Leones, Noralyn C.

Bsa-lll

PROBLEM 3: SOLUTIONS

1) C. 5,000

Solution:

The gain on sale of Philippine Treasury Notes on December 1, 2010

Initial Measurement of Philippine Treasury Note 198,500.00

Proceeds from the sale of Temporary investment 206,500.00
Gain on sale of Temporary Investment 8,000.00

Treatment for Temporary investment

Total Sales proceeds 206,500.00

Less: accrued interest (7,500.00)
Net Proceeds 199,000.00
Cost of Treasury notes:Amount Paid 198,500.00
Accrued interest (4,500.00) 194,000.00
Gain on Sale of Treasury Notes 5,000.00

2) C. 20,000

Solution:

The realized loss on sale of Bebe shares on July 1, 2010

Proceeds from the sale of Bebe shares 70,000.00

Carrying amount of Bebe Shares @ Jul 1, 2010, 90,000.00
Realized loss on sale of Bebe Shares (20,000.00)

3) B. 48,000

Solution:

The interest income for the year 2010

Virgo Co.
Face amount of bonds 300,000.00
Nominal Rate 12%
Interest Income 36,000.00
Philippine Treasury Note
Face Amount of note 200,000.00
Nominal rate-accrued interest earned 0.06
Interest Income 12,000.00
Total interest income 48,000.00

(4) D. 549,000

The carrying amount of Trading Securities on December 31, 2010

Maca Textile shares 264,000.00

Virgo Bonds 285,000.00
Carrying amount 549,000.00

5) B. 1,600

the net unrealized loss to be recognized in P&L

Carrying Amount in 2009 550,600.00

Carrying Amount in 2010 (549,000.00)
Net unrealized loss 1,600.00

PROBLEM 13

QUESTIONS:

1. The cost of investment to be allocated to stock rights received on March

2, 2000 is

a. P 0 c. P31,429

b. P29,333 d. P25,143

2. The unadjusted balance of Investment in Sta. Maria stock on December

31, 2006 is

a. P940,000

c. P390,000

b. P490,000

d. P430,000

3. The adjusted balance of Investment in Sta. Maria stock on December

31, 2006 is

a. P135,000

b. P360,000

c. P180,000
d. P270,000

4. The gain on the sale of stock dividend received in December 2004 is

a. P100,000

c. P 80,000

b. P105,000

d. P195,000

5. The gain on sale of the shares sold in August 2006 is

a. P240,000 c. P120,000

b. P420,000 d. P870,000

Question No. 1

Cost allocated to stock rights (P10*/P150 x P440,000) = P29,333

Since the MV of rights is not available we must compute the theoretical value of the stock rights. Since
the market value of the stock given is on the date of issuance of the stock rights, the market value is
considered “ex-rights”.

Theoretical value of stock rights = MV of stock ex-rights – subs. price Number of rights to purchase 1
share

= (P 140 - P100)/4 = P10*

Question No. 2

Debits to Investment account:

Purchase, 1/2/99 (4,000 shares x P110) = P440,000

Exercise of rights, 4/2/00 (4,000/4 x P100) = 100,000

Stock split, 12/2005 (5,000 x P110) = 550,000

P1,090,000
Less credits to Investment account:

Dividends received, 2000-2003 (5,000 x P100 x 5% x 4) = 100,000

Sale, 8/2006 (5,000 shares x P120) = 600,000

=700,000

Balance, 12/31/06 per books = P 390,000

Question No. 3

Shares Cost/ share Total cost

Purchase, 1/2/1999 4,000 P110 P 440,000

Receipt of stock rights, (29,333)
3/2/2000
Balance 4,000 103 410,667
Exercise of rights, 1000 129 129,333
4/2/2000 (see below)
Balance 5000 108 410,667
50% stock dividend, 2500 129,333
12/2004
Balance 7500 72 540,00
Sale of a stock (2500) 72 (180,000)
dividend, 1/2005
Balance 5000 72 360,000
SA stock split, 12/2005 5000
Balance 10,000 36 360,000
Sale, 8/2006 (5000) 36 (180,000)
Adjusted balance, 5000 36 180,000
12/31/06

Cash paid (4,000/5 x P100) P 80,000

Cost of stock rights 29,333

Total cost P129,333

Question No. 4

Sales proceeds (2,500 shares x P150) P375,000

Less cost of investment sold (see no. 3) 180,000

Gain on sale of stock dividend received P195,000

Question No. 5

Sales proceeds (5,000 shares x P120) P600,000

Less cost of investment sold (see no. 3) 180,000

Gain on sale of investment in 8/2006 P420,000