Valix Finacc vol 1 Problem 10-5

Financial Accounting Volume 1 2008 Valix-Peralta
Chapter 1 Problem 10-5

1. Investment in XYZ ordinary shares (40,000 x 50)                                2,000,000

       Cash                                                                                                               2,000,000

2. Memo – Received 200,000 XYZ ordinary shares as a result

                of 5 for 1 split of 40,000 original shares.

3. Investment in XYZ preference shares                                                  125,000

       Investment in XYZ ordinary shares                                                                      125,000

                                                                             Market value         Fraction           Cost

Ordinary shares (200,000 x 15)                                   3,000,000              30/32          1,875,000

Preference shares (20,000 x 10)                                    200,000                2/32             125,000

                                                                                 3,200,000                                 2,000,000

4. Investment in ABC ordinary shares                                                     300,000 

       Dividend income (200,000/4 = 50,000 x 6)                                                         300,000

    

5. 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