Advacc Chapter 13& 14

Chapter 13
Problem I
1.
Home Office Books Branch Books
Branch Current 55,000 Shipm from Home Office 55,000
Shipments to Branch 50,000 Home Office Current 55,000
Unrealized Int Inv. Profit 5,000
Billed price P55,000 / 110%
Cost 50,000
Allowance for overvaluation of branch inventory/ _______
Unrealized Intercompany Inventory Profit/Deferred Profit P 5,000
2.
Sales......................................................................................................................................
P140,000
Cost of goods sold:
Merchandise inventory, September 1................................................ P 35,200
Purchases.............................................................................................. 24,000
Shipments from home office............................................................... 55,000
Merchandise available for sale.......................................................... P 114,200
Less: Merchandise Inventory, September 30..................................... 30,000
Cost of goods sold.......................................................................................................
84,200
Gross profit............................................................................................................................P
55,800
Operating expenses:
Selling expenses……………………………………..................................P 8,000
General expenses…………………......................................................... 12,000
Total operating expenses..........................................................................................
20,000
Unadjusted branch net income...................................................................................... P
15,800
3. Results of Branch Operations:
a. Branch Net Income/Loss from its own operations:
Branch Current………………........................................................................... 15,800
Branch Income Summary...................................................................
15,800
b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch
Inventory/ Unrealized Intercompany Inventory Profit:
Unrealized Intercompany Inventory Profit.................................................... 4,600
Branch Income Summary..................................................................
4,600
Billing Price
Cost
(Billing/1.10)
Unrea
* P35,200 x 50% = P17,600
** P30,000 – P8,000
***or, P50,600 x 10/110 = P4,125; Decrease in Unrealized Intercompany Inventory
Profit:
Therefore, the True/Real/Adjusted Branch Net Income or Branch Net Income in so far
as HO is concerned amounted to:
Unadjusted branch net income...............................................................................P15,800
Add: Allowance for Overvaluation of CGS…………………………………………….
4,600
Adjusted Branch Net
Income……………………………………………………………..P20,400
Problem II
Books of Home Office

Correcting entries:
A. Sales............................................................................................................... 42,000
Shipments to Branch................................................................ …………
35,000
Unrealized Intercompany Inventory Profit........................................... 7,000
Cost of merchandise shipped t branch: P42,000/1.20= P35,000.
Entry Made Correct/Should be Entry
Branch Current…………… 42,000 Branch Current……….. 42,000
Sales…………………… 42,000 Shipments to Branch 35,000
Unrealized Int. Inv Pr. 7,000
B. Shipments to Branch...................................................................................... 625
Unrealized Intercompany Inventory Profit................................................... 125
Sales Returns...........................................................................................
750
Cost of merchandise returned by branch: P750/1.20= P625.
Entry Made Correct/Should be Entry
Sales Returns……………… 750 Shipments to Branch………. 625
Branch Current……… 750 Unrealized Int. Inv Profit…… 125
Branch Current…………. 750
Results of Branch Operations:
A. Branch Net Income/Loss from its own operations:
Branch Income Summary............................................................................... 2,600
Branch Current…................................................................................
2,600
B. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch
Inventory/ Unrealized Intercompany Inventory Profit:
4,125
Billing Price
Cost
(Billing/1.20)
Unrealized Profit
(Billing Price Minus
Cost)
Inventory, December 1 P 0 P 0 P 0
Shipments during December 42,000 35,000 7,000
Less: Returns _____750 ____625 ____125
Available for Sale (before adjustment) P 41,250 P 34,375 P 6,875
Less: Inventory, Dec. 31 (after adjustment) 16,500 13,750 __2,750
Reduction in unrealized profit account- adjustment
to branch profit for overstated of cost of goods sold
(adjustment) P 24,750 P 20,625 *P 4,125
*or, P24,750 x 20/120 = P4,125;
Decrease in Unrealized Intercompany Inventory Profit:
Balance prior to adjustment, 12/31, P7,000 – P125................... P6,875
Balance required in account, 12/31,P16,500 – (P16,500/1.20).. 2,750
Decrease in Allowance................................................................. P4,125
Branch Income Summary (P4,125 – P2,600)....................................................1,525
Income Summary....................................................................................
1,525
Therefore, the Real/True/Adjusted Branch Net Income/Branch Net Income in so far as HO is
concerned, amounted to P1,525, computed as follows:
Branch net loss as reported/unadjusted……………………………………………………(P2,600)
Add: Overvaluation of branch inventory/Realized profit from branch sales……….. 4,125
Real/True/Adjusted Branch Net Income or Branch NI in so far as HO is concerned P1,525
Problem III
a. Unrealized Intercompany Inventory Profit has a credit balance of P9,450 before adjustment on
December 31, calculated as follows:
Billing Price
Cost
(Billing/1.35)
Unrealized Profit
Cost)
Inventory, December 1 P 16,200 P 12,000 P 4,200
Shipments during December __20,250 _ 15,000 __ 5,250
Less: Inventory, Dec. 31 (after adjustment) __18,900 _14,000 __4,900
(adjustment) P 17,550 P 21,625 *P 4,550
* or, P17,550 x 35/135 = P4,550
b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/
Unrealized Intercompany Inventory Profit (refer to “a” for computation):
4,550
c.
Home Office Books Branch Books
Shipments to Branch 400 Home Office Current 540
Unrealized Int Inv. Pr 140 Shipments to Branch 540
Branch Current 540
Cost of merchandise returned: P540/1.35, or P400.
Problem IV
1. The branch office inventory as of December 1 considered of:
Shipments from Home Office (see below)............................................................. P 12,000**
Purchases from outsiders (balance of inventory).................................................. 3,000
Total inventory........................................................................................................... P 15,000
Goods acquired from home office and included in branch inventory at billed price are
calculated as follows:
Unrealized Profit
Billing Price
Cost
(Billing/1.20)
Cost)
Inventory, December 1 **P 12,000 *P 10,000 P 2,000
Shipments during December __9,600 _ 8,000 __ 1,600
Less: Inventory, Dec. 31 (after adjustment) __8,400 __7,000 __1,400
(adjustment) P 13,200 P 11,000 ***P 2,200
*P2,000/20% = P10,000; ***P13,200 x 20/120 = P2,200
2. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch Inventory/
Unrealized Intercompany Inventory Profit (refer to “a” for computation):
Unrealized Intercompany Inventory Profit......................................... 2,200
Branch Income Summary.......................................................... 2,200
Problems V
(1) Individual Statements
SPENCER CO.
Balance Sheet for Branch
December 31,20x4
Assets
Liabilities____________________
Cash..................................................... P 2,650 Accounts
payable................................... P 4,200
Accounts receivable........................ 12,850 Accrued expenses...................................
105
Merchandise inventory..................... 14,600 Home office...............................................
29,239
Store supplies...................................... 300
Prepaid expenses............................... 120
Furniture and fixtures.............. P 3,600
Less: Accumulated
depreciation.............. 576 3,024
________
Total assets....................................... P 33,544 Total
liabilities............................................ P 33,544
SPENCER CO.
Income Statement for Branch
For Month Ended December 31, 20x4
Sales........................................................................................................................................... P
20,000
Cost of goods sold:
Merchandise inventory, December 1................................................ P 14,400
Purchases.............................................................................................. 4,100
Shipments from home office............................................................... 10,200
Less: Merchandise Inventory, December 31..................................... 14,600
Cost of goods sold.......................................................................................................

14,100
Gross profit................................................................................................................................. P
5,900
Operating expenses:
Advertising expense............................................................................. P 2,800
Salaries and commissions expense..................................................... 2,350
Store supplies expense......................................................................... 280
Miscellaneous selling expense............................................................ 1,050
Rent expense........................................................................................ 1,500
Depreciation expense – furniture and fixtures.................................. 36
Miscellaneous general expense......................................................... 905
Total operating expenses..........................................................................................
8,921
Net loss...................................................................................................................................... P
3,021
SPENCER CO.
Balance Sheet for Home Office
December 31, 20x4
Assets Liabilities and Stockholder’s
Equity_______
Cash..................................................... P10,350 Liabilities
Cash in transit..................................... 1,500 Accounts payable................ P 35,400
Accounts receivable........................ 26,200 Accrued expenses............... 260
P 35,660
Merchandise inventory..................... 24,200 Stockholders’ Equity
Store supplies...................................... 380 Capital Stock......................... P 65,000
Prepaid expenses............................... 350 Less deficit..............................
4,476 60,524
Furniture and fixtures.............. P 8,500

Less: Accumulated
depreciation.............. 2, 585 5,915
Branch..................................... P29,239
Less: Unrealized intercompany
inventory profit............ 1,950 27,289 Total liabilities and
________
Total assets........................................ P 96,184 stockholder’s equity...............................
P 96,184
SPENCER CO.
Income Statement for Home Office
Sales........................................................................................................................................... P
44,850
Cost of goods sold:
Merchandise inventory, December 1................................................ P 31,500
Purchases.............................................................................................. 27,600
Less: Shipments to branch................................................................... 8,500
Merchandise available for own sales................................................ P 50,600
Less: Merchandise Inventory, December 31..................................... 24,200
Cost of goods sold..........................................................................................
26,400
Gross profit................................................................................................................................. P
18,450
Operating expenses:
Advertising expense............................................................................. P 2,850
Salaries and commissions expense..................................................... 4,250
Store supplies expense......................................................................... 560

Miscellaneous selling expense............................................................ 1,850
Rent expense........................................................................................ 2,700
Depreciation expense – furniture and fixtures.................................. 85
Miscellaneous general expense......................................................... 2,510
Total operating expenses............................................................................. 14,805
Net income from own operations......................................................................................... P
3,645
Less: Branch net loss................................................................................................................
1,271
Total income............................................................................................................................ P
2,374
2. Refer to Word Document Worksheet
3, Combined Statements
SPENCER CO.
Combined Balance Sheet for Home Office and Branch
December 31, 20x4
Assets Liabilities and Stockholders’ Equity
Cash ………………………………. P 14,500 Liabilities
Accounts Receivable ………… 39,050 Accounts Payable ……….. P39,600
Merchandise Inv ………………. 36,850 Accrued Expenses ………. 365 P
39,965
Store Supplies ………………….. 680 Stockholders’ Equity
Prepaid Expenses …………….. 470 Capital Stock ……………… P65,000
Furniture & Fixtures ……… P12,100 Less deficit …………………. 4,476
60,524
Less accumulated
Depreciation …... 3,161 8,939
Total assets ……………………… P100,489 Total liabilities and SHEquity P100,489
SPENCER CO.
Combined Income Statement for Home Office and Branch
Sales ………………………………………………………………………………………………………… P64,850
Cost of goods sold:
Merchandise Inventory, December 1 …………………………………… P43,900
Purchases ……………………………………………………………………… 31,700
Merchandise available for sale …………………………………………… P75,600
Less merchandise inventory, December 31 ……………………………. 36,850
Cost of goods sold ………………………………………………………….. 38,750
Gross profit ……………………………………………………………………………… P26,100
Operating Expenses:
Advertising Expense ………………………………………………………… P 5,650
Salaries and Commissions expense ……………………………………… 6,600
Store supplies expense …………………………………………………….. 840
Miscellaneous selling expense …………………………………………… 2,900
Rent expense ………………………………………………………………… 4,200
Depreciation Expense – F&F ………………………………………………. 121
Miscellaneous general expense …………………………………………. 3,415
Total operating expense ………………………………………………………………………. 23,726
Net Income ………………………………………………………………………………………………… P 2,374
4. Adjusting and Closing Entries
(a) Branch Books
Dec 31 Income Summary …………………………………………….. 14,400
Merchandise Inventory …………………………….. 14,400
31 Merchandise Inventory ……………………………………… 14,600
Income Summary ……………………………………. 14,600
31 Store Supplies Expense ………………………………………. 280
Store Supplies ………………………………………… 280
Store supplies used: P580 – P300, or P280

Dec. 31 Prepaid Expenses ………………………………………………… 120
Miscellaneous General Expense ……………………. 120
31 Miscellaneous General Expense ……………………………… 105
Accrued Expenses …………………………………….. 105
31 Depreciation Expense – F&F ………………………………….. 36
Accumulated Depreciation ………………………… 36
Depreciation: 1% of P3,600
31 Miscellaneous General Expense …………………………….. 220
Home Office Current………………………………… 220
31 Sales ……………………………………………………………… 20,000
Income Summary ……………………………………. 20,000
31 Income Summary ……………………………………………… 22,221
Purchases ……………………………………………… 4,100
Shipments from Home Office ……………………… 10,200
Advertising Expense …………………………………. 2,800
Salaries and Commissions Expense ………………. 2,350
Store Supplies Expense ………………………………
Miscellaneous General Expense …………………. 905
31 Home Office Current………….………………………………. 3,021
Income Summary …………………………………….. 3,021
(b) Home Office Books
Dec 31 Income Summary ………………………………………………. 31,500
Merchandise Inventory ………………………………. 31,500
31 Merchandise Inventory ………………………………………... 24,200
Income Summary ……………………………………… 24,200
31 Store Supplies Expense …………………………………………. 560
Store Supplies …………………………………………… 560
Store supplies used: P940 – P380, or : 560
31 Prepaid Expense ………………………………………………… 350

Miscellaneous General Expense …………………… 350
31 Miscellaneous General Expense …………………………….. 260
Accrued Expenses ……………………………………. 260
31 Depreciation Expense ………………………………………….. 85
Accumulated Depreciation – F&F …………………. 85
Depreciation: 1% of P8,500, or P85
31 Cash in Transit …………………………………………………. 1,500
Branch Current………………………………………… 1,500
31 Sales …………………………………………………………… 44,850
Shipments to branch ………………………....................... 8,500
Income Summary …………………………………. 53,350
Dec 31 Income Summary ……………………………………………… 42,405
Purchases ……………………………………………… 27,600
Advertising Expense …………………………………. 2,850
Salaries and Commissions Expense ………………. 4,250
Store Supplies Expense ……………………………… 560
Miscellaneous Selling Expense …………………….. 1,850
Rent Expense …………………………………………. 2,700
Depreciation Expense – F&F ………………………. 85
Miscellaneous General Expense …………………. 2,510
31 Branch Income Summary…………………………………….. 3,021
Branch Current…………………………………………
3,021
31 Unrealized Intercompany Inventory Profit ………………. 1,750
Branch Income Summary………………………… 1,750
Calculation of unrealized profit adjustment:
Balance of unrealized profit account,
December 31 ……………………….. P3,700
Inventory merchandise received from

Home office at billed price on
December 31, P11,700
Inventory at cost: P11,700/ 1.20, or P9,750
Balance of unrealized profit account on
December 31, P11,700 – P9,750 .... 1,950
Required decreased in unrealized profit
Adjustment to branch income for
Overstatement of cost of goods
Sold …………………………………….. P1,750
31 Income Summary …………………………………………… 1,271
Branch Income Summary……………………. 1,271
31 Income Summary …………………………………………… 2,374
Retained Earnings …………………………………. 2,374
Problem VI
1.
Branch
Current
H. Office
Current
Unadjusted balance, 12/31/20x4 P 44,000
P 9,000
Add (Deduct): Adjustments
1 Cash in transit ( 10,000)
2. Merchandise in transit 10,000
3. Branch expenses paid by home office 12,000
4. Cash in transit from home office _______ 3,000
Adjusted balance, 12/31/20x4 P 34,000 P34,000
2. Refer to PDF Copy of the Worsheet
3. Combined Income Statement

Sales [(P350,000 – P105,000) + P150,000)……….......................................................
P395,000
Less: Cost of goods sold [(P220,000 – P84,000) +
(P93,000 + P3,600 – P21,000 – P1,200)]…………………………………….
210,400
Gross profit................................................................................................................... P184,600
Operating expenses (P70,000 + P41,000 + P12,000)................................................ 123,000
Net income................................................................................................................... P 61,600
Problem VII
(1)
PAXTON CO.
Income Statement for Dayton Branch
For Year Ended December 31, 20x5
Sales.............................................................................................................................. P315,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P 44,500
Shipments from home office...................................................... 252,000
Merchandise available for sale................................................. P296,500
Less: Merchandise Inventory, December 31, 20x5.................. 58,500 238,000
Gross profit................................................................................................................. P 77,000
Operating expenses................................................................................................. 101,500
Net loss....................................................................................................................... P 24,500
PAXTON CO.
Income Statement for Cincinnati Home Office
Sales.............................................................................................................................. P1,060,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5................................... P115,000
Shipments from home office...................................................... 820,000

Less: Shipments to branch.......................................................... 210,000
Merchandise available for own sales....................................... P725,000
Less: Merchandise Inventory, December 31, 20x5.................. 142,500
582,500
Gross profit.................................................................................................................. P477,500
Expenses...................................................................................................................... 382,000
Net income from own operations............................................................................ P 95,500
Add branch net income........................................................................................... 16,650
Total income............................................................................................................... P112,150
(2)
PAXTON CO.
Sales.............................................................................................................................. P1,375,000
Cost of goods sold:
Merchandise inventory, January 1, 20x5...................................P 150,600
Purchases...................................................................................... 820,000
779,350
Gross profit.................................................................................................................... P595,650
Operating expenses.................................................................................................... 483,500
Net income................................................................................................................... P112,150
(3) Merchandise Inventory, December 31................................................................ 58,500
Sales.......................................................................................................................... 315,000
Income Summary............................................................................................
373,500
Income Summary......................................................................................................... 398,000

Merchandise Inventory, January 1................................................................
44,500
Shipments from Home Office.........................................................................
252,000
Operating expenses........................................................................................
101,500
Home Office............................................................................................................... 24,500
Income Summary..........................................................................................
24,500
(4) Branch Income Summary........................................................................................ 24,500
Branch Current.....................................................................................................
24,500
Unrealized Intercompany Inventory Profit............................................................... 41,150
Branch Income Summary....................................................................................
41,150
Branch inventory, January 1, acquired from home office
at billed price...................................................................................... P 44,500
Less: Cost of inventory (P44,500/1.25)......................................................... 35,600
Unrealized Intercompany Inventory Profit Jan. 1....................................... P 8,900
Add: Increase in unrealized profit for shipments
made during year, billed price of goods,
P252,000, cost of goods, P210,000.................................................... 42,000
P 50,900
Deduct balance to remain in unrealized profit account:
Branch inventory, December 31,
acquired from home office....................................... P 58,500
Less: Cost of inventory to home office,
P58,500/1.20................................................................ 48,750 9,750

Reduction in unrealized profit account- adjustment to
branch income for overstatement of cost of
goods sold.................................................................. 41,150
Branch Income Summary........................................................................................... 16,650
Income Summary............................................................................................
16,650
Merchandise Inventory, December 31...................................................................... 142,500
Sales............................................................................................................................... 1,060,000
Shipments to Branch.................................................................................................... 210,000
Income Summary.............................................................................................
1,412,500
Income Summary......................................................................................................... 1,317,000
Merchandise Inventory, January 1................................................................
115,000
Purchases.........................................................................................................
820,000
Expenses...........................................................................................................
382,000
Income Summary.......................................................................................................... 112,150
Retained Earnings............................................................................................
112,150
Problem VIII
(1)
RUGGLES CO.
Income Statement for Branch
Sales................................................................................................................................ P 78,500
Cost of goods sold:
Merchandise inventory, January 1, 20x4......................................... P 32,000

Shipments from home office........................................... P 40,000
Purchases from outsiders................................................. 20,000 60,000
Merchandise available for sale....................................................... P 92,000
Less: Merchandise Inventory, December 31, 20x4........................ 31,500
Cost of goods sold............................................................................. 60,500
Gross profit.................................................................................................................... P 18,000
Net income................................................................................................................... P 5,500
RUGGLES CO.
Income Statement for Home Office
Sales.............................................................................................................................. P 256,000
Cost of goods sold:
Purchases...................................................................................... 210,000
Merchandise available for sale................................................. P 290,000
Merchandise available for own sales....................................... P 260,000
Gross profit................................................................................................................... P 51,000
Operating Expenses.................................................................................................... 60,000
Net loss from own operations..................................................................................... P ( 9,000)
Add: Adjusted branch net income............................................................................. 13,500
Combine net income.................................................................................................... P 4,500
(2)
RUGGLES CO.

Sales.............................................................................................................................. P 334,500
Cost of goods sold:
Purchases...................................................................................... 230,000
Merchandise available for sale.................................................. P 337,500
Less: Merchandise Inventory, December 31, 20x4................... 80,000
Gross profit.................................................................................................................... P 77,000
Net income................................................................................................................... P 4,500
(3) Merchandise Inventory......................................................................................... 31,500
Sales.......................................................................................................................... 78,500
Income Summary............................................................................................
110,000
Income Summary......................................................................................................... 104,500
Merchandise Inventory...................................................................................
32,000
Shipments from Home Office.........................................................................
40,000
Purchases.........................................................................................................
20,000
Expenses...........................................................................................................
12,500
Income Summary......................................................................................................... 5,500
Home Office.....................................................................................................
5,500
(4) Branch...................................................................................................................... 5,500
Branch Income................................................................................................
5,500
Unrealized Intercompany Inventory Profit............................................................... 8,000
Branch Income.............................................................................................. 8,000
Branch inventory, January 1, acquired from home office
at billed price.................................................................................... P 24,500
Less: Cost of inventory (P24,500/1.225).................................................... 20,000
Unrealized Intercompany Inventory Profit Jan. 1................................... P 4,500
Add: Increase in unrealized profit for shipments
made during year, billed price of goods,
P40,000, cost of goods, P30,000.................................................... 10,000
P 14,500
Deduct balance to remain in unrealized profit account:
Branch inventory, December 31,
acquired from home office....................................... P 26,000
Less: Cost of inventory to home office,
P26,000/1.1/3................................................................ 19,500 6,500
Reduction in unrealized profit account- adjustment to branch
income for overstatement of cost of goods sold........................... 8,000
Branch Income............................................................................................................. 13,500
Income Summary............................................................................................
13,500
Merchandise Inventory................................................................................................ 55,000
Sales............................................................................................................................... 256,000
Shipments to Branch.................................................................................................... 30,000
Income Summary.............................................................................................
341,000
Income Summary......................................................................................................... 350,000
Merchandise Inventory...................................................................................
80,000
Purchases.........................................................................................................
210,000
Expenses...........................................................................................................
60,000
Income Summary.......................................................................................................... 4,500
Retained Earnings............................................................................................
4,500
Problem IX
1.
Branch
Current
H. Office
Current
Unadjusted balance, 12/31/20x4 P 60,000
P 51,500
Add (Deduct): Adjustments
1 Remittance I 1,700)
2. Cash in transit 1,800
3. Shipments in transit 5,800
Adjusted balance, 12/31/20x4 P 57,300 P 57,300
2. Income Statement - Branch
Sales................................................................................................................................ P
140,000
Cost of goods sold:
Merchandise inventory, January 1, 20x4 (P11,550 – P1,000)....... P 10,550
Shipments from home office (P105,000 + P5,000 – P10,000)........ 100,000
Freight-in (P5,500 + P250)…………………………………………….. 5,750
Merchandise available for sale.....................................................P116,300
Less: Merchandise Inventory, December 31, 20x4...................... 14,770

Cost of goods sold.............................................................................
101,530
Gross profit.................................................................................................................... P
38,470
Operating expenses....................................................................................................
24,300
Net income................................................................................................................... P
14,170
Income Statement – Home Office
Sales.............................................................................................................................. P
155,000
Cost of goods sold:
Purchases...................................................................................... 190,000
Merchandise available for sale................................................. P 213,000
Merchandise available for own sales....................................... P 113,000
Cost of goods sold........................................................................
83,000
Gross profit................................................................................................................... P
72,000
Operating Expenses....................................................................................................
42,000
Net loss from own operations..................................................................................... P
30,000
Add branch net income............................................................................................ 14,170
Combined net income.............................................................................................. P
44,170
3.
Sales.............................................................................................................................. P
295,000
Cost of goods sold:
Purchases...................................................................................... 190,000
Freight-in……………………………………………………………… 5,750
Merchandise available for sale.................................................. P 229,300
Less: Merchandise Inventory, December 31, 20x4................... 44,770
Cost of goods sold........................................................................ 184,530
Gross profit.................................................................................................................... P
110,470
Net income................................................................................................................... P
44,170
Problem X
a. The cost of the merchandise destroyed was P30,000.
Total merchandise acquired from home ofiice, at billed price:
Inventory, January 1...................................................................................... P26,400
Shipments from home office, Jan. 1-17....................................................... 20,000
P46,400
Cost of goods sold, January 1-17, at billed price:
Net sales, P13,000/1.25...................................................................................... 10,400
Merchandise on hand, January 17, at billed price....................................... P36,000
Merchandise on hand, January 17, at cost, P36,000/1.20............................ P30,000
b. Branch Books:
Loss from Fire (or Home Office)............................................................ 36,000

Merchandise Inventory............................................................ 36,000
Home Office Books:
No entry needs to be made on the books of the home office until the end of the fiscal period,
when the branch earnings (including the loss from fire) are recognized and when the balance of
the account Unrealized Intercompany Inventory Profit is adjusted to conform to the branch
ending inventory. If it is desired to recognize the loss from fire on the home office books
immediately, the following entry may be made:
Branch Loss from Fire (or Retained Earnings)...................................... 30,000
Unrealized Intercompany Inventory Profit........................................... 6,000
Branch......................................................................................... 36,000
Problem XI
a. Books of Branch A:
Home Office........................................................................................ 1,500
Cash......................................................................................... 1,500
b. Books of branch B:
Cash...................................................................................................... 1,500
Home Office............................................................................ 1,500
c. Books of Home Office:
Branch B............................................................................................... 1,500
Branch A.................................................................................. 1,500
Problem XII
a. Books of Branch No. 1 :
Home Office ……………………………………………………………. 1,950
Shipments from Home Office…………………………………….. 1,600
Freight In……………………………………………………………… 350
b. Books of branch No. 5:
Shipments from Home Office………………………………………… 1,600
Freight In…………………………………………………………………… 400
Home Office…………………………………………………………. 1,750

Cash…………………………………………………………………… 250
c. Books of the Home Office
Branch No. 5…………………………………………………………….. 1,750
Excess Freight on Inter branch Transfer of Merchandise……….. 200
Branch No. 1………………………………………………………… 1,950
Shipments to Branch No. 1…………………………………………….. 1,600
Shipments to Branch No. 5………………………………………… 1,600
Multiple Choice Problems
1. c - P50,400, billed price x 40/140 = P 14,400
2. b
Ending inventory in the combined income statement:
From Home Office: (P50,000-P6,600) x 100/140 P 31,000
From Outsiders 6,600
P 37,600
3. a
True Branch Net Income
Branch Net Income P 5,000
Add (deduct):
Overvaluation of cost of goods sold/realized profit
from sales made by branch:
Shipments from home office. P 280,000
Less: Ending inventory, at billed
price (P50,000 – P6,600) 43,400
Cost of goods sold from home
office at billed price P 236,600
Multiplied by: Mark-up 40/140 67,600
Unrecorded branch expenses ( 2,500)
True Branch Net Income P 70,100
4. a – P30,000 x (90,000 – 60,000)/90,000

5. a
6. d – (P50,000 – P40,000)/P40,000 = 25% markup on cost
7. c – (P480,000 – P360,000) x (P80,000/P480,000) = P20,000
8. c – P700,000, since the problem stated that the “home office adjusted the intracompany Profit
Deferred account” and the amount of P700,000 is the amount of net income in the adjusted
financial statements of the home office, and therefore it is understood to be combined net
income.
9. b
Reported (unadjusted) branch net income (per branch books) ………………..P 30,000
Branch Income in so far as home office is concerned per home office books. 50,000
Overvaluation of branch cost of goods sold…………………………………………P 20,000
Cost of sales of Home Office…………………………………………………………….P500,000
Cost of sales of Branch…………………………………………………………………… 100,000
Overvaluation of branch cost of sales…………………………………………………( 20,000)
Combined cost of sales…………………………………………………………………...P580,000
10. c – the amount of net income as reported by Home office is considered the combined net
income.
11. a
True Branch Net Income P156,000
Less: branch Net Income as reported by the branch 60,000
Overvaluation of CGS P 96,000
Less: Cost of goods sold from home office at BP
Inventory, December 1 P 70,000
Shipment from HO 350,000
COGAS P 420,000
Less: Inventory, December 31 84,000 336,000
CGS from home office, at cost P 240,000
Billing Price: P336,000 / P240,000 = 140%.
12. b – Allowance for overvaluation after adjustment / for December 31 inventory: P84,000 x
40/140 = P24,000.
13. b
Net Income as reported by the Branch P 20,000
Less: Rental expense charged by the home office
(P1,000 x 6 months) 6,000
Adjusted NI as reported by the Branch P 14,000
Add: Overvaluation of CGS
Billed Price
MI, beginning 0
SFHO 550,000
COGAS 550,000
Less: MI, ending 75,000
CGS, at BP 475,000
X: Mark-up ratio 25/125 95,000
True/Adjusted/Real Branch Net Income P109,000
14. d
Sales (P537,500 + P300,000)……………………………………………….………. P 837,500
Less: Cost of goods sold
Merchandise inventory, beg. [P50,000 + (P45,000 / 1.20)]P 87,500
Add: Purchases…………………………………………………. 500,000
Cost of Goods Available for Sale…………………………... P 587,500
Less: MI, ending [P70,000 + (P60,000 / 1.20)]………………. 120,000 467,500
Gross profit………………………………………………………………. P 370,000
Less: Expenses (P120,000 + P50,000..………………………………. 170,000
Net Income……………………………………………………………… P 200,000
15. d
Overvaluation of Cost of Goods Sold:
Unrealized Profit in branch inventory/ before adjustment……………….P 7,200
Less: Allowance of ending branch inventory (P20,000 x 84% =

P16,800 x 20/120…………………………………………………………. 2,800
Overvaluation of Cost of Goods Sold……………………………………. ….P 4,400
Adjusted branch net income:
Sales………………………………………………………………………………………P60,000
Less: Cost of goods sold:
Inventory, January 1, 2003……………………………….P 30,000
Add: Purchases…………………………………………..... 11,000
Shipments from home office…………………….. 19,200
Cost of Goods available for sale……………………… P 60,200
Less: Inventory, December 31, 2003…………………. 20,000 40,200
Gross profit…………………………………………………………………………….. P19,200
Less: Expenses………………………………………………………………………….. 12,000
Unadjusted branch net income…………………………………………………...P 7,800
Add: Overvaluation of Cost of Goods Sold……………………………………. 4,400
Adjusted branch net income……………………………………………………...P 12,000
16. d
Billed Price Cost Allowance
Merchandise Inventory, 12/31/2005 *P 36,000 P 30,000 P 6,000
Shipments 28,800 24,000 4,800
Cost of goods sold P10,800
From Home at billed price: *P6,000 / 20% = P30,000 + P6,000 = P36,000.
From outsiders: P45,000 – P36,000 = P9,000
17. d
Merch. Inventory, 12/31/20x4 *P12,000 P10,000 P 2,000
Shipments 9,600 8,000 1,600
Cost of Goods Sold P 3,600
*P2,000 / 20% = P10,000 + P2,000 = P12,000.
Merchandise inventory, December 1, 20x4…………………………………P 15,000

Less: Shipments from home office at billed price*………………………… 12,000
Merchandise from outsiders……………………………………………………P 3,000
18. d
Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/2003:
Home Office, cost……………………………………………… P 3,500
Branch: Outsiders, ……………………………...........................P 300
From Home Office (P2,500 – P300)/110%................. 2,000 2,300 P 5,800
Add Purchases (P240,000 + P11,000)…………………………….. 251,000
COGAS………………………………………………………………… P256,800
Less: Merchandise Inventory, 12/31/2003
Home Office, cost………………………………………………. P 3,000
Branch: Outsiders………………………………………………. P 150
From Home Office (P1,800 – P150)/110%................ 1,500 1,650 4,650
Cost of Goods Sold………………………………………………… P252,150
19. d
100% 60% 40%
Merchandise inventory, 1/1/x4 32,000
Shipments *60,000 36,000 *24,000
Cost of goods available for sale 56,000
Less: MI, 3/31/x4 (25,000 x 40%) 10,000
Overvaluation of CGS** 46,000
*36,000 cost / 60% = 60,000 x 40% = 24,000. (Note: Markup is based on billed price)
**Realized Profit from Branch Sales
20. d
Billed
Price
Cost Allowance
Shipments (400,000 x 25%) 400,000 *100,,000
Less: MI, 8/31/x4 (160,000 x 25%) 160,000 40,000
Overvaluation of CGS/RPBSales 120,000
21. b
(1) Sales P 40,000
Inventory, 1/1/2003 (P4,950 / 110%) P 4,500
Add: Shipments (P22,000 / 110%) 20,000
COGAS P 24,500
Less: Inventory, 12/31/2003 (P6,050 / 110%) 5,500 19,000
Gross profit P 21,000
Less: Expenses _ 13,100
Net income from own operations P 7,900
(2) Combined Cost of Goods Sold:
Merchandise Inventory, 1/1/2003:
of Home Office, cost……………………………………………..P 17,000
of Branch, cost: P4,950 / 110%…………………………………. 4,500 P 21,500
Add Purchases…………………………………………………………. 50,000
COGAS………………………………………………………………….. P 71,500
Less: Merchandise Inventory, 12/31/2003
of Home Office, cost……………………………………………… P 14,000
of Branch, cost: P6,050 /100%………………………………….. 5,500 19,500
Cost of Goods Sold……………………………………………………. P 52,000
22. a - P48,000 / 120% = P40,000
23. a – P48,000 x 20/120 = P8,000 (note: adjusted allowance refers to the allowance related to the
ending inventory, so, the allowance related to the CGS, which is P10,00 in this case is
considered to be the adjustments in the books of Home Office to determine the adjusted
branch net income)
120% 100% 20%
Merchandise inventory, 1/1/x4 0
Shipments 108,000
Less: MI, 12/31/x4 (P60,000 x 80%) 48,000
Overvaluation of CGS (60,000 x 20/120) 60,000 10,000*
24. b
Sales (P148,000 + P44,000) P192,000
Less: Cost of Sales
Inventory, 1/1/20x4 P 0
Purchases 52,000
Shipments from home office 108,000
Cost of goods available for sale P 160,000
Less: Inventory, 12/31/20x4 60,000 100,000
Gross profit P 92,000
Less: Expenses (P76,000 + P24,000) 100,000
Net income, unadjusted P( 8,000)
Add: Overvaluation of CGS 10,000
Adjusted branch net income P 2,000
25. c
125% 100% 25%
Shipments 250,000
Less: MI, 12/31/x4 (P60,000 x 80%) 60,000
Overvaluation of CGS(230,000x 25/125) 230,000 46,000*

26. b – P326,000
Sales (P600,000 + P300,000) ………………………………………………….. P 900,000
Merchandise inventory, beg.
[P100,000 + (P40,000/1.25)] ………………………. … P 132,000
Add: Purchases…………………………………… 350,000
Cost of goods available for sale………………… P 482,000
Less: MI, ending
[P30,000 + (P60,000/1.25)] ………………………… 78,000 404,000
Gross profit……………………………………………………… P 496,000
Less: Expenses (P120,000 + P50,000)………………………. _ 170,000
Net Income …………………………………………………. P 326,000
27. b
Sales (P537,500 + P300,000) ………………………………………………… P 837,500
Merchandise inventory, beg.
[P50,000 + (P60,000/1.20)]…………………………….. P 87,500
Add: Purchases ……………………………………. 500,000
Cost of goods available for sale………………… P587,500
Less: MI, ending
[P70,000 + (P60,000/1.20)] …………………………. 120,000 467,500
Gross profit…………………………………………………….. P 370,000
Less: Expenses (P120,000 + P50,000)………………………. _ 170,000
Net Income …………………………………………………… P 200,000
28. c
Sales (P120,000 + P60,000)……………………………………… P 180,000
Merchandise inventory, beg. [P40,000 + P6,000 +
(P24,000 / 1.2)]……………………………… P 66,000

Add: Purchases (P70,000 + P11,000)………………… 81,000
Cost of Goods Available for Sale……………………P 147,000
Less: MI, ending [P40,000 + P3,200 + (P16,800 / 1.20)] 57,200 89,800
Gross profit……………………………………………………… P 90,200
Less: Expenses (P28,000 + P12,000)………………………… 40,000
Net Income……………………………………………………. P 50,200
29. d
Sales (P100,000 – P33,000 + P50,000)…………………………………… P 117,000
Inventory, beg. [P15,000 + (P5,500/110%) or (P5,500 – P500)] P20,000
Add: Purchases (P50,000 + P7,000)……………………………… 57,000
COGAS……………………………………………………………….. P77,000
Less: Inventory, end [P11,000 + P1,050 +
(P6,000- P1,050)/110%]……………………………………… 16,550 60,450
Gross profit…………………………………………………………………… P 56,550
Less: Expenses (P20,000 + P6,000 + P5,000)……………………………… 31,000
Combined Net income……………………………………………………. P 25,550
30. c
Sales ……………………………………………………………………... P155,000
Less: Cost of Sales
Inventory, 1/1/10…………………………………………….. P 23,000
Purchases …………………………………………………….. 190,000
Cost of goods available for sale ……………………….. P213,000
Less: Shipment/Sales to Branch,
at cost (P110,000/110%)………………………………………… 100,000
Cost of goods available for HO
Sale………………………………………………….. P113,000
Less: Inventory, 12/31/10 ………………………………..... 30,000 83,000
Gross profit ………………………………………………………………... P 72,000

Less: Expenses ……………………………………………………………. 52,000
Net income – home office ……………………………………………. P 20,000
31. a
Sales …………………………………………………………………….... P140,000
Less: Cost of Sales
Inventory, 1/1/x4……………………………………………… P 11,550
Purchases ……………………………………………………. 105,000
Freight-in ……………………………………………………… 5,500
Shipment in transit (P5,000+P250) ………………………. 5,250
Cost of goods available for sale …………………………. P127,300
Less: Inventory, 12/31/x4
(P10,400 + P520 + P5,250) ………………………………………. 16,170 111,130
Gross profit. ……………………………………………………………. P 28,870
Less: Expenses ………………………………………………………… 28,000
Net income per branch books/unadjusted ……………………… P 870
Add: Overvaluation of CGS* ……………………………………….. 9,600
Net Income of Davao Branch, adjusted …………………………. P 10,470
BP Cost Allowance
MI. 1/1/20x4 1,000
Shipments 110,000 100,000 **10,000
Available for sale 11,000
-: MI, 12/31/x4 ***15,400 ****1,400
CGS 9,600
**110,000 x 10/110
***10,400 + 5,000, in transit
****15,400 x 10/110
32. a
Inventory, 1/1 at billed price…………………………………….. P165,000
Add: Shipments at billed price………………………………….. 110,000

Cost of goods available for sale at billed price ……………… P275,000
Less: CGS at BP:
Sales……………………………………………………………… P169,000
Less: Sales returns and allowances ………………….. 3,750
Sales price of merchandise
acquired from outsiders
(P7,500 / 120%)…………………………… 9,000
Net Sales of merchandise acquired from
home office ……………………………………….. P156,250
x: Intercompany cost ratio ………………………………... 100/125 125,000
Inventory, 8/1/2008 at billed price……………………………… P150,000
x: Cost ratio …………………………………………………………….. 100/125
Merchandise inventory at cost destroyed by fire ………………… P120,000
33. d
Freight actually paid by:
Home Office……………………………………………………………………P 500
Branch P………………………………………………………………………… 700
Total………………………………………………………………………………P 1,200
Less: Freight that should be recorded…………………………………………….. 800
Excess freight……………………………………………………………………………P 400
34. d – in arriving at the cost of merchandise inventory at the end of the period, freight charges
are properly recognized as a part of the cost. But a branch should not be charged with
excessive freight charges when, because of indirect routing, excessive costs are incurred.
Under such circumstances, the branch acquiring the goods should be charged for no more
than the normal freight from the usual shipping point. The office directing the inter-branch
transfers are responsible for the excessive cost should absorb the excess as an expense
because it represents management mistakes (or inefficiencies.)
35. c
Inventory of the Branch:

Shipments from home office at billed price.........................................P 37,700
X: Ending inventory %................................................................................ 60%
Ending inventory at billed price……………………………………...……P 22,620
Add: Freight (P1,300 x 60%)………………………………………………...... 780
P 23,400
Or, P39,000 x 60% = P23,400
36. b
Inventory in the published balance sheet, at cost
Shipments at cost…………………………………..........................................P 32,500
X: Ending inventory %.................................................................................... 60%
Ending inventory at billed price……………………………………………….P19,500
Add: Freight (P1,300 x 60%)………………………………………….......…….. 780
P 20,280
37. c
Home Office Books Davao Branch Baguio Branch
Davao Branch…39,000
STB, cost……. 32,500
Unrealized profit 5,200
Cash (freight)…. 1,300
SFHO…………….37,700
Freight-in………. 1,300
HOC………….. 39,000
BC – Baguio……19,630
Excess freight… 520
BC-Davao……. 20,150
HOC……………….20,150
SFHO(50%)… 18,850
Freight-in (50%) 650
Cash…………...... 650
SFHO………18,850
Freight-in.. 780
HOC……... 19,630
38. c – (P300,000 x ¼ = P75,000, ending inventory x (P300,000 – P250,000)/P300,000 = P12,500
39. d
40. d
41. b – refer to No. 21
43. c – refer to No. 21
44. c
45. d
Theories
1. True 6. False 11. False 16. True 21. D
2. False 7. False 12. True 17. True 22. A
3. True 8. False 13. False 18. True 23. d
4. True 9. True 14. True 19. False 24. d
5. False 10. True 15. False 20. d 25. a
26. c
Chapter 14
Problem I
1.(in millions)
Acquisition of assets and liabilities:
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000

Goodwill 6,120
Current liabilities 400
Long-term liabilities 47,000
Cash 18,000
Common stock, P2 par 1
APIC 500
Cash 500
2.(in millions)
Cash 90
Receivables 190
Inventories 7,000
Plant & equipment 40,000
Trademarks 4,000
Brand names 5,000
Secret formulas 7,000
Noncompetition agreements 10,000
Cash 18,000
Common stock, P2 par 100
APIC (P4,000 – P100) 3,900
Gain on acquisition 3,880
Consideration transferred:
Cash 18,000,000
Common stock 4,000,000
Consideration transferred 22,000,000
Less: MV of Assets and Liabilities
Acquired:
Cash 90,000
Receivables 190,000
Inventories 7,000,000
Plant & equipment, net 40,000,000
Trademarks 4,000,000
Brand names 5,000,000
Secret formulas 7,000,000
Noncompetition agreement 10,000,000
Current liabilities ( 400,000)
Long-term liabilities (47,000,000) 25,880,000
Negative excess: Gain on Acquisition ( 3,880,000)
Acquisition expenses
Acquisition/merger expenses 1,100
Cash 1,100
Costs to Issue and Register Stocks
APIC/Share Issue Costs 500
Cash 500
3.
Post-Combination Balance Sheet: (requirement 1)
Cash P 5,490,000 Current liabilities P 900,000
Receivables 2,190,000 Long-term liabilities 117,000,000
Plant and equipment 139,500,000
Trademarks 9,000,000 Common stock 2,100,000
Brand names 5,000,000 Paid-in capital – par 58,400,000
Secret formulas 7,000,000 Retained earnings* 23,900,000
Goodwill __6,120,,000 Treasury stock ( 1,000,000)
Total P201,300,000 Total P 201,300,000
*25,000,000 – 1,100,000, merger expenses = 23,900,000.

Post-Combination Balance Sheet: (requirement 2)
Cash P 5,490,000 Current liabilities P 900,000
Receivables 2,190,000 Long-term liabilities 117,000,000
Trademarks 9,000,000 Common stock 2,100,000
Brand names 5,000,000 Paid-in capital – par 58,400,000
Secret formulas 7,000,000 Retained earnings* 27,780,000
Noncompetition agreement _10,000,,000 Treasury stock __( 1,000,000)
Total P205,180,000 Total P 205,180,000
*25,000,000 – 1,100,000 + 3,880,000 = 27,780,000
Problem II
1. (in millions)
Cash and receivables 200
Inventories 400
Property, plant & equipment 5,500
Customer contracts 25
In-process R&D 300
Goodwill 2,035
Long-term debt 7,300
Warranty liability 10
Estimated liability for Contigent Cons. 50
Capital stock 700
Note: Read the topic “Items included in Goodwill” in Chapter 14 about “Skilled
(assembled) workforce” (they are not identifiable at the date of acquisition) and “Potential
Contracts” (they are not qualified as assets at the acquisition date).
Shares 700,000,000
Estimated liability for Contigent Cons. _50,000,000
Acquired:
Cash and receivables 200,000,000
Property, plant & equipment 5,500,000,000
Customer contracts 25,000,000
In-process R&D 300,000,000
Current liabilities ( 400,000,000)
Long-term debt (7,300,000,000)
Warranty liability ( 10,000,000) (1,285,000,000)
Positive excess: Goodwill 2,035,000,000
Acquisition expenses
Acquisition/merger expenses 150
Cash 150
Share Issue Costs 100
Cash 100
2. (in millions)
Goodwill 1,500
Property, plant & equipment 1,500
Problem III
1.
Current assets 1,500,000
Investments 500,000
Land 6,000,000
Buildings 16,000,000
Equipment 2,000,000
Identifiable intangibles 5,000,000
Goodwill 22,500,000
Current liabilities 1,500,000
Long-term liabilities 12,000,000
Additional paid-in capital 36,000,000
Cash 1,100,000
Shares (400,000 x P100) 40,000,000
Acquired:
Investments 500,000
Land 6,000,000
Equipment 2,000,000
Long-term liabilities (12, 000,000) (17,500,000)
Positive excess: Goodwill 22,500,000
Share Issue
Costs/APIC
1,100
Cash 1,100
2.
Investments 500,000
Land 6,000,000
Equipment 2,000,000
Gain on acquisition 7,500,000
Shares (100,000 x P100) 10,000,000
Acquired:
Investments 500,000
Land 6,000,000
Equipment 2,000,000
Negative excess: Gain on acquisition ( 7,500,000)
Share Issue
Costs/APIC
800
Cash 800
3.

Investments 500,000
Land 6,000,000
Buildings 16,000,00
Equipment 2,000,000
Goodwill 500,000
Estimated liability for Contigent
Cons.
8,000,000
Shares (100,000 x P100) 10,000,000
Estimated liability for Contigent Cons. _8,000,000
Acquired:
Investments 500,000
Land 6,000,000
Equipment 2,000,000

Positive excess: Goodwill 500,000
Share Issue Costs/APIC 800
Cash 800
4.
(a)
Estimated liability for
Contigent
Cons.
3,000,000
Goodwill 500,000
(b)
Estimated liability for
Contigent
Cons.
3,000,000
Gain on reduction in
liability 3,000,000
Problem IV
1. January 1, 20x4
Accounts Receivable (net) 65,000
Inventory 99,000
Land 162,000
Buildings 450,000
Equipment 288,000
Goodwill 54,000
Accounts Payable 83,000
Note Payable 180,000

Cash 720,000
Estimated Liability for Contingent Consideration 135,000
Consideration transferred (P720,000 + P135,000) P855,000
Total fair value of net assets acquired (P1,064,000 - P263,000) 801,000
Goodwill P 54,000
2. January 2, 20x6
Cash 135,000
3. January 2, 20x6
Gain on Contingent Consideration 135,000
Problem V
Current Assets 362,000
Long-term Assets (P1,890,000 + P20,000) + (P98,000 + P5,000) 2,013,00
Goodwill * 395,000
Liabilities 119,000
Long-term Debt 491,000
Common Stock (144,000 P5) 720,000
PIC - par (144,000 x P15
- P5)) 1,440,000
* (144,000 P15) – [P362,000 + P2,013,000 – (P119,000 + P491,000)] = P395,000
Total shares issued (P700,000 / P5) + P20,000 / P5) 144,000
Fair value of stock issued (144,000 P15) = P2,160,000
Problem VI
Case A
Consideration transferred P130,000
Less: Fair Value of Net Assets 120,000
Goodwill P 10,000
Case B
Goodwill P 20,000
Case C
Gain (P 5,000)
Assets Liabilities Retained
Earnings
(Gain)
Goodwill Current Assets Long-Lived Assets
Case A P10,000 P20,000 P130,000 P30,000 0
Case B 20,000 30,000 80,000 20,000 0
Case C 0 20,000 40,000 40,000 5,000
Problem VII
Present value of maturity value, 20 periods @ 6%: 0.3118 x P600,000 = P187,080
Present value of interest annuity, 20 periods @ 6%: 11.46992 x 30,000 = 344,098
Total Present value P531,178
Par value 600,000
Discount on bonds payable P 68,822
Cash 114,000
Accounts Receivable 135,0
Inventory 310,000
Land 315,000
Buildings 54,900
Equipment 39,450
Bond Discount (P40,000 + P68,822) 108,822
Current Liabilities 95,300
Bonds Payable (P300,000 + P600,000) 900,000

Gain on Acquisition of Stalton (ordinary) 81,872
Computation of Excess of Net Assets Received Over Cost
Consideration transferred (P531,178 plus liabilities assumed of P95,300
andP260,000) P886,478
Less: Total fair value of assets received _968,350
Excess of fair value of net assets over cost (P 81,872)
Problem VIII
Acquisition Method—Entry to record acquisition of Sampras
Estimated Liability for contingent Consideration 15,000
Consideration transferred (fair value) 315,000
Fair value of net identifiable assets 282,000
Goodwill P33,000
Receivables 80,000
Inventory 70,000
Buildings 115,000
Equipment 25,000
Customer list 22,000
IPRD 30,000
Goodwill 33,000
Current liabilities 10,000
Estimated liability for contingent consideration 15,000
Cash 300,000
Acquisition related-expenses 10,000
Cash 10,000
Problem IX
1.
a. The computation of goodwill is as follows:

Consideration transferred;
Common shares: 30,000 shares x P25 P 750,000
Notes payable 180,000
Contingent consideration (cash contingency):
P120,000 x 30% probability 36,000
Total P 966,000
Less: Fair value of identifiable assets acquired and
liabilities assumed:
Cash P 24,000
Receivables – net 48,000
Inventories 72,000
Land 240,000
Buildings – net 360,000
Equipment – net 300,000
In-process research and development 60,000
Accounts payable ( 72,000)
Other liabilities ( 168,000) 864,000
Positive Excess – Goodwill P
102,000
b. The journal entries by Peter Corporation to record the acquisition is as follows:
Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 102,000
Accounts payable 62,000

Other liabilities 168,000
Estimated Liability for Contingent
Consideration
36,000
Common stock (P10 par x 30,000 shares) 300,000
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares] 450,000
Acquisition of Saul Company.
Acquisition-related expenses 78,000
Cash 78,000
Acquisition related costs – direct costs.
Paid-in capital in excess of par 32,400
Cash 32,400
Acquisition related costs – costs to issue and
register stocks.
Acquisition-related expenses 27,600
Cash 27,600
Acquisition related costs – indirect costs.
c. The balance sheet of Pure Corporation immediately after the acquisition is as follows:
Pure Corporation
Balance Sheet
December 31, 20x4
Assets
Cash P 162,000
Inventories 360,000
Land 348,000

Goodwill 102,000
Total Assets P2,748,000
Liabilities and Stockholders’ Equity
Liabilities
Accounts payable P 288,000
Total Liabilities P 912,000
Stockholders’ Equity
Common stock, P10 par P 1,020,000
Paid-in capital in excess of par1 657,600
Retained earnings2
158,400
Total Stockholders’ Equity P1,836,000
Total Liabilities and Stockholders’ Equity P2,748,000
1 P240,000 + P446,400 – P32,400
2 P264,000 - P78,000 – P27,600
It should be noted that under PFRS 3, in-process R&D is measured and recorded at fair value as an asset
on the acquisition date. This
requirement does not extend to R&D in contexts other than business combinations.
2.
a. Assets that have been provisionally recorded as of the acquisition date are retrospectively
adjusted in value during the measurement period for new information that clarifies the
acquisition-date value. The adjustments affect goodwill since the measurement period is
still within one year (i.e., eight months) from the acquisition date. Therefore, the goodwill
to be reported then on the acquisition should be P78,000 (P102,000 – P24,000).

b.
Buildings 24,000
Goodwill 24,000
Adjustment to goodwill due to measurement date.
3.
a. The goodwill to be reported then on the acquisition should be P126,000 (P102,000 +
P24,000).
b. The adjustment is still within the measurement period, the entry to adjust the liability would
be:
Goodwill 24,000
Adjustment to goodwill due to measurement date.
c.
c.1. The goodwill remains at P126,000, since the change of estimate should be done only once
(last August 31, 20x5).
c.2. On November 1, 20x5, the probability value of the contingent consideration amounted to
P48,000, the entry to adjust the liability would be:
Gain on estimated contingent consideration 12,000
Adjustment after measurement date.
In this case, the measurement period ends at the earlier of:
one year from the acquisition date, or
the date when the acquirer receives needed information about facts and
circumstances (or learns that the information is unobtainable) to consummate the
acquisition.
c.3.
c.3.1. The goodwill remains at P126,000, since the change of estimate should be done
only once (last August 31, 20x5).
c.3.2. On December 15, 20x5, the entry would be:

Loss on estimated liability contingent
consideration
30,000
c.3.3.
c.3.3.1. P126,000.
c.3.3.2. On January 1, 20x7, Saul’s average income in 20x5 is P270,000 and 20x6 is P260,000,
which means that the target is met, Peter Corporation will make the
following entry:
Loss on estimated contingent consideration 42,000
Cash 120,000
Settlement of contingent consideration.
4.
a.The amount of goodwill on acquisition will be recomputed as follows:
P120,000 x 35% probability x (1/[1 + .04]*) 40,385
Total P 970,385
liabilities assumed (refer to 1a above) 864,000
Goodwill P 106,385
b. The journal entries by Pure Corporation to record the acquisition is as follows:
Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 106,386
Consideration
40,385
Paid-in capital in excess of par
[(P25 – P10) x 30,000 shares] 450,000
c.
c.1. Goodwill remains at P106,385.
c.2. Theentry for Pure Corporation on December 31, 20x5 to record such occurrence would
be:
Gain on estimated contingent consideration 40,385
Since the contingent event does not happen, the position taken by PFRS 3 is that the
conditions that prevent the target from being met occurred in a subsequent period and
that Peter had the information to measure the liability at the acquisition date based on
circumstances that existed at that time. Thus the adjustment will flow through income
statement in the subsequent period.
d. The entry by Peter Corporation on January 1, 20x7 for the payment of the contingent
consideration would be:

Loss on estimated contingent consideration 66,000
Cash [(P78,000 + P84,000)/2 – P30,000] x 2 102,000
5.
a. The amount of goodwill on acquisition will be recomputed as follows:
P120,000 x 30% probability 36,000
Contingent consideration (stock contingency) 18,000
Total P 984,000
Positive Excess – Goodwill P 120,000
b. The journal entries by Pure Corporation to record the acquisition is as follows:
Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 120,000
Consideration
36,000
Paid-in capital for Contingent Consideration
18,000
Additional paid-in capital [(P25 – P10) x 30,000 shares] 450,000
Acquisition of Saul Company.
c. PureCorporation will make the following entry for the issuance of 1,200 additional shares:
Paid-in capital for Contingent Consideration 18,000
6. On January 1, 20x7, the average income amounted to P132,000 (the contingent event
occurs). Thus, the entry record the occurrence of such event to reassign the P750,000 original
consideration to 36,000 shares (30,000 original shares issued + 6,000 additional shares due to
contingency) would be:
7. On January 1, 20x7, the contingent event happens since the fair value per share fall below
P25. Thus, the entry record the occurrence of such event to reassign the P750,000 original
consideration to 37,500 shares (30,000 original shares issued + 7,500* additional shares due to
contingency) would be:
* Deficiency: (P25 – P20) x 25,000 shares issued to acquire...P150,000
Divide by fair value per share on January 1, 20x7………….P 20
Added number of shares to issue………………………………. 7,500
8. The amount of goodwill on acquisition will be recomputed as follows:

Contingent consideration (stock contingency):
[(P750,000 – P510,000) x 40% probability
x (1/[1 + .04]*) 92,308
Total P1,022,308
Positive Excess – Goodwill P 158,308
* present value of P1 @ 4% for one period.
The journal entries by Pure Corporation to record the acquisition is as follows:
Cash 24,000
Inventories 72,000
Land 240,000
Goodwill 158,308
Paid-in capital in excess of par[(P25 – P10) x 30,000 shares] 450,000
On December 31, 20x5, the contingent event occurs, wherein Peter’s stock price had fallen to
P20, thus requiring Peter to issue additional shares of stock to the former owners of Saul
Corporation. The entry for Peter Corporation on December 31, 20x5 to record such
occurrence such event to reassign the P750,000 original consideration to 37,500 shares
(30,000 original shares issued + 7,500* additional shares due to contingency) would be:
Common stock, P10 par 75,000
* Deficiency: (P25 – P20) x 30,000 shares issued to acquire....P150,000
Divide by fair value per share on December 31, 20x5……P 20
Added number of shares to issue……………………………… 7,500
Problem X
1.
Shares: 2/3 x 60,000 x P3.20 128,000
Cash
Mortgage and interest 44,000
Debentures and premium 52,500
Liquidation expenses 2,400
144,000
Cash held (12,000) 132,000
260,000
Less: Fair value of assets and liabilities acquired:
Accounts receivable P34,700
Inventory 39,000
Freehold land 130,000
Buildings 40,000
Plant and equipment 46,000 289,700
Bargain Purchase Gain 29,700
Homer Ltd
Inventory 39,000
Freehold Land 130,000
Buildings 40,000
Plant and Equipment 46,000
Payable to Tan Ltd 132,000
Common stock, P1 par x 40,000 shares 40,000
Additional paid-in capital 88,000
Gain on acquisition 29,700
(Acquisition of net assets of
Tan Ltd and shares issued)
Payable to Tan Ltd 132,000
Cash 132,000
(Being payment of cash consideration)
Cash 1,200
(Being costs of issuing shares)
2.
Tan LTD
General Ledger
Liquidation
PP
Accounts Receivable 34,700 Additional paid in capital 26,800
Inventory 27,600 Retained earnings 32,000
Freehold Land 100,000 Receivable from Homer Ltd 260,000
Buildings 30,000
Plant and Equipment 46,000
Goodwill 2,000
Interest Payable 4,000

Liquidation Expenses 2,400
Premium on Debentures 2,500
Shareholders’ Distribution 68,000
318,800 318,800
Liquidator’s Cash
PP
Opening Balance 12,000 Liquidation Expenses 2,400
Receivable from Homer Ltd 132,000 Mortgage and Interest 44,000
Debentures and Premium 52,500
144,000 144,000
Shareholders’ Distribution
PP
Shares in Homer Ltd 128,000 Common stock 60,000
Liquidation 68,0000
128,000 128,000
Problem XI
Cash 20,000
Inventory 134,000
Land 55,000
Plant Assets 463,000
Discount on Bonds Payable 20,000
Goodwill* 127,200
Allowance for Uncollectible Accounts 10,000
Bonds Payable 200,000
Deferred Income Tax Liability 67,200

Cash 600,000
Less: Fair value of net assets acquired
(P784,000 – P10,000 – P54,000 – P180,000 - P67,200*) 472,800
Goodwill P127,200
* Increase in net assets
Increase inventory, land, and plantassets to fair value
P52,000 + P25,000 + P71,000) P148,000
Decrease bonds payable to fair value(20,000)
Increase in net assets P168,000
Establish deferred income tax liability(P168,000 x 40%)P67,200
Multiple Choice Problems
1. c
Acquisition-related costs. Acquisition-related costs are costs the acquirer incurs to effect
a business combination. Those costs include finder’s fee; advisory, legal, accounting,
valuation and other professional or consulting fees; general administrative costs,
including the costs of maintaining an internal acquisitions department; and costs of
registering and issuing debt and equity securities. Under PFRS 3 (2008), the acquirer is
required to recognize acquisition-related costs as expenses in the periods in which the
costs are incurred and the services are received, with one exception, i.e. the costs to
issue debt or equity securities are recognized in accordance with PAS 32 (for equity) and
PAS 39 (for debt).
2. P2,240,000, No answer available
Consideration transferred : FMV of shares issued by Robin (80,000 sh ×P28) = P2,240,000
3. P520,000, no answer available
Considerationtrasnferred P2,240,000
Less: Fair value of Hope’s net assets (P2,720,000+P200,000–P1,200,000) 1,720,000
Goodwill P 520,000
4. c
Inventory 400,000
Land 50,000
Building 60,000
Equipment 70,000
Patent 20,000
CurrentLiabilities 70,000
Long-termDebt 160,000
Cash 520,000
Gain on Acquisition 50,000
Considerationtrasnsferred : Cash P500,000
Less : Fair value of West’s net assets
(P180,000 + P400,000 + P50,000
+ P60,000 + P P70,000 + P20,000
– P70,000 - P160,000) 550,000
BargainPurchase Gain (P50,000)
5.d
Accounts Receivable (net of P33,000 allowance) 198,000
Inventory 330,000
Land 550,000
Buildings and Equipment 1,144,000
Goodwill 848,000
Current Liabilities 275,000
Bonds Payable 450,000
Premium on Bonds Payable (P495,000 - P450,000) 45,000
Preferred Stock (15,000 x P100) 1,500,000
Common Stock (30,000 x P10) 300,000
PIC - par (P25 - P10) x 30,000 450,000

Cash 50,000
Consideration transferred: (P1,500,000 + P750,000 + P50,000) P2,300,000
Less: Fair value of net assets (198,000 + 330,000 + 550,000 +
1,144,000 – 275,000 – 495,000) = 1,452,000
Goodwill P 848,000
6.d
Current Assets 960,000
Plant and Equipment 1,440,000
Goodwill 336,000
Liabilities 216,000
Cash 2,160,00
7.c
Cash 1,400
Receivables 650
Investments 1,000
Maintenance supplies 400
Flight equipment 12,000
International routes 500
Leases 800
Goodwill 450
Current liabilities 3,200
Long-term debt 6,000
Cash 8,000
8. c
The amount of the contingency is P500,000 (10,000 shares at P50 per share)
Goodwill 500,000
Paid-in-Capital for Contingent Consideration -

Issuable
500,000
9. c
Paid-in-Capital for Contingent Consideration – Issuable 500,000
Common Stock (P10 par) 100,000
Paid-In-Capital in Excess of Par 400,000
Platz Company does not adjust the original amount recorded as equity.
10.c
Accounts Receivable (net) 220,000
Inventory 320,000
Land 1,508,000
Buildings 1,392,000
Goodwill 230,000
Cash 2,600,000
Consideration transferred (2,600,000 + 200,000)………………..P2,800,000
Fair value of net assets acquired(P3,440,000 – P870,000)……. 2,570,000
Goodwill………………………………………………………………...P230,000
Or, alternatively:
Inventory 320,000
Land 1,508,000
Buildings 1,392,000
Goodwill 30,000
Allowance for Uncollectible Accounts 20,000

Cash 2,600,000
Consideration transferred P2,600,000
Fair value of net assets acquired
(P3,440,000 – P870,000) 2,570,000
Goodwill P 30,000
Goodwill 200,000
1/1/20x6:
Gain on Contingent Consideration 200,000
11. c
In accounting for the combination of NT and OTG, the fair value of the acquisition is allocated
to each identifiable asset and liability acquired with any remaining excess attributed to
goodwill.
Consideration transferred (shares issued) P750,000
Fair value of net assets acquired:
Cash P29,000
Receivables 63,000
Trademarks 225,000
Record music catalog 180,000
In-process R&D 200,000
Equipment 105,000
Accounts payable (34,000)
Notes payable (45,000) 723,000
Goodwill P27,000
Entry by NT to record combination with OTG:
Cash 29,000
Receivables 63,000
Trademarks 225,000
Record Music Catalog 180,000
Capitalized R&D 200,000
Equipment 105,000
Goodwill 27,000
Notes Payable 45,000
Common Stock (NewTune par value) 60,000
PIC - par 690,000
(To record merger with OTG at fair value)
PIC - par 25,000
Cash 25,000
(Stock issue costs incurred)
Post-Combination Balance Sheet:
Assets Liabilities and Owners’ Equity
Cash P 64,000 Accounts payable P 144,000
Receivables 213,000 Notes payable ___415,000
Trademarks 625,000 Total liabilities P 559,000
Record music catalog 1,020,000
Capitalized R&D 200,000 Common stock 460,000
Equipment 425,000 Paid-in capital - par 695,000
Goodwill 27,000 Retained earnings 860,000
Total P2,574,000 Total P2,574,000
12. P559,000, no answer available – refer to No. 11
13. d – refer to No. 11
14.c – refer to No. 11
15.c – refer to No. 11
16. d
Correction: …completion goals by December 31, 20x5 not 20x4.
Entry to record the acquisition on Pacifica’s records:

Cash 85,000
Receivables and inventory 180,000
PPE 600,000
Trademarks 200,000
IPRD 100,000
Goodwill 77,500
Liabilities 180,000
Common Stock (50,000 xP5) 250,000
Paid-In Capital in excess of par (50,000 xP15) 750,000
Contingent performance obligation 62,500
The goodwill is computed as:
Consideration transferred: 50,000 shares x P20 P1,000,000
Contingent consideration:
P130,000 payment x 50% probability x 0.961538 62,500
Total P1,062,500
Less: Fair value of net assets acquired
(P85,000 + P180,000 + P600,000 + P200,000
+ P100,000 - P180,000) 985,000
Goodwill P 77,500
Cash 15,000
PIC - par 9,000
Cash 9,000
Note: The following amounts will appear in the income statement and statement of retained
earnings after business combination:
PP Inc.
Revenues (1,200,000)
Expenses (P875,000 + P15,000) 890,000
Net income (310,000)

Retained earnings, 1/1 (950,000)
Net income (310,000)
Dividends paid 90,000
Retained earnings, 12/31 *(1,170,000)
* or, P1,185,000 – P15,000 = P1,170,000
17. c – refer to No. 16 (P400,000 + P750,000 – P9,000 = P1,141,000)
18. d – refer to No. 16
21. d – refer to No. 16 [P77,500 + (P75,000 – P62,500)] = P90,000
22.b – refer to No. 16. It should be noted that goodwill can only be revised once, so, the goodwill
remains at P90,000, but the liability will be adjusted to P80,000, the entry would be
Loss on contingent consideration…………………………………. 5,000
Contingent performance obligation………………………. 5,000
23. a
10,000,000 x P5 x 0.20 P 10,000,000
15,000,000 x P5 x 0.10 ___7,500,000
P 17,500,000
17,500,000/(1.12)4 P 11,121,566
24. a – at fair value
25. a
26.a – (P100,000 x ½ = P50,000 x 1/1.05) or P50,000 x 0.909091 = P45,454
27. c
Fair value of Subsidiary
Consideration transferred………………………………………………………P 200
million
Add: Fair value of contingent consideration……………………………… 10 million
Fair value of subsidiary………………………………………………………… P 210
million
Less: Fair value of identifiable assets and liabilities of Homer...............… 116 million
Goodwill…………………………………………………………………………… P 94 million
Note: The consideration transferred should be compared with the fair value of the net
assets acquired, per PFRS3 par. 32. The contingent consideration should be measured
at its fair value at the acquisition date; any subsequent change in this cash liability
comes under PAS 39 Financial instruments: recognition and measurement and should
be recognized in profit or loss, even if it arises within the measurement period. See
PFRS3 pars. 39, 40 and 58.
28. b
29. b
30. d
P77,500,000 = P100,000,000 – (P1,500,000 + P35,000,000 + P2,000,000 + P10,000,000
+ P4,000,000 - P30,000,000).
31. b
P(12,500,000) = P10,000,000 – (P1,500,000 + P35,000,000 + P2,000,000 + P10,000,000
+ P4,000,000 - P30,000,000).
32. c
The correcting entry, within the measurement period, is:
Goodwill 2,000,000
Patents 2,000,000
33. a
The correcting entry, within the measurement period, is:
Liabilities 2,000,000
34. c
Goodwill 400,000
Estimated lawsuit liability 400,000
35.b
Loss on lawsuit 400,000

Estimated lawsuit liability 400,000
36.b
Assets 570,000,000
Liabilities 100,000,00
Capital stock 400,000,00
Cash 50,000,000
PIC-stock contingency 20,000,000
37. b - P350,000,000 – (P12 x 25,000,000) = P50,000,000/P12 = 4,166,667 additional shares
38. c
The contingency was originally recorded in equity at the amount of P20,000,000. However,
changes in the value of stock price contingencies do not affect the acquisition price or
income. Any changes in value are adjustments in equity.
PIC- stock contingency 20,000,000
PIC-other 30,000,000
39. b
40. c
41. c
42. b – [(P47 x 12,000 shares) – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 –
P420,000)
= P104,000
43. d
APIC: P20,000 + [(P42 – P5) x12,000 = P464,000
Retained earnings: P160,000, parent only
44. b
Inventory: PP230,000 + P210,000 = P440,000
Land: P280,000 + P240,000 = P520,000

45. b – [P480,000 – (P70,000 + P210,000 + P240,000 + P270,000 + P90,000 – P420,000)] =
P20,000
46. c AA records new shares at fair value
Value of shares issued (51,000 × P3)............................................................... P153,000
Par value of shares issued (51,000 × P1)......................................................... 51,000
Additional paid-in capital (new shares) ....................................................... P102,000
Additional paid-in capital (existing shares) .................................................. 90,000
Consolidated additional paid-in capital....................................................... P192,000
At the date of acquisition, the parent makes no change to retained earnings.
47. a – at fair value
48. c
Depreciation expense:
Building, at book value (P200,000 – P100,000) / 10 years P 10,000
Building, undervaluation (P130,000, fair value
– P100,000, book value) / 10 years3,000
Equipment, at book value (P100,000 – P50,000) / 5 years 10,000
Equipment, undervaluation (P75,000, fair value
- P50,000, book value) / 5 years 5,000
Total depreciation expense= P 28,000
49. c - [(24,000 shares x P30) – P686,400] = P33,600
50. d - [(24,000 shares x P30) – (P270,000 + P726,000 – P168,000)] = P108,000, gain
51. c
A bargain purchase is a business combination in which the net fair value of the identifiable
assets acquired and liabilities assumed exceeds the aggregate of the consideration
transferred.
It should be noted that bargain purchase gain would arise only in exceptional
circumstances. Therefore, before determining that gain has arisen, the acquirer has to:
1. Reassess whether it has correctly identified all of the assets acquired and all of the
liabilities assumed. The acquirer should recognize any additional assets or liabilities
that are identified in that review.
2. Any balance should be recognized immediately in profit or loss.
52. b – no valuation to be recorded in the books of the acquirer
Cost P180,000
Less: Accumulated depreciation (P180,000/30 years = P6,000/year x 3 yrs 18,000
Net book value P162,000
53. c
Net Assets [P100,000 + P50,000 + P162,000 (No. 54)]
P312,000
Less: Shares issued at par (15,000 shares x P10 par) 150,000
APIC P162,000
Or: since, there is no excess, the P312,000 represents the amount of consideration
transferred, therefore the APIC should be P162,000 [P312,000 / 15,000 shares = P20,80 – P15
= P10.80 x 15,000 shares)
54. c
The consideration transferred should be compared with the fair value of the net assets
acquired, per PFRS3 par. 32. The gain of P8 million results from a bargain purchase and
should be recognized in profit or loss, per PFRS3 par. 34.
55. c
Shares: 2/3 x 60,000 x P3.20 128,000
Cash
Mortgage and interest 44,000
Debentures and premium 52,500
Liquidation expenses 2,400
144,000
Cash held (12,000) 132,000
260,000
Less: Fair value of assets and liabilities acquired:
Accounts receivable P34,700
Inventory 39,000
Freehold land 130,000
Buildings 40,000
Bargain Purchase Gain 29,700
56. d
PFRS 3 (2008) par. 18 requires an identifiable assets and liabilities assumed are
measured at their acquisition-date fair values.
57.c
Selling price P 110,000
Less: Book value of Comb (P50,000 + P80,000 + P40,000
- P30,000) 140,000
Loss on sale of business by the acquiree (Comb) P( 30,000)
58. d P215,000 = P130,000 + P85,000
59. b P23,000 = P198,000 – (P405,000 - P265,000 + P15,000 +
P20,000)
60
c P1,109,00
= Total Assets of TT Corp. P 844,000
Less: Investment in SS Corp. (198,000)
Book value of assets of TT Corp. P 646,000
Book value of assets of SS Corp. 405,000
Total book value P1,051,000
Payment in excess of book value
(P198,000 - P140,000) 58,000

Total assets reported P1,109,000
61
c P701,500 = (P61,500 + P95,000 + P280,000) + (P28,000 +
P37,000
+P200,000)
62
d P257,500 = The amount reported by TT Corporation
63
a P407,500 = The amount reported by TT Corporation
64. c
Par value of shares outstanding before issuance P200,000
Par value of shares outstanding after issuance 250,000
Par value of additional shares issued P 50,000
Divided by: No. of shares issued* __12,500
Par value of common stock P 4
*Paid-in capital before issuance (P200,000 + P350,000) P 550,000
Paid-in capital after issuance (P250,000 + P550,00)800,000
Paid-in capital of share issued at the time of exchangeP250,000
Divided by: Fair value per share of stockP 20
Shares issued 12,500
65. a
Consideration transferred: Shares – 12,500 shares P250,000
Less: Goodwill 56,000
Fair value of identifiable net assets acquiredP194,000
66. a –
Blue Town:
Stockholders’ equity before issuance of shares (P700,000 + P980,000) P1,680,000
Issued shares: 34,000 shares x P35
1,190,000
Consolidated SHE/Net Assets P2,870,000
67. d
68. c
Common stock – combined…………………………………………………………P
160,000
Common – Acquirer Zyxel………………………………….. …………………….…
100,000
Common stock issued………………………………………………………………...P
60,000
Divided by: Par value of common stock………………………………………….P
Number of Zyxel shares to acquire Globe Tattoo………………………….....… 30,000
69. d
Paid-in capital books of Zyxel (P100,000 + P65,000)………………………........P
165,000
Paid-in capital in the combined balance sheet
(P160,000 + P245,000)…………………………………………………….…
405,000
Paid-in capital from the shares issued to acquire Globe Tattoo…………... P 240,000
Divided by: No. of shares issued (No. 31)……………………………………..... 30,000
Fair value per share when stock was issued………………………………….... P 8
Or,
Par value of common stock of Zyxel……………………………………… P 2
Add: Share premium/APIC per share from the additional
issuance of shares (P245,000 – P65,000)/30,000…………............ 6
Fair value per share when stock was issued……………………………....... P 8

70.b
Net identifiable assets of Zyxel before acquisition:
(P65,000 + P72,000 + P33,000 + P400,000 – P50,000
- P250,000)…………………………………………………………………….
P270,000
Net identifiable assets in the combined balance sheet:
(P90,000 + P94,000 + P88,000 + P650,000 – P75,000 - P350,000)…..........
497,000
Fair value of the net identifiable assets held by Globe Tattoo
at the date of acquisition..…………………………………………………….. P227,000
71. a
Consideration transferred (30,000 shares x P8)………………………………… P240,000
Less: Fair value of net identifiable assets acquired (No. 49)……………….... 227,000
Goodwill……………………………………………………………………………….. P
13,000
72. c
Retained earnings:
Acquirer – Zyxel (at book value)………………………………………....
P105,000
Acquiree– Globe Tattoo (not acquired)……………………………… __ 0
P105,000
It should be noted that, there was no bargain purchase gain and acquisition-related costs
which may affect retained earnings on the acquisition date.
73. a
II ____ _____JJ _ ____Total____
Average annual earnings P 46,080 P 69,120 P 115,200
Divided by: Capitalized at _10%
Total stock to be issued P1,152,000
Less: Net Assets (for P/S) 864,000

Goodwill (for Common Stock) P 288,000
Preferred stock (same with Net Assets):
864,000/P100 par 8,640 shares
Theories
1. True 21. False 41. True 61. c 81. b 101. c 121 a
2. False 22. True 42. False 62. b 82. a 102. d 122. b
3. True 23. False 43. a 63. c 83. d 103. d 123. b
4. True 24. True 44. c 64. d 84. a 104. d 124. c
5. False 25, True 45, b 65, d 85. c 105. c 125. b
6. True 26. False 46. b 66. a 86. d 106. d 126. c
7. False 27. True 47. d 67. a 87. c 107. d 127. c
8. True 28. False 48. c 68. d 88. a 108. d
9. True 29. True 49. c 69. a 89. c 109. b
10. True 30, True 50, b 70, b 90, d 110, c
11. True 31. False 51. a 71. c 91. b 111. c
12. True 32. True 52. b 72. A 92. a 112. c
13. False 33. True 53. c 73. c 93. C 113. a
14. False 34. False 54. a 74. c 94. B 114. d
15. False 35. True 55. c 75. a 95. D 115. d
16. True 36. True 56. b 76. d 96. A 116. c
17. False 37. False 57. a 77. a 97. A 117. b
18. True 38. True 58. c 78. d 98. c 118. b
19. True 39. False 59. a 79. b 99. d 119. b
20. False 40, False 60, c 80, c 100, d 120. a
Note for the following numbers:
2. A horizontal combination occurs when management attempts to dominate an industry.
5. A vertical combination exists when an entity purchases another entity that could have a
buyer-seller relationship with the acquirer. The combination described here is a
horizontal combination.
7. A conglomerate combination is one where an unrelated or tangentially related business
is acquired. A vertical combination occurs when a supplier is acquired.
13. Greenmail is the payment of a price above market value to acquire stock back from a potential
acquirer.
15. The sale of the crown jewels results when a target sells assets that would be particularly valuable to
the potential acquirer.
The scorched earth defense results when a target generally sells large amounts of assets without regard
to the
specific desirability to the potential acquirer.
17. Golden parachutes are generally given only to top executives of the acquiree.
20. Control over the net assets of an entity can be accomplished by purchasing the net assets or by
purchasing the acquiree
voting common stock that represents ownership of the assets.
21. The amount of cash will always equal the net assets recorded by the acquirer. As a result, the
acquirer book value will not
change due to an acquisition.
23. There is no exchange of stock in an asset for asset acquisition so there cannot be a change in
ownership structure of
either entity.
26. The acquiree corporation becomes an acquirer stockholder, not the acquiree
stockholders.
28. A combination that results in one of the original entities in existence after the
combination is a statutory merger.
31. The combination results in the stockholders of one entity controlling the other entity.
The Retained Earnings of the entity acquiring control is carried forward to the newly
formed corporation.
34. The stock of the acquiree company must be purchased by the acquirer, but the value
transferred to the acquiree stockholders does not have to be in stock. Payment may be
in another asset or the issuance of debt.
37. The consideration to be given by the acquirer is sometimes not completely known
because the consideration is based partially on acquiree future earnings or the market
value of acquirer debt or stock.
39. Any change in the number of shares of acquirer stock given returns the purchase price
to the agreed level. The adjustment is to stock and additional paid-in capital. The
investment account is unchanged.
40. The acquiree stockholders must continue to have an indirect ownership interest in the
acquiree net assets. Preferred stock or a nonvoting class of stock qualifies as an
indirect ownership as well as voting common stock.
42. A net operating loss carryforward cannot be acquired. They are only available to the
acquirer if the combination qualifies as a nontaxable exchange

Advacc Chapter 13& 14

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Chapter 13

Home Office Books Branch Books

Branch Current 55,000 Shipm from Home Office 55,000

Shipments to Branch 50,000 Home Office Current 55,000

Unrealized Int Inv. Profit 5,000

Billed price P55,000 / 110%

Allowance for overvaluation of branch inventory/ _______

Unrealized Intercompany Inventory Profit/Deferred Profit P 5,000

Cost of goods sold:

Merchandise inventory, September 1................................................ P 35,200

Shipments from home office............................................................... 55,000

Merchandise available for sale.......................................................... P 114,200

Less: Merchandise Inventory, September 30..................................... 30,000

Cost of goods sold.......................................................................................................

Selling expenses……………………………………..................................P 8,000

General expenses…………………......................................................... 12,000

Total operating expenses..........................................................................................

3. Results of Branch Operations:

a. Branch Net Income/Loss from its own operations:

Branch Current………………........................................................................... 15,800

Branch Income Summary...................................................................

b. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch

Inventory/ Unrealized Intercompany Inventory Profit:

Unrealized Intercompany Inventory Profit.................................................... 4,600

Branch Income Summary..................................................................

* P35,200 x 50% = P17,600

***or, P50,600 x 10/110 = P4,125; Decrease in Unrealized Intercompany Inventory

as HO is concerned amounted to:

Unadjusted branch net income...............................................................................P15,800

Add: Allowance for Overvaluation of CGS…………………………………………….

Adjusted Branch Net

Books of Home Office

Shipments to Branch................................................................ …………

Unrealized Intercompany Inventory Profit........................................... 7,000

Cost of merchandise shipped t branch: P42,000/1.20= P35,000.

Entry Made Correct/Should be Entry

Branch Current…………… 42,000 Branch Current……….. 42,000

Sales…………………… 42,000 Shipments to Branch 35,000

Unrealized Int. Inv Pr. 7,000

B. Shipments to Branch...................................................................................... 625

Unrealized Intercompany Inventory Profit................................................... 125

Cost of merchandise returned by branch: P750/1.20= P625.

Entry Made Correct/Should be Entry

Sales Returns……………… 750 Shipments to Branch………. 625

Branch Current……… 750 Unrealized Int. Inv Profit…… 125

Branch Current…………. 750

Results of Branch Operations:

A. Branch Net Income/Loss from its own operations:

Branch Income Summary............................................................................... 2,600

B. Adjustment: Overvaluation of CGS/Allowance for Overvaluation of Branch

Inventory/ Unrealized Intercompany Inventory Profit:

Unrealized Intercompany Inventory Profit.................................................... 4,125

Branch Income Summary..................................................................

(Billing Price Minus

Shipments during December 42,000 35,000 7,000

Less: Returns _____750 ____625 ____125

Available for Sale (before adjustment) P 41,250 P 34,375 P 6,875

Less: Inventory, Dec. 31 (after adjustment) 16,500 13,750 __2,750

Reduction in unrealized profit account- adjustment

to branch profit for overstated of cost of goods sold

(adjustment) P 24,750 P 20,625 *P 4,125

*or, P24,750 x 20/120 = P4,125;

Decrease in Unrealized Intercompany Inventory Profit:

Less: Returns _750 625 125

Less: Inventory, Dec. 31 (after adjustment) 8,400 7,000 __1,400