ADVANCED ACCOUNTING VOLUME 2

Solution Manual

CHAPTER 6
CONSOLIDATED STATEMENTS - Changes in Interest
in Subsidiary and Mutual Holdings
KEY TERMS REVIEW
1. k 3. f 5. c 7. n 9. b 11. a 13. t 15. p
2. g 4. i 6. j 8. q 10. m 12. r 14. s

QUESTIONS
1. (a) Eliminations will be based on the ownership interest of the parent at the date of
consolidation, or 90% But computation of the parent's share in the increase or decrease in
subsidiary retained earnings from date of acquisition of control to date of consolidation has
to be made.
(b) Since consolidated statements will be prepared, the parent will share in increases and
decreases of subsidiary earnings from the date of first acquisition under the equity
method. The equity method is used once ownership interest is 20% or more so that
significant influence could be exercised by the investor. Once this condition exists, the
investor will recognize changes in the retained earnings of the investee with a debit or
credit to investment account.

2. (a) If the equity method is used by the parent, once it sells a portion of the investment,
there is a need to etermine the carrying value of such portion at the date of sale,
considering the changes that have taken place in the earnings of the subsidiary, to
determine if any gain or loss exists.
(b) Under the cost method, the original cost of the investment will be the basis in
determining any gain of loss using FiFo or specific identification method.
3. Even if the sale of subsidiary shares came from the second lot, under the equity method,
both lots will have the same unit carrying value at the date of sale. The elimination entry
therefore will use only the percentage interest of the parent at the date of consolidation.
The date of acquisition of the shares sold will not matter, since increases and decreases in
subsidiary retained earnings would have been reflected at the date working papers for
consolidated statements will be prepared.
4. (a-1) Upon the additional stock issue by the subsidiary, the parent does not make an entry,
but takes note of the decrease in its ownership interest. The additional issue of shares by
the subsidiary will decrease the percentage of ownership by the parent.
(a-2) Under the cost method, such additional stock issue by the subsidiary will not affect
the cost of the investment.
(b) Under the equity method, the elimination entry for consolidated statements will reflect
the reduced ownership interest of the parent in the working papers.
5. When Travel, Inc. acquires 50,000 shares of its stock on the market, automatically the
percentage ownership of the parent is increased since the outstanding shares of Travel, Inc.
will decrease. 400,000 shares owned by the parent will be divided by a reduced number of
outstanding shares. No entry is made at the time of retirement of the shares but the
increased ownership interest will be used in the working papers elimination entry.
6. In the working papers for consolidated balance sheet, the treasury shares may be regarded
as retired shares, thereby reducing the common stock and paid in capital balances of the
Moson Company.
7. (a) Upon sale of the treasury stock, Cash is debited and Treasury stock credited with
another credit to Paid in capital in excess of cost of treasury stock.
(b) No entry is made by the parent upon sale by subsidiary of its treasury stock, but the
increased percentage of ownership will be used in the working papers for consolidated
statements.
8. In direct ownership, the parent controls the subsidiary by actually acquiring more than 50%
of its voting shares. Indirect ownership exists, when this subsidiary is also a parent of a
third company, so indirectly the first parent has indirect ownership over the third entity.
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Referring to the diagram below, Company A has direct ownership in Company, 80% and
indirect ownership in Company C. 48%.
80% 60%
Company A ------ Company B ----- Company C
9. (a) In the working papers for consolidated balance sheet, Sub-parent investment in the
subsidiary will first reflect the adjusted balance after considering its share of subsidiary
earnings and dividends before elimination entries will be made at the date of consolidation.
(b) If the investments in the subsidiaries were made by the subparent prior to control by the
parent, then the
investment accounts would already have reflected the adjustments prior to preparation of
working papers for consolidated balance sheet.
10. (a) Since acquisition of B's 90% interest by A was in 20X2, and C's interest by B in 20X4,
72% (90% X 80%) of C's retained earnings will be presented as part of the controlling
interest, this is what is called indirect ownership interest of A over C.
(b) Since acquisition of 90% of B by A was in 20X8 and on the same date B acquired 80% of
C, A does not have
any indirect ownership interest of C's retained earnings as of this date.
11.No, because Company T is owned by R and S by 40% each only. R and S's net assets are to
be included in the consolidated statement of Q.
12.When the term reciprocal or mutual holdings is used it means that a parent holds controlling
interest in a subsidiary, while a subsidiary in turn holds ownership interest in the parent.
13. (a) If two affiliates with reciprocal holdings would be preparing a consolidated balance
sheet, the parent's shares held by the subsidiary may be viewed either as (1) retired shares
when preparing working papers, or (2) as treasury stocks.
(b)Since the affiliates prepare consolidated statements because even if legally they are
separate entities, from an economic viewpoint they are considered as belonging to the
same entity. Reciprocal accounts are therefore eliminated. As treasury stocks, because it is
as if the parent bought its own shares, because the parent and the subsidiary is considered
one economic entity.
(c) I support the second view as mentioned above, since the shares have not been actually
retired.
14.When two affiliates have mutual holdings and recognize the earnings of each other, then
algebraic computations such as simultaneous equations will be used to find the share of
each others earnings. For example, if P 0wns 90% of B and B has 10% of A, then the real
earnings of A will be its actual earnings P plus its share of B's profit. While that of B will be
its actual profit plus its share of P's profit.
15.Paulo's 500 shares held by Pablo Company, Paulo's subsidiary will be shown as long term
investment on Pablo's balance sheet.

EXERCISES
1. (a) Investment carried under equity method:
Dec. 31, 20X6: Investment in Mario stocks……………..4,500
Equity in subsidiary income…….. 4,500
Cash……………………………………3,000
Investment in Mario stocks………. 3,000
Dec. 31, 20X7: Investment in Mario stocks…………….18,000
Equity in subsidiary income………. 18,000
Cash……………………………………. 9,000
Investment in Mario stocks……….. 9,000
(b) Investments carried at cost:
Dec. 31, 20X6: No entry for share in subsidiary income
Cash……………………………………. 3,000
Dividend income……………… 3,000
Dec. 31, 20X7: No entry for share in subsidiary income
Cash…………………………………….18,000
Dividend income……………… 18,000
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2. (a) To record sale of 2,000 shares of investment:
Cash…………………………………….36,000
Investment in Ronaldo Co. stock 31,600
Gain on sale of investment……. 4,400
Book value per share = 152,000 - 1,900
9,500 = P15.80
15.80 X 2,000 = 31,600
(b) To record share of subsidiary income:
Investment in Ronaldo Co. stock………28,500
Equity in subsidiary income… 28,500
3. Elimination entries, Dec. 31, 20X7:
1) Retained earnings - Co. H……………….40,000
Investment in Co. R stock…………. 40,000
2) Goodwill………………………………..56,000
Common stock - Co. R…………………80,000
Retained earnings - Co. R………………40,000
Investment in Co. R stock…………. 176,000
3) Common stock - Co. S………………….80,000
Investment in Co. S stock………….. 60,000
Retained earnings - Co. S………….. 20,000

Balances December 31, 20X7:

Common stock - Co. H P250,000
Retained earnings - Co. H 160,000
Common stock - Co. R -minority interest 30,000
Retained earnings - Co. R -minority interest 6,000
Common stock - Co. S - minority interest 20,000
Retained earnings - Co. S - minority interest ( 2,600)
Retained earnings -Co. R, accruing to parent (16,000)
Retained earnings- Co. S, accruing to parent 9,600

4. Entries on the books of Star Company:

Dec. 31, 20X6 Dec. 31, 20X7
Equity in Waldo, Inc. .loss……….31,666.67 Investment in Waldo, Inc. stock35,000
Investment in Waldo, Inc. stock 31,666.67 Equity in Waldo, Inc.
income 35,000
Computation of % of ownership: March 1 to Sept. 1 = 6 months at 70%
Sept. 1 to Dec. 31 = 4 months at 85%
Jan 1 to June 30 = 6 months at 85%
July 1 to Dec. 31 = 6 months at 90%

5. (a) To record sale of 50 shares at 90:

Cash……………………………… 4,500
Investment in Waldo, Inc stock 4,250
Gain on sale of investment….. 250
(b) 20X6: Equity in Waldo, Inc. loss 31,666.67
Investment in Waldo, Inc. stock 31,666.67
20X7: Investment in Waldo, Inc. stock 34,000
Equity in Waldo, inc. income 34,000

6. (a) Elimination required on the working papers, December 31, 20X7:

Assuming that 9,000 shares were acquired at 10:
Common stock-Torejo Co………….72,000
Retained earnings-Torejo Co………20,250
Excess of book value……. 2,250
Investment in Torejo Co. stock 90,000

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(b) Cost (based on assumption)… …………………P90,000
Book value: Common stock 80,000
Retained earnings
(20,000 + 2,500) 22,500
Total……………………………..........…102,500
% of ownership................................... .9 92,250
Excess of book value over cost P 2,250
( c) Minority interest: Common stock……………………P8,000
Retained earnings……………….. 2,750 P10,750
(d) Subsidiary retained earnings accruing to parent:
Retained earnings, Dec. 31………………P27,500
Retained earnings, March 1:
Balance , Jan.1 P20,000
Income from Jan to Mar. 1 2,500 22,500
Increase in retained earnings…………….P 5,000
% of ownership .90
Accruing to parent………………………. P 4,500

7. (a) Nov. 1, 20X7: Cash…………………………………..7,500

Investment in Torejo Co. stock 5,000
Gain on sale of investment….. 2,500
(b) Dec. 31, 20X7: 1) Common stock-Torejo Co. 68,000
Retained earnings-Torejo Co. 21,250
Investment in Torejo Co. stock 85,000
Excess of bookvalue over cost* 4,250

2) Goodwill or excess of book value over cost:

Cost of investment…………………..P85,000
85% of P105,000…………………. . 89,250
Excess of book value over cost* P 4,250
* Under IFRS 3, this is taken up as negative goodwill which will be
shown as gain in the income statement.
3) Minority interest:
Common stock…………….……….P12,000
Retained earnings………………….. 4,125
Total P16,125

4) Subsidiary earnings accruing to parent:

Retained earnings, end…………….. .P27,500
Retained earnings, beg…………….. . 25,000
Increase…………………… ………. .P 2,500
% ownership .85
Subsidiary earnings accruing to parentP 2,125

8. (a) Books of parent, investment carried at equity:

20X7: Investment in Ever ready Co. stock…………14,750
Equity in Ever Ready Co. income…….. 14,750
20,000/12 = 1,667; 1,667 X 11 = 18,333(75%) + (60% of 1,667)
= 14,750.
(b) No entry on books of parent if investment is carried under cost method.

9. (a) additional shares acquired by parent (equity method):

Investment in Ever Ready Co. stock……………20,000
Equity in Ever Ready Co. income……. 20,000
(b) no entry if cost method is used.

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10. (a) Huerta’s entries under equity method:
20X7: (1) Investment in Pacific stock………13,500
Equity in Pacific income…… 13,500

(2) Cash…………………………….10,800
Investment in Pacific stock… 10,800

(b) Cost method: (1) No entry for share in subsidiary income

(2) Cash…………………………….10,800
Dividend income…………… 10,800
( c) Goodwill computation:
Cost of investment…………………….P150,000
Book value of interest acquired:
90% of P120,000…………………….. 108.000
Goodwill…………………….P 42,000

(d) Huerta’s retained earnings, cost method:

Retained earnings, 20X0………………P100,000
Subsidiary dividends in 20X7
90% of 12,000 10,800
Subsidiary retained earnings accruing to
parent: R. E. , 20X7………P23,000
R. E. 20X0……. 20,000
Increase……….P 3,000
% of ownership .9 2,700
Huerta’s retained earnings, Dec. 31, 20X7 P 113,500

11. (a-1) Elimination, July 1, 20X7:

Common stock……………..90,000
Premium on stock………….18,000
Retained earnings ………….69,300
Excess of book value over cost* 42,300
Investment in Sera, Inc. stock 135,000
The foregoing figures are derived from the following balances for working papers
purposes:
Common stock Treasury stock Premium Retained earnings
balances 120,000 18,000 24,000 75,000
treasury stock (20,000) (18,000)( 4,000) 2,000
balances used 100,000 - 20,000 77,000

(a-2) Excess of book value over cost is P42,300:

Cost of investment…………………..P135,000
90% of 197,000…………………… . 177,300
Excess of book value over cost*…P 42,300
Minority interest:
Common stock………………P10,000
Premium on stock…………… 2,000
Retained earnings…………… 7,700
Total……………….P19,700

(b) Equity method is used ( Subsidiary sells treasury stock at 14:

% of ownership is reduced to 75% from 90%.
Subsidiary balances after treasury stock sale:
common stock treasury stock premium retained
earnings
before 120,000 18,000 24,000 75,000

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sale (18,000) 10,000
Balances
after sale 120,000 - 34,000 75,000

Equity in net assets before treasury stock sales 90% of 201,000………P180,900

Equity in net assets after treasury stock sale 75% of 229,000.………… 171,750
Decrease in parent’s equity as a result of change in interest…P 9,150

12. (a) Investments are carried at equity:

Books of Cuneta Gaba
20X6:
Investment in Gaba stock…………..126,000
Cash…………………………… 126,000

Dividend receivable……………….. 9,000

Investment in Gaba stock…….. 9,000

Investment in Gaba stock………….. 18,000

Equity in Gaba income……….. 18,000

20X7:
Investment in Harpa stock…………. 72,000
Cash…………………………… 72,000

Dividend receivable………………. 9,000 8,000

Investment in subsidiary stock 9,000 8,000

Investment in subsidiary stock……. 36,900 16,000

Equity in subsidiary income 36,900 16,000

(b) Investments carried at cost:

20X6:
no entry for subsidiary income share
Dividend receivable……………….. 9,000
Dividend income………………. 9,000
20X7:
no entry for subsidiary income share of parent
Dividend receivable……………….. 9,000 8,000
Dividend income………………. 9,000 8,000
13. Entries on parent’s and sub-parent’s books-
(a) under equity method: Parent’s books Sub-parent’s
books
20X7: Investment in Subsidiary stock.. 6,000
Equity in subsidiary income 6,000

Investment in subsidiary stock 27,900

Equity in subsidiary income 27,900

Cash…………………………… 13,500 8,000

Investment in subsidiary stock 13,500 8,000

(b) 20X7: Investment in Subsidiary stock.. 12,000

Equity is subsidiary income 12,000

Cash………………………….. 8,000
Investment in subsidiary stock 8,000

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Investment in subsidiary stock 16,650
Equity in subsidiary income 16,650

Cash…………………………… 13,500
Investment in subsidiary income 13,500

14. Under cost method:

(a) 20X7: Cash……………………………. 13,500 8,000
Dividend income…………… 3,500 8,000

(b) 20X7: Cash……………………………. 13,500 8,000

Dividend income………… 13,500 8,000
15. (a) Controlling interest retained earnings in consolidated balance sheet,
Dec. 31, 20X7:
Cost method: P’s retained earnings, Dec. 31, 20X7……….
P3,000,000
G’s retained earnings accruing to parent:
Balance, end. ……………….. 40,000
Balance, beg…………………(200,000)
Increase..…………………….(240,000)
% of ownership .9
G’s R.E. accruing to F………. 216,000

F’s retained earnings accruing to P:

Balance, end………………… 496,000
Balance, beg. .... ………………300,000
Subsidiary (140,000 x .9) 126,000
Total 426,000
Increase…………......…………. 70,000
% of ownership .9
F’s R.E. accruing to P....……… 63,000

P’s controlling interest in consolidated balance sheet is P3,063,000

(b) Minority interest retained earnings:

Company G P 4,000
Company F 49,600
Total P53,600

16. (a) Retained earnings - Co. A…….3,750

Inventory………………… 3,750

(b) Retained earnings - Co. A……3,750

Inventory………………… 3,750

( c) Retained earnings- Co. A……3,375

Retained earnings - Co. B….. 375
Inventory………………. 3,750

(d) Retained earnings - Co. C…… 750

Retained earnings - Co. A …. 3,000
Inventory………………. 3,750
17. (a) Equity method:
Cost of investment in Luis P 64,000 Cost of investment in Mario P
9,000

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Less - 90% of 110,000 99,000 Less 10% of 140,000
14,000
Excess of book value over cost 35,000 Excess of book value over cost
5,000
Note: All excess of book value over cost (since the assumption is that book value
approximates cost) will be shown as gain in the income statement (IFRS 3).
Let P = Mario’s increase in retained earnings (Mario’s income + Luis’ accruing to
Mario)
S = Luis’ increase in retained earnings (Luis’ income + Mario’s accruing to
Luis)

P = 20,000 + .8S S = 5,000 + .1P

= 20,000 + .8(5,000 + .1P) = 5,000 + .1(26,086.96)
= 20,000 + 4,000 + .08P = 5,000 + 2,608.70
= 24,000 /.92 = 7,608.70
= 26,086.96
(1) Investment in Luis stock………..6,086.96
Equity in Luis’ income……… 6,086.96

(2) Investment in Mario stock………2,608.70

Equity in Mario income……. 2,608.70

(b) Cost method:

Minority interest:
Common stock …….P20,000
Retained earnings 3,521.74
Total …………...…P 23,521.74

18. (a) Earnings of Co. Y and Co. Z after recognition by each company of
earnings of the
other:
Y = 100,000 + .8Z Z = 40,000 + .25Y
= 100,000 + .8(40,000 + .25Y) = 40,000 + .25(134,693.87)
= 100,000 + 32,000 + .2Y = 73,673.47
= 132,000 / .98 = 134,693.87
(b) P140,000 distributed as dividends; P100,000 by Co. Y and P40,000 by
Co. Z,
amount to be received by Z’s outside stockholders will be:
Out of Y’s dividends, Z will receive (100,000 X .25) or 25,000
Z”s outside stockholders (25,000 X .20) or P 5,000
Out of Z’s dividends, outside stockholders will receive (40,000 X .2)
8,000
Total that outside stockholders will receive from Z as dividends
P13,000

19. (a) Total controlling interest on consolidated balance sheet, Dec. 31,
20X7:
Retained earnings balances on Dec. 31, 20X7:
A = 50,000 + .9(B) B = (10,000) + .05(A - 30,000)
= 50,000 + .9[ (9,424.08)] = (10,000) + .05 (50,000 +.9B -
30,000)
= 50,000 - 8,481.68 = (10,000) + 2,500 + .045B - 1,500
= 41,518.32 = (9,000) / .955 = (9,424.08)

Total controlling interest retained earnings, Dec. 31, 20X7:

Common stock…………………P200,000.00

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Retained earnings…………….. 41,518.32
Total………………….P241,518.32
(b) Total minority interest on consolidated balance sheet, Dec. 31, 20X7:
Common stock…………………P10,000.00
Retained earnings…………….. (942.41)
Total…………………P 9,057.59

PROBLEMS
PROBLEM 6-1
KANO COMPANY AND SUBSIDIARY KOALA COMPANY
Working Papers for Consolidated Balance Sheet
December 31, 20X7
Kano Koala Eliminations Consolidated
Balance Sheet
Debits Dr. Cr. Dr. Cr.
Investment in Koala Co. stock 265,50
0
Elim. 82.5% of common a)247,5
stock 00
Elim. 75% of P7,500 b)
deficit,1/2/X7 5,625
Elim. 7.5% of P10,000 R.E. c)
7/1/X7 750
Goodwill (P27,727 at 100%) 22,8
75
Other assets 645,00 475,00 1,120,0
0 0 00
910,00 475,00
0 0
Credits
Liabilities 230,50 160,00 390,5
0 0 00
Common stock, Kano 500,00 500,0
Company 0 00
Retained earnings, Kano 180,00 180,0
Company 0 00
Common stock, Koala 300,00
Company 0
Eliminate 82.5% a)247,5
00
Minority interest, 17.5% 52,5
00
Retained earnings, Koala 15,00
Company 0
Eliminate 75% as above b)
5,625
Elim. 7.5% Minority interest, c)
750
17.5% of P15,000 2,6
25
Retained earnings to parent 17,2
50
910,50 475,00 253,87 253,87 1,142,8 1,142,8
0 0 5 5 75 75

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Retained earnings, July 1,
20X7:
Deficit, January 1, 20X7 (P7,50
0)
Estimated earnings, Jan. 1 to
July 1,
20X7, 6/12 of P35,000 17,50
0
Retained earnings, July 1, P
20X7 10,000

KANO COMPANY AND SUBSIDIARY KOALA COMPANY

Consolidated Balance Sheet
December 31, 20X7
Assets P1,120,000 Liabilities P 390,500
Goodwill 27,727 Stockholders’ equity:
Minority interest:
Common stock P 52,500
Retained earnings 7,477 59,977
Controlling interest:
Common stock P500,000
Retained earnings 197,250 697,250
Total assets P1,147,727 Total liabilities & stockholders’ equity P1,147,727

PROBLEM 6-2
COMPANY A AND SUBSIDIARY COMPANIES B AND C
Working Papers for Consolidated Balance Sheet
December 31, 20X7
Consolidated
Co. A Co. B Co. C Eliminations Balance Sheet
Debits Dr. Cr. Dr. Cr.
Cash 64,00 40,00 15,00 119,0
0 0 0 00
Notes receivable 30,00 30,00 20,00 g) 60,00
0 0 0 20,000 0
Accounts receivable 60,00 50,00 40,00 150,0
0 0 0 00
Inventories 110,00 91,00 65,00 266,0
0 0 0 00
Investment in Co. B stock 192,00
0
Elim. 90% of common a)135,0
stock 00
Elim. 60% of R.E., P45,000 b)
(1) 27,000
Elim. 30% of R.E., P52,500 b)
(2) 15,750
Goodwill (P15,833 at 14,25
100%) 0
Investment in Co. C stock 105,00
0
Elim. 75% of common c)135,0
stock 00
Elim. 75% of P37,500 d)
deficit (3) 28,125
Negative goodwill 1,87
5
Bonds of Co. B (face, 19,00 f) f)

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P28,000) 0 1,000 20,000
Plant and equipment 200,00 150,00 100,00 450,0
0 0 0 00
Dividends receivable 8,10 e)
(4) 0 8,100
788,1 362,0 240,0
00 00 00
Credits
Notes payable 74,00 35,00 20,00 g) 109,0
0 0 0 20,000 00
Dividends payable 28,00 9,00 e) 28,9
0 0 8,100 00
Accounts payable 60,00 55,00 70,00 185,0
0 0 0 00
Bonds payable 50,00 f) 30,0
0 20,000 00
Discount on bonds payable (4,000 f) 2,4
) 1,600 00
Preferred stock, Co. A 100,00 100,0
0 00
Common stock, Co. A 300,00 300,0
0 00
Retained earnings, Co. A 226,10 226,1
(4) 0 00
Common stock, Co. B 150,00
0
Eliminate 90% a)135,0
00
Minority interest, 10% 15,0
00
Retained earnings, Co. B 66,00 f)
0 600
Elim. 90% as above b)
42,750
Minority interest, 10% of 6,5
P65,400 40
Retained earnings to 16,1
parent 10
Common stock, Co. C 180,00
0
Eliminate 75% c)135,0
00
Minority interest, 25% 45,0
00
Deficit, Co. C (30,00
0)
Eliminate 75% as above d)
28,125
Minority interest, 25% 7,50
(P30,000) 0
Retained earnings to 5,6
parent 25
788,1 361,0 240,0 370, 370, 1,068, 1,068,1
00 00 00 575 575 150 50
Note:
(1) Co. B retained earnings, Dec. 31, 20X6: P95,000 less P50,000 reported in common stock
as a result of stock dividends.
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(2) Co. B retained earnings, April
1, 20X7:
Retained earnings balance, Dec. 31, 20X6 P45,000
as above
Add - estimated earnings, Jan. 1 to Apr. 1 (3/12 of 7,500
P30,000)
Retained earnings balance, April 1, 20X7 P52,50

(3) Co. C deficit, April 1,

20X7:
Deficit, Dec. 31, 20X6 P40,000
Deduct - estimated earnings (3/12 of 2,500
P10,000 income)
Deficit, April 1, 20X7 P37,50

(4) Dividends receivable and the parent company’s retained earnings are increased for the
dividend declared
by Co. B, 90% of P9,000 or P8,100.

COMPANY A AND SUBSIDIARY COMPANIES B AND C

Consolidated Balance Sheet
December 31, 20X7
Assets Liabilities & Stockholders’ Equity
Current assets: Current liabilities:
Cash P119,000 Notes payable P109,000
Notes receivable 60,000 Dividends payable 28,900
Accounts receivable 150,000 Accounts payable 185,000 P
322,900
Inventories 266,000 P 595,000 Bonds payable P 30,000
Plant and equipment 450,000 Less-discount on bonds 2,400 27,60
0
Goodwill 15,833 Total liabilities P
350,500
Stockholders’ equity:
Minority interest:
Common stock P 60,000
Deficit 623 60,623
Controlling interest:
Preferred stock P100,000
Common stock 300,000
Retained earnings 249,710 649,710
Total assets P1,060,833 Total liabilities & stockholders’ equity P1,060,833

PROBLEM 6-3
[ERRATA: The labeling of the Columnar should be Co. P, Co. A, and Co. B, respectively]
COMPANY P AND SUBSIDIARY COMPANIES A AND B
Consolidated Balance Sheet
December 31, 20X7
Assets P1,113,500 Liabilities P267,500
Goodwill 32,368 Stockholders’ equity:
Minority interest:
Common stock P 25,000
Paid in capital 4,000
Retained earnings 12,61 41,618
8
Controlling interest:
Common stock P 500,000
Paid in capital 150,00
0
Retained earnings 186,75 836,750
0
98 CHAPTER 6
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Total assets P1,145,868 Total liabilities & stockholders’ equity P1,145,868

COMPANY P AND SUBSIDIARY COMPANIES A AND B

Working Papers for Consolidated Balance Sheet
December 31, 20X7
Consolidated
Co. P Co. A Co. B Eliminations Balance Sheet
Debits Dr. Cr. Dr. Cr.
Investment in Co. A 105,0
00
Eliminate 95% of common a)95,0
stock 00
Elim. 70% of P15,000 deficit b)10,50
0
Elim. 25% of P12,500 deficit b)
3,125
Goodwill (P24,868 at 100%) 23,6
25
Investment in Co. B 135,0
00
Eliminate 80% of commons c)80,00
stock 0
Elim. 80% of paid in capital, d)16,0
P20,000 00
Elim. 30% of P35,000 R.E. e)10,5
00
Elim. 50% of P45,000 R.E. e)22,5
00
Goodwill (P7,500 at 100%) 6,0
00
Other assets 698,5 150,0 265,0 1,113,5
00 00 00 00
938,5 150,0 265,0
00 00 00
Credits
Liabilities 120,0 52,5 95,0 267,5
00 00 00 00
Common stock, Co. P 500,0 500,0
00 00
Paid in capital, Co. P 150,0 150,0
00 00
Retained earnings, Co. P 168,5 168,5
00 00
Common stock, Co. A 100,0
00
Eliminate 95% a)95,00
0
Minority interest, 5% 5,0
00
Deficit, Co. A ( 2,50
0)
Eliminate 95% as above b)13,6
25
Minority interest, 5% x 1
P2,500 def. 25
Retained earnings to parent 11,25

99 CHAPTER 6
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0
Common stock, Co. B 100,0
00
Eliminate 80% c)80,00
0
Minority interest, 20% 20,00
0
Paid in capital, Co. B 20,0
00
Eliminate 80% as above d)16,00
0
Minority interest, 20% 4,00
0
Retained earnings, Co. B 50,0
00
Eliminate 80% as above e)33,00
0
Minority interest, 20% of 10,00
P50,000 0
Retained earnings to parent 7,00
0
938,5 150,0 265,0 237,62 237,62 1,143,2 1,143,2
00 00 00 5 5 50 50

Footnotes to working papers:

(1) Co. A deficit, Sept. 1 20X6:
Deficit, Jan.1 20X6 (P20,00
0)
Estimated earnings, Jan.1 to Sept. 1 (8/12 of P7,500 5,00
income) 0
Deficit, September 1, (P15,0
20X6 00)

(2) Co. B retained earnings, April 1,

20X7:
Retained earnings, January 1, P
20X7 40,000
Estimated earnings Jan. 1 to Apr. 1 (3/12 of 5,00
P20,000) 0
Retained earnings, P
April 1, 20X7 45,000

PROBLEM 6 - 4
DURAN COMPANY AND SUBSIDIARY COMPANIES ELMA AND FULLAS
Working Papers for Consolidated Balance Sheet
December 31, 20X7
Consolidated
Duran Elma Fullas Eliminations Balance Sheet
Debits Dr. Cr. Dr. Cr.
Investment in Elma Co. 172,00
0
Elim. 90% of common stock a)135,0
00
Elim. 80% of P12,500 R.E. b)
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Solution Manual
10,000
Elim. 3-1/3% of P15,000 R.E. b)
500
Elim. 6-2/3% of P45,000 R.E. b)
3,000
Goodwill (P26,111 at 100%) 23,50
0
Investment in Fullas Co. 98,50
0
Elim. 85% of common stock c)
85,000
Elim. 75% of P5,000 R.E. d)
3,750
Elim. 10% of P7,500 deficit d)
750
Goodwill (P12,353) 10,50
0
Other assets 389,00 275,00 145,00 809,00
0 0 0 0
659,50 275,00 145,00
0 0 0
Credits
Liabilities 164,00 80,00 50,00 294,000
0 0 0
Common stock, Duran Co. 400,00 400,000
0
Retained earnings, Duran Co. 95,50 95,500
0
Common stock, Elma Co. 150,00
0
Eliminate 90% a)135,0
00
Minority interest, 10% 15,00
0
Retained earnings, Elma Co. 45,00
0
Eliminate 90% as above b)
13,500
Minority interest, 10% of 4,500
P45,000
Retained earnings to parent 27,000
Common stock, Fullas Co. 100,00
0
Eliminate 85% as above c)
85,000
Minority interest, 15% 15,000
Deficit, Fullas Co. ( 5,00
0)
Eliminate 85% as above d)
3,000
Minority interest, 15% of 75
P5,000 def. 0
Retained earnings to parent 7,25
0
659,50 275,00 145,00 237,50 237,50 851,00 851,00
0 0 0 0 0 0 0

101 CHAPTER 6
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(1) Elma Co. retained earnings, April 1, 20X6:
Retained earnings, January 1, 20X6 P10,000
Add estimated earnings Jan.1 to Apr.1 (3/12 of P10,000 income) 2,500
Retained earnings, April 1, 20X6 P12,500
(2) Elma Co. retained earnings, July 1, 20X6:
Retained earnings, January 1, 20X6 P10,000
Add estimated earnings jan. 1 to July 1 (6/12 of P10,000 income) 5,000
Retained earnings, July 1, 20X6 P15,000
(3) Elma Co. retained earnings, November 1, 20X7:
Retained earnings, January 1, 20X7 P20,000
Add estimated earnings, Jan. 1 to Nov. 1 (10/12 of P30,000 ) 25,000
Retained earnings, November 1, 20X7 P45,000
(4) Fullas Co. deficit, July 1, 20X7:
Deficit, January 1, 20X7 P10,000
Deduct estimated earnings Jan. 1 - Jul 1 (6/12 of P5,000 income) 2,500
Deficit, July 1, 20X7 P 7,500

DURAN COMPANY AND SUBSIDIARIES ELMA AND FULLAS COMPANY

Consolidated Balance Sheet
December 31, 20X7
Assets P809,00 Liabilities P294,000
0
Goodwill 38,464 Stockholders’ equity:
Minority interest:
Common stock P 30,000
Retained earnings 8,214 38,214
Controlling interest:
Common stock P400,000
Retained earnings 115,250 515,250
Total assets P847,46 Liabilities & stockholders’ equity P847,464

PROBLEM 6-5
COMPANY W AND SUBSIDIARY COMPANIES X, Y, AND Z
Working Papers for Consolidated Balance Sheet
December 31, 20X7
Consolida
ted
Co Balance
Co. W Co. X .Y Co. Z Eliminations Sheet
Debits Dr. Cr. Debit
(Credit)
Investment in Co. X 71,60
0
Elim. 80% of common a)80,00
stock 0
Elim. 80% of paid in b)
capital 8,000
Elim. 80% of P30,000 c)24,0
deficit 00
Goodwill (P9,500 at 100%) 7,600
Investment in Co. Y 68,00
0
Elim. 95% of common d)95,00
stock 0
Elim. 85% of P35,000 e)29,7
deficit 50
Elim 10% of P55,000 e)

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deficit (1) 5,500
Goodwill (P8,684 at 100%) 8,250
Investment in Co. Z 148,50
(2) 0
Elim. 90% of common f)90,00
stock 0
Elim. 75% of P75,000 R. E. g)56,25
(3) 0
Elim. 15% of P70,000 R.E. g)10,50
(4) 0
Negative goodwill (8,250)
Inventories 120,00 55,00 5 75,0 i)17,00 283,000
0 0 0,0 00 0
00
Plant and equipment (net) 100,00 80,00 100,0 j) 274,900
0 0 00 5,100
Co. X bonds (face, P20,000) 20,40 h)20,40
0 0
Other assets 200,00 115,00 10 130,0 k)65,00 485,000
0 0 5,0 00 0
00
728,5 250,00 15 305,0
00 0 5, 00
00
0
Credits
Bonds payable 100,00 h)20,0 (80,000)
0 00
Discount on bonds payable (4,000) h) 3,200
800
Other liabilities 238,50 34,00 10 150,0 k)65,0 (457,500)
0 0 0,0 00 00
00
Common stock, Co. W 250,00 (250,000)
0
Retained earnings, Co. W 240,00 i) (232,000)
0 8,000
Common stock, Co. X 100,00
0
Eliminate 80% a)80,0
00
Minority interest, 20% (20,000)
Paid in capital, Co. X 10,00
0
Eliminate 80% as above b)
8,000
Minority interest, 20% ( 2,000)
Retained earnings, Co. X 10,00 h)
0 1,200
i)
7,000
j)
5,100
Eliminate 80% as above c)24,00
0
Minority interest, 20%
(P10,000 -
103 CHAPTER 6
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P13,300) 660
Retained earnings to (21,360)
parent
Common stock, Co. Y 10
0,0
00
Eliminate 95% d)95,0
00
Minority interest, 5% ( 5,000)
Deficit, Co. Y (4 i)
5,0 2,000
00
)
Eliminate 95% as above e)35,25
0
Minority interest, 5% 2,350
(P47,000
deficit)
Retained earnings to 9,400
parent
Common stock, Co. Z 100,0
00
Eliminate 90% f)90,00
0
Minority interest, 10% (10,000)
Retained earnings, Co. Z 55,0
00
Eliminate 90% as above g)66,7
50
Minority interest, 10% of ( 5,500)
P55,000
Retained earnings to 17,250
parent
728,5 250,00 15 305,0 507,3 507,30 -0-
00 0 5, 00 00 0
00
0

104 CHAPTER 6
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(1) Co. Y deficit, May 1 20X7:
Deficit, January 1, 20X7 P60,000
Deduct estimated earnings Jan.1 to May 1 (4/12 of P15,000 net income) 5,000
Deficit, May 1, 20X7 P55,000

(2) Investment in Co. Z and parent company retained earnings increased by P5,000 to correct
for error in crediting entire proceeds from sale of Co. Z stock to investment account:
Proceeds from sale: 100 shares at P210 each P21,000
Original cost of shares: 100 at P160 16,000
Gain on sale of stock requiring charge to investment in Co. Z and
credit to retained earnings of Co. W P 5,000

(3) Co. Z retained earnings, April1, 20X6:

Retained earnings, January 1, 20X6 P60,000
Add estimated earnings Jan.1 to April 1 (3/12 of P60,000 income) 15,000
Retained earnings, April 1, 20X6 P75,000

(4) Co. Z retained earnings. Sept. 1, 20X7:

Retained earnings, January 1, 20X7 P100,000
Deduct estimated loss, Jan. 1 to Sept. 1 (8/12 of P45,000 net loss) 30,000
Retained earnings, September 1, 20X7 P
70,000

(5) Inventory reduction for intercompany

profit:
Intercompa
Sales ny Profit
Merchandise Sold By Price 20%
Co. W P40,00 P 8,000
0
Co. X 35,00 7,000
0
Co. Y 10,00 2,000
0
Total profit to be P17,000
eliminated

(6) Plant and equipment reduction for

intercompany profit:
Intercompany
Sales price Cost Profit 20%
Plant and equipment (acquired from P30,000 P6,00 P24,000
Co. X) 0
Allowance for depreciation (7/1/X6 - 4,500 90 3,600
12/31/X7) 0
P25,500 P5,1 P20,400
00

COMPANY W AND SUBSIDIARY COMPANIES X, Y, AND Z

Consolidated Balance Sheet
December 31, 20X7
Assets Liabilities & Stockholders’
Equity
Inventories P Liabilities:
283,000
Plant and equipment (net) 274,9 Bonds payable P80,000
00
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Other assets 485,0 Less - Discount on 3,20 P
00 bonds 0 76,800
Goodwill 18,1 Other liabilities 457,5
84 00
Total liabilities P
534,300
Stockholders’ equity:
Minority interest:
Common stock P
35,000
Paid in capital 2,00
0
Retained earnings 4,82 41,8
4 24
Controlling interest:
Common stock P250,00
0
Retained earnings 234,96 484,9
0 60
Total assets P1,061, Liabilities & stockholders’ P1,061,
equity

PROBLEM 6 - 6
[ERRATUM: Common Stock, P100 par, for all Co. P, Co. R, and Co. S]
(1)
January 1, 20X7:
Retained earnings, Co. P 9,600
Investment in Co. R 9,600
Co. P interest in Co. R equity just prior to sale of stock by Co. R:
80% of P300,000 (1,600 shares owned; 2,000 shares outstanding) P240,000
Ownership interest in Co. R after sale of stock: 64% of P360,000
(1,600 owned, 2,500 outstanding) 230,400
Decrease in interest as a result of sale of shares P 9,600

July 1, 20X7:
Retained earnings Co. P 1,250
Investment in Co. S 1,250
Co. P interest in Co. S equity just prior to sale by Co. S: 83-1/3% of P156,000*
(1,250 shares owned1,500 shares outstanding) P130,000
Interest in Co. S equity after sale of stock: 62-1/2% of P206,000 (1,250 shares
owned, 2,000 shares outstanding) 128,750
Decrease in ownership interest due to sale of stock P 1,250

* Deficit, Jan. 1 20X7, P9,000 increased by earnings , Jan.1 to July 1 (6/12 of P30,000 net
income for the year) of P15,000 = retained earnings balance , July 1, 20X7 of P6,000 plus
common stock of P150,000.
19,200
December 31, 20X7: 19,200
Investment in Co. R
Retained earnings Co. P
Co. P share of Co. R profit for 20X7:
Shares outstanding, 2,500; shares owned, 1,600; ownership interest = 64%. 64% of net
income of P30,000 net income is P19,600.

Investment in Co. S 21,875

Retained earnings Co. P 21,875
Co. P share of Co. S profit for 20X7:
Jan. 1 to June 20: shares outstanding, 1,500; shares owned, 1,250; ownership interest = 83-
1/3%. 83-1/3% of P15,000

106 CHAPTER 6
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Net income for half year P12,500
July 1 to Dec. 31: shares outstanding, 2,000; shares owned, 1,250; ownership
inerest, 62.5%. 62.5% of P15,000 net income for half year 9,375
Total share in net income for one year P21,875

COMPANY P AND SUBSIDIARY COMPANIES R AND S

Working Papers for Consolidated Balance Sheet
December 31, 20X7
Consolidated
Co. P Co. R Co. S Eliminations Balance Sheet
Debits Dr. Cr. Dr. Cr.
Investment in Co. R 214,6
00
Elim. 64% of common a)160,0
stock 00
Elim. 64% of paid in b)
capital 6,400
Elim. 64% of retained c)
earnings 83,200
Negative goodwill 35,000
Investment in Co. S 160,6
25
Elim. 62.5% of common d)125,0
stock 00
Elim. 62.5% of retained e)
earnings 13,125
Goodwill (P36,000 at 22,50
100%) 0
Other assets 1,250,0 565,00 425,00 f)100,00 2,140,0
00 0 0 0 00
1,625,2 565,0 425,0
25 00 00
Credits
Liabilities 645,0 175,00 204,00 f)100,0 924,00
00 0 0 00 0
Common stock, Co. P 600,0 600,00
00 0
Paid in capital, Co. P 50,0 50,000
00
Retained earnings, Co. P 330,2 330,22
25 5
Common stock, Co. R 250,00
0
Eliminate 64% g)160,0
00
Minority interest, 36% 90,000
Paid in capital, Co. R 10,0
00
Eliminate 64% b)
6,400
Minority interest, 36% 3,600
Retained earnings, Co. R 130,00
0
Eliminate 64% c)
83,200
Minority interest, 36% 46,800

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Common stock, Co. S 200,00
0
Eliminate 62.5% d)125,0
00
Minority interest, 37.5% 75,000
Retained earnings, Co. S 21,00
0
Eliminate 62.5% e)
13,125
Minority interest, 37.5% 7,875
1,625,2 565,0 425,0 487,72 487,7 2,162, 2,162,
25 00 00 5 25 500 500
(1) Proof of negative goodwill, Co. R:
Investment balance, Jan.1, 20X7 (before increase in common stock of Co. R) P205,000;
Equity of parent, Jan. 1, 20X7, 80% of (P200,000 + P100,000) or P240,000; P240,000 -
P205,000 = P35,000.

(2) Proof of goodwill, Co. S:

Investment balance, Jan. 1, 20X7 (before increase in common stock of Co. S) P140,000; equity
of parent, Jan. 1, 20X7, 83-1/3% of (P150,000 - P9,000) or P117,500;P117,500 - P140,000 =
P22,500.

COMPANY P AND SUBSIDIARY COMPANIES R AND S

Consolidated Balance Sheet
December 31, 20X7
Assets P2,140,0 Liabilities P
00 924,000
Goodwill 36,00 Stockholders’ equity:
0
Minority interest:
Common stock P165,00
0
Paid in capital 3,60
0
Retained 68,17 236,77
earnings 5 5
Controlling
interest:
Common stock P600,00
0
Paid in capital 50,00
0
Retained 365,22 1,105,22
earnings 5 5
Total assets P2,176,0 Total liabilities & P2,176,0
00 stockholders’ equity 00

PROBLEM 6-7
CARO, INC. AND SUBSIDIARIES SOLO COMPANY AND WESO COMPANY
Working Papers for Consolidated Balance Sheet
December 31, 20X7
Caro, Weso Consolidated
Inc. Solo Co. Co Eliminations Balance Sheet
Debits Dr. Cr. Dr. Cr.
Investment in Solo Co. 300,00
0
Elim. 100% of P300,000 a)300,00
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0
common on acquisition date
Investment in Weso Co. 300,00
0
Elim. 100% of P300,000
common on acquisition date b)300,00
0
Other assets 5,575,00 2,650,00 993,75 9,218,75
0 0 0 0
6,175,0 2,650,0 993,75
00 00 0
Credits
Liabilities 1,825,00 850,00 650,00 3,325,00
0 0 0 0
Common stock, Caro, Inc. 2,500,00 2,500,00
0 0
Paid in capital, Caro, Inc. 1,000,00 1,000,00
0 0
Retained earnings, Caro, Inc. 850,00 850,00
0 0
Common stock, Solo Co. 360,00
0
Eliminate as above a)300,00
0
Minority interest, 16-2/3% 60,00
0
Paid in capital, Solo Co. 90,00
0
Minority interest, 16-2/3% of
P90,000 15,00
0
Retained earnings to parent 75,00
0
Retained earnings, Solo Co. 1,350,00
0
Minority interest, 16-2/3% of
P1,350,000 225,00
0
Retained earnings to parent 1,125,00
0
Common stock, Weso Co. 375,00
0
Eliminate as above b)300,00
0
Minority interest, 20% 75,00
0
Paid in capital, Weso Co. 18,75
0
Minority interest, 20% 3,75
(P18,750) 0
Retained earnings to parent 15,00
0
Deficit, Weso Co. (50,000
)
Minority interest, 20% of
P50,000 deficit 10,00
0
Retained earnings to parent 40,00
0
6,175,0 2,650,0 993,75 600,0 600,0 9,268,7 9,268,7
00 00 0 00 00 50 50

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CARO, INC. AND SUBSIDIARIES SOLO COMPANY AND WESO COMPANY
Consolidated Balance Sheet
December 31, 20X7
Assets P9,218,750 Liabilities P3,325,000
Stockholders’ equity:
Minority interest:
Common stock P 135,000
Paid in capital 18,750
Retained earnings 215,000 368,750

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Controlling interest:
Common stock P2,500,000
Paid in capital 1,000,000
Retained earnings 2,025,000 5,525,000
Total assets P9,218,750 Total liabilities & stockholders’ equity P9,218,750

PROBLEM 6 - 8
WILLIAM COMPANY AND SUBSIDIARY WILFREDO COMPANY
Working Papers for Consolidated Balance Sheet
December 31, 20X7
Willia Wilfre Consolidated
m do Eliminations Balance Sheet
Debits Dr. Cr. Dr. Cr.
Investment in Wlfredo Co. 230,0
00
Ekim. 90% of P100,000 a)90,000
common
stock bal. Date of
acquisition
Elim. 90% of P33,500 paid b)30,150
in cap.
Elim. 90% of P75,000 acc. c)67,500
earn
Goodwill (P47,056 at 100%) 42,3
50
Other assets 2,235,0 360,00 2,595,0
00 0 00
2,465, 360,0
000 00
Credits
Liabilities 600,0 115,00 715,0
00 0 00
Common stock, William Co. 1,000,0 1,000,0
00 00
Paid in capital, William Co. 350,0 350,0
00 00
Accumulated earnings, 515,0 515,0
William Co. 00 00
Common stock, Wlfredo Co. 120,00
0
Eliminate as above a)90,000
Minority interest, 25% 30,0
00
Paid in capital, Wilfredo Co. 42,00
0
Eliminate as above b)30,150
Minority interest, 25% of 10,5
P42,000 00
Accumulated earnings to 1,3
parent 50
Accumulated earnings, 83,00
Wilfredo Co. 0
Eliminate as above c)67,500
Minority interest, 25% of 20,7
P83,000 50
Accumulated earnings to 5,2
parent 50
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2,465, 360,0 187,650 187,650 2,642, 2,642,
000 00 600 600

Restatement of equity balances of Wilfredo Co. as of July 1, 20X2:

Common stock Paid in capital Paid in capital Accumulated Treasury
issued Premium on from stock earnings stock
issued stock re-acquisition
Balance P120,000 P30,000 - P75,000 P16,500
Cancellation of treasury stock bal. ( 20,000) ( 5,000) P8,500 - (16,500)
P100,000 P25,000 P8,500 P75,000 -
Note: Paid in capital balances are combined for the purpose of eliminations on the working papers.

WILLIAM COMPANY AND SUBSIDIARY WILFREDO COMPANY

Consolidated Balance Sheet
December 31, 20X7
Assets P2,595,000 Liabilities P 715,000
Goodwill 47,056 Stockholders’ equity:
Minority interest:
Common stock P 30,000
Paid in capital 10,500
Accumulated earnings 25,456 65,956
Controlling interest:
Common stock P1,000,000
Paid in capital 350,000
Accumulated earnings 511,100 1,861,100
Total assets P2,642,056 Total liabilities & stockholders’ equity P2,642,056

PROBLEM 6-9
[ERRATUM: 200(4) Co. B, 10,000 shares @P24/sh]
(1) Exchange of stock based upon current market value of shares
Market value of Co. A shares P20
Market value of Co. B shares 24
Distribution of shares, 24:20, or 6 shares of Co. A
for every 5 shares of Co. B.
Shares held by minority interest of Co. B 18,000
Shares of Co. A to be issued in exchange for
shares of Co. B held by minority interest,
6(18,000/5) 21,600

(2) Exchange of stock based upon book value of shares

Book value of stock, June 30 P1,415,000 P1,230,000
Amount paid on purchase of stock from dissenting stockholders 8,000 240,000
Balance P1,407,000 P 990,000
Reduction in consolidated book value of Co. A stock resulting from stock
reacquisition by Co. B:
Equity in Co. B before stock reacquisition, 72% of P1,230,000 P885,600
Equity in Co. B after stock reacquisition, 72/90 or 80% of P990,000 792,000 93,600
Adjusted book value P1,313,400 P 990,000
Number of shares outstanding 79,600 90,000
Adjusted book value per share P16.50 P11.00
Distribution of shares 11.00/16.50, or 2 shares of Co. A for every 3 shares of Co.
B.
Shares held by minority interest of Co. B 18,000
Shares of Co. A to be issued in exchange for shares of Co. B held by minority
interest 2(18,000/3) 12,000

PROBLEM 6-10
(1) December 31, 20X5
Goodwill:
Investment balance, 12/31/X5 P128,000

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Equity in subsidiary equity, date of acquisition 1/1/X5:
Subsidiary equity P150,00
0
Ownership interest 80%
Equity acquired 120,000
Goodwill, 12/31/X5 (at 100%, P10,000) P 8,000

Retained earnings:
Parent retained earnings balance, 12/31/X5 P160,000
Add: Retained earnings increase accruing to parent company since acquisition:
Subsidiary retained earnings balance, 12/31/X5 P62,000
Subsidiary retained earnings balance 1/31/X5 50,000
Increase in subsidiary retained earnings since acquis. P12,000
Ownership interest 80%
Retained earnings increase accruing to parent since acquisition 9,600
Retained earnings, 12/31/X5 P169,600

Minority interest:
Subsidiary common stock, 12/31/X5 P100,000
Subsidiary retained earnings, 12/31/X5 62,000
Total subsidiary equity, 12/31/X5 P162,000
Minority interest percentage 20%
Minority interest, 12/31/X5 P 32,400

(2) December 31, 20X6

Goodwill:
Investment balance, 12/31/X6 P119,000
Add: gain on sale of 50 shares (1), reduction in investment bal. 1,000
Corrected investment balance P120,000
Equity in subsidiary at date of acquisition, 1/1/X5:
Subsidiary equity P150,00
0
Ownership interest 75
%
Equity as of date of acquisition on remaining 750 shares 112,500
Goodwill, 12/31/X6 (100%, P10,000) P 7,500

(1) Gain on sale: proceeds from sale, P128,000 less P119,000,

or P9,000; cost of shares sold: 50/800 of P128,000 or
P8,000. P9,000 less P8,000 = P1,000 gain on sale.

Retained earnings:
Parent retained earnings balance, 12/31/X6 P148,000
Add: gain on sale of subsidiary stock on 1/1/X6 1,000
Corrected parent retained earnings balance 12/31/X6 P149,000
Add: retained earnings increase accruing to parent since acquisition date:
Subsidiary retained earnings balance, 12/31/X6 P70,000
Subsidiary retained earnings balance, 1/1/X5 50,000
Increase in subsidiary R.E. since acquisitio, date P20,000
Ownership interest 75% 15,000
Retained earnings, 12/31/X6 P164,000

Minority interest:
Subsidiary common stock, 12/31/X6 P100,000
Subsidiary retained earnings, 12/31/X6 70,000
Total subsidiary equity, 12/31/X6 P170,000
Minority interest percentage 25%
Minority interest, 12/31/X6 P 42,500

(3) December 31, 20X7

Goodwill, 12/31/X6 (as in No. 2) P7,500
Add: goodwill through investment on 1/1/X7:
Investment (P140,000 less P119,000) P21,000
Equity acquired:
10% of P170,000 subsidiary equity as of 1/1/X7 17,000

113 CHAPTER 6
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Solution Manual
Increase in goodwill 4,000
Goodwill, 12/31/X7 P11,500

Retained earnings:
Parent retained earnings balance, 12/31/X7 P155,000
Add: Gain on sale of subsidiary stock on 1/1/X6 1,000
Corrected parent retained earnings balance P156,000
Add: Retained earnings increase accruing to parent since acq.
Jan. 1 20X5 to Dec. 31, 20X6:
Subsidiary retained earnings balance 12/31/X6 P70,000
Subsidiary retained earnings balance 1/1/X5 50,000
Increase in subsidiary retained earnings P20,000
Ownership percentage 75% 15,000
Jan. 1, 20X7 to Dec. 31, 20X7:
Subsidiary retained earnings, 12/31/X7 P80,000
Subsidiary retained earnings, 1/1/X7 70,000
Increase in subsidiary retained earnings for the year P10,000
Ownership percentage 85% 8,500
Retained earnings, 12/31/X7 P179,500
Minority interest:
Subsidiary common stock, 12/31/X7 P100,000
Subsidiary retained earnings, 12/31/X7 80,000
Total subsidiary equity P180,000
Minority interest percentage 15%
Minority interest, 12/31/X7 P 27,000

PROBLEM 6-11
*ERRATA:
(1) Add one line:
Purchaser Seller Inventory Seller's Cost
N M 4,500 P4,200
(2) Balance, Jan. 1, 20X7
Net Profit (Loss) - 20X7 and not 20X6
COMPANY L AND SUBSIDIARIES COMPANY M AND COMPANY N
Working Papers for Consolidated Balance Sheet
December 31,20X7
Consolidated
Co. L Co. M Co. N Eliminations Balance Sheet
Debits Dr. Cr. Dr. Cr.
Cash in banks 86,00 12,50 35,00 133,50
0 0 0 0
Notes receivable 18,00 6,00 8,00 32,00
0 0 0 0
Accounts receivable (less 52,00 13,00 34,00 99,00
allow.) 0 0 0 0
Inventories 89,50 16,00 51,00 f) 150,10
0 0 0 6,400* 0
Investment in Co. M 80,80
0
Elim. 85% of common stock a)51,00
0
Elim. 30% of P10,000 deficit b)
3,000
Elim. 40% of P3,500 R.E. b)
1,400
Elim. 15% of P7,100 R.E. b)
1,065
Goodwill (P35,688 at 100%) 30,33

114 CHAPTER 6
 ADVANCED ACCOUNTING VOLUME 2
Solution Manual
5
Investment in Co. N 149,32
0
Correction for entry on shares c)
sold (1) 120
Elim. 80% of common stock d)80,00
0
Elim. 80% of retained e)52,80
earnings 0
Goodwill (P20,500 at 100%) 16,40
0
Plant and equipment (Less 225,00 56,50 101,00 382,50
allow.) 0 0 0 0
700,62 104,00 229,00
0 0 0
Credits
Notes payable 9,00 8,00 12,00 29,00
0 0 0 0
Accounts payable 73,60 22,40 46,20 142,20
0 0 0 0
Accrued liabilities 5,32 2,60 4,80 12,72
0 0 0 0
Common stock, Co. L 400,00 400,00
0 0
Retained earnings, Co. L 212,70 c) 120 212,58
0 0
Common stock, Co. M 60,00
0
Eliminate 85% a)51,0
00
Minority interest,15% 9,00
0
Retained earnings, Co. M 11,00 f)
0 3,900
Eliminate 85% as above b)
535
Minority interest, 15% of
P7,100 (P11,000 - P3,900) 1,06
5
Retained earnings to parent 6,57
0
Common stock, Co. N 100,00
0
Eliminate 80% d)80,0
00
Minority interest, 20% 20,00
0
Retained earnings, Co. N 66,00 f)
0 2,500
Eliminate 80% e)52,8
00
Minority interest, 20% of
P66,000 less P500 10,70
0
700,62 104,00 229,00 193,32 193,32 843, 843,8
0 0 0 0 0 835 35

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Solution Manual
Computation of correction for entry on 100 shares of Co. N sold:
Cost, 3/31/X7, 100/900 X P162,000 P 18,000
Profit taken up, 4/1/X7 - 10/1/X7, 10% of P13,200 1,320
Total P 19,320
Less: dividend received 6/15/X7, 10% of P12,000 1,200
Carrying value of shares P 18,120
Less: amount credited to investment account on sale of stock
18,000
Required decrease in investment account P 120

Computation of elimination for intercompany profits on inventories:

Seller’s Intercompany profit
Purchaser Seller Inventory cost M Co. N Co. Total
P1,600 P1,600
L N 5,000 4,500 P 500 500
N M 4,500 4,200 300 300
M N 13,000 11,000 2,000 2,000
N M 16,000 14,000 2,000 2,000
Total elimination P3,900 P 2,500 P6,400

COMPANY L AND SUBSIDIARIES COMPANY M AND COMPANY N

Consolidated Balance Sheet
December 31, 20X7
Assets Liabilities & Stockholders’ Equity
Current assets: Current liabilities:
Cash in banks P133,500 Notes payable P 29,000
Notes receivable 32,000 Accounts payable 142,200
Accounts receivable , 99,000 Accrued liabilities 12,720 P183,920
net
Inventories 150,100 P414,600 Stockholders’ equity:
Plant and equipment, net 382,500 Minority interest:
Goodwill 56,188 Common stock P 29,000
Retained earnings 21,218 50,218
Controlling interest:
Common stock P400,000
Retained earnings 219,150 619,150
Total assets P853,288 Total liabilities & stockholders’ P853,288
equity

PROBLEM 6-12
RICO COMPANY AND SUBSIDIARIES SUAREZ COMPANY AND TODA COMPANY
Working Papers for Consolidated Balance Sheet
December 31, 20X7
Consolidated
Rico Suare Toda Balance
Co. z Co. Co. Eliminations Sheet
Debits Debit Credit Debit Credit
Current assets 152,5 150,0 105,00 407,50
00 00 0 0
Investment in Suarez Co. 220,0
stock 00
Correction for shares sold a)
4,000
Elim. 80% of common b)160,0
stock 00
Elim. 80% of ret. earnings c)
48,000
Goodwill (P20,000 at 16,00
100%) 0
Advance to Suarez Co. 25,0 f)
00 25,000
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Solution Manual
Investment in Toda Co. 214,0
stock 00
Elim. 90% of common d)
stock 90,000
Elim. 80% of P145,000 e)116,0
R.E. 00
Elim. 10% of P165,000 e)
R.E. 16,500
Negative goodwill 8,50
0
Advance to Toda Co. 40,0 f)
00 40,000
Buildings and equipment 170,0 235,00 405,00
00 0 0
651,5 320,0 340,00
00 00 0
Credits
Accounts Payable 235,0 40,0 25,00 300,00
00 00 0 0
Due to Parent Company 25,0 40,00 f)
00 0 65,000
Common Stock, Rico Co. 300,0 300,00
00 0
Retained earnings, Rico Co. 116,5 a) 120,50
00 4,000 0
Common stock, Suarez Co. 200,0
00
Eliminate 80% b)160,0
00
Minority interest, 20% 40,00
0
Retained earnings, Suarez 55,0
Co. 00
Eliminate as above c)
48,000
Minority interest, 11,00
20%(55,000) 0
Retained earnings to 4,00
parent 0
Common stock, Toda Co. 100,00
0
Eliminate 90% d)
90,000
Minority interest, 10% 10,00
0
Retained earnings, Toda 175,00
Co. 0
Eliminate as above e)132,5
00
Minority interest, 17,50
10%(75,000) 0
Retained earnings to 25,00
parent 0
651,5 320,0 340,00 499,5 499,5 832,5 832,50
00 00 0 00 00 00 0

117 CHAPTER 6
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Solution Manual
(a) Computation of correction for entry on sale of Suarez shares:
Investment balance P220,000
Add back proceeds from sale credited to account 32,000

Total cost of 1,800 shares P252,000

Cost per share, P252,000 / 1,800 P 140

Amount credited to investment account on sale of 200 sh. at P160 P 32,000
Cost of shares, 200 at P140 28,000
Required increase in investment account and in Retained earnings of Rico Co.
P 4,000

(1)
RICO COMPANY AND SUBSIDIARIES SUAREZ COMPANY AND TODA COMPANY
Consolidated Balance Sheet
December 31, 20X7
Current assets P407,500 Accounts payable P300,00
0
Buildings and equipment 405,000 Stockholders’ equity:
Goodwill (net) 20,000 Minority interest:
Common stock P
50,000
Retained earnings 32,500 82,500
Controlling interest:
Common stock P300,00
0
Retained earnings 150,000 450,000
Total assets P832,500 Total liabilities & stockholders’ equity P832,50
0
(2)
RICO COMPANY AND SUBSIDIARIES SUAREZ COMPANY AND TODA COMPANY
Statement of Consolidated Retained Earnings
For the Year Ended December 31, 20X7
Retained earnings balance, Rico Co. 1/1/X7 P166,500
Add: Correction to retained earnings for gain on sale of Suarez 4,000
stock
Profits of subsidiaries accruing to parent:
Net profit of Rico Co. P20,000
Net profit , Suarez Co. P15,000
Accruing to parent 80% 12,000
Net profit, Toda Co. 40,000
Accruing to parent ; 80% of P20,000 (1/1 to 16,000
6/30)
90% of P20,000 (7/1 to 12/31) 18,000 66,000
P236,500
Deduct: Retained earnings decrease due to dividends:
Rico Co. P70,000
Suarez Co. P20,000
Less charge to minority interest 4,000 16,000
Toda Co. P10,000
Less charge to minority interest 1,000 9,000 95,000
Consolidated retained earnings, Dec. 31, 20X7 P141,500

PROBLEM 6-13
COMPANY X AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
December 31, 20X7
Assets P1,837,500 Liabilities P 775,000
Goodwill 187,778 Stockholders’ equity:
Minority interest:

118 CHAPTER 6
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Solution Manual
Common stock P 120,000
Premium on issue of stock 5,000
Retained earnings 84,778 209,778
Controlling interest:
Common stock P1,000,000
Retained earnings 40,500 1,040,500
Total assets P2,025,278 Total liabilities & stockholders’ equity P2,025,278

COMPANY X AND SUBSIDIARY COMPANIES

Working Papers for Consolidated Balance Sheet
December 31, 20X7
Consolidated
Co. X Co. Y Co. Z Eliminations Balance Sheet
Debits Dr. Cr. Dr. Cr.
Investment in Co. Y stock 600,00
0
Elim. 80% of common a)400,0
stock 00
Elim. 80% of P85,000 R.E. b)
(1) 68,000
Goodwill (P165,000 at 132,0
100%) 00
Investment in Co. Z stock 187,5
00
Elim. 75% of common c)150,0
stock 00
Elim. 75% of Premium on d)
stock 37,500
Investment in Co. Z Co. 85,00
stock 0
Elim. 15% of common e)
stock 30,000
Elim. 15% of premium on f)
stock 7,500
Elim. 15% of P180,000 g)
R.E. 27,000
Goodwill (P22,778 at 20,5
100%) 00
Other assets 640,00 637,5 560,0 1,837,5
0 00 00 00
1,325, 825,0 560,0
000 00 00
Credits
Liabilities 350,0 265,0 160,0 775,0
00 00 00 00
Common stock, Co. X 1,000,0 1,000,0
00 00
Deficit, Co. X ( 25,0 25,0
00) 00
Common stock, Co. Y 500,0
00
Eliminate 80% a)400,0
00
Minority interest, 20% 100,0
00
Retained earnings, Co. Y 60,0 h)112,5
00 00
Eliminate as above b)
119 CHAPTER 6
 ADVANCED ACCOUNTING VOLUME 2
Solution Manual
68,000
Minority interest, 20% 34,5
(P172,500) 00
Retained earnings to 70,0
parent 00
Common stock, Co. Z 200,0
00
Elim. 75%(owned by Co. Y) c)150,0
00
Elim. 15%(owned by Co. e)
X) 30,000
Minority interest, 10% 20,00
0
Premium on issue of stock, 50,0
Co. Z 00
Eliminate 75% (Co. Y) d)
37,500
Eliminate 15% (Co. Z) f)
7,500
Minority interest, 10% 5,00
0
Retained earnings, Co. Z 150,0
00
Eliminate as above g)
27,000
Minority interest , 10% 15,00
(P150,000) 0
R.E. to Co. Y, 75% of h)112,5
P150,000 00
R.E. to Co. X, 15% of 4,5
P30,000 00
(P180,000 R.E. 1/1/X7 -
P150,000
R.E. 12/31/X7)
1,325, 825,0 560,0 832,50 832,50 2,019, 2,019,5
000 00 00 0 0 500 00

(1) Deficit, Jan. 2, 20X6, P20,000, adjusted for increase in retained earnings as a result of holdings
in Co. Z; Jan. 2, 20X0 to Jan. 2, 20X6, 75% of P140,000 increase in retained earnings, or
P105,000 = retained earnings balance on Jan. 2, 20X6, P85,000.

PROBLEM 6-14
COMPANY P AND SUBSIDIARY COMPANIES
Consolidated Balance Sheet
December 31, 20X7
Assets P652,000 Liabilities P 285,000
Goodwill 20,556 Stockholders’ equity:
Minority Interest:
Common stock P
12,500
Premium on common stock 2,500
Retained earnings 2,456 17,45
6
Controlling interest:
Common stock P300,00
0
Premium on common 60,000
Retained earnings 10,600 370,600

120 CHAPTER 6
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Solution Manual
Total assets P673,056 Total liabilities & stockholders’ equity P673,056

COMPANY P AND SUBSIDIARY COMPANIES

Working Papers for Consolidated Balance Sheet
December 31, 20X7
Cons. Balance
Co. P Co. A Co. B Eliminations Sheet
Debits Dr. Cr. Dr. Cr.
Investment in Co. A stock 125,000
Elim. 90% of common stock a)
90,000
Elim. 90% of premium on a)
stock 22,500
Elim. 60% of P15,000 b)
deficit 9,000
Elim. 30% of P10,000 R.E. b)
1/1/X3 3,000
Goodwill (P20,556 at 18,5
100%) 00
Investment in Co. B stock 7,50
0
Eliminate 15% of common c)
stock 7,500
Investment in Co. B stock 40,00
0
Eliminate 80% of common d)
stock 40,000
Other assets 367,500 210,00 75,00 652,50
0 0 0
500,00 250,00 75,0
0 0 00
Credits
liabilities 145,000 95,00 45,00 285,00
0 0 0
Common stock, Co. P 300,000 300,00
0
Premium on common stock 60,000 60,00
0
Deficit, Co. P (5,000) 5,00
0
Common stock, Co. A 100,00
0
Eliminate 90% a)
90,000
Minority interest, 10% 10,00
0
Premium on common stock, 25,00
Co. A 0
Eliminate 90% a)
22,500
Minority interest, 10% 2,50
0
Retained earnings, Co. A 30,00 e)
0 16,000
Eliminate as above b)
6,000
Minority interest 10% of 1,40

121 CHAPTER 6
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Solution Manual
P14,000 0
Retained earnings to 18,60
parent 0
Common stock, Co. B 50,00
0
Eliminate 15% (owned by c)
Co. P) 7,500
Eliminate 80% (owned by d)
Co. A) 40,000
Minority interest, 5% 2,500
Deficit, Co. B (20,00
0)
Minority interest 5% of
P20,000
deficit 1,00
0
R.E. to Co. P 15% of 3,00
P20,000 def. 0
R.E. to Co. A 80% of e)16,00
P20,000 def. 0
500,00 250,00 75,0 185,00 185,00 680,0 680,00
0 0 00 0 0 00 0

PROBLEM 6-15
LANO COMPANY AND SUBSIDIARY COMPANIES
Working Papers for Consolidated Balance Sheet
December 31, 20X7
Lano Merto Nome Consolidated
Co. Co. r Co. Eliminations Balance Sheet
Debits Debit Credit Debit Credit
Investment in Merto Co. 315,0
(42,000sh) 00
Elim. 84% of common stock a)210,0
00
Elim. 84% of P67,000 R.E. b)
1/2/X6* 56,280
Goodwill (P58,000 at 100%) 48,7
20
Investment in Nomer Co. 160,00
(16,000 sh) 0
Elim. 80% of common, c)
P120,000** 96,000
Elim. 80% of P35,000 APIC e)
28,000
Elim. 80% of P7,500 R.E. d)
7/1/X5*** 6,000
Goodwill (P37,500 at 100%) 30,0
00
Other assets 1,400,0 400,00 320,00 2,120,0
00 0 0 00
1,715, 560,00 320,0
000 0 00
Credits
Liabilities 480,0 214,50 140,00 834,5
00 0 0 00
Common stock, Lano Co. 1,000,0 1,000,0

122 CHAPTER 6
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00 00
Retained earnings, Lano Co. 235,0 235,0
00 00
Common stock, Merto Co. 250,00
0
Eliminate 84% a)210,0
00
Minority interest, 16% 40,0
00
Retained earnings, Merto Co. 95,50 f)
0 14,000
Eliminate 84% as above b)
56,280
Minority interest, 16% of 17,5
P109,500 20
Retained earnings to Lano 35,7
Co. 00
Common stock, Nomer Co. 120,00
0
Eliminate 80% c)
96,000
Minority interest, 20% 35,00 24,0
0 00
Paid in capital, Nomer Co. e)
28,000
Eliminate 80% 7,0
00
Minority interest, 20% 25,00
0
Retained earnings, Nomer Co. d)
6,000
Eliminate 80% as above 5,00
0
Minority interest, 20% of f)
P25,000 14,000
Retained earnings to Merto 1,715, 560,00 320,0 410,28 410,28 2,198,7 2,198,7
Co. 000 0 00 0 0 20 20

* Retained earnings. 1/2/X6 per books, P73,000 less decrease in retained earnings as a result of
holdings in Nomer, 7/1/X5 to 12/31/X5, 80% of loss of P7,500 (6/12 of P15,000) or P6,000 =
P67,000 retained earnings, 1/2/X6.
** Deficit, 12/31/X4, P30,000 add loss for period 12/31/X4 to 7/1/X5, P7,500 = P37,500 deficit,
7/1/X5
Common stock, Nomer Co., date of acquisition, P200,000 less transfer to paid in capital, P35,000
and to retained earnings, P45,000 = P120,000.
*** Deficit at date of acquisition, P37,500 less transfer from common stock account, P45,000 =
P7,500

LANO COMPANY AND SUBSIDIARY COMPANIES

Consolidated Balance Sheet
December 31, 20X7
Assets P2,120,000 Liabilities P 834,500
Goodwill 95,500 Stockholders’ equity:
Minority interest:
Common stock P 64,000
Paid in capital 7,000
Retained earnings 39,300 110,300

123 CHAPTER 6
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Controlling interest:
Common stock P1,000,000
Retained earnings 270,700 1,270,700
Total assets P2,215,500 Total liabilities & stockholders’ equity P2,215,500

124 CHAPTER 6