Reference no: EM132629874

Question 1 - Cash Received in Lieu of Share Dividends

On October 1, 2018, Qualms Corp. owns 15,000 fair value through other comprehensive income shares acquired at a cost of P345,000. The shares represent 15% of the shares outstanding of Sarcasm Corporation. On the same date, Sarcasm declared 15% share dividends payable to stockholders on October 31. On October 31, the stock is selling at P40 per share. However, on October 31, Sarcasm gave P36 per share cash in lieu of the supposed share dividends previously declared.

Case no. 1: Assuming the shares are investment in unquoted securities measured as cost.

Case no. 2: Assuming the shares are financial assets at fair value though profit or loss.

Case no. 3: Assuming the shares are investment in equity securities designated as at fair value through other comprehensive income.

a. Prepare the necessary entries.

b. What is the dividend income to be recognized in 2018?

c. What is the gain or loss on sale of investment to be recognized in 2018?

Question 2 - Shares Received in Lieu of Cash Dividends

On October 1, 2018, Venus Corp owns 15,000 fair value through other comprehensive income shares acquired at a cost of P345,000. The shares represent 15% of the outstanding shares of Mercury Corporation. On the same date, Mercury Corp. declared P8 cash dividends on its outstanding shares payable to stockholders on October 31. However, on October 31, Mercury Corp. issued 1 share for every 5 shares held by the shareholders in lieu of the supposed cash dividends previously declared.

Case no. 1: Assuming the shares are investment in unquoted securities measured as cost.

Case no. 2: Assuming the shares are financial assets at fair value though profit or loss.

On October 1, 2018, the stocks were selling at that time at P44 per share.

a. Prepare the necessary entries.

b. What is the dividend income to be recognized in 2018?