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 Dividends P Company P340,000 P100,000 S Company P150,000 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. 1. The investment in subsidiary account on December 31, 20x1: A. 748,500 C. 700,000 B. 725,000 D. 650,000
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
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 Dividends
P Company P340,000 P100,000
S Company P150,000 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.
1. The investment in subsidiary account on December 31, 20x1:
A. 748,500 C. 700,000
B. 725,000 D. 650,000
2. The Dividend income/investment income for 20x1:
A. 88,500 C. 61,600
B. 65,000 D. 40,000
3. The Non-controlling interest in Net Income for 20x1:
A. 30,000 C. 24,900
B. 25,500 D. 24,300
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