AUDIT OF INVESTMENTS Gudo Company 15% bonds:

600 bonds, P1,000 each, purchased in July 2018, at par

Problem 1 The following investment in Trading Securities account appears (Interest dates: February 1 and August 1)……………………………………………..
in the books of CAP, INC. 600,000
Date Explanation Debit
P5,349,000
Credit
2019
Your examination discloses the following:
Jan. 1 Balance P5,349,000
31 Sold Robusta ordinary
1) On January 31, 2019, 30,000 ordinary shares of the Robusta
P640,920
Company purchased in May 2018
Mar. 31 Bought Wilma ordinary 365,000
Were sold for P640,920.
June 30 Dividend on Bulik ordinary 300,000
July 31 Sold Bulik ordinary
2) On March 31, 2019, 15,000 ordinary shares of Wilma Company
262,500
were purchased at P24.25 per
Aug. 1 Sold Gudo bonds
Share plus brokerage fee, for P365,000.
675,000

3) In June 2019, the Bulik Company paid a 100% ordinary share

The audit work papers of the preceding year show that the account balance
dividend on ordinary shares.
as of January 1, 2019, consisted of the following:

4) In July 2019, CAP, INC. sold to its president for P125 per share, 3,000
Robusta Company ordinary:
ordinary shares of Bulik Company, for which the president gave his
30,000 shares, purchased in June 2016, P20 per share…….………………..….…
check for P262,500 and a letter in which he agreed to pay the
P600,000
balance upon demand of the treasure of the company.
60,000 shares, purchased in August 2017, P16 per share……………………......
960,000
5) On August 1, 2019, CAP, INC., sold its Gudo Company 15% bonds at
45,000 shares, purchased in May 2018 , P22 per share……………………….......
110 plus accrued Interest
990,000

6) The total market value of the securities at year- end amounted to

Wilma Company ordinary:
P4,500,00
60,000 shares, purchased in January 2018, P33 per share……..………………
1,980,000
Questions:
Bulik Company ordinary:
3,000 shares, purchased in August 2017, P73 per share (par P100)…………. 1. What is the gain on sale of Bulik Company shares on July 31,2019?
219,000
 A. P109,500 B. P153,000 C. P156,000
D. P265,500 Investment Quantity Cost Fair
Value
2. What is the gain on sale of Gudo Company bonds on August 1, LJ, Inc. 1,000 shares P 90,000 P
2019? 126,000
A. P 0 B. P45,000 C. P60,000 Polland Co. 2,000 shares 240,000
D. P75,000 252,000
Alabang Corp. 2,000 shares 432,000
3. The adjusting entry for the sale of Robusta Company ordinary 360,000
shares on January 31, 2019, Totals P762,000
Should include a P738,000
A. Debit to Loss on sale of trading securities for P19,080.
B. Credit to Gain on sale of trading securities for P19,080. 1. In the December 31, 2018, statement of financial position, what
C. Debit to Cash for P640,920 should be reported as carrying amount of the investments?
D. Credit to Investment in trading securities for P660,000. A. 738,000 B. P690,000 C. P762,000
D. P810,000
4. The December 31, 2019, carrying amount (before market
adjustment) of CAP, INC.’s
Investment in trading securities is 2. In the 2018 income statement, what amount should be reported as
A. P4,233,750 B. P4,343,250 C. P4,344,500 unrealized gain or loss?
D. P4,500,000 A. Unrealized gain of P24,000
B. Unrealized loss of P24,000
5. What amount of unrealized gain should be reported in the income C. Unrealized loss of P72,000
statement for the year D. Unrealized gain of P48,000
ended December 31, 2019?
A. P155,500 B. P156,750 C. P158,000 (b) During the year 2019, Magnolia Corp. sold 2,000 shares of Polland Co.
D. P266,250 for P229,200 and purchased
2,000 more shares of LJ Inc, and 1,000 shares of Dwarfy Company. On
Problem NO. 2 December 31, 2019, Magnolia’s equity securities portfolio consisted of
the following:
Magnolia Corp. invested its excess cash in equity securities during 2018. The
business model for these investment is to profit from trading on price Investment Quantity Cost Fair
changes. Value
LJ, Inc. 1,000 shares P 90,000 P
(a) As of December 31, 2018, the equity investment portfolio consisted of 120,000
the following:
 LJ, Inc. 2,000 shares 198,000 Totals P480,000
240,000 P528,000
Dwarfy Company 1,000 shares 96,000
72,000 6. What should be reported as loss on sale of trading securities in
Alabang Corp. 2,000 shares 432,000 2020?
132,000 a. P120,600 b. P64,800 c. P48,600
Totals P816,000 d. P136,800
P564,000
7. What amount of unrealized gain or loss should be reported in the
3. What is the gain or loss on the sale of Polland Co. Investment? income statement for the year ended December 31, 2020?
a. P10,800 gain b. P10,800 loss c. P22,800 gain a. P360,000 unrealized gain
d. P22,800 loss b. P360,000 unrealized loss
c. P48,000 unrealized gain
4. What is the carrying amount of the Investments on December 31, d. P48,000 unrealized loss
2019?
a. P816,000 b. P888,000 c. P564,000 8. In the December 31, 2020, statements of financial position, what
d. P492,000 should be reported as carrying amount of trading securities?
a. P480,000 b. P468,000 c. P528,000
5. What amount of unrealized gain or loss should be reported in the d. P540,000
income statements for the year ended December 31, 2019?
a. P252,000 unrealized gain c. P216,000 Problem No. 3
unrealized gain Supporting records of MAYON CORPORATION’s trading securities portfolio
b. P252,000 unrealized loss d. P216,000 show the following ebt and equity securities:
unrealized loss Security Cost Fair Value
400 ordinary shares P254,500 P243,000
(c) During the year 2020, Magnolia sold 3,000 shares of LJ, Inc. for P239,400 Concave Co.
and 500 shares of Dwarfy Company at a loss of P16,200. On December 31, P800,000 Tipo Co. 7% 796,500 774,000
2020, Magnolia’s equity investment portfolio consisted of the following: bonds
P1,200,000 Turkey Co. 7 1,207,500 1,218,900
½ % bonds
Investment Quantity Cost
Totals P2,258,500 P2,235,900
Fair Value
Dwarfy Company 500 shares P48,000
Interest dates on the bonds are January 1 and July 1. Mayon Corporation
P36,000
uses the income approach to record the purchase of bonds with accrued
Alabang Corp. 2,000 shares 432,000
interest. During 2019 and 2020 , Mayon completed the following
492,000
transactions related to trading securities.
 3. What amount of unrealized gain or loss should be reported in the
2019 income statement for the year ended December 31, 2019?
Jan 1 Received semiannual interest on bonds. Assume that the a. P21,200 unrealized gain
appropriate adjusting entry was made on December 31, 2018. b. P21,200 unrealized loss
April 1 Sold P600,000 of 7 ½ % Turkey bonds at 102 plus accrued interest. c. P6,150 unrealized gain
May 21 Received dividend of P1.25 per share on the Concave ordinary share d. P6,150 unrealized loss
capital. The dividend had not been recorded on the declaration date.
July 1 Received semiannual interest on bonds and then sold the 7% Tipo 4. What is the carrying amount of the remaining trading securities on
bonds at 97 ½. December 31, 2019?
Aug 15 Purchased 200 shares of Newman, Inc. ordinary share capital at a. P1,481,000 c.
P580 per share plus brokerage fees of P500. P1,473,450
Nov. 1 Purchased P500,000 of 8% Toll Co. bonds at 101 plus accrued b. P1,450,450 d.
interest. Brokerage fees were P1,250. Interest dates are January 1 P1,452,250
and July 1.
Dec. 31 Market prices of securities were: 5. What is the loss on the sale of the remaining Turkey bonds on
Concave ordinary shares P550 February 1, 2020?
7 ½ % Turkey bonds 101 ¾ a. P4,500 c. P13,500
8% Toll bonds 101 b. P10,500 d. P750
Newman ordinary shares P583.75
Problem 4
2020 SANTOL CORP. invested its excess cash in non-trading equity securities
Jan. 2 Recorded the receipts of semiannual interest on bonds. during 2019. On initial recognition, the entity made an irrevocable election
Feb. 1 Sold the remaining 7 ½ % Turkey bonds at 101 plus accrued interest. to present its securities at fair value through other comprehensive income
(FVOCI). As of December 31, 2019, the company’s securities portfolio
Questions: consisted of the following:
1. What is the total interest and dividend income for 2019?
a. P125,166 c. P91,417 Investee Shares Cost Market Value
Company
Kelly Inc. 30,000 P450,000 425,000
b. P164,416 d. P98,804
Ejoy Corp. 60,000 1,500,000 1,610,000
Yogi Enterprises 60,000 2,160,000 2,300,000
2. What amount should be reported as gain on sale of trading Totals P4,110,000 P4,335,000
securities in 2019?
a. P2,550 c. P8,550
b. P6,000 d. P3,450 During the year 2020, Santol sold 60,000 shares of Eloy Corp. for P1,700,000
and purchased 60,000 additional shares of Kelly, Inc. and 30,000 shares of
Kongga Company.
On December 31, 2020, Santol’s portfolio of non-trading equity securities 3. What cumulative amount of unrealized loss should be reported as
comprised the following: component of other comprehensive income in the statement of
changes in equity on December 31, 2020?
Investee Shares Cost Market Value
a. P1,415,000 b. P1,300,000 c. P335,000
Company
d. P225,000
Kelly, Inc. 30,000 P450,000 P500,000
Kelly, Inc. 60,000 1,300,000 1,450,000
Kongga 30,000 520,000 480,000 4. What unrealized gain on the remaining financial assets should be
Company reported in the 2021 statement of comprehensive income as
Yogi Enterprise 60,000 2,160,000 700,000 component of other comprehensive income?
Totals P4,430,000 P3,310,000 a. P1,960,000 b. P60,000 c. P3,440,000
d. P3,500,000

During the year 2021, Santol sold all the Kelly, Inc. shares for P2,300,000
5. What cumulative amount of unrealized gain should be reported as
and 15,000 shares of Kongga Company at a loss of P90,000. On December
component of other comprehensive income in the statement of
31, 2021, Santol’s portfolio of non-trading equity securities consisted of the
changes in equity on December 31,2021?
following:
a. P1,505,000 b. P1,960,000 c. P1,480,000
Investee Shares Cost Market Value d. P3,440,000
Company
Problem 5
Yogi Enterprises 60,000 P2,160,000 P4,200,000
Kongga 15,000 260,000 180,000 Coolong co. holds debt securities within a business model whose objective is
Company achieved both by collecting contractual cash flows and selling the debt
Totals P2,420,000 P4,380,000
securities. The contractual cash flows are solely payments of principal and
interest on specified dates.
Questions:
The following amortization schedule relates to its 5 –year P1,000,000, 7%
1. What total amount should be credited to retained earnings as a bonds purchased on December 31, 2016, for P1,086,565. The bonds were
result of the sale of Eloy Corp. securities in 2020? purchased to yield 5% interest.
a. P200,000 b. P110,000 c. P90,000
d. P20,000
Date Interest Interest Premium Amortized
2. What unrealized loss on the remaining financial assets should be Received Income Amortization Cost
reported in the 2020 statement of comprehensive income as 12.31.16 P1,086,565
component of other comprehensive income? 12.31.17 P70,000 P54,328 P15,672 1,070,893
a. P1,600,000 b. P1,640,000 c. P1,415,000 12.31.18 70,000 53,545 16,455 1,054,438
d. P1,300,000 12.31.19 70,000 52,722 17,728 1,037,160
12.31.20 70,000 51,858 18,142 1,019,018
12.31.21 70,000 50,982 19,018 1,000,000
*Adjustment due to rounding 5. What amount of unrealized gain should be shown in the 2020
statement of changes in equity?
The following schedule presents the amortized cost and fair value of the
a. P26,455 c. P25,233
bonds at year-end.
b. P16,883 d. P10,990
Fair Value Amortized Cost
December 31, 2017 P1,065,000 P1,070,893
December 31, 2018 1,075,000 1,054,438
December 31, 2019 1,056,500 1,037,160
December 31, 2020 1,030,000 1,019,018
December 31, 2021 1,000,000 1,000,000

1. What amount should be reported as investment in bond in the

statement of financial position of Coloong Co. on December 31,
2018?
a. P1,086,565 c. P1,0750,000
b. P1,054,438 d. P1,065,000

2. What amount of unrealized gain should be shown a component of

other comprehensive income in the 2018 statement of
comprehensive?
a. P26,455 c. P10,000
b. P20,562 d. P16,455

3. What amount of unrealized loss should be shown as component of

other comprehensive income in the 2019 statement of
comprehensive income?
a. P14,393 c. P19,340
b. P18,500 d. P1,222

4. What amount of unrealized loss should be shown as component of

other comprehensive income in the 2020 statement of
comprehensive income?
a. P8,350 c. P25,233
b. P26,500 d. P10,990