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Investment in Associate

1. On January 1 2017, Saxe Company purchased 20% of Lex Companys ordinary shares outstanding
for P6,000,000. The acquisition cost is equal to the carrying amount of the net assets acquired.
During 2013, the investee reported net income of P7,000,000 and paid cash dividend of
P4,000,000. What is the balance in the investment in associate on December 31, 2017?

2. On January 2017, Farley company acquired 20% of the outstanding ordinary shares of Davis
Company for P8,000,000. This investment gave Farley the ability to exercise significant influence
over Davis. The carrying amount of the acquired shares was P6,000,000. The excess of cost over
carrying amount was attributed to a depreciable asset which was undervalued on Davis
statement of financial position and which had a remaining useful life of ten years. For the year
ended December 31, 2017, the investee reported net income of P1,800,000 and paid cash
dividends of P400,000 and thereafter issued 5% stock dividend. What is the carrying amount of
the investment in associate on December 31, 2017?

3. On January 1, 2017, Well Company purchased 10% of Rea Companys outstanding ordinary
shares for P4,000,000. Well is the largest single shareholder in Rea and Wells officers are
majority of Reas board of directors. The investee reported net income of P5,000,000 for 2017
and paid dividends of P1,500,000. On December 31, 2017, what amount should be reported as
investment in Rea Company?

4. Om January 1, 2017, Kean Company purchased 30% interest in Pod Company for P2,500,000. On
this date Pods shareholders equity was P5,000,000. The carrying amount of Pods identifiable
net assets approximated their fair values, except for land whose fair value exceeded its carrying
amount by P2,000,000. The investee reported net income of P1,000,000 for 2017 and paid no
dividends. In December 31, 2017 statement of financial position, what amount should be
reported as investment in associate?

5. Seiko Company has 100,000 ordinary shares outstanding. Globe Company acquired 30,000
shares of Seiko for P120 per share in 2014. The securities are being held as long term
investment. Changes in retained earnings for Seiko for 2016 and 2017 are as follows:

Retained Earnings(deficit), January 1, 2016 (500,000)


Net income for 2016 700,000
Retained earnings, December 31, 2016 200,000
Net income for 2017 800,000
Cash dividend paid on December 31, 2017 (400,000)
Retained earnings, December 31, 2017 600,000
6. Green Company owned 30% of the outstanding ordinary shares and 100% of the outstanding
noncumulative nonvoting preference shares pf Axel Company. In 2017, axel declared dividend of
P1,000,000 on ordinary share capital and P600,000 on preference share capital. What amount of
dividend revenue should be reported in the income statement for 2017?

1. Jay company purchased 35% of Jerry Company on January 1, 2016 for P11,200,000 when Jerrys carrying
amount was P32,400,000. On that day, the market value of the net assets of Jerry Company equaled
their carrying amount with the following exceptions:
Carrying amount Market Value
Equipment 7,000,000 5,600,000
Building 1,600,000 2,600,000

The equipment has a remaining useful life of 5 years, and the building has a remaining useful life of 10
years. Jerry company reported net income of P3,200,000 and cash dividends of P1,000,000 for 2016.
What is the investment income for 2016?
a. 1,183,000
b. 1,120,000
c. 1,260,000
d. 987,000

2. On January 1, 2016, Occidental Company purchased 40% of the outstanding ordinary shares of Manapla
Company for P3,500,000 when the net assets of Manapla amounted to P7,000,000. At acquisition date,
the carrying amounts of the identifiable assets and liabilities of Manapla were equal to their fair value,
except for equipment for which the fair value was P1,500,000 greater than its carrying amount and
inventory whose fair value was P500,000 greater than its cost. The equipment has a remaining life of 4
years and the inventory was all sold during 2016. Manapla company reported net income of P4,000,000
for 2016 and paid no dividends during 2016. What is the investment income for 2016?
a. 1,350,000
b. 1,250,000
c. 1,600,000
d. 1,700,000