Solutions (Quiz1 &2)
Solutions (Quiz1 &2)
Grant Company acquired 30% of South Company’s voting share capital for P2,000,000 on
January 1, 2020.Grant’s 30% interest in South gave Grant the ability to exercise significant
influence over South’s operating and financial policies. During 2020, South earned
P1,500,000 and paid dividends of P500,000.South reported earnings of P1,000,000 for the
six months ended June 30,2021, and P2,500,000 for the year ended December 31, 2021
but paid dividend of P1,000,000 on October 1, 2021.On July 1,2021, Grant sold half of the
investment in South for P2,000,000 cash. On such date, the investment is measured at fair
value through profit or loss. The fair value of the retained investments is P2,200,000 on July
1, 2021 and P2,400,000 on December 31, 2021. What total amount of income should be
reported for 2021?
2. On January 1, 2020, Ronaldo Company purchased 40% of the outstanding ordinary shares
of New Company equaled P12,500,000. The difference was attributed to equipment which
had a carrying amount of P3,000,000 and a fair market value of P5,000,000 and to building
which had a carrying amount of P2,500,000 and a fair value of P4,000,000. The remaining
useful life of the equipment and building was 4 years and 12 years, respectively. During
2020, New Company reported net income of P5,000,000 and paid dividends of P2,500,000.
What is the excess of cost over the carrying amount of net assets acquired?
3. On July 1, 2020, Focus Company purchased 30,000 shares of Eagle’s Company’s 100,000
outstanding ordinary shares for P200 per share. On December 15, 2020, Eagle Company
paid P1,000,000 in dividends. Eagle Company’s net income for 2020 was P5,000,000
earned evenly throughout the year. What amount of income from the investment should be
reported for the current year?
4. On January 1, 2020, Gelyka Company purchased 12% bonds with face amount of
P5,000,000 including transaction cost of P100,000. The bonds provide an effective yield of
10%. The bonds are dated January 1, 2020 and pay interest annually on December 31 of
each year. The bonds are quoted at 115 on December 31, 2020.The entity has irrevocably
elected to use the fair value option. What is the carrying amount of the bond investment on
December 31, 2020?
5. On January 1, 2020, Gelyka Company purchased 12% bonds with face amount of
P5,000,000 including transaction cost of P100,000. The bonds provide an effective yield of
10%. The bonds are dated January 1, 2020 and pay interest annually on December 31 of
each year. The bonds are quoted at 115 on December 31, 2020.The entity has irrevocably
elected to use the fair value option. What total amount of income from the investment should
be reported in the income statement for 2020?
6. E C ompany issued rights to subscribe to its stock, the Ownership of 4 shares entitling the
shareholders to subscribe for 1 share at P100. J Company owns 50,000 shares of E
Company with total cost of P5,000,000. The share is quoted right-on at 125. The stock rights
are accounted for separately and measured initially at fair value. What is the cost of the new
investment if all of the stock rights are exercised by J Company?
7. Grant Company acquired 30% of South Company’s voting share capital for P2,000,000 on
January 1, 2020.Grant’s 30% interest in South gave Grant the ability to exercise significant
influence over South’s operating and financial policies. During 2020, South earned
P1,500,000 and paid dividends of P500,000.South reported earnings of P1,000,000 for the
six months ended June 30,2021, and P2,500,000 for the year ended December 31, 2021
but paid dividend of P1,000,000 on October 1, 2021.On July 1,2021, Grant sold half of the
investment in South for P2,000,000 cash. On such date, the investment is measured at fair
value through profit or loss. The fair value of the retained investments is P2,200,000 on July
1, 2021 and P2,400,000 on December 31, 2021. What amount should be recognized as
investment income for 2020 as a result of the investment?
8. On January 1, 2020, Gelyka Company purchased 12% bonds with face amount of
P5,000,000 including transaction cost of P100,000. The bonds provide an effective yield of
10%. The bonds are dated January 1, 2020 and pay interest annually on December 31 of
each year. The bonds are quoted at 115 on December 31, 2020.The entity has irrevocably
elected to use the fair value option. What amount of interest income should be reported for
2020?
10. On December 31, 2011, a fire at Brock Company's warehouse caused serve damage to its
entire inventory. Brock Company has a gross profit of 30% on cost. The following data are
available for nine months September 30, 2011: Inventory at January 1 1,100,000; Net
purchases 6,000,000; Net sales: 7,280,000. A physical inventory disclosed usable damaged
goods which can be sold for P 100,000. What is the estimated amount of fire loss?
11. Grant Company acquired 30% of South Company’s voting share capital for P2,000,000 on
January 1, 2020.Grant’s 30% interest in South gave Grant the ability to exercise significant
influence over South’s operating and financial policies. During 2020, South earned
P1,500,000 and paid dividends of P500,000.South reported earnings of P1,000,000 for the
six months ended June 30,2021, and P2,500,000 for the year ended December 31, 2021
but paid dividend of P1,000,000 on October 1, 2021.On July 1,2021, Grant sold half of the
investment in South for P2,000,000 cash. On such date, the investment is measured at fair
value through profit or loss. The fair value of the retained investments is P2,200,000 on July
1, 2021 and P2,400,000 on December 31, 2021. What is the carrying amount of the
investment on December 31, 2020?
13. On January 1, 2020, Ronaldo Company purchased 40% of the outstanding ordinary shares
of New Company equaled P12,500,000. The difference was attributed to equipment which
had a carrying amount of P3,000,000 and a fair market value of P5,000,000 and to building
which had a carrying amount of P2,500,000 and a fair value of P4,000,000. The remaining
useful life of the equipment and building was 4 years and 12 years, respectively. During
2020, New Company reported net income of P5,000,000 and paid dividends of P2,500,000.
What amount should be reported as investment income for 2020?
14. On December 31, 2011, a fire at Brock Company's warehouse caused serve damage to its
entire inventory. Brock Company has a gross profit of 30% on cost. The following data are
available for nine months September 30, 2011: Inventory at January 1 1,100,000; Net
purchases 6,000,000; Net sales: 7,280,000. A physical inventory disclosed usable damaged
goods which can be sold for P 100,000. What is the estimated cost of goods sold for the
nine months ended September 30, 2011?
16. E Company issued rights to subscribe to its stock, the Ownership of 4 shares entitling the
shareholders to subscribe for 1 share at P100. J Company owns 50,000 shares of E
Company with total cost of P5,000,000. The share is quoted right-on at 125. The stock rights
are accounted for separately and measured initially at fair value. What is the cost of the new
investment if all of the stock rights are exercised by J Company?
17. Grant Company acquired 30% of South Company’s voting share capital for P2,000,000 on
January 1, 2020.Grant’s 30% interest in South gave Grant the ability to exercise significant
influence over South’s operating and financial policies. During 2020, South earned
P1,500,000 and paid dividends of P500,000.South reported earnings of P1,000,000 for the
six months ended June 30,2021, and P2,500,000 for the year ended December 31, 2021
but paid dividend of P1,000,000 on October 1, 2021.On July 1,2021, Grant sold half of the
investment in South for P2,000,000 cash. On such date, the investment is measured at fair
value through profit or loss. The fair value of the retained investments is P2,200,000 on July
1, 2021 and P2,400,000 on December 31, 2021. What amount should be recognized as
investment income for 2020 as a result of the investment?
18. On January 1, 2020, Ronaldo Company purchased 40% of the outstanding ordinary shares
of New Company equaled P12,500,000. The difference was attributed to equipment which
had a carrying amount of P3,000,000 and a fair market value of P5,000,000 and to building
which had a carrying amount of P2,500,000 and a fair value of P4,000,000. The remaining
useful life of the equipment and building was 4 years and 12 years, respectively. During
2020, New Company reported net income of P5,000,000 and paid dividends of P2,500,000.
What amount should be reported as investment income for 2020?
SOLUTION AND ANSWER:
19. Presumptuous Company revealed the following pertaining dividends from non-trading
investments in ordinary shares during the year ended December 31, 2020: The entity owned
a 10% interest in Beal Company, which declared a cash dividend of P500,000 on November
30,2020 to shareholders of record on December 31,2020 and payable on January 15,2021;
On October 15,2020, 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?
20. On April 1, Aurora Company purchased 40% of the outstanding ordinary shares of an
associate for P 4,000,000.On this date, the investee’s net assets totaled P8,000,000 and
Aurora Company cannot attribute the excess of cost of the investment over the equity in the
investee’s net assets to any particular factor. The investee reported net income of
P1,000,000 for the current year. What is the maximum amount which could be included in
Aurora Company’s income before tax to reflect its “equity in earnings of the investee” for the
current year?
21. At the beginning of the current year, Magic Company purchased 40% of the outstanding
ordinary shares of an inverse paying P2,560,000 when the carrying amount of the net
assets of the investee equaled P5,000,000.The difference was attributed to equipment
which had a carrying amount of P1,200,000 and a fair market value of P2,000,000, and to
building with a carrying amount of P1,000,000 and a fair market value of P1,600,000.The
remaining useful life of the equipment and building was 4years and 12years, respectively.
During the current year, the investee reported net income of P1,600,000 and paid dividends
of P1,000,000.What is the carrying amount of the investment in associate at year-end.
22. Temporal Company owned 50, 000ordinary shares held for trading. These 50, 000 shares
were purchased for P120 per share. During the year, the investee distributed 50, 000 share
rights to the investor. The investor was entitled to buy one new share for P90 cash and two
of these rights. Each share had a market value of P130 and each right had a market value
of P20 on the date of issue. What total cost should be recorded for the new shares that are
acquired by exercising the rights?
23. On July 1, 2020, Scheme Company purchased ten-year, 8% bonds with a face amount of
P5,000,000 for P4,200,000 to be held as financial assets at amortized cost. The bonds
mature on June 30, 2028 and pay interest semiannually on June 30 and December 31.
Using the interest method, the entity recorded discount amortization of P18,000 for the six
months ended December 31,2020. What amount should be reported as interest income for
2020?
24. On January 1, 2020, Paradox Company purchased 9% bonds with a face amount of
P4,000,000 for P3,756,000 to yield 10%.The bonds are dated January 1, 2020, mature on
December 31, 2029, and pay interest annually on December 31. The bonds are measured
at amortized cost. What amount should be reported as interest revenue for 2020?
25. Oblivion Company purchased bonds at a discount of P 100,000. Subsequently, the entity
sold these bonds at a premium of P 140,000. During the period that the entity held this
investment, amortization of the discount amounted to P 20,000.What amount should be
reported as gain on sale of bonds?