we al sets measured at FYPL_ nal fi 3 aston 1: Hes fortading Securities ~ equity secutities sm ut) , 20x1, a 0. Purchased 12,000 shares of XYZ, Inc. om ,00,000- Taxes ans icenses incurred amounted to P5 000. The io ne cutities meet the definition of held for trading securities. of! "sin gly, ABC Co. classified the in ; vestment dat fair value through profit or or eneesently i osure loss, | measurement: to record the purchase is as follows: (eld for trading securities Taxes and licenses Cash ’ [nvitial 100,000 5,000 105,000 The transaction costs (i.e, taxes and licenses) are expensed immediately. i y Subsequent measurement: Qn December 31, 20x1, the shares are quoted at P10 per share. If the shares are sold on this date, the transaction: cost would be 0.50 per share. 7 . The entry to record the change in fair value is as follows: De. | Held for trading securities ((12,000 x 10)- 100K] | 20,000 os Unrealized gain - P/L 20,000 Notes: ® The unrealized gain can also be computed as follows: Fair value — Dec. 31, 20x1 (12,000 shares x P10 per sh.) 120,000 Unadjusted carrying amount - Dec. 31 (initial cost on Jan. 1, 20x1) (100,000) Increase in fair value — Unrealized gain 20,000 * The unrealized gain is recognized in profit or loss. After tecording the entry above, the carrying amount of ther aN 488 pe, is al to the fair value investment is brought equ of (1.000 sh. x P10 per sh.) on December 31, 20x1, 2 @ The PO.50 transaction cost is ignored Hecate FVPL ¢ assets are subsequently measured at fair value ang wat ey ‘ai value less costs to sell. > Derecognition: On January 3, 20x2, half of the investment (i-e., 6,000 sha eS) Wa sold at P15 per share. Transaction costs incurred on the o amounted to P3,000. le The entry to record the sale is as follows: Jan. 3, | Cash (6,000 x P15) - P3,000] 87,000 20x2 Held for trading securities (120K x 4) 0 Realized gain on sale (squeeze) za The gain or loss on sale may also be computed as follows; Sale price (6,000 sh. x P15) : 90,000 Less: Transaction costs 3,000) Net proceeds 87,000 Carrying amount of investment sold (120,000 x ¥2) — (60000) i in (loss) on the sale 27,00 Realized gain ( 0 The “realized gain on sale” or simply “gain on sale” is recognized in profit or loss. Alternative journal entries: : An entity may use a valuation allowance account to record fair value changes as follows: Jon.1, | Held for trading securities 100,000 2051 | Taxes and licenses 5,000 Cah 105,000 pe Accumulated fair value changes 20,000 joy | Untealized gain P/L. : 20,000 to record the fair value change in 20x1489 [cash . 87,000 ip : Held for trading securities : [| Accumulated fair value changes nD | Realized gain on sale Sait to record the sale of investment ces If the “Accumulated fair value changes” adjustment,” “Allowance for fair ” oe terms) has a debit balance, it ee e "ade i } ‘ e, as an adjunct sot (addition) to the investment account. If it has a creat ae, it is oa $a contra-account (deduction). On cognition, the Yaluation account is derecognized wath the yelated investment account. ee As of December 31, 20x1, the investment is disclosed in the potes aS follows: ; account (or “Fair pal Held for trading Securities 100,000 Accumulated fair value changes (debit) 20,000 carrying amount — Dec. 31, 20x1 120,000 fllustration 2: Held for trading securities ~ portfolio On January 1, 20x1, ABC Co. purchased the following marketable securities to be held for trading. Transaction costs are negligible. , Fair value Fair value Cost 12/31x1. 12/31/x2 Apple Co. preference shares 750,000 40,000 55,000 Boy Co. ordinary shares 40,000 15,000 20,000 Cat Co. bonds 30,000 35,000 30,000 Totals P120,000 90,000 __P105,000 > Initial measurement: lex, ] Held for trading securities 120,000 2 | Cash 120,000 > Subsequent measurement (Dec. 31, 20x1): pe 31, | Unrealized loss - P/L (90K - 120K) 30,000 7 Held for trading securities 30,000490 in fait value is computed as follows: The change 20x1 ft Fair value ~ Oat Dec. 31 (inital cost on Jan, 1, 29,4) at es af value - Unrealized loss ( Net decrease ay tion of Financial Statements permits of AS 1 Presenta t ty i a Josses arising from the same transaction, Thus of a nealized Joss on the portfolio is computed. The span! the ie ized gain (108s) 0” each investment in the portfolio need i unreé be computed. > Subsequent measurement (1 Dec. 31, 20x2): . Dec 31, | Held for trading securities ~ 15,000 ue Unrealized gain - P/L (105K - 90K) 15 ‘The change in fair value is computed as follows: Fair value - Dec. 31, 20x2 105,000 Unadjusted carrying amount - Dec. 31 (fair value on Dec. 31, 20x1) (, (90,000) Net increase in fair value - Unrealized gain 15.000 Subsequent to the year of acquisition, unrealized gains or losses are computed by comparing the fair value in the current year with the fair value in the immediately preceding year. The held for trading securities are presented in the comparative financial statements as follows: 7 ABC Co. | itatement of financial position As of December 31, 20x2 and 20x1 | Note 0x2 2oxt 7 105,000 90,000 Current assets Held for trading securitieste i 491 mont of profit or inte ang ots er Ci i * Comprehensive income f ite [st For the years ended December 31, 2042 + 20x2 and 20x1 | “come (expense) Note fin 20x2 at qos) For the year 7 15,000 (ann Le ‘comprehensive income 15,000 Sonn a ; ‘gomprenensive income for the yr. ae ,000) eee ABC Co, Notes December 31, 20x2 and 20x1 7 Held for trading securities te 7 "is account consists of: (SERS reo uit’ instruments 2x1 | Eau oS 4s | P_"75,000 7 P 55,000 | be 30,000 | 35,000 | Tole ied for trading securities are measured at fair value | r ss 4 ie by plished quoted prices as of the end of reporting TS rl unrealized gains (losses) resulting from changes in fair values of the held for trading securities are recognized in profit or loss and included in “Other income (expense, ie 20x2 20x1 P 105,000 P 90,000 Far value as of December 31 g amount before adjustment | Carrying | -Dec. 34 (90,000), __(120,000) period P__ 18,000 _P (80,000) Unrealized gain (loss) for the ofthe portfolio is not disclosed on en penefit consideration, most especially ty is composed of numero hnould be disclosed Notice that the composition This is due to cost! iio of an entit al of equity instruments SI item-by-item basis. when the investment portfol investments. However, the tot separately from the total of debt instruments a Th vrorivate bonds” is used 10 denote that the invé oe purl chased from the comprises bonds purchased ivate entity. Bonds Pu from a pti government are disclosed as “government bonds.492 > Derecognition: On February 2, 20 x3, all of the Apple Co. Preference e sold for P40,000, net of transact tion costs. tes Ne The entry to record the sale js as follows: Feb.2, | Cash 20:3 | Realized loss on sale (squeeze) Held for trading securities __| The amount credited to the investment account j value of the Apple Co. preference shares on December uation date. S the fi 31, 2h ie. the most recent va! tration 3: Held for trading securities — debt securities ey 1, 20x1, ABC Co. purchased P100,000 bonds at 98 bonds mature on January 1, 20x5 and pay 12% annual ines . beginning January 1, 20x2. Commission paid on the Acquis amounted to P10,000. The objective of ABC Co.'s business whoa is to sell investments in the near term to take advantage i fluctuations in fair values for short-term profit akin Accordingly, the bonds are classified as held for trading SeCUtitig The entry to record the purchase is as follows: Jin. ] Held for trading securities (100,000 x98%)* | 98,000 1 | Commission expense / 10,000 20x1 [ Cash ! 108,00 “Purchase at 98 means that the investment is purchased at 98% of the fc amount. > On December 31, 20x1, the bonds were quoted at 101. The change in fair value is computed as follows: Fair value - Dec. 31, 20x1 (P100,000 face amount x 101%) 101,000 Unadjusted carrying amount ~ Dec. 31 (inital coston Jan, 1,20«1) (9809) Net increase in fair value ~ Unrealize d gain 1,{ eit 7 to record the fair vah Kt Field for trading ar chang @ is as follows: Unrealized gain pjt, 3000 : 3,000, to record accrued int of terest is «9 pares ae wstin at is as follows: at Interest income : heey 12,000 to record the receipt of j ii oe interest is as follows: Interest receivable eg 12,000 onJan anuary 2, 20x2, the bonds were sold at.110, sentty 10 record the sale is as follows: ‘Cash (100,000 x 110%) 110,000 Held for trading securities wodlng Gain on sale of securities a tration 4: Held for trading securities — debt securities pn January 20x1, ABC Co. purchased P100,000 bonds for 3000. The bonds mature on January 1, 20x5 and pay 12% ual interest beginning January 1, 20x2. Transaction costs are negligible. The bonds are classified as held for trading secutities. The entry to record the purchase is as follows: jan 1,208] | Held for trading securities 98,000 Cash 98,000 > OnDec. 31, 20x1, the bonds were selling at a yield rate of 10%. The fair value of the bonds is computed as follows: PV Present Future cash flows PV.@10%, n=3__-_factors value o7sisis 75,132 Principal 100,000 PV of Pl Interest (100K x 12%) 12,000 PV of ordinary annuity 2.4g6e52 _29,842 | | 04,974 | | | Mair value as of December 31, 20x1 |494 to record the fair value change is as foll ows Held for trading securities (104,974 - 98,000) Unrealized gain — P/L i in 20x1 is as f : The entry to record accrued interest allows: Interest receivable (100,000 x 12%) 12,009 Interest income z 2x1 Investment in equity securities measured at FVOc| ion 1: clendy 1, 20x1, ABC Co. purchased 12,000 shares of xv, for P100,000, Commission paid to broker amounted to P5,000, shares do not meet the definition of held for trading. ABC & made an irrevocable choice to subsequently measure the shares 3 fair value through other comprehensive income. Ing > Initial measurement: The initial carrying amount of the investment is com; puted as follows: . Transaction price 100,000 Add: Transaction costs 5,000 Initial carrying amount 105,000 The entry to record the purchase is as follows: ie Investment in equity securities - FVOCI 105,000 Cash. 105,000 a ne that the transaction costs are capitalized, ie, 7 el in the intial carrying amount of the investment, and not Pp ‘mmediately. This differs from the treatment of transaction costs on FVPL.Fen yt 495 ent measurement; il? ber 31, ly peer” 0 nee in fair value is Computed as fol}, lows: | | | | re 31, 201 | oe one NSH pera a * | sited carrying amount - Dec. 31 (tai c., 120,000 yee fi jn fair value — Unrealized gnin ‘onan. 1,201) (105,000) er l5.o00 to record the fair value change is astoll Javestment in equity secures - FYOGT | se Unrealized gain - OCI 15,000 15,000 perecognition: . ri i anuaty 3, 20x2, all the shares were sold for P174,000. journal entriés are as follows: Investment in equity securities - FVOCI 54,000 Unrealized gain - OCI (174k - 120k) 54,000, to recognize the change in fair value " Cash 174,000 Investment in equity securities - FVOCI 174,000 to derecognize the investment ‘ Unrealized gain ~ OCI (15K + 54K) 69,000 Retained earnings 69,000 ‘he to derecognize the cumulative fir vue gains When an investment in equity securities that was imevocable elected to be measured at FVOCI is derecognized, the cumulative balance of gains or losses previously presented in equity is transferred directly to retained earnings (recycling is prohibited). Illustration 2: Investment measured at FVOCI - portfolio On january 1, 20xL, ABC Co. purchased equity setts for 8 total amount of P90,000. ABC Co. elected to measure the equity Securities at FVOCI. aPo ee N 496. Sta Cost 12/31/x1 tte 750,000 P60,009 Ray Apple Co. preference shares 10,000 ca mS Boy co. ordinary shares P90,000 ?75,000 Rae il ts: aio : aint for the gain (Loss) recognized in OCT in 20x1 ap dy respectively. b. Compute for the cumulative balances of gaing lo presented in equity on Dec 31, 20x1 and 20x2, respectively c. Provide the journal entries. Solutions: it |: Gain (Loss) presented in OCI Requirement (a): Gai Wa Fair value - Dec. 31 75,000 409 m Unadjusted carrying amount - Dec. 31 (90,000) (75,00 Gain (Loss) in OCI (15,000) Boa) Requirement (b): Cumulative Gain (Loss) presented in Equi te Make Ch ae Fair value - Dec. 31 75,000 10000 Carrying amount on initial recognition (90,000) (90009 Cumulative bal. of gain (loss) in equity (15,000) 190 0 Notes: * The gain (loss) recognized in OCI during the period is computed by comparing the current fair value with the fat value in the Preceding period. @ The cumulative balance of Bains (losses) presented in equity's computed by comparing the current fair value with the carrying amount on, initial Tecognition,nels rr incest (C): Journal entries Investment in equi Cash 'Y Securities -FVOCI | 90000 to record the purchase o 90,000 Unrealized gain (oss) ~ OC Investment in equit ty securities ~ rr ee es -FOC Investment in equity securiti Irities ~ Unrealized gain (loss) ~ oct ee ail to record the fir value change in 20¢2 15,000 15,000 25,000 3 a Unrealized gains/ (losses) (ie, its balance is not sh ia rin account palance in this account represents ein A credit palance represents cumulative loss, ent 2 tee ¢ The ending balance of the “Unrealized gains/ (losses) - OCI” account is presented in the equity section of the statement of financial position under the caption “Other components of equity.” A cumulative gain is presented as addition; a cumulative loss is presented as deduction. : « The change (increase or decrease) in the “Unrealized gains/ (losses) - OCI” during the period is presented in the other comprehensive income section of the statement of profit or loss and other comprehensive income. An increase represents gain; a decrease represents loss. « T-account analysis: Unrealized goin (oss) -OCT ‘oss in 20x1 (recognized in OCT) 15,000 1281/x1 (Dr. bal. presented in equity) 15.000 «| 25,000 Gain in 20x2 (recognized in OCD) 70000 12/31/%2 (Cr- bal prevented inet) d in the comparative financial The investment is presente Statements as follows:ucts — Additional Concer, 589 Shares purcha Sed ex din, as at the date of 4 lidend are stilt Tegistered to the let t 'stributi jased after the date OF record. p tion because the shares are ut savidends. Cord be anise Tine the 3 ares Bh, the seller will receive 7 cessarily 8 the dividends, Sold separately without if declaration pate } Divi dend-on: pate of record on: purchas } ® Price Includes dividends pate of distribution 5 : 7 . stration: Dividend-on ang h 31, 20x1, xyz, Pp on Marel 1. XYZ, Inc. declares sh dividend : 10 cash divi per share. The date of Tecord is April 15, 20x1, he date fai ‘ibuti i 130, of distribution Ex-dividend case 1: Dividend-on on April 9, 20x1, ABC Co. purchases 10,000 XYZ, 1 di » Inc. she #100 per share. ABC Co. classifies the shares as FVOCl asset =~ Analysis: The shares are purchased dividend-on because the acquisition date is after the date of declaration (March 31, 20x1) but before the date of record (April 15, 20x1). Consequently, the purchase price includes the dividends. The initial measurement of the investment iscomputed as follows: Total purchase price (10,000 x P100 per sh.) 1,000,000 Less: Purchased dividends __(100,000)_ 900,000 SS Initial measurement of investment The entry to record the purchase is as follows: | Aor] Investment in stocks - FVOCI . Dividend income (or Dividend receivabley 0x1 Re fe + Cashéa =e NY 590, Rey ‘ 1 i in lie “Dividend ij debited in lieu of incomes sable” may BC to ‘«pjvidend receivable’ pe aividend. ReB less of the account used, no divideng ince é purchased recognized. (10,000 x: P10) aed income (or Dividend receivable) : Ex-dividend Cas 16, 20x1, ABC Co. purchases 10,000 Xz, Ine. g hi P100 per share. ABC Co. classifies the shares as FVOC] ir * Analysis: ‘The shares are purchased ex-dividend because the acquisition q ate is after the date of record (April 15, 20x1) but before the date distribution (April 30, 20x1). Consequently, the Purchase excludes the dividends, There is no accounting problem here, initial measurement of the investment is equal to the Purchase price. The entry to record the purchase is as follows: April26, | Investment in stocks - FVOCI 1,000,000 20x1 Cash“ 100m There is no entry for the dividends because the seller isthe one who receives them. Measurement of dividends 1. Cash dividends - are recognized as dividend revenue at the amount of cash received or receivable. Property dividends - are recognized as dividend revenue at the fair value of the non-cash assets received or receivable, determined as of the date of declaration. + Share dividends (stock dividends or bonus issue) - are not Tecognized as dividend revenue. Instead, the shares received are Tecognized at fair value and a corresponding gain 5 “Scognized (a) in profit or loss if the shares are measured ati if ec ‘Additional Concepts \ i ¢ (b) in other com 591 Then Aged at FVOCI. ety ‘incom, pe ating dividends ~liguigas jit ot return on ana) 8 dividend + fg recognized as dig Tei ious tt gf? a the carrying amount ot om but me ies (08 a it leds fr gonds At Teceived Whey the reste, Liang iv tion or is a Wastin, estes i gad 8 2850 compotion, is undergoing e if the shares i ion 4: Cash dividends ig, holds 10000 shares of X17, in. a5 fs es 12, abo : ~ aS investment in uit ” Teceives notice of declaration tie oo aividend of P10 per share, ABC cast Co, 7 i “ofl 20, 20x1. © OO collects the dividend (om ries: il entries _ we Tot | Dividend receivable roma sh, x10) 100,000 Dividend income ‘i | 00 Cosh a _ 10) Dividend receivable ” nin] y svidend is collected simultaneously withthe rect of notice of 7 ™ if dividend Cash” is debited and “Dividend income” is credited. The “Dividend alio®, ed a rer ecount may be Usd ine ofthe “Dd none acu | ilustration 2: Property dividends April 1, 20x1, ABC Co. receives from an investee inventory | On “ith a cost of 130,000 and fair value of P120,000 as property dividend. Journal entry: amit, | Inventory | 0000] | _ Dividend income u Illustration 3: Share dividends On April 1, 20x1, ABC Co. receives row, #1 re i ‘fom an investee representing share dividend. The qu j |onthis date is P13 per share.1 Tllustration =) 1 A shareholder owns !, 8 Subsequently, the shareholey ; declaration of P5 per share of. ue 2h is trae, shareho : : Piso Sees the dividend of P5,000, the ina entry to record the sale is: ares costing Py 0s ceives notice of avg 150,000 Cash rm : Investment in shares ; ome Dividend income en Gain on sale of investment ! 0g) Property dividends Property dividends or dividends in kind are dividends in gy form of property or noncash asset. Property dividends are also considered as income and Tecordeg at fair value. . Noitcash assets { 2% Dividend income XX For example, X Company distributes its holding of 10,009 Shares inY Company as property dividend. The shares of Y Company have a market value of P100 per share, A shareholder receives 500 shares of Y Company as’ Property dividend from X Conipany. The property dividend is recorded as dividend income at fair value of the shares receive . Investment in shares (500 x 100) Dividend income 50,000 Another example of a Property dividend is when an entity declares P100 worth of merchandise for every one share. If a shareholder owns 500 shares, the dividend in the form of merchandise would be 50,000. The property dividend in the for dividend income at the fair val Merchandise inventory 50,000 Dividend income 50,000 xm of inventory is recorded a8 lue of the inventory, 50,000 428( a yidating: dividends pi fake sant jing dividends repre, iy fate not income. That "Um of invested ean; . form -yidating dividend i . 7 liquide d is Tecognized ag return of j b orotber appropriate amount investment, coe! investment in shares #x nally, Hquidating dividends f REL. Mijasolved and liquidated’ -" Pid when the corporation +, in the case of wasti: fowever ir ne Case ¢ ‘ing asset co: i = izing dene eye pas eee ae aod liquidation. issolution cordingly, if ceived from : : oration, the dividends are desi a wasting asset ony return of capital. 'gnated as partly income and ¢ portion representing’'a liquidating divi tied to the investment account. rae iridend should. be when dividends oi a for example, a shareholder receives a P100,000 divi fergnated as income, P60,000 and liquidating, P4000 The cash received is recorded as partly dividend income and partly return of investment. 100,000 Dividend income i 60,000 Investment in shares 3 40,000 When liquidating dividends exceed the cost of investment, the difference is credited to gain on investment. On the other hand, when liquidation is completed and the canying amount of the investment is not fully recovered, the ince is written off as a loss. ‘ Share dividends or stock dividends Share dividends are in the form of the issuing entity’s own Mares, The TAS term for share dividend is "bonus Issue’. westment declared as Shares : ity in . kes of a, or entity held as equity . titan eye dena bat proper ides 400} Kinds of share dividends Share dividends may be the same a8 those held or iffereny those held. . : : ividends whether of the same class or diff... ae de an is that there are no addition.) fn ay received by the entity. te, The assets of the entity are the same before and afta, i issuance of the share dividends. i iti res but stil] The shareholder receives additional shares haan | same proportionate equity interest in the entity. Oy The shareholder may have more shares but at reduceg ae value. Share dividends of same class Share dividends of the same class are recorded only be a memorandum entry on the part of the shareholder, “8d “Received 2,000 shares representing 20% share divideng 10,000 original shares held. Shares now held, 12,000 shares" Share dividends do not ajfect the total cost of the investmen, but, reduce the cost of the investment per share, The original cost after the share dividend will now apply tp a greater number of shares, original shares plus thos received as share dividends. For example, a shareholder owns 10,000 shares costing P12) each or a total cost of P'1,200,000. Subsequently, the shareholder receives 20% share dividend ot 2,000 shares. The effect of the share dividend is increase in number of shares owned, decrease in cost per share but the original cost remains the same, Shares Cost pershare Total cost Original shares 10,000 120 1,200.00 Share dividends 2000 65 7 : 20m 2100 1.200.000 The total cost of P1,200,000 applies with an adjusted cost per share ofan Now to 12,000 shares neal fom P120 to P100. 00. The cost per share is redveShares received in lieu of ‘cash dividends When cash dividends are deplored nd retetoed, it ig a doubt that the cash dividends are : A problem will arise when shares are received in jig, oa dividends declared. i it is generally accepted that shares rece ast sat ce dividends are income at fair ae : property Bevel, n reason is that such shares are in effect p videng, I of fair value of the shares received, the j is Sailer. cash dividends' that would have been, "eer ; 00 shares ,,... For example, a shareholder owns 10,0 8 copy P1,000.000, Subsequently the shareholder receives unt shares in lieu of cash dividend of P10 per share: The Mathes value per share is P150. The receipt of the 1,000 shares is recorded as dividend incom at market value, Thvestment in shares 150,000 Dividend income (1,000 x 150) 150,009 “If there is no market value, the shares are recorded a dividend income at the cash that would have been Teceived, Investment in shares 100,000 Dividend income (10,000 x 10) 100,000 Cash received in lieu of share dividends When share dividends are declared and received, unquestionably, the share dividends are not income. A problem will dividends. For example, a shareholder owns 10,000 shares costing P 1,100,000. Subsequently, the shareholder receives P150,000 cash in lieu of 1,000 shares originally declared ag 10% share dividend, The “as if’ approach is followed whic] dividends are assumed to be received an cash received. Therefore, a gain or loss arise when cash is received in liew of share h means that the shate d subsequently sold at the may be recognized. 432pif approach original cost of P1,100,000 applies Be jg the sum of the original 10,000 shares and the 1 000 w'res assumed to be received ag shar ‘ oak are would then be P100, 4,000 shares representin, f 8 share divi . qne id for the cash received. are dividends are assumed to pe 8 ; “150,000 Jnvestment in shares (1,000 shares x 100) 100,000 Gain on investment t ‘50,000 BIR approach Under the ruling of the Bureau of Internal Revenue, all cash received, whether originally designated as cash dividend or share dividend, is recognized as income, Thus, under the “BIR” approach, the cash received of P150,000 is simply debited to cash and credited to dividend income. However, the “as if’ approach is theoretically sound and should be followed for financial accounting purposes. Share split A corporation may restructure its capital by effecting.a change in the number of shares without capitalizing retained earnings or changing the amount of its legal capital. The restructuring is technically known as share split. Share split may be split up or split down. Split up Split up isa transaction whereby the outstanding shares are | Cilled in and replaced by a larger number, accompanied by a "eduction in the par or stated value of [Link]. Por example, if a shareholder owns 10,000 shares and the share ‘split up 5-for-1, the shareholder receives 50,000 néw shares "exchange for the 10,000 original shares. 4338. During 2018, DEF Company bought the shares of EFG Company June 1 20,000 shares @P100 2,000,000 December 1 30,000 shares @ 120 3,600,000 5,600,000 Transaction for 2019 110 Received 20% share dividend 7120 Received cash dividend of P10 per share 12/10 Sold 30,000 shares at P125 per share What amount of dividend income is reported in 2019? Original shares 50,000 Share dividends 1/10/19 (50,000 x .20) 10,000 Total shares 60,000 Dividend income 2019 (60,000 x 10) P 600,000 1. On 7/1/18, JFK Company paid P1,198,000 of 10%, 20 year bonds with a face amount of P1,000,000. Interest is paid on June 30 and December 31. The bonds were purchased to yield 8%. The effective interest method is used to recognize interest income from this long term investment. What is the carrying amount of the investment in bonds on December 31, 2018? Carrying amount 7/01/18 1,198,000 Premium amortization (2,080) Carrying amount 12/31/18 P 1,195,920 Interest received= face value x nominal rate 000,000 x 10% x 6/12 = 50,000 Interest income= carrying amount x effective rate 198,000 x 8% x 6/12 17,920 Premium amortization= 50,000 - 47,920 = 2,0802. LMN Company purchased bonds at a discount of P100,000. Subsequently, LMN sold these bonds at a premium of P140,000. During the period that LMN held this long term investment amortization of the discount amounted to 20,000. What amount should be reported as gain on the sale of bonds? Premium on sale of bonds 140,000 Unamortized discount (100,000 - 20,000) 0,000 Gain on sale of bonds P 220,000 3. On January 1, 2018 RST Company purchased 5-year bonds with face amount of P8,000,000 and stated interest of 10% per year payable semiannually on June 30 and December 31. The bonds were acquired to yield 8% PV of an annuity of 1 for 10 periods at 5% 772 PV of an annuity of 1 for 10 periods at 4% 8.11 PV of 1 for 10 periods at 4% 0.6756 What is the market price or purchase price of the bonds? PV of Principal (8,000,000 x 0.6756) 5,404,800 PV of semi-annual interest payment (400,000 x 8.11) 3,244,000 Market price P 8,648,8001. During 2018 ABC Company purchased tradini 1g Securities with the following cost and market value on December 31, 2018: Security Cost Market Value A~1,000 shares 200,000 300,000 B - 10,000 shares 1,700,000 1,600,000 C— 20,000 shares 3,100,000 2,900,000 5,000,000 4,800,000 The entity sold 10,000 shares of Security B on January 15, 2019 for 150 per share . What is the amount of unrealized gain or loss should be reported in income statement for 2018? Market value 4,800,000 Unadjusted carrying amount 5,000,000 Unrealized loss P (200,000) b. What amount should be reported as loss on sale of trading investment in 2019 Net proceeds 1,500,000 FV at 12/31/19 (4,600,000) Loss onsale —_P (100,000) 2. XYZ company provided the following portfolio of equity investments measured at fair value through other comprehensive income Aggregate cost 12/31/18 1,700,000 Unrealized gain - 12/31/18 40,000 Unrealized loss - 12/31/18 260,000 Net realized gain during 2018 300,000 On January 1, 2018, the entity reported an unrealized loss of P15,000 as a ‘component of other comprehensive income. In the 2018 statement of changes in equity, what cumulative amount should be reported as unrealized loss on these securities? Unrealized loss 260,000 Unrealized gain (40,000) Cumulative unrealized loss 12/31/18 P 220,0001. During 2018 ABC Company purchased trading securities with the following cost and market value on December 31, 2018: Security Cost Market Value A- 1,000 shares 200,000 300,000 B— 10,000 shares 1,700,000 1,600,000 C — 20,000 shares 3,100,000 2.200.000 5,000,000 4,800,000 The entity sold 10,000 shares of Security B on January 15, 2019 for 150 per share a. What is the amount of unrealized gain or loss should be reported in income statement for 2018? Market value 4,800,000 Unadjusted carrying amount —§,000,000 Unrealized loss P (200,000) b. What amount should be reported as loss on sale of trading investment in 2019 Net proceeds 1,500,000 FV at 12/31/19 ,600,000) Lossonsale —_P (100,000) 2. XYZ company provided the following portfolio of equity investments measured at fair value through other comprehensive income Aggregate cost- 12/31/18 1,700,000 Unrealized gain - 12/31/18 40,000 Unrealized loss - 12/31/18 260,000 Net realized gain during 2018 300,000 On January 1, 2018, the entity reported an unrealized loss of P15,000 as a component of other comprehensive income. In the 2018 statement of changes in equity, what cumulative amount should be reported as unrealized loss on these securities? Unrealized loss 260,000 Unrealized gain (40,000) Cumulative unrealized loss 12/31/18 P 220,000