PROBLEM 1

You are auditing the CSI Inc’s investment account. In its initial year of operations, the company
has provided you the following information with regard to its stock investment:

Number of shares Recorded acquisition

acquired cost
ABC Corp 2,000 240,000
DEF Inc 1,500 225,000
GHI Co 3,000 285,000
JKL Corp 4,000 200,000
MNO Co 10,000 850,000
1,800,000

Additional information:
a. ABC Corp stocks were acquired on March 1, 2011 at a total cost of P200,000 plus
brokerage fees and commissions to P40,000. Dividends, which were declared on January
25, 2011to stockholders as of March 20, 2011 were received on April 1, 2011 at P20,000.
ABC Corp. stocks were acquired by the company with the intention with designating the
same as a financial asset at fair value through profit or loss. The stocks were selling at
P105 per share as of December 31, 2011.
b. DEF Corp. were acquired on May 1, 2011 at P150 per share. The company paid
brokerage and commissions amounting to P30,000. The company had neither significant
influence over DEF Corp nor does it intend to sell the stocks for short-term profits, thus
designated the same as fair value through other comprehensive income. The company
received a 20% stock dividend on October 11, 2011. The stocks were selling at P160 per
share on December 31, 2011.
c. GHI Co. stocks, which were acquired for trading purposes on June 1, 2011 at P285,000,
were split 5 for 3 on August 15, 2011. On September 30, 2011, the company paid special
assessment on the assessment on the investment at P25 per share. On December 30, 2011,
when the shares had a market value of P75 per share, GHI declared a P5 dividend
payable on January 25, 2012.
d. JKL Corp stocks were acquired on August 1, 2011 classified as financial asset at fair
value through other comprehensive income. JKL issued 1 share for every 4 shares held in
lieu of a P15 per share cash dividends it has previously declared. The stocks were selling
at that time at P55 per share. JKL shares were selling at P60 per share on December 31,
2011.
e. MNO Corp stocks were acquired at the beginning of 2011 when MNO Corp offered its
P50 par value stocks in an IPO in January 2011. All kof MNO Corp’s 50,000 authorized
shares were issued on the same date and remained outstanding as of December 31, 2011.
The company reported total comprehensive income of P250,000 which is net of foreign
exchange loss reported in its OCI/OCL amounting to P50,000. MNO also paid P3 cash
dividends on December 31, 2011. The stocks were selling at P90 per share on December
31, 2011. No entry has been made by the company to reflect the transactions and
information on December 31, 2011

1. How much should the investment in the ABC Corp stocks and DEF Inc, be initially
recognized?
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 a. 240,000; 225,000
b. 180,000; 255,000
c. 200,000; 255,000
d. 200,000; 225,000
2. How much is the correct dividend income to be recognized from investment in stocks in
DEF Inc and GHI Co., respectively?
a. 46,500; 15,000
b. 0; 25,000
c. 46,500; 25,000
d. 0; 15,000
3. How much is the correct dividend income to be recognized from investment in JKL Corp.
stocks?
a. 0
b. 55,000
c. 60,000
d. 220,000
4. How much investment income should be reported from investment in MNO Co. stocks?
a. 100,000
b. 50,000
c. 120,000
d. 60,000
5. How much should be reported as investment in stocks classified as trading securities and
the corresponding unrealized holding gain or loss to be reported in its income statement?
a. 590,000; 0
b. 585,000; (5,000)
c. 590,000; 5,000
d. 585,000; 0
6. How much should be reported as investment in stocks classified as available-for-sale
security and the corresponding unrealized holding gain or loss to be reported in its
balance sheet?
a. 510,000; 0
b. 588,000; 78,000
c. 510,000; 78,000
d. 588,000; 0
7. How should the investment in MNO Co stocks be presented in the company’s balance
sheet?
a. Investment in associate at P870,000
b. Investment in associate at P850,000
c. Investment in associate at P780,000
d. Available for sale securities at P900,000

PROBLEM 5

On January 4, 2014, Isuzu Corp, paid P2,592,000 for 40,000 shares of Suzuki Inc. ordinary
shares. The book value of Suzuki’s assets was P6,400,000 on the date of acquisition.

The investment represents a 30% interest in the net assets of Suzuki Inc and gave Isuzu the
ability to exercise significant influence over Suzuki. Isuzu received dividends of P6 per share on

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December 4, 2014, and Suzuki reported net income of P1,280,000 for the year ended December
31, 2014. The market value of Suzuki’s shares at December 31, 2014 was P64 per share with
cost to sell at minimal amount.

You also ascertained the following information:

On January 4, 2014, the fair value of Suzuki’s depreciable assets, with an average remaining
useful life of 8 years, exceeded their book value by P640,000. The remainder of the excess of the
cost of the investment over the book value of the net assets purchased was attributed to an
unidentifiable asset.

1. What amount of investment is attributable to goodwill?

a. 480,000
b. 192,000
c. 672,000
d. 288,000
2. What amount of investment income should be reported by Isuzu’s income statement for
the year ended December 31, 2014?
a. 240,000
b. 216,000
c. 360,000
d. 384,000
3. What is the carrying value of the investment in Suzuki’s ordinary share on December 31,
2014?
a. 2,560,000
b. 2,712,000
c. 2,592,000
d. 2,736,000
4. What total/net amount should be reported in Suzuki’s income statement for the year
ended December 31, 2014?
a. 240,000
b. 208,000
c. 60,000
d. 180,000
5. Assuming that the company has no significant influence over Suzuki despite of the
proportionate ownership, what total/net amount should be reported in Suzuki’s income
statement for the year ended December 31, 2014?
a. 240,000
b. 208,000
c. 60,000
d. 180,000
6. In relation to item no. 5 above, what is the carrying value of the investment at December
31, 2014?
a. 2,592,000
b. 2,712,000
c. 2,560,000
d. 2,471,000

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PROBLEM 6

On January 2, 2014, Pacquiao Corp, acquired 50,000 ordinary shares of Morales Inc. at P325 per
share. Morales’ books contained the following selected information as of the last reporting date,
December 31, 2013:

Ordinary shares, 100 par value, 200,000 shares

issued and outstanding 20,000,000
10% preference shares, 50 par value, 100,000
shares issued and outstanding 5,000,000
Share premium on ordinary shares 15,000,000
Accumulated profits as of December 31, 2013 20,000,000
Net income for the year 2013 5,000,000

Dividends were declared and paid on preference shares on December 31, 2013.

Morales’ building which had a remaining life of 5 years was understated by P4,000,000 on the
acquisition date. Any remaining excess over the book value, is attributable to unidentifiable
asset.

On December 31, 2014, Morales reported a total net income of 2.5M.

1. What is the share in net income of the associate assuming that the preference shares are
cumulative?
a. 625,000
b. 500,000
c. 425,000
d. 300,000
2. What is the balance of the associate investment assuming that the preference shares are
cumulative?
a. 16,875,000
b. 16,750,000
c. 16,675,000
d. 16,550,000
3. What is the share in net income of the associate assuming that the preference shares are
non-cumulative?
a. 625,000
b. 500,000
c. 425,000
d. 300,000
4. What is the balance of the associate investment assuming that the preference shares are
non-cumulative?
a. 16,875,000
b. 16,750,000
c. 16,675,000
d. 16,550,000

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