PROBLEM 33

Recede Corporation purchased 10,000 shares of DEF Company on January 1, 2020, for P120 per share.

On the date of purchase, DEF Company has an outstanding ordinary share of 50,000 shares (par value

P100), and an outstanding 20,000 shares, 8% cumulative preference shares (par value P200). The

carrying value of DEF Company's net asset on January 1, 2020, is P7,000,000. The fair value of all

identifiable assets and liabilities of DEF Company is the same as its carrying value.

During the year, Recede Corporation and DEF Company have the following intercompany transactions:

a. On June 30, 2020, Recede Corporation sold equipment to DEF Company for P800,000. On this

date, the carrying amount of this equipment in the books of Recede Corporation amounted to

P500,000. The equipment has a remaining life of 5 years on the date of sale.

b. On December 1, 2020, DEF Company sold merchandise to Recede Corporation for P1,000,000,

inclusive of a 40% gross profit on sales. These merchandises were still unsold at the end of

2020.

DEF Company reported net income and dividend payments as follows:

Net Income Dividend

2020 P2,000,000 P1,000,000

2021 3,500,000 2,000,000

Requirements:

1. Prepare the necessary journal entries to record the above transactions.

2. How much is the investment income to be reported to the profit or loss of Recede Corporation

in 2020? 2021?

3. What is the carrying value of the investment in associates on December 31, 2020? December

31, 2021?

PROBLEM 34

On January 1, 2020, Edelyn Corporation acquired 10,000 shares of JKL Company for P500,000. The

10,000 shares are equivalent to 20% interest of the investee. JKL Company reported the following net

income or loss:

2020 - P1,000,000

2021 - (P5,000,000)

2022 - P300,000

Requirements:

1. Prepare the necessary journal entries to record the share of income or loss in 2020, 2021, and

2022.

2. What is the carrying value of the investment on December 31, 2020? December 31, 2021?

December 31, 2022?