Name: _________________________________________ Date: _______________

1. At the beginning of the current year, Denver Company purchased marketable equity securities
to be held as “trading” for P5,000,000. Denver also paid transaction costs amounting to
P200,000. The securities had a market value of P5,500,000 at year-end and the transaction cost
that would be incurred on sale is estimated at P100,000. No securities were sold during the
current year. What amount of unrealized gain or loss on these securities should be reported in
the profit or loss portion of the income statement of for the current year?

2. Refer to previous problem, what is the amount of unrealized gain or loss on these securities
that should be reported in the other comprehensive income part of the income statement of for
the current year

3. At the beginning of the current year, Stockholm Company acquired nontrading equity
instrument of Manila Dentals for P4,000,000. The equity instrument is irrevocably designated
as financial asset at fair value through other comprehensive income. Transaction cost incurred
amounted to P700,000. The fair value of the instrument was P5,500,00 at at year-end and the
transaction cost that would be incurred on the sale of the investment is estimated at P600,000.
What amount of gain should be recognized in other comprehensive income for the current year?

4. On December 31, 2018, Salva Company appropriately reported a P100,000 unrealized loss.
There was no change during 2019 in the composition of the portfolio of nontrading equity
securities held at fair value through other comprehensive income.

Security Cost Market Value 12/31/19

Sergio Corp. 1,200,000 1,300,000
Marquina Co. 900,000 500,000
Ciao Holdings 1,600,000 1,500,000
3,700,000 3,300,000

What is the market value of the investment on December 31, 2018?

5. Refer to previous problem, what amount of loss on these securities should be included in the
statement of comprehensive income for the year ended December 31, 2019 as component of
other comprehensive income?

6. Refer to previous problem, what cumulative amount of loss on these securities should be
reported in the statement of changes in equity for the year ended December 31, 2019 as
component of other comprehensive income?

7. On March 1, Nairobi Corp. purchased 10,000 ordinary shares at P80 per share. On September
30, Nairobi received 10,000 share rights to purchase an additional 10,000 shares at P90 per
share. On September 30, the share had a market value P95 and the share right had a market
value of P5. What amount should be reported on September 30 for investment in share rights?

8. Berlin Company issued rights to subscribe to its stock, the ownership of 4 shares entitling the
shareholders to subscribe for 1 share at P100. Ariadna Company owns 50,000 shares of Berlin
Company with total cost of P5,000,000. The share is quoted right-on at 125. What is the cost of
the new investment if all of the stock rights are exercised by the investor?
9. During 2018, Arturo Company bought the shares of Miguel Company.

June 1 20,000 shares @ P100 2,000,000

December 1 30,000 shares @ P120 3,600,000
5,600,000
Transactions for 2019
January 10 Received 20% share dividend
July 20 Received cash dividend of P10 per share
December 10 Sold 30,000 shares at P125 per share

What is the amount that should be reported as dividend income for 2019?

10. Refer to previous problem, what is the gain on the sale of shares under FIFO approach?

11. Refer to previous problem, what is the gain on sale of shares under average approach?

12. At the beginning of the current year, Tokio Corp. purchased 40% of the outstanding ordinary
shares of Rio Company, paying P6,400,000 when the carrying amount of the net assets of Rio
Company equaled P12,500,000. The difference was attributed which had a carrying amount of
P3,000,000 and a fair market value of P5,000,000 and to building which had a carrying
amount of P2,500,000 of P4,000,000. The remaining useful life of the equipment and building
was 4 years and 12 years, respectively. During the current year, Rio Company reported net
income of P5,000,000 and paid cash dividend of P2,500,000.

What is the excess of cost over the carrying amount of net assets acquired?

13. Refer to previous problem, what amount should be reported as investment income for the
current year?

14. Refer to previous problem, what is the carrying amount of the investment in associate at
year-end?

15. On January 1, 2018, Helsinki Company acquired a 10% interest in an investee for
P3,000,000. The investment was accounted for using the cost method. On January 1, 2019, the
entity acquired a further 15% interest in the investee for P6,750,000. On such date, the carrying
amount of the net assets of the investee was P36,000,000 and the fair value of the 10% interest
was P4,500,000. The fair value of the net assets of the investee is equal to carrying amount
except for an equipment whose fair value exceeds carrying amount by P4,000,000. The
equipment has a remaining life of 5 years. The investee reported net income of P8,000,000 for
2019 and paid cash dividend of P5,000,000 on December 31, 2019.

What amount of gain on remeasurement to equity should be recognized for 2019?

16. Refer to the previous problem, what is the goodwill arising from the acquisition on January
1, 2019?

17. Refer to the previous problem, what is the carrying amount of the investment in associate on
December 31, 2019?

18. At the beginning of the current year, Oslo acquired a 30% interest in an investee at a cost of
P3,200,00. The equity of the investee on the date of acquisition was P6,000,000 consisting of
P4,000,000 share capital and P2,000,000 retained earnings. All the identifiable assets and
liabilities of the investee were recorded at fair value except for an equipment with a fair value of
P3,000,000 greater than the carrying amount. The useful life of the equipment is 5 years. At
year-end, Oslo had inventory costing P2,000,000 on hand which had been purchased from the
investee. A profit of P600,000 had been made on the sale. During the current year, the investee
reported net income of P4,000,000 and aid dividend of P1,500,000.
The equity of the investee at year-end showed the following:

Share capital 4,000,000

Retained earnings 3,500,000
Retained earnings appropriated 1,000,000
Revaluation surplus 2,000,000
The revaluation surplus arose from a revaluation of land made at the end of the current year.
The retained earnings appropriated arose from a transfer of unappropriated retained earnings
appropriated for contingencies.

What is the goodwill from the acquisition of the investment?

19. Refer to previous problem, what is the investment income for the current year?

20. Refer to previous problem, what is the carrying amount of the investment in associate at
year-end?

21.On January 1, 2018, Moscow Company purchased as a long-term investment P5,000,000

face value of Lisbon Company’s 8% binds for 4,562,000. The bonds were purchased to yield 10%
interest. The bonds mature on January1, 2023 and pay interest annually on December 31. The
interest method of amortization is used.

What is the interest income for 2019?

22. Refer to previous problem, what is the carrying amount of the bond investment on
December 31, 2019

23. On January 1, 2018, Sierra Company purchased 9% bonds with a face amount of
P4,000,000 for P3,756,000 to yield 10%. The bonds are dated January 1, 2018, mature on
December 31, 2027 and pay interest annually on December 31. The interest method of
amortizing bond discount is used.

What amount should be reported as interest revenue for 2018?

24. Refer to previous problem, what amount should be reported as interest revenue for 2019?

25. On October 1, Mersaille Company purchased 12% bonds with face amount of P2,000,000 for
95 plus accrued interest and brokerage fee. Interest is paid semiannually on January 1 and July
1. Brokerage fee for this transaction was P50,000.

At what amount should the acquisition of bonds be recorded?

26. At the beginning of the current year, Angel Co. purchased ten-year bonds with a face amount
of P1,000,000 and a stated interest rate of 8% per year payable semiannually June 30 and
December 31. The bonds were acquired to yield 10%.

What is the market price or purchase price of the bonds? (Use three decimal places)

27. On January 1, 2018, Bogota Corp. purchased serial bonds with face amount of P3,000,000
and stated 12% interest payable annually every December 31. The bonds are to be held as
financial asset at amortized cost with a 10% effective yield. The bonds mature at an annual
installment of P1,000,000 every December 31. The present value of 1 at 10% for:

One period .91

Two periods .83
Three periods .75

What is the present value of the serial bonds on January 1, 2018?

28. Refer to previous problem, how much is the bond carrying value on December 31, 2019?

29. Refer to the previous problem, how much is the interest income on December 31, 2018?

30. Refer to previous problem, how much is the premium amortization on December 31, 2019?
31. On January 1, 2018, Cincinnati Company purchased bonds with face amount of P5,000,000
for P4,760,000 including transaction cost of P160,000 of Ibiza Corp. The business model is to
collect contractual cash flows and to sell the financial asset. The bonds mature on December 31,
2020 and pay 10% interest annually on December 31 with at 12% effective yield. The bonds are
quoted at 102 on December 31, 2018 and 105 on December 31, 2019. The bonds are sold on June
30, 2020 plus accrued interest.
What amount of unrealized gain should be reported as component of other comprehensive
income for 2018?

32. Refer to the previous problem, what amount of unrealized gain should be reported as
component of other comprehensive income for 2019?

33. Refer to previous problem, what amount should be recognized as gain on sale of the bond
investment on June 30, 2020?

34. On January 1, 2018, Manila Luzon Company purchased 12% bonds with face amount of
P5,000,000 including transaction cost of P100,000. The bonds provide an effective yield of
10%. The bonds are dated January 1, 2018 and pay interest annually on December 31 of each
year. The bonds are quoted at 115 on December 31, 2018. The entity has irrevocably elected the
fair value option.

What amount of gain from change in fair value should be reported for 2018?

35. Refer to previous problem, what amount of interest income should be reported for 2018?

36. Refer to previous problem, what is the carrying amount of the bond investment on
December 31, 2018?

37. Refer to previous problem, what total amount of income form the investment should be
reported in the income statement for 2018?

38. On January 1, 2018, Palermo Company purchased 9% bonds in the face amount of
P6,000,000. The bonds mature on January 1, 2023 and were purchased for P5,555,000 yield
11%. The entity classified the bonds as held for trading and interest is payable annually every
December 31. The entity provided the following information about fair value of the bonds and
effective rate:

Fair value Effective rate

December 31, 2018 5,450,000 12%
December 31, 2019 6,155,000 8%

On December 31, 2019, the entity changed the business model for this investment to collect
contractual cash flows composed of principal and interest.

On January 1, 2020, the fair value of the bonds did not change.

What is the interest income for 2018?

39. What amount of unrealized loss should be recognized in profit or loss for 2018?

40. What is the interest income for 2020?