Ivy Rose P.
Zafra
Janna Rae V. Biongan
PROBLEM 15-20
The following transactions for the long-term, fair value through other comprehensive income
investments of Persistent Corporation, took place in 2021:
Feb.10 Persistent acquired 10,000 shares of Disciplined Co. ordinary share at P88 per share.
Mar.31 Disciplined Co. issued a 10% stock dividend to ordinary shareholders.
June 30 Disciplined Co. issued rights to ordinary shareholders for the acquisition of one additional
share at P90 for every five shares held.
The ordinary share was trading ex-rights at 114 a share and the rights had a market value ₱6
per right.
July 13 Persistent exercised 10,000 rights to acquire new shares.
July 20 The remaining 1,000 rights were sold for ₱5.50 each.
Oct.12 Persistent sold 4,000 shares of Disciplined Co. ordinary share for 440,000.The shares sold
were specifically identified as being from those acquired on February 10.
Dec.31 The fair value of the investment is ₱120 per share.
Questions:
Based on the above and the result of your audit, determine the following:
1. The cost of stock rights to be recorded on June 30, 2021.
a. P13,200 c.P66,000
b. P44,000 d.P50,000
2. The cost of investment acquired on July 13, 2021.
a. 192,000 c.P240,000
b. P220,000 d.P230,000
3. Gain or loss on sale of the remaining rights sold on July 20, 2021.
a. 4,300 gain c.P500 loss
b. 3,400 loss d.P1,500
4. The adjusted balance of the investment account for the year ended December 31, 2021.
a. P880,000 c.P1,080,000
b. ₱1,254,000 d.P1,038,000
5. Net gain/ (loss) on December 31, 2021 to be recognized in the OCI.
a. P144,000 loss c.P400,000 gain
b. ₱136,000 loss d. ₱120,000 gain
SOLUTION:
1. The cost of stock rights to be recorded on June 30, 2021.
Stock Rights in June 30, 2021:
Feb. 10 10,000
March 31 (10,000 * 10%) 1,000
Total Shares 11,000
Multiplied by the Market Value P 6
Cost of Stock Right- June 30, 2021 P 66,000
2. The cost of investment acquired on July 13, 2021.
Cash paid [P90 * (10,000/5) P 180,000
Cost of stock rights used (P6 * 10,000) 60,000
Total Investment Cost P 240,000
3. Gain or loss on sale of the remaining rights sold on July 20, 2021.
Proceeds (P 5.5 * 1,000) P 5,500
Cost of stock rights (P6 * 1,000) 6,000
Loss on sale of stock rights P 500
4. The adjusted balance of the investment account for the year ended December 31, 2021.
Date No. of Shares Cost per share (P) Total Cost
Feb. 10 10,000 88 880,000
March 1 1,000
Total 11.000 80 880,000
June 30 (remeasurement) 374,000 (gain)
Total 11,000 114 1,254,000
July 13 2,000 240,000
Total 13,000 1,494,000
Oct. 12 (4,000) 114 (456,000)
Total 9,000 1,038,000
Remeasurement 42,000 (gain)
Dec. 31 9,000 120 1,080,000
5. Net gain/ (loss) on December 31, 2021 to be recognized in the OCI.
Gain on Remeasurement
June 30 P 374,000
Dec. 31 42,000 P 416,000
Less: Loss on sale
Oct. 12 (456,000 – 440,000) 16,000
Net Gain P 400,000
