ACC 124_Week 13-14_ULOb_Investment in Equity Securities_Assignment_CAIN
1. On January 1, 2014, Hostile Company purchased 4,000 shares of another entity at P100 per share. Transactions
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, 2013, to be paid on March 31, 2014 to shareholders
of record on January 31, 2014. No other transactions occurred in 2014 affecting the investment.
What is the initial measurement of the investment on January 1, 2014?
a. 392, 000
b. 400, 000
c. 412, 000
d. 380, 000
Suggested Solution:
Purchase price (4,000 x P100) 400,000
Less: Dividends* (4,000 x P5) (20,000)
Cost attributable to investment 380,000
Add: Transaction Cost
12,000
Initial Measurement
392,000
*Dividends is deducted since the sale is “dividend-on”.
2. On July 1, 2014, Impervious Company exchanged a land for 25, 000 ordinary shares of Ace Company. On this
date, the carrying amount of the land was P2, 500, 000 and the fair value was P3, 000, 000.
On July 1, 2014, the carrying amount of Ace Company’s share was P60 and the market value was P150. On
December 31, 2014, Ace Company had 250, 000 ordinary shares and the carrying amount per share was P80.
What amount should be reported on December 31, 2014 as investment in Ace Company?
a. 1, 500, 000
b. 2, 500, 000
c. 3, 750, 000
d. 3, 000, 000
Suggested Solution: *FV of the asset given (Land)
3. Maxim Company acquired 40,000 ordinary shares on October 1 for P6,600,000 to be held for trading. On
November 30, the investee distributed a 10% ordinary share dividend when the market price of the share was
P250. On December 31, the entity sold 4,000 shares for P1,000,000. What amount should be reported as gain
on sale of investment in the current year?
a. 340,000
b. 400,000
c. 500,000
d. 600,000
Suggested Solution:
Cost per share = P 6,600,000 = P150
44,000 shs
Selling Price
1,000,000
Cost (4,000 shs x 150) (600,000)
Gain on sale of invmt
400,000
4. Presumptuous Company revealed the following information pertaining to dividends from nontrading
investments in ordinary shares during the year ended December 31, 2019:
• The entity owned a 10% interest in Beal Company, which declared a cash dividend of P500,000 on
November 30, 2019 to shareholders of record on December 31, 2019 and payable on January 15, 2020.
• On October 15, 2019, the entity received a liquidating dividend of P100,000 from Clay Mining Company.
The entity owned a 5% interest in Clay Mining Company.
What amount of dividend income should be reported for the current year?
a. 500,000
b. 600,000
c. 150,000
d. 50,000
Page 1 of 3
Commented [J1]: Original
Share dividend
(40,000 x 10%)
4,000
Total
44,000
40,000
ACC 124_Week 13-14_ULOb_Investment in Equity Securities_Assignment_CAIN
Journal entries:
First bullet point:
Cash
50,000
Dividend Income
50,000
(500,000 x 10% = 50,000)
Second bullet point:
Cash
100,000
Investment in shares
100,000
Commented [J2]: Answer
Commented [J3]: Since this is liquidating dividends, the
dividend represent return of invested capital.
5. During 2019, Reminiscent Company bought shares of another entity to be held for trading.
June
1
20,000 shares @ P100
2,000,000
December 1
30,000 shares @ P120
3,600,000
Transactions for 2020
January 10
Received cash dividend at P10 per share.
January 20
Received 20% share dividend
December 10 Sold 30,000 shares at P125 per share.
What is
a.
b.
c.
d.
the gain on sale of investment using the FIFO approach?
1,150,000
950,000
150,000
550,000
Suggested Solution:
Orig. Shares
Share Div. (20%)
Total Shares
June 1
20,000
4,000
24,000
June 1 @24,000 shares
Dec. 1 @ 6,000 shares x P100
Total Cost
Selling Price
Gain on Sale
Dec. 1
30,000
6,000
36,000
2,000,000
600,000
2,600,000
3,750,000
1,150,000
For the next two items:
On January 1, 2019, Scoundrel Company purchased 100,000 ordinary shares at P80 per share to be classified
as nontrading through other comprehensive income.
On September 30, 2019, the entity received 100,000 share rights to purchase 20,000 shares at P90 per share.
The share rights had an expiration date of February 1, 2020
On September 30, 2019, each share had a market value of P114 and the share right had a market value of
P6.
6. What among should be reported on September 30, 2019 as investment in share rights?
a. 500,000
b. 400,000
c. 100,000
d. 600,000
Suggested Solution:
Share rights
100,000
FV
P6
Total
600,000
Page 2 of 3
Commented [J4]: Dec. 1
Cost
3,600,000
Divided by: Shares
36,000
Cost per share
P 100
ACC 124_Week 13-14_ULOb_Investment in Equity Securities_Assignment_CAIN
7. What is
a.
b.
c.
d.
the total cost of the new investment if all of the share rights are exercised?
1,800,000
1,600,000
2,200,000
2,400,000
Suggested Solution:
New shares
20,000
Cost per share
90
Total
1,800,000
Add: Stock rights
600,000
Total
2,400,000
8. At the beginning of the current year, Animosity Company purchased 50,000 shares of another entity for
P3,800,000.
During the year, the entity received 50,000 share rights from the investee. The share rights are not
accounted for separately. Each right entitled the shareholder to acquire one share for P80.
The market price of the investee’s share was P100 immediately before the rights were issued. The entity
exercised all share rights during the year.
At year-end, the entity sold 25,000 shares at P90 per share. The FIFO approach is used.
What amount of gain on sale of investment should be recognized in the current year?
a. 350,000
b. 300,000
c. 600,000
d. 250,000
Suggested Solution:
Cost per share at the beginning = 3,800,000 = P 76 per share
50,000
Selling Price (25,000 x 90) = 2,250,000
Cost (25,000 x 76)
= 1,900,000
Gain on sale of investment
350,000
9. Valedictory Company issued rights to subscribe to its stock, the ownership of 4 shares entitling the
shareholders to subscribe for 1 share at P100. Vast Company owned 50,000 shares of Valedictory Company
with total cost of P5,000,000. The share is quoted right-on at 125. The stock rights are accounted for
separately. What is the cost of the new investment if all of the stocks are exercised by Vast Company?
a. 1,500,000
b. 1,250,000
c. 1,562,500
d. 1,450,000
Suggested Solution:
Theoretical Value (125-100) / (4+1)
Initial Cost of Rights (50,000 x 5)
Cash paid for new shares
(50K rights / 4 = 12,500 shs x 100)
Cost of new investment
=
5
=
250,000
=
1,250,000
1,500,000
Journal Entry:
Investment in equity securities
Share rights
Cash
1,500,000
250,000
1,250,000
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