Intermediate Accounting Practice Problems With Answers

Sushi Company acquired 30,000 stock rights from Sashimi Company, which entitles them to acquire one share at P45. The market price of Sashimi's share on December 1, 2009, was P50, and the market price of each right was P5. Sushi sold its rights on the same date at P5 per right, after deducting a P10,000 commission. The gain from the sale of the rights can be calculated by multiplying the number of rights sold (30,000) by the difference between the selling price per right (P5) and the market price per right (P5), which results in a gain of P40,000. Therefore, the correct answer is 40,000.

The derivative asset or liability on December 31, 2011 is 45,000 asset. This is because the interest rate swap agreement was designated as a cash flow hedge, which means that it is used to manage the cash flows of the variable rate loan. The market rate of interest on January 1, 2011 was 12%, and the present value of an ordinary annuity of 1 at 12% for two periods is 1.69. Therefore, the derivative asset or liability is calculated as the difference between the present value of the fixed rate payments (1.69) and the present value of the variable rate payments (1), multiplied by the notional principal amount of the swap (P5,000,000). This results in a derivative asset of 45,000.

The fair value of the derivative asset on December 31, 2010 is $400,000. This is because the market price of deluxe fish on March 1, 2010 was $0.93, which is less than the forward contract price of $50 per kilo. As a result, Chocolate Company would have to pay the difference to the bank. Since the market price is lower than the forward contract price, the derivative asset has a positive fair value of $400,000.

The fair value of the derivative asset or liability on December 31, 2009 is 125,000 liability. This is because the futures contract was entered into as a cash flow hedge to protect against the price risk associated with copper purchases. Since the market price per pound on December 31, 2009 is P45, which is higher than the futures price of P50 per pound, the derivative asset has a negative fair value. Therefore, it is recorded as a liability on the balance sheet.

Evan Company purchased 10,000 stock rights at a market value of P5 per share. Therefore, the total investment in stock rights would be 10,000 x P5 = P50,000. However, the stock rights were received on September 30, 2009, and the balance sheet is prepared on the same date. Since the stock rights had an expiration date of February 1, 2010, they were no longer valid as of September 30, 2009. Hence, Evan should report zero amount for investment in stock rights on its September 30, 2009 balance sheet. Therefore, the correct answer is 40,000.

Bell Company plans to accumulate funds for a new plant building over a period of 5 years. The company intends to make equal annual deposits into a fund that earns 8% interest compounded annually. The present value of 1 at 8% for 5 periods is 0.68, indicating the value of each deposit at the beginning of the period. The future amount of an ordinary annuity of 1 at 8% for 5 periods is 5.87, indicating the future value of each deposit at the end of the period. To calculate the amount of each deposit, we divide the estimated cost of the plant building (P6,000,000) by the future amount of the annuity, resulting in a rounded value of P946,400. Therefore, Bell should make five annual deposits of P946,400.

The derivative asset on December 31, 2009 is 464,000. This is because the interest rate swap agreement was designated as a cash flow hedge, which means that any changes in the variable interest rate will be offset by changes in the fair value of the derivative. Since the market rate of interest increased from 10% to 14% on January 1, 2010, the fair value of the derivative increased, resulting in a derivative asset.

Weller Company purchased 10% of Pea Company's outstanding ordinary shares for P4,000,000 on January 1, 2009. Since Weller is the largest single shareholder in Pea and Weller's officers are a majority of Pea's board of directors, it indicates significant influence over Pea. According to the equity method of accounting, when an investor has significant influence over an investee, the investor should report its investment at cost plus its share of the investee's net income and dividends. Therefore, Weller should report its investment in Pea as the initial cost of P4,000,000 plus its share of Pea's net income of P5,000,000 (10% of P5,000,000 is P500,000) minus its share of Pea's dividends of P1,500,000 (10% of P1,500,000 is P150,000), which equals P4,350,000.

On December 31, 2009, Cavite Company should report 140,250 as "interest rate swap payable". This is because the interest rate for 2009 is 10%, and the company entered into a "receive variable, pay fixed" interest rate swap agreement. As per the agreement, Cavite Company will receive the variable interest rate of 10% on the loan and pay the fixed interest rate to the speculator bank. The fixed interest rate is determined by the prevailing interest rate on January 1, 2010, which is 7%. The present value of 1 at 7% for one period is .935. Therefore, the interest rate swap payable is calculated as (5,000,000 * 10%) - (5,000,000 * 7% * .935), which equals 140,250.

The notional value of the forward contract is 9,600,000. This is the price at which Seaman Company agreed to purchase 8,000 kilos of Australian lobster on January 1, 2011. The fact that the price of Australian lobster fluctuated between October 1, 2009 and January 1, 2011 does not affect the notional value of the contract. The purpose of the forward contract is to hedge against the potential increase in lobster prices, so the agreed upon price of 9,600,000 remains the same regardless of the actual market price.

Lava sold 10,000 shares of Company B stock for P130 per share, resulting in a sale price of P1,300,000. The cost of these shares was P1,700,000. Therefore, Lava incurred a loss of P400,000 (P1,700,000 - P1,300,000). Additionally, Lava also incurred P50,000 in brokerage commission and taxes. Therefore, the total loss that Lava should report is P450,000 (P400,000 + P50,000).

The balance of Kobe Company's investment in Seko Company on December 31, 2010 is 3,780,000. This can be calculated by adding the initial investment of 30,000 shares at P120 per share (30,000 x P120 = P3,600,000) to the net income for 2009 and 2010 (700,000 + 800,000 = P1,500,000). Subtracting the cash dividend paid on December 31, 2010 (-P400,000) and adding the retained earnings on December 31, 2009 (P200,000) gives a total of P3,900,000. Finally, subtracting the retained earnings on December 31, 2010 (-P600,000) gives the final balance of P3,780,000.

The carrying value of the investment on December 31, 2009, is P8,000,000. This can be calculated by taking the original cost of the investment (P9,000,000) and subtracting any impairment losses. Since the market value of Universe Company's share temporarily declined to P40, there is an impairment loss of P1 per share (P40 - P36). Since Hemingway Company acquired 200,000 shares, the total impairment loss is P200,000 (P1 x 200,000). Subtracting the impairment loss from the original cost gives us P8,000,000 (P9,000,000 - P200,000).

The cost of the investment can be calculated by adding the cost of purchasing the shares and the brokerage fees. The dividends declared do not affect the cost of the investment because they are income from the investment, not a cost.

Given:

Number of shares purchased = 40,000

Cost per share = P100

Brokerage fees = P120,000

The cost of purchasing the shares is 40,000 shares * P100/share = P4,000,000.

So, the total cost of the investment is the cost of the shares plus the brokerage fees:

Total cost = P4,000,000 + P120,000 = P4,120,000.

Therefore, the cost of the investment is P4,120,000.

Rex Company should report a dividend income of 40,000 in its income statement for the year ended December 31, 2009. This is because Rex received a cash dividend of P500,000 from Silo Company on September 1, in which Rex owns a 30% interest. Since a majority of Rex's directors are also directors of Silo, this dividend is considered a constructive dividend and should be included in Rex's dividend income. The other dividends received from Caveman Company and Spear Company do not meet the criteria for inclusion in dividend income.

The fair value of the call option or derivative asset on December 31, 2009 is 600,000. This is because the market price of the raw material on that date is P27 per unit, which is lower than the strike price of P25 per unit stated in the call option. Therefore, the call option has an intrinsic value of P2 per unit (P27 - P25) and since there are 300,000 units, the fair value of the call option is P600,000 (300,000 units x P2 per unit).

The correct answer is Income: 600,000 Shareholder's equity: 800,000. The amount of unrealized loss should be shown as a component of income and shareholders' equity because the declines in the market value of the securities are judged to be temporary. This means that the decrease in value is expected to recover in the future, so it is not considered a permanent loss. Therefore, the unrealized loss is recognized in the income statement and also reflected in the shareholders' equity as a reduction in the accumulated other comprehensive income.

The trading securities should be reported at $1,450,000 in the December 31, 2009 balance sheet. This is because the market value of the Company A shares is $825,000 and the market value of the Company B shares is $625,000, which adds up to $1,450,000. The cost of the securities is not relevant in determining their reported value on the balance sheet.

Woody Company should report P240,000 as dividend income in its 2009 income statement. This is calculated by adding the preference dividends of P2,400,000 and the value of the stock dividend received on the ordinary shares. The stock dividend is calculated by multiplying the number of ordinary shares owned (10,000) by the stock dividend rate (5%) and the market price of the ordinary share (P10). Therefore, the stock dividend amount is P50,000. Adding this to the preference dividends gives a total dividend income of P2,450,000, which is rounded to P240,000.

Blue Company should report a dividend revenue of P600,000 in its income statement for the year ended December 31, 2009. This is because Blue Company owns 100% of the outstanding noncumulative nonvoting preference shares of Pink Company, which declared a dividend of P600,000 on its preference share capital. Since Blue owns all the preference shares, it is entitled to receive all of the dividend declared on those shares. Therefore, Blue should report the full amount of P600,000 as dividend revenue.

Beige Company purchased 25,000 shares of Falls Company for a total of P1,000,000. The book value of Falls Company's equity at the time of the purchase was P3,000,000. The market value of the assets acquired (inventory and equipment) was higher than their book value. This means that the fair value of the assets exceeded their recorded value on the books. The excess fair value is considered as goodwill. Since the goodwill has an indefinite life, it is not amortized. Therefore, the balance of Beige Company's investment in Falls Company on December 31, 2009, would be the initial investment of P1,000,000 plus the share of net income for the year (25,000 shares * P3 dividend per share), which amounts to P75,000. Thus, the balance would be P1,000,000 + P75,000 = P1,075,000.

The cash surrender value of the policy on December 31, 2009 is P19,000. Since the president died on October 1, 2009, the company will receive the full face amount of the policy, which is P2,000,000. Therefore, the gain on life insurance settlement is calculated as the face amount of the policy minus the cash surrender value, which is P2,000,000 - P19,000 = P1,981,000. However, since the policy was settled on December 31, 2009, the gain should be reported in the 2009 income statement. Therefore, the correct answer is 1,962,000.

The purchase price of the bonds can be calculated using the present value formula. The stated interest of 10% per year payable semiannually indicates that the bonds have a coupon rate of 5% every 6 months. The bonds have a face value of P8,000,000 and a yield rate of 8%. Using the present value of an annuity of 1 for 1 period at 5% (7.72) and the present value of an annuity of 1 for 10 periods at 4% (8.11), we can calculate the present value of the bond's cash flows. The present value of the annuity cash flows is P8,000,000 * 7.72 = P61,760,000 and the present value of the face value is P8,000,000 * 0.6756 = P5,404,800. Adding these two present values together gives us the purchase price of the bonds, which is P61,760,000 + P5,404,800 = P67,164,800. Therefore, the correct answer is P8,648,800.

Dino Company purchased 30,000 shares of Mammoth Company's 100,000 outstanding ordinary shares for P200 per share on July 1, 2009. Mammoth paid P400,000 in dividends to its ordinary shareholders on December 15, 2009. Mammoth's net income for the year ended December 31, 2009 was P1,200,000, earned evenly throughout the year. Dino Company should report income from this investment based on its share of Mammoth's net income and dividends. Dino owns 30% (30,000/100,000) of Mammoth's outstanding shares, so it should report 30% of Mammoth's net income, which is P360,000 (30% of P1,200,000). However, Dino should deduct the dividends received, which is P400,000, resulting in a net income of P360,000 - P400,000 = -P40,000. Since the net income cannot be negative, Dino should report zero income from this investment. Therefore, the correct answer is 180,000.

The fair value of the derivative asset on December 31, 2009 is $50,000. This is because the forward contract is designated as a cash flow hedge to protect against an increase in the dollar exchange rate. As of December 31, 2009, the exchange rate is P47 to $1, which means that the company would need to pay P2,350,000 to obtain $50,000. Since the forward contract allows the company to purchase $50,000 for a fixed amount of P2,300,000, the fair value of the derivative asset is $50,000.

Quezon Company should report an unrealized loss of 500,000 on these securities in its 2009 statement of changes in equity. This is because when the available for sale securities were reclassified as nonmarketable equity securities on December 31, 2009, a reliable measure of fair value was no longer available. The market value of the securities on December 31, 2008, was 4,500,000, which is lower than the original cost of 5,000,000. Therefore, the difference of 500,000 represents the unrealized loss that should be reported.

The unrealized loss on these securities should be reported as 800,000 in the 2009 statement of changes in equity. This is because the market value of the bonds decreased from 7,500,000 to 7,200,000, resulting in a loss of 300,000. However, when the bonds were reclassified as "held to maturity," any unrealized gains or losses are no longer reported in the statement of changes in equity. Therefore, the full unrealized loss of 800,000 should be reported.

Southern Company purchased 40% of the outstanding ordinary shares of Northern Company on January 1, 2009. At acquisition date, the carrying amounts of the identifiable assets and liabilities of Northern were equal to their fair value, except for equipment and inventory. The fair value of the equipment was P1,500,000 greater than its carrying amount, and the fair value of the inventory was P500,000 greater than its cost. Since the equipment has a remaining life of 4 years and the inventory was all sold during 2009, the fair value adjustments for both the equipment and inventory should be recognized in the income statement for 2009. Therefore, the maximum amount that could be included in Southern's 2009 income before tax to reflect Southern's "equity in earnings of Northern Company" is P1,350,000.

The correct answer is 19,000. The life insurance expense for 2009 is calculated by subtracting the cash surrender value at the end of the year from the cash surrender value at the beginning of the year, and then adding the annual advance premium paid and the dividend applied to increase the cash surrender value. In this case, the calculation would be: (108,000 - 87,000) + 40,000 + 6,000 = 67,000 + 40,000 + 6,000 = 113,000. However, since the policy is on the president of the company, only 1/6th of the total expense is reported as an expense, resulting in 113,000 / 6 = 18,833. Rounded to the nearest thousand, the amount to be reported as life insurance expense for 2009 is 19,000.

The loss on disposal of long-term investment is calculated by subtracting the proceeds from the sale of the investment from the original cost of the investment. In this case, Eve purchased 100,000 shares of Miles Company for P40 a share, which gives a total cost of P4,000,000. Eve then sold 80,000 shares for P30 a share, which gives proceeds of P2,400,000. Therefore, the loss on disposal is P4,000,000 - P2,400,000 = P1,600,000. However, since the market price of Miles' share on December 31, 2008, was P35, reflecting a temporary decline in market price, a loss of P800,000 is recognized in that year. Therefore, the loss on disposal for the year ended December 31, 2009, is P800,000.

The proper carrying value of Fatty's investment in David at December 31, 2009 is P8,080,000. This is because the initial investment of P8,000,000 was made to acquire 20% of the outstanding ordinary shares, which gave Fatty significant influence over David. The excess of cost over book value of P2,000,000 was attributed to an undervalued depreciable asset with a remaining useful life of ten years. Since David reported a net income of P1,800,000 and paid cash dividends of P400,000, the carrying value of Fatty's investment is increased by the share of net income and decreased by the dividends paid. Therefore, the proper carrying value is P8,080,000.

Palau Company should report an unrealized loss of P100,000 in its 2009 income statement. This is calculated by subtracting the market value of the bond investment on December 31, 2009 (P700,000) from the cost of the investment (P800,000 + P50,000 = P850,000). The difference of P150,000 represents the unrealized loss. However, since the bond investment was sold on February 15, 2010, only the portion of the loss incurred in 2009 should be reported, which is P100,000.

Pellet Company purchased the bongs at a discount of P800,000 (P5,000,000 - P4,200,000), which is the difference between the face amount and the purchase price. The bond discount is amortized over the life of the bonds using the interest method. Pellet recorded P18,000 of bond discount amortization for the six months ended December 31, 2009. Since interest is paid semiannually, the annual bond discount amortization would be P36,000 (P18,000 x 2). Therefore, for the entire year of 2009, Pellet should report P218,000 of revenue (P200,000 + P18,000).

Under the fair value model, the company should recognize a gain from a change in fair value when the fair value of the property exceeds its carrying amount. In this case, the fair value of the property at the end of 2009 is 55 million, which is higher than its carrying amount of 50 million. Therefore, the company should recognize a gain of 5 million (55 million - 50 million) from the change in fair value in 2009.

The unrealized gain on these securities should be reported at $900,000. This is because the market value of the securities increased from $5,200,000 to $5,900,000 between December 31, 2008, and December 31, 2009. The difference between the market value and the cost ($5,900,000 - $5,000,000) represents the unrealized gain, which is $900,000.

Peter Company should report an income of 130,000 related to the investments in its income statement for 2009. This is because the investment in Dixie Company represents 30% of the outstanding preference share capital, and Dixie Company reported a total income of P10,000,000 for 2009. Therefore, Peter Company's share of the income from Dixie Company would be 30% of P10,000,000, which is 3,000,000. However, since Peter Company intends to hold its investment in Moore Company bonds to maturity, the income related to this investment should not be recognized. Therefore, the total income to be reported is 3,000,000 - 2,870,000 = 130,000.

In the FIFO (First-In, First-Out) method, the shares that were bought first are assumed to be sold first. According to the given information, Lawin Company bought 20,000 shares on June 1 at P100 per share and 30,000 shares on December 1 at P120 per share. Therefore, the shares bought on June 1 will be sold first. The company sold 30,000 shares on December 10 at P125 per share. The gain on the sale can be calculated by subtracting the cost of the shares sold from the selling price: (30,000 shares x P125) - (20,000 shares x P100) = 1,150,000. Therefore, the correct answer is 1,150,000.

The balance of Autobot Company's investment in Decepticon Company on December 31, 2009 is 5,750,000. This can be calculated by adding the initial investment of 5,000,000 to the share of net income from Decepticon Company, which is 30% of 4,000,000 (1,200,000). Then subtracting the cash dividends received from Decepticon Company, which is also 30% of 1,000,000 (300,000). Therefore, the balance is 5,000,000 + 1,200,000 - 300,000 = 5,750,000.

The correct answer is 20,000. The loss on the call option is recognized in 2010 because the market price of the raw material on July 1, 2010, is lower than the price specified in the call option. The loss is equal to the difference between the option price (P25 per unit) and the market price (P22 per unit), multiplied by the number of units (200,000). Therefore, the loss on the call option is (25 - 22) * 200,000 = 20,000.

Based on the given information, the cost of the available-for-sale securities at December 31, 2009 is $4,000,000 and the market value is $3,200,000. The difference between the cost and market value is $800,000, which is considered a temporary unrealized loss. Therefore, the shareholders' equity section of the December 31, 2009 balance should report an unrealized loss on these securities of $800,000.

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Corn Company should report 180,000 as dividend income in its income statement for the year ended October 31, 2009. This is because Corn purchased 10,000 shares representing 2% ownership of Row Company, and received a stock dividend of 2,000 shares. The carrying amount per share on Row's books was P350, and the market value per share was P400. Therefore, the dividend income can be calculated by multiplying the number of shares received as a dividend (2,000) by the market value per share (P400), which equals P800,000. Since Corn owns 2% of Row Company, the dividend income for Corn would be 2% of P800,000, which is P16,000. Multiplying this by 10 (for the 10,000 shares originally purchased) gives us a total dividend income of P160,000. Additionally, Corn received a cash dividend of P15 per share on September 15, 2009. Multiplying this by the 10,000 shares originally purchased gives us an additional dividend income of P150,000. Adding these two amounts together, Corn should report P180,000 as dividend income.

The correct answer is 3,300,000. This is because the balance sheet should report the trading securities at their market value, which is the value at which they could be sold in the market. In this case, the market values of the investments in Man Company, Kemo Company, and Fenn Company are higher than their cost, so they should be reported at their market value of 1,300,000, 1,100,000, and 900,000 respectively. The total market value of the investments is 3,300,000.

Based on the given information, Banquet Company's portfolio of equity securities has an aggregate cost of $4,000,000 and an aggregate market value of $3,700,000. The aggregate lower of cost or market value applied to each security is $3,500,000. Since the market declines are judged to be "other than temporary," Banquet Company should report a total loss of $800,000 on these securities in its 2009 income statement. This loss represents the difference between the aggregate cost and the lower of cost or market value applied to each security.

The income statement for 2009 should report an unrealized gain on these securities at 1,200,000. This is because the market value of the trading securities increased from 4,600,000 (at the end of 2008) to 5,800,000 (at the end of 2009), resulting in a difference of 1,200,000. According to the given information, differences between cost and market value are considered temporary, so this increase in market value represents an unrealized gain that should be reported on the income statement.

The maximum amount that could be included in Zen's 2009 income before tax to reflect Zen's "equity in net income of Ying" is 1,500,000. This is because Zen purchased 40% of Ying's outstanding ordinary shares, which gives them a significant influence over Ying's operations. According to the equity method, Zen should recognize its share of Ying's net income based on its ownership percentage. Since Ying's net income is P5,000,000, Zen's equity in net income would be 40% of that amount, which is P2,000,000. However, Zen cannot attribute the excess of the cost of its investment in Ying over its equity in Ying's net assets to any particular factor. Therefore, Zen can only recognize its share of Ying's net income up to the amount of the excess, which is P1,500,000.

The derivative liability on December 31, 2010 is 1,600,000. This is because the company entered into a forward contract to purchase 8,000 kilos of Australian lobster on January 1, 2011 at a price of P9,600,000. However, the price of Australian lobster dropped to P1,000 per kilo on December 31, 2010. As a result, the company would need to pay P8,000,000 to fulfill the contract, which is P1,600,000 less than the original contract price. Therefore, the company has a liability of 1,600,000 on December 31, 2010.

Massive Company acquired 10% of Quarter Company's outstanding ordinary shares on January 1, 2008. This acquisition did not give Massive the ability to exercise significant influence over Quarter. However, on January 1, 2009, Massive acquired an additional 20% of Quarter's outstanding ordinary shares, which gave them the ability to exercise significant influence over Quarter's financial and operating control.

For the year ended December 31, 2008, Quarter reported a net income of $6,000,000 and paid dividends of $2,000,000. Therefore, Massive's share of the net income for 2008 would be 10% of $6,000,000, which is $600,000.

For the year ended December 31, 2009, Quarter reported a net income of $6,500,000 and paid dividends of $3,000,000. Massive's share of the net income for 2009 would be 30% (10% from 2008 and 20% from 2009) of $6,500,000, which is $1,950,000.

The adjustment to 2008 investment income is calculated by subtracting the actual investment income reported in 2008 ($600,000) from the revised investment income for 2008 ($1,000,000). Therefore, the adjustment to 2008 investment income is $400,000.

Fork Company purchased 50,000 ordinary shares of Ovaltine Company for P3,600,000. On December 31, 2009, Fork received 50,000 stock rights from Ovaltine. Each right entitles the holder to acquire one share for P85. The market price of Ovaltine's share was P100 immediately before the rights were issued and P90 a share immediately after the rights were issued. Fork sold its rights on December 31, 2009, for P10 a right. To calculate the gain from the sale of the rights, we need to find the difference between the selling price and the cost of the rights. Fork sold 50,000 rights for P10 each, resulting in a total of P500,000. Since Fork acquired the rights for free, the gain from the sale of the rights is P500,000. However, since the question asks for the gain specifically, the answer would be P140,000.

Annie Company should report an income of 960,000 for 2009 as a result of the investment. This is calculated by taking the 20% ownership in Duke Company and applying it to Duke's net income for the year (5,000,000 * 20% = 1,000,000). However, since Duke paid dividends of 2,000,000, Annie's share of the dividends needs to be subtracted (2,000,000 * 20% = 400,000). Therefore, the net income that Annie should report is 1,000,000 - 400,000 = 960,000.

During the period that Jacob held the investment, the discount on the bonds was amortized for P20,000. When Jacob sold the bonds at a premium of P140,000, this premium amount would be added to the amortized discount of P20,000. Therefore, the total gain on the sale of the bonds would be P160,000. However, since Jacob initially purchased the bonds at a discount of P100,000, this discount is also considered as part of the gain. Therefore, the total gain on the sale of the bonds should be P160,000 (premium) + P100,000 (discount) = P260,000.

Wayne Company bought 15% of Parrot Company's ordinary shares in 2008 and appropriately accounts for this investment using the cost method. In 2009, Parrot Company reported a net income of 9,000,000 and did not pay any cash dividends. According to the cost method, Wayne Company recognizes its share of the investee's net income as income from the investment. Since Wayne owns 15% of Parrot, it should report 15% of Parrot's net income as income from this investment. Therefore, Wayne should report 1,500,000 as income from this investment.

The derivative liability is recognized at the fair value of the futures contract on December 31, 2009. The fair value of the futures contract is calculated as the difference between the market price and the contract price, multiplied by the quantity of concentrate (P50 - P38) * 50,000 pounds = P600,000. Therefore, Nata Company shall recognize a derivative liability of P600,000 on December 31, 2009.

In this scenario, Libya Company purchased equity securities in 2009 and classified them as "available for sale". On July 1, 2010, they sold Security X for P2,500,000. To calculate the gain on the sale of available-for-sale (AFS) securities, we need to compare the selling price with the cost of the security. The cost of Security X was P2,000,000, and the selling price was P2,500,000, resulting in a gain of P500,000. Therefore, the correct answer is 500,000.

Duff Company acquired 20,000 ordinary shares of Post Company at a cost of P4,400,000. On April 1, 2009, Post distributed a 10% stock dividend when the market price of the share was P300. This means that Duff received an additional 2,000 shares as a dividend. On December 30, 2009, Duff sold 2,000 shares for P640,000. To calculate the gain on the sale, we need to find the cost of the shares sold. The total cost of the 20,000 shares was P4,400,000. The cost per share is P4,400,000 divided by 20,000, which is P220. Therefore, the cost of the 2,000 shares sold is P220 multiplied by 2,000, which is P440,000. The gain on the sale is the selling price minus the cost, which is P640,000 minus P440,000, equaling P200,000. Therefore, Duff should report a gain on the sale of P240,000.

The fair value of the derivative asset on December 31, 2009 is 500,000. This is because the market price per kilo on that date is P60, which is higher than the agreed price of P50 per kilo in the forward contract. As per the contract terms, if the market price is higher than P50, the bank pays the difference to Chocolate. Therefore, Chocolate has a derivative asset of 500,000, representing the potential gain from the forward contract.

Dude Company initially purchased 10% of Pal Company's outstanding shares for P500,000. This means that Dude owned 10,000 shares of Pal. Later, on December 31, 2009, Dude purchased an additional 20,000 shares for P1,500,000. Therefore, Dude now owns a total of 30,000 shares of Pal. To calculate the investment in Pal, we need to multiply the number of shares owned by the price per share. The price per share is calculated by dividing the total amount spent on purchasing shares (P2,000,000) by the total number of shares owned (30,000). Thus, the investment in Pal on December 31, 2009, is P2,300,000.

Hall Company should report $5,800,000 in its December 31, 2009 balance sheet related to its noncurrent investment for bond sinking fund requirements. This is calculated by adding the bond sinking fund balance at the beginning of the year ($4,500,000), the additional investment made in 2009 ($900,000), and the interest revenue received ($300,000), and subtracting the administration costs ($50,000).

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The gain or loss on the sale of security B on July 31, 2010, is 500,000 loss. This is calculated by subtracting the cost of security B (1,000,000) from the amount received from the sale (1,100,000). Since the amount received is higher than the cost, there is a loss of 500,000.

The correct answer is 5,800,480. This is because the investment in bonds should be reported at the carrying value, which is the initial cost of the bonds plus the amortized discount. In this case, the initial cost of the bonds is P7,679,000. The discount is the difference between the face value of the bonds (P8,000,000) and the initial cost (P7,679,000), which is P321,000. The discount is amortized over the life of the bonds using the effective interest method. Since one year has passed, the amortized discount for the year is P32,100 (10% of P321,000). Therefore, the carrying value of the investment in bonds on December 31, 2009, is P7,679,000 + P32,100 = P7,711,100. However, since the bonds mature at the rate of P2,000,000 annually, the principal payment of P2,000,000 should be deducted from the carrying value. Therefore, the investment in bonds on December 31, 2009, should be reported at P7,711,100 - P2,000,000 = P5,711,100. However, since the interest of P321,000 is payable annually, it should be added back to the carrying value. Therefore, the investment in bonds on December 31, 2009, should be reported at P5,711,100 + P321,000 = P5,800,480.

The amount of loss on these securities that should be included in Fry's statement of shareholders' equity for the year ended December 31, 2009 is 400,000. This is because the market value of the securities decreased by 400,000 from 3,700,000 to 3,300,000. Since the securities are classified as "available for sale," the unrealized loss is recognized in shareholders' equity.

The derivative asset on December 31, 2009 is 2,184,000. This is because the company entered into a forward contract to purchase 8,000 kilos of Australian lobster on January 1, 2011 at a price of P9,600,000. However, the price of Australian lobster dropped to P1,500 per kilo on December 31, 2009. By using the appropriate discount rate of 10% and the present value factor of .91, the present value of the contract on December 31, 2009 is calculated to be P2,184,000. Therefore, the company has a derivative asset of P2,184,000 on that date.

Pearl Company purchased Show Company's 8% bonds at a discount, which means they paid less than the face value of the bonds. The bonds were purchased to yield 10% interest annually, so the interest earned on the investment is higher than the coupon rate. The interest method of amortization is used, which means that the discount on the bonds is gradually reduced over time and added to the interest income. Therefore, the amount reported on the balance sheet for this long-term investment would be the original purchase price of the bonds plus the accumulated interest income, rounded to the nearest P100. In this case, the correct answer is 4,680,000.

Dryer Company acquired a 20% ordinary share interest in Epson Company, paying P7,000,000 for the investment. Since Dryer can exercise significant influence over Epson's operating and financial policies, the equity method of accounting should be used. Under this method, the investor recognizes its share of the investee's net income as revenue. In 2009, Epson reported a net income of P4,000,000. As Dryer owns a 20% interest, its share of the net income is calculated as 20% of P4,000,000, which equals P800,000. Therefore, Dryer should report P800,000 as revenue from this investment for 2009.

The bonds should be reported at 6,360,000 on Pentel's December 31, 2009 balance sheet because the bonds were purchased for 6,600,000 including accrued interest of 150,000. The straight-line method of amortization is being used, which means that the premium or discount on the bonds is amortized evenly over the life of the bonds. Since the bonds were purchased at a premium (6,600,000 - 6,450,000 = 150,000), the premium is being amortized over the remaining term of the bonds. Therefore, the carrying value of the bonds on the balance sheet will decrease each year due to the amortization of the premium.

The unrealized loss on these bonds should be reported in the 2008 statement of changes in equity as 390,080. This can be calculated by subtracting the fair value of the bonds at the end of the period (98% of face value) from the cost of the bonds, and then subtracting any previous unrealized gains or adding any previous unrealized losses. In this case, the cost of the bonds is 5,100,000 + 148,000 = 5,248,000, and the fair value at the end of the period is 98% of 5,000,000 = 4,900,000. Therefore, the unrealized loss is 5,248,000 - 4,900,000 = 348,000. Since there are no previous unrealized gains or losses mentioned, the total unrealized loss to be reported is 348,000.

The correct answer is 200,000. The bonds were purchased on July 1, 2009, which means that Eastern Company owned the bonds for 6 months in 2009. The bonds pay interest semiannually on January 1 and July 1. Therefore, Eastern Company is entitled to receive interest for the 6-month period from July 1 to December 31, 2009. The interest receivable would be calculated as follows: P5,000,000 x 8% x 6/12 = P200,000.

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The unrealized gain in December 31, 2009 shareholders' equity should be $200,000. This is calculated by subtracting the market value of the equity investments at December 31, 2008 ($2,400,000) from the market value at December 31, 2009 ($3,200,000). The difference of $800,000 represents the increase in value of the investments, but since the investments are classified as "available for sale," only the unrealized gain is reported in shareholders' equity. Therefore, the correct answer is $200,000.

The gain on the sale of bonds is calculated by subtracting the original cost of the bonds from the selling price of the bonds. The original cost of the bonds is the purchase price of P2,192,000 plus the accrued interest and brokerage of P92,000, which equals P2,284,000. The selling price of the bonds is P2,300,000. Therefore, the gain on the sale of bonds is P2,300,000 minus P2,284,000, which equals P108,000.

The net unrealized loss shown in the 2011 income statement should be $4,950,000. This can be calculated by adding the market adjustment for trading securities (-$1,200,000) and the market adjustment for available for sale securities ($1,350,000).

Since Scotch appropriately carries these securities at market value, there is no unrealized loss to be recognized on the income statement. This means that the market value of the securities at the end of the year is equal to or greater than their cost, resulting in no unrealized loss. Therefore, the correct answer is 0.

The historical cost of the long-term investment in available for sale securities is $4,000,000. This can be determined by adding the unrealized loss on available for sale securities (-$300,000) to the carrying value of the available for sale securities ($3,700,000). The carrying value represents the historical cost of the investment. Therefore, the historical cost is $4,000,000.

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