Reference no: EM132938003
Problem 1 - Alpha Company acquired 20,000 shares of B Company on 1 January 2014 at P12 per share. B Company had 80,000 shares outstanding with a book value of P 800,000. The difference between the book value and the fair value of B Company as of 1 January 2014, is attributable to a broadcast license intangible asset. B Company recorded earnings of P360,000 and P390,000 for 2014 and 2015, respectively, and paid per share dividends of P 1.60 per share in 2014 and P 2.00 in 2015. Assume a 20-year straight-line amortization policy for the broadcast license.
Required -
(1) Give the entries to record the purchase in 2014 and reflect Alpha's share of B's earnings and receipt of dividends for 2014 and 2015.
(2) Determine the balance of Alpha's Investment in B as of 31 December 2014 and 31 December 2015.
(3) Reconcile B Company's stockholders' equity with Alpha's Investment in Beta as of 31 December 2014 and 31 December 2015.
Problem 2 - On 3 January 2014, Angels Company purchased 40% of the outstanding common stock of Sanfer Company paying P1,280,000 when the book value of the net assets of Sanfer Company equaled P2,500,000. The difference is attributable to equipment, which had a book value of P600,000 and a fair value of P1,000,000, and to buildings, with a book value of P500,000 and a fair market value of P800,000. The remaining useful life of the equipment and the buildings was 4 years and 12 years, respectively. During 2014, Sanfer reported net income of P800,000 and paid dividends of P 500,000. Give the entries to record the purchase in 2014 and reflect Angels' share of Sanfer's earnings and receipt of dividends for 2014.
Required -
(1) Give the journal entries made by Angels Company during 2014 related to its investment in Sanfer Company.
(2) Determine the balance of Angel's Investment in Sanfer as of 31 December 2014.
(3) Reconcile Sanfer Company's stockholders' equity with Angel's Investment in Sanfer as of 31 December 2014.
Problem 3 - 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 -
(1) Compute the implied goodwill on the price paid of ABC Company for its investment in IJK Corporation.
(2) Give all journal entries in ABC's accounting records relating to the investment in IJK.
(3) Determine the balance of ABC's Investment in IJK as of 31 December.
(4) Reconcile IJK Company's stockholders' equity with ABC's Investment in IJK as of 31 December.