Assessment 4 - Intermediate Accounting PDF

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Reyes, Rozaine A. Prof. Queen DagahuyaBSMA 2 – 6 Intermediate Accounting 2ASSESSMENT ACTIVITIESPROBLEMSFor problems that needs solutions, show them in good accounting form, on a separate sheet of paper. Equity securities acquired for trading shall be measured at a. Cost, being the purchase price plu...

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Reyes, Rozaine A.

Prof. Queen Dagahuya

BSMA 2 – 6

Intermediate Accounting 2

ASSESSMENT ACTIVITIES PROBLEMS For problems that needs solutions, show them in good accounting form, on a separate sheet of paper. 1. Equity securities acquired for trading shall be measured at a. Cost, being the purchase price plus transaction costs b. Cost, being the purchase price c. Fair value, with change in fair value taken to profit or loss d. Fair value, with change in fair value taken to other comprehensive income 2. Under which type of investment classification is directly attributable cost of acquisition not included in the initial measurement basis? a. Investment in associate b. Financial assets at amortized cost c. Financial assets at fair value through profit or loss d. Financial assets at fair value through other comprehensive income 3. An instrument representing ownership shares and the right to acquire ownership shares a. Debt Security b. Equity Security c. Shareholder's Equity d. Treasury Bills 4. Which one of the following indicates that the investor does not exercise significant influence over the investee? a. Majority ownership of the investee is concentrated among a small group of shareholders who operate the investee without regard to the views of the investor. b. There is interchange of managerial personnel between the investor and the investee. c. There are material intercompany transactions between investor and investee. d. The investor has representation in the investee's board of directors. 5. An investor uses equity method to account for investment in associate. The purchase price implies a fair value of the investee's depreciable assets in excess of the investee's net asset carrying values. The investor's amortization of the excess a. Decreases goodwill account. b. Decreases the investment in associate account. c. Increases the investment income account. d. Does not affect the carrying value of the investment. 6. Investment in associate gives the holder of the securities the power to participate in (but not to govern) the financial and operating policy decisions of the investee. Cash dividends received by the holder of securities from the associate will: a. Be credited to dividend income. b. Be debited to Dividends Payable. c. Be credited to Retained Earnings. d. Be a deduction from the investment in associate account.

7. Under IFRS 9, the cumulative balance of equity as a result of measuring equity investments at fair value through OCI. a. Shall not be reversed to P/L but may be transferred to another equity account b. Shall not be reversed to P/L and shall be transferred to another equity account c. Shall be reversed to P/L at the date the security is sold d. Shall be reversed to P/L when there is objective evidence of impairment. 8. Non-trading equity instrument shall be classified as a. At fair value through profit or loss b. At fair value through other comprehensive income c. Based on irrevocable choice at date of initial recognition either at fair value through d. P/L or at fair value through OCI e. Based on irrevocable choice at the reporting date either at fair value through P/L or at fair value through OCI 9. According to IAS 28, which of the following will not fall under the situation of "existence of significant influence by an investor in the financial and operating policy decisions of the investee but not control of these decisions." a. Technological dependencies b. Material intercompany transactions c. Participation in the policy making decisions d. Power to govern the financial and operating policy decisions of an enterprise so as to obtain benefits from its activities. 10. An investor uses the equity method to account for its 30% investment in ordinary shares of an investee. Amortization of the investor's share of the excess of market value over book value of depreciable assets at the date of the purchase should be reported in the investor's statement of comprehensive income as part of a. Share in the profit of investee b. Other Expense c. Depreciation Expense d. Amortization of Goodwill 11. Pacman Company purchased 1,000 shares of RJ Company ordinary shares at P540/share. Pacman also paid broker's commission of P10,000 in relation to the said investment. The securities are designated as at fair value through profit or loss. At the end of 2019, the securities had total market value of P565,000. At December 31, 2020 the total market value of the equity securities is P 590,000. The holding gain or loss that would be reported by Pacman on its income statement for the year 2020 is _________________. Market Value, Dec. 31, 2020 Less: Market Value, Dec. 31, 2019 Gain reported on Income Statement for 2020

590,000 565,000 25,000

12. On December 01, 2020, Matiyaga Company purchased 1,000 shares of Masipag Corp. P100 par ordinary shares (5% interest in voting rights) at P175 per share. Matiyaga also paid transaction cost of P3,500. The shares were designated as equity investments at fair value through other comprehensive income. On December 31, 2020, Masipag

ordinary shares were quoted at P200 per share. What is the carrying value of the equity investment of Matiyaga at December 31, 2019? ______0______

13. On September 11, 2020, Ali Company purchased for P7,000,000 the assets and will assumed all the liabilities of Iris Corporation. As of this date, the book value and fair market value of Iris assets are P10,000,000 and P11,500,000 respectively. Iris has current liabilities of P2,000,000 and noncurrent liabilities of P3,250,000 respectively. How much goodwill is to be recorded by Ali? ____________ Purchase Price Less: Net Assets (11.5M - (2M + 3.25M)) Goodwill

7,000,000 6,250,000 750,000

Using the information 14 – 15: LA SCALA Corporation had the following equity investments transactions: Date 2019 Dec. 2

Reference Buy invoice 123

Dec. 3

Sell invoice 456 Buy invoice 135

Dec. 6

Dec. 18

Buy invoice 156

Dec. 26 Dec. 31

CM 1000 PSE Report

Particulars 10,000 Gerphil Corporation at P5 per share. Transaction cost P500. Designated as Equity Investment at Fair Value through Profit or Loss. 10,000 Gerphil Corporation at P7 per share. Transaction cost P700. 1,000 Gaudioso Corporation at P50 per share. Transaction cost P500. Designated as Equity Investment at Fair Value Through Other Comprehensive Income. 20,000 Gerphil Corporation at P6 per share. Transaction cost P1,400. Designated as Equity Investment at Fair Value through Profit or Loss. P500 Cash Dividend from Gaudioso Corporation. Closing prices per share: Gerphil P7; Gaudioso P48; La Scala P100

14. Which amounts should LA SCALA Corporation report in its December 31, 2019 Statement of Financial Position? Equity Investment at Equity Investment at Other Comprehensive Fair Value through Fair Value through Income – Unrealized Profit and Loss Other Comprehensive Gain/Loss from equity Income investment at OCI a. b. c. d.

P140,000 P140,000 P70,700 P120,000

P50,500 P48,000 P49,400 P100,000

P2,500 credit P2,500 debit none P1,400

Market Value, Dec. 31, 2019 Multiply: No. of shares purchased Equity Investment at FVPL

7 20,000 140,000

Market Value, Dec. 31, 2019 Multiply: No. of shares purchased Equity Investment at FVOCI

48 1,000 48,000

Equity Investment at FVOCI Less: Initial Measurement ((1000 x P50) + P500) Unrealized loss from Equity Investment at FVOCI

48,000 50,500 -2,500

15. What is the journal entry to recognize P500 dividend received by LA SCALA from Gaudioso? Dividend Receivable Dividend Revenue

500 500

Using the information 16 – 17: Holiday, Inc. had the following transactions in the ordinary shares of May Corp., which has 1,000,000,000 ordinary shares outstanding. January 5 Bought 4,000 ordinary shares, P100 par, at P88. June 15 Received 10% bonus issue. August 31 Received P4 cash dividend for each ordinary share. 16. How much is the revised cost per share after receipt of bonus issue? ___________ Ordinary Shares, Book Value (4000 x P88) Divided by: Revised # of shares (4000 x 110%) Revised cost per share

352,000 4,400 80

17. Based on the foregoing, what is the journal entry to recognize the receipt of cash dividend? Cash Dividend Revenue 4400 shares x P4

17,600 17,600

18. Charmaine Company provided the following data pertaining to dividends on ordinary share investments for the current year:  On October 01, the entity received P600,000 liquidating dividend from A Company. The entity owned a 10% interest in A Company.  The entity owned a 20% interest in B Company which declared and paid a P4,000,000 cash dividend to shareholders on December 31.

 On December 01, the entity received from C Company a dividend in kind of one share of D Company for every 4 C Company shares held. The entity had 100,000 C Company shares which have a market price of P50 per share on December 01. The market price of D Company share was P10. How much is the dividend income to be recognize for the year? __________________ Cash Dividend from B Company (4M x 20%) Property Dividend from C Company 100,000 shares/4 = 25K shares x P10 Dividend Income for the year

800,000 250,000 1,050,000

19. Therese Company issued rights to subscribe to its stock, the ownership of 4 shares entitling the shareholders to subscribe for 1 share at P100. An investor owned 50,000 shares with total cost of P5,000,000. The share is quoted right-on at P125. The stock rights are accounted for separately and measured initially at fair value. What is the cost of the new investment assuming all of the stock rights are exercised by the investor? Theoretical value of stock right (125 - 100)/(4 + 1) = P5 Cost of stock rights (50000 x 5) Cash paid for the new investment 50,000 shares/4 = 12.5K shares x 100 Cost of the new investment

250,000 1,250,000 1,500,000

20. On July 01, 2020, Jennifer Company acquired 20% of the outstanding ordinary shares of another entity for P5,000,000. The carrying value of the acquired assets was P4,000,000. The excess of cost over the carrying amount was attributable to an identifiable intangible asset which was undervalued on the investee’s statement of financial position and which had a remaining useful life of 5 years. For the year ended December 31, 2020, the investee reported net income of P6,000,000 and paid cash dividends of P1,000,000 on ordinary shares capital and issued 10% stock dividend on December 31, 2020. What is the carrying value of the investment in associate on December 31, 2020? __________________ Purchase Price Add: Share in Profit (6M x 20% x 6/12) Less: Adjustments in profit (1M x 20%/5 yrs x 6/12) Cash Dividend (1M x 20%) Stocks Dividend (4M x 10% x 20%) Carrying value of the Investment in Associate

5,000,000 600,000 20,000 200,000 80,000 5,300,000...