Examination About Investment 8
Uploaded by
BLACKPINKLisaRoseJisooJennieExamination About Investment 8
Uploaded by
BLACKPINKLisaRoseJisooJennieEXAMINATION about INVESTMENT 8
General Rule: Read the following carefully and answer it wisely. All solutions are needed, so put it in the last
page. (10 Points)
1. Valentine Company issues rights to subscribe to its share, the ownership of 4 shares entitling the shareholders to
subscribe for 1 share at P100. Conrad owns 20,000 shares with total cost of P1,650,000. The share is quoted rights
on at P125. What is the cost of the new investment assuming Conrad exercises all share rights?
a. P 66,000 c. P500,000
b. P563,462 d. P566,000
Answer: D
Cash Paid (20,000 ÷4 x P100) P500,000
Add: Cost of rights (P1,650,000 x 5/125) P 66,000
Total P566,000
Theoretical value of rights (rights on)
MV of share – Subscription price
= -------------------------------------------
N+1
P125 – P100
= --------------- = P5
4+1
2. Box Company bought the shares (classified as available of sale) of Pyramid, INC. as follows:
Jun 9, 2010 2,000 shares @ P100 P200,000
Dec 4, 2010 3,000 shares @ P120 360,000
P560,000
The following were the transaction for 2011:
Jan 4 received cash dividend at P10 per share.
Jun 19 received 20% share dividend
Dec 9 Sold 3,00 share at P120 per share.
How much is the gain on the sale of the shares, assuming the average cost approach is used?
a. None c. P 60,000
b. P80,000 d. P100,000
Answer: B
6.09.10 12.04.10 Total
Upon Acquisition 2,000 3,000
Share dividend (20%) 400 600
Total before sales 2,400 3,600 6,000
Divided by: Total Cost (P200,000 + P360,000) P560,000
Ave. Unit cost P93.99
Selling Price (3,000 x P120) P360,000
Less: Cost of investment (3,000 x P93.99) P280,000
Gain on Sales P 80,000
3. Flowers Corporation acquired ordinary shares of Stems Company as follows:
Date of No. Of Total
Lot Acquisition Shares Cost
A Oct 4, 2010 1,500 P 60,000
B May 9, 2010 800 36,000
C Aug 19, 2011 1,600 80,000
Total P176,000
On June 19, 2011, Stems Company issued a 10% share dividend. On September 1, 2011, Flowers sold 2,100 share of the
share at P60 per share. No cash dividends were declared from 2010 to 2011. How much is the gain or loss on the sale,
computing the cost of the shares sold on the basis of (a) first in first out (FIFO) and (b) average cost?
FIFO Average Cost
a. P47,590 gain P36,498 gain
b. P47,590 loss P36,498 loss
c. P49,636 gain P46,316 loss
d. P49,636 loss P46,316 gain
Answer: A
Lot A Lot B Lot C Total
Acquired 1,500 800 1,600 3,900
6.9.11 dividend (10%) 150 80 230
Total 1,650 880 1,600 4,130
Divided by: Total cost P176,000
Ave. Unit Cost P 42.62
Ave Method:
Selling Price (2,100 x P60) P126,000
Less: Cost of investment sold
(2,100 x 42.62) P 89,502
Gain on Sales on Investment P 36,498
FIFO Method
Selling Price P126,000
Less: Cost of investment
Lot A 1,650 shares = P60,000
Lot B 450 shares = P18,410 P 78,410
(450/880 x P36,000)
Gain on Sales on Investment P 47,590
4. On January 2, 2009, Phone Company purchased 10,000 shares (10%) of the outstanding ordinary share of Pal,
Inc. for P25 per share. The purchase was appropriately recorded as a long-term investment and accounted for
under the fair value method. The market price of the share was P24 per share on December 31, 2009. During 2010
Pal experienced severe financial difficulties and Phone disposed of its entire investment in Pal share for P10 share
on November 9, 2010. Phone’s effective tax rate was 32% for 2010. In its 2010 statement of comprehensive
income, how much should Phone report as loss from disposal of the long-term investment?
a. P 84,000 c. P 90,000
b. P140,000 d. P150,000
Answer: D
Proceeds from sales(10,000 shares x P10) P100,000
Carrying value of investment
(10,000 shares x P25) P250,000
Loss on Sales of investment P150,000
5. Soprano Company acquired 50,000 ordinary shares of Alto Company on September 30, 2009 for P8,250,000. On
October 30, the shares were split into a 2:1 basis. On November 30, 2010, Alto distributed 10% ordinary share
dividends when the market price of the share was P250 per share. On December 31, 2010, Soprano sold 6,000 of
its Alto share for P600,000. For the year ended December 31, 2010, how much Soprano a gain on sale of
investment?
a. P105,000 c. P150,000
b. P200,000 d. P250,000
Answer: C
Selling Price P600,000
Less: Cost of investment (6,000 x P75) P450,000
Gain on Sales of Investment P150,000
Acquisition 50,000 shares
Stock split (2:1) x 2
Stock after stock split 100,000 shares
Stock dividend (10%) (100,000 x 10%) 10,000 shares
Total shares 110,000
Divided by: Cost of investment P8,250,000
Unit cost of Investment P 75 / share