INSTRUCTIONS:
a. Write your solution in your JoL.
b. ENCIRCLE your final answer for each requirement.
c. Use ANOTHER COLOR of ballpen to encircle your final answers.
d. The Google Drive link should be pasted in the answer board of Neo LMS.
Problem 1 – FINANCIAL ASSET AT FAIR VALUE
At the beginning of current year 2018, JEJE-AL Company purchased 5,000 Jollibee Foods
Corporation (JFC) shares for P300 per share. The entity also paid commission, taxes and other
transaction costs amounting to P250,000. The securities are quoted at P250 per share at year-
end. No securities were sold during the year. The transaction costs that would have been incurred
on the disposal of the investment are estimated at P150,000.
In 2019, 1,000 JFC securities were sold at P320 per share. The entity incurred disposal costs
worth P32,000. The quoted price of the remaining securities end of 2019 is P350 per share.
In 2020, 2,500 shares were sold at a selling price of P295 per share. The entity incurred disposal
costs worth P80,000. The remaining securities are quoted at P180 per share at year end.
Required: (26 POINTS)
A. Assuming the entity is holding the shares to take profit on the potential increase in
the value of the shares in the near term, compute the carrying value of the financial
assets as of:
a. January 1, 2018.
b. December 31, 2018.
c. December 31, 2019.
d. December 31, 2020.
B. Assuming the entity irrevocably designated JFC shares at Fair Value through Profit or
Loss, what is the increase or (decrease) in the comprehensive income of the entity for
the calendar year ending:
1. December 31, 2018.
2. December 31, 2019.
3. December 31, 2020.
C. Assuming the entity irrevocably designated JFC shares at Fair Value through Other
Comprehensive Income, what is the balance of the cumulative gains or losses
presented as a component of stockholders’ equity as of:
1. December 31, 2018.
2. December 31, 2019.
3. December 31, 2020.
D. Assuming the entity irrevocably designated JFC shares at Fair Value through Other
Comprehensive Income, what is the increase or (decrease) in the comprehensive
income of the entity for the calendar year ending:
1. December 31, 2018.
2. December 31, 2019.
3. December 31, 2020.
Problem 2 – INVESTMENT IN DEBT SECURITIES (BONDS)
BEBOT Company holds debt securities within a business model whose objective is achieved both
by collecting contractual cash flows and selling the debt securities. The contractual cash flows
are solely payments of principal and interest on specified dates.
A 3-year 5% P1,000,000 bond was purchased on December 31, 2014 and matures on December
31, 2017. The bonds were purchased to yield 7% interest.
The following fair values of the bonds at end of the year are as follows:
December 31, 2015 1,065,000
December 31, 2016 1,075,000
December 31, 2017 1,056,500
(Round-off Present Value Factors to FOUR decimal places)
Required: (24 points)
1. Compute the carrying value of the financial assets as of:
a. December 31, 2014
b. December 31, 2015.
c. December 31, 2016.
2. Compute the interest income to be presented in the statement of comprehensive
income for the following calendar year:
a. 2015
b. 2016
c. 2017
3. Compute the cumulative balance of unrealized gain or loss to be presented as a
component of equity in the statement of financial position as of the following period:
a. December 31, 2015.
b. December 31, 2016.
c. December 31, 2017.
4. Assuming the bonds were sold on January 1, 2017 at P1,100,000, give the compound
entry to record the sale. (3 points)
5. Assuming the bonds were sold on March 1, 2017 at P1,100,000 including any accrued
interest, give the compound entry to record the sale. (3 points)
