Problem 25-4

On January 1, 2017, Jam Company reported a long-term investments the following

unquoted equity securities:
Dale Company 5,000 ordinary shares ( 1% interest) 1,250,000
Ever Company 10,000 ordinary shares ( 2% interest) 1,600,000
Fox Company 25,000 ordinary shares (10% interest) 2,000,000
B. Journal Entries

1. On May 1, 2017, Dale Company issues a 10% stock dividend.

Memo – Received 500 ordinary shares from investee as 10% share dividend on 5000

original shares. Shares now held, 5500 shares.

2. On November 1, 2017, Dale Company paid a cash dividend of P20 share.

Cash – Dale Company (5,500 x 20) P110,000

Dividend Income P110,000

3. On January 1, 2017, Jam Company paid P5,000,000 for 50,000 additional ordinary
shares of Fox Company which represented a 20% investment in Fox Company.
Investment in associate P5,000,000
Cash P5,000,000
The fair value of all of Fox’s identifiable assets net of liabilities was equal to their carrying
amount of P20,000,000.
Jam Company’s initial 10% interest of 25,000 ordinary shares of Fox Company was
acquired on January 1, 2016 for P2,000,000.
The 10% interest was accounted for under cost method. On January 1, 2017, this 10%
existing interest had a fair value of P2,400,000.
Fair value of 10% existing interest P2,400,000
Cost of 20% new interest P5,000,000
Total cost of investment P7,400,000
Carrying amount of net assets acquired P6,000,000
(20,000,000 x 30%)
Excess of cost over carrying amount – Goodwill P1,400,000 A. Goodwill
Jam Company’s initial 10% interest of 25,000 ordinary shares of Fox Company
was acquired on January 1, 2016 for P2,000,000.
The 10% interest was accounted for under cost method. On January 1, 2017, this
10% existing interest had a fair value of P2,400,000.
Investment in associate (2,400,000 – 2,000,000) P400,000
Gain on remeasurement to equity P400,000
Investment in associate P2,400,000
Investment in equity securities P2,400,000
4. Fox Company reported net income of P6,000,000 for 2017, and paid dividend of P20
per share on December 31, 2017.
Investment in associate (6,000,000 x 30%) P1,800,000
Investment income P1,800,000
Cash (75,000 x 20) P1,500,000
Investment in associate P1,500,000