Problem #1

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 Company's 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?

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

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

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?

Problem #2

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? Unrealized gain-OCI v V v Cost Market Gain (Loss) Security A 1,000,000 1, 100,000 100,000 Security B 2,000,000 2,700,000 700,000 Security C 3,000,000 2,800,000 (200,000 6,000,000 6,600,000 600,000 2. On July 1, 2017, Security A was sold for P1,400,000. What is the journal entry to record the sale? Financial asset-FVOCI v The unrealized gain of P100,000 related to Security A is transferred to retained earnings