Reference no: EM132892390

On July 1 of the current year, ABC Company acquired 25% of the outstanding shares of common stock of IJK Corporation, at a total cost of P7,000,000. The underlying equity (net assets) of the stock acquired by ABC Company was only P6,000,000.

ABC was willing to pay more than book value for IJK Corporation for the following reasons:

(a) IJK owned depreciable plant assets (10 year remaining economic life) with a current fair value of P600,000 more than their carrying amount.

(b) IJK owned land with a current fair value of P3,000,000 more than its carrying amount.

(c) There were no other identifiable tangible or intangible assets with fair value in excess of book value.

IJK earned net income of P5,400,000 evenly over the current year-ended 31 December. On 31 December, IJK declared and paid dividends of P1,050,000 to common shareholders. Market value of IJK's share of stock at 31 December is P7,500,000. Both companies close their accounting records on 31 December.

Required:

Problem (1) Compute the implied goodwill on the price paid of ABC Company for its investment in IJK Corporation.

Problem (2) Give all journal entries in ABC's accounting records relating to the investment in IJK.

Problem (3) Determine the balance of ABC's Investment in IJK as of 31 December.

Problem (4) Reconcile IJK Company's stockholders' equity with ABC's Investment in IJK as of 31 December.