Reference no: EM132642557
Question - INVESTMENT IN EQUITY INSTRUMENTS
2018
On March 1, 2018, JEJE-AL Company purchased 5,000 Jollibee Foods Corporation (JFC) ordinary shares, having a par value of P1 per share, for P300 per share. The entity also paid commission, taxes and other transaction costs amounting to P250,000.
Prior to JEJE-AL's acquisition of JFC's shares, JFC declared 80% cash dividends to its shareholders. The following information are the relevant dividend dates:
Date of Declaration February 20, 2018
Ex-Dividend Date March 5, 2018
Record Date March 6, 2018
Date of Payment March 10, 2018
The securities are quoted at P250 per share at year-end. No securities were sold during the year. The transaction costs that would have been incurred on the disposal of the investment are estimated at P150,000.
2019
On March 15, 2019, JFC declared 20% stock dividends to its shareholders. JFC's share is trading at P330 per share at the date of payment. The following information are the relevant dates:
Ex-Dividend Date March 25, 2019
Record Date March 26, 2019
Date of Payment March 30, 2019
On April 5, 2019, 1,000 JFC securities were sold at P320 per share. The entity incurred disposal costs worth P32,000. Use the average method when computing the carrying value per share.
The securities are quoted at P335 per share at year-end.
2020
On January 1, 2020, JEJE-AL acquired additional 3,000 ordinary shares of JFC for P300 per share. The entity also paid commission, taxes and other transaction costs amounting to P90,000.
On March 1, 2020, JEJE-AL received stock warrants from JFC entitling JEJE-AL to purchase 1 share for every 2 stock rights at an exercise price of P200 per share. The stock right has a fair value of P40 per stock right on March 1, 2020.
On March 15, 2020, JEJE-AL exercised the 6,000 stock rights when the share price of JFC is trading at P320 per share. The remaining stock rights were sold at P60 per right.
On June 1, 2020, 2,500 shares were sold at a selling price of P295 per share. The entity incurred disposal costs worth P80,000. Use the average method when computing the carrying value per share.
On October 1, 2020, JFC ordinary shares was split up on a 4-for-1 basis.
The remaining securities are quoted at P80 per share at 2020-year end.
JEJE-AL designates its investment in equity instruments at fair value through profit or loss.
Requirements -
1. Compute the initial carrying amount of the financial asset acquired on March 1, 2018.
2. Compute the dividend earned by JEJE-AL to be presented in the 2018 statement of comprehensive income.
3. Compute the carrying value of the share investment as of December 31, 2018.
4. How many additional shares were received as a result of the stock dividend on March 15, 2019?
5. How much was earned as dividend revenue as a result of the stock dividends declared on March 15, 2019?
6. What is the value of the shares received on March 30, 2019?
7. What is the carrying value of the shares sold on April 5, 2019?
8. How much is the gain or (loss) from the sale of shares last April 5, 2019?
9. Compute the carrying value of the share investment as of December 31, 2019.
10. Compute the initial carrying amount of the shares acquired on January 2020.
11. What is the value of stock rights received on March 1, 2020?
12. As a result of the exercise of stock rights, how many shares were acquired?
13. What is the gain or loss from the sale of the remaining stock rights?
14. What is the gain or loss from the sale of 2,500 shares?
15. After the stock split, how many shares were held by the entity?
16. Compute the carrying value of the share investment as of December 31, 2020.