CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

ADVANCED FINANCIAL ACCOUNTING GERMAN/VALIX/K. DELA CRUZ/MARASIGAN

SELFTEST

Numbers 1 and 2

Condensed Statement of Financial Position of Peter and Stephen Corporations at December 31, 2021,
are as follows (in thousands):

Peter Stephen
Current assets 130 60
Noncurrent assets 570 440
Total assets 700 500

Current liabilities 50 60
Capital stock, P10 par 500 200
Additional paid-in capital 50 140
Retained earnings 100 100
Total liabilities & equities 700 500

On January 1, 2021, Peter Corporation issues 30,000 shares of its stock with a market value of P20 per
share for the assets and liabilities of Stephen Corporation. Stephen Corporation is dissolved. The book
values reflect fair values, except a noncurrent asset of Peter Corporation, which have a fair value of
P400,000, and the current assets of Stephen Corporation, which is valued at P100,000.

Peter Corporation pays the following expenses in connection with the business combination:
Costs of registering and issuing securities issued 15,000
Other acquisition costs of combination 25,000

Contract for contingent consideration to be paid to Stephen is P75,000, as determined on acquisition

date.

1. What is the total asset of Peter Corporation after acquisition?

A. 1,410,000
B. 1,265,000
C. 1,395,000
D. 1,385,000

2. What is the total Shareholders’ equity of Peter corporation after acquisition?

A. 1,210,000
B. 1,250,000
C. 1,150,000
D. 1,285,000

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Numbers 3 and 4

Pards Company is acquiring the net assets of Sam Company for an agreed upon price of P900,000 on
July 1, 2021. The value was tentatively assigned as follows:

Current assets 100,000

Land 50,000
Equipment (5-year life) 200,000
Building (20-year life) 500,000
Current liabilities (150,000)
Goodwill 200,000

Values were subject to change during the measurement period. Depreciation is taken to the nearest
month, The measurement period expired on July 1, 2022, at which time the fair values of the equipment
and building as of the acquisition date were revised to P180,000 to P550,000, respectively.

3. How much total depreciation expense should be recorded for 2022?

A. 63,500
B. 65,000
C. 61,500
D. 65,500

4. How much goodwill is presented in the 2022 statement of financial position?

A. 230,000
B. 170,000
C. 180,000
D. 200,000

Number 5
On January 1, 2021, the fair values of Francis Conrad's net assets were as follows:

Current assets 100,000

Equipment 150,000
Land 50,000
Buildings 300,000
Liabilities 80,000
On January 1, 2021, Garry Company purchased the net assets of the Francis Conrad Company by
issuing 100,000 shares of its P1 par value stock when the fair value of the stock was P6.20. It was
further agreed that Garry would pay an additional amount on January 1, 2023, if the average income
during the 2-year period of 2021-2022 exceeds P80,000 per year. The expected value of this
consideration was calculated as P184,000; the measurement period is one year.
Assuming that on January 1, 2023, the date of settlement of the contingent consideration clause
agreement for P175,000, what is the entry on January 1, 2023?

A. Estimated liability for contingent consideration 170,000

Loss on estimated contingent consideration 5,000
Cash 175,000
B. Estimated liability for contingent consideration 175,000
Cash 175,000
C. No entry required
D. Estimated liability for contingent consideration 184,000
Gain on estimated contingent consideration 9,000
Cash 175,000

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Numbers 6, 7 and 8

On January 1, 2022, Entity A acquired 80% of the outstanding shares of Entity B at book value. On the
same date Entity A had retained earnings of P2,000,000 and Entity B had retained earnings of
P400,000.

The following data were ascertained:

 Consolidated net income on December 31, 2022 was P800,000
 Entity A declared dividends of P200,000
 In the separate books, Entity B reported net income of P160,000 and declared dividends of P80,000
on December 31, 2022
 There were no other intercompany transactions

6. What is the non-controlling interest in net income on December 31, 2022?

A. 32,000
B. 16,000
C. 160,000
D. 80,000

7. What is the consolidated net income attributable to Entity A on December 31, 2022?
A. 640,000
B. 704,000
C. 768,000
D. 784,000

8. What is the consolidated retained earnings on December 31, 2022?

A. 2,440,000
B. 2,568,000
C. 2,504,000
D. 2,584,000

Numbers 9 and 10

On January 1, 2022, Entity A acquired 80% of the outstanding shares of Entity B for P1,800,000. On
the date of acquisition the aggregate of the consideration given and fair value non-controlling interest
equaled the fair value identifiable net assets of Entity B. On the date of acquisition also, the book value
of the assets and liabilities of Entity B equals their fair value except for an equipment which had an
excess of book value over fair value in the amount of P60,000. The remaining life of the equipment
was 3 years from the date of acquisition. On December 31, 2022, in the separate books of Entity A and
Entity B, they reported net income in the amount of P800,000 and P200,000 respectively.

9. What is the consolidated net income attributable to Entity A on December 31, 2022?
A. 800,000
B. 960,000
C. 976,000
D. 944,000

10. What is the non-controlling interest in net income on December 31, 2022?
A. 200,000
B. 44,000
C. 36,000
D. 40,000

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Number 11

LG Corporation purchased inventory from its 80% owned subsidiary DM Corporation for P110,000 on
September 1, 2021, and resold 60% of the inventory to unaffiliated companies prior to December 31,
2021 for P140,000. DM produced the inventory sold to LG for P90,000. The companies had no other
transactions during 2021.

What amount of Sales will be reported in the 2021 consolidated financial statement?
A. 112,000
B. 140,000
C. 110,000
D. 250,000

Numbers 12 and 13

LX Corporation purchased inventory from its 70% owned subsidiary SR Corporation for P120,000 on
August 1, 2021, and resold 80% of the inventory to unaffiliated companies prior to December 31, 2021
for P140,000. SR produced the inventory sold to LX for P75,000. The companies had no other
transactions during 2021

12. What amount of Cost of Goods Sold will be reported in the 2021 consolidated income
statement?
A. 60,000
B. 120,000
C. 75,000
D. 171,000

13. What amount of the consolidated net income will be assigned to controlling interest for 2021?
A. 20,000
B. 69,200
C. 54,800
D. 80,000

Number 14

GC Inc. acquired 100% of GP Farms on January 5, 2020. During 2020 GC sold to GP Farms for
P625,000 goods which had cost P425,000. GP Farms still owned 12% of the goods at the end of the
year. In 2021, GC sold goods with a cost of P800,000 to GP Farms for P1,000,000 and GP farms still
owned 10% of the goods at the year-end. For 2021, cost of goods sold was P1,200,000 for GP Farms
and P5,400,000 for GC, in their respective books.

What was the consolidated cost of goods sold for 2021?

A. 6,660,000
B. 5,596,000
C. 6,596,000
D. 5,625,000

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Number 15

BX Ltd. owns 60% of the outstanding common shares of SJ Ltd. During 2022, sales from SJ to BX
were P200,000. Merchandise was priced to provide SJ with a gross margin of 20%. BX inventories
contained P40,000 at December 31, 2021 and P15,000 at December 31, 2022 of merchandise purchased
from SJ. Cost of goods sold of BX and SJ for 2022 on their separate-entity income statements were as
follows:

BX SJ
Beginning inventory 100,000 50,000
Purchases 700,000 200,000
Ending inventory (110,000) (55,000)
Cost of goods sold 690,000 195,000

How much is the Cost of Goods Sold in the consolidated income statement for 2022?
A. 687,000
B. 685,600
C. 680,000
D. 660,000

Numbers 16, 17 and 18

PCO and its 60% owned subsidiary SCO had a downstream intercompany sale of machinery on July 1,
2021 for P2,400,000 cash. On this day, the said machinery has an original cost of P5,000,000, an
accumulated depreciation of P2,000,000, and was already 4 years old.

During the start of the 4th quarter of 2020 there was an upstream sale of equipment which resulted to a
gain of P200,000. The said equipment still has a remaining useful life of 2 years from the date of
intercompany sale. On March 31, 2021, this piece of equipment was sold to a 3rd party which resulted
to neither a gain nor a loss on the separate income statement.

The 2021 net income of PCO and SCO are P4,000,000 and P3,000,000, respectively. Dividends
declared by PCO and SCO during 2021 amounted to P500,000 and P400,000 respectively. The
consolidated retained earnings and non-controlling interest on December 31, 2020 showed balances of
P10,000,000 and P8,500,000, respectively.

16. How much is the 2021 consolidated net income attributable to the parent?
A. 6,215,000
B. 6,045,000
C. 6,015,000
D. 5,845,000

17. How much is the balance of consolidated retained earnings as of December 31, 2021?
A. 15,475,000
B. 15,715,000
C. 16,745,000
D. 16,985,000

18. How much is the non-controlling interest to be presented in the statement of financial position
as of December 31, 2021?
A. 9,770,000
B. 9,610,000
C. 9,530,000
D. 9,370,000

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Numbers 19 and 20

PCO acquired 75% of the outstanding voting shares of SCO on December 31, 2020 for P1,162,500,
inclusive of P37,500 control premium. On this day, SCO’s shareholders’ equity was comprised of
P600,000 share capital, P400,000 share premium, P1,000,000 retained earnings, and treasury shares of
P100,000. The fair values of the net assets of SCO equaled its book values except for inventory which
was understated by P20,000, land which was understated by P100,000, and goodwill which had a book
value of P70,000.

19. How much is the gain on bargain purchase that resulted from the business combination?
A. 300,000 gain on bargain purchase
B. 352,500 gain on bargain purchase
C. 412,500 gain on bargain purchase
D. 375,000 gain on bargain purchase

20. How much is the non-controlling interest to be recognized on the date of acquisition?
A. 375,000
B. 387,500
C. 487,500
D. 0

Suggested Answers:

1. C 6. A 11. B 16. A

2. A 7. C 12. A 17. B

3. A 8. B 13. B 18. B

4. B 9. C 14. B 19. A

5. D 10. B 15. C 20. C

END

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