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Page 1 ofAUDIT OF INVESTMENTSPROBLEM NO. 1You were engaged by MISMO COMPANY to audit its financial statements for the year 2005. During the course of your audit, you noted that the following trading securities were properly reported as current assets at December 31, 2004:Aquata Corporation, 10,000 s...

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AUDIT OF INVESTMENTS PROBLEM NO. 1

You were engaged by MISMO COMPANY to audit its financial statements for the year 2005. During the course of your audit, you noted that the following trading securities were properly reported as current assets at December 31, 2004: Cost Aquata Corporation, 10,000 shares, convertible preferred shares Andrina, Inc., 60,000 shares of common stock Attina Co., 20,000 shares of common stock

P 900,000 1,350,000 1,237,500 P3,487,500

Market P 975,000 1,485,000 900,000 P3,360,000

The following sale and conversion transactions transpired during 2005: Mar. 27

Sold 25,000 shares of Andrina for P33.75 per share.

April 15

Sold 5,000 shares of Attina for P45 per share.

Sept. 21

Converted 5,000 shares of Aquata’s preferred stock into 15,000 shares of Aquata’s common stock, when the market price was P78.75 per share for the preferred stock and P47.25 per share for the common stock.

The following 2005 dividend information pertains to stocks owned by MISMO: Jan. 12 March 31 and Sept. 30

July 1 June 30 and Dec. 31

Attina issued a 10% stock dividend when the market price of Attina’s common stock was P49.50 per share. Aquata paid dividends of P2.50 per share on its preferred stock, to stockholders of record on March 15 and September 15, respectively. Aquata did not pay dividends on its common stock during 2005. Andrina paid a P2.25 per share dividend on its common stock. Adella paid semi-annual dividends of P1.50 on each of these dates. Adella’s net income for the year ended December 31, 2005 was P2,400,000.

On January 2, 2005, MISMO purchased 100,000 shares of Adella Corporation common stock for P3,600,000, representing 20% of Adella’s outstanding common stock and an underlying equity of P3,150,000 in Adella’s net assets on January 2, 2005. MISMO intends to hold Adella’s stock as a long-term investment, with the remaining investments being considered as held for trading. Market prices per share of the securities were as follows: Aquata Corp., preferred Aquata Corp., common Andrina, Inc., common Attina Co., common Adella Corp., common

12/31/2005 92.25 42.75 22.50 40.50 40.00

12/31/2004 97.50 38.25 24.75 45.00 36.75

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All of the foregoing stocks are listed in the Philippine Stock Exchange. Declines in market value from cost would not be considered permanent....