Invesment in Equity Securities Uploaded

1. On March 1, 2007, Evan company purchased 10,000 ordinary shares of LVC at 80 per share. On Sept.
30, 2007, Evan received 10,000 stock rights to purchase an additional 10,000 shares at 90 per share.
The stock rights had an expiration date of Feb. 1, 2008. On Sept. 30, 2007, LVC’s share had a market
value of 5. What amount should Evan report in its Sept. 30,2007 balance sheet for investment in stock
rights?
a. 40,000 b. 50,000 c. 100,000 d. 150,000

2. Unjust company purchased 50,000 shares on January 15 representing 5% ownership interest to be held
for trading. The enity received a stock dividend of 20% on March 31 when the market price of the share is
40. The investee paid a cash dividend of 5 per share on December 15. What amount should be reported as
dividend income for the current year?
a. 150,000 b. 400,000 c. 700,000 d. 300,000

3. Kinsman Company purchased 20,000 ordinary shares on March 1, 2017 for 720,000 to be held for
trading. The entity received a 100,000 cash dividend on July 1, 2017. The investee declared a 10% stock
dividend on December 1, 2017 to shareholders of record on December 31, 2017. The dividend was
distributed on January 31, 2018. The market price of the share was 38 on December 1, 1017, 40 on
December 31, 2017 and 42 on January 31, 2018. What amount should be recorded as dividend revenue for
2017?
a. 180,000 b. 176,000 c. 100,000 d. 184,000

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4. At the beginning of current year, Lavish company purchased 10,000 ordinary shares at 90 per share tpo

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be held for trading. At year end, the entity received 2,000 shares of the investee in lieu of cash dividend of

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10 per share. On this date, the investee’s share has a qouted market price of 60 per share. What amount
should be reported as dividend income for the current year?

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a. 120,000 b. 100,000 c. 20,000 d. zero

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5. Maxene company acquired 40,000 ordinary shares on October 1 for 6,600,000 to be held for trading. On
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November 30, the investee distributed a 10% ordinary stock dividend when the market price of the share
was 250. On December 31, the entity sold 4,000 shares for 1,000,000. What amount should be reported
as gain on sale of investment in the current year?
a. 340,000 b. 400,000 c. 500,000 d. 600,000
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6. At the beginnijng of the current year, Semester company purchased 50,000 ordinary shares for
3,600,000 to be classified as non trading. During the year, the entity received 50,000 stock rights. Each
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right entitled the holder to acquire one share for 85. The market price of share was 100 immediately before
the rights were issued and 90 immediately after the rights were issued. The entity ultimately sold the stock
rights for 15 a right. What is the gain on sale of the rights?
a. 500,000 b. 250,000 c. 100,000 d. 750,000
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7. Temple company owned 50,000 ordinary shares held for trading. These 50,000 shares were puchased
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for 120 per share. During the year, the investee distributed 50,000 stock rights to the investor. The
investor was entitled to buy one new share for 90 cash and two of these rights. Each share had a market
value of 130 and each right had a market value of 20 on the date of issue. What total cost should be
recorded for the new shares that are acquired by exercising the rights?
a. 2,250,000 b. 3,250,000 c. 3,050,000 d. 5,500,000
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8. Valedictorian company issued rights to subscribe to its stock, the ownership of 4 shares entitling the
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shareholders to subscribe for 1 share at 100. Vast company owned 50,000 shares of Valedictorian company
with total cost of 5,000,000. The share is qouted right on at 125. The stock rights are accounted for
separately. What is the cost of the new investment if all of the stock rights are exercised by Vast company?
a. 1,500,000 b. 1,250,000 c. 1,562,500 d. 1,450,000
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8. Dividends are recognized on the

a. Date of issuing statements
b. Date of record
c. Date of declaration
d. Date of statement of financial position

9. Liquidating dividends are credited to

a. Investment account

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 b. Retained earnings
c. Share premium
d. Share capital

10. Property dividends are recorded as

a. Dividend income at fair value of the property
b. Dividend income at carrying amount of the property
c. Return of investment
d. Memorandum only

11. What is the effect of split up?

a. Decrease in number of shares and decrease in cost per share
b. Increase in number of shares and increase in cost per share
c. Increase in number of shares and decrease in cost per share
d. Decrease in number of shares and increase in cost per share

12. What is the effect of a stock dividend of the same class?

a. Increase in investment and increase in cost per share
b. Decrease in investment and decrease in cost per share
c. No effect on investment but decrease in cost per share
d. No effect on investment but increase in cost per share

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13. When stock dividends of different class are received

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a. No formal entry is made but only a memorandum

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b. Cash is debited and dividend income is credited
c. A new investment account is debited and dividend income is credited

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d. A new investment account is debited and the original investment account is credited

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14. Shares received in lieu of cash dividend are recorded as
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a. Income at carrying amount 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
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15. Cash received in lieu of share dividends is accounted for as

a. Dividend income
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b. Return of investment
c. Partly dividend income and partly return of investment
d. If the stock dividends are received and subsequently sold and gain or loss is recognized
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16. An investor that owns 10% of the ordinary shares of an investee has the right to
a. Be paid 10% of the investee’s profit in cash each year
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b. Receive dividend equal to 10% of the par each year

c. Receive dividend equal to 10% of the total dividend paid by the investee for the year to
shareholders
d. Keep investee from issuing any new shares unless the investor is willing to buy 10% of the new shares.
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18. On July 1, 2015, Impossible Company a land for 25,000 ordinary shares of Aaron company. On this
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date, the carrying amount of the Aaron company’s share was 60 and the market value was 150. On
December 31, 2015, Aaron company had 250,000 ordinary shares and the carrying amount per share was
80.
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What amount should be reported on December 31, 2015 as investment in Aaron Company?
a. 1,500,000
b. 2,500,000
c. 3,750,000
d. 3,000,000

20. During 2015, Reminiscent company bought shares of another entity to be held for trading.
June 1 10,000 shares @ 100 2,000,000

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 December 1 30,000 shares @ 120 3,600,000
5,600,000

The transactions for 2016 are as follows:

January 10 Received cash dividend at 10 per share

January 20 Received 20% stock dividend
December 10 Sold 30,000 shares at 125 per share

What is the gain on sale of investment using the FIFO approach?

a. 1,150,000
b. 950,000
c. 150,000
d. 550,000

21. On January 1, 2015, Scoundrel company purchased 100,000 ordinary shares at 80 per share to be
classified as non trading through other comprehensive income. On September 30, 2015, the entity
received 100,000 stock rights to purchase an additional 100,000 shares at 90 per share. The stock
rights had an expiration date of Feb. 1, 2016. On September 30, 2015, each share had a market value
of 114 and the stock right had a market value of 6. What amount should be reported on September 30,
2015 as investment in stock rights?

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a. 500,000

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b. 400,000

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c. 100,000

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d. 600,000

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22. Heaven company invested in shares of another entity.

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Number of shares
20,000
Cost
2,000,000
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2014 40,000 3,500,000

In 2015, the entity received 60,000 rights to purchase one share at 80. Five rights are required to
purchase the share. At issue date, rights had a market value of 5 each. The entity used rights to
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purchase 10,000 additional shares of the investee and allowed the rights not exercised to lapse. What
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amount was debited to investment account for the purchase of the additional new shares?
a. 1,100,000
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b. 1,050,000
c. 800,000
d. 900,000
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23. On January 1, Animosity company purchased 50,000 shares of another entity for 3,800,000. On
October 1, the entity received 50,000 stock rights from the investee. Each right entitled the
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shareholder to acquire one share for 80. The market price of the investee’s share

33. -45 During the year, Dearth company revealed the following transactions relating to permanent
investments:
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Jan. 1 Purchased 10,000 shares of King company at 70 per share.

Mar. 1 Purchased 10,000 shares of Queen Company for 660,000.
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Apr. 1 Received a cash dividend of 5 per share from King company.

July 1 Received 20% stock dividend from Queen Company.
Aug 1 Purchased 10,000 shares of Princess Company at 50.
Oct 1 The share of Queen company was split on a 5-for-1 basis.
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Oct 1 Received a cash dividend of 5 per share from King Company.

Oct 31 Queen Company offered shareholders rights to subscribe to one new share for every 10 rights
tendered at 20. At the time of issuance, the market value of the right is 3. Stock rights are accounted
for separately.
Nov. 15 Exercised the Queen company stock rights.
Dec 1 Received a cash dividend of 5 per share from Queen company.
Dec 15 Sold 10,000 shares of Queen Company at 30 per share. Use FIFO approach.
Required: Prepare the journal entries and the balances of the investments.

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