“When you feel like giving up, remember the reasons why you started.

If still not enough, remember the reasons why you continued and held on for so long.
When you get tired, rest if you must, but never quit.”
Pretest – Investment in Equity Securities
Coverage: Chapter 15-Financial Assets at Fair Value p.402-414 & Chapter 16-Equity Investments
1 to 8 are based on the following:
On October 1, 2019, San Miguel Corp. acquired 10,000, P100 par, ordinary shares of PLDT Corp. at
P110 per share. San Miguel Corp. paid P100,000 brokerage fees and P50,000 transfer taxes in relation to the
purchase. Use the following chart of accounts:
A Cash E Unrealized Gain – TS
B Trading Securities F Unrealized Gain – OCI
C Financial Assets at Fair Value-OCI G Unrealized Loss – TS
D Investment in PLDT Ordinary Shares H Unrealized Loss - OCI
1. Assume that PLDT ordinary shares are traded in the Philippine Stock Exchange (i.e. quoted equity
securities) and San Miguel Corp. is engaged in the buying and selling of financial securities for short-term
gains. Give the entry to record the purchase.
2. Continuation of no. 1. Assume that PLDT ordinary shares have a fair value of P115 per share on December
31, 2019. Give the entry on December 31, 2019 to record change in fair value.
3. Apply the same assumption in no. 1. This time, however, SMC has elected to present in other
comprehensive income subsequent changes in fair value of investments. Give the entry to record the purchase.
4. Assume that PLDT ordinary shares are traded in the in the Philippine Stock Exchange and San Miguel Corp
is NOT engaged in the buying and selling of financial securities for short-term gains. Give the entry to record
the purchase.
5. Continuation of no.4. Assume PLDR ordinary shares have a fair value of P104 per share on December 31,
2019. Give the entry on December 31, 2019 to record changes in fair value.
6. Apply the same assumptions as no. 4. This time, however, SMC has elected to present in other
comprehensive income subsequent changes in fair value of investments. Give the entry to record the purchase.
7. Continuation is no. 6. Assume PLDT ordinary shares have a fair value of P120 per share on December 31,
2019. Give the entry to record change in fair value.
8. Assume that PLDT ordinary shares are not traded in the Philippine Stock Exchange (i.e. unquoted equity
securities) and San Miguel Corp. is engaged in the buying and selling of financial securities for short-term
gains. Give the entry to record the purchase.
9 to 12 are based on the following:
ABC Corp.’s board of directors at their meeting on August 10, 2020 declared cash dividends of P5 per
share, payable on September 15, 2020 to shareholders of record at the close of business on August 31, 2020.
Assume a shareholder owns 1,000 shares at a cost of P100,000. Use the following chart of accounts:
A Cash D Dividend Income
B Dividends Receivable E Gain on Sale of Investment
C Investment in Equity Securities F Loss on Sale of Investment
9. Give the journal entry on August 10, 2020.
10. Give the journal entry on September 15, 2020.
11. Give the journal entry on August 20, 2020 if the 1,000 shares are sold for P102,000.
12. Give the journal entry on September 3, 2020 if the 1,000 shares are sold for P102,000.
13 and 14 are based on the following:
Given below is a schedule of acquisition of equity securities: Use the following chart of accounts:
Date No. Of Shares Cost per Share Total Cost A Cash
02-01-2020 500 90 P 45,000 B Investment in Equity Securities
10-01-2020 200 100 20,000 C Gain on Sale of Investment
12-15-2020 900 120 108,000 D Loss on Sale of Investment
Give the entry on December 20, 2020 to record the sale of 600 shares at P100 per share using:
13. FIFO method 14. Average method
15 to 24 are based on the following:
Madigin Co. owns 15,000, P100 par, ordinary shares of Miner Blue Corp. at a cost of P1,800,000. Use
the following chart of accounts:
A Cash E Dividend Income
B Investment in Miner Blue Corp. Ordinary Shares F Gain on Sale of Investment
C Investment in Miner Blue Corp. Preference Shares G Loss on Investment
D Investment in Red Corp. Ordinary Shares
15. Give the entry to record receipt of property dividends. Miner Blue Corp. distributed one ordinary share of
Red Corp. for every 20 Miner Blue Corp. shares owned. Red Corp.’s ordinary share has a carrying amount of
P50 and fair value of P60.
16. Give the entry to record receipt of liquidating dividends. Miner Blue Corp. undergoes liquidation and
distributes liquidating dividends. Madigin Co. receives P1,200,000.
17. Give the entry to record special assessment. Miner Blue Corp.’s board of directors passed a resolution
requiring stockholders to make an additional contribution of P10 per share owned.
18. Miner Blue Corp. declared a 20% share dividend on September 15, 2020 to be distributed on October 15,
2020 to shareholders of record at the close of business on October 1, 2020. How many Miner Blue shares
does Madigin Co. have on October 15, 2020? (Answer in figures)
19. Using the same information in no. 18, give the entry to record receipt of P250,000 cash in lieu of the share
dividends. Assume that Madigin Co. exercised an option to receive P250,000 cash instead of shares of stock.
20. Using the same information in no. 18, give the entry to record sale of 3,000 shares. On September 20,
2020, Madigin Co. sold 3,000 shares at P150 per share.
21. Using the same information in no. 18, give the entry to record sale of 3,000 shares. On October 5, 2020,
Madigin Co. sold 3,000 shares at P150 per share.
22. Give the entry to record receipt of preference shares. Miner Blue Corp. declared 20% share dividends in
the form of Miner Blue preference shares. The market values per share are: Ordinary share – P150;
Preference share – P50.
23. Miner Blue Corp. reduced the par value per share to P20. How many shares will be issued as a result of
the split? (Answer in figures)
24. Miner Blue Corp. increased the par value per share to P200. How many shares will be issued as a result of
the reverse split? (Answer in figures)
25 to 35 are based on the following:
On July 1, 2020, ABC Corp. announced the distribution of share warrants on its P100 par, 10,000
outstanding ordinary shares to shareholders of record on July 31, 2020. The share warrants will allow the
purchase by shareholders of additional 2,500 shares at par value. The share warrants will expire on October
31, 2020. Assume a shareholder owns 2,000 shares at a total cost of P210,000. Use the following chart of accounts:
A Cash D Gain on Sale of Investment
B Share Rights E Gain on Sale of Rights
C Investment in ABC Corp. F Loss on Share Rights
For nos. 25 to 32, assume the share warrants are accounted for separately.
25. In the books of the shareholder, give the journal entry to record receipt of share warrants on July 31, 2020.
Assume the value per right on July 31, 2020 is P3.
26. In the books of the shareholder, give the journal entry to record receipt of share warrants on July 31, 2020.
The warrants have no known market value. The market value of ABC ordinary share on July 31, 2020 is P110.
(Independent assumption)
27. In the books of the shareholder, give the journal entry to record receipt of share warrants on July 31, 2020.
The warrants have no known market value. The market value of ABC ordinary share on August 1, 2020 is
P110. (Independent assumption)
For nos. 28 to 31 are a continuation of no. 25.
28. In the books of the shareholder, give the journal entry to record sale of 500 shares on August 1, 2020 at
P110 per share.
29. In the books of the shareholder, give the journal entry to record exercise of 1,200 share rights on August 20,
2020.
30. In the books of the shareholder, give the journal entry to record sale of 500 share rights on August 31,
2020 at P4 per right.
31. In the books of the shareholder, give the journal entry to record expiration of the remaining rights.
32. In the books of the shareholder, give the journal entry to record sale of 500 shares at P110 per share on
July 20, 2020. (Independent assumption)
For nos. 33 to 35, assume the share warrants are NOT accounted for separately.
33. In the books of the shareholder, give the journal entry to record receipt of share warrants on July 31, 2020.
Memorandum Entry: Received 2,000 share rights to subscribe for _[33]_ shares at P100 per share.
34. In the books of the shareholder, give the journal entry to record exercise of 1,200 share rights.
35. In the books of the shareholder, give the journal entry to record sale of 500 share rights at P4 per right.

“It’s not like I suddenly became stronger or that something has changed. I’m still shaking, but… we don’t
have to let those fears stop us. What’s important is the desire to improve, which stems from weakness.”
-Yuki Sohma (Fruits Basket)