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Investment in equity securities practice problems w answers

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Problem 1
Carmela Company acquired a financial instrument for P4,000,000 on March 31, 2020. The financial
instrument is classified as financial asset at fair value through other comprehensive income. The direct
acquisition cost incurred amounted to P700,000. On December 31, 2020, the fair value of the
instrument was P5,500,000 and the transaction costs that would be incurred on the sale of the
investment are estimated at P600,000.
1. What gain should be recognized in other comprehensive income for the year ended
December 31, 2020? 800,000
Problem 2
During 2020, Garr Company purchased marketable equity securities as a trading investment. For the
year ended December 31, 2020, the entity recognized an unrealized loss of P230,000. There were no
security transactions during 2021. Pertinent information on December 31, 2021 is as follows:
Security
Cost
Market Value
A
P2,450,000
P,2300,000
B
1,800,000
1,820,000
Total
4,250,000
4,120,000
2. In the 2021 income statement, what amount should be reported as unrealized gain or loss?
100,000 unrealized gain
Problem 3
Inspiration Company had trading and nontrading investments held throughout 2020 and 2021. The
nontrading investments are measured at fair value through other comprehensive income. The
investments had a cost of P3,000,000 for trading and P3,000,000 for nontrading. The investments had
the following fair value at year-end:
December 31, 2020
December 31, 2021
Trading
4,000,000
3,800,000
Nontrading
3,200,000
3,700,000
3. What amount of unrealized gain or loss should be reported in the income statement for 2021?
(200,000)
4. What amount of unrealized gain or loss should be reported in the statement of financial
position on December 31, 2021? 200,000 gain

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Problem 4
During 2020, Latvia company purchased trading securities with the following cost and market value on
December 31, 2020:
Security
Cost
Market Value
A 1,000 shares
200,000
300,000
B 10,000 shares
1,700,000
1,600,000
C 20,000 shares
3,100,000
2,900,000
Total
5,000,000
4,800,000
The entity sold 10,000 shares of Security B on January 15, 2021, for P130 per share, incurring P50,000 in
brokerage commission and taxes.
5. What amount should be reported as loss on sale of trading investment in 2021? 350,000
Problem 5
On January 1, 2020, Remington Company acquired 200,000 ordinary shares, which is equal to 25%
interest, of Universal Company for P9,000,000. At the time of purchase, Universal company had 800,000
outstanding shares with a carrying amount of P36,000,000. On December 31, 2020, the following events
took place:
Universal Company reported net income of P1,800,000 for the calendar year 2020.
Remington Company received from Universal Company a dividend of P0.75 per ordinary share.
The market value of Universal Company share had temporarily declined to P40.
Remington Company has elected to measure the investment at fair value through other comprehensive
income.
6. What is the carrying amount of the investment on December 31, 2020? 8,000,000
Problem 6
Neal Company held the following financial assets as trading investments on December 31, 2020:
Cost
100,000 shares of Company A nonredeemable preference share
capital, par value P75
775,000
7,000 shares of Company B preference share capital, par value P100,
subject to mandatory redemption by the issuer at par on December
31, 2021.
690,000
7. In the December 31, 2020 statement of financial position, what is the total carrying amount of
the investments? 1,450,000

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Problem 1 Carmela Company acquired a financial instrument for P4,000,000 on March 31, 2020. The financial instrument is classified as financial asset at fair value through other comprehensive income. The direct acquisition cost incurred amounted to P700,000. On December 31, 2020, the fair value of the instrument was P5,500,000 and the transaction costs that would be incurred on the sale of the investment are estimated at P600,000. 1. What gain should be recognized in other comprehensive income for the year ended December 31, 2020? 800,000 Problem 2 During 2020, Garr Company purchased marketable equity securities as a trading investment. For the year ended December 31, 2020, the entity recognized an unrealized loss of P230,000. There were no security transactions during 2021. Pertinent information on December 31, 2021 is as follows: Security A B Total Cost P2,450,000 1,800,000 4,250,000 Market Value P,2300,000 1,820,000 4,120,000 2. In the 2021 income statement, what amount should be reported as unrealized gain or loss? 100,000 unrealized gain Problem 3 Inspiration Company had trading and nontrading investments held throughout 2020 and 2021. The nontrading investments are measured at fair value through other comprehensive income. The investments had a cost of P3,000,000 for trading and P3,000,000 for nontrading. The investments had the following fair value at year-end: Trading Nontrading December 31, 2020 4,000,000 3,200,000 December 31, 2021 3,800,000 3,700,000 3. Wha ...
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