Reference no: EM132871305

Problem 1- Investment in Associate - At the beginning of current year, Well Company purchased 10% of Rea Company's outstanding ordinary shares for P4,000,000.

Well company is the largest single shareholder in Rea and Well's officers are a majority of Rea's board of directors.

The investee reported net income of P5,000,000 for the current year and paid cash dividend of P1,500,000.

Required - What amount should be reported as investment in Rea Company at year-end?

Problem 2 - Investment in Associate - Seiko Company had 100,000 ordinary shares outstanding. Globe Company acquired 30,000 shares of Seiko for P120 per share representing 30% interest.

Changes in retained earnings for Seiko since acquisition are:

Retained earnings (deficit), January 1, 2019 (500,000)

Net Income 2019 700,000

Retained earnings, December 31, 2019 200,000

Net Income 2020 800,000

Cash Dividend paid on Dec. 31, 2020 (400,000)

Retained earnings, December 31, 2020 600,000

Required - What is the carrying amount of the investment in associate on December 31, 2020?

Problem 3 - Financial asset at amortized cost - On January 1, 2019, Purt Company purchased as a long-term investment P5,000,000 face amount of Shaw Company's 8% bonds for P4,562,000. The bonds were purchased to yield 10% interest.

The bond mature on January 1, 2024 and pay interest annually on December 31. The interest method of amortization is used.

Required -

1. What amount should be reported as interest income for 2020?

2. What is the carrying amount of the bond investment on December 31, 2020?