Masters Technological Institute of Mindanao 1.

In the December 31, 2015, statement of financial position, what

Applied Auditing should be reported as carrying amount of the investments?
2. In the 2015, Income Statement, what amount should be reported
AUDIT OF INVESTMENTS as unrealized gain or loss?

Problem 1 b. During the year 2016, Smarts Corp. sold 2,000 share of GFI Co. for
Given below is a list of securities and other assets that may qualify 114,600 and purchased 2,000 more shares of MSU, Inc. and 1,000
as investment: shares of RMMC Company. On December 31, 2016, Smarts’ equity
Equity securities of another company where securities portfolio consisted of the following:
no control nor significant influence exist. The
company elected to report gains/losses in the Investment Quantity Cost Fair Value
profit/losses P100,000 MSU Inc. 1,000 shares P45K P60K
Equity securities of another company where MSU Inc. 2,000 shares 99K 120K
no control nor significant influence exist. The RMMC Co 1,000 shares 48K 36K
company elected to report gains/losses in the NDDU Corp. 2,000 shares 216K 66K
other comprehensive income 150,000 Total 408K 282K
20% Equity securities of another company
quoted in an active market 500,000 3. What is the gain or loss on the sale of GFI Co. investments?
51% Equity securities of another company 4. What is the carrying amount of the investments on 12/31/16?
quoted in an active market 1,400,000 5. What amount of unrealized gain or loss should be reported in the
Equity securities of the company quoted income statement for the year ended 12/31/16?
in an active market reacquired with an intention
of reissuance in latter period for short-term c. During the year 2017, Smarts sold 3,000 shares of MSU, Inc. for
profit 500,000 P119,700 and 500 shares of RMMC company at a loss of P8,100. On
Debt security of another company quoted in December 31, 2017, Smart’s equity investment portfolio consisted of
an active market. Business model of the company the following:
has an objective to hold debt securities for
short-term profits. 100,000 Investment Quantity Cost Fair Value
Debt security of another company quoted in RMMC Co 500 shares P24K 18K
an active market. Business model of the company NDDU Corp 2,000 shares 216K 246K
has an objective of collecting contractual cash Total 240K 264K
flows from the bonds which are primarily in
the form of interests and principal. 500,000 6. What should be reported as loss on sale of trading securities in
Real property held for resale in the ordinary 2017?
course of business 500,000 7. What amount of unrealized gain or loss should be reported in the
Real property held for speculation purposes 700,000 income statement for the year ended 12/31/17?
Real property held as a current factory site 1,000,000 8. In the 12/31/17, statement of financial position, what should be
Real property of a manufacturing business reported s carrying amount f trading securities?
being leased out to another party under
operating lease 900,000 Problem 3
Land held for undetermined future use 800,000 Benshoppe Inc. had the following portfolio of financial assets as of
Land held to be used as future plant site 400,000 December 31, 2016. All the financial asset were acquired in 2016.
Real Property being developed as an
investment property 300,000 Financial Asset Acquisition Cost
Aye Corp. Stocks, 20,000 shares P590,000
Required: Bee Inc. Stocks, 40,000 shares 1,100,000
1. How much from the list above is to categorized as financial asset See Co. 10%, P2M bonds 1,973,000
at FVTPL? Dee Corp. Stocks, 50,000 shares 2,400,000
2. How much from the list above is to be categorized as FVTOCI?
3. How much from the list above is to be recognized a investment at Additional info:
amortized cost? a. Aye Corp. shares were acquired with an intention of generating
4. How much from the list above is to be categorized as investment short-term profits from the share price’s fluctuation. The company
in associate? paid P29.50 per share, which included the P0.50 per share broker’s
5. How much from the list above is to be categorized as investment fees and commissions. The shares were acquired on February 20,
in subsidiary? 2016. A P2 per share cash dividends were received on March 30.
6. How much from the list above is to be recognized as investment These dividends were declared by Aye Corp. on January 20, 2016 to
property? stockholders as of record date March 1, 2016.
b. The company paid P27.50 per share, including P0.50 per share
Problem 2 broker’s fee on the acquisition of Bee Inc. on March 1, 2016. These
shares were acquired for trading purposes. A P3 per share dividends
Smarts Corp. invested its excess cash in equity securities during were received from the said shares on March 3, 2016. These
2015. The business model for these investments is to profit from dividends were declared on April 1 to stockholders as of record date
trading on price changes. April 20.
c. See Co. bonds which pay semi-annual interest June 30 and
a. As of December 31, 2015, the equity investment portfolio December 31, were acquired on October 1, 2016 at 1,973,000, when
consisted of the following: the prevailing effective interest rate on similar instrument was at
Investment Quantity Cost Fair Value 12%. The bonds shall mature on December 31, 2018. The company
MSU,Inc. 1,000 shares P45,000 P63,000 has a business model of holding debt securities for short-term
GFI Co. 2,000 shares 120,000 126,000 profits.
NDDU Corp. 2,000 shares 216,000 180,000 d. Dee Corp. stocks were acquired P48 per share broker’s fees and
381,000 369,000 commission on June 30, 2016. Dee Corp had a total of P200,000
shares outstanding on the same date. The company received P5 6. What is the unrealized holding gain/loss to be recognized in the
dividends per share on December 20, 2016. 2015 income statement?
e. The following information were deemed relevant at year-end and
no entries had been made yet by the company to reflect any of the
following information:
Aye Bee See Dee
Net Income 2016 1.2M 1.5M 2M 2.24M
Fair Value P35/share P25/share 11% P51/hare

Required:
1. What is the unrealized holding gain/loss to be reported in the
2016 statement of comprehensive income?
2. What is the correct carrying value of investments that should be
presented as current asset?
3. What is the correct carrying of investments that should be
presented as non-current?
4. How much in total should be recognized in the income statement
in relation to the investments?
5. Assuming that the company’s business model regarding debt
securities has an objective of collecting contractual cash flows, what
is the correct carrying value of investments that should be presented
as non-current?
6. Assuming that the company’s business model regarding debt
securities has an objective of collecting contractual cash flows, how
much I total should be presented in the income statement in
relation to the investments?

Problem 4
The following two subsidiary accounts reflect the Trading Securities
of A corp. for the year 2015.

Noel Company
Date Transactions Shares Ref. Dr. Cr.
2/22 Purchase 2,000 CD 190K
2/28 Raised MV; GJ
Offset to RE 10K

3/15 Sale @150 1,000 CR 150K

6/30 Stock Dividend
@ par 1,000 GJ 100K
7/15 Sale @110 1,000 CR 110K

Ilan Company
Date Transactions Shares Ref. Dr. Cr.
9/5 Purchase 20,000 CD P1M
9/28 Cash dividend
to stock record
9/15, declared
8/15 CR P50K
10/1 Sale @P65 20,000 CR P1.3M
1/5 Purchase 50,000 CD 2.5M
11/30 Cash collected
for sale made
on 11/10, after
a 11/1 declaration
of P5 cash dividend
per share to SH of
record as of 12/1 20,000 CR 1.32M
12/15 Cash dividend
received CR 150K

The above trading securities had the following fair values at

12/31/15:
Noel Company P50 per share
Ilan Company 30 per share
Required:
1. What is the gain on sale of Noel Company shares on 3/15/15?
2. What is the gain on sale of Noel Company shares on 7/15/15?
3. What is the gain on sale of Ilan Corporation shares on 10/1/15?
4. What is the gain on sale of Ilan Corporation shares on 11/10/15?
5. What amount should A Corp. report its trading securities on its
balance sheet at Dec. 31, 2015?