CH 7 Vol 1 Answers 2014

CHAPTER 7
INVESTMENTS IN EQUITY SECURITIES AND DEBT SECURITIES

PROBLEMS
7-1
(Victoria Court)
(a)
Classified as FVPL
Cash
Gain on Sale of Trading Equity Investments
Equity Investments FVPL
To record sale of Y Co. Ordinary Shares
Unrealized Loss on Equity Investments P and L
Equity Investments - FVPL
To record valuation at end of year.
X Co.
Z Co.
Total
(b)
7-2
MV12/31/Yr 1
P330,000
350,000
P680,000
c.
10,000
160,000
72,000
72,000
Unrealized Holding
Gains(Losses)
P(42,000)
(30,000)
P(72,000)
Market12/31/Yr 2
P288,000
320,000
P608,000
Classified as equity investments at fair value through other

comprehensive income
Cash
170,000
Equity Investments at FV through OCI
160,000
Gain on Sale of Equity Investments
10,000
To record sale of Y Co. Common
Retained Earnings
Unrealized Gains and Losses on Equity
Investments at FV through OCI
40,000
Unrealized Gain/Loss on Equity Investments at FV - OCI

72,000
(A Company)
a.
Cash
Dividend Revenue
2,400 shares x 7.50
b.
170,000
40,000
72,000
18,000
18,000
Memo entry.
Received additional 600 shares of B Corp. ordinary shares as
bonus issue on 2,400 shares previously held.
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 held are now 9,600.
e.
Equity Investments - C Ordinary

Dividend Revenue
2,400/6 = 400 shares x 50
20,000
20,000
Chapter 7 Investments in Equity Securities and Debt Securities
7-3
(Inn Corporation)
(a)
December 31, Year 2 ledger balance (30,000 x P65)
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
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
7-4
812,500
237,500
374,500
(b)
Gain on sale
Unrealized gain on equity investments at FVPL
Total amount reported in profit or loss
P237,500
374,500
P612,000
(c)
Equity Investments at Fair Value
P1,512,000
Inna Corporation
(a)
December 31, Year 2 ledger balance (30,000 x P65)
Cost
Unrealized Gain or Loss on Equity Investments (Equity)
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.
Cash (15,000 x 70)
1,050,000
1,950,000 x 15,000/36,000 = 812,500
812,500
237,500
Unrealized Gain or Loss on Equity Investments

62,500
Retained Earnings
150,000 x 15,000/36,000 = 62,500
62,500

374,500
Unrealized Gain on Equity Investments
at FV through OCI
21,000 x 72 =
1,512,000
1,950,000 812,500 =
1,137,500
Unrealized gain
374,500
65
374,500
7-5
(b)
Gain on sale
(c)
Equity Investments at Fair Value through OCI
(d)
Unrealized Gain or Loss in Equity , 12/31 Year 3

(150,000 62,500 + 374,500)
P462,000
Cost (1,800,000 x 21,000/36,000)

Fair value, December 31, Year 3
Unrealized Gain (Loss) in Equity
P1,050,000
1,512,000
P 462,000
(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
P35,000
# of
shares
3,500
1,000
3,000
Cost
P133,000
180,000
177,000
P490,000
(Melody Corporation)
a.
Initial measurement of stock rights received
b.
7-7
P1,512,000
(Gypsy Corporation)
Monterey Preference
Garcia Ordinary
Barney Corporation
7-6
P237,500
FV, 12/31/
Year 3
P135,000
190,000
200,000
P525,000
2,000 x P4
Unrealized
Gain (Loss)
P 2,000
10,000
23,000
P35,000
P 8,000
Cost of new shares acquired

Cash paid (300 shares x P80)
Stockrights exercised (300 x 5 x P4)
Cost of shares acquired
P 24,000
6,000
P30,000
Cost per share (30,000 / 300 shares)
c.
Sales price of stock rights (500 x 4.50)

CV of stock rights sold (500 x 4)
Gain on sale of stockrights
P 2,250
2,000
P
250
d.
Market value at December 31, Year 3 (98 x 2,300 shares)

P225,400
Cost of shares (P170,000 + 30,000)
200,000
Balance in unrealized gain/loss account at December 31, Year 3 P 25,400
(Anti Corporation)
a.
Equity Investments - Stock Rights (FVPL)
Investment Income
10,000 x 5
b.
Cash
Equity Investments - Stock Rights (FVPL)
66
100
50,000
50,000
50,000
50,000
c.
Equity Investments Pro Corp. Ordinary (FVPL)

Equity Investments Stockrights (FVPL)
Cash
10,000/5 = 2,000 shares
2,000 x 50 = 100,000
150,000
50,000
100,000
90,000
Equity Investments Pro Corp. Ordinary (FVPL)
Unrealized Gain on Equity Investments at FVPL
90,000
Market value (12,000 shares x 75)
Carrying value before this adjustment
660,000 + 150,000
Unrealized gain
7-8
(EDSA Company)
(a)
1.
150
2+
2.
2,000
3.
5,500
(b)
1.
2.
7-9
135
1
x 5
(1,000 x 5)
145 135
2
2,000 x 5
=
=
=
900,000
810,000
90,000
P5.00
P10,000
P500 Gain
P5.00
P10,000
(Tolits Corporation)
Year 2
a.
Equity Investments at FV through OCI Diana

Ordinary
Cash
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.
e.
f.
Cash
Ordinary
(54,000 / 1,000) x 250 shares = 13,500
Stock Rights Diana Ordinary
Investment Income
750 shares x 3
Ordinary
Stock Rights Diana Ordinary (60% x 2,250)
Cash 450/2= 225; 225 x P55
67
54,000
54,000
121,200
121,200
15,000
1,500
13,500
2,250
2,250
13,725
1,350
12,375
f.
g.
h.
i.
Cash
Stock Rights Diana Ordinary
(40% x 750) x 3
7-10
900
Cash (100 x 56)

Loss on sale of Equity Investments
Ordinary
13,725/ 225 = 61; 61 x 100 = 6,100
5,600
500
Cash (1,000 x 100 x 8%)

Dividend Revenue
8,000
6,100
8,000
Unrealized Gains and Losses on Equity

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

Smith (1,000 x 115)
Total
b.
900
Market
CV
54,250 48,125
115,000 121,200
169,250 169,325
75
6,125
6,200
Unreal
6,125
(6,200)
75
Gain on sale of Diana

Receipt of stockrights
Loss on sale of Diana Securities
Dividend revenue
Total income recognized in profit or loss in 2010
P1,500
2,250
( 500)
8,000
P11,250
(Carlo Company)
Year 2
Apr. 1
May 15
Cash (5,000 x 25)

Loss on Sale of Trading Securities
Trading Securities Avi Ordinary
Equity Investments at FV through OCI Ghio
Preference
Cash
July 10
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
125,000
14,000
139,000
30,550
30,550
24,000
24,000
Unrealized Loss on Trading Securities

Trading Securities Avi Ordinary
(5,000 x 26) 139,000
68
9,000
9,000
Dec
31
Equity Investments at FV through OCI - Darrel

Equity Investments at FV through OCI - Ghio
Net Unrealized Gains/Losses on AFS Securities
116,650 6,000 balance
Darrel
Ghio
Total
7-11
(b)
110,650
Change in FV
110,000
650
110,650
2,000,000
2,000,000
Investment in Associates
Income from Associates
20% x 1,500,000
300,000
300,000
3.
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
5.
600,000
200,000
Investment cost
Share in income 2011
Share in income 2012
Share in dividends
Carrying amount, December 31, 2012
P2,000,000
300,000
600,000
(200,000)
P2,700,000
(Byron, Inc.)
2012
Jan.
Dec. 31
31
7-13
CV
370,000
30,550
394,550
(Hostel Company)
(a)
1.
Cash
2.
7-12
FV
480,000
31,200
511,200
110,000
650
Investment in Associates Pirates Ordinary

Cash
5,160,000

Income from Associates (30% x 3,600,000)
1,080,000
Cash (30% x 400,000)

5,160,000
1,080,000
120,000
120,000
(Barbie, Inc.)
(a).
2012
Mar.
Dec. 31
Investment in Associates Kitchie

Cash
Cash (30% x 800,000)
69
1,365,000
1,365,000
240,000
240,000
31
31

(1.2M x 10/12) x 30%
Income from Associates Kitchie
30% (3,550,000 + 50,000 + 750,000)=
1,305,000; Goodwill = 1,365,000
1,305,000 = 60,000
300,000
300,000
52,500
52,500
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
(b)
7-14
Acquisition cost, March 1, 2012

Cash dividends received
Income from associates (initial share)
Adjustment in reported income
Investment carrying value, December 31, 2012
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)
247,500
(Richmonde Corporation)
(a)
Year 1
Jan.
Dec. 31
31
Equity Investments at FV through OCI Pen

Cash
900,000
Cash
Dividend Revenue
10% x 2,000,000
200,000

Unrealized Gains/Losses on Equity
Investments - OCI
480,000
900,000
200,000
480,000
Year 2
Jan.
Investment in Associates Pen, Inc. (at FV)

Unrealized Gains/Losses on Equity Investments at
FV through OCI
Retained Earnings
1
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.

Income from Associates (30% x 6,500,000)
1,950,000
Cash
Investment in Associates (30% x 3,000,000)
70
2,600,000
1,950,000
900,000
900,000
(b)
7-15
Cost transferred from Equity Investments at FV

Additional investment
Share in income
Share in dividends
Carrying amount, December 31, Year 2
1,380,000
2,400,000
1,950,000
(900,000)
4,830,000
(E Corporation)
(a)
Year 1
Jan.
Aug. 1
Dec. 31
Investment in Associates F Company

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

170,000
210,000
170,000
25% x 680,000
Year 2
Dec. 31
31
Cash
210,000

Income from Associates F Company
250,000
210,000
250,000
25% x 1,000,000
Year 3
Jan. 2
Cash (20,000 x 175)

Gain on Sale of Investment in Associates
Acquisition cost
Share in income (Year1)
Share in dividends
(Year1)
Share in dividends (Year2)
Share income (Year 1)
Investment carrying amount
Portion sold
CV of investment sold
3,500,000
3,300,000
200,000
8,250,000
170,000
(210,000)
(210,000)
250,000
8,250,000
40%
3,300,000

Investment Income
30,000 x 175 = 5,250,000
5,250,000
4,950,000
300,000
8,250,000 3,300,000 = 4,950,000
Dec. 31
31
Cash
Dividend Revenue
120,000

Unrealized Gains/Losses on Equity
Investments through OCI
450,000
30,000 x (190
120,000
- 175) =
71
450,000
(b).
Year 1
Cost/Carrying Value, beg of year
Income from associates
Cash dividends received
Sale of shares
Carrying value, end of year
Market value 30,000 x 190
Year 2
P8,250,000
170,000
(210,000)
P8,210,000
250,000
(210,000)
P8,210,000
P8,250,000
Year 3
P5,700,000
7-16
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
7-17
A and B
A
B and C
A and B
B
C
C
A
B
A, B and C
11.
12.
13.
14.
15.
C
A and B
B
A
B
(Abu Company)
(a)
Date
01/01/ Yr 1
12/31/ Yr 1
12/31/ Yr 2
12/31/Yr 3
12/31/Yr 4
12/31/Yr 5
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*
Carrying Value
8,274,646
8,233,096
8,185,729
8,131,731
8,070,173
8,000,000
*rounded off.
(b)
2009
Jan.
Dec. 31
2010
Dec. 31
7-18
(a)
Debt Investments at Amortized Cost

Cash
8,274,646
Cash
Interest Revenue
1,200,000
Cash
Interest Revenue
1,200,000
8,274,646
41,550
1,158,450
47,367
1,152,633
(South Company)
(1) Securities are classified as financial assets 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
Interest Revenue (4M x 8% x )
72
160,000
160,000
Dec.
31
31
Interest Receivable
Interest Revenue (4M x 8% x 1/12)
26,667
26,667

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

Unrealized Gain on Debt Investments at
FVPL
80,000
26,667
160,000
160,000
26,667
80,000
4M x 0.99 = 3,960,000
3,960,000 3.880,000 = 80,000
(2) Securities are classified as at amortized cost

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

Cash
3,691,500
3,691,500
Cash
Interest Revenue (see above table)
160,000
24,575
Interest Receivable
Interest Revenue
26,667
4,301
184,575
30,968
160,000 x 1/6 = 26,667; 25,804 x 1/6 = 4,301

Year 2
Jan. 1
Interest Revenue
Interest Receivable
73
30,968
26,667
4,301
June 1
Dec. 1
31
Cash
Interest Revenue(see above table)
160,000
25,804
Cash
Interest Revenue (see above table)
160,000
27,094
185,804
187,094
Interest Receivable
Interest Revenue
26,667
4,742
31,409
160,000 x 1/6 = 26,667; 28,449 x 1/6= 4,742
(b). Journal entry/entries to record sale of investment on November 1, Yr4.

(1) Securities are classified as financial assets at fair value through profit and
loss.
Year 4
Nov. 1
Cash
Loss on Sale of Debt Investments at FVPL
Interest Revenue
3,925,000
128,333
133,333
3,920,000
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

Year 4
Nov. 1
7-19
(1)

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, Yr 4
3,858,658
Amortization June 1 to
Nov. 1, Yr 4
27,444
As of Nov. 1, Yr 4
3,886,102
Sales price
3,791,667
Loss on sale
94,435
27,444
133,333
160,777
3,925,000
94,435
133,333
3,886,102
Grow Company
Classified as Debt Investments at FV through Profit or Loss
(a)
Interest income (1,000,000 x 12%)
(b)
Sales price (600,000 x 1.01)
Carrying value, 12/31/Yr2 (600,000 x 1.06)
Loss on sale
Carrying value, 12/31/Yr2 (FV) (1,000,000 x 1.06)
(c)
(d)
Carrying value, 12/31/Yr 400,000 x 1.04
74
P120,000
P606,000
636,000
P 30,000
P1,060,000
P 416,000
(2)
Classified as at Amortized Cost
Date
1/1/Yr 1
12/31/Yr 1
12/31/Yr 2
12/31/Yr 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/yr 2 (see table)

Sales price
Carrying value, 1/1Yr 3 (1,034,706 x 6/10) = P620,824
Amortization 1/1/Yr3 4/1/Yr3
16,529 x 3/12 x 600/1000
( 2,479)
Loss on sale
Interest income for Yr 3:
Jan 1 to Mar 31 103,471 x 3/12
Apr 1 to Dec 31 103,471 x 400/1000 x 9/12
Total interest income for Yr 3
Carrying value, 12/31/Yr3
1,018,177 x 400/1000
P1,034,706
P 606,000
618,345
12,345
P25,868
31,041
P56,909
P407,271
(Powerpuff Company)
Feb. 1
April 1
July 1
Oct. 1
Dec. 31
31
Equity Investments - FVPL Blossom Ordinary

Cash
Debt Investments FVPL Peach Co. Bonds
Cash
374,000
374,000
1,010,000
1,010,000
Debt Investments FVPL Buttercup Bonds

Interest Receivable (150,000 x 12% x 4/12)
Cash
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
Unrealized Loss on FVPL

Equity Investments FVPL - Blossom Ordinary
Debt Investments FVPL - Buttercup Bonds
Debt Investments FVPL - Peach Bonds
11,000
6,000
3,000
Cost
374,000
1,010,000
150,000
1,534,000
Blossom Ordinary
Peach 10% Bonds
Buttercup 12% Bonds
75
156,000
50,000
34,000
Fair value
380,000
990,000
153,000
1,523,000
20,000
UGL
6,000
(20,000)
3,000
(11,000)
7-21
(Narito Company)
Date
Jan. 1, Yr 1
Dec. 31, Yr 1
Dec. 31, Yr 2
Dec. 31, Yr 3
Dec. 31, Yr 4
Dec. 31, Yr 5
Year 1
Jan. 1
Dec. 31
Year 2
Dec. 31
31
Nominal
Interest
Amortization Table
Effective
Interest
Premium
Amortization
7,000
7,000
7,000
7,000
7,000
5,433
5,355
5,272
5,186
5,094
1,567
1,645
1,728
1,814
1,906
Debt Investments at Amortized Cost Wolf Bonds

Cash
Dec. 31
108,660
108,660
Cash
Debt Investments at Amortized Cost Wolf
Bonds
Interest Income
7,000
Cash
Bonds
Interest Income
7,000
Impairment Loss Debt Investments

Bonds
5,448
Fair value (impaired)*

Amortized cost (see table)
Impairment loss
*When stated rate equals market rate, the
market price will equal face value.
Year 3
Amortized Cost,
End
108,660
107,093
105,448
103,720
101,906
100,000
1,567
5,433
1,645
5,355
5,448
100,000
105,448
5,448
Cash
Interest Income
(Note: No amortization is necessary since
amortized cost is now equal to face value)
7,000
Cash
Interest Income
7,000
7,000
Year 4
Dec. 31
31
7,000

Bonds
Gain from Recovery of Impairment Debt
Investments
76
1,906
1,906
Fair value:
PV of face at 4% for 1 period (100,000 x 0.9615)
PV of interest at 4% for 1 period (7,000 x 0.9615)
Fair value
Amortized cost (Original table at 5% effective interest)
Recording recovery of impairment shall not bring the
amortized cost at an amount higher than the
amortized cost had no impairment been previously
recorded. Hence, recovery is limited to
Amortized cost (less than fair value)
Carrying value (before this adjustment)
Recovery
7-22
1.
2.
3.
4.
5.
7-23
B and C
A
B and C
A
B and C
6.
7.
8.
9.
10.
A
A
A
C
B and C
11.
12.
13.
14.
15.
96,150
6,731
102,881
101,906
101,906
100,000
1,906
B
B and C
A
A
C
Raffy Company)
To facilitate computation, a partial amortization table is presented below.
June
Dec.
Dec.
Dec.
Dec.
Date
1, 2010
31, 2010
31, 2011
31, 2012
31, 2013
Interest
Received
Interest Revenue
Amortization
of Discount
350,000
600,000
600,000
600,000
312,267
531,542
524,696
517,166
37,733
68,458
75,304
82,834
HTM
Carrying Value
5,353,150
5,315,417
5,246,959
5,171,655
5,088,821
2010
June 1
Dec. 31
Held to Maturity Securities Blessie Corp. Bonds

Interest Revenue (5M x 12% x 5/12)
Cash
5,353,150
250,000
5,603,150
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
562,267
37,733
2011
Dec. 31
2012
Dec. 31
2013
Sept. 1
77
531,542
68,458
524,696
75,304
33,134
206,866
Sept
Cash (3,090,000 + 240,000)

Gain on sale of HTM Securities
Interest Receivable
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
3,330,000
20,141
240,000
3,069,859
3,102,993
33,134
3,069,859
3,090,000
20,141
Available for Sale Securities Blessie

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

Unrealized Gain or Loss on AFS
34,472
34,472
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
7-24
(Grow Company)
Date
1/1/Yr 1
12/31/Yr 1
12/31/Yr 2
12/31/Yr 3
(a)
(b)
(c)
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
Market value, 12/31/ Yr 2 (1.06 x 1M)

Amortized cost, 12/31/Year 2
Unrealized Gain or Loss (In Equity)
Interest income for Yr 2
Market value, 12/31/Yr 3 (1.04 x 400,000)
Amortized cost (1,018,177 x 4/10)
Unrealized Gain on 12/31/Yr 3
78
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
7-25
(Naruto Company)
Date
Jan. 1, 2010
Dec. 31, 2010
Dec. 31, 2011
Dec. 31, 2012
Dec. 31, 2013
Dec. 31, 2014
(a)
(b)
(c)
Nominal
Interest
Amortization Table
Effective
Interest
Premium
Amortization
7,000
7,000
7,000
7,000
7,000
5,433
5,355
5,272
5,186
5,094
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
Interest income for 2010

P5,433
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
(d)
7-26
Narito
Classified as Available for Sale Securities
Amortization Table
Nominal
Effective
Premium
Amortized Cost,
Date
Interest
Interest
Amortization
End
Jan. 1, 2010
108,660
Dec. 31, 2010
7,000
5,433
1,567
107,093
Dec. 31, 2011
7,000
5,355
1,645
105,448
Dec. 31, 2012
7,000
5,272
1,728
103,720
Dec. 31, 2013
7,000
5,186
1,814
101,906
Dec. 31, 2014
7,000
5,094
1,906
100,000
(Note: Based on the table, the term of the bonds is 5 years from January 1, 2009)
2010
Jan. 1
Dec. 31
31
Available for Sale Securities Wolverine Bonds

Cash
108,660
108,660
Cash
Interest Income
7,000
Unrealized Loss on AFS AFS Debt

Market Adjustment AFS Debt
3,627
1,567
5,433
Market value (market rate is 6%; remaining term 4 yrs.

PV of face (100,000 x 0.7921
PV of interest (7,000 x 3.4651
Market value
Amortized cost, 12/31/09
Unrealized loss
79
3,627
79,210
24,256
103,466
107,093
3,627
2011
Dec. 31
31
Cash
Interest Income
7,000
Impairment Loss
Unrealized Loss on AFS
5,448
3,627
Fair value (impaired)*

Amortized cost (see table)
Impairment loss
*When stated rate equals market rate, the
market price will equal face value.
2012
Dec. 31
31
1,645
5,355
5,448
3,627
100,000
105,448
5,448
Cash
Interest Income
(Note: No amortization is necessary since
amortized cost is now equal to face value)
7,000
7,000

Unrealized Gain/Loss on AFS Debt
914
914
Market Value (market rate is 6.5%;remaining term 2 yrs)

PV of face (100,000 x 0.8817)
PV of interest (7,000 x 1.8206)
Market value
Amortized cost
Unrealized Gain
2013
Dec. 31
Dec. 31
31
Cash
Interest Income
7,000

Gain from Recovery of Previous Impairment
1,906
7,000
1,906

Unrealized Gain/Loss on AFS Debt
975
975
Fair value:
PV of face at 4% for 1 period (100,000 x 0.9615)
PV of interest at 4% for 1 period (7,000 x 0.9615)
Fair value
Amortized cost (Original table at 7% effective interest)
Unrealized Gain
MULTIPLE CHOICE QUESTIONS
Theory
MC1
MC2
MC3
MC4
B
B
A
A
MC5
MC6
MC7
MC8
88,170
12,744
100,914
100,000
914
D
A
C
D
MC9
MC10
MC11
MC12
80
B
B
C
A
96,150
6,731
102,881
101,906
975
Problems
MC13
MC14
B
D
MC15
MC16
MC17
A
D
MC18
MC19
MC20
D
B
MC21
MC22
MC23
A
B
B
B
MC24
MC25
MC26
D
B
MC27
MC28
MC29
A
C
B
MC30
MC31
MC32
MC33
MC34
MC35
C
B
A
A
C
C
MC36
MC37
C
B
MC38
MC39
MC40
MC41
D
B
D
MC44
MC45
535,000 525,000 = 10,000

FV 12/31/ Yr 2 (600 x 440) + (2,000 x 138) = 540,000
FV 12/31/Yr 1 = 270,000 + 280,600 = 550,600
Change in FV = 540,000 550,600 = 10,600 decrease or debit
10,000 x 150 = 1,500,000; 20% x 3M = 600,000
10,000 x 50 = 500,000; 1,500,000 + 600,000 500,000 = 1,600,000
1,000 x 50 = 150,000; 150,000 + 2,250 = 152,250; 152,250 (1,000 x 10) = 142,250
Net SP = (500 x 25) 500 = 12,000; CV = 500 x 20 = 10,000;
Gain = 12,000 10,000 = 2,000
960-500 = 460; 460 + 600 = 1,060; 1,060/10 = 106 shares
88 1.10 = 80
Unit cost per share is still 80; stock rights received are credited to income.
Following old principle 80 4 = 76
4,400 x 80 = 352,000
1,200,000 (3 x 40,000) + (25% x 640,000) = 1,240,000
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
Following old principle = 4,860,000 x 15/25 = 2,916,000
10,000 x 200 = 2,000,000; 4,860,000 x 10/25 = 1,944,000
2,000,000 1,944,000 = 56,000
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
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
(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
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
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
81

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CHAPTER 7

INVESTMENTS IN EQUITY SECURITIES AND DEBT SECURITIES

Classified as equity investments at fair value through other

Unrealized Gain/Loss on Equity Investments at FV - OCI

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

Equity Investments - C Ordinary

Chapter 7 Investments in Equity Securities and Debt Securities

Equity Investments at Fair Value

Unrealized Gain or Loss on Equity Investments

Equity Investments at FV through OCI

Chapter 7 Investments in Equity Securities and Debt Securities

Equity Investments at Fair Value through OCI

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

Cost (1,800,000 x 21,000/36,000)

Sales price (5,000 x 54)

Cumulative balance of Unrealized Gains and Losses

Cost of new shares acquired

Cost per share (30,000 / 300 shares)

Sales price of stock rights (500 x 4.50)

Market value at December 31, Year 3 (98 x 2,300 shares)

Chapter 7 Investments in Equity Securities and Debt Securities

Equity Investments Pro Corp. Ordinary (FVPL)

Equity Investments at FV through OCI Diana

Memorandum entry. Received 500 additional

Equity Investments at FV through OCI Smith

Chapter 7 Investments in Equity Securities and Debt Securities

Cash (100 x 56)

Cash (1,000 x 100 x 8%)

Unrealized Gains and Losses on Equity

Diana 1 (875 sh)

Gain on sale of Diana

Cash (5,000 x 25)

Memorandum entry. Received 4,000 additional

Unrealized Loss on Trading Securities

Chapter 7 Investments in Equity Securities and Debt Securities

Equity Investments at FV through OCI - Darrel

Memo. Received 2,000 additional shares of

Investment in Associates Pirates Ordinary

Investment in Associates Pirates Ordinary

Cash (30% x 400,000)

Investment in Associates Kitchie

Chapter 7 Investments in Equity Securities and Debt Securities

Investment in Associates Kitchie

Amortization of undervaluation of assets

Acquisition cost, March 1, 2012

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)

Equity Investments at FV through OCI

8,250,000 3,300,000 = 4,950,000

Equity Investments at FV through OCI

Chapter 7 Investments in Equity Securities and Debt Securities

Debt Investments at Amortized Cost

Debt Investments at FVPL