Sample Problem 1

(Investment in equity security)

Acclaim Company purchased shares of another entity as permanent investment.
01/02/2021 2,000 shares at 50 100,000
12/20/2021 3,000 shares at 66 198,000

Transactions for 2022

July 15 Received cash dividend of P5 per share
Dec. 15 Received 20% share dividend.
Dec. 28 Sold 3,000 shares at P60 per share. Use FIFO approach.
Required:
Prepare journal entries to record the transactions for 2022.

# of shares Total Cost

1/2/21 2,000 50.00 100,000.00
12/20/21 3,000 60.00 180,000.00
5,000 280,000.00

July 15 Cash 25,000.00

Dividend Income

Dec. 15 Memo - Received 1,000 shares representing 20% stock

dividend on 5,000 original shares held.
Sh. Div. # of shares Total Cost
1/2/21 2,400 100,000.00 2 for 1
12/20/21 3,600 180,000.00 1 for 5
6,000 280,000.00

Dec. 28 Cash 180,000.00

Investment in shares
Gain on sale of investment

weighted ave.
# of shares Total Cost
1/2/21 2,000 50.00 100,000.00
12/20/21 3,000 60.00 180,000.00
5,000 56.00 280,000.00
1,000
6,000.00 46.67 280,000.00
(3,000.00) 46.67 (140,000.00)
3,000.00 420,000.00
nent investment.

ch.

25,000.00

20% stock
STOCK split
# of Sh par value Capital
5,000.00 100.00 500,000.00
10,000.00 50.00 500,000.00
1,000.00 500.00 500,000.00

180,000.00
130,000.00 140,000.00
50,000.00 40,000.00
 Sample Problem 2
(Investment in equity security)
Distraught Company provided the following chronological transactions:
1. Distraught Company acquire 40,000 ordinary shares of Aye Company at
P50 per share.
2. The Aye Company shares are exchanged in a 5-for-1 split.
3. Received a preference share dividend of 1 share every 10 ordinary shares
held. Ordinary share is selling ex-dividend at 15 and preference share is
sellign at 10.
4. Received a dividend in kind of 1 ordinary share of Bee Company, market
price, P6, for every four Aye ordinary shares held.
5. Sold 80,000 ordinary shares of Aye Company at P15 per share.
Required:
Prepare journal entries to record the transations.

1. Investment in Aye ordinary shares 2,000,000.00

Cash

No. of Shares Cost per sh. Cost

1. 40,000 50.00 2,000,000.00

2. Memo-Received 200,000 Aye ordinary shares as as result

of 5 for 1 split of 40,000 original shares.
 No. of Shares Cost per sh. Cost
1. 40,000 50.00 2,000,000.00
2. 200,000 10.00 2,000,000.00

*Share dividend vs. Stock Split

Share Dividend - the increase in no. of shares is in add
Stock split - the increase (split up) or decrease (split d

3. Investment in Aye preference shares 125,000.00

Investment in Aye ordinary shares

No. of Shares
Aye Ordinary shares 200,000 15.00
Aye Preference shares 20,000 10.00

*The Original cost of the investment is apportioned b

Share dividends on the basis of market value of each

4. Investment in Bee ordinary shares 300,000.00

Dividend income

No. of Shares
Aye Ordinary shares 200,000
Aye Preference shares 20,000
Bee ordinary shares 50,000 6.00

*Property dividends or dividends in kind are dividend

 And are also considered as income and recorded at fa

5. Cash 1,200,000.00
Investment in Aye ordinary shares
Gain on sale of investment

No. of Shares
Aye Ordinary share 200,000
Sold (80,000)
Aye Ordinary shares 120,000

Aye Preference shares 20,000

Bee ordinary shares 50,000 6.00

 s:
ny at

shares
is

market

2,000,000.00
 x
New total # of shares at a cost of 10 per share

shares is in addition to the original No. of shares

ecrease (split down) of no. of shares is the Outstanding No. of shares

125,000.00

Market Value Fraction Cost

3,000,000.00 30/32 1,875,000.00
200,000.00 2/32 125,000.00
3,200,000.00 2,000,000.00 -original cost of the investmen

s apportioned between the original shares and the

t value of each at the date of receipt.

300,000.00

Cost
1,875,000.00
125,000.00
300,000.00

nd are dividends in form of property and noncash assets;

recorded at fair value

750,000.00
450,000.00

Cost
1,875,000.00
(750,000.00)
1,125,000.00

125,000.00

300,000.00
of the investment
 Sample Problem 3
(Investment in equity security)
Vivacious Company issued rights to subscribe to its share capital, the
ownership of 4 shares entitling the shareholders to subscribe for 1 share at
par, P100. The investor owned 25,000 shares with total cost of P2,100,000.
The share rights are accounted for separately.
Required:
1. Assuming the share is quoted at P125 right-on, prepare journal entries to
record of rights and the subsequent exercise of the rights.
2. Assuming the share is quoted at P125 ex-right, prepare journal entries to
record receipt of rights and the subsequent exercise of rights.

Requirement 1

Theoretical 125 - 100 = 5.00/right

value = 4+1

a. Share rights 125,000.00

Investment in shares 125,000.00

b. Investment in shares 750,000.00

Share rights 125,000.00
Cash 625,000.00
Requirement 2

Theoretical 125 - 100 = 6.25/right

value = 4

a. Share rights 156,250.00

Investment in shares 156,250.00

b. Investment in shares 781,250.00

Share rights 156,250.00
Cash 625,000.00
e
are at
00,000.

ries to

ries to
Sample Problem 4
(Investment in equity security)
During the current year, Dearth Company revealed the following
transactions relating to permanent investments:
Jan. 1 Purchased 10,000 shares of King Company at P70 per
share.
Mar. 1 Purchased 10,000 shares of Queen Company for
P660,000.
Apr. 1 Received a cash dividend of P5 per share from King
Company.
July 1 Received 20% share dividend from Queen Company.
Aug. 1 Purchased 10,000 shares for Princess Company at P50.
Oct. 1 The share of Queen Company was split on a 5-for-1 basis.
1 Received a cash dividend of P5 per share from King
Company.
31 Queen Company offered shareholders rights to subscribe to
one new share for every 10 rights tenedered at P20.
At the time of issuance, the market value of the right is P3.
Share rights are not accounted separately.
Nov. 15 Exercised the Queen Company share rights.
Dec. 1 Received a cash dividend of P5 per share from Queen
Company.
15 Sold 10,000 shares of Queen Company at P30 per share. Use
FIFO approach.
Required:
a. Prepare journal entries to record the transactions.
b. Prepare a summary of the permanent investments of Dearth Company
showing in detail the number of shares and total cost for each
investment.
 a. Prepare journal entries to record the transactions.
b. Prepare a summary of the permanent investments of Dearth Company
showing in detail the number of shares and total cost for each
investment.

A.
Jan. 1 Investment in King Company 700,000.00
Cash

Mar. 1 Investment in Queen Company 660,000.00

Cash

Apr. 1 Cash 50,000.00

Dividend Income

July 1 Received 2,000 shares as 20% share dividend on 10,000

Queen Company shares originally held.
Total shares held is 12,000.

Aug. 1 Investment in Princess Company 500,000.00

Cash

Oct. 1 Received 60,000 new shares of Queen Company as a result

of a 5 for 1 split of 12,000 original shares.

1 Cash 50,000.00
Dividend income

31 Received 60,000 stock rights from Queen Company to subscrib

 for one new share at P20 for every 10 rights held.

*A share right is inherent in every share.

A shareholder receives one right for every share owne

Nov. 15 Investment in Queen Company 120,000.00

Cash
(60,000 stock rights/ 10 rights * 20)

Dec. 1 Cash 330,000.00

Dividend income

15 Cash 300,000.00
Investment in Queen Company
Gain on sale of investment
 to

Use

ompany
ompany

B.
Company No. of Shares
700,000.00 King 10,000

660,000.00 Queen 10,000

2,000
12,000
50,000.00 5
60,000
d on 10,000 6,000
66,000
(10,000)
56,000

500,000.00 Princess 10,000

pany as a result Summary of

76,000.00
investments

50,000.00

ompany to subscribe
r every share owned.

120,000.00

330,000.00

110,000.00
190,000.00
Cost/sh Cost
70.00 700,000.00 1/1

66.00 660,000.00 3/1

7/1 Share dividend 20%
660,000.00
10/1 Stock split up 5 for 1
660,000.00
20.00 120,000.00 11/15 Exercise of share rights
780,000.00
(110,000.00) 12/15 Sold - First 10,000 (FIFO method)
670,000.00

50.00 500,000.00 8/1

1,870,000.00
nd 20%

p 5 for 1

hare rights

0,000 (FIFO method)