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    14 - Other Investments

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    jaymark canaya
    1. Abra Company should report $7,200,000 in its December 31, 2005 balance sheet for its bond sinking fund. This represents the original investment of $5,000,000 plus additional investments of $1,000,000, plus interest revenue of $1,500,000, less administration costs of $800,000, and dividends of $500,000. 2. The passage provides a review of accounting concepts related to other investments such as bond sinking funds, life insurance policies, and accumulation funds.

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    14 - Other Investments

    Uploaded by

    jaymark canaya
    95 views2 pages
    1. Abra Company should report $7,200,000 in its December 31, 2005 balance sheet for its bond sinking fund. This represents the original investment of $5,000,000 plus additional investments of $1,000,000, plus interest revenue of $1,500,000, less administration costs of $800,000, and dividends of $500,000. 2. The passage provides a review of accounting concepts related to other investments such as bond sinking funds, life insurance policies, and accumulation funds.

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    1. Abra Company should report $7,200,000 in its December 31, 2005 balance sheet for its bond sinking fund. This represents the original investment of $5,000,000 plus additional investments of $1,000,000, plus interest revenue of $1,500,000, less administration costs of $800,000, and dividends of $500,000. 2. The passage provides a review of accounting concepts related to other investments such as bond sinking funds, life insurance policies, and accumulation funds.

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    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
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    95 views2 pages

    14 - Other Investments

    Uploaded by

    jaymark canaya
    1. Abra Company should report $7,200,000 in its December 31, 2005 balance sheet for its bond sinking fund. This represents the original investment of $5,000,000 plus additional investments of $1,000,000, plus interest revenue of $1,500,000, less administration costs of $800,000, and dividends of $500,000. 2. The passage provides a review of accounting concepts related to other investments such as bond sinking funds, life insurance policies, and accumulation funds.

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    Page 1 of 2

    REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE


    OTHER INVESTMENTS

    1. The following information relate to a noncurrent investment that Abra Company placed
    in trust as required by the underwriter of its bonds:
    Bond sinking fund, 1/1/05 5,000,000
    Additional investment in 2005 1,000,000
    Dividend on investment 500,000
    Interest revenue 1,500,000
    Administration costs 800,000
    Carrying amount of bonds payable 9,000,000
    What amount should Abra report in its December 31, 2005 balance sheet related to
    itsbond sinking fund?
    a. 9,000,000
    b. 8,000,000
    c. 7,200,000
    d. 5,200,000

    2. Buguey Company insures the life of its president for P8,000,000, the corporation being
    the beneficiary of an ordinary life policy. The premium is P200,000. The policy is dated
    January 1, 2002. The cash surrender value on December 31, 2004 and 2005 are
    P60,000 and P80,000 respectively. The corporation follows the calendar year as its
    fiscal period. The president dies on October 1, 2005 and the policy is collected on
    December 31, 2005. What is the gain on life insurance settlement?
    a. 7,875,000
    b. 7,890,000
    c. 7,870,000
    d. 7,800,000

    3. On January 1, 2001 Baggao Company purchased P8,000,000 ordinary life policy on its
    president. Additional data for the year 2005 are:

    Cash surrender value, January 1 100,000


    Cash surrender value, December 31 120,000
    Annual advance premium paid on January 1, 2005 200,000
    Dividend received on July 1, 2005 10,000

    Baggao Company is the beneficiary under the life insurance policy. Baggao should
    report life insurance expense for 2005 at
    a. 200,000
    b. 180,000
    c. 170,000
    d. 190,000

    4. On January 1, 2005, Allacapan Company adopted a plan to accumulate funds for a


    new building to be erected beginning January 1, 2008 at an estimated cost of
    P21,000,000. Allacapan Company intends to make three equal annual deposits in a
    fund beginning December 31, 2005 that will earn interest at 10% compounded
    annually. Future amount factors at 10% for three periods are:
    Future value of 1 1.33
    Future value of an ordinary annuity of 1 3.31
    Future value of an annuity of 1 in advance 3.64
    Page 2 of 2

    What is the annual deposit to the fund?


    a. 7,000,000 c. 6,344,410
    b. 5,769,230 d. 7,894,740

    5. On March 1, 2005, Isabela Company adopted a plan to accumulate P20,000,000 by


    September 1, 2009. Isabela plans to make four annual deposits to a fund that will earn
    interest at 10% compounded annually. Isabela made the first deposit on September 1,
    2005. Future amount factors at 10% for 4 periods are:
    Ordinary annuity of 1 4.64
    Annuity of 1 in advance 5.11
    Isabela should make four annual deposits of (rounded to the nearest P100)
    a. 5,000,000
    b. 4,310,000
    c. 3,913,900
    d. 4,102,000

    6. Pandan Company’s accounting records showed the following investments at January 1,


    2005:
    Common stock:
    Kay Company (2,000 shares) 1,000,000
    Aye Company (10,000 shares) 10,000,000
    Parking lot (leased to Zee Company) 5,000,000
    Trademark 4,000,000
    Total investments 20,000,000

    Pandan owns 1% of Kay and 30% of Aye. The Zee lease which commenced on
    January 1, 2004 is for 5 years at an annual rental of P2,500,000. In addition, on
    January 1, 2004, Zee paid a nonrefundable deposit of P800,000 as well as a security
    deposit of P500,000, to be refunded upon expiration of lease. During the year ended
    December 31, 2005, Pandan received cash dividends of P700,000 from Kay and
    P1,500,000 from Aye, whose 2005 net earnings were P8,000,000 and P20,000,000
    respectively. Pandan also received P2,500,000 rent from Zee in 2005.

    The trademark was licensed to Lawaan Company for royalties of 10% of sales of the
    trademark items. Royalties are payable semiannually on March 1, for sales in July
    through December of the prior year, and on September 1, for sales in January through
    June of same year. On March 1, 2004 and 2005, Pandan received royalties of
    P1,000,000 and P1,500,000 respectively. On September 1, 2004 and 2005, Pandan
    received royalties of P2,000,000 and P3,000,000 respectively. Lawaan Company’s
    sales of the trademark items totaled P8,000,000 for the last half of 2005. In Pandan’s
    2005 income statement, how much should be reported as
    1. Total income from investments in securities?
    a. 2,200,000 c. 6,000,000
    b. 6,700,000 d. 8,200,000

    2. Rental revenue?
    a. 2,500,000 c. 3,300,000
    b. 2,660,000 d. 2,760,000

    3. Royalty revenue?
    a. 3,000,000 c. 3,800,000
    b. 4,000,000 d. 5,000,000
    - end -

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