BSA 35

6. shares received in lieu of cash dividend are recorded as

a. income at book value of the shares received
b. income at fair value of the shares received
c. income at the cash dividend that would have been received
d. stock dividends
7. Johnel Company invested in shares of Greg Company acquired as follows:
No. of shares Cost
2010 22,500 1,800,000
2011 37,500 3,300,000
In 2012, Johnel Company received 60,000 rights to purchase Greg share at P80. Five
rights are required to purchase one share. At issue date, rights had a market value of
P4 each and share was willing ex-right at P96. Johnel Company used rights to purchase
9,000 additional shares of Greg Company and allowed the rights not exercised to lapse.
In determining the stock right exercised, assume the first-in, first-out method. The
amount to be debited to investment account for the purchase of the 9,000 additional
shares is
a. P873,000 b. P871,200 c. P720,000 d. P824,000

8. On November 1, 2012, Ribbon Company invested 600,000 in equity securities

representing 20,000 ordinary shares of Carbon Company. The investment was
classified as equity security to profit or loss since the company intends to sell the
security for short-term profit. On December 31, 20122, this investment has a market
value of 580,000. On January 15, 2013, Ribbon Company sold the investment for
630,000. What amount of realized gain should Ribbon Company recognize on the
disposal of the trading security?
a. 20,000 b. 30,000 c. 50,000 d. none

9. Information pertaining to dividends from Aljohn Company’s share investments for the
year ended Dec. 31, 2012, follows:
*On Sep. 1, Aljohn received a P500,000 cash dividend from Janna Company in which
Aljohn owns 30% interest. A majority of Aljohn’s directors are also directors of Janna.
*On Oct. 1, Aljohn received a P60,000 liquidating dividend from Aimee Company.
*Aljohn owns a 2% interest in Warren Company, which declared a P2,000,000 cash
dividend on Nov. 15, 2012, to shareholders of record on Dec. 15, 2012, payable on Jan.
15, 2013.
What amount should Aljohn report as dividend income in its income statement for the
year ended Dec. 31, 2012?
a. P600,000 b. P560, 000 c. P100,000 d. P40,000

10. On Feb. 15, 2008, LesterMelai Company purchased 20,000 shares of MarkSerm
Company’s newly issued 6% cumulative P75 par preference share capital for
P1,520,000. Each share carried one detachable share warrant entitling the holder to
acquire at P10, one ordinary share of MarkSerm Company. On Feb. 15, 2008, the
market price of the preference share ex-warrant was P72 and the market price of the
warrant was P8. On Dec. 31, 2008, LesterMelai sold all the share warrants for
P205,000. The gain on the sale of the share warrants was
a. 0 b. 5,000 c. 45,000 d. 53,000