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1. On January 2, 2014, Frodo Inc.

acquired 20% of the outstanding ordinary shares of Arwen Company for P700,000.
This investment gave Frodo the ability to exercise significant influence over Arwen. The book value of the acquired
shares was P600,000. The excess cost over book value was attributed to a depreciable asset which was undervalued
on Peace’s balance sheet and which had ten years useful life remaining. For the year ended December 31, 2014,
Arwen reported net income after tax of P180,000, unrealized gain on its investment at fair value to other
comprehensive income of P100,000; remeasurement loss on defined benefit pension plan of P200,000 and paid cash
dividend of P60,000.

How much is the carrying value of Hope’s investment in Peace at December 31, 2014?

2. Selene Company issued rights to subscribe to its stock, the ownership of 4 shares entitling the shareholders to
subscribe for 1 share at P100. Luna Company owns 50,000 shares of Selene Company with total cost of P5,000,000.
The share is quoted right-on at 125.

What is the cost of the new investment if all of the stock rights are exercised by the investor?

3. Galadriel Corporation acquired 30% of Gimli Company’s 100,000 voting stock on Janaury 2, 2014 for P2,000,000
when the net assets of Gimli Company was P6,000,000. Galadriel earned P1,000,000 and P1,500,000 in 2014 and
2015, respectively. Gimli Company paid dividends of P300,000 in 2014 and P500,000 in 2015. Market value of Gimli’s
ordinary sahres is P80 and P90 per share for December 2014 and 2015 respectively.

On Janaury 2, 2015, Galadriel Company sold 40% of its investment at the prevailing market price of P80 per share.

a. What total amount of gain or loss should Galadriel Company recognize on January 2, 2015 in its profit or loss?
b. If after the sale, Galadriel Company designated the retained investment as investment at fair value to other
comprehensive income, what amount of unrealized gain or loss should be reported in its December 31, 2015?
c. If after sale, the retained investment was reclassified as investment to profit or loss, what total amount
should be reported in the profit or loss related to the security throughout the year 2015?

4. Haymitch Company has 40,000 shares of equity instrument of Sand Corporation. These shares were acquired at P40
per share on January 2, 2014. On December 31, 2014, Haymitch Company sold 30,000 shares of its investment in
Effie Corporation at the prevailing fair value of P50 per share. The remaining securities were sold on December 15,
2015 for P60 per share.

What amount of gain or loss should be reported in the company’s profit or loss as a result from selling the
security?

5. On November 1, 2015, Katniss Company invested P600,000 in equity securities representing 20,000 ordinary shares
of Gale Company. The investment was classified as equity securities to profit or loss since the company intends to
sell the security for a short-term profit. On December 31, 2014, this investment has a market value of 580,000. On
January 15, 2016, Katniss Company sold the investment for P630,000.

What amount of realized gain should Katniss Company recognize on the disposal of the trading security?

2015. What is the amount of gain or loss from the sale should the company recognize? b. On January 1. when the bonds amortized cost was P10. Lars Company is in dire need of cash to finance the acquisition of a long-lived asset to be used in its continuing operation.749. 2014 a 6-year 12% P5. 2019. 2014 and will mature on January 2.000 1.000 face value. and pay interest annually beginning January 1. a. 2024. At December 31. By what total amount the financial instrument had increased its value in 2015? b.000.000 P 4.000 face value bond.75%. What amount of unrealized loss should Primrose Company report in its 2015 shareholder’s equity? 7. 2016? 9. Primrose Company purchased marketable securities designated as fair value to other comprehensive income. The 5- year 12% bonds were issued on January 2.340.000 2. 2015. the management made an assessment on the company’s business model in managing their financial asset (debt instrument) and has decided to reclassify the debt instrument from amortized cost valuation to fair value to profit or loss due frequent disposals. At what amount should the investment at fair value through profit or loss account initially recognized on January 1.6.000 on July 1. The sale was completed on December 31. Interest is payable annually every December 30.811. What is the fair value of the debt instrument at the time of acquisition? . Naberrie Company purchased a debt security instruments with a face value of P5. The bonds’ purchase price is P10.712. There were no security transactions during 2015. What is the fair value of the debt instrument at the time of acquisition? 10.000.500 a. 2015.000 credit. 2015 and the company managed to sell 25% of the debt instrument at the prevailing rate of 14%. 2104. 2014.000 A 2.000.250.100. The company has a business model of collecting all contractual cash flows on all its debt securities.000 P 1. On December 1.000.087. the company unitarily decided to dispose partly its debt investment.000 10-year bonds with interest payable on December 31 of each year. Eisley Company purchased 10% P10. On December 31. a. the company sold P1. Pertinent data on December 31. Since the company sold more than an insignificant amount of its debt security investment the management has decided to reclassify the debt instrument to investment measured at fair value to profit or loss because the business model is no longer appropriate. 2015.000 P 1. What is the amount of gain or loss from the sale of the securities? 8.407.425. During 2015. Lars Company with a business model of collecting all the contractual cash flows pertaining to interest and principal of outstanding debt instruments. Market rate of interest for a similar debt instrument at the time of acquisition is 10% that is also the market rate of interest for a similar debt instrument at the time the instrument was issued.75% of P10. On January 1. Jedi Corporation purchased 2.200.500 Total P 5. the balance in the fair value adjustment account was P350.500. 2016. The bonds mature on January 1. purchased at face on January 2. On January 1.192 and a fair value at a market rate of 7. 9%.250. 2010. At the time of acquisition the market rate of interest of similar debt instrument is 11%.000 of the P1. What total amount of gain or loss should the company recognize as a result of transfer? b.000 bonds at the current fair value. 10-year bonds of Sith Inc. The effective interest rate was 8. 2015 are: Securities Historical Cost Market C P 1.000.

11.400.600. On January 1.700. The bonds mature in 4 years. Lancy Company purchased serial bonds with face amount of P3.022. 2015. The book value of the acquired share was P2. 2014? 12. 2014 and paid ordinary share dividends totalling P480. By what amount did Gandalf Company’s building was understated? b. How much did Legolas Company pay for its 25% interest in Boon Company? .457. On January 2. Income tax rate is 32%.000. Gandalf Company reported net of tax income of P504. 2015? 14. This investment gave Aragorn Company the ability to exercise significant influence over Gandalf. 2014 was P1. Legolas appropriately carried this investment at equity and the balance in Legolas’ investment account at December 31.000. Cupid Company purchased bonds with face amount of P5.000 to be held as financial asset at amortized cost.000 and paid cash dividends of P112. What is the present value of the serial bonds on January 1.000 for the year ended December 31.000 every December 31. a. The bonds are to be held as financial asset at amortized cost with a 10% effective yield.000. Aragorn Company acquired 20% of the outstanding ordinary shares of Gandalf Company for P2. 2014. The excess of cost over book value was attributed to the building which was undervalued on Gandalf’s balance sheet and that had a remaining useful life of ten years. Boon Company reported net income of P1. no goodwill resulted from the purchase. On January 1.000 on its ordinary share.000 and stated 12% interest payable annually every December 31. What is the proper carrying value of Aragorn’s investment in Gandalf at December 31. In January 2014.000 during 2014. 2015.000 at a cost of P4. The bonds mature at an annual instalment of P1. Legolas Company purchased 25% of Boon Comporation’s ordinary shares. What amount of interest income should be reported for the year ended December 31.900.200. For the year ended December 31. 2015 under the effective interest method? 13.000. 2014. The stated interest is 10% payable annually every December 31.