b. Inventory whose fair value was P2,500,000 greater than its carrying amount. The equipment has a remaining life of 4 years and the inventory was all sold during 2013. Puerto Incorporated has two classes of shares: Ordinary shares (par value, P100), 300,000 shares outstanding; 15% cumulative preference shares (par value, P50), 100,000 shares outstanding. The investee reported the following net income (inclusive of enter-company transactions) and payment of cash dividend: 2014 2015 Net Income 20,000,000 35,000,000 Dividend payment 5,000,000 8,000,000 The following were the inter-company transactions between the investor and the associates: a. In 2014, the Puerto Incorporated sold inventory to Kathleen Corporation for P750,000. The cost of the inventory was P500,000. 50% of these inventory was still unsold at the end of 2013 and the remainder were sold in 2015. b. On July 1, 2015, Kathleen Corporation sold an equipment for P900,000 to Puerto Incorporated. The carrying amount of the equipment is P500,000 at the time of sale. The remaining life of the equipment is 5 years and Puerto Incorporated uses the straight- line method of depreciating the equipment. On January 1, 2016, Kathleen Corporation sold 70,000 shares of Puerto Incorporated at P260 per share. The company incurred broker's fee of P200,000. The sale resulted to loss of significant influence of Kathleen Corporation over the operation of Puerto Incorporated. Kathleen designate the investment at fair value through profit or loss on this date. During 2014, Puerto Incorporated earned P25,000,000 net income and P10,000,000 cash dividend. The following are the market value of Puerto Incorporated shares at year-end: 2014 -P 156.00 2015 P 162.00 2016 - P 163.50 Questions: 1. What is the carrying value of Kathleen Corporation's investment to Puerto Incorporated at December 31, 2014? How much is the total investment income of Kathleen Corporation at December 31, 2014? What is the carrying value of Kathleen Corporation's investment to Puerto Incorporated at December 31, 2015? How much is the total investment income of Kathleen Corporation at December 31, 2015? 5 . What is the carrying value of Kathleen Corporation's investment to Puerto Incorporated at December 31, 2016? Problem 10 On January 1, 2016, Tenable Company borrowed P7,500,000 from a bank at a variable rate of interest for 4 years. Interest will be paid annually to the bank on December 31, and the principal is due in December 31, 2017. Under the agreement, the market rate of interest every January 1 resets the variable rate for that period and the amount of interest to be paid on December 31. In conjunction with the loan, the entity entered into a "receive variable, pay fixed" interest rate swap agreement with another bank speculator. The interest rate swap agreement was designated as a cash flow hedge. The market rates of interest during January are: 2016-10% 2017-14% 2018- 12% 2019-11% Prepare journal entries to recognize the transactions relating to the contract of loan and the derivative contract