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CHAPTER 7

INVESTMENTS IN EQUITY SECURITIES AND DEBT SECURITIES


PROBLEMS
7-1

(Dusit, Inc.)
Classified as available for sale securities
a.
Purchase price
(10,000 shares x P33.50)
P335,000
Brokers commission
Total cost

b.
Purchase price
(7,000 shares x P26.50)
P185,500.00
Brokers commission
Transfer taxes ( x 1% x 185,500)
Total cost
c.
P58,000

1,980
P336,980

4,910.00
463.75
P190,873.75

Purchase price
Transfer fees and other costs

1,500

45,000

Total cost to be allocated

P59,500

Market values:
Ordinary shares 150 x 100
Preference shares
300 x 150

P15,000

Total
Allocation to:
Ordinary shares
P14,875

P60,000
59,500 x 15/60

Preference shares 59,500 x 45/60

P44,625
d.

Market value of ordinary shares


2,000 shares x P200
P400,000
Classified as Trading Securities
a.
Purchase price
(10,000 shares x P33.50)
P335,000
b.
Purchase price (7,000 shares x P26.50)
P185,500
c.
14,500
43,500

Allocation to Ordinary Shares


58,000 x 15/60

Allocation to Preference Shares


58,000 x 45/60

Chapter 7 Investments in Equity Securities and Debt Securities

d.

Market value of ordinary shares


2,000 shares x P200
P400,000
7-2

(A Company)
a.
Cash
Dividend Revenue
2,400 shares x 7.50
Cost per share:
B Corp. Ordinary (no change)
b.

c.

18,000
18,000
P100

Memo entry.
Received additional 600 shares of B Corp. ordinary
shares as stock dividends.
Revised cost per share:
B Corp. Ordinary (3,000 shares)
Available for Sale Securities-B Corp. Preference 80,000
Available for Sale Securities-B Corp. Ordinary
80,000
Market values:
Allocation:
80,000

Ordinary
(2,400 x 125) 300,000
Preference (600 x 250) 150,000
Ordinary
240,000 x 300/450
160,000
Preference
240,000 x 150/450

Costs per share:


B Corp. Ordinary (2,400 shares)
B Corp. Preference (600 shares)
d.

P 80

P 67
P133

Memo entry. Received additional shares of B Corp. ordinary shares on


a 4-for-1 stock split.
Revised cost per share:
B Corp. Ordinary = P240,000/9,600 shares
P 25

e.

Available for Sale Securities-C Ordinary


Dividend Revenue
2,400/6 = 400 shares x 50

20,000
20,000

Costs per share:


B Corp. Common (2,400 shares)
C Corp. Common (400 shares)
7-3

10,000

(Victoria Court)
Classified as FVPL
Cash
Gain on Sale of Trading Securities

P100
P 50

170,000

Trading Securities
160,000
To record sale of Y Co. Common
Unrealized Loss on Trading Securities
Trading Securities
To record valuation at end of year.

48

72,000
72,000

Chapter 7 Investments in Equity Securities and Debt Securities

X Co.
Z Co.
Total

MV12/31/08
P330,000
350,000
P680,000

Classified as available for sale securities


Cash
Loss on Sale of Available for Sale Securities
Market Adjustment-AFS Securities
Available for Sale Securities
Net Unrealized Gain/Loss on AFS Securities
40,000

Unrealized Holding
Gains(Losses)
P(42,000)
(30,000)
P(72,000)

Market12/31/09
P288,000
320,000
P608,000
170,000
40,000

30,000
200,000

To record sale of Y Co. Common


Net Unrealized Gain/Loss on AFS Securities
Market Adjustment-AFS Securities

72,000

72,000

To record valuation at end of year.


Cost
Market
X Co.
P330,000
P288,000
Z Co.
300,000
320,000
Total
P630,000
P608,000
Required balance in Market Adjustment Account
cr
Balance before adjustment (10,000 + 40,000) dr
Required adjustment

Unrealized Holding
Gains(Losses)
P(42,000)
20,000
P(22,000)
50,000
P 72,000

7-4

(Inn Corporation)
(1)
Sales price (15,000 x 60
)
P900,000
Cost of shares sold:
12,000 shares
P650,000
3,000 shares (1,300,000 x 3,000/24,000)
162,500
812,500
Gain on sale
P 87,500
(2)

Sales price
Cost of shares sold (1,800,000 x 15,000/36,000)
Gain on sale

(3)

Sales price
P900,000
Cost of shares sold:
12,000 shares
P500,000
3,000 shares (1,300,000 x 3,000/24,000)
162,500

662,500

Gain on sale
7-5

P900,000
750,000
P150,000

P237,500

(Melody Corporation)
a.
2007 Lot (4 x 750)
2008 Lot (4 x 1,250)
Total cost of stock rights received

49

P 3,000
5,000
P 8,000

Chapter 7 Investments in Equity Securities and Debt Securities


b.
6,000

2,250

Cost of stock rights exercised:


2005 Lot
2006 Lot (750 x 4)

P 3,000

3,000

Cash paid (300 shares x P80)


Total cost of new shares acquired thru stock rights
Cost per share (8,400 / 300 shares)
P
c.

24,000
P30,000
100

Sales price of stock rights (500 x 4.50)

Cost of stock rights sold


2008 Lot (500 x 4)
Gain on sale
d.

225,400

2,000
250

Available for sale securities balance at December 31, 2009:


2007 Lot (60,000 3,000)
P 57,000
2008 Lot (110,000 5,000)
105,000
2009 Lot
30,000
P192,900
Market value at December 31, 2009 (98 x 2,300 shares)
Balance in unrealized gain/loss account at December 31, 2009

32,500

7-6

(Anti Corporation)
a.
Stock Rights Pro Corp. Ordinary
Trading Securities Pro Corp. Ordinary
10,000 x 5
b.
Cash
Stock Rights Pro Corp. Ordinary

50,000
50,000
50,000

50,000
c.
50,000

Trading Securities Pro Corp. Ordinary


Stock Rights Pro Corp. Ordinary
Cash
10,000/5 = 2,000 shares
2,000 x 50 = 100,000

140,000

140,000
7-7

100,000

Trading Securities Pro Corp. Ordinary


Unrealized Gain on Trading Securities
Market value, 12/31/06

900,000

150,000

140,000

(12,000 shares x 75)

Carrying value, 12/31/07 (10,000 shares x 66) 660,000


Cost of stock rights received
( 50,000)
Cost of new shares from exercise
150,000 760,000
Unrealized gain

(EDSA Company)
(a)

50

Chapter 7 Investments in Equity Securities and Debt Securities


1.
2.
3.
(b)

1.
2.

7-8

150 135
2+1
2,000 x 5
5,500 (1,000 x 5)
145 135
2
2,000 x 5

=
=
=

P5.00
P10,000
P500 Gain

P5.00

P10,000

(Tolits Corporation)
2009

a.

Available for Sale Securities Diana


Ordinary
Cash

b.

Memorandum entry. Received 500


additional shares of Diana ordinary shares
as a result of 2-for-1 split.

c.

Available for Sale Securities Smith


Preference
Cash
(1,000 x 120) + 1,200

d.

e.

f.

f.
g.

54,000
54,000

121,200
121,200

Cash
Gain on Sale of AFS Securities
Available for Sale Securities Diana
Ordinary
(54,000 / 1,000) x 250 shares =
13,500

15,000

Stock Rights Diana Ordinary


Available for Sale Securities Diana
Ordinary
750 shares x 3

2,250

Available for Sale Securities Diana


Ordinary
Stock Rights Diana Ordinary
Cash
(60% x 750) x 3; 225 x 55
Cash
Stock Rights Diana Ordinary
(40% x 750) x 3

1,500
13,500

2,250

13,725
1,350
12,375
900

Cash (100 x 56)


Loss on sale of AFS Securities
Available for Sale Securities Diana
Ordinary
13,725/ 225 = 61; 61 x 100 = 6,100

5,600
500

h.

Cash (1,000 x 100 x 8%)


Dividend Revenue

8,000

i.

Market Adjustment AFS Securities


Unrealized Gains/Losses on AFS
Securities

2,175

51

900

6,100

8,000
2,175

Chapter 7 Investments in Equity Securities and Debt Securities

CV
Diana 1 (750 sh)
46,500 38,250
Diana 2 (125 sh)
7,625

Smith (1,000 x 115)


121,200
Total
167,075
b.

P9,000
7-9

Market
7,750

115,000

Unreal
8,250
125
(6,200)
2,175

169,250

Gain on sale of AFS Securities


Loss on sale of AFS Securities
( 500)
Dividend revenue
Total income recognized in profit or loss in 2006

P1,500
8,000

(X Corporation)
2008

Jan.

Dec. 31

Available for Sale Securities Y Co. Ordinary


Cash

300,000

Net Unrealized Gains/Losses on AFS


Securities
Market Adjustment AFS Securities
5,000 x (60 55)

25,000

Market Adjustment AFS Securities


Impairment Loss AFS Securities
Net Unrealized Gains/Losses on AFS
Securities
Available for Sale Securities Y Co.
Ordinary
5,000 x (60-52)

25,000
40,000

300,000

25,000

2009

Dec. 31

7-10

25,000
40,000

(Carlo Company)
2009

Apr. 1

May 15

Cash (5,000 x 25)


Loss on Sale of Trading Securities
Trading Securities Avi Ordinary
Available for Sale Securities Ghio
Preference
Cash

July 10

Memorandum entry. Received 4,000


additional Darrel ordinary shares
representing a 20% bonus issue. Shares
now held are 24,000.

Nov. 30

Cash (1 x 24,000)
Dividend Revenue
Unrealized Loss on Trading Securities
Trading Securities Avi Ordinary
(5,000 x 26) 139,000

Dec. 31

52

125,000
14,000

139,000

30,550
30,550

24,000
9,000

24,000
9,000

Chapter 7 Investments in Equity Securities and Debt Securities


31

Market Adjustment AFS Securities


Net Unrealized Gains/Losses on AFS
Securities
116,650 6,000 balance
FV
Unrealized
Darrel 480,000
116,000
Ghio
31,200
650
Total
511,200
116,650

7-11

364,000
30,550
394,550

Investment in Associates
Income from Associates
20% x 1,500,000

2,000,000
2,000,000
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.

Investment in Associates
Income from Associates
20% x 3,000,000

600,000

Cash
Investment in Associates
20% x 1,000,000

200,000

5.

(b)

110,650

Cost

(Hostel Company)
(a)
1.
Investment in Associates
Cash
2.

110,650

600,000

Investment cost

P2,000,00
0
300,000
600,000
(200,000)
P2,700,00

Share in income 2009


Share in income 2010
Share in dividends
Carrying amount, December 31, 2010
7-12

200,000

(Byron, Inc.)
2009

Jan.

Dec. 31

31

Investment in Associates Pirates


Ordinary
Cash

5,160,000

Investment in Associates Pirates


Ordinary
Income from Associates (30% x
3,600,000)

1,080,000

Cash (30% x 400,000)


Investment in Associates Pirates
Ordinary

53

5,160,000

1,080,000
120,000
120,000

Chapter 7 Investments in Equity Securities and Debt Securities


7-13

(Barbie, Inc.)
(a).
2009

Mar. 1
Dec. 31
31

31

Investment in Associates Kitchie


Cash
Cash (30% x 800,000)
Investment in Associates Kitchie
Investment in Associates Kitchie
Income from Associates
(3.2M x 10/12) x 30%
Income from Associates Kitchie
Investment in Associates Kitchie

1,365,000
240,000

1,365,000
240,000

800,000
800,000
37,500

(30% x 750,000) / 5 yrs. = 45,000


45,000 x 10/12 = 37,500

37,500

(b)
Acquisition cost, March 1, 2009
P1,365,000
Cash dividends received
( 240,000)
Income from associates
800,000
Adjustment in reported income
( 37,500)
Investment carrying value, December 31, 2009
P1,887,500
Income reported by Barbie from its investment in associates:
(800,000 37,500)

762,500
7-14

(Richmonde Corporation)
(a)
2008

Jan.

Dec. 31

31

Available for Sale Securities Pen, Inc.


Cash

900,000

Cash
Dividend Revenue
10% x 2,000,000

200,000

Market Adjustment AFS Securities


Net Unrealized Gains/Losses on AFS
Securities

480,000

900,000
200,000

480,000

2009

Jan.

Investment in Associates Pen, Inc.


Net Unrealized Gains/Losses on AFS
Securities
Market Adjustment AFS Securities
Retained Earnings
Available for Sale Securities Pen, Inc.
Acquisition cost
900,000
Share in income (10% x 6M)

54

1,300,00
0
480,000
480,000
400,000
900,000

Chapter 7 Investments in Equity Securities and Debt Securities


600,000
Share in dividends (10% x 2M)
(200,000)
Carrying amount, 12/31/05
1,300,000
1

Investment in Associates Pen, Inc.

2,600,00
0

Cash
Dec. 31

Investment in Associates Pen, Inc.

1,950,00
0

Income from Associates (30% x


6,500,000)
31

(b)

Cash
Investment in Associates (30% x
3,000,000)

900,000

Cost transferred from Available for Sale Securities

1,950,00
0

900,000

1,300,00
0
2,400,000
1,950,000
(900,000)
4,750,000

Additional investment
Share in income
Share in dividends
Carrying amount, December 31, 2009
7-15

2,600,00
0

(E Corporation)
(a)
2008

Jan.

Investment in Associates F Company

8,250,00
0

Cash (50,000 x 165)

8,250,00
0

Aug. 1

Cash
Investment in Associates F Company

210,000

Dec. 31

Investment in Associates F Company


Income from Associates

170,000

Cash
Investment in Associates F Company

210,000

Investment in Associates F Company


Income from Associates F Company

250,000

25% x 680,000

210,000
170,000

2009

Dec. 31
31

25% x 1,000,000

210,000
250,000

2010

Jan. 2

Cash (20,000 x 170)

3,400,00
0

Investment in Associates F Company


Gain on Sale of Investment in Associates
Acquisition cost
Share in income (2006)
Share in dividends (2006)

55

8,250,000
170,000
(210,000)

3,300,00
0
100,000

Chapter 7 Investments in Equity Securities and Debt Securities


Share in dividends (2007)
Share income (2007)
Investment carrying amount
Portion sold
Cost of investment sold

(210,000)
250,000
8,250,000
40%
3,300,000

Available for Sale Securities F Company


Investment in Associates F Company

4,950,00
0

4,950,00
0

8,250,000 3,300,000

Dec. 31
31

Cash
Dividend Revenue

120,000

Market Adjustment-AFS Securities


Net Unrealized Gains/Losses on AFS
Securities

750,000

120,000
750,000

(30,000 x 190) - 4,950,000 = 750,000

(b).

Cost/Carrying Value, beg of year

2008

P8,250,000

2009

P8,210,000

2010

P8,250,000
Income from associates
Cash dividends received
Sale of shares
Market adjustment
Carrying value, end of year

170,000
(210,000)

250,000
(210,000)
(3,300,000)
750,000
P8,210,000
P8,250,000

P5,700,000

7-16
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
7-17

A and B
A
B and C
A and B
B
C
C
A
B
A, B and C
C
A
B
A
C

(Abu Company)
(a)
Date
01/01/07
12/31/07
12/31/08
12/31/09
12/31/10
12/31/11

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*

56

Carrying
Value
8,274,646
8,233,096
8,185,729
8,131,731
8,070,173
8,000,000

Chapter 7 Investments in Equity Securities and Debt Securities


*rounded off.
(b)
2007

Jan.

Dec. 31

Held to Maturity Securities


Cash

8,274,646

Cash
Held to Maturity Securities
Interest Revenue

1,200,000

Cash
Held to Maturity Securities
Interest Revenue

1,200,000

8,274,646
41,550
1,158,450

2008

Dec. 31

7-18

47,367
1,152,633

(South Company)
a. Journal entries in 2006 and 2007
(1) Securities are classified as financial assets at fair value through
profit and loss.
2008

June 1
Dec. 1

Trading Securities State Corp. Bonds


Cash
Cash
Interest Revenue (4M x 8% x )

3,691,500

3,691,500

160,000
160,000

31

Interest Receivable
Interest Revenue (4M x 8% x 1/12)

26,667

31

Trading Securities State Corp. Bonds


Unrealized Gain on Trading
Securities

188,500

26,667
188,500

4M x 0.97 = 3,880,000
3,880,000 3,691,500 = 188,500

2009

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

Trading Securities State Corp. Bonds


Unrealized Gain on Trading
Securities

80,000

Dec. 31

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

(3) Securities are classified as held-to-maturity securities.


To facilitate computation, a partial amortization table is presented below.
Interest
Interest
Amortization
HTM
Date
Received
Revenue
of Discount
Carrying Value

57

Chapter 7 Investments in Equity Securities and Debt Securities


June
1,
2008
Dec 1, 2008
June
1,
2009
Dec.
1,
2009
June
1,
2010
Dec.
1,
2010
June
1,
2011
Dec.
1,
2011

3,691,500
160,000
160,000

184,575
185,804

24,575
25,804

3,716,075
3,741,879

160,000

187,094

27,094

3,768,973

160,000

188,449

28,449

3,797,422

160,000

189,871

29,871

3,827,293

160,000

191,365

31,365

3,858,658

160,000

192,933

32,933

3,891,591

2008

June 1

Dec. 1

31

Held to Maturity Securities State Corp.


Bonds
Cash

3,691,50
0

Cash
Held to Maturity Securities State Corp.
Bonds
Interest Revenue (see above table)

160,000
24,575

Interest Receivable
Held to Maturity Securities State Corp.
Bonds
Interest Revenue

26,667
4,301

Interest Revenue
Interest Receivable
Held to Maturity Securities State Corp.
Bonds

30,968

3,691,500

184,575

30,968

160,000 x 1/6 = 26,667; 25,804 x 1/6 =


4,301
2009

Jan. 1

June 1

Dec. 1

31

26,667
4,301

Cash
Held to Maturity Securities State Corp.
Bonds
Interest Revenue(see above table)

160,000
25,804

Cash
Held to Maturity Securities State Corp.
Bonds
Interest Revenue (see above table)

160,000
27,094

Interest Receivable
Held to Maturity Securities State Corp.
Bonds
Interest Revenue

26,667
4,742

160,000 x 1/6 = 26,667; 28,449 x 1/6=

185,804

187,094

31,409

4,742

(3) Securities are classified as available for sale securities.


To facilitate computation, a partial amortization table is presented below.

58

Chapter 7 Investments in Equity Securities and Debt Securities

Date
June
1,
2008
Dec 1, 2008
June
1,
2009
Dec.
1,
2009
June
1,
2010
Dec.
1,
2010
June
1,
2011
Dec.
1,
2011

Interest
Received

Interest
Revenue

Amortization
of Discount

HTM
Carrying Value
3,691,500

160,000
160,000

184,575
185,804

24,575
25,804

3,716,075
3,741,879

160,000

187,094

27,094

3,768,973

160,000

188,449

28,449

3,797,422

160,000

189,871

29,871

3,827,293

160,000

191,365

31,365

3,858,658

160,000

192,933

32,933

3,891,591

2008

June 1

Dec. 1

31

31

Available for Sale Securities State Corp.


Bonds
Cash
Cash
Available for Sale State Corp. Bonds
Interest Revenue (see above table)
Interest Receivable
Available for Sale Securities State Corp.
Bonds
Interest Revenue
160,000 x 1/6 = 26,667
25,804 x 1/6 = 4,301
Market Adjustment AFS Securities
Net Unrealized Gain/Loss on AFS
Securities

3,691,500
3,691,500
160,000
24,575
184,575
26,667
4,301
30,968

159,624
159,624

4M x 0.97 =
3,880,000
Amortized cost
3,691,500+ 24,575 + 4,301 =
3,720,376
Market Adjustment
P 159,624
2009

Jan. 1

Interest Revenue
Interest Receivable
Available for Sale Securities State Corp.
Bonds

June 1

Cash
Available for Sale Securities State Corp.
Bonds
Interest Revenue(see above table)

160,000
25,804

Cash
Available for Sale Securities State Corp.
Bonds
Interest Revenue (see above table)

160,000
27,094

Dec. 1

59

30,968

26,667
4,301

185,804

187,094

Chapter 7 Investments in Equity Securities and Debt Securities


31

Interest Receivable
Available for Sale Securities State Corp.
Bonds
Interest Revenue

26,667
4,742

Market Adjustment Available for Sale


Securities
Unrealized Gain or Loss on AFS

26,661

31,409

160,000 x 1/6 = 26,667


28,449 x 1/6 = 4,742

Dec 31

26,661

Market value (4M x 99%)


P3,960,000
Amortized Cost (3,768,973 + 4,742)
3,773,715
Cumulative UG/L
P
186,285
Before adjustment
159,624
Increase in UG/L
P
26,661

2011.

2. Journal entry/entries to record sale of investment on November 1,


(a) Securities are classified as financial assets at fair value through
profit and loss.
2011

Nov. 1

Cash
Loss on Sale of Trading Securities
Interest Revenue
Trading Securities State Corp. Bonds

3,925,00
0
128,333

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

133,333
3,920,000

(b) Securities are classified as held-to-maturity securities.


2011

Nov. 1

Held to Maturity Securities State Corp.


Bonds
Interest Revenue
32,933 x 5/6 = 27,444
Cash
Loss on Sale of Held to Maturity Securities
Interest Revenue
Held to Maturity SecuritiesState Corp.
Bonds
CV of HTM Securities sold:
As of June 1, 2011
3,858,658
Amortization June 1 to
Nov. 1, 2011
27,444
As of Nov. 1, 2011
3,886,102

60

27,444
27,444
3,925,00
0
94,435

133,333
3,886,10
2

Chapter 7 Investments in Equity Securities and Debt Securities


Sales price
3,791,667
Loss on sale
94,435
(c) Securities are classified as available for sale securities.
2011

Nov. 1

Available for Sale Securities State


Corp.Bonds
Interest Revenue

27,444
27,444

Cash
Loss on Sale of Available for Sale Securities
Net Unrealized Gain/Loss on AFS Securities
Interest Revenue
Available for Sale SecuritiesState
CorpBonds
Market Adjustment AFS Securities
Sales price (3,925,000133,333)
3,791,667
Amortized Cost
3,886,102
Loss
94,435
Amortized Cost 12/1/08
P3,827,293
Discount Amort.
12/1/08 12/31/08
31,365 x 1/6
5,228
Amortized Cost 12/31/08
P3,832,521
MV 12/31/08 4M x 98%
3,920,000
Unrealized Gain on 12/31/08
87,479

7.19

3,925,00
0
94,435
87,479
133,333

3,886,10
2

87,479

Raffy Company)
To facilitate computation, a partial amortization table is presented below.
Date
June 1, 2007
Dec.
31,
2007
Dec.
31,
2008
Dec.
31,
2009
Dec.
31,
2010
2007

June 1

Interest
Received

Interest
Revenue

Amortization
of Discount

350,000

312,267

37,733

HTM
Carrying Value
5,353,150
5,315,417

600,000

531,542

68,458

5,246,959

600,000

524,696

75,304

5,171,655

600,000

517,166

82,834

5,088,821

Held to Maturity Securities Blessie Corp.


Bonds
Interest Revenue (5M x 12% x 5/12)

61

5,353,15
0
250,000

Chapter 7 Investments in Equity Securities and Debt Securities


Cash
Dec. 31

5,603,15
0

Cash
Interest Revenue
Held to Maturity Securities Blessie

600,000

Cash
Interest Revenue
Held to Maturity Securities Blessie

600,000

Cash
Interest Revenue
Held to Maturity Securities Blessie

600,000

Interest Receivable (3M x 12% x 8/12)


Held to Maturity Securities Blessie
Interest Revenue (517,166 x 3/5 x 8/12)

240,000

562,267
37,733

2008

Dec. 31
2009

Dec. 31

531,542
68,458
524,696
75,304

2010

Sept. 1

Cash (3,090,000 + 240,000)


Gain on sale of HTM Securities
Interest Receivable
Held to Maturity Securities Blessie

3,330,00
0

33,134
206,866

20,141
240,000
3,069,85
9

CV of HTM securities sold:


As of 12/31/07 (5,171,655 x 3/5)
3,102,993
Amort from 1/1/08-9/1/08
33,134
CV as of 9/1/08
3,069,859
Sales price
3,090,000
Gain on sale
20,141

Available for Sale Securities Blessie


Held to Maturity Securities

2,068,66
2

2,068,66
2

5,171,655 3,102,993 = 2,068,662


Dec. 31

Cash
Interest Revenue
Available for Sale Securities Blessie

240,000

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

Dec 31

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

Note:

206,866
33,134

34,472
34,472

Instead of recognizing the unrealized gain or loss at the date of

62

Chapter 7 Investments in Equity Securities and Debt Securities


reclassification on September 1, 2010 (the company demonstrating no ability
to hold the securities until maturity, hence the securities were reclassified as
AFS), and adjusting the account again at yearend, a single adjustment at
yearend is made in the above entries. Both methods would achieve the same
effect of reflecting the AFS to market at balance sheet date through the
equity account Unrealized Gain or Loss on AFS.
7-21
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.

B
A
B
A
B
A
A
A
B
B
C
B
A
A
B

and C
and C
and C

and C
and C

MULTIPLE CHOICE QUESTIONS


Theory
MC1
MC2
MC3
MC4

B
B
A
C

MC5
MC6
MC7
MC8

D
D
A
D

MC9
MC10
MC11

D
B
C

Problems
MC12
MC13

B
D

MC14

MC15
MC16

A
C

MC17

MC18

MC19
MC20
MC21
MC22
MC23
MC24

D
B
A
D
B
B

MC25

MC26

535,000 525,000 = 10,000


307,500 + 269,500 = 577,000; (600 x 440) + (2,000 x 138) = 540,000
577,000 540,000 = 37,000; 12,900 + 13,500=26,400; 37,00026,400=10,600
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 + 2,250 = 152,250; 152,250 (1,000 x 10) = 142,250
3,000 x 120 = 360,000; 560,000 x 3,000/6,000 = 280,000
360,000 280,000 = 80,000
360,000 x 600/3600 = 60,000; 200,000 + 60,000 = 260,000
360,000 260,000 = 100,000
500 x 25 = 12,500 500 = 12,000
500 x 20 = 10,000; 12,000 10,000 = 2,000 gain
960-500 = 460 + 600 = 1,060; 1,060/10 = 106 shares
88 1.10 = 80
352,000 (4,400 x 4) = 334,400; 334,400 / 4,400 sh = 76
See No. 21
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
4,860,000 x 15/25 = 2,916,000

63

Chapter 7 Investments in Equity Securities and Debt Securities


MC27

MC28
MC29
MC30

A
C
B

MC31
MC32

C
B

MC33
MC34
MC35
MC36

A
A
C
C

MC37
MC38

C
B

MC39

MC40
MC41
MC42

D
B
D

10,000 x 200 = 2,000,000; 4,860,000 x 10/25 = 1,944,000


2,000,000 1,944,000 = 56,000
500,000 + 1,500,000 + (10% x 3M) = 2,300,000
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) + (900 x 170) + (800 x 200) = 453,000
(1,000 x 150) + (900 x 180) + (800 x 220) = 488,000
488,000 453,000 = 35,000; 35,000 20,000 = 15,000
See No. 33
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
See No. 36
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; 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; 7,432,150 x 5% = 371,608
371,608 320,000 = 51,608; 7,342,150 + 51,608 = 7,483,758
7,530,000 7,483,758 = 46,242
500,000 x 4% = 20,000
460,000 472,500 = 12,500

64