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Long Quiz For Investment

Chris, Inc. bought 15% of Gold Shoes Corporation's stock for $600,000 in 2015 and accounts for it using the cost method. In 2016, Gold Shoes had net income of $900,000 and paid a cash dividend of $1,100,000. Under the cost method, Chris would report $0 income from this investment in its 2016 income statement.

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83 views2 pages

Long Quiz For Investment

Chris, Inc. bought 15% of Gold Shoes Corporation's stock for $600,000 in 2015 and accounts for it using the cost method. In 2016, Gold Shoes had net income of $900,000 and paid a cash dividend of $1,100,000. Under the cost method, Chris would report $0 income from this investment in its 2016 income statement.

Uploaded by

Barbie Bleu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1. On July 1, 2015, Chris, Inc. bought 15% of Gold Shoes Corporation’s stock for P600,000.

Chris
appropriately accounts for this by the cost method. The following data concerning Gold Shoes
are available for the years ended December 31, 2015 and 2016.
2015 2016
Net Income 300,000 900,000
Cash Dividend Paid None 1,100,000
a. Prepare the necessary journal entries
b. In its income statement December 2016, how much should Chris report as income from this
investment.

2. During 2016, the first year of operations, Marvin Company purchased the following equity
securities:
Cost Market Value Dec. 31, 2016 Market Value Dec. 31, 2017
Simon Corp. 2,200,000 1,400,000 900,000
Bai Corp. 700,000 1,000,000 1,100,000
Kath Corp. 1,600,000 1,500,000 1,600,000
Neif Corp. 2,000,000 2,500,000 1,200,000
Simon and Bai are held for trading while Kath and Neif are measured at fair value through OCI by
election. During 2017, Marvin sold one-half of Simon Corp investment for P1,000,000 and one-half of
Neif Corp. for 1,300,000.
Prepare journal entries in the above transaction.
The cumulative unrealized gain or loss reported in its statement of changes in equity?

3. City Company purchased the following portfolio of equity instruments during 2018 and reported
the following balances

4. Reil company received dividends from share investment during the year ended December 31,
2018 as follows:
a. A stock dividend of 4,000 shares from Jea Company on July 31, 2018 when the market
price of Jea’s share was P20. Reail owns less than 10% of Jea’s share capital.
b. A cash dividend of P150,000 from Lark Company in which Reil owns 25% interest.
What amount of dividend revenue shoul Reil report in 2018?

5. Charmaine Company provided the following data pertaining to dividends on ordinary share
investments for the current year:
a. On October 1, the entity receivedP600,000 liquidating dividend from Company A. the
entity owned a 10% interest in A Company.
b. The entity owned 20% interest in Company B which declared and paid a P4,000,000 cash
dividend to shareholders on December 31.
c. On December 1, the entity received from Company C a dividend in kind of one share of
Company D for every 4 Company C shares held. The entity had 100,000 Company C
shares which have a market price of P50,000 share on December 1. The market price of
Company D shares was 10.
I. Prepare for Journal Entries.
II. What amount should be reported as dividend income for the current year?

6. During 2017, Cecille Company purchased shares of another entity as follows:

Jan. 1 20,000 shares at P100 P2,000,000

July 1 30,000 shares at P120 3,600,000

Transaction for 2018 are as follows:

January 1 Received 20% stock dividend

August 1 Received cash dividend of P10 per share

December 1 Sold 30,000 shares at P150 per share

What amount of income from investment should be reported for 2018?

7. Charisse Company owned 50,000 shares of another entity. These 50,000 shares were originally
purchased for P100 per share. On Oct. 1, 2018, the investee distributed rights to the entity. The
entity was entitled to buy one new share for P140 and five of these rights. On October 11, each
share had a market value of P150 and each right had value of P10. On December 31, 2018, the
entity exercised all rights. What total cost should be recorded for the new shares that are
acquired by exercising the rights? Record the necessary entries of the transaction.

Indicate the effect on the investment account of each item.

Equity Method Cost method


1. Decreasing the market price of the
investee’s stock
2. Dividends paid by the investee that were
declared last year
3. Net loss of the investee
4. Net Income of Investee
5. Liquidating Dividends of Investee
6. Stock dividends received
7. Split-up

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