EASY NO.

BTS Company acquired all of the outstanding shares of BigBang Company by issuing its own P15 par
value ordinary shares totaling 46,667 shares at market price of P 15.70. BTS Company had the following
expenditures incurred:

Finder’s fee paid P 50,000

Pre-acquisition audit fee/accounting due diligence, 30% was paid 40,000
General administrative costs 15,000
Legal fees for the combination paid 32,000
Audit and legal fees for SEC registration of share issue 46,000
Listing fees paid for the shares issued 10,000
Other share issuance costs paid (inclusive of any tax cost) 10,000
Other indirect costs paid 16,000
Documentary stamp tax (DST) paid on the original issuance 3,500

The total amount debited to expense should be

Answer: P163,000
EASY NO. 6

The following balance sheets accounts were prepared for X Company and Y Company on January 1,
2017, just before they entered into a business combination:

X COMPANY Y COMPANY
Book Value Fair Value Book Value Fair Value
Cash 150,000 150,000 10,000 10,000
Accounts receivable 150,000 150,000 40,000 40,000
Merchandise inventory 400,000 600,000 100,000 245,000
Building and equipment 800,000 870,000 200,000 250,000
Accumulated depreciation (200,000) (50,000)
Goodwill 100,000
Accounts payable 100,000 100,000 140,000 140,000
Bonds payable 400,000 440,000 60,000 85,000
Common stock P10 par 300,000
Common stock P5 par 100,000
Additional paid in capital 100,000 20,000
Retained earnings 400,000 80,000
X Company acquired the net assets of Y Company by issuing 10,000 shares of stocks. Additional cash
payments made by X Company in completing the acquisition were:

Broker’s fee paid to firm that located to Y Co. 10,000

Cost to register and issue stocks 40,000
Professional fee paid to accountants 20,000
Professional fee paid to lawyers 20,000
Professional fee paid to official valuers 20,000
Indirect acquisition costs 15,000

Calculate the total stockholders’ equity of X Company immediately after the combination.

Answer: P1,075,000
EASY NO. 7

MARU Corporation was merged into COY Company in a combination properly accounted for as
acquisition. Their condensed balance sheets before the combination are:

MARU Company COY Company

Current assets P3,228,000 P1,627,600
Property and equipment, net 4,654,000 1,040,000
Patents 260,000
Total assets P7,942,000 P2,927,600

Liabilities P3,704,000 P171,600

Capital stock, par P100 2,600,000 2,927,600
Share premium 390,000 350,000
Retained earnings 1,248,000 1,106,000
Total liabilities P7,942,000 P2,927,600

Per appraisal’s report, COY assets have fair value of:

Current assets P1,653,600

Property plant and equipment 1,248,000
Patents 338,000

MARU Company purchases the net assets of COY Company for P3,168,000 cash.

What is the total assets of MARU Corporation after the combination?

Answer: P8,113,600
EASY NO. 8

Companies Oro and Plata are being consolidated to form Diamante Corporation. Their asset and
earnings contribution are as follows:

ORO PLATA
Net tangible assets 500,000 300,000
Expected annual earnings 50,000 28,000

Companies Oro and Plata agreed to the issuance of two classes of capital stock by Diamante
Corporation, that is, 6% fully participating preferred stock (par P100) for the net tangible assets and
common stock (par P50) for goodwill. Goodwill shall be equal to earnings capitalized at 8% minus net
tangible assets.

Calculate the number of preferred and common shares to be issued, respectively, to the combining
companies. (Two answers are required. Mark a slash sign between them.)

Answer: 8,000 preferred; 3,000 common stock

EASY NO. 9

Chu Company acquired a 40% interest in Wawa Company for P1,700,000 on January 1, 2017. The
shareholers’ equity of Wawa Company on January 1 and December 31, 2017 is presented below:

January 1 December 31
Share capital 3,000,000 3,000,000
Revaluation surplus - 1,300,000
Retained earnings 1,000,000 1,500,000

On January 1, 2017, all the identifiable assets and liabilities of Wawa Company were recorded at fair
value. Wawa Company reported profit of P650,000, after income tax expense of P350,000 ad paid
dividends of P150,000 to shareholders during the current year.

The revaluation surplus is the result of the revaluation of land by Wawa Company on December 31,
2017. Additionally, depreciation is provided by Wawa Company on the diminishing balance method
whereas Chu Company uses the straight line. Had Wawa used the straight line, the accumulated
depreciation would be increased by P200,000. The tax rate is 35% Cu Company should report its
investment in associate on December 31, 2017 at

Answer: P2,420,00

EASY NO. 10

On January 1, 2016, Jonah Company acquired 30% of the voting share capital of another entity for
P2,000,000 which was equal to the carrying amount of interest acquired. The investee reported net
income of P800,000 for 2014 and paid dividend of P500,000 on December 31, 2016. The investee
reported net income of P1,000,000 for the six months ended June 30, 2017 and P2,500,000 for the year
ended December 31, 2017 but paid no dividend during 2015. On July 1, 2017, the investor sold half of
the investment for P1,500,000. The fair value of the retained investment was P1,600,000 on July 1, 2015
and P1,900,000 on December 31, 2017. The retained investment is to be held as nontrading measured
at FVTOCI.

What total amount should be reported in the company’s profit or loss related to the investment?

Answer: P710,000

EASY NO. 11

On January 1, 2017, HHH, III, and JJJ (all are corporations) establish a joint undertaking to manufacture a
product they agree to share equally. Each will contribute P200,000 into the operation; HHH and III are to
contribute cash while JJJ is to contribute equipment with a carrying value of 215,000 and fair value of
P200,000. At what amount will each of the operators show the equipment in JO in its (1) January 1, 2017
ad in its (2) December 31, 2017 balance sheets? (2) P60,000
EASY NO. 12

On January 1, 2017, ABC Company signed a joint venture agreement with another venture for the
production of CDs. DEF Corp. is established to carry on the businesss venture, with each venture
contributing P1,000,000 for equal shares in the company’s 160,000 P12.50 par value shares. They will
share profits equally. On December 31, 2017, the financials of DEF Corp. follow:

COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS

Revenue P 400,000
Expenses 308,000
Net income P 92,000
Retained earnings, January 1, 2017 0
Retained earnings, December 31, 2017 P 92,000

BALANCE SHEET
December 31, 2017

Cash P72,000 Liabilities P580,000

Accounts receivable 320,000 Share Capital 2,000,000
Inventory 500,000 Retained earnings 92,000
Plant, Property, Equipment 1,880,000
Accumulated depreciation (100,000)
Total P2,672,000 P2,672,000

The financial statements of ABC Company for the same period, before the adjustment for its share of
DEF’s net income, follows:

Revenues P8,640,000
Expenses 7,424,000
Profit 1,216,000
Share capital 2,400,000
Retained earnings 736,000
Liabilities 672,000
Totals P5,024,000

Cash P408,000
Accounts receivable 384,000
Inventory 672,000
Plant, Property and Equipment 3,120,000
Accumulated Depreciation (560,000)
Investment in Joint Venture 1,000,000
Total P5,024,000

Determine the amount of retained earnings to be reported by ABS in its balance sheet at December 31,
2017.
Answer: P1,998,000

EASY NO. 13

A, B, and C are joint operators of JOINT OPERATION D (each having an equal share in interest). On
January 1, 2016, A sells equipment having a book value of P51,200 to the OPERATION for P128,000. The
equipment had an estimated useful economic life of 5 years at that date.

At what amount will A show this equipment at its balance sheet at December 31, 2016?

Answer: P13,653

EASY NO. 14

In December 2017, Papa and Lorenzo contribute P5,000 each to buy and sell apples during the Christmas
season and divide profits in the ratio of 4:6, respectively. Cash purchases amount to P7,000, expenses
are P1,900 and cash sales are P11,000. The unsold fruits are taken by Papa and are charged to him for
P560 or 70% of cost.

How much is the net income of the joint venture?

Answer: P2,660: B, C, and D only

AVERAGE NO. 7

On January 2, 2016, Parker Company, a medium-sized entity acquired 25% of the equity of each of
entities, A, B and C for P100,000, P150,000 and P280,000. Parker Company has significant influence over
entities A, B and C. Transaction costs of 1% of the purchase price of the shares were incurred by Parker
Company.

On December 31, 2016, A company declared and paid dividends of P10,000. On December 31, 2016, B
Company declared a dividend of P80,000 for the year ended 2016 which will be paid in 2017. For the
year ended December 31, 2016, A Company and B Company recognized profits of P50,000 and P180,000
respectively. However, C Company recognized a loss of P200,000 for the year 2016.

Published price quotations do not exist for the shares of entities A, B and C. Using appropriate valuation
techniques, Parker Company determined the fair value of its investments in entities A, B and C at
December 31, 2016 as P130,000, P290,000 and P150,000, respectively. Costs to sell are estimated at 5%
of the fair value of the investments. Parker Company has no subsidiaries and therefore does not
produce consolidated financial statements.

If Parker Company uses the cost model in measuring its investment in associates, at what amount
should the investment in A, B and C, respectively, be reported in its December 31, 2016 statement of
financial position?

Answer: P101,000, P151,500, P142,500

AVERAGE NO. 8

Colorado has a 10% holding in Darweesh Establishment. Each of the seven other investors in Darweesh
holds between 10% and 20% of its equity. The Darweesh Establishment owns a fleet of ships that is used
by all investors to transport their own products around the world. The operation of Darweesh and of its
fleet is the subject of a detailed agreement among all the investors. Colorado has a director on the
board of Darweesh but, in accordance with the agreement, the entity is directed by one of the other
investors.

How should this investment be classified?

a. A subsidiary
b. An associate
c. Probably a joint operation
d. Probably a joint venture

Answer: C

AVERAGE NO. 9

HFR Ltd. Has a 12% holding in the shares of ABC Ltd. In addition, HFR has, through one of its subsidiaries,
an option to buy 13% more shares in ABC. Although the exercise price is in the money, HFR does not
have the intention and the financial ability to exercise this option.

How should this investment be classified?

a. A subsidiary
b. An Associate
c. A joint arrangement
d. None of these categories

Answer: B

AVERAGE NO. 10

On January 2, 2016, A Company acquired a 30% interest in B Company at a cost of P2,000,000. Investor
A Company has significant influence over B Company/ During the year ended December 31, 2016, B
Company reported a post-tax profit of P800,000 and paid dividend of P72,000. B Company also
recognized foreign exchange losses of P160,000 and unrealized gain on equity investment of P200,000 in
other comprehensive income. On January 2, 2017, B Company has rights issue that investor A Company
does not participate in. The rights issue brings in an additional P700,000 in cash and dilutes investor A
Company’s interest in B Company to 25%. What amount of dilution gain or loss should A Company
recognize in January 2, 2017?

Answer: P194,733
AVERAGE NO. 11

TERESA and BEATRIZ in a joint venture, contributed P30,000 each in order to purchase merchandise
which were sold in lots at a closing-out sale. They agree to divide their profits equally and each shall
record her purchases, sales and expenses in her own books. After almost all merchandise had been sold,
they wind up their venture

The following are the venture transactions:

TERESA BEATRIZ
Purchases of merchandise P30,000 P30,000
Expenses paid from JT Venture Cash 3,000 3,900
JT Venture credit balances (24,000) (21,000)
Undisposed merchandise upon termination 900 1,400
of JV

All transactions for the joint venture are in cash. The venturers are to take over the unsold merchandise
at cost.

Calculate the net profit of the joint venture undertaking.

Answer: P47,300

AVERAGE NO. 12

MENCHU and OSANG in a joint venture, contributed P24,000 each in order to purchase canned goods
which were sold by lots at a closing-out sale. They agreed to divide their profits equally and each shall
record his purchases, sales and expenses in his own books. After selling almost all the canned goods,
they wind up their venture. The following are the venture transactions:

Joint Venture credit balances were OSANG (P19,200) and MENCHU (P16,800). Expenses paid from Joint
Venture cash were P2,400 by OSANG and P3,120 by MENCHU. Cost of unsold canned goods which
OSANG and MENCHU agreed to assume were P720 and P1,120 respectively.

In the final settlement, the amount due to OSANG including her investment was:

Answer: P42,200
AVERAGE NO. 13

An investor has the following accounts with an associate:

Investment in ordinary shares P5,000,000

Investment in preference shares 2,000,000
Account receivable 200,000
Loans receivable – unsecured 1,000,000
Loans receivable – secured 500,000

The investor’s interest in an associate for purposes of recognizing its share of losses of an associate is
the carrying amount of the investment in the associate determined using the equity method and any
long-term interests that, in substance, form part of the entity’s net investment in the associate.

The investor’s ‘interest in associate’ is

Answer: P8,000,000

AVERAGE NO. 14

D, E and F formed a joint venture. D is to act as manager and is designated t record the joint venture
transactions in his books. As manager, D is allowed a management fee of P12,000. Profts and losses are
to be divided equally. The following balances appear at the end of 2017 before adjustments for venture
inventory and distribution of profits and losses:

Debit Credit
Joint venture cash P48,000
E, capital 3,000
F, capital P27,000

The venture is terminated on December 31, 2017 with unsold merchandise.

Assuming that the joint venture profit is P5,000, what is the unadjusted balance of the joint venture
account before the distribution of profit? (Indicate debit or credit)

Answer: P5,400
AVERAGE NO. 15

A, B, and C formed a joint venture to sell fruits during the Christmas season. The following joint venture
account reflects the transactions of the venture in the books of manager A.

Joint Venture
2017
Nov. 5 Merchandise – C P12,750 Nov. 18 Cash sales – A P30,600
17 Merchandise – B 10,500 Dec. 12 Cash sales – A 6,300
22 Freight in -- A 525 28 Merchandise -- B 1,815
Dec. 3 Purchases – A 5,250
13 Expenses -- A 600

The contractual arrangements include distribution of gains and losses as follows: A, 50%; B, 30%; and C,
20%. The venture is completed and terminated on December 31, 2017.

How much should B receive in the final settlement?

Answer: 4,545