Problem 16-5

1. Investment in Aye ordinary shares (40,000 x 50) 2,000,000

Cash 2,000,000

2. Memo - Received 200,000 Aye ordinary shares as a result of

5 for 1 split of 40,000 original shares.

3. Investment in Aye preference shares 125,000

Investment in Aye ordinary shares 125,000

Market value Fraction Cost

Ordinary shares (200,000 x 15) 3,000,000 30/32 1,875,000
Preference shares (20,000 x 10) 200,000 2/32 125,000
3,200,000 2,000,000

4. Investment in Bee ordinary shares 300,000

Dividend income (200,000 / 4 =50,000 x 6) 300,000

5. Cash (80,000 x 15) 1,200,000

Investment in Aye ordinary shares (80,000/200,000 x 1.875M) 750,000
Gain on sale of investment 450,000
Problem 16-7
1. Investment in Zee ordinary shares 2,000,000
Cash 2,000,000

2. Memo - Received 2,000 shares as 20% stock dividend on

10,000 original shares. Shares now held, 12,000.

3. Cash (2,000 x 70) 140,000

Investment in Zee ordinary shares (2K/12K x 720K) 120,000
Gain on sale of investment 20,000

4. Investment in Zee preference shares (5,000 x 70) 350,000

Investment in Zee ordinary shares (5K/10K x 600K) 300,000
Gain on exchange 50,000

5. Investment in Zee ordinary shares 100,000

Cash (5,000 x 20) 100,000
Problem 16-11
1. Stock rights (40,000 x 10) 400,000
Investment in equity securities 400,000

2. Investment in equity securities 1,500,000

Stock rights (30,000 x 10) 300,000
Cash (15,000 shares x 80) 1,200,000

3. Cash (6,000 x 12) 72,000

Stock rights (6,000 x 10) 60,000
Gain on sale of rights 12,000

4. Loss on stock rights (4,000 x 10) 40,000

Stock rights 40,000

Shares Cost
First acquisition (3M - 400,000) 40,000 2,600,000
New acquisition 15,000 1,500,000
55,000 4,100,000
Problem 16-13
2013
Aug. 1 Investment in equity securities 60,000
Cash 60,000

Oct. 1 Investment in equity securities 560,000

Cash 560,000

2014
July 1 Investment in equity securities 480,000
Cash 480,000

Aug. 1 Cash 500,000

Investment in equity securities 340,000
Gain on sale of investment 160,000

Lot 1 (1,000 shares) 60,000

Lot 2 (4,000/8,000 x 560,000) 280,000
Cost of investment sold 340,000

2015
Feb. 1 Received 5,000 shares representing 50% stock dividend on
10,000 remaining shares held. Shares now held, 15,000.

Nov. 1 Stock rights 150,000

Investment in equity securities 150,000

Lot 2 - 6,000 rights (6,000 x 10) 60,000

Lot 3 - 9,000 rights (9,000 x 10) 90,000
Cost of rights received 150,000

Dec. 1 Cash (15,000 x 15) 225,000

Stock rights 150,000
Gain on sale of rights 75,000

Summary of investments: Shares Cost

Lot 2 (280,000 - 60,000) 6,000 220,000
Lot 3 (480,000 - 90,000) 9,000 390,000
total 15,000 610,000
Problem 16-14
Jan. 2 Investments in King Company 700,000
Cash 700,000

Mar. 1 Investments in Queen Company 660,000

Cash 660,000

Apr. 1 Cash (10,000 x 5) 50,000

Dividend income 50,000

July 1 Received 2,000 shares as 20% stock dividend on 10,000 Queen Company
shares originally held. Shares now held, 12,000.

Aug. 1 Investment in Princess company 500,000

Cash 500,000

Oct. 1 Received 60,000 new shares of Queen company as a result

of a 5 for 1 split of 12,000 original shares.

1 Cash (10,000 x 5) 50,000

Dividend income 50,000

31 Memo - Received 60,000 stock rights from Queen Company

to subscribe for one new share at P20 for every 10 rights held.

Nov. 15 Investment in Queen company 120,000

Cash (6,000 shares x 20) 120,000

Dec. 1 Cash (66,000 shares x 5) 330,000

Dividend income 330,000

15 Cash (10,000 shares x 30) 300,000

Investment in Queen company (10K/60K x 660K) 110,000
Gain on sale of investment 190,000

Summary of investments: Shares Cost

King Company shares 10,000 700,000
Queen Company shares 50,000 550,000
Block 1 6,000 120,000
Block 2 10,000 500,000
Princess Company shares 76,000 1,870,000

Of course, the investments will simply be described as "investments

in equity securities" in the statement of financial position.
Problem 16-15
Requirement 1 Shares Cost
01/01/2011 (20,000 x 110) 20,000 2,200,000
04/01/2011 (5,000 x 100) 5,000 500,000
12/31/2011 (10% x 2.5M) - (250,000)
12/31/2012 (10% x 2.5M) - (250,000)
12/31/2013 (25,000 x 110) 25,000 2,750,000
06/30/2014 (25,000 x 92) (25,000) (2,300,000)
Investment account per book 25,000 2,650,000

Requirement 2 Shares Cost

01/01/2011 (20,000 x 110) 20,000 2,200,000
04/01/2011 (5,000 x 100) 5,000 500,000
01/01/2013 (50% x 25,000) 12,500 -
Balance 37,500 2,700,000
01/01/2013 (12,500/37,500 x 2.7M) (12,500) (900,000)
Balance 25,000 1,800,000
12/31/2013 (2 for 1 split) 25,000 -
Balance 50,000 1,800,000
06/30/2014 (1/2 x 1.8M) (25,000) (900,000)
Balance - 12/31/2014 25,000 900,000

Requirement 3 - Adjusting entries 12/31/2014

1. Investment in Sun Company 250,000
Retained Earnings 250,000

2. Investment in Sun Company 250,000

Retained Earnings 250,000

3. Retained earnings 900,000

investment in Sun Company 900,000

Sales price (12,500 x 160) 2,000,000

Cost of shares sold on 1/1/2013 (900,000)
Gain on sale 1,100,000

4. Retained earnings 2,750,000

investment in Sun Company 2,750,000

5. Investment in Sun Company 1,400,000

Gain on sale of investment 1,400,000

Sales price (25,000 x 92) 2,300,000

Cost of shares sold on 6/30/2013 (900,000)
Gain on sale 1,400,000

Proof:
Investments account per book 2,650,000
Adjustments:
#1 250,000
#2 250,000
#3 (900,000)
#4 (2,750,000)
#5 1,400,000 (1,750,000)
Adjusted balance - 12/31/2014 900,000
Problem 16-16
Answer: A

Purchase price (4,000 x P100) 400,000

Brokerage 12,000
Total 412,000
Less: Dividend purchase (4,000 x 5) 20,000
Acquisition cost 392,000
Problem 16-17
Answer: D

Fair value of asset given (land) 3,000,000.00

Problem 16-18
Answer: D

Original shares acquired January 15 50,000

Stock dividend on March 31 (20% x 50,000) 10,000
Total shares 60,000

Dividend income - cash dividend on Dec.15 (60,000 x 5) 300,000

Problem 16-19
Answer: C

Dividend income - cash dividend on July 1 100,000

Original shares on March 1 20,000

Stock dividend on Dec. 1(10% x 20,000) 2,000
Total shares 22,000
Problem 16-20
Answer: A

Dividend income (2,000 x 60) 120,000

Problem 16-21
Answer: B

Original shares on Oct. 1 40,000

Stock dividend on Nov. 30 (10%) 4,000
total shares 44,000
Shares sold on Dec. 31 (4,000)
Balance 40,000

Sales price 1,000,000

Cost of shares sold (4K/44K x 6.6M) (600,000)
Gain on sale 400,000
Problem 16-22
Answer: D

Cash dividend (10% x 500,000) 50,000

Problem 16-23
Answer: A
June 1 December 1
Original shares 20,000 30,000
Stock dividend - 20% 4,000 6,000
Total shares 24,000 36,000

Sales price (30,000 x 125)

Cost of shares sold: 3,750,000
From June 1 - 24,000 shares 2,000,000
From Dec. 1 - 6,000 shares (6K/36K x 3.6M) 600,000 2,600,000
Gain on sale 1,150,000
Problem 16-24
Answer: D

Cost of rights (100,000 x 6) 600,000.00

Problem 16-25
Answer: B

Sales price (50,000 x 15) 750,000

Cost of rights sold (50,000 x 10) 500,000
Gain on sale of rights 250,000
Problem 16-26
Answer: B

Cost of rights (50,000 x 20) 1,000,000

Cash paid for new shares (25,000 shares x 90) 2,250,000
Total cost of new shares 3,250,000
Problem 16-27
Answer: A

Theoretical value of rights (125 - 100 / 4+1) 5

Initial cost of rights (50,000 x 5) 250,000

Cash paid for new shares (50,000/4 = 12,500 x 100) 1,250,000
Cost of new investment 1,500,000
Problem 16-28
Answer: B

Total cost of rights (60,000 x 5) 300,000

10,000 shares x 5 rights 50,000 rights

Cash paid (10,000 x 80) 800,000

Cost of rights exercised (50,000 x 5) 250,000
Total cost of 900 shares 1,050,000
Problem 16-29
Answer: A

Shares Cost
Original investment 50,000 3,800,000
New investment acquired through stock rights (50,000 x 80) 50,000 4,000,000
Total 100,000 7,800,000

FIFO Approach:
Sales price (25,000 x 90) 2,250,000
Cost of shares sold (25,000/50,000 x 3.8M) 1,900,000
Gain on sale 350,000

Average Approach:
Sales price (25,000 x 90) 2,250,000
Cost of shares sold (25,000/100,000 x 7.8M) 1,950,000
Gain on sale 300,000