CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

EQUITY INVESTMENTS
1. During 2021, an entity purchased marketable equity securities as a trading investment. For the
year ended December 31, 2021, the entity recognized an unrealized loss of P200,000. There were
no security transactions during 2022. The entity provided the following information on December
31, 2022:
Security Cost Market value
A 2,450,000 2,300,000
B 1,800,000 2,700,000
4,250,000 5,000,000
In the 2022 income statement, what amount should be reported as unrealized gain or loss?
a. Unrealized gain of P950,000
b. Unrealized loss of P950,000
c. Unrealized loss of P750,000
d. Unrealized gain of P750,000

2. On January 1, 2021, an entity purchased equity investments held for trading.

Purchase price Transaction cost Market – 12/31/2021
Security A 1,000,000 100,000 1,200,000
Security B 2,000,000 200,000 1,500,000
Security C 3,000,000 300,000 3,100,000
On July 1, 2022, the entity sold Security A for P1,900,000. What amount should be reported as
gain on sale of equity investments in 2022?
a. 900,000
b. 700,000
c. 600,000
d. 800,000
3. An entity acquired at the beginning of 2021 nontrading equity investment for P5,000,000 with
transaction cost of P550,000 and irrevocably designated as financial asset at fair value through
other comprehensive income. The fair value was P5,900,000 at December 31 and the transaction
cost that would be incurred on the sale of the investment is estimated at P500,000. What amount of
gain should be recognized in OCI for 2021?
a. 900,000
b. 350,000
c. 400,000
d. 950,000

4. On January 1, 2021, an entity purchased nontrading equity investments which are irrevocably
designated at FVOCI:
Purchase price Transaction cost Market – 12/31/2021
Security A 1,000,000 100,000 1,500,000
Security B 2,000,000 200,000 3,000,000
Security C 4,000,000 400,000 4,700,000
On July 1, 2022, the entity sold Security C for P5,200,000. What is the net adjustment to retained
earnings as a result of the sale of investment in 2022?
a. 500,000 credit
b. 500,000 debit
c. 800,000 credit
d. 0
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5. On December 31, 2021, an entity appropriately reported a P100,000 unrealized loss. There was no
change during 2022 in the composition of the portfolio of nontrading equity securities held at fair
value through other comprehensive income.
Security Cost Market value December 31, 2022
A 1,200,000 1,300,000
B 900,000 500,000
C 1,600,000 1,500,000
3,700,000 3,300,000
What amount of unrealized loss should be reported for 2022 as component of OCI?
a. 400,000
b. 300,000
c. 500,000
d. 0
6. During 2021, an entity bought the shares as investment.
June 1 20,000 shares @ P100 2,000,000
December 1 30,000 shares @ P120 3,600,000
5,600,000
Transactions for 2022
January 10 Received 20% share dividend.
July 20 Received cash dividend of P10 per share.
December 10 Sold 30,000 shares at P150 per share
1. What is the gain on the sale of equity investment under FIFO approach.
a. 1,900,000
b. 1,300,000
c. 900,000
d. 700,000
2. What is the gain on the sale of equity investment under average approach?
a. 1,700,000
b. 2,300,000
c. 2,500,000
d. 1,500,000
7. An entity owned 50,000 shares of another entity. These 50,000 shares were originally purchased
for P100 per share. The investee distributed 50,000 rights to the entity. The entity was entitled to
buy one new share for P140 and five of these rights. Each share had a market value of P150 and
each right had market value of P10 on the date of issuance. The entity exercised all rights. The
share rights are accounted for separately and measured initially at fair value. What total cost should
be recorded for the new shares that are acquired by exercising the rights?
a. 1,400,000
b. 1,900,000
c. 1,650,000
d. 1,000,000
8. An entity issued rights to subscribe to its share capital, the ownership of 4 shares entitling the
shareholders to subscribe for 1 share at P100. An investor owned 50,000 shares with total cost of
P5,000,000. The share is quoted right-on at 125. The share rights are accounted for separately and
measured initially at fair value. What is the cost of the new investment assuming all of the share
rights are exercised by the investor?
a. 1,500,000
b. 1,250,000
c. 1,562,500
d. 1,450,000
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