Reference no: EM132795967

On January 1, 2019, Entity X, a public entity, and Entity Y, a public entity, incorporated Entity Z by investing P3,000,000 and P2,000,000. Capital interest ratio for X and Y is 60:40. The contractual agreement of the incorporating entities provided that the decisions on relevant activities of Entity Z will require the unanimous consent of both entities. Entity X and Entity Y will have rights to the net assets of Entity Z.

The financial statements of Entity Z provided the following data for 2019:

• Entity Z reported net income of P1,000,000 for 2019 and paid cash dividends of P400,000 on December 31, 2019.
• During 2019, Entity C sold inventory to Entity X with gross profit of P50,000. Eight percent of those inventories were resold by Entity X to third persons during 2019 and the remainder was resold to third persons during 2020.
• On July 1, 2019, Entity Z sold a machinery to Entity Y at a loss of P20,000. At the time of sale, the machinery has remaining useful life of 2 years.

Problem 1: What is the investment income to be reported by Entity X for the year ended December 31, 20x20?

Problem 2: What is the balance of Investment in Entity Z to be reported by Entity Y on December 31, 20x20?