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PROBLEM NO. 1 You were able to obtain the following ledger details of Trading Securities
PROBLEM NO. 1 You were able to obtain the following ledger details of Trading Securities

PROBLEM NO. 1

You were able to obtain the following ledger details of Trading Securities in connection with your audit of the JPIA Corporation for the year ended December 31, 2017:

QUESTIONS:

Based on the above and the result of your audit, answer the following:

Date

Particulars

DR

CR

1. In relation to March 1 transaction, the necessary adjusting journal entry includes

Jan. 10

Purchase of Robin

a. A debit to Loss of P60,000

 

Co. 6,000 shares

P1,440,000

b. A credit to Trading Securities of P600,000

 

Feb. 20

Purchase of Eric Co.

c. Both a and b

 

7,200 shares

1,800,000

d. Neither a nor b

 

Mar. 1

Sale of Eric Co. -

May 31

2,400 shares Receipt of Robin

540,000

2. In relation to August 15 transaction, the necessary adjusting journal entry includes

share dividend

a.

A debit to Trading Securities of P216,000

 

Offsetting credit to

b.

A debit to Loss of P 15,300

 

retained earnings

132,000

c.

A credit to Gain of P216,000

Aug. 15

Sale of Robin

d.

A credit to Trading Securities of P15,300

 

4,800 shares

1,176,000

Sept. 1

Sale of Robin

3. relation

In

to

September

1

transaction,

the

necessary

1,200 shares

276,000

adjusting journal entry includes

 

The following information was obtained during your examination:

o From independent sources, you determine the following dividend information:

a. A debit to Trading Securities of P36,000

b. A credit to Gain of P36,000

c. Both a and b

d. Neither a nor b

Nature

Declared

Record

Payment

Rate

4. The carrying amount of Trading Securities as of December

Cash

01/02/17

01/15/17

01/31/17

P20/share

31, 2017 is overstated by

Share

05/02/17

05/15/17

05/31/17

10%

Cash

08/01/17

08/30/17

09/15/17

P30/share

5. How much is the net amount

to be recognized in JPIA

 

Corporation’s

2017

profit

or

loss

related

to

these

o

Closing market quotation as at December 31, 2017:

investments?

 

Bid

Asked

Robin Shares

P 210

P 220

Eric Shares

240

250

PROBLEM NO. 2

Gilbert Company had acquired interest in a promising local company, Kent Company. During your audit of the company’s accounts for the year 2017, which was a first audit, you obtained the following:

Investment in Kent Company

2015

- Jan.2

30,000 sh @ 35

P 1,050,000

2017-Jul. 15

50,000 sh @40

P 2,000,000

.

2016

- Jul. 2

90,000 sh @60

5,400,000

 

2017

- Mar. 2

30,000 sh @ 70

2,100,000

 

Investment in Kate Company

 

2017

- Aug. 10

P 10,000

 
 

Dividend Income

 
 

2017

January 2

P 120,000

.

April 1

150,000

.

August 10

10,000

.

December 20

100,000

.

The transactions pertaining to the foregoing for 2017 were as follows:

Apr. 1 Received cash dividend (declared on March 1 to shareholders of record as of March 10) of P1 per

Jan 2.

Received cash dividend (declared on December 1)

share. July 15 Sold 50,000 shares at P40 per share.

Mar. 2

of P1 per share. Bought 30,000 shares at P70 per share.

Aug. 10 Received an “extra” dividend in shares of one share of Kate Company for every ten shares of Kent Company. The share dividend had a market value

of one share of Kate Company for every ten shares of Kent Company. The share dividend
of one share of Kate Company for every ten shares of Kent Company. The share dividend
of one share of Kate Company for every ten shares of Kent Company. The share dividend

A.Y. 2017-2018

Dec. 20 of P3 per share and its book value on the ledger of Kent
Dec. 20 of P3 per share and its book value on the ledger of Kent

Dec. 20

of P3 per share and its book value on the ledger of Kent Company was P1 per share. Received cash dividend of P1 per share, declared

The fair values of the shares and bonds on December 31, 2017 are as follows:

Dec. 29

December 1, out of Kent Company’s “Reserve for Depletion” Sold 10,000 Kent Company shares at P90. Cash

Stella, Inc. Gladys, Inc.

P22 per share P15 per share

was received on January 5, 2018

10% Jules bonds

P151,200

 

Emmanuel Products

P42 per share

QUESTIONS:

Hilary, Inc.

P28 per share

Based on the above and the result of your audit, determine the following:

Anna, Inc.

P18 per share

QUESTIONS:

6. Loss on sale of 50,000 Kent Company shares on July 15

7. Gain on sale of 10,000 Kent Company shares on December

29

8. Adjusted balance of Investment in Kent Company as of December 31, 2017

9. Adjusted balance of Investment in Kate Company as of December 31, 2017

10. Dividend income for the year ended December 31, 2017

PROBLEM NO. 3

Your audit of the Louise Corp. disclosed that the company owned the following securities on December 31, 2016:

Trading securities:

Based on the above and the result of your audit, determine the following:

11. Gain or loss on sale of 8,000 Gladys, Inc. shares on March 1

12. Gain or loss on sale of 3,200 Anna, Inc. shares on May 15,

13. Total interest income for the year 2017?

14. The amount to be recognized in other comprehensive income on the transfer of Isagani bonds to available-for- sale?

15. Carrying amount of Trading Securities and Available-for-sale securities as of December 31, 2017 should be

PROBLEM NO. 4

Security

Shares

Cost

Fair Value

On January 3, 2015, Roydene Company purchased for P500,000

Stella, Inc.

9,600

P144,000

P184,000

cash a 10% interest in Anna May Corp. On that date the net assets

Gladys, Inc.

16,000

432,000

288,000

of Anna May had a book value of P3,750,000. The excess of cost

10%, P200,000 face value, Jules bonds (interest payable every Jan. 1 and Jul. 1)

158,400

163,440

over the underlying equity in net assets is attributable to undervalued depreciable assets having a remaining life of 10 years from the date of Roydenepurchase. The investment in Anna May Corp. is not intended for trading.

Total

P734,400

P635,440

Available-for-sale securities:

 

The fair value of Roydeneinvestment in Anna May securities is

Security

Shares

Cost

Fair Value

as follows: December 31, 2015, P570,000; December 31, 2016:

Emmanuel Products

32,000

P1,376,000

P1,440,000

P525,000; December 31, 2017, P2,200,000.

 

Hilary, Inc.

240,000

6,240,000

5,840,000

Anna, Inc.

80,000

960,000

1,280,000

On January 2, 2017, Roydene purchased an additional 30% of

 

P8,576,000

P8,560,000

Anna May’s stock for P1,575,000 cash when the book value of

Held to maturity:

 

Anna May’s net assets was P4,150,000. The excess was attributable to depreciable assets having a remaining life of 8

 

Amortized

years.

cost

Fair Value

12%, 2,000,000 face value, Isagani bonds (interest payable

 

During 2015, 2016, and 2017 the following occurred:

 

annually every Dec. 31)

P1,926,000

P1,900,000

Anna May

Dividends Paid by

 

Net Income

Anna May to

During 2017, the following transactions occurred:

 

Roydene

Jan. 1

Receive interest on the Jules bonds.

2015

P 350,000

.

P 15,000

.

Mar. 1

Sold 8,000 shares of Gladys, Inc. for P152,000

2016

400,000

.

20,000

.

May 15

Sold 3,200 shares of Anna, Inc. for P15 per share

2017

550,000

.

70,000

.

July 1

Received interest on the Jules bonds

 

Dec. 31

Received interest on the Isagani bonds

QUESTIONS:

31

.

Transferred the Isagani bonds to the available-for- sale portfolio. The bonds were selling at 101 on this date. The bonds were originally purchased at an effective rate of 14%.

Based on the above and the result of your audit, answer the following:

at an effective rate of 14%. Based on the above and the result of your audit,
at an effective rate of 14%. Based on the above and the result of your audit,
at an effective rate of 14%. Based on the above and the result of your audit,

A.Y. 2017-2018

16. The net amount to be recognized in 2015 comprehensive income related to this investment?
16. The net amount to be recognized in 2015 comprehensive income related to this investment?

16. The net amount to be recognized in 2015 comprehensive income related to this investment?

17. The net amount to be recognized n 2016 comprehensive income related to this investment?

18. The adjustment to retained earnings as of January 1, 2017 as

a result of the acquisition of the additional 30% interest in Anna May Corp.

19. The carrying amount of the investment in Anna May Corp. as

of December 31, 2017 is

PROBLEM NO. 5

On April 1, 2014, Jonelle Corporation purchased 5-year P10,000,000 10% bonds dated January 1, 2014. The bonds were purchased to yield 8%. Interest is payable annually every December 31. Jonelle Corporation has the positive attention and ability to hold these bonds to maturity. The issuer paid the interest as scheduled in 2014 and 2015. During 2016, the issuer of the bonds is in financial difficulties and it becomes probable that the issuer will be put into administration by a receiver, On December 31, 2016, Jonelle estimated that none of the interest will be collected and only P8,000,000 of the principal will be collected on maturity date. No cash flows are received during 2017. At the end of 2017, the issuer is released from administration and Jonelle receives a letter from the receiver stating that the issuer will be able to meet its remaining obligations, including interest and repayment of principal.

QUESTIONS:

Based on the above and the result of your audit, answer the following: (Round off present value factors to four decimal places)

20. How much is the total amount paid to acquire the investment

in bonds on April 1, 2014?

21. How much is the carrying amount of the investment in bonds on December 31, 2014?

22. How much should be recognized as impairment loss in 2016?

23. How much is the interest income to be recognized in 2017?

24. How much should be recognized as reversal of impairment loss in 2017?

income to be recognized in 2017? 24. How much should be recognized as reversal of impairment
income to be recognized in 2017? 24. How much should be recognized as reversal of impairment
income to be recognized in 2017? 24. How much should be recognized as reversal of impairment

A.Y. 2017-2018