Equity Method-Basic Application

At the beginning of 2022, Scarlett Company purchased 20% of Witch Corp.'s ordinary shares outstanding for P3,000,000.
Transaction cost incurred is 10%of the purchase price of the shares. At the date of acquisition, the carrying amount of
the identifiable net assets were equal to their fair values. During 2022, the investee reported net income of P3,500,000
and paid cash dividend of P2,000,000.

In 2023, Witch reported loss of P500,000 and issued 10% stock dividends.

Required: Prepare the journal entries to record the foregoing and determine the following-

1. Investment income for 2022

A. Zero C.700,000
B. 400,000 D.3,500,000

2. Carrying amount of the investment in associate on December 31,2022

A.3,000,000 C.3,600,000
B.3,300,000 D.4,000,000

3.Investment loss in 2023

A. Zero C.100,000
B.90,000 D.500,000

4.Carrying amount of the investment in associate on December 31,2023

A.3,200,000 C.3,600,000
B.3,500,000 D.3,900,000

Computation of lnvestment Income- Equity Method

Refer to the following two independent situations:

Situation no.1
On August 1,2022, Elton Company acquired 40% of John Company. John Company reported net income of P1,000,000 for
2022, of which P400,000 was for the seven months ended July 31,2022. John Company paid no cash dividends during
2022.

1. The amount to be reported as income from investment in John Company for the year 2022 is
A. 160,000 C.400,000
B. 240,000 D.600,000

Situation no.2
On September 1,2022, Harris Company purchased 30,000 shares of Welling Company's 100,000 outstanding ordinary
shares. On December 15, 2022, the investee paid P400,000 in cash dividend to the ordinary shareholders.
The investee's net income for the year ended December 31,2022 was P1,500,000, earned evenly throughout the year.

1. What amount of income from the investment should be reported in 2022?

A.150,000 C.450,000
B.300,000 D.500,000
 Equity Securities-Fair Value method vs. Equity method

On January 2,2022, Lucifer Co. acquired 70,000 ordinary shares of Chloe Corp. for P7.00 per share and 175,000 shares of
Dan Corp. for P14.00 per share. Both investees have 700,000 ordinary shares outstanding. Both investments are not for
trading purposes. Any long-term equity investments whose ownership Interest does not reach the general quantitative
threshold set by IAS 28 Investments in Associates and Joint Ventures in the acquisition of significant influence will be
irrevocably designate at fair value through other comprehensive income.

Chloe Corp and Dan Corp. reported the following information for 2022 and 2023:
Chloe Corp. Dan Corp.
Profit-2022 P280,000 P455,000
Cash dividends declared and paid- 2022 175,000 -
Profit-2023 420,000 175,000
Cash dividends declared and paid-2023 210,000 70,000

The market price per share of the ordinary shares of Chloe Corp. and Dan Corp. on December 31,2022 and 2023 are as
follows:
Chloe Corp. Dan Corp.
12/31/2022 P9.80 P16.80
12/31/2023 9.10 21.00

Required: Determine the following-

1.Income from investment in Chloe Corp. to be reported in profit or loss for 2022
A.17,500 C.28,000
B.21,000 D.42,000

2. Income from investment in Chloe Corp. to be reported in profit or loss for 2023
A. 17,500 C.28,000
B. 21,000 D.42,000

3.Income from investment in Dan Corp.to be reported in 2022

A. Zero C.43,750
B.17,500 D.113,750

4. Income from investment in Dan Corp.to be reported in 2023

A. Zero C.43,750
B.17,500 D.113,750

5. Amount to be reported as Investment in Chloe Corp. ordinary shares on December 31,2023

A. 500,500 C. 637,000
B. 521,500 D. 686,000

6. Amount to be reported as Investment in Dan Corp. ordinary shares on December 31,2023

A. 2,563,750 C.2,940,000
B.2,590,000 D.3,675,000

7. Amount to be reported as unrealized gain (loss) in oCI for the year 2023
A.49,000 C.147,000
B. (49,000) D. (147,000)

8. Amount to be reported as unrealized gain (loss) - OCI as a separate

component of equity on December 31,2023
A. 49,000 C.147,000
B. (49,000) D. (147,000)