Problem 16-1 (IAA)

Acclaim Company purchased shares of another entity as permanent investment.

January 2, 2019 2,000 shares at 50 100,000

December 20, 2019 3,000 shares at 66 198,000

Transactions for 2020

July 15 Received cash dividend of P5 per share.

Dec. 15 Received 20% share dividend.
28 Sold 3,000 shares at P60 per share. Use FIFO approach.

Required:

Prepare journal entries to record the transactions for 2020.

July 15 Cash 25,000

Dividend income (5,000 shares x 5) 25,000

December 15 Memo - received 1,000 shares representing 20%

stock dividend on 5,000 original shares held.

December 28 Cash (3,000 shares x 60) 180,00

0
Investment in shares 133,000
Gain on sale of investment 47,000

Lot No. 1 (2,400 shares ) 100,000

Lot No. 2 (600/3,600 x 198,000) 33,000
Cost of investment sold 133,000
Problem 16-2 (ACP)

Distraught Company provided the following chronological transactions:

1. Distraught Company acquired 40,000 ordinary shares of Aye Company at P50 per share.
2. The Aye Company shares are exchanged in a 5-for 1 split.
3. Received a preference share dividend of 1 share for every 10 ordinary shares held. Ordinary share is selling
ex-dividend at 15 and preference share is selling at 10.
4. Received a dividend in kind of 1 ordinary share of Bee Company, market price, P6, for every four Aye ordinary
shares held.
5. Sold 80,000 ordinary shares of Aye Company at P15 per share.

Required:

Prepare journal entries to record the transactions.

1. Investment in Aye ordinary shares (40,000 x 50) 2,000,000

Cash 2,000,000

2. Memo - received 200,000 Aye ordinary shares as a

result of 5 for 1 split of 40,000 original shares.

3. Investment in Aye preference share 125,000

Investment in Aye ordinary shares 125,000

Market Value Fraction Cost

Ordinary shares (200,000 x 15) 3,000,000 30/32 1,875,000
Preference shares (20,000 x 10) 200,000 2/32 125,000
3,200,000 2,000,000

4. Investment in Bee ordinary shares 300,000

Dividend income (200,000/4 = 50,000 x 6) 300,000

5. Cash (80,000 x 15) 1,200,000

Investment in Aye ordinary shares
(80,000/200,000 x 1,875,000) 750,000
Gain on sale of investment 450,000
Problem 16-3 (IAA)

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 1,200,000
Investment in Benguet ordinary shares, 10,000 shares 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.

Requirement A:

1. Investment in ANA ordinary shares 300,00

0
Cash 300,00
0

2. Investment in Benguet ordinary 120,00

shares 0
Dividend income (2,000 x 60) 120,00
0

3. Investment in ANA ordinary shares 420,00

0
Cash 420,00
0

4. Cash 60,000
Dividend income (12% X P200 = 24 x 5,000 x 60,000
1/2)
 5. Memo - received 20,000 new ANA ordinary shares as a
result of a 2 for 1 split of 10,000 original shares.

6. Cash (680,000 - 34,000) 646,00

0
Investment in ANA ordinary shares (8,000/20,000 x 288,00
720,000) 0
Gain on sale of investment 358,00
0

Requirement B:

Shares Cost
SMC preference share 5,000 1,200,00
0
Benguet ordinary share 10,000 1,000,00
0
Benguet ordinary share 2,000 120,000
ANA ordinary share 12,000 432,000
29,000 2,752,00
0