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Investment in equity securities practice problems w answers

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

P2,450,000

P,2300,000

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

Market Value

100,000 shares of Company A nonredeemable preference share

capital, par value P75

775,000

825,000

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

625,000

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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