LESSON: Investments in Associates and Additional Concepts

Quiz
1. On January 1, 2020, KPO inc. acquired 20% ownership of BFD inc. paying
3,000,000. The fair value of the net assets as of the date is 10,000,000. All the
assets of BFD inc. were fairly valued except for its land which undervalued by
1,000,000. What is the amount of goodwill paid by KPO inc.?
Answer: 800,000 unreflected undervaluation
1,000,000 reflected *****
2. On January 1, 2020, GPO inc. acquired 20% ownership of RFD inc. paying
3,000,000. During the year, RFD inc. incurred heavy net loss of 18,000,000.
What is the balance of investment by GPO inc. by the year end?
Answer: 0
3. At reclassification date, the balance of the investment in FVOCI mandatory of
VGU inc. is 1,300,000 with cumulative OCI gain of 300,000. The debt investment
is a 1 million 10% 3-year bond that pays interest every year end maturing 2
years. The effective interest is also 10%. What is the amount of investment is
FVOCI mandatory at reclassification date?
Answer: 0 or 1.3M
4. On January 1, 2020, PPW inc. acquired 20% ownership of FFW inc. paying
3,000,000. The fair value of the net assets as of the date is 12,000,000. All the
assets of FFW inc. were fairly valued except for its equipment which is
undervalued by 3,000,000. Depreciation over 10 years remaining life. The profit
FFW for the year is 1,000,000. What is the balance of the investment account of
PPW in year end?

Answer: 3,140,000

5. On October 1, 2020, a 1,000,000 10% 3-year loan Is issued to a borrower with

the same effective interest of 10%. The analysis of the financial department
shows that the risk of default within 12 months is 2% and the remaining months
is 5%. The loss that the company sill sustain in case of default is 400,000. What
is the interest income on the loan as December 31, 2020?

Answer: 17,000

6. On March 31, 2022, LUE inc. purchased a 1,000,000 12% 3-year bond paying
1,024,000. The bond says interest every December 31 and the principal are
payable after 3 years. What is the carrying amount of the bond as of March 31,
2022?

Answer: 1,024,000
7. Which of the following is not an indicator for significant influence?
a. All of the choices are indicators of significant influence.
b. Providing technical information.
c. Interchange of managerial personnel.
d. A representation in the board of directors.

8. Zues Corp. owned 1,000 shares to Cronus inc. and sold it to Hercules corp. on
September 15, 2020. Cronus inc. declared dividend on September 1, 2020 with
the date of record on September 10, 2020 and the date of payment on
September 30, 2020. On the date of payment, who will receive the dividends?
a. Hercules Inc.
b. Hera, the wife of Zeus inc.
c. Zeus Corp.
d. Cronus inc.
9. Detachable warrants
a. Are equity instruments.
b. Are required to be used upon due date.
c. Are warrants of arrest that are detached from the pad paper.
d. Nonmarketable securities.
10. Stock rights
a. All the choices pertain to stock rights.
b. Are attached to a share for a privilege to acquire additional shares.
c. Are equity instruments.
d. Are classified as current assets.