Requirements: Based on the above and the result of your audit, determine the following:1. Total income from investments in equity securities2. Rent income for 20203. Royalty income for 2020 Problem 3-1– Audit of various investmentsAce Holding Co. shows the following investments in its accounting records at January 1, 2020:Ordinary shares:San Mikel Corporation (1,000 shares)Smarty Company (5,000 shares)Parking lot (leased to Star Company)P500,0005,000,0002,500,000Trademark2,000,000Total investmentsP10,000,000Additional information:Ace Holding Co. owns 1% of San Mikel Corporation and 30% of Smarty Company. During the year endedDecember 31, 2020, Ace Holding Co. received cash dividends of P350,000 from San Mikel Corporation andP750,000 from Smarty Company, whose 2020 net earnings were P4,000,000 and P10,000,000,respectively.The Star Company lease which commenced on January 1, 2019 is for 5 years at an annual rental ofP1,250,000. In addition, on January 1, 2019, Star Company paid a nonrefundable deposit of P400,000 aswell as a security deposit of P250,000, to be refunded upon expiration of lease. Ace Holding Companyreceived P1,250,000 rent from Star Company in 2020.The trademark was licensed to Green Company for royalties of 10% of sales of the trademark items.Royalties are payable semiannually on March 1, for sales in July through December of the prior year, andon September 1, for sales in January to June of the same year. On March 1, 2019 and 2020, Ace HoldingCo. received royalties of P500,000 and P750,000, respectively. On September 1, 2019 and 2020, AceHolding Co. received royalties of P1,000,000 and P1,500,000 respectively. Green Company's sales of thetrademark items amounted to P4,000,000 for the last half of 2020.

The income from an investment in a security is computed under the fair value method or equity method…

Problem 3-1 – Audit of various investments Ace Holding Co. shows the following investments in its accounting records at January 1, 2020: Ordinary shares: San Mikel Corporation (1,000 shares) Smarty Company (5,000 shares) P500,000 5,000,000

Problem 3-1 – Audit of various investments Ace Holding Co. shows the following investments in its accounting records at January 1, 2020: Ordinary shares: San Mikel Corporation (1,000 shares) Smarty Company (5,000 shares) P500,000 5,000,000

Cornerstones of Financial Accounting

4th Edition

ISBN:9781337690881

Author:Jay Rich, Jeff Jones

Publisher:Jay Rich, Jeff Jones

Chapter1: Accounting And The Financial Statements

Section: Chapter Questions

Problem 56APSA: Problem 1-56A Applying the Fundamental Accounting Equation At the beginning of 2019 Huffer...

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Problem 3-1 – Audit of various investmentsAce Holding Co. shows the following investments in its accounting records at January 1, 2020:Ordinary shares:San Mikel Corporation (1,000 shares) P500,000Smarty Company (5,000 shares) 5,000,000Parking lot (leased to Star Company) 2,500,000Trademark 2,000,000Total investments P10,000,000Additional information:• Ace Holding Co. owns 1% of San Mikel Corporation and 30% of Smarty Company. During the year ended December 31, 2020, Ace Holding Co. received cash dividends of P350,000 from San Mikel Corporation and P750,000 from Smarty Company, whose 2020 net earnings were P4,000,000 and P10,000,000, respectively.• The Star Company lease which commenced on January 1, 2019 is for 5 years at an annual rental of P1,250,000. In addition, on January 1, 2019, Star Company paid a nonrefundable deposit of P400,000 as well as a security deposit of P250,000, to be refunded upon expiration of lease. Ace Holding Company received P1,250,000 rent from Star Company in…
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