Cost model full goodwill 80 owned subsidiary x4 first

Cost Model (Full-goodwill)
80%-Owned Subsidiary

December 31, 20x4 (First Year after Acquisition)
Income Statement
P Co S Co. Dr. Cr.
Consolidate
d
Sales P480,000
P240,00
0
P 720,000
Gain on sale of equipment 15,000 31,200 (5) 15,000
(6) 31,200
Dividend income 28,800 - (4) 28,800 _________
Total Revenue P523,800
P271,20
0
P 720,000
Cost of goods sold P204,000
P138,00
0
(3)
6,000
P 348,000
Depreciation expense 60,000 24,000
(3)
6,000
(7)
2,250
(8)
3,900
83,850
Interest expense - -
(3)
1,200
1,200
Other expenses 48,000 18,000 66,000
Goodwill impairment loss - -
(3)
3,750
3,750
Total Cost and Expenses P312,000
P180,00
0
P 502,800
Net Income P211,800
P
91,200
P 217,200
NCI in Net Income - Subsidiary - -
(9)
9,390
( 9,390)
Net Income to Retained Earnings P211,800 P 91,200 P 207,810
Statement of Retained Earnings
Retained earnings, 1/1
P Company P360,000 P 360,000
S Company
P120,00
0
(1)
120,000
Net income, from above 211,800
91,20
0 207,810
Total P571,800
P211,20
0 P 567,810
Dividends paid
P Company 72,000 72,000
S Company -
36,00
0
(4)
36,000
_
________
Retained earnings, 12/31 to Balance
Sheet P499,800
P175,20
0 P 495,810
Balance Sheet
Cash……………………….
P
232,800
P
90,000 P 322,800
Accounts receivable…….. 90,000 60,000 150,000
Inventory…………………. 120,000 90,000
(2)
6,000 3) 6,000 210,000
Land……………………………. 210,000 48,000
(2)
7,200 265,200
Equipment 240,000 180,000
(5)
30,000
(6)
12,000 462,000

Buildings 720,000 540,000 (2) 216,000 1,044,000
Discount on bonds payable
(2)
4,800 (3) 1,200 3,600
Goodwill……………………
(2)
15,000 (3) 3,750 11,250
Investment in S Co……… 372,000 (1)
288,000
(2)
84,000 -
Total P1,984,800
P1,008,0
00 P2,468,850
Accumulated depreciation
- equipment
P 135,000
P
96,000
(2) 80,000
(7) 2,250
(8) 3,900
(3) 10,000
(5) 45,000
(6) 43,200 P229,050
Accumulated depreciation
- buildings
405,000 288,000 (2) 192,000
(3) 6,000 495,000
Accounts payable…………… 105,000 88,800 193,800
Bonds payable………………… 240,000 120,000 360,000
Common stock, P10 par……… 600,000 600,000
Common stock, P10 par……… 240,000
(1)
240,000
Retained earnings, from above 499,800
175,20
0 495,810
Non-controlling interest…………
_________
____
_____
(3) 7,200
_________
_
(1 ) 72,000
(2) 21,000
(9) 9,390 ____95,190
Total P1,984,800
P1,008,0
00
P
843,690
P
843,690 P2,468,850
20x5: Second Year after Acquisition
P Co. S Co.
Sales P 540,000 P 360,000
Less: Cost of goods sold 216000 192,000
Gross profit P 324,000 P 168,000
Less: Depreciation expense 60,000 24,000
Other expense 72,000 54,000
Net income from its own separate operations P 192,000 P 90,000
Add: Dividend income 38,400 -
Net income P 230,400 P 90,000
Dividends paid P 72,000 P 48,000
No goodwill impairment loss for 20x5.
Parent Company Cost Model Entry
January 1, 20x5 – December 31, 20x5:
Cash……………………… 38,400
Dividend income (P48,000 x 80%)……………. 38,400
Record dividends from S Company.
On the books of S Company, the P48,000 dividend paid was recorded as follows:

Dividends paid………… 48,000
Cash 48,000
Dividends paid by S Co..
Consolidation Workpaper – Second Year after Acquisition
(E1) Investment in S Company………………………… 44,160
Retained earnings – P Company……………………… 44,160
To provide entry to convert from the cost method to the equity
method or the entry to establish reciprocity at the beginning of
the
year, 1/1/20x5, computed as follows:
Retained earnings – S Company, 1/1/20x5 P175,200
Retained earnings – S Company, 1/1/20x4 120,000
Increase in retained earnings…….. P 55,200
Multiplied by: Controlling interest % 80%
Retroactive adjustment P 44,160
(E2) Common stock – S
Co…………………………………………
240,000
Retained earnings – S Co., 1/1/20x5 175,200
Investment in S Co (P415,200 x 80%)
…………………………
332,160
Non-controlling interest (P415,200 x 20%)
………………………..