AUDIT OF CURRENT AND

4 NONCURRENT INVESTMENTS
AUDIT PROGRAM FOR INVESTMENTS
Audit Objectives
To determine that:
a. Investment exist and are owned by the client.
b. Valuation is in conformity with GAAP.
c. All recorded income from investments has accrued to the entiry at the end of reporting period.
d. All investments owned by the entity at the end of the reporting period are included in the
statement of financial position.
e. All income accruing from investments at the end of the reporting period has been recorded.
f. Investments are included in the statement of financial position at appropriate amount.
g. All investments are free of liens, pledges, or other security interest, or if not, are adequately
disclosed.
h. Investment and related investment income accounts are properly classified, described,
and disclosed in the financial statements in conformity with GAAP and IFRS.

Audit Procedures
1. Prepare or obtain an analysis of the investment account and:
a. Trace to applicable general ledger balances.
b. Vouch changes during the year by reference to board minutes and brokers' advices.
c. Verify completeness of dividend and interest income accounts and where necessary,
by reference to outside published sources.
d. Check footings and cross-footings.
2. Conduct securities count:
a. Inspect securities as to registered owner.
b. Reconcile and compare details with investment analysis.
3. For securities held by an outside custodian.
a. Arrange a visit to the custodian and conduct a count, or
b. Confirm from custodians the details of securities held for the account of the client.

4. Review minutes, agreements, and confirmation replies for evidence of liens, pledges, or other
security interests in the entity's investments and of commitments to acquire or dispose of
investments.
5. Inspect market quotations, financial statements of investee(s), and other evidence to determine
the current value of investments.

6. Discuss with the entity the process used by management in classifying its investments.

7. Determine whether the client's investment activities are consistent with its stated intent,
8. For investments included in the held-to-maturity category, determine if the client has the
ability to hold them to maturity.
9. Determine whether the decline in fair value of available-for sale or held-to-maturity investments
below amortized cost is other than temporary and is properly recognized.
 4 problems
Problem 4-1
Trading Securities

Supporting records of Maryon Company's trading securities portfolio show the following debt and
equity securities:

Security Cost

200 ordinary shares, Curverous Co. 127,250

$400,000 Typho Company, 7% bonds 398,250
$600,000 Tourist, Inc., 7.5% bonds 603,750

Interest dates on the bonds are January 1 and July 1.Maryon Company uses the income approach
to record the purchase of bonds with accrued interest. During 2018 and 2019 Maryon Company
completed the following transactions related to trading securities:

2018
Jan. 1. Received semiannual interest on bonds. Assume that the appropriate adjusting
entry was made on December 31, 2017.

April 1. Sold $300,000 of 7.5% Tourist Inc. bonds at 102 plus accrued interest. Brokerage
fees were $1,000.

May 21. Received dividend of $1.25 per share on the Curverous Co. ordinary share capital.
The dividend had not been recorded on the declaration date.

July 1. Received semiannual interest on bonds and then sold the 7% Typho Company
bonds at 97.5. Brokerage fees were $1,250.

Aug. 15. Purchased 100 shares of Nelson Company ordinary share capital at $580 per
share plus brokerage fees of $250.

Nov. 1. Purchased $250,000 of 8% Tesla Company bonds at 101 plus accrued interest.
Brokerage fees were $625. Interest dates are January 1 and July 1.

Dec. 31. Market prices of the securities:

Curverous Co. $ 550

7.5 % Tourist, Inc bonds 101.75
8% Tesla Company bonds 101
Nelson Company ordinary shares $ 583.75
2019
Jan. 2. Recorded the receipt of semiannual interests on bonds.

Feb. 1. Sold the remaining 7.5% Tourist bonds at 101 plus accrued interest. Brokerage
fees were $1,500.

Required:
1. What is the total interest and dividend income for 2018?

2. What amount should be reported as gain on sale of trading securities in 2018?

3. What amount of unrealized gain or loss should be reported in the income statement
for the year ended December 31, 2018?

4. What is the carrying amount of the remaining trading securities on December 31, 2018?

5. What is the gain/loss on the sale of the remaining Tourist , Inc. bonds on February 1,
2019?

6. Prepare journal entries for the preceding transactions and to accrue interest on
December 31, 2018. Ignore amortization of premium or discount on bonds.

Problem 4-2
Purchase of Debt and Equity Securities

Your audit of Lava Company's investments in debt and equity securities reveals the following
information:

a. On January 1, 2019, X-Ry Company issued $1,000,000 in debt securities. The stated
interest is 9%, with interest payable semiannually on June 30 and December 31. On February
1, Lava Company purchased these debt securities from an investor who acquired them
when they were originally issued. Lava Company paid the investor an amount equal to the
face value of the securities plus accrued interest. The securities were designated as
held-for-trading.

b. On June 1, Lava Company purchased 10,000 shares of equity securities for $50 per share.
These securities were acquired as an available-for-sale investment. Lava Company paid
$13,000 broker's commission on the purchase.

Required:
1. Entry to record the acquisition of debt securities on February 1.

2. Entry to record the purchase of equity securities in June 1.

Problem 4-3
 Investment in Equity Securities

Barbie Company has a policy of investing idle cash in equity securities. It has made periodic
investments in its principal supplier Nicon Company. Barbie Company currently owns 12%
of Nicon Company's outstanding shares.

You, Barbie Company's assistant controller, has gathered the following information about the
company's investments in equity sec ties:

1. Barbie company has trading equity investments in DZY, Inc. and Polymer Company. During
2019, Barbie Company purchased 100,000 shares of DZY, Inc. for $4,200,000; these shares
have a fair value of $4,800,000 at December 31, 2019. The investment in Polymer Company
consists of $50,000 shares acquired in March 2019 at $60 per share and currently has a
value of $2,160,000.

2. Barbie Company's 12% ownership in Nicon Company has a fair value of $66,675,000 on
December 31, 2019. On initial recognition, Barbie Company made an irrevocable election
to present in other comprehensive income subsequent changes in fair value of this investment
in equity securities. The securities were purchased prior to 2018 for $67,500,000 and was
valued at $64,500,000 on December 31, 2018. Barbie Company has not changes its holdings
in the current year.

Required:
1. What amount of unrealized gain/loss should be reported as component of other
comprehensive income on Barbie Company's December 31, 2018 statement of
comprehensive income?

2. What is the cumulative unrealized gain/loss that should be shown on the statement
of changes in equity for the year ended December 31, 2019?

3. What amount of unrealized gain/loss should be reported on Barbie Company's

income statement for the year ended December 31, 2019?

Problem 4-4
Investment in Debt Securities
Computation of Interest Income and Amortized Cost

On January 1, 2019, Rosedale Company purchased debt securities for cash of $765,540 to be
held as financial assets at amortized cost. The securities have a face value of $600,000, and
they mature in 15 years. The securities carry fixed interest rate of 10% that is receivable
semiannually, on June 30 and December 31. The prevailing market interest rate on these debt
securities is 7% compounded semiannually.

Required:
1. What is the carrying value of the debt securities on December 31, 2019 at amortized
 cost using the effective interest rate method.

2. What is the interest income to be reported for 2019 using effective interest rate
method?

Problem 4-5
Financial Assets at Amortized cost
Senegal Company purchased $160,000,000 of 8% bonds, dated January 1, on January 1, 2019,
to be held as financial asset at amortized cost. On the acquisition date, the market yield of bonds
with similar risk and maturity was 10%. The company paid $132,000,000 of the price of the
bonds. Interest is received semiannually on June 30 and December 31. Due to the changes
in market conditions, the fair value of the bonds at December 31, 2019 was $140,000,000.

Required:
1. At what amount will Senegal Company report its investment in the December 31,
2019 statement of financial position?

2 What is the unrealized holding gain or loss to be classified as component of other

comprehensive income at December 31, 2019?

3. What is the amount of interest income to be reported in Senegal Company's income

statement for the year ended December 31, 2019?

Problem 4-6
Accounting for Non-trading Equity Securities

Supersonic Company has the following non-trading equity securities on December 31, 2018:

Security Shares Cost

Denver Company, ordinary shares 4,500 $ 220,500

Renault, Inc., ordinary shares 15,000 540,000
Ashton Corporation, preference shares 1,200 180,000
$ 940,500

All of the above securities were bought in 2018. On initial recognition, Supersonic Company made
an irrevocable election to present the securities at fair value through other comprehensive income.
In 2019, the company had the following transactions relating to its investments:

April 1. Sold the 4,500 ordinary shares of Denver Company for $65 per share.
May 1. Bought 2,100 ordinary shares of Ramsey Company at $75 plus broker's fee of $5,200.

Supersonic Company's portfolio of non-trading equity securities appeared as follows on

December 31, 2019:
Security Shares Cost
 Renault, Inc., ordinary shares 15,000 $ 540,000
Ramsey Company, ordinary shares 2,100 157,500 *
Ashton Corporation, preference shares 1,200 180,000
$ 877,500

* The broker's fee was charged to expense.

Required:
1. What is the amount of gain/loss on the sale of Denver Company ordinary shares
to be reported in the 2019 income statement?

2. At what amount Ramsey Company ordinary shares be initially measured?

3. What is the total amount of investments in non-trading securities to be reported in

December 31, 2019 statement of financial position?

Problem 4-7
Reclassification from Amortized Cost to FVPL

On January 1, 2018, Expeller Company purchased $2,000,000 face value bonds at a price of
$1,824,800 which will yield an interest rate of 10%. The nominal rate on the bonds is 8% payable
annually every December 31. The company's business model is to collect contractual cash flows
that are solely payments of principal and interest.

On December 31, 2019, Expeller Company changed the business model in managing the bonds from
collecting contractual cash flows that are solely payments of principal and interest to realizing
short term gains. The market value of the bonds on January 1, 2020 is 105

Required:
1. What amount should be reported as interest income for 2019?

2. What is the carrying amount of the bonds on December31, 2019?

3. On classification date, what amount of gain/loss on reclassification of financial asset

should be recognized by Expeller Company?

Problem 4-8
Investment in Equity Securities

On January 4, 2019, Thomas Company paid $1,296,000 for 40,000 ordinary shares of Bishop, Inc.
The investment represents a 30% interest in the net asset of Bishop, Inc. and gave Thomas
Company the ability to exercise significant influence over Bishop, Inc. operating and financial
policy decisions. Thomas Company received dividends of $1 per share on December 4, 2019,
and Bishop, Inc. reported net income of $640,000 for the year ended December 31, 2019. The
market value of Bishop, Inc.'s ordinary shares at December 31, 2019 was $32 per share. The book
value of Bishop, Inc.'s net asset was $3,200,000 and:

● The fare market value of Bishop, Inc.'s depreciable assets, with an average remaining useful life
of 8 years, exceeded their book value of $320,000.

● The remainder of the excess of the cost of the investment over the book value of net assets
purchased was attributable to goodwill.

Required:
1. What amount of the investment cost is attributable to goodwill?

2. What is the carrying value of the investment in Bishop, Inc. ordinary shares on
December 31, 2019?

3. What amount of investment income should be reported in Thomas Company's income

statement for the year ended December 31, 2019?
 Trading Securities

llowing debt and

Fair Value

121,500
387,000
609,450

e income approach
aryon Company

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 n Equity Securities

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me and Amortized Cost

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s at Amortized cost
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er 31, 2018:

Fair Value

$ 207,000
525,000
184,800
$ 916,800

ic Company made
rehensive income.

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Fair Value
 $ 525,000
151,200
174,000
$ 850,200

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 4 problems
Problem 4-1

Supporting records of Maryon Company's trading securities portfolio show the following debt and
equity securities:

Security

200 ordinary shares, Curverous Co.

$400,000 Typho Company, 7% bonds
$600,000 Tourist, Inc., 7.5% bonds

Interest dates on the bonds are January 1 and July 1.Maryon Company uses the income approach
to record the purchase of bonds with accrued interest. During 2018 and 2019 Maryon Company
completed the following transactions related to trading securities:

2018
Jan. 1. Received semiannual interest on bonds. Assume that the appropriate adjusting
entry was made on December 31, 2017.

April 1. Sold $300,000 of 7.5% Tourist Inc. bonds at 102 plus accrued interest. Brokerage
fees were $1,000.

May 21. Received dividend of $1.25 per share on the Curverous Co. ordinary share capital.
The dividend had not been recorded on the declaration date.

July 1. Received semiannual interest on bonds and then sold the 7% Typho Company
bonds at 97.5. Brokerage fees were $1,250.

Aug. 15. Purchased 100 shares of Nelson Company ordinary share capital at $580 per
share plus brokerage fees of $250.

Nov. 1. Purchased $250,000 of 8% Tesla Company bonds at 101 plus accrued interest.
Brokerage fees were $625. Interest dates are January 1 and July 1.

Dec. 31. Market prices of the securities:

 Curverous Co. $ 550
7.5 % Tourist, Inc bonds 101.75
8% Tesla Company bonds 101
Nelson Company ordinary shares $ 583.75

2019
Jan. 2. Recorded the receipt of semiannual interests on bonds.

Feb. 1. Sold the remaining 7.5% Tourist bonds at 101 plus accrued interest. Brokerage
fees were $1,500.

Required:
1. What is the total interest and dividend income for 2018?
Typho Co. Bonds Jan 1-Jul 1 (400,000x7%x6/12) $ 14,000
Tourist Co. Bonds:
Jan 1-April 1 (600,000x7,5%x3/12) $ 11,250
Apr 1-Dec 31 (300x7,5%x9/12) $ 16,875
Tesla Co. Bonds (250,000x8%x2/12) $ 3,333
Dividend Income (1.25x200) $ 250
Total Interest Income $ 45,708

2. What amount should be reported as gain on sale of trading securities in 2018?

Tourist Bonds
Sales Price (300,000x102%) $ 306,000
Less: Brokerage fee $ 1,000
Net Sales Price $ 305,000
Less: Carrying Amount (609,450x0.5) $ 304,725 $ 275
Typho Bonds
Sales Price (400,000x97,5%) $ 390,000
Less: Brokerage fee $ 1,250
Net Sales Price $ 388,750
Less: Carrying Amount $ 387,000 $ 1,750
Total $ 2,025

3. What amount of unrealized gain or loss should be reported in the income statement
for the year ended December 31, 2018?

4. What is the carrying amount of the remaining trading securities on December 31, 2018?

Security Carrying Amount 4) Fair value 3) Gain/loss

Curverous 121,500 110,000 (200x550) $ (11,500.00)
Tourist 304,725 (609,450x0.5) 305,250 (300,000x101,75%) $ 525.00
 Nelson 58,000 (100x580) 58,375 (100x583.75) $ 375.00
Tesla 252,500 (250,000x101%) 252,500 (250,000x101%) $ -
Totals 736,725 726,125 $ (10,600)

5. What is the gain/loss on the sale of the remaining Tourist , Inc. bonds on February 1,
2019?
Sales Price (300,000x101%) $ 303,000
Less: Brokerage fee $ 1,500
Net Sales Price $ 301,500
Less: Carrying Amount $ 305,250
Loss on Tourist Bonds $ (3,750)

6. Prepare journal entries for the preceding transactions and to accrue interest on
December 31, 2018. Ignore amortization of premium or discount on bonds.
Jan.1
Cash
Interest Receivable 36,500
(400.000 x 7% x 6/12)+ (600.000 x 7,5% x6/12) 36,500

April.1
Cash (305.000 +5.625) 310,625
Trading Securities 304,725
Interest Income (300.000x 7,5% x 3/12) 5,625
Gain on sales of Trading Securities 275

May.21
Cash (1,25x 200 share) 250
Dividend Income 250

Jul.1
Cash 25,250
interest Income 25,250
(400.000 x 7% x 6/12)+(300.000 x 7,5% x 6/12)

Cash 388,750
Trading Securities 387,000
Gain on sale of Trading Securities 1,750

Aug.15
Trading Securities 58,000
Brokerage Fees 250
Cash 58,250

Nov.1
Trading Securities (250.000 x 101%) 252,500
 Brokerage Fees 625
Interest Income (250.000 x 8% x4/12) 6,667
Cash 259,792

Dec.31
Interest Receivable 21,250
Interest Income 21,250
(300.000 x7,5% x6/12)+(250.000 x 8%x 6/12)

Unrealized loss on Trading Securities 10,600

Trading Securities 10,600

Jan.2
Cash 21,250
Interest Receivable 21,250
(300.000x7,5%x6/12)+(250.000 x 8% x6/12)

Feb.1
Cash (301.500+1.875) 303,375
Loss on sale of Trading Securities 3,750
Trading Securities 305,250
Interest Income (300.000 x 7,5%x1/12) 1,875

Problem 4-2
Purchase
Your audit of Lava Company's investments in debt and equity securities reveals the following
information:

a. On January 1, 2019, X-Ry Company issued $1,000,000 in debt securities. The stated
interest is 9%, with interest payable semiannually on June 30 and December 31. On February
1, Lava Company purchased these debt securities from an investor who acquired them
when they were originally issued. Lava Company paid the investor an amount equal to the
face value of the securities plus accrued interest. The securities were designated as
held-for-trading.

b. On June 1, Lava Company purchased 10,000 shares of equity securities for $50 per share.
These securities were acquired as an available-for-sale investment. Lava Company paid
$13,000 broker's commission on the purchase.

Required:
1. Entry to record the acquisition of debt securities on February 1.
Investment in trading securities 1,000,000
 Interest Income (1,00,000x9%x1/12) 7,500
Cash 1,007,500

2. Entry to record the purchase of equity securities in June 1.

Investment in available-for-sale securities 513,000 ([50x10,000]+13,000)
Cash 513,000

Problem 4-3
In

Barbie Company has a policy of investing idle cash in equity securities. It has made periodic
investments in its principal supplier Nicon Company. Barbie Company currently owns 12%
of Nicon Company's outstanding shares.

You, Barbie Company's assistant controller, has gathered the following information about the
company's investments in equity sec ties:

1. Barbie company has trading equity investments in DZY, Inc. and Polymer Company. During
2019, Barbie Company purchased 100,000 shares of DZY, Inc. for $4,200,000; these shares
have a fair value of $4,800,000 at December 31, 2019. The investment in Polymer Company
consists of $50,000 shares acquired in March 2019 at $60 per share and currently has a
value of $2,160,000.

2. Barbie Company's 12% ownership in Nicon Company has a fair value of $66,675,000 on
December 31, 2019. On initial recognition, Barbie Company made an irrevocable election
to present in other comprehensive income subsequent changes in fair value of this investment
in equity securities. The securities were purchased prior to 2018 for $67,500,000 and was
valued at $64,500,000 on December 31, 2018. Barbie Company has not changes its holdings
in the current year.

Required:
1. What amount of unrealized gain/loss should be reported as component of other
comprehensive income on Barbie Company's December 31, 2018 statement of
comprehensive income?
Security Cost Fair Value Unrealized Gain/Loss
Nicon Company 67,500,000 64,500,000 (3,000,000)

2. What is the cumulative unrealized gain/loss that should be shown on the statement
of changes in equity for the year ended December 31, 2019?
Security Cost Fair Value Unrealized Gain/Loss
 Nicon Company 67,500,000 66,675,000 (825,000)
Less: Previous FV adjustment (3,000,000)
FV Adjustment 2,175,000

3. What amount of unrealized gain/loss should be reported on Barbie Company's

income statement for the year ended December 31, 2019?
Security Cost Fair Value Unrealized Gain/Loss
DZY, inc 4,200,000 4,800,000 600,000
Polymer Co. (50,000x60) 3,000,000 2,160,000 (840,000)
Total of Portfolio 7,200,000 6,960,000 (240,000)

Problem 4-4
Computation of In

On January 1, 2019, Rosedale Company purchased debt securities for cash of $765,540 to be
held as financial assets at amortized cost. The securities have a face value of $600,000, and
they mature in 15 years. The securities carry fixed interest rate of 10% that is receivable
semiannually, on June 30 and December 31. The prevailing market interest rate on these debt
securities is 7% compounded semiannually.

Required:
1. What is the carrying value of the debt securities on December 31, 2019 at amortized
cost using the effective interest rate method.
Carrying value Jan 1 2019
Amortization premium jan 1 - june 30:
Nominal Interest (600,000x10%x1/2) $ 30,000
Effective Interest (765,540x7%x1/2) $ (26,794)
Carrying value June 30 2019

Amortization premium july 1 - dec 31:

Nominal Interest (600,000x10%x1/2) $ 30,000
Effective Interest (762,334x7%x1/2) $ (26,682)
Carrying value at amortized cost Dec 31 2019

2. What is the interest income to be reported for 2019 using effective interest rate
method?
Interest Income 2019 26,794
 26,682 +
53,476

Problem 4-5
Finan
Senegal Company purchased $160,000,000 of 8% bonds, dated January 1, on January 1, 2019,
to be held as financial asset at amortized cost. On the acquisition date, the market yield of bonds
with similar risk and maturity was 10%. The company paid $132,000,000 of the price of the
bonds. Interest is received semiannually on June 30 and December 31. Due to the changes
in market conditions, the fair value of the bonds at December 31, 2019 was $140,000,000.

Required:
1. At what amount will Senegal Company report its investment in the December 31,
2019 statement of financial position?
Fair value $ 140,000,000
2 What is the unrealized holding gain or loss to be classified as component of other
comprehensive income at December 31, 2019?
Initial cost $ 132,000,000
Add: Discount amortization Jan 1 - Jun 30:
Effective Interest (132,000,000x5%) $ 6,600,000
Nominal Interest (160,000,000x4%) $ (6,400,000) $ 200,000
Carrying value June 30 2019 $ 132,200,000
Add: Discount amortization Jun 30 - Dec 31:
Effective Interest (132,200,000x5%) $ 6,610,000
Nominal Interest (160,000,000x4%) $ (6,400,000) $ 210,000
Carrying value at amortized cost Dec 31 2019 $ 132,410,000
Fair value Dec 31 $ 140,000,000
Unrealized holding gain $ 7,590,000
3. What is the amount of interest income to be reported in Senegal Company's income
statement for the year ended December 31, 2019?
Interest Income 2019 $ 6,600,000
$ 6,610,000 +
13,210,000

Problem 4-6
Accounting for

Supersonic Company has the following non-trading equity securities on December 31, 2018:
 Security Shares

Denver Company, ordinary shares 4,500

Renault, Inc., ordinary shares 15,000
Ashton Corporation, preference shares 1,200

All of the above securities were bought in 2018. On initial recognition, Supersonic Company made
an irrevocable election to present the securities at fair value through other comprehensive income.
In 2019, the company had the following transactions relating to its investments:

April 1. Sold the 4,500 ordinary shares of Denver Company for $65 per share.
May 1. Bought 2,100 ordinary shares of Ramsey Company at $75 plus broker's fee of $5,200.

Supersonic Company's portfolio of non-trading equity securities appeared as follows on

December 31, 2019:
Security Shares

Renault, Inc., ordinary shares 15,000

Ramsey Company, ordinary shares 2,100
Ashton Corporation, preference shares 1,200

* The broker's fee was charged to expense.

Required:
1. What is the amount of gain/loss on the sale of Denver Company ordinary shares
to be reported in the 2019 income statement?
Sales price (65x4,500) 292,500
Less: aquisition cost 220,500
Realized gain on sale of Denver Co. Ordinary shares 72,000

2. At what amount Ramsey Company ordinary shares be initially measured?

Purchase price (75x2100) 157,500
Add: broker fee 5,200
Total cost 162,700

3. What is the total amount of investments in non-trading securities to be reported in

December 31, 2019 statement of financial position?
 Reported the fair value 850,200

Problem 4-7
Reclassification

On January 1, 2018, Expeller Company purchased $2,000,000 face value bonds at a price of
$1,824,800 which will yield an interest rate of 10%. The nominal rate on the bonds is 8% payable
annually every December 31. The company's business model is to collect contractual cash flows
that are solely payments of principal and interest.

On December 31, 2019, Expeller Company changed the business model in managing the bonds from
collecting contractual cash flows that are solely payments of principal and interest to realizing
short term gains. The market value of the bonds on January 1, 2020 is 105

Required:
1. What amount should be reported as interest income for 2019?
Interest Income Interest Amortized
Date
(10%) Received (8%) Cost
1/1/2018 1,824,800
12/31/2018 182,480 160,000 1,847,280 (1.824,800+183,480-160,000)
12/31/2019 184,728 160,000 1,872,008 (1,847,280+184,728-160,000)

2. What is the carrying amount of the bonds on December31, 2019?

Amortized cost 12/31/2018 1,847,280
Add: Interest income (10%x1,847,280) 184,728
Less: Interst Received (160,000)
Carrying amount of the bonds 1,872,008

3. On classification date, what amount of gain/loss on reclassification of financial asset

should be recognized by Expeller Company?
FV of bonds (2,000,000x105%) 2,100,000
Amortized cost 2019 (1,872,008)
Gain on reclassification 227,992

Problem 4-8
In

On January 4, 2019, Thomas Company paid $1,296,000 for 40,000 ordinary shares of Bishop, Inc.
The investment represents a 30% interest in the net asset of Bishop, Inc. and gave Thomas
Company the ability to exercise significant influence over Bishop, Inc. operating and financial
policy decisions. Thomas Company received dividends of $1 per share on December 4, 2019,
and Bishop, Inc. reported net income of $640,000 for the year ended December 31, 2019. The
market value of Bishop, Inc.'s ordinary shares at December 31, 2019 was $32 per share. The book
value of Bishop, Inc.'s net asset was $3,200,000 and:

● The fare market value of Bishop, Inc.'s depreciable assets, with an average remaining useful life
of 8 years, exceeded their book value of $320,000.

● The remainder of the excess of the cost of the investment over the book value of net assets
purchased was attributable to goodwill.

Required:
1. What amount of the investment cost is attributable to goodwill?
Acquisition cost 1,296,000
FV of net assets purchased (3,200,000+320,000=3,520,000x30%) 1,056,000
goodwill 240,000

2. What is the carrying value of the investment in Bishop, Inc. ordinary shares on
December 31, 2019?
Acquisition cost $ 1,296,000
Share in net income (640,000x30%) $ 192,000
Depreciation adjustment (320,000x30%=96,000/8) $ (12,000)
Dividends received (1x40,000) $ (40,000)
Carrying value of investment $ 1,436,000

3. What amount of investment income should be reported in Thomas Company's income

statement for the year ended December 31, 2019?
Share in net income (640,000x30%) $ 192,000
Depreciation adjustment (320,000x30%=96,000/8) $ (12,000)
Investment Revenue $ 180,000
 Trading Securities

Cost Fair Value

127,250 121,500
398,250 387,000
603,750 609,450
Purchase of Debt and Equity Securities
0)

Investment in Equity Securities

 Investment in Debt Securities
omputation of Interest Income and Amortized Cost

$ 765,540

$ (3,206)
$ 762,334

$ (3,318)
$ 759,016
 Financial Assets at Amortized cost

counting for Non-trading Equity Securities

 Cost Fair Value

$ 220,500 $ 207,000
540,000 525,000
180,000 184,800
$ 940,500 $ 916,800

Cost Fair Value

$ 540,000 $ 525,000
157,500 * 151,200
180,000 174,000
$ 877,500 $ 850,200
classification from Amortized Cost to FVPL

Investment in Equity Securities