Equity Investments

Problem 1: Alexis company purchased 200,000 equity securities for P 5,000,000 from Joy Company on
Jan 1, 2016. Related to the acquisition is a total of P 150,000 transaction cost.

During 2017, Alexis company recognized an unrealized loss of P 100,000.
On December 2018, the market value of the shares amounted to P 5,200,000.
1. Assuming the equity securities are held for trading, what is the unrealized gain/loss to be
recognized in 2018 income statement? 300,000 gain
2. Assuming the equity securities are not held trading securities, what is the unrealized gain/loss to
be reported in the (a) statement of comprehensive income (b) statement of change in equity for
2018? (a) 150,000 gain (b) 50,000 gain
Problem 2: Bebot company had the below transactions related to equity securities:
 Purchased 10,000 unquoted equity shares from Kembot company for P 1,000,000 on Jan 1.
 Purchased 20,000 trading securities from Chugug company at P154 a share on Jan 1. Related
acquisition cost totaled P 80,000.
 Purchased 10,000 nontrading equity investments from Dagul company totaling P 1,500,000 on
Jan 1. Related transaction costs totaled P 120,000.
 Received 10% stock dividends from Chugug company on April 1. Fair value of its shares on
declaration date is P 110 per share.
 On October, sold the following shares:
Kembot shares 10,000 @ P120
Chugug Share 8,000 @ 160
 O November 1, received cash dividends of P 10 per share from Chugug company.
 Fair value at year-end of the investments are as follows:
Chugug Shares 1,974,000
Dagul Shares 1,700,000
1. What is the total gain(loss) from sale of equity securities to be recognized in the current year
income statement? 360,000
2. What is the total unrealized gain(loss) to be reported in the year’s income statement?
14,000 gain
3. What is the total dividend income to be reported in the year’s income statement? 140,000
4. Assuming all of Dagul’s shares were sold in next year for a total of P 1,800,000, what is the
gain(loss) on sale to be reported on next year’s income statement? [zero ; 180,000 credit to
retained earnings]
Problem 3: On January 1, 2016, Anne Company purchased 20% of the outstanding ordinary shares of
Dune Company for P 4,000,000, of which P 1,000,000 was paid in cash and P 3,000,000 is payable with
12% annual interest on Dec 31, 2016. Dune’s shareholder’s equity on Jan 1, 2016 was P 13,000,000.
Anne also paid P 500,000 to a business broker who helped find a suitable business and negotiated the
purchase.
At the time of acquisition, the fair value of Dune’s identifiable assets and liabilities were equal to their
carrying amounts except for an office building which had a fair value in excess of carrying amount of P
3,000,000 and an estimated life of 10 years and a land whose carrying amount exceeds its fair value P
1,000,000.
During 2016, Dune Company reported net income of P 5,000,000 and paid dividend of P 2,000,000.
1. What amount of income should be reported for 2016 as a result of the investment? 940,000
2. What is the goodwill related to the investment? P 1,500,000
3. What is the carrying amount of the investment on Dec 31, 2016? 5,040,000
Problem 4: At the beginning of the current year, Occidental Company purchased 40% of the outstanding
ordinary shares of Manapla Company for P 3,500,000 when the net assets of Manapla amounted to P
7,000,000.
At acquisition date, the carrying amounts of the identifiable assets and liabilities of Manapla were equal
to their fair value, except for an equipment for which the fair value was P 1,500,000 greater than
carrying amount and inventory whose fair value was P 500,000 greater than cost.
The equipment has a remaining life of 4 years and the inventory was all sold during the current year.
Manapla Company reported net income of P 4,000,000 and paid no dividends during the current year.
1. What is the total investment income from investment in Manapla company? P 1350,000
2. What is the carrying amount of investment in Manapla on Dec 31, of the current year?
4,750,000
Problem 5: On January 1, 2016, Haven Company acquired 20% of the ordinary shares of an associate for
P 6,000,000. On this date, all the identifiable assets and liabilities of the associate were recorded at fair
value.
An analysis of the acquisition showed that goodwill of P 300,000 was acquired and the associate
reported the following net income and dividend:
2016 2017
Net income P 3,000,000 4,000,000
Dividends paid 1,000,000 1,500,000
In December 2016, the associate sold inventory to Haven Company for P 900,000. The cost of the
inventory was P 600,000.
This inventory remained unsold by Haven on Dec 31, 2016. However, it was sold by Haven in 2017.
In Dec 2017, the associate sold inventory to Haven for P 750,000 costing P 500,000. This inventory was
eventually sold to outsiders during 2017.
1. What is the investor’s share in the profit of the associate for 2016? 540,000
2. What is the investor’s share in the profit of the associate for 2017? 860000
3. What is the carrying amount of the investment in associate on Dec 2017? 6,900,000

Equity Investments

Uploaded by

Copyright:

Available Formats

Equity Investments

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Equity Investments

Uploaded by

Copyright:

Available Formats

Problem 1: Alexis company purchased 200,000 equity securities for P 5,000,000 from Joy Company on

Jan 1, 2016. Related to the acquisition is a total of P 150,000 transaction cost.

You might also like