72 CHAPTER Problem 6-1 Problem 6-2 5 C C C A C 10 B C B A C C D C C B 10 A B B B D Problem 6-3 March Cash April 2,000,000 Note payable – bank Cash Sales discount Accounts receivable 2,000,000 980,000 20,000 1,000,000 June Cash 2,000,000 Accounts receivable 2,000,000 Sept Note payable – bank Interest expense (12% x 2,000,000 x 6/12) Cash 2,000,000 120,000 2,120,000 Problem 6-4 Requirement 2008 Oct Cash Discount on note payable (10% x 4,000,000) Note payable – bank Interest expense (400,000 x 3/12) Discount on note payable 2009 Oct Note payable – bank Cash 3,600,000 400,000 4,000,000 100,000 100,000 4,000,000 4,000,000 Dec 31 Interest expense Discount on note payable 300,000 300,000 Requirement Current liabilities: Note payable – bank (Note 3) Discount on note payable ( 300,000) Carrying value 4,000,000 3,700,000 73 Note – Note payable – bank Accounts of P5,000,000 are pledged to secure the bank loan of P4,000,000 Problem 6-5 May Accounts receivable – assigned Accounts receivable 800,000 Cash (640,000 – 20,000) Service charge Note payable – bank 620,000 20,000 800,000 640,000 Sales return Accounts receivable – assigned 30,000 30,000 10 Cash Sales discount (2% x 500,000) Accounts receivable – assigned 500,000 490,000 June Note payable – bank Interest expense (2% x 640,000) Cash 490,000 12,800 Allowance for doubtful accounts Accounts receivable – assigned 20 Cash July Accounts receivable – assigned Note payable – bank (640,000 – 490,000) Interest expense (2% x 150,000) Cash Accounts receivable Accounts receivable – assigned Accounts receivable – assigned Less: Collections Sales discount Sales return Worthless accounts Balance 10,000 502,800 10,000 10,000 200,000 200,000 150,000 3,000 153,000 60,000 60,000 800,000 690,000 10,000 30,000 10,000 740,000 60,000 Problem 6-6 July Accounts receivable – assigned Accounts receivable 1,500,000 1,500,000 74 July Cash (1,125,000 – 60,000) Service charge (4% x 1,500,000) Note payable – bank Aug Note payable – bank Accounts receivable – assigned 800,000 1,065,000 60,000 1,125,000 800,000 Interest expense (2% x 1,125,000) Cash 22,500 Sept Cash Interest expense Note payable – bank Accounts receivable – assigned 500,000 168,500 6,500 325,000 Accounts receivable Accounts receivable – assigned 200,000 200,000 Collections by bank Less: Payment of loan (1,125,000 – 800,000) 325,000 Excess collection Less: Interest (2% x 325,000) 6,500 Cash remittance from bank 22,500 500,000 175,000 168,500 Problem 6-7 July Accounts receivable – assigned Accounts receivable 500,000 Cash (400,000 – 10,000) Service charge (2% x 500,000) Note payable – bank 390,000 10,000 Aug Cash 400,000 330,000 Accounts receivable – assigned Interest expense (1% x 400,000) Note payable – bank Cash Sept Cash 500,000 Accounts receivable – assigned Interest expense (1% x 74,000) Note payable – bank Cash 330,000 4,000 326,000 330,000 170,000 170,000 740 74,000 74,740 75 Problem 6-8 Requirement a Dec Accounts receivable – assigned Accounts receivable Cash Service charge Note payable – bank 31 Cash Sales discount Accounts receivable – assigned 31 Interest expense (1% x 1,300,000) Note payable – bank Cash 1,500,000 1,250,000 50,000 970,000 30,000 1,500,000 1,300,000 1,000,000 13,000 957,000 970,000 Requirement b The accounts receivable – assigned with a balance of P500,000 should be classified as current asset and included in trade and other receivables The note payable – bank of P343,000 should be classified and presented as a current liability The company should disclose the equity in assigned accounts as follows: Accounts receivable – assigned 500,000 Note payable – bank (343,000) Equity in assigned accounts 157,000 Problem 6-9 July Accounts receivable – assigned Accounts receivable 800,000 Cash (640,000 – 24,000) Service charge (3% x 800,000) Note payable – bank 616,000 24,000 Aug Interest expense (1% x 640,000) Note payable – bank Accounts receivable – assigned 420,000 Sept Cash Interest expense Note payable – bank 800,000 640,000 6,400 413,600 2,264 226,400 91,336 Accounts receivable – assigned 320,000 76 Accounts receivable Accounts receivable – assigned 60,000 60,000 Bank loan August payment Balance 320,000 Collections by bank Less: Payment of loan Interest (1% x 226,400) 228,664 640,000 413,600 226,400 226,400 2,264 Remittance from bank 91,336 Problem 6-10 Cash Allowance for doubtful accounts Loss on factoring Accounts receivable 400,000 30,000 70,000 500,000 Problem 6-11 Cash Receivable from factor Allowance for bad debts Loss on factoring Accounts receivable 5,000,000 300,000 250,000 450,000 6,000,000 Problem 6-12 Feb Cash Service charge (5% x 800,000) Receivable from factor (10% x 800,000) Accounts receivable 680,000 40,000 80,000 15 Sales return and allowances Receivable from factor 20,000 28 Cash (80,000 – 20,000) Receivable from factor 60,000 800,000 20,000 60,000 Problem 6-13 June Accounts receivable Sales 500,000 500,000 77 June Cash Sales discount (2% x 500,000) Commission (5% x 500,000) Receivable from factor (25% x 500,000) Accounts receivable 340,000 125,000 10,000 25,000 500,000 Sales return and allowances Sales discount (2% x 50,000) 1,000 Receivable from factor 49,000 50,000 11 No entry 15 Cash (125,000 – 49,000) Receivable from factor 76,000 76,000 Problem 6-14 July 26 Cash Commission (5% x 1,000,000) Receivable from factor (20% x 1,000,000) Accounts receivable July 28 Sales return and allowances Receivable from factor 50,000 Aug 31 Cash Receivable from factor 750,000 50,000 200,000 1,000,000 50,000 150,000 150,000 Problem 6-15 Cash Service charge (5% x 200,000) Receivable from factor (20% x 200,000) Accounts receivable 150,000 10,000 40,000 Accounts receivable – assigned Accounts receivable 300,000 Cash Service charge (5% x 300,000) Note payable – bank 225,000 15,000 Doubtful accounts Allowance for doubtful accounts 200,000 300,000 240,000 35,000 35,000 Required allowance (5% x 1,300,000) Less: Allowance – January Doubtful accounts 65,000 30,000 35,000 78 The net realizable value of the accounts receivable is included in trade and other receivables and presented as current asset Accounts receivable – unassigned 1,000,000 Accounts receivable – assigned Total 1,300,000 Less: Allowance for doubtful accounts Net realizable value 1,235,000 300,000 65,000 The receivable from factor of P40,000 is also included in trade and other receivables The note payable – bank of P240,000 is classified and presented as current liability However, the company should disclose the equity in assigned accounts as follows: Accounts receivable – assigned Note payable – bank Equity in assigned accounts 300,000 (240,000) 60,000 Problem 6-16 Books of Motorway Company Cash Receivable from factor Allowance for doubtful accounts Loss on factoring Accounts receivable 2,250,000 300,000 100,000 350,000 3,000,000 Gross amount Holdback (10% x 3,000,000) Commission (15% x 3,000,000) Cash received ( ( Sales price (3,000,000 x 85%) Book value of accounts receivable (3,000,000 – 100,000) 2,900,000 Loss on factoring Cash Receivable from factor Accounts receivable factored Collections by factor 3,000,000 300,000) 450,000) 2,250,000 2,250,000 ( 350,000) 250,000 250,000 3,000,000 2,500,000 Balance – December 31 500,000 Receivable from factor per book Required holdback (10% x 500,000) Remittance from factor 300,000 50,000 250,000 79 Books of Freeway Company (factor) Accounts receivable Cash Clients retainer Commission income 3,000,000 Cash Accounts receivable 2,500,000 Clients retainer Cash Doubtful accounts Allowance for doubtful accounts (4% x 500,000) 2,250,000 300,000 450,000 2,500,000 250,000 250,000 20,000 20,000 Problem 6-17 Jan 15 Notes receivable Sales 500,000 Feb 15 Cash Interest expense Notes receivable discounted 496,875 3,125 500,000 500,000 Principal Interest (500,000 x 12% x 6/12) Maturity value Discount (530,000 x 15% x 5/12) Net proceeds July 15 Notes receivable discounted Notes receivable 500,000 500,000 30,000 530,000 33,125 496,875 500,000 Problem 6-18 March 14 Accounts receivable Sales 2,050,000 2,050,000 April 2,000,000 Notes receivable Freight out 50,000 Accounts receivable 2,050,000 April 20 Cash 2,000,000 Notes receivable discounted 2,001,750 Interest income 1,750 80 40,000 38,250 June Principal Add: Interest (2,000,000 x 12% x 60/360) 2,000,000 Maturity value Less: Discount (2,040,000 x 15% x 45/360) 2,040,000 Net proceeds 2,001,750 Accounts receivable (2,040,000 + 10,000) Cash Notes receivable discounted Notes receivable July Cash 20,000 Accounts receivable Interest income (2,000,000 x 12% x 30/360 2,050,000 2,050,000 2,000,000 2,000,000 2,070,000 2,050,000 Problem 6-19 Requirement a April Notes receivable Accounts receivable 19 Cash 500,000 500,000 501,075 Notes receivable discounted Interest income 500,000 Principal Add: Interest (500,000 x 12% x 60/360) Maturity value 500,000 10,000 1,075 510,000 Less: Discount (510,000 x 14% x 45/360) Net proceeds 8,925 501,075 May Notes receivable Accounts receivable 16 Cash 1,000,000 995,000 1,000,000 Interest expense Notes receivable discounted 5,000 1,000,000 Principal Less: Discount (1,000,000 x 12% x 15/360) 5,000 1,000,000 Net proceeds May 25 Notes receivable Interest income Accounts receivable 995,000 1,500,000 4,500 1,504,500 81 30,000 25,500 Principal Add: Interest (1,500,000 x 12% x 60/360) 1,500,000 Maturity value Less: Discount (1,530,000 x 12% x 50/360) 1,530,000 Net credit 1,504,500 June Accounts receivable (510,000 + 20,000) Cash Notes receivable discounted Notes receivable 15 Notes receivable Sales June 18 Cash 2,650 Accounts receivable Interest income (530,000 x 12% x 15/360) 530,000 530,000 500,000 500,000 800,000 800,000 532,650 530,000 Requirement b – Adjustments on June 30 Accrued interest receivable Interest income (800,000 x 12% x 15/360) 4,000 4,000 Accrued interest on D’s note Notes receivable discounted Notes receivable 1,000,000 1,000,000 To cancel the contingent liability on B’s note This note matured on May 31 Since there is no notice of dishonor it is assumed that the said note is paid on the date of maturity Problem 6-20 May Notes receivable Accounts receivable 200,000 200,000 2008 Jan Held to maturity securities Cash Dec 31 Cash (8% x 4,000,000) Interest income 3,649,600 320,000 320,000 31 Held to maturity securities Interest income 44,960 3,649,600 44,960 Interest income (10% x 3,649,600) 364,960 Interest received Amortization 44,960 320,000 125 2009 Dec 31 Cash Interest income 320,000 320,000 31 Held to maturity securities Interest income 49,456 49,456 Interest income (10% x 3,694,560) 369,456 Interest received Amortization 320,000 49,456 31 Available for sale securities Held to maturity securities 31 Available for sale securities Unrealized gain – AFS 3,744,016 3,744,016 455,984 455,984 Market value (4,000,000 x 105) Book value Unrealized gain 4,200,000 3,744,016 455,984 Problem 9-15 01/01/2008 Available for sale securities Cash 12/31/2008 Unrealized loss – AFS Available for sale securities 750,000 (6,500,000 – 5,750,000) 06/30/2009 Unrealized loss – AFS 6,500,000 6,500,000 750,000 450,000 Available for sale securities 450,000 06/30/2009 5,300,000 12/31/2009 (5,750,000 – 5,300,000) Held to maturity securities Available for sale securities 5,300,000 No entry is required to recognize the decrease in value of P400,000 (P5,300,000 – P4,900,000) The total unrealized loss of P1,200,000 on the reclassification of AFS securities will continue to be reported as part of equity as a deduction However, it is amortized through interest income over the remaining life of the debt security starting June 30, 2009 126 Problem 9-16 Answer A A common B common C preferred D preferred Total Cost 1,000,000 1,500,000 2,000,000 2,500,000 7,000,000 Market 800,000 1,800,000 1,700,000 2,600,000 6,900,000 Problem 9-17 Answer A Man Kemo Penn Total Cost 1,000,000 900,000 1,100,000 3,000,000 Market 900,000 1,100,000 800,000 2,800,000 Unrealized loss (3,000,000 – 2,800,000) 200,000 Problem 9-18 Answer A Total market value – December 31, 2008 Total market value – December 31, 2007 Unrealized gain 2,000,000 1,650,000 350,000 Problem 9-19 Answer A Total market value – December 31, 2008 Total market value – December 31, 2007 Unrealized loss in 2008 ( 300,000) Unrealized loss – December 31, 2007 ( 200,000) Total unrealized loss – December 31, 2008 4,500,000 4,800,000 ( 500,000) Problem 9-20 Answer C Market value – December 31, 2008 Market value – December 31, 2007 Unrealized gain in 2008 Unrealized loss – December 31, 2007 ( 200,000) Net unrealized gain – December 31, 2008 1,600,000 1,300,000 300,000 100,000 Problem 9-21 Question – Answer B Market value – December 31, 2008 Market value – December 31, 2007 Unrealized gain – trading 1,550,000 1,000,000 550,000 127 Question – Answer A Market value – December 31, 2008 Market value – December 31, 2007 Unrealized gain in 2008 Unrealized loss – December 31, 2007 (1,500,000 – 1,200,000) ( 300,000) Net unrealized loss – December 31, 2008 1,300,000 1,200,000 100,000 ( 200,000) Problem 9-22 Answer A The unrealized loss of P40,000 on trading securities is shown in the income statement However, the unrealized loss of P100,000 on available for sale securities is recognized in equity Problem 9-23 Answer B Unrealized losses Unrealized gains Net unrealized loss – December 31, 2008 260,000 40,000 220,000 Problem 9-24 Answer B Net sales price 1,450,000 Unrealized loss related to B Net amount Carrying amount of B Loss on sale ( 150,000) 1,300,000 (1,550,000) ( 250,000) Net sales price (1,500,000 – 50,000) 1,450,000 Less: Cost of B 1,700,000 Loss on sale ( 250,000) Problem 9-25 Answer C Market value – December 31, 2008 Market value – December 31, 2007 Unrealized gain in 2008 Unrealized loss – December 31, 2007 (200,000) Net unrealized loss – December 31, 2008 850,000 800,000 50,000 (150,000) Problem 9-26 Answer C Available for sale equity securities, at cost Unrealized loss ( 200,000) Market value 2,200,000 2,000,000 128 Problem 9-27 Answer C 12/31/2007 Unrealized loss - AFS Available for sale securities (2,000,000 – 1,800,000) 200,000 12/31/2008 Available for sale securities 50,000 Unrealized loss – AFS (1,850,000 – 1,800,000) 200,000 50,000 129 CHAPTER 10 Problem 10-1 C C A A C 10 D B D A C Problem 10-2 Market value Allocated cost A (8,000 x 100) B (16,000 x 150) C (1,000,000 x 90%) Investment in A shares Investment in B shares Investment in C Bonds Cash 800,000 2,400,000 900,000 4,100,000 Fraction 8/41 24/41 9/41 600,000 1,800,000 675,000 3,075,000 600,000 1,800,000 675,000 3,075,000 Problem 10-3 Requirement a Investment in equity securities Cash 309,000 b Investment in equity securities 1,030,000 309,000 Cash 1,030,000 Requirement a Cash Loss on sale of investment Investment in equity securities 437,750 405,000 32,750 Lot No – 1,000 shares Lot No - 500 shares (500/4,000 x 1,030,000) 128,750 309,000 437,750 b Cash 405,000 Investment in equity securities (1,500/5,000 x 1,339,000) 401,700 Gain on sale of investment 3,300 Problem 10-4 July 15 Cash Dividend income (5,000 shares x 5) 25,000 25,000 130 Dec 15 Memo – Received 1,000 shares representing 20% stock dividend on 5,000 original shares held 28 Cash (3,000 shares x 60) Investment in equity securities 133,000 Gain on sale of investment 180,000 47,000 Lot No (2,400 shares) 100,000 33,000 Lot No (600/3,600 x 198,000) Cost of investment sold 133,000 Problem 10-5 Investment in XYZ ordinary shares (40,000 x 50) Cash 2,000,000 2,000,000 Memo – Received 200,000 XYZ ordinary shares as a result of for split of 40,000 original shares Investment in XYZ preference shares Investment in XYZ ordinary shares Ordinary shares (200,000 x 15) Preference shares (20,000 x 10) 125,000 125,000 Market value 3,000,000 200,000 Fraction 30/32 2/32 Cost 1,875,000 125,000 3,200,000 2,000,000 Investment in ABC ordinary shares Dividend income (200,000/4 = 50,000 x 6) 300,000 300,000 Cash (80,000 x 15) 1,200,000 Investment in XYZ ordinary shares (80,000/200,000 x 1,875,000) 750,000 Gain on sale of investment 450,000 Problem 10-6 Investment in ANA ordinary shares Cash 300,000 300,000 Investment in Benguet ordinary shares Dividend income (2,000 x 60) 120,000 120,000 Investment in ANA ordinary shares Cash 420,000 420,000 Cash Dividend income (12% x P200 = 24 x 5,000 x 1/2) 60,000 60,000 131 Memo – Received 20,000 new ANA ordinary shares as a result of a for split of 10,000 original shares Cash (680,000 – 34,000) 646,000 Investment in ANA ordinary shares (8,000/20,000 x 720,000) 288,000 Gain on sale of investment Shares SMC preference share Benguet ordinary share Benguet ordinary share ANA ordinary share Problem 10-7 358,000 Cost 5,000 10,000 2,000 12,000 29,000 Investment in ABC ordinary shares Cash 1,200,000 1,000,000 120,000 432,000 2,752,000 720,000 720,000 Memo – Received 2,000 shares as 20% stock dividend on 10,000 original shares Shares now held, 12,000 Cash (2,000 x 70) 140,000 Investment in ABC ordinary shares (2,000/12,000 x 720,000) 120,000 Gain on sale of investment 20,000 Investment in ABC preference shares (5,000 x 70) Investment in ABC ordinary shares (5,000/10,000 x 600,000) 300,000 Gain on exchange 350,000 Investment in ABC ordinary shares Cash (5,000 x 20) 100,000 100,000 50,000 Problem 10-8 a 2004 Cash 2005 Cash Investment in equity securities 400,000 400,000 Dividend income Investment in equity securities 2006 2007 50,000 Cash Cash 400,000 100,000 300,000 400,000 Dividend income Investment in equity securities 150,000 250,000 400,000 Dividend income Investment in equity securities (1,000,000 – 950,000) 200,000 Gain on investment 150,000 132 2008 Cash Dividend income Gain on investment 150,000 400,000 250,000 b The investment account has been totally eliminated as of December 31, 2007 because the liquidating dividends received exceed the cost of investment Hence, there is no more investment account to be reported in the December 31, 2008 statement of financial position, but such fact should be disclosed in the notes to financial statements to the efect that the company is still the owner of 10,000 shares with a zero cost Problem 10-9 Investment in equity securities Cash 1,800,000 1,800,000 10,000 rights Cost of rights (10/200 x 1,800,000) 90,000 Stock rights Investment in equity securities 90,000 90,000 Investment in equity securities Cash (10,000/5 = 2,000 x 150) Stock rights Cash (10,000 x 10) Stock rights Gain on sale of rights 10,000 390,000 300,000 90,000 100,000 90,000 Loss on stock rights Stock rights 90,000 90,000 Problem 10-10 Requirement 125 - 100 Theoretical value = - = 5.00 per right 4+1 a Stock rights (5/125 x 2,100,000) Investment in equity securities b Investment in equity securities Stock rights Cash (25,000/4 = 6,250 x 100) 84,000 84,000 709,000 84,000 625,000 133 Requirement 125 - 100 Theoretical value = - = 6.25 per right a Stock rights (6.25/131.25 x 2,100,000) Investment in equity securities b Investment in equity securities Stock rights Cash 625,000 100,000 100,000 725,000 100,000 Problem 10-11 Stock rights (10/100 x 3,000,000) Investment in equity securities Investment in equity securities Stock rights (30,000/40,000 x 300,000) Cash (15,000 shares x 80) Cash (6,000 x 10) 300,000 300,000 1,425,000 225,000 1,200,000 60,000 Stock rights (6,000/40,000 x 300,000) 45,000 Gain on sale of rights 15,000 Loss on stock rights (4,000/40,000 x 300,000) Stock rights 30,000 30,000 Shares Cost First acquisition (3,000,000 – 300,000) New acquisition 40,000 15,000 55,000 2,700,000 1,425,000 4,125,000 Problem 10-12 Investment in equity securities Cash 3,200,000 3,200,000 Memo – Received 20,000 shares as stock dividend on 80,000 original shares Shares now held, 100,000 Cash (100,000 x 5) Dividend income Stock rights (5/40 x 3,200,000) Investment in equity securities 500,000 500,000 400,000 400,000 134 Cash (40,000 x 5) Stock rights (40,000/100,000 x 400,000) Gain on sale of rights 40,000 Investment in equity securities Stock rights (60,000/100,000 x 400,000) Cash (60,000/5 = 12,000 x 30) Cash (80,000 x 35) Investment in equity securities (80,000/100,000 x 2,800,000) Gain on sale of investment 560,000 Cost Original acquisition New acquisition 200,000 160,000 600,000 240,000 360,000 2,800,000 2,240,000 Shares 20,000 12,000 32,000 560,000 600,000 1,160,000 Problem 10-13 2008 Aug Oct 2009 July Aug Investment in equity securities Cash 60,000 Investment in equity securities Cash 560,000 Investment in equity securities Cash 480,000 Cash 500,000 160,000 Investment in equity securities Gain on sale of investment 60,000 480,000 Lot (1,000 shares) Lot (4,000/8,000 x 560,000) Cost of investment sold 2010 Feb Nov 560,000 340,000 60,000 280,000 340,000 Received 5,000 shares representing 50% stock dividend on 10,000 remaining shares held Shares now held, 15,000 Stock rights Investment in equity securities 95,000 95,000 Lot – 6,000 rights (10/80 x 280,000) Lot – 9,000 rights (10/80 x 480,000) Cost of rights received 35,000 60,000 95,000 135 2010 Dec 55,000 Cash (15,000 x 10) Stock rights Gain on sale of stock rights Summary of investments Cost Lot (280,000 – 35,000) Lot (480,000 – 60,000) Total 150,000 95,000 Shares 6,000 9,000 15,000 245,000 420,000 665,000 Problem 10-14 Jan Mar Investment in King Corporation Cash 700,000 Investment in Plastic Company Cash 660,000 700,000 660,000 Apr Cash (10,000 x 5) Dividend income July Received 2,000 shares as 20% stock dividend on 10,000 Plastic Company shares originally held Shares now held, 12,000 50,000 Aug Investment in Makati Corporation Cash 50,000 500,000 500,000 Oct Received 60,000 new shares of Plastic Company as a result of a for split of 12,000 original shares Cash (10,000 x 5) Dividend income 31 Stock rights (3/33 x 660,000) Investment in Plastic Company 50,000 50,000 60,000 Nov 15 Investment in Plastic Company Cash (6,000 shares x 20) Stock rights 180,000 Dec Cash (66,000 shares x 5) Dividend income 330,000 60,000 120,000 60,000 330,000 15 Cash (10,000 shares x 30) Investment in Plastic Company (10,000/60,000 x 600,000) Gain on sale of investment 300,000 100,000 200,000 136 Cost 500,000 Summary of investments King Corporation common Plastic Company common Block Block Makati Corporation common Shares 10,000 700,000 50,000 6,000 10,000 500,000 180,000 76,000 1,880,000 Of course, the investments will simply be described as “investments in equity securities” in the balance sheet Problem 10-15 Answer A Purchase price (4,000 x P100) 400,000 Brokerage Total 12,000 412,000 Less: Dividend purchased (4,000 x 5) 20,000 Acquisition cost 392,000 Problem 10-16 Answer D Fair value of asset given (land) 3,000,000 Problem 10-17 Answer D Original shares acquired January 15 50,000 Stock dividend on March 31 (20% x 50,000) 10,000 Total shares Dividend income – cash dividend on December 15 (60,000 x 5) 60,000 300,000 Problem 10-18 Answer C Dividend income – cash dividend on July Original shares on March Stock dividend on December (10% x 20,000) Total shares 100,000 20,000 2,000 22,000 Problem 10-19 Answer B Original shares on October 1, 2007 Stock dividend on November 30, 2008 (10%) 4,000 Total shares Shares sold on December 31, 2008 Balance 40,000 44,000 ( 4,000) 40,000 137 Sales price Cost of shares sold (4,000/44,000 x 6,600,000) ( 600,000) Gain on sale 1,000,000 400,000 Problem 10-20 Answer B Shares received as property dividend (5,000/5) Dividend income (1,000 x 100) 1,000 100,000 Problem 10-21 Answer D Cash dividend (10% x 500,000) 50,000 Problem 10-22 Answer A Dividend income (2,000 x 60) 120,000 Problem 10-23 Answer C Sales price (80,000 x 30) 2,400,000 Less: Cost of shares sold (80,000 x 40) 3,200,000 Loss on disposal ( 800,000) Problem 10-24 Answer A June Original shares 30,000 Stock dividend – 20% Total shares 4,000 24,000 December 20,000 6,000 36,000 Sales price (30,000 x 125) 3,750,000 Cost of shares sold: From June – 24,000 shares 2,000,000 From December – 6,000 shares (6,000 / 36,000 x 3,600,000) 600,000 2,600,000 Gain on sale 1,150,000 Problem 10-25 Answer B Cost of rights (5/100 x 8,000,000) 400,000 Problem 10-26 Answer B Sales price (50,000 x 10) Cost of rights sold (10/100 x 3,600,000) Gain on sale of rights 500,000 360,000 140,000 138 Problem 10-27 Answer B Cost of rights (18/150 x 500,000) Cost paid for new shares (2,500 shares x 90) 225,000 Total cost of new investment Cost per share (285,000 / 2,500 shares) Problem 10-28 Answer B 60,000 285,000 114 Cost of 2006 rights (4/100 x 180,000) 7,200 Cost of 2007 rights (4/100 x 330,000) 13,200 Total cost of rights 900 shares x rights rights Cash paid (900 x 80) 72,000 Cost of rights exercised 2006 – 2,250 rights 2007 – 2,250 rights (2,250/3,750 x 13,200) Total cost of 900 shares 20,400 4,500 7,200 7,920 87,120 ... 168,500 6,500 325,000 Accounts receivable Accounts receivable – assigned 200,000 200,000 Collections by bank Less: Payment of loan (1,125,000 – 800,000) 325,000 Excess collection Less: Interest (2%... Accounts receivable – assigned 60,000 60,000 Bank loan August payment Balance 320,000 Collections by bank Less: Payment of loan Interest (1% x 226,400) 228,664 640,000 413,600 226,400 226,400 2,264... 2,900,000 Loss on factoring Cash Receivable from factor Accounts receivable factored Collections by factor 3,000,000 300,000) 450,000) 2,250,000 2,250,000 ( 350,000) 250,000 250,000 3,000,000 2,500,000