POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

SIMULATED FINAL EXAMINATION
INTERMEDIATE ACCOUNTING I

Problems
The following data pertains to Rainbow Corporation‟s investments in marketable securities:

Market Value
Cost 12/31/07 12/31/06
Trading P 150,000 P 155,000 P 100,000
Available-for-sale 150,000 130,000 126,000

Questions
1. What amount should Rainbow Corporation report as unrealized holding gain in its
2007 income statement?
a. P 65,000 b. P 60,000 c. P 55,000 d. P 50,000

2. What amount should Rainbow Corporation report as unrealized loss on marketable

equity securities at December 31, 2007, in accumulated other comprehensive income in
stockholders‟ equity?
a. P 20,000 b. P 13,000 c. P 10,000 d. P 0

At December 31, 2007, Maria Angela Corporation had the following investments that were
purchased during 2005, its first year of operations:

Cost Fair Value

Debt Investment through Fair Value at PL
Security A 700,000 725,000
Security B 210,000 200,000
Totals 910,000 925,000

Debt Investment through Fair Value at

OCI
Security C 500,000 560,000
Security D 850,000 865,000
Totals 1,350,000 1,425,000

Debt Investment through Amortized Cost

Security E 970,000 980,000
Security F 412,000 409,000
Totals 1,382,000 1,389,000

No investments were sold during 2007. All securities except Security D and Security F are
considered short-term investments. None of the market changes is considered permanent.

Questions
3. The amount of investment to be reported as current assets is:
a. P 2,465,000 b. P 2,455,000 c. P 2,380,000 d. P 1,485,000

4. The amount of investment to be reported as non-current assets is:

 a. P 1,389,000 b. P 1,382,000 c. P 1,277,000 d. P 1,274,000

5. The unrealized gain (or loss) component of income before taxes is:
a. P 15,000 b. P 75,000 c. P 97,000 d. P 100,000

6. The unrealized gain (or loss) component of shareholders‟ equity is:

a. P 82,000 b. P 75,000 c. P 60,000 d. P 12,000

Marc Corporation had investments in marketable debt securities costing P650,000 that were
classified as available-for-sale. On June 30, 2007, Marc Corporation decided to hold the
investments to maturity and accordingly reclassified them from the held-to-maturity
category on that date. The investments‟ market value was P575,000 at December 31,
2006; P530,000 at June 30, 2007; and P490,000 at December 31, 2007.

Questions
3. What amount of loss from investments should Marc Corporation report in its 2007
income statement?
a. P 0 b. P 45,000 c. P 85,000 d. P 120,000

4. What amount should Marc Corporation report as net unrealized loss on marketable
debt securities in its 2007 statement of stockholders‟ equity?
b. P 160,000 b. P 120,000 c. P 45,000 d. P40,000

At December 31, 2006, ABARCA SUGAR CORPORATION properly reported as trading the
following equity securities:
Cost Market
Shan Lily Co., 1,000 shares, P2.40
convertible preferred stock 40,000 42,000
Azenith Corp., 6,000 shares of common 60,000 66,000
Ronette Co., 2,000 shares of common 55,000 40,000

On January 2, 2007, ABARCA SUGAR CORPORATION purchased 100,000 shares of Nagasaki

Ryuco Company common stock for P1,700,000, representing 30% of Nagasaki‟s
outstanding common stock and an underlying equity of P!,400,000 in Nagasaki‟ net assets
on January 2. ABARCA SUGAR had no other financial transactions with Nagasaki during
2006. AS a result of ABARCA SUGAR‟s ownership of Nagasaki, ABARCA SUGAR has the
ability to exercise significant influence over Nagasaki‟s financial and operating policies.

During 2007, ABARCA SUGAR disposed of the following securities:

 January 18 - sold 2,500 shares of Azenith Corporation for P13 per share.
 June 1 - sold 500 shares of Ronette Company, after a 10% stock dividend was
received, for P21 per share.
 October 1 - converted 500 shares of Shan Lily Company‟s preferred stock into
1,500 shares of Shan Lily‟s common stock, when the market price was P60 per share
for the preferred stock and P21 per share for the common stock. The conversion has no
economic substance.

The following 2007 dividend information pertains to stock owned by ABARCA SUGAR:
  February 14 - Ronette issued a 10% stock dividend, when the market price of
Ronette‟s common stock was P22 per share.
 April 5 and October 5 - Shan Lily paid dividends of P1.20 per share on its P2.40
preferred stock, to stockholder of record on March 9 and September 9, respectively.
Shan Lily did not pay dividends on its common stock during 2007.
 June 30 - Azenith paid a P1.00 per share dividend on its common stock.
 March 1, June 1, September 1, and December 1 - Nagasaki paid quarterly
dividends of P0.50 per share on cash of these dates. Nagasaki‟s net income for the
year ended December 31, 2007 was P1,200,000.

At December 31, 2007, ABARCA SUGAR‟s management intended to hold Nagasaki‟s stock
on a long term basis with the remaining investments considered temporary. Market prices
per share of the marketable equity securities were as follows:

12/31/07 12/31/06

Shan Lily Co., preferred stock P 56 P 42

Shan Lily Co., common stock 20 18

Azenith Corp., common stock 11 11

Ronette Co., common stock 22 20

Nagasaki Ryuco, Co., common 16 18

All of the foregoing stocks are listed on major stock exchanges. Declines in market value
from cost would not be considered permanent.

5. The cost per share of Shan Lily preferred at December 31, 2007 is:
a. P 13.33 b. P 20.00 c. P 40.00 d. P 60.00

6. The adjusted balance of Shan Lily preferred (cost) at December 31, 2007 is:
b. P 20,000 b. P 28,000 c. P 30,000 d. P 50,000

7. The number of shares acquired by ABARCA SUGAR through conversion of Shan Lily
stock is:
c. 300 b. 500 c. 1,500 d. 3,000

8. The adjusted balance of Azenith common (cost) at December 31, 2007 is:
d. P 60,000 b. P 37,273 c. P 35,000 d. P 27,500

9. The sale of Ronette common on June 1 resulted to a:

e. Gain of P3,250 b. Loss of P2,000 c. Gain of P12,500 d. Loss of
P3,250

10. The adjusted balance of Ronette common (cost) at December 31, 2007 is:
f. P 55,000 b. P 46,900 c. P 42,500 d. P 41,250

11. The adjusted balance of Nagasaki common (cost) at December 31, 2007 is:
 g. P 1,845,000 b. P 1,860,000 c. P 1,700,000 d. P 1,545,000

12. The total dividend income of ABARCA SUGAR at December 31, 2007 is:
h. P 8,400 b. P 5,900 c. P 5,300 d. P 0

13. The total income from investment of ABARCA SUGAR from Nagasaki at December
31, 2007 is:
i. P 145,000 b. P 160,000 c. P 345,000 d. P 360,000
14. ABARCA SUGAR‟s income statement at December 31, 2007 will report a:
j. No unrealized gain/loss in market decline.
k. P7,000 unrealized loss in market decline.
l. P7,000 unrealized gain in market decline.
m. P23,400 unrealized gain in market recovery.

The account balances as of January 1, 2007, consisted of the following:

Ventanilla Company – Common

1,000 shares, purchased in June 1997 at P20 per share, P20,000.
2,000 shares, purchased in August 1999 at P16 per share, P32,000.
1,500 shares, purchased in May 2002 at P22 per share, P33,000

Don Dave Company – Common

2,000 shares. Purchased in January 2003 at P33 per share, P66,000

Suson Company – Common

100 shares purchased in August 2003 at P73 per share, P7,300

Jasmin Company 5% bonds

2 bonds, P10,000 each purchased in July 2001 at par, P20,000
(Interest dates February 1 and August 1).

Sucuahi Company chattel mortgage on machinery

5, P10,000 mortgage taken in September 2004 in settlement of a receivable,
P10,000

Your examination discloses the following information:

 In January 2007, 1,000 shares of the Ventanilla company common stock

purchased in May 2002 were sold for P21,364 net.
 In March 2007, 500 shares of Don Dave common stock were purchased at P24
per share plus brokerage, for P12,125.
 In June 2007, the Suson Company paid a 100% stock dividend on common.
 In July 2007, JOY CORPORATION sold to its president, for P125 per share, 100
shares of Suson common stock, for which the president gave his check for
P8,750 and a letter in which he agreed to pay the balance upon demand of the
treasurer of JOY CORPORATION.
 On August 2007, the Jasmin Company redeemed its 5% bonds at 110 plus
accrued interest.
 In September 2007, JOY CORPORATION received one year interest on the
P10,000 chattel mortgage of Sucuahi.
 15.The adjusted balance of Gain or Loss of Sale/Redemption on Investment at
December 31, 2007 is:
a. P 8,214 b. P 10,214 c. P 10,850 d. P 10,714

16. The adjusted balance of Investment at December 31, 2007 is:

b. P 157,728 b. P 155,411 c. P 154,775 d. P 152,692

17. The Investment at December 31, 2007 is:

c. Overstated by P 2,953 c. Overstated by P5,036
d. Overstated by P 2,317 d. Overstated by P3,056

18. Investment in Ventanilla Company common stock at year-end is:

e. P 65,000 b. P 63,000 c. P 63,636 d. P 52,000

19. Investment in Don Dave Company common stock at year-end is:

f. P 78,125 b. P 66,000 c. P 61,625 d. P 49,500

20. Investment in Suson Company common stock at year-end is:

g. P 7,300 b. P 3,650 c. P 2,500 d. P 1,450

During 2006, Marlisa Company purchased marketable equity securities as trading securities.
At December 31, 2006, the balance in the allowance to reduce marketable equity securities
to market was P23,000. Pertinent information at December 31, 2007 is as follows:

Security Cost Market Value

Helen common P 245,000 P 230,000
Maritess common 180,000 182,000
P 425,000 P 412,000

On January 1, 2007, Marlisa Company paid P700,000 for 100,000 shares of Louie Company
representing 30% of Louie‟s outstanding common stock. The following computations was
made by Marlisa Company:
Purchase price P 700,000
30% equity in book value of Louie‟s net
assets 500,000
Excess of cost over book value P 200,000
The excess cost over book value was attributed to goodwill. Louie reported net income for
the year ended December 31, 2007 of P300,000. Louie Company paid cash dividends of
P100,000 on July 1, 2007. As of December 31, 2007 Marlisa reported, in its balance sheet,
a P700,000 balance of an Investment of Louie Stocks.

25. Marlisa Company‟s December 31, 2007 balance sheet should report the marketable
equity securities at:
a. P 427,000 b. P 412,000 c. P 410,000 d. P 402,000

26. In its 2007 income statement, Marlisa should report a (an):

 a. Gain on market recovery of P8,000.
b. Gain on market recovery of P10,000.
c. Unrealized loss of P13,000.
d. Unrealized loss of P15,000.

27. If Marlisa Company exercised significant influence over Louie Company, the amount
of net investment revenue Marlisa Company should report from its investment in Louie
would be
a. P 30,000 b. P 80,000 c. P 90,000 d. P 110,000

28. If Marlisa Company exercised significant influence over Louie Company, the carrying
value of its investment in Louie at December 31, 2007 would be
a. P 810,000 b. P 780,000 c. P 760,000 d. P 750,000

29. If Marlisa Company did not exercise significant influence over Louie Company and
properly accounted for the long-term, investment under the cost method. The amount
of net investment revenue Marlisa Company should report from its investment in Louie
would be
a. P 30,000 b. P 80,000 c. P 90,000 d. P 110,000

30. If Marlisa Company did not exercise significant influence over Louie Company and
properly accounted for the long-term investment under the cost method, the carrying
value of its investment in Louie at December 31, 2007 would be
a. P 780,000 b. P 750,000 c. P 700,000 d. P 500,000