Chapter 36 Financial asset at (ir value Measurement-FVPL and FVOCI Problem I On January 1, 2016, Alexis Company purchased marketable equiry securities to be held as “wading” for 5,000,000. The entity also paid transaction cost amounting to 200,000. The securities had a market valve of 5,500,000 on December 31, 2016 and the transaction cost that would be incurred on sale is estimated at 100,000. No securitics were sokl during 2016, What amount of unrealized gain or loss on these seeurities should be reported in the 2016 income statement? 8, 500,000 gain bb, $00,000 loss ¢. 300,000 gain 4. 400,000 gain Answer: a Fair value Acquisition cost Trading Unrealized gain including in profit and loss 5,500,000 4,000,000 $00,000, Problem 2 During 2016, Garr Company purchased marketable oquity securities as 2 trading investment. For the year ended December 31, 2016, the entity recognized unrealized loss of 230,000. ‘There were no security transactions during 2017. The entity provided the following information on December BA, 2017: Security Cost Market Value A 2,450,000 2,300,000, B 1,800,000 1,820,000 In the 2017 income statement, what amount should be reported as unrealized gain or loss? a. Unealized gain of 100,000 b. Unrealized loss of 100,000 ¢. Unrealized loss of 130,000 4. Unrealized gain of 130,000 Answer: A Market value-December 31, 2017 4,120,000 Carrying amount 2016 4,020,000 Unrealized gain in 2017 109,000 Cost 4,250,000 Unrealized loss-2016 230,000 Market value- December 31,2016 4,020,000 Problem 3 During 2016, Latvia Company purchased trading securities with the following cost and market value on December 31, 2016: Security Cost Market Value A-1,000 shares 200,000 300,000 B-10,000 shares 1,700,000 1,600,000 C-20,000 shares 3,100,000 2,900,000 ‘The entity sold 10,000 shares of security B on January 15, 2017 for 180 per share. 1. What amount of unrealized gain or loss should be reported in the income statement for 2018? «8, 200,000 loss b, 200,000 gain ¢. 300,000 loss d. 300,000 gain ‘2, What amount should be reported as loss on sale of trading investment in 2017? a. 200,000 gain b, 200,000 loss . 100,000 gain d. 100,000 loss ‘Answer 1A Total market value- December 2016 4,800,000 Total cost- December 2016 5,000,000, Unrealized loss in 2016 200,000. Answer 2-D Sale price (10,000 x 150) 1,500,000 Carrying amount of B shares. 1,600,000 [Link] sale of trading investment 100,000 Problem 4 Carmela Company acquired non trading equity ‘instrument for 4,000,000 on March 31, 2016, The equity instrument is classified as financial asset at fair value through other comprchensive income. The transaction cost incurred umounted to 700,000. ‘On December 31, 2016, the fair value of the instrument was 5,500,000 and the transaction cost that would be incurred on the sale of the investment is estimated at 600,000. What amount of gain should be recognized in other comprchensive income for the year ended December 31, 20167a. 200,000 , 900,000 1c. 800,000. 10 Answer C Fair value- December 2016 3,500,000 Acquisition cost 4,700,000 Unrealized gain- OCI 800,000 Acquisition cost 4,000,000 Transaction cost 700,000 Total acquisition cost 4,700,000 Problem 5 Qn Dsscmber 31, 2016, Fay Company appropriately reported 2 100,000 unrealized loss. There was. no change during 2017 in the composition of the portfolio of non- trading equity securities held at fair value through other comprehensive income. Security Cost Market value 2017 A 1,200,000 1,300,000 B 900,000 $00,000 c 1,600,000 1,500,000 3,700,000 3,300,000 1, What is the market value of the December 31, 2016? 3,600,000 3,700,000 3,500,000 3,800,000 ‘What amount of loss on these securities should be included in the statement of comprehensive income fot the year ended December 31, 2017 as component of other comprebensi a. 400,000 b. 300,000 ¢. 100,000 ao 3. What cumulative amount of loss on these securities should be reported in the statement of changes in equity for the year ended December 31, 2017 as component of other comprehensive income? a. 100,000 '5. 200,000 . 400,000 ao estment on income? Answer 1+ A. Total cost 3,700,000 Unrealized loss in 2016 (100,000) Market value-12/31/16 3,600,000 Answer 2-B Market value- December 31, 2017 3,300,000 Market value- December 31, 2016 3,600,000 Unrealized loss 2017 (300,000) ‘Unrealized loss-December 31, 2016, (100,000) ‘Cumulative unrealized loss-2017 (400,000) Answer -C Market value- 12/31/17 3,300,000 Original acquisition cost 3,100,000 ‘Cumulative unsealized loss (400,000) Problem Benquct Company began operations on January! 2016. The following information pertains to the December 31, 2016 portfolio of equity securities: Trading Non-trading Aggregate cost 4,000,000 6,000,000 Apgrogetc market wiluc 3,700,000 3,500,000, Aggregate lower cost 3,500,000 $,300,000 Tho market declines arc judged to be other than temporary. The non-truding securities are designated at fair value through other comprehensive income. What amount should be reported as total loss on these securitics in the income statcment for 2016? a, 800,000 ». $00,000 +. 300,000 do Answer: C Trading Aggregate market value 3,700,000 Cost 4,000,000 Unrealized loss (300,000) Non-trading $500,000 $6,000,000 (300,000) Problem 7 Judicious Company acquired an entity investment a number of years ago for 3,000,000 and classificd it as fair value through other comprehensive insome, On December 31, 2016, the cumulative loss recognized in other comprehensive income was 400,000 and the carrying amount of the investment was 2,600,000.On December 31, 2017 the issuer of the cquily investment was in severe financial difficulty and the fair value of the equity investment had fallen to 1,200,000, ‘What cumulative amount of unrealized loss should be reported as component of other comprehensive income in the statement of changes in equity for the year ended December 31.2017? «a, 1,400,000 'b. 1,800,000 1,000,000 0 Answer: B Market vatue (2017) Historical cost ‘Cumulative unreulized loss, 1,200,000 3,000,000 (1,800,000) Problem 3 ‘On January 1, 2016, Lebanon Company purchased equity securities to be held at fair value through other ‘comprehensive income. On Decenibér 31, 2016, the cost and market value were: Cost Market Security X 2,000,000 2,400,000 ‘Security Y 3,000,000 3,300,000 ‘Sceurity Z 5,000,000 4,900.000 ‘On July 1, 2017, the entity sold Security X for 2,500,000. What amount should be recognized directly in retained carnings as a resull of the sale of financial asset im 20172 1,000 2,300,000 2,000,000 (300,000) Sale price» Security X Historical cost- Security X Cumulative credit to retained earnings Problem 9 On January |, 2016, Caraga Company purchased equity securities to be held as financial assets measured at value through other comprehensive income. Cont Maske 1231/16 Markett2/31/17 SecuityR 3.00000 4,300,000 ScowityS 000,000 3.500000 3,700,000 SeowityT $000,000 4.600000 4,700,000 On January 31, 2017. the entity sokd security R for 3,500,000. 1. What amount should be recognized directly in retained eamings? a. $00,000 b. 300,000 «, 200,000 0 2. What cumulative unrealized gain or loss on the remuining financial assets should be reported in the statement af changes in equity on 20177 a. 600,000 gain 'b, 600,000 Loss «. 300,000 gain 4. 300,000 toss Answer I: A Sale price-Seourity R Historical cost. Security R 3,000,000 Cumulative credit to retained carnings ($00,000) Answer 2: 3 Market value Security S-12/31/17 3,700,000 Market value Security T- 12/31/17 4,700,000 Total market value 8,400,000 Historical cost § and T 9,040,000 Cumulative unrealized loss-12/31/17 (600,000) Problem 10 ‘At the beginning of the current year, Remington Company acquired 200,000 ordinary shares of Universal Company for 9,000,000. At the time of purchase, Universal Company had outstanding 800,000 shares with carrying amount of 36,000,000. The following events took place during the current year: Universal Company reported net income of 1 8100,(K00 fo the current year Remington Company reccived from Universal Company a dividend of 0.75 per onlinary share. The market value of Universal Company share had temporarily declined to 40, Remington Company has elected irrevocably to measure the investment at fair value through other comprehensive income. What is the carrying amount of the investment at year end? a. 9,000,000 b. 8.000.000 c. 9,300,000 9,450,000Answer: B Market value at year end (200,000x40} 8,000,000 Acquisition cost 9,000,000 Unrealized boss on financial asset-OCI (1,000,000) Problem 11 Neal Company held the following financial assets as trading investments on December 31, 2016: Cost Market value 100,000 shares of Company A nomredecmable preference share capital, par value 75 775.000 325,000 7,000 shares of Company B pprcfercnee share capital, par value 100, subjeet to mandatory redemption by the issue at par on December 31, 2017 690,000, 28.000 1,465,000 1, 450,000 ‘On December 31, 2016, what is the total carrying amount of the investments? a. 1,400,000 b. 1,450,000 1,465,000 1,475,000 Answers B “The nonredeemable preference share isan equity sccunty The non-fedecmvable preference share is a debt security whether debtor equity security, financial assets held for trading are measured at fair value through profit oF loss. Problem 12 ‘Trinidad Company provided the following portfolio of equity investments measured at fair value through other comprehensive income: Aggregate oost- December 31, 2016 1,700,000 Unrealized gain- December 31, 2016 40,000 Unrealized loss- Decernber 31, 2016 260,000 ‘Net realized gain during 2016 300,000 (On Jammaary 1, 2016, the entity reported an unrealized loss of 15,[Link] a component of other comprehensive income. Is the 2016 statement of changes in equity, what cumulative amount should be reported mx unrealized loss on these sccunities? a 260,000 220,000 ©. 208,000 do Answer: B ‘Unrealized Loss 260,000 ‘Unrealized gain 40,000 ‘Cumulative net realized loss- 2016 220.00 ‘Unrealized loss- January 1. 2016 13.000 Increase in unrealized loss 205,000 Problem 13 Gil Company provided the following information on December 31, 2016 regarding equity investment: Non-current assets: Financial ass 3,700,000 Sharcholder's equity: Unrealized loss- OCI 300,000 The entity paid transaction cost of 100,000 related to the acquisition of the investment The entity elected to measure the equity investment at fair value through other comprehensive income. What was the historical cost of the financial asset? a 3,700,000 . 3.404.000 .3.900,000 4. 4,000,000 Answer: D Historteal cost (3,700,000+300,000) «4,000,000 Problem 14 n July 1, 2016, Bellirose Company purchased 1,000,000 face value §% bonds for 910,000 plus accrued interest to yield Vit. The bonds mature on January 1, 2021, pay interest annually on January 1 and are classified as trading securities. On December 31, 2016, the bonds had a market value of 945,000. On Febuary 15, 2017, the entity sold the bonds for 920,000. (On December 31, 2016, what amount should he reported for trading securities? 1. 910,000 . 920.000 6: 948,000 4. 950,000 Answer: C Financial asset held for trading-FVPL. 945,000,Chapter 37 Investment inequity Securities Dividend, share split and stock rig Problema 1 Op Janusty 1. 2016, ABC Company purchased 40,000 shares at 100 por ahare to be hold for trading. Brokerage foes amounted to: 120,000, A [Link] dividend per share had been declared on December 15, 2015 to be paid on March 31, 2016 to shareholders of record on January 31, 2016, No other transactions occurred in 2016 affecting the investment ‘What is the initial measurement of the investment? a. 4,120,000 b. 4,000,000 c. 3,920,000 3,800,000 Answer: D Purchase price (40,000x100) 4,000,000 Less: Purchased dividend (40,0005) 200,000 Cost of investment 3,800,000 Problem 2 On January 1,2016, Adarn Company purchased as a long term investment unlisted 100,00 ordinary shares of Mill Company for 40 a share. On December 28, 2016, Adam Company sold 30,000 shares of Mill Company for $0 a share For the year ended December 31, 2016, what amount should be reported as gain on disposal of long term investment? 14 200,000 6. 900,000 ©. 800,000 . 490,000 Answer: C Sale price (80,000x50) Cost of investment (80,000%40) Gain on dispoxal of investment 00,000 Problem 3 ‘Cob Company purchased 10,000 shares representing 2% ownership of Roe Company on February 15, 2016. Cobb ‘Company received a stock dividend of 2,000 [Link] March 31, 2016, when the carrying amount per share was 380 and the rmuhet value per sare was 400, Roe Company paid a cash dividend of 15 per share on September 15, 2016. nthe income statement for the year ended October 31, 2016, ‘what amount should be reported as dividend ingore” 2. 980,000 $80,000 << 180,000 4.180.000 Answer: € Original shares 1,000 Stock dividend 2.000 Total shares 12,000 Diivickend Inerime (12,0000% 15) 10,000 Problem 4 During 2016, Lawan Company bought the shares of Burwood Company as follows: June 1 20,000 shares at 100 2,000,000 December | 30,000-shares at 120 3,600,000 5,600,000 Teansactions for 2017 January 18 —_-Reseived a cash dividend at 10 per share January 20 Received 20% stack dividend. December 10 Sobd 30,000 shares at 125 per share Iv the FIFO approach is used, what is the gain on sale of the shares? a. 1,180,000 950,000 150,000 d. 350,000 AnsworA [FIFO approach June 1 Dee I Original shares 20,000 30,000 ‘Stock dividend-20% 4,000 6.000 Total shares 24,000 36,000 ‘Sale price (30,0001 125) 3,750,000 Cost of shares sold: From fume (24,004 shares Lat From December | (6,000 shares) 600,000 2,600,000 Gain on sale 1,150,000 Problem Wood Company own 20,000 shares of Arlo Company's 200,000 hares of F100 par, 6% cumulative, non-participating preference share capital and 10,000 shares representing 2% ownership of Arlo's ordinary share capital During 2016, Arlo declared and paid preference dividends of 2,400,000, No dividends had een declared or paid during 2015. In addition, Wood receiveal a S% stuck dividend on ordinary share from Arlo when the quoted market price of Arlo's ordinary share was 10. What amount should be reported as dividend income for 2016? a. 120,000 b. 125.000 €. 240,000 a. 245,000Answer: C Dividend income on preference share (20,000-200,000=1 0%4x2,400,000) 240,000 Problem 6 Day Company received dividends from share investments uring the year ended December 31, 2016 as follows: © Asstick dividend of 4.000 shores frum Purr Company ox: July 31, 2016, when the market price of Purr's share was 20. Day owns less than 1% of Parr's share eapital, © Acash dividend of 150,000 leon Lark Company ln whieh Day owns a 25% interest. A majority of Lark's directors are also directors of Day. ‘What amount of dividend revenus should be reported in 2016? a 230,000 180,000 «. 80,000 do Answer D The stock dividend frum Parr Company is not an income. Problems 7 Wray Company provided the following data for 2016: © On September I, Wey ecoeiwed 9 SI:IKI0 exh dividend rom Seco Company in which Wray owns 2 30% interest. © Os October I, Wray recived 2 60,000 Fyuidatine dividend from King Company. Wray owns a 5% interest ‘ns King © Wray owas a 2% interest ia Bow Company which declared & 2,000,000 cash dividend on November 15, 2016 payable on January 15, 2017. What amount should be reported as dividend income for 20167 ‘a 600,000 $60,000 . 100,000 40,000 Answer: D (Cash dividend from Bow Company (24x 2,000,000) £0,000 Problem 8 During 2016, Neil Company bck! 30,000 shares of Brock Company's 100,000 outstanding shares and 6,000 shares of ‘Amal Company's 300,000 shares, During the year. Neil Company received 300,000 cash dividend from Brock. 15,000 cash dividend and 3% stock dividend from Amal. The closing of Amal share is 150. ‘What amount should be reported as dividend revenue for 20167 a, 342,000 315,000 442,000 15,000 Answer: D (Cash dividend from Amal (6,000/300,000=2% interest) 15,000 Problem 8 Go March 1, 2016, Evan Company purchased 10,000 ordinary shares at 80 pet share, On September 30, 2016, Evan received 10,000 stock rights to purchase an additional 10,000 shares at 9¥per share. The stock rights had an expiration date on Febmary 1, 2017. On September 30, 2016, the share had w market value P9S and the sock right had a market value of PS. What amount should be reported on September 30, 2016 for investment in stock rights? 1, 150,000 ». 100,000 ¢. $0,000 4, 60,000 Answer: C tial measurement wt fir value (20,000 rights & $) $0,000 Problem 10 Rice Company owned 30,000 a1 ry shares of Wood Company acquired op July 31, 2016, uf total cust of 1,100,000. On December |, 2016, Rice received 30,000 stock rights from Wood. Fach right entitles the holder to acquire one share at 4s The market price of Wood's share on this date was PSO and the market price of each right was PIO, Rice sold the rights on December 31, 2016 for 450,000 less a 10,000 commission What amount should be reported as gain from the sale of rights? a. 10,000 b 140,000 €. 250,080 240,000 Anowsr: B Net sale price (430,000-10,000) 440,000 Jaitial cost of righes sold (30,000 x 19) Gain on sale of rights 140,000Problem 11 Adam Company owned 50,000 ordinary shares of Bland ‘Company. These 50,000 shares were purchased by sAdam for 120 per share, ‘On August 30, 2016, Bland distributed $0,000 stock rights to Adam. Adam was entitled to buy one new share of Bland ‘Company for P9O cash and 1wo of these rights, ‘On August 30, 2014, each share had a market value of P130 sand cach right had a market value of P20. What total cost should be recorced for the new shares that are acquired by exercising the rights? 4. 2,250,000 ', 3,280,000 «3,050,000 d. 5,500,000 Answer: B Initial cost of rights (50,000x20) Cash paid for new shares (25,0010x90) Total cost of new shares 1,900,000 2,250,000 3,250,000 Problem 12 Excelsia Company issued rights to subseribe ta its stock, the ownership of 4 shares entitling the shareholders to subscribe for I share at P100, Jsalina Company owns $0,000 shares of Excelsia Company with total cost of $,000,000. The share is quoted right on at 125. What is the cost of the new investment if all of the stock rights are exercised by the investor? a. 1,500,000 6, 1,250,000 6 1,562,500 1,450,000 Answer: A ‘Theoretical value of right (125-100'4+1} 5.00 Initial cost of rights (50,000 x S) 20,000 Cash paid for new shares (80,000:4=12,500%100) 1.240.000 Cost of new investenent 1,500,000, Problem 13 On January 1, 2016, Mylene Company purchased $0,000 shares of another enlity for 3,600,000, On October 1, 2016, the cnlity ressived 50,000 stock rights from the investee. Each right entcled the shareholder to acquire one share for PRS. ‘The market price of the investes's share was PIOO immediately before the rights were issucd and P90 immediately after the rights were issued. (On December 1, 2016, the entity exercised all stock rights. On December 31. 2016, the entity sold 25.000 shares st POO per share. The stack rights are not accounted for separately. The FLFO approach is use. What is the gain on sale of investment that should! be recognized in 2016? a. 450,000 'b. 700,000 ©. 287,500 4,125,000 Answer A FIFO Approach Sale price (25.000x90) Cost of shares sald (25,000750,000 x 3,600,000) Gain on sale 450,000 2,250,000 Problem 14 2014 Jan. 1 Christopher Company purchased 20,000 shares of Bay Company, P100 par, at PI 10 per share March 1 Bay Company issued rights to Christopher Company, -¢ach permitting the purchase of Y share at par, No ‘sniry was made, The bid price of the share was 140 and there was no quoted price for the rights ‘April | Christopher Company paid for the new shares -charging the payment to the investment Since Christopher Company felt that it had been assessed by Bay Company, the dividends received from Bay Company in 2014 and 2015 were credited to the investment account until the debit for payment ofthe new share was fully offset. Dee. 31 Christopher Company received annual dividend of 250,000 from Bay Company, 2018 Dee. 31 Christopher Company received annual dividend of 250,000 from Bay Company. 2016 Jan | Christopher Company received $0% stock dividend from Bay Company. On same date, the shares received as stock dividend were wold at 10 per share and the proceeds were credited to income, Dec H The shares of Bay Company were split 2 for 1. ‘Christopher Company found that each new share was worth PS more than P1 10 paid for the original shares, ‘Accordingly, Christopher Company debited. the investment account with the additional shares received af PI10 ped share and credited incre, 2017 June 30 Christopher Company sold one-half of the investment a1 P92 per share and credited the provesds to the investment account 1, What is the balance of the investment on December 31, 2017 as it was kept by Christopher Company? 3,150,000 bb 2,680,000 ©. 2,200,0004. 4,950,000 2. Using the average method, what isthe correct balance of the investment on December 31, 20177 a 2,200,000 b. 1,800,000 -¢, 900,000. ao 3. What is the net adjustment to retained camings on December 31, 20177 1 3, 680,000 debit b. 3, 150,000 debit 6 3, 650,000 credit 4. 3, 150,000 credit 4. What amount of gain on sale of investment should be reported in 20172 a. 1,400,000 ». 1,100,000 2,500,000 1,900,000 Answer IL: B Shares Cost W114 (20,000%1 10) 20,000 2,200,000 21/14 (5,000%100) s,000 $00,000 1231/14 (dividend received) ~ (250,000) 12/31/18 (dividend received) . (250,000) 12/31/16 (25,000%1 10) 28,000 2,750,000 6/3021 €28,000n92) (28,000) 2.300.000 Investment account perbook 25,000 2,650,000 Answer 2:€ Shares Cost Vir (20,0081 10) 20000 2,200,000 AU1/14 (5.000x100) $,000 $00,000 12/31/14 dividend received 12500 — Balance 37,300 2,700,000 VAS vases son SFE RSS em alse 000 1 go.000 12NGE fe tap 25.000 ss tines sa.000 Troon fre CS MONSH OH L.A —_ ASO 990,000, Balance December 31, 2017 25,000 900,000 Amwer 3: B Credit adjustment $00,000 Debit adjustment (900,000) Debit adjustment 2.750.000) Net debit adjustment 3,130,000) Answer 4; AL Sale price (25,000 x92) 2,300,000 Cust oFstuares mull cz=oousapit stan; (aun Gain on sale of investment 1, 400,000 ‘Chapter 38 Iavestment in Associate BASIC PROBLEMS Problem 1 On Fanuary 1, 2016, Saxe Company purchased 20% of Lex Company's ordinary shares outstanding for 6,000,000, The requisition cost ix equal to the canying amount of the net nssets acquired, During 2016, the investee reported net income of 7,000,000, ‘und paid cash dividend of 4,000,000. What is the balance in the investment in associate on December 31, 2016? $200,000 6,000,000 6,600,000 . 7.400,000 Answer: © Acquisition cost 6,000,000 ‘Add: Shave in net ineome (20% « 7.000.090) 1,100.00 Terai 7,400,000 Less: share in cash dividend (2% x «070.0005 800,000 Carrying umount 6,600,000 Problem 2 In January 2016, Farley Company sequired 20% of the outstanding ordinary sharcs of Davis Company for 8,000,000. This investment gave Farley the ability to exercise significant influence over Davis. The camying amount of the acquited shares sas 6,000,000, The excess of cast over carrying amount was attributed to the depreciable assct which was undervalued on Davi"s statement of financial position and which had a remaining useful life of ten years, For the year ended December 31, 2016, the investee reported ret income of 1,800,000 and paid cash dividends of 400,000 ‘and thereafler issued 5% stock dividend What is the carrying amount of the investment im associate ca December 31, 2016? 7,720,000 7,800,000 . 8,000,000 4. £080,000 Answer DP Original cost 8,000,000 Share in net income (20% x 1,800,000) 360.000 ‘Share in cash dividends (20% x400,000) (80,000) Amortization of excess of cost- 12/6 — aN. 0003 Carrying amount of mvestment -12/31/16 8,080,000 8,000,000 (6,000,000) Axquisition cost Carrying amount of interest requiredExcess of cost over carrying amount Problem § On January 1, 2016, Well Company purchased 10% of Rea Company's outstanding ordinary shares for 4,000,000. Well Company is the largest single shareholders in Rea and Well’ officers are a majority of Rea’s board of directors. ‘The investee reported net income of §,010KH for 2016 and paid dividends of 1 $00,000. On December 31, 2016, what amount should be reported as lavestment In Rea Company? a 4,500,000 by 4,380,000 4,000,000 4. 3.850,000 2,000,000 Answer: B Acquisition, January | 4,000,000 Add: Share in net income (10% x 5,000,000) $00,000 Toll 4,$40,000 Lose: Share in cach dividends 10% x 1,s00,000) 50.000 Carrying amount of investment, 12/31 4,350,000 Problem 4 On January 1, 2016, Dyer Company acquired as long-term investment a 20% ordinary share interest in Eason Company. [Dyer paid 7,000,000 for this investment when the Fair value of Fason's net assets was 35,000,000. For the year ended December 31, 2016, the investee reported et income of 4,000,000 and declared and paid cash dividends of 1,600,000, What amount of revenue from the investment should be reported for 2016? «& 1,120,000 480,000 «. 800,000 4. 320,000 Anawer C ‘Share in net income (20% x 4,000,000) 800,000 Problem $ On July 1, 2016, Diamond Company paid 1,000,000 for 100,000 outstanding shares which represent 40% of Ashley Company, At that dats, the net assets of Ashley totaled 2,800,000 and the fair vatues of all Ashley's identifiable assets and liabilities were equal to their carrying amount. Ashley reported met income of $00,000 for 201606 which 300,000 was for the six months ended December 31, 2016, Ashley paid cash dividends of 250,000 on September 30, 2016 What amount of income should be reported from the investment in Ashley? a. 200,000 ', 100,000 . 120,000 4. 80,000 Answer: C ‘Share in net income from July 1 to December 31, 2016 (300,000.40%) 120,000 Problem 6 Qn July 1, 2016, Denver Company purchased 30,000 shares of the Eagle Company's 100,000 outstanding ordinary shares for P200 per share, On December 15, 2016. the invesiee paid 400,000 in dividends to the ordinary sharebolders, The investce’s net income for the year ended December 31, 2016 was 1,200,000, eamed evenly throughout the year. What amount of income from the investment should be reported in 20167 1. 360,000 b 140,000 «. 120,000 4. 60,000 Answer; D Share in net income from July | to December 31, 2016 (1,200,000 x 6/12 x 30%) 180,000 Interest acquired (30,000'100,000) 3% Problem 7 Gp April 1, 2016, Ben Company purchased 4(M% of the outstanding ordinary shares of Clarke Company for 10,000,000. On that date Clarke's net assets were 20,000,000 and Ren cannot attribute the excess of the cost of its investment in Clarke over its equity in Clarke's net assct to any particular factor. The investes's mst income for 2016 ix 5,000,000. What is the maximum amount which could be included in 2016 income before tax to reflect the equity in net income of investee? 1. 1,400,000 b. 1,501,000 «2,000,000 4, 1,850,000 Answer: B Share in net income trom April L te December 31, 2016 (5,000,000 x 9:12 x 40%) 1,500,000 Acquisition cost 10,000,000 ‘Camying amount of net assets acquired 407% x 20,000,000 (8,000,000) ‘Good will not amortized 2,000,000 Problem 8 ‘On January 1. 2016, Ronald Company purchased 40% of the ‘outstanding ordinary shares of New Company, paying6.400.000 when the carrying amount of the net assets of New Company equalled 12,500,000. The difference was attributed 19 equipment which had a carrying amount of 3,000,000 and a Gir market value of $,000,000 and to building which had a carrying amount of 2,800,000 and a fair market value of 4,000,000. ‘The remaining useful life of the equipment and building was 4 years and 12 years, respectively. During 2016, New Company teported net income of 5,000,000, and paid dividends of 2,500,000, What amount should be reported as investment income for 2016? 1 2,000,000 '. 1,000,000 «. 1,800,000 4.1,750,000 Answer: d Acquisition cost 6.400.000 Netassets acquired (40% 12,500,000) (S.p0.000 Excess of cost 1,400,000 Excess of atributable to equipment (40%x2M) 00,000, Exeess of anributable to building (40% x 15M) (4.00 #.400,000 Share in net income 140% 1 $,000,000) 2,000,000 Amortization excess: Equipmem (800,004) (200,000) Building (600,000/12) (0.000 Jnvestment income 1,750,000 Problem AL the beginning of the current year, Kean Company purchased 30% interest in Pod Company for 2,500,000. Op this date Pod's shareholder's equity was 5,000,000. The ‘carrying amounts of Pod’s identifiable assets approximated the fair values, except for land whose fair value cxeceded the carrying amount by 210,000. The iavestee reported nel income of 1,000,000 ane paid no dividends during the current your. What amount shauld be reported as investment in associate at yearend? 2,100,000 ». 2,200,000 ©. 2,800,000 4. 2,760,000 Answer: C ‘Acouisition cost Carrying amount of net assets acquired 30% x $,000,000 cso.a00) Excess of cos! over earrying amount 1,600,000 Amount atiributable (o undervalwation of land 2,400,000 30% x 2,000,000 00.000) Good will not amortized 400,000 Acquisition cost, January 1 2,800,000 Share in nevincome (30% x 1,000,000) 300,000 ‘Carrying amount of investment 2,800,000 Problem 10 At the beginning of the current year, Sage Company bought 40% of Eve Company's outstanding ordinary shares for 4,000,000. The carrying amount of Eve's net assets at the purchase date totaled 9,000,000. Fair values and carrying amounts were the sarne for all items except for plant and inventory. for which fair values exceeded ‘heir carrying amounts by 900,000 and 100,000, respectively, The plant has an 18-year life. All inventories were sold during, the current year, During the current year. the investee reported net income of 1,200,000 and paid 200,000 cash dividend. What amount should be reported as investment income for the current year? 1. 480,000 ». 420,000, ©. 360,000 320,000 Answer: B Acquisition cost 4,000,000 Net assets acquired (4?/4x9M) (8,600,000) Excess of cost over carrying amount 400,000 ‘The excess of cost is identified as follows: Undersiatement of plant 40%x900,000 360,000 Understatranca oF incinary s0rxi00.0 40,000 Total excess of cost 400,000 Share in net income (40%x1.200,000) 480,000 Less; Amortization of excess of cost: Depreciation of plant (360,000/18) 20,000 Inventory totally sold 40,000 60,000 Investment income 420,000, Problem 11 x January 1, 2016, Anne Company purchased 20% of the outstanding ofdinary shares of Dune Company for 4,000,000 ‘of which 1,090,000 was paid in cash and 3,000,000 is payable which 12% annual interest on December 31, 2016, Dune’s shareholder's equity on January 1, 2016 was 13,000,000. Anne also paid $00,000 to business Broker who helped find a ‘suitable business and negotiated the purchase. ‘Al the time of acquisition, the fair values of Dune's identifiable ascets and liabilities were equal to their carrying. amounts except for an office building which had! a fnirwalue inexcess of carrying amount of 2,000,000 and an estimated life of 10 years. During 2016, Dune Company reported net income of 5,000,000 and paid dividend of 2,000,000. What amount of income should be reported for 2016 as a result of the investment? 810,000 620,000 960,000 £85,000 Answer: C Acquisition cost (4M+500,000) Carrying amount of net assets acquired (20% x 13,000,000) (2,600,000) Excess of cost 1,900,000 Excess of attributable to building (20%4x2M)_ (400,000) {cess of aarizutable bo woouill nut srmurtised 1 SOM,000 4,500,000, Sharg in net income (20% x 5M) 1,900,000 Amonization of excess of cos: Attibutable to building (400,000/10) (49.000 Investment income 960,000 Problem 12 AL the beginning of cument yeas, Occidental Company purchased 40% of the outstanding ordinary shares of Manapla Company for 3,500,000 when the net assets of Manapls amounted to 7,040,000, At acquisition date, the carrying amounts of the identifiable assets and Liabilities of Manapla were equal to the fair value, except for fair value for which the fair value was 1,500,000 greater than the carrying amount and the inventory whose fair value was 500,000 greater than the cast, The equipment has » remaining life of 4 years amd the inventory was all sold during the current year. Manapia Company reported net income of 4,000,000 and paid no dividends during the carrent year. ‘What is the maximum amount of the equity in camings of the imvesiee? a 1,350,000 . 1.250.000 1,600,000 4. 1,700,000 Cost 3,800,000 Carrying amount of interest acquired 40% x 7,000,000 (2,800,000) sa of cust over carrying amoual 700,000 Excess applicable to inventory 40%x1.5M (600,000) ess applicable to inventory 40%xS00K (200,000) (100,000) cess of fair value over cost Share in net income (40% 4M) 1,600,000 Excess of fair value over cost 100,000 Faxcess of cost over carrying amount: Fquipment (600,00074) (150,000, Inventory — all sold 20.000 Investment incorne 1,350,000 Problem 13 ‘At the beginning of current year, Bing Company purchased 30,000 shares of Latt Company's 200,000 cutstanding ordinary shares for 6,000,000. On that date, the carrying amount of the acquired shares on Latt's books was 4,000,000. Bing attributed the exeess of cost over the earrying amount to patent. The pateat has a remaining useful life of 10 years During the current year, Bing’s officers gained a majority on Lats board of directors. Lait Company reported earings of 5,000,000 for the current year and declared and paid dividend af 3,000,000 a1 year end. ‘What is the carrying amount of the investment im associate at year end? a. 6,100,040 b. 6,100,000 ©. 6,300,000 4. 6,750,000 Answer: B Acquisition cost 6,000,000 Carrying amount of net assets acquired (4,000,000) Excess of cost applicable to patent 2,000,000 Acquisition cost 6,000,000 Share in net income (SMu15% 780,000 ‘Share in cash dividend (2Ma 15%) (450,000) Amortization of patent (24/10) (200,000) Carrying amount of investment 6.100.000 Interest acquired (30,000:200,000) 15% Problem 14 On July 1, 2016, Miller Company purchased 25% of Wall's Company's outstanding ordinary shares and no good will resulted from the purchase, Miller appropriately carried this investment at equity and the balance in Miller's investment uccount was 1,900,000 on December 31, 2016, Wall Company reported net income of 1,200,000 for the year ended December 31, 2016, snd paid dividend totalling 480,000 on Deveinbsr 31, 2014, ‘How much did Mitler pay for the 25% interest in Wall? 8. 1,720,000 b 2,020,000 ©. 1,870,0004. 2,170,000 Answer: C Acquisition cost, July | (SQUEE: 1,870,000 ‘Add: Share in net income in 7/1 to (1,200,000x6/12425%) 150,000 Total 2,020,000 Less: share in cash dividend 25% x 480K (I Investment balance, Dee 31 ).000} 1,900,000 Problem 15 At the beginning of the current year, Cyber Company bought 30% of the outstanding ordinary shares of Free Company for 5,000,000 cash. Cyber Company accounts for this investment by the equity method. At the date of the acquisition, Free Company's net assets had carrying amount of 12,000,000, Depecciable assets with an average remaining life of five years have a current market value that ix 2,500,000 in excess of their carrying amount. ‘The remaining difference berween the purchase price and the carrying amount of the underlying equity cannot be attributed to any identifiable tangible or intangible asset. Accordingly. the remaining difference is allocated to good will. Free Company reported net income of 4,000,000 and paid cash ividends of 1,000,000 during the current year, What is the carrying amount of the investment in associate at year end? 1. $000,000 '. $,900,000 $,000,000 Net assets acquired (30%x 1280) 1.600.000) Excost of cost over carrying amount 1,400,000 Excess attributable ta depreciable assets 30% x 2,590,000 so.000) Excess uttibutable to good will 650,000 Acquisition cast 5,000,000 Share in aet income (30% x 4M) 1,200,000 ‘Share in cash dividends (30% x 1M) 100,000) Anvortization af denrecintke asscrs C7501) LOKI Carrying amount of investment $,750,000 Problem 16 Moss Company owned 20% of Dubro Company’s preference share capital and 80% of the ontinary share capital on December 31, 2016, The investee reported nct income (1,000) for the year cnded December 31, 2016. 10% cumulative preférenee share capital — 1,000,000 ‘Ondinary share eapital 7,000,000 What is the equity in earnings of the investee for 2016? 1. 420,000 480.000 6, 484,000 400,000 Answer: D Net income: 600.000 Preference dividend (100,000) Net income to ondinary shares $00,000 Share in net ipcome-ordinary shares (80% x $00,000) 400,000 Problem 17 ‘Al the beginning of the current yea, Alpha Company acquired 40% of the outstanding ordinary shares of an investee for 6,500,000. The carrying amount of the net assets of the investce equalled 12,500,000. Any excess of cost over carying amount is atinibulubls to goodwill, The investce reported net oss of 4,000,000 and paid dividends ‘of 2,500,000. ‘What is the carrying amount of the investment at year end? a 6,500,1HK0) b. 3,900,000 «£. 4,900,000 5,500,000 Answer: B Acquistion cost 6,500,000 ‘Share in net loss 40% x 4,000,000. (1,600,000), Share in cash dividend 40x? $M +.000,000), (Carying amount-12/31/16 3,900,000 CHAPTER 40 Financial Asset at Amortized Cost ‘Problem F ‘On July 0, 2016, Cody Company paid 1,193,000 af 10%, 20 ‘year bonds with a face amount of 1,000,000. Interest ix paid on June 30 and December 31, The bonds were purchased 10 yield 8%. The effective interest method is used to recognize interest income from long term investinents, What is the carrying amount of the investment in burs o6 December 31, 20167 1. 1.207.900 b. 1,198,000 6. 1,195,920 4. 1,193,080Answer: C Date Interest Interest Premium Carrying amount Received Income amortization 16 1,198,000, 12/31/16 $0.00 47,920 2.080 L1s.920 Interest received=IM 10% x 6212 80,000 Interest income 1,198,000% 8%» 612 47930 Problem 2 On January 1, 2016, Purl Company purchased as 3 long term investment 5,000,000 face value of Shaw Compsny"s $ bonds for 4,562,000, The boods were purchased to yield 10% ilerest The bonds mature on Janusty 1, 2021 and pay interest anmually on December 31. Ie interest meshed of amortization i used. 1. What isthe imsrest insome for 20177 9,486,200 b.do1.s20 «00,000 389.456 Answer I: B Ancwer?: A Camying amount 11:16 Amoruzatoa of discount for 2016 Interest income (456.200 10%) 456,200 Interest reeeived ($.000,000x8%) 400,000, $4,200 Conrying. amoust- 12/31/16 4.618200 Amortization of discount for 2017 Interest income (4,618,200 x 10%) 461,820 Interest revive (5,000,000 400,000_ 41.520 (Carrying amounts 12/11/17 4.680.020 4,562,000 Prblern (Ox Jaly 1, 2016, York Company purchased as long sere investment 41,000,000 of Park Company's St bonds for 144,000 including ssccrved inierent of 40,000. The bonds were purchased 10 yield 10% imterest, The bonds marured oa January 1. 2022, and pay interest annually on January 1. York Company used the effective interest method of amortization, 1 what is the interest score foe 2016? a. $0,000 90,400 Pera) 4. 40,000 2. On December 31, 2016, what i the carrying amount of the investment in bonds? 2 911,300 916,600 €. 953.300 4. 960,600 Answer I: C Answer 2: A, Purchase price 946,000 ‘Accrued interest (40,000) Cost of investment 906.000 Amortization of discount from 7/1-12/3 1 Interest income 906,000 x 1O%e x 6/12 48,400, Inuerest received 1M x 8% 16/12 40,000. $300 (Carrying amount 123116 911,300 Probiem 4 On January 1, 2016, Portugal Company purchased bonds with face value of 8,000,000 for 7,679,000 ax a long term investment. The stated rate on the Bonds is 10% but the bonds ‘scquited to yield 12 ‘The bonds mature at the rate of 2,000,000 annually ever December 31 and the interest is payable only also every December 31, Ths entity used the effective interest metjod of amortizing discount. |. What isthe interest income for 2016 1. 800,000 b.921,480 960,000 1. 767,900 2. What is the carrying amount of the investment in bonds on December 31, 2016? 5,739,250 b. 7,759,250 1s. 7,800,480, 4. 5,800,480 Answer 1: B lnverest incom: 7,679,000 x 12% 921.480 Interest received 8,000,000 10%, $800,044) Discount on amortization 121,480, “Answer 2: D Cos 7.679.000, Discount on amortization 121.480 ‘Annual instalment 2.000.000) Canying amount 5)800.480 Problem $ Gn July 1, 2016, Fast Company purchased as a long term investment $,000,000 face amount, 8% bonds of Rand Company for 4,61 5,000 10 yield 10% per year. The bonds pay interest semi-annually on Janwary 1 and July 1 On December 31, 2016, what amount should be reported as interest receivable? a. 184,600, ', 200,000 ©. 230,750 250,000Answer: B Inierest receivable from July 1-Dev 31 $,000,000 « 8% x 6/12 200,000 Problem 6. On July 1, 2016, Pell Company purchased Green Company ten year, 8% bonds with a face amount of 5,000,000 for 4,200,000. The bonds mature on June 30, 2026 and pay interest semi- annually June 30 and December 31. Using the interest method, the entity record bond discount amortization of 18,000 for the six months ended December 31, 2016 What amount should be reported as interest income for 2016? 1. 168,000 182,000 €. 200,000 4. 218,000 Answer: d Interest roosived from 7/1-12/31 5M x 8% x 6/12 200,000 Bond discount amortization fer six months 18,000 Imterest income for 2016 218,000 Problem 7 On January |, 2016, Gilberto Company purchased 9% bonds with a face amount of 4,000,000 for 3,756,000 (0 yield 10%. The bonds are dated January I, 2016, marure on December 31, 2025 and pay interest annually on December 31, The interest method of amortiring bond discount is used, 1, What amount should be reported as interest revenue for 20167 0 33K.000 360,000 ©. 375,600 4. 400,000 2, What amount should be reported as interest revenue for 20177 1 400,000 wb, 375,600 «. 360,000 4,377,160, Answer 1: C Answer 2: D Carrying amount- 1/1/16 Discount amortization for 2016: Interest income 10% x 3,756,000 375,600 Interest received 9% x 4,000,000 360,000 18,600 ‘Carrying amount 12/31/16 3,771,600 Discount amortization for 2017: Interest income 1% x 3,771,600 377,600 3.756.000 Interest received Carrying amount 1231 Problem 8 Jeni Company purched bonds at a discount of 100,000. ‘Subsequently, Jent sold these bonds st premium of 140,000, During the period that Jent hold this long term investment. amortization of the discount amounted to 20,000, ‘What amount should be reported as gain on the sale of bonds? 120,000 b. 220.000 240,000 4. 260,000 360,000 17,460 3,788,760 Answer: B Premium on sale of bonds 140,000 Unamortized discount 100,000-20000 0,000 Gain on sale of bonds 220,000 Problem 9 On October Face value of 1 2016, Danica Company purchased 2,000,000 bonds for 98 plus accrued interest and brokerage fee. Interest is paid semi-annually on January 1 und July 1, Brokerage fee for this transsetion is $0,000, ‘At what amount should this acquisition of bonds be recorded? ‘1,950,000 b 2,010,000 . 2.020.000 4 2,070,000 Answer: B Purchase peice 2,000,000 x 98% 1,960,000 Brokerage fee $0,000 Total acquisition cost 2,010,000, CHAPTER 41 MARKET PRICE FOR BONDS. Problem 1 On January 1, 2016, Tagbitaran Company purchased bonds with face amount of 2,000,000. The bonds are dated January 1, 2016 und mature on January 1, 2020. The interest on the bonds is 10% payable semi-annually every June 30 and December 31. The prevailing market rate of interest on the bonds is 12%, The present value of | at 6% for 8 petiods is .63 and the present value of an ordinary annuity of 1 at 6% for 8 periods is 62 What is the present value of the bonds on January 1, 20167 1,881,000 b. 1,888,000 ©. 1.360.000 4. 1,480,000Answer: A. PY of principal (2M x 63) PY of semi-annual interest payments 100,000 x 6.21 2.00, Present value or market price of bonds 1,881,000 1,260,000 400,000 Problem. 2 ‘On January 1. 2016, Arabian Company purchased serial bonds ‘with face amount of 3,000,000 and stated 12% interest payable annually every December 31 ‘The bonds ute to be held as financial asset at amortized cost ‘with a 10% effective yield. ‘The bonds mature at an annual instalment of 1,000,000 every Decembsr 31. The present valucof I at He for: | period on 2 petionts 0.83 3 petiods 07s What is the present value of the serial bonds oi January 1, 20167 3. 3.106,800 ', 3,060,000 ¢. 3,045,000 49,000 Ammer A Principal payment Interest payment 3M x 12% Total payment on 1/31/16 Principal payment 1,000,000 Interest payment 2M x 12% 340,000 Total payment on 1231/17 1,240,000 Principal payment 1,000,000 Interest paymeal IM x 12% 120,000 Total payment on 1231/18 1,120,000 12/3 1416 payment £360,000 x91 1.237.600 12/2117 payment 1,240,000 x .83 1,029,200 118 payment 1,120,000 x .75 840,000 Total present value on 1/1/16 3.106.800 Problem 1 On January 1, 2016, Queen Company purchased bonds face amount of $,000,0000 far 4,760.00) including transaction wos! of 160,000, The business model is to collect cont ‘east ows and (o sell the financial asset. The bonds mature on December 31, 2018 and pay 10% interest annually on December 31 with « 12% effective yield The bonds are quoted at 102 on December 31, 2016 and 105 on December 31. 2017. The bonds are sald on June 30, 2018 plus accrucd interest. 1. What amount of uarealized gain should be reported as component of ether comprehensive iavome for 2016? 4. 268.800 b. 100,000, 6. 340,00 i) 2, What amount of unrealized gain should be reported as component of other comprehensive income for 2017? 8, 339,086 221.200. ©. 10.256 ao 3. What amount should be recognized a3 gain on sale of the bond investment on June 30, 2018? a. $44,528 b. 794,528 ©. 250,000 4. 589,086 Answer 1: A Date interest interest discount Receive income amortization vie 4760.00 carrying amount 1231/16 $00,000 $71.200 71,200 4.831.200 12BNI7 $00,000 $70,744 75,944 orga ARBIAR $00,000 $89,086 69,086 s.000,00 Market value-1231/16 $M x 102% 5,100,000 (Camying amount- 12/31/16 4,831,200 Unrealized gain-OCI for 2016 268,300 ‘Answer 2:C Market value 12/31/17 SM x 105% 5,280,000 Aayeatment balance- 12/31/17 5.100.000» 79,744 5.179.744 Increase in unrealized gain in 2017 70.256 Anvwer 3: Sale price 3,800,000 Cumulative unrealized gsin- OCI 98.06 Total 5.839.056 (Carrying amount per table- [Link] AMOI S28 8.472 Gain on sale of financial asset S428 Amortization of discount 1/1 10 6/30 39,086 x 6112 44,528Problem 2 ‘On January 1, 2016, Michelle Company purchased bonds with ‘face amount of §,000,000, The entity paid 4,600,000 plus ‘wansaction cost of 142,000. The bonds matury on Devember 31, 2018 and pay 6% interest annually on December 31 of each year with ‘The bonds are quoted at 105 on December ‘on December 31, 2017 The business model in managing the financial asset is to ssollect contractual cash flows that are solely payments of principal and interest and also to sell the bonds in the open market, |. What amount of unrealized gain should be reported as income for 2016? ‘2. What cumulative amount of unrealized gain should be reported as component of other comprehensive income in the ‘statement of changes in equity for 2017? a 500,000 b. 592.931 6 164.291 0 3. What is the interest income for 2017? a 300,000 1b. 379.360 388,709 4. 302,931 Answer 1:€ Date interest interest discoust ‘sanying anount Receive income amortization vate 4.42.00 1271/16 [Link] 79360 4921300 1231/17 390,000 385.709 85.7008 4.307.069 12AVIR 300000 J9z9H1 92.93 $00.00 Market valuc-12/31/16 S84 x 10%, 6,280,000 ‘Carrying amount- 12/31/16 4,821,360 Unreatized gain. 12/31/16 2016 428,640 Answer 3: B Market valuc+12/31/17 (SMx 116%) 4,500,000 Carrying amount per able-12/31/17 14,907,069) Cumulative unrealiced gainel231/17 $92,931 Unrealized gain 12/31/16 a2a.640 Inerease in unrealized gain in 2017 V64,291 Answer 3:C Interest income for 2017 (8% x 4,821,360) 385,709 Problem 3 ‘On January 1, 2016, Dumaguete Company purchased bonds “with Face amount of 4,000,000 for 4,206,400. The business model in managing the Gnuneidl asset is to wsollsst contractual cash flows that are solely payments of [Principal and interest and also to sell the bonds in the open market. The bonds mature on December 31, 2018 and pay 10% ‘intereat annually on December 31 cach yeur with 8% effective yield. ‘The bonds are quoted at 95 on December 31, 2016 and 90 on December 31, 2017 1. What amount of unealized loss should bs reported as ‘somponcnt of other comprehensive income in 2016? a. 342.480 1b 406,000 +, 460,520 40 2 What amount of unrealized loss should be reported as ‘component of other comprehensive income in 2017? a a73 878 131,208, +=. 200,000 do 3. What amount of cumulative unrealized loss should be reported in the statement of changes in equity for 2017? a. 406,000 1b. 606,000 6.473.878 do 4. What is the carrying emount of the bond investment tn he reported on December 31, 2017? a. 4.206.000 3,400,000 6. 3,900,000 4.673.878 Answer 1: A Pare nares imerem discount Receive incume amoetization coanying smounr ras 4,206,000 1231/16 400,000 326.489 63.520 4142480 1231/17 400,000 331.398 68,602 4073 478 IBV 400.000 226,122 73.578 $4000,00 Market value-12/3 1/16 3,800,000 ‘Camying srmoumt: 12:3 16 AMAR Unrealized gain- 12/31/16 2016 342.480 Answer 2: B Market value-I231/17 (4M 90%) 3,600,000 ‘Carrying amount per table- 1231/17 (4.073.878) ‘Cumulative unrealized gain-1231/17 (473,878)Unrealized loss-1231/16 1842480) Increase in unrealized gaia ie 2017 031,398) Ancwver 3: C 473,878 Answer 4: BAM x 908%) 3,600,000 Probleen 4 Love Company purchased $,000,000 of 8%, S-year bonds on January 1, 2016 with interest payable on July I and January 1 ‘The bonds were purchased for 5,208,000 at an effective fest fale of The business eiodel for this investment is to collect contractual eash flows and sell the bonds in the open market ‘On December 31, 2016, the bonds were quoted at 106. 1, Wht amount of interest income should be reported for 2016? a 400,000 'b, 200,000 364,560 363,940 2. What amount should be recognized in OCI in the statement of comprehensive income for 2016? a 300,000 b 125,490 128,060 92,000 3. Ifthe entity elected the fair value option, what total amount of income shold be recognized for 20167 400,000 492,000 208,000 . 300,000 Answer: D Dae iweren inet doc Receive mcome amortization hat 5,208,000 HDAWI6 200,000. 182280 17,730 5,190,280 BQAVIT 200,000 181,660 18.340 s.7ou0 canyirg amount Anterest income 1/1 10630 Few 5,208,000 6 1/2 faterent income 7 to 1231 Fon 5.190.280 4 aL Total interest income for 2016 363.940 Answer 2: FV. 31/N6 (5M 3 106%) 5.300.000 Carying aroun pt book 12/3118 arin Unreatied gain OCL 128.060" Answer 3:B Taterent income (SM x 884) Gain from change in far value Total income Market value _Acquitition coat 5.20.00, ‘Gain fom change in fai valve 2.000 Problem 5 (On January 1, 2016, Reign Company purchased 12% bonds with face amount af §,000,060 fr $380,000. The hums provide an effective yield of 10%. The bomde arc dated January 1, 2015, mature on Damunry 1, 2021 ane pay intsreat annwalty on Devember 31, 2016, The catty hus elected the (ait value option forthe bora! investment ‘What total income should he ropoite for 20167 a. 1,220,000 1.120.000 © 1,138,600 4. 0.000, Anewer: A Market vvaluce1 2/31/16 (Shx1201 6,000,000 Carrying ammount — 1/1716 $380,000, Gave feom change in fate vale 20.000 Inerest incon (OM 12%) ‘00,000 Tora income 1,220,000 Problem 6 Om January |, 2016, Gleyka Company puccbaicd 12% bows with face amount 6 $,000,000 for §,500,000 including wansaction cost of 100,000, The bonds provide an effective yield of 10%. The bonds are dated January 1, 2016 and pay interest annually on December 31 of each yeas The bonds are quoted at 115 on Decesuher 31, 2016. The entry as trrevecably elected to use the fair value option. 1. Whot amount of gain from change in faxr value should be reported for 20187 750,000 250.000 380,000 ° 2. What amount of interest income should be reported for 20167 600,000) $80,000 «660,000 4 $40,000 2. What isthe carrying amount of the bond investment on December 31,2016 4. $.7$0.000 .$.400.000 «$500,000 145,450,000 4. What Jolal amount of income from the investments should be reported it the inure statement far 2016? 1 $40,000 950,000 «$90,000 4 900,000 Anower LC Purchase price Transaction cost Adjuned cont 3.500.000 (100800), Market value (SM x 115% 5.250.000$.400,000, ain from change te fae wae 368,000 Answers, Tnereet income 1% x 5,000,000 00,00 Answer3: A, Carrying amour! equal to market value at year endl $,750,000 Answer 4: B Gaan from change in fair value 350.000 Interest income ‘so0.00 Total income from investment 980,000 CHAPTER 43 INVESTMENT PROPERTY Prem | Gaiiee Company ventured inter consiniction of condoeinium in ‘Makati which ie rated as the largest state of the ant structure. The dosnt of directors decided that instead of selling the condominium, the entry would hold this property for purposes of caning rentals by letting wut space to business exceulives in the area The construction of the condominium wat completed and the property was placed in service i Jacusry 1.2016, The cost of the comsrection was $0,000, The useful life of she ‘corniominium is 25 years and the rexiual vakae is $.000,000, ‘An undependent valuaticn expert provided the following far value at cach subsequctt year end: Decernher 31, 2016 38,000,000 Daocersher 31, 2017 53,000,000 December 31, 2018 60,000,000 1. Under the eest_mexdel, what amuunt should by report am depreciation of investment propery for 2016? 41,800,000 , 2,000,000 2,200,000 40 22. Under the fair value model, what amount should he recognized a ein from change in fart value in 2016? 4. $.000.000 3,000,000 «7.000.000 wer eA Cont wf investemcod proporty 50,000,000 Residual value 15,000,000) Deprociable ammount 45,000,000 ‘Annual depreciation 45,000,000028 0.000 Answer 2A, Fir valus- 12/31/16 $5,000,000 Cost. LG ‘sa.000 000 (Gain from change in fai vale #8 2016 5,000,000 Problem? Fragen Company and ity subsdiarics own the fallasting paspetics at yearend: ‘Land beld by Eragon for undetermined wse 5,900,000 (A vacans bulking owed by Eiapon and tobe Vegan ara genta ase 3.00.00: Property held by «subsidiary of Pragor «real cestate firm, in the ordinary course of business 2,000,000 Property held by Eragon for use m production 4,000,000 [Burlding owned by a subsidiary of Eragon and for which the subsidhaty pronaden sccutily and maimlenarice serge tothe lessee 1,500,000 ‘Land teased by Eragon toa subsidiary under an ‘operating tease 2,800,000 Property under comalraction for the use as investmeat property 6,000,000 Land hele for Fture factory site 3,500,000 Machinery leased ovt hy Eragon to an unrelated party tunder an operating lease 1,000,000 |. What is the total umvestmeat property tha should be reported tn the contalidated statoment of financial position of the parcnt and its ssubiiaries? a. 12,500,000 b.15,S0n008 «10,500,000 49,500,000 2 What total amount should be considcred as owner-occupicd property and included im property, plant and equipment in the comoidated statement of financial pesitioa? 11,000,000 ' 13,000,000 «10,800,000 4, 8,500,000 Answer LB Land held by Eragon for undetermined use ‘Avani bailing ows by Eragon and whe eat andr a peri se ‘Building owned by a subsidiary of Eragon and for which the subsidiary provides security and maintenance serve o the nsees Property under construction for the use as investment property Total investment property 5,900,000 3,000,000 1,500,000 Angwer A Projety el by Eragon for use in proxiuction 4.900.000 Lana leased by Fragys to a subsidiary under an ‘operating Icase 2,500,000 Land held for future factory cite 3,500,000, Machinery leased out by Kragon to an unrelated party ‘under an operating lease 1,000,000 Toul PPE 11,000,000Problem 3 ‘Bona Compasy purchased an investment property on January I, 2014 foe 2.200.000. The propemy bad ¢ useful life of 40 years and on Deccmbsr 31, 2016+had a fait valu of 3,000,000. (On December 31, 2016, the property was sold for net proceeds of 2,900,000. “The entity used the cost movel to account for the investinent property. 1. What i the carying amount of the investment property on December 31, 20167 1, 2.200,068) 2.035.000, ©.2148,000 «2,090,000, 2. What is the grin of Ka to be recugnize for the year ended Docembsr 31, 2016 repanding the disposal of the property? 1. B65,000 gain 1b, $10,000 gain ‘« 100,000 loss 4. 700,000 gain Anower IB. Comte BN 2,200,000 Accumulated depreciation 22M 40 33 168,000) ‘Carrying amount. 12:31/18 2.035.000 mower 2:4. Sale price 2,900,000. ‘Carrying amount 12:31/18 2.035.000 Gain on digposal of property, 168,000, Problem 4 Dayanara Company owned tres properties wiuch are classified as investment propery Initial Cost FVIZBIN6 FVAZ3VI7 Property 1 2,700,000 3.200.000 3.500.000 Property 2 3.480.000 3,080,000 2.880.000 Property 3 4,300,000 3,489,000 3,600,000 Each property sas acquired threw years ogo with @ wef hfe of 25 years, The accounting policy in tw une the fait vale model for investment property What is the gain or loss to be recognized for the year ended December 31. 20177 ‘2 189,000 las 150,000 gain 300,000 gain 1.450.000 toss Aaseer 8 PV-ID3I6 EV-I23117 Gain dloss) Propsrty 1 3,200,000 3,500,000 300,000 Property 2 3.05000 2.880.000 (200,000) Propsrty 3 3,880,000 3,600,000 (280,000) Net fons frm change i fair value (130.000) Problem § Mika Compary ocquired » building on January 1, 2016 for '9,0,000, At that date, the busing hod a useful life of 10 years (Oe December 31, 2016, the fie value of dhe building was 9,600,000 tnd on December 31,2017, the fair value was 9,500,000, The building was clasified as am investment property and accounted for under the gost mode, | What is the depreciation of the investment property and accountsd for 20167 1, 3004000 b. 320,000 330,000, ao 2. What is the carrying amount of the investment property on Deveanber 31, 2017? 1», 8,400,000 9,000,000. «9,900,000. 4.9,570,000. Answer |: A Depreciation for 201 69,000,000/30 new Answer =A Cont 16. ‘9,000,000 ‘Accumulated depreciation 96:30 x 2 (200.000) Carrying sraovete: 12/3117 400,000 Problem 6 Om Famary 1. 2014, Crosssvind Company owned an investment property which had an oviginal cost of $,800,000 and useful life wf 40 years Os Dovernber 11, 2016 the aie value was 6,000,000 seed om December 31,2017, the fair value was $,900,000. 1 Under the thie walue model, what isthe expense tobe recognize for the year ended December 31, 20177 a 147.500 ', 100,000 200,00 40 2, Under the soot model, what i the expense to be reeognived ford yout ended Dexember 31, 20177 1, 145,000 150,000 ©. 147,500 ao Answer 1B Fair value mode! Fair value= 12/31/17 Far values 1231/16, Loss from change in fair vale 5,900,000 6,000,900 (100,000 ‘Answer 2A, Cost model Depreciation expense for 2017 (5,810,000°30) 145,000Problem 7 radise Company's accounting policy with respect to investment propeny is to measure the property at fait value a Ube end of each reporting period. One investment property was measured ot §,000.000 0% December 31,2016. The property had besa acquired on Jansary 1, 2016 for a total of 7,600,000, made up ef 6.900.006 paid to the vendor, 300,000 paid 10 the local authority as a property tansfer tax and 400,000 paid to profesional advisers. ‘The useful life of the propery i 40 years. ‘What isthe amount of gain tobe recognized in profit ot loss for the yoae ended Decersber 31, 2016 in respect of the investment property?” 400,000 700,000 «400,000 390,000 Anwwor: A Fv ‘Acquisition cost ‘200.000 Gai rors change in fair valne 400,000 Paymeat to vendor 6,960,000 Propeny transfer x 100,000 Payment to peofessional advisers 400.000 Total acquisition cost 7,600,000, Problem ® Rhino Company, » real estate entity, had a building with a carrying amount of 20,000,060 on December 31, 2016. The building was used 8 offices of the catiny's adminisiative stall On Devember 31,2016, the entity imtended to rent out the building to independent third parties. The staiT will be moved to a new building purchased early in 2016. ‘On December 31, 2016, the original building had a fair value of 35,000,000. (On Becerabcr 31, 2016, the entity also had land that was held for sale in the ordinary course of business ‘The land bad a carrying amoust of 10,000,000 and fair value of 15,000,000 on December 31, 2086, (On such date, the entity decided 19 hold the Land for capital appreciation. ‘The accounting policy iso carry all investment property at fair valuc. 1, On December 31, 2016, what amount should be recognized in revaluation surplas as 2 result of transfer of the building to investment propery? 20,000,000 ». 35,000,000 «. 15,000,000 ao 2. On December 31, 2016, what amount should be recognized in profit or loss as result of transfer of the land to investment property? 1. 18,000,000 ». 19,000,000 5,000,000 40 Answer C FY of buildings 12116 35,000,000 ‘Carrying amount of buildings 12/31/16 20,000,000) Revalustian surplus 15,000,000 Answer: € FV of ad. I23U/16 1,000,000 Carrying amount of land: 1U3116 (10,000,000) Gain on reclassification 5,000,000 CHAPTER 44 FUND AND OTHER INVESTMENTS Problem 1 Fall Company provided the following information in relation to 4 bond sinking fund that was placcd ia tras as requited by te underwriter: ‘Bond inking fund, 1/1/16 4,500,000 ‘Additional investment in 2016 900.000 Dividends on investments 150,000 Interest revenue 300,000 ‘Administration costs 50,000 Canying amount of bonds payable 8,000,000 What is the carrying amoutt of the bond sinking fund an December 31, 20167 5,850,000 5,800,000 5,750,000 5,400,000 Answer: B Sinking fund 1116 4,500,000 Add: Additional investenent ia 2016 900,000 Dividends on investment 150,000 Interest revenue 300,000 1,350,000 Total 5,850,000, Less: Administration costs 60.000) 5,800,000 Problem > tn January 2016, Cameron Company tablished 4 sinking fend in ‘onnestion withan issuc of bonds duc in 2018, A bank was appointed as independent usze ofthe fand. On December 31, 2616, the tnsice held 365,000 cash in the sinking fund accouat representing 300,000 in anual deposits to the fund, and 65,000 of interest earned on thoe epout ow should the sinking fund be reported en December 31, 2016? 4. No pat of the sinking Fund should appear in Cameron's statement of fsancial postion 1. 65,000 should appear at 9 current asset 365,000 sould appear as a current asset «365.000 should appear as.» non-curenasct Answer: DProblem 3 (On March 15, 2016, Ashe Company adoptcd a plan to accumulate 5,000,000 by September b, 2020. The entity plans to make four equal ‘annual deposits toa fund that will lem interest at 10% compoundd ‘annually. The cary made the fist dspasit on Septcmbsr 1, 2016. FV of | at 10% for 4 periods 146 FV of an ordinary annuity of 1 at 10% for 4 periods Lt FV of an anauity of 1 in advance at 10% for 4 periods = $.11 ‘What is tue annual deposit to the fund? 1.1,250,000 ‘1.077.500 974,500, 4.730.000, Answer: ,000,00045.11 987,500 Probiem4 ‘On January 1, 2016, Beal Company adopted « plan to accumulate funds for 4 new plane building 10 be erected beginning July 1, 2021, aan estimated cost of 6,000,000. The entity intends to make five cqual annual deposits ina fund that will eam interest at 3% compounded nnually, ‘The first deposit is made on July 1 2016. Present Value of | at 3% far S periods se Present Value of | at 3% far 6 periods 63 Firture value of an ordinary snmsity of | at 8% for S periods 5.87 Firure value of an anmuity of 1 in advance at 8% for S periods 6.34 Whats the annual deposit ts the fund? 21,022,150 416,000 ©.946.400 4.756.000 Answer:C Annual deposit GA6.34 946,400, Problem 5 On January 1, 2016, Mandic Company aopted a plan to accumulate 5,000,000 by January 1, 2021. The entity plans to make 5 oqual deposits that will gam ints at 96 compounded annually. The entity made the fist Aaposits on December 31. 2016, The furure value of an ordinary annuity of 1 at 9% for $ periods is 5.98 and the future value of an amity dae Of 1 at 7%, for § periods i 632 ‘What amount mast be deposited annually a1 the compound interest to sccumulite the desired amount? 2,766,871 1,836,120 © 664.804 4,609,756 Answers B ‘Annual deposit SM5.98 836.120 Prablem 6 Cebu Company made an investment of 5,000,000 at 10% per annum compounded annwally for 6 years. Round off future valuc factor to ‘wo decimal places. ‘Whar is the amount ofthe investment on the date of maturity? 2. 8,880,000 . 8,050,000 «, 9,250,000 5,500,000 Answer A Principal amount Mukiply by FV of 1 for 6 pertods ac 10% Fugues value at maturity Problem 7 (On January |, 2016, Duripan Company invested 1,000,000 in $ year cerificate of deposit at BY interest, Thee markt interest rate at mamurity is 10%. The emsty dors mot chest the fait vahoe option i reporting fiaancial asec Future amount of | at S% for perinds 1469 10% for $ pends 1st Future amount of an ordinary annuity of | at 8% for $ periods 5.867 Future amount of a annusty of 1 inadvance at 10% fr 5 pends 6.105 ‘What is the maturity value of the ceniicate of deposit? 67,000 1b. L611 000 ©. 1,460,000 46,108,000 Answer: C Investment in certfleate of deposit iM Multiply by future amount of 1 at 8% for $ periods 1469 Maturity vatog 1.469.000 Problem & Macun Company mude investment for $ years at 12% por annum compounded temi-antually to equal 7.160.000 on the date of mutanty, Roand off future valne facto to two decimal places. ‘What amount must be deposited now at the compound interest to Provide the desired sum? 4,600,600 4.068.000 4.236.600 4. 3.768.420 Answer A Funure value at manurty 7.160.000 Divide by fire value of | for 10 periods at 64 1.79 Initial investment 41000.000Problem 9 [Ball Company purchased 2 1,000,000 ordinary life insurance policy ‘on its president. Ball Company is the bencliciary under the life {insurance policy. The policy year and the entity's accounting year coincide: “The entity provided the following data for the year ended December 31, 2016: ‘Cash surrender value, Sanuary 43,500 ‘Cash surrender valuc, December 31 $4,000 Annual advance pretium paid January 1 20,000 Dwvidend feccived July | 3.000) ‘Whar amount should be reported as life insurance expense for 2016? 3.17.00 20,000 £,6,800 49,500 Answer C ‘Annual premium paid 20,000 Loss: Increase in cash surrender value 10,500 Dividend received 000 13500 Life insurance expsmse 6,500 (Cash surrender values 12/31 54.000 (Cash surrender value. 1/1 43.500 Increase in cash surender value 10.800 Problem 10 Chain Company purchased » 1,000,000 life insurance policy on its president, of which Chain Company is the beneficiary. “The entity peovided the following information regarding the policy forthe year ended December 31, 2016: (Cash surrender vatue, 1/1 87,000 (Cash surrender value, 12351 108,000 ‘Annual advance premium paid Jan | 40.000 using 2016, dividend of 6,000 was appliod to increase the cash surrender valus ofthe policy. ‘What amount should be reported as life insurance expense for 2016? 2. 40,000 25,000 19,000 413,000 Answer C Premium paid 40,000 ‘Less: Increase im cash surrender value coo ‘Lie insurance expense 19.000 (Cash surrender vate Des. 31 198,000 (Cash sustender value Jan 1 7.000 Anceease in cash surrender value 21.600 Problem 11 Slovenia Company insured the life of is president for 2,000,000, the ‘emtity being the beneficiary of an ordinary Life insurance policy. The annual premium i 30,000 and the policy ts dated Jaewary 1.2013, The cash surender vahacs ae 85,000 09 December 31, 2015 and te 19,000 oa Deceraber 31, 2016, 1 Wt is the gain on ie insurance setement? 1,962,000 2,000,000 1,961,000 1.981000 2 What isthe life insurance expense for 2016? 2. $0,000 b.000, «77,000 4.57900, Anewer A, Cash surrender value 1230/15 13,000 (CSV from Lil t9 10/1/16 4,000 x 9/12 2.000) (Cash surrender vatuc- 101/16 18,000 Face of policy 2,000,000, (Cash surrender value (18,000) [Unexpized premium (80k x 3412) 20.000) Gain om tite insurance settlement 1,962,000 Answer 2:2. Annual premium paid on Jan 1, 2016. 40,000 Unexpired premium on 10°1/N6 (20.000) Increase in CSV from 1/1 to HOT Goo) Life insurance expense for 2016 57,000, Problem 12 Grand Company reported the following accounts at the end of the reporting peri: Pety cash find 10.000 Payroll fund 100,000 Sinking fund cash $00,000 Sinking fend securtics 1,000,000, ‘Acerucd intctes reccivable-saking fund sects 50.000 Plant expansion fund 00.000 (Cash surrender value 130,000 Investment propenty 3.000.000 Advances to subsidiary 200.000 Investmcer in associate 2.000.000 ‘What wal amount should be reported as non-curtat investments the end ofthe reporting period? 2. 7500,060 4,300,000, , 7450,000 42,300,000 Answer A Sinking und cash $00,000 Sinking fund securities 1,000,000-nverved interest receivable sihing ind scutes $0,000 Plant expansion fued 600,000 Cash surrender value 150,000 Investment propery 3000,000 Advanges to subsidiary 200.000 Investment in associate 2.00.00 ‘Total aoe-cusrent investments 7,500,000 CHAPTER 39 INVESTMENT IN ASSOCIATE COMPREHENSIVE PROBLEMS Om January 1, 2016, Marissa Company aequited 25% of the ing shares of a investes ata total cost of 7,000,000. At the time, the carrying amount of net assets of the invexice totalled 244000, 000. ‘The investee owned equipment wih $year remaing life with a fair value of 2,000,000 more thas the carrying amount. The iavestee ‘owned land with a fait value of 1,000,000 more than the exrrying ‘The inwestee camed net income of 5,000,000 evenly dunng the current year. The invesiee declared and paid ash dividend of 3,000,000 19 shurcholders at year end. The fair value of the ‘avestment at year end is 7,500,000. 1 What i the goodwill arising fom the investment associate? 750,000 00,000 «250,000 a0 2, What i the investment income for 2016? 1. 1.250.000 1,180,000 900,000 4 650,000 3. What isthe carrying amount of the investment on December 31, 2016? 2.7.400,000 1 7.500,000 «. 7.000.000 8.150.000 Answer 1 ‘Acqtisition cost 7,000,000 Carrying amount of net assets acquired 25%4 24,000,000 6,000,000 Excess cost 1,000,000 Anributable to equipement 25% x 204 (500,000) Asibutable to the land 25% x IM (250,000 Good will 150,000 Anewer 2 ‘Share i net income 25% x SM 1.250.000, [Amortization of excess atributable to equipment 00,0005 4100,000) Investment income 1.180.000 Answer A Acquistion cost 7,000,000 ‘Share in net incom 1,250,000 Shave in cash dividend (750,000) Amortization of eucess attributable to equipment 00,0005 00.000) (Camying amount 1231/16 7.406.000 Problem 2 Problem 2 Pare Company purchased 10% of Tot Company's 100,000 cuistanding ordhnary shares on January 1.2016 for $00,000. (On December 31, 2016, Pare purchased an additional 20.000 shares OF Tot for 1,500,000, Tot had not issued any additional shares during 2016, “The investce reported camings of 3.000.000 for 2016. The fait value of the 10% interest is 902,000 on December 31, 2016. What is the camying amount of the investment ia associate oo December 31, 20167 2,300,000 2,000,000 «2,400,000 2,900,000 Answer. € FV of 10% interest 900,000 Cost of 1231 20,000'100,0002 20% 1.$00,000 Camying amount 1231/16 2.400.000 Problem 3 Op January 1, 2016, Forcnsic Cormpany acquired 2 10% interest in an {nvestce foe 3,000,000. The investment was accounted for using the cout method, (On January |, 2017, the entity acquiced a Carter 154% interest in the imvestce for 6,750,000. On such dats, the carrying amount of the tet assets of the investee wav 36,000,000 and the fab wakue of dhe 10% intrest was 4 500,000. ‘The fair valuo af the net assets of the iavestee it equal 10 sarying stsount except for equipment whase fair value exceeds the carrying ‘mount except for an equipment whose fair value exceeds carrying ‘mount by 4,000,000, The equipment has 2 remaining life of $ years, ‘The Investee reported net income of 8,000,000 for 2017 and paid dividend 8,000,000 on December 31,2017, 1 What isthe gain om re-measarement io equity 1 be recognize’ for 2017 1,500,000 4,500,000 © 2280,000 ao 2, Wai owing fom th equine om amy 2017? 9. 2.280.000 1,250,000 «6. 1380,000 4.350.000 ‘3. What the carrying amount of the investment ofthe investment in associate on December 31,2017? 11250000 ». 11,800,000 «. 12,900,000 4. 14.300,600 Answer A FV of 10% interest 44.00, 000Canying amount of 10% knterest 3,000,000 Gain on re-measurement to equity 1,500,000 Answer 2 8 FV of 1% imerest 4,500,000 Cost af addtional 15% interest 6,750,000 “Total cost of investment 1.250.000 FV of net assets acquired 25% of 36,000,000 9,000,000. Excess of east 2.280.000 Excess atibutable to equipment 25%4.x4M 1,000,000 Goodwill 1,250,000 Answer 3B Toul cost of imvestment: 1/1/17 11.250,000, ‘Shase in net income 25%4 1 8M. 2,900,000 Share in cash dividend 25% x 5M. (1,250,000) Amortization of excess 11 M5) (200,000) ‘Canying amount- 1231/17 11,800,000 Problem 4 ‘On January 1, 2016, Mega Company acquired 10% of the outstanding ‘ordinary shares of Penny Company for 4,000,000. The investment ‘was appropriaicly accounted for under the cost method. ‘On January 1, 2017, Mega gained the ability to exercise significant influence over financial and operating comrol of Penny by acquiring an addiional 10% of Penny's outstanding ordinary shares for 10,000,000. The fair value Penny's net asscts cqualled camying amount. The fair value of the 10% interest om January 1, 2017 was 6,000,000. For the years ended Deceraber 31, 2016 and 2017, the investee reported the following: aus 017 ‘Dividend paid 2,000,000, 3,000,000 Net income ‘000,000 6,500,000 | What isthe investment income im 2016? 200,000 400,000 «600,000 «4 300,000 2. What isthe investment income in 2017? b. 17,080,000. «15,080,000 416,700,000. Answer 1: Interest income for 2016 equa to the dividend received in 2016 ore x 2,000,000, 200,000 Answer 2:B Investment income for 2017 30% x 6,500,000 11.950.000 Answer 3:B Fale value of 10% interest 6,000,000 Cost of 20% imerest 10,000,000 Total cost of investment L/U/IT 16,000,000 Share in net income for 2017 (307% x 6,500,000) 1,950,000 Share in cash dividend for 2017 (30% 3M) (900,000) Canying amount. 1231/17 17,050,000 Problem 5 Seito Company had 100,000 ordinary shares outstanding. Hlobe Company acquired 30,000 shares of Setko for 120 per share in 201 representing 30% interest Change in retained eamings for Seika for 2016 and 2017 are as follows: Retained earnings (deficit) W116 (500,000) Net income for 2018, 700,000 Retained camings, 12/31/16 200,000 [Net income for 2017 800,000 (Cash dividend paid on 12/31/17 (400,000), Retained camings, Devembet 31, 2017 00,000 What is the camying amount of the investment in associate on December 31,2017? - 3,600,000 . 3,930,000 «378,000 4. 4,080,000 Answer C Acquisition cost ‘Share retained camings- 1231/17 30% x 606,000. so.000 Canyieg amount of investment. 1291/17 3,780,000 3,400,000 Prableas 6 (Chur Company acquired a 40% amterest in Flim Company for 1,700,000 on January 1, 2016. The shareholder's equity of Flim Company on January I and December 31, 2016 is presented below, January t December 31 Share capital 3,000,000 3,000,000, Revatastion surplus 1,300,000 Reuined cammings 1.900.900, 1.500.000 On danuary 1, 2016, oll Wensifiable assets and liabilities of Fm ‘Company were rsvorded at fait value, Flim Company reported profit 097 7,000,000 afigrinvome tax expemie of 300,000 and paid dividend 0 200,000 to shareholders during the curs! yea ‘The revaluation surplus is the result of the revaluation of land recognized by Flim Company om December 31, 2016, Adtionalty, depreciation is provided by Flim Company on the diminishing balance aicthod whereas Chur Cormpany uscd the straight line. Had Flim Company uscd the staight line, the accumulated deprecistion would be increated by 200,000. What is the camying amount of the investment in assoc December 31,2016? 1. 2420,000 1.700.000«1,900,000, 42,320,000 Answar: A ‘Acquisition cot Net assets acquired (40% 4M) Goodwill-not amortized Acquisition cost Net income 40% x 700,000 Cashdividead 40% x 200,000 Revaluation surplus 40% x 1.300.000, (Camying amount of investment- 1273 116 Problem 7 Aye Company acquired 30% of the issued share capital of Bee Company for 1.000.000 on January 1, 2016, The accumulated profit of Bee Company on this date totalled 2,000,000. The catities prepared thet financial statements. om December 31 ofeach yea ‘The abbreviated statement of financial position of Face Company on December 31,2017 is as follows: Sundry net assets 6,000,000 Share copia, 10 par 1,000,000 Share premium 2,000,000 Rewind camings 3,000,000 The fair value of the net assets of Bee Company at the date of acquisition was $,000,0. ‘The recoverable amount of the net assets of Bex Company is "7.000,000 on December 31,2017. ‘What is the carrying amount of the investment in associate on December 31,2017 1 1,800,000 2,100,000 1,500,000 1,000,000 Angwor A Investment in associate 30% x 6,000,000 1.300.600 Problem § Grant Cormpany acquired 30% of South Company's voting share capital for 2,000,000 on January 1, 2016, Grant's 30% interest in South gave Grant the ability to etetcso significant influence over ‘South's operating and financial policies. During 2086, South earned ‘500,000 and paid dividend of $00,000, South reported earings of 11,000,000 forthe six months ended June 30, 2017, and 2,000,000 foe the year ended December 31,2017. On July }, 2017, Geant soll half of the investment in South for 1.$00,000 eash South paid dividend of {600,000 on October 1.2017, “The fair value of the retained investment is. 1,600,000 on July 1, 2017 ‘and 1.X00,000 on December 31, 2017. The retuined investment isto (bebsld as financial aset at fir value through profit oe los 1, Before income tax, what amount should he included in the 2018 income statement a8 a result of the investment? 18,150,000 240,000 $00,000 1d 800,000 2. On December 31, 2016, wtut is the canying amount of the lnwestracl in associate? 12,000,000 2.050.000 «2.240.000 42,300.00 3. In the income statement for 2017, what amount shou! be reported 38 gain from sale oF investment? 4.248.000, 305,000, «350,000 4. 485,000, 4 Inthe income statement for 2017, what amount should be reported 1 gain fom re-measurement ofthe retained ivestasnt? 605,000 405,000 © 710,000 910,000 Answer 1: Share in 2016 net income 30 800000 240,000 Answer2 Acquisition cost, 1/1716 2.000.000 ‘Add; Share in 2016 net income 240,000 Total 2.240.000 Lex: Share in 2016 dividend 30% x 500,000 150.000 Canrying amount of investment, 12/31/16 2,090,000 Answer 3B Canrying amount of investment, 23116 2,090,000 ‘Ada: Share in net 11 to 630/17 30% x 1,000,000 300,000 Cumying amount of investment 1/3017 2,390,000 Sale price 1.500.000 Costof investments sold 41,195.00) Gain fom sale of investment 305.000 Answer 4: B Fae vase. 1117 1,660,000 Camying amount of retained investnent 1,195,000 Gai fom re-measurement 405,000 FV-120107 1,800,000 Fv 1,600,000 Unrealized gain on financial asset 200.000 Problem 9 On January 1. 2016, Marie Company putchascd 40% of the outstanding ordinary shares of Lester Compsay paying 2,560,000 when the camying amount of the act assats of Lester equalled $.000.000, The difference was atirbuted to equipment which had camying ansoust of 1.200,000 and a fair value of 2,000,000 and io building With a camyig asioust of 1,000,000 anda fair value of 1,600,000, The remaining wel fe of the oquipment and building was 4 years and |2 years respectively During 2016, Lester Company reported ft income of 1,600,000 and paid dividends of 1,000,000, 1. What isthe excess of aquisition cost over carrying mous? = $60,000320,000 240,000 ao 2. What isthe investment income for 2016? 8. 640,000 540,000 «$60,000 $00,000 3. What is the carrying amount of the investment in assoxiate on December 31, 20167 2.2250.000 1b. 2,700,000 2,800,000 3.080.000 Answer I: A Acquistion cost 2,360,000 Net assets acquired 40% x 5,000,000 3,000,000 Excess of cost over carying amount 0,000 Auribuuble o-cquipment 40% 100000 320,000 Altribuable to building 40% x 600,000 40,000 60,000 Answer 2B ‘Share in net income 407% x 1,600,000 40,000 Amortization of exces equipement 320,00004 480,000) Bung 240,000/12 420,000) Investment income 40,000 Answer 3:€ Acquisition cost 2,560,000 lavestment income ‘$40,000 ‘Share in ash dividend 407% x 1,000,000 (400.000) Camying amount- 12/31/16 2,700,000 Problem 10 On January 1. 2013, Bart Compasy acquirsd as 4 loog term Investment for 7,000,000, a 40% interest it Hall Company whem the Gir value of Mall's net assets was 17,500,000. Hall Company reported the following act lossce 2013 5,000,000 2018 7,000,000 Is 8,600,060 2016 4,900,000 (On January 1, 2015, Bart Company made cash advances of 2,000,000 ta Hall Company. On December 31,2016, itis wot expected tht Bart Company wall provide further mania! support for Hall Company. ‘What amount shouldbe reported as fous from investment For 2016? 1,600,000 '. 4,000,000 800,000, 4.690.900 Anower € Original cost, Cash advances Total investment [Net loss from 2013 to 2015 40% x 20M (Camying amount of inye strict ‘THEORIES. FINANCIAL ASSET AT FAIR VALUE A |. Depending on the business model for managing financial assets, an entity shall clasify laancial assets subsequent to initial fecognition 4 Fair value trough profit and toss bi, Amonized cost «Fait value through compachensive income 4. Allof these are used in measuring financial asset Answer: D 2. How doct the standurd distinguish between the measurement methods to be used? 1. By reviewing the business model and the risks and rewards of the . By reviewing the business model and the contractual cash flow charueteristies of the instrument. © By reviewing the realizability and the contractual cash flow charsteristics of the instrament, 4. By reviewing the realizabiuty of the instrument and risks and rewards of ownership Answer: B 3. Which of the following held for trading? 1 Is acquited principally forthe purpose of gelling or repurchasing in the near term. '. On initial recognition, i is par of « portfolio of financial assets that are managed together and for which there is evidence of a recent actual pattem of shor term profit taking. is mot 4 characteristic of financial axeat Wis derivative that itis not designated as an effective hedging insure, 2B is derivative that it is designated as an effestive hedging inarument Anewer: D 4 Ifa of te following financial assis shall be measured a1 fair value trough profit ar las, except imancial assots bel for trading . Financial assets designated on initial recognition 4s at fair value through profit or los «-lavestments in quoted equity insrumenss 4. Financial anscts at amortized cost Answer: D S.A debt investmces shall be measured at subsoqucnty at amortized 1. By inevocable election b. When the debt investment is manage and evaluated an a document Fisk-management strategy. ‘When the debt investment is held for trading 4. When the business model isto collet contractual cash flows that are solely payments of principal and interest, newer: D 6. The imevocable clection to present subsequent changes in fair value i ether compreiensive income it applicable onty to 2 Investment in equity imstrume nt that is aot held for wading,