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April 30
(b)
Tamban, Inc. Ordinary Shares
Purchased 60,000 shares @ P40 per share
October 28
Additional information:
a. The fair value for each security as of the 2012 sate of each
Security
Feb.
April
14
30
Salmon company
P55
Tamban. Inc.
P40
Fishing Crop.
25
28
P2,400,0
00
P72,00
0
transaction follow:
July
Sept.
Dec.
26
28
31
P62
P70
P74
32
30
33
35
72,000
72,000
B. Cash
72,000
Investment in equity securities
72,000
C. Investment in equity securities
72,000
Dividend income
72,000
D. Dividend income
72,000
Investment in equity securities
72,000
4. What amount of unrealized gain or loss should be reported in the 2012 statement of
comprehensive income as component of other comprehensive income?
A. P192,000 gain
C. P480,000 gain
B. P192,000 loss
D. P480,000 loss
5. What amount should be reported as Investment in Equity Securities in the statement of
financial position on December 31, 2012?
A. P2,808,000
C. P2,520,000
B. P3,000,000
D. P3,288,000
Dividend income
PROBLEM 3:
Shown below is an amortization schedule to ANGER COMPANYs 5-year, P500,000 bond with a
7% interest rate and a 5% yield, purchased on December 31, 2009, for P543,300.
date
12/31/0
9
12/31/1
0
12/31/1
1
12/31/1
2
12/31/1
3
12/31/1
4
Interest
receive
d
Interes
t
incom
e
Premium
amortizati
on
Carrying
amount
P35,00
0
35,000
P27,16
5
26,773
P7,835
P543,30
0
535,465
8,227
527,238
35,000
26,362
8,638
518,600
35,000
25,930
9,070
509,530
35,000
25,470
9,530
500,000
The following shows a comparison of the amortized cost and fair value of the bonds at yearend:
Amortized
Fair
cost
value
December 31,
P535,465 P532,500
2010
December 31,
527,328
537,500
2011
December 31,
518,600
528,250
2012
December 31,
509,530
515,000
2013
December 31,
500,000
500,000
2014
Required:
a. Prepare the journal entry to record the purchase of these bonds on December 31, 2009,
assuming the bonds are held as financial assets measured at amortized cost.
b. Prepare the journal entry(ies) related to these bonds for 2010
c. Prepare the journal entry(ies) related to these bonds for 2012
d. What should be reported as the carrying amount of these bonds in the statement of
financial position on December 31, 2013?
April 1
Sold P300,000 of 7 % Turkey bonds at 102 plus accrued interest. Brokerage fees
were P1,000
May 1
Received dividend of P1.25 per share on the Concave ordinary share capital. The
dividend had not been recorded on the declaration date.
July 1
received semiannual interest on bonds and then sold the 7% Tipo bonds at 97 .
Brokerage fees were P1,250
August 15
purchased 100 shares of Newman, Inc. ordinary share capital at P580 per share
plus brokerage fees of P250
November 1 Purchased P250,000 of 8% Toll Co. Bonds at 101 plus accrued interest. Brokerage
fees were P625. Interest dates are January 1 and July 1
December 31
2013
January 2
February 1
Interest
received
Interest
income
12.31.1
0
12.31.1
P70,000
P54,328
1
12.31.1
70,000
53,545
2
12.31.1
70,000
52,722
3
12.31.1
70,000
51,858
4
12,31,1
70,000
50,982*
5
*adjustment due to rounding
Premium
amortization
Amortized
cost
P1,086,565
P15,672
1,070,893
16,455
1,054,438
17,278
1,037,160
29,142
1,019,018
19,018
1,000,000
The following schedule presents the amortized cost and fair value of the bonds at year-end.
Fair value
Amortized
cost
December 31,
P1,065,00
P1,070,893
2011
0
December 31,
1,075,000
1,054,438
2012
December 31,
1,056,500
1,037,160
2013
December 31,
1,030,000
1,019,018
2014
December 31,
1,000,000
1,000,000
2015
1. What amount should be reported as investment in available for sale securities in the
statement of financial position of Kalugong Co. on December 31, 2012?
A. P1,086,565
C. P1,075,000
B. P1,054,438
D. P1,065,000
2. What amount of unrealized gain should be shown as component of other comprehensive
income in the 2012 statement of comprehensive income?
A. P26,455
C. P10,000
B. P20,562
D. P16,455
3. What amount of unrealized loss should be shown as component of other comprehensive
income in the 2013 statement of comprehensive income?
A. P14,393
C. P19,340
B. P18,500
D. P1,222
4. What amount of unrealized loss should be shown as component of other comprehensive
income in the 2014 statement of comprehensive income?
A. P8,350
C. P9,792
B. P26,500
D. P10,982
5. What amount of unrealized gain should be shown in the 2014 statement of changes in
equity?
A. P26,455
C. P25,233
B. P16,883
D P10,990
15
July
23
October
15
October
16
November 2
brokerage fees
December 31
market values
27
Sold half the PG, Inc. shares for P65 per share.
March
Sold the ESP Co. preference shares for P78 per share
1. What is the gain (loss) on the sale of the OW Corporation bonds on October 16, 2012?
A. P0
C. P(100,000)
B. P200,000
D. P100,000
2. What is the total amount that would be reported on Pomelo Companys December 31,
2012, income statement relative to these investments?
A. P210,000
C. P110,000
B. P260,000
D. P160,000
3. How much unrealized gain (loss) should be reported in profit of loss in 2012?
A. P150,000
C. P100,000
B. P(1,500,000)
D. P0
4. What amount of gain on sale of PG, Inc. shares on January 27, 2013, should Pomelo
recognize?
A. P75,000
C. P450,000
B. P600,000
D. P300,000
5. What is the gain on the sale of the ESP Co. preference shares on March 2, 2013?
A. P5,500
,000
C. P7,000,000
B. P9,000,000
D. P1,500,00
PROBLEM 8:
Your audit of KALABASA CORPORATIONs investments in debt and equity securities reveals the
following information:
a. On January 1, 2012, X Company issued P1,000,000 in debt securities. The stated interest
is 9%, with interest payable semiannually, on June 30 and December 31. On February 1,
Kalabasa purchased these debt securities from an investor who acquired them when
they were originally issued. Kalabasa paid the investor an amount equal to the face
value of the securities plus accrued interest. The securities were designated as held-fortrading.
b. On June 1, kalabasa purchased 10,000 shares of equity securities for P50 per share.
These securities were acquired as and available-for-sale investment. Kalabasa paid
P13,900 brokers commission on the purchase.
1. On initial recognition, a financial asset or financial liability is measured at
A. Acquisition cost, i.e., the consideration paid or received plus any directly attributable
transaction cots to the acquisition or issuance of the financial asset or financial liability
B. The consideration paid or received for the financial asset or financial liability
C. Fair Value. For items that are not measured at fair value through profit or loss,
transaction costs are also included in the initial measurement.
D. Zero
2. The entry to record the acquisition of debt on February 1 is
A. Investment in trading securities
1,007,500
Cash
1,007,500
B. Investment in trading securities
992,500
Interest income
15,000
Cash
1,007,500
C. Investment in trading securities
1,000,000
Unrealized loss on trading securities
7,500
Cash
1,007,500
D. Investment in trading securities
1,000,000
Interest income
7,500
Cash
1,007,500
3. The entry to record the purchase of equity securities on June 1 is
A. Investment in available-for-sale securities
500,000
Brokers commission expense
13,000
Cash
513,000
513,000
513,000
513,000
513,000
500,000
13,000
513,000
PROBLEM 9:
On January 1, 2012, RAMBUTAN CORP. purchased debt securities for cash of P765,540. The
securities have a face value of P600,000, and they mature in 15 years. The securities carry
fixed interest of 10%, that is receivable semiannually, on June 30 and December 31. The
prevailing market interest rate on these debt securities is 7% compounded semiannually.
Rambutan Corp. intends and has the financial resources to hold these securities to maturity.
1. The carrying value of the debt securities on December 31, 2012, at amortized cost using
the effective interest rate method is
A. P771,840
C. P765,540
B. P759,016
D. P600,000
2. The interest income to be reported for 2012 using the effective interest rate method is
A. P66,524
C. P60,000
B. P6,524
D. P53,476
PROBLEM 10:
CHICO COMPANY purchased the following available-for-sale securities 2011:
Fair Value
Security
Cost
Dec. 31, 2009
X
P450,000
P500,000
Y
500,000
800,000
On July 28, 2012, Chico sold all the shares of Security Y for a total of P835,000. As of
December 31, 2012, the shares Security X had a fair value of P200,000. No other activity
occurred during 2012 in relation to the available-for-sale securities portfolio.
1. What amount should Chico Company report as realized gain in the 2012 income
statement?
A. P35,000
C. P300,000
B. P335,000
D. P265,000
2. What is the cumulative unrealized gain (loss) to be classified as component of other
comprehensive income at December 31, 2012?
A. P300,000
C. P(300,000)
B. P150,000
D. P(250,000)
PROBLEM 11:
PAPAYA, INC. purchased the following securities during 2012:
Security
A1 Corp. stock
B2 Co. stock
C3, Inc. stock
D4 Corp.
bonds
E5 Co. bonds
Category
Trading
Available-forsale
Available-forsale
Held-tomaturity
Trading
No. of
shares
25,000
5,000
Total
Cost
P450,000
1,100,000
125,000
2,125,000
----
1,200,000
----
550,000
The following transactions related to Papaya, Inc.s investments occurred during 2012:
a. Received interest from D4 Corp. and E5 company bonds totaling P181,500
b. Dividends received on the equity securities held amounted to P88,000
15,000
540,000
525,000
1,200
180,000
184,000
P940,500
P916,800
All of the following securities were bought in 2011. In 2012, strawberry had the following
transactions relating to its investments:
April 1
May 1
sold the 4,500 ordinary shares of Danica Co. for P65 per share.
bought 2,100 ordinary shares of Rita Corp. at P75 plus brokers fee of P5,200
P3,130,00
0
During the year 2012, santol sold all the Kelly, Inc. shares for P2,300,000 and 15,000 shares of
Kongga Company at a loss of P90,000. On December 31, 2012, Santols portfolio of AFS
consisted of the following:
Investee
Shares
Cost Fair Value
Company
Yogi Enterprises
60,000
P2,160,000 P4,200,000
Kongga
15,000
260,000
180,000
Company
P2,420,00 P4,380,00
0
0
1. What should be reported on Santols Statement of Financial position as of December 31,
2010?
Unrealized
Holding Gain
AFS
on AFS
Securities
Securities
A.
P4,335,000
P0
B.
4,110,000
0
C.
4,085,000
0
D.
4,335,000
225,000
2. What should be reported on Santols statement of financial position as of December 31,
2011?
Unrealized
Holding Loss
AFS
on AFS
Securities
Securities
A.
P3,130,000
P0
B.
3,130,000
1,300,000
C.
4,430,000
0
D.
2,450,000
1,980,000
3. What should be reported on Santols statement of financial position as of December 31,
2012?
Unrealized
Holding gain
AFS
on AFS
Securities
Securities
A.
P4,380,000
P1,960,000
B.
2,420,000
0
C.
4,380,000
0
D.
2,340,000
2,090,000
4. What is the realized gain or loss on the sale of Eloy Corp. shares in 2011?
A. P10,000 loss
C. P100,000 gain
B. P120,000 loss
D. P90,000 gain
5. What is the net realized gain on the sale of securities in 2012?
A. P550,000
C. P350,000
B. P460,000
D. P260,000
PROBLEM 16:
PEAR COMPANY investment portfolio contains the following securities on December 31, 2011:
Security
Shares
Cost
Market
Classified as
150,000
60,000
600,000
750,000
P3,000,00
0
1,200,000
34,200,00
0
2,025,000
Value
P2,850,000 Trading
1,290,000 Trading
33,900,000 Investment in
associate
1,500,000 Available-forsale
Pear Companys investment had the following market values at December 31, 2012:
Omar Co. ordinary
P3,060,000
Godling, Inc. preference
1,290,000
Sonata Co. ordinary
33,450,000
Jordan Co. ordinary
1,700,000
1. What valuation entries are required at December 31, 2011, assuming that al of the above
securities were acquired in 2011 and none of the indicated declines in market value are
considered other than temporary?
2. Assume that Jordan Co.s ordinary shares market decline is considered other than
temporary. What valuation entries are required at December 31, 2011, under this change in
assumption?
3. Assume that the investment categories remain the same and that al declines in 2011 and
2012 are temporary except for the 2011 decline in Jordan Co.s ordinary shares. What
valuation entries are required at December 31, 2012?
PROBLEM 17:
On January 2, 2010, PLUM COMPANY purchased as a long-term investment a debt instrument
with a 5-year term for its fair value of P1,386,275. The instrument has a principal amount of
P1,500,000 and carries a fixed interest of 8% annually. The effective interest is determined to
hold the debt instrument until maturity.
During 2012, the issuer of the instrument is in financial difficulties and it becomes probable
that the issuer will be put into administration by a receiver. The fair value of the instrument is
estimated to be P750,000 at the end of 2012, calculated by discounting the expected future
cash flows at 10%. No cash flows are received during 2013. At the end of 2013, the issuer is
released from administration and Plum receives a letter from the receiver stating that the
issuer will be able to meet its remaining obligations, including interest and repayment of
principal.
1. What is the book value of the held-to-maturity investment at the end of 2011?
A. P1,347,157
C. P1,500,000
B. P1,460,882
D. P1,425,393
2. What amount of impairment loss should be recognized in 2012?
A. P697,932
C. P636,275
B. P750,000
D. P675,393
3. How much interest income should be recognized in 2013?
A. P24,793
C. P75,000
B. P0
D. P120,000
4. What amount of impairment loss reversal should be recognized in 2013?
A. P697,932
C. P750,000
B. P647,725
D. P0
5. How much discount amortization should be recognized in 2014?
A. P27,275
C. P120,000
B. P0
D. P75,000
PROBLEM 18:
The investment in AFS securities account in the general ledger of PEACH CO. is reproduced
below:
Investment in Available-for-sale (AFS) Securities
balance
2012
P1,410,000 September 11
3,150,000 November 29
P390,000
2,700,000