Reference no: EM132958244
PROBLEM - Guillen Company acquired 30% of ABC Corporations share for P8,000,000 on July 1, 2020. ABC Corporation's identifiable net assets on the date of acquisition are P20,000,000. Guillen believes that the investee has known goodwill and the fair value of the corporation's net assets is the same as its carrying amount except for the following:
a. Equipment is undervalued by P2,000,000.
b. Inventory's fair value is P2,000,000 greater than its carrying amount.
The equipment has a remaining life of 4 years and depreciated using the straight-line method. At the end of 2020, all inventories at the acquisition date are entirely sold.
On November 30, ABC Corporation pays a P2,000,000 dividend to its shareholders. During the year, ABC Corporation reported a net income of P5,000,000, 40% of these were earned in the first half of the year. The fair value of ABC Corporation's shares held by Guillen at the end of 2020 is P8,250,000.
Requirements -
1. Prepare the necessary journal entries to record the above transactions.
2. Compute the carrying value of the investment in associates on December 31, 2020.
3. Suppose that on November 30, 2020, ABC Corporation revalued its Land that resulted in a revaluation surplus of P5,000,000. Prepare journal entry in the book of Guillen Company to record the changes in the equity of ABC Corporations as a result of the revaluation.
4. Using the information in requirement no. 3, compute the carrying value of the investment in associates on December 31, 2020.
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