PROBLEM 1 On January 1, 20x0, P Company purchased 80 percent of the outstanding shares of S Company by paying P650,000.On that date, S Company P300,000 capital stock and P500,000 retained earnings. An undervalued asset attributable to building amounting to P75,000 with a remaining life of 25 years. All other assets and liabilities of S Company had book value approximated their fair market value. On January 1, 20x1 P's common stock and retained earnings amounted to P1,000,000 and P800,000, respectively,while S Company's retained earnings is P600,000. The 20x1 net income and dividends using cost (or initial value) method that was as follows; P Company S Company Net Income P340,000 P150,000 Dividends P100,000 P50,000 On April 1, 20x1, S Company sold equipment with book value of P30,000 to P Company for 60,000. The gain on the sale is included in the net income of S Company indicated above. The equipment is expected to have to have a remaining useful life of five years from the date of sale. On September 30, 20x1, P Company sold machinery with a book value of P40,000 to S Company for P75,000. The gain on the sale is also included in the net income of P company indicated above. The machinery is expected to last for ten (10) years from the date of sale.
PROBLEM 1 On January 1, 20x0, P Company purchased 80 percent of the outstanding shares of S Company by paying P650,000.On that date, S Company P300,000 capital stock and P500,000 retained earnings. An undervalued asset attributable to building amounting to P75,000 with a remaining life of 25 years. All other assets and liabilities of S Company had book value approximated their fair market value. On January 1, 20x1 P's common stock and retained earnings amounted to P1,000,000 and P800,000, respectively,while S Company's retained earnings is P600,000. The 20x1 net income and dividends using cost (or initial value) method that was as follows; P Company S Company Net Income P340,000 P150,000 Dividends P100,000 P50,000 On April 1, 20x1, S Company sold equipment with book value of P30,000 to P Company for 60,000. The gain on the sale is included in the net income of S Company indicated above. The equipment is expected to have to have a remaining useful life of five years from the date of sale. On September 30, 20x1, P Company sold machinery with a book value of P40,000 to S Company for P75,000. The gain on the sale is also included in the net income of P company indicated above. The machinery is expected to last for ten (10) years from the date of sale.
Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN:9781285595047
Author:Weil
Publisher:Weil
Chapter14: Intercorporate Investments In Common Stock
Section: Chapter Questions
Problem 16E
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Question
The controlling (parent’s) interest – retained earnings or the consolidated retained earnings on December 31, 20x1:
A. 1,040,000
B. 1,063,075
C. 1,190,675
D. 1,140,675
Transcribed Image Text:PROBLEM 1
On January 1, 20x0, P Company purchased 80 percent of the outstanding shares of S Company by paying
P650,000.On that date, S Company P300,000 capital stock and P500,000 retained earnings. An
undervalued asset attributable to building amounting to P75,000 with a remaining life of 25 years. All
other assets and liabilities of S Company had book value approximated their fair market value.
On January 1, 20x1 P's common stock and retained earnings amounted to P1,000,000 and P800,000,
respectively,while S Company's retained earnings is P600,000.
The 20x1 net income and dividends using cost (or initial value) method that was as follows;
Net Income
P Company
S Company
P340,000
P150,000
Dividends
P100,000
P50,000
On April 1, 20x1, S Company sold equipment with book value of P30,000 to P Company for 60,000. The
gain on the sale is included in the net income of S Company indicated above. The equipment is expected to
have to have a remaining useful life of five years from the date of sale.
On September 30, 20x1, P Company sold machinery with a book value of P40,000 to S Company for
P75,000. The gain on the sale is also included in the net income of P company indicated above. The
machinery is expected to last for ten (10) years from the date of sale.
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