PROBLEM NO.

On December 29, 2018, BBB Company commits itself to purchase a financial asset to be classified as
held for trading for P600,000, its fair value on commitment (trade) date. This security has a fair value of
P601,000 and P602,000 on December 31, 2018 (BBB financial year-end), and January 5, 2019
(settlement date), respectively.

Questions:

1. If BBB applies the trade date accounting method to account for regular-way purchases of its
securities, how much should be recognized as trading securities on December 31, 2018?
a. P600,000 c. P602,000
b. P601,000 d. P0

2. If BBB applies the settlement date accounting method to account for regular-way purchases of its
securities, how much should be recognized as trading securities on December 31, 2018?
a. P600,000 c. P602,000
b. P601,000 d. P0

PROBLEM NO. 2

On December 29, 2018 (trade date), SSS corp. enters into a contract to sell an equity security classified
as Fair Value through Other Comprehensive Income (FVTOCI) for its current fair value of P506,000. The
asset was acquired a year ago and its cost was P500,000. On December 31, 2018 (financial year-end),
the fair value of the asset is P510,000. On January 5, 2019 (settlement date), the asset’s fair value is
P513,000.

Questions:

1. If SSS uses the trade date method to account for regular-way sales of its securities, how much is
the carrying amount of FVTOCI at December 31, 2018?
a. P506,000 c. P513,000
b. P510,000 d. P0

2. If SSS uses the settlement date method to account for regular-way sales of its securities, how
much is the carrying amount of FVTOCI at December 31, 2018?
a. P506,000 c. P5,000
b. P510,000 d. P0

PROBLEM NO. 3

The LLL company has the following transactions relating to its investments during 2018:

January 5 Acquired 10,000 shares of DDD Co. for P1,000,000 paying additional P20,000 for
brokerage and another P5,000 for commission.

February 14 Received dividends from DDD Co. declared January 2, 2018 to the stockholders of
record January 31, 2018, P20,000.

On December 31, 2018 and 2019, the market value per share of the DDD stock is P95 and P120,
respectively.

Required: Prepare the necessary entries assuming the investment is

1. Financial Asset at Fair Value through PL

2. Investment in Equity designated as at Fair Value through OCI

PROBLEM NO. 4

On January 1, 2018, HHH corp. owns 15,000 ordinary shares representing 15% of the shares outstanding
of LLL Corporation. The ordinary shares were acquired on November 12, 2017 at a cost of P1,500,000
and have a fair value of P1,600,000 on December 31, 2017. On January 2, 2018, HHH sold half of its
investment for P100 per share incurring a brokerage and commission expense of P20,000.

Questions:
Case no. 1: Assume that the above securities are classified as fair value through profit or loss

1. Unrealized gain (or loss) on December 31, 2017 to be presented in the statement of financial
position?
a. Nil c. (P100,000)
b. P100,000 d. P20,000

2. Gain (or loss) on sale on January 2, 2018 to be recognized in the profit or loss.
a. Nil c. (P50,000)
b. (P70,000) d. P20,000

Case no. 2: Assume that the above securities are designated as at Fair Value through OCI

3. Unrealized gain (or loss) on December 31, 2017 to be presented in the statement of financial
position?
a. Nil c. (P100,000)
b. P100,000 d. P20,000

4. Gain or loss on sale on January 2, 2018 to be recognized directly in the retained earnings.
a. Nil c. (P50,000)
b. (P70,000) d. P20,000

5. Prepare the necessary entries for the years 2017 and 2018 (for both FVTPL and FVTOCI)

PROBLEM NO. 5

On October 1, 2018, CCC corp. owns 15,000 ordinary shares of PPP corporation acquired at a cost of
P1,500,000. The shares represent 15% of the ordinary shares outstanding of PPP corporation.

Required:

Record the receipt of the share dividends on the CCC book under each of the assumption listed below:

Case No. 1: Assuming the shares are investment in unquoted securities measured at cost

1. CCC received 15% ordinary shares as Share Dividends

2. CCC received 1,500 preference shares as Share Dividends. The par value of the preference
share is P200 per share while the ordinary shares has a par value of P100.

Case no. 2: Assuming the shares are financial assets at fair value through profit or loss

3. CCC received 15% ordinary shares as share dividends. The fair value of the ordinary shares
amounted to P100.
4. CCC received 1,500 preference shares as Share Dividends. The fair value of each preference
shares is P150.

Case no. 3: Assuming the shares are investment in equity securities designated as at FVTOCI

5. CCC received 15% ordinary shares as share dividends. The fair value of the ordinary shares
amounted to P100.
6. CCC received 1,500 preference shares as Share Dividends. The fair value of each preference
shares is P150.

PROBLEM NO. 6

On October 1, 2018, QQQ corp. owns 15,000 ordinary shares of SSS corporation acquired at a cost of
P345,000. The shares represent 15% of the shares outstanding of SSS corporation. On the same date,
SSS corp. declared 15% share dividends payable to stockholders on October 31. On October 31, the
stock is selling at P40 per share. However, on October 31, SSS corp. gave P36 per share in lieu of the
supposed share dividends previously declared.

Case no. 1: Assuming the shares are investment in unquoted securities measured at cost

Case no. 2: Assuming the shares are financial assets at fair value through profit or loss

Case no. 3: Assuming the shares are investment in equity securities designated as at FVTOCI.
Question:

1. Dividend income to be recognized in 2018

2. Gain or loss on sale of investment to be recognized in 2018

PROBLEM NO. 7

On October 1, 2018, VVV corp. owns 15,000 ordinary shares of MMM corporation acquired at a cost of
P345,000. The shares represent 15% of the shares outstanding of MMM corporation. On the same date,
MMM corp. declared P8 cash dividends on its outstanding shares payable to stockholders on October 31.
However, on October 31, MMM corp. issued 1 share for every 5 shares held by the shareholders in lieu of
the supposed cash dividends previously declared.

Case no. 1: Assuming the shares are investment in unquoted securities measured at cost

Case no. 2: Assuming the shares are financial assets at fair value through profit or loss. October 1, 2018,
the stocks were selling at that time at P44 per share.

Requirements:

1. Based on the above data, compute for the dividend income to be recognized in 2018
2. Prepare all the necessary entries on
a. October 1, 2018
b. October 31, 2018

PROBLEM NO. 8

On January 1 of the current year, PPP company acquire 10,000 shares of investment in equity
designated as at FVOCI of DDD company at P400,000 plus brokerage expense of P20,000. On March 1
of the current year, DDD company ordinary share was split on a 5-for-2 basis. On October 1, DDD
company made a special assessment of P3.20 per share on all ordinary shareholders. PPP company
accordingly paid the assessment. The fair value on December 31 amounted to P30 per share.

Questions:

1. The total number of shares at the end of the year.

a. Nil c. 300,000
b. 140,000 d. 25,000

2. The unrealized gain to be presented in the OCI for the current year
a. Nil c. P300,000
b. P140,000 d. P250,000

3. The necessary entries on January 1, will include a

a. Debit to Financial Asset at FVTOCI, P400,000
b. Debit to Financial Asset at FVTOCI, P420,000
c. Credit to Cash P400,000
d. No Journal Entry

4. The necessary entries on December 31, will include a

a. Debit to Financial Asset at FVTOCI, P400,000
b. Debit to Financial Asset at FVTOCI, P300,000
c. Credit to unrealized gain, P250,000
d. Credit to unrealized gain, P140,000

PROBLEM NO. 9

On June 15, 2018, MMM company owns 10,000 shares with a cost of P700,000 of Moon company’s
stock. During the same period, Moon Company issued stock tights to existing shareholders. MMM
received 10,000 stock rights entitling him to purchase 5,000 new shares at P80. The ordinary share was
trading ex-rights at P80 a share and the rights had a market value of P20 per right.

On July 15, 2018, MMM exercised all the stock rights. The share is quoted right-on at P90.

Questions:
1. Assuming the above securities are FVTPL, the stock rights should be initially recognized at
a. Nil c. P100,000
b. P200,000 d. None of the choices

2. Assuming that the above securities are FVTOCI, the stock rights should be initially recognized at
a. Nil c. P100,000
b. P200,000 d. None of the choices

3. Assuming that the above securities are FVTPL, the cost of investment acquired through
exercised of stock rights should be
a. Nil c. P600,000
b. P400,000 d. None of the choices

4. Assuming that the above securities are FVTOCI, the cost of investment acquired through
exercise of stock rights should be
a. Nil c. P600,000
b. P400,0000 d. None of the choices

PROBLEM NO. 10

On January 2, 2015, JJJ company purchased 10,000 shares of P100 par value ordinary shares at P120
per share of SSS company. On March 2, 2015, SSS company issued stock rights to its shareholders. The
holder needs five rights to purchase one share of ordinary stock at par. The market value of the stock on
that date was P160 per share. There was no quoted price for the rights.

Questions:

Based on the above data, answer the following:

1. Compute for the theoretical value of the rights assuming, the stock is selling right-on
a. Nil c. 12
b. 10 d. 27

2. Compute for the theoretical value of the rights assuming, the stock is selling ex-right
a. Nil c. 12
b. 10 d. 27

PROBLEM NO. 11

You were engaged by GGG company to audit its financial statements for the year 2018. During the
course of your audit, you noted that the following investment in equity securities designated as at fair
value through OCI securities were properly reported at December 31, 2017:

Cost Market

Gerrit Corporation, 15,000 shares, convertible PS 900,000 975,000

Loesch, Co., 10,000 shares of ordinary shares 550,000 451,000

1,450,000 1,426,000

The following transactions transpired during 2018:

Jan. 10 - Acquired 20,000 shares of Barr designated as at FVTOCI at P400,000 cash. Additional P20,000
was also paid for the brokerage and commissions.

Feb. 10 – Received the following dividends (all declared on January 15, 2018 to the stockholders of
record January 20)

Loesch – 1,000 share dividends (the market value per share on this date is P60)

Gerrit P30,000

Barr P10,000
Mar. 10 – Converted 5,000 shares of Gerrit preference shares into 10,000 shares of Gerrit Ordinary
shares when the market price was P70 per share for the preference share and P40 per share for
the ordinary share.

Apr. 1 – Loesch Co. issued rights to ordinary shareholders for the acquisition of one additional share at
P62 for every five shares held. The ordinary share was trading ex-right as P54 a share and the
rights had a market value P6 per right.

May 1 – Exercised all the stock rights

Nov. 15 – Sold 2,000 shares of the Loesch stocks for P70 per share.

Dec. 1 – Received P1 per share dividends on the Loesch shares declared on November 2, 2018 to the
stockholders of record November 20.

Closing market quotations as of December 31, 2018:

Bid Asked

Gerrit Corporation, preference shares 70 75

Gerrit Corporation, ordinary shares 45 42

Loesch Co. 72 75

Barr Co 20 24

Questions:

1. How much is the correct cost of the investment acquired on January 10?
a. P400,000 c. P390,000
b. P420,000 d. None of the choices
2. How much is the total dividend income for the year 2018?
a. P101,200 c. P43,200
b. P53,200 d. None of the choices
3. How much is the gain on conversion of 5,000 Gerrit preference shares into 10,000 ordinary
shares?
a. P100,000 gain c. P75,000 gain
b. P50,000 gain d. None of the choices
4. How much is the gain or loss on sale of 2,000 Loesch shares?
a. P24,000 gain c. P39,000 gain
b. P36,000 gain d. P17,333 gain
5. How much should be reported as unrealized gain on FVTOCI securities in the company’s
statement of financial position for the year 2018?
a. P308,000 c. P298,000
b. P338,000 d. None of the choices

PROBLEM NO. 12

You were able to obtain the following ledger details of Trading Securities in connection with your audit of
the MMM corporation for the year ended December 31, 2011:

Date Particulars Debit Credit

Jan. 10 Purchase of FRANZ Co. – 6,000 shares, P220 par value shares 1,440,000

Feb. 20 Purchase of SCAL Co. – 7,200 shares 1,800,000

Mar. 01 Sale of SCAL Co. – 2,400 shares 540,000

May 31 Receipt pf FRANZ share dividend – offsetting credit to

Retained earnings (P220 par value x 600) 132,000

Aug. 15 Sale of FRANZ stocks – 4,800 shares 1,176,000

Sep. 01 Sale of FRANZ stocks – 1,200 shares 276,000

From the Philippine Stock Exchange, the FRANZ dividends were analyzed as follows:

Nature Declared Record Payment Rate

Cash 01/02/11 01/15/11 01/31/11 P20/share

Share 05/02/11 05/15/11 05/31/11 10%

Cash 08/01/11 08/30/11 09/15/11 P30/share

At December 31, 2011, FRANZ and SCAL shares were selling at P210 and P240 per share, respectively.

Questions:

1. The gain or loss on sale of 2,400 SCAL shares on March 1, 2011 is

a. P540,000 gain c. P60,000 loss
b. P300,000 loss d. P60,000 gain
2. The net gain/loss on sales of FRANZ shares in 2011 is
a. P108,000 gain c. P12,000 loss
b. P142,910 gain d. P1,090 loss
3. The total dividend income to be recognized in 2011 is
a. P198,000 c. P36,000
b. P180,000 d. P54,000
4. The carrying amount of Trading Securities as of December 31, 2011 is overstated by
a. P228,000 c. P102,000
b. P60,000 d. P0
5. The unrealized loss on Trading Securities to be recognized in 2011 profit or loss is
a. P52,910 c. P48,000
b. P42,000 d. P0