Intercompany Inventory Transactions Reviewer

1. On January 1, 20x4, Darter Industries acquired an 80% interest in Thermal Company

to insure a steady supply of Thermal’s inventory that Darter uses in its own
manufacturing businesses. Thermal sold 100% of its output to Darter during 20x4 and
20x5 at a gross profit rate of 20% based on Thermal’s cost. Darter had P9,600 of these
items remaining in its January 1, 20x5 inventory and no items on December 31, 20x5.
If Darter neglected to eliminate unrealized profits from all intercompany sales from
Thermal, consolidated net income for 20x5 was (indicate whether
overstated/understated/no effect)

2. KK Corporation owns 80 percent of LL Corporation’s common stock. During

October, LL sold merchandise to KK for P100.000. At December 31, 50 percent of this
merchandise remains in KK’s inventory. Gross profit percentages were 30 percent
for KK and 40 percent for LL. The amount of unrealized intercompany profit in ending
inventory at December 31 that should eliminated in the consolidation process is

Use the following information for Questions 3 and 4:

Pot Co. holds 90% of the common stock of Skillet Co. During 20x4, Pot reported sales of
P1,120,000 and cost of goods sold of P840,000. For this same period, Skillet had sales of
P420,000 and cost of goods sold of P252,000. Also during 20x4, Pot sold merchandise to
Skillet for P140,000. The subsidiary still possesses 40% of this inventory at the end of 20x4.
Pot had established the transfer price based on its normal markup.
3. What are consolidated sales and cost of goods sold?
4. Assuming that the transfers were from Skillet Co. to Pot Co., what are consolidated
sales and cost of goods sold?
Use the following information for questions 5 and 6:
Grebe Company routinely receives goods from its 80%-owned subsidiary, Swamp
Corporation. In 20x4, Swamp sold merchandise that cost P80,000 to Grebe for P100,000.
Half of this merchandise remained in Grebe’s December 31, 20x4 inventory. During
20x5, Swamp sold merchandise that cost P160,000 to Grebe for P200,000. P62,500 of
the 20x5 merchandise inventory remained in Grebe’s December 31, 20x5 inventory.
Selected income statement information for the two affiliates for the year 20x5 was as
follows:
Grebe Swamp
Sales Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . P500,000 P400,000
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . 400,000 320,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P100,000 P 80,000
5. Consolidated cost of goods sold for Grebe and Subsidiary for 20x5 were
6. What amount of unrealized profit did Grebe Company have at the end of 20x4?

Use the following information for questions 7 and 8:

7. TT Company holds 90 percent of BB Company’s common stock. In the current year,
TT reports sales of P800,000 and cost of goods sold of P600,000. For this same period,
BB has sales of P300,000 and cost of goods sold of P180,000. During the current year,
TT sold merchandise to BB for P100,000. The subsidiary still possesses 40 percent of
this inventory at the current year-end. TT had established the transfer price based
on its normal markup. What are the consolidated sales and cost of goods sold?
8. Use the same information as in problem 7 except assume that the transfers were
from BB Company to TT Company. What are the consolidated sales and cost of
goods sold?
Use the following information for questions 9 and 10:
P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation. In
20x5, P sold merchandise that cost P240,000 to S for P300,000. Half of this merchandise
remained in S’s December 31, 20x4 inventory. During 20x5, P sold merchandise that
cost P375,000 to S for P468,000. Forty percent of this merchandise inventory remained
in S’s December 31, 20x5 inventory. Selected income statement information for the
two affiliates for the year 20x5 is as follows:
P S
Sales Revenue . . . . . . . . . . . . . . . . . . . . . P 2,250,000 P 1,250,000
Cost of Goods Sold . . . . . . . . . . . . . . . . 1,800,000 937,500
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . P 450,000 P 187,500
9. Consolidated sales revenue for P and Subsidiary for 20x5 are:
10 Consolidated cost of goods sold for P Company and Subsidiary for 20x5 are:
Use the following information for questions 11 and 12:
P Company owns an 80% interest in S Company. During 20x4, S sells merchandise to P
for P200,000 at a profit of P40,000. On December 31, 20x4, 50% of this merchandise is
included in P’s inventory. Income statements for P and S are summarized below:
P S
Sales Revenue . . . . . . . . . . . . . . . . . . . . P 1,200,000 P 600,000
Cost of Goods Sold . . . . . . . . . . . . . . . . (600,000) (400,000)
Operating Expenses . . . . . . . . . . . . . . . . (300,000) (80,000)
Net Income (20x4) . . . . . . . . . . . . . . . . . . P 300,000 P 120,000
11. Controlling interest in consolidated net income for 20x4 is:
12. Non-controlling interest in income for 20x4 is:
Use the following information for Questions 13 & 14:
P Company regularly sells merchandise to its 80%-owned subsidiary, S Corporation. In
20x3, P sold merchandise that cost P240,000 to S for P300,000. Half of this merchandise
remained in S’s December 31, 20x3 inventory. During 20x4, P sold merchandise that
cost P375,000 to S for P468,000. Forty percent of this merchandise inventory remained
in S’s December 31, 20x4 inventories. Selected income statement information for the
two affiliates for the year 20x4 is as follows:

P __ S____
Sales Revenue......................................... P2,250,000 P1,200,000
Cost of Goods Sold................................. 1,800,000 _1,000,000
Gross profit................................................ P 450,000 P 200,000
13. Consolidated sales revenue for P and Subsidiary for 20x4 are:
14. Consolidated cost of goods sold for P Company and Subsidiary for 20x4 are:
Use the following information for Questions 15 & 16:
P Company owns an 80% interest in S Company. During 20x4, S sells merchandise to P
for P150,000 at a profit of P30,000. On December 31, 20x4, 50% of this merchandise is
included in P’s inventory. Income statements for P and S are summarized below:
P __ S __
Sales P900,000 P450,000
Cost of Sales (450,000) (300,000)
Operating Expenses (225,000) ( 60,000)
Net Income (20x4) P225,000 P 90,000
15. Controlling interest in consolidated net income for 20x4 is:
16. Non-controlling interest in income for 20x4 is:
Use the following information for Questions 17 & 18:
Earth Company owns 100 percent of the capital stock of both Mars Corporation and
Venus Corporation. Mars purchases merchandise inventory from Venus at 125 percent
of Venus's cost. During 20x4, Venus sold inventory to Mars that it had purchased for
P25,000. Mars sold all of this merchandise to unrelated customers for P56,892 during
20x4. In preparing combined financial statements for 20x4, Earth's bookkeeper
disregarded the common ownership of Mars and Venus.
17. What amount should be eliminated from cost of goods sold in the combined
income statement for 20x4?
18. What amount was unadjusted revenue overstated in the combined income
statement for 20x4?

Use the following information for questions 19 to 21:

Blue Company purchased 60 percent ownership of Kelly Corporation in 20x3. On May
10,20x4, Kelly purchased inventory from Blue for P 60,000. Kelly sold all of the inventory
to an unaffiliated company for P86,000 on November 10,20x4. Blue produced the
inventory sold to Kelly for P47,000. The companies had no other transaction during 20x4.
19. What amount of sales will be reported in the 20x4 consolidated income statement?
20. What amount of cost of goods sold will be reported in the 20x4 consolidated income
statement?
21. What amount of consolidated net income will be assigned to the controlling
shareholders for 20x4?
Use the following information for questions 22 to 24:
Amber Corporation holds 80 percent of the stock of Movie Production Inc. During 20x4,
Amber purchased an inventory of snack bar items for P40,000 and resold P30,000 to
Movie Productions for P48,000. Movie Productions Inc. reported sales of P67,000 in 20x4
and had inventory of P16,000 on December 31, 20x4. The companies held no beginning
inventory and had no other transactions in 20x4.
22. What amount of cost of goods sold will be reported in the 20x4 consolidated income
statement?
23. What amount of net income will be reported in the 20x4 consolidated income
statement?
24. What amount of income will be assigned to the non-controlling interest in the 20x4
consolidated net income statement?
25. Gibson Corp. owned a 90% interest in Sparis Co. Sparis frequently made sales of
inventory to Gibson. The sales, which include a markup over cost of 25%, were
P420,000 in 20x3 and P500,000 in 20x4. At the end of each year, Gibson still owned
30% of the goods. Net income for Sparis was P912,000 during 20x4. What was the
non-controlling interest's share of Sparis' net income for 20x4?
26. Prince Corp. owned 80% of Kile Corp.'s common stock. During October 20x4, Kile
sold merchandise to Prince for P140,000. At December 31, 20x4, 50% of this
merchandise remained in Prince's inventory. For 20x4, gross profit percentages were
30% of sales for Prince and 40% of sales for Kile. The amount of unrealized
intercompany profit in ending inventory at December 31, 20x4 that should be
eliminated in the consolidation process is
27. BG Inc., acquired a 60 percent interest in HH Company several years ago. During
20x4, HH sold inventory costing P75,000 to BG for P100,000. A total of 16 percent of
this inventory was not sold to outsiders until 20x5. During 20x5, HH sold inventory
costing P96,000 to BG for P120,000. A total of 35 percent of this inventory was not
sold to outsiders until 20x6. In 20x5, BG reported cost of goods sold of P380, 000 while
HH reported P210.000. What is the consolidated cost of goods sold in 20x5?
28. Squid Corporation, a 90%-owned subsidiary of Penguin Corporation, sold inventory
items to its parent at a P24,000 profit in 20x5. Penguin resold one-third of this
inventory to outside entities. Squid reported net income of P100,000 for 20x5. Non-
controlling interest in income that will appear in the consolidated income statement
for 20x5 is
29. HW Inc., holds a 90 percent interest in PP Company. During 20x4, PP sold inventory
costing P77,000 to HW for P110,000. Of this inventory, P40.000 worth was not sold to
outsiders until 20x5. During 20x5,PP sold inventory costing P72,000 to HW for P120,000.
A total of P50,000 of this inventory was not sold to outsiders until 20x6. In 20x5, HW
reported net income of P150,000 while PP reported P90,000. What is the non-
controlling interest in the 20x5 income of the subsidiary?
30. Cattle Company sold inventory with a cost of P40,000 to its 90%-owned subsidiary,
Range Corp., for P100,000 in 20X4. Range resold P75,000 of this inventory for P100,000
in 20X4. Based on this information, the amount of inventory reported on the
consolidated financial statements at the end of 20X4 is ____.
31. Perez Inc. owns 80 percent of Senior Inc. During 20x4, Perez sold goods with a 40
percent gross profit to Senior. Senior sold all of these goods in 20x4. For 20x4
consolidated financial statement, how should the summation of Perez and Senior
income statement items be adjusted?
a. Sales and cost of goods sold should be reduced by the intercompany
sales.
b. Sales and cost of goods sold should be reduced by 80 percent of the
intercompany sales.
c. Net income should be reduce by 80% of the gross profit on intercompany
sales.
d. No adjustment is necessary.
32. Parker Corporation owns 80 percent of Smith Inc.’s common stock. During 20x4,
Parker sold inventory to Smith for P250,000 on the same terms as sales made to third
parties. Smith sold all of the inventory purchased from Parker in 20x4. The following
pertains to Smith and Parker’s sales for 20x4.
Parker Smith
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . P1,000,000 P700,000
Cost of sales . . . . . . . . . . . . . . . . . . (400,000) (350,000)
Gross Profit . . . . . . . . . . . . . . . . . . . . P 600,000 P350,000
What amount should Parker report as cost of sales in its 20x4 consolidated income
statement?
33. During 20x4, Park Corporation recorded sales of inventory costing P500,0000 to Small
Company, its wholly owned subsidiary, on the same terms as sales made to third
parties. At December 31,20x4, Small held one-fifth of this goods inventory. The
following information pertains to Park and Small’s sales for 20x4:
Park Small
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 2,000,000 P1,400,000
Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800,000) (700,000)
Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 1,200,000 P 700,000
In its 20x4 consolidated income statement, what amount should Park report as cost
of sales?
Use the following information for questions 34 to 36:
Ford Company is a 90 percent subsidiary of Davis Corporation. Ford sells P94,000 of
inventory for P115,000 to Davis on November 27, 20x5. By the end of 20x5, Davis sells 40
percent of this inventory to unrelated parties for P65,000. Ford and Davis have income
in 20x5 of P320,000 and P698,000, respectively.
34. What is the amount of the worksheet elimination to sales when the 20x5
consolidated financial statements are prepared?
35. What is the amount of the worksheet elimination to cost of goods sold when the
20x5 consolidated financial statements are prepared?
36. What is the amount of the worksheet elimination to inventory when the 20x5
consolidated financial statements are prepared?
Use the following information for questions 37 to 42:
Brown Company is a 70 percent subsidiary of Denison Corporation. Brown sells P28,000
of inventory for P37,000 to Denison on December 27, 20x5. None of this inventory was
sold to unrelated parties by the end of 20x5. During 20x6, 60 percent of this inventory
is sold to unrelated parties for P33,000. Brown and Denison have income in 20x6 of
P184,000 and P298,000, respectively.
37. What is the amount of the worksheet elimination to retained earnings when the 20x6
consolidated financial statements are prepared?
38. What is the amount of the worksheet elimination to non-controlling interest when
the 20x6 consolidated financial statements are prepared?
39. What is the amount of the worksheet elimination to sales when the 20x6
consolidated financial statements are prepared?
40. What is the amount of the worksheet elimination to cost of goods sold when the
20x6 consolidated financial statements are prepared?
41. What is the amount of the worksheet elimination to inventory when the 20x6
consolidated financial statements are prepared?
42. What is the income to non-controlling interest in 20x6?

Use the following information for questions 43 to 47:

Hartman Company is a 90 percent subsidiary of Tobin Corporation. Hartman sells
P52,000 of inventory for P65,000 to Tobin on December 1, 20x5. Twenty percent of this
inventory is sold to unrelated parties for P22,000 by the end of 20x5. During 20x6,
another 70 percent of this inventory is sold to unrelated parties for P80,000. Hartman
and Tobin have income in 20x6 of P312,000 and P539,000, respectively.
43. What is the amount of the worksheet elimination to retained earnings when the 20x6
consolidated financial statements are prepared?
44. What is the amount of the worksheet elimination to non-controlling interest when
the 20x6 consolidated financial statements are prepared?
45. What is the amount of the worksheet elimination to sales when the 20x6
consolidated financial statements are prepared?
46. What is the amount of the worksheet elimination to cost of goods sold when the
20x6 consolidated financial statements are prepared?
47. What is the income to non-controlling interest in 20x6?

Use the following information for questions 48 to 55:

On December 31, 20x5, Paper Co. purchased 60% of the outstanding common shares
of Book Ltd. for P760,000 in shares and P200,000 in cash. The statements of financial
position of Paper and Book immediately before the acquisition and issuance of the
notes payable were as follows (in 000s):

Paper ______Book____
Book Fair Book Fair
Value Value Value Value
Cash P360 P360 P200 P200
Accounts receivable 520 500 380 380
Inventory 800 880 400 360
Capital assets 1,820 2,000 1,420 1,640
.
P3,500 P2,400
Accounts payable P 380 P380 P260 P260
Long-term liabilities 1,200 1,200 1000 1000
Common shares 500 600
Retained earnings 1,420 540
P3,500 P2,400
The difference in the carrying value and the fair value of the capital assets for Book
relates to its office building. This building has an estimated 20 years remaining of useful
life.
During 20x6, the year following the acquisition, the following occurred:
 Throughout the year, Book purchased merchandise of P800,000 from Paper.
Paper's gross margin is 30% of selling price. At December 31, 20X6, Book still owed
Paper P250,000 on this merchandise. 75% of this merchandise was resold by Book
prior to December 31, 20x6.
 Throughout the year, Book sold merchandise to Paper totalling P500,000. The
gross margin in these products is 25%. At the end of 20X6, Paper had not yet
resold 60% of this merchandise.
 Management fees were paid to Paper from Book totalling P250,000.
 Book paid dividends of P250,000 at the end of 20x6 and Paper paid dividends of
P500,000.
During 20x7, the following occurred:
 Throughout the year, Book purchased merchandise of P1,000,000 from Paper.
Paper's gross margin is 30% of selling price. At December 31, 20x6, Book still owed
Paper P150,000 on this merchandise. 85% of this merchandise was resold by Book
prior to December 31, 20x7.
 Throughout the year, Book sold merchandise to Paper totalling P650,000. The
gross margin in these products is 25%. At the end of 20x6, Paper had not yet
resold 40% of this merchandise.
 Management fees were paid to Paper from Book totalling P250,000.
 Book paid dividends of P250,000 at the end of 20x7 and Paper paid dividends of
P500,000.
 Paper uses the cost method to report its investment in Book.

Statements of Financial Position

As at December 31,20x7
(in thousands of Pesos)
Assets Paper Book
Cash P 50 P 210
Accounts Receivable 575 410
Inventories 825 430
Capital assets, net 2,870 1,760
Investment in Book 960 _______
Total assets P 5,280 P 2,810

Liabilities
Accounts payable P 465 P 325
Long term liabilities 1,290 950
Common shares 1,260 600
Retained Earnings 2,265 935
Total liabilities and shareholders' equity P 5,280 P 2,810

Statements of Comprehensive Income

For the year ended December 31, 20x7
(in thousands of Pesos)
Paper Book
Sales P 2,520 P 2,400
Management fees 250
Dividend income 150 ______
P 2,920 2,400
Cost of sales P 800 P 1,200
Depreciation and amortization expenses 670 325
Management fees expense 250
Other expenses 460 135
P1,930 P 1,910
Net income P 990 P 490

Statements of Changes in Equity — Retained Earnings Section

For the year ended December 31,20X7
(in thousands of Pesos)
Paper Book
Retained earnings, December 31, 20X6 P 1,775 P 695
Net income 990 490
Dividends declared ( 500) ( 250)
Retained earnings, December 31, 20X7 P 2,265 P 935

48. The full-goodwill arising from acquisition on December 31, 20x5 amounted to:
49. The non-controlling interests on December 31, 20x5 amounted to:
50. The amount of goodwill on December 31, 20x7 amounted to:
51. The non-controlling interests on December 31, 20x7 amounted to:
52. The consolidated retained earnings on December 31, 20x6 amounted to:
53. The consolidated retained earnings on December 31, 20x7 amounted to:
54. The capital assets, net on December 31, 20x7 amounted to:

Solutions:
Quiz - XVII
1. Overstated by P320
It will be overstated by the amount of the NC interests’ share of the P1,600 of profit margin in the
P9,600 of materials carried over to 20x5 (20% x P1,600 = P320

2. P20,000 - Inventory remaining P100,000 × 50% = P50,000 Unrealized gross profit (based on LL's markup
as the seller) P50,000 × 40% = P20,000. The ownership percentage has no impact on this computation

3. (downstream sales) Sales, P1,400,000; Cost of Sales, P966,00

Sales – Pot (parent) 1,120,000
- Skillet (subsidiary) 420,000
Total 1,540,000
Add(Deduct): Intercompany sales - down ( 140,000)
Consolidated Sales 1,400,000

CGS – Pot (parent) 840,000

- Skillet (subsidiary) 252,000
Total 1,092,000
Add(Deduct): Intercompany sales - down ( 140,000)
Unrealized Profit in
Ending Inventory of
Skillet (subsidiary)-down
EI of Skillet :
Sales of Pot 140,000
x: EI of Skillet 40%
EI of Skillet 56,000
X: GP of Pot
(1,120 – 840)
1,120 25% 14,000
Consolidated CGS 966,000

4. (upstream sales) - P1,400,000; Cost of Sales, P974,400 (or – refer to Note)

Note: The only change here from No. 3 is the markup percentage which would now be 40
percent*
CGS – Pot (parent) 840,000
- Skillet (subsidiary) 252,000
Total 1,092,000
Add(Deduct): Intercompany sales - upstream ( 140,000)
Unrealized Profit in
Ending Inventory of
Pot (subsidiary)-upstream
EI of Pot:
Sales of Skillet 140,000
x: EI of Pot 40%
EI of Pot 56,000
X: GP of Skillet
(420 – 252)
420 40%* 22,400
Consolidated CGS (preferred answer) 974,400

Note: The problem is quite intriguing because of the statement “Pot had established the transfer
price base on its normal markup”. It should be noted that Parent Company established the
transfer price based on its normal price (in this case it is assumed that the mark-up of the parent
which is 25% is also the normal transfer price). So, if is assumed to be of the same markup with
parent company, then the answer would be as follows:

Sales – Pot (parent) 1,120,000

- Skillet (subsidiary) 420,000
Total 1,540,000

Add(Deduct): Intercompany sales - down ( 140,000)

Consolidated Sales 1,400,000

CGS – Pot (parent) 840,000

- Skillet (subsidiary) 252,000
Total 1,092,000
Add(Deduct): Intercompany sales - down ( 140,000)
Unrealized Profit in
Ending Inventory of
Skillet (subsidiary)-down
EI of Skillet :
Sales of Pot 140,000
x: EI of Skillet 40%
EI of Skillet 56,000
X: GP of Pot
(1,120 – 840)
1,120 25% 14,000
Consolidated CGS 966,000

5. P522,500
Grebe plus Swamp’s separate cost of goods sold =
P400,000 + P320,000 = P 720,000
Less: Intercompany sales = 200,000
Add: Profit +12,500 - 10,000 = ____2,500
Consolidated COGS = P 522,500

6. P10,000
Ending inventory of Grebe (1/2 x P100,000) P 50,000
x: GP% of Parent (P100,000 – P80,00)/P100,000 20%
Unrealized profit in ending inventory P 10,000

7. Sales, P1,000,000; Cost of Sales, P690,000

Intercompany sales and purchases of P100,000 must be eliminated. Additionally, an unrealized gross
profit of P10,000 must be removed from ending inventory based on a markup of 25 percent (P200,000
gross profit/P800,000 sales) which is multiplied by the P40,000 ending balance. This deferral increases
cost of goods sold because ending inventory is a negative component of that computation. Thus,
cost of goods sold for consolidation purposes is P690,000 (P600,000 + P180,000 – P100,000 + P10,000).

8. Sales, P1,000,000; Cost of Sales, P696,000 (refer to No. 4 above for further discussions)
The only change here from No. 7 is the markup percentage which would now be 40 percent
(P120,000 gross profit  P300,000 sales). Thus, the unrealized gross profit to be deferred is P16,000
(P40,000 × 40%). Consequently, consolidated cost of goods sold is P696,000 (P600,000 + P180,000 –
P100,000 + P16,000).
9. Sales, P2,907,000
Sales Cost of Sales
P Company 2,250,000 1,800,000
S Company 1,125,000 _937,500
Total 3,375,000 2,737,500
Less: Intercompany sales 468,000 468,000
Realized profit in BI of S Co.
[P300,000 x 1/2 = P150,000 x (300-240)/300] 30,000
Add: Unrealized profit in EI of S Co.
[P468,000 x 40% = P187,200 x (468-375)/468] ________ __37,200
Consolidated 2.907,000 2,276,700

10. Cost of sales, P2,276,700 - refer to No. 9

11. P380,000
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations P 300,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P300,000
S Company’s net income from own operations P120,000
Realized profit in beginning inventory of P Company (upstream sales)
Unrealized profit in ending inventory of P Company (upstream sales)
[P200,000 x 50% = P100,000 x (P40,000/P200,000)] ( 20,000 )
S Company’s realized net income from separate operations*…….….. P100,000 100,000
Total P 400,000
Less: Amortization of allocated excess…………………… _ 0
Consolidated Net Income for 20x4 P 400,000
Less: Non-controlling Interest in Net Income* * 20,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P 380,000
*that has been realized in transactions with third parties.

**Non-controlling Interest in Net Income (NCINI) for 20x4

S Company’s net income of Subsidiary Company from its own operations
(Reported net income of S Company) P 120,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 20,000)
S Company’s realized net income from separate operations……… P 100,000
Less: Amortization of allocated excess 0
P 100,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 20,000
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 20,000

12. P20,000 – refer to No, 11 for computations.

13. Sales, P2,907,000
Sales Cost of Sales
P Company 2,250,000 1,800,000
S Company 1,200,000 _1,000,000
Total 3,450,000 2,800,000
Less: Intercompany sales 468,000 468,000
Realized profit in BI of S Co.
[P300,000 x 1/2 = P150,000 x (300-240)/300] 30,000
Add: Unrealized profit in EI of S Co.
[P468,000 x 40% = P187,200 x (468-375)/468] ________ __37,200
Consolidated 2.982,000 2,339,200
14. Cost of sales, P2,339,200 - refer to No. 13
15. P285,000
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P225,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P225,000
S Company’s net income from own operations…………………………………. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)
[P150,000 x 50% = P75,000 x (30/150)] ( 15,000)
S Company’s realized net income from separate operations*…….….. P 75,000 75,000
Total P300,000
Less: Amortization of allocated excess…………………… 0
Consolidated Net Income for 20x4 P300,000
Less: Non-controlling Interest in Net Income* * 15,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent – 20x4………….. P285,000
*that has been realized in transactions with third parties.

Or, alternatively
Consolidated Net Income for 20x4
P Company’s net income from own/separate operations…………. P225,000
Realized profit in beginning inventory of S Company (downstream sales) 0
Unrealized profit in ending inventory of S Company (downstream sales)… (_ 0)
P Company’s realized net income from separate operations*…….….. P225,000
S Company’s net income from own operations…………………………………. P 90,000
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales)… ( 15,000)
Son Company’s realized net income from separate operations*…….….. P 75,000 75,000
Total P300,000
Less: Non-controlling Interest in Net Income* * P 15,000
Amortization of allocated excess…………………… 0 15,000
Controlling Interest in Consolidated Net Income or Profit attributable to
equity holders of parent………….. P285,000
Add: Non-controlling Interest in Net Income (NCINI) _ 15,000
Consolidated Net Income for 20x4 P290,000
*that has been realized in transactions with third parties.

**Non-controlling Interest in Net Income (NCINI) for 20x4

S Company’s net income of Subsidiary Company from its own operations P 90,000
(Reported net income of S Company)
Realized profit in beginning inventory of P Company (upstream sales) 0
Unrealized profit in ending inventory of P Company (upstream sales) ( 15,000)
S Company’s realized net income from separate operations……… P 75,000
Less: Amortization of allocated excess 0
P 75,000
Multiplied by: Non-controlling interest %.......... 20%
Non-controlling Interest in Net Income (NCINI) – partial goodwill P 15,000
Less: NCI on goodwill impairment loss on full goodwill 0
Non-controlling Interest in Net Income (NCINI) – full goodwill P 15,000

16. P15,000 - refer to No. 15 for computation

17. P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)
18. P25,000 x 125% = P31,250 intercompany sales and purchases (cost of sales)
19. P86,000 - the amount of sales to outsiders or unaffiliated company
20. P47,000 – the original cost (I,e., the cost to produced on the part of the seller – Blue Company)
21. P28,600
Total income (P86,000 - P47,000) P39,000
Income assigned to noncontrolling
interest [.40(P86,000 - P60,000)] (10,400)
Consolidated net income assigned
to controlling interest P28,600

22. P20,000 = P30,000 x [(P48,000 - P16,000) / P48,000]

23. P47,000
Sales reported by Movie Productions Inc. P67,000
Cost of goods sold (P30,000 x 2/3) (20,000)
Consolidated net income P47,000
24. P7,000 = [(P67,000 - $32,000) x .20]
25. P90,720
Parent Subsidiary
Net Income from own operations:
Gibson (Parent): Sparis(subsidiary), 90%:10% 820,800 91,200
RPBI of Parent (upstream: 420,000 x 30% = 126,000;
126,000 x 25/125 = 25,200; 90%:10% 22,680 2,520
UPEI of Parent (upstream): 500,000 x 30% = 150,000;
150,000 x 25/125 = 30,000; 90%:10% (27,000) ( 3,000)
Non-controlling Interest in Kent’s Net Income 90,720

26. P28,000 – P140,000 x 50% = P70,000 x 40% = P28,000

27. P474,400
Unrealized Profit, 12/31/x4
Intercompany Gross profit (P100,000 – P75,000) .............................................. P25,000
Inventory Remaining at Year's End ..................................................................... 16%
Unrealized Intercompany Gross profit, 12/31/x4 ............................................... P4,000
UNREALIZED GROSS PROFIT, 12/31/x5
Intercompany Gross profit (P120,000 – P96,000) ............................................... P24,000
Inventory Remaining at Year's End ..................................................................... 35%
Unrealized Intercompany Gross profit, 12/31/x5 ............................................... P8,400

CONSOLIDATED COST OF GOODS SOLD

Parent balance .............................................................................................. P380,000
Subsidiary Balance ......................................................................................... 210,000
Remove Intercompany Transfer ................................................................... (120,000)
Recognize 20x4 Deferred Gross profit .......................................................... (4,000)
Defer 20x5 Unrealized Gross profit ................................................................ 8,400
Cost of Goods Sold ............................................................................................... P474,400
28. P8,400
Squid’s reported income P 100,000
Less: Unrealized profits in the ending inventory _____16,000
Squid’s adjusted income P 84,000
NCI percentage _______10%
NCI-CNI P 8,400

29. P8,200
UNREALIZED GROSS PROFIT, 12/31/x4
Ending inventory ............................................................................................. P 40,000
Markup (P33,000/P110,000) ........................................................................... __ 30%
Unrealized intercompany gross profit, 12/31/x4 ......................................... P 12,000

UNREALIZED GROSS PROFIT, 12/31/x5

Ending inventory ............................................................................................. P 50,000
Markup (P48,000/P120,000) ........................................................................... 40%
Unrealized intercompany gross profit, 12/31/x5 ......................................... P 20,000

30. P10,000 = [P100,000 x (25/100) = P25,000 x 40/100

31. Sales and cost of goods sold should be reduced by the intercompany sales.
32. P500,000
Cost of Sales
P Company 400,000
S Company _350,000
Total 750,000
Less: Intercompany sales 250,000
Consolidated 500,000

33. P1,060,000
Cost of goods sold reported by Park P 800,000
Cost of goods sold reported by Small 700,000
Total cost of goods sold reported P1,500,000
Cost of goods sold reported by Park on sale to
Small (P500,000 x .40) (200,000)
Reduction of cost of goods sold reported by
Small for profit on intercompany sale
[(P500,000 x 4 / 5) x .60] (240,000)
Cost of goods sold for consolidated entity P1,060,000

34. P115,000
35. P102,400 = P94,000 + (P115,000 - P94,000).4
36. P12,600 = (P115,000 - P94,000) .6
37. P6,300 = (P37,000 - P28,000) .7
38. P2,700 = (P37,000 - P28,000) .3
39. Zero
40. P5,400 = (P37,000 - P28,000) .6
41. P3,600 = (P37,000 - P28,000) .4
42. P56,820 = [P184,000 + (P37,000 - P28,000) .6] .3
43. P9,360 = [(P65,000 - P52,000) - (P65,000 - P52,000) .2] .9
44. P1,040 = [(P65,000 - P52,000) - (P65,000 - P52,000) .2] .1
45. Zero
46. P9,100 =(P65,000 - P52,000) .7
47. P32,110 = [P312,000 + (P65,000 - P52,000) .7] .1
48. P280,000
Full-goodwill
Fair value of Subsidiary (100%)
P1,600,00
Consideration transferred: Cash (P960,000/60%) 0
Less: Book value of stockholders’ equity of S (P600,000
+ P540,000) x 100%) _1,140,000
P
Allocated excess (excess of cost over book value)….. 460,000
Add (deduct): (Over) under valuation of assets and P(
liabilities 40,000)
Decrease in inventory: P(40,000) x 100% __220,00
Increase in capital assets P220,000 x 100% 0 __180,000
Positive excess: Full-goodwill (excess of cost over
fair
value)………………………………………………... P 280,000

Partial-goodwill
Fair value of Subsidiary (60%)
Consideration P
transferred………………………………..................... 960,000
Less: Book value of stockholders’ equity of S:
Common stock (P600,000 x
60%)……………………................... P 360,000
Retained earnings (P540,000 x _
60%)………………................... _ 324,000 684,000
P
Allocated excess (excess of cost over book value)….. 276,000
Less: Over/under valuation of assets and liabilities:
Add (deduct): (Over) under valuation of assets and
liabilities
Decrease in inventory: P(40,000 x 60%) P( 24,000)
Increase in building: P220,000 x 60% ___132,000 _108,000
Positive excess: Partial-goodwill (excess of cost over
fair P
value)………………………………………………... 168,000

Amortization Table: (in thousands of P's)

Amortization/ Amortization/ Balance of
Amortization/ Impairment Impairment Allocated Excess
Allocated Amortizati Impairment 20x6 loss during remaining at end of
Asset Excess on period per year 1 year 20x7 20x7
Inventory (40) 1 (40) - 0
Building 220 20 11 11 11 198
Goodwill 280 - 280
Total 460 (29) 11 478

49. P640,000
Non-controlling interest , 12/31/20x5 — 40% × P1,600,000, fair value of subsidiary = P640,000
Or, alternatively:
Non-controlling interest, December 31, 20x5
Common stock – S Company, December 31, 20x5…… P 600,000
Retained earnings – S Company, December 31, 20x5 540,000
Stockholders’ equity – S Company, December 31, 20x5 P1,140,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x5) ___180,000
Fair value of stockholders’ equity of S, December 31, 20x2…… P1,320,000
Multiplied by: Non-controlling Interest percentage…………... 40
Non-controlling interest (partial goodwill)………………………………….. P 528,000
Add: NCI on full-goodwill (P280,000 – P168,000) ___112,000
Non-controlling interest (full- goodwill)………………………………….. P 640,000

50. Since there was no impairment in goodwill reported in 20x6 and 20x7, the balance showing
for goodwill is P280,000.

51. P779,200
Non-controlling interest , December 31, 20x7
Common stock – S Company, December 31, 20x7 P 600,000
Retained earnings – S Company, December 31, 20x7 __935,000
Stockholders’ equity – S Company, December 31, 20x7 P1,535,000
Adjustments to reflect fair value - (over) undervaluation of assets and
liabilities, date of acquisition (December 31, 20x5) 180,000
Amortization of allocated excess (refer to amortization above- 20x6 and
20x7 (P40,000 - P11,000) = P(29,000) + P11,000 __18,000
Fair value of stockholders’ equity of S, December 31, 20x7…… P1,733,000
Less: UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8 ____65,000
P1,668,000
Multiplied by: Non-controlling Interest percentage…………... _ 40
Non-controlling interest (partial goodwill)………………………………….. P 667,200
Add: NCI on full-goodwill ___112,000
Non-controlling interest (full- goodwill)………………………………….. P 779,200
Or, alternatively: Calculation of Non-controlling interest at December 31, 20X7:
Balance of NCI at time of acquisition P640,000
Add: NCI's share of adjusted change in retained earnings in prior years:
Retained earnings balance of Book at end of 20X7 P935,000
Retained earnings balance of Book at date of acquisition (540,000)
Change in carrying value of Book since acquisition P395,000
Adjustments:
Amortization of fair value increments 18,000
Unrealized profit on upstream sale of inventory in 20X7 ( 65,000)
Adjusted change in retained earnings since acquisition P348,000
NCI's share 40% 139,200
Ending balance of NCI on December 31, 20X7 P779,200

RPBI of S (downstream sales)- 20x7:

Sales of Parent EI % EI of S GP% of Parent
P800,000 x 25% = P200,000 x 30%………………………………. 60,000
RPBI of P (upstream sales - 20x7
Sales of Subsidiary EI % EI of P GP% of Subsidiary
P500,000 x 60% = P300,000 x 25%......………………………….. 75,000
UPEI of S (downstream sales) - 20x7
Sales of Parent EI % EI of S GP% of Parent
P1,000,000 x 15% = P150,000 x 30%………………………………. 45,000
UPEI of P (upstream sales) - 20x7
Sales of Subsidiary EI % EI of P GP% of Subsidiary
P650,000 x 40% = P260,000 x 25%…………………………..... 65,000

52. P1,780,400
Retained earnings – Parent, 12/31/20x6 (cost)……………………….. P 1,775,000
-: UPEI of S (down) – 20x6 or RPBI of S (down) – 20x7..……………….. 60,000
Adjusted Retained earnings – Parent, 12/31/20x6 (cost model)….. P 1,715,000
Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 12/31/20x5…………………..P540,000
Less: Retained earnings – Subsidiary, 12/31/20x6…………… 695,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)……….P155,000
Accumulated amortization - 20x6…………………………….. 29,000
UPEI of P (up) – 20x6 or RPBI of P (up) – 20x7………………....( 75,000)
P 109,000
x: Controlling Interests………………………………………… 60% 65,400
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P1,780,400

Or, alternatively:

Ending balance - Retained earnings separate entity - Paper P1,775,000

Less unrealized profit on downstream sale of inventory 20x6 (60,000)
Subtotal P1,715,000
Paper’s share of adjusted retained earnings - see Note 1 below:
60% × P109,000 65,400
Ending consolidated retained earnings balance of Paper, 12/ 31/ 20x6 P1,780,400

Note 1:
Retained earnings balance of Book at end of 20x6 P695,000
Retained earnings balance of Book at date of acquisition (540,000)
Change in carrying value of Book since acquisition P155,000
Adjustments:
Amortization of fair value increments 29,000
Unrealized profit on upstream sale of inventory in 20x6 (75,000)
Adjusted change in retained earnings since acquisition P109,000
Paper's s share 60% × 109,000 P 65,400

53. P2,428,800
Retained earnings – Parent, 12/31/20x7 (cost)……………………….. P 2,265,000
-: UPEI of S (down) – 20x7 or RPBI of S (down) – 20x8..……………….. 45,000
Adjusted Retained earnings – Parent, 12/31/20x6 (cost model)….. P 2,220,000
Retroactive Adjustments to convert Cost to “Equity” for
purposes of consolidation / Parent’s share of adjusted
net increase in subsidiary’s retained earnings:
Retained earnings – Subsidiary, 12/31/20x5…………………..P540,000
Less: Retained earnings – Subsidiary, 12/31/20x7…………… 935,000
Increase in Retained earnings since acquisition
(cumulative net income – cumulative dividends)……….P395,000
Accumulated amortization - 20x6 and 20x7
(P29,000 – P11,000)…………………………………………….. 18,000
UPEI of P (up) – 20x7 or RPBI of P (up) – 20x8………………....( 65,000)
P 348,000
x: Controlling Interests………………………………………… 60% 208,800
RE – P, 12/31/20x4 (equity method) = CRE, 12/31/20x4……… P2,428,800

Or, alternatively:
Ending balance - Retained earnings separate entity - Paper P2,265,000
Less unrealized profit on downstream sale of inventory 20x7 (__45,000)
Subtotal P2,220,000
Paper's share of adjusted retained earnings - see Note 1 below:
60% × 348,000 208,800
Ending consolidated retained earnings balance of Paper, 12/31/20x7 P2,428,800

Note 1:
Retained earnings balance of Book at end of 20x7 P935,000
Retained earnings balance of Book at date of acquisition (540,000)
Change in carrying value of Book since acquisition P395,000
Adjustments:
Amortization of fair value increments 18,000
Unrealized profit on upstream sale of inventory in 20x7 (65,000)
Adjusted change in retained earnings since acquisition P348,000
Paper's s share 60% × 348,000 P208,800

or alternatively:
Consolidated retained earnings, December 31, 20x6 (No. 52) P1,780,400
Controlling Interests in Consolidated Net income (refer to statement
of comprehensive income below) 1,148,400
Dividends declared – paper ( 500,000)
Retained earnings, December 31, 20x7 P2,428,800

Incidentally, the
Eliminate intercompany transactions for 20X7
Intercompany transactions and balances
Accounts receivable/accounts payable still outstanding P 150,000
Downstream sales by Paper P1,000,000
Upstream sales by Book P 650,000
Dividends declared by Book P 250,000
Paper's portion of dividends P250,000 X 60% = P150,000

Paper Co.
Consolidated Statement of Comprehensive Income
For the year ended December 31,20s7

Sales (2,520 + 2,400 - 1,000 - 650) 3,270,000

Management fees (250 - 250) 0
Dividend income (150 - 150) 0
3,270,000
Cost of sales (800 + 1,200 - 1,000 - 650 - 60 - 75 + 45 + 65) 325,000
Depreciation and amortization expenses (670 + 325 + 11) 1,006,000
Management fees expense (250 - 250) 0
Other expenses (460 + 135) 595,000
1,926,000
Consolidated Net income 1,344,000

Allocated as follows:
Non-controlling interests in CNI — see below 195,600
Controlling Interest in CNI Owners of the parent 1,148,400
Consolidated Net Income 1,344,000
Non-controlling interest's portion of adjusted net earnings:
Net income of Book for 20X7 as per separate-entity statement P490,000
Adjustments for 20X7
Realized profits on upstream sale of inventory 20x6 75,000
Unrealized profits on upstream sale of inventory — 20x7 ( 65,000)
Amortization of fair value increments for 20x7 ( 11,000)
Adjusted net income of Book for 20x7 P489,000
NCI's share 40% × P489,000 P195,600