Problem 7 | During your audit of the 2018 financial statements of Cauayan, Inc., you find a new account titled trading

investment. Your examination reveals that in 2018, Cauayan, Inc. began investing surplus cash marketable trading

securities and the corporation's bookkeeper entered all transactions he believed are related to investments in this account.

Information summarized from the trading securities account appears below:

Cauayan, Inc.

Information Summarized from TRADING Securities

For the Year Ended December 31, 2018

Date Folio Debit Credit

2018 GIN, ordinary share

Mar. 31 Purchased 5,000 shares @ P50 CD P250,000

July 31 Received cash dividend of P3 per share CR P15,000

Sold 1,000 shares @ 70 CR 70,000

Nov. 15 Pledged 1,000 shares as security for P50,000 bank loan payable

February 15, 2019. CR 50,000

RHUM, ordinary share

Mar. 31 Purchased 10,000 shares @ P25 CD 250,000

June 30 Received dividend (P0.50 per share in cash and 1 share RHUM

preference for each 5 shares of ordinary shares owned) CR 5,000

RHUM, Preference share

June 30 Received 2,000 shares as stock dividend on RHUM ordinary Memo

July 31 Sold 1,000 shares @ P17 CR 17,000

SAKE Bonds due Nov. 30, 2019 with interest at 12% payable May 31

and November 30

June 30 Purchased 250 P1,000 bonds @ 110 CD 277,500

Nov. 30 Received interest due CR 15,000

Nov. 30 Accumulated amortization JE 2,750

Nov. 30 Sold 250 bonds @ 112 CR 280,000

All security purchases include broker's fees, and all security sales are net of broker's fees and transfer taxes when

applicable. The fair market values (net of broker's and transfer taxes) are given below.

Security 6/30 7/31

GIN, ordinary P50 P70

RHUM, ordinary 30 39

RHUM, preference 10 17

SAKE, bonds 110 110

Based on the above and the result of your audit, determine the following:

32. What is the adjusted balance of the GIN stocks as of December 31, 2018?

a. P200,000

b. P165,000

c. P115,000

d. None of the choices

. How much is the cost to be allocated to RHUM Preference share received as dividend for RHUM ordinary share owned.

a. P20,000

b. P15,625

c. P19,705

d. None of the choices

34. What is the entry to record the receipt of the RHUM Preference share as stock dividend?

a. Investment in Pref. stock (trading) P20,000

Investment in ordinary share (trading) P20,000

b. Investment in Pref. stock (trading) P15,625

Investment in ordinary share (trading) P15,625

c. Investment in Pref. stock (trading) P19,705

Investment in ordinary share (trading) P19,705

d. None of the choices

35. How much is the gain or loss on the sale of 1,000 shares of RHUM preference on July 31.

a. P7,000 gain

b. P7,000 loss

c. P9,187.50 gain

d. None of the choices

36. How much is the gain or loss on the sale of SAKE Bonds on November 30?

a. P5,000 gain

b. P5,000 loss

c. P20,250 gain

d. None of the choices