, : Trading Securities Presented below are unrelated situations. a LITON COMPANY buys and sells securities expecting to ear; profits on short-term. differences in price. During 2018, Liton Company purchased the following trading securities: : Fair Value Security Cost. -Dec.3 A P195,000° P225,000 | 5 B _ 300,000 162,000 Cie is 660,000 678,000 Before any adjustments related to these trading securities, Liton Company had net income of P900,000. . 1. What is Liton’s net income after making any ‘necessary trading security adjustments? 5 _ A. P900,000 - ae C.- P762,000 “B. P810,000 o's, D. P948,000 | 2. What would Liton’s net income be if the fair value of security B were P285,000? : * A. P867,000 ©, C. P885,000 B. P900;000 . ~ D. 'P933,000 CANDABA CO's portfolio of trading securities includes the following on December 31, 2017: Lhe ‘ : 15,000 ordinary,shares of TomasCo. 477,000 P417,000 30,000 ordinary shares of Gandara Co. __546,000 570,000 21,023,000 _ . P987,000 Scanned with CamScanneree ee ee Oe Ee All of the above securities have been purchased in 2017. ‘In 2018, Candaba Co. completed the following _securities transactions: Mar.1 Sold 15,000 aiaies of Tomas Co. ordinary. shares for P460,500. ‘ April 1 Bought 1,800 ordinary shares of Westin, Inc. at P45 plus _ |» Commission, taxes, and other transaction costs of P1,650. The Candaba Co. portfolio of trading securities appeared as follows on December 31, 2018: 30,000 ordinary shares of GandaraCo. P546,000 P580,0001 1,800 ordinary shares of Westin, Inc. 82,650 __75,000? P628.650 655,000 - | 1 Net of P6,500 estimated transaction costs that would be ‘incurred on the sale of the securities. : 2 Net of P1,500 estimated transaction costs that would be incurred on « thé sale of the securities. ; yee t _1.. What amount of unrealized gain on these securities should be reported:in the 2018 income statement? . A. P12,000. , C.. P26,350 B. P10,350 D. P28,000 2. What is the gain or loss on the sale of Tomas Co. ordinary shares on March 1, 2018? A: P48,000 _ C. P43,500 B. P9,000 Bhs * D. P4,500 3. What. amount should: be reported as trading securities in Candaba’s statement of financial position on December 31, 20187 A. P655,000 . _C.~P628,650 B. P663,000 ‘ D. P636,650 Scanned with CamScannerNon-trading Equity Securities: Fair Value Changes in Other Comprehensive Income (OCI) 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 revealed 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 " (a) Imon Cc Ordin: hi Feb. 14 Purchased 36,000 shares @ P55 per share P1,980,000 July 26 Received 3,600 ordinary shares of Salmon Company asa 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 (b) ‘Tamban, Inc. Ordinary Shares April30_ Purchased 180,000 shares @ P40 per share ' P7,200,000 Oct. 28 Received dividend of P1.20 per share. P216,000 Debit Credit Scanned with CamScannerAdditional information: The fair value for each security as of the 2018 date of each © transaction follow: Salmon Company. P55 P62 _ P70 P74 Tamban, Inc. P40 32 Fishing Corp. 25 28 30 33 35 All of the investments: of Fishing Corporation are nominal in respect to percentage of ownership (5% or less). 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. 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 C. P54,000 B. P18,000 : D. PO The receipt of 3,600 stock dividend would cause the investment balance to increase by A. P223,200 Cc. P198,000 'B. P252,000 ‘ D. PO What entry is necessary to“correct the recording of the cash dividend received from Tamban, Inc.? : A. Cash ; ) 216,000 Dividend income 7 216,000 B. Cash 216,000 ____ Investment in equity securities 216,000 C. Investment in equity securities 216,000 Dividend income ‘ 216,000 Scanned with CamScanner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 C. P576,000 gain B. P1,440,000 loss ~ D. P576,000loss | 5. What amount should be reported as Investment in Equity Securities in the statenient of financial position on December 31, 2018? A. P9,000,000 C. P7,560,000 B. P8,424,000 D. P9,864,000 Scanned with CamScanner—_———jnvestmment in Bonds at Foy (Fair Value through Other Comprehensive Income) i ithin a business model wh, COLOONG CO. holds debt securities wi Ose 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. i izati to its 5- The following amortization schedule relates year, P1,000,000, 7% bonds purchased on December 31, 2016, for P1,086,565. The bonds were purchased to yield 5% interest. Interest , Interest Premium Amortized - Date . Received Income Amortization __Cost _ 12.31.16 . P1,086,565 12.31.17 P70,000 P 54,328 P 15,672 1,070,893 - 12.31.18° 70,000 53,545 16,455 1,054,438 12.31.19 70,000 52,722 17,278 1,037,160 12.31.20 70,000 51,858 ~ 18,142 1,019,018 12.31.21 70,000 50,982* © 19,018 1,000,000 “Adjustment due to rounding The following schedule presents the amortized cost and fair value of the bonds at year-end. Fair Val Amortized © December 31,2017 _P1,065,000 P1,070,893 December 31, 2018 1,075,000 1,054,438 December 31, 2019 1,056,500 1,037,160 December 31, 2020 1,030,000 1,019,018 December 31, 2021 1,000,000 1,000,000 1, What amount should be reported as investment in bonds in the rem of financial position of Coloong Co. on December 31; Scanned with CamScannerA. P1,086,565 . C. P1,075,000 B. P1,054,438 D. P1,065,000 . What amount of unrealized gain should be shown as component of other comprehensive income in the 2018 statement of comprehensive income? A. P26,455 C. P10,000 B. P20,562 D. P16,455 . What amount of unrealized loss should be shown as component of other comprehensive income in the 2019 statement of comprehensive income? A. P14,393 C. P19,340 B. P18,500 D. P1,222 |. What amount of unrealized loss should be shown as component of other comprehensive income in the 2020 statement of comprehensive income? A. P8,350 C.. P9,792 B. P26,500 : 'D. P10,982 . What amount of unrealized gain should be ‘shown in the 2020 statement of changes in equity? A. P26,455 C. P25,233 B. P16,883 ; D. P10,990 Scanned with CamScanneros __ Impairment Loss on Debt Securities at FVOCI (Fair Value Through Other Comprehensive Income) On November 1, 2018, Bunzoo Company purchased a debt security at face value of P1,000,000. This financial asset is to be measured at Fair Value Through Other Comprehensive Income (FVOCI). The contractual term is 10 years with an annual coupon of 6%. At December 31, 2018, the debt security’s fair value has decreased to P950,000 due to increases in market interest rates. There has not been a significant increase in the credit risk of this debt investment. Hence, Bunzoo decided to recognize a 12-month Expected Credit Loss (ECL) of P30,000. On December 31, 2019, the debt security's fair value has decreased further to P925,000 as a result of increases in market interest rates. There has not been a significant increase in the credit risk of the debt security since initial recognition; hence, Bunzoo decided to recognize a12-month ECL amounting to P40,000. 7 On January 1, 2020, Bunzoo sold the debt security for its fair value of P925,000. 1. The cumulative gain (loss) in OCI at December 31, 2018 is , C. A. P20,000 . P50,000 B. (P20,000) D. (P30,000) 2. The cumulative loss in OCI at December 31, 2019 is A. P20,000 C.. P35,000 B, P45,000 D. P10,000 3. What amount should be reported as loss on sale of the. debt security on January 1, 2020? A. P35,000 C. P10,000 B. P45,000 D. P20,000 Scanned with CamScannerSale and Valuation of Non-trading Equity Secutitig CHICO COMPANY purchased the following non-trading equity securities during 2018: Fair Value Security Cost xX P450,000 P500,000 Y 500,000 800,000 At initial recognition, Chico classified these securities as at fair value through other comprehensive income. On July 28, 2019, Chico sold all the shares of Security Y for a total of P835,000. As of December 31, 2019, the shares of Security X had a fair value of P200,000. No other activity occurred during 2019 in relation to the non-trading equity securities portfolio. Questions: 1. ‘What total amount should be credited to retained earnings as 4 result of the sale of Security Y in 2019? . A. P35,000 C. P300,000 B. P335,000 D. P265,000 2. What is the cumulative unrealized gain (loss) to be reported in the statement of changes in equity for 20197 A. P300,000 C. (P300,000) B. P150,000 D. (P250,000) Scanned with CamScannerInvestment in Associate Achieved in Stages: Fair Value to Equity Method On January 2, 2017, LOVELY, INC. acquired a 15% interest in CPS Corp. by paying P8,000,000 for 100,000 ordinary shares. On this date, the net assets of CPS Corp. totaled P40,000,000. The fair values of CPS Corp.'s identifiable assets and liabilities were equal to their book values. {vely did not have the ability to exercise significant inflyence over the operating and financial policies of CPS. Lovely rectived dividends of P1.40 per share from CPS on October 1, 2017. CPS reported net income of P5,000,000 for the year ended December 31, 2017. Lovely classified the investment as at fair value through other comprehensive income. Market price for the 100,000 shares was P9,000,000 on December 31, 2017. Lovely paid P30,000,000 on January 1, 2018, for 300,000 additional CPS ordinary shares, which represents a 25% interest in CPS. The Scanned with CamScannerfair value of CPS Corp’s identifiable assets, ni i equal to their book values of P92,000,000. “As a result of this additional acquisition, Lovely has the ability to exercise significant influence over the operating and financial policies of CPS. Lovely received a dividend of P2.70 per share on October 5, 2018. CPS aries et income cee ee for the year ended December 31, I e investment’s fair vali a RanDOe! lue on December 31, 2018, is Questions: 1. Inthe December 31, 2017, statement of financial position, what is the carrying amount of the investment in equity securities? A. P8,610,000 C. P8,000,000 B. P9,000,000 D. P8,750,000 2. What is the total amount of investment-related income that should be reported in the 2017 income statement? : A. P140,000 C. P750,000 B. P1,140,000 D. P1,610,000 3. What amount of gain on remeasurement to equity Should be reported in the 2018 income statement? A. P1,320,000 Cc. PO B. P1,080,000 D. P1,000,000 4. What is the goodwill arising from the acquisition of additional 300,000 shares on January 1, 2018? A. PO C. P7,000,000 B. P2,200,000 D. P9,000,000 5. What is the carrying amount of the investment in associate on December 31, 2018? A. P45,000,000 C. P38,120,000 B. P40,320,000 D. P39,000,000 Scanned with CamScanner