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AUDIT OF INVESTMENTS Gudo Company 15% bonds:

600 bonds, P1,000 each, purchased in July 2018, at par


Problem 1 The following investment in Trading Securities account appears in (Interest dates: February 1 and August 1)……………………………………………..
the books of CAP, INC. 600,000
Date Explanation Debit
Credit P5,349,000
2019
Jan. 1 Balance P5,349,000 Your examination discloses the following:
31 Sold Robusta ordinary
P640,920 1) On January 31, 2019, 30,000 ordinary shares of the Robusta Company
Mar. 31 Bought Wilma ordinary 365,000 purchased in May 2018
June 30 Dividend on Bulik ordinary 300,000 Were sold for P640,920.
July 31 Sold Bulik ordinary
262,500 2) On March 31, 2019, 15,000 ordinary shares of Wilma Company were
Aug. 1 Sold Gudo bonds purchased at P24.25 per
Share plus brokerage fee, for P365,000.
675,000

The audit work papers of the preceding year show that the account balance 3) In June 2019, the Bulik Company paid a 100% ordinary share dividend
as of January 1, 2019, consisted of the following: on ordinary shares.

4) In July 2019, CAP, INC. sold to its president for P125 per share, 3,000
Robusta Company ordinary:
30,000 shares, purchased in June 2016, P20 per ordinary shares of Bulik Company, for which the president gave his
share…….………………..….…P600,000 check for P262,500 and a letter in which he agreed to pay the balance
60,000 shares, purchased in August 2017, P16 per share……………………...... upon demand of the treasure of the company.
960,000
45,000 shares, purchased in May 2018 , P22 per share………………………....... 5) On August 1, 2019, CAP, INC., sold its Gudo Company 15% bonds at
990,000 110 plus accrued Interest

Wilma Company ordinary: 6) The total market value of the securities at year- end amounted to
60,000 shares, purchased in January 2018, P33 per P4,500,00
share……..………………1,980,000
Questions:
Bulik Company ordinary:
3,000 shares, purchased in August 2017, P73 per share (par P100)…………. 1. What is the gain on sale of Bulik Company shares on July 31,2019?
219,000
A. P109,500 B. P153,000 C. P156,000 Investment Quantity Cost Fair
D. P265,500 Value
LJ, Inc. 1,000 shares P 90,000 P
2. What is the gain on sale of Gudo Company bonds on August 1, 2019? 126,000
A. P 0 B. P45,000 C. P60,000 Polland Co. 2,000 shares 240,000
D. P75,000 252,000
Alabang Corp. 2,000 shares 432,000
3. The adjusting entry for the sale of Robusta Company ordinary shares 360,000
on January 31, 2019, Totals P762,000
Should include a P738,000
A. Debit to Loss on sale of trading securities for P19,080.
B. Credit to Gain on sale of trading securities for P19,080. 1. In the December 31, 2018, statement of financial position, what
C. Debit to Cash for P640,920 should be reported as carrying amount of the investments?
D. Credit to Investment in trading securities for P660,000. A. 738,000 B. P690,000 C. P762,000
D. P810,000
4. The December 31, 2019, carrying amount (before market
adjustment) of CAP, INC.’s
Investment in trading securities is 2. In the 2018 income statement, what amount should be reported as
A. P4,233,750 B. P4,343,250 C. P4,344,500 unrealized gain or loss?
D. P4,500,000 A. Unrealized gain of P24,000
B. Unrealized loss of P24,000
5. What amount of unrealized gain should be reported in the income C. Unrealized loss of P72,000
statement for the year D. Unrealized gain of P48,000
ended December 31, 2019?
A. P155,500 B. P156,750 C. P158,000 (b) During the year 2019, Magnolia Corp. sold 2,000 shares of Polland Co.
D. P266,250 for P229,200 and purchased
2,000 more shares of LJ Inc, and 1,000 shares of Dwarfy Company. On
Problem NO. 2 December 31, 2019, Magnolia’s equity securities portfolio consisted of
the following:
Magnolia Corp. invested its excess cash in equity securities during 2018. The
business model for these investment is to profit from trading on price Investment Quantity Cost Fair
changes. Value
LJ, Inc. 1,000 shares P 90,000 P
(a) As of December 31, 2018, the equity investment portfolio consisted of 120,000
the following: LJ, Inc. 2,000 shares 198,000
240,000
Dwarfy Company 1,000 shares 96,000 6. What should be reported as loss on sale of trading securities in 2020?
72,000 a. P120,600 b. P64,800 c. P48,600
Alabang Corp. 2,000 shares 432,000 d. P136,800
132,000
Totals P816,000 7. What amount of unrealized gain or loss should be reported in the
P564,000 income statement for the year ended December 31, 2020?
a. P360,000 unrealized gain
3. What is the gain or loss on the sale of Polland Co. Investment? b. P360,000 unrealized loss
a. P10,800 gain b. P10,800 loss c. P22,800 gain c. P48,000 unrealized gain
d. P22,800 loss d. P48,000 unrealized loss

4. What is the carrying amount of the Investments on December 31, 8. In the December 31, 2020, statements of financial position, what
2019? should be reported as carrying amount of trading securities?
a. P816,000 b. P888,000 c. P564,000 a. P480,000 b. P468,000 c. P528,000
d. P492,000 d. P540,000

5. What amount of unrealized gain or loss should be reported in the Problem No. 3
income statements for the year ended December 31, 2019? Supporting records of MAYON CORPORATION’s trading securities portfolio
a. P252,000 unrealized gain c. P216,000 show the following ebt and equity securities:
unrealized gain Security Cost Fair Value
b. P252,000 unrealized loss d. P216,000 400 ordinary shares P254,500 P243,000
unrealized loss Concave Co.
P800,000 Tipo Co. 7% 796,500 774,000
(c) During the year 2020, Magnolia sold 3,000 shares of LJ, Inc. for P239,400 bonds
and 500 shares of Dwarfy Company at a loss of P16,200. On December 31, P1,200,000 Turkey Co. 7 1,207,500 1,218,900
½ % bonds
2020, Magnolia’s equity investment portfolio consisted of the following:
Totals P2,258,500 P2,235,900
Investment Quantity Cost
Interest dates on the bonds are January 1 and July 1. Mayon Corporation uses
Fair Value
the income approach to record the purchase of bonds with accrued interest.
Dwarfy Company 500 shares P48,000
During 2019 and 2020 , Mayon completed the following transactions related
P36,000
to trading securities.
Alabang Corp. 2,000 shares 432,000
492,000
2019
Totals P480,000
Jan 1 Received semiannual interest on bonds. Assume that the appropriate
P528,000
adjusting entry was made on December 31, 2018.
April 1 Sold P600,000 of 7 ½ % Turkey bonds at 102 plus accrued interest. d. P6,150 unrealized loss
May 21 Received dividend of P1.25 per share on the Concave ordinary share
capital. The dividend had not been recorded on the declaration date. 4. What is the carrying amount of the remaining trading securities on
July 1 Received semiannual interest on bonds and then sold the 7% Tipo December 31, 2019?
bonds at 97 ½. a. P1,481,000 c.
Aug 15 Purchased 200 shares of Newman, Inc. ordinary share capital at P580 P1,473,450
per share plus brokerage fees of P500. b. P1,450,450 d.
Nov. 1 Purchased P500,000 of 8% Toll Co. bonds at 101 plus accrued P1,452,250
interest. Brokerage fees were P1,250. Interest dates are January 1
and July 1. 5. What is the loss on the sale of the remaining Turkey bonds on
Dec. 31 Market prices of securities were: February 1, 2020?
Concave ordinary shares P550 a. P4,500 c. P13,500
7 ½ % Turkey bonds 101 ¾ b. P10,500 d. P750
8% Toll bonds 101
Problem 4
Newman ordinary shares P583.75
SANTOL CORP. invested its excess cash in non-trading equity securities
2020 during 2019. On initial recognition, the entity made an irrevocable election
Jan. 2 Recorded the receipts of semiannual interest on bonds. to present its securities at fair value through other comprehensive income
Feb. 1 Sold the remaining 7 ½ % Turkey bonds at 101 plus accrued interest. (FVOCI). As of December 31, 2019, the company’s securities portfolio
consisted of the following:
Questions:
1. What is the total interest and dividend income for 2019? Investee Shares Cost Market Value
Company
a. P125,166 c. P91,417
Kelly Inc. 30,000 P450,000 425,000
Ejoy Corp. 60,000 1,500,000 1,610,000
b. P164,416 d. P98,804 Yogi Enterprises 60,000 2,160,000 2,300,000
Totals P4,110,000 P4,335,000
2. What amount should be reported as gain on sale of trading
securities in 2019?
a. P2,550 c. P8,550 During the year 2020, Santol sold 60,000 shares of Eloy Corp. for P1,700,000
b. P6,000 d. P3,450 and purchased 60,000 additional shares of Kelly, Inc. and 30,000 shares of
Kongga Company.
3. What amount of unrealized gain or loss should be reported in the On December 31, 2020, Santol’s portfolio of non-trading equity securities
income statement for the year ended December 31, 2019? comprised the following:
a. P21,200 unrealized gain
b. P21,200 unrealized loss
c. P6,150 unrealized gain
Investee Shares Cost Market Value a. P1,415,000 b. P1,300,000 c. P335,000
Company d. P225,000
Kelly, Inc. 30,000 P450,000 P500,000
Kelly, Inc. 60,000 1,300,000 1,450,000 4. What unrealized gain on the remaining financial assets should be
Kongga 30,000 520,000 480,000 reported in the 2021 statement of comprehensive income as
Company component of other comprehensive income?
Yogi Enterprise 60,000 2,160,000 700,000
a. P1,960,000 b. P60,000 c. P3,440,000
Totals P4,430,000 P3,310,000
d. P3,500,000

During the year 2021, Santol sold all the Kelly, Inc. shares for P2,300,000 5. What cumulative amount of unrealized gain should be reported as
and 15,000 shares of Kongga Company at a loss of P90,000. On December component of other comprehensive income in the statement of
31, 2021, Santol’s portfolio of non-trading equity securities consisted of the changes in equity on December 31,2021?
following: a. P1,505,000 b. P1,960,000 c. P1,480,000
d. P3,440,000
Investee Shares Cost Market Value
Company Problem 5
Yogi Enterprises 60,000 P2,160,000 P4,200,000
Kongga 15,000 260,000 180,000 Coolong co. holds debt securities within a business model whose objective is
Company achieved both by collecting contractual cash flows and selling the debt
Totals P2,420,000 P4,380,000 securities. The contractual cash flows are solely payments of principal and
interest on specified dates.
Questions: The following amortization schedule relates to its 5 –year P1,000,000, 7%
bonds purchased on December 31, 2016, for P1,086,565. The bonds were
1. What total amount should be credited to retained earnings as a
purchased to yield 5% interest.
result of the sale of Eloy Corp. securities in 2020?
a. P200,000 b. P110,000 c. P90,000
d. P20,000
Date Interest Interest Premium Amortized
Received Income Amortization Cost
2. What unrealized loss on the remaining financial assets should be
12.31.16 P1,086,565
reported in the 2020 statement of comprehensive income as 12.31.17 P70,000 P54,328 P15,672 1,070,893
component of other comprehensive income? 12.31.18 70,000 53,545 16,455 1,054,438
a. P1,600,000 b. P1,640,000 c. P1,415,000 12.31.19 70,000 52,722 17,728 1,037,160
d. P1,300,000 12.31.20 70,000 51,858 18,142 1,019,018
12.31.21 70,000 50,982 19,018 1,000,000
3. What cumulative amount of unrealized loss should be reported as *Adjustment due to rounding
component of other comprehensive income in the statement of
changes in equity on December 31, 2020?
The following schedule presents the amortized cost and fair value of the a. P26,455 c. P25,233
bonds at year-end. b. P16,883 d. P10,990

Fair Value Amortized Cost


December 31, 2017 P1,065,000 P1,070,893
December 31, 2018 1,075,000 1,054,438
December 31, 2019 1,056,500 1,037,160
December 31, 2020 1,030,000 1,019,018
December 31, 2021 1,000,000 1,000,000

1. What amount should be reported as investment in bond in the


statement of financial position of Coloong Co. on December 31,
2018?
a. P1,086,565 c. P1,0750,000
b. P1,054,438 d. P1,065,000

2. What amount of unrealized gain should be shown a component of


other comprehensive income in the 2018 statement of
comprehensive?
a. P26,455 c. P10,000
b. P20,562 d. P16,455

3. What amount of unrealized loss should be shown as component of


other comprehensive income in the 2019 statement of
comprehensive income?
a. P14,393 c. P19,340
b. P18,500 d. P1,222

4. What amount of unrealized loss should be shown as component of


other comprehensive income in the 2020 statement of
comprehensive income?
a. P8,350 c. P25,233
b. P26,500 d. P10,990

5. What amount of unrealized gain should be shown in the 2020


statement of changes in equity?