2014 Vol 1 CH 7 Answers

Chapter 7 Investments in Equity Securities and Debt Securities
CHAPTER 7
INVESTMENTS IN EQUITY SECURITIES AND DEBT SECURITIES
PROBLEMS
7-1.
(Victoria Corporation)
Year 1
(a)
Equity Investments FVPL
Other Expenses
Cash
(b)

Unrealized Gains on Equity
Investments Profit or Loss
150,000
3,750
153,750
30,000
30,000
Year 2
(a)
(b)
7-2.
Gain on Sale of Equity

Investments FVPL

Unrealized Gains on Equity
(Victory Company)
Year 1
(a)
Equity Investments at FV through OCI
Cash
(b)
Year 2
(a)
(b)
7-3.
Cash
94,000
4,000
90,000
6,000
6,000
153,750
153,750

Unrealized Gains and Losses on
Equity Investments - OCI
26,250

10,000
Cash
Loss on Sale of Equity Investments
Equity Investments at FV
through OCI
94,000
1,000

(A Company)
a.
Cash
26,250
10,000
95,000
1,000
1,000
18,000
Dividend Revenue
2,400 shares x 7.50
57
18,000
7-4.
b.
Memo entry.
Received additional 600 shares of B Corp. ordinary shares as
bonus issue on 2,400 shares previously held.
c.
Equity Investments - A Preference

Dividend Revenue
600 x 250 =
150,000
150,000
150,000
d.
Memo entry. Received additional shares of B Corp. ordinary shares on a 4-for-1

stock split of the 2,400 shares previously held. Total shares now held: 9,600.
e.
Equity Investments - C Ordinary

Dividend Revenue
2,400/6 = 400 shares x 50
20,000
(Inn Corporation)
(a)
December 31, Year 2 ledger balance (30,000 shares x 65)
20,000
P1,950,000
Year 3
Memo: Received 6,000 shares of NPA Co. ordinary
as 20% bonus issue on the 30,000 shares
previously held.
Cash (15,000 x 70)
1,050,000
Gain on Sale of Equity Investments
1,950,000 x 15,000/36,000 = 812,500
374,500
Unrealized Gain on Equity Investments
at FVPL
21,000 x 72
1,512,000
1,950,000 812,500
1,137,500
Unrealized gain
374,500
7-5.
(b)
Gain on sale
Unrealized gain on equity investments at FVPL
Total amount reported in profit or loss
(c)
Equity Investments at Fair Value
812,500
237,500
374,500
P237,500
374,500
P612,000
P1,512,000
(Inna Corporation)
(a)
December 31, Year 2 ledger balance (30,000 x P65)
Cost
Unrealized Gain or Loss on Equity Investments - OCI
P1,950,000
1,800,000
P 150,000
Year 3
Memo: Received 6,000 shares of NPA Co. ordinary
as 20% bonus issue on the 30,000 shares
previously held.
Equity Investments at Fair Value through OCI
Unrealized Gain or Loss on Equity
Investments OCI
58
570,000
570,000

36,000 sh x 70
12/31/Y2 FV
Unrealized gain
2,520,000
1,950,000
470,000
Cash (15,000 x 70)

1,050,000
1,050,000
Unrealized Gain or Loss on Equity

Investments OCI
300,000
Retained Earnings
(150,000 + 570,000) x 15,000/36,000
7-6.
(b)

Unrealized Gain on Equity Investments
at FV through OCI
21,000 x (72 - 70)
None
(c)
Equity Investments at Fair Value through OCI
P1,512,000
(d)
Unrealized Gain or Loss in Equity , 12/31 Year 3

(150,000 + 570,000 300,000 + 42,000)
P 462,000
Fair value, December 31, Year 3

Cost (1,800,000 x 21,000/36,000)
Unrealized Gain (Loss) in Equity
P1,512,000
1,050,000
P 462,000
42,000
42,000
(Gypsy Corporation)
(a)
Sales price (5,000 x 54)

CV at date of sale
Gain on sale of Dizon shares
P270,000
250,000
P 20,000
(b)
Cumulative balance of Unrealized Gains and Losses

(in equity)
- see below
P 35,000
Monterey Preference
Garcia Ordinary
Barney Corporation
7-7.
300,000
# of
shares
3,500
1,000
3,000
Cost
P133,000
180,000
177,000
P490,000
FV, 12/31/
Year 3
P135,000
190,000
200,000
P525,000
(Melody Corporation)
(a)
Unrealized Gains or Losses on Equity Investments through OCI
Fair value (1,250 x 85)
Cost
Unrealized Loss, end of Year 1
Total FV, Dec. 31, Year 2 (2,000 x 90)
Total cost (110,000 + 60,000)
Cumulative balance, end of Year 2
59
Unrealized
Gain (Loss)
P 2,000
10,000
23,000
P35,000
P106,250
110,000
P 3,750
P180,000
170,000
P 10,000

(b)
Amount taken to OCI

Cost
Unrealized Loss for Year 1
P106,250
110,000
P 3,750

Carrying value/Cost (106,250+60,000)
Unrealized gain for Year 2
(c)
P180,000
166,250
P 13,750
Memo: Received 2,000 stock rights from Music, Inc. for the purchase of one
share for every five rights submitted at P80 per share.
Cash
Investment Income
300 x 100 = 30,000
300 x 80 = 24,000
Cash
30,000
2,250
Investment Income
500 x 4.50

15,400
Equity Investments OCI
2,300 x 98 = 225,400
225,400 (180,000 + 30,000)=15,400
7-8.
(Anti Corporation)
(a)
Cash
Investment Income
10,000 x 5
(b)
50,000
Equity Investments at FVPL (2,000 x 75)

Cash (2,000 x 50)
Investment Income
Equity Investments at FVPL
Unrealized Gain on Equity
Market value (12,000 shares x 78)
Carrying value before this
adjustment (660,000 + 150,000)
Unrealized gain
7-9.
150,000
2,250
15,400
50,000
100,000
50,000
90,000
90,000
936,000
810,000
126,000
(Tolits Corporation)
(a)
Year 2
a.
Equity Investments at FV through OCIDiana
Ordinary
60
24,000
6,000
54,000

Cash
54,000
b.
Memorandum entry. Received 500 additional

shares of Diana ordinary shares as a result of 2for-1 split.
c.
Equity Investments at FV through OCI Smith

Preference
Cash
(1,000 x 120) + 1,200
d.
Equity Investments at FV through OCI - Diana

Ordinary
Unrealized Gains and Losses on Equity
Investments at FV - OCI
15,000/250 = 60; 54,000/1,000 = 54
(60 54) x 1,000 shares = 6,000
Cash
Equity Investments at FV through OCI Diana
Ordinary
(60,000 / 1,000) x 250 shares
e.
Memorandum entry. Received 750 stock rights

from Diana for the purchase of one share for every
two rights submitted at P55 per share.
f.

Ordinary
Cash
Investment Income
60% x 750 = 450; 450/2 = 225 shares
225 x 61 = 13,725; 225 x 55 = 12,375
225 x (61 55) = 1,350
Cash
Investment Income
750 450 = 300; 300 x 3 = 900
g.

Ordinary
225 x (64 61) = 675
Cash (100 x 64)
Diana Ordinary
61
121,200
121,200
6,000
6,000
15,000
15,000
13,725
12,375
1,350
900
900
675
675
6,400
6,400

h.
Cash (1,000 x 100 x 8%)

Dividend Revenue
8,000
i.

Investments - OCI
ordinary
Equity Investments at FV through OCI - Smith
Diana 1 (875 sh)

Smith (1,000 x 115)
Total
Market
CV
54,250 53,000*
115,000 121,200
169,250 174,200
*Original Diana shares 500 shares at P108

2-for-1 split
500 shares
1,000 shares at P54
Adjust prior to sale
Balance
1,000 shares at P60
Sale
(250 shares
Balance
750 shares at P60
Exercise of rights
225 shares at P61
Adjust prior to sale
Sale
(100 shares at P64
Balance
875 shares
(b)
7-10.
Investment income (1,350 + 900)

Dividends revenue
Total income
8,000
4,950
1,250
6,200
Unreal
1,250
(6,200)
(4,950
P54,000
-____
P54,000
6,000
P60,000
15,000)
P45,000
13,725
675
6,400)
P53,000
P 2,250
8,000
P10,250
(Carlo Company)
Year 2
Apr. 1
May 15
July 10
Cash (5,000 x 25)

Loss on Sale of Equity Investments
Equity Investments at FVPL Avi Ordinary
Equity Investments at FV through OCI Ghio
Preference
Cash (600 x 50) + 550
Memorandum entry.
Received 4,000 additional
shares of Darrel ordinary representing a 20%
bonus issue. Shares now held are 24,000.
Nov. 30
Cash (1 x 24,000)
Dividend Revenue
Dec. 31
Unrealized Loss on Equity Investments Profit or

Loss
Equity Investments at FVPL Avi Ordinary
5,000 x 26 = 130,000; 130,000 139,000
31
125,000
14,000
139,000
30,550
24,000
Equity Investments at FV through OCI - Darrel

Equity Investments at FV through OCI - Ghio
62
30,550
24,000
9,000
9,000
110,000
650

Investments - OCI
FV
Darrel 480,000
Ghio
31,200
Total
511,200
7-11.
(b)
2,000,000
Investment in Associates
Share in Profit of Associates
20% x 1,500,000
300,000
Memo.
Received 2,000 additional shares of
Atlanta ordinary as 10% bonus issue. Shares
now held are 22,000.
4.
20% x 3,000,000
600,000
Cash
20% x 1,000,000
200,000
600,000
200,000
Investment cost
Share in profit 2012
Share in profit 2013
Share in dividends
Carrying amount, December 31, 2013
(Byron, Inc.)
2013
Jan. 1
Investment in Associates Pirates Ordinary
Cash
Dec. 31

30% x 3,600,000
Dec. 31
Cash (30% x 400,000)

2,000,000
300,000
3.
5.
7-13.
Change in FV
110,000
650
110,650
(Hostel Company)
(a)
1.
Cash
2.
7-12.
CV
370,000
30,550
400,550
110,650
P2,000,000
300,000
600,000
(200,000)
P2,700,000
5,160,000
5,160,000
1,080,000
1,080,000
120,000
120,000
(Barbie, Inc.)
(a)
2012
Mar. 1
Investment in Associates Kitchie

Cash
63
1,365,000
1,365,000

Dec. 31
31
31
(b)
7-14.
Cash (30% x 800,000)

240,000

(1.2M x 10/12) x 30%
300,000
Share in Profit of Associates Kitchie

Amortization of undervaluation of assets
(30% x 750,000) / 5 yrs. = 45,000
45,000 x 10/12 = 37,500
50,000 x 30% = 15,000
37,500 + 15,000 = 52,500
240,000
300,000
52,500
52,500
Acquisition cost, March 1, 2013

Cash dividends received
Share in reported profit of associate
Adjustment in reported profit
Investment carrying value, December 31, 2013
P1,365,000
( 240,000)
300,000
( 52,500)
P1,372,500
Income reported by Barbie from its investment in associates:

(300,000 52,500)
P 247,500
(Richmonde Corporation)
(a)
Year 1
Jan. 1
Equity Investments at FV through OCI Pen

Cash
900,000
Dec. 31
Cash
Dividend Revenue
10% x 2,000,000
200,000

Investments - OCI
480,000
31
900,000
200,000
480,000
Year 2
Jan. 1
Investment in Associates Pen, Inc. (at FV)

Retained Earnings
Dec. 31
31
1,380,000
1,380,000
480,000
480,000
Investment in Associates Pen, Inc.

Cash
2,600,000
Investment in Associates Pen, Inc.

Share in Profit of Associates (30% x 6,500,000)
1,950,000
Cash
1,950,000
900,000
64
2,600,000

Investment in Associates (30% x 3,000,000)
(b)
7-15.
900,000
Cost transferred from Equity Investments at FV

Additional investment
Share in profit
Carrying amount, December 31, Year 2
1,380,000
2,600,000
1,950,000
(900,000)
5,030,000
(E Corporation)
(a)
Year 1
Jan.
Aug. 1
Dec. 31
Year 2
Dec. 31
31
Year 3
Jan. 2
Dec. 31
31
Investment in Associates F Company

Cash (50,000 x 165)
8,250,000
Cash
210,000

25% x 680,000
170,000
Cash
240,000

Share in Profit of Associates F Company
25% x 1,000,000
250,000
210,000
170,000
240,000
Cash (20,000 x 175)

Gain on Sale of Investment in Associates
Acquisition cost
8,250,000
Share in profit (Year1)
170,000
Cash dividends received (Year1)
(210,000)
Cash dividends received (Year2)
(240,000)
Share in profit (Year 2)
250,000
Investment carrying amount
8,220,000
Portion sold
20/50
CV of investment sold
3,288,000
3,500,000

Investment Income
30,000 x 175 = 5,250,000
8,220,000 3,288,000 = 4,932,000
5,250,000 4,932,000 = 318,000
5,250,000
250,000
3,288,000
212,000
4,932,000
318,000
Cash
Dividend Revenue
120,000

Investments - OCI
450,000
65
8,250,000
120,000
450,000

30,000 x (190 - 175) =
(b).
Cost/Carrying Value, beg of year

Income from associates
Sale of shares
Carrying value, end of year
Market value 30,000 x 190
Year 1
Year 2
P8,250,000 P8,210,000
170,000
250,000
(210,000
(240,000)
P8,210,000
Year 3
P8,220,000
P5,700,000
7-16.
1.
2.
3.
4.
5.
6.
7-17.
A and B
A
B and C
A and B
C
C
(Abu Company)
(a)
Date
01/01/Year 1
12/31/Year 1
12/31/Year 2
12/31/Year 3
12/31/Year 4
12/31/Year 5
*rounded off.
(b)
Year 1
Jan. 1
Dec. 31
Year 2
Dec. 31
7-18.
7.
8.
9.
10.
11.
B
A, B, and C
C
B
A
Interest
Received
Interest Revenue
Premium
Amortization
1,200,000
1,200,000
1,200,000
1,200,000
1,200,000
1,158,450
1,152,633
1,146,002
1,138,442
1,129,827*
41,550
47,367
53,998
61,558
70,173*
Debt Investments at Amortized Cost

Cash
8,274,646
Cash
Interest Revenue
1,200,000
Cash
Interest Revenue
1,200,000
Carrying Value
8,274,646
8,233,096
8,185,729
8,131,731
8,070,173
8,000,000
8,274,646
41,550
1,158,450
47,367
1,152,633
(South Company)
(a)
(1) Securities are classified as at fair value through profit and loss.
Year 1
June 1
Dec. 1
Debt Investments at FVPL

Cash
3,691,500
3,691,500
Cash
160,000
66

Interest Revenue (4M x 8% x )
Dec.31
31
Interest Receivable
Interest Revenue (4M x 8% x 1/12)
Unrealized Gain on Debt Investments at
FVPL
4M x 0.97 = 3,880,000
3,880,000 3,691,500 = 188,500
160,000
26,667
26,667
188,500
188,500
Year 2
Jan. 1
Interest Receivable
Interest Revenue
26,667
June 1
Cash
Interest Revenue
160,000
Dec. 1
Cash
Interest Revenue
160,000
31
Interest Receivable
Interest Revenue
26,667

Unrealized Gain on Debt Investments at
FVPL
4M x 0.99 = 3,960,000
3,960,000 3,880,000 = 80,000
80,000
Dec. 31
26,667
160,000
160,000
26,667
80,000
(2) Securities are classified as at amortized cost

To facilitate computation, a partial amortization table is presented below.
Interest
Interest Revenue
Amortization
Date
Received
of Discount
Amortized Cost
June 1, Year 1
3,691,500
Dec 1, Year 1
160,000
184,575
24,575
3,716,075
June 1, Year 2
160,000
185,804
25,804
3,741,879
Dec. 1, Year 2
160,000
187,094
27,094
3,768,973
June 1, Year 3
160,000
188,449
28,449
3,797,422
Dec. 1, Year 3
160,000
189,871
29,871
3,827,293
June 1, Year 4
160,000
191,365
31,365
3,858,658
Dec. 1, Year 4
160,000
192,933
32,933
3,891,591
Year 1
June 1

Cash
Dec. 1
Cash
Interest Revenue (see above table)
31
Interest Receivable
Interest Revenue
160,000 x 1/6 = 26,667
67
3,691,500
3,691,500
160,000
24,575
184,575
26,667
4,301
30,968

25,804 x 1/6 = 4,301
Year 2
Jan. 1
June 1
Dec. 1
31
Interest Revenue
Interest Receivable
30,968
26,667
4,301
Cash
160,000
25,804
Cash
160,000
27,094
Interest Receivable
Interest Revenue
160,000 x 1/6 = 26,667
28,449 x 1/6= 4,742
185,804
187,094
26,667
4,742
31,409
(b) Journal entry/entries to record sale of investment on November 1, Year 4.

(1) Securities are classified as at fair value through profit and loss.
Year 4
Nov. 1
Cash
Loss on Sale of Debt Investments at FVPL
Interest Revenue
Acc. Int. = 4M x 8% x 5/12 = 133,333
Sales price (3,925,000133,333) 3,791,667
Carrying value (4 M x 0.98)
3,920,000
Loss on sale
128,333
(2) Securities are classified as at amortized cost
3,925,000
128,333
133,333
3,920,000
Year 4
Nov. 1
7-19.

Interest Receivable
Interest Revenue 192,933 x 5/6
32,933 x 5/6 = 27,444
Cash
Loss on Sale of Debt Investments at Amortized
Cost
Interest Receivable
CV of Debt Investments sold:
As of June 1, Year 4
3,858,658
Amortization June 1 to
Nov. 1, Year 4
27,444
As of Nov. 1, Year 4
3,886,102
Sales price
3,791,667
Loss on sale
94,435
(Grow Company)
68
27,444
133,333
160,777
3,925,000
94,435
133,333
3,886,102

(1)
Classified as Debt Investments at FV through Profit or Loss

(a)
Interest income (1,000,000 x 12%)
P 120,000
(b)
Sales price (600,000 x 1.01)
P 606,000
Carrying value, 12/31/Year 2 (600,000 x 1.06)
636,000
Loss on sale
P 30,000
(c)
Carrying value, 12/31/Year 2 (FV) (1,000,000 x 1.06) P1,060,000
Carrying value, 12/31/Year 3 (400,000 x 1.04)
P 416,000
(2)
Classified as at Amortized Cost
Date
1/1/Year 1
12/31/Year 1
12/31/Year 2
12/31/Year 3
(a)
(b)
(c)
(d)
7-20.
Nom Int
Amortization Table
Effect Int
Prem Amort
120,000
120,000
120,000
106,339
104,973
103,471
13,661
15,027
16,529
Amortized cost, end

1,063,394
1,049,733
1,034,706
1,018,177
Carrying value, 12/31/Year 2 (see table)

P1,034,706
Sales price
P 606,000
Carrying value, 1/1/Year 3 (1,034,706 x 6/10 P620,824
Amortization 1/1/Year 3 4/1/Year 3
16,529 x 3/12 x 600/1000
(2,479) 618,345
Loss on sale
P 12,345
Interest income for Year 3:
Jan 1 to Mar 31 103,471 x 3/12
P 25,868
Apr 1 to Dec 31 103,471 x 400/1000 x 9/12
31,041
Total interest income for Year 3
P 56,909
Carrying value, 12/31/Year 3
1,018,177 x 400/1000
P 407,271
(Powerpuff Company)
Feb. 1
Equity Investments - FVPL Blossom Ordinary

Cash
April 1
Debt Investments FVPL Peach Co. Bonds

Cash
July 1
Debt Investments FVPL Buttercup Bonds

Interest Receivable (150,000 x 12% x 4/12)
Cash
Oct. 1
Dec. 31
374,000
374,000
1,010,000
150,000
6,000
Cash
Interest Income (1,000,000 x 10% x 6/12)
50,000
Interest Receivable
Interest Income
1M x 10% x 3/12 = 25,000
150,000 x 12% x 6/12 = 9,000
25,000 + 9,000 = 34,000
34,000
69
1,010,000
156,000
50,000
34,000

31
Unrealized Loss on Investments at FVPL

Equity Investments FVPL - Blossom Ordinary
Debt Investments FVPL - Buttercup Bonds
Debt Investments FVPL - Peach Bonds
Cost
374,000
1,010,000
150,000
1,534,000
Blossom Ordinary
Peach 10% Bonds
Buttercup 12% Bonds
7-21.
11,000
6,000
3,000
Fair value
380,000
990,000
153,000
1,523,000
20,000
UGL
6,000
(20,000)
3,000
(11,000)
(Narito Company)
Jan.
Dec.
Dec.
Dec.
Dec.
Dec.
Date
1, Year 1
31, Year 1
31, Year 2
31, Year 3
31, Year 4
31, Year 5
Nominal
Interest
7,000
7,000
7,000
7,000
7,000
Amortization Table
Effective
Interest
5,433
5,355
5,272
5,186
5,094
Premium
Amortization
1,567
1,645
1,728
1,814
1,906
Amortized Cost,
End
108,660
107,093
105,448
103,720
101,906
100,000
Year 1
Jan. 1
Debt Investments at Amortized Cost Wolf Bonds

Cash
108,660
Dec. 31
Cash
Interest Income
7,000
Cash
Interest Income
7,000
Cash
Interest Income
7,000
Impairment Loss on Debt Investments

Carrying value, Dec. 31, Year 3
P103,720
Present value of future cash inflows
100,000 x 0.9070
90,700
4,500 x 1.8594
8,367
99,067
Impairment Loss
P 4,653
4,653
Cash
Interest Income
4,500
453
108,660
1,567
5,433
Year 2
Dec. 31
1,645
5,355
Year 3
Dec. 31
1,728
5,272
4,653
Year 4
Dec. 31
70
4,953

Year 5
Dec. 31
Cash
Interest Income
B and C
A
B and C
A
B and C
4,980
Revised Amortization Table

Nominal
Effective
Discount
Interest
Interest
Amortization
Date
Dec. 31, Year 3
Dec. 31, Year 4
Dec. 31, Year 5
7-22.
1.
2.
3.
4.
5.
4,500
480
4,500
4,500
6.
7.
8.
9.
10.
4,953
4,980*
A
A
A
C
B and C
453
480*
11.
12.
13.
14.
15.
Amortized Cost,
End
99,067
99,520
100,000
B
B and C
A
A
C
7-23. Raffy Company)

To facilitate computation, a partial amortization table is presented below.
Interest
Interest Revenue
Amortization
HTM
Date
Received
of Discount
Carrying Value
June 1, 2010
5,353,150
Dec. 31, 2010
350,000
312,267
37,733
5,315,417
Dec. 31, 2011
600,000
531,542
68,458
5,246,959
Dec. 31, 2012
600,000
524,696
75,304
5,171,655
Dec. 31, 2013
600,000
517,166
82,834
5,088,821
2010
June 1
Dec. 31
2011
Dec. 31
2012
Dec. 31
2013
Sept. 1
Held to Maturity Securities Blessie Corp. Bonds

Interest Revenue (5M x 12% x 5/12)
Cash
5,353,150
250,000
Cash
Interest Revenue
Held to Maturity Securities Blessie
600,000
Cash
Interest Revenue
600,000
Cash
Interest Revenue
600,000
Interest Receivable (3M x 12% x 8/12)

Interest Revenue (517,166 x 3/5 x 8/12)
240,000
Cash (3,090,000 + 240,000)

Gain on sale of HTM Securities
71
5,603,150
562,267
37,733
531,542
68,458
524,696
75,304
33,134
206,866
3,330,000
20,141

Interest Receivable
240,000
3,069,859
CV of HTM securities sold:

As of 12/31/11 (5,171,655 x 3/5)
Amort from 1/1/12-9/1/12
CV as of 9/1/12
Sales price
Gain on sale
Sept. 1
Available for Sale Securities Blessie

Held to Maturity Securities
5,171,655 3,102,993 = 2,068,662
2,068,662
Dec. 31
Cash
Interest Revenue
Available for Sale Securities Blessie
2M x 12% = 240,000
5,171,655 3,102,993 = 2,068,662
2,068,662 x 10% = 206,866
240,000 206,866 = 33,134
240,000
Dec 31
7-24.
2,068,662
206,866
33,134
Market Adjustment AFS

Unrealized Gain or Loss on AFS
Amortized cost
2,068,662 33,134 =
P2,035,528*
Market value 2M x 103.5%
2,070,000
Market Adjustment
P 34,472
*or 5,088,821 x 2/5 = P2,035,528
34,472
34,472
(Grow Company)
Date
1/1/Year 1
12/31/Year
12/31/Year
12/31/Year
(a)
(b)
(c)
7-25.
3,102,993
33,134
3,069,859
3,090,000
20,141
Nom Int
1
120,000
106,339
13,661
2
120,000
104,973
15,027
3
120,000
103,471
16,529
Market value, 12/31/ Year 2 (1.06 x 1M)
Amortized cost, 12/31/Year 2
Unrealized Gain or Loss (In Equity)
Interest income for Year 2
Market value, 12/31/Year 3 (1.04 x 400,000)
Amortized cost (1,018,177 x 4/10)
Unrealized Gain on 12/31/Year 3
(Naruto Company)
Jan.
Dec.
Dec.
Dec.
Date
1, 2010
31, 2010
31, 2011
31, 2012
Amortization Table
Effect Int
Prem Amort
Nominal
Interest
7,000
7,000
7,000
Amortization Table
Effective Interest
5,433
5,355
5,272
72
Premium
Amortization
1,567
1,645
1,728
Amortized cost, end

1,063,394
1,049,733
1,034,706
1,018,177
P1,060,000
1,034,706
P
25,394
P 104,973
P 416,000
407,271
P
8,729
Amortized Cost,
End
108,660
107,093
105,448
103,720
Dec. 31, 2013

Dec. 31, 2014
(a)
(b)
(c)
(d)
Theory
MC1
MC2
MC3
MC4
MC5
B
B
C
A
C
Problems
MC18
MC19
MC20
MC21
B
B
C
D
MC22
MC23
MC24
MC25
MC26
MC27
MC28
MC29
MC30
MC31
A
C
D
C
B
B
B
A
B
A
MC32
MC33
A
B
MC34
MC35
MC36
A
C
B
MC37
MC38
MC39
MC40
C
B
B
A
MC41
MC42
C
C
7,000
7,000
5,186
5,094
1,814
1,906
101,906
100,000
Interest income for 2010

P 5,433
Carrying amount at December 31, 2011 (amortized cost)
P105,448
After the sale, the investment shall be reclassified as AFS, applying tainting rule
in IAS 39.
Fair value of remaining 105,650 x 40/100
P42,260
Amortized cost of remaining 103,720 x 40/100
41,488
Unrealized gain in equity, December 31, 2011
P
772
Interest income for 2013 5,186 x 40/100
P 2,074
MULTIPLE CHOICE QUESTIONS
MC6
MC7
MC8
MC9
MC10
D
B
A
A
B
MC11
MC12
MC13
MC14
MC15
B
C
A
C
C
MC16
MC17
B
D
535,000 525,000 = 10,000

2,000,000 1,750,000 = 250,000 loss
2,100,000 (2,000,000 + 50,000) = 50,000
FV 12/31/ Year 2 (600 x 440) + (2,000 x 138) = 540,000
FV 12/31/Year 1 = 270,000 + 280,600 = 550,600
Change in FV = 540,000 550,600 = 10,600 decrease or debit
1,000 x 150) + 2,250 = 152,250; 152,250 (1,000 x 10) = 142,250
10,000 x 150 = 1,500,000; 1,500,000 + (20% x 3M) (10,000 x 50) = 1,600,000
960-500 = 460; 460 + 600 = 1,060; 1,060/10 = 106 shares
(500 x 20) 500 = 9,500; 106 x (620 450) = 18,020; 9,500 + 18,020 = 27,520
88 1.10 = 80
1,200,000 (3 x 40,000) + (25% x 640,000) = 1,240,000
1,000 x (140 - 130) + 900 x (170 180) + 800 x (200- 220) = 15,000 additional loss
1,000 x (20) + 15,000 = 35,000
40% x 450,000 = 180,000; 150,000 12 = 12,500; 180,000 12,500 = 167,500
25,000 x 180 = 4,500,000; 25% x (2,400,000 480,000) = 480,000
4,500,000 + 480,000 60,000 60,000 = 4,860,000
CV at date of reclassification is equal to FV = 15,000 x 200 = 3,000,000
10,000 x 200 = 2,000,000; 4,860,000 x 10/25 = 1,944,000
2,000,000 1,944,000 = 56,000
P0; No income is recognized upon receipt of bonus issue.
750,000 + 1,500,000 = 2,250,000
40% x 1,200,000 = 480,000; (40% x 900,000) 18 = 20,000
40% x 100,000 = 40,000; 480,000 20,000 40,000 = 420,000
4,000,000 + 420,000 (40% x 200,000) = 4,340,000
20% x 5.5M = 1,100,000; 1,100,000 (20% x 1,000,000) = 900,000
3,700,000 + 900,000 (20% x 1,500,000) = 4,300,000
(1.04 x 1,000,000) = 1,040,000; interest receivable = 1,000,000 x 12% x 4/12 =
40,000
8,750,000 x 5% = 437,500
3,692,000 x 5% = 184,600; 4M x 4% = 160,000
73
MC43
MC44
C
B
MC45
MC46
MC47
MC48
MC49
D
B
D
C
MC50
184,600 160,000 = 24,600; 3,692,000 + 24,600 = 3,716,600

3,692,000 x 5% = 184,600
912,400 x 10% = 91,240; 1,000,000 x8% = 80,000
91,240-80,000 = 11,240; 912,400 + 11,240 = 923,640
7,850,000 (8M x .08 x 6/12) = 7,530,000 selling price; 7,383,000 x 5% = 369,150
8M x 4% = 320,000; 369,150 320,000 = 49,150
7,383,000 + 49,150 = 7,432,150 CV Dec. 1, Year 1;
7,432,150 x 5% = 371,608
371,608 320,000 = 51,608; 7,342,150 + 51,608 = 7,483,758 CV June 1, Yr 2.
7,530,000 7,483,758 = 46,242
Carrying amount is equal to FV (472,500)
500,000 x 4% = 20,000
460,000 472,500 = 12,500 loss
Selling price = 3,000 x 120 = 360,000; cost of shares sold = 560,000 x 3,000/6,000
= 280,000; Gain = 360,000 280,000 = 80,000
Cost of shares sold (for 2,400 shares, P200,000) + 600 /3,600 x 360,000 = 200,000
+ 60,000 = 260,000; Gain = 360,000 260,000 = 100,000
74

2014 Vol 1 CH 7 Answers

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2014 Vol 1 CH 7 Answers

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Chapter 7 Investments in Equity Securities and Debt Securities

Equity Investments FVPL

Gain on Sale of Equity

Equity Investments FVPL

Equity Investments at FV through OCI

Equity Investments at FV through OCI

Equity Investments at FV through OCI

Chapter 7 Investments in Equity Securities and Debt Securities

Equity Investments - A Preference

Memo entry. Received additional shares of B Corp. ordinary shares on a 4-for-1

Equity Investments - C Ordinary

Equity Investments at Fair Value

Chapter 7 Investments in Equity Securities and Debt Securities

Cash (15,000 x 70)

Unrealized Gain or Loss on Equity

Equity Investments at FV through OCI

Equity Investments at Fair Value through OCI

Unrealized Gain or Loss in Equity , 12/31 Year 3

Fair value, December 31, Year 3

Sales price (5,000 x 54)

Cumulative balance of Unrealized Gains and Losses

Chapter 7 Investments in Equity Securities and Debt Securities

Amount taken to OCI

Fair value (2,000 x 90)

Equity Investments at FV through OCI

Equity Investments at FVPL (2,000 x 75)

Chapter 7 Investments in Equity Securities and Debt Securities

Memorandum entry. Received 500 additional

Equity Investments at FV through OCI Smith

Equity Investments at FV through OCI - Diana

Memorandum entry. Received 750 stock rights

Equity Investments at FV through OCI Diana

Equity Investments at FV through OCI Diana

Chapter 7 Investments in Equity Securities and Debt Securities

Cash (1,000 x 100 x 8%)

Unrealized Gains and Losses on Equity

Diana 1 (875 sh)

*Original Diana shares 500 shares at P108

Investment income (1,350 + 900)

Cash (5,000 x 25)

Unrealized Loss on Equity Investments Profit or

Equity Investments at FV through OCI - Darrel

Chapter 7 Investments in Equity Securities and Debt Securities

Investment in Associates Pirates Ordinary

Cash (30% x 400,000)

Investment in Associates Kitchie

Chapter 7 Investments in Equity Securities and Debt Securities

Cash (30% x 800,000)

Investment in Associates Kitchie

Share in Profit of Associates Kitchie

Acquisition cost, March 1, 2013

Income reported by Barbie from its investment in associates:

Equity Investments at FV through OCI Pen

Equity Investments at FV through OCI Pen

Investment in Associates Pen, Inc. (at FV)

Investment in Associates Pen, Inc.

Investment in Associates Pen, Inc.

Chapter 7 Investments in Equity Securities and Debt Securities

Cost transferred from Equity Investments at FV

Investment in Associates F Company

Investment in Associates F Company

Investment in Associates F Company

Cash (20,000 x 175)