PROBLEM 1

ABC Company holds debt securities within a business model whose objective is achieved both
by collecting contractual cash flows and selling the debt securities. The contractual cash flows
are solely payments of principal and interest on specified dates.

The following amortization schedule relates to its 5-year, P1,000,000 7% bonds purchased on
December 31, 2019 for P1,086,565. The bonds were purchased to yield 5% interest.

Interest Interest Premium Amortized

Date
received income amortization Cost
12.31.19 1,086,565
12.31.20 70,000 54,328 15,672 1,070,893
12.31.21 70,000 53,545 16,455 1,054,438
12.31.22 70,000 52,722 17,278 1,037,160
12.31.23 70,000 51,858 18,142 1,019,018
12.31.24 70,000 50,982 19,018 1,000,000

*Adjustment due to rounding

The following schedule presents the amortized cost and fair value of the bonds at year-end.

Fair Value Amortized Cost

12.31.20 1,065,000 1,070,893
12.31.21 1,075,000 1,054,438
12.31.22 1,056,500 1,037,160
12.31.23 1,030,000 1,019,018
12.31.24 1,000,000 1,000,000

Questions:
1. What amount should be reported as investment in bonds in the statement of financial position on December 31, 2021?
2. What amount of unrealized gain should be shown as component of other comprehensive income in the 2021 statement
of comprehensive income?
3. What amount of unrealized loss should be shown as component of other comprehensive income in the 2022 statement
of comprehensive income?
4. What amount of unrealized loss should be shown as component of other comprehensive income in the 2023 statement
of comprehensive income?
5. What amount of unrealized gain should be shown in the 2023 statement of changes in equity?

PROBLEM 2

DEF Company's portfolio of trading securities includes the following on December 31, 2018
Cost Fair Value
15,000 ordinary shares of Kamias Co 1,431,000 1,251,000
30,000 ordinary shares of Kayganda Co 1,638,000 1,710,000
3,069,000 2,961,000
All of the above securities have been purchased in 2018. In 2019, DEF Company completed the
following securities transactions:

01-Mar Sold 15,000 shares of Kamis Co ordinary shares for P1,381,500

01-Apr Bought 1,800 ordinary shares of Baston, Inc at P135 plus commission, taxes and other
transaction costs of P4,950

The DEF Co portfolio of trading securities appeared as follows on December 31, 2019
 Cost Fair Value
30,000 ordinary shares of Kayganda Co 1,638,000 1,740,000 (A)
1,800 ordinary shares of Baston, Inc 247,950 225,000 (B)
1,885,950 1,965,000
A Net of P19,500 estimated transaction cost that would be incurred on the sale of securities
B Net of P4,500 estimated transaction costs that would be incurred on the sale of the securities

Questions:
1. What amount of unrealized gain on these securities should be reported in the 2019 income statement?
2. What is the gain on the sale of Kamias Co ordinary shares on March 1, 2019?
3. What amount should be reported as trading securities in DEF Company's statement of financial position
on December 31, 2019?

PROBLEM 3

You are auditing the XYZ Inc investment account. In its initial year of operations, the company provided
you the following information with regard to its stock investment acquisition for the year:

Number of shares acquired Recorded acquisition cost

ABC Corp 2,000 P240,000
DEF Inc 1,500 225,000
GHI Co 3,000 285,000
JKL Co 4,000 200,000

Additional information:
a. ABC Corp stocks were acquired on March 1, 2019 at a total cost of P200,000 plus brokerage fee and commission
to P40,000. Dividends which were declared on January 25, 2019 to stockholders as of March 20, 2019 were received
on April 1, 2019 at P20,000. ABC Corp stocks were acquired by the company with the intention of designating the same
as a financial asset at fair value through profit and loss. The stocks were selling at P105 per share as of December 31, 2019.

b. DEF Inc were acquired on May 1, 2019 at P150 per share. The company paid brokerage and commission amounting to
P30,000. The company had neither significant influence over DEF Corp no does it intend to sell the stocks for short term profits,
thus, designated the same at fair value through other comprehensive income. The company received a 20% stock dividend
on October 11, 2019. The stocks were selling at P160 per share on December 31, 2019.

c. GHI Co stocks which were acquired for trading purpose on June 1, 2019 at P285,000 were split 5 for 3 on August 15, 2019.
In addition, the company paid special assessment on the investment at P25 per share owned on September 30.
On December 30, 2019, when the shares had a market value of P75/share, GHI declared a P5 dividend payable on January 25 of the
subsequent period.

d. JKL Corp stocks were acquired on August 1, 2019 to be appropriately classified as financial asset at fair value through other
comprehensive income. JKL Corp issued 1 share for every 4 shares held by the stockholders as stock dividends in lieu of a P15 per share
cash dividend it has previously declared. The stocks were selling at that time at P55 per share. JKL shares were selling at P60 per share on
December 31, 2019.

Questions:
1. How much should the investment in ABC Corp and DEF Inc be initially recognized?
2. How much is the correct dividend income to be recognized from investment in stocks of DEF Inc and GHI Co respectively?
3. How much is the correct dividend income to be recognized from investment in JKL Co?
4. How much should be reported as investment in stocks classified as trading securities and corresponding unrealized holding gain or loss
in the income statement?

PROBLEM 4

During the course of your audit of the financial statements of Social Distancing Corp for the year ended December 31, 2019, you found
a new account, "Investment in Equity Securities". Your audit revealed that during 2019, the corporation began a program of investments,
and all investment related transactions were entered in this account. Your analysis of this account for 2019 follows:

Social Distancing Corporation

Analysis of Investment in Equity Securities
For the year ended December 31, 2019

Debit Credit
(A)
Veerus Company Ordinary Shares
14-Feb Purchased 24,000 shares @ P55 per share P1,320,000
26-Jul Received 2,400 ordinary shares of Veerus Co as share dividend
(memorandum entry in the general ledger)
28-Sep Sold the 2,400 ordinary shares of Veerus Co received P168,000
on July 26@P70 per share

(B) Debit Credit

Hon Sonny Tyzer Co Ordinary Shares
30-Apr Purchased 120,000 shares @ P40 per share P4,800,000
28-Oct Received dividend of P1.2 per share P144,000

Additional information:

A. The fair value for each security as of the 2019 date of each transaction follow:

Security 14-Feb 30-Apr 26-Jul 28-Sep 31-Dec

Veerus Co P55 P62 P70 P74
Hon Sonny Tyzer Co 40 32
Social Distancing Corp 25 28 30 33 35

B. All of the investments of Social Distancing Co are normal in respect to percentage ownership (5% or less)

C. Each investment is considered by Social Distancing Cop to be non-trading. The corporation has made an irrecovable election
to present in other comprehesive income subsequent changes in fair value of its non-trading equity securities.

Questions:
1. What amount shoud be reported as gain on sale of non-trading equity securities in 2019?
2. The receipt of 2,400 share divided would cause in the investment balance to increase by
3. What entry is necessary to correct the recording of the cash dividend received from Hon Sonny Tyzer Co?
4. What amount of unrealized gain or loss should bre reported in the 2019 statement of comprehensive income
as component of othe comprehensive income?
5. What amount should be reported as Investment in Equity Securities in the statement of financial position on December 31, 2019?

PROBLEM 5

KOVIDO blanca Co acquired P2,000,000 face value bonds on March 31,2019 at P1,934,336. The 10 year, 10% bonds which are dated
January 1, 2013 pays annual interest every December and were acquired by the company with the intention of generating income
on a short term basis from the fluctuations of the value of securities. The prevailing rate of interest of similar security on the same date
is at 12%. The company paid for broker's fee and commissions amounting to P100,000. Interest collected at year-end were credited to the
appropriate interest income account. Moreover, the prevailing interest at year end at 14, thus, the market value of the bonds is at
P1,814,269.

Questions:
1. What is the unrealized gain or loss to be recognized in the company's income statement in 2019?
2. What is the investment account balance as of December 31, 2019?
3. How much is the correct interest income to be recognized for the year 2019?