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PROBLEM 4. Shares Receivable in Lieu of Cash Dividends

On October 1,2021, Venus Corp owns 15,000 fair value through other comprehensive income share acquired at a cost of P 345,000. The shares represent 15% of the shares outstanding of Mercury Corporation. On the same date, Mercury Corp, declared P 8 cash dividends on its outstanding shares payable to stock holder on October 31. However, on October 31, Mercury Corp issued 1 share for every 5 shares held by the shareholders in lieu of the supposed cash dividends previously declared.

Requirements:

1.Based on the above data, compute for the dividend income to be recognized in 2021

2.Make all the necessary entries on

a.October 1, 2021

b.October 31, 2021

PROBLEM 5. Stock Split and Special Assessment

On January 1 of the current year, Phobos Company acquired 10,000 shares of Investment in equity designated as a Fair Value through Other Comprehensive Income of Deimos Company at P 400,000 plus brokerage expenses of P 20,000. On March 1 of the current year, Deimos Company ordinary share was split on a 5 for 2 basis. On October 1, Deimos Company made a Special assessment of P 3.20 per share on all ordinary shareholder. Phobos Company accordingly paid the assessment. The fair value of December 31 amounted to P 30 per share:

Questions:

Based on the above data answer the following:

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

a.Nilc. 300,000

b.140,000d. 25,000

2.The unrealized gain to be presented in the other comprehensive income for the current year:

a.Nilc. 300,000

b.140,000d. 250,000

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

a.Debit to financial asset at FVTOCI, P 400,000

b.Debit to financial asset to FVTOCI, P 420,000

c.Credit to cash, P 400,000

d.No journal entry

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

a.Debit to financial asset at FVTOCI, P 400,000

b.Debit to financial asset at FVTOCI, P 300,000

c.Credit to Unrealized gain, P 250,000

d.Credit to Unrealized gain, P 140,000

PROBLEM 6. Stock Rights

On June 15, 2021 Mars Company owns 10,000 shares with a cost P 700,000 of Moon Company's stocks. During the same period, Moon Company right to existing shareholder. Mars received 10,000 stock rights entitling him to purchase 5,000 new shares at P 80. The ordinary share was trading ex rights. On July 15,2021 mars exercised all the stocks rights. The share is quoted right on at P90.

Question:

Based on the above data, answer the following:

1.Assuming that the above securities are FVTPL, the stock rights should be initially recognized at

a.Nilc. P100,000

b.P200,000d. None of the choices

2.Assuming that the above securities are FVTOCI, the stocks rights should be initially recognized at

a.Nilc. P100,000

b.P200,000d. None of the choices

3.Assuming that the above securities are FVTPL, the cost of the investment acquired through exercised of stocks rights should be

a.Nilc. P600,000

b.P400,000d. None of the choices

1.Assuming that the above securities are FVTOCI, the cost of the investment acquired through exercised of stocks rights should be

a.Nilc. P600,000

b.P400,000d. None of the choices

PROBLEM 7. Purchase: Trade Date vs Settlement Date Accounting

On December 29, 2021, bifurcation Company commits itself to purchase a financial asset to be classified as held for trading for P 600,000, its fair value on commitment (traded) date. The security has a fair value of P 601,000 and P 602,000 on December 31, 2021 (Bifurcation's financial year-end), and January 5, 2022 (settlement date), respectively

Questions:

Based on the above data, answer the following:

1.If Bifurcation 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, 2021?

a.P 600,000c. P 602,000

b.P601,000d. P 0

2.If Bifurcation applies the settlement date accounting method to account for regular-way purchase of its securities, how much should be recognized as trading securities on December 31, 2021?

a.P 600,000c. P 602,000

b.P601,000d. P 0

PROBLEM 8. Exchange of One Financial Asset into Another Financial Asset

Uranus Company owns 8,000 convertible preference shares of which was acquired in 2020 at cost of P 400,000. The investment was classified as trading securities. On December 31, 2020, the fair value of the preference share was P 425,000. On March 31,2021, Uranus Company converted the 4,000 preference shares into 6,000 shares of ordinary shares, when the market price was P 50 per share for the preferences shares and P 40 per share for the ordinary shares.

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Questions:

Based on the above data, answer the following:

1.Compute for the gain on exchange to be recognized in 2021

a.Nilc. P 27,500

b.P 40,000d. P 60,000

2.The necessary journal entry on march 31, will not include a

a.Debit to Investment in Trading-Ordinary shares, P 240,000

b.Credit to Investment in Trading -Pref, shares, P27,500

c.Credit Gain on exchange, P27,500

d.Credit to Investment in Trading Pref, shares, P 212,500

PROBLEM 9. Exchange of a Financial Asset for PPE

On January 1, 2021, Pluto Company has investment in equity designated as at Fair value through Other Comprehensive Income with a fair value of P 600,000. These securities were acquired a year ago at a cost of P 625,000. On March 31 2021. Pluto Company exchanged these securities for a piece of land from Mars Company. The carrying amount of the land in books Marks Company was P480,000 and has a zonal value of P 800,000. At the time of exchange , the shares which was publicly listed, has a fair value of P 650,000

Questions:

Based on the above data, answer the following:

1.Compute for the gain on exchanges to be recognized in 2021 equity

a.Nilc. P 25,000

b.P50,000d. P 175,000

2.The necessary journal entry on March 31, will include a debit to financial at FVTOC, P 600,000

a.Debit to financial asset at FVTOCI, P 600,000

b.Debit to land P 650,000

a.Credit gain on exchange, P 25,000

b.Debit to loss on exchange, P 25,000

PROBLEM 10. FVTOCI

At December 31, 2929, BAGSPARS, company properly reported as noncurrent asset the following FCTOCI equity securities:

CostMarket Value

EDA Corporation, 1,000 shares,

Preference shareP 40,00030,000

DJOA, Inc, 6,000 shares of ordinary shareP 60,00090,000

RVFE Co, 2,000 shares or ordinary share55,00088,000

TotalsP 155,000208,000

During 2021. The following transaction occurred among other:

January 5

Acquired 8,000 shares of ARP Co, for P 880,000 incurring additional P 10,000 for brokerage and another P 10,000 for commission. These shares are to be initially recognized at fair value through other comprehensive income.

February 14

Problem 11. Acquisition of Bonds

the following transaction transpired for Bokod Company during the year.

On January 1, 2021 Bokod acquired from Buguias a 4-year bond with a face value of P 1,200,000 and stated interest of 10% per year payable annually on December 31. The bonds were acquired to yield 12%

On January 1, 2021, Bokod acquired from Baquio at 10% interest, 4-year bonds with a face value of P1,200,000 for P 1,100,000. Transaction cost paid by the company amounted P 44,752. Interest is payable annually on December 31.

On January 1, 2021, Bokod Co. acquired from kabayan a 4-year bonds with a face value of P 1,800,000 and stated interest 10% per year. The bonds mature in 4 equal annual installment every December 31. The interest is also payable every December 31. The bonds were acquired to yield 12%.

On April 1, 2021, Bokod acquired from Kayapa a 4-year bonds with a face value of P 2,000,000 and stated interest of 10% per year payable annually on December 31. The bonds were acquired to yield 12%

All the investment are to be appropriately classified as FAAC.

Question:

Based on the above data, answered for the following: (Round off present value factors to four decimal places)

1.How much is the purchase price of bonds acquired from buguias?

a.Nilc. P 1,127,076

b.P227,076d. P 1,051,730

2.How much is the purchase price of bonds acquired from Baguio?

a.P1,884,814c. P1,834,814

b.P1,878,460d. P1,934,814

3.How much is the purchase price of bonds acquired from Kabayan?

a.Nilc. P1727,834

b.P612,167d. P1,030,521

4.What is the effective rate of the bonds acquired from Baguio?

a.10%c. 11%

b.12%d. 11.5%

5.How much is the total interest income in 2021 for the above investments?

a.P620,000c. P643,296

b.P570,000d.P586,942

PROBLEM 12- Initial and Subsequent Measurement, Derecognition and Reclassificiation of trading Debt Securities.

On January 1, 2020, VIriginia Co. acquired a 5-year bonds with a total face value of P5,000,000 for P5,479,079. The bonds are to be appropriately classified as held for trading. On December 31, 2020, the bonds are quoted at 104%.

On January 3, 2021 the of the bonds were sold at 105.

On November 1, 2021, Virginia Co, changed its business model. It was determined that the remaining at amortized cost dat. On December 13, 2021, the bonds are quoted 102.

On January 1, 2022, the bonds were quoted at 104.

Question:

Based on the above data, answer the following:

1.How much is the interest income for 2020?

a.Nilc. P600,000

b.P537,908d. P645,489

2.How much is the unrealized gain (loss) in 2020 to be recognized in the profit or loss ?

a.Nilc. P200,000

b.P(179,079)d. P(379,079)

3.How much is the realized gain (loss) on sale in 2021 to be recognized in the profit of loss?

a.Nilc. P(33,494)

b.P25,000d. P(64,540)

4.How much is the interest income for 2021?

a.P265,849c. P531,699

b.P300,000d. P600,000

5.How much is the gain (loss) on reclassification to be recognized in the profit or loss on January 1,2022?

a.Nilc. P50,000

b.P24,343d. P100,000

6.Assume instead that the bonds are reclassified to FVTOCI, how much is the gain (loss) on reclassification to be recognized in the profit or loss on January 1, 2022?

a.Nil.c. P50,000

b.24,343d. 100,000

PROBLEM 13 - Expected Credit Loss -12 months vs Lifetime

On January 1, 2021, CLOY Company granted a five-year term loan on P1,500,000 on GOBLIN Company. If there were no possibility of credit losses, the coupon rate that CLOY Company would charge the borrower is 10% per annum, However, because of the borrower's credit rating, CLOY Company estimates that there is a possibility the borrower might default on the payments and the expected credit losses are estimated at P20,000 per year over the five-year term. Accordingly, CLOY Company charges the borrower 12% coupon rate to reflect the yield on the instrument to include a return to cover those credit losses expected when the loan is first recognized.

Required:

1.Compute for the lifetime expected credit loss.

2.Compute for the 12-month expected credit loss.

3.Prepare the journal entry on initial recognition of the loan.

4.Prepare the entry assuming there is no significant deterioration of credit risk for the year ended 2021,

5.Prepare the entry assuming there is significant deterioration of credit risk for the year ended 2021.

PROBLEM 14- Expected Credit Loss

On January 1, 2021, prison granted a P20 million loan to Break Company. The loan is repayable by the on equal annual instalments of P4.80 million over a five-year term. The effective interest rate that Prison charges the borrower is 6.4% per annum comprising 4% risk-free rate and 2.4% for credit risk. Prison estimate that there is a 70% chance that the loan will not default, a 20% chance that the loand default and the expected cash flow in each year us P3.60 million; and a 10% chance that the loan defaults and the expected cash flow in each year is P3.00 million.

Required:

1.Compute for the amount of cash shortfall for the five year period.

2.Compute for the probability weighted cash shortfall

3.Compute for the lifetime expected credit loss

4.Compute for the 12-month expected credit loss

5.Prepare the journal entry in 2021.