PROBLEM NO. 7 - Gateway Company

Amount to be recognized in profit or loss - Investment in TemplarGain on sale 10/05 (see computation below) 350,000 Gain on sale 11/30 (see computation below) 2,160,000 Dividend income (50,000 shares x P5) 250,000 FV adjustment gain 240,000 Net amount to be recognized in P/L 3,000,000

Gain on sale 10/05:Sales proceeds (20,000 shares x P65) 1,300,000 Less Cost of investment sold (see below) 950,000 Gain on sale 350,000

Cash paid 1,000,000 Less Purchased dividend 50,000 Correct acquisition cost 950,000

Gain on sale 11/30:Cash received 3,300,000 Less dividends sold (20,000 shares x P5) 100,000 Net sales proceeds 3,200,000 Less Cost of investment sold 1,040,000 Gain on sale 2,160,000

FV adjustment gain:Fair value, 12/31/12 (30,000 x P60) 1,800,000 Balance before FV adjustment (see investment ledger) 1,560,000 FV adjustment gain 240,000

Investment in Templar ledgerSept. 5 acquisition Shares Cost/share Total

Purchase, Sept. 5 20,000 47.50 950,000 Sale, Oct. 5 (use FIFO) (20,000) 47.50 (950,000) Balance, Dec. 31, 2012 - -

Oct. 1 acquisition Shares Cost/share TotalPurchase, Oct. 1 50,000 52.00 2,600,000 Sale, Nov. 30 (20,000) 52.00 (1,040,000) Balance, Dec. 31, 2012 30,000 52.00 1,560,000

Amount to be recognized in SFP - Investment in TemplarFair value, 12/31/12 (30,000 x P60) 1,800,000

Amount to be recognized in profit or loss - Investment in DarkShare of profit (P800,000 x .195) 156,000

Amount to be recognized in SFP - Investment in DarkAcquisition cost 1,170,000 Share of profit (P800,000 x .195) 156,000 Dividends received (P200,000 x .195) (39,000) Investment in stock balance, 12.31.11 1,287,000

* Use equity method since there is a significant influence, i.e. Gateway's President is represented in the board of directors.