Ch 7 Answers Vol 1 finacc

CHAPTER 7 INVESTMENTS IN EQUITY SECURITIES AND DEBT SECURITIES PROBLEMS 7-1

(Dusit, Inc.) Classified as available for sale securities a. Purchase price (10,000 shares x P33.50) P335,000 Broker’s commission Total cost

b. Purchase price (7,000 shares x P26.50) P185,500.00 Broker’s commission Transfer taxes (¼ x 1% x 185,500) Total cost c. P58,000

1,980 P336,980

4,910.00 463.75 P190,873.75

Purchase price Transfer fees and other costs

1,500

45,000

Total cost to be allocated

P59,500

Market values: Ordinary shares 150 x 100 Preference shares 300 x 150

P15,000

Total Allocation to: Ordinary shares P14,875

P60,000 59,500 x 15/60

Preference shares 59,500 x 45/60

P44,625 d.

Market value of ordinary shares 2,000 shares x P200 P400,000 Classified as Trading Securities a. Purchase price (10,000 shares x P33.50) P335,000 b. Purchase price (7,000 shares x P26.50) P185,500 c. 14,500 43,500

Allocation to Ordinary Shares 58,000 x 15/60

P

Allocation to Preference Shares 58,000 x 45/60

P

Chapter 7 – Investments in Equity Securities and Debt Securities

d.

Market value of ordinary shares 2,000 shares x P200 P400,000 7-2

(A Company) a. Cash Dividend Revenue 2,400 shares x 7.50 Cost per share: B Corp. Ordinary (no change) b.

c.

18,000 18,000 P100

Memo entry. Received additional 600 shares of B Corp. ordinary shares as stock dividends. Revised cost per share: B Corp. Ordinary (3,000 shares) Available for Sale Securities-B Corp. Preference 80,000 Available for Sale Securities-B Corp. Ordinary 80,000 Market values: Allocation: 80,000

Ordinary (2,400 x 125) 300,000 Preference (600 x 250) 150,000 Ordinary 240,000 x 300/450 160,000 Preference 240,000 x 150/450

Costs per share: B Corp. Ordinary (2,400 shares) B Corp. Preference (600 shares) d.

P 80

P 67 P133

Memo entry. Received additional shares of B Corp. ordinary shares on a 4-for-1 stock split. Revised cost per share: B Corp. Ordinary = P240,000/9,600 shares P 25

e.

Available for Sale Securities-C Ordinary Dividend Revenue 2,400/6 = 400 shares x 50

20,000 20,000

Costs per share: B Corp. Common (2,400 shares) C Corp. Common (400 shares) 7-3

10,000

(Victoria Court) Classified as FVPL Cash Gain on Sale of Trading Securities

P100 P 50

170,000

Trading Securities 160,000 To record sale of Y Co. Common Unrealized Loss on Trading Securities Trading Securities To record valuation at end of year.

48

72,000 72,000

Chapter 7 – Investments in Equity Securities and Debt Securities

X Co. Z Co. Total

MV12/31/08 P330,000 350,000 P680,000

Classified as available for sale securities Cash Loss on Sale of Available for Sale Securities Market Adjustment-AFS Securities Available for Sale Securities Net Unrealized Gain/Loss on AFS Securities 40,000

Unrealized Holding Gains(Losses) P(42,000) (30,000) P(72,000)

Market12/31/09 P288,000 320,000 P608,000 170,000 40,000

30,000 200,000

To record sale of Y Co. Common Net Unrealized Gain/Loss on AFS Securities Market Adjustment-AFS Securities

72,000

72,000

To record valuation at end of year. Cost Market X Co. P330,000 P288,000 Z Co. 300,000 320,000 Total P630,000 P608,000 Required balance in Market Adjustment Account – cr Balance before adjustment (10,000 + 40,000) – dr Required adjustment

Unrealized Holding Gains(Losses) P(42,000) 20,000 P(22,000) 50,000 P 72,000

7-4

(Inn Corporation) (1) Sales price (15,000 x 60 ) P900,000 Cost of shares sold: 12,000 shares P650,000 3,000 shares (1,300,000 x 3,000/24,000) 162,500 812,500 Gain on sale P 87,500 (2)

Sales price Cost of shares sold (1,800,000 x 15,000/36,000) Gain on sale

(3)

Sales price P900,000 Cost of shares sold: 12,000 shares P500,000 3,000 shares (1,300,000 x 3,000/24,000) 162,500

662,500

Gain on sale 7-5

P900,000 750,000 P150,000

P237,500

(Melody Corporation) a. 2007 Lot (4 x 750) 2008 Lot (4 x 1,250) Total cost of stock rights received

49

P 3,000 5,000 P 8,000

Chapter 7 – Investments in Equity Securities and Debt Securities b. 6,000

2,250

Cost of stock rights exercised: 2005 Lot 2006 Lot (750 x 4)

P 3,000

3,000

Cash paid (300 shares x P80) Total cost of new shares acquired thru stock rights Cost per share (8,400 / 300 shares) P c.

24,000 P30,000 100

Sales price of stock rights (500 x 4.50)

P

Cost of stock rights sold 2008 Lot (500 x 4) Gain on sale d.

225,400

P

P

2,000 250

Available for sale securities balance at December 31, 2009: 2007 Lot (60,000 – 3,000) P 57,000 2008 Lot (110,000 – 5,000) 105,000 2009 Lot 30,000 P192,900 Market value at December 31, 2009 (98 x 2,300 shares) Balance in unrealized gain/loss account at December 31, 2009

P

32,500

7-6

(Anti Corporation) a. Stock Rights – Pro Corp. Ordinary Trading Securities – Pro Corp. Ordinary 10,000 x 5 b. Cash Stock Rights – Pro Corp. Ordinary

50,000 50,000 50,000

50,000 c. 50,000

Trading Securities – Pro Corp. Ordinary Stock Rights – Pro Corp. Ordinary Cash 10,000/5 = 2,000 shares 2,000 x 50 = 100,000

140,000

140,000 7-7

100,000

Trading Securities – Pro Corp. Ordinary Unrealized Gain on Trading Securities Market value, 12/31/06

900,000

150,000

140,000

(12,000 shares x 75)

Carrying value, 12/31/07 (10,000 shares x 66) 660,000 Cost of stock rights received ( 50,000) Cost of new shares from exercise 150,000 760,000 Unrealized gain

(EDSA Company) (a)

50

Chapter 7 – Investments in Equity Securities and Debt Securities 1. 2. 3. (b)

1. 2.

7-8

150 – 135 2+1 2,000 x 5 5,500 – (1,000 x 5) 145 – 135 2 2,000 x 5

= = =

P5.00 P10,000 P500 Gain

=

P5.00

=

P10,000

(Tolits Corporation) 2009

a.

Available for Sale Securities – Diana Ordinary Cash

b.

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

c.

Available for Sale Securities – Smith Preference Cash (1,000 x 120) + 1,200

d.

e.

f.

f. g.

54,000 54,000

121,200 121,200

Cash Gain on Sale of AFS Securities Available for Sale Securities – Diana Ordinary (54,000 / 1,000) x 250 shares = 13,500

15,000

Stock Rights – Diana Ordinary Available for Sale Securities – Diana Ordinary 750 shares x 3

2,250

Available for Sale Securities – Diana Ordinary Stock Rights – Diana Ordinary Cash (60% x 750) x 3; 225 x 55 Cash Stock Rights – Diana Ordinary (40% x 750) x 3

1,500 13,500

2,250

13,725 1,350 12,375 900

Cash (100 x 56) Loss on sale of AFS Securities Available for Sale Securities – Diana Ordinary 13,725/ 225 = 61; 61 x 100 = 6,100

5,600 500

h.

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

8,000

i.

Market Adjustment – AFS Securities Unrealized Gains/Losses on AFS Securities

2,175

51

900

6,100

8,000 2,175

Chapter 7 – Investments in Equity Securities and Debt Securities

CV Diana 1 (750 sh) 46,500 38,250 Diana 2 (125 sh) 7,625

Smith (1,000 x 115) 121,200 Total 167,075 b.

P9,000 7-9

Market 7,750

115,000

Unreal 8,250 125 (6,200) 2,175

169,250

Gain on sale of AFS Securities Loss on sale of AFS Securities ( 500) Dividend revenue Total income recognized in profit or loss in 2006

P1,500 8,000

(X Corporation) 2008

Jan.

1

Dec. 31

Available for Sale Securities – Y Co. Ordinary Cash

300,000

Net Unrealized Gains/Losses on AFS Securities Market Adjustment – AFS Securities 5,000 x (60 – 55)

25,000

Market Adjustment – AFS Securities Impairment Loss – AFS Securities Net Unrealized Gains/Losses on AFS Securities Available for Sale Securities – Y Co. Ordinary 5,000 x (60-52)

25,000 40,000

300,000

25,000

2009

Dec. 31

7-10

25,000 40,000

(Carlo Company) 2009

Apr. 1

May 15

Cash (5,000 x 25) Loss on Sale of Trading Securities Trading Securities – Avi Ordinary Available for Sale Securities – Ghio Preference Cash

July 10

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

Nov. 30

Cash (1 x 24,000) Dividend Revenue Unrealized Loss on Trading Securities Trading Securities – Avi Ordinary (5,000 x 26) – 139,000

Dec. 31

52

125,000 14,000

139,000

30,550 30,550

24,000 9,000

24,000 9,000

Chapter 7 – Investments in Equity Securities and Debt Securities 31

Market Adjustment – AFS Securities Net Unrealized Gains/Losses on AFS Securities 116,650 – 6,000 balance FV Unrealized Darrel 480,000 116,000 Ghio 31,200 650 Total 511,200 116,650

7-11

364,000 30,550 394,550

Investment in Associates Income from Associates 20% x 1,500,000

2,000,000 2,000,000 300,000 300,000

3.

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

4.

Investment in Associates Income from Associates 20% x 3,000,000

600,000

Cash Investment in Associates 20% x 1,000,000

200,000

5.

(b)

110,650

Cost

(Hostel Company) (a) 1. Investment in Associates Cash 2.

110,650

600,000

Investment cost

P2,000,00 0 300,000 600,000 (200,000) P2,700,00

Share in income – 2009 Share in income – 2010 Share in dividends Carrying amount, December 31, 2010 7-12

200,000

(Byron, Inc.) 2009

Jan.

1

Dec. 31

31

Investment in Associates – Pirates Ordinary Cash

5,160,000

Investment in Associates – Pirates Ordinary Income from Associates (30% x 3,600,000)

1,080,000

Cash (30% x 400,000) Investment in Associates – Pirates Ordinary

53

5,160,000

1,080,000 120,000 120,000

Chapter 7 – Investments in Equity Securities and Debt Securities 7-13

(Barbie, Inc.) (a). 2009

Mar. 1 Dec. 31 31

31

Investment in Associates – Kitchie Cash Cash (30% x 800,000) Investment in Associates – Kitchie Investment in Associates – Kitchie Income from Associates (3.2M x 10/12) x 30% Income from Associates – Kitchie Investment in Associates – Kitchie

1,365,000 240,000

1,365,000 240,000

800,000 800,000 37,500

(30% x 750,000) / 5 yrs. = 45,000 45,000 x 10/12 = 37,500

37,500

(b) Acquisition cost, March 1, 2009 P1,365,000 Cash dividends received ( 240,000) Income from associates 800,000 Adjustment in reported income ( 37,500) Investment carrying value, December 31, 2009 P1,887,500 Income reported by Barbie from its investment in associates: (800,000 – 37,500)

P

762,500 7-14

(Richmonde Corporation) (a) 2008

Jan.

1

Dec. 31

31

Available for Sale Securities – Pen, Inc. Cash

900,000

Cash Dividend Revenue 10% x 2,000,000

200,000

Market Adjustment – AFS Securities Net Unrealized Gains/Losses on AFS Securities

480,000

900,000 200,000

480,000

2009

Jan.

1

Investment in Associates – Pen, Inc. Net Unrealized Gains/Losses on AFS Securities Market Adjustment – AFS Securities Retained Earnings Available for Sale Securities – Pen, Inc. Acquisition cost 900,000 Share in income (10% x 6M)

54

1,300,00 0 480,000 480,000 400,000 900,000

Chapter 7 – Investments in Equity Securities and Debt Securities 600,000 Share in dividends (10% x 2M) (200,000) Carrying amount, 12/31/05 1,300,000 1

Investment in Associates – Pen, Inc.

2,600,00 0

Cash Dec. 31

Investment in Associates – Pen, Inc.

1,950,00 0

Income from Associates (30% x 6,500,000) 31

(b)

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

900,000

Cost transferred from Available for Sale Securities

1,950,00 0

900,000

1,300,00 0 2,400,000 1,950,000 (900,000) 4,750,000

Additional investment Share in income Share in dividends Carrying amount, December 31, 2009 7-15

2,600,00 0

(E Corporation) (a) 2008

Jan.

1

Investment in Associates – F Company

8,250,00 0

Cash (50,000 x 165)

8,250,00 0

Aug. 1

Cash Investment in Associates – F Company

210,000

Dec. 31

Investment in Associates – F Company Income from Associates

170,000

Cash Investment in Associates – F Company

210,000

Investment in Associates – F Company Income from Associates – F Company

250,000

25% x 680,000

210,000 170,000

2009

Dec. 31 31

25% x 1,000,000

210,000 250,000

2010

Jan. 2

Cash (20,000 x 170)

3,400,00 0

Investment in Associates – F Company Gain on Sale of Investment in Associates Acquisition cost Share in income (2006) Share in dividends (2006)

55

8,250,000 170,000 (210,000)

3,300,00 0 100,000

Chapter 7 – Investments in Equity Securities and Debt Securities Share in dividends (2007) Share income (2007) Investment carrying amount Portion sold Cost of investment sold

2

(210,000) 250,000 8,250,000 40% 3,300,000

Available for Sale Securities – F Company Investment in Associates – F Company

4,950,00 0

4,950,00 0

8,250,000 – 3,300,000

Dec. 31 31

Cash Dividend Revenue

120,000

Market Adjustment-AFS Securities Net Unrealized Gains/Losses on AFS Securities

750,000

120,000 750,000

(30,000 x 190) - 4,950,000 = 750,000

(b).

Cost/Carrying Value, beg of year

2008

P8,250,000

2009

P8,210,000

2010

P8,250,000 Income from associates Cash dividends received Sale of shares Market adjustment Carrying value, end of year

170,000 (210,000)

250,000 (210,000) (3,300,000) 750,000 P8,210,000 P8,250,000

P5,700,000

7-16 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 7-17

A and B A B and C A and B B C C A B A, B and C C A B A C

(Abu Company) (a) Date 01/01/07 12/31/07 12/31/08 12/31/09 12/31/10 12/31/11

Interest Received

Interest Revenue

Premium Amortization

1,200,000 1,200,000 1,200,000 1,200,000 1,200,000

1,158,450 1,152,633 1,146,002 1,138,442 1,129,827*

41,550 47,367 53,998 61,558 70,173*

56

Carrying Value 8,274,646 8,233,096 8,185,729 8,131,731 8,070,173 8,000,000

Chapter 7 – Investments in Equity Securities and Debt Securities *rounded off. (b) 2007

Jan.

1

Dec. 31

Held to Maturity Securities Cash

8,274,646

Cash Held to Maturity Securities Interest Revenue

1,200,000

Cash Held to Maturity Securities Interest Revenue

1,200,000

8,274,646 41,550 1,158,450

2008

Dec. 31

7-18

47,367 1,152,633

(South Company) a. Journal entries in 2006 and 2007 (1) Securities are classified as financial assets at fair value through profit and loss. 2008

June 1 Dec. 1

Trading Securities – State Corp. Bonds Cash Cash Interest Revenue (4M x 8% x ½)

3,691,500

3,691,500

160,000 160,000

31

Interest Receivable Interest Revenue (4M x 8% x 1/12)

26,667

31

Trading Securities – State Corp. Bonds Unrealized Gain on Trading Securities

188,500

26,667 188,500

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

2009

Jan. 1

Interest Receivable Interest Revenue

26,667

June 1

Cash Interest Revenue

160,000

Dec. 1

Cash Interest Revenue

160,000

31

Interest Receivable Interest Revenue

26,667

Trading Securities – State Corp. Bonds Unrealized Gain on Trading Securities

80,000

Dec. 31

26,667 160,000 160,000 26,667 80,000

4M x 0.99 = 3,960,000 3,960,000 – 3.880,000 = 80,000

(3) Securities are classified as held-to-maturity securities. To facilitate computation, a partial amortization table is presented below. Interest Interest Amortization HTM Date Received Revenue of Discount Carrying Value

57

Chapter 7 – Investments in Equity Securities and Debt Securities June 1, 2008 Dec 1, 2008 June 1, 2009 Dec. 1, 2009 June 1, 2010 Dec. 1, 2010 June 1, 2011 Dec. 1, 2011

3,691,500 160,000 160,000

184,575 185,804

24,575 25,804

3,716,075 3,741,879

160,000

187,094

27,094

3,768,973

160,000

188,449

28,449

3,797,422

160,000

189,871

29,871

3,827,293

160,000

191,365

31,365

3,858,658

160,000

192,933

32,933

3,891,591

2008

June 1

Dec. 1

31

Held to Maturity Securities – State Corp. Bonds Cash

3,691,50 0

Cash Held to Maturity Securities – State Corp. Bonds Interest Revenue (see above table)

160,000 24,575

Interest Receivable Held to Maturity Securities – State Corp. Bonds Interest Revenue

26,667 4,301

Interest Revenue Interest Receivable Held to Maturity Securities – State Corp. Bonds

30,968

3,691,500

184,575

30,968

160,000 x 1/6 = 26,667; 25,804 x 1/6 = 4,301 2009

Jan. 1

June 1

Dec. 1

31

26,667 4,301

Cash Held to Maturity Securities – State Corp. Bonds Interest Revenue(see above table)

160,000 25,804

Cash Held to Maturity Securities – State Corp. Bonds Interest Revenue (see above table)

160,000 27,094

Interest Receivable Held to Maturity Securities – State Corp. Bonds Interest Revenue

26,667 4,742

160,000 x 1/6 = 26,667; 28,449 x 1/6=

185,804

187,094

31,409

4,742

(3) Securities are classified as available for sale securities. To facilitate computation, a partial amortization table is presented below.

58

Chapter 7 – Investments in Equity Securities and Debt Securities

Date June 1, 2008 Dec 1, 2008 June 1, 2009 Dec. 1, 2009 June 1, 2010 Dec. 1, 2010 June 1, 2011 Dec. 1, 2011

Interest Received

Interest Revenue

Amortization of Discount

HTM Carrying Value 3,691,500

160,000 160,000

184,575 185,804

24,575 25,804

3,716,075 3,741,879

160,000

187,094

27,094

3,768,973

160,000

188,449

28,449

3,797,422

160,000

189,871

29,871

3,827,293

160,000

191,365

31,365

3,858,658

160,000

192,933

32,933

3,891,591

2008

June 1

Dec. 1

31

31

Available for Sale Securities – State Corp. Bonds Cash Cash Available for Sale – State Corp. Bonds Interest Revenue (see above table) Interest Receivable Available for Sale Securities – State Corp. Bonds Interest Revenue 160,000 x 1/6 = 26,667 25,804 x 1/6 = 4,301 Market Adjustment – AFS Securities Net Unrealized Gain/Loss on AFS Securities

3,691,500 3,691,500 160,000 24,575 184,575 26,667 4,301 30,968

159,624 159,624

4M x 0.97 = 3,880,000 Amortized cost 3,691,500+ 24,575 + 4,301 = 3,720,376 Market Adjustment P 159,624 2009

Jan. 1

Interest Revenue Interest Receivable Available for Sale Securities – State Corp. Bonds

June 1

Cash Available for Sale Securities – State Corp. Bonds Interest Revenue(see above table)

160,000 25,804

Cash Available for Sale Securities – State Corp. Bonds Interest Revenue (see above table)

160,000 27,094

Dec. 1

59

30,968

26,667 4,301

185,804

187,094

Chapter 7 – Investments in Equity Securities and Debt Securities 31

Interest Receivable Available for Sale Securities – State Corp. Bonds Interest Revenue

26,667 4,742

Market Adjustment – Available for Sale Securities Unrealized Gain or Loss on AFS

26,661

31,409

160,000 x 1/6 = 26,667 28,449 x 1/6 = 4,742

Dec 31

26,661

Market value (4M x 99%) P3,960,000 Amortized Cost (3,768,973 + 4,742) 3,773,715 Cumulative UG/L P 186,285 Before adjustment 159,624 Increase in UG/L P 26,661

2011.

2. Journal entry/entries to record sale of investment on November 1, (a) Securities are classified as financial assets at fair value through profit and loss. 2011

Nov. 1

Cash Loss on Sale of Trading Securities Interest Revenue Trading Securities – State Corp. Bonds

3,925,00 0 128,333

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

133,333 3,920,000

(b) Securities are classified as held-to-maturity securities. 2011

Nov. 1

1

Held to Maturity Securities – State Corp. Bonds Interest Revenue 32,933 x 5/6 = 27,444 Cash Loss on Sale of Held to Maturity Securities Interest Revenue Held to Maturity Securities–State Corp. Bonds CV of HTM Securities sold: As of June 1, 2011 3,858,658 Amortization June 1 to Nov. 1, 2011 27,444 As of Nov. 1, 2011 3,886,102

60

27,444 27,444 3,925,00 0 94,435

133,333 3,886,10 2

Chapter 7 – Investments in Equity Securities and Debt Securities Sales price 3,791,667 Loss on sale 94,435 (c) Securities are classified as available for sale securities. 2011

Nov. 1

1

Available for Sale Securities – State Corp.Bonds Interest Revenue

27,444 27,444

Cash Loss on Sale of Available for Sale Securities Net Unrealized Gain/Loss on AFS Securities Interest Revenue Available for Sale Securities–State CorpBonds Market Adjustment – AFS Securities Sales price (3,925,000–133,333) 3,791,667 Amortized Cost 3,886,102 Loss 94,435 Amortized Cost 12/1/08 P3,827,293 Discount Amort. 12/1/08 – 12/31/08 31,365 x 1/6 5,228 Amortized Cost 12/31/08 P3,832,521 MV 12/31/08 4M x 98% 3,920,000 Unrealized Gain on 12/31/08 87,479

7.19

3,925,00 0 94,435 87,479 133,333

3,886,10 2

87,479

P

Raffy Company) To facilitate computation, a partial amortization table is presented below. Date June 1, 2007 Dec. 31, 2007 Dec. 31, 2008 Dec. 31, 2009 Dec. 31, 2010 2007

June 1

Interest Received

Interest Revenue

Amortization of Discount

350,000

312,267

37,733

HTM Carrying Value 5,353,150 5,315,417

600,000

531,542

68,458

5,246,959

600,000

524,696

75,304

5,171,655

600,000

517,166

82,834

5,088,821

Held to Maturity Securities – Blessie Corp. Bonds Interest Revenue (5M x 12% x 5/12)

61

5,353,15 0 250,000

Chapter 7 – Investments in Equity Securities and Debt Securities Cash Dec. 31

5,603,15 0

Cash Interest Revenue Held to Maturity Securities – Blessie

600,000

Cash Interest Revenue Held to Maturity Securities – Blessie

600,000

Cash Interest Revenue Held to Maturity Securities – Blessie

600,000

Interest Receivable (3M x 12% x 8/12) Held to Maturity Securities – Blessie Interest Revenue (517,166 x 3/5 x 8/12)

240,000

562,267 37,733

2008

Dec. 31 2009

Dec. 31

531,542 68,458 524,696 75,304

2010

Sept. 1

1

Cash (3,090,000 + 240,000) Gain on sale of HTM Securities Interest Receivable Held to Maturity Securities – Blessie

3,330,00 0

33,134 206,866

20,141 240,000 3,069,85 9

CV of HTM securities sold: As of 12/31/07 (5,171,655 x 3/5) 3,102,993 Amort from 1/1/08-9/1/08 33,134 CV as of 9/1/08 3,069,859 Sales price 3,090,000 Gain on sale 20,141

1

Available for Sale Securities – Blessie Held to Maturity Securities

2,068,66 2

2,068,66 2

5,171,655 – 3,102,993 = 2,068,662 Dec. 31

Cash Interest Revenue Available for Sale Securities – Blessie

240,000

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 Unrealized Gain or Loss on AFS

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

Note:

206,866 33,134

34,472 34,472

Instead of recognizing the unrealized gain or loss at the date of

62

Chapter 7 – Investments in Equity Securities and Debt Securities reclassification on September 1, 2010 (the company demonstrating no ability to hold the securities until maturity, hence the securities were reclassified as AFS), and adjusting the account again at yearend, a single adjustment at yearend is made in the above entries. Both methods would achieve the same effect of reflecting the AFS to market at balance sheet date through the equity account Unrealized Gain or Loss on AFS. 7-21 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

B A B A B A A A B B C B A A B

and C and C and C

and C and C

MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4

B B A C

MC5 MC6 MC7 MC8

D D A D

MC9 MC10 MC11

D B C

Problems MC12 MC13

B D

MC14

C

MC15 MC16

A C

MC17

D

MC18

B

MC19 MC20 MC21 MC22 MC23 MC24

D B A D B B

MC25

A

MC26

D

535,000 – 525,000 = 10,000 307,500 + 269,500 = 577,000; (600 x 440) + (2,000 x 138) = 540,000 577,000 – 540,000 = 37,000; 12,900 + 13,500=26,400; 37,000–26,400=10,600 10,000 x 150 = 1,500,000; 20% x 3M = 600,000 10,000 x 50 = 500,000; 1,500,000 + 600,000 – 500,000 = 1,600,000 1,000 x 50 = 150,000 + 2,250 = 152,250; 152,250 – (1,000 x 10) = 142,250 3,000 x 120 = 360,000; 560,000 x 3,000/6,000 = 280,000 360,000 – 280,000 = 80,000 360,000 x 600/3600 = 60,000; 200,000 + 60,000 = 260,000 360,000 – 260,000 = 100,000 500 x 25 = 12,500 – 500 = 12,000 500 x 20 = 10,000; 12,000 – 10,000 = 2,000 gain 960-500 = 460 + 600 = 1,060; 1,060/10 = 106 shares 88 ÷ 1.10 = 80 352,000 – (4,400 x 4) = 334,400; 334,400 / 4,400 sh = 76 See No. 21 1,200,000 – (3 x 40,000) + (25% x 640,000) = 1,240,000 40% x 450,000 = 180,000 150,000 ÷ 12 = 12,500; 180,000 – 12,500 = 167,500 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 4,860,000 x 15/25 = 2,916,000

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Chapter 7 – Investments in Equity Securities and Debt Securities MC27

B

MC28 MC29 MC30

A C B

MC31 MC32

C B

MC33 MC34 MC35 MC36

A A C C

MC37 MC38

C B

MC39

D

MC40 MC41 MC42

D B D

10,000 x 200 = 2,000,000; 4,860,000 x 10/25 = 1,944,000 2,000,000 – 1,944,000 = 56,000 500,000 + 1,500,000 + (10% x 3M) = 2,300,000 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 4,000,000 + 420,000 – (40% x 200,000) = 4,340,000 (1,000 x 140) + (900 x 170) + (800 x 200) = 453,000 (1,000 x 150) + (900 x 180) + (800 x 220) = 488,000 488,000 – 453,000 = 35,000; 35,000 – 20,000 = 15,000 See No. 33 8,750,000 x 5% = 437,500 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 See No. 36 912,400 x 10% = 91,240; 1,000,000 x8% = 80,000 91,240-80,000 = 11,240; 912,400 + 11,240 = 923,640 7,850,000 – (8M x .08 x 6/12) = 7,530,000; 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; 7,432,150 x 5% = 371,608 371,608 – 320,000 = 51,608; 7,342,150 + 51,608 = 7,483,758 7,530,000 – 7,483,758 = 46,242 500,000 x 4% = 20,000 460,000 – 472,500 = 12,500

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