A3 Prob - Financial Accounting PDF

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ACCT 3-PROBLEMS During 2015, Tibayan Co. bought shares of Care Co. Jun 1 20,000 shares @ 100 P2,000, Dec 31 30,000 shares @ 120 P3,600, Transactions for 2016 Jan 10- Received cash dividend at P10 per share Jan 20- Received 20% bonus issue Dec 10- Sold 30,000 shares @ 125 per share What is the gain o...

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ACCT 3-PROBLEMS 1. During 2015, Tibayan Co. bought shares of Care Co. Jun 1 20,000 shares @ 100 P2,000,000 Dec 31 30,000 shares @ 120 P3,600,000 Transactions for 2016 Jan 10- Received cash dividend at P10 per share Jan 20- Received 20% bonus issue Dec 10- Sold 30,000 shares @ 125 per share What is the gain on sale using FIFO?

5. In Jan 2,2014, Correct Co. acquired 20% of the outstanding shares of Bigel Co. for 2,457,600. CV of shares acquired was 2,009,600. The excess of cost over CV was attributed to the bldg. which was undervalued on Bigel FS. Useful life is 10 years. 12/31/14 Net of tax income P504,000 Cash Div of 112,000 Income tax rate is 30% What amount Bigel Co. bldg. was understated?

Ans. 1,150,000 Ans. 3,200,000 2. 16,000 shares @ 50 per share Jul 1- Share split 5-to-1 Oct 1- Received preference dividends of one share for every 10 ordinary shares held Market Price- OS 15 per share PS 10 per share Dec 31- Dividend in kind of one share of ordinary share for every 4 ordinary share on Hexa. Market Price- 5 per share What should be reported in the Statement of OCI as dividend income? Ans. 100,000 3. 2015 Nov 2- 4,000 shares at 440,000 OCI Jan 2- 10% dividend on OS Nov 30- Cash dividend of 10 per share Dec 31- Shares are selling at 110. If shares are to be sold, 5000 transaction cost will be incurred 2016 Jan 31- Sold 2400 shares for P276,000 and incurred TC of 3000 How much is the dividend income? What is the unrealized gain on OCI in 2016? Gain/ Loss on sale of securities? Ans. 44,000/ 44,000 /9000 4. In Oct 1, 2014, Only Co. acquired 30% of the outstanding OS of One Co. for P2,715,000 (Significant influence). Carrying value of the acquired shares was P2,400,000. At the time of acquisition, One Co.’s building was reported at carrying value with remaining life of 10 years. FV of the bldg. over CV exceeds by 1,500,000. One Co.’s policy is to continually measure building at cost model. Dec. 31, 2011 Net of tax income of P900,000. Paid dividend of P100,000 and issued 5% stock dividends thereafter. Income Tax Rate is 30% What is the carrying value of investment @ year end? Ans. 2,744,625

6. Data regarding Ted Co.’s trading securities are as follows: Cost Market Value Dec 31, 2015 5,000,000 4,600,000 Dec 31, 2016 5,000,000 4,800,000 Difference between cost and MV are considered temporary. In 2016 Income Statement, what amount should be reported as unrealized gain on these securities? Ans. 200,000 7. On Jan 2, 2004, acquired building at P10M. Toquero estimated that the useful life of property is 20 years. Toquero Co.’s policy is to depreciate all depreciable asset using the straight line method without scrap. On Jan 2, 2009, the building has a recoverable amount of P9M based on revised remaining useful life of 20 years and Toquero Co. immediately remeasured the bldg. It is the company’s policy to transfer portion of any revaluation surplus to retained earnings to all depreciable asset On Jan2, 2014, Toquero Co. converted property to investment property when the fair value is P5M. What amount of revaluation surplus to be reversed? Impairment loss at the date of transfer? Ans. 1,125,000/ 625,000 8. On July 1, 2014, Estong Co. purchased as a long term investment P5M face amount, 8% bonds of Knock Co. for P4,615,000 to yield 10% per year. The bonds pay interest semiannually on Jan 1 and Jul 1. On Dec 31, 2014, what amount should be reported as interest receivable? Ans. P200,000 9. On Jan 1, 2014, Gail Co. Purchased 10% P10M 10 years with interests payable on Dec 31 each year. The bonds purchase price is P1,0811,000. The bond effective rate is 8.75%. the company has a business model of

collecting all contractual cash flows on all its debt securities . On Dec 31, 2019, when the bond’s amortized cost was P10,407,192 and a fair value at a market rate of 7.75% was P10,749,340, the company sells 1M bonds. Since the company sold more than an insignificant amount of its debt security investment, the management would like to reclassify the debt security to investment measured at FVPL. What amount of debt investment should the company report on the Dec . 31,2019 balance sheet? What amount of interest income should the company report in its Dec 31, 2021 P/L? Ans. P9,336,473/ P400,000 10. On July 1, 2014, West Co. Purchased $160,000 of 6% bonds for $168,300 (5% MR) on a non-trading investment. Interest is paid on July 1 and Jan 1, and the bonds mature on July 1, 2019. The bonds are sold on Nov 1,2014 @ 105 plus accrued interest amortization was recorded when interest was received by the effective interest method (use the nearest dollar) What amount should West report as interest revenue from the bond investment in 2014? What amount should West report as gain/loss on sale of bonds? Ans. $2805/ $95 11. On July 1 2015, Clean Co. Purchased a financial investment of P2.5M face amount, 8% bonds of Roban Co. for P2,307,500 to yield 10% per year. The bonds pay interest semi-annually on Jan. 1 and Jul 1. In its Dec 31, 2015 statement of financial position, Clean should report interest receivable of? Ans. 100,000 12. On January 1, 2015, Society Co. Acquired Trail Co. Bonds, face P4M at a cost of P3,761,000. Bonds pay interest of 12% semi-annually on Jan 1 and Jul 1 and they mature on Jan 1, 2019. The bonds have an MR of 14% and are quoted at 105 on Dec 31, 2015. On April 30, 2016, P3M face value of the bonds were sold at 95. On Dec 31, 2016, the remaining P1M face value bonds are quoted at 98. If the investment in bonds is a trading security, its CV in the balance sheet of Society as of Dec 31, 2015 is? Ans. P4,200,000

If the investment in bonds is a trading security, the loss on sale on April 30, 2016 to be recognized on the Income Statement of Society for the year 2016 is? P300,000 If the investment in bonds is FVPL, the interest income to be recognized in the I/S of Society for the year 2015 is? Ans. P480,000 If the investment is FAAC, its carrying value in the balance sheet as of Dec 31, 2016 is? Ans. P966,190 If the investment is FAAC, the discount amortization for 2016 amounts to? Ans. 27,108 13. On Jan 1 2018, Iron Man Co. made P3,697,120 investment in Skull Co.'s 8%, 5 year bonds with FV of P4M. The MR of similar financial asset is 10%. Iron Man Company has a business model of FAAC. What should the debt security be valued in Dec 31, 2015 BS? Ans. P3,801,515 14. On Jan 1, 2015, Koy Co. Purchased bonds with face value of P5M at a cost of P4,700,000 to be held as FAAC . The CR is 10% payable every Dec 31. The bonds mature in 4 years, Jan 1, 2019. How much interest income should be reported by Koy Co. For the year ended Dec 31, 2015 using the effective interest method? Ans. P562,590 (interpolate 11.97%) 15. On Jan 1, 2014, David Co, purchased Goliath Co. 9% debt instrument with a face value of P4M for P3,823,800 to yield 10% interest. The bonds are dated Jan 1, 2014 and mature on Dec 31, 2019 and pay interest annually on Dec 31. On Jan 2, 2016, David Co. Acquired equity instrument in exchange for the debt security. On the date of exchange, MV of the equity security was not clearly determinable while the debt instrument was selling at prevailing rate of interest of 11% . If the company has a business model of FAOCI, what amount of gain or loss should David Co. Recognize as a result of the exchange? (Carry PV factor up to 3 decimal places) Ans. P118,078 16. Tank Co. Purchased 40% of Cod Co.’s outstanding OS on Jan 2, 2014 for P8M. The carrying amount of Cod's net assets at the date of acquisition totalled P18.5M. FV and CV were the same for all items except for building and inventory for which FV exceeded their carrying amounts by P1M and P200k respectively. The building has a 20-year life.

The entire inventory was sold during 2014, hence, the excess pertaining to this account will be amortized for the whole year. Goodwill, if any, is not to be amortized and no impairment test has been done since the company believes that goodwill has yet to decline its value. During 2014, Cod reported net income of P2.4M and paid P400k cash dividends. What amount should be shown in Tank's I/S as investment income? Ans. P800,000 How much is the goodwill on the date of acquisition? Ans. P120,000 How much is the amortization of the excess for 2014? Ans. P120,000 How much is the investment balance at Dec 31, 2014? Ans. P8,844,000 How much is the excess of acquisition cost over book value of net assets acquired on the date of acquisition? Ans. P600,000 17. On Jan 2, 2014, Connect Co. Acquired 20% of the outstanding shares of Bigel Co. for P2,457,600. This investment gave Connect Co. The ability to exercise significant influence over Bigel Co. The CV of the acquired shares was P2,019,600 . The excess of cost over carrying value was attributed to the building, which was undervalued on Bigel Co.’s statement of financial position and that the remaining life is 10 years. Dec. 31, 2014 Net of tax income: P504,900 Cash dividend P112,000 Tax Rate 30% By what amount Bigel Co.’s building understated ? Ans. P3,200,000 18. Soprano Co. Acquired 50,000 ordinary shares of Alto Co. On Sep 30, 2015 for P8,250,000. On Oct 39, the shares were split into a 2:1 basis. On Nov. 30, 2016, Alto distributed 10% ordinary share dividends when the market price of the share was P100 per share. On Dec. 31, 2016, Soprano sold 6000 shares of its Alto shares for P600,000. For the year ended Dec 31, 2016 how much should Soprano report as gain on sale of investment? Ans. P150,000 19. On Jan 2,2014 Paragon Co. Acquired 16,000 ordinary share of Hexagon Co. At P50 per share. On July 1, 2014, Paragon received from Hexagon a PS dividend of one share for every

10 OS held. On this date, the market price of Hexagon OS is P15 per share and PS of P10 per share. On Dec 31, 2014, Paragon received from Hexagon, dividend in kind of one share of Octagon Co. OS for every 4 Hexagon ordinary shares held. The market price of Octagon ordinary share is P5 per share. In its 2014 statement of comprehensive income, how much should Paragon report on dividend income? Ans. P100,000 20. The following transactions for the current year relate to the permanent investment of Living Colour Co. Purchased 10,000 shares of ABC, P100 par value ordinary for P720,000 Received 20% share dividend Sold the share dividend at P70 per share Exchanged 5,000 shares of ABC ordinary for 100,000 ABC preference share. At the time of exchange, ABC ordinary is selling at P70 and ABC preference at P40. ABC Co. made special assessment of P20 per share on all ordinary shareholders. Living Colour accordingly paid the assessment. What is the net effect of the transactions for the current year to the investment account? Ans. P750,000 increase 21. Dancer Co. purchased 40,000 shares of Lancer Co.’s newly issued 6%, cumulative preference share P50 par for P3,040,000 on May 9, 2014. Each share carried one detachable warrants, entitling the holder to acquire at P60 one share of Lancer OS. On May 9, 2014, the market price of preference share ex warrant was P69/share and the market price of the share warrant was P6 per warrant. On Dec 31, 2014, Dancer sold stock warrants for P295,000. What is the gain on sale of the warrants? Ans. P55,000 22. On Jan. 2, 2014, Beauty Co. Bought 30% of the outstanding ordinary shares of Pretty Co for P2,580,000 cash. Beauty accounts for this investment by the equity method. At the date of acquisition of the shares, Pretty's net assets had a carrying value and FV of P6,200,000. Pretty's NI for the year 2014 was P1.8M. During 2014, Pretty declared and paid cash dividend of P200,000. Pretty also reported the ff. Changes in equity that were not included in the P/L. Unrealized loss on financial asset as FVOCI, P300,000 and a revaluation of PPE of P800k. How much is the amortization of the excess for 2014?

Ans. 0 How much should Beauty carry its investment in Pretty as of Dec. 31, 2014? Ans. P3,210,000 How much is the goodwill? Ans. P720,000 23. Table owns 50% and 20% of Chair's OS and PS respectively. Chair's shares outstanding at Dec 31, 2014: Ordinary Shares P4M 11% Cum. Preference Shares P900k Chair reported NI of 600k for the year ended Dec 31, 2014 and declared the current year dividend on PS. What amount should Table report on total revenue related to its investment in Chair for the year ended Dec 31, 2014 Ans. P273,000 How much is the share of investor in net income-OS? Ans. P255,000 24. On July 01, 2014, acquired 5M 8% Bonds for 4,615,000. With interest yield rate of 10% per year to be paid senmi-annually on Jan 1 and July 1. What is the Interest Receivable on 12/31/14? 25. Acquired 10 years 10% Debt Instrument of 3M interest received every year on Dec 31. Effective interest rate is 8% for 3,402,000. On 12/31/17, the debt instrument has a prevailing market rate of 9%. PV factor of 8% after 6 years

.630

PV factor of an annuity of 8% after 6 year 4.623 PV factor of 9% after 6 years

.596

PV factor of an annuity of 9% after 6 years 4.486 What amount should the Debt Instrument be reported in the 12/31/17 Statement of Financial Position? Ans. 3,276,900 26. On July 01, 2015, A company purchased an investment 2M, 8% bonds for 1,892,000, including accrued interest of 80,000 to be held as FV-Amortized Cost. The bonds were purchased to yield 10%, to be mature on 01/01/2021, and pay interest annually on Jan. 01. The company uses effective interest method. In 12/31/15 Balance Sheet, what amount should company A report as the carrying amount of the bond investment? Ans. 1,822,600

27. A company has government bonds classified as held-for-collection at 12/31/15. These bonds have a PAR value of 6000, an Amortized cost of 600,000, and Fair Value of 555,000. In evaluating bonds, it determines that the bonds have a 45,000 permanent decline in value. That is, the company believes that impairment accounting is now appropriate for these bonds. On the basis of the new information, the credit rating of the government bonds has improved. The Fair Value of the new cash flow as of 12/31/16 is 570,000. What amount of recovery of Impairment Loss should the company report on its Profit or Loss for the Year ended 12/31/16? Ans. 15,000 28. 2014 Aug. 1- purchased 1000 shares for 60,000 Oct. 1- purchased 8000 shares for 560,000 2015 July 1- purchased 6000 shares for 480,000 Aug. 1- sold 5,000 shares for 500,000 (FIFO) 2016 Feb. 1-received 50% stock dividends Nov. 1- received stock rights to purchase one new shares at 60 for every 5 rights tendered. On this date, the share is selling ex-right at 70 and the right at 10. Dec. 1- sold all stock rights at 15 per right. What is the total cost of investment as of 12/31/15? Ans. 760,000 What is the gain on sale of investment securities from 2014 to 2016? Ans. 235,000 What is the total cost of investment as of 12/31/16? Ans. 610,000 Assuming average cost method is used, the total cost of investment as of 12/31/16 is? Ans. 583,333 29. On 2013, acquired 8,000 shares @100 classified as FA-FVOCI. Paid brokerage fee of 24,000 and tax of 4,000. P5 dividend per share is declared on 12/17/2013 to be paid on 03/01/2014. On 07/31/14, declared 10% share dividend and also paid P10 for each on 12/31/2014 as special assessment fee. If FV of securities is not clearly determinable as of 12/31/14, what is the unit cost for each share on 12/31/14? Ans. 99.54 30. Company A purchased 2,000 shares @150 classified as FA-FVOCI. P10 cash dividend is declared on the shares before it is purchased. Additional payment is made to non-refundable tax of 1,500 and brokerage fees of 2,250. What is the historical cost of investment? Ans. 283,750 31. On, May 9, 2014, company A acquired 40,000 6%, cumulative preference share, PAR 50 for

3,040,000. Each share carried one detachable share warrants entitling the holder to acquire at 60 per one share of investee’s ordinary shares. On May 9, 2014, the market price of the PS ex-warrant was 69 per share and market price of the share warrant was 6 per warrant. On 12/31/2014, it sold its stock warrants for 295,000. What is the gain on sale of the warrants? Ans. 51,800 32. Kite Co. purchased 4000 shares of Sky Corp.’s ordinary shares on 11/02/15 @ a cost of 440,000, classified as FA-FVOCI. On 01/02/16, Sky Corp. distributed a 10% ordinary shares dividend. On 11/30/16, Kite Co. received a cash dividend of P10 per share. On 12/31/16, Sky Corp. shares are selling @110 per share. If shares are to be sold, Kite Co. will incur 5,000 transaction costs. On 01/31/17, Kite Co. sold 2,400 shares of its Sky Corp. shares for 276,000 and incurred transaction costs of 3,000. For the year ended, 12/31/16, how much should Kite Co. report as dividend income? Ans. 44,000 What is the unrealized gain on OCI in 2016? Ans. 44,000 What is the gain or loss on the sale of security should the company recognized? Ans. 9,000 33. Acquired 20% share of interest when the FV of net assets was 3,500,000 for 700,000. On 12/31/14, reported net income of 360,000 and dividend of 100,000. How much is the share in the income? Ans. 72,000 34. On 10/01/14, A company purchased 30% of interest for 2,715,000 which is the carrying value of 30% is 2,400,000. At the time of acquisition, investee’s building was reported at its carrying value with remaining life of 10years. The fair value of the building exceeds by 1,500,000. Investee’s accounting policy is to continually measure the building under the cost model. For the year ended, 12/31/14, investee reported net of tax income of 900,000 and paid cash dividends at 100,000 in ordinary shares and issued 5% stock dividends. The income tax rate is 30%. What is the carrying value of investment as of 12/31/2014? Ans. 2,774,625 or 2,879,625 How much is the excess of cost over book value of net assets acquired on the date of acquisition? Ans. 315,000 How much is the company’s share in net income for 2014? Ans. 67,500 or 59625 How much is the amortization of the excess for 2015? Ans. 31,500

35. On 01/02/14, 20% of investee’s ordinary share in purchased for 2,457,600. Carrying Value of Net assets acquired is 2,009,600. Excess of cost over Carrying Value was attributed to Bldg. with 10 years remaining life. On 12/31/14, reported net of tax income of 504,000 and paid cash dividend of 112,000 on ordinary shares. Tax rate is 30%. Building is understated by? Ans. 3,200,000 What is the proper carrying value of investment? Ans. 2,419,200 36. Purchased 10,000 shares for 720,000. Received 20% stock dividends. Sold stock dividends at P70 per share. Exchange 5,000 shares, ABC ordinary shares is selling P70 and preference share at P40. Made special assessment fee of P20 per share on all ordinary shares. What is the carrying amount of investment at year end? Ans. 750,000...