AFAR 3- Quiz 4

Problem 1:
The condensed balance sheet as of December 31, 2020 of R Company and S Company are:
R Co. S Co.
Current assets 350,000 150,000
Noncurrent assets 550,000 350,000
Total assets 900,000 500,000
Liabilities 250,000 100,000
Capital stock, common 400,000 250,000
20 par
Retained earnings 250,000 150,000
Total liabilities and 900,000 500,000
equity

On January 1, 2021, R Company issued, 20,000 shares of its common stock in exchange of all
the outstanding stocks of S Company common stock market value of 30 pesos per share.
The combination qualifies as a purchase.
After the combination, investment in S Company stock in the balance sheet of R Company is?
Investment in subsidiary: 20,000 shares x P30 = 600,000

Problem 2:
On December 31, 2020, S Company was merged into P Company.
In the business combination, P issued 200,000 shares of its 10-par common stock, with a
market price of 18 per share, for all of S’s common stock.
The stockholder’s equity section of each company’s balance sheet immediately before
combination was:
P S
Capital stock 3,000,00 1,500,000
0
Additional paid in 1,300,00 150,000
capital 0
Retained earnings 2,500,00 850,000
0
Total 6,800,00 2,500,000
0
Assume that the merger qualifies for treatment as a purchase.
In the December 31, 2019, consolidated balance sheet, additional paid in capital should be
reported at?
Additional paid in capital of P,beg 1,300,000
200,000 shares x (P18-P10 par) 1,600,000
Additional paid in capital, end 2,900,000

Problem 3:
On January 2, 2020, P acquired all the outstanding common stock of S Company for
2,060,000.
On that date, Subsidiary Co., reported the following shareholders’ equity account balances:
Common stock 800,000,
Additional Paid in Capital 620,000,
Retained earnings 300,000.

The assets and liabilities of S Company, had book value that were approximately equal to its
market values, except building that was undervalued by 400,000 and equipment that
was overvalued by 120,000.
The building has an estimated life 20 years and equipment with 5 years useful life.
Prior to acquisition, S Company has unimpaired goodwill in the amount of 10,000.
What is the amount of goodwill to be reported in the consolidated balance sheet at the date of
acquisition?

Consideration transferred 2,060,000

Fair Value of Net Assets:
Unadjusted net assets (800K+620K+300K) 1,720,000
Adjustments:
Building, undervalued 400,000
Equipment, overvalued (120,000)
Unimpaired goodwill (10,000)
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FV of net assets (1,990,000)
Goodwill
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70,000
Problem 4:
The following summarized balance sheets were prepared for A and R on December 31, 2020
prior to their combinations:
A R R, FV
Current assets 60,000 3,600 3,600
Equipment, net 10,000 3,400 3,400
Building, net 50,000 5,000 10,000
Total assets 120,000 12,000 12,000
Current liabilities 11,200 1,600 1,600
Mortgage payable 30,000 5,000 5,000
Common stock, 10 par 10,000 1,000
Additional paid in 36,000 2,400
capital
Retained earnings 32,800 2,000
FVNA 10,400

The fair value of the building of R was 10,000.

Assuming that A Company, pays 15,000 cash in order to acquire 100% of the common stock of
R.
What is the amount of goodwill that would be should in the consolidated balance sheet?
Consideration transferred 15,000
FVNA (10,400)
Goodwill 4,600

Problem 5:
On November 30, 2020, P purchased for cash at 15 per share all 250,000 shares of the
outstanding common stock of S.
On November 30, 2020, S’s balance sheet showed a carrying amount of net assets of
3,000,000.
At that date, the fair value of S’s property, plant and equipment exceeded it carrying
amount by 400,000.
In its November 30, 2020, consolidated balance sheet, what amount should P reported as
goodwill?
Consideration transferred (250,000 shares x P15) 3,750,000
CA of net assets 3,000,000
Adjustments:
PPE 400,000
FVNA 3,400,000
Goodwill 350,000

Problem 6:
On January 1, 2020, O company purchased all of S’s common stock for 1,200,000.
On that date, the fair value of S’s assets and liabilities equaled their carrying amounts
of 1,320,000 and 320,000, respectively.
During 2020, S paid cash dividends of 20,000.
Selected information for the separate balance sheets and income statements of O and S as of
December 31, 2020 and for the year ended follows:
O S
Investment in 1,300,00
Subsidiary 0
Retained earnings 1,240,00 560,000
0
Total shareholders’ 2,620,00 1,120,000
equity 0
Income statement
accounts:
Operating income 420,000 200,000
Equity in earnings of S 120,000
Net income 400,000 140,000
a. In O’s 2020 consolidated income statement, what amount should be reported for
amortization of goodwill? 0 (Goodwill shall not be amortized because the useful life is
indefinite; shall be tested for impairment at least annually)

b. In O’s December 31, 2020 consolidated balance sheet, what amount should be reported
as total retained earnings?
RE,study
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Adjusted net income of subsidiary 140,000
Net income of parent
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Dividends declared (20,000)
 Consolidated RE 1,760,000

Problem 7:
The P company acquired 70% of the net assets of S Company for 1,100,000.
The assets of S, have a book value of 1,200,000 and a fair value of 1,300,000. Its liabilities
are 200,000. What is the amount of minority interest in the shareholder’s equity section
of the consolidated balance sheet?
Consideration 1,100,000
Divided by 70%
1,571,429
x 30%
NCI 471,429

Problem 8:
S is a wholly-owned subsidiary of P.
On June 1, 2020, P declared and paid 1 per share cash dividends to shareholders of record on
May 15, 2020. On May 1, 2020, S bought 10,000 shares of P’s common shares for 700,000 on
the open market, when the book value per share was 30.
What amount of gain should P report from this transaction in its consolidated income
statement for the year ended December 31, 2020? 0
*Intercompany transactions do not result to gain unless sold to outsider*

Problem 9:
A Company purchased 75% of T Company for 45,000,000.
The fair value of identifiable net assets was 95,000,000 and the fair value of the liabilities and
contingent liabilities amounted to 47,000,000.
What would be the amount of goodwill associated to non-controlling interest of T?
Consideration transferred 45,000,000
NCI (45M/75%)x25% 15,000,000
Total consideration 60,000,000
FVNA (95M-47M) (48,000,000)
Goodwill 12,000,000
Goodwill in NCI (12Mx25%) = 3,000,000

Problem 10:
P Company acquired 80% of the outstanding common stock of S for 1,500,000 cash.
On January 2, 2020, when the stockholder’s equity of S totaled 1,400,000
(common stock 500,000, additional paid in capital, 600,000, retained earnings, 300,000),
the book values of assets and liabilities approximate with its market values, except building
that was undervalued by 400,000, and equipment that was overvalued by 120,000.
The building has an estimated useful life of 20 years and the equipment is expected to be
useful for 5 years. Prior to acquisition, S has unimpaired goodwill in the amount of 10,000.
Assuming the non-controlling interest is measured at its share of the subsidiary’s net assets,
what is the amount of goodwill to be reported in the consolidated balance sheet at the date of
acquisition?

Consideration transferred 1,500,000

NCI (FVNA x NCI%) = (1,670,000 X 20%) 334,000
Total Consideration 1,834,000
FVNA
Net assets 1,400,000
Adjustments:
Building, undervalued 400,000
Equipment, overvalued (120,000)
Unimpaired goodwill (10,000)
FVNA (1,670,000)
Goodwill 164,000

Problem 11:
The E acquired a 60% interest in the P when P’s equity comprised share capital of 100,000
and retained earnings of 150,000.
P’s current statement of financial position shows share capital of 100,000, a revaluation
reserve of 75,000 and retained earnings of 300,000.
Under PFRS 10, consolidated financial statements, what amount in respect of the non-
controlling
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Share capital 100,000

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Revaluation reserve 75,000
 RE 300,000
Total SHE 475,000
NCI% 40%
190,000

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