Mid PS3

Mid_PS3
AEC 57
Practice Set #3 (50 pts)

PART 1-THEORIES (1pt. each)
“A” if TRUE , “B” if FALSE
1. A gain or loss on sales downstream from parent to the subsidiary is initially included in parent
income and must be 100% eliminated. - A
2. The consolidated financial statements are primarily for the benefit of managers of the parent
company. - B
3. The elimination entry under the perpetual inventory system for intercompany sales and
purchases is a debit to sales and a credit to purchases. - B
4. The parent affiliate recognizes a gain on the sale of land to a subsidiary only after the subsidiary
sells it to an outside entity. - A
5. Which of the following observations is NOT consistent with the cost method of accounting?
a. Investee dividends from earnings since acquisition by investor are treated as reduction of
investment
b. Investments are carried by the investor at historical cost
c. Differential is not amortized or written off
d. It is consistent with the treatment normally accorded noncurrent assets
6. If a revaluation of the subsidiary’s assets is performed on consolidation, the subsidiary’s assets are
carried into the consolidated statement of financial position at:
a. historical cost
b. current replacement cost
c. fair value
d. net present value.
7. A manufacturing group has just acquired a controlling interest in a football club that is listed on a
stock exchange. The management of the manufacturing group wishes to exclude the football club from
the consolidated financial statements on the ground that its activities are dissimilar. Under PAS 27, how
should the football club be accounted for?
a. The entity should not be consolidated and details should be disclosed in the financial statements
b. The entity should not be consolidated using the acquisition method but should be consolidated using
equity accounting
c. The entity should be consolidated as there is no exemption from consolidation on the ground of
dissimilar activities
d. The entity should not be consolidated and should appear as an investment in the group accounts
8. During the year a parent makes sales of inventory at a profit to its 75 percent owned subsidiary. The
subsidiary also makes sales of inventory at a profit to its parent during the same year. Both the parent
and the subsidiary have on hand at the end of the year 20 percent of the inventory acquired from one
another. Consolidated revenues for the year should exclude
a. total revenues from intercompany sales
b. only the revenues from the subsidiary's intercompany sales
c. 80 percent of the total revenues from intercompany sales
d. only the revenues from the parent's intercompany sales
9. What is the initial measurement of the retained investment in subsidiary when control is lost?
a. Carrying amount at the beginning of the reporting period.
b. Fair value at the beginning of the reporting period.
c. Carrying amount at the date when control is lost,
d. Fair value at the date when control is lost.
10. A Parent and its 80 percent owned subsidiary have made several intercompany sales of noncurrent
assets during the past two years. The amount of income assigned to the noncontrolling interest for the
second year should include the noncontrolling interest's share of gains
a. both realized and unrealized from upstream sales made in the second year
b. realized in the second year from upstream sales made in both years
c. unrealized in the second year from upstream sales made in the second year
d. realized in the second year from downstream sales made in both years
PART 2- COMPUTATIONS (1pt. each)

Problem#1
Sure is a 90% -owned subsidiary of Pale corporation acquired at a book value several years ago.
Competitive separate company income statements for these affiliated corporations for 2019 are as
follows
Pale Corp. Sure Corp.
Sales 1500K 700K
Dividend 108K
Gain on Building 30K
Income Credits 1,638K 700K
Cost of Sales 1000K 400K

Operating Expenses 300K 150K
Income debits 1300K 550K
Net Income 338K 150K
on January 5,2019 Pale sold a building with a 10 year remaining useful life to Sure as a gain off 30,000
pesos. Sure paid dividends of 120,000 pesos during 2019
1.The non-controlling interest in net income for 2019
a.12,300 b.12,300 c. 15,000 d. 15,300
2.The profit attributable to equity holders of parent or cni attributable to controlling interest for 2019
a. 342,000 b. 340,700 c. 338,000 d. 335,000
3. The consolidated group net income for 2019 should be
a. 338,000 b. 353,000 c. 380,000 d. 443,000
Problem#2
Volley corporation owns an 80% interest in Basket corporation acquired several years ago. Basket
regularly sells merchandise to experience at 125% of studies cost. Gross profit data for Volley and Basket
for the year 2019 are as follows:
Volley Basket
Sales 1,000,000 800,000
Cost of Goods Sold 800,000 640,000
Gross Profit 200,000 160,000
4.During 2019 Volley purchased inventory items from Basket and a transfer price of 400,000. Volley
December 31 2018 and 2019 inventory include goods acquired from Basket of 100,000 and 125,000
respectively. The consolidated sales of Volley corporation and subsidiary for 2019 were:
a. 1,800,000 b.1,425,000 c.1,400,000 c.1,240,000

5.Using the same information in number 5, the unrealized profits in the year end 2018 and 2019
inventories were:
a. 100K and 125K respectively.
b. 800K and 100K respectively.
c. 20K and 25K respectively.
d. 16K and 20K respectively
6.Using the same information in no.5, the consolidated cost of goods sold of Volley and subsidiary for
2019 was:
a. 1,024,000 b. 1,045,000 c. 1,052,800 d. 1,056,000
Problem#3
Income information for 2019 taken from the separate company financial statements of Paris corporation
and its 75% old subsidiary San Antonio corporation is presented as follows
Paris San Antonio
Sales 1000K 460K

Gain on sale of Building 20K
Dividend Income 75k

COGS (500K) (260K)
Depreciation Expense (100K) (60k)
Other Expense (200K) (40k)
Net Income 295K 100k

Paris gain on sale of building relates to a building with a book value of 40,000 and a 10 year remaining
useful life that was sold to San Antonio for 60,000 of January 1,2019.
7.At what amount will the gain on sale of building appear under consolidated/group income statement
of Paris and San Antonio what the year 2019 should be
a. zero b. 5,000 c. 15,000 d. 20,000
8.The consolidated group depreciation expense for 2019 should be

a. 158K b. 160K c. 162K d. 180K
9.The profit attributable to equity holders of parent or CNA contributable controlling interest for 2019
should be:
a. 295K b. 277K c. 275K d. 220K
10.16-24 p.217 B?
11.17-10 p.253
PART 3- LONG PROBLEMS
1. 17-5 p.256 (5 pts.)

2. 16-4 p.221 (4pts.)
Problem#3 (3pts.)
3. On September 1, 2019, Plant Co. acquired 75% interest in Zombie Co. On this date, Zombie's
net identifiable assets have a carrying amount of ₱180,000, which approximates fair value.
In December 2019, Zombie sold goods to Plant for ₱81,000. Zombie had marked up these goods
by 50% based on cost. One-third of these goods remain unsold at year-end. The group assessed
that there is no impairment loss on goodwill for the current year.
The individual statements of profit or loss of the entities for the year ended December 31, 2019
are shown below:
Plant Co. Zombie Co.

Revenue 1,000,000 720,000
Cost of sales (400,000) (300,000)
Gross profit 600,000 420,000
Distribution costs (200,000) (100,000)
Administrative costs (80,000) (45,000)
Profit before tax 320,000 275,000
Income tax expense (96,000) (95,000)
Profit after tax 224,000 180,000
All of Zombie’s income and expenses (including profit from intercompany sale) were earned
and incurred evenly during the year.
A. How much is the consolidated gross profit?

B. How much is the consolidated profit?
C. How much is the profit attributable to Owners and NCI
Problem #4 (10pts)
Razor Afternoon Co. owns 80% interest in Slice Morning Co. During 2019, Razor sold inventories costing
₱200,000 to Slice for ₱300,000. One-fourth of the inventories were unsold as of December 31, 2019 and
were included in Slice’s year-end statement of financial position at the purchase price from Razor. The
individual financial statements of Razor and Slice on December 31, 2019 show the following information:
Razor Slice
Inventory 1,260,000 380,000
Sales 6,700,000 2,700,000

Cost of sales (3,015,000) (1,755,000)
Gross profit 3,685,000 945,000
There are no fair value adjustments arising from the business combination date.
Write the Eliminating Entries for Periodic Inventory System.
Problem#5 (7pts.)
17-3 page.255 of the book. But it is Pony Corp who sold machinery to Silver Company.

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Mid_PS3

Practice Set #3 (50 pts)

PART 2- COMPUTATIONS (1pt. each)

Income Credits 1,638K 700K

Cost of Sales 1000K 400K

Income debits 1300K 550K

Net Income 338K 150K

Gross Profit 200,000 160,000

a. 1,800,000 b.1,425,000 c.1,400,000 c.1,240,000

Sales 1000K 460K

Dividend Income 75k

Net Income 295K 100k

8.The consolidated group depreciation expense for 2019 should be

PART 3- LONG PROBLEMS

1. 17-5 p.256 (5 pts.)

Plant Co. Zombie Co.

A. How much is the consolidated gross profit?

Sales 6,700,000 2,700,000

Gross profit 3,685,000 945,000

Write the Eliminating Entries for Periodic Inventory System.

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