PROBLEM 1

You are engaged by Daisy Company to audit its financial statements for the year 2023. During the course of your audit,
you noted that the following trading securities were properly reported as current assets at December 31, 2022:

Cost Market
Italy Corporation, 5,000 shares, convertible preferred shares P 450,000 P 487,500
Bes, Inc. 30,000 shares of common stock 675,000 742,500
Boo Co. 10,000 shares of common stock 618,750 450,000
P 1,743,750 P 1,680,000

The following sale and conversion transactions transpired during 2023:

March 1 Sold 12,500 shares of Bes for P33.75 per share.

April 1 Sold 2,500 shares of Boo for P45.00 per share.
Sept. 21 Converted 2,500 shares of Italy’s preferred stock into 7,500 shares of Italy’s
common stock, when the market price was P78.75 per share for the
preferred stock and P47.25 per share for the common stock.

The following 2023 dividend information pertains to stocks owned by Daisy:

Jan. 2 Boo issued a 10% stock dividend when the market price of Boo’s common
stock was P49.50 per share
March 31 and Italy paid dividends of P2.50 per share on its preferred stock, to stockholders
Sept. 30 of record on March 15 and September 15, respectively. Italy did not pay
dividends on its common stock.
July 1 Bes paid a P2.25 per share dividend on its common stock

Market prices per share of the securities were as follows:

12/31/2023 12/31/2022
Italy Corp., preferred 92.25 97.50
Italy Corp., common 42.75 38.25
Bes Inc., common 22.50 24.75
Boo Co., common 40.50 45.00

All of the foregoing stocks are listed in the Philippine Stock Exchange. Declines in market value from cost would not be
considered permanent

Questions:
1. How much is the gain or loss on conversion of 2,500 Italy preferred stock into 15,000 common stock?
2. How much should be reported as unrealized gain on trading securities in the company's income statement for the
year 2023?
PROBLEM 2

On June 1, 2023, Virgo Corporation purchased as a long term investment 4,000 of the P1,000 face value, 8% bonds of
Angel Corporation. The bonds were purchased to yield 10% interest. Interest is payable semi-annually on December 1
and June 1. The bonds mature on June 1, 2029. Virgo uses the effective interest method of amortization. On November
1, 2020, Virgo sold the bonds for a total consideration of P3,925,000. Virgo intended to hold these bonds until they
matured, so year-to-year market fluctuations were Ignored in accounting for bonds.

Questions:
The carrying value of the investment in bonds as of December 31, 2023
The interest income for the year 2024
The gain on sale of investment in bonds on November 1, 2024
The carrying value of the investment in bonds as of November 1, 2024

PROBLEM 3

Your audit of the MIRA Inc., revealed the following transactions on its "Financial Asset at Fair Market Value through
profit or loss" account:

Date Particulars Debit Credit

01/15/23 Purchased 40,000 shares of ABS at P21.50 per share and P 1,120,000.00
20,000 shares of CBN at P13.00 per share. Amount includes
transaction costs amounting to P1.50 per share.
06/30/23 Purchased 1,000 of GMA Inc.’s 12%, 4-year, P1,000 face value 1,044,258.00
bonds dated January 1, 2021 and pays annual interest every
December 31. Prevailing interest on the same date at 14%.
Amount includes accrued interest and transaction costs
amounting to P10 per bond.
07/01/23 Received 3,000 shares of CBN as stock dividends, prevailing 36,000.00
market price at P12 per share
08/05/23 Sold 15,000 of ABS shares at P15 per share and 5,000 of CBN P 290,000.00
at P13 per share
12/01/23 Sold half of the GMA bonds at P98 plus accrued interest 515,000.00
12/30/23 Received P80,000 in lieu of 5,000 stock dividends from ABS 80,000.00
shares
12/31/23 BALANCE P 1,315,258.00

Additional information:
On December 31, 2019, the market values of the ABS and CB shares were at P18 and P15 per share, respectively.
Moreover, the GMA bonds had a prevailing interest on the same date at 11%.

Questions:
1. How much is the total realized gain/loss on disposal of bonds on December 1?
2. How much should be the unrealized holding gain to be recorded in the income statement for the year 2019?
3. How much Investment in trading securities should be reported in the statement of financial position?
PROBLEM 4

Watasi Corp. Has the following non-trading securities on December 31, 2023

Security # of shares Cost Fair Value (12/31/22)

ABC 9,000 441,000.00 46.00 per share
DEF 30,000 1,080,000.00 35.00 per share
GHI 2,400 360,000.00 154.00 per share

Audit notes.
a. The above securities were all bought in 2022. on the initial recognition, Watasi made an irrevocable election
to present gain/loss on the said securities to other comprehensive income.
b. On April 1, 2023, the company sold all of the ABC ordinary shares for P65 per share.
c. On May 1, 2023, the company purchased 4,200 ordinary shares of JKL Corp. At P75 per share. The company
incurred brokers' fees amounting to P10,400.
d. The following additional information in 2023 were deemed relevant:

Dividends Declared Reported Net Income Fair Value of Shares

ABC ordinary shares P2/share P 900,000.00 P 62.00
DEF ordinary shares P1.5/share 1,300,000.00 38.00
GHI preference shares P1/share 750,000.00 145.00
JKL ordinary shares P0.75/share 450,000.00 77.00

Questions:
1. What is the realized gain on sale of ABC ordinary shares in 2023?
2. What is the unrealized holding gain/loss to be reported in the stockholder's equity portion of the 2023 statement
of financial position?

PROBLEM 5

CASSANDRA Corporation acquired a building on January 1, 2021.The acquisition cost is P5,000,000 payable at the rate
of P1M at the beginning of each year starting on January 1, 2021. The company paid option money totaling P400,000,
P85,221 of which is attributed to real properties not acquired. The company also paid property taxes in arrears.

The company also paid property taxes in arrears as of January 1, 2021 at P147,872. The prevailing market rate of
interest for transaction is 12%. The building is estimated to have useful life of 25 years.

The property was appraised at the end of each year as follows:

Year 2021 2022 2023

Appraised values P 4,600,000.00 P 4,100,000.00 P 4,300,000.00

Questions
1. What is the carrying value of the property as of December 31, 2023, assuming that the building is an investment
property under the cost method?
2. How much recovery gain should be recognized from the asset in the 2023 profit or loss?