Name: LIMPIN, Ace B.

Year and Section: 2-B225

Investments
Problem 17-8
ANSWER: B. 320,000
SOLUTION
Investment income (1,600,000 x 20%) 950,000

Problem 17-9
ANSWER: C. 300,000
SOLUTION
Cost 4,000,000
Less: Net assets acquired (8,000,000 x 40%) 3,200,000
Excess of cost or goodwill 800,000

Share in net income from April 1 to December 300,000

31 (1,000,000 x 9/12 x 40%)

Problem 17-10
ANSWER: B. 7,140,000
SOLUTION
Acquisition cost 7,000,000
Share in net income (20% x 1,800,000) 360,000
Share in cash dividend (120,000)
Amortization of excess (100,000)
Carrying amount 7,140,000

Problem 17-11
ANSWER: C. 750,000
SOLUTION
Interest (30,000/100,000) 30%

Investment income (5,000,000 x 6/12 x 30%) 750,000

Problem 17-12
ANSWER: A. 4,350,000
SOLUTION
Acquisition cost 4,000,000
Share in net income (10% x 5,000,000) 500,000
Share in cash dividend (10% x 1,500,000) (150,000)
Carrying amount 4,350,000

Problem 17-13
 ANSWER: B. 2,020,000
SOLUTION
Carrying amount of investment 1,900,000
Big Company, dividends paid (25% x 480,000) 120,000
Paid by Small Company 2,020,000

Problem 17-14
ANSWER: B. 2,700,000
SOLUTION
Acquisition cost 2,560,000
Net assets acquired (40% x 5,000,000) 2,000,000
Excess of cost 560,000

Attributable to equipment (40% x 800,000) 320,000

Attributable to building (40% x 600,000) 240,000
560,000

Acquisition cost 2,560,000

Net income (40% x 1,600,000) 640,000
Cash dividend (40% x 1,000,000) (400,000)
Amortization of excess:
Equipment (320,000 / 4) (80,000)
Building (240,000 / 12) (20,000)
Carrying amount of investment – Dec. 31 2,700,000

Problem 17-15
ANSWER: A. 2,400,000
SOLUTION
Net income 5,000,000
Less: Preference dividend (10% x 2,000,000) 200,000
Net income to ordinary shares 4,800,000

Investment income (50% x 4,800,000) 2,400,000

Problem 18-7
ANSWER: #1 A. 200,000
SOLUTION
Investment income for 2020 equal to the 200,000
dividend received in 2020 (10% x 2,000,000)

ANSWER: #2 B. 1,950,000
SOLUTION
Investment income for 2021 (30% x 6,500,000) 1,950,000
 ANSWER: #3 B. 17,050,000
SOLUTION
Fair value of 10% interest 6,000,000
Cost of 20% new interest 10,000,000
Total cost of investment – January 1, 2021 16,000,000
Share in net income for 2021 (30% x 6,500,000) 1,950,000
Share in cash dividend for 2020 (30% x (900,000)
3,000,000)
Carrying amount, December 31, 2021 17,050,000

Problem 18-8
ANSWER: #1 A. 1,500,000
ANSWER: #2 B. 1,250,000
ANSWER: #3 B. 11,800,000

Problem 18-9
ANSWER: #1 B. 450,000
SOLUTION
Share in 2020 net income (30% x 1,500,000) 450,000

ANSWER: #2 D. 2,300,000
SOLUTION
Acquisition cost 2,000,000
Share in net income – 2020 450,000
Cash dividends – 2020 (30% x 500,000) (150,000)
Carrying amount, December 31, 2020 2,300,000

ANSWER: #3 A. 2,250,000
SOLUTION
Carrying amount, December 31, 2020 2,300,000
Share in net income until June 30, 2021 (30% x 300,000
1,000,000)
Carrying amount, June 30, 2021 2,600,000

Sales price 2,000,000

Carrying amount sold (2,600,000 x ½) 1,300,000
Gain on sale 700,000

Fair value of retained investment 2,200,000

Carrying amount of retained investment (1,300,000)
Gain from re-measurement to fair value 900,000

Gain on sale 700,000

Gain on re-measurement 900,000
 Share in net income from January 1 up until 300,000
June 30, 2021 (30% x 1,000,000)
Dividend income on October 1, 2021 (15% x 150,000
1,000,000)
Increase in fair value on December 31, 2021 200,000
(2,000,000 – 1,600,000)
Total income 2,250,000

Problem 19-8
SCHEDULE OF AMORTIZATION
SOLUTION
Bond Year Bond Months Peso month Fraction Discount
Outstanding Outstanding Amortization
10/01/2020 3,000,000 4 12,000,000 12/48 75,000
to
02/01/2021
02/01/2021 2,000,000 12 24,000,000 24/48 150,000
to
02/01/2022
02/02/2022 1,000,000 12 12,000,000 12/48 75,000
to
02/02/2023

SOLUTION
2020
Oct 1 Investment In bonds 2,700,000
Interest income (3,000,000 x12% x2/12) 60,000
Cash 2,760,000

Dec 31 Accrued interest receivable 150,000

Interest income (3,000,000 x 12% x 150,000
5/12)

Investment in bonds 56,250

Interest income (75,000 x ¾) 56,250

2021
Jan 1 Interest income 150,000
Accrued interest receivable 150,000

Feb 1 Cash (3,000,000 x 12% x 6/12) 180,000

Interest income 180,000

1 Cash 1,000,000
Investment in bonds 1,000,000
Aug 1 Cash (2,000,000 x 12% x 6/12) 120,000
Interest income 120,000

Dec 31 Accrued interest receivable 100,000

Interest income (2,000,000 x 12% x 100,000
5/12)

31 Investment in bonds 156,250

Interest income 156,250

From January 1 to February 1 2021 (75,000 18,750

¼)
From February 1 to December 31, 2021 137,500
(150,000 x 11/12)
Total Amortization for 2021 156,250

Problem 20-13
ANSWER: C. 15,000
SOLUTION
Carrying amount – January 1, 2020 7,800,000
Amortization from January 1, 2020 to March 1,
2020:
Interest Income (7,800,000 x 10% x 2/12) 130,000
Interest received (8,000,000 x 9% x 2/12) 120,000 10,000
Carrying amount – March 1, 2020 7,810,000

Sale price 3,920,000

Carrying amount of bonds sold (7,810,000 x ½) (3,905,000)
Gain on sale 15,000

Problem 20-14
ANSWER: B. 220,000
SOLUTION
Premium on sale of bonds 140,000
Unamortized discount (100,000 – 20,000) 80,000
Gain on sale of bonds 220,000

Problem 20-15
ANSWER: A. 3,814,380
SOLUTION
Acquisition cost, January 1, 2020 3,767,000
Discount amortization for 2020:
Interest income (14% x 3,767,000) 527,380
Interest received (12% x 4,000,000) 480,000 47,380
Carrying amount, December 31, 2020 3,814,380
Problem 20-16
ANSWER: D. 375,600
SOLUTION
Interest revenue for 2020 (3,756,000 x 10%) 375,600

Problem 20-17
ANSWER: D. 200,000
SOLUTION
Interest accrued from July 1 to December 31, 200,000
2020 (5,000,000 x 8% x 6/12)

Problem 20-18
ANSWER: C. 1,195,920
SOLUTION
Interest received (1,000,000 x 10% x 6/12) 50,000
Interest income (1,198,000 x 8% x 6/12) 47,920
Premium amortization 2,080

Acquisition cost – July 1, 2020 1,198,000

Premium amortization (2,080)
Carrying amount of bond investment, 1,195,920
December 31, 2020

Problem 20-19
ANSWER: A. 911,300
SOLUTION
Interest accrued (1,000,000 x 8% x 6/12) 40,000
Interest income (906,000 x 10% x 6/12) 45,300
Discount amortization 5,300

Acquisition cost – July 1, 2020 (946,000 – 906,000

40,000)
Discount amortization 5,300
Carrying amount, December 31, 2020 911,300

Problem 20-20
ANSWER: A. 4,680,020
SOLUTION
Investment balance, January 1, 2020 4,562,000
Amortization of discount for 2020:
Interest income (4,562,000 x 10%) 456,200
Interest received (5,000,000 x 8%) 400,000 56,200
Investment balance, December 31, 2020 4,618,200
Amortization of discount for 2021:
Interest income (4,618,000 x 10%) 461,820
Interest received (5,000,000 x 8%) 400,000 61,820
Investment balance, December 31, 2021 4,680,020

Problem 20-21
ANSWER: D. 218,000
SOLUTION
Interest received from July 1 to December 3, 200,000
2020 (5,000,000 x 8% x 6/12)
Bond discount amortization for six months 18,000
Interest income 218,000

Problem 20-22

Date Interest Interest income Premium Carrying

received amortization amount
January 1, 2020 4,206,000
December 31, 400,000 336,480 63,520 4,142,480
2020
December 31, 400,000 331,398 68,602 4,073,878
2021
December 31, 400,000 326,122 73,878 4,000,000
2022

ANSWER: #1 A. 342,480
SOLUTION
Market value, December 31, 2020 3,800,000
Carrying amount, December 31, 2020 4,142,480
Unrealized loss, 2020 (342,480)

ANSWER: #2 B. 131,398
SOLUTION
Market value, December 31, 2021 3,600,000
Carrying amount per table 4,073,878
Cumulative unrealized loss, December 31, (473,878)
2021
Unrealized loss, December 31, 2020 (342,480)
Increase in unrealized loss, 2021 131,398

ANSWER: #3 C. 473,878
SOLUTION
Market value, December 31, 2021 3,600,000
Carrying amount per table 4,073,878
 Cumulative unrealized loss, December 31, (473,878)
2021

ANSWER: #4 B. 3,600,000
SOLUTION
Market value, December 31, 2021 3,600,000

Problem 20-23
ANSWER: #1 C. 350,000
SOLUTION
Purchase price 5,500,000
Transaction cost (100,000)
Adjusted cost 5,400,000

Market value (5,000,000 x 115) 5,750,000

Adjusted cost (5,400,000)
Gain from change in fair value 350,000

ANSWER: #2 A. 600,000
SOLUTION
Interest income (12% x 5,000,000) 600,000

ANSWER: #3 A. 5,750,000
SOLUTION
Carrying amount equal to market value at 5,750,000
year end

ANSWER: #4 B. 950,000
SOLUTION
Gain from change in fair value 350,000
Interest income 600,000
Total income from investment 950,000