Problems - Investment in Equity Securities

INVESTMENT IN EQUITY SECURITIES
Problem No.1. Trading Securities

At December 31, 2017, BAGCPARS Company properly reported the following Trading equity securities:
Page | 1 Cost Market Value

EDA Corporation, 1000 shares, Preference shares P40,000 P30,000
DJOA, Inc. 6,000 shares of ordinary shares 60,000 90,000
RVFE Co., 2000 shares 55,000 80,000
Total P155,000 P200,000
During 2018, the following transactions occurred among others:

January 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 as trading securities
February 14 Received dividends from ARP Co. declared January 10, 2018 P16,000
March 18 Received dividends of P2 per share from DJOA Inc.
November 15 Sold 2,500 shares of DJOA, Inc. for P50,000. Commission and taxes for P5,000 were
paid for the sale
December 15 Recorded a transfer of all remaining DJOA’s shares to FVTOCI when the fair value
was P14.
On December 31, 2018 the following are the available market values per share:
EDA Corporation-preference shares P50

DJOA, Inc. ordinary share 15
RVFE 45
ARP Co. 100
Questions:
Based on the above and the result of your audit, determine the following:
1. The correct cost of investment acquired on January 5:
a. 880,000 b. 900,000 c. 864,000 d. 884,000
2. The total dividend income during the year.
a. 28,000 b. 16,000 c. 12,000 d. 40,000
3. The gain or loss on sale of DJOA, Inc.
a. 20,000 gain b. 20,000 loss c. 7,500 gain d. 7,500 loss
4. The unrealized gain (loss) and where do we present the unrealized gain (loss) at the end of the year?
a. 50,000 gain to income statement
b. 50,000 loss to the income statement
c. 37,500 gain to the balance sheet
d. 37,500 loss to to the balance sheet
5. The total adjusted carrying value of the investment at the end of the year.
a. 992,500 b. 1,062,500 c. 1,026,500 d. 1,025,000
Problem 2. Fair Value through other comprehensive income (FVTOCI)

At December 31, BAGCPARS properly as noncurrent assets the following FVTOCI equity securities:
Cost Market Value
EDA Corporation, 1000 shares, Preference shares P40,000 P30,000
DJOA, Inc. 6,000 shares of ordinary shares 60,000 90,000
RVFE Co., 2000 shares 55,000 88,000
Total P155,000 P208,000
Page During
|2 2018, the following transactions occurred among others:
January 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 as FVTOCI
February 14 Received dividends from ARP Co. declared January 4, 2018 to the stockholders of
record February 1 2018, P16,000
March 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.
June 1 Sold 500 shares of RVFE, after a 10% stock dividend (bonus share) was received, for
P35 per share.
June 15 Exchanged a land for a 1,000 ordinary shares of LCC Company. These shares, shall
be initially recognized at FVTOCI. 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
October 18 Sold 2,500 shares of DJOA Inc. for P40,000. Commissions and taxes of P5,000 were
paid for the sale.
November 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 available market values per share:
EDA Corporation-preference shares P50

DJOA, Inc. ordinary share 15
RVFE 45
ARP Co. 100
LCC Co. 60
Questions:
1. The correct cost of investment acquired on January 5:
a. 864,000 b. 900,000 c. 884,000 d. none of the choices
2. The total dividend income during the year.
3. The total net loss on sale of FVTOCI securities.
a. 2,500 loss b. 5,000 loss c. 10,000 loss d. none of the choices
4. The total net gain or loss on exchange to be recognized in 2018.
a. 45,000 gain b. 47,500 gain c. 80,000 gain d. none of the choices
5. The total adjusted balances of the investment.
a. 954,000 b. 994,000 c. 1,014,000 d. none of the choices
Problem No. 3
The following transactions for the long-term, FVTOCI investments of Persistent Corporation, took place
in 2018:
Feb. 10 Persistent acquired 10,000 shares of Disciplined Co. ordinary share at P88 per share
Page |Mar.
3 31 Disciplined Co. issued a 10% stock dividend to ordinary shareholders
June 30 Disciplined Co issued rights to ordinary shareholders for the acquisition of one additional
share at P90 for every five shares held. The ordinary share was trading ex-rights at P114 a
share and the rights had a market value P6 per right.
July 13 Persistent received 10,000 rights to acquire new shares.
July 20 The remaining 1,000 rights were sold for P5.50 each.
Oct. 12 Persistent sold 4,000 shares of Disciplined Co. ordinary shares for P440,000. The shares
sold were specifically identified as being from those acquired on February 10.
Questions:
1. The cost of the stock rights to be recorded on June 30, 2018.
2. The cost of investment acquired on July 13, 2018.
3. Gain or loss on sale of the remaining rights sold on July 20, 2018.
a. 4,300 gain b. 3,400 loss c. 500 loss d. none of the choices
4. The realized gain or loss on the sale of the 4,000 shares sold on October 12, 2018
a. 144,000 loss b. 136,000 loss c. 120,000 gain d. none of the choices
5. The adjusted balance of the investment account for the year ended December 31, 2018.
Problem No. 4
You were engaged by GBC Company to audit its financial statements for the year 2018. During the
course of your audit, you noted that the following investments in equity securities designated as at
FVTOCI securities were properly reported at December 31, 2017:
Cost Market
Geritt Corporation, 15,000 shares, convertible
preference shares P900,000 P975,000
Loesch Co., 10,000 shares of ordinary shares 550,000 451,000
Total P1,450,000 P1,426,000
The following transactions transpired during 2018:

Jan. 10 Acquired 20,000 shares of Barr designated as at FVTOCI at P400,000 cash. Additional
P20,000 was also paid for the brokerage and commissions.
Feb. 10 Received the following dividends (all declared on January 15, 2018 to the stockholders of
record January 20):
Loesch – 1,000 share dividends (The market value per share on this date is P60)
Gerrit - P30,000
Barr - P10,000
Mar. 10 Converted 5,000 shares of Gerrit preference shares into 10,000 shares of Gerrit Ordinary
shares when the market price was P70 per share for the preference share and P40 per
share for the ordinary share
April 1 Loesch Co. issued rights to ordinary shareholders for the acquisition of one additional
share at P62 for every five shares held. The ordinary share was trading ex-rights at P54 a
share and the rights had a market value P6 per right.
Page |May
4 1 Exercised all the stock rights
Nov. 15 Sold 2,000 shares of the Loesch stock for P70 per share
Dec. 1 Received P1 per share dividends on the Loesch shares declared on November 2, 2018 to
the stockholders of record November 20.
Closing market quotations as of December 31, 2018:

Bid Asked
Gerrit Corporation, preference shares P70 P75
Geritt Corporation, ordinary shares 45 42
Loesch Co. 72 75
Barr Co. 20 24
Questions:
Based on the above and the result of your audit, you are to provide the answers to the following:
1. How much is the correct cost of the investment acquired on January 10?
2. How much is the total dividend income for the year 2018?
3. How much is the gain on conversion of 5,000 Gerrit preference shares into 10,000 ordinary shares?
a. 100,000 gain b. 50,000 gain c. 75,000 gain d. none of the choices
4. How much is the gain or loss on sale of 2,000 Loesch shares?
a. 24,000 loss b. 36,000 gain c. 39,000 gain d. none of the choices
5. How much should be reported as unrealized gain on FVTOCI securities in the company’s statement of
financial position for the year 2018?
Problem No. 5
DAP Company started operation on January 1, 2018 and acquired the following securities:
Trading Securities Portfolio Fair value
Abad Company P2,400,000
Aquino Company 2,600,000
Lacierda Company 1,900,000
FVTOCI Portfolio Fair value

Coloma Company P3,050,000
Soliman Company 2,725,000
Villanueva Company 1,875,000
No disposals were made during 2018. The fair values of the investment securities as of December 31,
2018 are as follows:
Aquino Company 2,600,000
Lacierda Company 1,870,000
Page |FVTOCI
5 Portfolio Fair value
Soliman Company 2,737,500
The following additional transactions happened in 2019:

 On September 1, DAP Company sold its Aquino Company securities for P2,590,000.
 On October 1, DAP Company exchanged it Soliman Company portfolio for a piece of land. The
carrying amount of the land was P1,937,500 an a zonal value of P2,777,500. At the time of
exchange, the Soliman Company shares which was publicly listed, has a fair value of P2,797,500.
 On November 1, DAP Company acquired several shares of De Lima Company for P2,100 which is
classified as part of its trading securities.
The fair values of the investment securities as of December 31, 2019 are as follows:
De Lima Company 1,070,000
FVTOCI Portfolio Fair value

Questions:
Based on the above data, answer the following:
1. The net unrealized gain (or loss) included in DAP Company’s December 31, 2018 statement of
financial position is:
a. (21,500) b. (50,000) c. 28,500 d. 32,500
2. The gain (or loss) from the exchange of assets in 2019 included in DAP Company’s income statement
a. 72,500 b. 60,000 c. 52,500 d. nil
3. The gain (or loss) arising from the sale of the trading securities in 2019 is
a. (40,000) b. (10,000) c. 10,000 d. 40,000
4. The net unrealized gain reported in DAP Company’s December 31, 2019 statement of financial
position is
a. 45,000 b. 29,000 c. 22,500 d. 6,500
INVESTMENT IN ASSOCIATE
Problem No. 6.: Cost and Equity Method Compared

On January 4, 2018, Tamara Bakery paid P30 million for 1 million shares of Jade Company
Page | 6
ordinary share. The investment represents a 20% interest in the net assets of Jade and gave
Tamara the ability to exercise significant influence over Jade’s operations. Tamara received
dividends of P1.00 per share on December 15, 2018 and Jade reported net income of P8 million
for the year ended December 31, 2018. The market value of Jade’s ordinary shares at
December 31, 2018 was P32 per share. On the purchase date, the book value of Jade’s net
assets was P120 million and the fair market value of Jade’s depreciable assets, with an average
remaining useful life of six years, exceeded their book value by P6 million. The remainder of
the excess of the cost of the investment over the book value of net assets purchased was
attributable to goodwill
Questions:
Based on the above, answer the following:
1. How much is the implied goodwill from acquisition?
a. 4,800,000 b. 6,000,000 c. 7,200,000 d. 6,000,000
2. What amount of investment revenue should Tamara report on its income statement for the
year ended December 31, 2018, under the fair value method?
a. 1,400,000 b. 1,600,000 c. 1,000,000 d. 1,800,000
3. What amount of investment revenue should Tamara report on its income statement for the
year ended December 31, 2018 under the equity method?
a. 1,400,000 b. 1,600,000 c. 1,000,000 D, 1,800,000
4. Under the equity method, the carrying value of the Tamara Company’s investment in
ordinary shares of Jade Co. on December 31, 2018 should be
a. 31,600,000 b. 30,400,000 c. 31,400,000 d. 32,000,000
5. What amount should Tamara Company report on its December 31, 2018, statement of
financial position as its investment in Jade Co. under fair value method?
a. 31,600,000 b. 30,400,000 c. 31,400,000 d. 32,000,000
Problem No. 7. Equity Method

On January 1, 2018, Drenz Co. acquired 30,000 ordinary shares out of the 100,000 outstanding ordinary
shares of Josiah Inc. for P5,000,000. Josiah’s assets and liabilities approximate their fair value except for
inventories with carrying amount of P800,000 and fair value of P900,000 and machinery with carrying
amount of P2,500,000 and fair value of P2,200,000. The remaining useful life of the machinery is 5
years. Josiah’s net assets has a book value of P10,000,000.
On December 31, 2018, Josiah reported net income of P2,000,000 and declared and paid dividends of
P800,000. On December 31, 2019, Josiah reported net income of P4,500,000 and declared and paid
dividends of P1,600,000.
Questions:
Page Based
| 7 on the above data, answer the following:
1. How mush is the implied goodwill from acquisition?
a. 1,970,000 b. 2,000,000 c. 2,060,000 d. 2,600,000
2. How much is the net share in the profit or loss of the associate (investment income) in 2018?
a. 588,000 b. 600,000 c. 610,000 d. 612,000
3. How much is the carrying amount of the investment as of December 31, 2018?
a. 5,348,000 b. 5,350,000 c. 5,360,000 d. 5,618,000
a. 1,342,000 b. 1,350,000 c. 1,368,000 d. 1,380,000
a. 6,236,000 b. 6,716,000 c. 6,728,000 d. 6,740,000
Problem No. 8. Investment in Associate with inventories, machinery and Land-Land was subsequently sold
On January 1, 2018, Krizza Co. acquired 20,000 ordinary share out of the 100,000 outstanding ordinary
shares of Bakunawa Inc. for P5,000,000. Bacunawa’s assets and liabilities approximate their fair values
except for inventories with carrying amount of P600,000 and fair value of P650,000, machinery with
carrying amount of P1,000,000 and fair value of P1,500,000 and land with carrying amount of
P1,500,000 and fair value of P1,200,000. The remaining useful life of the machinery is 10 years.
Bacunawa’s net assets have a book value of P12,000,000.
On December 31, 2018, Bakunawa reported net income of P8,000,000 and declared and paid dividends
of P2,000,000.
On April 1, 2019, the land of Bakunawa was sold at a gain of P200,000.
On December 31, 2019, Bakunawa reported net income of P10,000,000 and declared and paid
dividends of P3,000,000.
Questions:
1. How much is the implied goodwill from acquisition?
a. 2,550,000 b. 2,600,000 c. 2,610,000 d. 2,710,000
a. 1,580,000 b. 1,600,000 c. 1,610,000 d. 1,640,000
a. 6,180,000 b. 6,210,000 c. 6,240,000 d. 6,600,000
a. 2,000,000 b. 2,010,000 c. 2,050,000 d. 2,090,000
a. 7,630,000 b. 8,200,000 c. 8,240,000 d. 8,280,000
Page | 8
Problem No. 9. Change from FVTPL to Equity Method – Step Acquisition
On January 1, 2016, Christine Co. acquired 20,000 ordinary shares out of the 200,000 outstanding
ordinary shares of Mary Inc. for P3,400,000. The investment was classified as FVTPL. The fair values per
share of Mary are as follows: Dec. 31, 2016, P160; Dec. 31, 2017, P150 and Dec. 31, 2018, P180.
Page | 9
On January 1. 2018, Christine purchased and additional 24,000 of Mary’s stock representing 12%
additional interest for P3,840,000, its fair value on that date when the carrying amount of Mary’s net
assets was P10,000,000. The excess was attributable to the machinery having a remaining life of ten
years.
On December 31, 2016, Mary reported net income of P800,000 and declared and paid dividends of
P400,000. On December 31, 2017, Mary reported net income of P1,400,000 and declared and paid
dividends of P550,000. On December 31, 2018, Mary reported net income of P1,300,000 and declared
and paid dividends of P400,000.
Questions:
1. How much is the amount of unrealized gain (or loss) to be recognized in the profit or loss in 2017?
a. Nil b. (200,000) c. (400,000) d. (300,000)
2. How much is the amount of investment income to be recognized in the profit or loss in 2017?
a. Nil b. 55,000 c. 82,500 d. 88,000
3. How much is the gain on reclassification of January 1, 2018 as a result of acquisition of 12% interest
in Mary Corp to be recognized in the profit or loss?
a. Nil b. 88,000 c. 200,000 d. 275,000
a. 286,000 b. (198,000) c. 770,000 d. 308,000
a. 7,326,000 b. 6,754,000 c. 7,810,000 d. 7,722,000
Problem No. 10. Cost to Equity Method

In connection with your audit of BNC Company’s financial statement, you were able to gather the
following subsidiary account which reflects the securities of the company for the year 2018:
PRC Corp. (FVTOCI)
Date Transactions Shares Debit Credit
9/01 Purchase 40,000 P5,000,000
9/30 Cash dividends to stockholders of record 9/25,
declared 9/5 P200,000
10/01 Purchase 100,000 12,000,000
10/15 Sale at P130 40,000 5,000,000
11/30 Cash collected for sale made on 11/10, after a 40,000
9/30 declaration of P10 cash dividend per share
to stockholders on record as of 12/1 5,200,000
12/15 Cash dividend received 600,000
Total P17,000,000 P11,000,000
BNC Company acquired 30,000 of the 100,000 outstanding ordinary shares of KKK Corporation’s voting
stock on January 1, 2017 for P2,400,000. During 2017, KKK earned P5,000,000 and paid dividends of
P2,000,000. BNC’s 30% interest in KKK gives BNC the ability to exercise significant influence over KKK’s
operating and financial policies. In 2018, KKK earned P6,000,000 and paid dividends of P1,600,000 on
April 1 and P1,600,000 on October `. On December 31, 2018, BNC sold half of its investment in KKK for
Page P2,400,000
| 10 cash and reclassified the remaining shares in FVTOCI securities.
PRC KKK
Market value of stock 12/31/18 P140,000 P150,000
Questions:
Based on the above and the result of your audit, answer the following:
1. The gain (or loss) on sale of 40,000 shares of PRC Corp on October 15 is
a. (200,000) b. 200,000 c. 400,000 d. (400,000)
2. The gain on sale of 40,000 shares of PRC Coorp on November 10 is
a. Nil b. P400,000 c. P1,200,000 d. 800,000
3. The carrying value of the BNC Company’s investment in PRC Corp. on December 31, 2018 is
a. 8,400,000 b. 12,000,000 c. 9,000,000 d. 7,800,000
4. The gain on sale of investment in KKK Corp is
a. Nil b. 330,000 c. 600,000 D, 400,000
5. The total unrealized gain or loss to be reported in the 2018 statement of financial position is
a. Nil b. 1,800,000 c. 1,980,000 d. 1,620,000

Problems - Investment in Equity Securities

Încărcat de

Informații document

Descriere originală:

Titlu original

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

Problems - Investment in Equity Securities

Încărcat de

Drepturi de autor:

Formate disponibile

INVESTMENT IN EQUITY SECURITIES

Problem No.1. Trading Securities

Page | 1 Cost Market Value

During 2018, the following transactions occurred among others:

EDA Corporation-preference shares P50

Problem 2. Fair Value through other comprehensive income (FVTOCI)

EDA Corporation-preference shares P50

The following transactions transpired during 2018:

Closing market quotations as of December 31, 2018:

FVTOCI Portfolio Fair value

The following additional transactions happened in 2019:

FVTOCI Portfolio Fair value

Problem No. 6.: Cost and Equity Method Compared

Problem No. 7. Equity Method

On April 1, 2019, the land of Bakunawa was sold at a gain of P200,000.

Problem No. 10. Cost to Equity Method

S-ar putea să vă placă și