Quizzer

1. On January 1, 2012, Garry, Incorporated purchased 15,000 shares of Lanz Company for
P150,000 giving Garry a 15% ownership of Lanz. On January 1, 2013 Garry purchased an
additional 25,000 shares (25%) of Lanz for P300,000. This last purchase gave Garry the ability
to apply significant influence over Lanz. The book value of Lanz on January 1, 2012, was
P1,000,000. The book value of Lanz on January 1, 2013, was P1,150,000. Any excess of cost
over book value for this second transaction is assigned to a database and amortized over five
years.Lanz reports net income and dividends as follows. These amounts are assumed to have
occurred evenly throughout the years:
Net Dividends
Income
2012 P200,000 P50,000
2013 225,000 50,000
2014 250,000 60,000
On April 1, 2014, just after its first dividend receipt, Garry sells 10,000 shares of its investment.
What was the balance in the investment account at December 31, 2013? 540,000

2. JP Inc. bought 30% of Mark Company on January 1, 2013 for P450,000. The equity method of
accounting was used. The book value and fair value of the net assets of Mark on that date
were P1,500,000. Mark began supplying inventory to JP as follows:
Cost to Transfe Amount Held by
r
Year Mark Price JP at Year-End
201 P30,00 P45,00 P 9,000
3 0 0
201 P48,00 P80,00 P20,000
4 0 0
Mark reported net income of P100,000 in 2013 and P120,000 in 2014 while paying P40,000 in
dividends each year.
What is the Equity in Mark Income that should be reported by JP in 2014? 34,500
What is the balance in JP’s Investment in Mark account at December 31, 2013? 467,100

3. Equity investments acquired by an entity which are accounted for by recognizing unrealized holding
gains or losses as component of other comprehensive income are a
a. Nontrading where an entity has holdings of less than 20%.
b. Investments where an entity has holdings of between 20% and 50%.
c. Investments where an entity has holdings of more than 50%.
d. ‘Trading investments where an entity has holdings of less than 20%.

4. On January 1, 2013, Vic Corporation acquired 30 percent of Roger Company's stock for P150,000. On
the acquisition date, Roger reported net assets of P450,000 valued at historical cost and P500,000
stated at fair value. The difference was due to the increased value of buildings with a remaining life of
15 years. During 2013 and 2014 Roger reported net income of P25,000 and P15,000 and paid
dividends of P10,000 and P12,000, respectively. Vic uses the equity method.
What amount of investment income will be reported by Vic for 2014? 3,500

Had Vic Corporation used the cost method, what would have been the balance in the investment
account on Dec 31, 2014? 150,000

5. On June 30, 2020, Rene Company purchased 25% of the outstanding ordinary shares of IB
Co. at a total cost of 2,100,000. The book value of IB Co.s net assets on acquisition date was
7,200,000. For the following reasons, Rene was willing to pay more than book value for the IB
Co. stock:
1 IB Co. has depreciable assets with a current fair value of 180,000 more than
their book value. These assets have a remaining useful life of 10 years.
2 All other identifiable tangible and intangible assets of IB Co. have current fair
values that are equal to their carrying amounts.
3 IB Co. owns a tract of land with a current fair value of 900,000 more than its
carrying
 amount.
IB Co. reported net income of 1,620,000, earned evenly during the current year ended
December 31, 2020. Also in the current year, it declared and paid cash dividends of 315,000 to
its ordinary shareholders. Market value of IB Co.s ordinary shares at December 31, 2020, is 9
million. Rene Companys financial year-end is December 31.

What is the total amount of goodwill of IB Co. based on the price paid by Rene Company?
120,000

6. On January 1, 2013, Mike, Incorporated, paid P100,000 for a 30% interest in Rose Corporation. This
investee had assets with a book value of P550,000 and liabilities of P300,000. A patent held by Rose
having a book value of P10,000 was actually worth P40,000 with a six year remaining life. Any goodwill
associated with this acquisition is considered to have an indefinite life. During 2013, Rose reported
income of P50,000 and paid dividends of P20,000 while in 2014 it reported income of P75,000 and
dividends of P30,000. Assume Mike has the ability to significantly influence the operations of Rose.
The equity in income of Rose for 2013, is 13,500

7. On January 1, 2014, Rafa Company acquired 30 percent of Dave Company's common stock, at
underlying book value of P100,000. Dave has 100,000 shares of P2 par value, 5 percent cumulative
preferred stock outstanding. No dividends are in arrears. Dave reported net income of P150,000 for
2014 and paid total dividends of P72,000. Rafa uses the equity method to account for this investment.
What amount of investment income will Rafa Company report from its investment in Dave for the year?
42,000
What amount would be reported by Rafa Company as the balance in its investment account on
December 31, 2014? 123,400

8. Ted Company invested in a debt instrument on July 1, 2018. At this date, the cost and fair
value of the instrument is 1,000,000. The companys practice is to buy securities to be available
for sale when circumstances warrant, not to profit from short-term differences in price and not
necessarily to hold them to maturity. Hence, the debt instrument acquired is classified as
available-for-sale and measured at fair value, and changes in fair value are classified as
component of other comprehensive income.
The following table sets out the changes in the fair value of the debt instrument, and the nature
of the change in each year:
Year Fair Value Change Nature of Change
2019 (100,000) No objective evidence of impairment
2020 (200,000) Objective evidence of impairment
2021 15,000 Objective evidence of reversal of
impairment
The impairment loss to be recognized in 2019 is 0

9. Topy Inc. owns 30% of Dave Co. and applies the equity method. During the current year, Topy bought
inventory costing P66,000 and then sold it to Dave for P120,000. At year-end, only P24,000 of
merchandise was still being held by Dave. What amount of intercompany inventory profit must be
deferred by Topy? 3,240

10. 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
a. Make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the
amount of interest accrued since the last interest receipt date.
b. 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.
c. Notify the issuer and request that a special payment be made for the appropriate portion of
the interest period.
d. Do nothing special and ignore the fact that the accounting period does not coincide with the
bond's interest period.
11. On January 1, 2013, Jose Company acquired 40 percent of Tina Company's common stock. For this
acquisition, Jose paid P45,000 above book value. The full differential was attributed to equipment with
a remaining life of ten years and zero salvage value at the date of acquisition. During 2013 and 2014,
Tina reported net income of P90,000 and P50,000 and paid dividends of P40,000 and P60,000,
respectively. Jose reported a balance in its investment account of P230,000 on December 31, 2014. It
uses the equity method in accounting for this investment
During 2014, Jose will report: b
a. a decrease in the investment account balance of P15,500
b. a decrease in the investment account balance of P8,500
c. an increase in the investment account balance of P20,000
d. an increase in the investment account balance of P8,000

12. Google Co. received a cash dividend from a common stock investment. Should Google report an
increase in the investment account if it has classified the stock as FVOCI or uses the equity method of
accounting? b
a. FVOCI (Yes); Equity (Yes)
b. FVOCI (No); Equity (No)
c. FVOCI (Yes); Equity (No)
d. FVOCI (No); Equity (Yes)

13. How is goodwill arising from investments in associates accounted for? b

a. Recognized as a separate asset either in the group financial statements or in the separate
financial statements but not amortized.
b. Included in the carrying amount of the investment and the entire investment in associate is
tested for impairment under PAS 36.
c. Included in the carrying amount of the investment and not amortized but tested separately
for impairment at least annually.
d. Not accounted for separately; however, presented as a separate asset in the investors
separate financial statements.

14. Equity method shall cease to be applied only when the investor loses significant influence over the
associate. Which of the following is not true? b
a. The loss of significant influence can occur with or without a change in the percentage of
ownership.
b. There is a presumption of loss of significant influence when the associate is operating under
severe long-term restrictions that significantly impair its ability to transfer funds to the
investor.
c. There is a presumption of loss of significant influence if the ownership interest falls below
20%.
d. An entity loses significant influence over an investee when it loses the power to participate in
the financial and operating policy decisions of that investee.

15. Significant influence may be lost in any of the following, except a

a. The associate is operating under severe long-term restrictions that significantly impair its
ability to transfer funds to the investor.
b. The investor retains its 20% interest in the associate but grants its voting rights to an
unrelated party.
c. The investor loses its right to appoint board of directors in the associate.
d. The investor purchases additional 31% interest in the associate.

16. Which of the following items does not affect the Investments in Associate account of the investor? a
a. Amortization of excess relating to undervalued land reported by the associate
b. Cash dividends received from the associate
c. Share in net loss of the associate
d. Share in Other comprehensive income recognized by the associate

17. Bliss Co. uses the equity method to account for its investment in Nirvana, Inc. common stock. How
should Bliss record a 2% stock dividend received from Nirvana? d
 a. As dividend revenue at Nirvana's carrying value of the stock.
b. As a reduction in the total cost of Nirvana stock owned.
c. As dividend revenue at the market value of the stock.
d. As a memorandum entry reducing the unit cost of all Nirvana stock owned.

18. The following statements relate to the accounting for investments in equity instruments. c
I Whenever an investment in marketable equity securities does not qualify for
accounting using the equity method, the investor is required to recognize as
dividend income cash dividends received from the investee.
II The cost measurement for equity investments is permitted in separate financial
statements.
III An investor may still be able to exercise significant influence over an investee,
even if the investment is less than 20% of the voting stock of the investee.
IV No adjustment to the investment account is made when changing from the
equity to the fair value measurement, or vice versa..
a. I, III
b. I, II
c. I, II, III
d. I, II, IV

19. According to PAS 28, significant influence is the investors participation in the financial and operating
policy decisions of the investee but not control of these decisions. Which of the following may an
investor be unable to exercise significant influence? d
a. material intercompany transactions
b. technological dependency
c. participation in policy making process
d. majority ownership of the investee concentrated among a small group of shareholders who
operate the investee without regard to the views of the investor

20. When the accounting policies used by the investor and the associate do not match d
a. In no instance should the accounting policies used by the investor and the associate be
different.
b. PAS 28 does not require appropriate adjustments to the associates financial statements to
conform them to the investors accounting policies for reporting like transactions and other
events in similar circumstances when it was not practicable to use uniform accounting
policies.
c. PAS 28 requires the entity to discontinue the use of the equity method.
d. PAS 28 requires appropriate adjustments to the associates financial statements to conform
them to the investors accounting policies for reporting like transactions and other events in
similar circumstances.

21. An investors 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? b
a. Additional losses shall be provided only to the extent that the investor has incurred legal or
constructive obligators or made payments in behalf of the associate
b. The investor shall continue recognizing its share of further losses
c. The investment is reduced to zero
d. If the associate subsequently reports profit, the investor resumes recognizing its share of
profit only after its share of profit equals the share of the losses not previously recognized.

22. On July 1, 2013, Mark Company paid P1,000,000 for 100,000 share (40%) of the outstanding voting
stock of another entity. At that date, the net assets of the investee totaled P2,500,000 and the fair
values of all identifiable assets and liabilities were equal to their carrying amounts. The investee
reported net income of P500,000 for the year ended December 31, 2013, of which P300,000 was for six
months ended December 31, 2013. The investee paid cash dividends of P250,000 on September 30,
2013. The investor has not elected the fair value option of the accounting for the investment. What
amount of the income should be reported from the investment in associate? 120,000
23. Al Company has the following securities in its available-for-sale portfolio of securities on
December 31, 2019:
Security Shares Cost Fair Value
Danica Co. ordinary shares 4,500 220,500 207,000
Rose Corp. ordinary shares 15,000 540,000 525,000
Assunta, Inc. preference shares 1,200 180,000 184,800
Totals 940,500 916,800
All of the above securities were bought in 2019. In 2020, Al had the following transactions
relating to its investments:
April 1 Sold the 4,500 ordinary shares of Danica Co. for 65 per share.
May 1 Brought 2,100 ordinary shares of Rita Corp. at 75 plus brokers fee of
5,200.
Als portfolio of available-for-sale securities appeared as follows on December 31, 2020:
Security Shares Cost Fair Value
Rose Corp. ordinary shares 15,000 540,000 525,000
Rita Corp. ordinary shares 2,100 157,500 (a) 151,200
Assunta, Inc. preference shares 1,200 180,000 174,000
Totals 877,500 850,200
(a) The 5,200 brokers fee was recorded as expense.
What is the realized gain or loss on the sale of Danica Co. ordinary shares on April 1,
2020? 72,000 gain

24. On January 3, 2013, Marcos Corp. purchased 25% of the voting common stock of Enrile Co.,
paying P2,500,000. Marcos decided to use the equity method to account for this investment. At
the time of the investment, Enrile’s total stockholders’ equity was P8,000,000. Marcos gathered
the following information about Enrile’s assets and liabilities:
Book value Fair value
Buildings (10 year 400,000 500,000
life)
Equipment (5 year 1,000,000 1,300,000
life)
Franchises (8 year 0 400,000
life)
For all other assets and liabilities, book value and fair value were equal. Any excess of cost
over fair value was attributed to goodwill, which has not been impaired.
For 2013, what is the total amount of excess amortization for Marcos’s 25% investment in
Enrile? 30,000

25. On June 30, 2020, Rene Company purchased 25% of the outstanding ordinary shares of IB
Co. at a total cost of 2,100,000. The book value of IB Co.s net assets on acquisition date was
7,200,000. For the following reasons, Rene was willing to pay more than book value for the IB
Co. stock:
1 IB Co. has depreciable assets with a current fair value of 180,000 more than
their book value. These assets have a remaining useful life of 10 years.
2 All other identifiable tangible and intangible assets of IB Co. have current fair
values that are equal to their carrying amounts.
3 IB Co. owns a tract of land with a current fair value of 900,000 more than its
carrying
amount.
IB Co. reported net income of 1,620,000, earned evenly during the current year ended
December 31, 2020. Also in the current year, it declared and paid cash dividends of 315,000 to
its ordinary shareholders. Market value of IB Co.s ordinary shares at December 31, 2020, is 9
million. Rene Companys financial year-end is December 31.
 What amount of investment revenue should Rene report on its income statement for the year
ended December 31, 2020, under the cost method? 78,750

26. On January 1, 2012, Nick Inc. acquired 15% of Daryl Co.’s outstanding common stock for
P62,400 and categorized the investment as an available-for-sale security. Daryl earned net
income of P96,000 in 2012 and paid dividends of P36,000. On January 1, 2013, Nick bought
an additional 10% of Daryl for P54,000. This second purchase gave Nick the ability to
significantly influence the decision making of Daryl. During 2013, Daryl earned P120,000 and
paid P48,000 in dividends. As of December 31, 2013, Daryl reported a net book value of
P468,000. For both purchases, Nick concluded that Daryl Co.’s book values approximated fair
values and attributed any excess cost to goodwill.
On Nick’s December 31, 2013 balance sheet, what balance was reported for the Investment in
Daryl Co. account? 143,400

27. On January 4, 2020, Mico Company paid 38 million for 2 million shares of Michael Co. ordinary
shares. The stock investment represents a 25% interest in the net assets of Michael and gave
Mico the ability to exercise significant influence over Michaels operations. The book value of
Michaels net assets was 106 million. The fair market value of Michaels depreciable assets
exceeded their book value by 20 million. These assets had an average remaining useful life of
5 years. The remainder of the excess of the cost of the investment over the book value of net
assets purchased was attributable to goodwill.
On December 28, 2020, Mico received dividends of 1.50 per share. Michael reported net
income of 30 million for the year ended December 31, 2020. The market value of Michaels
ordinary shares at December 31, 2020, was 27.50 per share.
What portion of the investment cost is attributable to goodwill? 6,500,000

28. On January 4, 2013, Frances Co. purchased 40,000 shares (40%) of the common stock of
Alan Corp., paying P560,000. At that time, the book value and fair value of Alan’s net assets
was P1,400,000. The investment gave Frances the ability to exercise significant influence over
the operations of Alan. During 2013, Alan reported income of P150,000 and paid dividends of
P40,000. On January 2, 2014, Frances sold 10,000 shares for P150,000.
What is the balance in the investment account after the sale of the 10,000 shares? 453,000