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Concept explainers
Equity investments: The financial instruments which claim ownership in the issuing company and pay a dividend revenue to the investor company, are referred to as equity securities. The investments in equity securities are referred to as equity investments.
Equity method: Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To Journalize: The entries related to the investments during 2018.
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Chapter 12 Solutions
GEN COMBO LOOSELEAF INTERMEDIATE ACCOUNTING; CONNECT ACCESS CARD
- On January 1, 2023 AAA Company acquired BBB Company 10%, P600,000 bonds for P621,300. The bonds which pays interest on every June 30 and December 31. The bond will mature on January 1, 2028 and were purchased to yield 9%. The business model of the AAA Company in managing investment is to hold the asset in order to collect the contractual cash flows. 1. how much is the interest income in 2023 2.how much is the carrying amount of the bonds at december 31,2023 3.how much is the unamortized portion of premium on december 31, 2024 4. how much cash to be debited on december 31,2024arrow_forwardProblem 7: In January 2020, Golden Company invested in P900,000 equity securities representing 15% interest in Rings Company. Golden Company incurred transaction cost of P100,000. On December 31, 2020, this investment has a market value of P950,000. On July 1, 2021, Golden Company sold all the investments for P1,200,000. 7.1 What amount of gain on sale should Golden Company recognize in profit or loss assuming the security was classified as Investment at FVPL? 7.2 How much is the amount transferred to Retained earnings upon sale assuming the security was classified as Investment at FVOCI? 7.3 Prepare all the necessary journal entries.arrow_forwardS16-9 On January 6, 2023, Ling Corp. paid $5,000,000 for its 40 percent investment in True World Inc. Assume that on December 31 that same year, True World earned net income of $1,800,000 and paid cash dividends of $800,000. What method should Ling Corp. use to account for the investment in True World Inc.? Give your reason. Ignore any brokerage commission expenses. Post to the Investment in True World Inc. Common Shares T- account. What is its balance after all the transactions are posted? Journalize these three transactions on the books of Ling Corp. Include an explanation for each entry.arrow_forward
- 10 On July 1, 2015, Cleopatra Corporation acquired 25% of the shares of Marcus, Inc. for P1,000,000. At that date, the equity of Marcus was P4,000,000, with all the identifiable assets and liabilities being measured at amounts equal to fair value. The table below shows the profits and losses made by Marcus during 2015 to 2019: Year Profit (Loss) 2015 200,000 2016 2,000,000 2017 2,500,000 2018 160,000 2019 300,000 How much will the Investment in Associate account be debited/credited in 2018? Group of answer choices No entry P40,000 Dr. P1,035,000 Cr. P1,060,000 Cr.arrow_forward16: On July 1, 2015, Cleopatra Corporation acquired 25% of the shares of Marcus,Inc. for P1,000,000. At that date, the equity of Marcus was P4,000,000, with all theidentifiable assets and liabilities being measured at amounts equal to fair value. The tablebelow shows the profits and losses made by Marcus during 2015 to 2019: Year Profit (Loss)2015 P 200,0002016 (2,000,000)2017 (2,500,000)2018 160,0002019 300,000 What is the carrying amount of the investment in Marcus, Inc. as of December 31, 2019?arrow_forward4 Sycamore, Inc. purchased P100,000 of 8 percent bonds of Alvarado Industries on January 1, 2022, at a discount, paying P92,278. The bonds mature January 1, 2027, and yield 10 percent; interest is payable each July 1 and January 1. Sycamore has a business model whose objective is to hold assets in order to collect contractual cash flows and the contractual terms of the financial asset provides specified dates with regard to cash flows that are solely payments of principal and interest. On December 31, 2022, when the market rate of interest is 12%, and the fair value of the bonds is P89,934, Sycamore will record interest revenue in 2022 of?arrow_forward
- ces On January 1, 2023, Fisher Corporation purchased 40 percent (70,000 shares) of the common stock of Bowden, Incorporated, for $974,000 in cash and began to use the equity method for the investment. The price paid represented a $54,000 payment in excess of the book value of Fisher's share of Bowden's underlying net assets. Fisher was willing to make this extra payment because of a recently developed patent held by Bowden with a 15-year remaining life. All other assets were considered appropriately valued on Bowden's books. Bowden declares and pays a $96,000 cash dividend to its stockholders each year on September 15. Bowden reported net income of $388,000 in 2023 and $360,000 in 2024. Each income figure was earned evenly throughout its respective years. On July 1, 2024, Fisher sold 10 percent (17,500 shares) of Bowden's outstanding shares for $322,000 in cash. Although it sold this interest, Fisher maintained the ability to significantly influence Bowden's decision-making process.…arrow_forward7 On January 2, 2024, Miller Properties paid $19 million for 1 million shares of Marlon Company's 6 million outstanding common shares. Miller's CEO became a member of Marlon's board of directors during the first quarter of 2024. eBook Print References The carrying amount of Marlon's net assets was $72 million. Miller estimated the fair value of those net assets to be the same except for a patent valued at $36 million above cost. The remaining amortization period for the patent is 10 years. Marlon reported earnings of $27 million and paid dividends of $6 million during 2024. On December 31, 2024, Marlon's common stock was trading on the NYSE at $18.50 per share. Required: 2. Assume Miller accounts for its Investment In Marlon using the equity method. Ignoring Income taxes, determine the amounts related to the Investment to be reported in its 2024. Note: Do not round Intermediate calculations. Enter all amounts as positive values. Enter your answers in millions rounded to 1 decimal…arrow_forwardBlush Company has the ability to exercise significant when the fair value of net assets was P20,000,000. outstanding ordinary shares of an investee for P4,000,000 On July 1, 2020 Blush Company purchased 20% of the influence over the operating and financial policies of the investee. The following data concerning the investee are available: 12 months ended December 31, 2020 December 31, 2020 6 months ended Net income Dividend declared and paid 3,000,000 1,900,000 1,600,000 1,000,000 in the income statement for the year ended December 31, o020, what amount of income should be reported from the investment?arrow_forward
- PROBLEM 2. On January 1, 2018, Inside Out Corporation had 30,000 ordinary shares of UP Company purchased at a total amount of P1,800,000, which includes directly attributable costs of P30,000. The shares were irrevocably designated to present changes in fair value through other comprehensive income. On December 31, 2018, the UP shares were selling at P65 per share. In July 2019, Inside Out Corporation received a 20% bonus issue. Subsequently, it sold 15,000 shares at P70 per share. Market value of UP ordinary at December 31, 2019 was P72 per share. What total amount should be reclassified to Retained Earnings as a result of selling 15,000 shares in 2019?arrow_forward16 All the issued and outstanding common stock of MOA Company were brought by Aura Company on October 1, 2020 for P700,000. The assets and liabilities of Aura Company were: Cash 50,000 Accounts receivable (net of P25,000 allowance for bad debts) 250,000 Inventory 150,000 Property & Equipment (net of P100,000, allowance for depreciation) 300,000 Accounts payable 130,000 On October 1, 2020 the fair value of the following assets was as follows: Accounts receivable (net) 235,000 Inventory 130,000 Property & equipment (net) 400,000 There is an unrecorded warranty liability on prior-product sales estimated P20,000 discounted cash flow based on estimated future cash flows. The amount of goodwill as a result of the business combination should be: Group of answer choices 65,000 100,000 35,000 Zeroarrow_forward26 Sniper Company purchased on January 2, 2019, a new set of furniture and fixtures by issuing 5,000 of its P100 par value shares (FV on this date is P110), in addition to P200,000 cash paid in connection to purchase. The P200,000 is broken as follows: Freight and delivery charges P80,000 Non-refundable purchase taxes 70,000 Furniture cover* 50,000 Total P200,000 *the furniture cover was requested by the company president because he wanted his office furniture looks good. The cover does not enhance the asset. The furniture and fixture are depreciated using 1.5 declining balance with an estimated useful life of four years and salvage value of P80,000. What is the amount of depreciation expense – furniture and fixtures should Sniper Company recognized in its December 31, 2022 income statement?arrow_forward
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage Learning
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