Chapter 09 Answers

CHAPTER 9
Investment in Equity Instruments

Questions
Q9-1.
1) Marketable equity securities are carried on the statement of financial

position at fair value.
2) For trading securities, net income is affected by dividend, foreign
exchange gains or losses, realized gains or losses on the sale of the
investment, and unrealized gains or losses due to changes in fair value
during the reporting period.
3) For FA@FVTOCI, net income is affected by dividend and gains or losses
on derecognition of the investment.
4) Trading securities are distinguished from FA@FVTOCI by management
intentions to trade the portfolio actively, with sales usually expected
within a few months.
Q9-2.
The requirement prevents manipulation of earnings by reclassifying securities

at opportune times. The original choice for classification will affect
subsequent earnings. If the company wants to obtain the benefits (higher or
lower earnings) of a different classification, the rule requires revaluation as if
the investment were sold and then repurchased. This provision generally
eliminates the incentive to reclassify investments when the purpose is to
manipulate income.
For example, the market value of a large investment in TS may have declined
significantly during the year. Without the requirement to reclassify at market
value, there would be an incentive to reclassify the investments to
FA@FVTOCI at the end of the year to avoid recognizing the unrealized
holding loss in earnings. As FA@FVTOCI, the holding loss would be
buried in owners equity. The reclassification rule would require immediate
recognition of the loss, thus eliminating the incentive to reclassify to avoid
the loss.
As another example, investments originally classified as FA@FVTOCI may
have dropped significantly in value. The firm has reaped the benefit of
recognizing the losses in owners equity rather than earnings. Should the
market value begin to turn around, there would normally be an incentive to
reclassify the securities as TS. Future gains then would be recognized in
earnings, whereas the past losses were buried in owners equity. The
required reclassification at market value eliminates that incentive because the
past losses would be recognized in earnings. It should be noted however that
reclassification of FA@FVTOCI is not allowed under PFRS 9.
9-2
Solutions Manual to Accompany Intermediate Financial Accounting (Volume I)
Q9-3.
An impairment loss is recorded only when there is a significant and

permanent decrease in the market value of an asset. For investments in
securities classified as available for sale and as held to maturity, impairment
losses are recognized and new cost basis recorded for the permanently
impaired investments. It should be noted however that only FA@AC is
subject to impairment in accordance with PFRS 9.
Q9-4.
In accounting for an ordinary stock dividend, or a stock split, the investor

should make no entry for revenue nor change in the investment account other
than to make a memorandum entry to record the number of shares received.
In either case, a stock dividend or stock split, the number of shares increases,
the total investment cost remains the same and the cost (or carrying value)
per share is reduced.
Q9-5.
A stock right (warrant) is a privilege given to stockholders (investors) to

receive a specified number of additional shares of stock from the issuing
corporation at a specific price (or at no price) and by a specific future date.
Stock rights meet the definition of derivatives and should be accounted as
such (ie as FA@FVTPL - held for trading).
Q9-6.
In Switzerland there is no requirement to consolidate controlled companies.

Under Swiss accounting rules, all associated companies are accounted for
using the cost method. Investment income would therefore include only
dividends received. This could result in much different amounts in both the
income statement and the balance sheet when compared with US accounting
rules, where the 50% owned company would be consolidated. However, once
Switzerland opts to adopt the IFRSs, investment income will be accounted for
in accordance with IFRS 10.
Q9-7.
1) The equity method is used for an investment in voting equity securities

when the investor is in a position to exercise significant influence over
the investee. This is assumed to happen at 20% in the absence of
evidence to the contrary.
2) Securities accounted for under the equity method are initially recognized
at cost and adjusted thereafter for the post acquisition change in the
investors share of net assets of the investee. The comprehensive income
of the investor includes the investor's share of the profit or loss and other
comprehensive income of the investee. Distributions (such as dividends)
received from the investee reduce the carrying amount of the investment.
3) For securities carried under the equity method, net income is affected by
the investors share of the associates profit or loss, impairment and
realized gains or losses on the sale of the investment.
9-3
4) The equity method is preferred for investments in which the investor has
significant influence over the investee because (1) investor income is less
easily manipulated, since dividends are not the significant factor in
income, and (2) it treats the investment as part of an economic entity
which includes the investor and the owned part of the investee.
Matching Type
MT9-1.
1.
2.
3.
A
D
D
4.
5.
6.
B
D
C
7.
MT9-2.
1.
2.
3.
4.
A
F
A
A
5.
6.
7.
8.
E
D
B
A
9. A
10. B
Exercises
E9-1.
(a)
(b)
(c)
FA@FVTPL-TS
Cash
13,200
Cash ..
Dividend income (400 X P3.25) ...
1,300
FA@FVTPL-TS .
FV adjustment gain on TS
[(400 X P34.50) P13,200] ...
Alternatively:
Securities Fair Value Adjustment .
Unrealized Holding Gain or LossPL
E9-2.
13,200
1,300
600
600
600
600
Securities Fair Value Adjustment

Bal.
200
500
Bal.
700

FV adjustment gain - OCI
500
500
9-4
E9-3.

Investment in Associate Amethysts Inc. .
Cash
300,000
Investment in Associate Amethysts Inc..

Investment Income-SOPA (30% X P180,000) ...
54,000
Cash ..
Investment in Associate Amethysts Inc.
(30% X P60,000)
18,000
300,000
54,000
18,000
E9-4.
(a) Other comprehensive income (loss) for 2014: (P20.380 million)

(b) Comprehensive income for 2014: P652.258 million or (P672.638 P20.380)
(c) Accumulated other comprehensive income: P16.893 million or
(P37.273 P20.380)
E9-5.
a)
FV adjustment loss on TS
FA@FVTPL-TS
16,000
16,000
Computations:
Company
Cost 12/31/2003 MV
A
1,000 x 24 = 24,000 1,000 x 28 = 28,000
B
2,000 x 60 =120,000 2,000 x 50 = 100,000
144,000
128,000 = P16,000 loss
b) Balance Sheet:
Investments in trading securities
Income Statement:
FV adjustment loss on TS
E9-6.
P128,000
P(16,000)
Short-term investments No par C/S K Corp. 10,500

Loss on exchange [(P50 P35) x 300]
4,500
Short-term investment P/S J Corp.
15,000
2014
E9-7.
2015
a)
Income statement
Investment revenue
Unrealized gain (loss) on short-term investment
P 3,000
P(20,000)
P 2,400
P10,000
b)
Balance sheet
Current assets:
Short-term investments (at cost)
P140,000
P140,000

Less: Allowance to reduce to market
Carrying value
Computations:
P 20,000
P120,000
9-5
P 10,000
P130,000
12/31/2014 MV
12/31/2015 MV
5,000 x 16 = 80,000
2,000 x 20 = 40,000
120,000
20,000 loss
5,000 x 14 = 70,000
2,000 x 30 = 60,000
130,000
10,000 gain
Company
A
B
Cost
5,000 x 12 = 60,000
2,000 x 40 = 80,000
140,000
Dividends:
2014: (0.20 x 5,000 = 1,000) + (1.00 x 2,000 = 2,000) = 3,000
2015: (0.24 x 5,000 = 1,200) + (0.60 x 2,000 = 1,200) = 2,400
E9-8.
E9-9.
FV adjustment loss-OCI
FA@FVTOCI
4,000
4,000
Cash
FA@FVTOCI
24,000
Retained earnings
FV adjustment loss
11,000
24,000
11,000
Requirement (A)
OE: Unrealized Increase/Decrease (Luzon)
Valuation allowance (Luzon)
50,000
50,000
P300,000 P200,000 = P100,000 cr. required ending allowance balance.

The balance is currently P50,000 requiring another P50,000 credit.
Valuation allowance (Visayas)
300,000
Impairment loss
1,400,000
OE: Unrealized Increase/Decrease
(Visayas)
300,000
Investment in SAS (Visayas)
1,400,000
The impairment loss = P1,800,000 original cost P400,000 market value at
12/31/02 = P1,400,000
Requirement (B)
Unrealized loss on TS
Valuation allowance (Luzon)
Valuation allowance (Visayas)
1,150,000 *
50,000
1,100,000
9-6

* Closed to earnings. P1,100,000 loss for Visayas = P1,400,000 required
ending allowance balance cr. (P1,800,000 P400,000) less the current
P300,000 cr. balance. The impairment loss is treated as any other holding
loss recognized in earnings for TS.
E9-10.
2014 Entries:
Investment in Associate: ETC, Inc.
(18,000 x 0.40)
Investment income - SOPA
Cash (12,000 x 0.40)
7,200
7,200
4,800
4,800
2015 Entries:
Investment loss - SOLA (4,000 x 0.40)
1,600
1,600
Problems
P9-1.
(a)
(b)
P9-2.
FA@FVTPL-TS
FV adjustment gain - PL ..
3,000
FA@FVTOCI ..
FV adjustment gain - OCI .
3,000
3,000
3,000
(c)
The FV adjustment gain - PL account is reported in the income

statement under Other income and expense. The FV adjustment gain OCI account is reported as a part of other comprehensive income and as
a component of equity.
(a)
December 31, 2013

Unrealized Holding Gain or LossIncome
1,400
During 2014
Cash
Loss on Sale of Equity Investment
Equity Investments
9,500
500
(b)
(c)
December 31, 2014
1,400
10,000

Investments
Starmart Corp. shares
Honey Co. shares
Total of portfolio
Previous securities fair
value adjustment
balanceCr.
Securities fair value
adjustmentDr.
Cost
Fair Value
P20,000
20,000
P40,000
P19,300
20,500
P39,800

P9-3.
9-7
Unrealized
Gain (Loss)
(
(
P (700)
500)
(200)
(
(1,400)
(P1,200)
1,200
1,200
The unrealized gains and losses resulting from changes in the fair value of
equity investments [classified as non-trading] are recorded in an unrealized holding
gain or loss account that is reported as other comprehensive income and as a
separate component of equity until realized. Therefore, the following adjusting
entry should be made at the year-end:
Unrealized Holding Gain or LossOCI
6,000
6,000
Unrealized Holding Gain or LossOCI is reported as other comprehensive

income and as a separate component in equity and not included in net income.
The Securities Fair Value Adjustment account is a valuation account to the related
investment account.
P9-4.
(a)
The portfolio should be reported at the fair value of P54,500. Since the
cost of the portfolio is P53,000, the unrealized holding gain is P1,500,
of which P200 is already recognized. Therefore, the December 31, 2013
adjusting entry should be:

(b)
1,300
1,300
The unrealized holding gain of P1,300 should be reported as other

income and expense on the income statement and the Securities Fair
Value Adjustment account balance of P1,500 should be added to the cost
of the investment account.
CHANELL, INC.
Statement of Financial Position
As of December 31, 2013
9-8

Current assets:
Equity investment........................................... P54,500
(c)
Computation of realized gain or loss on sale of investment:
Net proceeds from sale of investment

Cost of investment A .
Loss on sale of shares
P15,300
(17,500)
(P 2,200)
January 20, 2014

Cash .
Loss on Sale of Equity Investment ..
Equity Investments ..
(d)
P9-5.
(a)
Securities Fair Value Adjustment ..

Unrealized Holding Gain or Loss
Equity
15,300
2,200
17,500
1,300
1,300
The total purchase price of these investments is:

Gonzalez:
(9,000 X P33.50) = P301,500
Monty:
(5,000 X P52.00) = P260,000
Drin:
(7,000 X P26.50) = P185,500
The purchase entries will be:

January 15, 2014
Commission Expense ..
1,980
FA@FVTPL-Trading. 301,500
Cash .
303,480
April 1, 2014
Commission Expense ...
3,370
FA@FVTPL-Trading
260,000
Cash ...
263,370
September 10, 2014

Commission Expense
4,910
FA@FVTPL-Trading . 185,500
Cash
190,410

(b)
(c)
9-9
Gross selling price of 3,000 shares at P35 .

Less: Commissions, taxes, and fees ............................
Net proceeds from sale ..
Cost of 3,000 shares (P301,500 X 3/9) ..
Gain on sale of shares
P105,000
(2,850)
102,150
(100,500)
P 1,650
May 20, 2013

Cash . 102,150
FA@FVTPL-Trading .
Gain on Sale of Equity Investment ...
100,500
1,650
Investments
Gonzalez Co.
Monty Co.
Drin Co.
Total portfolio value
Cost
P201,000*
260,000
185,500
P646,500
Unrealized
Gain (Loss)
P(21,000)
(15,000
10,500
P 4,500
Fair Value
P180,000(1)
275,000(2)
196,000(3)
P651,000
*P301,500 X 6/9 = P201,000.

(1)
(6,000 X P30) (2)(5,000 X P55) (3)(7,000 X P28)

December 31, 2013
FA@FVTPL-Trading . 4,500
FV adjustment gain or loss - PL ..
P9-6.
4,500
Situation 1: Journal entries by Topstyle Cosmetics:

To record purchase of 20,000 shares of Ramirez Fashion at a cost of
P14 per share:
March 18, 2013
FA@FVTPL-Trading.
Cash ...
280,000
280,000
To record the dividend income from Ramirez Fashion:

June 30, 2013
Cash ...
Dividend income (P75,000 X 10%)
To record the investment at fair value:
December 31, 2013
7,500
7,500
9-10
I)
Solutions Manual to Accompany Intermediate Financial Accounting (Volume

FA@FVTPL - Trading
FV adjustment gain - PL .
20,000
20,000*
*(P15 P14) X 20,000 shares = P20,000

Situation 2: Journal entries by Pelayo, Inc.:
To record the purchase of 25% of Nadal Corporations ordinary shares:
January 1, 2013
Investment in Associate: Nadal Corp..
Cash [(30,000 X 25%) X P9] ..
67,500
67,500
Since Pelayo, Inc. obtained significant influence over Nadal Corp., Pelayo, Inc.
now employs the equity method of accounting.
To record the receipt of cash dividends from Nadal Corporation:
June 15, 2013
Cash (P36,000 X 25%) .
Investment in Associate: Nadal Corp
9,000
9,000
To record Pelayos share (25%) of Nadal Corporations net income of P85,000

December 31, 2013
Investment in Associate: Nadal Corp
(25% X P85,000) ..
Investment i ncom e - SOPA
P9-7.
(a)
(b)
(c)
(d)
P9-8.
1.
2.
21,250
21,250
P130,000, the increase to the Investment account.

If the dividend payout ratio is 40%, then 40% of the net income is
their share of dividends = P52,000. The answer is also given in the Taccount information.
Their share is 25%, so, Total Net Income X 25% = P130,000
Total Net Income = P130,000 25% = P520,000
P52,000 25% = P208,000 or P520,000 X 40% = P208,000
FA@FVTPL- Trading (300 shares X P40)
Cash .
12,000
Cash (100 shares X P43) .

4,300
Gain on Sale of FA@FVTPL- Trading .
12,000
300

FA@FVTPL- Trading (100 X P40) .
3.
P9-9.
(a)
(b)
(c)
9-11
4,000
FV adjustment lossPL .
FA@FVTPL- Trading
(P40 P35) X 200 .
1,000
Unrealized Holding Gain or Loss

Income ..
5,900
Cash [(1,500 X P45) P1,200] .

Loss on Sale of Equity Investment
Equity Investments ...
66,300
5,200
Brokerage Expense
Equity Investments (700 X P75) ...
Cash
1,300
52,500
1,000
5,900
71,500
53,800
(d)
Investments
Belle Corp., Ordinary
Dowell Corp., Ordinary
Driz, Inc., Preference
Total portfolio
Previous securities fair value
Cost
P180,000
52,500
60,000
P292,500
Fair Value
P175,000
50,400
58,000
P283,400
Unrealized
Holding
Gain (Loss)
P(5,000)
(2,100)
(2,000)
(9,100)
(5,900)
adjustmentCr.
adjustmentCr.

Securities Fair Value Adjustment ..
P9-10.
(a)
(1)
(2)
October 10, 2013

Cash (5,000 X P54) .
Gain on Sale of Stock .
Equity Investments .
November 2, 2013
Equity Investments (3,000 X P54.50) .
Cash
P(3,200)
3,200
3,200
270,000
55,000
215,000
163,500
163,500
9-12
I)

(3)
At September 30, 2013, Cheiska had the following fair value

adjustment:
Equity Investment PortfolioSeptember 30, 2013
Investments
Heide, Inc. ordinary
Ally, Inc. preference
Oak Corp. ordinary
Total of portfolio
value adjustment
balance
Securities
fair
value
adjustmentCr.
Cost
Unrealized
Gain (Loss)
Fair Value
P215,000
133,000
180,000
P528,000
P200,000
140,000
179,000
P519,000
(P (15,000)
( 7,000)
( (1,000)
((9,000)
(
0)
(P (9,000)
At December 31, 2013, Cheiska had the following fair value adjustment:
Equity Investment PortfolioDecember 31, 2013
Investments
Ally, Inc. preference
Oak Corp. ordinary
Patt ordinary
Total of portfolio
value adjustment balance
Cr.
adjustmentCr.
Cost
Fair Value
P133,000
180,000
163,500
P476,500
P106,000
193,000
132,000
P431,000
Unrealized
Gain (Loss)
(P (27,000)
13,000)
( (31,500)
(45,500)
(9,000)
(P (36,500)
The entry on December 31, 2013 is therefore as follows:

..
36,500
36,500

(b)
P9-11.
9-13
The entries would be the same except that instead of debiting and
crediting accounts associated with trading investments, the accounts used
would be associated with non-trading investments. In addition, the
Unrealized Holding Gain or LossEquity account is used instead of
Unrealized Holding Gain or LossIncome. The unrealized holding loss
in this case would be deducted from the equity section rather than charged
to the income statement.
(a) Investment in TS [400 (P25) + P180]

Cash [0.70 (P10,000) + P180]
Margin accounts payable
10,180
7,180
3,000
(b) Unrealized loss on TS (to earnings)

Valuation allowance: TS
P10,180 P22 (400) = P1,380
1,380
1,380
(c) Cash [0.75 (400)]

Investment revenue: dividends
(d) Cash [100 (P28) P80]
Valuation allowance: TS (P1,380 / 4)
Investment in TS (P10,180 / 4)
Realized gain on sale of TS
P520 gain = (P28 P22) 100 shares P80
300
300
2,720
345
2,545
520
(e) Valuation allowance before adjustment = P1,380 P345 =

Ending market value = 300 (P26) =
Cost = P10,180 P2,545 =
Required valuation allowance
Adjustment needed (dr.) to valuation allowance
Unrealized gain on TS (to earnings)
P1,035 cr.
P7,800
7,635
165 dr.
P1,200 dr.
1,200
1,200
Also, gain = increase in market value during the year = 300 (P26 P22) =
P1,200
Statement of financial position
12/31/13
Current assets
Investment in TS, cost
Investment in TS, market
P7,635
165
P7,800
(f) No reclassifying entry. Stocks are accounted for as Trading Securities

(par 107).
9-14
I)

(g) Valuation allowance: TS
Unrealized gain on TS (to earnings)
1,200
1,200
Ending market value (300 x P30), 12/31/14

Cost
Balance of valuation account (dr.), 12/31/13
P9,000
7,635
P1,365
165
P1,200

12/31/14
Current assets
Investment in TS, cost
Investment in TS, market
P9-12.
(a) Investment in SAS [10 (P1,000) + P180]

Cash [0.70 (P10,000) + P180]
Margin accounts payable
(b) OE: Accumulated loss on SAS
Valuation allowance: SAS
P10,180 0.88 (P10,000) = P1,380
P7,635
1,365
P9,000
10,180
Cash [P10,000 (0.06)]

Interest revenue
1,380
7,180
3,000
1,380
600
600
(c) Cash [P2,000 (1.03) + 0.06 (P2,000)

(9/12) P80]
2,070
Valuation allowance: SAS (P1,380) (2/10)
276
Realized loss on sale of SAS
56
OE: Accumulated loss on SAS
Investment in SAS (P10,180) (2/10)
Investment revenue [0.06 (P2,000) (9/12)
276
2,036
90
P56 loss = cost P2,036 net proceeds of P1,980 (1.03 x P2,000 P80), the
loss since acquisition.
(d) Valuation allowance before adjustment = P1,380 P276 =
Ending market value = P8,000 (1.09) =
Cost = P10,180 P2,036 =
P1,104 cr.
P8,720
8,144
576 dr.
P1,680 dr.
9-15
(Note: the name of the OE account now is changed to gain but it is the
same account used above)
OE: accumulated gain on SAS
1,680
1,680
Also, gain = increase in market value during the year = P8,000 (1.09 0.88)
= P1,680
12/31/13
Current assets
Investment in SAS, cost
Investment in SAS, market
(e) Investment in TS [P8,000 (1.06)]
OE: Accumulated gain on SAS
Investment in SAS
Unrealized gain on reclassification
(to earnings)
P8,144
576
P8,720
8,480
576
576
8,144
336
Also, gain = gain since acquisition = P8,000 (1.06) P8,144 = P336

(f) Unrealized loss on TS (to earnings)
P8,480 1.04 (P8,000) = P160
P9-13.
160
160
Requirement 1
Nov. 1, 2012 Purchased equity investments classified as trading securities:
Investment in TS:
TS, Candy Corporation (500 shares x P60)
30,000
TS, Candela Corporation (300 shares x P20) 6,000
Cash
36,000
Requirement 2
Dec. 31, 2012 Adjusting entry to record fair value as carrying value for
each security:
Valuation allowance: Candela Corporation
1,200
9-16
I)

Unrealized holding loss on investment
in trading securities (closed to income
summary)
Valuation allowance: Candy
Corporation
2,800
4,000
Calculation:
Unrealized
Holding
Original
Gain
Company
(Loss)
Shares
Candy
Candela
Total
500
300
End of Period
Cost
(x P60) = P30,000
(x P20) =
6,000
P36,000
(x P52) =
(x P24) =
P26,000
7,200
P33,200
P(4,000)
1,200
P(2,800)
Requirement 3
Income statement, 2012:
Investment income: Unrealized holding loss on
investment in trading securities
P2,800
Statement of financial position, Dec. 31, 2012:

Investment in trading securities, at cost
Less: Net valuation allowance to reduce
securities to fair value
Investment in trading securities, at fair
value
P36,000
2,800
P33,200
Requirement 4 (for year 2013)

March 2, 2013 To record dividends received:
Cash (500 shares x P1.00) + (300 shares x P0.50)
Investment income: Dividends
650
650
October 1, 2013 To record sale of 100 shares of Candela Corporation stock:

Cash (100 shares x P25)
Investment in trading securities: Candela
Corporation (100 shares x P20)
Realized gain on sale of trading securities
(100 x P4)
2,500
2,000
100
400
9-17
December 31, 2013 Adjusting entry to record TS investments at fair value:

Unrealized loss on investments in trading
securities (closed to Income Summary)
Valuation allowance: Candy Corporation
2,600
400
3,000
Calculation:
Change:
Unrealized
Fair Value
Company
(Loss)
Shares
Candy
Candela
Total
500
200
Reconciliation:
Candy
Candela
as of
Beginning
of Year
(x P52) = P26,000
(x P24) =
4,800
P30,800
(x P46) =
(x P26) =
Fair Value
at Year
Holding
Gain
P23,000
5,200
P28,200
P(3,000)
400
P(2,600)
Original
Valuation Allowance
Cost
Debit (Credit) Balance
500 x P60 = P30,000 [(P4,000) + (P3,000)] = P (7,000)
200 x P20 =
4,000 P800 + 400 =
1,200
P34,000
P (5,800)
Carrying
Value
P23,000
5,200
P28,200
Requirement 5
Investment income:
Dividend income
Unrealized loss on investment in trading
securities
Gain (realized) on sale of trading securities
investment
650
(2,600)
100
P(1,850)
P9-14.
Current assets:
Investment in trading securities
at cost
Less: Valuation allowance to reduce
Investment in trading securities,
at fair value
Requirement 1
P34,000
5,800
P28,200
Nov. 1, 2012 Purchased equity investments classified as securities availablefor-sale (SAS):
9-18
I)

Investment in SAS: Candy Corporation
Investment in SAS: Candela Corporation
Cash
P30,000
6,000
P36,000
Requirement 2
December 31, 2012 Adjusting entry to record fair value as carrying value
for each security:
Unrealized holding loss on investment in SAS
Close unrealized holding loss to separately
reported component of stockholders equity
Accumulated unrealized loss on investments
in securities available-for-sale
Unrealized holding loss on investment
in SAS
P1,200
2,800
4,000
2,800
2,800
Requirement 3
None
Current or noncurrent assets, as appropriate:
Investment in securities available-for-sale,
at cost
P36,000
Less: Net valuation allowance to reduce
2,800
Investment in securities available-for-sale,
at fair value
P33,200
Stockholders equity:
Accumulated net unrealized gain (loss)

on investments in securities availablefor-sale
Requirement 4 (for year 2013)
March 2, 2013 To record dividends received:
(P2,800)

Cash (500 shares x P1.00) + (300 shares x P50)
9-19
650
650
October 1, 2013 To record sale of 100 shares of Candela stock:

Cash (100 shares x P25)
2,500
Accumulated net unrealized gain on investments
in securities available-for-sale (100 shares x P4)
400
Investment in SAS: Candela Corporation
Realized gain on sale of SAS
400
2,000
500
December 31, 2013 Adjusting entries to record:

400
Unrealized loss on investments in SAS
2,600
3,000
Close unrealized loss to separately reported component of shareholders
equity:
Accumulated net unrealized holding gain or
loss on investments in securities availablefor-sale
Unrealized loss on investments in SAS
2,600
2,600
(Note: Same calculation and reconciliation as for P11-3)

Requirement 5
Gain on sale of SAS
P 650
500
P1,150

Current or noncurrent assets, as appropriate:
Investment in securities availablefor-sale, at cost
P34,000
Less: Valuation allowance to reduce
to fair value
5,800
Investment in securities availablefor-sale, at fair value
Stockholders equity:
Accumulated net unrealized gain (loss)
on investments in securities available-for-sale
P28,200
(P5,800)
9-20
I)
P9-15.

Requirement 1
January 1, 2012:
Investment in equity-basis companies:
Ingrid Corporation (400 shares)
Cash
40,000
40,000
Requirement 2
Computation of goodwill and related asset values:
Purchase price (for 40 percent ownership)
Market value of 40 percent of identifiable net
assets purchased:
Total market value of assets not subject
to depreciation
P40,000
Total market value of assets subject to
depreciation
30,000
Total liabilities of Ingrid Corporation
(6,000)
Total market value of net assets
purchased
P64,000
Proportionate part purchased
x 40%
Market value of 40 percent of the
identifiable net assets purchased
Goodwill purchased
P40,000
25,600
P14,400
Proportionate part of asset restated to market:

Depreciable assets (P30,000 P26,000) x 40% = P1,600.
Requirement 3
Dec. 31, 2012:
Ingrid Corporation
Investment revenue (ordinary)
P12,000 x 40% = P4,800.
Investment in Ingrid Corporation
4,800
4,800
160
160
P1,600 divided by 10 years = P160 additional depreciation.

Investment in Ingrid Corporation
1,440
1,440

P14,400 divided by 10 years = P1,440 amortization of goodwill.
Requirement 4
February 2013:
Cash
Ingrid Corporation
400 shares x P2 per share = P800.
Multiple Choice Questions

MC9 - 1.
2.
3.
4.
5.
A
D
C
A
C
MC9 -16.
17.
18.
19.
20.
A
D
B
C
B
6.
7.
8.
9.
10.
A
D
C
D
A
21.
22.
23.
24.
25.
B
C
C
D
C
11.
12.
13.
14.
15.
A
C
A
A
C
26.
27.
28.
29.
30.
C
B
B
C
B
800
800
9-21

Chapter 09 Answers

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 09 Answers

Uploaded by

Copyright:

Available Formats

CHAPTER 9

Investment in Equity Instruments

1) Marketable equity securities are carried on the statement of financial

The requirement prevents manipulation of earnings by reclassifying securities

Solutions Manual to Accompany Intermediate Financial Accounting (Volume I)

An impairment loss is recorded only when there is a significant and

In accounting for an ordinary stock dividend, or a stock split, the investor

A stock right (warrant) is a privilege given to stockholders (investors) to

In Switzerland there is no requirement to consolidate controlled companies.

1) The equity method is used for an investment in voting equity securities

Investment in Equity Instruments

Securities Fair Value Adjustment

Securities Fair Value Adjustment .

Solutions Manual to Accompany Intermediate Financial Accounting (Volume I)

Investment in Associate Amethysts Inc..

(a) Other comprehensive income (loss) for 2014: (P20.380 million)

Short-term investments No par C/S K Corp. 10,500

Investment in Equity Instruments

P300,000 P200,000 = P100,000 cr. required ending allowance balance.

Solutions Manual to Accompany Intermediate Financial Accounting (Volume I)

The FV adjustment gain - PL account is reported in the income

December 31, 2013

December 31, 2014

Investment in Equity Instruments

Securities Fair Value Adjustment

Unrealized Holding Gain or LossOCI is reported as other comprehensive

Securities Fair Value Adjustment

The unrealized holding gain of P1,300 should be reported as other

Solutions Manual to Accompany Intermediate Financial Accounting (Volume I)

Computation of realized gain or loss on sale of investment:

Net proceeds from sale of investment

January 20, 2014

Securities Fair Value Adjustment ..

The total purchase price of these investments is:

The purchase entries will be:

September 10, 2014

Investment in Equity Instruments

Gross selling price of 3,000 shares at P35 .

May 20, 2013

*P301,500 X 6/9 = P201,000.

(6,000 X P30) (2)(5,000 X P55) (3)(7,000 X P28)

Situation 1: Journal entries by Topstyle Cosmetics:

To record the dividend income from Ramirez Fashion:

Solutions Manual to Accompany Intermediate Financial Accounting (Volume

*(P15 P14) X 20,000 shares = P20,000

To record Pelayos share (25%) of Nadal Corporations net income of P85,000

P130,000, the increase to the Investment account.

Cash (100 shares X P43) .

Investment in Equity Instruments

Unrealized Holding Gain or Loss

Cash [(1,500 X P45) P1,200] .

Unrealized Holding Gain or LossIncome

October 10, 2013

Solutions Manual to Accompany Intermediate Financial Accounting (Volume

At September 30, 2013, Cheiska had the following fair value

The entry on December 31, 2013 is therefore as follows:

Investment in Equity Instruments

(a) Investment in TS [400 (P25) + P180]

(b) Unrealized loss on TS (to earnings)

(c) Cash [0.75 (400)]

(e) Valuation allowance before adjustment = P1,380 P345 =

(f) No reclassifying entry. Stocks are accounted for as Trading Securities

Solutions Manual to Accompany Intermediate Financial Accounting (Volume

Ending market value (300 x P30), 12/31/14