Problem 18-7 (AICPA Adapted)
Problem 18-7 (AICPA Adapted)
On January 1, 2019, Mega Company acquired 10 % of the outstanding ordinary shares of Penny Company for P4,000,000. The investment was appropriately accounted for under cost method.
On January 1,2020 , Mega gained the ability to exercise significant influence over financial and operating control of Penny by acquiring an additional 20 % of Penny's outstanding ordinary shares for P10,000,000.
The fair value Penny's net assets equaled carrying amount. The fair value of the 10 % interest on January 1,2020 was P6,000,000..
For the years ended December 31, 2019 and 2020; the investee reported the following:
| 2019 | 2020 | |
| Dividend paid | 2,000,000 | 3,000,000 |
| Net income | 6,000,000 | 6,500,000 |
1. What is the investment income in 2019?
a. 200,000 b. 400,000 c. 600,000 d. 300,000
2. What is the investment income in 2020?
a. 1,300,000 b. 1,950,000 c. 1,000,000 d. 1,900,000
3. What is the carrying amount of the investment in associate on December 31, 2020?
a. 16,000,000 b. 17,050,000 c. 15,050,000 d. 16,700,000
Homework Answers
| ans 1 | |
| Investment income in 2019 | 600000 |
| 6000000*10% | |
| ans 2 | |
| Investment income in 2020 | |
| 6500000*30% | 1950000 |
| Option B $1950000 | |
| ans 3 | |
| Carrying amount | |
| Acquisition price (4000000+10000000) | 14000000 |
| Add: Equity income (600000+1950000) | 2550000 |
| Less: divident income | -1500000 |
| (2000000+3000000)*30% | |
| Carrying amt | 15050000 |
| Optiob c $15050000 | |
| If any doubt please comment |
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