Professional Documents
Culture Documents
General Instruction: Write Your Final Answer On The Answer Sheet. Read The Problems Carefully Before Answering
General Instruction: Write Your Final Answer On The Answer Sheet. Read The Problems Carefully Before Answering
Ace Company purchases 40% of Basket Company on January 1 for P700,000 that carry voting rights at a
general meeting of shareholders of Basket Company. Transaction cost of P 6,000 each was incurred by the
venturerrs. Ace Company and Blake Company immediately agreed to share control (wherein unanimous
consent is needed to all the parties involved) over the Basket Company. Basket reports assets on that date
of P1,600,000 with liabilities of P500,000. One building with a seven-year life is undervalued on Basket’s
books by P150,000. Also Basket’s book value for its trademark (10-year life) is overvalued by P120,000
and any goodwill will be amortized 10% per year. During the year, Basket reports net income of P90,000,
while paying dividends of P30,000. Basket company sold merchandise to Ace company that cost P 40,000
for P 60,000. One fourth of the merchandise remained unsold at year end. It was determined that the fair
value of each of their investment in Basket Company at December 31 as P 250,000 and P 230,000
respectively. Costs to sell are estimated at 5% of the fair value of the investment.
Required: Compute the amount of the investment account and investment income account/ dividend
income at the end of the year using equity, cost and fair value model under the following independent
assumptions: