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. What is the controlling interest – retained earnings or the consolidated retained earnings on December 31, 20x1? A. 1,040,000        C. 1,190,675 B. 1,063,075        D. 1,140,675

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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.

What is the controlling interest – retained earnings or the consolidated retained earnings on December 31, 20x1?
A. 1,040,000        C. 1,190,675
B. 1,063,075        D. 1,140,675

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