Answers with solutions.1. What is the correct total carrying value of all investments of PRUTAS Corporation as of December 31, 2018?2. How much is the overstatement or understatement in the December 31, 2017 retained earnings?
USE THE FOLLOWING TO ANSWER 1-2 During the course of your audit of the 2018 financial statements of your first-time client, PRUTAS Corporation, you were able to obtain the balances of your client's investment accounts, as follows! Financial Assets at FVPL 2,560,000 Financial Assets at FVOCI 3,900,000 Financial Assets at Amortiaid Cost 5,000,600 Investment Properties 25,000,000 Additional information related to your client's investment accounts are as follows: The business model of your client is collecting contractual cash flows that are solely principal and interest payments at specified dates. The financial assets at FVPL account consists of the following a 10,000 shares of APOL. Corporation's 100,060 outstanding shares. These shares were bought on July 5, 2017 for P120 per share. Entries related to the shares are as follows: July 5, 2017 Financial Assets at FVPL. 1,250,090 Cash 1,250,000 To record purchase of 10,000 shares of APOL. Corporation at P120 per share, plus P50,000 transaction costs. Nov. 8, 2017 Cash 100,000 Dividend Income 100.000 To record receipt of P10 per share dividend from APOL Corporation. Dec. 31, 2017 Financial Assets at FVPL. 60,000 Unranksed Onin - PL. 50,060 To record increase in the fair value of APOL Corporation's shares to P130 per share. Dec. 31, 2018 Unrealized Loss - PL. 80,000 Financial Assets at FVPL. 80 060 To record decrease in the fair value of APOL Corporation's shared in P123 per share. 6 100,000 shares of BANANA Corporation's 400,000 outstanding shares, These shares were bought last July 1, 2018 for P12 per share, when the net assets of the company is P4,800,000. The interest bought by your client provides significant influence over BANANA. However, the accountant inadvertently accounted for such investment as financial asset at FVPL. The entries related to the shares are as follows: July 1, 2018 Financial Assets at FVPL 1,200,000 Cash 1,200,000 To record purchase of 100,000 shares of BANANA Corporation at P12 per share. Dec. 1, 2018 Cash 60,000 Dividend Income 50,090 To record receipt of PO.60 per share dividend from BANANA Corporation. Dec. 31, 2018 Financial Assets at FVPL 140,000 Unrualized Gain - PL 140,009 To record increase in the fair value of BANANA Corporation's shares to P13.40 per share. The net income of BANANA for 2018, which was earned evenly throughout the year, total to P840,600. The financial assets at FVGCI account consists of 200,000 shares of CHERRY Company's 2,000,000 outstanding shares, The entity elected to present the investment at fair value through OCT. The shares were bought on March 4, 2017 for P19 per share. The only entry made related to this investment is the entry for the acquisition, which is considered to be correct. The fair value of the shares as of December 31, 2017 and December 31, 2018 are P22 per share, and P15 per share, respectively. No dividends wore declared by CHERRY for 2017 and 2018. The financial asset at amortized cost is a debt security issued by DURIAN, Inc. last January 1, 2017. The face value of the five-your 1046 note is P3,000,090, Interest is paid every December 31, The ancurity is purchased for P4,639,400, which yielda a rate of 12%. Entries related to the investment are shown below: Jan. 1, 2017 Financial Assets at Amortized Cost 5,080,000 Cash 4,630,400 Interest Income 360,600 To record the purchase of DURIAN, Inc.'s five-year 10% debt securities, with face value of P5,000,000, for P4,630,400. Dec. 31, 2017 Cash 80D,000 Interest Income 500,000 To record annual interest of P500,000. Doc. 31, 2018 Cash 80D,000 Interest Income 500,000 To record annual interest of P500,000. The property, being leased out by the company to different leasses under an operating lense, was purchased for P30,000,000 last January 2, 2018. The whole property has an estimated unchal life of mix jo) years from the date of acquisition, and the cost model is used by the company in accounting for its investment properties. Further investigation revealed that a portion of the property, which can be valued separately, is occupied for administrative purposes. The value of this portion at acquisition date is P6,000,000. Entries related to the investment are presented below: Jan. 2, 2018 Investment Properties 30,090,000 Cash 30,000,000 To record purchase of investment property for P30,000.000. Dec, 31, 2018 Depreciation Expense 5,000,000 Accumulated Depreciation - Investment 5,000.000 Properties To record annual depreciation of P5,000,090
