Accounting 15

Accounting for Investment and Joint Venture

PSBA -Manila

PROBLEM 1:
The following data and information pertain to the Analysis of sole “Investment in Debt Securities” account
of HK Corporation for the year ended December 31, 2020:

Analysis notes:
A. As per requested schedule the client’s accountant submitted the year-end fair value of this
financial asset and other related figures:

Face Value Cost Fair Value

VZ Bonds 10% 2,500,000 2,380,000* 2,550,000
*includes brokers fee payment of P80,000

B. The financial asset is dated January 1, 2020 and matures on December 31, 2022 and pays
interest annually every December 31 with an effective yield rate of 12%.

C. The Analysis client has irrevocably elected the fair value option. However, the client’s
accountant inadvertently used a different business model to account its financial asset that is
based on thecollection of contractual cash flows through sole payments of principal and
interest and sale of the financial asset in the open market.

As a result of your Analysis findings:

1. Assuming no correcting entries are made, the income statement for 2020 is:
a. Understated by P134,400 c. Overstated by P80,000
b. Understated by P250,000 d. Overstated by P115,600
2. The amount of unrealized gain that should be reported as a component of other comprehensive
income for 2020 is:
a. None c. P250,000
b. P115,600 d. P134,400
3. The adjusting entry to correct the reclassification of the business model adopted by the entity
would include:
a. A credit to brokerage fee expense of P80,000.
b. A debit to gain from change in fair value by P250,000.
c. A credit to unrealized gain – OCI by P134,400
d. A debit to interest income by 35,600.

PROBLEM 2:
The following information was obtained in an Analysis of the equity and debt investment portfolio
account,carried at fair value through other comprehensive income, of Darkin Corporation as of
December 31, 2020:

Equity Securities (Non-trading instruments)

Shares Cost Fair value
T Inc. 100,000 4,850,000 5,050,000
V Corp. 125,000 5,900,000 5,725,000

Debt Security (Business model based on realizing fair value changes)

Face value Cost Fair value
K Inc. 140,000 147,000 136,500

Transactions during the 2020 Analysis disclosed the following:

a. On September 4, 2020, the entity recorded a sale of 50,000 shares of T Inc. by a debit to
“Cash” for its proceeds of P2,460,000, net of P40,000 transaction cost, and a credit to
Financial Asset at FMVOCI/L at fair value of P2,540,000, net of P110,000 estimated transaction
cost. The difference was recognized as “Loss on disposal of equity investment”. Moreover, the
cumulative gain previously recognized in the other comprehensive income on these shares sold
amounting to P320,000 was closed to Retained earnings.

b. On December 31, 2020, you discovered that V Corp. experienced a severe financial difficulty so
that the fair market value of its equity investment had fallen to P5,310,000. The client
accountant overlooked this transaction and reflected the financial asset at P5,725,000 (the fair
value of the investment last remeasurement date).

c. The entity’s initial business model for its K Inc. bonds was to collect contractual cash flows and
to sell them in the open market. On December 31, 2020, it decided to adopt another business
model of managing its financial asset and made the proper disclosure. However, the client
accountant failed to record the reclassification and the premium amortization of P2,000. The
fair value of the financial asset, net of P2,500 estimated transaction cost, did not change
throughout 2020.
 Accounting 15
Accounting for Investment and Joint Venture
PSBA -Manila
Based on your analysis:

1. The correct realized gain or loss to be recognized in the profit or loss as a result of the sale of
50,000 T Inc. shares is:
a. None c. P150,000
b. P40,000 d. P190,000
2. The further decline in the fair value of the V Corp. shares would require a correcting entry by:
e. A debit to impairment loss at P415,000.
f. A debit to unrealized loss – FMV OCI/L at P590,000.
g. A debit to impairment loss at P590,000.
h. A debit to unrealized loss – FMV OCI/L at P415,000.
3. The correcting entry related to K Inc. bonds on December 31 ,2020 should be:
i. Interest Income 2,000
Financial Asset – FMVPL 136,500
Financial Asset = FMVOCI/L 138,500
j. Interest Income 2,000
Financial Asset – FMVOCI/L 500
Unrealized Holding Loss 2,500
k. Interest Income 2,000
Financial Asset – FMVOCI/L 2,000
l. Financial Asset – FMVPL 137,000
Interest Income 2,000
Financial Asset – FMVOCI/L 136,500
Unrealized Loss 2,500

4. The adjusted equity investment balance in the statement of financial position as of December
31, 2020 is:
a. P10,250,000 c. P10,360,000
b. P10,775,000 d. P10,387,000

PROBLEM 3:
Pinay Corp. had the following portfolio of financial instruments of the December 31, 2018. All securities
were acquired at the beginning of 2018:
Denomination/ Recorded
Security Face Value Acquisition Cost
Alpha shares 100,000 shares P5,250,000
Beta shares 40,000 shares 2,350,000
10%, Delta bonds, 3 years P2,000,000 par 1,951,126

Analysis notes:
a. Alpha shares were acquired and were designated as financial asset at fair value
through profit/losses. The shares were acquired at P52.50 per share which included a
P2.50 per sharetransaction cost. Half of the Alpha shares were sold at P58 per share
on July 1, 2019.

b. Beta shares were and were designated as financial asset at fair value through other
comprehensive income/losses. The shares were acquired at P60 per share which
included P1.25 per share transaction cost. 15,000 of these shares were sold on
August 1, 2019 at P59per share.

c. The Delta bonds were acquired on January 1, 2018, when the prevailing market rate of
interestwas at 11%. Interest are collectible every December 31. Half of the Delta
bonds were sold on June 30, 2019 at P1.1M.

d.
Additional information on the securities are as follows:
Security Fair value Fair value
Dec. 31, 2018 Dec. 31, 2019
Alpha shares P55/share P62/share
Beta shares 57.50/share 64/share
10%, Delta bonds, 3 years 9% yield: 12% yield:
P2,035,182 ?
Requirements: Determine the adjusted balances of the following:
1. What is the realized gain or loss on sale of Alpha shares in 2019?
a. 150,000 c. 275,000
b. 200,000 d. 400,000

2. What is the realized gain or loss sale on Beta shares in 2019 under PFRS 9, Financial
Instruments?
a. 75,000 c. 15,000
b. 22,500 d. none
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Accounting for Investment and Joint Venture
PSBA -Manila
3. Assuming that the company’s business model has no objective of holding debt securities to
collect contractual cash flows and that securities are held for short-term profit purposes, what
is the realized gain on sale of the Delta bonds in 2019?
a. 63,067 c. 82,409
b. 113,067 d. 32,409
4. Assuming that the company’s business model has an objective of holding debt securities to
collect contractual cash flows, what is the realized gain on sale of the Delta bonds in 2019?
a. 63,067 c. 82,409
b. 113,067 d. 32,409
5. Assuming that the company’s business model has an objective of holding debt securities to
collect contractual cash flows and hold investment available for sale when opportunity arises,
what is the realized gain on sale of the Delta bonds in 2019?
a. 63,067 c. 82,409
b. 113,067 d. 32,409
6. Assuming that the company’s business model has an objective of holding debt securities to
collect contractual cash flows, what is the total carrying value of investments that shall be
presented as financial asset fair market value through profit or loss (trading securities)?
a. 3,100,000 c. 5,064,285
b. 4,082,143 d. 4,700,000
7. Assuming that the company’s business model has no objective of holding debt securities to
collect contractual cash flows and that debt securities are held for short-term profit purposes,
what is the total carrying value of investments that shall be presented as financial asset fair
market value through profit or loss (trading securities)?
a. 3,100,000 c. 5,064,285
b. 4,082,143 d. 4,700,000
8. Assuming that the company’s business model has an objective of holding debt securities to
collect contractual cash flows, what is the unrealized holding gain/loss to be reported in the
profit/loss for 2019?
a. 250,000 c. 122,402
b. 350,000 d. 314,552
9. Assuming that the company’s business model has no objective of holding debt securities to
collect contractual cash flows and that debt securities are held for short-term profit purposes,
what is the unrealized holding gain/loss to be reported in the profit/loss for 2019?
a. 250,000 c. 122,402
b. 350,000 d. 314,552
10. Assuming that the company’s business model has an objective of holding debt securities to
collect contractual cash flows and hold investment available for sale when opportunity arises,
what is the unrealized holding gain/loss to be reported in the SHE portion of the Statement of
Financial Position?
a. 250,000 c. 122,402
b. 350,000 d. 314,552

PROBLEM 4:
Benshoppe Inc. had the following portfolio of financial assets as of December 31, 2020. All the
financial asset were acquired in 2020:

Financial asset Acquisition Cost

Aye Corp. Stocks, 20,000 shares P590,000
Bee Inc. Stocks, 40,000 shares 1,100,000
See Co. 10%, P2M bonds 1,973,000
Dee Corp. Stocks, 50,000 shares 2,400,000

Analysis notes:
a. Aye Corp. shares were acquired with an intention of generating short-term profits from the share
price’s fluctuations. The company paid P29.50 per share, which included the P0.50 pershare
broker’s fees and commissions. The shares were acquired on February 20, 2020. A P2per share
cash dividends were received on March 30. These dividends were declared by Aye Corp. on
January 20, 2020 to stockholders as of record date March 1, 2020.

b. The company paid P27.50 per share, including P0.50 per share brokers’ fee on the acquisition of
Bee Inc. on March 1, 2020. These shares were acquired for trading purposes. A P3 per share
dividends were received from the said shares on May 3, 2020. These dividends were declared on
April 1 to stockholders as of record date April 20.
 Accounting 15
Accounting for Investment and Joint Venture
PSBA -Manila

c. See Co. bonds which pay semi-annual interest every June 30 and December 31, were acquiredon
October 1, 2020 at P1,973,000, when the prevailing effective interest rate on similar instrument
was at 12%. The bonds shall mature on December 31, 2022. The company has a business model
of holding debt securities for short-term profits.

d. Dee Corp. stocks were acquired P48 per share, including P3 per share brokers’ fees and
commissions on June 30, 2020. Dee Corp. had a total of 200,000 shares outstanding on the
same date. The company received P5 dividends per share form Dee on December 20, 2020.

e. The following information were deemed relevant at year-end and no entries had been madeyet
by the company to reflect any of the following information:

Aye Corp. Bee Inc. See Co. Dee Corp.

Net income in 2020 P1,200,000 P1,500,000 P2,000,000 P2,240,000
Fair Value P35/sh P25/sh 11% P51/sh

Requirements:

1. What is the unrealized holding gain/loss to be reported in the 2020 statement of

comprehensive income?
a. 1,948 c. 121,948
b. 51,948 d. 122,750
2. What is the correct carrying value of investments that should be presented as current asset?
a. 3,665,750 c. 3,664,948
b. 3,543,000 d. 3,765,250
3. What is the correct carrying value of investments that should be presented as non-current?
a. 2,280,000 c. 2,430,000
b. 2,150,000 d. 2,550,000
4. How much in total should be recognized in the income statement in relation the investments?
a. 261,948 c. 571,948
b. 541,948 d. 542,750
5. Assuming that the company’s business model regarding debt securities has an objective of
collecting contractual cash flows, what is the correct carrying value of investments that should
be presented as non-current?
a. 4,394,948 c. 4,395,750
b. 4,362,390 d. 4,360,690
6. Assuming that the company’s business model regarding debt securities has an objective of
collecting contractual cash flows, how much in total should be presented in the income
statement in relation to the investments?
a. 461,948 c. 537,690
b. 525,750 d. 507,690

PROBLEM 5:
Sitaw Corp. acquired and holds debt and equity securities as investment. Equity securities are
accounted for as financial asset at fair value through other comprehensive income, while debt
securities are accounted for under the business model where the objective is to collect contractual cash
flows from the investments.

Described below are the company’s investment-related transactions from 2018 to 2019:
2018
a. The company purchased on March 1, 1 million PATATAS , Inc. common shares for P62 million,
which included the brokerage fees and commissions at P2 million.

b. The company purchased on April 15, P100 million of 10% bonds at face value from SIBUY
Corporation.

c. On July 2, the company received cash dividends of P1.5 million on the investment in PATATAS ,
Inc. common shares.

d. On October 15, the company received the semiannual interest of P5 million on the investment
in SIBUY Corporation bonds.

e. Sitaw Corp. sold half of the SIBUY Corporation bonds for P51.25 million on October 16.

f. Sitaw Corp. purchased 250,000 BAWA Co. preferred shares for P20 million which included
brokerage fees and commissions at P1 million on November 11.
 Accounting 15
Accounting for Investment and Joint Venture
PSBA -Manila

g. On December 31, the market values of the investments are P64 per share for PATATAS , Inc.
and P74 per share for BAWA Co. preferred stock. In addition, SIBUY bonds were quoted at
110.

h. Also, on December 31, the company recorded a transfer of all PATATAS shares to financial
asset at fair value through profit or loss caption.

2019
i. The company sold half the PATATAS Inc. shares for P65 per share on February 14.

j. The company sold the BAWA Co. preferred stock for P78 per share on March 15.

REQUIREMENTS:
1. What is the gain (loss) on the sale of the SIBUY Corporation bonds on October 16, 2018?
a. 1.25 million b. 3.75 million c. (1.25 million) d. (3.75 million)

2. What is the total unrealized capital related to the investment to be reported at the balance
sheet date December 31, 2018?
a. 1.5 million b. 0.5 million c. 1.75 million d. 0.75 million

3. What is the total dividend and interest income from the investments to be reported in the
company’s 2018 income statement?
a. 8.583 million b. 7.583 million c. 7.542 million d. 7.5 million

4. What is the gain (loss) on the sale of the PATATAS , Inc. shares in 2019, under PFRS 9,
Financial Instruments?
a. 1.5 million b. 0.5 million c. (1.5 million) d. None

5. What is the gain (loss) on the sale of the BAWA Co. preferred shares in 2019, under PFRS 9,
Financial Instruments?
a. 1.5 million b. 0.5 million c. (1.5 million) d. None

PROBLEM 6:
Mariah Corp. has the following non-trading equity securities on December 31, 2018:

Fair Value
Security # of Shares Cost (12/31/18)
ABC ordinary shares 9,000 P441,000 P46 per share
DEF ordinary shares 30,000 1,080,000 P35 per share
GHI preference shares 2,400 360,000 P154 per share

Analysis notes:
a. The above securities were all bought in 2018. On the initial recognition, Mariah made an
irrevocable election to present gain/loss on the said securities to other comprehensive income.

b. On April 1, 2019, the company sold all of the ABC ordinary share for P65 per share.

c. On May 1, 2019, 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 2019 were deemed relevant:

Reported Fair Value of
Net Income shares
Dividends Declared* (12/31/19)

ABC ordinary shares P2.00 per share P900,000 P62 per share
DEF ordinary shares P1.50 per share 1,300,000 P38 per share
GHI preference shares P1.00 per share 750,000 P145 per share
JKL ordinary shares P0.75 per share 450,000 P77 per share
*all dividends were declared on December 31, 2019.

Requirements:
Based on the results of your Analysis answer the following:
1. What is the realized gain on sale of ABC ordinary shares in 2019, under PFRS 9?
a. 144,000 b. 171,000 c. 190,000 d. none

2. What is the unrealized holding gain/loss to be reported in the stockholders’ equity portion of
the 2019 statement of financial position?
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PSBA-Manila
Accounting For Investments in Equity and Debt , Joint Arrangement

a. 76,800 b. 56,400 c. 46,000 d. 66,400

3. Assuming that the company elected to report gains/losses in the profit or losses
instead, whatis the unrealized holding gain/loss to be reported in the 2019 statement of
comprehensive income?
a. 76,800 b. 56,400 c. 46,000 d. 66,400

4. Assuming that the 4,200 JKL shares acquired in 2019 represent 20% interest on
JKL’s outstanding ordinary shares, what is the correct carrying value of the
investment in JKLshares?
a. 412,250 b. 382,250 c. 371,850 d. 401,850

PROBLEM 7:
The following information appear on the “Available-for-sale Marketable Securities”/”Financial
Asset atFMV trough Other Comprehensive Income/Loss” account of NYU Corp. for the year
2020:

Date Particulars Debit Credit

1/1/20 Beginning balance comprising of 1,000 SMC shares at
market value of P250/share and 2,000 ABI shares
at market value of P350/share. P950,000
4/1 Purchased 5-year, 12%, 500,000 TDI Corp. bonds at
a prevailing interest rate of 9%. Interests are
payable every March 31. 558,345
11/5 Sold 400 shares of SMC at P230 per share and 800
shares of ABI shares at P325 per share. P352,000
12/31 Sold 300,000 face value TDI bonds at 95 plus
accrued interest. 312,000
12/31 BALANCE P844,345

Additional information:
A. The original acquisition cost of SMC and ABI shares were at P260 per
share and P330 pershare, respectively.

B. On December 31, the fair market values of SMC and ABI shares were at
P275 per share andP340 per share, respectively.

Requirements:
1. How much is the realized loss on sale to be reported in the profit or loss from the
sale ofsecurities on November 5?
a. None b. 4,000 c. 8,000 d. 16,000

2. How much is the realized loss on partial sale of the TDI bonds?
a. 45,620 b. 50,007 c. 83,345 d. 91,240

3. How much is the unrealized holding gain or (loss) to be reported in the statement of
financialposition?
a. 9,413 b. (9,413) c. 51,413 d. (51,413)

4. What is the balance of the investment in available for sale securities to be reported
in thestatement of financial position?
a. 772,413 b. 793,413 c. 763,000 d. 742,000
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PSBA-Manila
Accounting For Investments in Equity and Debt , Joint Arrangement
PROBLEM 8:
On December 31, 2019 Vegas Corp.’s statement of financial position showed the following
balances toits securities accounts:

Financial Asset at Fair Value Through Profit or Loss

Cost Market
10,000 shares of ABC stock P1,500,000 P1,525,000
8,000 shares of DEF stock 1,100,000 1,056,500
10%, GHI bonds purchased at face value
(interests payable semi- annually on
January and July). 500,000* 373,500
*face value

Financial Asset at Fair Value Through Other Comprehensive Income or Loss

Cost Market
10,000 shares of JKL shares 1,180,000 1,260,000
20,000 shares MNO shares 980,000 1,100,000

During 2020 the following transactions took place:

1/1: Received the semi-annual interest from GHI.

3/1: Purchased 3,000 additional shares of ABC stocks for P459,000 classified as
investment at fairvalue through profit or loss.

4/15: Sold 4,000 shares of DEF stocks for P138 per share.

5/4: Sold 4,000 shares of JKL shares for P124 per share.

7/1: Received semi-annul interest from GHI.

9/1: Purchased 400 of PQR’s 5 year, 12%, P1,000 bonds at 93 plus accrued interest. The
bonds aredated January 1, 2020. The bonds was designated as investment at fair
value through profit or loss.

The market values of the stocks and bonds on December 31, 2020 are as
follows:ABC stocks P153.20
DEF stocks 137.00
GHI bonds 82.22
(Quoted price)JKL stocks
110.50
MNO stocks P44.00
PQR bonds 98.00

(Quoted price)Requirements:

1. How much is the realized gain or (loss) on the sale of DEF stocks?
a. 2,000 b. (2,000) c. 23,750 d. (23,750)

2. How much is the realized gain or (loss) on sale of JKL shares?

a. (8,000) b. 8,000 c. (24,000) d. none.

3. How much is the unrealized holding gain to be reported in the 2020 income statement?
a. 64,950 b. 49,750 c. 10,250 d. 84,950

4. How much is the unrealized holding loss to be reported in the 2020 statement of
financialposition?
a. 121,000 b. 125,000 c. 129,000 d. 145,000
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Accounting For Investments in Equity and Debt , Joint Arrangement
Problem 9
Black Corporation owns 300,000 of White Inc.’s 1,000,000 shares issued and outstanding
purchasedon January 2, 2020 at P20 per share. White’s net assets had a book value on the
said date at P16M.The excess of acquisition cost over book value of net assets acquired was
attributed to the total understatement of White’s Land and Building with a 5 year average
useful life at P800,000 and P1,200,000, respectively. The balance of the excess was
attributed to White’s unidentifiable asset.

White Inc. declared P800,000 cash dividends by the end of 2020 and reported a total
comprehensive income amounting to P2,000,000 which is net of an unrealized holding loss
from its investment at fairvalue through other comprehensive income amounting to P500,000.

Requirements:
1. How much from the acquisition cost on January 2020, is attributed to
unidentifiable asset?
a. 600,000 b. 1,200,000 c. 2,000,000 d. 4,000,000

2. How much investment income should be reported in Black Corporation’s profit

or loss?
a. 678,000 b. 750,000 c. 600,000 d. 528,000

3. How much total/net amount should be reported in Black Corporation’s 2020

statement ofcomprehensive income?
a. 678,000 b. 750,000 c. 600,000 d. 528,000

4. What is the carrying value of the investment in White Inc. as of December

31, 2020?
a. 6,528,000 b. 6,288,000 c. 6,678,000 d. 6,438,000

5. Assuming that White Inc. issued additional 200,000 shares at P30 per shares to other
stockholders early in January of 2021, what shall be the total gain or loss on dilution to
be recognized in the 2021 profit or loss, provided further that the dilution is considered
as a “truesale”?
a. 25,000. b. 427,000 c. 452,000 d. none.

6. Assuming that White Inc. issued additional 200,000 shares at P30 per shares to other
stockholders early in January of 2021, what shall be the total gain or loss on dilution to
be recognized in the 2021 profit or loss, provided further that goodwill is not
considered “deemedsold”?
a. 125,000. b. 527,000 c. 552,000 d. none.

7. Assuming that Black Corporation sold 120,000 of its investment in White Corporation
at P30 per share, how much is the total gain on cessation should be recognized in the
2021 profit orloss?
a. 1,627,200 b. 1,084,800 c. 2,562,000 d. 2,712,000

8. Using the information in the previous item, how much from the gain/loss is
realized?
a. 1,024,800 b. 1,537,200 c. 2,562,000 d. 2,712,000

Problem 10
In line with your Analysis of Orion Corp.’s investment accounts as of December 31, 2018, you
ascertainedthe following information:
Investment type CV Per books
Investment in bonds P4,000,000
Investment in stocks 6,200,000
Investment property 3,500,000
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Accounting For Investments in Equity and Debt , Joint Arrangement
Analysis notes:
a. The investment in bonds which shall mature on December 31, 2020 were
acquired in January 1, 2017 when the prevailing market rate of interest was at
10%. Interest at 12% is collectiblefrom the bonds every December 31. The
acquisition was recorded by the client as a debit to Investment in bonds at
face value with the difference between the face value and the total
consideration given up to interest income. Interest collected in 2017 and 2018
were appropriately recorded. No other entry relating to the investment was
made by the client. Further investigation revealed that the company business
model with regard debt security investment has an objective of collecting
contractual cash flows. The prevailing market rate ofinterest was at 11% and
9% at the end of 2017 and 2018, respectively.

b. The investment in stocks is for 40,000 shares of Telecom Corp.’s ordinary

shares acquired in September 30, 2017. The shares were originally acquired at
P145 per share. The book value ofthe net assets of Telecom Corp. on this date
was at P25M and its total outstanding shares was at 200,000. Telecom’s
depreciable assets with average remaining life of 10 years were understated on
this date.

The fair value of Telecom Corp.’s shares were at P155 per share at the end of 2017.
The company recorded the remeasurement (from the acquisition cost to fair value) of
the investment at the end of 2017 and recognized the same as unrealized holding gain
in the 2014profit/loss. The only other entry made by the client related to the
investment was the receipt

of P2 per share dividend by the end of 2017 and P4 per share dividend in 2018 as
dividendincome.

Further investigation revealed the following relevant information:

Telecom Corp. 2017 2018
Net income for the year P3,800,000 P5,200,000
Foreign exchange loss – OCL - 400,000
Unrealized holding gain – OCI 300,000
Fair value 155 per share 169 per share

c. The investment property was a building-factory converted on June 30, 2018 as

a property forlease since the company decided to discontinue its production
segment. The factory was originally acquired at P5M on January 1, 2015 and
was depreciated using straight-line methodover a 10 year useful life. The
company elected to use the fair value method in measuring its investment
property. The fair value of the building on June 30, 2018 was at P3.6M. On
December 31, 2018 the fair value of the building is at P3.2M.

Required:
1. What is the correct carrying value of the investment in bonds as of December
31, 2018?
a. 4,198,948 b. 4,068,501. c. 4,138,843. d. 4,211,093.

2. What is the retroactive adjustment to the retained earnings, beginning as a result of

your Analysisof the investment in bonds?
a. 198,948. b. 138,843. c. 253,589. d. 226,441.

3. Assuming that the investment in bonds accounted for under the investment category
where the business model has an objective of holding debt securities primarily to
generate short-termprofits, what is the unrealized holding gain/loss to be recognized in
the 2018 profit or loss?
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Accounting For Investments in Equity and Debt , Joint Arrangement
a. 113,345 b. 138,843. c. 432,101 d. none.

4. What is the correct carrying value of the investment in stocks as of December

31, 2018?a. 6,760,000. b. 6,670,000. c. 6,770,000 d.
7,180,000.

5. What is the retroactive adjustment to the retained earnings, beginning as a result of

your Analysisof the investment in stocks?
a. 310,000. b. 400,000 c. 490,000. d. 90,000.

6. Assuming that on December 31, 2018, Orion Corp. sold 10,000 shares of its
investment in Telecom shares at the prevailing fair value, how much is the total
gain/loss to be recognized inthe profit or loss in 2018 as a result of the transaction?
a. 90,000. b. 70,000. c. 52,500. d.17,500.

7. How much should be recognized in the statement of comprehensive income

upon thereclassification of the building from PPE to Investment?
a. none. b. 350,000. c. 100,000. d. 400,000.

8. How much should be recognized in the profit or loss for 2018 as a result of the
year-end remeasurement of the investment property?
a. none. b. 350,000. c. 100,000. d. 400,000.

PROBLEM 11:
Your Analysis of Dado Company’s other long-term investments resulted to the following
information:
a. Dado Company insured the life of its president for P4,000,000, the corporation being
the beneficiary of an ordinary life policy. The monthly premium is P8,000 payable
every first dayof the month.

b. The policy is dated January 1, 2012, and carries the following cash surrender
values:
End of Policy Year Cash Surrender Value
2012 P0
2013 0
2014 25,200
2015 30,000
2016 39,600
2017 50,400

c. The company follows the calendar year as its fiscal period.

d. The company received dividends in 2015, 2016 and 2017 at P8,000, P9,600 and
P11,200,respectively
e. The president died on October 31, 2017 and the policy is collected on December 1,
2017.Requirements:

1. What is the life insurance expense to reported in 2014?

a. 96,000 b. 87,600 c. 79,600 d. 83,200

2. What is the life insurance expense to reported in 2015?

a. 96,000 b. 91,200 c. 79,600 d. 83,200

3. What is the life insurance expense to reported in 2016?

a. 96,000 b. 86,400 c. 76,800 d. 83,200

4. What is the life insurance expense to be reported in 2017?

a. 96,000 b. 74,000 c. 85,200 d. 59,800
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Accounting For Investments in Equity and Debt , Joint Arrangement
5. What is the gain on life insurance policy settlement in 2017?
a. 3,951,400 b. 4,000,000 c. 3,935,400 d. 3,940,200

Joint Venture
INVESTMENT IN JOINT VENTURES (FULL PFRS)
Problem #1
On January 1, 2019, REINER CORP. and BERTHOLD INC. incorporated MARLEY COMPANY
which has its fiscal and operational autonomy. The contractual agreement of the
incorporating entities provided that the decisions on relevant activities of MARLEY will
require the unanimous consent of both entities. Both REINER and BERTHOLD will have
rights to the net assets of MARLEY.
Both entities invested P500,000 each equivalent to 40:60 capital interest of MARLEY COMPANY.
The financial statements of the joint venture for its 3-year operation are as follows:

Year Net income (loss) Dividends declared

2019 P 700,000 P 200,000
2020 (P 2,000,000) -
2021 1,500,000 -
REQUIREMENTS: Determine (a) the investment income for the years 2019-2021; (b) the balance
of investment in joint venture for the years ended December 31, 2019-2021 for both REINER and
BERTHOLD?

Problem #2
On January 1, 2019, ITODORI CORP. and MEGUMI INC. incorporated JUJUTSU HIGH INC.
by investing P1,000,000 and P2,000,000, respectively for a capital ratio of 60:40. The
contractual agreement of the incorporating entities provided that the decisions on
relevant activities of JUJUTSU HIGH will require the unanimous consent of both entities.
Both ITODORI and MEGUMI will have rights to the net assets of JUJUTSU HIGH.
During 2019, JUJUTSU HIGH’s financial statements provided the following data:
 JUJUTSU HIGH reported a net income of P1,000,000 for 2019 and paid
cash dividends of P400,000 onDecember 31, 2019.
 During 2019, ITODORI sold inventory to JUJUTSU HIGH for P100,000
with a 40% gross profit on thetransaction. 80% of the goods sold were
sold by JUJUTSU HIGH to third parties during the year.
 During 2019, JUJUTSU HIGH sold inventory to MEGUMI for P200,000
with a 30% gross profit on thetransaction. 60% of the goods were sold
by MEGUMI to third parties during the year.
 On July 1, 2019, JUJUTSU HIGH sold ITODORI a machinery at a loss of
P50,000. At the time of sale, themachinery has remaining useful life of 2
years.
 On October 1, 2019, MEGUMI sold JUJUTSU HIGH an equipment at a gain of
P90,000. At the time of sale, themachinery has a remaining life of 3 years.
REQUIREMENTS: (a) What is the investment income to be reported by ITODORI and MEGUMI for
the year ended 2019? (b) What is the balance of investment in JUJUTSU HIGH INC. be reported by
ITODORI and MEGUMI on December 31, 2019?
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Problem #3
On January 1, 2019, RIKO INC., a small and medium enterprise (SME), invested
P300,000 cash in a joint venture for 30% interest. Transaction costs of 10% of the
purchase price were incurred by RIKO.
On December 31, 2019, the joint venture reported net income of P500,000 and declared and paid
cash dividends of P100,000. Also on that date, the fair value of the investment in joint venture is
P400,000 and the estimated cost to sell is 10% of the fair value. The value in use of the
investment isestimated at P380,000.
REQUIREMEENTS: (a) What is the carrying amount of Investment in Joint Venture account to be
reported by RIKO as of December 31, 2019? (b) What is the net amount presented in profit or loss
during 2019? Under the following models:
(1) Equity Model (3) Fair Value Model
(2) Cost Model

Problem#4
LICH CORP. and FURION INC. incorporated DOTA INC. to manufacture a microchip to be
used by theincorporating entities as component for their final products of cellular phones
and tablets.
The contractual agreement of the incorporating entities provided that the decisions on relevant
activities of DOTA INC. will require the unanimous consent of both entities.
LICH and FURION have rights to the assets and obligations for the liabilities, relating to the
arrangement. The ordinary shares of DOTA will be owned by LICH and FURION in the ratio of
60:40. At the end of first operation of DOTA, the financial statements provided the following data:
Inventory P1,000,000 Accounts payable P2,000,000.
Land 3,000,000 Note payable 1,000,000
Building 5,000,000 Loan payable 4,000,000
Share capital 1,000,000
Retained earnings 1,000,000
Sales revenue 5,000,000The contractual agreement of LICH and FURION also provided for the
following concerning the assetsand liabilities of DOTA INC:
 LICH owns the land and incurs the loan payable of DOTA INC.
 FURION owns the building and incurs the note payable of DOTA INC.
 The other assets and liabilities are owned or owed by LICH and FURION on
the basis of their capital interest in DOTA INC.
 The sales revenue of DOTA includes sales to LICH and FURION in the amount
of P1,000,000 and P2,000,000, respectively. As of the end of the first year,
LICH and FURION were able to resell 30% and 60% of the inventory coming
from DOTA to third persons.
REQUIREMENTS: What is the amount of total assets, total liabilities and sales revenue to be
reported by both LICH and FURION, respectively?
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Accounting For Investments in Equity and Debt , Joint Arrangement

Problem #5
GAREN INC., LUX CORP. and SYLAS CO. agreed to form a joint operation. Profit or
loss ofthe joint operation shall be divided equally. The following were the transactions
during the year:
 Inventory costing P100 was sent by GAREN to SYLAS.
 Freight paid by GAREN on the inventories sent to LUX amounted to P5.
 Cash of P200 was sent by SYLAS to LUX to be used to purchase additional
inventory.
 LUX purchased additional inventory amounting to P250, P50 of which were
made on account of LUX.
 Cash sales made by LUX amounted to P800.
 Operating expenses amounting to P55 were paid by LUX using his own cash.
 Unsold inventories at year-end amounted to P30 and SYLAS is charged the
unsold inventory atcost.
REQUIREMENTS: (a) Journalize the transactions above assuming there is a separate books
maintained and no separate books maintained; (b) Compute for the joint operation net income
(loss) and the final cash settlement for each joint operator.

Problem #6
PEWDIEPIE INC., MARKIPLIER CORP. and IDUBZ CO. The joint operators shall make
initial contributions P10,000 each. Profit and loss shall be divided equally. The following
data relate to the joint operation’s transactions:
PEWDIEPIE MARKIPLIER IDUBZ
Joint Operation P8,000 cr. P10,000 cr. P12,000 cr.
Expenses paid from JO cash 5,000 2,000 3,000
Value of inventory taken 5,000 6,000 4,000
REQUIREMENTS: (a) Compute for the joint operation’s sales; (b) Determine the cash settlement to
PEWDIEPIE.