MILJANE P.

PERDIZO
BS ACCOUNTANCY

1. Alexis Company acquired a financial asset at the market value of P 3,200,000. Broker
fees of P 200,000 were incurred in relation to the purchase. At what amount should the
financial asset initially be recognized respectively if it is classified at Fair Value thru P/L
or as at FV thru OCI?
Answer:
Financial asset at fair value through profit or loss 3, 200,000
FVOIC. 3,400,000
2. On Jan 1 2019, Lcyxie company purchased marketable equity securities to be held as
trading for P 5,000,000. The entity also paid commission, taxes and other transaction
costs amounting to P 200,000. The securities had a market value of P 5,500,000 on
December 31, 2019 and the transaction costs that would be incurred on sale are
estimated at P 100,000. No securities were sold during 2019. What amount of unrealized
gain or loss on these securities should be reported in the 2019 income statement?
Answer:
Fair value 5, 500,000
Acquisition cost- Trading 5, 000,000
Unrealized gain 500, 000

3. On jan 1 2019, abc company purchased 40,000 shares of def at 100 per share. the
investment is measured at fair value thru oci. brokerage fees amounted to p 120,000. a
p 5 dividend per share of def had been declared on december 15. 2018 to be paid on
march 31, 2019 to shareholders of record on jan 31, 2019. no other transactions
occurred in 2019 affecting the investment in def shares. what is the initial measurement
of the investment?
Answer:
Purchase price (40,000 x 100) 4,000,000
Brokerage. 120,000
Total. 4,120,000
Less: Purchased dividend (40,000 x 5). 200,000
Cost of investment. 3,920,000

4. Ray Company provided the following data for 2019:

● On September 1, Ray received P 500,000 cash dividend from Roy Company in which
Ray owns a 30% interest.
● On October 1, Ray received a 60,000 liquidating dividend from Ring Company. Ray
owns a 5% interest in Ring.
● Ray owns a 2% interest in Row Company, which declared a P 2,000,000 cash dividend
on November 15, 2019 payable on Jan 15, 2020
What amount should be reported as dividend income for 2013?
Answer:
$40,000 of dividend revenue is
recorded in the income statement (2,000,000 x 2%).

5. On Jan 1 2019, Sage Company purchased 20% of Lex Company’s ordinary share
outstanding for P 6,000,000. The acquisition cost is equal to the carrying amount of the
net assets acquired. During 2013, the investee reported net income of P 7,000,000 and
paid cash dividends of P 4,000,000. What is the balance in the investment in associate
on December 31, 2019?
Answer:
Acquisition cost Add: Share in net income (20% x 7,000,000) Total Less: Share in cash dividend
( 20% x 4,000,000) Investment balance
Acquisition cost. 6,000,000
Add: Share in net Income (20%x7,000,000) 1,400,000
Total. 7,400,000
Less: Share in cash dividend (20%x4,000,000). 800,000
Investment balance. 6,600,000

6. On Jan 1 2019, Bridge Company purchased 25,000 shares of the 100,000 outstanding
shares of River Company for a total of P 1,000,000. At the time of the purchase, the
carrying amount of River Company’s equity was P 3,000,000. River company assets
having a market value greater than carrying amount at the time of the acquisition were
as follows:

Carrying amount Market Value Rem. Life

Inventory 400,000 500,000 less than 1 yr
Equipment 2,000,000 2,500,000 5 yrs
Goodwill 0 400,000 Indefinite
River Company’s net income in 2019 was P 700,000. Dividends per share paid by River
Company amounted to P 3 in 2019. What is the carrying amount of the investment in associates
on December 31 2019.
Answer:
Acquisition cost.                                                               1,000,000          
 Net assets acquired (25% x 3,000,000).                       750,000
Excess of cost over carrying amount.                           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
Acquisition cost.                                                             10,000,000
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)
Carrying amount of investment.                                     1,050,000

7. On October 1 2019, Nic Company purchased 2,000,000 face value 12% bonds for 98
plus accrued interest and brokerage fee. Interest is paid semiannually on Jan 1 and July
1. Brokerage fee for this transaction was P 50,000. At what amount should this
acquisition of bonds be recorded?
Answer:
Accrued interest = bond value * interest rate * no of months
Accrued interest = 2000000 * 12% / 12 * 3
Accrued interest = P 60000
Bond acquistion = (20000 * 98) + 50000
Bond acquistion = P 2010,000

8. On Jan 1 2019, Life Company purchased bonds with face value of P 8,000,000 for P
7,679,000 as a long-term investment. The stated rate on the bonds is 10% but the bonds
are acquired to yield 12%. The bonds mature at the rate of P 2,000,000 annually every
December 31 and the interest is payable annually also every December 31. The entity
used the effective interest method of amortizing discount. What is the carrying amount of
the investment in bonds on December 31, 2019?
Answer:
Interest income (7,679,000x12%). 921,480
Interest received(8,000,000 x 10%). 800,000
Discount amortisation 121,000

Cost. 7,679,000
Discount amortisation 121,480
Annual installment. (2,000,000)
Carrying amount 5,800,480

9. On Jan 1 2019, Rei Company purchased 12% bonds with FV of P 5,000,000 for
5,380,000. The bonds provide an effective yield of 10%. The bonds are dated Jan 1
2019, mature on Jan 1, 2018 and pay interest annually on December 31 of each year.
The bonds were quoted at 120 on December 31, 2019. The entity has elected the Fair
Value option for the bond investment. What total income should be reported for 2019?
Answer:
Market Value (5M x 1.05) 5,250,000
Carrying amount. (4,821 ,370)
Unrealized gain -Dec. 31, 2019. 428,640

10. On Jan 1 2019, Lebron Company purchased equity securities to be held as “ FVOCI” on
December 31 2019 the cost and market value were:
Cost Market Value
Security A 2,000,000 “ 2,400,000
Security B 3,000,000 3,500,000
Security C 5,000,000 4,900,000

On July 1 2020, the entity sold Security A for 2,500,000. What amount of gain on sale of
financial asset should be reported in 2020?

Answer:
Sales price 2, 500,000
Carrying amount of Security A 2, 400,000
Gain on sale of financial asset 100,000