INVESTMENT IN EQUITY SECURITIES

PROBLEM A

Cost (300k + 450k + 540k + 610k) 1,900,000

Market/Carrying Value (350k + 410K + 640k + 650k) 2,050,000
Unrealized Gain/Loss 150,000

1. Carrying Value 2,050,000

2. Unrealized Gain to P/L 150,000

PROBLEM B

Cost (800k + 1,400k) 2,200,000

Market Value 2018 (820k + 1,500k) 2,320,000
Unrealized Gain/Loss 120,000

Carrying Value 2018 (820k + 1,500k) 2,320,000

Market Value 2019 (910k + 1,000k) 1,910,000
Unrealized Gain/Loss 410,000

3. Unrealized Gain/Loss to OCI 120,000 unrealized gain

4. Unrealized Gain/Loss to CI 410,000 unrealized loss
5. Unrealized Gain/Loss to SFP 290,000 unrealized loss

PROBLEM C

JOURNAL ENTRIES IF EQUITY INVESTMENT - FVPL

Jan 1, 2018 Equity Investment FVPL 900,000
Transaction Cost 100,000
Cash 1,000,000

Dec 31, 2018 Equity Investment FVPL 50,000

Unrealized gain/loss Eq. Inv. FVPL 50,000

July 1, 2019 Cash 1,200,000

Equity Investment FVPL 950,000
Gain on Sale 250,000

JOURNAL ENTRIES IF EQUITY INVESTMENT - OCI

Jan 1, 2018 Equity Investment FVOCI 1,000,000
Cash 1,000,000

Dec 31, 2018 Unrealized gain/loss Eq. Inv. FVOCI 50,000

Equity Investment FVOCI 50,000
July 1, 2019 Equity Investment FVOCI 250,000
Unrealized gain/loss Eq. Inv. FVOCI 250,000

Cash 1,200,000
Equity Investment FVOCI 1,200,000

Unrealized gain/loss Eq. Inv. FVOCI 200,000

Retained Earnings 200,000

6. Gain on Sale in P/L - FVPL 250,000

7. Gain/Loss on Sale in P/L – FVOCI 0 (no gain/loss in using FVOCI)
8. Transferred to Retained Earnings - FVOCI 200,000

PROBLEM D

Bullet 1 Cash 100,000

Dividends Income 100,000

Bullet 2 Cash 80,000

Dividends Income 80,000

Bullet 3 NO ENTRY

Bullet 4 Cash 60,000

Dividends Income 60,000

Dividends Income 100,000

80,000
60,000
Total Dividends Income 240,000

9. Total Dividends Income 750,000

PROBLEM E

Jan. 1, 2019 Equity Investment FV 1,650,000

Cash 1,650,000

Aug. 1, 2019 MEMORANDUM ENTRY ONLY

Dec. 1, 2019 Equity Investment FV (4000 * 125) 500,000

Cash (4000 * 113) 452,000
Investment Income 48,000
 Stock Rights (4 * 3000) 12,000
Investment Income 12,000

Market Value – Exercise Price 125−113

THEORETICAL VALUE = # 𝑠ℎ𝑎𝑟𝑒𝑠 𝑓𝑜𝑟 𝑒𝑣𝑒𝑟𝑦 𝑟𝑖𝑔ℎ𝑡
= 3
=4

Equity Investment FV 1,650,000

500,000
Carrying Value of Equity Inv. 2,150,000

10. Carrying Value of Equity Inv. 2,150,000

11. Stocks Rights 12,000

PROBLEM F

Acquisition (20k * 100) 2,000,000

Book Value – Net Assets (8M * 20%) 1,600,000
400,000
Land (200k * 20%) (40,000)
Building (400k * 20%) (80,000)
Goodwill 280,000

Acquisition (20k * 100) 2,000,000

Fair Value – Net Assets [8M +200K + 400k) * 20%] 1,600,000
Goodwill 280,000

Investment in Associate 2,000,000

Cash 2,000,000

Unadjusted Income (1M * 20%) 200,000

Understatement in Dep. [(400k * 20%)/10] (8,000)
Investment Income 192,000

Investment in Associate 192,000

Investment Income 192,000

Cash (20k * 5) 100,000

Investment in Associate 100,000

Investment in Associate 2,000,000

192,000
(100,000)
Carrying Value of Investment 2,092,000
 12. Investment Income – P/L 192,000
13. Carrying Value of Investment 2,092,000
14. Goodwill 280,000

PROBLEM G

Acquisition 600,000
Book Value – Net Assets 500,000
100,000
Intangible (12,500)
Equipment (40,000)
Inventory (5,000)
Goodwill 42,500

Unadjusted Income (800k * 25%) 200,000

Intangible (12500/5) (2,500)
Equipment (40000/8) (5,000)
Inventory (5,000)
Investment Income 187,500

Carrying Amount 600,000

Investment Income 187,500
Dividends (300k * 25%) (75,000)
Carrying Value of Investment 712,500

15. Investment Income P/L 187,500

16. Carrying Value of Investment 712,500

PROBLEM H

Acquisition Cost 7,500,000

Carrying Amount (10%) 3,750,000
Investment Income 1,500,000
Dividends (90,000)
Carrying Value of Investment 12,660,000

17. Carrying Value of Investment 12,660,000

THEORIES

1. D 6. B 11. - 16. D
2. B 7. D 12. C 17. C
3. C 8. C 13. B 18. B
4. D 9. C 14. D
5. C 10. C 15. A