Equity Investments AT FAIR Value- Discussion 1 UE PDF

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FARQ 225-6 Page 1 of 3EQUITY INVESTMENTS AT FAIR VALUE EE Company acquired trading equity instrument for P4,000,000 on April 30, 2018. The equity instrument is classified as financial asset at fair value through profit or loss. The transaction cost incurred amounted to P700,000. On December 31, 2018...

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EQUITY INVESTMENTS AT FAIR VALUE

1.

EE Company acquired trading equity instrument for P4,000,000 on April 30, 2018. The equity instrument is classified as financial asset at fair value through profit or loss. The transaction cost incurred amounted to P700,000. On December 31, 2018, the fair value of the instrument was P5,500,000. What amount of gain should be recognized in the income statement for the year ended December 31, 2018? A. 0 B. 700,000 C. 800,000 D. 1,500,000

2.

EE Company acquired non-trading equity instrument for P4,000,000 on April 30, 2018. The equity instrument is classified as financial asset at fair value through other comprehensive income. The transaction cost incurred amounted to P700,000. On December 31, 2018, the fair value of the instrument was P5,500,000. What amount of gain should be recognized in other comprehensive income for the year ended December 31, 2018? A. 0 B. 700,000 C. 800,000 D. 1,500,000

Use the following information to answer items 3 and 4: During 2018, LL Company purchased trading securities with the following cost and market value on December 31, 2018: Security X – 1,000 shares Y – 10,000 shares Z – 20,000 shares

Cost 200,000 1,700,000 3,100,000 5,000,000

Market value 300,000 1,600,000 2,900,000 4,800,000

The company sold 10,000 shares of Security Y on January 15, 2019, for P150 per share. 3.

4.

What amount of unrealized gain or loss should be reported in the income statement for 2018? A. 200,000 loss B. 200,000 gain C. 300,000 loss

D.

300,000 gain

What amount should be reported as gain or loss on sale of trading securities in 2019? A. 100,000 gain B. 100,000 loss C. 200,000 gain

D.

200,000 loss

Use the following information to answer items 5 to 7: On December 31, 2018, SS Company appropriately reported a P100,000 unrealized loss. There was no change during 2019 in the composition of the portfolio of non-trading equity securities held at fair value through other comprehensive income. Security A B C

Cost 1,200,000 900,000 1,600,000 3,700,000

5.

Market value December 31, 2019 1,300,000 500,000 1,500,000 3,300,000

What is the market value of the investment on December 31, 2018? A. 3,500,000 B. 3,600,000 C. 3,700,000

D.

3,800,000

6.

What amount of loss on these securities should be included in the statement of comprehensive income for the year ended December 31, 2019 as component of other comprehensive income? A. 0 B. 100,000 C. 300,000 D. 400,000

7.

What cumulative amount of loss on these securities should be reported in the statement of changes in equity for the year ended December 31, 2019 as component of other comprehensive income? A. 0 B. 100,000 C. 200,000 D. 400,000

Use the following information for items 8 and 9: On December 31, 2018, Black Order Company appropriately reported a P100,000 unrealized gain. There was no change during 2019 in the composition of the portfolio of trading equity securities. Security A B C

Cost 1,200,000 900,000 1,600,000 3,700,000

8.

9.

Market value December 31, 2019 1,300,000 500,000 1,500,000 3,300,000

What is the market value of the investment on December 31, 2018? A. 3,500,000 B. 3,600,000 C. 3,700,000

D.

3,800,000

What amount of gain or loss on these securities should be included in the statement of comprehensive income for the year ended December 31, 2019? A. 400,000 gain B. 400,000 loss C. 500,000 gain D. 500,000 loss

Use the following information to answer items 10 and 11: On January 1, 2020, QQ Company purchased equity securities to be held at fair value through other comprehensive income. On December 31, 2020, the cost and market value were:

FARQ 225-6

Page 1 of 3

Security A Security B Security C

Cost 2,000,000 3,000,000 5,000,000

Market 2,400,000 3,500,000 4,900,000

On July 1, 2021, the company sold security A for P2,500,000. 10. What amount should be recognized directly in retained earnings as a result of the sale of financial asset in 2021? A. 0 B. 100,000 C. 400,000 D. 500,000 11. What amount should be recycled to profit and loss as a result of the sale of financial asset in 2021? A. 0 B. 100,000 C. 400,000 D.

500,000

12. On January 1, 2018, HH Company purchased 40,000 shares at P100 per share to be held for trading. Brokerage fees amounted to P120,000. A P5 dividend per share had been declared on December 15, 2017, to be paid on March 31, 2018 to shareholders of record on January 31, 2018. No other transactions occurred in 2018 affecting the investment. What is the initial measurement of the investment? A. 3,800,000 B. 3,920,000 C. 4,000,000 D. 4,120,000 13. BB Company purchased 10,000 shares representing passive ownership of DD Company on February 1, 2019. BB Company received a stock dividend of 2,000 shares on March 31, 2019, when the carrying amount per share was P350 and the market value per share was P400. DD Company paid a cash dividend of P15 per share on September 15, 2019. In the income statement for the year ended December 31, 2019, what amount should be reported as dividend income? A. 150,000 B. 180,000 C. 880,000 D. 980,000 14. Hipolito Company owns 20,000 shares of Homer Company’s 200,000 shares of P100 par, 6% cumulative, non -participating preference share capital and 10,000 shares representing 2% ownership of Homer’s ordinary share capital. During 2018, Homer Company declared and paid preference dividends of P2,400,000. No dividends had been declared or paid during 2017. In addition, Hipolito Company received a 5% share dividend on ordinary share from Homer Company when the quoted market price of Homer’s ordinary share was P10. What amount should be reported as dividend income for 2018? A. 120,000 B. 125,000 C. 240,000 D. 245,000

Use the following information for items 15 and 16: At the beginning of current year, Heather company acquired 200,000 ordinary shares of Gringo Company for P9,000,000. At the time of purchase, Gringo Company had outstanding 800,000 ordinary shares with a carrying amount of P36,000,000. The following events took place during the current year: • Gringo Company reported profit of P1,800,000 for the current year. • Heather Company received from Gringo Company a dividend of P0.75 per ordinary share. • The market value of Gringo Company is P48. Heather Company has elected irrevocably to measure the investment at fair value through other comprehensive income. 15. Total income to be reported in the income statement for the current year is A. 150,000 B. 300,000 C. 450,000

D.

750,000

16. What is the carrying amount of the investment at year-end? A. 9,000,000 B. 9,300,000

D.

9,900,000

C.

9,600,000

Wesley Company provided the following data for 2017: • On September 1, Wesley received a P500,000 cash dividend from Soba Company in which Wesley owns a 30% interest. • On October 1, Wesley received 3,000 shares as bonus issue from Jack Company. The market value of the shares is P20. Wesley owns a 5% interest in Jack. • Wesley owns a 10% interest in Bunny Company, which declared a P2,000,000 cash dividend on November 15, 2017 payable on January 15, 2018. 17. What amount should be reported as dividend income for 2017? A. 0 B. 200,000 C.

2,000,000

D.

2,560,000

1,450,000

D.

1,650,000

Use the following information for items 18 to 21: During 2012, Matang Company bought shares of Lawin Company as follows: June 1 December 1

20,000 shares @ P100 30,000 shares @ P120

2,000,000 3,600,000 5,600,000

The following transactions occurred during 2013: January 1 Received cash dividend at P10 per share. January 20 Received 20% stock dividend. December 10 Sold 30,000 shares at P125 per share

CASE 1: FIFO approach is used. 18. What is the gain on the sale of the shares? A. 950,000 B. 1,150,000

C.

19. What total income in connection with the above transactions shall be included in the income statement for the year 2013? A. 950,000 B. 1,150,000 C. 1,450,000 D. 1,650,000 FARQ 225-6

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