UNIVERSITY OF SAN JOSE RECOLETOS

ACCOUNTANCY AND FINANCE

ACCOUNTING 104 INVESTMENT IN EQUITY SECURITIES

SEATWORK pde amparado

Write your answers on a separate sheet of paper. Show solutions.

1. Saionra Company made the following transactions in the ordinary shares of Dilisud Company designated as a financial
asset at fair value through profit or loss:
July 16, 2018 - Purchased 10,000 shares at P45 per share.
June 28, 2019 - Sold 2,000 shares for P51 per share.
May 18, 2020 - Sold 2,500 shares for P33 per share.
The end-of-year market prices for the shares were as follows
December 31, 2018 - P47 per share
December 31, 2019 - P39 per share
December 31, 2020 - P31 per share

Give the required entry on relevant dates

2. On Feb. 2, 2019, Massaion Co. purchased 10,000 shares of Leesud Co. at P56 plus broker’s commission of P4 per share.
The investment is designated as a financial asset at fair value through other comprehensive income. During 2019 and
2020, the following events occurred regarding the investment:
12/15/19 Leesud Co. declares and pays a P2.20 per share dividend
12/31/19 The market price of Leesud Co. stock is P52 per share at year-end
12/01/20 Leesud Co. declares and pays a dividend of P2 per share
12/31/20 The market price of Leesud Co. stock is P55 per share at year-end

Give the required entry on relevant dates.

3. The Pink Company acquired equity securities designated as a financial asset at fair value through OCI for P800,000 on 31
March 2020. The direct acquisition costs incurred were P140,000. On 31 December 2020 the fair value of the instrument
was P1,100,000 and the transaction costs that would be incurred on sale were estimated at P120,000.

Give the required entry on relevant dates.

4. The company has provided you the following information with regard to its stock investment acquisition in its initial year
of operations:
Number of Shares acquired Acquisition cost
ABC Corp. 2,000 P240,000
DEF Inc. 1,500 225,000
H&M Co. 3,000 285,000
D&G Corp. 4,000 200,000

Additional information
a. ABC Corp. stocks were acquired on March 1, 2020 at a total cost of P200,000 plus brokerage fees and commissions to
P40,000. Dividends which were declared on January 25, 2020 to stockholders as of March 20, 2020 were received on
April 1, 2020 for P20,000. ABC Corp. stocks were acquired by the company designating the same as a financial asset at
fair value through profit or loss. The stocks were selling at Pl05 per share as of December 31, 2020.

b. DEF Corp. were acquired on May 1, 2020 at P150 per share. The company paid brokerage and commissions amounting
to P30,000. The company had neither significant influence over DEF Corp. nor does it intend to sell the stocks for short-
term profits, thus designated the same at fair value through other comprehensive income. The company received a
20% stock dividend on October 11, 2020. The stocks were selling at P160 per share on December 31, 2020.

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c. H&M Co. stocks, which were acquired for trading purposes on June 1, 2020 at P285,000, were split 5 for 3 on August
15, 2020. In addition, the company paid special assessment on the investment at P25 per share owned on September
30. On December 30, 2020, when the shares had a market value of P75 per share, H&M declared a P5 dividend
payable on January 25 of the subsequent period.

d. D&G Corp. stocks were acquired on August 1, 2020 to be appropriately classified as financial assets at fair value
through OCI. D&G Corp. declared a P15 cash dividends on its outstanding shares on October 11, 2020 payable to
stockholders on October 31. However, on October 31, D&G Corp. issued 1 share for every 4 shares held by the
stockholders in lieu of the supposed cash dividends previously declared. The stocks were selling at that time at P55 per
share. D&G shares were selling at P60 per share on December 31, 2020.

1. Give the entries to account for the transactions of each investment at relevant dates.

2. How much should the investment in ABC Corp. stocks and DEF Inc. stocks, respectively, be initially recognized?

a. 240,000; 225,000 b. 180,000; 255,000 c. 200,000; 255,000 d. 200,000; 225,000

3. How much is the dividend income from investment in stocks of DEF Inc. and H&M Co., respectively?
a. 46,500; 15,000 b. 0; 25,000 c. 46,500; 25,000 d. 0; 15,000

4. How much is the correct dividend income should be recognized from investment in D&G Corp.?
a. 0 b. 55,000 c. 60,000 d. 220,000

5. How much should be reported as investment in stocks classified as trading securities and the corresponding unrealized
holding gain or (loss) to be reported in its income statement?
a. P590, 000; 0 b. P585, 000; (5,000) c. P590, 000; 5,000 d. P585, 000; 0

6. How much should be reported as investment in stocks designated as financial assets at fair value through
OCI and the corresponding unrealized holding gain or loss to be reported in its balance sheet?
a. P510,000; 0 b. P588,000; 78,000 c. P510,000; 78,000 d. P588,000; 0

end of examination
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