UNIVERSITY OF NUEVA CACERES

COLLEGE OF BUSINESS AND ACCOUTANCY

Conceptual Framework and Accounting Standards

ACTIVITY JGAMBOA

INVESTMENTS

Problem 1 – Solution
1. Gain on sale of Bulik Company shares on July 31, 2019
Selling Price (3,000 x P125) P375,000
Fair Value* 109,500
Realized gain P265,500
*(3,000 x P36.5**)
**Jan 2019 3,000
Share Dividends (100%) 3,000
Total # of shares 6,000
Cost per share
(P219,000/6,000 shares) P36.50

2. Gain on sale of Gudo Company bonds on August 1, 2019

Selling Price P660,000 600*P1,000*110%
Fair Value 600,000
Realized gain P60,000

3. Adjusting entry for the sale of Robusta Company ordinary shares on January 31, 2019
Selling Price P640,920
Fair Value (30,000 x 22) 660,000
Realized gain P(19,080)

Entry Made:
Cash 640,920
Investment in Trading Securities 640,920

Should be Entry:
Cash 640,920
Loss on sale of trading securities 19,080
Investment in Trading Securities 660,000

Adjusting Journal Entry:

Loss on sale of trading securities 19,080
Investment in Trading Securities 19,080

4. Carrying amount (before market adjustment) of Sketchers, Inc.’s investment in trading securities
on December 31, 2019
Robusta Company ordinary:
30,000 shares, purchased in June 2016, P20 per share P600,000
60,000 shares, purchased in August 2017, P16 per share 960,000
45,000 shares, purchased in May 2018, P22 per share 990,000
30,000 shares, sold in January 2019 (cost) (660,000)
Carrying amount, December 31, 2019 P1,890,000

Wilma Company ordinary:

60,000 shares, purchased in January 2018, P33 per share P1,980,000
15,000 shares, purchased on March 31, 2019, P24.25 per share 363,750
Carrying amount, December 31, 2019 P2,343,750

Bulik Company ordinary:

 UNIVERSITY OF NUEVA CACERES
COLLEGE OF BUSINESS AND ACCOUTANCY
Conceptual Framework and Accounting Standards

ACTIVITY JGAMBOA

3,000 shares, purchased in August 2017, P73 per share (par P100) P219,000
3,000 share dividends in June 219
3,000 shares, sold in July 2019 (109,500)
Carrying amount, December 31, 2019 P109,500

Gudo Company 15% bonds:

600 bonds, P1,000 each, purchased in July 2018, at par
Interest dates: February 1 and August 1 P600,000
600 bonds, P1,000 each, sold on August 1, 2019 (600,000)
P-
Carrying amount, December 31, 2019 P4,343,250

5. Unrealized gain to be reported in the income statement for the year ended December 31, 2019
Total Market value, December 31, 2019 P4,500,000
Total Carrying Amount, Dec 31, 2019 (see #4) (4,343,250)
Unrealized gains P156,750

Problem 2.a – Solution

1. Fair Value
Investment Fair Value
LJ, Inc. P126,000
Polland Co. 252,000
Alabang Corp. 360,000
Totals P738,000

2. Unrealized loss
Investment Cost Fair Value Gain/(Loss)
LJ, Inc. P90,000 P126,000 P36,000
Polland Co. 240,000 252,000 12,000
Alabang Corp. 432,000 360,000 (72,000)
Totals P762,000 P738,000 P(24,000)

Problem 2.b - Solution

3. What is the gain or loss on the sale of Polland Co. investment?
Selling Price P229,200
Fair Value 252,000
Realized loss P(22,800)

4. What is the carrying amount of the investments on December 31, 2019?

Investment Fair Value
LJ, Inc. P120,000
LJ, Inc. 240,000
Dwarfy Company 72,000
Alabang Corp. 132,000
Totals P564,000

5. What amount of unrealized gain or loss should be reported in the income statement for the
year ended December 31, 2019?
Cost of
Fair Value,
Purchases Total Fair Value, Unrealized
Investment 2018
this year (a + b) 2019 Gain/(Loss)
(a)
(b)
LJ, Inc. P126,000 P126,000 P120,000 P(6,000)
 UNIVERSITY OF NUEVA CACERES
COLLEGE OF BUSINESS AND ACCOUTANCY
Conceptual Framework and Accounting Standards

ACTIVITY JGAMBOA

Alabang Corp. 360,000 360,000 132,000 (228,000)

LJ, Inc. P198,000 198,000 240,000 42,000
Dwarfy Company 96,000 96,000 72,000 (24,000)
Total P(216,000)

Problem 2.c – Solutions

6. What should be reported as loss on sale of trading securities in 2020?
Carrying Reliazed
Investment Selling Price
Amount, 2019 Gain/(Loss)
LJ, Inc. P360,000 P239,400 P(120,600)
Dwarfy Company (16,200)
Total P(136,800)

7. What amount of unrealized gain or loss should be reported in the income statement for the year
ended December 31, 2020?
Fair Value, Fair Value, Unrealized
Investment
2019 2020 Gain/(Loss)
Dwarfy Company P36,000 P36,000 -
Alabang Corp. 132,000 492,000 P360,000
Totals P168,000 P528,000 P360,000

8. In the December 31, 2020, statement of financial position, what should be reported as carrying
amount of trading securities?
Fair Value,
Investment
2020
Dwarfy Company P36,000
Alabang Corp. 492,000
Totals P528,000

Problem 3 – Solution
1. What is the total interest and dividend income for 2019?
Interest income:
Tipo Co. bonds, Jan. 1 - July 1
(P800,000 * 7% * 6/12) P28,000
Turkey Co. bonds:
Jan. 1 - Mar. 31 (P1.2M * 7.5% * 3/12) 22,500
Apr. 1 - Dec. 31 (P600,000 * 7.5% * 9/12) 33,750
Toll Co. bonds
(P500,000 * 8% * 2/12) 6,667
Total P90,917
Dividend income:
Concave (400*P1.25) 500
Total interest and dividend income P91,417

2. What amount should be reported as gain on sale of trading securities in 2019?

Turkey bonds
Selling price (P600,000*102%) P612,000
Carrying Value (P1,218,900 * 6/12) 609,450
Gain on sale P2,550

Tipo bonds
Selling price (P800,000 * 97.5%) P780,000
Carrying Value 774,000
 UNIVERSITY OF NUEVA CACERES
COLLEGE OF BUSINESS AND ACCOUTANCY
Conceptual Framework and Accounting Standards

ACTIVITY JGAMBOA

Gain on sale 6,000

Total P8,550

3. What amount of unrealized gain or loss should be reported in the income statement for the year
ended December 31, 2019?
Carrying Unrealized
Investment Fair Value
Amount Gain/(Loss)
Concave P220,000
Co. P243,000 (400*P550) P(23,000)
610,500
Turkey Co.
609,450 (P600,000*101.75%) 1,050
Newman, 116,750
Inc. 116,000 (200*P583.75) 750
505,000
Toll, Co.
505,000 (P500,000*101%) -
Totals P1,473,450 P1,452,250 P(21,200)

4. What is the carrying amount of the remaining trading securities on December 31, 2019?
Investment Fair Value
Concave Co. P220,000
Turkey Co. 610,500
Newman,
116,750
Inc.
Toll, Co. 505,000
Totals P1,452,250

5. What is the loss on the sale of the remaining Turkey bonds on February 1, 2020?
Selling price (P600,000*101%) P606,000
Carrying value (see #4) 610,500
Loss on sale P(4,500)