Tutorial 9 Financial Accounting 2

Equity Investments
Teaching Assistant Team

Problem 1 – Trading Equity Investments (FVTPL)

Aegon Company has the following securities in its portfolio of trading equity investments on
December 31, 2017:
Cost Fair
Value
5,000 ordinary shares of Rhaegar Corp. $155,000 $139,000
10,000 ordinary shares of Viserys Limited 182,000 190,000
$337,000 $329,000
All of the investments had been purchased in 2017. In 2018, Aegon completed the following
investment transactions:
March 1 Sold 5,000 ordinary shares of Rhaegar Corp., @ $31 less fees of $1,500.
April 1 Bought 600 ordinary shares of Daenerys Stores, @ $45 plus fees of $550.
The Aegon Company portfolio of trading equity investments appeared as follows on December 31,
2018:
Cost Fair
Value
10,000 ordinary shares of Viserys Limited $182,000 $195,500
600 ordinary shares of Daenerys Stores 27,550 25,500
$209,550 $221,000
Instructions:
Prepare the general journal entries for Aegon Company for:
a. the 2017 adjusting entry.
b. the sale of the Rhaegar Corp. shares.
c. the purchase of the Daenerys Stores' shares.
d. the 2018 adjusting entry.

Problem 2 – Non Trading Investment (FVOCI)

Harum Corp is one of the leading mining company in Indonesia. During 2016, the following
transactions related to equity investment took place:

Hero Company
(a) On 13 July, 2016, Harum Corp acquired 12% Hero Company ownership by purchasing 1.000
ordinary shares of for Rp1.750.
(b) On 5 December 2016, Hero declared and paid cash dividend, each shares get Rp125.
(c) On December 31, 2016 the shares had price Rp 2,300 per share.
(d) On 14 april, 2017 Harum sold all its Hero company ordinary share for Rp 1.800

Ikea Company
(a) On 10 october, 2016, Harum Corp acquired 10% Ikea Company ownership by purchasing 2.000
ordinary shares of for Rp850. Harum also paid brokerage fee 25.000
(b) On 10 November 2016, Ikea declared and paid cash dividend, each shares get Rp50.
(c) On December 31, 2016 the shares had price Rp750 per share.
(d) On 5 Mei, 2017 Harum sold all its Ikea company ordinary share for Rp875

Instructions:
a. Prepare journal entry on 2016 related Harum equity investment (Hero company and Ikea
Company) if Harum choose the FVOCI option.
 b. Prepare statement of financial position and statement of comprehensif income on 31
December 2016

Problem 3 - Equity Method

PT Multilever Indonesia has significant influence in Magnum Co. after purchasing 350,000 shares
for Rp 8,500 per share and get 40% of Magnum Co. ownership on January 1, 2017. During 2017,
the following transactions took place:
1) On March 9, Magnum declared and paid cash dividend for Rp150 per share.
2) Magnum Co. reports their financial statement every June 30. Surprisingly, Magnum Co.
reports net loss Rp10,000,000.
3) At December 31, Magnum Co. shares have market value of Rp8,000 per share.
Instruction: Record the transactions above under equity method. Prepare partial statement of
financial position to present investment related account at 31 December 2017.

Problem 4 – Non-Trading Equity Investments

During the course of your examination of the financial statements of Bran Corporation for the year
ended December 31, 2017, you found a new account, "Investments." Your examination revealed
that during 2017, Bran began a program of investments, and all investment-related transactions
were entered in this account. Your analysis of this account for 2017 follows:
Bran Corporation
T-Account
Date—2017 Debit
Credit
(a)
Sansa Company Ordinary Shares
Feb. 14 Purchased 4,000 shares @ $55 per share. $220,000
July 26 Received 400 ordinary shares of Sansa Company
as a share dividend. (Memorandum entry in general ledger.)
Sept. 28 Sold the 400 ordinary shares of Sansa Company
received July 26 @ $70 per share. $28,000
(b)
Debit
Credit
Arya Inc., Ordinary Shares
Apr. 30 Purchased 20,000 shares @ $40 per share. $800,000
Oct. 28 Received dividend of $1.20 per share. $24,000

Additional information:
1. The fair value for each security as of the 2017 date of each transaction follow:
Security Feb. 14 Apr. 30 July 26 Sept. 28 Dec. 31
Sansa Co. $55 $62 $70 $74
Arya Inc. $40 32
Bran Corp. 25 28 30 33 35

2. All of the investments of Bran are nominal in respect to percentage of ownership (5% or less).
3. Each investment is considered by Bran’s management to be non-trading.

Instructions:
a. Prepare any necessary correcting journal entries related to investments (a) and (b).
b. Prepare the entry, if necessary, to record the proper valuation of the non-trading equity
investment portfolio as of December 31, 2017.