SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

INVESTMENTS
Problem 1
A Corporation
B Corporation
C Corporation
D Corporation
E Corporation
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
Jan 3
1,000
54,000
8
1,000 60,000
Apr 5
(500) (27,000)
8
1,000 30,000
1,000
36,000
July 15
500 20,000
Dec 8
50
Bal.
500
27,000
1,000 60,000
1.000 30,000
1,000 36,000
550 20,000
Adj
500
(6,000)
2,000
3,000
900
Per
audit
500
27,500
1,000 54,000
1,000 32,000
1,000 39,000
550 20,900
(a)

Audit Adjusting Entries:

Financial Assets at FV through P&L

Dividend Income

1,000

Financial Assets at FV through P&L

Gain on Sale of FVPL

1,000

Treasury Shares
Financial Assets at FV through P&L

33,000

Financial Assets at FV through P&L

Treasury Shares
Paid in Capital from Treasury Shares

20,000

Dividend Income
Financial Assets at FV through P&L

2,000

Financial Assets at FV through P&L

Dividend Income

1,200

Dividend Receivable
Dividend Income

5,000

Financial Assets at FV through P&L

Unrealized Gain on FVPL

1,000
1,000
33,000
12,500
7,500
2,000
1,200
5,000
400
500

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

(b)

(1)
(2)
(3)
(4)

Carrying amount of FVPL (see worksheet above)

Gain on sale of FVPL = 28,000 27,000 =
Dividend Income = 1,000 + 1,200 + 5,000 =
Unrealized gain or loss on FVPL

P173,400
P 1,000
P 7,200
P
400

Problem 2
1.
Selling price on May 20
Carrying value of shares sold 35,000 x 250/750 shares
Gain on Shares sold

P16,750
11,667
P5,083

2.

Proceeds from sale

Dividends included (sold dividends on) = 100 x 10
Selling price without dividends
Carrying value 23,333 x 100/500
Gain on December 10 sale

P6,000
1,000
P5,000
4,667
P 333

3.

Dividend Income for the year 2006:

November dividends 500 shares x P 5
Dividends on 100 shares sold (100 x P50 x 20%)
Dividends accrued on December 31 (400 x P50 x 20%)
Total dividend income

P2,500
1,000
4,000
P7,500

4.

Adjusted balance of the investment account

shares
500
250
(250)
(100)
400

Market value, January 1

April 30 stock dividend
May 20 sale
Dec 10 sale
Balances before adjustment to market
Adjustment to market
Balance, December 31, at market

400

Peso balance
P35,000
(11,667)
(4,667)
18,666
8,534
27,200

Adjusting Entries
Dividend Income
Trading Securities

12,500
12,500

Trading Securities
Gain on Sale of Trading Securities

5,083

Trading Securities
Gain on Sale of Trading Securities
Dividend Income

1,333

Dividends Receivable
Dividend Income

4,000

Trading Securities
Unrealized Gain on Trading Securities

8,534

5,083
333
1,000
4,000
8,534

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

Problem 3
Dividend Income
Retained Earnings
Dividends accrued last year.

12,000
12,000

Dividend Income
Investment in Creamy
Dividends included in the purchase price of
March 5 acquisition, acquired dividendson.
Investment in Creamy
Gain on Sale of AFS
Selling price
Cost:
2008 lot
2009 lot
2,000 x 60
Gain on sale

3,000
3,000

35,000
35,000
P360,000
P105,000
120,000

225,000
P135,000

Investment in Creamy
Dividend Income
Property dividends should be recorded at
market.
Miscellaneous Receivables
Investment in Creamy (1,000 x 60)
Gain on Sale of Investments

2,000
2,000

90,000
60,000
30,000

Market Adjustment Creamy

Market Adjustment Cofee
Unrealized Gain or Loss through Other
Comprehensive Income

288,000
7,500
295,500
Creamy

6,000 x 60 =
P360,000
3,000 x 69 =
207,000
Total remaining cost of Creamy
Coffee = 1,000 shares x P3
Market values
9,000 x P95
3,000 x 3.50
Market Adjustment

Coffee

Cost

P 567,000
P 3,000
855,000
P288,000

10,500
P7,500

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

Problem 4
Financial Assets at FV through Profit or Loss
Red Corp Preference
Red Corp. Ordinary
Shares
Peso amt
Shares
Peso amt
1/1/10
1,000
45,000
1/17
2/14
6/01
10/01
(500)
(22,500)
1,500
30,000
Before adj.
500
22,500
1,500
30,000
Adj
to
market
5,500
MV 12/31
500
28,000
1,500
30,000
Non-Current Investments
Investment in Associate Green Company
Acquisition cost
Dividends received 100,000 x P0.50 x 4
Income from associate
Income from Associate

Blue Ordinary
Shares
Peso amt
6,000
65,000
(2,500)
(27,083)

1,700

42,500

3,500

583
38,500

1,700

(5,100)
37,400

P32,500
27,083
P 5,417

On sale of Yellow
Selling price 500 x P21
Carrying value (P55,000 x 500/2200)
Loss on sale

P10,500
12,500
P 2,000

On conversion of Red Preference to Red Ordinary

Market value 500 x P60
Carrying value P45,000 x 500/1000
Gain on exchange

P30,000
22,500
P 7,500

P1,200
1,200
3,500
P5,900
P 983

Income from Associate (Green Company)

30% x P1,200,000

P 360,000

(12,500)

37,917

Gains and losses

On sale of Blue on January 17
Selling price
Carrying value (P65,000 x 2,500/6,000
Gain on sale

Unrealized gains on FVPL (see above working papaer)

P5,500 + 583 5,100 =

200
(500)
3,500

P1,600,000
(200,000)
360,000
P1,760,000

Dividend Income
On Red preference
April 6 1,000 x 1.20
Oct, 6 1,000 x 1.20
On Blue ordinary
June 30 3,500 x P1

Yellow Ordinary
Shares
Peso amt
2,000
55,000

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

Problem 5
PV at March 1, 2009 = (P400,000 x .59190) + (18,000 x 6.80169) = 236,760 + 122,430 = 359,190
May 1, 2009 purchase price = 359,190 + (2/6 x 3,551) = 360,374
Purchase price
Accrued interest 400,000 x 9% x 2/12
Total cash paid

P360,374
6,000
P366,374

2009
May 1 FVPL XYZ Bonds
2009
May

Sept

FVPL - XYZ Bonds

Interest Income
Cash

360.374
6,000
366,374

Cash

18,000
Interest Income

Dec

31
31

2010
Mar.

18,000

Interest Receivable
Interest Income

12,000

FVPL XYZ Bonds

Unrealized Gains on FVPL
Market value
P428,000
Ledger balance
360,374
Unrealized gain
P 67,626

67,626

Cash

18,000

14,333
67,626

Interest Receivable
Interest Income
May

Sept.
Dec.

1
31
31

12,000
6,000

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 (280,000 x 9% x 6/12)
Interest Income

125,400
4,800
128,400
1,800
P123,600
1,800
P125,400
12,600
12,600

Interest Receivable (280,000 x 9%x 4/6)

Interest Income

8,400

Unrealized Loss on FVPL

FVPL XYZ Bonds
2% x 280,000 =

5,600

8,400
5,600

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

2011
Mar.

July

Sept.
Dec.

1
31
31

2012
Mar.

Cash (280,000 x 9% x 6/12)

Interest Receivable
Interest Income

12,600
8,400
4,200

Cash
FVPL XYZ Ordinary Shares (2,250 x 80)
FVPL XYZ Bonds (160,000 x 105%)
Gain on Exchange of FVPL
Interest Income (160,000 x 9% x 4/12)

4,800
180,000
168,000
12,000
4,800

Cash (120,000 x 9% x 6/12

Interest Income

5,400

Interest Receivable (120,000 x 9% x 4/12)

Interest Income

3,600

Unrealized Loss on FVPL

FVPL XYZ Bonds ( 3% x 120,000)

3,600

Cash

5,400

5,400
3,600
3,600

Interest Receivable
Interest Income (22,230 x 120/400)
Sept.

3,600
1,800

Cash

5,400
Interest Income

Dec.

31
31

2013
Mar.

5,400

Interest Receivable
Interest Income

3,600

Unrealized Loss on FVPL (120,000 x 1%)

FVPL XYZ Bonds

1,200

Cash

5,400

3,600
1,200

Interest Receivable
Interest Income
Sept.

3,600
1,800

Cash

5,400
Interest Income

5,400

Cash
Loss on Sale of FVPL
FVPL XYZ Bonds

120,000
1,200
121,200

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

Problem 6
Amortization Table
Date
6/1/08
12/1/08
6/1/09
12/1/09
6/1/10
12/1/10
1.
2.
3.

4.

Nominal Interest(4%)

Effective Interest (5%)

Amortization

16,000
16,000
16,000
16,000
16,000

18,458
18,580
18,709
18,845
18,987

2,458
2,580
2,709
2,845
2,987

Interest Income , 2008

18,458 + (18,580 x 1/6)

P21,555

Interest Income, 2009

(18,580 x 5/6) + 18,709 + (18,845 x 1/6)

P37,333

Carrying Value, 12/31/09

CV, 12/1/09
Amortization 12/1 to 12/31 (2845 x 1/6)
CV, 12/31/05

P376,897
474
P377,371

Proceeds from sale including interest

Accrued interest (16,000 x 5/6)
Selling price
Amortized cost, 11/1/10
As of 6/1/10
Amortization 6/1 to 11/1 2,987 x 5/6
Amortized cost, 11/1/ 10
Gain on sale

P396,500
(13,333)
P383,167
P379,742
2,489
382,231
P936

Problem 7
Entries that should have been made:
Jan. 21
Investment in Pearl
Interest Income
Cash

204,000
2,550

Mar. 1

106,000

206,550

Cash
Investment in Pearl (204,000 x 100/200)
Interest Income
Gain (Loss) on Sale of Trading Securities

June 1

102,000
2,250
1,750

Cash

4,500
Interest Income

4,500

Carrying Value, end

P369,150
371,608
374,188
376,897
379,742
382,729

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

Nov. 1

Dec. 1
31
31

Cash
Gain (Loss) on Sale of Trading Securities
Investment in Pearl (204,000 x 40/200)
Interest Income

41,900
400
40,800
1,500

Cash
Interest Income

2,700

Interest Receivable
Interest Income

450

Investment in Pearl
Unrealized Gains on Trading Securities

600

2,700
450
600

Audit Adjustments
Interest Income
Investment in Pearl

2,550
2,550

Investment in Pearl
Interest Income
Gain on Sale of TS

4,000

Investment in Pearl
Interest Income

4,500

Investment in Pearl
Loss on Sale of TS
Interest Income

1,100
400

Investment in Pearl
Interest Income

2,700

Dividend Receivable
Interest Income

450

Investment in Pearl
Unrealized Gains on TS

600

2,250
1,750
4,500

1,500
2,700
450
600

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

SUPPLY THE REQUIRED INFORMATION:

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.

P12 per share

2,500
3,500 gain
6,500
19,800
P0
15,800
55,200
1,600
376,400
3,776,400
0
48,279
2,167,000
365,668
360,000
160,000
35,000
1,970,000
50,000
145,000
0
1,845,000

DEXTER COMPANY
AFS Y Company Ordinary
Date
Shares
01-01-10
3,000
01-12-10
3,000
03-17-10
(1,000)
06-30-10
10-01-10
2,000
10-20-10
11-30-10
(1,000)
12-31-10 Balances 6,000

Total Cost
P30,000

Gain(loss)

(5,000)

P2,500

Dividend Income

1,000 x P2.50 = P2,500

15,400*
5,000 x 0.80= 4,000
(5,000)
P35,400

3,500
P6,000

P6,500

* 2,000 (8.50 - .80 dividends on) = 15,400

FVPL B Co.

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

Date
06-30-10
9-10-10
12-31-10 UGL
12-31-10 balances

Shares
1,000
(500)

Total CV
P2,500
(1,250)
350
P1,600

500 shares

Market Adjustment AFS

1.1.10
03-17 1,000/6,000 x P6,000
11-30 1,000/6,000 x 6,000
12-31 Market value
6,000 x P 9.20 =
Cost
Cumulative Unrealized Gain
Adjustment : 19,800 4,000
Adjusted balance
1.
2.
3.
4.
5.
6.
7.
8.
9.

Gain(loss)

Dividend Income

150

P6,000
(1,000)
(1,000)
P55,200
35,400
19,800
15,800
P19,800

P36.,000 / 3,000 shares = P12 per share

(1,000 x P8 - 500) 5,000 = P2,500
(1,000 x P8.50) 5,000 = P3,500
P6,500
P19,800
Zero
P15,800
P55,200
P1,600

Kristine Company
Interest Date
Jan. 1, 2008
June 30, 2008
Dec. 31, 2008
June 30, 2009
Dec. 31, 2009
June 30, 2010
Dec. 31, 2010

9%Interest
Paid
P180,000
P180,000
P180,000
P180,000
P180,000
P180,000

10%Effective
Interest
188,000
188,400
188,820
189,261
189,724
190,210

Discount
Amortization

P3,760,000
3,768,000
3,776,400
3,785,220
3,794,481
3,804,205
3,814,415

P8,000
8,400
8,820
9,261
9,724
10,210

Selling price on November 30 (1.8M x 98%)

Carrying amount
June 30, 2010 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
Gain on sale on November 30

Amortized
Cost, End

P1,764,000

1,715,721
48,279

CV on 12/31/10 98.5% x P2,200,000 =

P2,167,000
(note: the investment was reclassified as AFS, hence measured at market value.)

10

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

Interest revenue for 2010

January to June 30
July 1 to November 30
190,210 x 5/6
190,210 x 1/6 x 2.2M/4M
Total
10.
11.
12.
13.
14.
15.

P189,724
158,508
17,436
P365,668

Interest Revenue for 2008 = P188,000 + 188,400 = P376,400

P3,776,400
P0
P48,279
P2,167,000
P365,668

Kristine Company

16.
17.
18.
19.
20.

Total proceeds
Accrued interest 2,000,000 x 9% x 5/12 =
Selling price
CV 96% x 2,000,000
Loss on sale of FVPL

P1,960,000
( 75,000)
P1,885,000
1,920,000
P 35,000

At 12/31/10 2M x .985
Market, 12/31/10
Market, 12/31/09 2,000,000 x .96
Unrealized gain for 2010

P1,970,000
P1,970,000
1,920,000
P 50,000

180,000 + 180,000 = 360,000

(98% x 4,000,000) 3,760,000 = 160,000
P35,000
2M x .985 = P1,970,000
P50,000

Power Cast Company

Cost of investment
Underlying equity 25% x P6,000,000
Excess of cost
Undervaluation in land 25% x 750,000
Undervaluation in equipment 25% x 200,000
Undervaluation in inventory 25% x 30,000
Goodwill
Income from Associate
Initial share (800,000 160,000) x 25%
Amortization
Equipment 50,000/5 x 9/12
Inventory

11

P1,800,000
1,500,000
P 300,000
(187,500)
( 50,000)
( 7,500)
P 55,000_
P160,000
( 7,500)
( 7,500)

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

Income from Associate

P145,000

Cost of investment
Dividends received
Income from Associate
Carrying value of investment

21.
22.
23.

P1,800,000
( 100,000)
145,000
P1,845,000

145,000
P0
1,845,000

A-MAGS CORPORATION
Selling and Administrative Expenses
Advances to Officers and Employees
Cash Petty cash fund

2,000
1,500
3,500

Other Assets
Cash in Bank

130,000
130,000

Cash in Bank PCI Bank Current

Accounts Payable

5,000

Cash in Bank
Other Current Liabilities (Bank Overdraft)

45,000

Accounts Receivable Past Due

Cash in Bank PCI Bank

20,000

Accounts Receivable
Customer Credit Balances

15,000

Allowance for Doubtful Accounts

Accounts Receivable Past due

10,250
10,250

5,000
45,000
20,000
15,000

Advances to Officers and Employees

Accounts Receivable

3,500

Sales

30,000
30,000

3,500

Discount on Notes Receivable

Notes Receivable Non-Current
Interest Income
Notes Receivable
Discount on Notes Receivable Non- current

120,000
24,337
120,000
24,337

12

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

Discount on Notes Receivable (30,000 x 5/12)

Discount on Notes Receivable Non-current (95,663 x 12% x 10/12)
Interest Income

12,500
9,566
22,066

Interest Receivable
Interest Income
40,000 x 16% x 36/360 = 640
75,000 x 20% x 82/360 = 3,417
Total
4,057

4,057

Inventories
Accounts Payable

22,500
22,500

Sales

80,000
24,000
56,000

4,057

Advances from Customers

Accounts Receivable Not yet due
Accounts Receivable not yet due (182,000 x 60% x 125%)
Sales

136,500
136,500

Inventories ( 182,000 x 40%)

Cost of Sales

72,800
72,800

Selling and Administrative Expenses

Accrued Expenses 182,000 x 60% x 5%)

5,460

Other Current Assets (80% x 28,000)

Loss due to Flood
Inventories

22,400
5,600

Equipment
Cost of sales

15,000

5,460

28,000
15,000

Selling and Administrative Expenses

Accumulated Depreciation (15,000/5 x 6/12)

1,500
1,500
AR Total
P424,000
20,000
15,000
(10,250)
(3,500)
(56,000)
136,500
P525,750

Per client
Adjustments

Operating Expenses
Allowance for Doubtful Accounts
Total Accounts Receivable
Accounts Receivable not yet due

AR Not due
P187,000

(56,000)
136,500
P267,500
363
363

P525,750
(267,500)

13

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

Accounts Receivable past due
Provision rate for past due accounts
Required allowance
Existing allowance ( 22,800 10,250)
Additional doubtful accounts expense

P258,250
5%
P 12,913
12,550
P
363

Trading Securities
Available for Sale Securities
Investments in Equity Securities

48,000
47,800
95,800

Allowance for Decline in Market Value

Trading Securities
Market Adjustments Available for Sale Securities

6,800
4,800
2,000

Unrealized Gains/Losses on Available for Sale Securities

Retained Earnings, January 1

2,000
2,000

Investments in Associate Johnny Walker

Investment in Equity Securities

280,000
280,000

Investment in Associate Johnny Walker

Income from Associate

150,000
150,000

Dividend Income
Investments in Equity Securities

12,000
12,000

Investment in Equity Securities

Trading Securities

16,800
16,800

Trading Securities
Gain on Sale of Trading Securities

2,400
2,400

Treasury Stock
Investments in Equity Securities

Balances, January 1 adjustment

Adjustments
Balances before adjustment
Market value, December 31
800 x 38
500 x 50 = P25,000
1,200 x 31= 37,200
Unrealized Gain
Balance before adjustment (Dr.)
Adjustment

45,000
45,000
Trading Securities
P48,000
( 4,800)
(16,800)
2,400
P 28,800

AFS Securities
P 47,800
__
P47,800

30,400

1,600

P 1,600

14

62,200
P14,400
2,000
P16,400

SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS

Trading Securities
Unrealized Gain on Trading Securities (I.S.)
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.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.

1,600
1,600
16,400
16,400

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
P14,400
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
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

15