Answered: amount of P2,500,000 for P4,000,000.…

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

ChapterA2: Investments

Section: Chapter Questions

Problem 25E

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On January 1, 2021, Jessa Company acquired 40% of the ordinary shares of an associate. On such date, assets and liabilities of the investee were reported 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 2021. On January 1, 2021, the investee sold an equipment to Jessa Company with carrying amount of P2,500,000 for P4,000,000. The remaining life of the equipment is 5 years. In December 2021, the investee sold inventory costing P3,000,000 to Jessa Company for P5,000,000. The inventory remained unsold by Jessa Company on December 31, 2021. The fair value of the investment at the end of the year is P800,000 higher than its acquisition cost on January 1, 2021. How much investment income should be reported by Jessa Company for 2021?

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