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# PROBLEM NO.

1 - Chicker Company
Question no. 1 - D
Total cost of acquisition (P1,690,000 + P4,000,000) 5,690,000
Less cost of securities sold:
PLDT - [14,400/(40,000+8,000)] x (40,000 x P30.75) 369,000
Benpres - 4,000/20,000 x (20,000 x P23) 92,000
Pag-Ibig Bonds 4,000,000 4,461,000
Adjusted balance, 12/31/05 (or see computation per ledger) 1,229,000
Question no. 2 - B
Shares Cost/share Total
Balance, 3/1/2005 40,000 30.75 1,230,000
Stock dividend, 10/01/05 8,000 -
Balance 48,000 25.63 1,230,000
Sale of 14,400 shares, 11/05/2005 (14,400) 25.63 (369,000)
Balance PLDT shares, 12/31/2005 33,600 25.63 861,000

Question no. 3 - A
Shares Cost/share Total
Balance, 3/1/2005 20,000 23.00 460,000
Sale of 4,000 shares, 11/05/2005 (4,000) 23.00 (92,000)
Balance 16,000 23.00 368,000
15% stock dividend, 11/15/05 2,400 -
Balance Benpres shares, 12/31/2005 18,400 20.00 368,000

Question no. 4 - D
Proceeds from sale of PLDT and Benpres shares 532,000
Proceeds from sale of Pag-Ibig bonds (P4,000,000 x .98) 3,920,000
Total 4,452,000
Less cost of securities sold:
PLDT - [14,400/(40,000+8,000)] x (40,000 x P30.75) 369,000
Benpres - 4,000/20,000 x (20,000 x P23) 92,000
Pag-Ibig Bonds 4,000,000 4,461,000
Net loss on sale of securities (9,000)

## PROBLEM NO. 2 - Pin Shop Company

Shares Cost/share Total
Balance, 1/1/2005 10,000 39.00 390,000
Stock dividend, 4/30/05 5,000 -
Balance 15,000 26.00 390,000
Sale of 5,000 shares, 5/20/2005 (5,000) 26.00 (130,000)
Balance 10,000 26.00 260,000
Sale of 2,000 shares, 12/10/2005 (2,000) 26.00 (52,000)
Balance, 12/31/2005 8,000 208,000

## 1 Selling price (5,000 shares x P25) 125,000

Cost of investment sold (see above) (130,000)
Loss on sale of investment (5,000) A

## 2 Selling price (2,000 shares x P60) 120,000

Dividends sold (2,000 shares x P50 x 20%) (20,000)
Net selling price 100,000
Cost of investment sold (see above) (52,000)
Gain on sale of investment 48,000 C

## 3 Cash dividends declared, 11/1/2005 (10,000 shares x P5) 50,000

Cash dividends declared, 12/1/2005 (10,000 shares x P50 x 20%) 100,000
Total dividend income 150,000 D

## 4 Carrying value of AFS (8,000 shares x P13.75) 110,000 B

5 Cost 208,000
Fair value 110,000
Unrealized loss 98,000 A
PROBLEM NO. 3 - UK Company

1. A Cash 20,000 Cash 20,000 Investment in stock 20,000
Investment in stock 20,000 Dividend income 20,000 Dividend income 20,000

## 2. A None Stock rights 160,000 * Stock rights 160,000

Investment in stock 160,000 Investment in stock 160,000
*(5/25 x P800,000)

## 3. A Investment in stock 90,000 Investment in stock 210,000 Investment in stock 120,000

Cash 90,000 Cash (6,000 x P15) 90,000 Stock rights 120,000
Stock rights 120,000
*[(6,000x5/40,000) x P160,000)

## 4. C Cash 60,000 Cash 60,000 Investment in stock 60,000

Investment in stock 60,000 Stock rights 40,000 Stock rights 40,000
Gain on sale of stock rights 20,000 Gain on sale of stock rights 20,000
Cost of stock rights sold (160,000 - 120,000)
Note: If adjustment in no. 2 was not effected, the answer will be letter B.

## 5. B Cash 110,000 Cash 110,000 Investment in stock 36,400

Investment in stock 110,000 Investment in stock 73,600 Gain on sale of stocks 36,400
Gain on sale of stocks 36,400

6C
Shares Cost/share Total cost
Balance, 1/1/05 40,000 20.00 800,000
Receipt of stock rights, 3/15/05 - - (160,000)
Balance 40,000 16.00 640,000
Sale, 6/30/05 (use FIFO) (4,600) 16.00 (73,600)
Balance, 12/3/05 35,400 566,400

## Total 41,400 776,400 C

PROBLEM NO. 4 - Jordano Company
Loyal Company Shares Cost/share Total
Purchase, Jan. 16 20,000 95.00 1,900,000
Sale, Mar. 30 (10,000) 95.00 (950,000)
Balance, Mar. 30 10,000 95.00 950,000
Stock dividend, June 10 10,000 - -
Balance, June 10 20,000 47.50 950,000
Sale, July 29 (10,000) 47.50 (475,000)
Balance, Dec. 31, 2003 10,000 47.50 475,000 (6)
1 Sales proceeds (10,000 shares x P150) 1,500,000
Less Cost of investment sold 950,000
Gain on sale 550,000 C

## 2 Sales proceeds (10,000 shares x P110) 1,100,000

Less Cost of investment sold 475,000
Gain on sale 625,000 A

## Faithful Company (Sept. 5 lot) Shares Cost/share Total

Purchase, Sept. 5 20,000 47.50 950,000
Sale, Oct. 5 (use FIFO) (20,000) 47.50 (950,000)
Balance, Dec. 31, 2005 - -

## 3 Cash paid 1,000,000

Less Purchased dividend 50,000
Correct acquisition cost 950,000 B
4 Sales proceeds (20,000 shares x P65) 1,300,000
Less Cost of investment sold 950,000
Gain on sale 350,000 A

## Faithful Company (Oct. 1 lot) Shares Cost/share Total

Purchase, Oct. 1 50,000 50.00 2,500,000
Sale, Nov. 30 (20,000) 50.00 (1,000,000)
Balance, Dec. 31, 2005 30,000 50.00 1,500,000 (7)
Less dividends sold (20,000 shares x P5) 100,000
Net sales proceeds 3,200,000
Less Cost of investment sold 1,000,000
Gain on sale 2,200,000 D
6 A (P475,000)
7 A (P1,500,000)
8 Trustworthy's net income for 2005 800,000
Percentage of ownership 19.5% *
Equity in earnings 156,000 A
* Use equity method since there is a significant influence, i.e. Fidelity's President
is represented in the board of directors.

## 9 Acquisition cost 1,170,000

Net equity in net earnings 156,000
Dividends received (P200,000 x 19.5%) (39,000)
Investment in stock balance, 12.31.05 1,287,000 C
A B C D
1 Cash on hand and in bank 38,700 35,002 34,402 35,502
2 Notes receivable 4,000 4,500 5,000 5,500
3 Accounts receivable 36,000 40,000 42,000 38,000
4 Allow. for doubtful accounts 1,800 2,000 2,100 1,900
5 Accounts receivable-net 40,100 38,000 40,000 39,900
6 Accounts receivable-others 2,750 - 500 1,000
7 Advances to officers and employees 3,840 1,000 2,840 3,740
8 Marketable securities 13,000 10,750 8,500 4,250
9 Allow. for decline in MV of marketable sec. 1,375 250 1,125 -
10 Inventories 15,400 20,000 24,600 16,000
11 Prepayments 100 500 - 900
12 Total curent assets 111,904 113,302 113,950 112,802
13 Property, plant and equipment 990,000 1,910,000 910,000 940,000
14 Accumulated depreciation 346,000 344,000 350,000 356,000
15 PPE-net 566,000 1,566,000 606,000 584,000
16 Total assets 677,904 713,950 679,302 678,802
17 Accounts payable 600 4,000 5,200 2,800
18 Accrued expenses 2,800 4,000 5,200 1,200
19 Total current liabilities 2,800 5,200 4,000 1,200
20 Bonds payable 397,000 400,000 363,000 360,000
21 Bond discount 37,000 3,000 43,000 40,000
22 Total liabilities 400,000 405,200 363,000 368,200
23 Common stock 311,102 200,000 108,750 308,750
24 Retained earnings, end. 125,104 108,750 111,102 94,750
25 Net sales 944,000 948,000 950,000 952,000
26 Cost of sales 669,600 665,000 661,000 664,400
27 Gross Profit 280,400 282,400 285,000 287,000
28 Operating expenses 270,798 264,798 270,000 264,000
29 Operating income 23,602 15,000 17,602 18,400
30 Other income 5,000 7,250 5,500 7,750
31 Other charges 6,500 9,000 6,000 3,000
32 Net income 16,352 11,000 17,000 14,000
33 Gain on sale of Maretable securities-SMC 1,000 2,250 1,750 -
34 Bond discount amortization 1,000 4,000 3,000 -
35 Dividend income-SMC Co. common 1,000 500 2,000 1,500