BUSINESS COMBINATION -CONSOLIDATED FINANCIAL STATEMENT PROBLEMS WITH SOLUTIONS.very heplful

BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENT PROBLEMS Contributor: Chan, C. Date Contributed: January 2011 1. On January 1, 2011, Lady Gaga Company acquires 80 percent ownership in Madonna Company for P ...

BUSINESS COMBINATION AND CONSOLIDATED FINANCIAL STATEMENT PROBLEMS Contributor: Chan, C. Date Contributed: January 2011 1. On January 1, 2011, Lady Gaga Company acquires 80 percent ownership in Madonna Company for P200,000. The fair value of the non-controlling interest at that time is determined to be P50,000. Madonna Company reports net assets with a book value of P200,000 and fair value of P230,000. Lady Gaga Company reports net assets with a book value of P600,000 and a fair value of P650,000 at that time, excluding its investment in Madonna Company. What will be the amount of goodwill that would be reported immediately after the combination under the accounting practice if the option of full-goodwill method is used? [A] 4,000 [B] 16,000 [C] 20,000 [D] 25,000. Solution: 2. Hermione Company acquires 100% of the voting stock of Ron Company on January 1, 2011 for P400,000 cash. A contingent payment of P16,500 will be paid on April 15, 2012 if Ron Company generates cash flows from operations of P27,000 or more next year. Hermione Company estimates that there is a 20% probability that Ron Company will generate at least P27,000 next year and uses an interest rate of 5% to incorporate the time value of money. The fair value of P16,500 at 5%, using a probability weighted approach is P3,142. What will Hermione Company record as the acquisition price on January 1, 2011? [A] 403,142 [B] 401,125 [C] 405,500 [D] 426,000. Solution 3. On January 1, 2011, Put-3-ska Company purchased 80% of the stock of Sheet Company for P316,000. On this date, Sheet Company had ordinary share, share premium, and accumulated profits of P40,000, P120,000, and P190,000, respectively. Put-3-ska Company’s ordinary share amounted to P500,000 and accumulated profits of P200,000. On January 1, 2011, the only tangible assets of Sheet Company that were undervalued were inventory and building. Inventory, for which FIFO is used was worth P5,000 more than its cost. The inventory was sold in 2011. Building, which was worth P15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is full goodwill with an impairment for 2011 amounting to P3,000. Sheet Company reported net income of P50,000 and paid dividends of P10,000 in 2011, while the parent’s reported net income amounted to P100,000 and paid dividends of P20,000. Determine the Consolidated net income attributable to Controlling Interest or profit attributable to equity holders’ of parent. [A] 123,100 [B] 124,100 [C] 125,100 [D] 132,100. Solution: 4. On January 1, 2011, Put-3-ska Company purchased 80% of the stock of Sheet Company for P316,000. On this date, Sheet Company had ordinary share, share premium, and accumulated profits of P40,000, P120,000, and P190,000, respectively. Put-3-ska Company’s ordinary share amounted to P500,000 and accumulated profits of P200,000. On January 1, 2011, the only tangible assets of Sheet Company that were undervalued were inventory and building. Inventory, for which FIFO is used was worth P5,000 more than its cost. The inventory was sold in 2011. Building, which was worth P15,000 more than book value, has a remaining life of 8 years, and straight-line depreciation is used. Any remaining excess is full goodwill with an impairment for 2011 amounting to P3,000. Sheet Company reported net income of P50,000 and paid dividends of P10,000 in 2011, while the parent’s reported net income amounted to P100,000 and paid dividends of P20,000. Determine the Equity Holders of Parent - Accumulated Profits on partial-goodwill approach. [A] 303,000 [B] 305,000 [C] 315,000 [D] 303,500. Solution: 5. At the end of 2011, Pepper Company’s shareholders’ equity includes ordinary share of P500,000 and share premium of P300,000. Pepper Company purchased a 70 percent interest in Slimy Company on January 1, 2011, when the non-controlling interest in Slimy Company had a fair value of P90,000. No differential arose from the business combination. During 2011, Slimy Company reports net income of P20,000 and declares dividend of P5,000. The 2011 consolidated statement of financial position includes accumulated profits of P630,000. Determine the consolidated shareholders’ equ