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CHAPTER 7
INVESTMENTS IN EQUITY SECURITIES AND DEBT SECURITIES
PROBLEMS
Market values:
Ordinary shares 150 x 100 P15,000
Preference shares 300 x 150 45,000
Total P60,000
Allocation to:
Ordinary shares 59,500 x 15/60 P14,875
Preference shares 59,500 x 45/60 P44,625
7-2 (A Company)
a. Cash 18,000
Dividend Revenue 18,000
2,400 shares x 7.50
Cost per share:
B Corp. Ordinary (no change) P100
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Chapter 7 – Investments in Equity Securities and Debt Securities
Unrealized Holding
MV12/31/08 Market12/31/09 Gains(Losses)
X Co. P330,000 P288,000 P(42,000)
Z Co. 350,000 320,000 (30,000)
Total P680,000 P608,000 P(72,000)
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Chapter 7 – Investments in Equity Securities and Debt Securities
Unrealized Holding
Cost Market Gains(Losses)
X Co. P330,000 P288,000 P(42,000)
Z Co. 300,000 320,000 20,000
Total P630,000 P608,000
Required balance in Market Adjustment Account – cr P(22,000)
Balance before adjustment (10,000 + 40,000) – dr 50,000
Required adjustment P 72,000
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Chapter 7 – Investments in Equity Securities and Debt Securities
d. Cash 15,000
Gain on Sale of AFS Securities 1,500
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Chapter 7 – Investments in Equity Securities and Debt Securities
Market CV Unreal
Diana 1 (750 sh) 46,500 38,250 8,250
Diana 2 (125 sh) 7,750 7,625 125
Smith (1,000 x 115) 115,000 121,200 (6,200)
Total 169,250 167,075 2,175
7-9 (X Corporation)
2008
Jan. 1 Available for Sale Securities – Y Co. Ordinary 300,000
Cash 300,000
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Chapter 7 – Investments in Equity Securities and Debt Securities
FV Cost Unrealized
Darrel 480,000 364,000 116,000
Ghio 31,200 30,550 650
Total 511,200 394,550 116,650
5. Cash 200,000
Investment in Associates 200,000
20% x 1,000,000
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Chapter 7 – Investments in Equity Securities and Debt Securities
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Chapter 7 – Investments in Equity Securities and Debt Securities
31 Cash 900,000
Investment in Associates (30% x 3,000,000) 900,000
7-15 (E Corporation)
(a)
2008
Jan. 1 Investment in Associates – F Company 8,250,000
Cash (50,000 x 165) 8,250,000
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Chapter 7 – Investments in Equity Securities and Debt Securities
7-16
1. A and B
2. A
3. B and C
4. A and B
5. B
6. C
7. C
8. A
9. B
10. A, B and C
11. C
12. A
13. B
14. A
15. C
2008
Dec. 31 Cash 1,200,000
Held to Maturity Securities 47,367
Interest Revenue 1,152,633
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Chapter 7 – Investments in Equity Securities and Debt Securities
2008
June 1 Held to Maturity Securities – State Corp. Bonds 3,691,500
Cash 3,691,500
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Chapter 7 – Investments in Equity Securities and Debt Securities
2009
Jan. 1 Interest Revenue 30,968
Interest Receivable 26,667
Held to Maturity Securities – State Corp. 4,301
Bonds
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Chapter 7 – Investments in Equity Securities and Debt Securities
1 Cash 3,925,000
Loss on Sale of Held to Maturity Securities 94,435
Interest Revenue 133,333
Held to Maturity Securities–State Corp. Bonds 3,886,102
CV of HTM Securities sold:
As of June 1, 2011 3,858,658
Amortization June 1 to
Nov. 1, 2011 27,444
As of Nov. 1, 2011 3,886,102
Sales price 3,791,667
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Chapter 7 – Investments in Equity Securities and Debt Securities
1 Cash 3,925,000
Loss on Sale of Available for Sale Securities 94,435
Net Unrealized Gain/Loss on AFS Securities 87,479
Interest Revenue 133,333
Available for Sale Securities–State CorpBonds 3,886,102
Market Adjustment – AFS Securities 87,479
Sales price (3,925,000–133,333) 3,791,667
Amortized Cost 3,886,102
Loss 94,435
2007
June 1 Held to Maturity Securities – Blessie Corp. Bonds 5,353,150
Interest Revenue (5M x 12% x 5/12) 250,000
Cash 5,603,150
Dec. 31 Cash 600,000
Interest Revenue 562,267
Held to Maturity Securities – Blessie 37,733
2008
Dec. 31 Cash 600,000
Interest Revenue 531,542
Held to Maturity Securities – Blessie 68,458
2009
Dec. 31 Cash 600,000
Interest Revenue 524,696
Held to Maturity Securities – Blessie 75,304
2010
Sept. 1 Interest Receivable (3M x 12% x 8/12) 240,000
Held to Maturity Securities – Blessie 33,134
Interest Revenue (517,166 x 3/5 x 8/12) 206,866
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Chapter 7 – Investments in Equity Securities and Debt Securities
7-21
1. B and C
2. A
3. B and C
4. A
5. B and C
6. A
7. A
8. A
9. B
10. B and C
11. C
12. B and C
13. A
14. A
15. B
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Chapter 7 – Investments in Equity Securities and Debt Securities
Problems
MC12 B 535,000 – 525,000 = 10,000
MC13 D 307,500 + 269,500 = 577,000; (600 x 440) + (2,000 x 138) = 540,000
577,000 – 540,000 = 37,000; 12,900 + 13,500=26,400; 37,000–26,400=10,600
MC14 C 10,000 x 150 = 1,500,000; 20% x 3M = 600,000
10,000 x 50 = 500,000; 1,500,000 + 600,000 – 500,000 = 1,600,000
MC15 A 1,000 x 50 = 150,000 + 2,250 = 152,250; 152,250 – (1,000 x 10) = 142,250
MC16 C 3,000 x 120 = 360,000; 560,000 x 3,000/6,000 = 280,000
360,000 – 280,000 = 80,000
MC17 D 360,000 x 600/3600 = 60,000; 200,000 + 60,000 = 260,000
360,000 – 260,000 = 100,000
MC18 B 500 x 25 = 12,500 – 500 = 12,000
500 x 20 = 10,000; 12,000 – 10,000 = 2,000 gain
MC19 D 960-500 = 460 + 600 = 1,060; 1,060/10 = 106 shares
MC20 B 88 ÷ 1.10 = 80
MC21 A 352,000 – (4,400 x 4) = 334,400; 334,400 / 4,400 sh = 76
MC22 D See No. 21
MC23 B 1,200,000 – (3 x 40,000) + (25% x 640,000) = 1,240,000
MC24 B 40% x 450,000 = 180,000
150,000 ÷ 12 = 12,500; 180,000 – 12,500 = 167,500
MC25 A 25,000 x 180 = 4,500,000; 25% x (2,400,000 – 480,000) = 480,000
4,500,000 + 480,000 – 60,000 – 60,000 = 4,860,000
MC26 D 4,860,000 x 15/25 = 2,916,000
MC27 B 10,000 x 200 = 2,000,000; 4,860,000 x 10/25 = 1,944,000
2,000,000 – 1,944,000 = 56,000
MC28 A
MC29 C 500,000 + 1,500,000 + (10% x 3M) = 2,300,000
MC30 B 40% x 1,200,000 = 480,000; (40% x 900,000) ÷ 18 = 20,000
40% x 100,000 = 40,000; 480,000 – 20,000 – 40,000 = 420,000
MC31 C 4,000,000 + 420,000 – (40% x 200,000) = 4,340,000
MC32 B (1,000 x 140) + (900 x 170) + (800 x 200) = 453,000
(1,000 x 150) + (900 x 180) + (800 x 220) = 488,000
488,000 – 453,000 = 35,000; 35,000 – 20,000 = 15,000
MC33 A See No. 33
MC34 A
MC35 C 8,750,000 x 5% = 437,500
MC36 C 3,692,000 x 5% = 184,600; 4M x 4% = 160,000
184,600 – 160,000 = 24,600; 3,692,000 + 24,600 = 3,716,600
MC37 C See No. 36
MC38 B 912,400 x 10% = 91,240; 1,000,000 x8% = 80,000
91,240-80,000 = 11,240; 912,400 + 11,240 = 923,640
MC39 D 7,850,000 – (8M x .08 x 6/12) = 7,530,000; 7,383,000 x 5% = 369,150
8M x 4% = 320,000; 369,150 – 320,000 = 49,150
7,383,000 + 49,150 = 7,432,150; 7,432,150 x 5% = 371,608
371,608 – 320,000 = 51,608; 7,342,150 + 51,608 = 7,483,758
7,530,000 – 7,483,758 = 46,242
MC40 D
MC41 B 500,000 x 4% = 20,000
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Chapter 7 – Investments in Equity Securities and Debt Securities
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