Pamantasan ng Cabuyao

Katapatan Subd., Banay Banay, City of Cabuyao

Accounting Review III - Practical Accounting I (ACCTG100C) P1 - 06

1. On January 1, 2016, Jumong Company purchased 10% of another entity’s outstanding ordinary shares for P6,000,000. The
investment is classified as a nonmarketable security and accounted for appropriately under the cost method. The following
data pertain to the investee’s operations for 2016 and 2017:
2016 2017
Net income 3,000,000 4,000,000
Dividend paid None 9,000,000
What should be reported as dividend income in 2017?
A. 900,000 C. 400,000
B. 700,000 D. 200,000
2. On July 1, 2017, Dongyi Company acquired 20% of the outstanding ordinary shares of another entity for P5,000,000. The
carrying amount of the acquired shares was P4,000,000. The excess of cost over carrying amount was attributable to an
identifiable intangible asset which was undervalued on the investee’s statement of financial position and which had a
remaining useful life of 5 years. For the year ended December 31, 2017, the investee reported net income of P6,000,000 and
paid cash dividends of P1,000,000 on its ordinary share capital and issued 10% stock dividend on December 31, 2017.
What is the proper carrying amount of the investment in associate on December 31, 2017?
A. 5,900,000 C. 5,300,000
B. 5,400,000 D. 5,800,000
3. On January 1, 2017, Angela Company acquired 40% of the ordinary shares of an associate. On such date, assets and
liabilities of the investee were recorded at fair value and the acquisition showed that goodwill of P1,000,000 was acquired.
The investee reported net income of P8,000,000 for 2017.
In December 2017, the investee sold inventory costing P3,000,000 to Angela Company for P5,000,000. The inventory
remained unsold by Angela Company on December 31, 2017.
On January 1, 2017, the investee sold an equipment to Angela Company with carrying amount of P2,500,000 for P4,000,000.
The remaining life of the equipment is 5 years.
What amount of investment income should be reported by Angela Company for 2017?
A. 1,920,000 C. 3,200,000
B. 1,800,000 D. 2,400,000
4. Seryong Company owns 100% of another entity’s preference share capital and 40% of its ordinary share capital. The
investee’s share capital outstanding at December 31, 2017 includes P5,000,000 of 10% cumulative preference share capital
and P10,000,000 ordinary share capital. The investee reported net income of P6,000,000 for 2017. No dividend was declared
for both preference and ordinary share in 2017.
What amount should be reported as investment income for 2017?
A. 5,500,000 C. 2,200,000
B. 2,400,000 D. 2,700,000
5. On January 1, 2017, Lee Company purchased 40% of the outstanding ordinary share of another entity for P5,000,000 when
the net assets of the investee amounted to P10,000,000. At acquisition date, the carrying amounts of the identifiable assets
and liabilities of the investee were equal to their fair value, except for equipment for which the fair value was P2,000,000
greater than its carrying amount and inventory whose fair value was P1,000,000 greater than its cost. The equipment has a
remaining life of 5 years and the inventory was all sold during 2017. The investee reported net income of P6,000,000 for
2017 and paid no dividends.
What is the maximum amount which could be included in income before tax to reflect the investor’s equity in earnings of the
investee in 2017?
A. 2,400,000 C. 2,040,000
B. 2,240,000 D. 1,840,000

6. On January 1, 2017, Seondok Company acquired 10% of the outstanding voting shares of another entity. On January 1,
2018, the entity gained the ability to exercised significant influence over financial and operating control of the investee by
acquiring additional 20% of the investee’s outstanding shares. The two purchases were made at prices proportionate to the
value assigned to the investee’s net assets which equaled their carrying amount. The investee reported the following:
2017 2018
Dividend paid 3,000,000 8,000,000
Net income 7,000,000 9,000,000
Under the “cost-based approach”, what total amount should be included in profit or loss for the year ended December 31,
2018 in relation to the investment in associate?
A. 3,100,000 C. 2,400,000
B. 2,700,000 D. 3,400,000
 Use the following for Questions 7 and 8:
Koreo Company acquired 30% of the voting share capital of another entity for P2,000,000 which was equal to the carrying
amount of interest acquired. The investee reported net income of P800,000 for 2017 and paid dividends of P500,000 on
December 31, 2017. The investee reported net income of P1,000,000 for the six months ended June 30, 2013 and
P2,500,000 for the year ended December 31, 2018, but paid no dividends during 2018.
On July 1, 2018, the investor sold half of the investment for P1,500,000. The fair value of the retained investment was
P1,600,000 on July 1, 2018 and P1,900,000 on December 31, 2018. The retained investment was to be held as available for
sale.
7. What is the gain on sale of investment that should be reported in the income statement for 2018?
A. 245,000 C. 350,000
B. 305,000 D. 455,000
8. What amount of gain from remeasurement of investment should be reported in 2018?
A. 405,000 C. 300,000
B. 705,000 D. 0
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wep/ACCTG100C/investmentinassociates