (P200,000 / P500,000) Net income from own operations Pit Adjusted net income of Sit: Net income P 75,000 Realized profit in beginning inventoryUpstream (P40,000 x 40%) 16,000 Unrealized profit in ending inventoryUpstream (P25,000 x 40%) ( 10,000) Consolidated net income MINIS (P281,000 x 10%) Attributable to parent 55% P 5,000 25,000 2,250 P 32,250 P 37,500 ( 2,063) 4,125 P 39,562 P 60,000 ( 2,063) 4,125 P 62,062 P 80,000 5,500 ( 2,750) P 82,750 25% P 20,687.50 40% P 200,000

81,000 P 281,000 ( 8,100) P 272,900

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17-13: b Gross profit of Sir (P120,000 / P400,000) Consolidated cost of sales Cost of sales Pig Cost of sales Sir Eliminations: Realized profit in beginning inventory (P70,000 x 30%) Unrealized profit in ending inventory (P60,000 x 30%) Intercompany purchases Consolidated cost of sales Consolidated net income Net income from own operations Pig Pigs share of Sirs adjusted net income: Net income Realized profit in beginning inventory Unrealized profit in ending inventory Consolidated net income MINIS (P83,000 x 10%) Attributable to parent 17-14: a 2006 Pal Corp net income 150,000 Intercompany profit in ending inventory: 2006 (14,000) 2007 2008 Pal net income from own operation 136,000 Solo net income from own operation 100,000 Consolidated net income 236,000 MINIS: 2006(100,000 14,000) x 40% 34,400 2007(90,000 +14,000 21,000) 40% 2008(160,000 + 21,000 24,000) 40% Consolidated NI attributable to Parent 201,600 17-15: a Acquisition cost Less: book value of interest acquired (400,000 x 60%) Difference Allocated to Equipment ( 20,000) MINAS (40%) 8,000 Total sales Intercompany sales (30,000 + 80,000) Consolidated sales 2007 240,000

30% P 600,000 280,000 ( 21,000) 18,000 (200,000) P 677,000 P 200,000 P 80,000 21,000 (18,000)

83,000 283,000 (8,300) P 274,700 2008 300,000 21,000 ( 24,000) 297,000 160,000 427,000

14,000 (21,000) 233,000 90,000 323,000 33,200 289,800

62,800 394,200 252,000 240,000 12,000 (12,000) 600,000 (110,000) 490,000

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17-16: c Total cost of goods sold (250,000 +120,000) 370,000 Adjustments due to intercompany sale: COGS charged for intercompany sale (20,000 + 50,000) 70,000 COGS charged by: Star (30,000 6,000) 24,000 Polo (80,000 20,000) 60,000 Total 154,000 Cost of goods sold for consolidated entity: 20,000 x (24,000/30,000) (16,000) 50,000 x (60,000/80,000) (37,500) (100,500) Consolidated cost of goods sold 269,500 17-17: c Polo Corp. net income from own operation (105,000 25,000) Unrealized profit in ending inventory-DS (6,000 x 10/30) (2,000) Adjusted Polo Corp. net income from own operation Star Corp. net income from own operation: Net income 45,000 Unrealized profit in EI-US (20,000 x 30/80) (7,500) Amortization (20,000/10 years) (2,000) Consolidated net income MINIS (35,500 x 40%) Attributable to Parent 17-18: a Pepsi net income from own operation Sarsi net income 90,000 Unrealized profit in EI (45,000 x 60/180) (15,000) Consolidated net income MINIS (75,000 x 30%) Consolidated net income attributable to Parent-2007 17-19: a Inventory-Pepsi P 30,000 Less: unrealized profit in books of Sarsi: (135,000 90,000) x (30,000/135,000) (10,000) Inventory-Sarsi P110,000 Less: unrealized profit in books of Pepsi: (280,000 140,000) x (110,000/280,000) (55,000) Consolidated inventory 12/31/08 17-20: a Cost of goods sold on sale of inventory on hand-1/1/08: [45,000 x (120,000/180,000)] Cost of goods sold on purchases from Sarsi- 2008 [(135,000 30,000) x (90,000/135,000)] Cost of goods sold on purchases from Pepsi- 2008 [(280,000 110,000) x (140,000/280,000)] Consolidated cost of goods sold-2008 80,000 78,000

35,500 113,500 (14,200) 99,300 160,000 75,000 235,000 (22,500) 212,500

20,000 55,000 75,000

30,000 70,000 85,000 185,000

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17-21: b Pepsi net income Sarsi net income Realized profit in beginning inventory - 2008 Unrealized profit in ending inventory- Sarsi Unrealized profit in ending inventory- Pepsi Consolidated net income

220,000 85,000 15,000 (10,000) (55,000) 255,000

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PROBLEMS
Problem 17-1 a. Consolidated Net Income Net income from own operations P Company S Co. adjusted net income: Net income S Unrealized profit in ending inventory Upstream (P9,000 x 50/150) Realized profit in beginning inventoryUpstream (P6,000 x 50/150) Consolidated net income Minority Interest in Net Income of Subsidiary Adjusted net income - S Co. Minority interest Minority interest in net income of subsidiary P200,000 P30,000 (3,000) 2,000 29,000 P229,000 P 29,000 x 30% P 8,700

b.

Problem 17-2 a. Consolidated Net Income Net income from own operations P Co. Realized profit in beginning inventory Downstream (P10,500 x 40/140) Adjusted net income S Company adjusted net income: Net income S Unrealized profit in ending inventoryUpstream (P8,000 x 25%) Consolidated net income Minority Interest in Net Income of Subsidiary Adjusted net income S Co. Minority interest MINIS Minority Interest in Net Assets of Subsidiary Stockholders equity , Jan. 1, 2008 S Company Increase in earnings 2008 (P90,000 P35,000) Unrealized profit in ending inventory Upstream Stockholders equity, Dec. 31, 2008 S Company Minority interest MINAS P100,000 3,000 P103,000 P90,000 (2,000) 88,000 P191,000 P88,000 x 20% P17,600 P350,000 55,000 (2,000) P403,000 x 20% P 80,600

b.

c.

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Problem 17-3 a. Net Assets, Dec. 31, 2008 S Co. Minority interest per consolidated balance sheet, 12/31 Unrealized profit in ending inventory Upstream (P36,000 x 25/125) x 20% Minority interest per books S Co. Divided by Net assets- S Co. Price Paid Net assets S Co., Dec. 31, 2008 Net income S Co. Net assets S Co., Jan. 1, 2008 Parents interest Book value of interest acquired Difference Price paid P158,560 1,440 P160,000 20% P800,000 P800,000 (160,000) P640,000 x 80% P512,000 20,000 P532,000

b.

Problem 17-4 The computation of the selected consolidation balances are affected by the inter-company profit in downstream intercompany sales as computed below: Unrealized profit in ending inventory, Dec. 31, 2007 Downstream Intercompany profit (P120,000 P72,000) Inventory left at year end Unrealized profit, Dec. 31, 20057 P 48,000 x 30% P 14,400

Unrealized profit in ending inventory, Dec. 31, 2008 Downstream Intercompany profit (P250,000 P200,000) P 50,000 Inventory left at year end x 20% Unrealized profit, Dec. 31, 2008 P 10,000 a. Consolidated Sales Apo Bicol Intercompany sales 2008 Total Cost of goods sold Apos book value Bicols book value Intercompany sales-2008 Realized profit in beginning inventory 2008 Unrealized profit in ending inventory 2008 Consolidated cost of goods sold Operating expenses Apo Bicol Total P800,000 600,000 (250,000) P1,150,000 P 535,000 400,000 (250,000) ( 14,400) 10,000 P 680,600 P 100,000 100,000 P 200,000

b.

c.

94

d. e. f.

Dividend Income 0 (eliminated) Minority Interest in Net Income of Subsidiary (P100,000 x 30%) Inventory Apo Bicol Unrealized profit in ending inventory, Dec. 31, 2008 Consolidated inventory Minority Interest in Net Assets of Subsidiary Stockholders equity , Jan. 1, 2008 Bicol Increase in earnings in 2008 (P100,000 P50,000) Stockholders equity, Dec. 31, 2008 Bicol Minority interest MINAS P 30,000 P 298,000 700,000 (10,000) P 988,000 P 950,000 50,000 P1,000,000 x 30% P 300,000

g.

Problem 17-5 P Company and Subsidiary Consolidated Income Statement Year Ended December 31, 2008 Sales (P2,000,000 + P1,000,000 P600,000) Cost of goods sold (Schedule 1) Gross profit Expenses Income before income tax Provision for income tax Consolidated net income after income tax Attributable to minority interest (Schedule 2) Attributable to parent Schedule 1: Cost of sales P Company Purchases from S Company Intercompany profit in beginning inventory (P60,000 x 25%) Intercompany profit in ending inventory (P76,000 x 25%) Total Cost of sales S Company Consolidated cost of sales Schedule 2: Net income S Company Realized profit in beginning inventory Upstream Unrealized profit in ending inventory Upstream Adjusted net income Minority interest MINIS P2,400,000 704,000 1,696,000 600,000 1,096,000 440,000 656,000 44,000 P 612,000 P 800,000 (600,000) ( 15,000) 19,000 P 204,000 500,000 P 704,000 P 180,000 15,000 (19,000) P 176,000 x 25% P 44,000

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Problem 17-6 a. Working Paper Eliminating Entries (1) Dividend income Minority interest in net assets of subsidiary (20%) Dividends declared- D (P32,000 / 80%) To eliminate intercompany dividends. 32,000 8,000 40,000

(2)

Common stock S 90,000 Retained earnings S 220,000 Investment in S Co. stock Minority interest in net assets of subsidiary To eliminate equity accounts of S on the date of acquisition. Minority interest in net assets of subsidiary Retained earnings, Jan. 1 Cost of goods sold To eliminate realized profit in beginning inventory Sales Cost of goods sold Inventory, Dec. 31 (P45,000 x 33.33%) To eliminated intercompany sales and unrealized profit in ending inventory. 4,000 16,000

248,000 62,000

(3)

20,000 150,000 135,000 15,000

(4)

(5)

Minority interest in net income of subsidiary Minority interest in net assets of subsidiary To establish minority interest in net income of S Co. computed as follows: Sales Cost and expenses (P140,000 +P20,000) Net income Realized profit in beginning inventory Upstream Unrealized profit in ending inventory Upstream Adjusted net income Minority interest MINIS

8,000 8,000 P200,000 160,000 40,000 20,000 (15,000) P 45,000 x 20% P 9,000 P 45,000 45,000 P 90,000 P 310,000 45,000 P 355,000 x 20% P 71,000

b.

Consolidated Net Income Net income from own operations (P250,000 P205,000) S Company adjusted net income Consolidated net income Minority Interest in Net Assets of Subsidiary (MINAS) Stockholders equity, Dec. 31, 2008 S Company Adjusted net income 2008 Adjusted net assets, Dec. 31, 2008 S Co. Minority interest MINAS

c.

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Problem 17-7 a. Consolidated Sales Reported total sales (P600,000 + P510,000) Intercompany sales (P140,000 + P240,000) Consolidated sales Consolidated Cost of Goods Sold Cost of goods sold: Pato (P660,000 / 140%) Sales (P510,000 / 120% Amount to be eliminated (P128,000 + P232,000) see entry below Total P1,170,000 (380,000) P 790,000

b.

P 471,429 425,000 ( 360,000) P 536,429

Elimination of intercompany sales and intercompany profit in inventory: Downstream Sales Sales Inventory (P42,000 x 40/140) Cost of goods sold Upstream Sales Sales Inventory (P48,000 x 20/120) Cost of goods sold c. 140,000 12,000 128,000 240,000 8,000 232,000 P 70,000 (12,000) P 58,000 12,000 P 70,000

Consolidated Net Income Net income from own operations Pato Unrealized profit in ending inventory Downstream Adjusted net income Pato Add: Adjusted net income of Sales Co. Net income P20,000 Unrealized profit in ending inventory Upstream (8,000) Consolidated net income Consolidated Inventory, Dec. 31, 2008 Inventory reported Pato Inventory reported Sales Unrealized profit in ending inventory (P8,000 + P12,000) Consolidated inventory

d.

P 48,000 42,000 (20,000) P 70,000

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Problem 17-8 a. Unrealized Profit in Beginning Inventory Beginning inventory - Downstream Gross profit rate (P240,000/ P400,000) Unrealized profit in beginning inventory Unrealized Profit in Ending Inventory Ending inventory Downstream (P200,000 x 80%) Gross profit rate Unrealized profit in ending inventory b. Intercompany Sales Sales P Company Sales S Company Intercompany sales 2008 Consolidated sales Intercompany Cost of Sales Cost of sales P Company Cost of sales S Company Intercompany purchases Intercompany profit in beginning inventory Intercompany profit in ending inventory Consolidated cost of sales c. Parents interest (40,000 shares / 50,000 shares) P Company Entries 2008: (1) Investment in S Company stock Income from subsidiary To record Ps share of S Co. income (P120,000 x 80%) (2) Cash Investment in S Company stock To record dividends received from S (P60,000 x 80%) (2) Income from subsidiary 36,000 Investment in S Company stock To adjust income from subsidiary for intercompany profit in : Ending inventory (96,000) Beginning inventory 60,000 Net adjustment ( 36,000) P 100,000 x 60% P 60,000 P 160,000 x 60% P 96,000 P2,000,000 1,000,000 (400,000) P2,600,000 P 800,000 600,000 (400,000) ( 60,000) 96,000 P1,036,000 80% 96,000 96,000

48,000 48,000

36,000

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d. (1)

Working Paper Eliminating Entries: Income from subsidiary Minority interest in net assets of subsidiary (P60,000 x 20%) Dividends declared S Investment in S Company stock To eliminate intercompany dividends. 60,000 12,000 60,000 12,000

(2)

Common stock S Co. 500,000 Retained earnings S Co. 860,000 Investment in S Company stock Minority interest in net assets of subsidiary To eliminate equity accounts of S Company as of beginning of year. Goodwill Investment in S Company stock To allocate difference to goodwill. 60,000

1,088,000 272,000

(3)

60,000

(4)

Retained earnings Jan. 1 60,000 Cost of sales To eliminate realized profit in beginning inventoryDownstream. Cost of sales 96,000 Inventories To eliminate unrealized profit in ending inventoryDownstream. Sales Cost of sales To eliminate intercompany sales. 400,000

60,000

(5)

96,000

(6)

400,000

(7)

Accounts payable 50,000 Accounts receivable To eliminate intercompany payables and receivables. Minority interest in net income of subsidiary 24,000 Minority interest in net assets of subsidiary To establish minority share of S net income (P120,000 x 20%)

50,000

(8)

24,000

e.

Consolidated Net Income Net Income from own operations P Company (P480,000 P60,000) Realized profit in beginning inventory Unrealized profit in ending inventory Adjusted net income P Compay S Company net income Consolidated net income

P420,000 60,000 ( 96,000) P384,000 120,000 P504,000

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