I.

The June 1, 20x1 statement of financial position of the Straw Company at book values and
fair values are given below :
Book value Fair value Difference

Current assets P240,000 P280,000 40,000

Land 20,000 100,000 80,000
Building and equipment 400,000 270,000 (130,000)
Patent 10,000 30,000 20,000
Total assets P670,000 680,000 10,000

Liabilities 250,000 250,000

Common stock 100,000
Retained earnings 320,000
Total liabilities and shareholders’ equity 670,000
On June 1, 20x1 , Pepsi Inc., purchased all of Straw Company’s stock for P600,000.
Required :
a. Prepare journal entry on the books of Pepsi to record the stock acquisition
b. Prepare a schedule showing the determination and allocation of excess.
c. Prepare the working paper elimination entries.

a. Investment in Straw Company 600,000

Cash 600,000
To record acquisition of 100% of Straw stock.

b. Price paid P600,000

Less: Book value of interest acquired (100%) 420,000
Difference 180,000
Allocation (100%:
Current Assets P( 40,000)
Land ( 80,000)
Building and equipt 130,000
Patents ( 20,000) ( 10,000)
Goodwill P170,000

c. Working paper elimination entries:

(1) Common stock – Straw 100,000

Retained earnings – Straw 320,000
Investment in Straw Company 420,000
To eliminate equity accounts of Straw at
date of acquisition.

(2) Inventories 40,000

Land 80,000

Patents 20,000
Goodwill 170,000
Buildings and equipment 130,000
Investment in Straw Company 180,000
To allocate excess.
 II. The January 1, 20x1 statement of financial position of Sotto Company at book value and at
fair market values are as follows :
Book value Fair value
Current assets 800,000 750,000
Property and equipment 900,000 1,000,000
Total assets 1,700,000 1,750,000

Current liabilities 300,000 300,000

Long term liabilities 500,000 460,000
Common stock, par P1 100,000
APIC 200,000
Retained earnings 600,000
Total Equities 1,700,000
Pedro Company paid P950,000 cash for 80% of Sotto Company’s common stock. Pedro
Company also pays P80,000 of professional fees to effect the combination. The fair value of
the NCI is assessed to be P230,000.
Required : a. Prepare journal entry on Pedro Company’s books to record the acquisition.
b. Prepare a determination and allocation of excess.
c. Prepare the working paper elimination entries.

a. Investment in Soto Company 950,000

Cash 950,000
To record acquisition of 80% stock of Sotto.

Retained earnings – Pedro Company 80,000

Cash 80,000
To record acquisition costs.

b. Price paid by the Parent Company P950,000

Non-controlling interest (NCI) 230,000
Total 1,180,000
Less: Book value of net assets 900,000
Excess 280,000
Allocation:
Current assets P 50,000
Property and equipment (100,000)
Long-term debt ( 40,000) ( 90,000)
Goodwill P190,000

c. Working paper elimination entries:

(1) Common stock – Sotto 100,000

APIC – Sotto 200,000
Retained earnings – Sotto 600,000
Investment in Sotto stock 720,000
Non-controlling interest 180,000
To eliminate equity accounts of Sotto at date of
acquisition.

(2) Property, plant and equipment 100,000

Goodwill 190,000
 Long-term debt 40,000
Current assets 50,000
Investment in Sotto stock 230,000
Non-controlling interest 50,000
To allocate excess

III. Separate statements of financial position of Pill Corp and Seed Company on May 31, 20x1,
together with current fair values are as follows :
Pill Corp Seed Comp Seed Comp
Book value Book value Fair value
Cash 550,000 10,000 10,000
Accounts receivable 700,000 60,000 60,000
Inventories 1,400,000 120,000 140,000
Plant assets 2,850,000 610,000 690,000
Total assets 5,500,000 800,000

Current liabilities 500,000 80,000 80,000

Longterm debt 1,000,000 400,000 440,000
Common stock, P10 par 1,500,000 100,000
APIC 1,200,000 40,000
Retained earnings 1,300,000 180,000
Total equities 5,500,000 800,000
On May 31, 20x1, Pill Corp acquired all 10,000 shares of seed Company’s outstanding stock by paying
P350,000 cash.
Required : a. Prepare journal entries for Pill Corp to record the acquisition.
b. Prepare a consolidate working paper for Pill Corp and subsidiary on May 31, 20x1.

a. Investment in Seed Company 350,000

Cash 350,000
To record acquisition of 100% of Seed company stock.

Determination and Allocation of Excess schedule:

Price paid P350,000
Less: Book value of interest acquired 320,000
Excess 30,000
Allocation:
Inventory P(20,000)
Plant assets (80,000)
Long-term liabilities 40,000 (60,000)
Income from acquisition P(30,000)

b. Working paper elimination entries

(1) Common stock – Seed 100,000
Additional paid-in capital – Seed 40,000
Retained earnings – Seed 180,000
Investment in Seed stock 320,000
To eliminate equity accounts of Seed Company
(2) Inventory 20,000
Plant assets 80,000
Long-term debt 40,000
Investment in Seed stock 30,000
Retained earnings – Pill (income from acquisition) 30,000
To allocate excess

Pill Corporation and Subsidiary

Consolidated Working Paper
May 31, 20x1 – Date of Acquisition

Pill Seed Eliminations & adjustment Conso-

Corporation Company Debit Credit lidated
Assets
Cash 200,000 10,000 210,000
Accounts receivable 700,000 60,000 760,000
Inventories 1,400,000 120,000 (2) 20,000 1,540,000
Investment in Seed company 350,000 (1)320,000 -
(2) 30,000
Plant assets 2,850,000 610,000 (2) 80,000 3,540,000
Total 5,500,000 800,000 6,050,000

Liabilities & Stockholders’

Equity
Current liabilities 500,000 80,000 580,000
Long-term debt 1,000,000 400,000 (2) 40,000 1,440,000
Common stock:
Pill 1,500,000 1,500,000
Seed 100,000 (1)100,000
Additional paid-in capital
Pill 1,200,000 1,200,000
Seed 40,000 (1) 40,000
Retained earnings
Pill 1,300,000 (2) 30,000 1,330,000
Seed 180,000 (1)180,000
Total 5,500,000 800,000 420,000 420,000 6,050,000