Intermediate accounting by robles empleo ch 7 answers

31 Market Adjustment – AFS Securities 25,000 Net Unrealized Gains/Losses on AFS Available for Sale Securities – Y Co.. Held to Maturity Securities – State Corp.. Held to Maturity Secur

PROBLEMS 7-1 (Dusit, Inc.)

Classified as available for sale securities

a Purchase price (10,000 shares x P33.50)

P335,000

b Purchase price (7,000 shares x P26.50) P185,500.00

Transfer taxes (¼ x 1% x 185,500) 463.75

P58,000

1,500

Market values:

45,000

Allocation to:

P14,875

P44,625

d Market value of ordinary shares

2,000 shares x P200 P400,000

Classified as Trading Securities

a Purchase price (10,000 shares x P33.50)

P335,000

b Purchase price (7,000 shares x P26.50)

P185,500

c Allocation to Ordinary Shares

14,500

Allocation to Preference Shares

43,500

d Market value of ordinary shares

2,000 shares x P200 P400,000

7-2 (A Company)

2,400 shares x 7.50 Cost per share:

b Memo entry Received additional 600 shares of B Corp ordinary

shares as stock dividends

Revised cost per share:

c Available for Sale Securities-B Corp Preference 80,000

Available for Sale Securities-B Corp Ordinary 80,000

Market values: Ordinary (2,400 x 125) 300,000 Preference (600 x 250) 150,000

Allocation: Ordinary 240,000 x 300/450 160,000

Preference 240,000 x 150/450 80,000

Costs per share:

d Memo entry Received additional shares of B Corp ordinary shares on

a 4-for-1 stock split

Revised cost per share:

B Corp Ordinary = P240,000/9,600 shares

P 25

e Available for Sale Securities-C Ordinary 20,000

2,400/6 = 400 shares x 50 Costs per share:

7-3 (Victoria Court)

Classified as FVPL

Gain on Sale of Trading Securities 10,000

Trading Securities

160,000

To record sale of Y Co Common Unrealized Loss on Trading Securities 72,000

To record valuation at end of year

Unrealized Holding

MV12/31/08 Market12/31/09 Gains(Losses)

Classified as available for sale securities

Loss on Sale of Available for Sale Securities 30,000

Market Adjustment-AFS Securities 40,000

40,000

To record sale of Y Co Common Net Unrealized Gain/Loss on AFS Securities 72,000

Market Adjustment-AFS Securities 72,000

To record valuation at end of year

Unrealized Holding Gains(Losses)

Required balance in Market Adjustment Account –

cr

P(22,000) Balance before adjustment (10,000 + 40,000) – dr 50,000

7-4 (Inn Corporation)

(1) Sales price (15,000 x 60 )

P900,000

Cost of shares sold:

3,000 shares (1,300,000 x 3,000/24,000) 162,500 812,500

Cost of shares sold (1,800,000 x 15,000/36,000) 750,000

Cost of shares sold:

3,000 shares (1,300,000 x 3,000/24,000) 162,500 662,500

7-5 (Melody Corporation)

Total cost of stock rights received P 8,000

b Cost of stock rights exercised:

2006 Lot (750 x 4) 3,000 P 6,000

Total cost of new shares acquired thru stock rights P30,000 Cost per share (8,400 / 300 shares) P 100

2,250

Cost of stock rights sold

d Available for sale securities balance at December 31, 2009:

Market value at December 31, 2009 (98 x 2,300 shares) 225,400

Balance in unrealized gain/loss account at December 31, 2009 P 32,500

7-6 (Anti Corporation)

Trading Securities – Pro Corp Ordinary 50,000

10,000 x 5

50,000

c Trading Securities – Pro Corp Ordinary 150,000

50,000

10,000/5 = 2,000 shares 2,000 x 50 = 100,000 Trading Securities – Pro Corp Ordinary 140,000

Unrealized Gain on Trading Securities 140,000

Market value, 12/31/06 (12,000 shares x 75) 900,000

Carrying value, 12/31/07 (10,000 shares x 66) 660,000 Cost of stock rights received ( 50,000) Cost of new shares from exercise 150,000 760,000

140,000

7-7 (EDSA Company)

(a)

1 150 – 135 = P5.00

2 + 1

2 2,000 x 5 = P10,000

3 5,500 – (1,000 x 5) = P500 Gain

2

7-8 (Tolits Corporation)

2009

a Available for Sale Securities – Diana

b Memorandum entry Received 500

additional shares of Diana ordinary shares

as a result of 2-for-1 split

c Available for Sale Securities – Smith

(1,000 x 120) + 1,200

Available for Sale Securities – Diana Ordinary

13,500 (54,000 / 1,000) x 250 shares =

13,500

Available for Sale Securities – Diana

750 shares x 3

f Available for Sale Securities – Diana

Ordinary

13,725

(60% x 750) x 3; 225 x 55

(40% x 750) x 3

Available for Sale Securities – Diana

13,725/ 225 = 61; 61 x 100 = 6,100

Unrealized Gains/Losses on AFS

Market Unreal

CV Diana 1 (750 sh) 46,500 38,250

Diana 2 (125 sh) 7,750 7,625

Smith (1,000 x 115) 115,000 121,200

Total 169,250 167,075

8,250 125 (6,200) 2,175

Loss on sale of AFS Securities

( 500)

Total income recognized in profit or loss in 2006

P9,000

7-9 (X Corporation)

2008

Jan 1 Available for Sale Securities – Y Co Ordinary 300,000

Dec 31 Net Unrealized Gains/Losses on AFS

5,000 x (60 – 55) 2009

Dec 31 Market Adjustment – AFS Securities 25,000

Net Unrealized Gains/Losses on AFS

Available for Sale Securities – Y Co

5,000 x (60-52) 7-10 (Carlo Company)

2009

Loss on Sale of Trading Securities 14,000

May 15 Available for Sale Securities – Ghio

Preference

30,550

July 10 Memorandum entry Received 4,000

additional Darrel ordinary shares representing a 20% bonus issue Shares now held are 24,000

Dec 31 Unrealized Loss on Trading Securities 9,000

(5,000 x 26) – 139,000

31 Market Adjustment – AFS Securities 110,650

Net Unrealized Gains/Losses on AFS 110,650

Securities 116,650 – 6,000 balance

FV Cost Unrealized

Darrel 480,000 364,000 116,000

Ghio 31,200 30,550 650

Total 511,200 394,550 116,650

7-11 (Hostel Company)

20% x 1,500,000

3 Memo Received 2,000 additional

shares of Atlanta ordinary as 10% bonus issue Shares now held are 22,000

20% x 3,000,000

20% x 1,000,000

0

0

7-12 (Byron, Inc.)

2009

Jan 1 Investment in Associates – Pirates

Ordinary

5,160,000

Dec 31 Investment in Associates – Pirates

Income from Associates (30% x

Investment in Associates – Pirates Ordinary

120,000

7-13 (Barbie, Inc.)

(a)

Mar 1 Investment in Associates – Kitchie 1,365,000

31 Investment in Associates – Kitchie 800,000

(3.2M x 10/12) x 30%

31 Income from Associates – Kitchie 37,500

(30% x 750,000) / 5 yrs = 45,000 45,000 x 10/12 = 37,500

(b) Acquisition cost, March 1, 2009

P1,365,000

( 240,000)

800,000

( 37,500)

Investment carrying value, December 31, 2009 P1,887,500

Income reported by Barbie from its investment in associates:

762,500

7-14 (Richmonde Corporation)

(a)

2008

Jan 1 Available for Sale Securities – Pen, Inc 900,000

10% x 2,000,000

31 Market Adjustment – AFS Securities 480,000

Net Unrealized Gains/Losses on AFS

2009

Jan 1 Investment in Associates – Pen, Inc 1,300,00

0 Net Unrealized Gains/Losses on AFS

Available for Sale Securities – Pen, Inc 900,000 Acquisition cost

900,000 Share in income (10% x 6M) 600,000

Share in dividends (10% x 2M)

(200,000) Carrying amount, 12/31/05 1,300,000

1 Investment in Associates – Pen, Inc 2,600,00

0

0

Dec 31 Investment in Associates – Pen, Inc 1,950,00

0 Income from Associates (30% x

6,500,000)

1,950,00

0

Investment in Associates (30% x 3,000,000)

900,000

(b) Cost transferred from Available for Sale Securities 1,300,00

0

7-15 (E Corporation)

(a)

2008

Jan 1 Investment in Associates – F Company 8,250,00

0

0

Dec 31 Investment in Associates – F Company 170,000

25% x 680,000

2009

Investment in Associates – F Company 210,000

31 Investment in Associates – F Company 250,000

25% x 1,000,000

2010

0 Investment in Associates – F Company 3,300,00

0 Gain on Sale of Investment in Associates 100,000

Acquisition cost 8,250,000 Share in income (2006) 170,000 Share in dividends (2006) (210,000) Share in dividends (2007) (210,000) Share income (2007) 250,000

Investment carrying amount 8,250,000 Portion sold 40%

Cost of investment sold 3,300,000

2 Available for Sale Securities – F Company 4,950,00

0 Investment in Associates – F Company 4,950,00

0

8,250,000 – 3,300,000

31 Market Adjustment-AFS Securities 750,000

Net Unrealized Gains/Losses on AFS Securities

750,000

(30,000 x 190) - 4,950,000 = 750,000

Cost/Carrying Value, beg of year P8,250,000 P8,210,000 P8,250,000

Income from associates 170,000 250,000 Cash dividends received (210,000) (210,000) Sale of shares (3,300,000) Market adjustment 750,000 Carrying value, end of year P8,210,000 P8,250,000 P5,700,000

7-16

10 A, B and C

7-17 (Abu Company)

(a)

Date Interest

Received Interest Revenue

Premium Amortization Carrying

Value

12/31/07 1,200,000 1,158,450 41,550 8,233,096 12/31/08 1,200,000 1,152,633 47,367 8,185,729 12/31/09 1,200,000 1,146,002 53,998 8,131,731 12/31/10 1,200,000 1,138,442 61,558 8,070,173 12/31/11 1,200,000 1,129,827* 70,173* 8,000,000

*rounded off

(b)

Jan 1 Held to Maturity Securities 8,274,646

2008

7-18 (South Company)

a Journal entries in 2006 and 2007

(1) Securities are classified as financial assets at fair value through profit and loss.

2008

June 1 Trading Securities – State Corp Bonds 3,691,500

31 Trading Securities – State Corp Bonds 188,500

Unrealized Gain on Trading Securities

188,500

4M x 0.97 = 3,880,000 3,880,000 – 3,691,500 = 188,500

2009

Dec 31 Trading Securities – State Corp Bonds 80,000

Unrealized Gain on Trading

4M x 0.99 = 3,960,000 3,960,000 – 3.880,000 = 80,000

(3) Securities are classified as held-to-maturity securities.

To facilitate computation, a partial amortization table is presented below

Date

Interest Received

Interest Revenue

Amortization

of Discount

HTM Carrying Value

June 1,

Dec 1, 2008 160,000 184,575 24,575 3,716,075 June 1, 160,000 185,804 25,804 3,741,879

Dec 1,

2009 160,000 187,094 27,094 3,768,973 June 1,

2010 160,000 188,449 28,449 3,797,422 Dec 1,

2010 160,000 189,871 29,871 3,827,293 June 1,

2011 160,000 191,365 31,365 3,858,658 Dec 1,

2011 160,000 192,933 32,933 3,891,591

2008

June 1 Held to Maturity Securities – State Corp

Held to Maturity Securities – State Corp

Held to Maturity Securities – State Corp

Bonds

4,301

160,000 x 1/6 = 26,667; 25,804 x 1/6 = 4,301

2009

Held to Maturity Securities – State Corp

Bonds

4,301

Held to Maturity Securities – State Corp

Held to Maturity Securities – State Corp

Bonds

27,094

Held to Maturity Securities – State Corp

Bonds

4,742

160,000 x 1/6 = 26,667; 28,449 x 1/6=

4,742

(3) Securities are classified as available for sale securities.

To facilitate computation, a partial amortization table is presented below

Date ReceivedInterest Interest

Revenue

Amortization

of Discount Carrying ValueHTM

Dec 1, 2008 160,000 184,575 24,575 3,716,075 June 1,

2009 160,000 185,804 25,804 3,741,879 Dec 1,

2009 160,000 187,094 27,094 3,768,973 June 1,

2010 160,000 188,449 28,449 3,797,422 Dec 1,

2010 160,000 189,871 29,871 3,827,293 June 1,

2011 160,000 191,365 31,365 3,858,658 Dec 1,

2011 160,000 192,933 32,933 3,891,591

2008

June 1 Available for Sale Securities – State Corp

Bonds

3,691,500

Available for Sale – State Corp Bonds 24,575

Available for Sale Securities – State Corp

160,000 x 1/6 = 26,667 25,804 x 1/6 = 4,301

31 Market Adjustment – AFS Securities 159,624

Net Unrealized Gain/Loss on AFS Securities

159,624

4M x 0.97 = 3,880,000 Amortized cost

3,691,500+ 24,575 + 4,301 = 3,720,376

Market Adjustment P 159,624

2009

Available for Sale Securities – State Corp

Available for Sale Securities – State Corp

Available for Sale Securities – State Corp

Available for Sale Securities – State Corp

Bonds

4,742

Interest Revenue 31,409

160,000 x 1/6 = 26,667 28,449 x 1/6 = 4,742

Dec 31 Market Adjustment – Available for Sale

Securities

26,661

Market value (4M x 99%) P3,960,000

Amortized Cost (3,768,973 + 4,742) 3,773,715

Cumulative UG/L P 186,285

Before adjustment 159,624

Increase in UG/L P 26,661

2 Journal entry/entries to record sale of investment on November 1, 2011.

(a) Securities are classified as financial assets at fair value through profit and loss

2011

0 Loss on Sale of Trading Securities 128,333

Trading Securities – State Corp Bonds 3,920,000

Acc Int = 4M x 8% x 5/12 = 133,333 Sales price (3,925,000–133,333) 3,791,667

Carrying value (4 M x 0.98) 3,920,000 Loss on sale 128,333

(b) Securities are classified as held-to-maturity securities

2011

Nov 1 Held to Maturity Securities – State Corp

32,933 x 5/6 = 27,444

0 Loss on Sale of Held to Maturity Securities 94,435

Held to Maturity Securities–State Corp

Bonds

3,886,10

2

CV of HTM Securities sold:

As of June 1, 2011 3,858,658

Amortization June 1 to Nov 1, 2011 27,444

As of Nov 1, 2011 3,886,102

Sales price 3,791,667

Loss on sale 94,435

(c) Securities are classified as available for sale securities.

2011

Nov 1 Available for Sale Securities – State

0 Loss on Sale of Available for Sale Securities 94,435 Net Unrealized Gain/Loss on AFS Securities 87,479

Available for Sale Securities–State CorpBonds

3,886,10

2

Sales price (3,925,000–133,333) 3,791,667

Amortized Cost 3,886,102

Loss 94,435

Amortized Cost 12/1/08 P3,827,293

Discount Amort

12/1/08 – 12/31/08 31,365 x 1/6 5,228

Amortized Cost 12/31/08 P3,832,521

MV 12/31/08 4M x 98%

3,920,000 Unrealized Gain on 12/31/08 P 87,479

7-19 Raffy Company)

To facilitate computation, a partial amortization table is presented below

Date ReceivedInterest RevenueInterest Amortizationof Discount Carrying ValueHTM

Dec 31,

2007 350,000 312,267 37,733 5,315,417 Dec 31,

2008 600,000 531,542 68,458 5,246,959 Dec 31,

2009 600,000 524,696 75,304 5,171,655 Dec 31,

2010 600,000 517,166 82,834 5,088,821

2007

June 1 Held to Maturity Securities – Blessie Corp

Bonds

5,353,15

0 Interest Revenue (5M x 12% x 5/12) 250,000

0

Held to Maturity Securities – Blessie 37,733 2008

Held to Maturity Securities – Blessie 68,458 2009

Held to Maturity Securities – Blessie 75,304 2010

Sept 1 Interest Receivable (3M x 12% x 8/12) 240,000

Held to Maturity Securities – Blessie 33,134 Interest Revenue (517,166 x 3/5 x 8/12) 206,866

0

Held to Maturity Securities – Blessie 3,069,85

9

CV of HTM securities sold:

As of 12/31/07 (5,171,655 x 3/5) 3,102,993

Amort from 1/1/08-9/1/08 33,134

CV as of 9/1/08 3,069,859

Sales price 3,090,000

Gain on sale 20,141

1 Available for Sale Securities – Blessie 2,068,66

2

2

5,171,655 – 3,102,993 = 2,068,662

Available for Sale Securities – Blessie 33,134

2M x 12% = 240,000 5,171,655 – 3,102,993 = 2,068,662 2,068,662 x 10% = 206,866 240,000 – 206,866 = 33,134

Amortized cost 2,068,662 – 33,134 = P2,035,528*

Market value 2M x 103.5% 2,070,000 Market Adjustment P 34,472

*or 5,088,821 x 2/5 = P2,035,528

Note: Instead of recognizing the unrealized gain or loss at the date of reclassification on September 1, 2010 (the company demonstrating no ability

to hold the securities until maturity, hence the securities were reclassified as AFS), and adjusting the account again at yearend, a single adjustment at yearend is made in the above entries Both methods would achieve the same