Problem No.

On January 1, 2019, Karla Company acquired 5,000 shares of P40 par value ordinary shares of Frances
Company at P65 per share. These shares are to be held as financial assets at fair value through profit or
loss. Broker’s commissions paid amounts to P5,000. At the end of the reporting period, the fair value of
Frances Company’s shares is P80 per share.

1. Prepare journal entries in the books of Karla.

2. How much will be reported as unrealized gain?

Problem No. 2

Magnolia Corp. invested its excess cash in equity securities during 2018. The business model for these
investments is to profit from trading on price changes.

A. As of December 31, 2018, the equity investment portfolio consisted of the following:

Investment Quantity Cost Fair Value

LJ, Inc 1,000 sh P45,000 P63,000
Polland Co. 2,000 sh 120,000 126,000
Alabang Corp. 2,000 sh 216,000 180,000
Totals P381,000 P369,000

1. In the December 31, 2018, statement of financial position, what should be reported as
carrying amount of the investments?
a. P369,000
b. 345,000
c. 381,000
d. 406,000

2. In the 2018 income statement, what amount should be reported as unrealized gain or loss?
a. Unrealized gain of P12,000
b. Unrealized loss of P12,000
c. Unrealized loss of P36,000
d. Unrealized gain of P24,000

B. During the year 2019, Magnolia Corp, sold 2,000 shares of Polland Co. for P114,6000 and
purchased 2,000 more shares of LJ, Inc. and 1,000 shares of Dwarfy Company. On December 31,
2019, Magnolia’s equity securities portfolio consisted of the following:
 Investment Quantity Cost Fair Value
LJ, Inc 1,000 sh P45,000 P60,000
LJ, Inc 2,000 sh 99, 000 120,000
Dwarfy Company 1,000 sh 48,000 36,000
Alabang Corp. 2,000 sh 216,000 66,000
Totals P408,000 P282,000

3. What is the gain or loss on sale of Polland Co. investment?

a. P5,400 gain
b. 5,400 loss
c. 11,400 gain
d. 11,400 loss
4. What is the carrying amount of the investment in December 31, 2019?
a. P408,000
b. 444,000
c. 282,000
d. 246,000
5. What amount of unrealized gain or loss should be reported in the income statement for the
year ended December 31, 2019?
a. P126,000 unrealized gain
b. 126, 000 unrealized loss
c. 108, 000 unrealized gain
d. 108, 000 unrealized loss

C. During the year 2020, Magnolia sold 3,000 shares of LJ, Inc. for P119,700 and 500 shares of
Dwarfy Company at a loss of P8,100. On December 31, 2020, Magnolia’s equity investment
portfolio condisted of the following:

Investment Quantity Cost Fair Value

Dwarfy Company 500 sh 24,000 18,000
Alabang Corp. 2,000 sh 216,000 246,000
Totals P240,000 P264,000

6. What should be reported as loss on sale on trading securities in 2020?

a. P60,300
b. 32,400
c. 24,300
d. 68,400

7. What amount of unrealized gain or loss should be reportedd in the income statement for
the year ended December 31, 2020?
a. P180,000 unrealized gain
b. 180,000 unrealized loss
 c. 24,000 unrealized gain
d. 24,000 unrealized loss

8. In the December 31, 2020, statement of financial position, what should be reported as
carrying amount of trading securities?
a. P240,000
b. 234,000
c. 264,000
d. 270,000

Problem No. 3

On January 1, 2019, Karla Company acquired 5,000 shares of P40 par value ordinary shares of Frances
Company at P65 per share. These shares are to be held as financial assets at fair value through other
comprehensive income. Broker’s commissions paid amounts to P5,000. At the end of the reporting
period, the fair value of Frances Company’s shares is P80 per share.

1. Prepare journal entries in the books of Karla.

2. How much will be reported as unrealized gain?

Problem No. 4

During 2019, Salonga Company purchased trading securities with the following cost and market value on
December 31, 2018:

Cost Market Value

A – 1,000 shares 200,000 300,000
B – 10,000 shares 1,700,000 1,600,000
C – 20,000 shares 3,100,000 2,900,000
5,000,000 4,800,000

The entity sold 10,000 shares of Security B on January 15, 2019 for P150 per share.

1. What amount of unrealized gain or loss should be reported in the income statement for 2018?
2. What amount should be reported as loss on sale or trading investment in 2019?

Problem No. 5

During the course of your audit of the financial statements of FISHING CORPORATION for the year ended
December 31, 2018, you found a new account, “Investment in Equity Securities.” Your audit reveled that
during 2018, Fishing began a program of investments, and all investment-related transactions were
entered in this account. Your analysis of this account for 2018 follows:
 Fishing Corporation
Analysis of Investment in Equity Securities
For the Year Ended December 31, 2018

Debit Credit

Salmon Company Ordinary Shares

Feb 14 Purchased 36,000 shares @ 55 per share P1,980,000

July 26 Received 3,600 ordinary shares of Salmon Company
As stock dividend. (Memorandum entry in general ledger)
Sept 28 Sold the 3,600 ordinary shares of Salmon Company
Received July 26 @ P70 per share. P252,000

Tamban, Inc, Ordinary Shares

Apr 30 Purchased 180,000 shares @ P40 per share P7,200,000
Oct 28 Received dividend of 1.20 per share. P216,000

Additional Information:
a. The fair value for each security as of the 2018 date of each transaction follow:

Security Feb 14 April 30 July 26 Sept 28 Dec 31

Salmon Company P55 P62 P70 P74
Tamban, Inc. P40 32
Fishing Corp. 25 28 30 33 35

b. All of the investments of Fishing Corporation are nominal in respect to percentage of ownership
(5% or less)

c. Each investment is considered by Fishing Corporation to be non-trading. Fishing Corporation has

made an irrevocable election to present in other comprehensive income subsequent changes in
fair value of its non-trading equity securities.

1. What amount should be reported as gain on sale of non-trading equity securities in the income
statement of Fishing Corporation for the year ended December 31, 2018?
a. P72,000
b. 18,000
c. 54,000
d. 0

2. The receipt of 3,600 stock dividend would cause the investment balance to increase by
a. P223,200
b. 252,000
c. 198,000
d. 0
 3. What entry is necessary to correct the recording of the cash dividend received from Tamban, Inc?
a. Cash 216,000
Dividend Income 216,000

b. Cash 216,000
Investment in equity securities 216,000

c. Investment in equity securities 216,000

Dividend income 216,000

d. Dividend income 216,000

Investment in equity securities 216,000

4. What amount of unrealized gain or loss should be reported in the 2018 statement of
comprehensive income as component of other comprehensive income?
a. P1,440,000 gain
b. 1,440,000 loss
c. 576,000 gain
d. 576,000 loss

5. What amount should be reported as Investment in Equity Securities in the statement of financial
position on December 31, 2018?
a. P9,000,000
b. 8,424,000
c. 7,560,000
d. 9,864,000

Problem No. 6

On January 1, 2019, Junnie Company acquired 20% interest in Junjun Company for P5,000,000. During
the year, Junjun Company reported net income of P4,000,000 and paid dividends of P3,000,000.

1. How much is the initial measurement of the investment?

2. How much is the share of Junnie Company in the net income of Junjun Company?
3. How much is the share of Junnie Company in the dividends declared by Junjun Company?
4. How much will be reported as carrying amount of the investment as at December 31, 2019?

Problem No. 7

On April 1, 2019, Junnie Company acquired 20% interest in Junjun Company for P5,000,000. During the
year, Junjun Company reported net income of P4,000,000 and paid dividends of P3,000,000.

1. How much is the initial measurement of the investment?

2. How much is the share of Junnie Company in the net income of Junjun Company?
3. How much is the share of Junnie Company in the dividends declared by Junjun Company?
4. How much will be reported as carrying amount of the investment as at December 31, 2019?
Problem No. 8

On January 1, 2019, Mingming Company acquired a bond investment from Wishiw Company for
P1,079,854, a price to yield 8% interest payable annually every December 31 for five years. The
instrument has a face value of P1,000,000 and a stated interest rate of 10%. Mingming Company
designated the instrument at amortized cost.

1. How much is the initial measurement of this debt investment?

2. How much will be reported as Interest Revenue on December 31, 2019?
3. How much is the carrying value of the investment on December 31, 2020?

Problem No. 9

On January 1, 2019, Mingming Company acquired a bond investment from Wishiw Company for
P855,809 a price to yield 12% interest payable annually every December 31 for five years. The
instrument has a face value of P1,000,000 and a stated interest rate of 8%. Mingming Company
designated the instrument at amortized cost.

1. How much is the initial measurement of this debt investment?

2. How much will be reported as Interest Revenue on December 31, 2019?
3. How much is the carrying value of the investment on December 31, 2020?

Problem No. 10

On January 1, 2019, Mingming Company acquired a bond investment from Wishiw Company for
P1,079,854 a price to yield 8% interest payable annually every December 31 for five years. The
instrument has a face value of P1,000,000 and a stated interest rate of 10%. Mingming Company
designated the instrument at fair value through other comprehensive income. At December 31, 2019,
the bonds were quoted at 110. How much is the gain (loss) in the fair value of the debt investment?

1. How much is the initial measurement of this debt investment?

2. How much will be reported as Interest Revenue on December 31, 2019?
3. How much is the carrying value of the investment on December 31, 2020?
Problem No. 11

At December 31,2019. EASY LANG Company properly reported the following Trading equity service.

Cost Market value

OTW Corporation, 1,000 shares Preference P 40,000 30,000

LOL, Inc.,6,000 shares of ordinary share 60,000 90,000

BRO Co.,2,000 shares of ordinary share 55,000 80,000

P 155,000 P 200,000

During 2020, the following transaction occurred among others:

January 5 Acquired 8,000 shares of PARE, Co, for P880,000 incurring additional P10,000 for brokerage
P10,000 for brokerage and another for commission. There shares are to be initially
recognized as trading securities.

February 14 Received dividends from PARE, Co. declared January 10,2020, P16,000.

March 18 Received dividends P2 per share from LOL Inc.

Nov. 15 Sold 2,500 shares of LOL Inc. for P50,000. Commission and taxes for P5,000 were paid for
the sale.

Dec. 15 Recorded a transfer of all remaining LOL`s shares to FVTOCI when the fair value was P14.

On December 31,2010 the following are the available market values per share:

OTW Corporation- preference share P 50

LOL Inc, -ordinary share 15
BRO 45
PARE Co. 100

Based on the above and the result of your audit, determine the following:
1. The correct cost of investment acquired on January 5.
2. The total dividend income during the year.
3. The gain or loss sale of LOL Inc.
4. The unrealized gain (loss) and where do we represent the unrealized gain (loss) at the end of the
year.
5. The total of adjustments carrying value of the investment at the end of the year
Problem No. 12

Reclassification from Amortized Cost to FVPL

On January 1, 2017, ELAGRO COMPANY purchased P2,000,000 face value bonds at a price of P1,824,800
which will yield an interest rate of 10%. The nominal interest rate on the bonds is 8% payable annually
every December 31. The company's business model is to collect contractual cash flows that are solely
payments of principal and interest.

On December 31, 2018, Elagro Company changed the business model in managing the bonds from
collecting contract cash flows that are solely payments of principal and interest to realizing short term
gains. The market value of the bonds on January 1, 2019, is 105.

Questions:

1. What amount should be reported as interest income for 2018?

A. P184,728 B. P160,000 C. P182,480 D. P24,728

2. What is the carrying amount of the bonds on December 31, 2018?

A. P2,000,000 B. P1,872,008 C. P1,847,280 D. P1,782,088

3. On reclassification date, what amount of gain on reclassification of financial asset should be

recognized by Elagro Company?
A. P120,000 B. P187,200 C. P O D. P247,992

PROBLEM 13

Dividend Income

CHERRY, INC. received dividends from its investments in ordinary shares during the year ended
December 31, 2018, as follows:

(a) A cash dividend of P720,000 is received from [] Corporation. (Cherry, Inc. owns a 2% interest in }])
(b) A cash dividend of P3,600,000 is received from VV Corporation. (Cherry, Inc. owns a 30% interest in
VV)
(c) A stock dividend of 18,000 shares from YY Company was received on December 15, 2018, on which
date the quoted market value of YY's shares was P20 per share. Cherry, Inc. owns less than 1% of YY's
ordinary shares.

What amount of dividend income should be reported by Cherry, Inc. in its 2018 income statement?
A. P1,080,000 B. P4,680,000 C. P4,320,000 D. P720,000
Problem No. 14

Cate Inc. Paid 8,000,000 on Jan 1, 2020. For 10% of Juan company's outstanding ordinary shares. Cate is
the largest single shareholder in Juan and Cate'S officers are a majority of Juan`s BOD.

On the date of acquisition, the following data available

✓ The BV of Juan`s net assets were P100, 000
✓ the FV of Juan`s depreciable assets exceeded by P30,000,000. These assets had a remaining useful life
of 8 years.
✓ Juan paid dividends of P5.000.000.
✓ net income, P50,000,000.

Required:

1. Carrying amount of investment, December 31, 2020.

2. Goodwill.