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Advanced Accounting – Part 2

Final Quiz

Miami Corporation acquires 80,000 shares of Heat Company’s outstanding stock January 1, 2013, by
giving the following considerations below:

 Cash, P2,000,000
 Issued 80,000 shares of common stock with a P50 fair value during acquisition date.
 A contingent payment of P200,000 cash on December 31, 2014, if the average income of during
the 2-year period of 2013 – 2014 exceeds P250,000 per year. Miami estimates that there is a
30% percent change or probability that the P200,000 payment will be required.
 Miami also agreed to issue additional 5,000 shares if Heat Company will generate cash flows
from operation of P1,000,000. The additional 5,000 shares expected to be issued are valued at
P375,000.

Heat Company debited other receivables for the payments made in completing the acquisition.

Acquisition costs paid were as follows:

Broker’s fee paid to firm that located Heat 10,000


Accountant’s fee for pre-acquisition 20,000
Legal fee for contract of business combination 35,000
Cost of SEC registration, including accounting and legal fees 20,000
Printing cost of stock certificates issued 10,000
General and administrative expenses 25,000

On December 31, 2012, prior to the business combination, the following data are available:

Miami Heat
Common stock, P20 par P5,000,000
Common stock, P20 par P 2,000,000
Paid in capital in excess of par 2,500,000 1,180,000
Retained earnings 1,500,000 820,000

On the same date, the current value of Heat Company’s identifiable assets and liabilities were the same
as their carrying values except for the following assets:

Assets Increase Decrease


Inventories 200,000 25% were still unsold year ended 2013.
Land 200,000
Building 200,000 20 years remaining life
Equipment 100,000 10 years remaining life
Machineries:
Machinery 307 30,000 5 years remaining life
Machinery 101 35,000 7 years remaining life
Bonds Payable 20,000 5 years remaining life

At the date of acquisition the fair value of non-controlling interest is estimated to be P1,500,000.

On August 1, 2013, Miami received the final value of Heat’s Land and Building from the independent
appraisal if final values are compared with the provisional amount given during acquisition date both
assets are still undervalued by P300,000 and P100,000, respectively.

On November 1, 2013, the probability values that Heat average income will exceed P250,000 is
estimated to increase by 40%.
Inter-company sales of inventory (Under FIFO)

Year Sold to Sold from Sales Cost Unsold


2013 Miami Heat 263,250 195,000 101,250
2013 Heat Miami 262,500 175,000 118,125
2014 Heat Miami 280,000 200,000 70,000
2014 Miami Heat 210,000 140,000 105,000

In year 2014, Heat still owes Miami from intercompany purchases made amounted to P125,000, while
Miami still owes Heat from purchased made 2014 amounted to P90,000.

Inter-company sale of plant assets

On January 1, 2013, Miami sold a building to Heat for P1,380,000. The cost of the building was
P2,000,000 with 25 years useful life and accumulated depreciation of P800,000 on the date of sale.

On July 1, 2013, Heat sold land purchased for P500,000 two years ago to Miami for P750,000.

Furthermore, On April 1, 2013 Miami purchased Heat Machinery-101 for P108,000. The machinery was
acquired by Celtic January 1, 2010 for P120,000 with estimated useful life of 10 years and no salvage
value. Miami used the remaining life of the machinery for future depreciation.

On January 1, 2014, Miami Company sold equipment to Heat for P84,000 with a book value of P60,000.
The equipment is expected to have a remaining life of six (6) years from the date of sale.

On July 1, 2014, Miami sold Machinery-101 to outsider for P P78,000.

Both companies are using straight line method for depreciation.

Additional information
 Impairment of goodwill P200,000 year 2013 and P100,000 year 2014
 Miami declared dividends of P200,000 in year 2013 and on the same year received dividends
from Heat of P80,000.
 Prior to consolidation of Miami and Heat financial statements, Miami was given information that
Heat met all the condition for contingent liabilities agreed during acquisition with the old
stockholders. Miami with the minority stockholders of Heat Company agreed to settle all
contingencies this year 2014.
 Acquisition costs are still unsettled by year end 2014.

The individual financial statements for these two companies as of December 31, 2014 are as follows:
Answer the following: Under Full Goodwill
Quiz 1
January 1, 2013
1. Subsidiary Net assets at fair value
2. Goodwill attributable to Parent
3. Goodwill attributable to NCI
4. Consolidated Common stock
5. Consolidated Paid in capital (total)
6. Consolidated Retained earnings
7. Consolidated Stockholders Equity

Quiz 2 - At December 31, 2013 in preparation of consolidated financial statement, determine the
following accounts
1. Consolidated net income
2. NCI in the net income of Subsidiary
3. Consolidated net income attributable to parent
4. Goodwill after impairment loss
5. Total net adjustment on Plant Asset for consolidated Balance Sheet (at gross).
6. Total net adjustment on Accumulated Depreciation for consolidated Balance Sheet.
7. Common Stock
8. Paid in capital (total)
9. Retained Earnings
10. NCI in the net assets of Subsidiary

Quiz 3 – At December 31, 2014 in preparation of consolidated financial statement, determine the
following accounts
1. Gain on sales of land – in the consolidated income statement
2. Gain/(loss) on sale of machinery – in the consolidated income statement
3. Sales
4. Cost of goods sold
5. Operating expenses
6. Net income
7. Net income attributable to parent
8. Net income attributable to NCI
9. Retained Earnings
10. Common stock
11. Paid in Capital (total)
12. NCI in the net asset of Subsidiary
13. Consolidated Total Assets
14. Consolidated Total Liabilities
15. Consolidated Stockholder’s Equity

God Bless You All

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