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REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE

EQUITY SECURITIES
1. Ilocos Company received dividends from its common stock investments during the year
2005 as follows:
a. A stock dividend of 20,000 shares from A Company when the market price of As
shares was P30 per share.
b. A cash dividend of P2,000,000 from B Company in which Ilocos owns a 20%
interest.
c. A cash dividend of P1,500,000 from C Company in which Ilocos owns a 10%
interest.
d. 10,000 shares of common stock of D Company in lieu of cash dividend of P20 per
share. The market price of D Companys shares was P180. Ilocos holds originally
100,000 shares of D Company common stock. Ilocos owns 5% interest in D
Company.
What amount of dividend revenue should Ilocos report in its 2005 income statement?
a.
b.
c.
d.

3,300,000
5,300,000
3,500,000
2,500,000

2. Data pertaining to dividends from Vigan Companys common stock investments for the
year 2005 follow:
* On October 1, 2005, Vigan received P2,000,000 liquidating dividend from X
Company. Vigan owns a 5% interest in X Company.
* Vigan owns a 10% interest in Y Company which declared a P30,000,000 cash
dividend on November 15, 2005 to stockholders of record on December 15, 2005
payable on January 15, 2006.
* On December 1, 2005, Vigan received from Z Company a dividend in kind of one
share of V Company common stock for every 5 Z Company common shares held.
Vigan holds 200,000 Z Company shares which have a market price of P50 per share
on December 1, 2005. The market price of V Company common is P30 per share.
What amount should Vigan report as dividend income in its 2005 income statement?
a.
b.
c.
d.

6,200,000
4,200,000
3,000,000
5,000,000

3. Caoayan Company owns 1,000,000 shares of Suyo Companys 5,000,000 shares of

P50 par, 10% cumulative, nonparticipating preferred stock and 500,000 shares (2%) of
Suyos common stock. During 2005 Suyo declared and paid dividends of P40,000,000
on preferred stock. No dividends had been declared or paid during 2004. In addition,
Caoayan received a 15% common stock dividend from Suyo when the quoted market
price of common stock was P100. What amount should Caoayan report as dividend
income in its 2005 income statement?
a. 15,500,000
b. 20,000,000
c. 10,000,000
d. 8,000,000

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4. On January 2, 2005, Narvacan Company acquired 100,000 shares of ABC Company

common stock for a total consideration of P6,000,000. On October 1, 2005, Narvacan
received from ABC a preferred stock dividend of one share for every 10 common
shares held. On this date, the market price of ABC common is P75 per share and the
ABC preferred, P50 per share. Narvacan Company should report its investment in
ABC Company preferred stock at
a. 500,000
b. 750,000
c. 375,000
d.
0
5. Candon Company owns 100,000 shares of the outstanding common stock of Bantay
Company which has several hundred thousand shares publicly traded. These 100,000
shares were purchased in 2002 for P100 per share. On December 1, 2005, Bantay
Company distributed 100,000 rights to Candon. Candon was entitled to buy one new
share of Bantay common stock for P100 and five of these rights. On December 1,
2005, each share of stock had a market value of P135 ex-right and each right had
market value of P15. On December 31, 2005, Candon exercised all rights. What cost
should be recorded for each new share that Candon acquired by exercising the rights?
a. 150
b. 100
c. 135
d. 15
6. Tagudin Company invested in stocks of Kaunlaran Company as follows:
2003
2004

50,000 shares at P80

100,000 shares at P70

4,000,000
7,000,000

In 2005, Tagudin received 150,000 rights to purchase Kanluran stock at P80 per share
plus five rights. At issue date, rights had a market value of P5 each and stock was
selling at P95 ex-right. Tagudin used rights to purchase 22,000 additional shares of
Kanluran stock and allowed the remaining rights to lapse. The FIFO mathod is used in
determining the stock rights exercised. What is the cost of the new investment?
a.
b.
c.
d.

1,760,000
2,170,000
2,310,000
2,100,000

7. Nagbukel Company issued rights to subscribe to its stock, the ownership of 4 shares
entitling the stockholders to subscribe for 1 share at P100. Sinait Company owns
200,000 shares of Nagbukel Company with total cost of P15,000,000. The stock is
quoted right-on at 125. What is the theoretical value of the stock rights?
a. 1,000,000
b. 1,250,000
c. 1,500,000
d.
0
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