1.) Axel Company buys and sells securities expecting to earn profits on short-term differences in price. During 2016, Axel Company purchased the following trading securities:

Security Cost Fair Value (Dec. 31, 2016)

A P195,000 P225,000

B 300,000 162,000

C 660,000 678,000

Before any adjustments related to these trading securities, Axel Company had net income of P900,000.

What is Axels net income after making any necessary trading security adjustments?

Net income before trading security adjustment _____________

Unrealized loss (P1,155,000-P1,065,000) ____________

Net income, as adjusted _______________

Security	Cost	Fair Value (Dec. 31, 2016)
A
B
C
Total

_____________________________________________________________________________________

2.)

On June 30, 2016, Gab Company purchased 25% of the outstanding ordinary shares of IB Co. at a total cost of P2,100,000. The book value of IB Co.s net assets on acquisition date was P7,200,000. For the following reasons, Gab was willing to pay more than book value for the IB Co. shares:

• IB Co. has depreciable assets with a current fair value of P180,000 more than their book value. These assets have a remaining useful life of 10 years.
• IB Co. owns a tract of land with a current fair value of P900,000 more than its carrying amount.
• All other identifiable tangible and intangible assets of IB Co. have current fair values that are equal to their carrying amounts.

IB Co. reported net income of P1,620,000, earned evenly during the current year ended December 31, 2016. Also in the current year, it declared and paid cash dividends of P315,000 to its ordinary shareholders. Market value of IB Co.s ordinary shares at December 31, 2016 is P9 million. Cabbage Companys financial year-end is December 31.

Questions:

1. What is the total amount of goodwill of IB Co. based on the price paid by Gab Company?

Answer: ____________

2. What amount of investment income should Gab report in its income statement for the year ended December 31, 2016, under the equity method?

Answer: ____________

3. Under the equity method, the carrying value of Gab Companys investment in ordinary shares of IB Co. on December 31, 2016 should be

Answer: ____________

4. What amount should Gab Company report in its December 31, 2016, statement of financial position as its investments in IB Co. under the fair value method?

Answer: _____________

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3.)

On January 1, 2016, an entity purchased marketable equity securities not qualifying as financial asset held for trading. The entity elected to present changes in fair vake as component of other comprehensive income.

On December 31, 2016, the securities have the following cost and market value:

	Cost	Market
Security A	1,000,000	1,100,000
Security B	2,000,000	2,700,000
Security C	3,000,000	2,800,000
	6,000,000	6,600,000

1. What is the entry to record the unrealized gain or loss?

__________________ _____________________

_________________ _________________________

	Cost	Market	Gain(Loss)
Security A
Security B
Security C

2. On July 1, 2017, Security A was sold for P1,400,000. What is the journal entry to record the sale?

_____________ __________________

________________ ___________________

________________ ____________________

The unrealized gain of P100,000 related to Security A is transferred to retained earnings.

_________________ __________________

__________________ ____________________

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4.)

Shown below is an amortization schedule related to Ang Companys 5 year, P500,000 bond with 7% interest rate and a 5% yield, purchased on December 31, 2016, for P543,300.

Date	Interest received	Interest income	Premium amortization	Carrying amount
12/31/16				P543,300
12/31/17	P35,000	P27,165	P7,835	535,465
12/31/18	35,000	26,773	8,227	527,238
12/31/19	35,000	26,362	8,638	518,600
12/31/20	35,000	25,930	9,070	509,530
12/31/21	35,000	25,470	9,530	500,000

The following shows a comparison of the amortized cost and fair value of the bonds at year end:

	Amortized cost	Fair value
December 31, 2017	P535,465	P532,500
December 31, 2018	527,328	537,500
December 31, 2019	518,600	528,250
December 31, 2020	509,530	515,000
December 31, 2021	500,000	500,000

Questions:

1. Prepare journal entry to record the purchase of these bonds on December 31, 2016, assuming the bonds are held as financial assets at amortized cost.

Answer:

December 31, 2016

_______________ ________________

_______________ _________________

2. Prepare the journal entry(ies) related to these bonds for 2017.

Answer:

December 31, 2017

_____________ __________________

______________ ___________________

______________ ____________________

3. Prepare the journal entry(ies) related to these bonds for 2019.

Answer:

December 31, 2019

_____________ ________________

_____________ _________________

______________ _________________

4. What should be reported as the carrying amount of these bonds in the statement of financial position on December 31, 2020?

Answer:

Investment in bonds, at amortized cost - _______________