- Hilippines 32 Case 1 Audit Of Investments The Following Investments Were Held By Honest Corporation As Of December 31 1 (188.28 KiB) Viewed 20 times
HILIPPINES 32 Case 1- Audit of Investments The following investments were held by Honest Corporation as of December 31, 2022: Equity investments at fair value (Note 1) P? 2,800,000 Debt investment at other comprehensive income (Note 2) Debt investments at amortized cost (Note 3) 6,031,379 Note 1 - Equity investments at fair value On December 31, 2020, Honest Corporation purchased the following equity investments and the summary of related transactions to these shares: Pl
Company Shares FV 12/31/20 Transaction cost (acquisition) Integrity
Company shares 80,000 P45.00 Pagkakatiwalaan Corporation shares 60,000 50.00 P1.50 2.00 2.25 Objective
Company shares 45,000 55.00 Your further procedure summarized other related transactions for year 2021 and 2022: Dividend Dividend % of received/s received/s FV
Company ownership hare hare 12/31/21 12/31/22 (2021) (2022) Integrity
Company shares 10% P4.00 P3.50 P42.00 P49.00 15% 5.00 3.75 54.00 52.00 Pagkakatiwalaan Corporation shares Objective
Company shares 15% 6.00 4.00 57.00 60.00 Additional information: Integrity
company and Objectivity
Company shares were designated at fair value through other comprehensive income while Pagkakatiwalaan Corporation shares was held for trading purposes. On December 1, of each year annual dividends were declared and paid on December 31 of same year. 20,000 shares of Integrity
Company shares were sold on July 1, 2022 at P48.00 per share, while another 15,000 shares of Objective
Company shares were purchased on August 31, 2022 at P56.50 per share incurring P1.25 per share transaction cost. On September 30, 2022, additional 10,000 shares of Pagkakatiwalaan Corporation shares were purchased on October 15, 2022 at P52 per share while 25,000 of these shares were sold at P58.50 per share on November 5, 2022. 2 Your audit procedures revealed that all transaction cost incurred in acquisition of shares were expensed while all changes in fair value of the investments were recognized in profit or loss. Entries also revealed that dividends were recorded as dividend income when received. For the year ended December 31, 2021 and 2022, each investee
company reported the following profit:
Company Integrity
Company shares Profit P1,200,000 1,350,000 2,670,000 Pagkakatiwalaan Corporation shares Objective
Company shares Debt investment at FVTOCI On January 1, 2021, Honest Corporation purchased a 11%, 4-year, P2,800,000 face value bonds paying a total of P2,934,588 to yield a 9.5% interest, interest on this bond was collectible every December 31 of each year. The
company's business model on this bond is to collect cash flows and to sell when circumstances warrants. The bond were selling at 103 on December 31, 2021 and has an effective interest of 10% on December 31, 2022. This questionnaire is exclusively designed and administered to the students of PUP College of Accountancy and Finance. Reproduction and/or publication is only through the faculty members or approved platforms of the college. Page 1
Your test of journal entries related to this bond were summarized as follows: DI at FVTOCI 2,800,000 Interest receivable 134,588 Cash 2,934,588 when the bond was purchased. Cash 308,000 Interest Income 308,000 *for 2021 and 2022 interest income recorded. Any difference in fair value of the bond in previous period is recorded in OCI with the following entry: DI at FVTOCI 84,000 UGOL - OCI 84,000 *for 2021changes in fair value. Audit Note: no entry was made to recognized changes in FV in 2022, because there is no available quoted market price for the bonds on December 31, 2022. Debt investment at amortized cost On April 1, 2021, Honest Corporation purchased bonds with a face value of 10%, 5-year, P6,500,000 face value bonds at fair value. The bonds interest is collectible every March 31 of each year, starting 2022. Interest effective when the bonds was purchased was at 12%. On this date, transaction cost was paid in relation to this bond which change the effective interest to 11%. Your test of journal entries related to this bond were summarized as follows: DI at Amortized cost 6,031,379 Cash 6,031,379 "when the bond was purchased. **It was noted that the related transaction cost was expensed on this date. Cash 487,500 Interest Income 487,500 "for 2021 interest income recorded. Cash 650,000 Interest Income 650,000 *for 2022 interest income recorded. Your test of business model revealed that this bond was held by Honest Corporation to collect contractual cash flows until maturity. The following are the quoted market price of the bond for the year ended 2021 and 2022: Quoted price in market Date (AC) December 31, 2021 102 December 31, 2022 101 Determine the following as a result of your audit: 1. How much is the correct amount of equity investments in Honest Corporation's
Statement of Financial Position as of December 31, 2022? 2. How much is the correct total amount reported in Honest Corporations
Statement of Comprehensive Income related to its equity investments for the period ending December 31, 2022? 3. How much is the correct amount of debt investments in Honest Corporation's
Statement of Financial Position as of December 31, 2022? 4. How much is the correct total amount reported in Honest Corporations
Statement of Comprehensive Income related to its debt investments for the period ending December 31, 2022? 5. Your proposed adjusting journal entry would include a net debit (credit) to retained earnings of, assuming the errors were discovered in 2022 (book closed)? LIPPINES