INTERMEDIATE ACCOUNTING 1

INVESTMENTS

1. Blue Company acquired the following portfolio of equity instruments during 2012 and reported the following
balances at December 31, 2012. No sales occurred during 2012. All declines are considered temporary.

12/31/12 Market
Security Cost Value
ADB 350,000 360,000
PNB 425,000 400,000
LBP 525,000 640,000

What is the carrying value of the securities on December 31, 2012 on Blue’s balance sheet?

2. Candy Company purchased the following portfolio of equity instruments during 2012 and reported the following
balances at December 31, 2012. No sales occurred during 2012. All declines are considered temporary.

12/31/12 Market
Security Cost Value
X 800,000 820,000
Y 1,400,000 1,500,000
Z 1,320,000 1,380,000

a. If the securities were designated as investment to profit or loss, how much should Candy Company report as
unrealized gain or loss related to the securities in its 2012 statement of comprehensive income?
b. If the securities were designated as investment to other comprehensive income, how much should Candy
Company report as unrealized gain or loss related to the securities in its 2012 statement of comprehensive
income?
c. If Candy Company is a medium-sized entity, what amount of unrealized gain or loss should be reported in the
company’s other comprehensive income?

3. Nation Company began business in November of 2011. During the year, Nation Company purchased portfolio of
equity securities listed below. In its December 31, 2011 balance sheet, National Company appropriately reported
a P160,000 debit balance in its “Fair Value Adjustment-Equity Security” account. The composition of the
securities did not change during 2012. Pertinent data are as follows”

12/31/12 Market
Security Cost Value
A 1,200,000 1,260,000
B 900,000 950,000
C 1,600,000 1,620,000

a. What amount of unrealized gain or loss on these securities should be included in Nation Company’s profit or
loss for the year ended December 31, 2012, assuming the equity securities were designated as investment to
profit or loss?
b. What amount of unrealized gain or loss on these securities should be included in Nation Company’s profit or
loss for the year ended December 31, 2012, assuming the equity securities were designated as investment to
other comprehensive income?
4. Morgan Company began business in October of 2011. During the year, Morgan purchased a portfolio of securities
listed below. In its December 31, 2011 balance sheet. Morgan appropriately reported a P300,000 credit balance
in its “Fair Value Adjustment-Equity Security” account. The composition of the securities did not change during
year 2012. Pertinent data are as follows:

12/31/12
Security Cost Market Value
P 2,400,000 2,450,000
Q 2,500,000 2,550,000
R 1,900,000 2,000,000

a. What amount of unrealized gain or loss on these securities should be included in Morgan’s profit or loss for
the year ended December 31, 2012 assuming the securities were designated as investment to profit or loss?
b. What amount of unrealized gain or loss on these securities should be included in Morgan’s other
comprehensive income for the year ended December 31, 2012 assuming the securities were designated as
investment in available for sale?
c. What amount of unrealized gain or loss on these securities should be included in Morgan’s shareholder’s
equity for the year ended December 31, 2012 assuming the securities were designated as investment in
available for sale?
d. By what amount the unrealized gain or loss on the above securities had increased/decreased during 2012
assuming the securities are classified as investment in available for sale?

5. Owl Company reported the following investment in long-term marketable equity securities investment to other
comprehensive income in its December 31, 2011. Statement of financial position.

Investment in non-current equity securities, at cost 2,600,000

Fair value adjustment (400,000)
Fair market value, December 31, 2011 2,200,000

a. On December 31, 2012, the market value of portfolio was P2,500,000. How much should Owl report in its
2012 statement of comprehensive income as a result of the increase in the market value of the investment in
2012?
b. What amount of unrealized gain or loss should the company disclosed in the December 31, 2012 statement of
financial position?

6. On November 1, 2011, Ribbon Company invested in P600,000 in equity securities representing 20,000 ordinary
shares of Carbon Company. Ribbon Company incurred transaction cost of P5,000 related to the acquisition of the
security. On December 31, 2011 this investment has a market value of P580,000. On April 15, 2012, Ribbon
Company sold the investment for P630,000.

a. What amount of realized gain should Ribbon Company recognized on the disposal of the security assuming
the security was classified as investment in profit or loss?
b. What amount of realized gain should Ribbon Company recognized on the disposal of the security assuming
the security was classified as investment at fair value to other comprehensive income under PAS32?
c. What amount of realized gain should Ribbon Company recognized on the disposal of the security assuming
the security was classified as investment at fair value to other comprehensive income under PFRS9?

7. September 31,2012, Cedric Company exchanged equipment for 2,500 shares of Chunk Company’s ordinary
share. On that date, the equipment had a carrying value of P300,000 and its fair market value was P260,000. The
book value of Chunk’s ordinary share was P96 per share. On December 31, 2012. Chink had 25,000 numbers of
ordinary shares outstanding but its market value was not clearly determinable. What amount should Cedric
Company report as carrying value of the investment and the amount of gain or loss on the exchange
respectively?
8. Mutant Company purchased 20,000 shares of Twister Company ordinary shares on February 29, 2011 for
P924,000. Mutant received a P40,000 cash dividend on Twister shares on July 1, 2011. Twister declared a 10%
share dividend on December 1, 2011, to shareholders of record as of December 31, 2011. The dividend was
distributed on January 31, 2012. The market price of the shares was P38 on December 1, 2011 P40 on
December 31, 2011 and P42 on January 31, 2012. What amount unrealized gain or loss and the amount of
dividend income respectively, that should appear in the December 31, 2011 financial statement?

9. Guess Company purchased 50,000 shares (5% ownership) of Casio Company on January 15,2012. Guess
received a share dividend of 15% on March 31, 2012 when the market price of the share is P40. On November
30, Guess paid P20/share special assessment on the shares. On December 15, 2012 Guess received a cash
dividend of P8 per share. In the statement of comprehensive income for the year ended December 31, 2012, what
amount should Guess report as dividend income?

10. Comfort Company purchased 10,000 shares of Velvet ordinary shares at P90 per share on January 3, 2012. On
December 31, 2012 Comfort received 2,000 shares of Velvet ordinary shares in lieu of cash dividend of P10 per
share. On this date, the Velvet ordinary share has a quoted market price of P60 per share. In its 2012 statement
of comprehensive income, Comfort should report dividend income at?

11. January 2, 2012 Tender Company acquired 16,000 shared of A Company ordinary share at P50 per share. Om
July 1, 2012, the A company shares were split 5 to 1, on October 1, 2012 Tender Company received from A
Company a preference share dividend of one share for evert 10 ordinary shares held. On this date, the market
price of A Company’s ordinary shares is P15 per share and the preference shares is P10 per share. On
December 31, 2012. A Company transferred to Tender Company its investment in B Company representing 5,000
ordinary shares as dividend. The market price of B Company shares is P15 per share and its par value is P10 per
share. What is the amount of dividend income that should appear in the December 31, 2012 financial statement
of Tender Co.?