i pROBLEMS problemi 17-1 (AICPA Adapted) Boorish Company acquired a 30% interest for P5,000,000 on January 1, 2020. This cost exceeds the underlying net assets of the investee by P1,000,000 which is attributed to an undervalued equipment by the investee with useful life of five years. ‘The investee reported the following information for 2020 and 2021. Net income Dividends paid 2020 4,000,000 3,000,000 2021 6,000,000 5,000,000 Required: Prepare journal entries on the books of Boorish Company from January 1, 2020 to December 31, 2021. Problem 17-2 (IAA) At the beginning of current year, Cynosure Company purchased 40% of the ordinary shares of another entity for 3,500,000 when the net assets acquired amounted to 7,000,000. At acquisition date, the carrying amounts of the identifiable assets and liabilities of the investee were equal to their fair value, except for equipment for which the fair value was P1,500,000 greater than carrying amount and inventory whose fair value was P500,000 greater than cost. The equipment has a remaining life of 4 years and the inventory was all sold during the current year. : The investee reported net income of P4,000,000 and paid P1,000,000 dividends during the current year. Required: 1 Prepare journal entries for the current year. mpute the investment income for the current year. 483 ‘Scanned with CamScannerProblem 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: Januaryl December 31 Share capital 3,000,000 3,000,000 Revaluation surplus s 1,300,000 Retained earnings 1,0005000 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, 484 ‘Scanned with CamScannerproblem 17-4 (IAA) ‘at the beginning of curren 30,000 shares of an invest shares for P6,000,000. On that date, acquired shares was 4,000,000. The entity attributed the excess of cost over carrying amount to patent ‘with remaining useful life of 10 years. Company's officers gained a majority t year, Disgust Company purchased tee's 200,000 outstanding ordinary the carrying amount of the During the year, Disgust on the investee's board of directors. The investee reported earnings of P5,000,000 for the year and paid dividend of 3,000,000 at year-end. Required: 1. Prepare journal entries to record the transactions for the cunent year. - t income for the current year. 3, Compute the investment! 3, Compute the carrying a year-end. Problem 17-5 (LAA) Alpha Company acquired 20, January 1, 2020 at P120 per s! shares outstanding with a carrying amoun' nce between the carrying amount and fair value of ry 1, 2020 is attributable to a broadcast mount of the investment at 000 shares of Beta Company on hare. Beta Company had 80,000 t of P8,000,000. The differe’ Beta Company on Januai license intangible asset. Alpha Company has a 20-year straight line amortization policy for the broadcast license. Beta Company recorded earnings of P3,600,000 and P3,900,000 for 2020 and 2021, respectively, and paid per-share dividend of P16 in 2020 and P20 in 2021. Required: 1. Compute the inve: 2. Compute the inve: 3. Determine the carrying am associate on December 31, 2021. 485 stment income for 2020. stment income for 2021. ount of the investment in ‘Scanned with CamScannerProblem 17-6 (IAA) At the beginning of current year, Divine Company acquiréq 40% of the outstanding ordinary shares of an investee for P6,500,000. The carrying amount of the net assets of the investee equaled P12,500,000. Any excess of cost over carrying amount is attributable to equipment with remaining useful life of 10 years. During the year, the investee reported net loss of P4,000,000 and paid dividends of P2,500,000. Required: 1. Prepare journal entries for the current year. 2. Compute the carrying amount of the investment at year-end. Problem 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. ‘Scanned with CamScannerproblem 17-8 (AICPA Adapted) on July 1, 2020 Blush Company purchased 209 outstanding ordinary shares of an investee for P00 ob when the fair value of net assets was P20,000,000,° Blush Company has the ability to exercise significant influence over the Operating and financial policies of the jnvestee. The following data concerning the investee are available: 12 months ended 6 months ended December 31,2020 December 31, 2020 Netincome 3,000,000 1,600,000 Dividend declared and paid 1,900,000 1,000,000 In the income statement for the year ended December 31, 2020, what amount of income should be reported from the investment? a. 200,006 b- 320,000 c. 380,000 d. 600,000 Problem 17-9 (AICPA Adapted) On April 1, Aurora Company purchased 40% of the outstanding ordinary shares of an associate for P4,000,000. On this date, the investee's net assets totaled P8,000,000 and Aurora Company cannot attribute the excess of cost of the investment over the equity in the investee's net assets to any particular factor. The investee reported net income of P1,000,000 for the current year. What is the maximum amount which could be included in Aurora Company's income before tax to reflect its “equity in earnings of the investee” for the current year? a. 270,000 b. 360,000 © 300,000 4. 400,000 ‘Scanned with CamScannerProblem 17-10 (AICPA Adapted) t year, Mighty Company acquired At the beginning of curren! i fa afte ‘i dinary shares of an investee for 20% of the outstanding or P7,000,000. / This investment gave Mighty Company the ability to exercise significant influence over the investee. The carrying amount of the acquired net assets was P6,000,000. The excess of cost over carrying amount was attributed to an identifiable intangible asset which was undervalued on jnvestee's statement of financial position and which had a remaining useful life of ten years. The investee reported net income of P1,800,000 for the current year and paid cash dividend of P600,000 on the ordinary shares. What is the carrying amount of the investment in associate _ at year-end? a. 6,780,000 b. 7,140,000 ce. 7,000,000 d. 6,900,000 Problem 17-11 (AICPA Adapted) On July 1, 2020, Focus Company purchased 30,000 shares of Eagle Company’s 100,000 outstanding ordinary shares for P200 per share. On December 15, 2020, Eagle Company paid P1,000,000 in dividends. Eagle Company's net income for 2020 was P5,000,000 earned evenly throughout the year. What amount of income from the investment should be reported for the current year? 7 500,000 300,000 750,000 150,000 Be oe 488 ‘Scanned with CamScannerproblem 17-12 (AICPA Adapted) At the beginning of current year, Bliss Company purchased 10% of Red Company’s outstanding ordinary shares for 4,000,000. Bliss Company is the largest single shareholder in Red Company and Bliss Company's officers are a majority on Red Company's board of directors. Red Company reported net income of P5,000,000 for the current year and paid dividends of P1,500,000. What amount should be reported as investment in associate at year-end? 4,350,000 . 4,500,000 4,000,000 3,850,000 peop Problem 17-13 (AICPA Adapted) At the beginning of current year, Small Company purchased 25% of Big Company. No "excess" resulted from the purchase. Small Company appropriately carried this investment at equity and the carrying amount of the investment was P1,900,000 at year-end. Big Company reported net income of P1,200,000 for the current year and paid cash dividend of P480,000 at year-end. What amount did Small Company pay for the 25% interest in Big Company? a. 2,320,000 b. 2,020,000 ©. 2,080,000 4. 1,720,000 489 ‘Scanned with CamScannerProblem 17-14 (IAA) At the beginning of current year, Magic Coe eae 40% of the outstanding ordinary shares 0 pp inverse Revi P2,560,000 when the carrying amount o! 0! the investee equaled P5,000,000. iff ‘ sai t which had a The difference was attributed to equipmen! carrying amount of P1,200,000 and a fair market value of. P2,000.000, and to building with ‘a carrying amount of P1,000,U00 and a fair market value of P1,600,000. The remaining useful life of the equipment and building was 4 years and 12 years, respectively. During the current year, the investee reported net income of P1,600,000 and paid dividends of P1,000,000. What is the carrying amount of the investment in associate at year-end? a. 2,550,000 b. 2,700,900 ¢. 2,800,000 d. 3,050,000 Problem 17-15 (AICPA Adapted) Hannah Company owned 20% of Love Company’s preference share capital and 50% of the ordinary share capital. Love Company's share capital outstanding comprised the following at year-end: 10% cumulative preference share capital 2,000,000 Ordinary share capital 7,000,000 Love Company reported net income of P5,000,000 for the current year. What amount should be recorded as investment income for the current year? a. 2,400,000 b. 2,500,000 ¢. 2,600,000 d. 2,700,000 490 ‘Scanned with CamScannerproblem 17-16 Multiple choice (IFRS) 1L 2 ~ It is an entity over which the investor has significant influence. a, Associate b. Investee 2 c. Venture capital organization a. Mutual fund Which statement best describes significant influence? a: The holding of a significant proportion of the share capital in another entity b. The contractually agreed sharing of control over an economic entity c. The power to participate in the financial and operating policy decisions of an entity d. The mutual sharing in the risks and benefits of a combined entity When an entity holds between 20% and 50% of the voting power of an investee a. The investor must use the equity method. b. The investor should use the equity method unless circumstances indicate that it-is unable to exercise significant influence over the investee. c. The investor must use the cost method. d. The investor must use the fair value method. . Which statement is incorrect concerning the equity method? a. The investment is initially recorded at cost. b. The investment in associate is increased or decreased by the investor’s share of the profit or loss of the investee after the date of acquisition. ¢. The investor's share of the profit or loss of the investee is recognized in the investor's profit-or loss. 4d. Dividends received from the investee are accounted, for as dividend income. 491 ‘Scanned with CamScanner5. If an associate has outstanding shares held by outside interests. cumulative preference the investor computes share of profit or loss a b. c a. After adjusting for preference dividends which wete actually paid during the year. . Without regard for preference dividends. After adjusting for the preference dividends only when declared. After adjusting for the preference dividends, whether or not the dividends have been declared. 6. Goodwill arising from an investment in associate is a. b. c d. Included in the carrying amount of the investment and amortized over the useful life. Included in the carrying amount of the investment and not amortized. Charged to retained earnings. Expensed immediately. 7. How is goodwill arising on the acquisition of an associate dealt with in the financial statements? Boop It is amortized. It is impairment tested individually. It is written off as loss. Goodwill is not recognized separately within the carrying amount of the investment. 8. How is the impairment test carried out for an associate? a. b. The goodiwll is impairment tested individually. The entire carrying amount of the investment is tested for impairment by comparing the recoverable amount with the carrying amount. The carrying amount of the investment shall be compared with the market value. . The recoverable amounts of all investments in associates shall be associated together. 492 ‘Scanned with CamScanner