Reference no: EM133076634
Question 1 - Alpha Company acquired 20,000 shares of Beta Company on January 1, 2021 at P120 per share. Beta Company had 80,000 shares outstanding with a carrying amount of P8,000,000.
The difference between the carrying amount and fair value of Beta Company on January 1, 2021 is attributable to a broadcast license intangible asset.
Alpha Company has a 20-year straight line amortization policy for the broadcast license.
Beta Company recorded earnings of P3,600,000 and P3,900,000 for 2021 and 2022, respectively, and paid per-share dividend of P16 in 2021 and P20 in 2022.
1. Compute the investment income for 2021.
2. Compute the investment income for 2022.
3. Determine the carrying amount of the investment in associate on December 31, 2022.
Question 2 - On July 1, 2021 Blush Company purchased 20% of the outstanding ordinary shares of an investee for P4,000,000 when the fair value of net assets was P20,000,000.
Blush Company has the ability to exercise significant influence over the operating and financial policies of the investee: The following data concerning the investee are available:
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12 months ended December 31, 2021
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6 months ended December 31, 2021
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Net income
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3,000,000
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1,600,000
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Dividend declared and paid
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1,900,000
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1,000,000
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In the income statement for the year ended December 31, 2021, what amount of income should be reported from the investment?
a. 200,000
b. 320,000
c. 380,000
d. 600,000
Question 3 - On April 1, Aurora Company purchased 40% of the outstanding ordinary shares of an associate for P4,000,000.
On this date, the investee's net assets totaled P8,000,000 and Aurora Company cannot attribute the excess of cost of the investment over the equity in the investee's net assets to any particular factor.
The investee reported net income of P1,000,000 for the current year.
What maximum amount should be included in Aurora Company's income before tax to reflect its equity in earnings of the investee for the current year?
a. 270,000
b. 360,000
c. 300,000
d. 400,000
Question 4 - At the beginning of current year, Mighty Company acquired 20% of the outstanding ordinary shares of an P7,000,000.
This investment gave Mighty Company the ability to exercise significant influence over the investee. The carrying amount of the acquired net assets was P6,000,000.
The excess of cost over carrying amount was attributed to an identifiable intangible asset which was undervalued on investee's statement of financial position and which had remaining useful life of ten years.
The investee reported net income of P1,800,000 for the current year and paid cash dividend of P600,000 on the ordinary shares.
What is the carrying amount of the investment in associate at year-end?
a. 6,780,000
b. 7,140,000
c. 7,000,000
d. 6,900,000
Question 5 - On July 1, 2021, Focus Company purchased 30,000 shares of Eagle Company's 100,000 outstanding ordinary shares for P200 per share.
On December 15, 2021, Eagle Company paid P1,000,000 in dividends. Eagle Company's net income for 2021 was P5,000,000 earned evenly throughout the year.
What amount of income from the investment should be reported for the current year?
a. 500,000
b. 300,000
c. 750,000
d. 150,000