FAR EASTERN UNIVERSITY

INSTITUTEOF ACCOUNTS, BUSINESS AND FINANCE

Department of Accountancy & Internal Auditing

AUDITING PROBLEMS
First Semester AY 2017-2018
QUIZ 10 – AUDIT OF INVESTMENT
Name Date
(Family Name) (First Name) (Middle Name) Section
Professo Day/Tim
r e
Stud. No. Score /56 items
Room Rating

SOLUTION GUIDE
CASE NO. 1 (6 Points)
No. JOURNAL ENTRIES
Date Account Names Debit Credit
2017
1 Jan 1 Commission Expense 50,000
Trading Securities 50,000

2 Dec 3 Trading Securities 50,000

1
Unrealized Gain on investment 50,000

2018
3 Jan 1 NO AJE IS NECESSARY
0

CASE NO. 2 (8 points)

No. JOURNAL ENTRIES
Date Account Names Debit Credit
2017
4 Jun 1 Investment in Equity Securities 100,000
Commission Expense 100,000

5 Dec 3 Unrealized Loss on Investment 25,000

1
Unrealized Gain on Investment 75,000
Investment in Equity Securities 100,000

2018
6 Mar 1 NO AJE IS NECESSARY
1

Retained Earnings 25,000

Unrealized Loss on Investments 25,000

CASE NO. 3
No. JOURNAL ENTRIES
Date Account Names Debit Credit
2017
7 Jul 1 Investment in Associate 20,000,00

1
 0
Investment in Equity Securities 20,000,000

8 Aug 15 Dividend Income 5,125,000

Investment in Equity Securities 5,125,000

No. JOURNAL ENTRIES

2017
9 Nov 5 Dividend Income 600,000
Cash 25,000
Investment in Associate 625,000

10 Dec 31 Investment in Associate 1,250,000

Investment Income 1,250,000
(P 10,000,000 x 25% x 6/12)

Part 1 – Adjusting Journal Entries

Prepare the adjusting journal entry at December 31, 2017 as a result of your audit. In case no adjusting entry is
necessary, indicate “NO AJE IS NECESSARY” .Use the solution guide.

Case 1:
JOURNAL ENTRIES
No. Transactions Account Names Debit Credit
1 Aladdin Corporation purchased Trading Securities 5,050,000
marketable equity securities on Cash 5,050,000
January 1, 2017 for P 5,000,000
which are qualified as financial
assets held for trading. The
related broker’s commission paid
by the entity in its acquisition is P
50,000.
2 At December 31, 2017, the Trading Securities 25,000
investment in number (1) has a Unrealized Gain on Investment 25,000
fair market value of P 5,075,000.
3 On January 10, 2018, the Cash 5,200,000
investment in number (1) was Trading Securities 5,075,000
sold for P 5,200,000. Gain on sale of investment 125,000

JOURNAL ENTRIES
Transaction 1 Account Names Debit Credit
Entry Made Trading Securities 5,050,000
Cash 5,050,000

Entry that should have been made Trading Securities 5,000,000

Commission Expense 50,000
Cash 5,050,000

Adjusting Journal Entry No. 1 Commission Expense 50,000

Trading Securities 50,000

JOURNAL ENTRIES
Transaction 2 Account Names Debit Credit
Entry Made Trading Securities 25,000
Unrealized Gain on Investment 25,000

Entry that should have been made Trading Securities 75,000

Unrealized Gain on Investment 75,000

Adjusting Journal Entry No. 2 Trading Securities 50,000

Unrealized Gain on Investment 50,000

Trading Securities
(1 Acquisition as recorded on 1/1/2017 5,050,000

2
 )
AJE No. 1 50,000
(2 Year-end adjustment, 12/31/2017 25,000
)
AJE No. 2 50,000
5,125,000 50,000

Year-end adjusted balance, 12/31/2017 5,075,000

JOURNAL ENTRIES
Transaction 3 Account Names Debit Credit
Entry Made Cash 5,200,000
Trading Securities 5,075,000
Gain on sale of investment 125,000

Entry that should have been made Cash 5,200,000

Trading Securities 5,075,000
Gain on sale of investment 125,000

Adjusting Journal Entry NO AJE IS NECESSARY

Case 2:
No. Transactions JOURNAL ENTRIES
4 On June 1, 2017, Hercules Investment in Equity Securities 8,000,000
Corporation purchased 100,000 Commission Expense 100,000
shares of Apollo Corporation for P Cash 8,100,000
8,000,000 which are qualified as
financial assets not held for
trading. The related broker’s
commission paid by the entity in
its acquisition is P 100,000.
5 At December 31, 2017, the Investment in Equity Securities 75,000
investment in number (4) has a Unrealized Gain on Investment 75,000
fair market value of P 8,075,000.
6 On March 11, 2018, the Cash 8,200,000
investment in number (4) was Investment in Equity Securities 8,075,000
sold for P 8,200,000. Gain on sale of Investment 125,000

JOURNAL ENTRIES
Transaction 4 Account Names Debit Credit
Entry Made Investment in Equity Securities 8,000,000
Commission Expense 100,000
Cash 8,100,000

Entry that should have been made Investment in Equity Securities 8,100,000
Cash 8,100,000

Adjusting Journal Entry No. 1 Investment in Equity Securities 100,000

Commission Expense 100,000

JOURNAL ENTRIES
Transaction 5 Account Names Debit Credit
Entry Made Investment in Equity Securities 75,000
Unrealized Gain on Investment 75,000

Entry that should have been made Unrealized Loss on Investment 25,000
Investment in Equity Securities 25,000

Adjusting Journal Entry No. 1 Unrealized Gain on Investment 75,000

Unrealized Loss on Investment 25,000
Investment in Equity Securities 100,000

3
 Investment in ES
(1 Acquisition as recorded on 6/1/2017 8,000,000
)
AJE No. 1 100,000
(2 Year-end adjustment, 12/31/2017 75,000
)
AJE No. 2 100,000
8,175,000 100,000

Year-end adjusted balance, 12/31/2017 8,075,000

JOURNAL ENTRIES
Transaction 6 Account Names Debit Credit
Entry Made Cash 8,200,000
Investment in Equity Securities 8,075,000
Gain on sale of Investment 125,000

Entry that should have been made Cash 8,200,000

Trading Securities 8,075,000
Gain on sale of investment 125,000

Retained Earnings 25,000

Unrealized Loss on Investment 25,000

Adjusting Journal Entry NO AJE IS NECESSARY.

Adjusting Journal Entry 3 Retained Earnings 25,000

Unrealized Loss on Investment

Unrealized Loss
(5 AJE No. 2 25,000
)
(6 Sale, 3/11/2017 0
)
AJE No. 3 25,000
25,000 25,000

Adjusted balance, 3/11/2017 0

Case 3:
No. Transactions JOURNAL ENTRIES
7 On July 1, 2017, Venus Company Investment in Equity Securities 20,000,000
purchased 100,000 shares of Cash 20,000,000
400,000 shares of Aphrodite
Corporation for P 20,000,000.
8 Using the information in no. (7), Investment in Equity Securities 5,125,000
on August 15, Venus Company Dividend Income 5,125,000
received 25% stock dividend. The
market value of the shares on this
date is P 205 per share.
9 On November 30, received cash Cash 600,000
dividend of P 5 per share. Dividend Income 600,000

10 The net income of Aphrodite

Corporation for the year 2017 is P
10,000,000.

JOURNAL ENTRIES
Transaction 7 Account Names Debit Credit
Entry Made Investment in Equity Securities 20,000,00
0
Cash 20,000,000

Entry that should have been made Investment in Associate 20,000,00

0
Cash 20,000,000

Adjusting Journal Entry Investment in Associate 20,000,00

4
 0
Investment in Equity Securities 20,000,000

JOURNAL ENTRIES
Transaction 8 Account Names Debit Credit
Entry Made Investment in Equity Securities 5,125,000
Dividend Income 5,125,000

Entry that should have been made Received 25,000 shares as 25% stock
dividend. Shares now held, 125,000 (Value
per share – P 160)

Adjusting Journal Entry Dividend Income 5,125,000

Investment in Equity Securities 5,125,000

JOURNAL ENTRIES
Transaction 9 Account Names Debit Credit
Entry Made Cash 600,000
Dividend Income 600,000

Entry that should have been made Cash 625,000

Investment in Associates 625,000
(125,000 shares x P 5 per share)

Adjusting Journal Entry Dividend Income 600,000

Cash 25,000
Investment in Associates 625,000

JOURNAL ENTRIES
Transaction 10 Account Names Debit Credit
Entry Made No Entry Made

Entry that should have been made Investment in Associate 1,250,000

Investment Income 1,250,000
(P 10,000,000 x 25% x 6/12)

Adjusting Journal Entry Investment in Associate 1,250,000

Investment Income 1,250,000