Intermediate Accounting 1A
SUMMER S.Y. 2018-2019
INVESTMENT IN EQUITY SECURITIES (FVPL & FVOCI)
PARTIDGE Company acquired the following portfolio of equity instruments held for trading during
2017 and reported the following balances at December 31, 2017. No sales occurred during 2017
Security
Cost
Market Value 12/31/17
PE
300,000
350,000
AR
450,000
410,000
TR
540,000
640,000
EE
610,000
650,000
1. What is the carrying value of the securities on December 31, 2017?
a. 1,900,000
c. 3,950,000
b. 2,050,000
d. 0
2. How much is the unrealized gain that should be taken to profit or loss statement?
a. 0
c. 190,000
b. 150,000
d. 40,000
Turtle Company purchase the following portfolio of equity instruments designated as FVOCI during
2016 and reported the following balances below. No sales occurred during 2016 and 2017.
MARKET VALUES
Security
Cost
12/31/16
12/31/17
DO
800,000
820,000
910,000
VES
1,400,000
1,500,000
1,000,000
3. How much should Turtle Company report as unrealized gain or loss related to the
securities in its 2016 other comprehensive income?
a. 120,000
c. 410,000
b. 0
d. 290,000
4. How much should Turtle Company report as unrealized gain or loss related to the
securities in its 2017 statement of comprehensive income?
a. 120,000
c. 410,000
b. 0
d. 290,000
5. How much should Turtle Company report as unrealized gain or loss related to the
securities in its 2017 statement of financial position?
a. 120,000
c. 410,000
b. 0
d. 290,000
French Company purchase the following portfolio of equity instruments during 2016 and reported the
following balances below. No sales occurred during 2016 and 2017
Security
H
E
N
S
Cost
Transaction Cost
MARKET VALUES
12/31/16
12/31/17
1,000,000
100,000
950,000
1,100,000
950,000
50,000
800,000
940,000
1500,000
80,000
1,650,000
1,570,000
900,000
20,000
860,000
920,000
6. How much is the total amount taken to 2016 profit or loss statement assuming the
investment is designated as FVPL?
a. 90,000
c. 160,000
b. 340,000
d. 0
7. How much is the total amount taken to 2016 profit or loss statement assuming the
investment is designated as FVOCI?
a. 90,000
c. 160,000
b. 340,000
d. 0
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Intermediate Accounting 1A
SUMMER S.Y. 2018-2019
8. How much is the unrealized gain/ loss that should be presented in 2017 Statement of
Comprehensive Income assuming the investment is designated as FVOCI?
a. 180,000 gain
c. 270,000 gain
b. 180,000 loss
d. 270,000 loss
Calling Company began business in January of 2016. During the year, Calling purchased a portfolio
of securities listed below. In its December 31, 2016 balance sheet, Calling appropriately reported a
300,000 debit balance in nits “Unrealized gain/ loss” account. The composition of the securities did
not change during the year 2017. Pertinent data are as follows:
Security
BI (FVPL)
RD (FVOCI)
S (FVOCI)
Cost
2,000,000
3,600,000
3,900,00
Market Value, December 31, 2017
2,750,000
3,250,000
4,000,000
9. How much is the carrying value of investment at FVOCI on December 31, 2016?
a. 7,800,000
c. 7,500,000
b. 7,200,000
d. 7,250,000
10. How much is the unrealized gain or loss that should be presented in the equity section
of the Balance Sheet on December 31, 2017?
a. 500,000
c. 550,000
b. 250,000
d. 50,000
On January 2016, Golden Company invested 900,000 in equity securities representing 15% interest
in Rings Company. Golden Company incurred transaction cost of 100,000 related to the acquisition of
the security. On December 31, 2016, this investment has a market value of 950,000. On July 1, 2017,
Golden Company sols the investment for 1,200,000
11. What amount of gain on sale should Golden Company recognized in profit or loss
assuming the security was classified as investment in profit or loss?
a. 250,000
c. 200,000
b. 300,000
d. 0
12. What amount of gain on sale should Golden Company recognize in profit or loss
assuming the security was classified as Available for Sale under PAS 39?
a. 250,000
c. 200,000
b. 300,000
d. 0
13. What amount of gain or loss on sale taken to P/L should Golden Company recognize
assuming the security was classified as investment at fair value to other comprehensive
income under revised PFRS 9?
a. 250,000
c. 200,000
b. 300,000
d. 0
14. How much is the amount transferred to Retained Earnings upon sale of investment at
FVOCI under the revised PFRS 9?
a. 250,000
c. 200,000
b. 300,000
d. 0
Geese Corporation received dividends from ordinary share (15% interest) and preference share (25%
interest) investments during the current year:
 A cash dividend of P 100,000 from ordinary share investment
 A cash dividend of P 50,000 from preference share investment
 A stock dividend of 2,000 shares from ordinary investment when the market price was P12 per
share
 A property dividend costing P 500,000 which had a market value of P600,000
 A liquidating dividend of P 5,000 from ordinary investment
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SUMMER S.Y. 2018-2019
Intermediate Accounting 1A
15. How much is the total dividend income that should be reported for the current year?
a. 750,000
c. 150,000
b. 700,000
d. 755,000
Swans Corporation acquired 10,000 Maids Company shares on February 5, 2017 at P50 which
include P1o per share broker’s fees and commissions. A P50, 000 cash dividends were received from
Maids Company on March 20, 2017. These dividends were declared on January 5 payable to
shareholders as of February n10. Maids shares were spit 2 for 1 on November 1. The shares were
selling at P32 per share on December 31, 2017. The investments were designated as FVPL.
16. How much is the initial carrying value of investment on the date of acquisition?
a. 500,000
c. 450,000
b. 400,000
d. 350,000
17. How much should be recognized as dividend income?
a. 50,000
c. 290,000
b. 100,000
d. 0
Ladies Company purchase 10,000 shares of Lords Company ordinary shares at P100/share on
January 1, 2017. On December 31, 2017, Ladies received 3,000 shares of Lords ordinary shares in
lieu of cash dividend of P14 per share. On this date, the Lords ordinary share has a quotes market
price of P50 per share.
18. How much dividend income should Ladies Company will report in its 2017 statement of
comprehensive income?
a. 150,000
c. 0
b. 140,000
d. 500,000
Pipers Company purchase 10,000 shares of Drummers Company ordinary shares at P126 per share
on January 1, 2017. On December 31, 2017, Pipers received P200, 000 cash in lieu of 4,000 shares.
19. How much cash dividend income should Pipers Company will report in its 2017
statement if comprehensive income?
a. 160,000
c. 200,000
b. 0
d. 80,000
3
Intermediate Accounting 1A
SUMMER S.Y. 2018-2019
INVESTMENT IN ASSOCIATE
On January 2, 2017 Diamond Corporation purchase 200,000 ordinary shares at P100/share of Pearl
Inc., representing 20% of the voting rights In Pearl Inc. Diamond incurred transaction cost of P2.00
per share. There is no goodwill, and all the identifiable assets and liabilities of Pearl, Inc. on this date
show carrying values equal to their face values. Cash dividends of P15 per share were received
during the year. Net income reported by Pe4arl Inc. for the year 2017 is P1, 000,000
1. How much investment income should be reported in Diamond Corporation’s profit or
loss?
a. 300,000
c. 100,000
b. 200,000
d. 500,000
2. What is the carrying value of the investment in Pearl, Inc. as of December 31, 2017?
a. 2,240,000
c. 1,940,000
b. 2,040,000
d. 1,900,000
On January 2, 2017, Ruby Corporation purchased 20,000 ordinary shares of P100/share of Topaz
Company representing 20% interest in Topaz Company. The net assets of Topaz on the date of
acquisition have a carrying amount of P8 million. Topaz’s identifiable assets equals their fair values,
except for land, which has a fair value in excess of carrying amount of P200,000, and building which
has a fair value in excess of carrying amount of P400,000. Cash dividends of P5 per share were
received during the year. Net income reported by Topaz Company for the year 2017 is P1, 000,000.
The building on January 1, 2017 has an estimated remaining useful life of 10 years.
3. How much investment income should be reported in ruby Corporation’s profit or loss?
a. 200,000
c. 152,000
b. 192,000
d. 92,000
4. What is the carrying value of the Investment in Topaz as of December 31, 2017?
a. 2,200,000
c. 2.092,000
b. 2,192,000
d. 2,052,000
5. How much from the acquisition cost on January 2017 is attributed to goodwill?
a. 280,000
c. 320,000
b. 360,000
d. 0
On January 1, 2016 Quartz Corp. acquired 30% of Agate Corp’s 200,000 outstanding shares at P50
per share. Agate’s net assets had a book value on the same date at P8, 200,000
On acquisition date, the following assets were deemed understated.
a. Building having a remaining useful life of 20 years was understated by P1,500,000
b. Equipment having a remaining useful life of 10 years was understated by P500,000
Agate reported net income for the year at P2, 000,000 and paid cash dividends of P10 per share by
December 31.
6. How much investment income should be reported in Quartz Corporation’s profit or loss
for the year 2016?
a. 600,000
c. 622,500
b. 577,500
d. 562,500
7. What is the carrying value of t5he investment in Agate as of December 31, 2016?
a. 3,652,500
c. 3,622,500
b. 3,000,000
d. 3,022,500
4
SUMMER S.Y. 2018-2019
Intermediate Accounting 1A
On April 1, 2017, Turquoise Corporation purchased for cash 12,000 of the 60,000 shares of Beryl
Company for 600,000. Beryl’s identifiable assets equal their fair values except for the equipment
which has a fair value in excess of carrying amount of P100, 000. The equipment at April 1, 2017 had
a remaining useful life of 5 years.
During the year 2017, Beryl reported earnings of P600, 000 of which P100, 000 was earned during
the first quarter. Beryl declared and distributed a dividend of P4 per share.
8. How much investment income should be reported in Turquoise Corporation’s profit or
loss statement?
a. 116,000
c. 97,000
b. 96,000
d. 117,000
On January 1, 2017 Opal Corp. acquired 40,000 shares of the 160,000 shares outstanding of Jade
Inc. at P15 per share. The book value of Jade Inc.’s net assets on this date amounted to P2, 000,000.
The fair value of one of its identifiable intangible assets with a 5 year remaining life higher than book
value by P50, 000 while its Equipment having a remaining useful life of 8 years had a fair value of
P160,000 higher than book value and inventories whose fair value was P20,000 greater than cost. All
the inventories had all been sold during the year.
Jade reported total net income in 2017 at P800, 000 and foreign translation loss of P100,000 and
distributed total dividends at year end of P300,000
9. How much is their total income that should be reported in Opal Corporation’s profiot or
loss statement for the year 2017?
a. 187,500
c. 162,500
b. 192,500
d. 212,500
10. What is the carrying value of the Investment in Jade as of December 31, 2017?
a. 787,500
c. 687,500
b. 762,500
d. 800,000
Sardonyx owns 25% of the ordinary shares of Sapphire Corp. Sapphire has 8% preference shares
with total par value of P10, 000,000. Sapphire declared P700, 000 dividends on its preference shares.
Sapphire reported a profit of P3, 000,000 during 2017?
11. How much is the share in net income assuming the preference share is cumulative?
a. 575,000
c. 550,000
b. 750,000
d. None of the choices
12. How much is the share in net income assuming the preference share is noncumulative?
a. 575,000
c. 550,000
b. 750,000
d. None of the choices
5
Intermediate Accounting 1A
SUMMER S.Y. 2018-2019
INVESTMENT IN DEBT SECURITIES
On January 1, 2017, Africa Corporation purchased 2,000 of the P1, 000 face value, 9%, 10-year
bonds of Continent Inc. The company paid a broker’s fee of P100, 000. The bonds mature on January
1, 2027, and pay interest annually beginning December 31, 2017. Africa Corporation purchased the
bonds to yield 11% and classified this as Investment at Fair Value through Profit or Loss.
PV factor of 11% after 10 years
PV factor of 9% after 10 years
PV factor of annuity of 11% after 10 years
PV factor of annuity of 9% after 10 years
0.3522
0.4224
5.8890
6.4180
Market values of the bonds are as follows:
December 31, 2017
95
December 31, 2018
98
1. How much is the interest income for the year 2017?
a. 220,000
c. 158,798
b. 180,000
d. 194,086
2. What is the carrying value of the investment on December 31, 2018?
a. 1,900,000
c. 1,794,142
b. 1,676,199
d. 1,960,000
3. How much is the unrealized gain/ loss that should be reported in 2017 profit or loss
statement?
a. 35,580
c. 135, 580
b. 121,494
d. 221,494
On May 1, 2017, Oceania Comp0aqny purchase a P2, 000,000 face value 9% debt instruments of
P1, and 860,000 including the accrued interest. The business model in managing the financial assets
is to generate short term profits from changes in fair value of the securities. The debt instruments pay
interest semi-annually on January 1 and July 1. On December 31, 2017, the fair market value of the
instrument is P1, 940,000.
4. How much is the interest income for the year 2017?
a. 120,000
c. 162,000
b. 180,000
d. 108,000
5. How much is the unrealized gain or loss that should be taken to profit or loss for the
year 2017?
a. 80,000
c. 60,000
b. 140,000
d. 0
6. How much is the accrued interest on December 31, 2017?
a. 120,000
c. 180,000
b. 90,000
d. 0
Europe Corp. acquired on January 1, 2017 a 5 year, 10%, 5,000,000 face value bonds, for P4,
639,400 dated January 1, 2017. The bonds which pay interest every December 31 had a 12%
prevailing interest rate on the date of acquisition. Europe’s business model is to collect contractual
cash flows and the cash flows are solely payment of principal and interest. The prevailing interest rate
on December 31, 2017 is at 9%.
7. How much is the correct interest income for the year 2018?
a. 500,000
c. 563,535
b. 556,728
d. 422,652
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SUMMER S.Y. 2018-2019
Intermediate Accounting 1A
8. How much is the unrealized gain/ loss to be reported in the company’s 2017 statement
of comprehensive income?
a. 303, 872
c. 56,728
b. 522,450
d. 0
9. What is the adjusted balance of the Investment as of December 31, 2017?
a. 5,450,000
c. 4,756,663
b. 4,696,128
d. 5,161,850
10. How much is the carrying value of Investment on December 31, 2020?
a. 4,910,714
c. 4,759,817
b. 5,000,000
d. 4,830,995
On June 30, 2016, Asia Company purchased P4, 000,000 of 16% bonds to yield 14% for P4,
280,752. Interest is payable semi-annually on June 30 and December 31. The bonds mature in five
years. Asia uses the calendar year and the effective interest method of amortization. The investment
was designated as Investment at FVOCI.
Market values of the bonds on different dates are as follows
December 31, 2016
108
December 31, 2017
106
11. What amount of unrealized gain or loss shall be taken to OCI as a result of property
measuring the investments on December 31, 2016?
a. 320,000
c. 59,595
b. 39,248
d. 20,347
12. How much is the interest income for the year ended December 31, 2017?
a. 594,932
c. 296,704
b. 298,228
d. 596,457
13. How much is the unrealized gain or loss that should be presented in the statement of
financial position on December 31, 2017?
a. 34,932
c. 59,595
b. 24,663
d. 45, 068
14. How much is the carrying value of investment on December 31, 2017?
a. 4,320,000
c. 4,260,405
b. 4,240,000
d. 4,215,337
On January n1, 2017, South America Company purchased P1, 000,000 12% bonds for P1, 063,394,
a price that yields 10%. Interest on these bonds is payable every December 31. The bonds mature on
December 31, 2020. On April 1, 2018, South America sold P600, 000 face value of the bonds at 101
plus accrued interest. Market values of the bonds on different dates are as follows:
December 31, 2017
108
December 31, 2018
106
15. How much is the gain or loss on sale on April 1, 2018 assuming the bonds are classified
as FVPL?
a. 42,000 gain
c. 24,000 gain
b. 42,000 loss
d. 24,000 loss
16. How much is the gain or loss on sale on April 1, 2018 assuming the bonds are classified
as IAC?
a. 21,586 loss
c. 3,586 loss
b. 21,586 gain
d. 3,586 gain
On December 31, 2016, North America Company invested in a 5 year bonds of face value of P4,
000,000 with 12% interest payable per year and 14% yield rate for P3, 725,488. The company has a
7
SUMMER S.Y. 2018-2019
Intermediate Accounting 1A
business model of collecting contractual cash flows including interest and principal for all debt
investments.
During 2018, North America Company’s business deteriorated due to political instability and faltering
global economy. After reviewing all evidences at December 31, 2018, North America Company
determined that it was probable that the company will still be able to pay annual interest on the
original loan but a reduced principal of 3,400,000 at maturity. As a result, the company decided that
the investment in bond was impaired and that a loss should be recognized immediately.
17. What amount of impairment loss should North America Company recognize on its debt
instrument?
a. 405,158
c. 1,519,541
b. 590, 714
d. 0
18. How much is the interest income for the year 2019?
a. 480,000
c. 477,300
b. 408,000
d. none of the choices
8
Intermediate Accounting 1A
SUMMER S.Y. 2018-2019
INVESTMENT IN EQUITY AND DEBT SECURITIES
On January 1, 2017 Red Company, a medium size entity, acquired 40,000 shares of the 160,000
shares outstanding of Pula Company at P100n per share. Red also paid transaction cost of 100,000.
During the year, Pula reported net income of P2, 000,000 and distributed total dividends of P500, 000
On December 31, 2017, the management of Red company determined that the fair value of
investment in Pula Company was P4, 250,000. Cost to sell was estimated at P50, 000.
1. How much is carrying value of investment on December 31, 2017 assuming the
company is using the equity method?
a. 4,475,000
c. 4,250,000
b. 4,200,000
d. 4,100,000
2. How much is the carrying value of investment on December 31, 2017 assuming the
company is using the cost model?
a. 4,475,000
c. 4,250,000
b. 4,200,000
d. 4,100,000
3. How much is the carrying value of investment on December 31, 2017 assuming the
company is using the fair value model?
a. 4,475,000
c. 4,250,000
b. 4,200,000
d. 4,100,000
On January 1, 2017 Orange Corporation acquired 200,000 shares representing 40% interest of
Kahel’s ordinary shares for P4, 500,000. Kahel reported during 2017 a total net income of 4,000,000
and unrealized gain from its investment at FVOCI of P500, 000. Kahel also distributed total dividends
at year end of P3, 000,000. On January 1, 2018, Kahel issued 300,000 shares at P23 per share
which Orange Corp. did not purchase any of these shares.
4. How much is the total net dilution gain/ loss that should be recognized by Orange
Corp.?
a. 112,500 gain
c. 187,500 loss
b. 187,500 gain
d. 112,500 loss
5. What is the carrying value of Investment in Kahel after the recognition of dilution gain/
loss?
a. 5,212,500
c. 4,912,500
b. 4,987,500
d. 5,287,500
On January 1, 2017, Yellow Corp. acquired 20,000 shares of the 100,000 shares outstanding of Dilaw
Inc. at P15 per share. Dilaw reported total net income in 2017 at P800, 000 and foreign translation
loss of P100, 000 and distributed total dividends at year end of P300, 000. On January 1, 2018,
Yellow sold 30% of its investment in Dilaw Corporation at fair value of P25 per share. During 2018,
Dilaw reported a total net income of 500,000 and distributed total dividends of P200, 000. Fair value
per share at year end is P22 per share.
6. How much is the gain or loss on sale that should be recognized on January 1, 2018?
a. 30,000
c. 100,000
b. 70,000
d. 36,000
7. How much is the total net amount of income that should be reported in 2018 profit or
loss statement assuming the investment was reclassified to FVPL?
a. 16,000
c. 86,000
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SUMMER S.Y. 2018-2019
Intermediate Accounting 1A
b. 58,000
d. 128,000
8. How much is the total amount of income that should be reported in 2018 profit or loss
statement assuming the investment was reclassified to FVOCI?
a. 16,000
c. 86,000
b. 58,000
d. 128,000
9. How much should be taken to other comprehensive income for the year 2018 assuming
the investment was reclassified to FVOCI?
a. 42,000
c. 28,000
b. 58,000
d. 0
On January 1, 2017, Green Corp. Acquired 30,000 shares representing 10% interest of Berde’s
ordinary shares for P4, 000,000. Green does not have any significant influence nor control over the
financial and operating policy of Berde. Berde reported during 2017 a total net income of P4, 000,000
and distributed dividends of 400,000. On January 1, 2018, Green purchased additional 20% interest
of Berde’s ordinary shares for P7, 500,000. The fair value of the 10% interest is P3, 750,000. The net
assets of Berde are fairly valued. During 2018, Berde reported net income of P5, 000,000 and
distributed a total dividends of P300, 000.
10. How much is the gain or loss on remeasurement that should be taken to profit or loss
on January 1, 2018?
a. 0
c. 250,000 loss
b. 250,000 gain
d. none of the choices
11. What is the carrying value of Investment on December 31, 2018?
a. 12,190,000
c. 10, 310,000
b. 12,660,000
d. 12,910,000
Blue Corp. acquired on January 1, 2017 a 5 year, 10%, P5, 000,000 face value bonds, for P4,
639,400 dated January 1, 2017. The bonds which pay interest every De4cember 31 had a 12%
prevailing interest rate on the date of acquisition. Blue’s business model is to collect contractual cash
flows and the cash flows are solely payment of principal and interest. On December 31, 2018, the
4,000,000 face value was disposed of when the market rate was 11%. The management decided that
the business model is no longer appropriate and reclassified the remaining investment to FVPL. The
prevailing interest rate on December 31, 2020 is at 11.5%
12. How much is the gain or loss on sale on December 31, 2018?
a. 94,550 gain
c. 173,316 gain
b. 94,550 loss
d. 173,316 loss
13. How much is the gain or loss on reclassification on December 31, 2018?
a. 23, 637 gain
c. 43,330 gain
b. 23, 637 loss
d. 0
14. How much is the carrying value on December 31, 2020?
a. 990,991
c. 982,143
b. 986,547
d. 1,000,000
Indigo acquired on January 1, 2017 a 5 year, 10%, P5, 000,000 face value bonds, for P4,639,400
dated January n1, 2017. The bonds which pay interest every December 31 had a 12% prevailing
interest rate on the date of acquisition. Indigo’s business model is to sell the investment in the shortterm to generate profits. The fair market values of the investment on December 31, 2017 and
December 31, 2018 are based on 11.5% and 11% respectively. On December 31, 2018, the
management decided that the investment is no longer for sale but now held to collect contractual
cash flow. The prevailing interest rate on December 31, 2019 is at 10.5%.
15. How much is the carrying value of the investment as of December 31, 2018?
a. 5,500,000
c. 4,887,850
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SUMMER S.Y. 2018-2019
Intermediate Accounting 1A
b. 4,759,663
d. 5,550,000
16. How much is the gain or loss on reclassification on January 1, 2019?
a. 118,187 gain
c. 0
b. 118,187 loss
d. none of the choices
17. How much is the interest income for the year 2019?
a. 500,000
c. 536,564
b. 571,160
d. 585, 342
Violet Company owned 50,000 ordinary shares of Lila Company for 120/share. On December 1,
2017. Lila distributed stock rights. Violet was entitled to buy one share of Lil every 2 rights submitted
for P90 per share. On this date, each share had a market value of P130 and each right had a market
value of P20.
18. How much is the total cost of new investment acquired assuming all rights were
exercised?
a. 5,500,000
c. 3,250,000
b. 3,050,000
d. 2,250,000
11
Intermediate Accounting 1A
SUMMER S.Y. 2018-2019
TOA- INVESTMENTS
1. These investments are initially recorded at purchase price plus transaction costs.
I. Financial assets at fair value through profit or loss
II. Financial assets at fair value through other comprehensive income
III. Financial assets at amortized cost
a. I only
b. II only
c. I and II only
d. II and II
2. Unrealized holding gains or losses which are recognized in the statement of
comprehensive income are from securities classified as
a. FVPL only
c. FVOCI and Investments at Amortized
Cost
b. FVPL and FVOCI
d. FVOCI
3. Equity securities may be classified as
a. FVPL only
c. FVPL or FVOCI
b. FVOCI only
d. FVPL, FVOCI, IAC
4. Debt securities may classified as
a. IAC only
c. FVOCI or IAC
b. FVPL or IAC
d. FVPL, FVOCI or IAC
5. Subsequent to acquisition, these securities are generally reported in the statement of
financial position at amortized cost
a. FVOCI only
c. FVPL or FVOCI
b. Investments at Amortized Cost only d. FVOCI and IAC
6. Under PFRS 9, debt securities could be measured at amortized cost if the following
conditions are met:
I. Business model in managing the financial asset to generate profit from changes in fair
value.
II. The entity has the ability and positive intention to hold the asset until maturity date
a. I only
b. II only
c. Both I and II
d. Neither I nor II
7. Which of the following is not correct regarding trading securities?
a. They are held with the intention of being sold within short period of time
b. Any changes in fair value are reported in the statement of comprehensive income
c. Any premium or discount on debt securities is not amortized
d. Gain on sale is the excess of net selling price over the cost of securities sold
8. What is the effect of stock split known as “split up”?
a. Increase in number of shares and increase in cost per share
b. Decrease in number of shares and decrease in cost per share
c. Increase in number of shares and decrease in cost per share
d. Decrease in number of shares and increase in cost per share
9. For an investment in equity securities classified as FVOCI, unrealized loss taken to
equity is
a. The excess of fair value over the original cost
b. The excess of fair value over the amortized cost
c. The excess of original cost over the fair value
d. The excess of amortized cost over the fair value
10. Under PFRS 9, the cumulative balance of equity as a result of measuring financial
assets at fair value through other comprehensive income:
a. Shall be reversed to profit or loss at the date the security is sold
b. Shall be reversed to profit or loss when there is objective evidence of impairment
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c. Shall not be reversed to profit or loss but may be transferred to retained earnings account
d. Shall not be reversed to profit or loss but may be transferred to revaluation surplus account
11. When share dividend is received in lieu of cash dividend, the entity should recognize
a. Income at fair value of shares received
b. Income at cash dividend that would have been received
c. Gain or loss on disposal taken to profit or loss
d. Memorandum entry only stating the number of shares increased
12. An entity has 25% investments in ordinary share and 10% investment in preference
share over the investee. Which of the following is true?
a. Both investments should be classified as Investment in Associate
b. B. the 25% interest may be classified as Investments at fair value and 10% may be
classified as investment at amortized cost
c. Both investments may be classified as investment at fair value
d. The 10% may be classified as investment in associate and 25% may be classified as
investment at fair value
13. Which of the following does NOT describe the EQUITY method of accounting for equity
investment?
a. It is based on economic relationship between an investor and an investee (i.e., investor and
investee are viewed as single economic unit).
b. Investment is initially carried at cost and is subsequently increased by the net income of
investee but is not affected by the investee’s net loss
c. When investee declares dividends, the investor recognizes the same as somewhat a
return of investment
d. It is used when investor holds directly or indirectly, exactly 20% up to exactly 50% of the
voting stock of the investee. This gives rise to the presumption of existence of significant
influence
14. Existence of significant influence may be evidenced by which of the following ways?
a. Representation in the board of directors and participation in policy making process
b. Material transaction between investor and investee
c. Interchange of managerial personnel and provision of essential technical information
d. All of the above
15. Which of the following is not a component of other comprehensive income?
a. Unrealized gains/ losses on trading securities
b. Gains/ losses on foreign currency translation of FS of a foreign operation
c. Changes in revaluation surplus
d. Actuarial gains/ losses on remeasurement of defined benefit obligation under a defined
benefit plan
16. Which of the following items does not affect the investment in associate account of the
investor?
a. Share in net loss of the associate
b. Cash dividends received from the associate
c. Share in other comprehensive income recognized by the associate
d. Amortization of excess relating to undervalued land reported by the associate
17. An investor’s share in the losses of an associate equals or exceeds its interest in the
associate. Which of the following cannot be undertaken by said investor?
a. The investor shall continue recognizing its share of further losses
b. The investment is reduced to zero
c. Additional losses shall be provided only to the extent that the investor has incurred legal or
constructive obligations or made payments in behalf of the associate
d. If the associate subsequently reports profit, the investor resumes recognizing its share of
profit only after its share of profits equals the share of the losses not previously recognized
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18. If an associate has a preference share, the proper way of computing the share in net
income of an associate would be
a. Deduct preference dividend whether declared or not if non- cumulative
b. Deduct preference dividend when declared o9nly if cumulative
c. Deduct preference dividend whether declared or not if cumulative
d. Deduct preference and ordinary dividend whether declared or not if cumulative
19. In case of an investment in associate reclassified to fair value investment due to loss of
significant influence, the difference of the fair value of the retained investment and its
previous carrying amount, shall
a. Be reported in profit or loss
b. Be reported I other comprehensive income
c. Be reclassified to another equity account, such as retained earnings
d. Not be accounted for
20. Which of the following is true when “significant influence” is lost by the investor over
the associate?
a. The investor may still use the equity method until the asset is sold
b. The investor may recognize gain or loss on remeasurement of the investment
c. His situation refers to investment in associate achieved in stages
d. The investor shall account for retained investment as financial asset through other
comprehensive income only
21. Rainbow Co. purchased ten year, 10% bonds that pay interest semi-annually. The
bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to
multiply the principal by the table value for
a. 10 periods and 10% from the present value of 1 table
b. 10 periods and 8% from the present value of 1 table
c. 20 periods and 5% from the present value of 1 table
d. 20 periods and 4% from the present value of 1 table
22. When investments in debt securities are purchased between interest payment dates,
preferably the
a. Securities account should include accrued interest
b. Accrued interest is debited to interest expense
c. Accrued interest is debited to investment account
d. Accrued interest is debited to interest receivable
23. An investor p[purchased a bond classified as investment at amortized cost between
interest dates at a premium. At the purchase date, the carrying value of the bond is
a. Less than the bond face value and the cash paid to the seller
b. Less than the bond face value but more than the cash paid to the seller
c. More than the bond face value but less than the cash paid to the seller
d. More than the bond face value and the cash paid to the seller
24. If an entity failed to amortize the discount on its investment in bond classified at
amortized cost, this may result to
a. understatement of net income
b. Overstatement of net income
c. No effect on net income
d. Overstatement on investment account
25. A bond investment with interest payment dates on May 1 and November 1 is purchased
on August 1. The amount of (A) interest receivable and (B) interest income on December
31 would be equal to
a. (A) 5 months (B) 8 months
b. (A) 2 months (B) 8 months
c. (A) 5 months (B) 5 months
d. (A) 2 months (B) 5 months
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26. Bonds with face value of 3 million carrying at stated interest rate of 12% payable semiannually on March 1 and September 1 were purchased on August 1,. The total payments
made for the purchase amounted to 3, 100,000. The best explanation for the excess
amount paid over par value is that
a. The bonds were purchased at a premium
b. The bonds were purchased at a discount plus accrued interest
c. The bonds were purchased at face value plus accrued interest
d. No explanation is possible without knowing the maturity date of the bond issue
27. When interest payment dates are February 1 and August 1 an a bond investment is sold
June 1, the cash received from the sale
a. Excludes accrued interest
b. Does not include the accrued interest
c. Includes interest accrued for four (4) months
d. Includes interest accrued for seven (7) months
28. If the yield rate for a bond is greater than its coupon rate, the bond is acquired at
a. Face value
b. Maturity value
c. A discount
d. A premium
29. An entity made a year-end amortization for its only investment in bonds by debiting
investment at amortized cost and crediting interest income. The bond investment must
have been purchased at
a. The middle of nowhere ;-)
b. Face value
c. A discount
d. A premium
30. Assuming the same journal entry in item above, one can conclude that
a. Effective Rate = Nominal Rate
b. Effective Rate > Nominal Rate
c. Effective Rate < Nominal Rate
d. Effective Rate < > Nominal Rate
31. For an investment in debt securities portfolio classified as investment at amortized
cost, which of the following amount should be included in the period profit or loss?
I. Unrealized temporary gains and losses during the period as a result of change in fair value
II. Amortization of discount or premium
III. Interest received and accrued
a. I and II
b. III
c. II and III
d. I and III
32. When an investor’s accounting period ends on a date that does not coincide with an
interest receipt date for bonds held as an investment, the investor must
a. Make an adjusting entry to debit interest receivable and o credit interest revenue for the
amount of interest accrued since the last interest receipt date
b. Notify the issuer and request that a special payment be made for the appropriate portion of
the interest period
c. Make an adjusting entry to debit interest receivable and to credit interest revenue for the
total amount of interest to be received at the next interest receipt date
d. Do nothing special and ignore the fact that the accounting period does not coincide with the
bonds interest period
33. Gain or loss on disposal of debt securities classified as investment at FVOCI shall be
recognized in
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Intermediate Accounting 1A
a. Profit or loss
b. Other comprehensive income
c. A or B
d. None of these
34. Which of the following is not generally correct about recording a sale of a debt security
before maturity date?
a. Accrued interest will be received by the seller even though it is not an interest payment
date
b. An entry must be made to amortize the discount to the date of sale.
c. The entry to qam0ortize a premium to the date of sale includes a credit to the premium on
investments in debt securities
d. A gain or loss on the sale is not extraordinary
35. Which of the following is true regarding the reclassification from investment at fair
value through profit or loss to investment at amortized cost?
a. Reclassification date is made at the beginning of the next accounting period
b. The initial cost of investment at amortized cost is the amortized cost at the date of
reclassification
c. The difference between the fair value and the face value is a gain or loss on reclassification
taken to profit or loss
d. The carrying amount and the fair value at the date of reclassification should be amortized
over the remaining life of the bond
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