COLLEGEOFBUSINESSANDACCOUNTANCY

ACCOUNTING7A
SEMIFINALEXAMINATION

March3,2016
WEDNESDAY,8:00AM11:00AM

SETA
INSTRUCTIONS: CHOOSE THE BEST ANSWER FOR EACH OF THE FOLLOWING QUESTIONS. FULLY
SHADEONLYONEBOXFOREACHITEM.STRICTLYNOERASURESALLOWED.
PROBLEM1.ChapelHillCompanyhadcommonstockofP350,000andretainedearnings
ofP490,000.BlueTown,Inc.hadcommonstockofP700,000andretainedearningsof
P980,000.OnJanuary1,2016,BlueTownissued34,000sharesofcommonstockwith
aP12parvalueandaP35fairvalueforallofChapelHillCompany'soutstanding
commonstock.Thiscombinationwasaccountedforasanacquisition.
1.Immediatelyafterthecombination,whatwastheconsolidatednetasset?
A.P2,870,000
B.P2,520,000
C.P3,710,000
D.P1,680,000
PROBLEM2.AtlasCorporationacquiredan80%interestinRogetsCompanyonJanuary
1,2016forP1,225,000.Onthisdate,thecapitalstockandretainedearningsof
thetwocompanieswereasfollows:
Atlas

Rogets

CapitalStock

P3,150,000

P875,000

RetainedEarnings

1,400,000

175,000

TheassetsandliabilitiesofRogetswerestatedattheirfairvalueswhenAtlas
acquiredits80%interestandtheproportionateshareinnetidentifiableassets
wasusedtoinitiallymeasurethenoncontrollinginterest.
Netincomeanddividendsfor2016fortheaffiliatedcompanieswere:
Atlas

Rogets

Netincome

P525,000

P157,500

Dividendsdeclared

315,000

87,500

2.WhatistheconsolidatedretainedearningsatDecember31,2016?
A.P2,041,400
B.P1,969,000
C.P1,656,400
D.P1,654,000
PROBLEM3. TheMCompanyholdsan85%interestintheHCompany.Atthecurrent
yearend,MholdsinventorypurchasedfromHforP330,000atcostplus10%.The
group'sconsolidatedstatementoffinancialpositionhasbeendraftedwithoutany
adjustmentsinrelationtothisholdingofinventory.
3.Whatadjustmentshouldbemadetothedraftconsolidatedstatementoffinancial
positionfiguresfornoncontrollinginterest?
A.Nochange
C.ReducebyP4,500
B.ReducebyP6,000
D.IncreasebyP6,000
4.Whatadjustmentshouldbemadetothedraftconsolidatedstatementoffinancial
positionfiguresforretainedearnings?
A.ReducebyP30,000
C.ReducebyP25,500

Ms.

B.ReducebyP33,000

D.ReducebyP28,050

PROBLEM 4. The S company owns 95% of the G company. On the last day of the
accounting period, G sold to S a noncurrent asset for P230,000. The asset
originally cost P480,000 and at the end of the reporting period its carrying
amount in the books of G was P175,000. The group's consolidated statement of
financial position has been drafted without any adjustments in relation to this
noncurrentasset.Whatadjustmentsshouldbemadetotheconsolidatedstatement
offinancialpositionfiguresfornoncurrentassetsandretainedearnings?
5.

Noncurrentassets

Retainedearnings

A.

IncreasebyP250,000

IncreasebyP237,500

B.

ReducebyP55,000

ReducebyP55,000

C.

ReducebyP55,000

ReducebyP52,250

D.

IncreasebyP250,000

Increaseby250,000

PROBLEM5.ACorporationacquiredan80%interestinRCompanyonJanuary1,2016
for P245,000. On this date, the capital stock and retained earnings of the two
companieswereasfollows:
A

CapitalStock

P630,000

P175,000

RetainedEarnings

280,000

35,000

TheassetsandliabilitiesofRwerestatedattheirfairvalueswhenAacquired
its80%interestandtheproportionateshareinnetidentifiableassetswasused
to initially measure the noncontrolling interest. Net income and dividends for
2016forthecompanieswere:
A

NetIncome

P105,000

P31,500

Dividendsdeclared

63,000

17,500

Dividendspayable

31,500

8,750

EndofyearevaluationindicatesaP2,400impairmentingoodwill.
6.WhatistheconsolidatedretainedearningsatDecember31,2016?
A.P408,280
B.P393,800
C.P331,280
D.P330,800
PROBLEM6. OnJanuary1,2016,ACompanypurchased80%oftheoutstandingshares
ofECorporationatacostofP280,000.Onthatdate,ECorporationhadP120,000
of capital stock and P200,000 of retained earnings. For 2016, A had income of
P120,000 from its own operations and paid dividends of P40,000. For 2016, E
reportednetincomeofP60,000andpaiddividendsofP20,000.Alloftheassets
and liabilities of E had book values approximately equal to their respective
marketvalues.OnApril1,2016,EsoldequipmentwithabookvalueofP12,000to
AforP24,000.ThegainonsaleisincludedintheincomeofE.Theequipmentis
expectedtohaveausefullifeoffiveyearsfromthedateofthesale.
7.Howmuchisthenoncontrollinginterestinnetincome?

A.P9,960

B.P10,080

C.P13,800

D.P10,560

PROBLEM7. ER,Inc.,EE1,Inc.,andEE2,Inc.aretocombine.Thestockholders'
equity on their respective Statement of Financial Position immediately prior to
combinationshow:
ER,Inc.

EE1,Inc.

EE2,Inc.

Commonstock

P300,000

P200,000

P400,000

Sharepremium

70,000

100,000

Retainedearnings

(40,000)

60,000

90,000

As per appraisal, book values of EE1's assets and liabilities approximate their
fair value except for Land and Noncurrent liabilities which are undervalued by
P50,000 and P10,000, respectively. EE2's Equipment and Longterm debt is
overvalued by P80,000 and P130,000, respectively. All other book values of the
assetsandliabilitiesofEE2areequaltotheirfairvalues.Itwasagreedthat
ERshallissueitsownsharesofstockstoEE1andEE2.Twentyfivepercentofthe
totalstocksissuedshallbereceivedbyEE1andtheremainingwillbegivento
EE2. ER paid P20,000 and P90,000 indirect cost with EE1 and EE2's business.
Immediately,afterthecombination,ERhasacommonstockbalanceofP1,100,000.
ER'sstockhasaP100parvalueandamarketvalueofP!50.
8.Howmuchisthegainontheacquisition?
A.P100,000
B.P120,000

C.P140,000

9.Howmuchisthegoodwillfromtheacquisition?
A.P200,000
B.0
C.P360,000

D.0
D.P620,000

10.How much retained earnings is to be reported in the combined Statement of

FinancialPosition?
A.P50,000
B.P60,000
C.(P50,000)
D.(P60,000)
PROBLEM8.OnJanuary1,2016,PJCompanypurchased80%oftheoutstandingshares
of SC Company at a cost of P720,000. On that date, SC had P400,000 of capital
stock and P500,000 of retained earnings while PJ Company had capital stock of
P1,000,000andretainedearningsofP600,000.AlltheassetsandliabilitiesofSC
Companyhavebookvaluesequaltotheirrespectivemarketvalues.
For 2016, PJ Company reported net income of P320,000 and paid dividends of
P150,000. For 2016, SC reported net income of P85,000 and paid dividends of
P40,000.
OnJanuary1,2016,PJCompanysoldequipmenttoSCCompanyforP75,000.Thebook
value of the equipment on that date was P100,000. The equipment is expected to
haveausefullifeoffiveyearsfromthedateofsale.Alsoduringthatyear,SC
sold merchandise to PJ Company amounting to P80,000 which includes a profit of
P20,000.70%ofthesemerchandiseweresoldbyPJtooutsidersin2016.
11.HowmuchistheConsolidatedRetainedEarningsattributabletoPJ?
A.P853,200
B.P837,000
C.P820,000
D.P821,200
PROBLEM 9. Marie Co. acquired inventories on May 1, 2015, from its 70% owned
subsidiary,PazCompany.TheinventoriesweresoldforP94,000,includingthe25%
markuponcost.Outoftheseinventories,65%weresoldtooutsiders.Duringthe

year, Marie reported net income of P215,000 and Paz reported net income of
P140,000.
12.HowmuchistherealizedprofittobeallocatedtoNCIin2016?
A.P6,580
B.P1,974
C.P2,467.50
D.P3,666.67
PROBLEM 10. Provided below is the Condensed Statement of Financial Position (in
thousands)forPlayandStationCorporationsatDecember31,2015
Play

Station

Currentassets

P585

P270

Noncurrentassets

2,565

1,980

Totalassets

P3,150

P2,250

Currentliabilities

P225

P270

Ordinaryshare,P30

2,250

900

Sharepremium

225

630

Retainedearnings

450

450

TotalLiabilitiesandEquity

P3,150

P2,250

OnJanuary2,2016,Playissues120,000sharesofitsstockwithamarketvalueof
P30 per share for the net assets of Station Corporation. Because of the
acquisition,Stationwasdissolved.Thebookvaluesreflectfairvaluesexceptfor
anoncurrentassetofPlay,whichhasafairvalueofP1,800,000,andthecurrent
assetsofStation,whichhasanetrealizablevalueofP450,000.PlaypaysP67,500
for costs of registering and issuing securities issued and P112,500 for other
acquisitioncostsrelatedtocombination.Contractforcontingentconsiderationto
bepaidtoStationisP337,500.Thisisdeterminedonthedateofacquisition.
13.WhatisthetotalassetsofPlayafteracquisition?
A.P5,580,000
B.P7,357,500
C.P5,400,000

D.P7,177,500

PROBLEM11. PiendaCompanyacquired80%ofPangoyroidCompany'scommonstockfor
P350,000. At that date, the noncontrolling interest in Pangoyroid has a fair
valueofP150,000.IdentifiableassetswerecarriedatP600,000inthebooksof
Pangoyroid but had a fair value of P800,000. Liabilities had a book value of
P250,000whichwasequaltothefairvalueonthesamedate.
14.If fair value of the net identifiable assets is to be valued on the
proportionatebasis,howmuchshouldberecognizedasgainonbargainpurchase?
A.P90,000
B.P40,000
C.P50,000
D.0
PROBLEM12.OnJanuary2,2015,PCorporationpurchased70%ofthecommonstockof
S Company for P1,650,000. At that date, S had P1,725,000 of common stock
outstandingandretainedearningsofP555,000.Equipmentwitharemaininglifeof
fiveyearshadabookvalueofP850,000andafairvalueofP900,000.S'remaining
assetshadbookvaluesequaltotheirfairvalues.Allintangiblesexceptgoodwill
areexpectedtohaveremaininglivesof10years.P'sincomedoesnotincludeany
dividendincomefromS.P'sretainedearningsbalanceatthedateofacquisition
wasP2,000,000.TheincomeanddividendfiguresforbothPandSareasfollows:

INCOME

DIVIDENDS

2015

P550,000

P150,000

2016

650,000

200,000

2015

100,000

30,000

2016

250,000

45,000

15.Howmuchistheconsolidatednetincomeattributabletoparentin2015?
A.P592,000
B.P613,000
C.P610,000
D.P620,000
16.Howmuchistheconsolidatednetincomein2016?
A.P890,000
B.P832,000
C.P786,500

D.P900,000

17.WhatistheconsolidatedretainedearningsatDecember31,2015?
A.P2,460,000
B.P2,442,000
C.P2,470,000
D.P2,463,000
18.WhatistheconsolidatedretainedearningsatDecember31,2016?
A.P3,088,000
B.P3,078,000
C.P3,081,000
D.P3,060,000
PROBLEM 13. On January 2, 2016, Kaykayy Corporation purchased 85% of the
outstanding shares of Nips Company for P3,060,000. At that date, Nips had
P4,000,000ofordinarysharesoutstandingandretainedearningsofP1,600,000.
Nips' equipment, with a remaining life of five years is undervalued by
P380,000.Theremainingassetshadbookvaluesequaltotheirfairvalues.
Kaykayy reported a separate net income in 2016 of P600,000 and paid
dividendsamountingtoP220,000.Forthesameyear,Nipsreportednetincome
ofP340,000andpaiddividendsofP70,000.
In 2017, Kaykayy reported net income of P1,100,000 and paid dividends of
P390,000 while Nips had a net income of P510,000 and paid dividends of
P130,000.
Kaykayy's retained earnings balance at the date of acquisition was
P3,450,000
Computeforthefollowing:
19.Goodwill(gain)fromtheacquistion
A.P2,023,000
B.(P2,023,000)

C.P2,380,000

D.(P2,380,000)

20.ConsolidatednetincomeattributabletoKaykayyin2016
A.P2,847,400
B.P953,600
C.P3,204,400

D.P824,400

21.NCINISin2017
A.P61,500

C.P87,900

D.P89,700

22.Consolidatedprofitin2017
A.P1,419,900
B.P1,358,400

C.P1,423,500

C.P1,293,300

27.2016ConsolidatedRetainedEarnings
A.P4,183,600
B.P6,434,400

C.P4,045,400

D.P6,077,400

23.2017ConsolidatedRetainedEarnings
A.P5,013,800
B.P7,402,800

C.P7,045,800

D.P5,152,000

B.P65,100

24.2016NCINAS
A.P569,100

B.P926,100

C.P591,900

D.P948,900

25.2017NCINAS
A.P971,700

B.P611,100

C.P660,300

D.P990,900

PROBLEM 14. Lawrence Company acquires 25% of Kent Company's common stock for
P190,000 cash and carries the investment using the cost method. After three
months, Lawrence purchases another 60% of Kent's common stock for P540,000. On
this date, Kent reports identifiable net assets with carrying value of P720,000
andfairvalueofP920,000.TheliabilitiesofKenthasabookandfairvalueof
P280,000. Lawrence paid a control premium of P6,000 for this acquisition. A
contingent payment of P16,500 will be paid if Kent generates cash flows from
operationsofP27,000ormoreinthenextyear.Lawrenceestimatesthatthereisa
95%probabilitythatKentwillgenerateatleastP27,000nextyear.Thefairvalue
ofthecontingentconsiderationis120%ofthecontrolpremium.Thefairvalueof
the15%noncontrollinginterestisP125,000.
26.HowmuchistheFairValueoftheSubsidiary?
A.P778,200
B.P910,200
C.P772,200

D.P916,200

27.Howmuchisthegoodwill(gain)fromtheacquisition?
A.(P147,800)
B.(P9,800)
C.(P3,800)

D.(P141,800)

PROBLEM15.OnJanuary1,2016,MaeCompanyacquired80%ofEyreCompany'scommon
stock for P280,000. At that date, Eyre reported common stock outstanding of
P200,000andretainedearningsofP100,000,andthefairvalueofnoncontrolling
interest was P70,000. The book values and fair value of Eyre's assets and
liabilitieswereequal,exceptforotherintangibleassetswhichhasafairvalue
P50,000 greater than book value and an eightyear remaining life. Eyre reported
thefollowingdatafor2016and2017
YEAR

NETINCOME

COMPREHENSIVEINCOME

DIVIDENDSPAID

2016

P25,000

P30,000

P5,000

2017

P35,000

P45,000

P10,000

Mae reported separate net income of P100,000 and paid dividends of P30,000 for
bothyears.
28.Whatisthegoodwillfromtheacquisition?
A.P121,493
B.P92,297

C.0

D.P121,896

29.Whatistheamountofconsolidatedcomprehensiveincomereportedfor2016?
A.P125,000
B.P119,000
C.P118,750
D.P123,750
30.What is the amount of comprehensive income attributable to the controlling
interestin2017?
A.P138,750
B.P128,750
C.P131,000
D.P135,000
31.WhatistheamountofNCICNIS?
A.P7,570
B.P7,750
C.P9,000
D.P10,250
PROBLEM 16. Christine Company acquired 70% interest in the Rona Company for
P1,420,000whenthefairvalueofRona'sidentifiableassetsandliabilitieswas
P1,200,000.Christineacquired65%interestinBlessylCompanyforP300,000when

the fair value of Blessyl's identifiable assets and liabilities was P640,000.
Christinemeasuresnoncontrollinginterestattherelevantshareofidentifiable
netassetsattheacquisitiondate.
32.Whatisthegoodwillfromtheacquisition?
A.P580,000
B.P116,000

C.0

D.P464,000

33.Whatisthegainfromtheacquisition?
A.P580,000
B.P116,000

C.0

D.P464,000

PROBLEM17.You'reNotMyTypeJudeCompanyhasgainedcontrolovertheoperations
ofDanielleCorporationonMay1,2016byacquiring85%ofitsoutstandingcapital
stock for P2,580,000. This amount includes a control premium of P30,000.
Acquisition expenses, direct and indirect, amounted to P83,000 and P42,000,
respectively.
You'reNotMyTypeJude

Danielle

Cash

P3,541,500

P128,000

AccountsReceivable

300,000

325,000

Inventories

550,000

360,000

PrepaidExpenses

148,500

125,000

Land

2,350,000

879,000

Building

1,560,000

558,000

Equipment

300,000

185,000

Goodwill

300,000

TotalAssets

P8,750,000

P2,860,000

AccountsPayable

P675,000

P253,000

NotesPayable

1,400,000

730,000

Capitalstock,P50par

3,400,000

800,000

SharePremium

1,575,000

600,000

RetainedEarnings

1,700,000

477,000

TotalLiabilityandEquity

P8,750,000

P2,860,000

The value of receivables and equipment has decreased by P25,000 and P14,000,
respectively.ThefairvalueofinventoriesisnowP436,000whereasthevalueof
landandbuildinghasincreasedbyP471,000andP107,000,respectively.Therewas
anunrecordedaccountspayableamountingtoP27,000andthefairvalueofnotesis
P738,000.Theremaininglifeoftheequipmentistwoyears,however,thebuilding
stillhassixyears.ThenetincomeofYou'reNot My TypeJudeisP100,616and
Danielle'sisP92,297fromthedateofacquisition.Goodwill,ifany,shouldbe
written down to P772,384. Dividends declared by You're Not My Type Jude and
DanielleattheendoftheyearamountedtoP20,000andP15,000,respectively.
Computeforthefollowingbalances:
34.Goodwillorgainfromtheacquisition
A.P873,000
B.P878,300

C.P887,300

D.P837,000

35.Consolidatedassetsonthedateofacquisition
A.P11,925,000
B.P10,093,000
C.P10,218,000

D.P12,798,000

36.Consolidatedshareholder'sequityonthedateofacquisition
A.P6,550,000
B.P6,675,000
C.P7,000,000

D.P7,500,000

37.Consolidatedprofit(loss)
A.(P7,285)
B.(P679,053)

C.(P3,675)

D.(P665,182)

38.NCINASattheendoftheyear
A.P433,997
B.P434,538

C.P332,714

D.P343,515

39.Consolidatedretainedearningsatyearend
A.P1,689,537
B.P1,686,567
C.P1,115,983

D.P1,119,053

40.Consolidatedshareholder'sequityatyearend
A.P6,973,534
B.P6,974,075
C.P6,400,520

D.P7,099,075