Problem 16 18

Problem 16-9
1. Investment in equity securities 1,800,000

Cash 1,800,000
2. 10,000 rights
3. Cost of rights (10/200 x 1,800,000) 90,000
4. Stock rights 90,000

Investment in equity securities 90,000
5. Investment in equity securities 390,000

Cash (10,000/5 = 2,000 x 150) 300,000
Stock rights 90,000
6. Cash (10,000 x 10) 100,000

Stock rights 90,000
Gain on sale of rights 10,000
7. Loss on stock rights 90,000

Stock rights 90,000
Problem 16-10
Requirement 1
125 - 100
Theoretical value = --------------------- = 5.00 per right
4+1
a. Stock rights (5/125 x 2,100,000) 84,000

b. Investment in equity securities 709,000

Stock rights 84,000
Cash (25,000/4 = 6,250 x 100) 625,000
Requirement 2
125 - 100
Theoretical value = --------------------- = 6.25 per right
4
a. Stock rights (6.25/131.25 x 2,100,000) 100,000

Problem 16-11
1. Stock rights (10/100 x 3,000,000) 300,000

Stock rights (30,000/40,000 x 300,000) 225,000
Cash (15,000 shares x 80) 1,200,000
3. Cash (6,000 x 10) 60,000

Stock rights (6,000/40,000 x 300,000) 45,000
4. Loss on stock rights (4,000/40,000 x 300,000) 30,000

Stock rights 30,000
Shares Cost
First acquisition (3,000,000 – 300,000) 40,000 2,700,000
New acquisition 15,000 1,425,000
55,000 4,125,000
Problem 10-12

Cash 3,200,000
2. Memo – Received 20,000 shares as stock dividend on

80,000 original shares. Shares now held, 100,000.
3. Cash (100,000 x 5) 500,000

Dividend income 500,000
4. Stock rights (5/40 x 3,200,000) 400,000

5. Cash (40,000 x 5) 200,000
Stock rights (40,000/100,000 x 400,000) 160,000
6. Investment in equity securities 600,000

Stock rights (60,000/100,000 x 400,000) 240,000
Cash (60,000/5 = 12,000 x 30) 360,000
7. Cash (80,000 x 35) 2,800,000

Investment in equity securities 2,240,000
(80,000/100,000 x 2,800,000)
Gain on sale of investment 560,000
Shares Cost
Original acquisition 20,000 560,000
New acquisition 12,000 600,000
32,000 1,160,000
Problem 10-13
2008
Aug. 1 Investment in equity securities 60,000
Cash 60,000
Oct. 1 Investment in equity securities 560,000

Cash 560,000
2009
July 1 Investment in equity securities 480,000
Cash 480,000
Aug. 1 Cash 500,000

Lot 1 (1,000 shares) 60,000

Lot 2 (4,000/8,000 x 560,000) 280,000
Cost of investment sold 340,000
2010
Feb. 1 Received 5,000 shares representing 50% stock dividend on
10,000 remaining shares held. Shares now held, 15,000.
Nov. 1 Stock rights 95,000

Lot 2 – 6,000 rights (10/80 x 280,000) 35,000

Lot 3 – 9,000 rights (10/80 x 480,000) 60,000
Cost of rights received 95,000
2010
Dec. 1 Cash (15,000 x 10) 150,000
Stock rights 95,000
Gain on sale of stock rights 55,000
Summary of investments Shares Cost

Lot 2 (280,000 – 35,000) 6,000 245,000
Lot 3 (480,000 – 60,000) 9,000 420,000
Total 15,000 665,000
Problem 16-14
Jan. 2 Investment in King Corporation 700,000

Cash 700,000
Mar. 1 Investment in Plastic Company 660,000

Cash 660,000
Apr. 1 Cash (10,000 x 5) 50,000

July 1 Received 2,000 shares as 20% stock dividend on

10,000 Plastic Company shares originally held.
Shares now held, 12,000.
Aug. 1 Investment in Makati Corporation 500,000

Cash 500,000
Oct. 1 Received 60,000 new shares of Plastic Company

as a result of a 5 for 1 split of 12,000 original shares.
1 Cash (10,000 x 5) 50,000

31 Stock rights (3/33 x 660,000) 60,000

Investment in Plastic Company 60,000
Nov. 15 Investment in Plastic Company 180,000

Cash (6,000 shares x 20) 120,000
Stock rights 60,000
Dec. 1 Cash (66,000 shares x 5) 330,000

15 Cash (10,000 shares x 30) 300,000

Investment in Plastic Company 100,000
(10,000/60,000 x 600,000)
Summary of investments Shares Cost

King Corporation common 10,000 700,000
Plastic Company common
Block 1 50,000 500,000
Block 2 6,000 180,000
Makati Corporation common 10,000 500,000
76,000 1,880,000
Of course, the investments will simply be described as “investments in equity

securities” in the balance sheet.
Acquisition cost 392,000

Problem 16-17 Answer D
Fair value of asset given (land) 3,000,000
Problem 10-18 Answer D
Original shares acquired January 15 50,000

Stock dividend on March 31 (20% x 50,000) 10,000
Total shares 60,000
Dividend income – cash dividend on December 15 (60,000 x 5) 300,000
Problem 10-19 Answer C

Dividend income – cash dividend on July 1 100,000
Original shares on March 1 20,000

Stock dividend on December 1 (10% x 20,000) 2,000
Total shares 22,000
CHAPTER 17
Problem 11-5
Equity method
1. Investment in associate 2,400,000

Cash 2,400,000
Acquisition cost 2,400,000

Net assets acquired (20% x 8,000,000) 1,600,000
Goodwill 800,000
2. Investment in associate 300,000

Investment income (20% x 1,500,000) 300,000
3. Memo – Received 2,000 shares as 10% stock dividend on

20,000 original shares. Shares now held, 22,000.
4. Investment loss 60,000

Investment in associate (20% x 300,000) 60,000
5. Cash (20% x 500,000) 100,000

Investment in associate 100,000
6. Cash (5,500 x 200) 1,100,000

Sales price
1,100,000
Less: Cost of investment sold (5,500/22,000 x 2,540,000) 635,000
Gain on sale 465,000
Cost method

Cash 2,400,000
2. No entry
3. Memo – Received 2,000 shares as 10% stock dividend.

Shares now held, 22,000.
4. No entry
5. Cash 100,000
6. Cash 1,100,000
Investment in equity securities (5,500/22,000 x 2,400,000) 600,000
Problem 17-6
2008 Investment in associate 5,000,000

Cash 5,000,000

Investment income (30% x 4,000,000 x 3/12) 300,000
Cash (30% x 3,000,000) 900,000

Investment income 50,000

Investment in associate (200,000 x 3/12) 50,000
2009 Investment in associate 1,800,000

Investment income (30% x 6,000,000) 1,800,000
Cash (30% x 5,000,000) 1,500,000

Investment in associate 1,500,000

Problem 17-8
2008
Jan. 1 Investment in associate 8,000,000
Cash 8,000,000
Dec. 31 Investment in associate 1,500,000

31 Cash (30% x 2,000,000) 600,000

2009
June 30 Investment in associate 1,800,000
July 1 Cash 6,000,000

Investment in associate (10,700,000 x 1/2) 5,350,000
Oct. 1 Cash (2,500,000 x 15%) 375,000

1 Available for sale securities 5,350,000
(Reclassification)
Dec. 31 No entry is required for the share in net income

because the investor is now using the fair value
method by reason on the reduced 15% interest.
Problem 11-10
Requirement a

Cash 3,500,000

3. Cash (40% x 1,000,000) 400,000

4. Investment income 150,000

Investment in associate (600,000 / 4) 150,000
Cost 3,500,000
Book value of interest acquired (40% x 7,000,000) 2,800,000
Oct. 1 Cash (2,500,000 x 15%) 375,000

1 Available for sale securities 5,350,000

(Reclassification)
Dec. 31 No entry is required for the share in net income

because the investor is now using the fair value
method by reason on the reduced 15% interest.
Problem 17-9
Requirement a

Cash 3,500,000

3. Cash (40% x 1,000,000) 400,000

Investment in associate (600,000 / 4) 150,000
Cost 3,500,000
Book value of interest acquired (40% x 7,000,000) 2,800,000
Excess of cost over book value 700,000
Excess attributable to equipment (40% x 1,500,000) ( 600,000)
Excess attributable to inventory (40% x 500,000) ( 200,000)
Excess net fair value over cost ( 100,000)


Requirement b
Share in net income 1,600,000

Amortization of excess attributable to equipment ( 150,000)
Amortization of excess attributable to inventory ( 200,000)
Excess net fair value over cost 100,000
Net investment income 1,350,000
Problem 11-10

Cash 1,700,000

Investment income (40% x 650,000) 260,000
3. Cash (40% x 150,000) 60,000


Revaluation surplus – investee (40% x 1,300,000) 520,000
Note:
1. Cost 1,700,000
Interest acquired (40% x 4,000,000) 1,600,000
Goodwill – not amortized 100,000
2. There is no need to adjust for the difference in depreciation method. If both entities
a method that best reflects the flow of benefits as the assets are consumed, then
there is no policy difference.
Problem 17-11
1. Journal entries
a. Investment in associate 6,000,000
Cash 6,000,000
b. Investment in associate 750,000

c. Cash 450,000
d. Investment income 200,000

2. Share in net income 750,000
Amortization of patent (2,000,000 / 10) (200,000)
3. Acquisition cost 6,000,000

Share in net income (5,000,000 x 15%) 750,000
Share in cash dividend (3,000,000 x 15%) ( 450,000)
Amortization of patent (2,000,000 / 10) ( 200,000)
Carrying value 6,100,000
Interest acquired (30,000 / 200,000) 15%

Book value of net assets acquired 4,000,000
Excess of cost applicable to patent 2,000,000
Problem 17-13
1. Journal entries

Cash 5,000,000
b. Investment in associate 1,200,000

Investment income 1,200,000
c. Cash 300,000

2. Share in net income 1,200,000

Amortization of depreciable asset (750,000 / 5) ( 150,000)
Investment income 1,050,000

Share in net income (30% x 4,000,000) 1,200,000
Share in cash dividend (30% x 1,000,000) ( 300,000)
Amortization of depreciable asset (750,000 / 5) ( 150,000)
Carrying value of investment 5,750,000
Excess of cost 1,400,000
Excess attributable to depreciable asset (30% x 2,500,000) 750,000
Excess attributable to goodwill 650,000
145
Problem 11-14
1. Journal entries

Cash 1,000,000
b. Investment in associate 175,000

c. Cash 75,000

2. Share in net income 175,000

Amortization of excess (25,000 + 25,000) ( 50,000)

Net assets acquired (25% x 3,000,000) 750,000
Excess of cost 250,000
Excess attributable to inventory (25% x 100,000) 25,000

Excess attributable to equipment (25% x 500,000) 125,000
Excess attributable to goodwill (25% x 400,000) 100,000
250,000

Share in net income (25% x 700,000) 175,000
Amortization of excess:
Inventory ( 25,000)
Equipment (125,000 / 5) ( 25,000)
Cash dividend (25,000 x 3) ( 75,000)
Investment balance 1,050,000
Problem 11-15
Requirement a
1. Memo – Received 500 shares as 10% stock dividend on

5,000 original Dale ordinary shares. Shares now
held, 5,500.
2. Cash (5,500 x 20) 110,000
3. Stock rights (15/150 x 1,600,000) 160,000

Investment in equity securities – Ever 160,000
Cash 200,000
Stock rights 160,000
Gain on sale of stock rights 40,000

Cash 5,000,000
1/1/2007 1/1/2008
Acquisition cost 2,000,000 5,000,000
Net assets acquired:
10% x 16,000,000 1,600,000
20% x 20,000,000 ________ 4,000,000
Goodwill 400,000 1,000,000
Income from Fox investment in 2007 (10% x 4,000,000) 400,000

Less: Dividend income recorded in 2007 – cost method -___
Understatement of income 400,000
147
Investment in equity securities 2,000,000
(Reclassification)

Retained earnings 400,000

8. Cash (75,000 x 20) 1,500,000

Requirement b
Noncurrent assets:
Investment in equity securities (Note) 2,690,000
Investment in associate – Fox Corporation 7,700,000
Note – Investment in equity securities
Dale Corporation, 5,500 shares 1,250,000

Ever Corporation, 10,000 shares 1,440,000
Total cost 2,690,000
Problem 17-38 Answer B

Excess of cost 560,000
Attributable to equipment (40% x 800,000) 320,000

Attributable to building (40% x 600,000) 240,000
560,000
Net income (40% x 1,600,000) 640,000
Cash dividend (40% x 1,000,000) ( 400,000)
Amortization of excess:
Equipment (320,000 / 4) ( 80,000)
Building (240,000 / 12) ( 20,000)
Carrying value of investment – 12/31/2008 2,700,000
Problem 18-4
Bonds held as trading
Jan. 1 Trading securities 3,761,000

Cash 3,761,000
July 1 Cash 240,000

Interest income (4,000,000 x 12%) 240,000
Dec. 31 Accrued interest receivable 240,000

Interest income 240,000
31 Trading securities 439,000

Unrealized gain – TS (4,200,000 – 3,761,000) 439,000
Bonds held as available for sale
Jan. 1 Available for sale securities 3,761,000

Cash 3,761,000
July 1 Cash 240,000

154
July 1 Available for sale securities 23,270

Interest received 240,000
Amortization of discount 23,270

31 Available for sale securities 24,899

Interest accrued 240,000
Amortization of discount 24,899

Unrealized gain – AFS 390,831
Market value (4,000,000 x 105) 4,200,000

Book value 3,809,169
Unrealized gain 390,831
Problem 18-5
Aug. 1 Trading securities (5,000,000 x 104) 5,200,000

Interest income (5,000,000 x 12% x 3/12) 150,000
Cash 5,350,000
31 Trading securities (2,000,000 x 98) 1,960,000

Cash 2,000,000
Nov. 1 Cash (5,000,000 x 12% x 6/12) 300,000

Dec. 1 Cash (1,880,000 + 20,000) 1,900,000

Loss on sale of trading securities 200,000
Trading securities 2,080,000
Selling price (2,040,000 – 160,000) 1,880,000

Less: Cost of bonds sold (2,000/5,000 x 5,200,000) 2,080,000
Loss on sale ( 200,000)
Dec. 31 Cash (2,000,000 x 12% x 6/12) 120,000
31 Accrued interest receivable (3,000,000 x 12% x 2/12) 60,000

31 Unrealized loss – TS 160,000

Trading securities 160,000
Carrying amount Market
Acme bonds (3,000,000 x 98%) 3,120,000 2,940,000

Avco bonds (2,000,000 x 99%) 1,960,000 1,980,000
5,080,000 4,920,000
Current assets:
Trading securities, at market value 4,920,000
Problem 18-6
Requirement a
March 1 Trading securities (2,000,000 x 93%) 1,860,000

Cash 1,880,000
April 1 Trading securities (4,000,000 x 95%) 3,800,000

Cash 3,840,000
Aug. 1 Cash (2,000,000 x 12% x 6/12) 120,000

Sept. 1 Cash (4,000,000 x 12% x 6/12) 240,000

Oct. 1 Cash (1,010,000 + 10,000) 1,020,000

Gain on sale of trading securities 60,000
Sales price (1,000,000 x 105%) 1,050,000

Less: Brokerage 40,000
Net proceeds 1,010,000
Less: Cost of bonds sold (1,000/4,000 x 3,800,000) 950,000
Gain on sale 60,000
Dec. 1 Cash (1,940,000 + 80,000) 2,020,000

Gain on sale of trading securities 80,000
Sales price (2,000,000 x 100%) 2,000,000

Less: Brokerage 60,000
Net proceeds 1,940,000
Less: Cost of bonds sold 1,860,000
Gain on sale 80,000
31 Accrued interest receivable (3,000,000 x 12% x 4/12) 120,000

31 Unrealized loss – TS (2,850,000 – 2,700,000) 150,000

Requirement b
Current assets:
Trading securities, at market value (3,000,000 x 90) 2,700,000
Problem 18-7
2008
July 1 Trading securities 2,200,000
Commission expense 50,000
Cash 2,330,000
Dec. 31 Unrealized loss – TS 300,000

Market value (2,000,000 x 95) 1,900,000

Carrying amount 2,200,000
Unrealized loss 300,000
31 Cash (2,000,000) x 8%) 160,000

2009
March 31 Cash 2,140,000
Gain on sale of TS 200,000
Interest income (2,000,000 x 8%) x 3/12) 40,000
Problem 18-9
Requirement 1
Discount
Date Interest received Interest income amortization Book value
01/01/2008 1,900,500
12/31/2008 160,000 190,050 30,050 1,930,550
12/31/2009 160,000 193,055 33,055 1,963,605
12/31/2010 160,000 196,395 36,395 2,000,000
Requirement 2
2008
Cash 1,900,500
Dec. 31 Cash 160,000


Market value (2,000,000 x 110) 2,200,000

Carrying amount 1,930,550
2009
Dec. 31 Cash 160,000


Market value 12/31/2009 (2,000,000 x 120) 2,400,000

Book value per table – 12/31/2009 1,963,605
Cumulative unrealized gain – 12/31/2009 436,395
Unrealized gain – 12/31/2008 269,450
Increase in 2009 166,945
Problem 18-11
Requirement 1
Discount
Date Interest received Interest income amortization Book value
01/01/2008 4,742,000
12/31/2008 300,000 379,360 79,360 4,821,360
12/31/2009 300,000 385,709 85,709 4,907,069
12/31/2010 300,000 392,931 92,931 5,000,000
Requirement 2
2008
Cash 4,742,000
Dec. 31 Cash 300,000



Market value - 12/31/2008 (5,000,000 x 105) 5,250,000

Book value – 12/31/2008 4,821,360
Unrealized gain – 12/31/2008 428,640
2009
Dec. 31 Cash 300,000

31 Cash 5,500,000
Unrealized gain - AFS 428,640
Available for sale securities 5,335,709
Gain on sale of AFS 592,931
Sales price (5,000,000 x 110) 5,250,000

Total 5,928,640
Investment balance – 12/31/2009 5,335,709
Unrealized gain – 12/31/2009 592,931
Another computation
Sales price 5,250,000

Book value per table – 12/31/2009 4,907,069
Problem 18-11
Requirement a
2008
May 1 Held to maturity securities (6,000,000 x 94%) 5,640,000
Cash 5,820,000
Aug. 1 Cash 360,000


31 Held to maturity securities (8,000 x 8) 64,000

May 1, 2008 – February 1, 2012 = 45 months

360,000 / 45 = 8,000 monthly amortization
Requirement b
2010
May 1 Held to maturity securities (8,000 x 4) 32,000
1 Cash (6,300,000 + 180,000) 6,480,000

Held to maturity securities 5,832,000
Gain on sale of bonds 468,000
Original cost – May 1, 2008 5,640,000

Add: Discount amortization from May 1, 2008 to
May 1, 2010 (8,000 x 24 months) 192,000
Book value, May 1, 2010 5,832,000
Selling price (6,000,000 x 105%) 6,300,000

Less: Book value 5,832,000
160
Problem 18-12
1. Held to maturity securities 8,598,400

Cash 8,598,400
2. Cash (12% x 8,000,000) 960,000

3. Interest income 100,160

Held to maturity securities 100,160
Interest received 960,000

Interest income (10% x 8,598,400) 859,840
Premium amortization 100,160
Problem 18-14
Year Bond outstanding Fraction Premium amortization
2008 1,000,000 10/30 50,000

2009 800,000 8/30 40,000
2010 600,000 6/30 30,000
2011 400,000 4/30 20,000
2012 200,000 2/30 10,000
3,000,000 150,000
2008
Jan. 1 Held to maturity securities 1,000,000
Cash 1,000,000
June 30 Cash (100,000 x 12% x 6/12) 60,000

Dec. 31 Cash 60,000

31 Interest income 50,000

31 Cash 200,000
2009
June 30 Cash (800,000 x 12% x 6/12) 48,000
Dec. 31 Cash 48,000

2008
Jan. 1 Held to maturity securities 1,000,000
Cash 1,000,000
June 30 Cash (100,000 x 12% x 6/12) 60,000

Dec. 31 Cash 60,000


31 Cash 200,000
2009
June 30 Cash (800,000 x 12% x 6/12) 48,000
Dec. 31 Cash 48,000


31 Cash 200,000

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Problem 16-9

1. Investment in equity securities 1,800,000

3. Cost of rights (10/200 x 1,800,000) 90,000

4. Stock rights 90,000

5. Investment in equity securities 390,000

6. Cash (10,000 x 10) 100,000

7. Loss on stock rights 90,000

a. Stock rights (5/125 x 2,100,000) 84,000

b. Investment in equity securities 709,000

a. Stock rights (6.25/131.25 x 2,100,000) 100,000

1. Stock rights (10/100 x 3,000,000) 300,000

3. Cash (6,000 x 10) 60,000

4. Loss on stock rights (4,000/40,000 x 300,000) 30,000

1. Investment in equity securities 3,200,000

2. Memo – Received 20,000 shares as stock dividend on

3. Cash (100,000 x 5) 500,000

4. Stock rights (5/40 x 3,200,000) 400,000

6. Investment in equity securities 600,000

7. Cash (80,000 x 35) 2,800,000

Oct. 1 Investment in equity securities 560,000

Aug. 1 Cash 500,000

Lot 1 (1,000 shares) 60,000

Nov. 1 Stock rights 95,000

Lot 2 – 6,000 rights (10/80 x 280,000) 35,000

Summary of investments Shares Cost

Jan. 2 Investment in King Corporation 700,000

Mar. 1 Investment in Plastic Company 660,000

Apr. 1 Cash (10,000 x 5) 50,000

July 1 Received 2,000 shares as 20% stock dividend on

Aug. 1 Investment in Makati Corporation 500,000

Oct. 1 Received 60,000 new shares of Plastic Company

1 Cash (10,000 x 5) 50,000

31 Stock rights (3/33 x 660,000) 60,000

Nov. 15 Investment in Plastic Company 180,000

Dec. 1 Cash (66,000 shares x 5) 330,000

15 Cash (10,000 shares x 30) 300,000

Summary of investments Shares Cost

Of course, the investments will simply be described as “investments in equity

Acquisition cost 392,000

Fair value of asset given (land) 3,000,000

Problem 10-18 Answer D

Original shares acquired January 15 50,000

Dividend income – cash dividend on December 15 (60,000 x 5) 300,000

Problem 10-19 Answer C

Original shares on March 1 20,000

1. Investment in associate 2,400,000

Acquisition cost 2,400,000

2. Investment in associate 300,000

3. Memo – Received 2,000 shares as 10% stock dividend on

4. Investment loss 60,000

5. Cash (20% x 500,000) 100,000

6. Cash (5,500 x 200) 1,100,000

1. Investment in equity securities 2,400,000

3. Memo – Received 2,000 shares as 10% stock dividend.

2008 Investment in associate 5,000,000

Investment in associate 300,000

Cash (30% x 3,000,000) 900,000

Investment income 50,000

2009 Investment in associate 1,800,000

Cash (30% x 5,000,000) 1,500,000

Investment income 200,000

Dec. 31 Investment in associate 1,500,000

31 Cash (30% x 2,000,000) 600,000

July 1 Cash 6,000,000