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Investment

The document outlines various financial problems related to securities transactions for CMC Corporation, H Company, and R Company, including journal entries, fair value assessments, and realized gains or losses. It details the acquisition, sale, and valuation of different securities over multiple years, requiring calculations of carrying amounts and unrealized gains or losses. Additionally, it includes specific questions regarding cash dividends, stock dividends, and the valuation of stock rights.

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Ruiz, Cherryjane
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12 views

Investment

The document outlines various financial problems related to securities transactions for CMC Corporation, H Company, and R Company, including journal entries, fair value assessments, and realized gains or losses. It details the acquisition, sale, and valuation of different securities over multiple years, requiring calculations of carrying amounts and unrealized gains or losses. Additionally, it includes specific questions regarding cash dividends, stock dividends, and the valuation of stock rights.

Uploaded by

Ruiz, Cherryjane
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Name______________________________________Course & Year_____________________

Problem 1:
During 2018, CMC Corporation purchased the following Financial Assets at Fair Value through
other comprehensive income held as long-term investments, with their corresponding fair values
at December 31, 2018
​ Securities​ ​ ​ Cost​ ​ ​ FM, 12/31/18
A Securities- 10,000 shares​ ​ P1,000,000​ ​ P1,300,000
B Securities- 20,000 shares​ ​ 2,200,000​ ​ 2,500,000​
C Securities- 25,000 shares​ ​ 2,000,000​ ​ 1,800,000

During the year 2019, the company sold 10,000 shares of A securities for P1,500,000 and
acquired D Securities and E Securities. On December 31, 2020, CMC’s portfolio securities
comprised the following;
​ Securities​ ​ ​ Cost​ ​ ​ FM, 12/31/19
B Securities- 20,000 shares​ ​ 2,200,000​ ​ 2,300,000​
C Securities- 25,000 shares​ ​ 2,000,000​ ​ 2,500,000
D Securities- 15,000 shares​ ​ 3,000,000​ ​ 3,300,000
E Securities- 12,000 shares​ ​ 2,400,000​ ​ 2,600,000

During the year 2020, the company sold the B and C Securities for P5,000,000. On December
31, 2020 the CMC’s portfolio securities consisted of the following: D Securities 15,000 shares
with fair value of P3,200,000 and E Securities 12,000 shares with a fair value of P3,000,000.

Required:
a.​ Journal entries for the year 2018, 2019 and 2020.
b.​ What amount should be reported on CMC’s financial statement?
​ ​ ​ Carrying Amount​ ​ ​ Unrealized Gain (Loss)
12/31/18​ ​ __________________​ ​ ___________________
12/31/19​ ​ __________________​ ​ ___________________
12/31/20​ ​ __________________​ ​ ___________________
c.​ How much is the realized gain or loss on the sale of securities in the year
2019?____________________
d.​ What amount shall be reported on CMC’s 2020 income statement as realized gain or loss
on the sale of securities?______________________

Problem 2:
H Company acquired the following securities in 2016:
​ Security​ Classification​ ​ ​ Cost​ ​ FV, 12/31/18
​ ​ A​ Trading​ ​ ​ 1,000,000​ 1,250,000
​ ​ B​ Trading​ ​ ​ 700,000​ 650,000
​ ​ C​ FA at Fair Value-OCI​ ​ 900,000​ 920,000
​ ​ D​ FA at Fair Value-OCI​ ​ 300,000​ 250,000
●​ On June 1, 2018, H Company received P50,000 cash dividend from security C and
P10,000 from security A.
●​ On January 31, 2019 All trading securities were sold for P2,000,000.
●​ At December 31, 2019, the fair value of securities C is P850,000 and security D is
P320,000.
Required:
1.​ Journal entries for 2018.
2.​ Adjusting entry on 12/31/18.
3.​ Journal entry to record the sale on January 31, 2019.
4.​ Carrying value of the investment as of 12/31/19.

Problem 3:
During 2018, R Company bought the shares of another entity to be held for trading as follows:
June 1;​​ ​ 20,000 shares @ P100​​ 2,000,000
December 1;​ ​ 30,000 shares @ P120​​ 3,600,000
TOTAL​ ​ ​ ​ ​ ​ 5,600,000
​ ​ ​ ​ ​ ​ ​ =======
Transaction for 2019 are as follows:
January 10​ ​ Received cash dividend at P10 per share.
January 20​ ​ Received 20% stock dividend
December 10​ ​ Sold 30,000 shares at P125 per share.

What is the gain on sale of investment using FIFO method?___________________________

Problem 4:
H Company invested in shares of another entity acquired as follows:
​ ​ ​ Number of shares​ ​ Cost
​ 2017​ ​ ​ 20,000​​ ​ P 2,000,000
​ 2018​ ​ ​ 40,000​​ ​ 3,500,000
In 2019, H Company received 60,000 rights to purchase one share at P80. Five rights are
required to purchase the share. At issue date, rights had a market value of P5 each. H Company
used rights to purchase 10,000 additional shares of the investee and allowed the rights not
exercised to lapse.
Compute the following:
a.​ How much is the value of stock rights?_______________________
b.​ How much is the value of investment upon issuance of the stock rights?______________
c.​ What amount is debited to investment account for the purchase of additional new
shares?_______________________

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