Examination About Investment 10
Uploaded by
BLACKPINKLisaRoseJisooJennieExamination About Investment 10
Uploaded by
BLACKPINKLisaRoseJisooJennieEXAMINATION about INVESTMENT 10
General Rule: Read the following carefully and answer it wisely. All solutions are needed, so put it in the last
page. (10 Points)
1. On January 2, 2010, Mills Company purchased 25% of Boon Corporation’s ordinary shares; no goodwill resulted
from the purchase. Mills appropriately carries this investment at equity and the balance in Mill’s investment
account at December 31, 2010 was P1,900,00. Boon Company reported net income of P1,200,000 for the year
ended December 31, 2010 and paid ordinary share dividends totaling P480,000 during 2010. How much did
Mills Company pay for its 25% interest in Boon Company?
a. P1,720,000 c. P2,020,000
b. P2,080,000 d. P2,320,000
Answer: A
Carrying value of investment P1,900,000
Add/Deduct:
Share in NI (P1,200,000 x 25%) ( 300,000)
Share in Dividends (P480,000 x 25%) 120,000
Acquisition cost, Jan 2, 2010 P1,720,000
2. On January 2, 2010, Street Company purchased 25% of Life Company’s ordinary shares; no goodwill resulted
from the purchase. Street appropriately carries this investment at equity and the balance in Life’s investment
account was P3,800,000 at December 31, 2010. Life reported net income of P2,400,000 for the year ended
December 31, 2010 and paid dividends amounting to P960,000 during 2010. How much did Street pay for its
investment in Life?
a. P3,200,000 c. P3,440,000
b. P4,040,000 d. P4,640,000
Answer: C
Carrying value of investment P3,800,000
Add/Deduct:
Share in NI (P2.400,000 x 25%) ( 600,000)
Share in Dividends(P960,000 x 25%) 240,000
Acquisition cost, Jan 2, 2010 P3,440,000
3. On January 1, 2010, Align Corporation acquired as a long term investment for P2,500,000, a 30% ordinary share
interest in Parallel Company. On that date Parallel had net assets with a book value and current market value of
P8,000,000. The difference of the cost of acquisition and the book value of net asset acquired is attributable to a
depreciable asset with a remaining life of 5 years. During 2010, Parallel reported net of tax income P900,000,
declared and paid and paid cash dividends P200,000. Income tax rate is 32%. What is the maximum amount of
income that Parallel should report from this investment for 2010?
a. P 60,000 c. P210,000
b. P250,000 d. P256,400
Answer: B
Share in NI (P900,000 x 30%) P270,000
Net understatement of dep’r 20,000
Income from Investment P250,000
Acquisition cost P2,500,000
Less: BV of net assets (P8,000,000 x 30%) P2,400,000
Understatement of dep’r asset P 100,000
÷Remaining life 5 years
Net Understatement of depreciation P 20,000
4. Table owns 50% and 20% of Chair Corporation’s ordinary and preference shares, respectively. Chair’s share
outstanding at December 31, 2010 follows:
Ordinary share P4,000,000
10% cumulative preference share 900,000
Chair reported net income of P600,000 for the year ended December 31, 2010 and declared the current year dividend on
the preference shares. What’ amount should Table report revenue related to its investment in Chair Company for the year
ended December 31, 2010?
a. None c. P255,000
b. P273,000 d. P300,000
Answer: C
Net income P600,000
Less: Dividends related to preference
Share (P900,000 x 10%) 90,000
NI available to ordinary shares P510,000
x Investor’s interest 50%
Share of Investor in NI P255,000
5. On January 2, 2010, PSG Company purchased 20% of PLDT Company’s ordinary shares for P4,500,000. During
2010, PLDT reported net income of P4,000,000 and paid cash dividends of P3,000,000 on its ordinary shares.
What is the balance of PSG Company’s investment in PLDT account at December 31, 2010?
a. P4,300,000 c. P4,400,000
b. P4,500,000 d. P4,700,000
Answer: D
Original cost - 1.2.10 P4,500,000
Add/Deduct:
Share in NI for 2010 (P4,000,000 x 20%) 800,000
Share in dividends (P3,000,000 x 20%) (600,000)
Carrying value 12.31.10 P4,700,000