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    Sol. Man. - Chapter 11 - Investments - Additional Concepts

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    Christian James Rivera
    The document contains sample problems and solutions related to investments and additional concepts covered in Chapter 11. It includes true/false questions, discussion questions, exercises and solutions related to classification and measurement of investments. Key topics covered include held for trading securities, FVOCI securities, amortized cost securities, impairment, reclassification between categories and accounting for related transactions.

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    Sol. Man. - Chapter 11 - Investments - Additional Concepts

    Uploaded by

    Christian James Rivera
    2K views10 pages
    The document contains sample problems and solutions related to investments and additional concepts covered in Chapter 11. It includes true/false questions, discussion questions, exercises and solutions related to classification and measurement of investments. Key topics covered include held for trading securities, FVOCI securities, amortized cost securities, impairment, reclassification between categories and accounting for related transactions.

    Original Title

    SOL. MAN._CHAPTER 11_INVESTMENTS - ADDITIONAL CONCEPTS

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    The document contains sample problems and solutions related to investments and additional concepts covered in Chapter 11. It includes true/false questions, discussion questions, exercises and solutions related to classification and measurement of investments. Key topics covered include held for trading securities, FVOCI securities, amortized cost securities, impairment, reclassification between categories and accounting for related transactions.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    2K views10 pages

    Sol. Man. - Chapter 11 - Investments - Additional Concepts

    Uploaded by

    Christian James Rivera
    The document contains sample problems and solutions related to investments and additional concepts covered in Chapter 11. It includes true/false questions, discussion questions, exercises and solutions related to classification and measurement of investments. Key topics covered include held for trading securities, FVOCI securities, amortized cost securities, impairment, reclassification between categories and accounting for related transactions.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 10

    Chapter 11

    Investments – Additional Concepts

    PROBLEM 1: TRUE OR FALSE


    1. FALSE
    2. TRUE
    3. TRUE
    4. TRUE
    5. TRUE

    PROBLEM 2: FOR CLASSROOM DISCUSSION

    1. B

    2. D

    3. Solutions:
    Requirement (a) Held for trading securities
    Date Trade date accounting Settlement accounting
    Dec. Held for trading securities 1,000
    29, Accounts payable
    20x1 1,000 No entry
    to record the purchase of
    investment
    Dec. Held for trading securities 750 Accounts receivable 750
    31, Unrealized gain – P/L Unrealized gain – P/L
    20x1 750 750
    to record the fair value change to record the fair value change
    Jan. Unrealized loss – P/L 250 Held for trading securities 1,500
    3, Accounts payable 1,000 Unrealized loss – P/L 250
    20x2 Held for trading securities Accounts receivable
    250 750
    Cash Cash
    1,000 1,000
    to record the settlement of the to record the purchase of
    purchase transaction investment

    Requirement (b) FVOCI securities


    Date Trade date accounting Settlement accounting
    Dec. FVOCI securities 1,000 No entry

    1
    29, Accounts payable
    20x1 1,000
    to record the purchase of
    investment
    Dec. FVOCI securities 750 Accounts receivable 750
    31, Unrealized gain – OCI Unrealized gain – OCI
    20x1 750 750
    to record the fair value change to record the fair value change
    Jan. Unrealized loss – OCI 250 FVOCI securities 1,500
    3, Accounts payable 1,000 Unrealized loss – OCI 250
    20x2 FVOCI securities Accounts receivable
    250 750
    Cash Cash
    1,000 1,000
    to record the settlement of the to record the purchase of
    purchase transaction investment

    Requirement (c) Amortized cost


    Date Trade date accounting Settlement accounting
    Dec. Investment in bonds 1,000
    29, Accounts payable
    20x1 1,000 No entry
    to record the purchase of
    investment
    Dec.
    31, No entry No entry
    20x1
    Jan. Accounts payable 1,000 Investment in bonds 1,000
    3, Cash Cash
    20x2 1,000 1,000
    to record the settlement of the to record the purchase of
    purchase transaction investment

    4. Solutions:
    Requirement (a) Held for trading securities
    Date Trade date accounting Settlement accounting
    Dec. Accounts receivable 1,000 Unrealized loss – P/L 200
    29, Realized loss on sale 200 Held for trading securities 200
    20x1 Held for trading securities 1,200 to adjust the carrying amount of the
    investment sold to fair value as of
    to derecognize the investment sold trade date
    and to recognize the gain on
    disposal
    Dec.
    31, No entry No entry
    20x1

    2
    Jan. Cash 1,000 Cash 1,000
    3, Accounts receivable 1,000 Held for trading securities 1,000
    20x2
    to record the settlement of the sale to derecognize the investment sold
    transaction and to record the settlement of the
    sale transaction

    Requirement (b) FVOCI securities


    Dat Trade date accounting Settlement accounting
    e
    Dec. Accounts receivable 1,000 Unrealized loss – OCI 200
    29, Realized loss on sale 200 FVOCI securities 200
    20x FVOCI securities
    1 to adjust the carrying amount of the
    1,200 investment sold to fair value as of
    to derecognize the investment sold trade date
    and to recognize the gain on
    disposal
    Dec.
    31,
    20x
    No entry No entry
    1
    Jan. Cash 1,000 Cash 1,000
    3, Accounts receivable FVOCI securities
    20x 1,000 1,000
    2
    to record the settlement of the sale to derecognize the investment sold
    transaction and to record the settlement of the
    sale transaction

    Retained earnings 200


    Realized loss on sale
    200

    to transfer the accumulated


    unrealized gain to profit or loss as
    a reclassification adjustment

    Requirement (c) Amortized cost


    Dat Trade date accounting Settlement accounting
    e
    Dec. Accounts receivable 1,000
    29, Realized loss on sale 200
    20x Investment in bonds
    1
    1,200
    No entry

    to derecognize the investment


    sold and to recognize the gain on
    disposal
    Dec.
    31,
    20x
    No entry No entry
    1

    3
    Jan. Cash 1,000 Cash 1,000
    3, Accounts receivable Realized loss on sale 200
    20x 1,000 Investment in bonds
    2
    to record the settlement of the 1,200
    sale transaction to derecognize the investment sold, to
    record the settlement of the sale
    transaction and to recognize the gain
    on disposal

    5. B

    6. D

    7. Solutions:

    Scenario (a): Amortized cost to FVPL


    Jan. FVPL asset 120,000
    1, Amortized cost asset 100,000
    20x3
    Gain on reclassification (squeeze) 20,000

    Scenario (b): FVPL to Amortized cost


    Jan. FVPL asset 20,000
    1, Unrealized gain – P/L 20,000
    20x
    3
    Jan. Amortized cost asset 120,00
    1,
    FVPL asset 0 120,00
    20x
    3 0

    Scenario (c): Amortized cost to FVOCI (mandatory)


    Jan. FVOCI asset 120,000
    1, Amortized cost asset 100,000
    20x3
    Gain on reclassification – OCI 20,000

    Scenario (d): FVOCI (mandatory) to Amortized cost


    Jan. FVOCI asset 20,000
    1, Unrealized gain – OCI 20,000
    20x3
    Jan. Amortized cost asset (squeeze) 95,000
    1,
    Unrealized gain – OCI (5K + 20K) 25,000
    20x3
    FVOCI asset (FV on reclassification 120,000
    date)

    Scenario (e): FVPL to FVOCI (mandatory)


    Jan. FVPL asset 20,000

    4
    1, Unrealized gain – P/L 20,000
    20x
    3
    Jan. FVOCI asset 120,00
    1,
    FVPL asset 0 120,00
    20x
    3 0

    Scenario (f): FVOCI (mandatory) to FVPL


    Jan. FVOCI asset 20,000
    1, Unrealized gain – OCI 20,000
    20x3
    Jan. FVPL asset 120,000
    1,
    FVOCI asset 120,00
    20x3
    0
    Jan. Unrealized gain – OCI 25,000
    1,
    Gain on reclassification – P/L 25,000
    20x3

    8. D

    9. Solutions:

    Dec. Impairment loss – P/L 3,000


    31, Unrealized loss – OCI (squeeze) 7,000
    20x1
    Investment in bonds – FVOCI 10,000
    Dec. Interest receivable 10,000
    31, Interest income 10,000
    20x1

    10. Solution: (200/1,000) x 30,000 = 6,000

    11. Solution: (200 stock rights x ₱5.50) = 1,100

    12. C

    13. A

    5
    PROBLEM 3: EXERCISES

    1. Solutions:

    Requirement (a): Reclassification date


    The reclassification date is January 1, 20x3.

    Requirement (b): Journal entry on reclassification date


    Interest Interest Amortizatio Present
    Date
    received income n value
    Jan. 1, 20x1 1,903,927
    Dec. 31, 20x1 200,000 228,471 28,471 1,932,398
    Dec. 31, 20x2 200,000 231,888 31,888 1,964,286
    Dec. 31, 20x3 200,000 235,714 35,714 2,000,000

    Jan. Held for trading securities 2,080,000


    1, (2M x 104%)
    20x3
    Investment in bonds at
    amortized cost 1,964,28
    Gain on reclassification 6
    115,714

    2. Solutions:

    Requirement (a):
    Jan. Held for trading securities 20,000
    1, [2M x (104% - 103%)]
    20x3 Unrealized gain – P/L 20,000
    Jan. Investment in bonds at
    1, amortized cost (2M x 104%) 2,080,000
    20x3 Held for trading securities 2,080,000

    Requirement (b):
    Carrying amount (fair value) at date of reclassification 2,080,000
    Face amount (2,000,000)
    Difference – Premium 80,000

    6
    3. Solution:

    1/1/x2
    FVPL asset 6,000
    Unrealized gain – P/L 6,000

    Amortized cost asset 226,000


    FVPL asset 226,000

    4. Solutions:

    Scenario (a): Amortized cost to FVPL


    Jan. FVPL asset 240,000
    1, Amortized cost asset 200,000
    20x3
    Gain on reclassification (squeeze) 40,000

    Scenario (b): FVPL to Amortized cost


    Jan. FVPL asset 40,000
    1, Unrealized gain – P/L 40,000
    20x
    3
    Jan. Amortized cost asset 240,00
    1,
    FVPL asset 0 240,00
    20x
    3 0

    Scenario (c): Amortized cost to FVOCI (mandatory)


    Jan. FVOCI asset 240,000
    1, Amortized cost asset 200,000
    20x3
    Gain on reclassification – OCI 40,000

    Scenario (d): FVOCI (mandatory) to Amortized cost


    Jan. FVOCI asset 40,000
    1, Unrealized gain – OCI 40,000
    20x3
    Jan. Amortized cost asset (squeeze) 190,000
    1,
    Unrealized gain – OCI (10K + 40K) 50,000
    20x3
    FVOCI asset (FV on reclassification 240,000
    date)

    Scenario (e): FVPL to FVOCI (mandatory)


    Jan. FVPL asset 40,000
    1, Unrealized gain – P/L 40,000
    20x

    7
    3
    Jan. FVOCI asset 240,00
    1,
    FVPL asset 0 240,00
    20x
    3 0

    Scenario (f): FVOCI (mandatory) to FVPL


    Jan. FVOCI asset 40,000
    1, Unrealized gain – OCI 40,000
    20x3
    Jan. FVPL asset 240,000
    1,
    FVOCI asset 240,00
    20x3
    0
    Jan. Unrealized gain – OCI 50,000
    1,
    Gain on reclassification – P/L 50,000
    20x3

    5. Solutions:

    Dec. Impairment loss – P/L 9,000


    31, Unrealized loss – OCI 21,000
    20x1
    Investment in bonds – FVOCI 30,000
    Dec. Interest receivable 30,000
    31, Interest income 30,000
    20x1

    8
    PROBLEM 4: MULTIPLE CHOICE - THEORY
    1. A 6. D 11. B
    2. C 7. D
    3. C 8. D
    4. B 9. D
    5. D 10. C

    9
    PROBLEM 5: COMPUTATIONAL: MULTIPLE CHOICE
    1. B (1,000 stock rights x 5 fair value per stock right) = 5,000

    2. C (140,000 x 15%) = 21,000 dividend revenue

    3. A 6,000 dividend revenue

    4. A - Reclassification from FVOCI (election) to held for trading is not


    permitted.

    10

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