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Supporting records of Mayon Corporation’s trading securities portfolio show the following debt and

equity securities:


200 ordinary shares Concave Co. P 127,250 P 121,500

P 400,000 Tipo Co. 7% bonds 398,250 387,000

P 600,000 Turkey Co. 7 ½ % bonds 603,750 609,450

Totals P 1,129,250 P 1,117,950

Interest dates on the bonds are January 1 and July 1. Mayon Corporation uses the income approach to
record the purchase of bonds with accrued interest. During 2012 and 2013, Mayon completed the
following transactions related to trading securities:


Jan. 1 Received semiannual interest on bonds. Assume that the appropriate adjusting entry was made

on Dec. 31, 2011.

April 1 Sold P 300,000 of 7 1/2 % Turkey bonds at 102 plus accrued interest. Brokerage fees were


May 21 Received dividend of P 1.25 per share on the Concave ordinary share capital. The dividend had
not been recorded on the declaration date.

July 1 Received semiannul interest on bonds and then sold the 7% Tipo bonds at 97 1/2 . Brokerage fees
were P1,250.

Aug. 15 Purchased 100 shares of Newman, Inc. ordinary share capital at P580 per share plus brokerage
fees of P250.

Nov. 1 Purchased P250,000 of 8% Toll Co. bonds at 101 plus accrued interest. Brokerage fees were P625.
Interest dates are January 1 and July 1.

Dec. 31 Market prices of securities were:

Concave ordinary shares P550

7 1/2 % Turkey bonds 101 ¾

8% Toll bonds 101

Newman ordinary shares P583.75


Jan. 2 Recorded the receipt of semiannual interest on bonds.

Feb. 1 Sold the remaining 7 1/2 % Turkey bonds at 101 plus accrued interest. Brokerage fee were


1. What is the total interest and dividend income for 2012?

a) 62,583

b) 82,208

c) 45,708

d) 49,402

2. What amount should be reported as gain on sale of trading securities in 2012?

a) 2,025

b) 6,376

c) 4,275

d) 3,125

3. What amount of unrealized gain or loss should be reported in the income statement for the year
ended December 31, 2012?

a) 10600 unrealized gain

b) 10600 unrealized loss

c) 3075 unrealized gain

d) 3075 unrealized loss

4. What is the carrying amount of the remaining trading securities on December 31, 2012?

a) 740,500

b) 725,225

c) 736,725

d) 726,125

COLOONG CO. designates purchased debt securities as available for sale. The following schedules relates
to its 5-year, P1,000,000 7% bonds purchased on December 31, 2010 for P1,086,565. The bonds were
purchased to yield 5% interest.


12-31-10 P 1,086,565

12-31-11 P 70,000 P 54,328 P 15,672 1,070,893

12-31-12 70,000 53,545 16,455 1,054,438

12-31-13 70,000 52,722 17,278 1,037,160

12-31-14 70,000 51,858 18,142 1,019,018

12-31-15 70,000 50,982 19,018 1,000,000

The following schedule presents the amortized cost and fair value of the bonds at year-end.


December 31, 2011 P 1,065,000 P 1,070,893

December 31, 2012 1,075,000 1,054,438

December 31, 2013 1,056,500 1,037,160

December 31, 2014 1,030,000 1,019,018

December 31, 2015 1,000,000 1,000,000


5. What amount should be reported as investment in available for sale securities in the statement
of financial position of Coloong Co. on December 31, 2012?

a) 1086565

b) 1054438

c) 1075000

d) 1065000

6. What amount of unrealized gain should be shown as component of other comprehensive

income in the 2012 statement of comprehensive income?

a) 26455

b) 20562

c) 10000

d) 16455
7. What amount of unrealized loss should be shown as component of other comprehensive
income in the 2013 statement of comprehensive income?

a) 14393

b) 18500

c) 19340

d) 1222


On January 1,2012, RAMBUTAN CORP. purchased debt securities for cash of P765,540. The securities
have a face value of P 600,000 and they mature in 15 years. The securities carry fixed interest of 10%,
that is receivable semiannually on June 30 and December 31. The prevailing market interest rate on
these debt securities is 7% compounded semiannually. Rambutan Corp. intends and has the financial
resources to hold these securities to maturity.


11. What is the carrying value of the debt securities on December 31, 2012 at amortized cost using
the effective interest rate method?

a) 771840

b) 759016

c) 765540

d) 600000

SAXOPHONE COMPANY acquires a new manufacturing equipment on January 1, 2012, on installment
basis. The deferred payment contract provides for a down payment of P300,000 and an 8-year note for
P3,104,160. The note is to be paid in 8 equal annual installment payments of P388,020, including 10%
interest. The payments are to be made on December 31 of each year, beginning December 31, 2012. The
equipment has a cash price equivalent of P2,370,000. Saxophone’s financial year-end is December 31.

13. What is the acquisition cost of the equipment

A. P3,404,160 C. P2,370,000
B. P2,804,160 D. P3,1004,160
14. The amount to be recognized on January 1, 2012, as discount on note payable is
A. P1,034,160 C. P827,160
B. P310,416 D. P0
15. The amount of interest expense to be recognized in 2012 is
A. P0 C. P310,416
B. P188,898 D. P207,000
CELLO CORP. has been experiencing a significant increase in customers’ demand for its product. To
expand its production capacity, Cello decided to purchase equipment form Pede Utang on January 2,
2012. Cello issues a P2,400,00 5-year, non-interest-bearing note to Pede Utang for the new equipment
when the prevailing market rate of interest for obligations of this nature is 12%. The company will pay off
the note in five P480,000 installments due at the end of each year over the life of the note. Cello’s
financial year-end is December 31. The appropriate present value factor of an ordinary annuity of 1 at
12% for 5 periods is 3.60478.

18. What is the cost of the new equipment?

A. P2,112,000 C.P1,730,294
B. P1,457,931 D. P2,400,000
19. What amount of interest expense should be reported in Cello’s income statement for the year
ended December 31, 2012?
A. P174,951 C. P230,400
B. P207,635 D. P288,000