2014 Vol 1 Ch 7 Answers

CHAPTER 7 INVESTMENTS IN EQUITY SECURITIES AND DEBT SECURITIES

PROBLEMS

7-1. (Victoria Corporation) Year 1 (a) Equity Investments –FVPL 150,000 Other Expenses 3,750 Cash 153,750 (b) Equity Investments – FVPL 30,000 Unrealized Gains on Equity Investments – Profit or Loss 30,000

Year 2 (a) Cash 94,000 Gain on Sale of Equity Investments – FVPL 4,000 Equity Investments – FVPL 90,000 (b) Equity Investments – FVPL 6,000 Unrealized Gains on Equity Investments – Profit or Loss 6,000

7-2. (Victory Company) Year 1 (a) Equity Investments at FV through OCI 153,750 Cash 153,750 (b) Equity Investments at FV through OCI 26,250 Unrealized 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 94,000 Loss on Sale of Equity Investments 1,000

Equity Investments at FV

through OCI 95,000 (b) Equity Investments at FV through OCI 1,000 Unrealized Gains and Losses on Equity Investments - OCI 1,000

7-3. (A Company) a. Cash 18,000 Dividend Revenue 18,000 2,400 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 150,000 Dividend Revenue 150,000

600 x 250 = 150,000

Chapter 7 – Investments in Equity Securities and Debt Securities

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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 20,000 Dividend 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 3 Memo: Received 6,000 shares of NPA Co. ordinary as 20% bonus issue on the 30,000 shares previously held.

Cash (15,000 x 70) 1,050,000 Equity Investments – FVPL 812,500 Gain on Sale of Equity Investments 237,500 1,950,000 x 15,000/36,000 = 812,500 Equity Investments – FVPL 374,500 Unrealized Gain on Equity Investments 374,500 at FVPL 21,000 x 72 1,512,000 1,950,000 – 812,500 1,137,500 Unrealized gain 374,500 (b) Gain on sale P237,500 Unrealized gain on equity investments at FVPL 374,500 Total 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 1,800,000 Unrealized Gain or Loss on Equity Investments - OCI P 150,000

Year 3 Memo: 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 570,000 Unrealized Gain or Loss on Equity Investments – OCI 570,000 36,000 sh x 70 2,520,000 12/31/Y2 FV 1,950,000 Unrealized gain 470,000

Cash (15,000 x 70) 1,050,000

Equity 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 42,000 Unrealized Gain on Equity Investments 42,000 at FV through OCI 21,000 x (72 - 70)


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(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) 1,050,000 Unrealized Gain (Loss) in Equity P 462,000

7-6. (Gypsy Corporation) (a) Sales price (5,000 x 54) P270,000

CV at date of sale 250,000 Gain 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

Unrealized Gain (Loss)

Monterey Preference 3,500 P133,000 P135,000 P 2,000 Garcia Ordinary 1,000 180,000 190,000 10,000 Barney 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) P106,250 Cost 110,000 Unrealized Loss, end of Year 1 P 3,750

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

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

Fair value (2,000 x 90) P180,000 Carrying value/Cost (106,250+60,000) 166,250

Unrealized 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 30,000 Cash 24,000 Investment Income 6,000 300 x 100 = 30,000 300 x 80 = 24,000

Cash 2,250 Investment Income 2,250 500 x 4.50


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Equity Investments at FV through OCI 15,400 Unrealized Gains and Losses on Equity Investments – OCI 15,400 2,300 x 98 = 225,400 225,400 – (180,000 + 30,000)=15,400

7-8. (Anti Corporation) (a) Cash 50,000 Investment Income 50,000 10,000 x 5 (b) Equity Investments at FVPL (2,000 x 75) 150,000 Cash (2,000 x 50) 100,000 Investment Income 50,000

Equity Investments at FVPL 90,000 Unrealized Gain on Equity Investments – Profit or Loss 90,000 Market value (12,000 shares x 78) 936,000 Carrying value before this adjustment (660,000 + 150,000) 810,000 Unrealized gain 126,000

7-9. (Tolits Corporation) (a)

Year 2 a. 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

4,950

Equity 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

Unreal 1,250 (6,200) (4,950

*Original Diana shares 500 shares at P108 P54,000 2-for-1 split 500 shares -____ 1,000 shares at P54 P54,000 Adjust prior to sale 6,000 Balance 1,000 shares at P60 P60,000

Sale (250 shares 15,000)

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

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

7-10. (Carlo Company)

Year 2

Apr. 1 Cash (5,000 x 25) 125,000 Loss on Sale of Equity Investments 14,000

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


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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 110,000 Equity 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 P2,000,000 Share in profit – 2012 300,000 Share in profit – 2013 600,000 Share in dividends (200,000) Carrying amount, December 31, 2013 P2,700,000

7-12. (Byron, Inc.)

2013 Jan. 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

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


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7-13. (Barbie, Inc.) (a)

2012

Mar. 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 P1,365,000 Cash dividends received ( 240,000) Share in reported profit of associate 300,000 Adjustment 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 1

Jan. 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 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


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

7-15. (E Corporation) (a)

Year 1

Jan. 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 2

Dec. 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 3

Jan. 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 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 170,000 250,000 Cash dividends received (210,000 (240,000) Sale of shares Carrying value, end of year P8,210,000 P8,220,000 Market value 30,000 x 190 P5,700,000


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7-16. 1. A and B 7. B 2. A 8. A, B, and C 3. B and C 9. C 4. A and B 10. B 5. C 11. A 6. C

7-17. (Abu Company) (a)

Date

Interest Received

Interest Revenue

Premium Amortization

Carrying Value

01/01/Year 1 8,274,646

12/31/Year 1 1,200,000 1,158,450 41,550 8,233,096 12/31/Year 2 1,200,000 1,152,633 47,367 8,185,729 12/31/Year 3 1,200,000 1,146,002 53,998 8,131,731 12/31/Year 4 1,200,000 1,138,442 61,558 8,070,173 12/31/Year 5 1,200,000 1,129,827* 70,173* 8,000,000

*rounded off. (b)

Year 1 Jan. 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 2 Dec. 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 1

June 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 at

FVPL

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

3,880,000 – 3,691,500 = 188,500

Year 2

Jan. 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


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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.

Date

Interest Received

Interest Revenue

Amortization of Discount

Amortized Cost

June 1, Year 1 3,691,500 Dec 1, Year 1 160,000 184,575 24,575 3,716,075 June 1, Year 2 160,000 185,804 25,804 3,741,879 Dec. 1, Year 2 160,000 187,094 27,094 3,768,973

June 1, Year 3 160,000 188,449 28,449 3,797,422 Dec. 1, Year 3 160,000 189,871 29,871 3,827,293 June 1, Year 4 160,000 191,365 31,365 3,858,658 Dec. 1, Year 4 160,000 192,933 32,933 3,891,591

Year 1

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

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

31 Interest Receivable 26,667 Debt 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 2

Jan. 1 Interest Revenue 30,968 Interest Receivable 26,667 Debt Investments at Amortized Cost 4,301

June 1 Cash 160,000

Debt Investments at Amortized Cost 25,804 Interest Revenue (see above table) 185,804

Dec. 1 Cash 160,000 Debt Investments at Amortized Cost 27,094

Interest Revenue (see above table) 187,094

31 Interest Receivable 26,667 Debt 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 4

Nov. 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


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(2) Securities are classified as at amortized cost Year 4

Nov. 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) 636,000 Loss on sale P 30,000 (c) Carrying value, 12/31/Year 2 (FV) (1,000,000 x 1.06) P1,060,000 Carrying value, 12/31/Year 3 (400,000 x 1.04) P 416,000

(2) Classified as at Amortized Cost

Amortization Table

Date Nom Int Effect Int Prem Amort Amortized cost, end

1/1/Year 1 1,063,394

12/31/Year 1 120,000 106,339 13,661 1,049,733

12/31/Year 2 120,000 104,973 15,027 1,034,706

12/31/Year 3 120,000 103,471 16,529 1,018,177

(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 P620,824

Amortization 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 3 1,018,177 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


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July 1 Debt Investments – FVPL – Buttercup Bonds 150,000 Interest 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 11,000

Equity Investments – FVPL - Blossom Ordinary 6,000 Debt Investments – FVPL - Buttercup Bonds 3,000 Debt Investments – FVPL - Peach Bonds 20,000 Cost Fair value UGL Blossom Ordinary 374,000 380,000 6,000 Peach 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

Date

Nominal Interest

Effective Interest

Premium Amortization

Amortized Cost, End

Jan. 1, Year 1 108,660

Dec. 31, Year 1 7,000 5,433 1,567 107,093

Dec. 31, Year 2 7,000 5,355 1,645 105,448

Dec. 31, Year 3 7,000 5,272 1,728 103,720

Dec. 31, Year 4 7,000 5,186 1,814 101,906

Dec. 31, Year 5 7,000 5,094 1,906 100,000

Year 1

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 2

Dec. 31 Cash 7,000 Debt Investments at Amortized Cost – Wolf Bonds 1,645 Interest Income 5,355

Year 3

Dec. 31 Cash 7,000 Debt Investments at Amortized Cost – Wolf Bonds 1,728 Interest Income 5,272 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


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Year 4

Dec. 31 Cash 4,500 Debt Investments at Amortized Cost – Wolf Bonds 453 Interest Income 4,953

Year 5

Dec. 31 Cash 4,500 Debt Investments at Amortized Cost – Wolf Bonds 480 Interest Income 4,980

Revised Amortization Table

Date

Nominal Interest

Effective Interest

Discount Amortization

Amortized Cost, End

Dec. 31, Year 3 99,067

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

7-22. 1. B and C 6. A 11. B 2. A 7. A 12. B and C 3. B and C 8. A 13. A 4. A 9. C 14. A 5. B and C 10. B and C 15. C

7-23. Raffy Company) To facilitate computation, a partial amortization table is presented below.

Date

Interest Received

Interest Revenue

Amortization of Discount

HTM Carrying Value

June 1, 2010 5,353,150

Dec. 31, 2010 350,000 312,267 37,733 5,315,417 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

2010

June 1 Held to Maturity Securities – Blessie Corp. Bonds 5,353,150 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

2011 Dec. 31 Cash 600,000 Interest Revenue 531,542 Held to Maturity Securities – Blessie 68,458 2012 Dec. 31 Cash 600,000 Interest Revenue 524,696

Held to Maturity Securities – Blessie 75,304 2013 Sept. 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


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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

7-24. (Grow Company)

Amortization Table Date Nom Int Effect Int Prem Amort Amortized cost, end

1/1/Year 1 1,063,394 12/31/Year 1 120,000 106,339 13,661 1,049,733 12/31/Year 2 120,000 104,973 15,027 1,034,706 12/31/Year 3 120,000 103,471 16,529 1,018,177

(a) Market value, 12/31/ Year 2 (1.06 x 1M) P1,060,000 Amortized cost, 12/31/Year 2 1,034,706 Unrealized 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) 407,271 Unrealized Gain on 12/31/Year 3 P 8,729

7-25. (Naruto Company) Amortization Table

Date

Nominal Interest

Effective Interest Premium Amortization

Amortized Cost, End

Jan. 1, 2010 108,660

Dec. 31, 2010 7,000 5,433 1,567 107,093

Dec. 31, 2011 7,000 5,355 1,645 105,448

Dec. 31, 2012 7,000 5,272 1,728 103,720

Dec. 31, 2013 7,000 5,186 1,814 101,906

Dec. 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 P42,260 Amortized cost of remaining 103,720 x 40/100 41,488 Unrealized gain in equity, December 31, 2011 P 772 (d) Interest income for 2013 5,186 x 40/100 P 2,074


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MULTIPLE CHOICE QUESTIONS Theory

MC1 B MC6 D MC11 B MC16 B

MC2 B MC7 B MC12 C MC17 D

MC3 C MC8 A MC13 A

MC4 A MC9 A MC14 C

MC5 C MC10 B MC15 C

Problems

MC18 B 535,000 – 525,000 = 10,000

MC19 B 2,000,000 – 1,750,000 = 250,000 loss

MC20 C 2,100,000 – (2,000,000 + 50,000) = 50,000

MC21 D FV 12/31/ Year 2 (600 x 440) + (2,000 x 138) = 540,000

FV 12/31/Year 1 = 270,000 + 280,600 = 550,600 Change 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) = 142,250

MC23 C 10,000 x 150 = 1,500,000; 1,500,000 + (20% x 3M) – (10,000 x 50) = 1,600,000

MC24 D 960-500 = 460; 460 + 600 = 1,060; 1,060/10 = 106 shares

MC25 C (500 x 20) – 500 = 9,500; 106 x (620 – 450) = 18,020; 9,500 + 18,020 = 27,520

MC26 B 88 ÷ 1.10 = 80

MC27 B 1,200,000 – (3 x 40,000) + (25% x 640,000) = 1,240,000

MC28 B 1,000 x (140 - 130) + 900 x (170 – 180) + 800 x (200- 220) = 15,000 additional loss

MC29 A 1,000 x (20) + 15,000 = 35,000

MC30 B 40% x 450,000 = 180,000; 150,000 ÷ 12 = 12,500; 180,000 – 12,500 = 167,500

MC31 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 = 4,860,000

MC32 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 = 56,000

MC34 A P0; No income is recognized upon receipt of bonus issue.

MC35 C 750,000 + 1,500,000 = 2,250,000

MC36 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 = 420,000

MC37 C 4,000,000 + 420,000 – (40% x 200,000) = 4,340,000

MC38 B 20% x 5.5M = 1,100,000; 1,100,000 – (20% x 1,000,000) = 900,000

MC39 B 3,700,000 + 900,000 – (20% x 1,500,000) = 4,300,000

MC40 A (1.04 x 1,000,000) = 1,040,000; interest receivable = 1,000,000 x 12% x 4/12 = 40,000

MC41 C 8,750,000 x 5% = 437,500

MC42 C 3,692,000 x 5% = 184,600; 4M x 4% = 160,000 184,600 – 160,000 = 24,600; 3,692,000 + 24,600 = 3,716,600

MC43 C 3,692,000 x 5% = 184,600

MC44 B 912,400 x 10% = 91,240; 1,000,000 x8% = 80,000 91,240-80,000 = 11,240; 912,400 + 11,240 = 923,640

MC45 D 7,850,000 – (8M x .08 x 6/12) = 7,530,000 selling price; 7,383,000 x 5% = 369,150 8M x 4% = 320,000; 369,150 – 320,000 = 49,150 7,383,000 + 49,150 = 7,432,150 CV Dec. 1, Year 1; 7,432,150 x 5% = 371,608 371,608 – 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% = 20,000

MC48 D 460,000 – 472,500 = 12,500 loss

MC49 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 = 80,000

MC50 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

Documents

2014 Vol 1 Ch 7 Answers