Investment in Equity Securities PDF

Preview

Summary

DEPARTMENT OF ACCOUNTING EDUCATIONPre-Rev (Investment in Equity Securities) 2 ND Term, 1st Semester, SY: 2017- 2018 September 5, 2017Investment in Equity Securities means acquisition of equity securities for the purpose of accruing income through dividends and increase in market value, or controllin...

Description

DEPARTMENT OF ACCOUNTING EDUCATION Pre-Rev (Investment in Equity Securities) 2ND Term, 1st Semester, SY: 2017-2018 September 5, 2017 Investment in Equity Securities means acquisition of equity securities for the purpose of accruing income through dividends and increase in market value, or controlling another entity. Initial Recognition – Fair Value plus transaction costs that are directly attributable to the acquisition. Cash Dividends-Three important dates: a. b. c.

Date of Declaration Date of Record Date of Payment

When to recognized dividends as income? – at the date of declaration Property Dividends or dividends in kind -Property dividends are also considered as income and recorded at fair value. Liquidating Dividends represents return of invested capital, and therefore, are not income. The payment may be in the form of cash or non cash assets

MCQ-theory 1.

2.

3.

4.

5.

6.

7.

It is the date on which the stock and transfer book of the corporation is closed for registration. Only those shareholders registered as of the date are entitled to receive dividends. a. Date of declaration b. Date of payment c. Date of record d. Date of mailing the dividend check Dividends are recognized on the a. Date of issuing statements b. Date of record c. Date of declaration d. Date of balance sheet Property dividends are recorded as a. Dividend income at fair value of the property b. Dividend income at carrying amount of the property c. Return of investment and therefore credited to investment account d. Memorandum only Liquidating dividends are credited to a. Investment account b. Retained earnings c. Share premium d. Share capital What is the effect of stock dividend of the same class? a. Increase in investment account and increase in cost per share b. Decrease in investment account and decrease in cost per share c. No effect on investment account but decrease in cost per share d. No effect on investment account but increase in cost per share When stock dividends of different class are received a. No formal entry is made but only a memorandum b. Cash is debited and dividend income is credited c. A new investment account is debited and dividend income is credited d. A new investment account is debited and the original investment account is credited Shares received in lieu of cash dividend are recorded as a. Income at book value of the shares received

a. b. c.

Dividend income Return of investment Partly dividend income and partly return of investment d. If the stock dividends are received and subsequently sold and gain or loss is recognized. 9. What is the effect of split up? a. Increase in number of shares and decrease in cost per share b. Decrease in number of shares and decrease in cost per share c. Increase in number of shares and increase in cost per share d. Decrease in number of shares and increase in cost per share 10. An investor own 10% of the ordinary shares of the investee throughout the year. The investee has no preference shares outstanding. The investor has the right to a. Be paid 10% of the investee’s profits in cash each year b. Receive dividend equal to 10% of the par value each year c. Receive dividends equal to 10% of the total dividend paid by the investee for the year to shareholders. d. Keep investee from issuing any additional shares unless the investor is willing to buy 10% of the newly issued shares. MCQ-Problem Solving 1.

On January 1, 2017, ABC Company purchased 4,000 shares of another entity at P100 per share. Transaction costs amounted to P12,000. The investment is measured at fair value through other comprehensive income. A P5 dividend per share had been declared on December 15, 2016, to be paid on March 31, 2011 to shareholders of record on January 31, 2017. No other transactions occurred in 2017 affecting the investment. What is the initial measurement of the investment on January 1, 2017? a. 392,000 b. 400,000 c. 412,000 d. 380,000

2.

On July 1, 2017, Jess Company exchanged a land for 25,000 ordinary shares of Ace Company. On this date, the land’s carrying amount was P2,500,000 and its fair value was P3,000,000. On July 1, 2017, the book value of Ace Company’s share was P60 and its market value was P150. On December 31, 2017, Ace Company had 250,000 ordinary shares and the book value per share was P80. What amount should Jess Company report in the December 31, 2017 statement of financial position as investment in Ace Company? a. 1,500,000 b. 2,500,000 c. 3,750,000 d. 3,000,000

3.

Edes Company purchased 50,000 shares of Rona Company on January 15, 2017 representing 5% ownership interest. Edes Company received a stock dividend of 20% on March 31, 2017 when the market price of the share is P40. Rona Company paid a cash dividend of P5 per share on December 15, 2011. In the income statement for the year ended December 31, 2017, what amount should Edes Company report as dividend income? a. 150,000 b. 400,000 c. 700,000 d. 300,000 Myra Company purchased 20,000 ordinary shares of Chris Company on March 1, 2017, for P720,000. Myra

4.

b. c.

8.

Income at fair value of the shares received Income at the cash dividend that would have been received d. Stock dividends Cash received in lieu of stock dividends is accounted for as

Company received a P100,000 cash dividend from Chris Company on July 1, 2017. Chris Company declared a 10% stock dividend on December 1, 2017, to shareholders of record as of December 31, 2017. The dividend was distributed on January 31, 2018. The market price of the share was P35...