PROBLEM 1 ABC Company holds debt securities within a business model whose objective is achieved both by collecting contractual cash flows and selling the debt securities. The contractual cash flows are solely payments of principal and interest on specified dates. The following amortization schedule relates to its 5-year, P1,000,000 7% bonds purchased on December 31, 2019 for P1,086,565. The bonds were purchased to yield 5% interest. Date 12.31.19 12.31.20 12.31.21 12.31.22 12.31.23 12.31.24 Interest received Interest income 70,000 70,000 70,000 70,000 70,000 54,328 53,545 52,722 51,858 50,982 Premium amortization 15,672 16,455 17,278 18,142 19,018 Amortized Cost 1,086,565 1,070,893 1,054,438 1,037,160 1,019,018 1,000,000 *Adjustment due to rounding The following schedule presents the amortized cost and fair value of the bonds at year-end. 12.31.20 12.31.21 12.31.22 12.31.23 12.31.24 Fair Value 1,065,000 1,075,000 1,056,500 1,030,000 1,000,000 Amortized Cost 1,070,893 1,054,438 1,037,160 1,019,018 1,000,000 Questions: 1. What amount should be reported as investment in bonds in the statement of financial position on December 31, 2021? 2. What amount of unrealized gain should be shown as component of other comprehensive income in the 2021 statement of comprehensive income? 3. What amount of unrealized loss should be shown as component of other comprehensive income in the 2022 statement of comprehensive income? 4. What amount of unrealized loss should be shown as component of other comprehensive income in the 2023 statement of comprehensive income? 5. What amount of unrealized gain should be shown in the 2023 statement of changes in equity? PROBLEM 2 DEF Company's portfolio of trading securities includes the following on December 31, 2018 Cost Fair Value 15,000 ordinary shares of Kamias Co 1,431,000 1,251,000 30,000 ordinary shares of Kayganda Co 1,638,000 1,710,000 3,069,000 2,961,000 All of the above securities have been purchased in 2018. In 2019, DEF Company completed the following securities transactions: 01-Mar Sold 15,000 shares of Kamis Co ordinary shares for P1,381,500 01-Apr Bought 1,800 ordinary shares of Baston, Inc at P135 plus commission, taxes and other transaction costs of P4,950 The DEF Co portfolio of trading securities appeared as follows on December 31, 2019 This study source was downloaded by 100000853922121 from CourseHero.com on 10-26-2022 07:17:03 GMT -05:00 https://www.coursehero.com/file/61307191/AUDPROB-Quiz8pdf/ Cost Fair Value 1,638,000 1,740,000 (A) 247,950 225,000 (B) 1,885,950 1,965,000 A Net of P19,500 estimated transaction cost that would be incurred on the sale of securities B Net of P4,500 estimated transaction costs that would be incurred on the sale of the securities 30,000 ordinary shares of Kayganda Co 1,800 ordinary shares of Baston, Inc Questions: 1. What amount of unrealized gain on these securities should be reported in the 2019 income statement? 2. What is the gain on the sale of Kamias Co ordinary shares on March 1, 2019? 3. What amount should be reported as trading securities in DEF Company's statement of financial position on December 31, 2019? PROBLEM 3 You are auditing the XYZ Inc investment account. In its initial year of operations, the company provided you the following information with regard to its stock investment acquisition for the year: ABC Corp DEF Inc GHI Co JKL Co Number of shares acquired 2,000 1,500 3,000 4,000 Recorded acquisition cost P240,000 225,000 285,000 200,000 Additional information: a. ABC Corp stocks were acquired on March 1, 2019 at a total cost of P200,000 plus brokerage fee and commission to P40,000. Dividends which were declared on January 25, 2019 to stockholders as of March 20, 2019 were received on April 1, 2019 at P20,000. ABC Corp stocks were acquired by the company with the intention of designating the same as a financial asset at fair value through profit and loss. The stocks were selling at P105 per share as of December 31, 2019. b. DEF Inc were acquired on May 1, 2019 at P150 per share. The company paid brokerage and commission amounting to P30,000. The company had neither significant influence over DEF Corp no does it intend to sell the stocks for short term profits, thus, designated the same at fair value through other comprehensive income. The company received a 20% stock dividend on October 11, 2019. The stocks were selling at P160 per share on December 31, 2019. c. GHI Co stocks which were acquired for trading purpose on June 1, 2019 at P285,000 were split 5 for 3 on August 15, 2019. In addition, the company paid special assessment on the investment at P25 per share owned on September 30. On December 30, 2019, when the shares had a market value of P75/share, GHI declared a P5 dividend payable on January 25 of the subsequent period. d. JKL Corp stocks were acquired on August 1, 2019 to be appropriately classified as financial asset at fair value through other comprehensive income. JKL Corp issued 1 share for every 4 shares held by the stockholders as stock dividends in lieu of a P15 per share cash dividend it has previously declared. The stocks were selling at that time at P55 per share. JKL shares were selling at P60 per share on December 31, 2019. Questions: 1. How much should the investment in ABC Corp and DEF Inc be initially recognized? 2. How much is the correct dividend income to be recognized from investment in stocks of DEF Inc and GHI Co respectively? 3. How much is the correct dividend income to be recognized from investment in JKL Co? 4. How much should be reported as investment in stocks classified as trading securities and corresponding unrealized holding gain or loss in the income statement? PROBLEM 4 During the course of your audit of the financial statements of Social Distancing Corp for the year ended December 31, 2019, you found a new account, "Investment in Equity Securities". Your audit revealed that during 2019, the corporation began a program of investments, This study source was downloaded by 100000853922121 from CourseHero.com on 10-26-2022 07:17:03 GMT -05:00 https://www.coursehero.com/file/61307191/AUDPROB-Quiz8pdf/ and all investment related transactions were entered in this account. Your analysis of this account for 2019 follows: Social Distancing Corporation Analysis of Investment in Equity Securities For the year ended December 31, 2019 Debit (A) Veerus Company Ordinary Shares 14-Feb Purchased 24,000 shares @ P55 per share 26-Jul Received 2,400 ordinary shares of Veerus Co as share dividend (memorandum entry in the general ledger) 28-Sep Sold the 2,400 ordinary shares of Veerus Co received on July 26@P70 per share Credit P1,320,000 P168,000 Debit (B) Hon Sonny Tyzer Co Ordinary Shares 30-Apr Purchased 120,000 shares @ P40 per share 28-Oct Received dividend of P1.2 per share Credit P4,800,000 P144,000 Additional information: A. The fair value for each security as of the 2019 date of each transaction follow: Security Veerus Co Hon Sonny Tyzer Co Social Distancing Corp 14-Feb 30-Apr 25 40 28 P55 26-Jul P62 P70 30 28-Sep 31-Dec P74 32 33 35 B. All of the investments of Social Distancing Co are normal in respect to percentage ownership (5% or less) C. Each investment is considered by Social Distancing Cop to be non-trading. The corporation has made an irrecovable election to present in other comprehesive income subsequent changes in fair value of its non-trading equity securities. Questions: 1. What amount shoud be reported as gain on sale of non-trading equity securities in 2019? 2. The receipt of 2,400 share divided would cause in the investment balance to increase by 3. What entry is necessary to correct the recording of the cash dividend received from Hon Sonny Tyzer Co? 4. What amount of unrealized gain or loss should bre reported in the 2019 statement of comprehensive income as component of othe comprehensive income? 5. What amount should be reported as Investment in Equity Securities in the statement of financial position on December 31, 2019? PROBLEM 5 KOVIDO blanca Co acquired P2,000,000 face value bonds on March 31,2019 at P1,934,336. The 10 year, 10% bonds which are dated January 1, 2013 pays annual interest every December and were acquired by the company with the intention of generating income on a short term basis from the fluctuations of the value of securities. The prevailing rate of interest of similar security on the same date is at 12%. The company paid for broker's fee and commissions amounting to P100,000. Interest collected at year-end were credited to the appropriate interest income account. Moreover, the prevailing interest at year end at 14, thus, the market value of the bonds is at P1,814,269. Questions: 1. What is the unrealized gain or loss to be recognized in the company's income statement in 2019? 2. What is the investment account balance as of December 31, 2019? 3. How much is the correct interest income to be recognized for the year 2019? 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