Audit of Investments

Problem 1

The following data pertains to Rainbow Corporation’s investments in marketable securities:

Market Value

Cost 12/31/07 12/31/06

Trading P 150,000 P 155,000 P 100,000

Available-for-sale 150,000 130,000 126,000

Questions

1. What amount should Rainbow Corporation report as unrealized holding gain in its
2007 income statement?

a. P 65,000 b. P 60,000 c. P 55,000 d. P 50,000

2. What amount should Rainbow Corporation report as unrealized loss on marketable

equity securities at December 31, 2007, in accumulated other comprehensive income in
stockholders’ equity?

a. P 20,000 b. P 13,000 c. P 10,000 d. P 0

Problem 2

The following information pertains to Every Now and Then, Inc.’s portfolio of marketable
investments for the year ended December 31, 2007:

Cost Fair Value 2007 activities Fair value

12/31/06 Purc. Sales 12/31/07

Held-to-maturity
 Security ABC P 100,000 P 95,000

Trading Security

Security DEFP 150,000 P 100,000 155,000

Available-for-sale

Security GHI 190,000 165,000 P 175,000

Security JKL 170,000 175,000 160,000

Security ABC was purchased at par. All declines in fair values are considered to be
temporary.

Questions

1. The carrying value of security ABC at December 31, 2007 is

a. P 95,000 b. P 98,000 c. P 100,000 d. P 105,000

2. The carrying value of security DEF at December 31, 2007 is

a. P 100,000 b. P 120,000 c. P 150,000 d. P 155,000

3. The carrying value of security JKL at December 31, 2007 is

a. P 160,000 b. P 165,000 c. P 170,000 d. P 175,000

4. The recognized gain or loss on sale of security GHI is

a. P (40,000) b. P (25,000) c. P (15,000) d. P )10,000)

5. The unrealized holding gain or loss to be reported in 2007 net income is

 a. P 55,000 b. P (25,000) c. P 15,000 d. P (5,000)

6. Unrealized gain or loss to be reported at December 31, 2007, as a separate component

of stockholders’ equity entitled “accumulated other comprehensive income” is

a. P (20,000) b. P 15,000 c. P (10,000) d. P 5,000

Problem 3

At December 31, 2007, Maria Angela Corporation had the following investments that were
purchased during 2005, its first year of operations:

Cost Fair Value

Trading Securities:

Security A 700,000 725,000

Security B 210,000 200,000

Totals 910,000 925,000

Securities Available for Sale:

Security C 500,000 560,000

Security D 850,000 865,000

Totals 1,350,000 1,425,000

Securities to be Held to Maturity:

Security E 970,000 980,000

Security F 412,000 409,000

Totals 1,382,000 1,389,000

No investments were sold during 2007. All securities except Security D and Security F are
considered short-term investments. None of the market changes is considered permanent.

Questions

The amount of investment to be reported as current assets is:

a. P 2,465,000 b. P 2,455,000 c. P 2,380,000 d. P 1,485,000

The amount of investment to be reported as non-current assets is:

a. P 1,389,000 b. P 1,382,000 c. P 1,277,000 d. P 1,274,000

The unrealized gain (or loss) component of income before taxes is:

a. P 15,000 b. P 75,000 c. P 97,000 d. P 100,000

The unrealized gain (or loss) component of shareholders’ equity is:

a. P 82,000 b. P 75,000 c. P 60,000 d. P 12,000

Problem 4

Marc Corporation had investments in marketable debt securities costing P650,000 that were
classified as available-for-sale. On June 30, 2007, Marc Corporation decided to hold the
investments to maturity and accordingly reclassified them from the held-to-maturity
category on that date. The investments’ market value was P575,000 at December 31,
2006; P530,000 at June 30, 2007; and P490,000 at December 31, 2007.

Questions

1. What amount of loss from investments should Marc Corporation report in its 2007
income statement?

a. P0 b. P 45,000 c. P 85,000 d. P 120,000

2. What amount should Marc Corporation report as net unrealized loss on marketable
debt securities in its 2007 statement of stockholders’ equity?

a. P 160,000 b. P 120,000 c. P 45,000 d. P40,000

Problem 5

Quiters has investments in shares of common stock of NeverWin Company, bought as

follows:

2003 1,000 shares – P 140,000

2005 500 shares – P 90,000

The following transactions took place in 2007 with respect to these holdings:

April 10 By proper resolution, there was a 3 for 1 stock split and Quiters
Company received 3,000 shares in addition to her original holdings.

July 10 Quiters Company received a P0.60 per share cash dividend and also rights to
subscribed to one share at P40 each for every five shares held. On this date,
shares of stock of NeverWin Company were selling ex-rights at P55 per share and
rights were selling at P2 each.

July 20 Quiters Company exercised all her rights by buying the new shares and paid
P36,000.

Nov. 15 Quiters sold 1,000 shares at P60 each, taken from those acquired in 2003, less
broker’s commission of P750.

Questions

1. The investment in stock at year-end is:

P 222,023 b. P 221,031 c. P 220,971 d. P 219,334

2. The investment in stock at year-end from the 2003 purchase is:

P 87,953 b. P 90,059 c. P 93,333 d. P 108,889

3. The investment in stock at year-end from the 2005 purchase is:

P 90,000 b. P 88,422 c. P 86,842 d. P 81,931

4. The gain on sale of investment at year-end is:

P 14,971 b. P 14,221 c. P 13,333 d. P 12,583

5. How many shares were purchased during the year?

900 shares b. 600 shares c. 300 shares d. 150 shares

Problem 6

Roelito Company has a fiscal year ending June 30. A summary of Roelito’s
transactions in the capital stocks of Joondee Company is presented below, except
for several cash dividends that have no bearing on the situation. In all
transactions, Joondee Company uses the specific certificate identification method.

The transactions in the Investment of Joondee Company common stock are as follows:

Sept 06, 2000 Purchased 500 shares of Joondee Company common, par P100 per share,
at a total cost of P48,500.

July 15, 2003 Converted 500 shares of Joondee Company preferred stock into 500
shares of Joondee Company common, in accordance with the conversion
privilege. The preferred shares originally cost P49,000, and the market
price at conversion date was P95 per share. The market price of the
common stock at July 15, 2003, was P101 per share. The transactions
had no commercial substance.
Aug. 07, 2005 Received additional shares of Joondee Company common in a two-for-one
stock split, in which the par value was reduced from P100 to P50 per
share.

Sept. 06, 2005 Purchased 1,000 share of Joondee Company common at a total cost of
P53,000.

Dec. 04, 2005 Exercised the option to receive Roelito share of common for each 10
shares held, in lieu of a cash dividend of P5.40 for each share held. The
market price of a share was P54.

Dec. 02, 2006 Received stock dividend equal to 20 percent of the common shares held.

Apr. 04, 2007 Received warrants representing the right to purchase at par Roelito share
of Joondee Company common for each ten shares of common owned. On
that date of the issuance of the warrants, the market price of the stock
ex-rights was P58, and the market price of the rights was P2 each.

Apr. 15, 2007 Roelito Company exercised the 1,000 rights applicable to the shares
purchased on September 6, 2005, and sold all remaining rights. The net
proceeds from the sale of the rights was P1.80 per right.

June 12, 2007 Sold 600 shares of Joondee Company common for P32,400 net. The
shares were identified as 500 of those purchased on September 6, 2005,
and 100 of those purchased April 15, 2007.

Question

1. The entry to record the conversion of preferred stock to common stock on July
15, 2003 is:

a. Investment – preferred stock 47,500

Loss on conversion of stock 1,500

Investment – common stock 49,000

 b. Investment – common stock 49,000

Investment – preferred stock 49,000

c. Investment – common stock 47,500

Loss on conversion of stock 1,500

Investment – preferred stock 49,000

Memorandum entry

2. The entry to record the December 4, 2005 transaction is:

Memorandum entry

Investment – common stock 16,200

Cash 16,200

c. Investment – common stock 16,200

Dividend income 16,200

d. Investment – common stock 16,200

Common stock 16,200

3. The cost of shares purchased through exercise of rights on April 15, 2007 is:

P 6,473 b. P 6,391 c. P 5,000 d. P 3,527

4. Gain on sale of the rights is:

P 1,761 b. P 1,473 c. P 1,294 d. P 1,244

5. Gain on sale of the stocks is:

P 5,900 b. P 4,636 c. P 4,580 d. P 3,844

6. The audited balance of investment in common stock at December 31, 2007 is:

P 139,796 b. P 138,344 c. P 95,081 d. P 89,344

7. The number of rights Roelito Company received from Joondee Company is:

39,600 rights b. 30,000 rights c. 3,960 rights d. 3,000 rights

8. The cost of the rights received is:

P 4,897 b. P 5,507 c. P 5,557 d. P 6,890

Problem 7

On December 31, 2006, DreamBig Company reported as Available-for-sale securities:

Attitude Company, 5,000 shares of common stock (a 1% interest) P 125,000

IstheKEY Company, 10,000 shares of common stock (a 2% interest) 160,000

2Success Company, 25,000 shares of common stock (a 10% interest) 700,000

Marketable equity securities, at cost P 985,000

Less: Valuation allowance 50,000

Marketable equity securities, at market P 935,000

Additional information:

On May, 2007, Attitude Company issued a 10% stock dividend when the market price of its
stock was P24 per share.
On November 1, 2007, Attitude Company paid a cash dividend of P0.75 per share.

On August 5, 2007, IstheKEY Company issued to all shareholders, stock rights on the basis
of one right per share. Market prices at date of issue were P13.50 per share (ex-right) of
stock and P1.50 per rights. DreamBig Company sold all rights on December 16, 2007 for
net proceeds of P18,800.

On July 1, 2007, DreamBig Company paid P1,520,000 for 50,000 additional shares of
2Success Company’s common stock which represented a 20% investment in 2Success
Company. The fair value of all of the 2Success Company’s identifiable assets net of
liabilities was equal to their carrying amount of P6,350,000. As a result of this transaction,
DreamBig Company owns 30% of 2Success Company and can exercise significant influence
over 2Success Company’s operating and financial policies.

DreamBig Company’s initial 10% interest of 25,000 shares of 2Success Company’s common
stock was acquired on January 2, 2006 for P700,000. At that date, the net assets of
2Success Company totaled P5,800,000 and the fair value of 2Success’s identifiable assets
net of liabilities was equal to their carrying amount.

Market prices per share of the marketable equity securities which were all listed in the stock
exchange, were as follows:

At December 31

2006 2007

Attitude Company - common P 22 P 23

IstheKEY Company – common 15 14

2Success Company – common 27 29

2Success Company reported net income and paid dividends of:

Year Ended Div. per Share

Year ended December 31. 2006 P350,000 none

Six months ended June 30, 2007 200,000 none

Six months ended December 31, 2007 370,000 P 1.30

(dividend was paid on 10/1/07

There were no other intercompany transactions between DreamBig Company and 2Success
Company and there were no impairment of 2Success Company’s asset at year-end.

Questions

1. The investment in Attitude Company common stock at year-end is:

P 126,500 b. P 125,000 c. P 120,875 d. P

113,000

2. The investment in Isthekey Company common stock at year-end is:

P 160,000 b. P 150,000 c. P 144,000 d. P

140,000

3. The investment in 2Success Company common stock at year-end is:

P 2,288,500 b. P 2,270,250 c. P 2,264,000 d. P 2,175,000

4. The recovery of market decline to be reported in the income statement is:

P 50,000 b. P 47,500 c. P 2,500 d. P 0

5. Dividend income to be reported in the income statement is:

P 101,625 b. P 97,500 c. P 4,125 d. P 0

6. Gain on sale of stock rights is:

P 3,600 b. P 2,800 c. P 1,200 d. P 0

7. The recovery on market decline in value of investment should be

Credited to gain on recovery of market decline.

Debited to gain on recovery of market decline.

Credited to unrealized loss on market decline.

Debited to unrealized loss on market decline.

8. The entry to adjust the dividend received from 2Success Company has:

A debit to Dividend Income.

A credit to Dividend Income.

A debit to Retained Earnings.

A debit to Investment in Equity.

Problem 8

At December 31, 2006, ABARCA SUGAR CORPORATION properly reported as trading the
following equity securities:

Cost Market

Shan Lily Co., 1,000 shares, P2.40

convertible preferred stock 40,000 42,000

Azenith Corp., 6,000 shares of common 60,000 66,000

 Ronette Co., 2,000 shares of common 55,000 40,000

On January 2, 2007, ABARCA SUGAR CORPORATION purchased 100,000 shares of Nagasaki

Ryuco Company common stock for P1,700,000, representing 30% of Nagasaki’s outstanding
common stock and an underlying equity of P!,400,000 in Nagasaki’ net assets on January 2.
ABARCA SUGAR had no other financial transactions with Nagasaki during 2006. AS a result
of ABARCA SUGAR’s ownership of Nagasaki, ABARCA SUGAR has the ability to exercise
significant influence over Nagasaki’s financial and operating policies.

During 2007, ABARCA SUGAR disposed of the following securities:

January 18 - sold 2,500 shares of Azenith Corporation for P13 per share.

June 1 - sold 500 shares of Ronette Company, after a 10% stock dividend was received, for
P21 per share.

October 1 - converted 500 shares of Shan Lily Company’s preferred stock into 1,500 shares
of Shan Lily’s common stock, when the market price was P60 per share for the preferred
stock and P21 per share for the common stock. The conversion has no economic substance.

The following 2007 dividend information pertains to stock owned by ABARCA SUGAR:

February 14 - Ronette issued a 10% stock dividend, when the market price of Ronette’s
common stock was P22 per share.

April 5 and October 5 - Shan Lily paid dividends of P1.20 per share on its P2.40 preferred
stock, to stockholder of record on March 9 and September 9, respectively. Shan Lily did not
pay dividends on its common stock during 2007.

June 30 - Azenith paid a P1.00 per share dividend on its common stock.

March 1, June 1, September 1, and December 1 - Nagasaki paid quarterly dividends of

P0.50 per share on cash of these dates. Nagasaki’s net income for the year ended
December 31, 2007 was P1,200,000.

At December 31, 2007, ABARCA SUGAR’s management intended to hold Nagasaki’s stock on
a long term basis with the remaining investments considered temporary. Market prices per
share of the marketable equity securities were as follows:
 12/31/07 12/31/06

Shan Lily Co., preferred stock P 56 P 42

Shan Lily Co., common stock 20 18

Azenith Corp., common stock 11 11

Ronette Co., common stock 22 20

Nagasaki Ryuco, Co., common 16 18

All of the foregoing stocks are listed on major stock exchanges. Declines in market value
from cost would not be considered permanent.

Instruction: Based on the information above and other analysis as necessary, answer the
following question:

The cost per share of Shan Lily preferred at December 31, 2007 is:

a. P 13.33 b. P 20.00 c. P 40.00 d. P 60.00

The adjusted balance of Shan Lily preferred (cost) at December 31, 2007 is:

a. P 20,000 b. P 28,000 c. P 30,000 d. P 50,000

The number of shares acquired by ABARCA SUGAR through conversion of Shan Lily stock is:

a. 300 b. 500 c. 1,500 d. 3,000

The adjusted balance of Azenith common (cost) at December 31, 2007 is:

a. P 60,000 b. P 37,273 c. P 35,000 d. P 27,500

The sale of Ronette common on June 1 resulted to a:

a. Gain of P3,250 b. Loss of P2,000 c. Gain of P12,500 d. Loss of P3,250

The adjusted balance of Ronette common (cost) at December 31, 2007 is:

a. P 55,000 b. P 46,900 c. P 42,500 d. P 41,250

The adjusted balance of Nagasaki common (cost) at December 31, 2007 is:

a. P 1,845,000 b. P 1,860,000 c. P 1,700,000 d. P 1,545,000

The total dividend income of ABARCA SUGAR at December 31, 2007 is:

a. P 8,400 b. P 5,900 c. P 5,300 d. P 0

The total income from investment of ABARCA SUGAR from Nagasaki at December 31, 2007
is:

a. P 145,000 b. P 160,000 c. P 345,000 d. P 360,000

ABARCA SUGAR’s income statement at December 31, 2007 will report a:

No unrealized gain/loss in market decline.

P7,000 unrealized loss in market decline.

P7,000 unrealized gain in market decline.

P23,400 unrealized gain in market recovery.

Problem 9

An examination of the general ledger account of HOPE COMPANY discloses the following
trading securities:

Debit/(Credit)

Jan. 10 Purchased 5,000 shares of Piltel common at P20 per share P 100,000
Mar 15 Purchased 2,000 of ABS-CBN common at P15 per share 30,000

Oct 5 Purchased additional 2,000 shares of Piltel common 36,000

Nov 4 Sold 2,000 stock rights ( 3,000)

P 163,000

Additional information:

The company received stock rights from Piltel common when the market values of Piltel
common stock and stock rights were P19 and P1 respectively. Each right entitles the holder
to acquire 1 additional share of common stock for P18 per share on or before December 31,
2007.

The company exercised its rights to acquire 2,000 additional Piltel common shares on
October 5, 2007.

On November 4, HOPE COMPANY sold 2,000 stock rights at P1.50 each.

At the end of the year, shares were quoted in the stock exchange as follows:

Piltel Common P 18

ABS-CBN common 14

Question

1. Ending balance per audit of Piltel common at year-end is:

P 140,000 b. P 138,000 c. P 133,000 d. P

126,000

2. Ending balance per audit of ABS-CBN common at year-end is:

P 28,000 b. P 30,000 c. P 36,000 d. P 38,000

3. Ending balance of investment at year-end is:

P 154,000 b. P 163,000 c. P 170,000 d. P

172,000

Allowance for market decline in value of investment at year-end is:

P 0 b. P 10,000 c. P 9,000 d. P 3,000

5. Gain or loss on stock rights transaction is:

a. P 0 b. P 2,000 c. P 1,000 d. P 500

6. Stock rights at December 31, 2007 is:

a. P 0 b. P 2,000 c. P 1,000 d. P 500

Problem 10

YPILAN Investment Company has the following transactions in the common stock of
CHERRY MAE Chemicals Corporation:

On January 7, 2000, YPILAN purchased 2005 shares of P100 par value common
stock at P110 per share.

The CHERRY MAE Chemicals Corporation was expanding and as of March 1,

2001, issued to YPILAN 2,000 rights each permitting them to purchase one
fourth share of common stock at par. The bid price of these stocks on March 1,
2001 was P140. There was no quoted price for the rights.
 YPILAN was advised that they should use the rights. YPILAN thereafter paid for
the new shares on April 1, 2001, charging the payment to the Investment
account. YPILAN purchased 500 shares of stocks using the stock rights.

The accountant felt that the cash paid for the new shares was merely an
assessment since their proportionate share in CHERRY MAE Chemicals was not
changed. He credited all dividends (5% in December of each year) to the
Investment Account until the debit was fully offset.

In December, 2005, YPILAN received a 50% stock dividend from CHERRY MAE
Chemicals. The accountant did not make any entry for this dividend because
the company president expected to sell the shares received. They did sell the
dividend share in January, 2006 for P160 per share. Income was credited for
the proceeds.

In December, 2006, the stocks were split on a two-for-one basis and the new
shares were issued at no-par value. YPILAN found that each new share was
worth P5.00 more than the P110 per share which they had paid for their original
shares so it was decided to debit the Investment account with the additional
shares received at P110 per share and to credit income for it.

In June, 2007, YPILAN sold one-half of then CHERRY MAE Chemicals holdings at
P100 per share. The proceeds was credited to the Investment account.

Questions

1. The balance in Investment in CHERRY MAE’s Chemicals account, per books,

before correction is

a. P 245,000 b. P 275,000 c. P 495,000 d. P

595,000

The correct balance of the Investment in CHERRY MAE Chemicals account as of

June 30, 2007 is
 a. P 90,000 b. P 180,000 c. P 245,000 d. P
250,000

3. The average unit cost of the stocks sold in January, 2006 at P160 per share is

a. P 110.00 b. P 100.00 c. P 90.00 d. P 72.00

4. The average unit cost of the no-par shares of stock sold in June 2007 is

a. P 108.00 b. P 72.00 c. P 50.00 d. P 36.00

5. As of June 30, 2007, the balance of stock holdings in CHERRY MAE Chemicals
was

a. 2,500 shares b. 3,750 shares c. 4,000 shares d. 5,000

shares

The 50% stock dividends should be taken up as+

A debit to Investment for P12,500.

A credit to Investment for P12,500.

A memorandum entry.

A credit to income for P20,000.

7. The two-for-one split on December, 2006 should be taken up as

A memorandum entry.

A debit to investment for P27,500.

A credit to income for P13,750.

A debit to investment for P25,000.

8. The profit on the sale of the stock dividend shares received in December, 2005
is
 a. P 200,000 b. P 120,000 c. P 110,000 d. P
75,000

9. The profit of YPILAN from the sale of the 2,500 shares in June 2007 is

a. P 250,000 b. P 160,000 c. P 125,000 d. P

75,000

10. Cash dividends received from 2001 to 2004 totaled

a. P 100,000 b. P 75,000 c. P 50,000 d. P 55,000

Problem 11

The Stock Investment account of YAP, Inc. showed the following details:

STOCK INVESTMENT

1/01 Beg. bal. (2,000 shrs) 40,000 2/28 Cash dividend

1,000

3/31 Purchased 300 shrs 4,500 4/01 Sale of stock rights 3,000

6/30 Sale of 230 shares 5,000

1. A cash dividend of P0.50 per share was received on Feb. 28. The adjusting entry
is:

DEBIT CREDIT

a. Stock Investment 1,000 Dividend Income 1,000

b. Retained earnings 1,000 Dividend Income 1,000

 c. Dividend income 1,000 Stock investment 1,000

None of the above

2. On March 15, stock rights were received entitling shareholders to purchase one
share for every five held at P15 per share. Market values on this date were:
shares, P20; rights, P5. The adjusting entry to recognize the cost allocated to
the right is:

DEBIT CREDIT

a. Stock rights 8,000 Stock investment 8,000

b. Stock rights 10,000 Stock investment 10,000

c. Stock rights 5,000 Stock investment 5,000

none of the above

On March 31, 300 shares were purchased with the partial exercise of these
rights. The adjusting entry, after the adjustment in No. 14 above has been
effected, is

DEBIT CREDIT

a. Stock investment 9,000 Stock rights 9,000

b. Stock investment 6,000 Stock rights 6,000

c. Stock rights 6,000 Stock investment 6,000

none of the above

4. On April 1, the remaining rights were sold for P3,000. The adjusting entry is:

DEBIT CREDIT

a. Stock investment 3,000 Gain on sale of rights 3,000

b. Stock investment 3,000 Stock rights 2,000

Gain on sale of rights 1,000

 c. Stock investment 2,000 Stock rights 3,000

Loss on sale of rights 1,000

none of the above.

5. On June 30, 230 share were sold for P5,000 (use average cost method). The adjusting
entry is

DEBIT CREDIT

a. Cash 5,000 Stock investment 4,250

Gain on sale of stock 750

b. Stock investment 4,250 Gain on sale of stock 4,250

c. Stock investment 750 Gain on sale of stock 750

d. none of the above.

Problem 12

The INVESTMENT account, as of December 31, 2007, appearing in the records JOY
CORPORATION is as follows:

Date Particular Debit Credit

January 1 Balance 188,300

January 31 Sold Ventanilla Stock 21,364

March 31 Bought Don Dave Common 12,125

June 30 Dividend on Suson Common 10,000

July 31 Sold Suson Common 8,750

August 31 Sold Jasmin bonds 22,083

September 30 Interest on Sucuahi Mortgage 500

The audit working papers of the preceding year show that the account balances as of
January 1, 2007, consisted of the following:

Ventanilla Company – Common

1,000 shares, purchased in June 1997 at P20 per share, P20,000.

2,000 shares, purchased in August 1999 at P16 per share, P32,000.

1,500 shares, purchased in May 2002 at P22 per share, P33,000

Don Dave Company – Common

2,000 shares. Purchased in January 2003 at P33 per share, P66,000

Suson Company – Common

100 shares purchased in August 2003 at P73 per share, P7,300

Jasmin Company 5% bonds

2 bonds, P10,000 each purchased in July 2001 at par, P20,000

(Interest dates February 1 and August 1).

Sucuahi Company chattel mortgage on machinery

5, P10,000 mortgage taken in September 2004 in settlement of a receivable,

P10,000

Your examination discloses the following information:

In January 2007, 1,000 shares of the Ventanilla company common stock purchased in
May 2002 were sold for P21,364 net.
 In March 2007, 500 shares of Don Dave common stock were purchased at P24 per
share plus brokerage, for P12,125.

In June 2007, the Suson Company paid a 100% stock dividend on common.

In July 2007, JOY CORPORATION sold to its president, for P125 per share, 100 shares
of Suson common stock, for which the president gave his check for P8,750 and a letter
in which he agreed to pay the balance upon demand of the treasurer of JOY
CORPORATION.

On August 2007, the Jasmin Company redeemed its 5% bonds at 110 plus accrued
interest.

In September 2007, JOY CORPORATION received one year interest on the P10,000
chattel mortgage of Sucuahi.

Question

The adjusted balance of Gain or Loss of Sale/Redemption on Investment at December

31, 2007 is:

a. P 8,214 b. P 10,214 c. P 10,850 d. P 10,714

The adjusted balance of Investment at December 31, 2007 is:

a. P 157,728 b. P 155,411 c. P 154,775 d. P 152,692

The Investment at December 31, 2007 is:

a. Overstated by P 2,953 c. Overstated by P5,036

b. Overstated by P 2,317 d. Overstated by P3,056

4. Investment in Ventanilla Company common stock at year-end is:

 a. P 65,000 b. P 63,000 c. P 63,636 d. P 52,000

5. Investment in Don Dave Company common stock at year-end is:

a. P 78,125 b. P 66,000 c. P 61,625 d. P 49,500

6. Investment in Suson Company common stock at year-end is:

a. P 7,300 b. P 3,650 c. P 2,500 d. P 1,450

Problem 13

Siacor Inc. acquired 30% of Lozano Co.’s voting stock for P200,000 on January 2, 2007.
Siacor’s 30% interest in Lozano gave Siacor the ability to exercise significant influence over
Lozano’s operating and financial policies. During 2007, Lozano earned P80,000 and paid
dividends of P50,000. Lozano reported earnings of P100,000 for the six months ended June
30, 2008, and P200,000 for the year enden December 31, 2008. On July 1, 2008, Siacor
sold half of its stock in Lozano for P150,000 cash. Lozano paid dividends of P60,000 on
October 1, 2008.

1. Before income taxes, what amount should Siacor include in its 2007 income
statements as a result of investment?

a. P15,000 b. P24,000 c. P50,000 d. P80,000

2. In Siacor’s December 31, 2007 balance sheet, what should be the carrying amount
of this investment?

a. P200,000 b. P209,000 c. P224,000 d. P230,000

3. In its 2008 income statement, what amount should Siacor report as gain from the sale of
half of its investment?

a. P24,500 b. P30,500 c. P35,000 d. P45,500

Problem 14

During 2006, Marlisa Company purchased marketable equity securities as trading securities.
At December 31, 2006, the balance in the allowance to reduce marketable equity securities
to market was P23,000. Pertinent information at December 31, 2007 is as follows:

Security Cost Market Value

Helen common P 245,000 P 230,000

Maritess common 180,000 182,000

P 425,000 P 412,000

On January 1, 2007, Marlisa Company paid P700,000 for 100,000 shares of Louie Company
representing 30% of Louie’s outstanding common stock. The following computations was
made by Marlisa Company:

Purchase price P 700,000

30% equity in book value of Louie’s net

assets 500,000

Excess of cost over book value P 200,000

The excess cost over book value was attributed to goodwill. Louie reported net income for
the year ended December 31, 2007 of P300,000. Louie Company paid cash dividends of
P100,000 on July 1, 2007. As of December 31, 2007 Marlisa reported, in its balance sheet, a
P700,000 balance of an Investment of Louie Stocks.

Question

1. Marlisa Company’s December 31, 2007 balance sheet should report the marketable
equity securities at:

a. P 427,000 b. P 412,000 c. P 410,000 d. P 402,000

2. In its 2007 income statement, Marlisa should report a (an):

a. Gain on market recovery of P8,000.

 b. Gain on market recovery of P10,000.

c. Unrealized loss of P13,000.

d. Unrealized loss of P15,000.

3. If Marlisa Company exercised significant influence over Louie Company, the amount of
net investment revenue Marlisa Company should report from its investment in Louie
would be

a. P 30,000 b. P 80,000 c. P 90,000 d. P 110,000

4. If Marlisa Company exercised significant influence over Louie Company, the carrying
value of its investment in Louie at December 31, 2007 would be

a. P 810,000 b. P 780,000 c. P 760,000 d. P 750,000

5. If Marlisa Company did not exercise significant influence over Louie Company and
properly accounted for the long-term, investment under the cost method. The amount of
net investment revenue Marlisa Company should report from its investment in Louie
would be

a. P 30,000 b. P 80,000 c. P 90,000 d. P 110,000

6. If Marlisa Company did not exercise significant influence over Louie Company and
properly accounted for the long-term investment under the cost method, the carrying
value of its investment in Louie at December 31, 2007 would be

a. P 780,000 b. P 750,000 c. P 700,000 d. P 500,000

Problem 15

On July 1 of the current year, AISAH Company acquired 25% of the outstanding shares of
common stock of Adonis Co., at a total cost of P1,400,000. The underlying equity (net
assets) of the stock acquired by AISAH Company was only P1,200,000. AISAH Company
was willing to pay more than book value for the Adonis Company stock for the following
reasons:
Adonis Company owned depreciable plant assets (10-year remaining economic life)
with a current fair value of P120,000 more than their carrying amount.

Adonis Company owned land with a current fair value of P600,000 more than its carrying
amount.

AISAH Company believed Adonis Company possessed enough goodwill to justify the
remainder of the cost.

Adonis Company earned net income of P1,080,000 evenly over the current year ended
December 31. On December 31, Adonis Company declared and paid a cash dividend of
P210,000 to common stockholders. Market value of Adonis Company’s share of the stock at
December 31 is P1,500,000. Adonis Company closes its accounting records on December
31. As of December 31, 2007, the Investment in Adinois common has a balance of
P1,400,000.

AISAH Company has a portfolio of current marketable equity securities. Information on cost
and market value is as follows:

Cost Market

December 31, 2006 P 950,000 950,000

December 31, 2007 840,000 820,000

AISAH Company has not recorded yet any allowance for market decline in its marketable
securities. Marketable Securities at December 31, 2007 has a balance of P840,000.

Presented below is an amortization schedule related to AISAH Company’s 5-year, P100,000

bond with a 7% interest rate and a 5% yield, purchased on December 31, 2004, for
P108,660.

Date Cash Interest Bond Premium Carrying Value

Received Income Amortization of bonds

 12/31/04 108,660

12/31/05 P 7,000 P 5,433 P 1,567 107,093

12/31/06 7,000 5,354 1,646 105,447

12/31/07 7,000 5,272 1,728 103,719

12/31/08 7,000 5,186 1,814 101,905

12/31/09 7,000 5,095 1,904 100,000

As of December 31, 2007, the Investment in bonds is recorded in the balance sheet at
P108,660.

Questions

1. The Investment in Adonis Company common at year-end is:

a. P 1,473,000 b. P 1,478,500 c. P 1,480,500 d. P 1,481,000

2. The income from investment in the Adonis Company common at year-end is:

a. P 131,000 b. P 133,500 c. P 159,250 d. P 185,500

3. The marketable securities at December 31, 2007 is:

a. P 820,000 b. P 840,000 c. P 930,000 d. P 950,000

4. The amortization of investment in bonds at year-end is:

a. P 1,728 b. P 4,941 c. P 6,669 d. P 7,000

5. Interest income from the investment in bonds at year-end is:

a. P 7,000 b. P 5,354 c. P 5,272 d. P 5,186

6. The investment in bonds at year-end is:

 a. P 108,660 b. P 105,447 c. P 103,719 d. P 100,000

Problem 16

Roxanne Company’s permanent investment consists of the following:

3-year 8% P100,000 face value Paul Bonds (cost) P 96,500

Cash surrender value of life insurance of the president 15,000

Available-for-sale securities held for long-term appreciation

of value (at cost) 180,000

The cost and market value of these securities are presented here:

Cost Market

Sony Incorporate 80,000 90,000

Macky Corporation 60,000 60,000

Ruela Company 40,000 20,000

Additional information:

According to the company’s treasurer, investment in Paul bonds was acquired at the
beginning of the year with the intention of selling it when the need for additional working
capital arises. Interest at 8% is received annually every January 1. Accrued interest on
these bonds had been recorded. Effective interest rate for this type of securities is 10%.
The fair market value of Paul Bonds at the end of the year is P 98,000.

As part of additional compensation, the company insured the life of its president for a total
coverage of P2 million pesos. Insurance premium paid during the year amounted to
P54,000. Increase in cash surrender value of 5,000 was credited to insurance expense
account.

Subsequent event review revealed that the year-end market decline of Ruela Company
stock was other than temporary.

Questions

1. The total Available-for-sale securities of Roxanne Company at year-end is:

a. P 170,000 b. P 180,000 c. P 185,000 d. P 268,000

2. The Paul bonds at year-end is:

a. P 98,150 b. P 98,000 c. P 96,500 d. P 100,000

The cash surrender value of life insurance at year-end is:

a. P 15,000 b. P 20,000 c. P 69,000 d. P 0

The Held-to-maturity securities at year-end is:

a. P 98,150 b. P 98,000 c. P 96,500 d. P 0

Problem 17

On January 1, 2007, Michelle Co. bought 30% of the outstanding common stock of Manila
Corporation. Michelle Co. accounts for this investment by the equity method. At the date of
acquisition of the stock, Manila Corporation’s net assets had a carrying value of
P11,800,000. Assets with an average remaining life of 5 years have a current market value
that is P2,600,000 in excess of their carrying values. The remaining difference between the
purchase price and the value of the underlying stockholders’ equity cannot be attributed to
any tangible asset. At the end of 2007, Manila Corporation reports net income of
P3,600,000. During the 2007, Manila Corporation declared and paid cash dividends of
P400,000. The balance of Michelle’s investment in Manila Corporation is P5,922,000 at
December 31, 2007.
Questions

1. What is the total adjustment to share of income for 2007?

a. P 198,000 b. P 156,000 c. P 256,000 d. P 562,000

2. What is the total dividend income for 2007?

a. P 0 b. P 78,000 c. P 107,400 d. P 120,000

3. What is the acquisition cost of Michelle Company’s investment in Manila Corporation?

a. P 6,198,000 b. P 5,118,000 c. P 3,540,000 d. P 1,920,000

Problem 18

The following entries were made by the accountant of LECIRAM COMPANY:

2007

Jan 2 Investment in bonds 11,120,000

Cash 11,120,000

Purchase of P10,000,000, 18% bonds at 102plus accrued interest and broker’s fee.
Bonds mature January 1, 2010.

Jan 3 Cash 900,000

Interest income 900,000

Interest received on 18% investment in bonds. (This same entry was made when
interest was received on July 1, 2007).

July 1 Investment in preferred stock 10,020,000

 Premium paid on preferred stock 200,000

Cash 10,220,000

Purchase of 100,000 shares of 8% P100 preferred stock of Al Corp. at 102; broker’s

fee, P20,000

Dec 1 Investment in common stock 5,000,000

Cash 5,000,000

Purchase of 50,000 shares P100 par common stock of Randy Co. at P100 per share
after a P1 per share dividend had been declared by Randy Co. No broker’s fee.

Dec 31Cash 800,000

Premium paid on preferred stock 200,000

Dividend income 600,000

Dividend received on preferred stock investment

Dec 31Cash 50,000

Investment in common stock 50,000

P1 per share on investment in common stock

Question

1. What is the total interest income on investment in bonds for 2007?

a. P 1,827,500 b. P 1,800,000 c. P 1,772,500 d. P 927,500

2. What is the carrying value of the investment in bonds at December 31, 2007?

a. P 11,092,500 b. P 10,247,500 c. P 10,200,000 d. P 10,192,500

3. What entry should be made to correct the acquisition entry on Jan. 2, 2007?
 a. Interest income 900,000 c. Interest income 900,000

Investment in bonds 900,000 Interest Receivable 900,000

b. Broker’s fees exp. 20,000 d. Interest income 900,000

Investment in bonds 20,000 Broker’s fee exp. 20,000

Investment in bonds 920,000

4. What is the adjusting entry to record the accrual of interest on December 31, 2007?

a. Interest receivable 900,000 c. Interest receivable 900,000

Interest income 900,000 Retained earnings 900,000

b. Interest income 900,000 d. No adjusting entry

Retained earnings 900,000

5. What adjusting entry should be made to correct the acquisition on July 1?

a. Broker’s fees exp. 20,000 c. Invest. in pref. 200,000

Invest. In pref. 20,000 Premium on PS 200,000

b. Broker’s fees exp. 20,000 d. No adjusting entry

Premium on PS 20,000

6. What is the dividend income on preferred stock investment for 2007?

a. P 0 b. P 200,000 c. P 600,000 d. P 800,000

7. What adjusting entry should be made at December 31, 2007, to correct the investment in
common stock account?

a. Dividend income 50,000 c. Retained earnings 50,000

 Invest. In CS 50,000 Invest. in CS 50,000

b. Retained earnings 50,000 d. No adjusting entry

Dividend income 50,000

Problem 19

The following two subsidiary accounts reflect the marketable securities of HOPE COMPANY
for the year 2008:

DREAM BIG COMPANY

Date Transactions Shares Ref. Debit Credit

Jan. 10 Purchase 20,000 CD P 1,900,000

31 Raised to market
value, offset to
retained earnings

GJ 100,000

Mar 30 Sale at P150 (10,000 CR P 1,500,000

)

June 10 Stock dividend at par 10,000 GJ 1,000,000

July 28 Sale at P110 10,000 _________ 1,100,000

TOTALS P 3,000,000 P 2,600,000

AIM HIGH COMPANY

Date Transactions Shares Ref. Debit Credit

Sept. 05 Purchase 20,000 CD P 1,000,000

28 Cash dividends to
stockholders or record
Sept 15, declared Aug.
15
 Date Transactions Shares Ref. Debit Credit

CR P 50,000

Oct. 01 Purchases 50,000 CD 2,500,000

05 Sale at P65 20,000 CR 1,000,000

Nov. 30 Cash collected for sale

made on Nov. 10, after
a Nov. 1 declaration of
P5 cash dividend per
share to stockholders
on record as of
December 1.

20,000 CR 3,300,000

Dec. 15 Cash dividend received 20,000 CR __________ 150,000

TOTAL P 3,500,000 P 4,500,000

On January 2, 2008, HOPE COMPANY purchased 39,000 shares of GOB BLESS YOU
COMPANY’s 200,000 shares of outstanding common stock for P1,170,000. On that date,
the carrying value of the acquired shares on GOD BLESS YOU COMPANY’s books was
P810,000. HOPE COMPANY attributed the excess of cost over carrying amount to goodwill.
HOPE COMPANY’s policy is to amortize intangible over 10 years.

During 2008, HOPE COMPANY gained a seat on GOD BLESS YOU COMPANY’s board of
directors. GOD BLESS YOU COMPANY reported earnings of P800,000 for the year ended
December 31, 2008, and declared and paid cash dividends of P200,000 during 2008. On
December 31, 2008, GOD BLESS YOU COMPANY’s common stock was trading at P30 per
share.

Questions

1. The gain on sale of 10,000 shares of DREAM BIG COMPANY on March 30 is:

a. P 0 b. P 500,000 c. P 550,000 d. P 1,500,000

2. The gain on sale of 10,000 shares of DREAM BIG COMPANY on July 28 is:

a. P 150,000 b. P 337,500 c. P 525,000 d. P 625,000

3. The adjusted balance of the HOPE COMPANY’s Investment in DREAM BIG COMPANY on
December 31, 2008 is:

a. P 525,000 b. P 500,000 c. P 475,000 d. P 375,000

4. The gain on sale of 20,000 shares of AIM HIGH COMPANY on October 5 is:

a. P 300,000 b. P 314,500 c. P 350,000 d. P

1,028,500

5. The gain on sale of 20,000 shares of AIM HIGH COMPANY on November 10 is:

a. P 1,000,000 b. P 2,200,000 c. P 2,300,000 d. P

2,400,000

6. The adjusted balance of the HOPE COMPANY’s Investment in AIM HIGH COMPANY on
December 31, 2008 is:

a. P 1,000,000 b. P 1,200,000 c. P 1,300,000 d. P

1,500,000

7. The gain on investment of HOPE COMPANY from the Investment in GOD BLESS YOU
COMPANY at December is:

a. P 81,000 b. P 120,000 c. P 156,000 d. P 990,000

8. The adjusted balance of the HOPE COMPANY’s Investment in GOD BLESS YOU
COMPANY at December 31, 2008 is:

a. P 1,251,000 b. P 1,287,000 c. P 1,170,000 d. P

1,320,000
Problem 20

The following are the transaction of DE GRACIA COMPANY for its Marketable Securities:

Marketable Securities

Jan 1 Beginning balance 58,000

Mar 15 Purchase 1,000 shares of Grace (common)

at P20, plus P2,000 commission for broker 20,000

Apr 30 Sold 500 shares of El Salvador at P1, less P15

commission for broker 485

May 11 Purchased 10,000 shares (par P1) of President

Company at P0.90 plus P90 commission for

broker 9,090

June 30 Received 100% stock dividend from Prince Co.

July 30 Purchase 50 shares of De Gracia at P140, plus

P70 commission for broker 7,000

Oct 1 Sold Ronald bonds; 10 bonds P10,400, plus

 accrued interest to date, and less P50

commission for broker 10,650

Nov 15 Sold 20 shares of Prince Company at P20, no

commission involved 400

Nov 30 Proceeds from sale of stock rights 4,000

Dec 1 Liquidating dividend from Alta Company 400

Dec 10 Sold 15 shares of Grace (common) at P55, less

Commission of P15. 810

Additional Information:

1. The beginning balances is detailed as follows:

Prince common, 100 shares; par P50 5,000

El Salvador common, 70,000 shares; par P10 20,000

Ronald bonds, (face P1,000), 20 bonds, 12%, payable

Jan. 1 and July 1 22,000

Alta Company, 200 shares 1,000

Rhinna common, 5,500 shares, Par P2 10,000

58,000

Grace issued stock rights to stockholders entitling them to subscribe at par, 1 new share
for every 10 shares held on October 31, 2007. Market values at date of issuance of
rights were:
 Stock, ex-right P72 per share

Stock rights 8 per share

The following commission were unpaid and unrecorded as at December 31, 2007:

P2,000 for the purchase of Grace stocks

P 70 for the purchase of De Gracia stocks

The following information was obtained relative to dividends which were not in the
books:

Company Date declared Kind Rate Remarks

Prince Company 12/15/07 Cash 20% Received 1/16/08

President Company 12/03/07 Stock 10% Received 1/19/08

Rhinna Company 01/15/08 Cash 10% Received 1/31/08

Question

1. The entry to adjust the March 15 transaction on the purchase of 1,000 share of Grace
common is:

a. Marketable securities 2,000

Commission expense 2,000

b. Marketable securities 2,000

Commission payable 2,000

c. Marketable securities 2,000

Cash 2,000

d. No adjustment

2. The entry to adjust the sale of 500 shares of El Salvador on April 30 is:

a. Marketable securities 372

 Gain on sale of MS 372

b. Marketable securities 342

Cash 342

c. Marketable securities 342

Gain on sale of MS 342

d. No adjustment

3. The entry to adjust the purchase of 50 shares of De Gracia common on July 30 is:

a. Marketable securities 70

Commission payable 70

b. Treasury stock 7,070

Marketable securities 7,000

Commission payable 70

c. Treasury stock 7,000

Marketable securities 7,000

d. No adjustment

4. The entry to adjust the sale of 20 shares of Prince common on October 1 is:

a. Loss on sale of MS 650

Marketable securities 350

Interest income 300

b. Loss on sale of MS 350

Marketable securities 350

c. Loss on sale of MS 600

Marketable securities 300

Interest income 300

d. No adjustment
5. The gain on sale of stock rights is:

a. P 2,000 b. P 1,800 c. P 1,750 d. P 1,500

6. The entry to adjust the liquidating dividend on December 1 is:

a. Loss on investment 600

Marketable securities 600

b. Cash 600

Dividend income 600

c. Marketable securities 600

Dividend income 600

d. Marketable securities 600

Cash 600

Dividend receivable at year-end is:

a. P 3,900 b. P 2,900 c. P 2,800 d. P 1,800

8. Gain on sale of marketable securities at year-end is:

a. P 855 b. P 513 c. P 342 d. P 105

9. Loss on sale of marketable securities at year-end is:

a. P 100 b. P 650 c. P 750 d. P 1,350

The marketable securities at year-end is:

a. P 73,350 b. P 73,950 c. P 74,150 d. P 74,750

Problem 21

In connection with your audit of the financial statement of the William Company for the
year 2007, the following investment in stock and dividend income accounts were presented
to you:

Investment in Stock

Debit Credit

June 18, 2006 10,000 shares common par

value P50, Samson Company 390,000

April 30, 2007 5,000 shares Samson Company

received as stock dividend 250,000

May 20, 2007 Sold 5,000 shares @ P25 125,000

Dec. 10, 2007 Sold 2,000 shares @ P60 120,000

Dividend Income

April 30, 2007 Stock dividend 250,000

Nov. 30, 2007 Samson Company common 50,000

The following information was obtained during your examination:

1. The balance in the investment in stock account at December 31, 2006 per your last
year‘s working papers, was P390,000.

2. From independent sources, you determine the following dividend information:

Type of Date Date of Date of

Dividend Declared Record Payment Rate

Stock March 15, 2007 April 1, 2007 April 30, 2007 50%

Cash Nov. 1, 2007 Nov. 15, 2007 Nov. 28, 2007 P5/share
 Cash Dec. 1, 2007 Dec. 15, 2007 Jan. 2, 2008 20%

3. Closing market quotation as at December 31, 2007:

Bid Asked

Samson Company common 13¾ 16½

Questions:

Based on the above and the result of your audit, answer the following:

1. How much is the gain (loss) on the May 20, 2007 sale?

a. P (70,000) b. P (5,000) c. P 5,000 d. P 0

2. How much is the gain on the December 10, 2007 sale?

P 68,000 b. P 48,000 c. P 42,000 d. P 0

3. How much is the total dividend income for the year 2007?

a. P 400,000 b. P 300,000 c. P 150,000 d. P 50,000

4. How much is the adjusted balance of investment in stock as of December 31, 2007?

a. P 208,000 b. P 145,000 c. P 117,000 d. P 110,000

5. How much is the Allowance for Unrealized loss as of December 31, 2007?

a. P 98,000 b. P 35,000 c. P 7,000 d. P 0

Problem 22
Macky Corporation’s accounting records showed the following investment at January 1,
2007:

Common stock

Johny Corp (1,000 shares) P 10,000

Sony Corp (5,000 shares) 100,000

Real estate:

Parking lot (leased to Ruel Co.) 300,000

Other:

Trademark (at cost, less accumulated amortization 25,000

Total investment P435,000

Macky owns 1% of Johny and 30% of Sony. Maky’s directors constitute a majority of Sony’s
directors. The Ruel lease, which commenced on January 1, 2002, is for ten year, at an
annual rental of P48,000. In addition, on January 1, 2002, Ruel paid a nonrefundable
deposit of P50,000, as well as security deposit of P8,000 to be refunded upon expiration of
the lease. The trademark was licensed to Nappy Co. for royalties of 10% of sales of the
trademark items. Royalties are payable semiannually on March 1 (for sales in July though
December of the prior year), and on September 1 for the sales in January through June of
the same year).

During the year ended December 31, 2007, Macky received cash dividends of P1,000 from
Johny, and P15,000 from Sony, whose 2007 net incomes were P75,000 and P150,000
respectively. Macky also received P48,000 rent from Ruel in 2007 and the following royalties
from Nappy:

March 1 September 1

2006 P3,000 P5,000

2007 4,000 7,000

Nappy estimated that sales of the trademark items would total to P20,000 for the last half
of 2007.

Questions
 In Macky’s 2007 income statement, how much should be reported for royalty revenue?

a. P 14,000 b. P 13,000 c. P 11,000 d. P 9,000

In Macky’s 2007 income statement, how much should be reported for rental revenue?

a. P 43,000 b. P 48,000 c. P 53,000 d. P 53,800

3. In Macky’s 2007 income statement, how much should be reported as the total
investment income?

a. P 63,000 b. P 78,000 c. P 108,000 d. P 111,000

Problem 23

In January of year 1, Divine Power paid P400,000 for 10,000 shares of Thy Grace voting
common stock, representing 15% interest in Thy Grace. At this date, the net assets of Thy
Grace totaled P2,000,000. The fair values of Thy Grace’s identifiable assets and liabilities
were equal to their book values. Divine Power did not have the ability to exercise significant
influence over the operating and financial policies of Thy Grace. Divine Power received
dividend of P0.70 per share from Thy Grace on October, year 1. Thy Grace reported net
income of P250,000 for year ended December 31, year 1. The stock classified as available-
for-sale. Market price for the 10,000 shares was P450,000.

In July of year 2, Divine Power paid P1,500,000 for 30,000 additional shares of Thy Grace’s
voting shares, which represents a 25% interest in Thy Grace. The fair value of Thy Grace’s
identifiable assets, net of liabilities, was equal to their book values of P4,600,000. As a
result of this transaction, Divine Power has the ability to exercise significant influence over
the operating and financial policies of Thy Grace. Divine Power received dividend of P0.80
per share from Thy Grace on April, year 2, and P1.35 per share from Thy Grace on October,
year 2. Thy Grace reported net income for the six month ended July 31, year 2 for P200,000
and P300,000 for the year ended December 31, Year 2.

The market value of the stock at the end of Year 2 is P52.

Questions:
Amount of income from investment in Thy Grace that should be reported by Divine
Power in its year 1 Income Statement is:

a. P 7,000 b. P 37,500 c. P 57,000 d. P 87,500

The carrying value of the investment in Thy Grace that should be reported by Divide
Power in its year 1 Balance Sheet is:

a. P 393,000 b. P 400,000 c. P 443,000 d. P 450,000

Amount of income from investment in Thy Grace that should be reported by Divine
Power in its year 2 Income Statement:

a. P 48,500 b. P 70,000 c. P 120,000 d. P 71,500

The carrying value of the investment in Thy Grace that should be reported by Divide
Power in its year 1 Balance Sheet is:

a. P 1,916,500 b. P 1,923,500 c. P 1,938,500 d. P 2,080,000