Problem 3 On January 1, 2021, CPA Co. acquired 15,000 ordinary shares out of 100,000 outstanding ordinary shares of PLDT Inc. for P300,000. The book value of the net asset of PLDT is the same with its fair value. During 2021, PLDT declared P2 per share cash dividend. The net income of PLDT for 2022 is P400,000. On January 1, 2022, CPA Co. acquired additional 5,000 ordinary shares of PLDT Inc. As a result, the cost method of accounting for investment should be replaced by the equity method on January 1, 2022. 2. What is the cumulative effect of this accounting change to January 1, 2022 Retained Earnings assuming income tax rate is 30%? Indicate whether debit or credit.
Problem 3 On January 1, 2021, CPA Co. acquired 15,000 ordinary shares out of 100,000 outstanding ordinary shares of PLDT Inc. for P300,000. The book value of the net asset of PLDT is the same with its fair value. During 2021, PLDT declared P2 per share cash dividend. The net income of PLDT for 2022 is P400,000. On January 1, 2022, CPA Co. acquired additional 5,000 ordinary shares of PLDT Inc. As a result, the cost method of accounting for investment should be replaced by the equity method on January 1, 2022. 2. What is the cumulative effect of this accounting change to January 1, 2022 Retained Earnings assuming income tax rate is 30%? Indicate whether debit or credit.
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
ChapterA2: Investments
Section: Chapter Questions
Problem 24E
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Transcribed Image Text:Problem 3
On January 1, 2021, CPA Co. acquired 15,000 ordinary shares out of 100,000 outstanding ordinary
shares of PLDT Inc. for P300,000. The book value of the net asset of PLDT is the same with its fair value.
During 2021, PLDT declared P2 per share cash dividend. The net income of PLDT for 2022 is P400,000.
On January 1, 2022, CPA Co. acquired additional 5,000 ordinary shares of PLDT Inc. As a result, the cost
method of accounting for investment should be replaced by the equity method on January 1, 2022.
_2. What is the cumulative effect of this accounting change to January 1, 2022 Retained
Earnings assuming income tax rate is 30%? Indicate whether debit or credit.
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