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Investment
Problem 1
Pau Corporation had the following portfolio of equity investment at fair value through other comprehensive income
at December 31, 2015:
On April 30, 2016, Pau Corporation sold all the Dune shares at Php54 per share. In addition, on July 31, 2016,
6,000 of Bread Corporation shares acquired at Php59.
The December 31, 2016 fair values were: Monte, Php270,000, Grace, Php380,000; and Bread, Php400,000.
Pau Corporation has the policy of transferring the equity account to retained earnings at the date the equity
investment is derecognized.
Required:
a. How much gain or loss shall be recognized on the sale of Dune ordinary shares on April 30, 2016?
b. What should be the cumulative balance of Unrealized Gains and Losses on Equity Investments at
December 31, 2016?
Problem 2
Angel Company purchased 20,000 shares of Pau Company at Php60 per share. The shares represent less than
5% ownership in Pau Company. The shares are classified as financial assets at fair value through profit or loss.
Market value at December 31, 2015 was Php66 . At the beginning of 2016, Pau Company issued rights to
purchase one ordinary share for every five rights submitted plus Php50. Immediately after the rights were issued,
the ordinary share was selling for Php70 per share.
Required:
a. Assume that all rights were sold at the market price of Php5. Give the entry to record this sale.
Cash 100,000
Investment Income 100,000
20,000 x 5 = 100,000
b. Assume that Angel Company exercised all the rights, when the market price of each Pau Company ordinary
shares was Php75. Give the entry to record the exercise of the rights and the valuation entry at year end,
assuming that each share of Pau Company sells at Php78 at December 31.
Problem 3
The following chronological transactions were completed by Camil Company during 2016:
January Bought 1,000 ordinary shares of Diner Company for Php108,000 to be measured at fair value
through other comprehensive income.
February Received additional shares from Diner Company as a result of 2-for-1 share split.
Memorandum entry. Received 1,000 additional shares of Diana ordinary shares as a result of 2-for-1 split.
(new shares 2,000@Php54)
March Bought 2,000 shares 8% Php100 par preference of Sam Company at Php120 per share plus
broker’s fee of Php2,400. The shares are classified as fair value through other comprehensive
income.
Cash 30,000
Financial Asset at FV through OCI 30,000
- Diner ordinary shares
[2,000 x (30,000/500)/2,000 shs] x 500 = 30,000
May Received one right from Diner Company for every ordinary share held. The rights entitle their
holders to buy one ordinary share at Php55 for every two rights submitted.
Memorandum entry. Received (2,000-500) 1,500 stock rights from Diana for the purchase of one share for
every two rights submitted at P55 per share.
June Camil Company exercised 60% of the rights received from Diner when each ordinary share of Diner
Company sells at Php61. The remaining rights were sold at Php3 each.
Cash 1,800
Investment income 1,800
December 31 Market value of the securities at year-end are: Diner Company ordinary : Php62 and Sam Company
preference: Php115.
Unrealized Gains and Losses on Equity
Investments – OCI 9,900
Equity Investments at FV through OCI – Diana
ordinary 2,500
Equity Investments at FV through OCI – Smith 12,400
Market CV Unreal
Diana (1,750sh) 108,500 106,000* 2,500
Smith (2,000) 230,000 242,400 (12,400)
Total 338,500 348,400 (9,900)
*Original Diana shares 1,000 shares at P108 P108,000
2-for-1 split 1,000 shares -____
2,000 shares at P54 P108,000
Adjust prior to sale 12,000
Balance 2,000 shares at P60 P120,000
Sale (500 )shares at P60 ( 30,000)
Balance 1,500 shares at P60 P 90,000
Exercise of rights 450 shares at P61 27,450
Adjust prior to sale 1,350
Sale (200 shares) at P64 ( 12,800)
Balance 1,750 shares P106,000
Required: 1. Prepare entries for the foregoing in the books of Camil Company. (see
above)
2. Determine the total income recognized in profit and loss as a result of the foregoing.
Camil Company had the following investment securities at December 31, 2015:
Cost Fair Value
20,000 ordinary shares of Lacoste Co. 640,000 556,000
40,000 shares of Diner 728,000 740,000
All of the above securities had been purchased in 2015. During 2016, Camil completed the following securities transactions:
April Sold 10,000 shares of Lacoste Company at Php25.
May Bought 1,200 shares of Giordano Corp preference shares at Php50 plus fees of Php1,100.
Memorandum entry. Received 8,000 additional shares of Diner ordinary representing a 20% bonus issue. Shares
now held are 48,000. 40,000 + (40,000 x 20% = 8,000) = 48,000
Required:
Give the entries to record the foregoing, including the appropriate adjusting entries on December 31, assuming that Camil
classifies Lacoste Co. ordinary shares at fair value through profit and loss and Diner’s ordinary shares and Giordano’s
preference shares as at fair value through other comprehensive income.
Problem 5
a. Purchased 40,000 ordinary shares of Php100 of Singa Company for Php4,000,000 on January 1, 2016. This purchase
represents 20% interest in the net assets of Singa, which are fairly valued at Php80,000,000. The shares give Shang
Company significant influence over Singa.
Memo. Received 4,000 additional shares of Atlanta ordinary as 10% bonus issue. Shares now held are 44,000.
d. Singa reported profit of Php6,000,000 for 2017.
e. Singa paid a cash dividend of Php2,000,000 on the ordinary shares at December 15, 2017.
Cash 400,000
Investment in Associates 400,000
20% x 2,000,000
Required:
1. Journal entries to record the given transactions above.
2. Carrying amount of the investments at December 31, 2017.
Problem 6
On March 1, 2016, Legoland Inc. acquired a 30% ownership in one of its customers, Hello Kit Company, for
Php2,730,000, when the net assets of Hello Kit had carrying value of Php7,100,000. Because of this acquisition,
Legoland exercises significant influence over Hello Kit Company. Legoland has no intention of selling Hello Kit’s
shares within twelve months from the date of acquisition.
All the identifiable assets and liabilities of Hello Kit, on March 1, 2016, show carrying values equal to their fair
values, except for inventory which had fair value in excess of carrying amounts by Php100,000 and some
depreciable assets which had total fair values in excess of carrying amounts by Php1,500,000. These depreciable
assets, at March 1, 2016, have remaining useful lives of 5 years.
During 2016, Hello Kit declared and paid cash dividends of Php1,600,000 and reported net profit of Php2,400,000.
On December 31, 2016, the shares of Hello Kit held by Legoland have total market value of Php1,300,000.
Required:
1. Prepare journal entries during 2016 in the books of Legoland Inc. to record the foregoing.
2. Compute the carrying value of the investment at December 31, 2016 and the income reported by
legoland as a result of the investment during the year 2016.
(a)
2016
Mar. 1 Investment in Associates – Hello Kit 2,730,000
Cash 2,730,000
Dec. 31 Cash (30% x 1,600,000) 480,000
Investment in Associates – Hello Kit 480,000
31 Investment in Associates – Hello Kit 600,000
Share in Profit of Associates 600,000
(2.4M x 10/12) x 30%
31 Share in Profit of Associates –Hello Kit 105,000
Investment in Associates – Hello Kit 105,000
Amortization of undervaluation of assets
(30% x 1,500,000) / 5 yrs. = 90,000
90,000 x 10/12 = 75,000
100,000 x 30% = 30,000
75,000 + 30,000 = 105,000
(b) Acquisition cost, March 1, 2016 P2,730,000
Cash dividends received ( 480,000)
Share in reported profit of associate 600,000
Adjustment in reported profit ( 105,000)
Investment carrying value, December 31, 2016 P2,745,000
Problem 7
During your audit of the financial statements of the Sipaganmo Corporation for the year 2016, you found
the following postings to the Financial Assets at Fair Value through Profit or Loss (FVPL) account:
Date Particulars Debit Credit
Feb 5 Purchased 2,000 shares, Angel Corp 108,000
10 Purchased 2,000 shares, Brainless Corp 120,000
May 4 Cash Dividends, Angel Corp 2,000
7 Sold 1,000 shares, Angel Corp 56,000
10 Purchased 2,000 shares, Cam Corp 60,000
10 Purchased 2,000 shares, Danis Corp 72,000
Aug 17 Purchased 400 shares, Sipaganmo Corp 66,000
17 Purchased 1,000 shares, Englang Corp 40,000
Sept 17 Sold 200 shares, Sipaganmo Corp 40,000
Dec 10 Received 10% bonus issue from Englang Corp 4,000
12 Cash Dividend, Cam Corp 2,400
The following information was discovered from your audit procedures:
a. The Sipaganmo Corporation purcjased 400 shares of its own ordinary shares held by a
deceased shareholder at Php165 per share. 200 of these shares were sold at its market price of
Php200 per share on September 17.
b. On December 10, 100 shares of Englang Corporation were received. Sipaganmo credited
dividend income equal to the market price of the shares received.
c. On December 17, Danis Corporation declared a Php5 cash dividend per share, payable on
January 12, 2017 to shareholders of record as of December 31, 2016. No accrual has yet been taken
up by Sipaganmo .
d. The market price of the shares are as follows at December 31, 2016:
Angel Corporation Php 55
Brainless Corporation 54
Cam Corporation 32
Danis Corporation 39
Englang Corporation 38
Required:
1. Prepare all audit adjusting entries as a result of the foregoing.
2. Compute the following
a. Carrying amount of FVPL at December 31, 2016
b. Gain or loss on the sale of FVPL
c. Dividend income
d. Unrealized gain or loss taken to profit or loss
A n g e l Corporation Brainless Corporation Cam Corporation Danis Corporation Englang Corporation
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
Feb 5 2,000 108,000
10 2,000 120,000
May 7 (1,000) (54,000)
Dec 10 100
Bal.
before
adj to
FV 1,000 54,000 2,000 120,000 2.000 60,000 2,000 72,000 1,100 40,000
May 4
Financial Assets at FV through P&L 2,000
Dividend Income 2,000
May 7
Financial Assets at FV through P&L 2,000
Gain on Sale of FVPL 2,000
August 17
Treasury Shares 66,000
Financial Assets at FV through P&L 66,000
September 17
Problem 8
The Investments and Dividends Income accounts of Sugar Company are shown below:
Trading Securities
Date Description Ref Debit Credit
6/22/16 10,000 ordinary shares, par
Value Php100, Apple Co. CD-30 1,040,000
12/31/16 adjustment to fair value 160,000
5/31/17 1,000 shares Apple Co. received
as bonus issue GJ-12 24,000
7/10/17 Sold 2,000 shares @Php130 net CR-23 260,000
12/6/17 Sold 2,000 shares @Php140 CR-42 280,000
Dividend Income
Date Description Ref Debit Credit
5/31/17 Bonus issue (stock dividend) GJ-12 24,000
8/01/17 Cash dividend on Apple
Ordinary shares CR-22 45,000
1. The December 31, 2016 statement of financial position of Sugar Company showed, among
current assets, Trading Securities of Php1,200,000.
2. You obtained the following information relating to dividends declared by Apple Company
Required:
2. Adjusting Entries
a. Dividend Income 24,000
Trading Securities 24,000
Cancellation of GJ-12
Problem 9
Mari Company holds shares in Vanny Company, which it acquired in 2014. You were engaged to audit
the financial statements of Mari Company for the year 2016, and you found the following accounts in
the general ledger:
Dividend Revenue
Debit Credit Balance
January 4, 2016 110,000 110,000
June 24, 2016 150,000 260,000
August 31, 2016 30,000 290,000
Entry made
Investment in Aman 30,000
Dividend revenue 30,000
Correct entry
Investment in Aman 48,000
Dividend revenue 48,000
(30,000/10x Php16 = 48,000)
Adjusting entry
Investment in Aman 18,000
Dividend revenue 18,000
Oct 31 Sold 10,000 shares @P110.
Dec 22 Sold 4,000 shares @ P140. Cash was received on January 5, 2017.
Investment in Vanny Company 140,000
Unrealized Gain/Loss – OCI 140,000
Selling price (4,000 x P140) 560,000
Carrying Value, Jan 1 (4,000 x P105) 420,000
------------
140,000
========
Dec. 31 Fair values per share are as follows: Vanny, P142; Aman, P17.
Required:
Problem 10
On August 1, 2015, Bay Inc. purchased 500 of the 1,000 face value, 10% bonds of Waview Corporation
for Php547,778 a price which includes accrued interest and yields an effective interest rate of 8%.
Interest is payable semiannually on November 30 and May 31. The bonds mature on May 31, 2020.
The company intends to collect the contractual cash flows from the bond investments until maturity and
did not exercise its option to measure the debt investments at fair value.
Required:
Amortization Table
Problem 11
In auditing the books of Rose Corporation as of December 31, 2016, before the accounts are closed,
you find the investment account balance:
The investments were held for trading purposes. Gold 9% bonds were quoted in the market at 103 at
December 31, 2016.
Required:
1. Give the entries that should have been made relative to the investment in bonds, including any
entries that would be made on December 31, the end of the fiscal year.
Entries that should have been made:
Jan. 21 Investment in Pearl 510,000
Interest Income 6,250
Cash 516,250
Problem 12
On January 1, 2015, Poorman Corporation acquired 10% of the outstanding voting shares of Pau Company for
Php1,800,000. These shares were designated as equity investments at fair value through other comprehensive
income.
On January 2, 2016, Poorman gained the ability to exercise significant influence over financial and operating
policies of Pau Company by acquiring an additional 20% of Pau’s outstanding shares for Php5,200,000. The two
purchases were made at prices proportionate to the value assigned to Pau’s net assets, which equalled their
carrying amounts. For the years ended December 31, 2015 and 2016, Pau reported the following:
2015 2016
Dividends paid Php 4,000,000 Php 6,000,000
Profit for the year 12,000,000 13,000,000
The fair values of the investments on December 31, 2015 and December 31, 2016 were Php 2,760,000 and
Php10,200,000, respectively.
Required:
1. Prepare journal entries to record the above data.
2. Determine the investment carrying value at December 31, 2016.
2015
Jan. 1 Equity Investments at FV through OCI – Pen 1,800,000
Cash 1,800,000
Dec. 31 Cash 400,000
Dividend Revenue 400,000
10% x 4,000,000
31 Equity Investments at FV through OCI – Pen 960,000
Unrealized Gains and Losses on Equity
Investments – OCI (2,760,000-1,800,000) 960,000
2016
Jan. 1 Investment in Associates – Pen, Inc. (at FV) 2,760,000
Equity Investments at FV through OCI – Pen 2,760,000
Problem 13
Erly Corporation purchased 100,000 ordinary shares of Fury Company on January 1, 2015 at Php165 per share,
which reflected carrying value as of that date. Fury Company had 400,000 ordinary shares outstanding at the time
of purchase. Prior to this purchase, Erly Corporation had no ownership interest in Fury Company. Fury Company
reported profit of Php1,360,000 in 2015 and Php2,000,000 in 2016. Erly Company received a cash dividend from
Fury Company of Php420,000 on August 1, 2015 and Php480,000 on December 31, 2016. Because of significant
influence acquired by Erly Company over Fury Company, the investment was accounted for using the equity
method.
Market values of each share on December 31, 2015 and December 31, 2016 were Php160 and Php175,
respectively.
On January 2, 2017, Erly Company sold 40,000 ordinary shares of Fury Company for Php175 per share. On January
2, 2017, Erly exercised its option to measure the remaining securities at fair value through other comprehensive
income. Fury Company reported profit of Php7,440,000 for the year ended December 31, 2017 and paid Erly
Company dividends of Php240,000. Market value of Fury Company shares on December 31, 2017 was Php190
each. As a result of this sale, Erly Company lost its ability to exercise significant influence over Fury Company.
Required:
1. Give the entries in the books of Erly Company to account for the investment in Fury Company during
year 2015 to 2017.
2. Determine the amount at which the investment will be carried in the statement of financial position
on December 31, 2015, 2016 and 2017.
(a)
2015
Jan. 1 Investment in Associates – Fury Company 16,500,000
Cash (100,000 x 165) 16,500,000
Aug. 1 Cash 420,000
Investment in Associates – Fury Company 420,000
Dec. 31 Investment in Associates – Fury Company 340,000
Share in Profit of Associates 340,000
25% x 1,360,000
2016
Dec. 31 Cash 480,000
Investment in Associates – F Company 480,000
31 Investment in Associates – F Company 500,000
Share in Profit of Associates – F Company 500,000
25% x 2,000,000
2017
Jan. 2 Cash (40,000 x 175) 7,000,000
Investment in Associates – F Company 6,576,000
Gain on Sale of Investment in Associates 424,000
Acquisition cost 16,500,000
Share in profit (2015) 340,000
Cash dividends received (2015) ( 420,000)
Cash dividends received (2016) (480,000)
Share in profit (2016) 500,000
Investment carrying amount 16,440,000
Portion sold 40/100
CV of investment sold 6,576,000
Problem 14
On January 1, 2013, Sunrise Company purchased Php2,000,000 12% bonds of Sunrise Company for Php2,126,788,
a price that yields 10%. Interest on these bonds is payable every December 31. The bonds mature on December 31,
2016. On April 1, 2015, to pay a maturing obligation, Sunrise sold Php1,200,000 face value bonds at 101 plus
accrued interest. Market value of the bonds on different dates is as follows:
December 31, 2013 108
December 31, 2014 106
December 31, 2015 104
Required:
1. Assume that the bonds were classified as debt investments at fair value through profit or loss.
a. How much is interest income for the year ended December 31, 2013?
b. What amount of gain or loss should Sunrise report on the sale of the bond
investments on April 1, 2015?
c. At what amount should the investments be shown on December 31, 2014 and
December 31, 2015 statement of financial position?
2. Assume that the company intended to collect the principal and interest over the term of the bonds and did
not choose the fair value option.
a. At what amount should the bond investments be shown on December 31, 2014
statement of financial position?
b. What amount of gain or loss should Sunrise recognize on the sale of investments
on April 1, 2015?
c. What amount of interest income will be taken to profit and loss for the year
ended December 31, 2015?
d. At what amount should the bond investments be shown on December 31, 2015
statement of financial position?
1) Classified as Debt Investments at FV through Profit or Loss
(a) Interest income (2,000,000 x 12%) P 240,000
(b) Sales price (1,200,000 x 1.01) P 1,212,000
Carrying value, 12/31/2014 (1,200,000 x 1.06) 1,272,000
Loss on sale P 60,000
(c) Carrying value, 12/31/2014 (FV) (2,000,000 x 1.06) P 2,120,000
Carrying value, 12/31/2015 (800,000 x 1.04) P 832,000
(2) Classified as at Amortized Cost
Amortization Table
Date Nom Int Effect Int Prem Amort Amortized cost, end
1/1/2013 2,126,788
12/31/2013 240,000 212,678 27,322 2,099,466
12/31/2014 240,000 209,947 30,053 2,069,413
12/31/2015 240,000 206,941 33,059 2,036,354
(a) Carrying value, 12/31/2014 (see table) P2,069,413
(b) Sales price P1,212,000
Carrying value, 1/1/2015 (2,069,413 x 12/20)P1,241,648
Amortization 1/1/2015 – 4/1/2015
33,059 x 3/12 x 1,200/2,000 (4,959) 1,236,689
Loss on sale P 24,689
(c) Interest income for 2015:
Problem 15
On January 1, 2014, Nasanka Company purchased Php100,000 face value 5-year bond of Walana Company for
Php108,660, a price that yields 5% on a stated interest rate of 7%. Interest is payable annually at December 31.
On December 31, 2015, after paying the periodic interest, Nasanka negotiated for a modification of interest from
7% to 4.5% for the remaining term of the bonds, due to continuous decline in the market rate of interest.
Required:
Give all entries in the books of Nasanka Company for 2014 through 2017 as a result of the foregoing.
Amortization Table
Nominal Effective Premium Amortized Cost,
Date Interest Interest Amortization End
Jan. 1, 2014 108,660
Dec. 31, 2014 7,000 5,433 1,567 107,093
Dec. 31, 2015 7,000 5,355 1,645 105,448
Dec. 31, 2016 7,000 5,272 1,728 103,720
Dec. 31, 2017 7,000 5,186 1,814 101,906
Dec. 31, 2018 7,000 5,094 1,906 100,000
2014
Jan. 1 Debt Investments at Amortized Cost – Wolf Bonds 108,660
Cash 108,660
Dec. 31 Cash 7,000
Debt Investments at Amortized Cost – Wolf Bonds 1,567
Interest Income 5,433
2015
Dec. 31 Cash 7,000
Debt Investments at Amortized Cost – Wolf Bonds 1,645
Interest Income 5,355
2016
Dec. 31 Cash 7,000
Debt Investments at Amortized Cost – Wolf Bonds 1,728
Interest Income 5,272
Impairment Loss on Debt Investments 4,653
Debt Investments at Amortized Cost – Wolf Bonds 4,653
Carrying value, Dec. 31, Year 3 P103,720
Present value of future cash inflows
100,000 x 0.9070 90,700
4,500 x 1.8594 8,367 99,067
Impairment Loss P 4,653
2017
Dec. 31 Cash 4,500
Debt Investments at Amortized Cost – Wolf Bonds 453
Interest Income 4,953
2018
Dec. 31 Cash 4,500
Debt Investments at Amortized Cost – Wolf Bonds 480
Interest Income 4,980
Revised Amortization Table
Nominal Effective Discount Amortized Cost,
Date Interest Interest Amortization End
Dec. 31, 2016 99,067
Dec. 31, 2017 4,500 4,953 453 99,520
Dec. 31, 2018 4,500 4,980* 480* 100,000
Problem 16
On June 1, 2015, Pau Company purchased for Php5,353,150 (including transaction costs) plus accrued interest
Php5,000,000 12% bonds of Camil Company. These investments are classified as held to maturity securities. The
bonds, which mature on December 31, 2019 pay interest annually on December 31. Using a financial calculator and
an excel worksheet, the yield is computed at 10%.
On September 1, 2018, in response to some liquidity problems, Pau Company sold Php3,000,000 of the bonds at
103 plus accrued interest. The bonds are quoted in the market at the following prices, at selected dates.
Required:
Prepare entries in the books of Pau Company for years 2015 through 2018 as a result of the foregoing. (Pau
Company reports on a calendar basis)