Reference no: EM133171529

Question 1 - On Jan. 2020, VIY Co. acquired 5-year bonds with a total face value of P5M and stated interest of 12% per year payable annually on Dec. 31. The bonds were acquired to yield 10%, and classified as FA-AC. On Jan. 3, 2021, the 50% of the bonds were sold at 105. On Nov.1, 2021, VIY changes its business model to trade the securities. On Dec. 31, 2021, the bonds were quoted at 102. On Jan. 1, 2022, the bonds were quoted at 104.

1. How much is interest income for 2021?

2. How much is the realized gain/loss on sale in 2021 to be recognized in P/L?

3. How much is the gain/loss on reclassification to be recognized in P/L on Jan. 1, 2022?

Question 2 - On Jan. 1, 2016, Key Co. acquired 20,000 ordinary shares out of the 200,000 outstanding ordinary shares of Chain Inc. for P3.4M. The investment was classified as FVTPL. Fair values per share of Chain are as follows: Dec. 2016, P160, Dec. 31, 2017, P150 and Dec. 31, 2018, P180. On Jan. 1, 2018, Key purchased an additional 24,000 o representing 12% additional interest for P3,840,000, fair value on that date, when the carrying amount of Chain's net assets was p10M.

The excess was attributable to the machinery having a remaining life of 10 years.

On Dec. 31, 2016, Chain reported net income of P800,000 and declared and paid dividends of P400,000. On Dec. 31, 2017, net income is P1.4M and dividends declared and paid P550,000. On Dec. 31, 2018, Chain reported net income of P1.3M and declared and paid dividends of P400,000.

1. How much is the investment income to be recognized in the P/L in 2017?

2. How much is the reclassification gain/loss on Jan. 1, 2018 as a result of acquisition of 12% interest to be recognized in P/L?

3. How much is the net share in the profit or loss of the associate in 2018?

4. How much is the carrying amount of the investment as of Dec. 31, 2018?

Question 3 - On Jan. 1, 2015, Sole Co. acquired as a long-term investment for P1.4M,a 40% interest in Mate Co. when the fair value off Mate's net asset was P3.5M. Mate reported the following net losses: 2015, P1M, 2016, P1.4M, 2017, P1.6M, 2018, P800,000.

On January 1, 2017, Sole made cash advances of P400,000 to Mate. On Dec. 31, 2018, it is not expected that Sole will provide further support for Mate.

1. What amount should Sole report in 2018 as loss from investment?

Question 4 - On Jan. 1, 2019, ALPS Co. acquired 25% interest in the ordinary shares of JAM Co. for P3M which reflected book value as of that date. JAM reported net income and paid dividends for 2019 and 2020 as follows: Net income, 2019 P1M, 2020 P1.5M. Dividend declared, 2019 P400,000, 2020 P700,000.

Assume on Nov. 20, 2019, ALPZ sold inventory costing P60,000 to JAM for P110,000 60% of which was still unsold on Dec. 31, 2019.

1. Investment income in 2019 is ___.

2. Investment income in 2020 is ___.

Assume on Nov. 20, 2019, JAM sold inventory costing P70,000 to ALPS for P120,000 60% of which was still unsold on Dec. 31, 2019.

3. Investment income in 2019 is ___.

4. Investment income in 2020 is ___.