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Integrated Review 1

Standalone assignment

Quiz 1.04 Investment in Associate/Derivatives

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Here are your latest answers:

Question 1
On January 1, 200A, Inscrutable Company adopted a plan to accumulate P8,000,000 by Janaury 1, 200E. The entity plans to make four equal annual deposits to a fund that
will earn interest at 12% compounded annually. The first deposit was made on December 31, 200A and every December 31 thereafter. The future value factors are:

Future value of an ordinary annuity of 1 at 12% for 4 periods 4.779

Future value of an annuity in advance of 1 at 12% for 4 periods 5.353

What is the required annual deposit to the fund?

Response: 1,673,990

Feedback:

Fund to be accumulated P 8,000,000

Divide: Future value of an ordinary annuity of 1 at 12% for 4 periods ÷ 4.779
Required annual investment P 1,673,990

Correct answer: 1,673,990

Score: 1 out of 1 Yes

Question 2
On January 1, 200A, Genial Company borrowed P5,000,000 from a bank at a variable rate of interest for 4 years. Interest will be paid annually to the bank on December 31
and the principal is due on December 31, 200D.

Under the agreement, the market rate of interest every January 1 resets the variable rate for that period and the amount of interest to be paid on December 31. In conjunction
with the loan, the entity entered into a "receive variable, pay fixed" interest swap agreement with another bank speculator as a cash flow hedge.

The market rates of interest are 6% on January 1, 200A, 10% on January 1, 200B and 5% on January 1, 200C.

The present value of an ordinary annuity of 1 at 10% for 3 periods is 2.487 and the present value of an ordinary annuity of 1 at 5% for 2 periods is 1.859.

What is the derivative asset or liability on December 31, 200A?

Response: 497,400 asset

Feedback:

Market interest due Jan 1 200B (P5,000,000x10%) 500,000

Fixed interest Jan 1, 200A (P5,000,000x6%) (300,000)
Receivable from the bank 200,000

Receivable from the bank 200,000

Multiply: PV value of an ordinary annuity of 1 at 10% for 3 periods.
x 2.487
Derivative Asset 497,400

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Correct answer: 497,400 asset

Score: 1 out of 1 Yes

Question 3
Hazard Company entered into a call option contract for speculation with a bank speculator on January 1, 200A. The contract gave the entity the option to purchase 10,000
shares at P100 per share. The option expires on April 30, 200A. Each share is trading at P100 on January 1, 200A at which time the entity paid P10,000 for the call option.
The price per share is P120 on April 30, 200A, and the time value of the option has not changed.

In order to settle the option contract, the entity would most likely

Response: Receive 200,000 from the bank

Feedback:

Gain on speculation
Market price P 120
Strike price (100)
Gain 20
Multiply: Quantity x 10,000
Receivable from the bank P 200,000

Correct answer: Receive 200,000 from the bank

Score: 1 out of 1 Yes

Question 4
At the beginning of current year, Sage Company bought 40% of Eve Company's outstanding ordinary shares for P4,000,000.

The carrying amount of Eve's net assets at the purchase date totaled P9,000,000.

Fair values and carrying amounts were the same for all items except for plant and inventory, for which fair values exceeded their carrying amounts by P900,000 and
P100,000, respectively.

The plant has an 18-year life. All inventory was sold during the current year.

During the current year, the investee reported net income of P1,200,000 and paid a P200,000 cash dividend.

What is the excess of cost over the carrying amount of net assets acquired?

Response: 400,000

Feedback:

Acquisition cost 4,000,000

Net assets acquired (40% x 9,000,000) (3,600,000)
Excess of cost over carrying amount 400,000

The excess of cost is identified as:

Understatement of plant (40% x 900,000) 360,000
Understatement of inventory (40% x 100,000) 40,000
Total excess of cost 400,000

Correct answer: 400,000

Score: 1 out of 1 Yes

Question 5
At the beginning of current year, Occidental Company purchased 40% of the outstanding ordinary shares of Manapla Company for P3,500,000 when the net assets of
Manapla amounted to P7,000,000.

At acquisition date, the carrying amounts of the identifiable assets and liabilities of Manapla were equal to their fair value, except for equipment for which the fair value was
P1,500,000 greater than carrying amount and inventory whose fair value was P500,000 greater than cost.

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The equipment has a remaining life of 4 years and the inventory was all sold during the current year.

Manapla Company reported net income of P4,000,000 and paid P1,000,000 cash dividend during the current year.

What is the excess fair value over the acquisition cost?

Response: 100,000

Feedback:

Cost 3,500,000
Carrying amount of interest acquired
(40% x 7,000,000) (2,800,000)
Excess of cost over carrying amount 700,000
Excess applicable to equipment (40% x 1,500,000) (600,000)
Excess applicable to inventory (40% x 500,000) (200,000)
Excess fair value over cost (100,000)

Correct answer: 100,000

Score: 1 out of 1 Yes

Question 6
On July 1, 200A, Diamond Company paid P1,000,000 for 100,000 outstanding shares which represent 40% of Ashley Company. At that date, the net assets of Ashley
totaled P2,500,000 and the fair values of all Ashley’s identifiable assets and liabilities were equal to their carrying amount.

Ashley reported net income of P500,000 for 200A, of which P300,000 was for the six months ended December 31, 200A. Ashley paid cash dividends of P250,000 on
September 30, 200A.

What amount of income should be reported from the investment in Ashley?

Response: 80,000

Feedback:

Correct answer: 120,000

Score: 0 out of 1 No

Question 7
At the beginning of current year, Farley Company acquired 20% of the outstanding ordinary shares of Davis Company for P8,000,000.

This investment gave Farley the ability to exercise significant influence over Davis. The carrying amount of the acquired shares was P6,000,000.

The excess of cost over carrying amount was attributed to a depreciable asset which was undervalued on Davis' statement of financial position and which had a remaining
useful life of ten years.

The investee reported net income of P1,800,000 and paid cash dividends of P400,000 and thereafter issued 5% share dividend during the current year.

What amount should be reported as investment income for the current year?

Response: 160,000

Feedback: PAS 28, paragraph 5, provides that if an investor holds, directly or indirectly through subsidiaries, 20% or more of the voting power of the investee, it is
presumed that the investor does have significant influence unless it can be clearly demonstrated that this is not the case.

The equity method of accounting is used if the investment is 20% or more of the voting power ofthe investee.

Under the equity method, the investment account is increased by the investor's share of the investee's earnings and decreased by the investor's share of the investee's losses.

Dividend received from the investee reduces the carrying amount of the investment.

Share in net income (20% x 1,800,000) 360,000

Amortization of excess of cost (2,000,000/10) (200,000)
Investment income for current year 160,000

Acquisition cost 8,000,000

Carrying amount of interest acquired (6,000,000)

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Excess of cost over carrying amount 2,000,000

The excess of cost over the carrying amount of the underlying equity acquired which is attributable to undervaluation of a depreciable asset should be amortized over the
remaining useful life of the depreciable asset.

Such amortization is recorded by debiting investment income and crediting investment in associate.

Correct answer: 160,000

Score: 1 out of 1 Yes

Question 8
On December 31, 200A, Braggart Company purchased a call option to buy 500,000 units of the raw material on July 1, 200B at a price of P150 per unit. The entity paid
P100,000 for the call option entered into for speculation. The market price of the raw material on July 1, 200A is P148 per unit.

What amount should be recognized as loss on call option in 200B?

Response: 100,000

Feedback: Amount paid for call option 100,000

Correct answer: 100,000

Score: 1 out of 1 Yes

Question 9
Imus Company received a two-year variable interest rate loan of P5,000,000 on January 1, 200A.

The interest on the loan is payable on December 31 of each year and the principal is to be repaid on December 31, 200B.

On January 1, 200A, Imus Company entered into a "receive variable, pay fixed" interest rate swap agreement with a speculator bank designated as a cash flow hedge.

The interest rate for 200A is the prevailing interest rate of 10% and the rate in 200B is equal to the prevailing rate on January 1, 200B.

The market rate of interest on January 1, 200B is 7% and the present value of 1 at 7% for one period is .935.

What amount should be reported as interest rate swap payable on December 31, 200A?

Response: 500,000

Feedback:

Interest expense for 200B (10% x 5,000,000) 500,000

The interest expense each year is locked in at the underlying fixed rate of 10%.

Journal entries

200A
Jan 01 Cash 5,000,000
Loan payable 5,000,000

Dec 31 Interest expense 500,000

Cash 500,000

Unrealized loss - OCI 140,250

Interest rate swap payable 140,250

200B
Dec 31 Interest rate swap payable 140,250
Unrealized loss - OCI 9,750
Cash 150,000

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Interest expense (7% x 5,000,000) 350,000 350,000
Cash 350,000

Interest expense 150,000

Unrealized loss - OCI 150,000

Loan payable 5,000,000

Cash 5,000,000

Correct answer: 500,000

Score: 1 out of 1 Yes

Question 10
On April 1,200A, Ben Company purchased 40% of the outstanding ordinary shares of Clarke Company for P10,000,000. On that date. Clarke's net assets were P20,000,000
and Ben cannot attribute the excess of the cost of its investment in Clarke over its equity in Clarke's net assets to any particular factor. The investee's net income for 200A is
P5,000,000.

What amount should be reported as investment income for 200A?

Response: 1,500,000

Feedback:

Share in net income from April 1 to December 31, 200A

(5,000,000x 9/12 x 40%) 1,500,000

Acquisition cost 10,000,000

Carrying amount of net assets (40% x 20,000,000) (8,000,000)
Goodwill- not amortized 2,000,000

Correct answer: 1,500,000

Score: 1 out of 1 Yes

Question 11
Seaside Company operates a five-star hotel. The entity makes very detailed long-term planning. On October 1, 200A, the entity determined that it would need to purchase
8,000 kilos of Australian lobster on January 1, 200C. Because of the fluctuation in the price of Australian lobster, on October 1, 200A the entity negotiated a special forward
contract with a bank for the entity to purchase 8,000 kilos of Australian lobster on January 1, 200C at a price of P9,600,000. The price of Australian lobster was P1,200 per
kilo on October 1, 200A.

This forward contract was designated as a cash flow hedge. On December 31, 200A, the price of a kilo of Australian lobster is P1,500. On December 31, 200B and January
1, 200C, the price of a kilo of Australian lobster is P1,000. The appropriate discount rate throughout this period is 10%. The present value of 1 at 10% for 1 period is 0.909.

What is the notional value of Seaside’s forward contract?

Response: 9,600,000

Feedback:

Agreed purchase price P 9,600,000

Notional amount of the contract P 9,600,000

Correct answer: 9,600,000

Score: 1 out of 1 Yes

Question 12
Cebu Company made an investment of P5,000,000 at 10% per annum compounded annually for 6 years. Round off future value factor to two decimal places.

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What is the amount of the investment on the date of maturity?

Response: 8,850,000

Feedback:

Principal amount 5,000,000

Multiply by future value of 1 for 6 periods at 10% x 1.770
Future value at maturity 8,850,000

Correct answer: 8,850,000

Score: 1 out of 1 Yes

Question 13
On January 1, 200A, Baratheon Company purchased 40% of Snow Company ordinary shares outstanding for P12,000,000. Snow's net assets aggregates toP25,000,000.
The carrying amounts and fair values of identifiable assets are equal except for the following:

Carrying Amt Fair value

Inventory (all sold in 200A) P 3,500,000 P 4,200,000
Equipment (with remaining life
of 60 months on Jan 1, 200A) 5,000,000 7,000,000
Land 8,000,000 12,000,000
Total P 16,500,000 P 23,200,000

Snow also has preference shareholders with an aggregate par values of P10,000,000. The preference shares are cumulative at 10%. Snow reported net income of
P9,300,000 during 200A.

What is the Baratheon's net investment income for 200A?

Response: 3,320,000

Feedback:

Correct answer: 3,560,000

Score: 0 out of 1 No

Question 14
At the beginning of current year, Kean Company purchased 30% interest in Pod Company for P2,500,000.

On this date Pod's shareholders' equity was P5,000,000. The carrying amounts of Pod's identifiable net assets approximated their fair values, except for land whose fair value
exceeded the carrying amount by P2,000,000.

The investee reported net income of P1,000,000 and paid no dividends during the current year.

What amount should be reported as investment in associate at year-end?

Response: 2,800,000

Feedback:

Acquisition cost 2,500,000

Carrying amount of net assets acquired
(30% x 5,000,000) (1,500,000)
Excess of cost over carrying amount 1,000,000
Amount attributable to undervaluation of land
(30% x 2,000,000) (600,000)
Goodwill- not amortized 400,000

Acquisition cost, January 1 2,500,000

Share in net income (30% x 1,000,000) 300,000

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Carrying amount of investment in associate 2,800,000

The excess of cost attributable to the land is not amortized because the land is nondepreciable.

The excess of cost attributable to land is expensed when the land is ultimately sold.

Correct answer: 2,800,000

Score: 1 out of 1 Yes

Question 15
Mactan Company made investment for 5 years at 12% per annum compounded semi-annually to equal P7,160,000 on the date of maturity. The future value of 1 at 12% for
5 periods is 1.762, and the future value of 1 at 6% for 10 periods is 1.791.

What amount must be deposited now at the compound interest to provide the desired sum?

Response: 3,997,767

Feedback:

Fund to be accumulated P 7,160,000

Divide: FV of 1 at 6% for 10 periods 1.791
Amount of investment P 3,997,767

Correct answer: 3,997,767

Score: 1 out of 1 Yes

Question 16
Imus Company received a two-year variable interest rate loan of P5,000,000 on January 1, 200A.

The interest on the loan is payable on December 31 of each year and the principal is to be repaid on December 31, 200B.

On January 1, 200A, Imus Company entered into a "receive variable, pay fixed" interest rate swap agreement with a speculator bank designated as a cash flow hedge.

The interest rate for 200A is the prevailing interest rate of 10% and the rate in 200B is equal to the prevailing rate on January 1, 200B.

The market rate of interest on January 1, 200B is 7% and the present value of 1 at 7% for one period is .935.

What amount should be reported as interest rate swap payable on December 31, 200A?

Response: 140,250

Feedback: Since the interest rate on January 1, 200B is 7% which is 3% lower than the fixed rate of 10%, it means that Imus Company shall pay the bank P150,000 on
December 31, 200B or P5,000,000 time 3%.

The interest rate swap payable is recognized as a derivative liability on December 31, 200A at present value.

The present value is equal to P150,000 multiplied by .935 or P140,250

Correct answer: 140,250

Score: 1 out of 1 Yes

Question 17
On January 1, 200A, Genial Company borrowed P5,000,000 from a bank at a variable rate of interest for 4 years. Interest will be paid annually to the bank on December 31
and the principal is due on December 31, 200D.

Under the agreement, the market rate of interest every January 1 resets the variable rate for that period and the amount of interest to be paid on December 31. In conjunction
with the loan, the entity entered into a "receive variable, pay fixed" interest swap agreement with another bank speculator as a cash flow hedge.

The market rates of interest are 6% on January 1, 200A, 10% on January 1, 200B and 5% on January 1, 200C.

The present value of an ordinary annuity of 1 at 10% for 3 periods is 2.487 and the present value of an ordinary annuity of 1 at 5% for 2 periods is 1.859.

What is Genial's settlement on the interest rate swap for December 31, 200B?

Response: Pay 200,000 to the bank speculator

Feedback:

Correct answer: Receive 200,000 from the bank speculator

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Score: 0 out of 1 No

Question 18
At the beginning of current year, Well Company purchased 10% of Rea Company's outstanding ordinary shares for P4,000,000.

Well Company is the largest single shareholder in Rea and Well's officers are a majority of Rea's board of directors.

The investee reported net income of P5,000,000 for the current year and paid cash dividend of P1,500,000.

What amount should be reported as investment in Rea Company at year-end?

Response: 4,350,000

Feedback: PAS 28, paragraph 5, provides that if the investor holds, directly or indirectly through subsidiaries, less than 20% of the voting power of the investee, it is
presumed that the investor does not have significant influence, unless such influence can be clearly demonstrated.

Well's position as Rea's largest single shareholder and the presence of Well's officers as a majority of Rea's board of directors demonstrate that Well does have significant
influence despite the 10% ownership.

Accordingly, the equity method is used.

Acquisition, January 1 4,000,000

Share in net income (10% x 5,000,000) 500,000
Total 4,500,000
Share in cash dividend (10% x 1,500,000) (150,000)
Carrying amount of investment, December 31 4,350,000

Correct answer: 4,350,000

Score: 1 out of 1 Yes

Question 19
At the beginning of current year, Farley Company acquired 20% of the outstanding ordinary shares of Davis Company for P8,000,000.

This investment gave Farley the ability to exercise significant influence over Davis. The carrying amount of the acquired shares was P6,000,000.

The excess of cost over carrying amount was attributed to a depreciable asset which was undervalued on Davis' statement of financial position and which had a remaining
useful life of ten years.

The investee reported net income of P1,800,000 and paid cash dividends of P400,000 and thereafter issued 5% share dividend during the current year.

What is the carrying amount of the investment in associate at year-end?

Response: 8,080,000

Feedback: PAS 28, paragraph 5, provides that if an investor holds, directly or indirectly through subsidiaries, 20% or more of the voting power of the investee, it is
presumed that the investor does have significant influence unless it can be clearly demonstrated that this is not the case.

The equity method of accounting is used if the investment is 20% or more of the voting power ofthe investee.

Under the equity method, the investment account is increased by the investor's share of the investee's earnings and decreased by the investor's share of the investee's losses.

Dividend received from the investee reduces the carrying amount of the investment.

Original cost 8,000,000

Investment income 160,000
Share in cash dividend (20% x 400,000) (80,000)
Carrying amount of investment in associate 8,080,000

Share in net income (20% x 1,800,000) 360,000

Amortization of excess of cost (2,000,000/10) (200,000)
Investment income for current year 160,000

Acquisition cost 8,000,000

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Carrying amount of interest acquired (6,000,000)
Excess of cost over carrying amount 2,000,000

The excess of cost over the carrying amount of the underlying equity acquired which is attributable to undervaluation of a depreciable asset should be amortized over the
remaining useful life of the depreciable asset.

Such amortization is recorded by debiting investment income and crediting investment in associate.

Correct answer: 8,080,000

Score: 1 out of 1 Yes

Question 20
On January 1, 200A, Dyer Company acquired as long-term investment a 20% ordinary share interest in Eason Company. Dyer paid P7,000,000 for this investment when the
fair value of Eason’s net assets was P35,000,000. For the year ended December 31, 200A, the investee reported net income of P4,000,000 and declared and paid cash
dividends of P1,600,000.

What amount of revenue from the investment should be reported for 200A?

Response: 800,000

Feedback: Share in net income (20% x 4,000,000) 800,000

Under the equity method, the investor recognizes as income its share of the investee’s earnings.

Cash dividends are not recorded as income but a reduction of the investment account.

Correct answer: 800,000

Score: 1 out of 1 Yes

Question 21
On January 1, 200A, Rodson Company purchased 100,000 of the 1,000,000 ordinary shares outstanding of Yjasmin Company for P25.00 per share. It was properly
classified at fair value through other comprehansive income. On January 1, 200B, Rodson acquired an additional 300,000 of Yjasmins's ordinary shares at P40.00 per
share. On January 1, 200B, Yjasmin's net assets have a carrying amount of P36,000,000. Any excess of fair value over carrying amount is attributable to an undervaluation
of equipment with a remaining useful life of 4 years. Yjasmin reported net income of P8,660,000 during 200B. During 200B, Yjasmin sold to Rodson inventory at a sales
price of P1,500,000 costing P900,000. About P400,000 remain in Rodson's inventory at the end of 200B.

Ignoring the effect of income tax, what is Rodson's net investment income for 200B?

Response: 3,400,000

Feedback:

Correct answer: 3,000,000

Score: 0 out of 1 No

Question 22
On January 1, 200A, Marital Company purchased a P5,000,000 ordinary life insurance policy on its president. The policy year and accounting year coincide. Additional
data for the year ended December 31, 200E are as follows:

Cash surrender value, January 1 P 245,000

Cash surrender value, December 31 270,000
Cash surrender value, April 1 290,000
Annual advance premium paid - January 1 100,000
Dividend received - July 1 15,000

The entity is the beneficiary under the life insurance policy. The insured died on April 1, 200F. The settlement amount was received by Marital on May 31, 200F.

What is the gain on life insurance settlement on 200F?

Response: 4,635,000

Feedback:

Settlement amount P 5,000,000

Cash surrender value (290,000)

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Unexpired premium (P100,000x9/12) (75,000)
Gain on settlement P 4,635,000

Correct answer: 4,635,000

Score: 1 out of 1 Yes

Question 23
On January 1, 200A, Marital Company purchased a P5,000,000 ordinary life insurance policy on its president. The policy year and accounting year coincide. Additional
data for the year ended December 31, 200E are as follows:

Cash surrender value, January 1 P 245,000

Cash surrender value, December 31 270,000
Cash surrender value, April 1 290,000
Annual advance premium paid - January 1 100,000
Dividend received - July 1 15,000

The entity is the beneficiary under the life insurance policy. The insured died on April 1, 200F. The settlement amount was received by Marital on May 31, 200F.

What is the life insurance expense for 200E?

Response: 75,000

Feedback:

Correct answer: 60,000

Score: 0 out of 1 No

Question 24
On April 1, 200A, Stark Company purchased 30% of Lannister Company for P10,500,000. Lannister's net assets aggregated P25,000,000. The carrying amount and fair
values of following identifiable assets were determined:

Carrying Amt Fair value

Inventory (all sold in 200A) 2,000,000 3,000,000
Equipment (with remaining life
of 60 months on Apr 1, 200A) 4,000,000 6,000,000
Land 10,000,000 15,000,000
Total 16,000,000 24,000,000

Lannister's income is equally distributed during every year. Net income within a two year period are as follows:
200A 10,000,000
200B 12,500,000

Stark Company will record goodwill amounting to

Response: 3,000,000

Feedback:

Correct answer: 600,000

Score: 0 out of 1 No

Question 25
At the beginning of current year, Duripan Company invested P1,000,000 in 5-year certificate of deposit at 8% interest.

The market interest rate at maturity is 10%. The entity does not elect the fair value option in reporting financial asset.

Future amount of 1 at 5% for 5 periods 1.469

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Future amount of 1 at 10% for 5 periods 1.611
Future amount of an ordinary annuity of 1 at 8% for 5 periods 5.867
Future amount of an ordinary annuity of 1 at 10% for 5 periods 6.105

What is the maturity value of the certificate of deposit?

Response: 1,469,000

Feedback:

Investment in certificate of deposit 1,000,000

Multiply by future amount of 1 at 8% for 5 periods x 1.469
Maturity value 1,469,000

Correct answer: 1,469,000

Score: 1 out of 1 Yes

Question 26
On December 30, 200A, Aloha Company purchased 10,000 shares of common stock of Sun Valley Corporation at P150 per share. At the time of the purchase, Sun Valley
has an outstanding 50,000 shares with a total stockholder’s equity of P7,500,000. For the year 200B, Sun Valley reported a net income of P3,000,000. On December 30,
Aloha received a cash dividend of P50 per share. Aloha uses the equity method.

What is the investment carrying value at December 31, 200B?

Response: 1,600,000

Feedback:

Acquisition cost of investment (10,000 x 150) 1,500,000

Share in associate’s income for 200B (3,000,000 x 10/50) 600,000
Dividend received (10,000 x 50) (500,000)
Carrying amount of investment in associate 1,600,000

Correct answer: 1,600,000

Score: 1 out of 1 Yes

Question 27
On April 1, 200A, Stark Company purchased 30% of Lannister Company for P10,500,000. Lannister's net assets aggregated P25,000,000. The carrying amount and fair
values of following identifiable assets were determined:

Carrying Amt Fair value

Inventory (all sold in 200A) 2,000,000 3,000,000
Equipment (with remaining life
of 60 months on Apr 1, 200A) 4,000,000 6,000,000
Land 10,000,000 15,000,000
Total 16,000,000 24,000,000

Lannister's income is equally distributed during every year. Net income within a two year period are as follows:
200A 10,000,000
200B 12,500,000

Stark Company’s net investment income for 200A is

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Response: 2,580,000

Feedback:

Correct answer: 1,860,000

Score: 0 out of 1 No

Question 28
Moss Company owned 20% of Dubro Company's preference share capital and 50% of the ordinary share capital. The investee reported net income P600,000 for the current
year.

10% cumulative preference share capital 1,000,000

Ordinary share capital 7,000,000

What is the investment income for the current year?

Response: 250,000

Feedback: When an investee has outstanding cumulative preference share capital, an investor should compute its share of earnings after deducting the investee's preference
dividends, whether or not such dividends are declared.

Net income 600,000

Preference dividend (10% x 1,000,000) (100,000)
Net income to ordinary shares 500,000

Share in net income - ordinary shares (50% x 500,000) 250,000

Correct answer: 250,000

Score: 1 out of 1 Yes

Question 29
On January 1, 200A, Subtle Company purchased 20% of Lax Company for P3,000,000. This investment gives Subtle Company the ability to exercise signifiacnt influence
over Lax Company. During the current year, Lax Company reported net income of P3,500,000 and paid cash dividends of P2,500,000.

What is the amount of investment income recognized by Subtle for 200A?

Response: 700,000

Feedback:

Net income of Lax for 200A P 3,500,000

Multiply: Sharing rate of Subtle 20%
Investment income of Subtle P 700,000

Correct answer: 700,000

Score: 1 out of 1 Yes

Question 30
Joker Company regularly hedges its purchase requirements and the sale of its finished products in the futures market. The derivative contracts are designated as cash flow
hedge. On December 31, 200A, the entity entered into the following three contracts:

Type of contract Quantity Futures price

Purchase refined sugar 20,000 P 60
Purchase milk 50,000 100
Sell ice cream 30,000 220

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10/1/2020 Submissions - Integrated Review 1 - SBCA-JBN

All three contracts are to be settled on January 1, 200B. The market prices per unit on December 31, 200A are P75 for refined sugar, P91 for milk, and P195 for ice cream.

What is the derivative asset or liability arising from the contracts on December 31, 200A?

Response: 600,000 Asset

Feedback:

Asset from refined sugar purchases

Market price P 75
Futures price (60)
Gain 15
Multiply: Quantity 20,000 P 300,000
Liability from milk purchases
Market price 91
Futures price (100)
Loss (9)
Multiply: Quantity 50,000 (450,000)
Asset from ice cream sales
Market price 220
Futures price (195)
Gain 25
Multiply: Quantity 30,000 750,000
Net Asset from futures contracts P 600,000

Correct answer: 600,000 Asset

Score: 1 out of 1 Yes

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