Reference no: EM132938505
Problem 1 - In October 1, 2020, Only Company acquired 30% of the outstanding ordinary shares of One Company for P2,706,000. This investment gave Only Company the ability to exercise significant influence over One Company. The book value of the acquired shares was P2,400,000. At the time of acquisition, One Company's building was reported at its carrying value with a remaining useful life of ten years. The fair value of this building over its carrying value exceeds by P1,500,000. One Company's accounting policy is to continually measure this building under the cost model. For the year ended December 31, 2020, One Company reported net of tax income of P900,000 and paid cash dividends of P100,000 on its ordinary share and thereafter issued 5% stock dividend. Income tax rate is 32%. What is the carrying value of Only's Investment in One Company account on December 31, 2020?
a) P2,706,000 c) P2,735,850 b) P2,712,900 d) P2,743,500
Problem 2 - On April 1, 2020 Praise Company purchased 25,000 shares of Maze Company's 100,000 outstanding ordinary shares for P300 per share. On December 31, 2020, Maze Company paid P2,000,000 cash dividends to its ordinary shareholders. Maze reported net of tax income for the whole year in the amount of P4,500,000. One of Maze assets was undervalued by P400,000 which was identified to a tangible asset with a remaining useful life of 20 years, what amount of income should Praise Company report in its 2020 profit or loss on this investment? (Income tax rate is 32%).
a) P828,750 c) P 843,750 b) P833,550 d) P1,115,000
Problem 3 - On September 1, 2020, Tender Company purchased 30% of the outstanding ordinary shares of Care Corporation for P3,000,000 when the book value of net assets of Care Corporation was P9,000,000. The fair values of the assets are equal to their carrying values except for a land which was undervalued by P1,000,000. Care reported net earnings throughout the year in the amount of P2,400,000 and paid total dividends of P1,000,000. What is the maximum amount of income Tender Company could include in its 2020 profit or loss as "income from investment"?
a) P207,500 c) P237,500 b) P235,000 d) P240,000