Quiz Integ Buscom Forex.docx

QUIZ 2: PROBLEM 1 The following statement of financial position were prepared for HIJ Corp. and NOP Co. on January 1, 2010, just before they entered into a business combination. HIJ Corp. NOP Co. Cash P210,000 P 5,000 Accounts receivable 75,000 20,000 Merchandise inventory 200, 000 50,000 Building and equipment 400,000 100,000 Accumulated depreciation (100,000) (25,000) Goodwill _________ 50,000 Total Assets 785,000 200,000 Accounts payable Bonds payable Common stock P30 par value P20 par value Additional paid-in capital Retained earnings Total Liabilities & Stockholders’ equity

125,000 200,000

70,000 30,000

210,000 50,000 200,000 785,000

50,000 10,000 40,000 200,000

On that date, the fair market value of NOP’s inventories and building and equipment were P78,000 and P124,000 respectively, while bonds payable has a fair value of P42,000. The fair market values of all other assets and liabilities of NOP (except for goodwill) were equal to their book values. HIJ Corp. acquired the net assets of NOP CO. by issuing 2,500 shares of its P30 par value common stock (current fair value P36 per share) and purchase price in cash amounting to P12,000. Contingent consideration that is determinable (probable and reasonably estimated) amount to P2,000. Additional cash payments made by HIJ Corp. in completing the acquisition were: Legal fees for contract business combination, P8,000, Accounting and legal fees for SEC registration, P11,000, Printing costs of stock certificates, P6,000; Finder’s fee, P7,000, Indirect cost, P5,000. As a result of the business combination, the amount of total assets and total liabilities, respectively, in the books of the surviving company PROBLEM 2 The following statement of financial position were prepared for HIJ Corp. and NOP Co. on January 1, 2010, just before they entered into a business combination. HIJ Corp. NOP Co. Cash P210,000 P 5,000 Accounts receivable 75,000 20,000 Merchandise inventory 200, 000 50,000 Building and equipment 400,000 100,000 Accumulated depreciation (100,000) (25,000) Goodwill _________ 50,000 Total Assets 785,000 200,000 Accounts payable Bonds payable Common stock P30 par value P20 par value Additional paid-in capital Retained earnings

125,000 200,000

70,000 30,000

210,000 50,000 200,000

50,000 10,000 40,000

Total Liabilities & Stockholders’ equity

785,000

200,000

On that date, the fair market value of NOP’s inventories and building and equipment were P78,000 and P124,000 respectively, while bonds payable has a fair value of P42,000. The fair market values of all other assets and liabilities of NOP (except for goodwill) were equal to their book values. HIJ Corp. acquired the net assets of NOP CO. by issuing 2,500 shares of its P30 par value common stock (current fair value P36 per share) and purchase price in cash amounting to P12,000. Contingent consideration that is determinable (probable and reasonably estimated) amount to P2,000. Additional cash payments made by HIJ Corp. in completing the acquisition were: Legal fees for contract business combination, P8,000, Accounting and legal fees for SEC registration, P11,000, Printing costs of stock certificates, P6,000; Finder’s fee, P7,000, Indirect cost, P5,000. As a result of the business combination, the amount of common stock, additional paid-in capital and retained earnings, respectively, in the books of the surviving company PROBLEM 3 A condensed balance sheet at July 1, 2010 and the related current fair value data for DEF Company are presented below: Carrying value Fair value Current assets P 184,000 P 202,250 Property and equipment 296,250 345,000 Patent 29,250 24,000 Total assets P 509,500 Current liabilities Non-current liabilities Capital stock, P20 par value Retained earnings Total liabilities and stockholders’ equity

P 53,750 140,000 105,000 210,750 P 509,500

53,750 148,750

On August 1, 2010, LMN Corporation issued 4,450 shares of its P29 par value common stock (fair value, P45 per share) and P125,500 cash for the net assets of DEF Company. of the P116,250 acquisition related costs paid by LMN Corporation on August 1, 2010, P20,000 were stock issuance cost. How much is the goodwill (gain on acquisition) to be recorded by LMN Corp,? PROBLEM 4 A condensed balance sheet at July 1, 2010 and the related current fair value data for DEF Company are presented below: Carrying value Fair value Current assets P 184,000 P 202,250 Property and equipment 296,250 345,000 Patent 29,250 24,000 Total assets P 509,500 Current liabilities Non-current liabilities Capital stock, P20 par value Retained earnings Total liabilities and stockholders’ equity

P 53,750 140,000 105,000 210,750 P 509,500

53,750 148,750

On August 1, 2010, LMN Corporation issued 4,450 shares of its P29 par value common stock (fair value, P45 per share) and P125,500 cash for the net assets of DEF Company. of the P116,250 acquisition related costs paid by LMN Corporation on August 1, 2010, P20,000 were stock issuance cost. What is the net increase in the stockholders’ equity in the books of LMN Corp. as a result of the business combination? PROBLEM 5 The following statement of financial position were prepared for HIJ Corp. and NOP Co. on January 1, 2010, just before they entered into a business combination. HIJ Corp NOP Co. Cash P 210,000 P 5,000 Accounts receivable 75,000 20,000 Merchandise inventory 200,000 50,000 Building and equipment 400,000 100,000 Accumulated depreciation (100,000) (25,000) Goodwill 50,000 Total Assets P 785,000 P 200,000 Accounts payable Bonds payable Common stock P30 par value P20 par value Additional paid-in capit Retained earnings Total Liabilities & Stockholders’ equity

P 125,000 200,000

P

70,000 30,000

210,000 50,000 200,000

50,000 10,000 40,000

P 785,000

P 200,000

On that date, the fair market value of NOP’s inventories and building and equipment were P78,000 and P124,000 respectively, while bonds payable has a fair value of P42,000. The fair market values of all other assets and liabilities of NOP (except for goodwill) were equal to their book values. HIJ Corp. acquired the net assets of NOP CO. by issuing 2,500 shares of its P30 par value common stock (current fair value P36 per share) and purchase price in cash amounting to P12,000. Contingent consideration that is determinable (probable and reasonably estimated) amount to P2,000. Additional cash payments made by HIJ Corp. in completing the acquisition were: Legal fees for contract business combination, P8,000, Accounting and legal fees for SEC registration, P11,000, Printing costs of stock certificates, P6,000; Finder’s fee, P7,000, Indirect cost, P5,000. As a result of the business combination, the amount of common stock, additional paid-in capital and retained earnings, respectively, in the books of the surviving company PROBLEM 6 On December 31, 2010, the following figures were taken from the trial balance of LM Company and QR Company:

Cash Receivables Inventory Property and equipment - net Goodwill Current liabilities Long-term liabilities

LM P80,000 60,000 100,000 200,000 20,000 70,000

QR P20,000 60,000 70,000 100,000 30,000 10,000 50,000

Common Stock Additional paid-in capital Retained earnings

110,000 20,000 220,000

100,000 120,000

On December 31, 2010, LM issues 10,000 shares of its P10 par value stock for all of the outstanding shares of QR. LM’s stock had a P25 per share fair market value. LM also paid the following: P25,000 for broker’s fee, P20,000 for pre-acquisition audit fee, P21,500 for legal fees, P18,000 for audit fee for SEC registration of stock issue and P5,500 for printing of stock certificates. QR holds an equipment that is worth P40,000 more than its current book value. The retained earnings of QR on January 1, 2010 amounted to P70,000. How much is the consolidated assets at acquisition date? PROBLEM 7 On October 1, 2010, Penny Company acquired 80% of the outstanding common stock of Sunny Company for P720,000. Non-controlling interest is recorded at estimated fair value. The working paper elimination entry for Penny Company and subsidiary Sunny Company on October 1, 2010 was as follows: Common stock - Sunny Company 150,000 APIC - Sunny Company 180,000 Retained earnings - Sunny 270,000 Company Plant assets 75,000 Goodwill ? Investment in Son 720,000 Company Non-controlling interest ? What amounts of goodwill and non-controlling interest (NCI) be reported in the consolidated statement of financial position on October 1, 2010 PROBLEM 8 On June 1, 2010, Pony Inc. acquired most of the outstanding common stock of Sumo Company for cash. The incomplete working paper elimination entries on that date for the consolidated statement of financial position of Pony Inc. and its subsidiary are shown below: E(1)

E(2)

Stockholders ‘equity - Sumo Investment in Sumo NCI Inventories Equipment Patent Goodwill Investment in Sumo NCI

872,100 741,285 130,815 19,890 145,350 22,950 ? 209,865 ?

Assuming NCI is measured at fair value, what is the amount of goodwill to be reported in the consolidated balance sheet on June 1, 2010? PROBLEM 9 Kim Company purchased 24,000 shares of stocks of Jenna Company for P64 per share. Just prior to the purchase, Jenna Company has the following statement of financial position: Assets Cash Inventory Equipment

P

60,000 840,000 1,200,000

Liabilities and Equity Current liabilities P 750,000 Common stock, P5 par 150,000 APIC 390,000

Goodwill Total

300,000 P2,400,000

Retained earnings Total

1,110,000 P2,400,000

Kim Company believes that the inventory has a fair value of P1,200,000 and that the equipment is worth P1,500,000. What is the amount of non-controlling interest in the consolidated statement of financial position on the date of acquisition? PROBLEM 10 On January 2, 2010, Polo Corporation purchase 80% of Son Company’s common stock for P324,000. P15,000 of the excess is attributable to goodwill and the balance to a depreciable asset with an economic life of ten years. Non-controlling interest is measured at its fair value on date of acquisition. On the date of acquisition, stockholders’ equity of the two companies are as follows:

Common Stock Retained earnings

Polo Corporation P525,000 780,000

Son Corporation P120,000 210,000

On December 31,2010, Son Company reported net income of P52,500 and paid dividends of P18,000 to Polo. Polo reported earnings from its separate operations of P142,500 and paid dividends of P69,000. Goodwill had been impaired and should be reported at P3,000 on December 31,2010. What is the consolidated net income on December 31,2010? What is the consolidated retained earnings on december 31,2010? What is the NCI in net income of Son Company on December 31,2010? What amount of NCI is to be presented in the consolidated balanse sheet on December 31,2010? What is the consolidated net income attributable to parent shareholders on December 31,2010? PROBLEM 11 PP company purchase 75 % of the capital stock of SS company on December 31, 2005 at P210,000 more the book value of its net assets. The excess was allocated to equipment in the amount of P93,750 and to goodwill for the balance. the equipment has an estimated useful life of 10 years and goodwill was not impaired. For four years SS Company reported cumulative earnings of P945,000 and paid P273,000 in dividends. On January 2, 2010, non-controlling interest in net asset of SS company amounts to P393,750. Assuming NCI is measured at estimated fair value,what is the price paid by PP company on the date of acquisition? PROBLEM 12 Pepe corporation purchase 70% of Sisa company’s outstanding stock on January 2, 2009 for P346,500 cash. At the date, Sisa company reported book value of its net assets as P420.000. The excess is allocated to a depreciable asset with a remaining life of 10 years. The companies reported the following data for 2010: Retained Earnings January 1 Net income Dividends Pepe corporation P780,000 P180,000 P75,000 Sisa 345,000 37,500 15,000 Non-controling is measured at its estimated fair value. The following entry was included in the eliminating entries to prepare the consolidated financial statements at December 31,2010: Retained earnings,1/1-Sisa 31,500 non-controlling interest 31,500 What is the amount of retained earnings of Sisa company on January 2, 2009?

What is the consolidated retained earnings to be reported on January 1, 2010? What is the consolidated net income attributable to parent shareholders on December 31, 2010? What is the consolidated retained earnings at December 31,2010? PROBLEM 13 Gordon Ltd., a 100% owned British subsidiary of a Philippine parent company, reports its financial statements in local currency, the British pound. A local newspaper published the following Philippine exchange rates from the British pound to peso at year-end: Current Rate Historical rate (acquisition) Average rate Inventory (FIFO)

Php67.50 67.70 67.55 67.60

Which currency ratio should Gordon use to convert its income statement to Philippine peso at year-end? PROBLEM 14 On January 1, 2009, Kiner Company formed a foreign branch. The branch purchased merchandise at a cost of 720,000 foreign currency units (FCU) on February 15, 2009. The purchase price was equivalent to P180,000 on this date. The branch’s inventory at December 31, 2009, consisted solely of merchandise purchased on February 15, 2009, and amounted to 240,000 FCU. The exchange rate was 6 FCU to Php1 on December 31, 2009, and the average rate of exchange was 5 FCU to Php1 for 2009. Assume that the FCU is the functional currency of the branch. In Kiner’s December 31, 2009 balance sheet, the branch inventory balance of 240,000 FCU should be translated to Philippine Peso at PROBLEM 15 The France Company owns a foreign subsidiary with 2,400,000 local currency units (LCU) of property, plant, and equipment before accumulated depreciation at December 31, 2009. Of this amount, 1,500,000 LCU were acquired in 2007 when the rate of exchange was 1.5 LCU to P1, and 900,000 LCU were acquired in 2008 when the rate of exchange was 1.6 LCU to P1. The rate of exchange in effect at December 31, 2009, was 1.9 LCU to P1. The weighted average of exchange rates which were in effect during 2009 was 1.8 LCU to P1. Assuming that the property, plant, and equipment are depreciated using the straight-line method over a 10-year period with no salvage value, how much depreciation expense relating to the foreign subsidiary’s property, plant, and equipment should be charged in France’s income statement for 2009? Assume the Philippine Peso is the functional currency. PROBLEM 16 Certain balance sheet accounts in a foreign subsidiary of the Brogan Company at December 31, 2009, have been remeasured into Philippine pesos as follows: Rate translated at Current Historical P100,000 110,000

Equity securities carried at cost Marketable equity securities carried at current market price 120,000 125,000 Inventories carried at cost 130,000 132,000 Inventories carried at net realizable value 80,000 84,000 P430,000 P451,000 What amount should be shown in Brogan’s balance sheet at December 31, 2009, as a result of the above information? PROBLEM 17 Post, Inc. had a credit translation adjustment of P30,000 for the year ended December 31, 2009. The functional currency of Post’s subsidiary is the currency of the country in which it is located.

Additionally, Post had a receivable from a foreign customer payable in the local currency of the customer. On December 31, 2009, this receivable for 200,000 local currency units (LCU) was correctly included in Post’s balance sheet at P110,000. When the receivable was collected on February 15, 2010, the Phil. peso equivalent was P120,000. In Post’s 2010 consolidated income statement, how much should be reported as foreign exchange transaction gain?

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