2014 vol 1 ch 7 answers

CHAPTER 7INVESTMENTS IN EQUITY SECURITIES AND DEBT SECURITIES

PROBLEMS

7-1. (Victoria Corporation) Year 1

(a) Equity Investments –FVPL 150,000Other Expenses 3,750

Cash 153,750

(b) Equity Investments – FVPL 30,000Unrealized Gains on EquityInvestments – Profit or Loss 30,000

Year 2(a) Cash 94,000

Gain on Sale of Equity Investments – FVPL 4,000Equity Investments – FVPL 90,000

(b) Equity Investments – FVPL 6,000Unrealized Gains on Equity Investments – Profit or Loss 6,000

7-2. (Victory Company) Year 1

(a) Equity Investments at FV through OCI 153,750Cash 153,750

(b) Equity Investments at FV through OCI 26,250Unrealized Gains and Losses on Equity Investments - OCI 26,250

Year 2(a) Equity Investments at FV through OCI 10,000

Unrealized Gains and Losses on Equity Investments - OCI 10,000

Cash 94,000Loss on Sale of Equity Investments 1,000

Equity Investments at FVthrough OCI 95,000

(b) Equity Investments at FV through OCI 1,000Unrealized Gains and Losses on Equity Investments - OCI 1,000

7-3. (A Company)a. Cash 18,000

Dividend Revenue 18,0002,400 shares x 7.50

b. Memo entry. Received additional 600 shares of B Corp. ordinary shares as bonus issue on 2,400 shares previously held.

c. Equity Investments - A Preference 150,000Dividend Revenue 150,000

600 x 250 = 150,000

Chapter 7 – Investments in Equity Securities and Debt Securities

d. Memo entry. Received additional shares of B Corp. ordinary shares on a 4-for-1 stock split of the 2,400 shares previously held. Total shares now held: 9,600.

e. Equity Investments - C Ordinary 20,000Dividend Revenue 20,000

2,400/6 = 400 shares x 50

7-4. (Inn Corporation)(a) December 31, Year 2 ledger balance (30,000 shares x 65) P1,950,000

Year 3Memo: Received 6,000 shares of NPA Co. ordinary

as 20% bonus issue on the 30,000 shares previously held.

Cash (15,000 x 70) 1,050,000Equity Investments – FVPL 812,500Gain on Sale of Equity Investments 237,500

1,950,000 x 15,000/36,000 = 812,500

Equity Investments – FVPL 374,500Unrealized Gain on Equity Investments 374,500at FVPL 21,000 x 72 1,512,000 1,950,000 – 812,500 1,137,500 Unrealized gain 374,500

(b) Gain on sale P237,500Unrealized gain on equity investments at FVPL 374,500Total amount reported in profit or loss P612,000

(c) Equity Investments at Fair Value P1,512,000

7-5. (Inna Corporation) (a) December 31, Year 2 ledger balance (30,000 x P65) P1,950,000

Cost 1,800,000Unrealized Gain or Loss on Equity Investments - OCI P 150,000

Year 3Memo: Received 6,000 shares of NPA Co. ordinary

as 20% bonus issue on the 30,000 shares previously held.

Equity Investments at Fair Value through OCI 570,000Unrealized Gain or Loss on EquityInvestments – OCI 570,000

36,000 sh x 70 2,520,00012/31/Y2 FV 1,950,000Unrealized gain 470,000

Cash (15,000 x 70) 1,050,000Equity Investments at FV through OCI 1,050,000

Unrealized Gain or Loss on Equity Investments – OCI 300,000

Retained Earnings 300,000(150,000 + 570,000) x 15,000/36,000

Equity Investments at FV through OCI 42,000Unrealized Gain on Equity Investments 42,000at FV through OCI

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21,000 x (72 - 70)(b) None

(c) Equity Investments at Fair Value through OCI P1,512,000

(d) Unrealized Gain or Loss in Equity , 12/31 Year 3(150,000 + 570,000 – 300,000 + 42,000) P

462,000

Fair value, December 31, Year 3 P1,512,000

Cost (1,800,000 x 21,000/36,000) 1,050,000Unrealized Gain (Loss) in Equity P 462,000

7-6. (Gypsy Corporation)

(a) Sales price (5,000 x 54) P270,000CV at date of sale 250,000Gain on sale of Dizon shares P 20,000

(b) Cumulative balance of Unrealized Gains and Losses (in equity) - see below P 35,000

# of shares Cost

FV, 12/31/Year 3

UnrealizedGain (Loss)

Monterey Preference 3,500 P133,000 P135,000 P 2,000Garcia Ordinary 1,000 180,000 190,000 10,000Barney Corporation 3,000 177,000 200,000 23,000

P490,000 P525,000 P35,000

7-7. (Melody Corporation)(a) Unrealized Gains or Losses on Equity Investments through OCI

Fair value (1,250 x 85) P106,250Cost 110,000Unrealized Loss, end of Year 1 P 3,750

Total FV, Dec. 31, Year 2 (2,000 x 90) P180,000Total cost (110,000 + 60,000) 170,000Cumulative balance, end of Year 2 P 10,000

(b) Amount taken to OCIFair value (1,250 x 85) P106,250Cost 110,000Unrealized Loss for Year 1 P 3,750

Fair value (2,000 x 90) P180,000Carrying value/Cost (106,250+60,000)

166,250Unrealized gain for Year 2 P 13,750

(c) Memo: Received 2,000 stock rights from Music, Inc. for the purchase of one

share for every five rights submitted at P80 per share.

Equity Investments at FV through OCI 30,000Cash 24,000Investment Income 6,000

300 x 100 = 30,000300 x 80 = 24,000

Cash 2,250

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Investment Income 2,250500 x 4.50

Equity Investments at FV through OCI 15,400Unrealized Gains and Losses on Equity Investments – OCI 15,400

2,300 x 98 = 225,400225,400 – (180,000 + 30,000)=15,400

7-8. (Anti Corporation)(a) Cash 50,000

Investment Income 50,00010,000 x 5

(b) Equity Investments at FVPL (2,000 x 75) 150,000

Cash (2,000 x 50) 100,000Investment Income 50,000

Equity Investments at FVPL 90,000Unrealized Gain on Equity Investments – Profit or Loss 90,000

Market value (12,000 shares x 78) 936,000Carrying value before this adjustment (660,000 + 150,000) 810,000Unrealized gain 126,000

7-9. (Tolits Corporation)(a)Year 2a. Equity Investments at FV through OCI–Diana

Ordinary 54,000 Cash 54,000

b. Memorandum entry. Received 500 additional shares of Diana ordinary shares as a result of 2-for-1 split.

c. Equity Investments at FV through OCI – Smith

Preference 121,200 Cash 121,200 (1,000 x 120) + 1,200

d. Equity Investments at FV through OCI - Diana Ordinary 6,000 Unrealized Gains and Losses on Equity

Investments at FV - OCI 6,000 15,000/250 = 60; 54,000/1,000 = 54 (60 – 54) x 1,000 shares = 6,000 Cash 15,000 Equity Investments at FV through OCI – Diana Ordinary 15,000 (60,000 / 1,000) x 250 shares

e. Memorandum entry. Received 750 stock rights from Diana for the purchase of one share for every two rights submitted at P55 per share.

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f. Equity Investments at FV through OCI – Diana Ordinary 13,725 Cash 12,375 Investment Income 1,350 60% x 750 = 450; 450/2 = 225 shares 225 x 61 = 13,725; 225 x 55 = 12,375 225 x (61 – 55) = 1,350

Cash 900 Investment Income 900 750 – 450 = 300; 300 x 3 = 900

g. Equity Investments at FV through OCI – Diana Ordinary 675 Unrealized Gains and Losses on Equity

Investments at FV - OCI 675 225 x (64 – 61) = 675

Cash (100 x 64) 6,400 Equity Investments at FV through OCI –

Diana Ordinary 6,400

h. Cash (1,000 x 100 x 8%) 8,000 Dividend Revenue 8,000

i. Unrealized Gains and Losses on Equity Investments - OCI 4,950Equity Investments at FV through OCI – Diana ordinary 1,250 Equity Investments at FV through OCI - Smith 6,200

Market CV Diana 1 (875 sh) 54,250 53,000*

Smith (1,000 x 115) 115,000 121,200 Total 169,250 174,200

Unreal1,250

(6,200)(4,950

*Original Diana shares 500 shares at P108 P54,0002-for-1 split 500 shares -____

1,000 shares at P54 P54,000Adjust prior to sale 6,000Balance 1,000 shares at P60 P60,000Sale (250 shares 15,000)Balance 750 shares at P60 P45,000Exercise of rights 225 shares at P61 13,725Adjust prior to sale 675Sale (100 shares at P64 6,400)Balance 875 shares P53,000

(b) Investment income (1,350 + 900) P 2,250Dividends revenue 8,000Total income P10,250

7-10. (Carlo Company)Year 2Apr. 1 Cash (5,000 x 25) 125,000

Loss on Sale of Equity Investments 14,000

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Equity Investments at FVPL – Avi Ordinary 139,000

May 15 Equity Investments at FV through OCI – Ghio Preference 30,550 Cash (600 x 50) + 550 30,550

July 10 Memorandum entry. Received 4,000 additional shares of Darrel ordinary representing a 20% bonus issue. Shares now held are 24,000.

Nov. 30 Cash (1 x 24,000) 24,000 Dividend Revenue 24,000

Dec. 31 Unrealized Loss on Equity Investments – Profit or Loss

9,000

Equity Investments at FVPL – Avi Ordinary 9,000 5,000 x 26 = 130,000; 130,000 – 139,000

31 Equity Investments at FV through OCI - Darrel 110,000Equity Investments at FV through OCI - Ghio 650 Unrealized Gains and Losses on Equity

Investments - OCI 110,650

FV CV Change in FV Darrel 480,000 370,000 110,000 Ghio 31,200 30,550 650 Total 511,200 400,550 110,650

7-11. (Hostel Company)(a) 1. Investment in Associates 2,000,000

Cash 2,000,000

2. Investment in Associates 300,000 Share in Profit of Associates 300,000 20% x 1,500,000

3. Memo. Received 2,000 additional shares of Atlanta ordinary as 10% bonus issue. Shares now held are 22,000.

4. Investment in Associates 600,000 Share in Profit of Associates 600,000 20% x 3,000,000

5. Cash 200,000 Investment in Associates 200,000 20% x 1,000,000

(b) Investment cost P2,000,000Share in profit – 2012 300,000Share in profit – 2013 600,000Share in dividends (200,000)Carrying amount, December 31, 2013 P2,700,000

7-12. (Byron, Inc.)2013Jan. 1 Investment in Associates – Pirates Ordinary 5,160,000

Cash 5,160,000

Dec. 31 Investment in Associates – Pirates Ordinary 1,080,000 Share in Profit of Associates 1,080,000 30% x 3,600,000

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Dec. 31 Cash (30% x 400,000) 120,000 Investment in Associates – Pirates Ordinary

120,000

7-13. (Barbie, Inc.)(a)2012Mar. 1 Investment in Associates – Kitchie 1,365,000

Cash 1,365,000

Dec. 31 Cash (30% x 800,000) 240,000 Investment in Associates – Kitchie 240,000

31 Investment in Associates – Kitchie 300,000 Share in Profit of Associates 300,000 (1.2M x 10/12) x 30%

31 Share in Profit of Associates – Kitchie 52,500 Investment in Associates – Kitchie 52,500 Amortization of undervaluation of assets (30% x 750,000) / 5 yrs. = 45,000 45,000 x 10/12 = 37,500 50,000 x 30% = 15,000 37,500 + 15,000 = 52,500

(b) Acquisition cost, March 1, 2013 P1,365,000Cash dividends received

( 240,000)Share in reported profit of associate 300,000Adjustment in reported profit ( 52,500)Investment carrying value, December 31, 2013 P1,372,500

Income reported by Barbie from its investment in associates: (300,000 – 52,500) P 247,500

7-14. (Richmonde Corporation)(a)Year 1Jan. 1 Equity Investments at FV through OCI – Pen 900,000

Cash 900,000

Dec. 31 Cash 200,000 Dividend Revenue 200,000 10% x 2,000,000

31 Equity Investments at FV through OCI – Pen 480,000 Unrealized Gains and Losses on Equity Investments - OCI 480,000

Year 2 Jan. 1 Investment in Associates – Pen, Inc. (at FV) 1,380,000

Equity Investments at FV through OCI – Pen 1,380,000

Unrealized Gains and Losses on Equity Investments at FV - OCI 480,000 Retained Earnings 480,000

1 Investment in Associates – Pen, Inc. 2,600,000 Cash 2,600,000

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Dec. 31 Investment in Associates – Pen, Inc. 1,950,000 Share in Profit of Associates (30% x 6,500,000)

1,950,000

31 Cash 900,000 Investment in Associates (30% x 3,000,000) 900,000

(b) Cost transferred from Equity Investments at FV 1,380,000Additional investment 2,600,000Share in profit 1,950,000Cash dividends received (900,000)Carrying amount, December 31, Year 2 5,030,000

7-15. (E Corporation)(a)Year 1Jan. 1 Investment in Associates – F Company 8,250,000

Cash (50,000 x 165) 8,250,000

Aug. 1 Cash 210,000 Investment in Associates – F Company 210,000

Dec. 31 Investment in Associates – F Company 170,000 Share in Profit of Associates 170,000 25% x 680,000

Year 2Dec. 31 Cash 240,000

Investment in Associates – F Company 240,000

31 Investment in Associates – F Company 250,000 Share in Profit of Associates – F Company 250,000 25% x 1,000,000

Year 3Jan. 2 Cash (20,000 x 175) 3,500,000

Investment in Associates – F Company 3,288,000 Gain on Sale of Investment in Associates 212,000 Acquisition cost 8,250,000 Share in profit (Year1) 170,000 Cash dividends received (Year1) (210,000) Cash dividends received (Year2) (240,000) Share in profit (Year 2) 250,000 Investment carrying amount 8,220,000 Portion sold 20/50 CV of investment sold 3,288,000

2 Equity Investments at FV through OCI 5,250,000 Investment in Associates – F Company 4,932,000 Investment Income 318,000 30,000 x 175 = 5,250,000 8,220,000 – 3,288,000 = 4,932,000 5,250,000 – 4,932,000 = 318,000

Dec. 31 Cash 120,000 Dividend Revenue 120,000

31 Equity Investments at FV through OCI 450,000 Unrealized Gains and Losses on Equity Investments - OCI 450,000

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30,000 x (190 - 175) =

(b). Year 1 Year 2 Year 3 Cost/Carrying Value, beg of year P8,250,000 P8,210,000 Income from associates 170,000 250,000Cash dividends received (210,000 (240,000)Sale of shares Carrying value, end of year P8,210,000 P8,220,000Market value 30,000 x 190 P5,700,000

7-16.

1. A and B 7. B 2. A 8. A, B, and C3. B and C 9. C4. A and B 10. B5. C 11. A6. C

7-17. (Abu Company)(a)

DateInterest

Received Interest RevenuePremium

Amortization Carrying Value

01/01/Year 1 8,274,64612/31/Year 1 1,200,000 1,158,450 41,550 8,233,09612/31/Year 2 1,200,000 1,152,633 47,367 8,185,72912/31/Year 3 1,200,000 1,146,002 53,998 8,131,73112/31/Year 4 1,200,000 1,138,442 61,558 8,070,17312/31/Year 5 1,200,000 1,129,827* 70,173* 8,000,000*rounded off.

(b)Year 1Jan. 1 Debt Investments at Amortized Cost 8,274,646

Cash 8,274,646

Dec. 31 Cash 1,200,000 Debt Investments at Amortized Cost 41,550 Interest Revenue 1,158,450

Year 2Dec. 31 Cash 1,200,000

Debt Investments at Amortized Cost 47,367 Interest Revenue 1,152,633

7-18. (South Company)(a)(1) Securities are classified as at fair value through profit and loss.Year 1June 1 Debt Investments at FVPL 3,691,500

Cash 3,691,500

Dec. 1 Cash 160,000 Interest Revenue (4M x 8% x ½) 160,000

Dec.31 Interest Receivable 26,667 Interest Revenue (4M x 8% x 1/12) 26,667

31 Debt Investments at FVPL 188,500 Unrealized Gain on Debt Investments

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at FVPL

188,500

4M x 0.97 = 3,880,000 3,880,000 – 3,691,500 = 188,500

Year 2Jan. 1 Interest Receivable 26,667

Interest Revenue 26,667

June 1 Cash 160,000 Interest Revenue 160,000

Dec. 1 Cash 160,000 Interest Revenue 160,000

31 Interest Receivable 26,667 Interest Revenue 26,667

Dec. 31 Debt Investments at FVPL 80,000 Unrealized Gain on Debt Investments at FVPL

80,000

4M x 0.99 = 3,960,000 3,960,000 – 3,880,000 = 80,000

(2) Securities are classified as at amortized cost To facilitate computation, a partial amortization table is presented below.

DateInterest

ReceivedInterest Revenue

Amortization of Discount Amortized Cost

June 1, Year 1 3,691,500Dec 1, Year 1 160,000 184,575 24,575 3,716,075June 1, Year 2 160,000 185,804 25,804 3,741,879Dec. 1, Year 2 160,000 187,094 27,094 3,768,973June 1, Year 3 160,000 188,449 28,449 3,797,422Dec. 1, Year 3 160,000 189,871 29,871 3,827,293June 1, Year 4 160,000 191,365 31,365 3,858,658Dec. 1, Year 4 160,000 192,933 32,933 3,891,591

Year 1June 1 Debt Investments at Amortized Cost 3,691,500

Cash 3,691,500

Dec. 1 Cash 160,000Debt Investments at Amortized Cost 24,575 Interest Revenue (see above table) 184,575

31 Interest Receivable 26,667Debt Investments at Amortized Cost 4,301 Interest Revenue 30,968 160,000 x 1/6 = 26,667 25,804 x 1/6 = 4,301

Year 2Jan. 1 Interest Revenue 30,968

Interest Receivable 26,667 Debt Investments at Amortized Cost 4,301

June 1 Cash 160,000Debt Investments at Amortized Cost 25,804 Interest Revenue (see above table) 185,804

Dec. 1 Cash 160,000Debt Investments at Amortized Cost 27,094 Interest Revenue (see above table) 187,094

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31 Interest Receivable 26,667Debt Investments at Amortized Cost 4,742 Interest Revenue 31,409 160,000 x 1/6 = 26,667 28,449 x 1/6= 4,742

(b) Journal entry/entries to record sale of investment on November 1, Year 4.

(1) Securities are classified as at fair value through profit and loss.Year 4Nov. 1 Cash 3,925,000 Loss on Sale of Debt Investments at FVPL 128,333 Interest Revenue 133,333

Debt Investments at FVPL 3,920,000 Acc. Int. = 4M x 8% x 5/12 = 133,333

Sales price (3,925,000–133,333) 3,791,667 Carrying value (4 M x 0.98) 3,920,000 Loss on sale 128,333

(2) Securities are classified as at amortized cost Year 4Nov. 1 Debt Investments at Amortized Cost 27,444

Interest Receivable 133,333 Interest Revenue 192,933 x 5/6 160,777

32,933 x 5/6 = 27,444

1 Cash 3,925,000 Loss on Sale of Debt Investments at Amortized

Cost 94,435 Interest Receivable 133,333

Debt Investments at Amortized Cost 3,886,102 CV of Debt Investments sold:

As of June 1, Year 4 3,858,658 Amortization June 1 to Nov. 1, Year 4 27,444 As of Nov. 1, Year 4 3,886,102 Sales price 3,791,667 Loss on sale 94,435

7-19. (Grow Company)

(1) Classified as Debt Investments at FV through Profit or Loss(a) Interest income (1,000,000 x 12%) P 120,000(b) Sales price (600,000 x 1.01) P 606,000

Carrying value, 12/31/Year 2 (600,000 x 1.06) 636,000Loss on sale P 30,000

(c) Carrying value, 12/31/Year 2 (FV) (1,000,000 x 1.06) P1,060,000Carrying value, 12/31/Year 3 (400,000 x 1.04) P 416,000

(2) Classified as at Amortized Cost

Amortization TableDate Nom Int Effect Int Prem Amort Amortized cost,

end1/1/Year 1 1,063,39412/31/Year 1 120,000 106,339 13,661 1,049,73312/31/Year 2 120,000 104,973 15,027 1,034,70612/31/Year 3 120,000 103,471 16,529 1,018,177

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(a) Carrying value, 12/31/Year 2 (see table) P1,034,706(b) Sales price P 606,000

Carrying value, 1/1/Year 3 (1,034,706 x 6/10 P620,824Amortization 1/1/Year 3 – 4/1/Year 3

16,529 x 3/12 x 600/1000 (2,479) 618,345

Loss on sale P 12,345(c) Interest income for Year 3:

Jan 1 to Mar 31 103,471 x 3/12 P 25,868 Apr 1 to Dec 31 103,471 x 400/1000 x 9/12 31,041 Total interest income for Year 3 P 56,909

(d) Carrying value, 12/31/Year 31,018,177 x 400/1000 P 407,271

7-20. (Powerpuff Company)

Feb. 1 Equity Investments - FVPL – Blossom Ordinary 374,000 Cash 374,000

April 1 Debt Investments – FVPL – Peach Co. Bonds 1,010,000 Cash 1,010,000

July 1 Debt Investments – FVPL – Buttercup Bonds 150,000Interest Receivable (150,000 x 12% x 4/12) 6,000 Cash 156,000

Oct. 1 Cash 50,000 Interest Income (1,000,000 x 10% x 6/12) 50,000

Dec. 31

Interest Receivable 34,000

Interest Income 34,000 1M x 10% x 3/12 = 25,000 150,000 x 12% x 6/12 = 9,000 25,000 + 9,000 = 34,000

31 Unrealized Loss on Investments at FVPL 11,000Equity Investments – FVPL - Blossom Ordinary 6,000Debt Investments – FVPL - Buttercup Bonds 3,000 Debt Investments – FVPL - Peach Bonds 20,000

Cost Fair value UGLBlossom Ordinary 374,000 380,000 6,000Peach 10% Bonds 1,010,000 990,000 (20,000)Buttercup 12% Bonds 150,000 153,000 3,000

1,534,000 1,523,000 (11,000)

7-21. (Narito Company)Amortization Table

DateNominal Interest

Effective Interest

Premium Amortization

Amortized Cost, End

Jan. 1, Year 1 108,660Dec. 31, Year 1 7,000 5,433 1,567 107,093Dec. 31, Year 2 7,000 5,355 1,645 105,448Dec. 31, Year 3 7,000 5,272 1,728 103,720Dec. 31, Year 4 7,000 5,186 1,814 101,906Dec. 31, Year 5 7,000 5,094 1,906 100,000

Year 1

12


Jan. 1 Debt Investments at Amortized Cost – Wolf Bonds 108,660 Cash 108,660

Dec. 31

Cash 7,000

Debt Investments at Amortized Cost – Wolf Bonds 1,567 Interest Income 5,433

Year 2Dec. 31

Cash 7,000


Year 3Dec. 31

Cash 7,000


Impairment Loss on Debt Investments 4,653 Debt Investments at Amortized Cost – Wolf Bonds 4,653 Carrying value, Dec. 31, Year 3 P103,720 Present value of future cash inflows 100,000 x 0.9070 90,700 4,500 x 1.8594 8,367 99,067 Impairment Loss P 4,653

Year 4 Dec. 31

Cash 4,500

Debt Investments at Amortized Cost – Wolf Bonds 453 Interest Income 4,953

Year 5Dec. 31

Cash 4,500

Debt Investments at Amortized Cost – Wolf Bonds 480 Interest Income 4,980

Revised Amortization Table


Effective Interest

Discount Amortization

Amortized Cost, End

Dec. 31, Year 3 99,067Dec. 31, Year 4 4,500 4,953 453 99,520Dec. 31, Year 5 4,500 4,980* 480* 100,000

7-22.1. B and C 6. A 11. B2. A 7. A 12. B and C3. B and C 8. A 13. A4. A 9. C 14. A5. B and C 10. B and C 15. C 7-23. Raffy Company)

To facilitate computation, a partial amortization table is presented below.

DateInterest

ReceivedInterest Revenue

Amortization of Discount

HTM Carrying Value

June 1, 2010 5,353,150Dec. 31, 2010

350,000 312,267 37,733 5,315,417

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Dec. 31, 2011

600,000 531,542 68,458 5,246,959

Dec. 31, 2012

600,000 524,696 75,304 5,171,655

Dec. 31, 2013

600,000 517,166 82,834 5,088,821

2010June 1 Held to Maturity Securities – Blessie Corp.

Bonds5,353,150

Interest Revenue (5M x 12% x 5/12) 250,000 Cash 5,603,150

Dec. 31 Cash 600,000 Interest Revenue 562,267 Held to Maturity Securities – Blessie 37,733

2011Dec. 31 Cash 600,000

Interest Revenue 531,542 Held to Maturity Securities – Blessie 68,458

2012Dec. 31 Cash 600,000

Interest Revenue 524,696 Held to Maturity Securities – Blessie 75,304

2013Sept. 1 Interest Receivable (3M x 12% x 8/12) 240,000

Held to Maturity Securities – Blessie 33,134 Interest Revenue (517,166 x 3/5 x 8/12) 206,866

1 Cash (3,090,000 + 240,000) 3,330,000 Gain on sale of HTM Securities 20,141 Interest Receivable 240,000 Held to Maturity Securities – Blessie 3,069,859

CV of HTM securities sold: As of 12/31/11 (5,171,655 x 3/5) 3,102,993 Amort from 1/1/12-9/1/12 33,134 CV as of 9/1/12 3,069,859 Sales price 3,090,000 Gain on sale 20,141

Sept. 1 Available for Sale Securities – Blessie 2,068,662 Held to Maturity Securities 2,068,662 5,171,655 – 3,102,993 = 2,068,662

Dec. 31 Cash 240,000 Interest Revenue 206,866 Available for Sale Securities – Blessie 33,134 2M x 12% = 240,000 5,171,655 – 3,102,993 = 2,068,662 2,068,662 x 10% = 206,866 240,000 – 206,866 = 33,134

Dec 31 Market Adjustment – AFS 34,472 Unrealized Gain or Loss on AFS 34,472 Amortized cost 2,068,662 – 33,134 = P2,035,528* Market value 2M x 103.5% 2,070,000 Market Adjustment P 34,472

*or 5,088,821 x 2/5 = P2,035,528

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7-24. (Grow Company)Amortization Table

Date Nom Int Effect Int Prem Amort Amortized cost, end

1/1/Year 1 1,063,39412/31/Year 1 120,000 106,339 13,661 1,049,73312/31/Year 2 120,000 104,973 15,027 1,034,70612/31/Year 3 120,000 103,471 16,529 1,018,177

(a) Market value, 12/31/ Year 2 (1.06 x 1M) P1,060,000Amortized cost, 12/31/Year 2 1,034,706Unrealized Gain or Loss (In Equity) P 25,394

(b) Interest income for Year 2 P 104,973(c) Market value, 12/31/Year 3 (1.04 x 400,000) P 416,000

Amortized cost (1,018,177 x 4/10) 407,271Unrealized Gain on 12/31/Year 3 P 8,729

7-25. (Naruto Company)Amortization Table


Effective Interest

Premium Amortization

Amortized Cost, End

Jan. 1, 2010 108,660Dec. 31, 2010 7,000 5,433 1,567 107,093Dec. 31, 2011 7,000 5,355 1,645 105,448Dec. 31, 2012 7,000 5,272 1,728 103,720Dec. 31, 2013 7,000 5,186 1,814 101,906Dec. 31, 2014 7,000 5,094 1,906 100,000

(a) Interest income for 2010 P 5,433(b) Carrying amount at December 31, 2011 (amortized cost)

P105,448(c) After the sale, the investment shall be reclassified as AFS, applying tainting

rule in IAS 39.Fair value of remaining 105,650 x 40/100 P42,260Amortized cost of remaining 103,720 x 40/100 41,488Unrealized gain in equity, December 31, 2011 P 772

(d) Interest income for 2013 5,186 x 40/100 P 2,074MULTIPLE CHOICE QUESTIONS

TheoryMC1 B MC6 D MC11 B MC16 BMC2 B MC7 B MC12 C MC17 DMC3 C MC8 A MC13 AMC4 A MC9 A MC14 CMC5 C MC10 B MC15 C

ProblemsMC18 B 535,000 – 525,000 = 10,000MC19 B 2,000,000 – 1,750,000 = 250,000 lossMC20 C 2,100,000 – (2,000,000 + 50,000) = 50,000MC21 D FV 12/31/ Year 2 (600 x 440) + (2,000 x 138) = 540,000

FV 12/31/Year 1 = 270,000 + 280,600 = 550,600Change in FV = 540,000 – 550,600 = 10,600 decrease or debit

MC22 A 1,000 x 150) + 2,250 = 152,250; 152,250 – (1,000 x 10) = 142,250MC23 C 10,000 x 150 = 1,500,000; 1,500,000 + (20% x 3M) – (10,000 x 50) = 1,600,000MC24 D 960-500 = 460; 460 + 600 = 1,060; 1,060/10 = 106 sharesMC25 C (500 x 20) – 500 = 9,500; 106 x (620 – 450) = 18,020; 9,500 + 18,020 =

27,520MC26 B 88 ÷ 1.10 = 80MC27 B 1,200,000 – (3 x 40,000) + (25% x 640,000) = 1,240,000MC28 B 1,000 x (140 - 130) + 900 x (170 – 180) + 800 x (200- 220) = 15,000 additional

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loss MC29 A 1,000 x (20) + 15,000 = 35,000MC30 B 40% x 450,000 = 180,000; 150,000 ÷ 12 = 12,500; 180,000 – 12,500 =

167,500MC31 A 25,000 x 180 = 4,500,000; 25% x (2,400,000 – 480,000) = 480,000

4,500,000 + 480,000 – 60,000 – 60,000 = 4,860,000MC32 A CV at date of reclassification is equal to FV = 15,000 x 200 = 3,000,000 MC33 B 10,000 x 200 = 2,000,000; 4,860,000 x 10/25 = 1,944,000

2,000,000 – 1,944,000 = 56,000MC34 A P0; No income is recognized upon receipt of bonus issue.MC35 C 750,000 + 1,500,000 = 2,250,000MC36 B 40% x 1,200,000 = 480,000; (40% x 900,000) ÷ 18 = 20,000

40% x 100,000 = 40,000; 480,000 – 20,000 – 40,000 = 420,000MC37 C 4,000,000 + 420,000 – (40% x 200,000) = 4,340,000MC38 B 20% x 5.5M = 1,100,000; 1,100,000 – (20% x 1,000,000) = 900,000MC39 B 3,700,000 + 900,000 – (20% x 1,500,000) = 4,300,000MC40 A (1.04 x 1,000,000) = 1,040,000; interest receivable = 1,000,000 x 12% x 4/12 =

40,000MC41 C 8,750,000 x 5% = 437,500MC42 C 3,692,000 x 5% = 184,600; 4M x 4% = 160,000

184,600 – 160,000 = 24,600; 3,692,000 + 24,600 = 3,716,600MC43 C 3,692,000 x 5% = 184,600MC44 B 912,400 x 10% = 91,240; 1,000,000 x8% = 80,000

91,240-80,000 = 11,240; 912,400 + 11,240 = 923,640MC45 D 7,850,000 – (8M x .08 x 6/12) = 7,530,000 selling price; 7,383,000 x 5% =

369,1508M x 4% = 320,000; 369,150 – 320,000 = 49,1507,383,000 + 49,150 = 7,432,150 CV Dec. 1, Year 1; 7,432,150 x 5% = 371,608371,608 – 320,000 = 51,608; 7,342,150 + 51,608 = 7,483,758 CV June 1, Yr 2. 7,530,000 – 7,483,758 = 46,242

MC46 D Carrying amount is equal to FV (472,500)MC47 B 500,000 x 4% = 20,000MC48 D 460,000 – 472,500 = 12,500 lossMC49 C Selling price = 3,000 x 120 = 360,000; cost of shares sold = 560,000 x

3,000/6,000 = 280,000; Gain = 360,000 – 280,000 = 80,000MC50 D Cost of shares sold (for 2,400 shares, P200,000) + 600 /3,600 x 360,000 =

200,000 + 60,000 = 260,000; Gain = 360,000 – 260,000 = 100,000

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2014 vol 1 ch 7 answers

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