Problem 18-9 (AICPA Adapted)
Problem 18-9 (AICPA Adapted)
Grant Company acquired 30 % of South Company's voting share capital for P2,000,000 on January 1, 2019.
Grant's 30% interest in South gave Grant the ability to exercise significant influence over South's operating and financial policies.
During 2019, South earned P1,500,000 and paid dividends of P500,000
South reported earnings of P1,000,000 for the six months ended June 30, 2020, and P2,500,000 for the year ended December 31, 2020 but paid dividend of P1,000,000 on October 1, 2020.
On July 1, 2020, Grant sold half of the investment in South for P2,000,000 cash
On such date, the investment is measured at fair value through profit or loss.
The fair value of the retained investment is P2,200,000 on July 1, 2020 and P2,400,000 on December 31, 2020.
1. What amount should be recognized as investment income for 2019 as a result of the investment?
а. 150,000 b. 450,000 c. 500,000 d. 750,000
2. In the December 31, 2019 statement of financial position, what is the carrying amount of the investment?
a. 2,000,000 b. 2,450,000 c. 2,600,000 d. 2,300,000
3. What total amount of income should be reported for 2020?
a. 2,250,000 b. 2,100,000 c. 1,950,000 d. 2,050,000
Homework Answers
| Investment on January 1, 2019 | 2000000 | |
| Less: Share in dividends (500000*30%) | 150000 | |
| Add: Share in net income (1500000*30%) | 450000 | |
| Investment on December 31, 2019 | 2300000 | |
| Add: Share in net income for half year ended June 30, 2020 (1000000*30%) | 300000 | |
| Less: Share in dividends for the half year (1000000*30%) | 300000 | |
| Investment on June 30, 2020 | 2300000 | |
| Cost of half investments (2300000/2) | 1150000 | |
| Sale price of half investments on July 1, 2020 | 2000000 | |
| Gain on sale of investments (2000000-1150000) | 850000 | |
| Carrying value of investments on July 1, 2020 | 1150000 | |
| Fair value of the investment on July 1, 2020 | 2200000 | |
| Gain (Appreciation) in the investment | 1050000 | |
| Carrying value of investments on July 1, 2020 | 2200000 | |
| Add: Share in net income for the year ended December 31, 2020 (2500000*30%) | 750000 | |
| Carrying value of investments on December 31, 2020 | 2950000 | |
| Fair value of investments on December 31, 2020 | 2400000 | |
| Loss on value of investment | 550000 | |
| 1 | Investment income for 2019: | |
| Share in net income (1500000*30%) | 450000 | |
| Hence, the right answer is Option b | ||
| 2 | Investment on December 31, 2019 | 2300000 |
| The right answer is Option d | ||
| 3 | Total income for 2020 | |
| Gain on sale of investments (2000000-1150000) | 850000 | |
| Share in net income for half year ended June 30, 2020 (1000000*30%) | 300000 | |
| Share in net income (1500000*30%) | 450000 | |
| Gain (Appreciation) in the investment | 1050000 | |
| Loss on value of investment | 550000 | |
| Total income for 2020 | 2100000 | |
| The right answer is Option b |
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