Intermediate Accounting

How to solve these problems

Problem 15-7 (ACP) Chaplain Company was very active in acquiring and selling investments in equity securities. Data regarding the securities are: Cost Market value December 31, 2020 Trading securities 5,000,000 4,600,000 Securities not held for trading 3,000,000 3,100,000 December 31, 2021 Trading securities 5,000,000 5,500,000 Securities not held for trading 3,000,000 3,300,000 The entity made an irrevocable election to present changes in fair value of the securities not held for trading in other comprehensive income. Required: . Prepare journal entries to recognize the changes in market value for 2020 and 2021. 428Problem 15-2 (IAA) On January 1, 2020, Spark Company purchased the following trading securities: Fair value Cost December 31, 2020 Aura Company ordinary 600,000 650,000 Bora Company preference 350,000 200,000 Cara Company bonds 500,000 400,000 On October 1, 2021, the entity sold one-half of Aura Company ordinary for P375,000. On December. 31, 2021, the fair value of the remaining securities was P800,000. Required: Prepare journal entries to record the transactions. 425Problem 17-3 (IFRS) Czar Company acquired a 40% interest in Film Company for P1, 700,000 on January 1, 2020. The shareholders' equity of Film Company on January 1 and December 31, 2020 is as follows: January 1 December 31 Share capital 3,000,000 3,000,000 Revaluation surplus 1,300,000 Retained earnings 1,000,000 1,500,000 On January 1, 2020, all the identifiable assets and liabilities of Film Company were recorded at fair value. Film Company reported profit of P650,000, after income tax expense of P350,000 and paid dividends of P150,000 to shareholders during the current year. The revaluation surplus is the result of the revaluation of land recognized by Film Company on December 31, 2020. Additionally, depreciation is provided by Film Company on the diminishing balance method whereas Czar Company uses the straight-line. Had Film Company used the straight line, the accumulated depreciation would be increased by P200,000. The tax rate is 30%. Required: 1. Prepare journal entries for the current year to recognize the transactions relating to the investment in associate. 2. Determine the carrying amount of the investment in associate on December 31, 2020. 484Problem 16-3 (LAA) Effective Company had the following long-term investments at the beginning of the current year. Investment in SMC preference shares, 12% P200 par, 5,000 shares Investment in Benguet ordinary shares, 10,000 shares 1,200,000 1,000,000 During the current year, the following transactions were completed: 1. Purchased 4,000 ordinary shares of ANA Company for P300,000. 2. Received 2,000 ordinary shares of Benguet Company in lieu of a cash dividend of P10 per share. On this date, Benguet ordinary share has a quoted market of P60. 3. Purchased 6,000 ordinary shares of ANA Company for P420,000. 4. Received semiannual dividend on SMC Company 12% preference share. 5. ANA ordinary share was split on a 2-for-1 basis. 6. Sold 8,000 ordinary shares of ANA Company at P85 less transaction costs of 5%. Use average approach. Required: a. Prepare journal entries to record the transactions. b. Prepare a summary of the portfolio of investments stating the number of shares and the corresponding cost. 459Problem 16-12 (LAA) During 2020, Reminiscent Company bought shares of another entity to be held for trading. June 20,000 shares @ P100 2,000,000 December 1 30,000 shares@ P120 3,600,000 Transactions for 2021 January 10 Received cash dividend at P10 per share. January 20 Received 20% share dividend. December 10 Sold 30,000 shares at P125 per share. What is the gain on sale of investment using the FIFO approach? a. 1,150,000 b. 950,000 C. 150,000 550,000 2. What is the gain on sale of investment using the average approach? 950,000 b. 750,000 c. 800,000 d. 900,000 3. What total amount should be reported as income from the investment using the FIFO approach? a. 1,650,000 b. 1,450,000 c. 1,750,000 d. 500,000 465Problem 17-7 (ACP) On January 1, 2017, Angelic Company acquired as a long term investment for P7,000,000 a 40% interest in an investee when the fair value of the net assets was P17,500,000. The investee reported the following net losses: 2017 5,000,000 2018 7,000,000 2019 8,000,000 2020 4,000,000 On January 1, 2019, Angelic Company made cash advances of P2,000,000 to the investee. On December 31, 2020, it is not expected that Angelic Company will provide further financial support for the investee. Required: Prepare journal entries from 2017 to 2020 in relation to the investment in associate. 486