RFBT: MOCK QUALIFYING QUIZ 3 – Investment in Debt & Equity Securities, Inventories

(30 items)

1. Under PFRS 9, the initial classification of investments in financial assets is generally based on
Select one:
a. whether the financial securities are intended to be held within 1 year or not
b. the entity's business model and the contractual cash flow characteristics of the financial asset
c. All of the above
d. whether the financial securities have active markets or not

2. David, Inc. uses the retail method to estimate its monthly cost of goods sold and month-end inventory.
At August 31, the accounting records indicate the cost of goods available for sale during the month
totaled P 120,000. These goods had been priced for resale at P 300,000. Net sales in August totaled P
180,000.
The estimated inventory at August 31 is:
Select one:
a. Some other amount
b. P 120,000
c. P 72,000
d. P 48,000

3. Starlord Co. sells musical instruments. At December 31, 2017, the balance in Starlord’s Inventory
account was P 50,200, and the Allowance for Inventory Writedown had a balance of P 3,200. The
relevant inventory cost and market data at December 31, 2017, are summarized in the schedule below:

Cost Replacement Cost Sales Price Net Realizable value Normal Profit

Guitars P 8,900 P 8,600 P 9,150 P 8,700 P 640

Xylophones 9,400 9,200 9,300 8,500 744
Trumpets 12,500 13,500 12,900 11,100 1,161
Violins 19,400 11,400 20,500 19,700 2,050
Total P 50,200 P 42,700 P 51,850 P 48,000 P 4,595

What is the proper balance in the Allowance for Inventory Write-down at December 31, 2017?
Select one:
a. P 7,500
b. P 2,500
 c. P 2,200
d. P 3,200
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4. On January 2, 2020, Narvacan Company acquired 100,000 shares of ABC Company common stock for
a total consideration of P6,000,000. On October 1, 2020, Narvacan received from ABC a preferred
stock dividend of one share for every 10 common shares held. On this date, the market price of ABC
common is P75 per share and the ABC preferred, P50 per share. Narvacan Company should report its
investment in ABC Company preferred stock at
Select one:
a. 500,000
b. 0
c. 750,000
d. 375,000

5. Julie Trading has the following inventory transactions for the month of July 2016:

- Beginning balance 100 units 100 unit cost

- Purchases 900 units 150 unit cost

- Sale 700 units

- Purchases 500 units 250 unit cost

- Ending balance 800 units

What is the cost of sales under the FIFO method, Weighted Average and Moving Average?
Select one:
a. P 102,000 ; P 126,000 ; P 100,000
b. P 100,000 ; P 124,500 ; P100,000
c. P 100,000 ; P 126,000 P 101,500
d. P 102,000 ; P 124,500 ; P 101,500

6. Pinatubo Inc. acquired 100,000 ordinary shares of Mayon Company at P120 per share. On February
14, 2018, Pinatubo Inc. received 100,000 stock rights entitling it to buy one new share at P90 for
every two rights held. On February 14, 2018, the market value of each share is P130 while that of
each right is not known. On March 1, 2018, all the stock rights were exercised. If share
rights are accounted for separately, what is the total cost of the new investment in ordinary shares
acquired?
 Select one:
a. P8,500,000
b. P6,100,000
c. P11,000,000
d. P6,500,000
e. P4,500,000

7. An entity purchased P5,000,000 of 8%, 5-year bonds on January 1, 2020 with interest payable on
June 30 and December 31. The bonds were purchased for P5,100,000 plus transaction cost of
P108,000 at an effective interest rate of 7%. The business model for this investment is to collect
contractual cash flows and sell the bonds in the open market. On December 31, 2020, the bonds were
quoted at 106.
What amount should be recognized in OCI in the statement of comprehensive income for 2020?
Select one:
a. P128,060
b. P92,000
c. P300,000
d. P125,440

8. On July 1, 2020, Jamila Company purchased as a long-term investment P1,000,000 face value 8%
bonds for P946,000 including accrued interest of P40,000. The bonds were purchased to yield 10%
interest. The bonds pay interest annually on December 31. The effective interest method of
amortization is used. What is the carrying amount of the investment in bonds on December 31, 2020?
Select one:
a. 960,600
b. 911.300
c. 953,300
d. 916,600

9. The following information is available for Kerr Company for 2017:

Freight-in P 60,000
Selling expenses 300,000
Purchase returns 150,000
Ending inventory 520,000

The cost of goods sold is equal to 300% of selling expenses.

What is the cost of goods available for sale?
Select one:
a. P 1,420,000
 b. P 1,480,000
c. P 900,000
d. P 1,330,000

10. Plack Co. has the following transactions during the year 2020:

· On February 14, Plack Co. purchased 5,000 ordinary shares of Ty Corp and 5,000 ordinary
shares of SABM Co.

· On March 20, Ty Corp. issued a 2:1 stock split (split-up).

· On April 30, Plack received a share dividend of 2,000 shares from Ty Corp. when the market
value per share was P35.

· On December 15, Ty paid a cash dividend of P2 per share .

· On December 31 , Plack Co. received 2,000 share of SABM Co. in lieu of cash dividend of P10
per share. On this date, the SABM Company share has a quoted market price of P60 per share.

In its 2020 income statement, what amount should Plack report as dividend income?
Select one:
a. P110,000
b. P144,000
c. P210,000
d. answer not given

11. Inventories are measured at

Select one:
a. The higher of cost and net realizable value on an item by item basis
b. The lower of cost and net realizable value on an item by item basis
c. The higher of cost and net realizable value on an aggregate basis
d. The lower of cost and net realizable value on an aggregate basis

12. Julie Trading has the following inventory transactions for the month of July 2016:
- Beginning balance 100 units 100 unit cost

- Purchases 900 units 150 unit cost

 - Sale 700 units

- Purchases 500 units 250 unit cost

- Ending balance 800 units

What is the cost of ending inventory under the FIFO method, Weighted Average and Moving
Average?
Select one:
a. P 170,000 ; P 144,000 ; P 168,500
b. P 168,000 ; P 145,500 ; P 168,500
c. P 168,000 ; P 144,000 ; P 170,000
d. P 170,000 ; P 145,500 ; P 170,000

13.Bonds usually sell at a premium

Select one:
a. In none of these cases
b. When the price of the bonds is less than their face value
c. When the market rate of interest is greater than the stated rate of interest on the bonds
d. When the stated rate of interest on the bonds is greater than the market rate of interest

14.The following transactions relate to Harmony Company during 2017:

-Inventories, in-transit to Harmony, FOB Destination (includes packaging,

shipping, handling costs of P 15,000 to be paid by Harmony) P 100,000

-Inventories, in-transit to Harmony, FOB Shipping point (excludes freight

and handling charges paid by the supplier of P 5,000) 50,000

-Inventories, in-transit to Harmony, FOB Seller (includes insurance

premium of P 1,000) 20,000

-Inventories, in-transit to customer, FOB Buyer (includes freight of P 2,000) 40,000

-Goods out on consignment (excludes transportation cost to consignee

of P 2,000) 30,000

-Inventories in the warehouse, fabricated to the order of a specific

 customer (includes cost of product design P 5,000) 50,000

Determine Harmony’s inventories.

Select one:
a. P 230,000
b. P 275,000
c. P 147,000
d. P 145,000

15. On June 1, 2017, Jockey, Inc. sold goods listed at P 10,000 granting trade discounts of 20% and 10%.
Credit terms are 2/10, n/30, FOB Destination. Freight of P 800 was paid by the buyer on June 2, when
the goods were received. On June 3, Jockey, Inc. accepted goods (originally listed at P 3,000) returned
by the buyer. On June 4, additional goods (originally billed at P 1,500) were returned.

What amount is presented as net sales?

Select one:
a. P 2,699.20
b. P 3,469.20
c. P 3,880.80
d. P 3,540.00

16. An entity returned merchandise purchased on account. Under a perpetual inventory system, the
account credited to book the return is
Select one:
a. Accounts payable
b. Purchases
c. Inventory
d. Purchase returns and allowances

17.Which is false regarding the classification of financial assets:

Select one:
a. Only equity securities can be classified as FVOCI
b. Both debt and equity securities can be classified as FVPL
c. All of the above
d. None of the above
e. Only debt securities can be classified as amortized cost

18. The Melon Company has partially-completed inventory located in its factory, to which the following
estimates relate:
 Production costs incurred to date P 2,900
Production costs to complete 2,000
Transport costs to customer 300
Future selling costs 400
Selling price 2,800

According to IAS 2 Inventories, what is the net realizable value of Melon's inventory?
Select one:
a. P 400
b. P 100
c. P 2,800
d. P 2,100

19. Purchases and accounts payable of Smarts Inc. registered at P 3,000,000 and P 2,200,000,
respectively, on December 31, 2017, before recording the following items:

A. Goods shipped to Smarts FOB Origin on December 22 were lost in transit. The P 40,000
invoice was not recorded by Smarts. Smarts filed on January 2018 P 40,000 claims against the
carrier.
B. On December 27, Smarts was authorized to return goods billed at P 70,000 on December 3.
Smarts shipped the goods on December 28. A P 70,000 credit memo was received and recorded
by Smarts on January 2018.
C. On December 28, under FOB Destination, Smarts purchased goods invoiced at P 15,000. The
goods were received on December 29. Packaging and handling charges incurred by Smarts
amounted to P 2,500.
D. Goods shipped to Smarts FOB Destination on December 22 and invoiced at P 50,000 were
received on January 2018.

What is the correct balance of accounts payable as of December 31, 2016?

Select one:
a. P 2,182,500
b. P 2,195,000
c. P 2,187,500
d. P 2,245,500

20. ABC co. acquired 20,000 shares of DEF Co. on March 1, 2019 for P2,000,000 and acquired
additional 30,000 shares of DEF CO. on October 31, 2019 at P120 per share. On
February 14, 2020, ABC Co. received 20% share dividend. On June 1, 2020, DEF Co. declared cash
dividend of P5 per share to shareholders of record on June 15, 2020. On June 6, 2020, ABC Co. sold
 30,000 shares at P125. How much is the gain on sale of investment assuming the FIFO method is
used?

Select one:
a. P950,000
b. P1,150,000
c. P550,000
d. P1,000,000
e. P150,000

21.The 10% bonds payable of Lucille Company had a net carrying amount of P570,000 on December 31,
2020. The bonds, which had a face value of P600,000, were issued at a discount to yield 12%. The
amortization of the bond discount was recorded under the effective interest method. Interest was paid
on January 1 and July 1 of each year. On July 2, 2021, several years before their maturity, Lucille
retired the bonds at 102. The interest payment on July 1, 2021 was made as scheduled. What is the loss
that Lucille should record on the early retirement of the bonds on July 2, 2021?
Select one:
a. P120,000
b. P37,800
c. P42,000
d. P33,600

22. When the 2017 ending inventory is overstated, which is incorrect?

Select one:
a. 2017 total assets is overstated
b. 2017 cost of goods sold is understated
c. 2018 net income is understated
d. 2017 net income is understated

23. An investor purchased a bond as investment at amortized cost on January 2. The investor’s carrying
value at the end of the first year would be highest if the bond was purchased at a
Select one:
a. Premium and amortized by the straight-line method
b. Discount and amortized by the straight-line method
c. Discount and amortized by the effective interest method
d. Premium and amortized by the effective interest method

24. The following items were included in Salem’s inventory account at December 31, 2016:

-Merchandise out on consignment, at sales price,

 (including 40% markup on cost) P 280,000
-Goods purchased, in transit, shipped FOB Seller
(excluding P3,000 freight and P1,000 insurance 180,000
-Goods held on consignment by Salem 135,000
-Imported inventory acquired on Dec. 15 US$ 2,000
-(Exchange rates: Dec. 15 – US$50; Dec. 31 – US$48) 96,000
Recoverable purchase taxes on imported goods 12,000

At what amount should Salem present its inventory at December 31, 2016?
Select one:
a. P 495,000
b. P 484,0000
c. P 448,000
d. P 579,000

25.Gains or losses on sale of Investment at FVOCI are recognized

Select one:
a. In profit or loss when debt securities only
b. In profit or loss (i.e. recycling) whether debt or equity securities
c. In profit or loss when equity securities only
d. In other comprehensive income whether debt or equity securities

26. Data regarding Stone Co's portfolio of equity securities accounted for as fair value through other
comprehensive income is as follows:
Aggregate cost as of 12/31/2020 (including transaction cost of 40,000) P340,000
Market value as of 12/31/2020 P296,000
Net realized gains during 2020 P60,000
At December 31, 2019, Stone Co. reported an unrealized loss of P3,000 to reduce investments to
market value. This was the first such adjustment made by Stone Co. on these types of securities. In
its 2020 statement of comprehensive income, what amount of unrealized loss should Stone report
Select one:
a. P60,000
b. P41,000
c. P0
d. P4,000
e. P44,000

27.On January 2, 2020, Holy Company invested in a 4-year 10% bond with a face value of P3,000,000 in
which interest is to be paid every December 31. The bonds has an effective interest rate of 8% and was
 acquired for P3,198,728. Holy Company has designated the debt instrument as investment at fair value
through OCI. Holy Company sold the bonds at the prevailing rate of 12%.

What amount of gain or loss should Holy Company recognize on the sale of security?
Select one:
a. 205,447
b. 109,127
c. 252,158
d. 250,447
e. 154,127

28. On January 1, 2020, Tarlac Company purchased bond with face amount of P2,000,000 for P1,900,500
including transaction costs of P100,500. Tarlac’s business model for this investment is to collect contractual
cash flows which are interest and principal. Tarlac did not elect the fair value option. The bonds mature on
December 31, 2022 and pay interest of 8% annually every December 31 with a 10% effective yield. On
December 31, 2020, Tarlac changed the business model for this investment to collecting contractual cash
flows and selling the asset in the open market. The bonds are quoted at 110 on January 1, 2021 and 120 on
December 31, 2021. What amount in OCI is recognized in the statement of changes in equity for 2021?
Select one:
a. 436,395
b. 166,945
c. 269,450
d. 499,500

29.Before a devastating flood consumed the business of Harold Company, the following records were
available:
 
Gross sales P  400,000 Purchases (no beg. Inventory) P  500,000
Sales discounts        10,000 Purchase discounts       40,000
Net sales P  390,000 Net purchases P  460,000
 
Harold sells all goods at a margin of 20%.  After the flood, the only goods salvaged by Harold were
goods that:
a.     Normally sell for P 14,000 but with net realizable value of P 12,000.
b.     Were undamaged and regularly sell for P 30,000.

How much is the estimated loss?

Select one:
a. P 98,800
b. P 104,000
c. P 98,000
d. P 104,800

30.David Store uses the FIFO retail method of inventory valuation. The following information is available:
   At Cost At Retail
Beginning inventory P   12,000 P   30,000
Purchases 60,000 110,000
 Net additional markups   10,000
Net markdowns   20,000
Sales (net of employee P 5,000 discounts)   85,000
Sales discounts to regular customers   1,000
 
Estimate the cost of ending inventory.
Select one:
a. P 19,200
b. P 20,800
c. P 20,000
d. P 24,000

ANSWERS for Mock Qualifying Quiz 3 – Investment in Debt & Equity Securities, Inventories

1. B
2. D
3. B
4. A
5. C
6. D
7. A
8. B
9. A
10. B
11. B
12. A
13. D
14. D
15. B
16. C
17. A
18. B
19. A
20. D
21. B
22. D
23. D
24. B
25. A
26. B
27. D
28. A
29. D
30. D