ACC 211 – Intermediate Accounting 2
Topic: Investment in Equity Securities
Exercises
Straight Problems
Case 1: An entity has an investment portfolio consisting of equity securities as follows:
Acquisition Fair Value Fair Value
Cost (1/5/20x1) (12/31/20x1) (12/31/20x2)
Company A 100,000 120,000 110,000
Company B 80,000 30,000 90,000
Totals 180,000 150,000 200,000
Additional amounts of P4,500 and P3,800, representing taxes, were paid in acquiring
Company A shares and the Company B shares, respectively. On Jan. 15, 20x3, all Company
B shares were sold for P92,000. Transaction costs of P3,000 were incurred on the sale.
Requirements:
a. Prepare journal entries assuming the investment portfolio is classified as held for
trading securities and the entity does not use a “fair value adjustment” account.
Date Journal Entries Debit Credit
20X1
Jan. 5 Trading Securities 180,00
Taxes Expense 8,300
Cash 188,300
Dec. 31 Unrealized Loss – Trading Securities 30,000
Trading Securities 30,000
20X2
Dec. 31 Trading Securities 50,000
Unrealized Gain – Trading Securities 50,000
20X3
Jan. 15 Cash (92,000 – 3,000) 89,000
Loss on sale of Trading Securities 1,000
Trading Securities 90,000
b. Prepare journal entries assuming the investment portfolio is classified as held for
trading securities and the entity uses a “fair value adjustment” account.
Date Journal Entries Debit Credit
20X1
Jan. 5 Trading Securities 180,00
Taxes Expense 8,300
Cash 188,300
Dec. 31 Unrealized Loss – Trading Securities 30,000
Fair Value Adjustment 30,000
20X2
Dec. 31 Fair Value Adjustment 50,000
Unrealized Gain – Trading Securities 50,000
20X3
Jan. 15 Cash (92,000 – 3,000) 89,000
Retained Earnings 1,000
Trading Securities 80,000
Fair Value Adjustment 10,000
c. Prepare journal entries assuming the entity irrevocably elected to measure the
investment at Fair Value through Other Comprehensive Income (FVOCI) and that the
entity does not use a fair value adjustment account.
Date Journal Entries Debit Credit
20X1
Jan. 5 Financial Asset - FVOCI 188,300
Cash 188,300
Dec. 31 Unrealized Loss – OCI 30,000
Financial Asset – FVOCI 30,000
20X2
Dec. 31 Financial Asset - FVOCI 46,000
Unrealized Gain – OCI 16,200
Unrealized Loss – OCI 30,000
20X3
Jan. 15 Cash (92,000 – 3,000) 89,000
Retained Earnings 1,000
Financial Asset – FVOCI 90,000
Unrealized Gain - OCI 16,200
Retained Earnings 16,200
Case 2: An entity holds 20,000, P10 par value, shares of Company X as investment in
unquoted equity securities measured at cost, which was acquired on September 5, 20x0.
On April 1, 20x1, the entity receives 5% share dividends from Company X. The carrying
amount of the investment on this date is P2,310,000 equal to the acquisition cost. The entity
sold the share dividend for P224 on April 30, 20x1.
Requirement: Journal entries for the above transactions (20x0 and 20x1).
Date Journal Entries Debit Credit
20X0
Sep. 5 Investment in Shares 2,310,000
Cash 2,310,000
20X1
Apr. 1 “Received 1,000 shares representing 5% share dividend on 20,000
shares held. Shares now held, 21,000 shares.”
20X3
Jan. 15 Cash 224,000
Investment in Shares 110,000
Gain on investment 114,000
Case 3: On May 1, 20x1, Company Z declares cash dividend of P20 per share to shareholders
of record on May 15, 20x1, for distribution on May 31, 20x1. Your company purchased 20,000
shares of Company Z for P200 per share and classifies this investment as investment in
FVOCI.
Requirement:
a. Journal entries if your company acquired the shares on May 5, 20x1.
20X1
May 5 Investment in Shares - OCI 3,600,000
Cash 3,600,000
Dividends Receivable 400,000
Dividend Income 400,000
b. Journal entries if your company acquired the shares on May 21, 20x1.
20X1
May 5 Investment in Shares - OCI 4.000,000
Cash 4,000,000
Case 5: On October 1, 20x1, an entity acquired 100,000 ordinary shares of Corporation G for
P12 per share to be accounted for at FVPL. Subsequently, on November 30, Corporation G
issued 20% ordinary share dividends when the shares’ fair value is P14 per share.
Forty thousand (40,000) of these shares were sold on December 15 for P15 per share. Fair
value of these shares as of December 31 amounted to P15.50 per share.
Requirement: Journal entries to record the above transactions.
Date Journal Entries Debit Credit
20X1
Oct. 1 Investment in Shares - FPVL 1,200,000
Cash 1,200,000
Nov. 30 “Received 20,000 shares representing 20% share dividend on 100,000
shares held. Shares now held, 120,000 shares.”
Investment in Shares - FPVL 480,000
Unrealized Gain in Shares 480,000
Dec. 15 Cash 600,000
Investment in Shares - FPVL 560,000
Gain on investment - FPVL 40,000
Dec. 31 Investment in Shares - FPVL 120,000
Unrealized Gain in Shares 120,000
Case 6: On January 5, 20x1, an entity acquired 200,000 ordinary shares of Corporation H for
a total of P2,400,000, to be accounted for as FVOCI. On July 1, 40,000 preference shares
were received from Corporation H as share dividends. As of this date, ordinary shares and
preference shares had fair values of P15 per share and P25 per share, respectively. As of
December 31, ordinary shares and preference shares had fair values of P17.50 and P26 per
share.
Requirement: Journal entries to record the above transactions.
Date Journal Entries Debit Credit
20X1
Jan. 5 Investment in Ordinary Shares - FVOCI 2,400,000
Cash 2,400,000
Jul. 1 Investment in Preference Shares - FVOCI 600,000
Investment in Ordinary Shares – FVOCI 600,000
Dec. 31 Investment in Ordinary Shares – FVOCI 1,700,000
Investment in Preference Shares – FVOCI 440,000
Unrealized Gain on investment - OCI 2,140,000
Market Value Fraction Allocated Cost
Ordinary Shares 3,000,000 3/4 1,800,000
Preference Shares 1,000,000 1/4 600,000
Total 4,000,000 2,400,000
Case 7: An entity’s investment portfolio in Corporation E (measured at cost) is as follows:
Investment in unquoted equity securities – Corporation E (at cost)
Lot Acquisition date Number of shares Acquisition cost
1 July 1, 20x1 10,000 330,000
2 September 21, 20x3 12,000 264,000
3 March 15, 20x5 6,000 132,000
Totals 28,000 726,000
On Feb. 1, 20x5, Corporation E declared 10% share dividends to shareholders of record as
of March 1, 20x5, for distribution on April 1, 20x5. On April 5, 20x5, the entity sold half of the
share dividends received at P25 per share.
Requirements:
a. Schedule showing the gain or loss on the sale using (i) FIFO method and (ii) Average
method.
(i) FIFO Method
Share Total Previous New Cost
Acquisition Number Acquisition
Lot Dividends Shares Cost per Per Share
date of shares cost
Share
1 7/1/x1 10,000 1,000 11,000 330,000 33 30
2 9/21/x3 12,000 1,200 13,200 264,000 22 20
Totals 28,000 2,200 594,000
Acquisition Share Share Dividend Selling Gain
Date Dividends Dividends Cost Cost (Loss) on
to be sold Sale
July 1, 20x1 1,000 1,000 30,000 25,000 (5,000)
September 1,200 100 2,000 2,500 500
21, 20x3
Total 2,200 1,100 32,000 27,500 (4,500)
(ii) Average Cost Method
Total Total Share New New Dividend Selling Gain
Acquisition Shares Dividend Total Cost per Cost Cost (Loss) on
Cost Shares Share Sale
726,000 28,000 2,200 30,200 24.04 26,444 27,500 1,056
(726,000/ (1,100 x (1,100 x
30,200) 24.04) 25)
b. Journal entry to record the sale transaction using (i) FIFO method and (ii) Average
method.
(i) FIFO Method
Date Journal Entries Debit Credit
20X5
Apr. 5 Cash 27,500
Loss on Sale of Shares 4,500
Investment in Shares 32,000
(ii) Average Cost Method
Date Journal Entries Debit Credit
20X5
Apr. 5 Cash 27,500
Investment in Shares 26,444
Gain on Sale of Shares 1,056
Case 8: On April 1, 20x1, an entity received 1,000, P5 par value, preference shares as share
dividends on its investment in 10,000, P10 par value, ordinary shares of Corporation D. The
investment in ordinary shares is measured at cost and has a carrying amount of P300,000.
Requirement: Journal entry to record the receipt of share dividend.
Date Journal Entries Debit Credit
20X1
Apr. 1 Investment in Preference Shares - FVOCI 14,286
Investment in Ordinary Shares – FVOCI 14,286
Market Value Fraction Allocated Cost
Preference Shares 5,000 1/21 14,286
Ordinary Shares 100,000 20/21 285,714
Total 105,000 300,000
Case 9: An entity holds 1,000 ordinary shares of Corporation J as investment. On September
30, 20x1, Corporation J issues stock rights on a “1-for-1” basis. The stock rights are
exercisable until June 30, 20x2. The fair values per stock right are P5 and P6 on September
30, 20x1 and December 31, 20x1, respectively. The stock rights remain outstanding on
December 31, 20x1.
Requirement: Journal entries for the year 20x1 related to stock rights.
Date Journal Entries Debit Credit
20X1
Sep. 5 Share Rights (1,000x5) 5,000
Investment in Shares 5,000
Dec. 31 Share Rights 1,000
Unrealized Gain on Share Rights 1,000
Case 10: An entity received 10,000 stock rights to subscribe for new shares at P15 per share
for every 4 shares held. The market value of the shares is P20.
Requirement: Journal entries assuming: (i) shares are selling rights-on; and (ii) shares are
selling ex-rights.
(i) Shares are selling rights-on
Market Value of share right-on
Minus subscription price
------------------------------------- = Value of one right
Number of rights to purchase
One share plus 1
Value of one right = 20 – 15
4+1
Value of one right = 5
5
Value of one right = ₱1 per right
(ii) Shares are selling ex-right
Market Value of share right-on
Minus subscription price
------------------------------------- = Value of one right
Number of rights to purchase
One share
Value of one right = 20 – 15
4
Value of one right = 5
4
Value of one right = ₱1.25 per right
