Audit of Investments May 2028

SMARTS CPA PROFESSIONAL REVIEW
2F Ritzleen Building, Atis Street, General Santos City, Philippines

CHRISTIAN L. BETIA
MAY 2018 Examination
AUDIT OF INVESTMENTS
Provide the entries to the following transactions:

2016
Jan. 1 Acquired 1,000 shares of ABC Co. for P 100,000, plus transaction costs of P 10,000. Shares are for trading. ABC
Co. shares are at P 50 par.
Jan. 10 Acquired 1,000 shares of DEF Co. for P 150,000, plus transaction costs of P 12,000. Shares are non-trading,
irrevocable designated to OCI. DEF Co. shares are at P 100 par.
March 1 Received share rights from ABC Co. FV of share rights is P 20, and accounted for separately. Rights may be
exercised for P 80 per share.
March 15 Received 1-for-5 bonus issue from DEF Co.
July 1 Purchased 600 additional ABC Co. shares, from the exercise of rights.
Acquired 800 additional DEF Co. shares for P 120,000, plus P 10,000 in transaction costs.
August 31 Sold 1,200 of ABC Co. shares for net price of P 140,000. FIFO costing is used for ABC shares.
The remaining share rights expired.
September 30 Sold 500 of DEF Co. shares for net price of P 90,000. Average costing is used for ABC shares.
Dec. 31 Received 30% cash dividends from DEF Co. shares.
Earned 10% cash dividends from ABC Co. shares, payable to owners of record on Jan. 15, 2017.
FV of ABC Co. shares is P 95. Total number of ABC Co. outstanding shares is 40,000.
FV of DEF Co. shares is P 150. Total number of DEF Co. outstanding shares is 10,000.
This2017
study source was downloaded by 100000863954787 from CourseHero.com on 03-14-2023 18:43:36 GMT -05:00
Jan. 1 Sold all of the remaining ABC Co. shares for net amount of P 50,000.
https://www.coursehero.com/file/28403832/AUDIT-OF-INVESTMENTS-MAY-2028docx/
March 31 Acquired 1,000 additional outstanding shares of DEF Co. for P 180,000. Fair value of DEF Co.’s net identifiable
assets was the same as the book value at P 1,500,000.
December 31 DEF Co. reported P 400,000 net income and declared and paid P 100,000 cash dividends.
PROBLEM 1
The following transactions appear on the “Trading Securities” account of Julia Corporation:
Date Particulars Debit Credit

03/1/17 Purchased 40,000 shares of ABC at P 30.75/share and 20,000 shares of Danielle
at P 23/share P 1,690,000
07/3/17 Purchased XYZ 15% bonds, face value P 4,000,000. Interest dates July 1 and Jan
1. Maturity date July 1, 2021 4,000,000
11/5/17 Sold 14,400 shares of ABC at P 30/share and 4,000 shares of Danielle at P
25/share P 532,000
12/31/17 Sold XYZ bonds at 98 plus accrued interest 4,220,000
Your audit revealed the following additional information:

1. Julia received on Oct. 1, 2017, 8,000 shares of ABC as share dividend.
2. Danielle declared a 15% share dividend to all shareholders of record as of November 15, 2017 payable December 1, 2017.
Note: Disregard broker’s commission and stock transfer tax in your solution.
After the audit, determine the following:

1. Adjusted balance of Julia’s “trading securities” as of December 31, 2017
A. P 935,200 B. P 1,155,200 C. P 1,158,000 D. P 1,229,000
2. Average cost of ABC’s shares as of December 31, 2017
A. P 23.43 B. P 29.50 C. P 30.75 D. P 25.63
3. Average cost of Danielle shares as of December 31, 2017
A. P 22.50 B. P 23.00 C. P 25.00 D. P 20.00
4. Net gain (loss) on sale of trading securities for the year 2017
A. P 291,000 B. P 3,000 C. (P 82,800) D. (P 9,000)
PROBLEM 2
Your client, Great Company, showed the following details of its “Investment in Stock” account for the year 2017: (Great Company
accounts for its investment and stock rights under PFRS 9)
Investment in Stock
Date Particulars Debit Credit
Jan. 01 Audited balance, 40,000 shares P 800,000
Feb. 14 Cash dividend P 20,000
Mar. 31 Shares purchased 90,000
Apr. 01 Sale of rights 60,000
Jun. 30 Sale of shares 110,000
Dec. 31 Balance 700,000
P 890,000 P 890,000
This study source was downloaded by 100000863954787 from CourseHero.com on 03-14-2023 18:43:36 GMT -05:00
Page 2 of 8
The following transactions occurred:
5. A cash dividend of P 0.50 per share was received on Feb. 14. The adjusting entry is:
Debit Credit
a. Investment in Stock 20,000 Dividend income 20,000
b. Retained earnings 20,000 Dividend income 20,000
c. Dividend income 20,000 Investment in Stock 20,000
d. None
6. On March 15, stock rights were received entitling shareholders to purchase one share for every five held at P 15 per share.
Market values on this date were: shares, P20; rights, P 5. The adjusting entry to recognize the cost allocated to the right is:
Debit Credit
a. Stock rights 160,000 Investment in Stock 160,000
b. Stock rights 200,000 Investment in Stock 200,000
c. Stock rights 38,000 Investment in Stock 38,000
d. None
7. On March 31, 6,000 shares were purchased with the partial exercise of the rights. The adjusting entry, after the adjustment
in No. 2 above has been effected, is:
Debit Credit
a. Investment in Stock 120,000 Stock rights 120,000
b. Investment in Stock 150,000 Stock rights 150,000
c. Investment in Stock 28,500 Stock rights 28,500
d. None
8. On April 1, the remaining rights were sold for P 60,000. The adjusting entry, considering the adjustment in No. 2 above has
been effected, is:
Debit Credit
a. Investment in Stock 60,000 Gain on sale of rights 60,000
b. Investment in Stock 20,000 Gain on sale of rights 20,000
c. Investment in Stock 60,000 Stock rights 40,000
Gain on sale of rights 20,000
d. None
9. On June 30, 4,600 shares were sold for P 110,000. The adjusting entry is:
Debit Credit
a. Cash 110,000 Investment in Stock 85,000
Gain on sale of stock 25,000
b. Investment in Stock 36,400 Gain on sale of stock 36,400
c. Investment in stock 25,000 Gain on sale of stock 25,000
d. None
10. How much is the adjusted balance of the Investment in Stock account as of December 31, 2017?
A. P 776,400 B. P 765,000 C. P 700,000 D. P 801,000
PROBLEM 3
During the course of your audit f the financial statements of MILK CORPORATION for the year ended December 31, 2015, you
found a new account, “Investment in Equity Securities.” Your audit revealed that during 2015, MILK began a program of
investments, and all investment-related transactions were entered in this account. Your analysis of this account for 2015 follows:
Milk Corporation
Analysis of Investment in Equity Securities
For the Year Ended December 31, 2015
Debit Credit
(a)
Alaska Company Ordinary Shares
Feb. 14 Purchased 36,000 shares
@ P55 per share P1,980,000
July 26 Received 3,600 ordinary shares of
Alaska Company as a share dividend.
Page 3 of 8
(Memorandum entry in general ledger.)
Sept. 28Sold the 3,600 ordinary shares of
Alaska Company received July 26 @
P70 per share. P252,000
(b)
Debit Credit
Nido, Inc. Ordinary Shares
April 30 Purchased 180,000 shares
@ P40 per share P7,200,000
Oct. 28 Received dividend of P1.20 per share. P216,000
Additional information:
a. The fair value for each security as of the 2014 date of each transaction follow:
Security Feb. 14 April 30 July 26 Sept. 28 Dec. 31
Alaska Company P 55 P 62 P 70 P 74
Nido, Inc. P 40 32
MilkCorp. 25 28 30 33 35
b. All of the investments of Milk Corporation are nominal in respect to percentage of ownership (5% or less).
c. Each investment is considered by Milk Corporation to be non-trading. Milk Corporation has made an irrevocable election
to present in other comprehensive income subsequent changes in fair value of its non-trading equity securities.
1. What amount should be reported as gain on sale of non-trading equity securities in 2015?
A. P72,000 C. P54,000
B. P18,000 D. P 0
2. The receipt of 3,600 share dividend would cause the investment balance to increase by
A. P223,200 C. P198,000
B. P252,000 D. P 0
3. What entry is necessary to correct the recording of the cash dividend received from Nido, Inc.?
A. Cash 216,000
Dividend income 216,000
B. Cash 216,000
Investment in equity securities 216,000
C. Investment in equity securities 216,000
Dividend income 216,000
D. Dividend income 216,000
Investment in equity securities 216,000
4. What amount of unrealized gain or loss should be reported in the 2015 statement of comprehensive income as
component of other comprehensive income?
A. P1,440,000 gain C. P576,000 gain
B. P1,440,000 loss D. 424,000 gain
5. What amount should be reported as Investment in Equity Securities in the statement of financial position on December
31, 2015?
A. P9,000,000 C. P7,560,000
B. P8,424,000 D. P9,864,000
Problem 4: Benshoppe Inc. had the following portfolio of financial assets as of December 31,2016. All the financial asset were
acquired in 2016:
Financial asset Acquisition Cost
Aye Corp. Stocks, 20,000 shares P590,000
Bee Inc. Stocks, 40,000 shares 1,100,000
See Co. 10%, P2M bonds 1,973,000
Dee Corp. Stocks, 50,000 shares 2,400,000
Audit notes:
a Aye Corp. shares were acquired with an intention of generating short-term profits from the share price’s fluctuation. The
company paid P29.50 per share, which included the P0.50 per share broker’s fees and commissions. The shares were
acquired on February 20,2016. A P2 per share cash dividends were received on March 30. These dividends were declared
by Aye Corp. on January 20,2014 to stockholders as of record date March 1,2016.
Page 4 of 8
b The company paid P27.50 per share, including P0.50 per share broker’s fee on the acquisition of Bee Inc. on March
1,2016.These shares were acquired for trading purposes. A P3 per share dividends were received from the said shares on
May 3,2016. These dividends were declared on April 1 to stockholders as of record date April 20.
c See Co. bonds which pay semi-annual interest June 30 and December 31,were acquired on October 1,2016 at
P1,973,000, when the prevailing effective interest rate on similar instrument was at 12%. The bonds shall mature on
December 31,2018. The company has a business model of holding debt securities for short-term profits.
d Dee Corp. stocks were acquired P48 per share broker’s fees and commission on June 30,2016. Dee Corp. had a total of
P200,000 shares outstanding on the same date. The company received P5 dividends per share from on December
20,2016.
e The following information were deemed relevant at year-end and no entries had been made yet by the company to
reflect any of the following information:
Aye Corp. Bee Inc. See Co. Dee Corp.
Net income in 2016 P1,200,000 P1,500,000 P2,000,000 P2,240,000
Fair value P35/share P25/share 11% P51/share
Requirements:
1 What is the unrealized holding gain/loss to be reported in the 2016 statement of comprehensive income?
a 1,948 c. 121,948
b 51,948 d. 122,750
2 What is the correct carrying value of investments that should be presented as current asset?
a 3,665,750 c. 3,664,948
b 3,543,000 d. 3,765,250
3 What is the correct carrying value of investments that should be presented as non-current?
a 2,280,000 c. 2,430,000
b 2,150,000 d. 2,550,000
4 How much in total should be recognized in the income statement in relation to the investments?
a 261,948 c. 571,948
b 541,948 d. 542,750
5 Assuming that the company’s business model regarding debt securities has an objective of collecting contractual cash
flows, what is the correct carrying value of investments that should be presented as non-current?
a 4,394,948 c. 4,395,750
b 4,362,390 d. 4,360,690
6 Assuming that the company’s business model regarding debt securities has an objective of collecting contractual cash
flows, how much in total should be presented in the income statement in relation to the investments?
a 461,948 c. 507,690
b 525,750 d. 465,348
PROBLEM 5: The following two subsidiary accounts reflect the Trading Securities ofn A Corp. for the year 2015.
Noel Company
Date Transactions Shares Ref. Debit Credit
Feb. 22 Purchase 2,000 CD P190,000
28 Raised to market value; offset to
retained earnings -- GJ 10,000

Mar. 15 Sale at P150 1,000 CR P150,000
June 30 Stock dividend at par 1,000 GJ 100,000
July 15 Sale at P110 1,000 CR 110,000
Ilan Company

Sep. 5 Purchase 20,000 CD P1,000,000
28 Cash dividend to stock of record
September 15, declared August 15 CR P50,000
Oct. 1 Sale at P65 20,000 CR P1,300,000
5 Purchase 50,000 CD 2,500,000
Page 5 of 8
Nov. 30 Cash collected for sale made on
Nov. 10, after a November 1
declaration of P5 cash dividend
per share to stockholders of record
as of December 1 20,000 CR 1,320,000
Dec. 15 Cash dividend received CR 150,000
The above trading securities had the following fair values at December 31, 2015:
Noel Company P 50 per share
Ilan Company 30 per share
1. What is the gain on sale of Noel Company shares on March 15, 2015?
a. 50,000 b. 55,000 c. 60,000 d. 0
2. What is the gain on sale of Noel Company shares on July 15, 2015?
a. 52,500 b. 62,500 c. 60,000 d. 0
3. What is the gain on sale of Ilan Corporation shares on October 1, 2015?
a. 300,000 b. 400,000 c. 0 d. 350,000
4. What is the gain on sale of Ilan Corporation shares on November 10, 2015?
a. 300,000 b. 100,000 c. 220,000 d. 0
5. At what amount should A Corp. report its trading securities on its balance sheet at Dec. 31, 2015?
a. 947,500 b. 1,597,500 c. 950,000 d. 1,547,500
6. What is the unrealized holding gain/loss to be recognized in the 2015 income statement?
a. 47,500 b. 597,500 c. 550,000 d. 547,500
PROBLEM 6
You are auditing the CSI INC’s investments accounts. In its initial year of operations. The company has provided you the
following information with regard to its stock investment acquisition for the year.
Number of Recorded
Shares acquired acquisition cost
ABC Corp. 2,000 P240,000
DEF Inc. 1,500 225,000
GHI Co. 3,000 285,000
JKL Corp. 4,000 200,000
MNO Co. 10,000 850,000
Additional Information:
a. ABC Corp. stocks were acquired on March 1, 2015 at a total cost of P200,000 plus brokerage fees and a commissions to
P40,000. Dividends, which were declared on January 25, 2015 to stockholders as of March 20, 2015 were received on
April 1, 2015 at P20,000. ABC Corp. stocks were acquired by the company with the intention of designating the same as a
financial asset at fair value through profit or loss. the stocks were selling at P105 per share as of December 31, 2015.
b. DEF Corp. were acquired on May 1, 2015 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
profit, thus designated the same as fair value through other comprehensive income. The company received a 20% stock
dividend on October 11, 2015. The stocks were selling at P160 per share on December 31, 2015.
c. GHI Co. stocks, which acquired for trading purposes on June 1, 2015 at P285,000, were split 5 for
3 on August 15, 2015. On September 30, 2015, the company paid special assessment on the investment at P25 per share.
On December 30, 2015, when the shares had a market value of P75 per share, GHI declared a P5 dividend payable on
January 25, 2016.
d. JKL Corp. stocks were acquired on August 1, 2015 classified as financial asset at fair value through other comprehensive
income. JKL Corp. issued 1 share for every 4 shares held in lieu of a P15 per share cash dividends it has previously
declared. The stocks were selling at that time at P55 per share. JKL shares were selling at P60 per share on December 31,
2015.
Page 6 of 8
e. MNO Corp. stocks were acquired at the beginning of 2015 when MNO Corp. offered its P50 par value stocks in an IPO in
January 2015. All of MNO Corp.’s 50,000 authorized shares were issued on the same date and remained outstanding as of
December 31, 2015. The company reported total comprehensive income of P250,000, which is net of a foreign exchange
loss reported in its OCI/OCL amounting to P50,000. MNO also paid P3 cash dividends on December 31, 2015. The stocks
were selling at P90 per share on December 31, 2015. No entry has been made by the company to reflect the transactions
and information on December 31, 2015.
REQUIREMENTS:
1. How much should the investment in ABC Corp. stocks and DEF Inc., be initially recognized?
a. 240,000; 225,000 b. 180,000; 255,000 c. 200,000; 225,000 d. 200,C 000; 225,000
2. How much is the correct dividend income to be recognized from investment in stocks of DEF Inc. and GHI Co.,
respectively?
a. 46,500; 15,000 b. 0; 25,000 c. 46,500; 25,000 d. 0; 15,000
3. How much is the correct dividend income to be recognized from investment in JKL Corp.?
a. 0 b. 55,000 c. 60,000 d. 220,000
4. How much investment income should be reported from investment in MNO Co. stocks?
a. 100,000 b. 50,000 c. 120,000 d. 60,000
5. How much should be reported as investments in stock classified as trading securities and the corresponding unrealized
holding gain or (loss) to be reported in its income statement?
a. 590,000; 0 b. 585,000; (5,000) c. 590,000; 5,000 d. 585,000; 0
6. How much should be reported as investments in stocks classified as available-for-sale security and the corresponding
unrealized holding gain or loss to be reported in its balance sheet?
a. 510,000; 0 b. 588,000; 78,000 c. 510,000; 78,000 d. 588,000; 0
7. How should investment in MNO Co. stocks be presented by this company’s balance sheet?
PROBLEM 7
Maria Corporation has the following non-trading equity securities on December 31, 2015
Security # of shares Cost Fair value (12/31/2015)
ABC ordinary shares 9,000 441,000 P 46 per share
DEF ordinary shares 30,000 1,080,000 35 per share
GHI preference shares 2,400 360,000 154 per share
Audit notes:
a. The above securities were all bought in 2015. On the initial recognition, Maria made an irrevocable election to present
gain/losses on the said securities to other comprehensive income.
b. On April 1, 2016, the company sold all the ABC ordinary shares for P65 per share
c. On May 1, 2016, the company purchased 4,200 ordinary shares of JKL Corp. at 75 per share. The company incurred
brokers fee amounting to P10,400
d. The following additional information in 2016 deemed relevant.
Dividends declared Reported Net income FV of shares
12/31/2016
ABC ordinary shares P2.00 per share P900,000 P62 per share
DEF ordinary shares P1.50 per share 1,300,000 38 per share
GHI preference shares P1.00 per share 750,000 145 per share
JKL ordinary shares P0.75 per share 450,000 77 per share
®all dividends were declared 12/31/2016
Based on the results of your audit, answer the following:

1. What is the realized gain on sale of ABC shares in 2016, under PFRS 39?
a. 144,000 b. 171,000 c. 190,000 d. 0
2. What is the unrealized holding gain/loss to be reported in the shareholder’s equity portion of the 2016 statement of
financial position?
a. 76,800 b. 56,400 c. 46,000 d. 66,400
3. Assuming that the company elected to report gains/losses in the profit/losses instead, what is the unrealized holding
gain/loss to be reported in the 2016 statement of comprehensive income?
a. 76,800 b. 56,400 c. 46,000 d. 66,400
4. Assuming that the 4,200 JKL shares acquired in 2016 represent 20% interest on JKL’s outstanding ordinary shares, what is
the correct carrying value of the investment in JKL shares?
Page 7 of 8
a. 412,250 b. 382,250 c. 371,850 d. 401,850
Page 8 of 8
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SMARTS CPA PROFESSIONAL REVIEW

2F Ritzleen Building, Atis Street, General Santos City, Philippines

Provide the entries to the following transactions:

March 15 Received 1-for-5 bonus issue from DEF Co.

The remaining share rights expired.

Dec. 31 Received 30% cash dividends from DEF Co. shares.

Date Particulars Debit Credit

12/31/17 Sold XYZ bonds at 98 plus accrued interest 4,220,000

Your audit revealed the following additional information:

After the audit, determine the following:

Date Transactions Shares Ref. Debit Credit

Date Transactions Shares Ref. Debit Credit

Based on the results of your audit, answer the following:

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