Continuation

Investment in Equity Securities (Additional topics)

Stock Right
1. On June 15, 2018, Mars Company owns 10,000 shares with a cost of P700,000 of Moon Company’s stocks. During
the same period, Moon Company issued stock rights to existing shareholders. Mars received 10,000 stock rights
entitling him to purchase 5,000 new shares at P80. The ordinary share was trading ex-rights at P80 a share and the
rights had a market value of P20 per right.
a. Assuming that the above information are FVTPL, the stock rights should be initially recognized at____.
b. Assuming the above securities are FVTOCI, the stocks rights should be initially recognized at___.
c. Assuming that the above securities are FVTPL, the cost of investment acquired through exercised of stocks
should be_____.
d. Assuming that the above securities are FVTOCI, the cost of the investment acquired through the exercise of
stock rights should be___.

Theoretical Value of Stock Rights

2. On January 2, 2018, Jupiter Company purchased 10,000 shares of P200 par value ordinary shares at P240 per
share of Saturn Company. On March 2, 2018, Saturn Company issued stock rights to its shareholders. The holder
needs five rights to purchase one share of ordinary stock at par. The market value of the stock on that date was
P320 per share. There was no quoted price for the rights.
a. Compute for the theoretical value of the rights assuming the stock is selling right-on.
b. Compute fir the theoretical value of the rights assuming the stock is selling ex-right.

Exchange of One Financial Asset into Another Financial Asset

3. Uranus Company owns 8,000 convertible preference shares of which was acquired in 2017 at a cost of P400,000.
The investment was classified as trading securities. On December 31, 2017, the fair value of the preference shares
was P425,000. On March 31, 2018, Uranus Company converted the 4,000 preference shares into 6,000 shares of
ordinary shares, when the market price was P50 per share for the preference shares and P40 per share for the
ordinary shares.
a. Compute for the gain on exchange to be recognized in 2018.
b. Give the journal entry on March 31, 2018.

Exchange of a PPE for a Financial Asset

4. On January 1, 2018, Neptune Company has a piece land acquired a year ago at a cost of P600,000. The land has
a fair value of P700,000. On March 31, 2018, Neptune Company exchanged the land for a financial asset to be
initially recognized at fair value through other comprehensive income. At the time of exchange, the shares, which
was publicly listed, has a fair value of P820,000.
a. Compute for the gain on exchange to be recognized in 2018.
b. Provide the journal entry on March 31.

Comprehensive Problem
5. At December 31, 2017, BAGCPARS Company reported as noncurrent assets the following Fair Value though
other Comprehensive Income equitysecurities:
Cost Market Value
EDA Corporation, 1,000 shares, Preference share P 40,000 P 30,000
DJOA, Inc., 6,000 shares of ordinary shares 60,000 90,000
RVFE Co., 2,000 shares of ordinary shares 55,000 88,000
Totals P 155,000 P 208,000

During 2018, the following transactions occurred among others:

Jan 5 Acquired 8,000 shares of ARP Co. for P880,000 incurring additional P10,000 for brokerage and another
P10,000 for commission. These shares are to be initially recognized at fair value through other comprehensive
income.
Feb 14 Received dividends from ARP Co declared January 4, 2018 to the stockholders of record February 1, 2018,
P16,000.
Mar 31 Exchanged 500 EDA’s shares for a piece of land from EDU. The carrying amount of the land on the book of
EDU was P50,000 and its zonal value of P80,000. At the time of exchange, the shares, which was publicly
listed, has a fair value of P65,000.
Jun 1 Sold 500 shares of RVFE, after a 10% stock dividend (bonus share) was received, for P35 per share.
Jun 15 Exchange a land for 1,000 ordinary shares of LCC Company. These shares shall be initially recognized at fair
value though other comprehensive income. At the time of exchange, the shares, which was publicly listed, has
a fair value of P50,000. The land was acquired a year ago at a cost of P20,000. The land has a fair value of
P40,000.
Oct 18 Sold 2,500 shares of DJOA Inc. for P40,000. Commissions and taxes for P5,000 were paid for the sale.
Nov 15 Received dividends of P2 per share from DJOA Inc. declared on October 16, 2018 to the stockholders of
record October 31, 2018.

On December 31, 2018, the following are the availbe market values per share:
EDA Corporation – preference share P 50
DJOA Inc. – ordinary share 15
RVFE 45
ARP Co. 100
LCC Co 60

a. Provide the journal entries.

b. The correct cost of investment acquired on January 5.
c. The total dividend income during the year.
d. The total net loss on sale of fair value through other comprehensive income securities.
e. The total net gain or loss on exchange to be recognized in 2018.
f. The total adjusted balance of the investment.