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Lablab Corp acquired 30,000 shares of Bebe Corp for $5 million on January 1, 2020. Bebe's identifiable net assets were $14 million, except for undervalued depreciable assets of $1.6 million. In 2020, Bebe reported total comprehensive income of $4 million and paid dividends of $1.5 million, of which $500,000 was from pre-acquisition retained earnings. The fair market value of shares was $210 per share on December 31, 2020.

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248 views2 pages

1001

Lablab Corp acquired 30,000 shares of Bebe Corp for $5 million on January 1, 2020. Bebe's identifiable net assets were $14 million, except for undervalued depreciable assets of $1.6 million. In 2020, Bebe reported total comprehensive income of $4 million and paid dividends of $1.5 million, of which $500,000 was from pre-acquisition retained earnings. The fair market value of shares was $210 per share on December 31, 2020.

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Lovely Dela Cruz Ganoan
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On January 1, 2020 Lablab Corp.

acquired 30,000 shares of Bebe Corp's 100,000 shares outstanding

for P5,000,000. The book value of Bebe's identifiable net assets on this date was at P14M. All its assets

carrying value approximated their fair values except for a depreciable assets with a remaining life of 5

years, which was undervalued on this date by P1.6M.

Bebe reported total comprehensive income in 2020 at P4,000,000 which was net of a foreign exchange

loss reported in as other comprehensive toss at P800,000. Bebe also paid dividends at P1.5M at the end

of the year. P500,000 of which is from pre-acquisition Retained Earnings. The fair market value of shares

on this date was at P210 per share.

Requirements:

51. What is the carrying value of Lablab's Investment in Bebe shares as of December 31, 2020 using the

appropriate accounting standards?

a. 5,654,000 c. 5,990,000

b. 5,750,000 d. 5,894,000

52. Assuming that Lablab Corp. is a medium-sized entity and that the company uses the fair value
method

in accounting for its investment in Bebe, how much in total should be recognized in Lablab Corp.'s profit

or loss for 2020?

a. 1,750,000 c. 1,300,000

b. 450,000 d. 300,000

53. Assuming that Lablab Corp. sold 18,000 shares of its Bebe shares investment on December 31, 2020

at its prevailing fair value, how much in total should be recognized in the profit or loss as a result of the

transaction?

a. 387,600 c. 406,000

b. 646,000 d. 243,600

54. Using the information in the previous tem, how much shall be the carrying value of any remaining

investments as of December 31, 2020?

a. 2,357,600 c. 2,300,000

b. 2,520,000 d. 2,261,600

55. Assuming that Bebe issued 25,000 shares to other stockholders on December 31, 2020 at prevailing

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fair value without Lablab Corp's participation, how much should be recognized in the profit or loss as a

result of the transaction/event?

a. 81,200 c. 129,200

b. 196,200 d. None

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