CHAPTER 6 – INVESTMENTS IN FINANCIAL INSTRUMENTS
1. B 6. A
2. A 7. B
Multiple Choice – Theories 3. B 4. D 8. C 9. B
5. C 10. D
Problem 1 A Corporation B Corporation Shares Amount Shares Amount Jan 3 1,000 54,000 8 1,000 60,000 Apr 5 (500) (27,000) 8 July 15 Dec 8 Bal. before adj to FV 500 27,000 1,000 60,000 Adj 500 (6,000) Per audit 500 27,500 1,000 54,000 (a) Audit Adjusting Entries: Financial Assets at FV through P&L Dividend Income Financial Assets at FV through P&L Gain on Sale of FVPL Treasury Shares Financial Assets at FV through P&L Financial Assets at FV through P&L Treasury Shares Paid in Capital from Treasury Shares Dividend Income Financial Assets at FV through P&L Financial Assets at FV through P&L Dividend Income Dividend Receivable Dividend Income
C Corporation D Corporation E Corporation Shares Amount Shares Amount Shares Amount 1,000 30,000 1,000 36,000 500 20,000 50 1.000 30,000 1,000 36,000 550 20,000 2,000 3,000 900 1,000 32,000 1,000 39,000 550 20,900
1,000
1,000
1,000
1,000
33,000
33,000
20,000
16,500 3,500
2,000
2,000
1,200
1,200
5,000
5,000
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS Financial Assets at FV through P&L 400 Unrealized Gain on FVPL 400 (b) (1) Carrying amount of FVPL (see worksheet above) P173,400 (2) Gain on sale of FVPL = 28,000 – 27,000 = P 1,000 (3) Dividend Income = 1,000 + 1,200 + 5,000 = P 7,200 (4) Unrealized gain or loss on FVPL P 400 Problem 2 1. Selling price on May 20 P21,000 Carrying value of shares sold 40,000 x 250/750 shares 13,333 Gain on Shares sold P7,667 2. Proceeds from sale P8,500 Dividends included (sold dividends on) = 100 x 10 (1,000) Selling price without dividends P7,500 Carrying value 26,667 x 100/500 5,333 Gain on December 10 sale P 2,167 3. Dividend Income for the year 2012: November dividends 500 shares x P 5 P2,500 Dividends on 100 shares sold (100 x P50 x 20%) 1,000 Dividends accrued on December 31 (400 x P50 x 20%) 4,000 Total dividend income P7,500 4. Adjusted balance of the investment account shares Peso balance Market value, January 1 500 P40,000 April 30 stock dividend 250 May 20 sale (250) (13,333) Dec 10 sale (100) (5,333) Balances before adjustment to market 400 21,334 Adjustment to market 12,466 Balance, December 31, at market 400 34,000 Adjusting Entries Dividend Income 20,500 Trading Securities 20,500 Trading Securities 7,667 Gain on Sale of Trading Securities 7,667 Trading Securities (8,500 – 5,333) 3,167 Gain on Sale of Trading Securities 2,167 Dividend Income 1,000 Dividends Receivable 4,000 Dividend Income 4,000
2
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS Trading Securities Unrealized Gain on Trading Securities Problem 3 Investment in Creamy Company Unrealized Gain /Loss on Equity Investments– Other Comprehensive Income 12,000 x 65 = 780,000 780,000 – 645,000 = 135,000 Dividend Income Retained Earnings Dividends accrued last year. Dividend Income Investment in Creamy Dividends included in the purchase price of March 5 acquisition, acquired dividends-‐on. Investment in Creamy Unrealized Gain /Loss on Equity Investments -‐ OCI Selling price P360,000 Previous carrying value = fair value on January 1 5,000 x 65 325,000 Unrealized gain – OCI P 35,000 *Unrealized Gain/Loss on Equity Investments – OCI Retained Earnings 3,000 (72 – 35) + 2,000 (72-‐60) =135,000 Investment in Coffee Dividend Income Property dividends should be recorded at market. (1,000 x 4) – 1,000 = 3,000 Investment in Creamy Unrealized Gain/Loss on Equity Investments -‐ OCI Selling price = FV 1,000 x 90 = 90,000 Previous CV = FV, Jan. 1 = 65,000 Unrealized Gain 25,000 Miscellaneous Receivables Investment in Creamy (1,000 x 90)
3
12466
12,466
135,000 24,000 6,000
135,000 24,000 6,000
35,000
35,000
135,000 3,000
135,000 3,000
25,000
25,000
90,000
90,000
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
*Unrealized Gain/Loss on Equity Investments -‐ OCI Retained Earnings 1,000 ( 90 – 60) = 30,000
30,000
30,000
Investments in Creamy Unrealized Gain/Loss on Equity Investments -‐ OCI FV, 12/31/12 = 9,000 x 90 = 810,000 Previous CV : Old = FV, Jan. 1 = 6,000 x 65 = 390,000 New= 3,000 x 70 = 210,000 600,000 Unrealized Gain – OCI 210,000 Unrealized Gain/Loss on Equity Investments -‐ OCI Investment in Coffee 1,000 (3.50 – 4) = 500
210,000
210,000
500
500
Note to the Teacher: At the date of sale, the investments at fair value through other comprehensive income are adjusted to fair value (presumed to be equal to the selling price on the date of sale). Thus, no gain or loss on sale is recognized in profit or loss. The entry transferring the cumulative unrealized gain or loss (equity account) to the retained earnings account is optional. Problem 4 Financial Assets at FV through Profit or Loss Red Corp Preference Red Corp. Ordinary Blue Ordinary Yellow Ordinary Shares Peso amt Shares Peso amt Shares Peso amt Shares Peso amt 1/1/10 1,000 45,000 6,000 65,000 2,000 55,000 1/17 (2,500) (27,083) 2/14 200 6/01 (500) (12,500) 10/01 (500) (22,500) 1,500 30,000 Before adj. 500 22,500 1,500 30,000 3,500 37,917 1,700 42,500 Adj to market 5,500 583 (5,100) MV 12/31 500 28,000 1,500 30,000 3,500 38,500 1,700 37,400 Non-‐Current Investments Investment in Associate – Green Company Acquisition cost P1,600,000 Dividends received 100,000 x P0.50 x 4 (200,000) Income from associate 25% x P1,200,000 300,000 Investment in Associate , 12/31/2012 P1,700,000 Gains and losses On sale of Blue on January 17 Selling price P32,500 Carrying value (P65,000 x 2,500/6,000 27,083 Gain on sale P 5,417
4
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS On sale of Yellow Selling price 500 x P21 P10,500 Carrying value (P55,000 x 500/2200) 12,500 Loss on sale P 2,000 On conversion of Red Preference to Red Ordinary Market value 500 x P60 P30,000 Carrying value P45,000 x 500/1000 22,500 Gain on exchange P 7,500 Dividend Income On Red preference April 6 1,000 x 1.20 P1,200 Oct, 6 1,000 x 1.20 1,200 On Blue ordinary June 30 3,500 x P1 3,500 P5,900 Unrealized gains on FVPL (see above working papaer) P5,500 + 583 – 5,100 = P 983 Income from Associate (Green Company) 25% x P1,200,000 P 300,000 Problem 5 PV at March 1, 2011 = (P400,000 x .74726) + (18,000 x 4.21236) = 298,904 + 75,822 = 374,726 May 1, 2011 purchase price: Fair value at March 1, 2011 = P374,726 Discount amortization March 1 to May 1 6% x 374,726 = P22,484 4.5% x 400,000 = 18,000 Amortization for 6 months P 4,484 No. of months-‐ Mar. 1 to May 1 2/6 1,495 Purchase price P376,221 Accrued interest 400,000 x 9% x 2/12 6,000 Total cash paid P382,221 May 1 FVPL -‐ XYZ Bonds 376,221 Interest Income 6,000 Cash 382,221 Sept 1 Cash 18,000 Interest Income 18,000 Dec 31 Interest Receivable 12,000 Interest Income 12,000
5
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS Dec.
31
2012 Mar. May
1 1
July
1
Sept. Dec. 2013 Mar. Sept.
1 31 31 1 1 1
FVPL – XYZ Bonds Unrealized Gains on FVPL Market value P428,000 Ledger balance 376,221 Unrealized gain P 51,779 Cash Interest Receivable Interest Income Cash Loss on Sale of FVPL ( 4% x 120,000) FVPL – XYZ Bonds (107% x 120,000) Interest Income Selling price 120,000 x 103% Accrued interest 120,000 x 9% x 2/12 Total cash received Cash FVPL – XYZ Ordinary Shares (2,200 x 80) FVPL – XYZ Bonds (150,000 x 107%) Gain on Exchange of FVPL Interest Income (150,000 x 9% x 4/12) Cash (150,000 x 9% x 6/12) Interest Income Interest Receivable (150,000 x 9% x 4/12) Interest Income Unrealized Loss on FVPL FVPL – XYZ Bonds ( 2% x 150,000) Cash Interest Receivable Interest Income Cash Interest Income Cash Loss on Sale of FVPL FVPL – XYZ Bonds (105% x 150,000)
6
51,779
51,779
18,000 125,400 4,800 P123,600 1,800 P125,400 4,500 176,000
12,000 6,000 128,400 1,800
6,750 4,500 3,000
6,750 4,500 3,000 4,500 2,250 6,750 157,500
6,750 6,750 150,000 7,500
160,500 15,500 4,500
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS Problem 6 Date 6/1/11 12/1/11 6/1/12 12/1/12 6/1/13 12/1/13 06/1/14
Nominal Interest(4%) 16,000 16,000 16,000 16,000 16,000 16,000
Amortization Table Effective Interest (5%) 18,458 18,580 18,709 18,845 18,987 19,136
1. Interest Income, 2011 18,458 + (18,580 x 1/6) 2. Interest Income, 2012 (18,580 x 5/6) + 18,709 + (18,845 x 1/6) 3. Interest Income, 2013 (18,845 x 5/6) + 18,987 + (19,136 x 1/6) 4. Carrying Value, 12/31/12 CV, 12/1/12 Amortization 12/1 to 12/31 (2845 x 1/6) CV, 12/31/12 Problem 7 Entries that should have been made: Jan. 21 Investment in Pearl Interest Income Cash Mar. 1 Cash Investment in Pearl (204,000 x 100/200) Interest Income (100,000 x 9% x 3/12) Gain (Loss) on Sale of Trading Securities June 1 Cash Interest Income Nov. 1 Cash Gain (Loss) on Sale of Trading Securities Investment in Pearl (204,000 x 40/200) Interest Income (40,000 x 9% x 5/12)
7
Amortization
Carrying Value, end
2,458 2,580 2,709 2,845 2,987 3,136
P369,150 371,608 374,188 376,897 379,742 382,729 385,865
P21,555 P37,333 P37,880 P376,897 474 P377,371
204,000 2,550 106,000 4,500 41,900 400
206,550 102,000 2,250 1,750 4,500 40,800 1,500
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS Dec. 1 Cash Interest Income 60,000 x 9% x 6/12 31 Interest Receivable Interest Income 60,000 x 9% x 1/12 31 Investment in Pearl Unrealized Gains on Trading Securities (60,000 x 1.03) – (204,000 x 60/200) Audit Adjustments Interest Income Investment in Pearl Investment in Pearl Interest Income Gain on Sale of TS Investment in Pearl Interest Income Investment in Pearl Loss on Sale of TS Interest Income Investment in Pearl Interest Income Dividend Receivable Interest Income Investment in Pearl Unrealized Gains on TS SUPPLY THE REQUIRED INFORMATION 1. P12 per share 2. 2,500 3. 3,500 gain 4. 6,500 5. 350 6. 15,800 7. 55,200 8. 1,600 9. 376,400
2,700 450 600 2,550 4,000 4,500 1,100 400 2,700 450 600
8
2,700 450 600 2,550 2,250 1,750 4,500 1,500 2,700 450 600
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 1. 2. 3.
3,776,400 0 48,279 2,167,000 365,218 360,000 160,000 35,000 loss 1,970,000 50,000 gain 0 30,000 0 0 15,000 116,000 0 1,816,000 3,333 1,000 gain 18,300 gain 200 gain 10,600 77,100 55,000 4,125 111,000 2,293,500 316,500 31,500 4,125 136,300 0 52,900 7,500 758,600 3,133
Final Answers P36,000 or P12 per share P2,500 gain
Computations
Net selling price: (1,000 x 8) -‐ 500 = P7,500 Cost of shares sold P 30,000 x 1,000/6,000 5,000 Gain on sale P 2,500
P3,500 gain
Selling price 1,000 x 8.50 Cost of shares sold
9
P8,500
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS 4. 5. 6.
P6,500
Property dividends 5,000/5 x P2.50 P2,500 Cash dividends 5,000 x 0.80 4,000 Total dividend income P6,500
P350
500 (3.20 – 2.50)
P 350
P55,200 P 1,600
P15,800 Unrealized Gain or Loss on AFS 01-‐01 Balance P6,000 03-‐17 1,000/6,000 x P6,000 (1,000) 11-‐30 1,000/6,000 x 6,000 (1,000) 12-‐31 Market value 6,000 x P 9.20 = P55,200 Cost 35,400 Cumulative Unrealized Gain 19,800 Balance before adjustment to FV 6,000 – 1,000 – 1,000 4,000 Unrealized gain this year in OCI 15,800 Cumulative balance in equity, Dec. 31 P19,800
7. P55,200 6,000 x 9.20 8. P1,600 500 X 3.20 DEXTER COMPANY AFS – Y Company Ordinary Date Shares Total Cost Gain(loss) 01-‐01-‐12 3,000 P30,000 01-‐12-‐12 3,000 03-‐17-‐12 (1,000) (5,000) P2,500 06-‐30-‐12 10-‐01-‐12 2,000 15,400* 10-‐20-‐12 11-‐30-‐12 (1,000) (5,000) 3,500 12-31-12 Balances 6,000 P35,400 P6,000 • 2,000 (8.50 -‐ .80 dividends on) = 15,400 FVPL – B Co. Ordinary Date Shares Total CV 06-‐30-‐12 1,000 P2,500 9-‐10-‐12 (500) (1,250) 12-‐31-‐12 UGL 500 x (3.20 – 2.50) 350 12-‐31-‐12 balances 500 shares P1,600 Unrealized Gain or Loss on AFS
10
Dividend Income 1,000 x P2.50 = P2,500 5,000 x 0.80= 4,000 P6,500
Gain(loss) 150
Dividend Income
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS 01-‐01-‐12 Balance P6,000 03-‐17 1,000/6,000 x P6,000 (1,000) 11-‐30 1,000/6,000 x 6,000 (1,000) 12-‐31 Market value 6,000 x P 9.20 = P55,200 Cost 35,400 Cumulative Unrealized Gain 19,800 Balance before adjustment to FV 6,000 – 1,000 – 1,000 4,000 Unrealized gain this year in OCI 15,800 Cumulative balance in equity, Dec. 31 P19,800 Items 9 through 14:
Kristine Company 10%Effective Discount Amortized Cost, Interest Date 9%Interest Paid Interest Amortization End Jan. 1, 2012 P3,760,000 June 30, 2012 P180,000 188,000 P8,000 3,768,000 Dec. 31, 2012 P180,000 188,400 8,400 3,776,400 June 30, 2013 P180,000 188,820 8,820 3,785,220 Dec. 31, 2013 P180,000 189,261 9,261 3,794,481 June 30, 2014 P180,000 189,724 9,724 3,804,205 Dec. 31, 2014 P180,000 190,210 10,210 3,814,415 Final Answers Computations 9. P376,400 P188,000 + 188,400 = P376,400 10. P3,776,400 11. P0 12. P48,279 Selling price on November 30 (1.8M x 98%) P1,764,000 Carrying amount June 30, 2014 3,804,205 x 1.8/4 = P1,711,892 Amortization June 30 – Nov 30 10,210 x 1.8/4 x 5/6 = 3,829 1,715,721 Gain on sale on November 30 P 48,279 13. P2,167,000 P2,200,000 x 98.5% = P2,167,000 14. P365,218 Interest income for 2014 January 1 to June 30 P190,210 July 1 to November 30 190,210 x 5/6 = 158,508 December 1 to 31 P2,200,000 x 9% x 1/12 16,500 Total interest income P 365,218 Items 15 through 19 15. P360,000 P4,000,000 x 9% = P360,000
11
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS 16. 17.
P160,000 (98% x P4,000,000) – 3,760,000 = P160,000 P35,000 loss Total proceeds P1,960,000 Accrued interest 2,000,000 x 9% x 5/12 = ( 75,000) Selling price P1,885,000 CV 96% x 2,000,000 1,920,000 Loss on sale of FVPL P 35,000 18. P1,970,000 2M x .985 = P1,970,000 19. P50,000 Fair value, 12/31/12 P1,970,000 Fair value, 12/31/11 2,000,000 x .96 1,920,000 Unrealized gain for 2012 P 50,000 Items 20 through 24 20. P0 There was no objective evidence of impairment. The decline is taken to OCI. 21. P30,000 Cumulative decline from date of acquisition = P10,000 + P20,000 = P30,000 (Impairment loss is taken to profit or loss) 22. P0 The recovery in fair value of AFS-‐ Equity is taken to other comprehensive income, not to profit or loss. 23. P0 At the date impairment loss is recognized, the unrealized gain or loss in equity is transferred to profit or loss. Hence, the equity account UGL is brought to zero. 24. P15,000 The recovery in fair value is taken to other comprehensive income through the account Unrealized Gain or Loss on AFS. Items 25 through 27 Power Cast Company Cost of investment P1,800,000 Underlying equity 20% x P6,000,000 1,200,000 Excess of cost P 600,000 Undervaluation in land 20% x 750,000 (150,000) Undervaluation in equipment 20% x 200,000 (40,000) Undervaluation in inventory 20% x 30,000 ( 6,000) Goodwill P 404,000_ 25. P116,000 Income from Associate Initial share (800,000 – 160,000) x 20% P128,000 Amortization Depreciation on Equipment 40,000/5 x 9/12 ( 6,000) Inventory ( 6,000) Income from Associate P116,000
12
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS 26. 27.
P0
Dividends received from associate should be credited to the Investment account.
P1,816,000 Cost of investment P1,800,000 Dividends received ( 100,000) Income from Associate 116,000 Carrying value of investment P1,816,000 Items 28 through 33 Boracay Co. ordinary Bohol Company ordinary 8% treasury bonds # of shares Amount # of shares Amount Face Amount 1/1/12 bal. 1,000 P 25,000 3,000 P18,000 P50,000 P50,000 1/31 (200) ( 5,000) 6/30 600 7/8 (300) (1,500) 8/1 (20,000) (20,000) 12/31 bal. before Fair Value adj. 800 P20,000 3,300 P16,500 30,000 P30,000 Adj to FV 4,000 6,600 12/31 per audit 800 shares P24,000 3,300 P23,100 P30,000 P30,000 28. P3,333 Interest Income January 1 to July 31 P50,000 x 8% x 7/12 = P2,333 August 1 to Dec. 31 P30,000 x 8% x 5?12 = 1,000 Total interest income for 2012 P3,333 29. P1,000 gain Net selling price P6,000 Carrying value P25,000 x 200/1,000 (5,000) Gain on sale P 1,000 30. P18,300 gain Selling price P19,800 Carrying value P18,000 x 300/3,600 ( 1,500) Gain on sale P18,300 31. P200 gain Cash received P21,000 Interest for 6 months (20,000 x 8% x 6/12) ( 800) Selling price P20,200 Carrying value 20,000 Gain on sale P 200 32. P10,600 See above worksheet: P4,000 + P6,600 P10,600 33. P77,100 See above worksheet: P24,000 PP23,100 + P30,000 = P77,100
13
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS Items 34 through 40 34. P55,000 P1,040,000 – P985,000 = P55,000 35. P4,125 From Alaska: 5,500 x P0.75 = P4,125 36. P111,000 P370,000 x 30% = P111,000 37. P2,293,500 Fair value of old 25,000 shares: P1,520,000 x 25,000/50.000 = P760,000 Purchase price of new 50,000 shares 1,520,000 Initial cost of 75,000 shares P2,280,000 Income from associate 111,000 Dividends received (75,000 x 1.30) ( 97,500) Carrying value, December 31, 2013 P2.293,500 38. P316,500 Alaska 5,500 x 23 P126,500 Bahamas 10,000 x 19 190,000 Total fair value P316,500 39. P31,500 Fair value P316,500 Cost : 125,000 + 160,000 285,000 Cumulative balance of UGL P 31,500 40. P115,125 P111,000 + P4,125 = P115,125 Items 41 through 46 Financial Assets at Fair Value through Profit or Loss Seattle Ordinary Grunge Preference Cobain Ordinary Shares Amount Shares Amount Shares Amount 1/1/12 2,000 P28,400 1,200 P78,000 20% bonus 400 Sale (400) (4,733) Purchase 1,500 P31,500 12/31 bal. before adj to FV 2,000 P23,667 1,200 P78,000 1,500 P31,500 Unrealized Gains (Losses) 4,333 (1,200) Per audit 2,000 P28,000 1,200 P76,800 1,500 P31,500 41. P136,300 28,000 + 76,800 + 31,500 = 136,300 42. P0 Cash dividend from Grunge should have been recorded as income in 2011.
14
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS 43. 44. 45. 46.
P52,900
Cost (800 x P50) + P5,400 = Share in profit 50,000 x 20% x 9/12 Investment in Associate, Dec. 31
P45,400 7,500 P52,900
P7,500
50,000 x 20% x 9/12 =
P 7,500
758,600
764,000 – 5,400 =
P758,600
3,133
See above worksheet : 4,333 – 1,200
P 3,133
A-MAGS CORPORATION Selling and Administrative Expenses Advances to Officers and Employees Cash – Petty cash fund Other Assets Cash in Bank Cash in Bank – PCI Bank – Current Accounts Payable Cash in Bank Other Current Liabilities (Bank Overdraft) Accounts Receivable – Past Due Cash in Bank – PCI Bank Accounts Receivable Customer Credit Balances Allowance for Doubtful Accounts Accounts Receivable – Past due Advances to Officers and Employees Accounts Receivable Sales Discount on Notes Receivable Notes Receivable – Non-Current Interest Income Notes Receivable Discount on Notes Receivable – Non- current
2,000 1,500
3,500
130,000
130,000
5,000
5,000
45,000
45,000
20,000
20,000
15,000
15,000
10,250
10,250
3,500
3,500
30,000
30,000
120,000 24,337
120,000 24,337
15
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS Discount on Notes Receivable (30,000 x 5/12) 12,500 Discount on Notes Receivable – Non-current (95,663 x 12% x 10/12) 9,566 Interest Income 22,066 Interest Receivable 4,057 Interest Income 4,057 40,000 x 16% x 36/360 = 640 75,000 x 20% x 82/360 = 3,417 Total 4,057 Inventories 22,500 Accounts Payable 22,500 Sales 80,000 Advances from Customers 24,000 Accounts Receivable – Not yet due 56,000 Accounts Receivable – not yet due (182,000 x 60% x 125%) 136,500 Sales 136,500 Inventories ( 182,000 x 40%) 72,800 Cost of Sales 72,800 Selling and Administrative Expenses 5,460 Accrued Expenses 182,000 x 60% x 5%) 5,460 Other Current Assets (80% x 28,000) 22,400 Loss due to Flood 5,600 Inventories 28,000 Equipment 15,000 Cost of sales 15,000 Selling and Administrative Expenses 1,500 Accumulated Depreciation (15,000/5 x 6/12) 1,500 AR – Total AR – Not due Per client P424,000 P187,000 Adjustments 20,000 15,000 (10,250) (3,500) (56,000) (56,000) 136,500 136,500 P525,750 P267,500
16
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS Operating Expenses 363 Allowance for Doubtful Accounts Total Accounts Receivable P525,750 Accounts Receivable not yet due (267,500) Accounts Receivable past due P258,250 Provision rate for past due accounts 5% Required allowance P 12,913 Existing allowance ( 22,800 – 10,250) 12,550 Additional doubtful accounts expense P 363 Trading Securities 48,000 Available for Sale Securities 47,800 Investments in Equity Securities Allowance for Decline in Market Value 6,800 Trading Securities Market Adjustments – Available for Sale Securities Unrealized Gains/Losses on Available for Sale Securities 2,000 Retained Earnings, January 1 Investments in Associate – Johnny Walker 280,000 Investment in Equity Securities Investment in Associate – Johnny Walker 150,000 Income from Associate Dividend Income 12,000 Investments in Equity Securities Investment in Equity Securities 16,800 Trading Securities Trading Securities 2,400 Gain on Sale of Trading Securities Treasury Stock 45,000 Investments in Equity Securities
17
363
95,800 4,800 2,000 2,000 280,000 150,000 12,000 16,800 2,400 45,000
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Trading Securities AFS Securities Balances, January 1 adjustment P48,000 P 47,800 Adjustments ( 4,800) (16,800) 2,400 Balances before adjustment P 28,800 P47,800 Market value, December 31 800 x 38 30,400 500 x 50 = P25,000 1,200 x 31= 37,200 62,200 Unrealized Gain P 1,600 P14,400 Balance before adjustment (Dr.) 2,000 Adjustment P 1,600 P16,400 Dividend Income 30,000 Investment in Associate 30,000 Trading Securities 1,600 Unrealized Gain on Trading Securities (I.S.) 1,600 Market Adjustment – AFS Unrealized Gains/Losses on AFS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27.
P491,500 P30,400 P525,750 P12,913 P6,500 P295,000 P12,500 P4,057 P5,000 P1,347,300 P5,500 P62,200 P400,000 P213,500 P257,629 P399,500 P275,000 P15,000 P24,000 P153,450 P122,960 P52,500 P490,914 P45,000 P14,400 P4,677,163 P3,682,361
18
16,400
16,400
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40.
P643,126 P9,000 P35,923 P2,400 P14,400 16,400 P5,600 P150,000 157,140 P366,659 363 9,566 5612,724
19
