Reference no: EM132952799
Question - On January 01, 2016, Inter Company acquired a 30% interest in an investee at a cost of P 3,200,000. The equity of the investee on the date of acquisition was P 6,000,000, consisting of P 4,000,000 share capital and P 2,000,000 retained earnings. All the identifiable assets and liabilities of the investee were recorded at fair value except for an equipment with a fair value of P 3,000,000 greater than carrying amount. The remaining useful life of the equipment is 5 years. On December 31, 2016, Inter had inventory costing P 2,000,000 on hand which had been purchased from the investee. A profit of P 600,000 had been made on the sale. During the current year, the investee reported net income of P 4,000,000 and paid dividend of P 1,500,000. The equity of the investee on December 31, 2016 showed the following:
Share capital 4,000,000
Retained earnings 3,500,000
Retained earnings appropriated 1,000,000
Revaluation surplus 2,000,000
The revaluation surplus arose from a revaluation of land made on December 31, 2016. The retained earnings appropriated arose from a transfer of unappropriated retained earnings to retained earnings appropriated for contingencies.
1. What is the investment income for 2016?
a. 1,200,000 c. 840,000
b. 1,020,000 d. 750,000
2. What is the carrying amount of the investment in associate on December 31, 2016?
a. 3,200,000 c. 4,190,000
b. 3,690,000 d. 3,590,000
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