Assignment 02 Investments

NAME: JELLA MAE T. YCALINA Date:12/15/21

Professor: Sir Erik Legaspi Section:BSA-2B Score:

TRUE OR FALSE.: Shade YELLOW the statements which are correct and RED if the statements is
incorrect.
1. According to PFRS 9 Financial instruments, investments in stocks are initially recorded at cost and
all commissions, taxes, and other fees are expensed as incurred.

2. Unrealized holding gains and losses on investments in held for trading securities are recognized
in profit or loss.

3. Unrealized gains and losses on investments equity securities measured at FVOCI are recognized
on the income statement.

4. A debit balance in the account Fair Adjustment-FVOCI implies a corresponding owners' equity
account with a credit balance of the same amount.

5. According to PFRS 9, the classification of financial assets for subsequent measurement purposes
is based on management's intentions.

6. The net reported balance in the “investment in equity securities – FVOCI” account is the original
cost plus a credit balance in the fair value adjustment account or minus a debit balance in the fair
value adjustment account.

7. When investments in held for trading securities are sold, the realized gain or loss is the
difference in the fair value since acquisition.

8. Unrealized holding gains on investments measured at fair value through other comprehensive
income are recognized as direct increases to owners' equity, rather than through the statement of
comprehensive income.

9. Increases in the fair value of held for trading securities and investments in equity securities
measured at FVOCI cause the related fair value adjustment account to decrease.

10. Investments in held for trading securities may be classified as current or long-term.
NAME: Date:
Professor: Section: Score:

QUIZ 2: Shade YELLOW the best answer.

1. Changes in fair value of securities are accumulated in the stockholders' equity section of the
balance sheet (as a separate component) for which type of securities?
a. Financial assets measured at amortized cost
b. FVOCI securities
c. Held for trading securities
d. Designated financial assets

2. Which category includes only debt securities?

a. Financial assets measured at amortized cost
b. FVPL assets
c. Held for trading securities
d. FVOCI

3. A correct valuation is
a. investment in equity securities at amortized cost.
b. held for trading securities at amortized cost.
c. debt securities, to be held until maturity to collect cash flows from principal and interests, at
fair value.
d. none of these.

4. Securities which could be classified as financial assets measured at amortized cost are
a. investment in stocks
b. warrants.
c. municipal bonds.
d. treasury stock.

5. Which of the following is not correct in regard to held for trading securities?
a. They are held to be sold in a short period of time.
b. Unrealized holding gains and losses are reported as part of profit or loss.
c. Any discount or premium is not amortized.
d. All of these are correct.

6. A debit balance in the account Fair Value Adjustment--FVOCI Securities at the end of a year
should be interpreted as
a. the net unrealized holding gain for that year.
b. the net realized holding gain for that year.
c. the net unrealized holding gain to date.
d. the net realized holding gain to date.
7. A debit balance in the account Fair Value Adjustment-Held for Trading Securities at the end of a
year should be interpreted as
a. the net realized holding gain to date.
b. the net unrealized holding gain to date.
c. the net realized holding gain for that year.
d. the net unrealized holding gain for that year.

8. Unrealized holding gains or losses which are recognized in profit or loss are from securities
classified as
a. amortized cost.
b. FVOCI.
c. held for trading.
d. designated and held for trading.

9. An unrealized holding gain on a company's FVOCI securities should be reflected in the current
financial statements as
a. an extraordinary item shown as a direct increase to retained earnings.
b. a current gain resulting from holding securities.
c. a note or parenthetical disclosure only.
d. other comprehensive income and included in the equity section of the balance sheet.

10. Changes in fair values of an investment measured at fair value through other comprehensive
income
a. Must be recognized in net profit or loss.
b. Must be recognized directly in equity.
c. May be recognized in net profit or loss or directly in equity.
d. Must be recognized in other comprehensive income; the accumulated net fair value changes
is presented in equity

11. At initial recognition, an entity may make an irrevocable election to present in other
comprehensive income subsequent changes in the fair value of an investment in an equity
instrument within the scope of PFRS 9 that is not held for trading. In accounting for such
financial instruments, all of the following is true, except
a. Amounts presented in other comprehensive income shall not be subsequently transferred to
profit or loss.
b. The entity may transfer any cumulative fair value gains or losses within equity.
C. Dividends on such investments are recognized in profit or loss unless the dividend clearly
represents a recovery of part of the cost of the investment.
D. Cumulative fair value gains or losses are transferred to profit or loss when the financial asset
is derecognized.
12. An entity sells its investment in FVPL during the year. The realized gain or loss on the sale is
computed as
a. the difference between the sale price and the carrying amount of the investment as at the
date of sale
b. the difference between the sale price and the original acquisition cost of the investment.
c. the difference between the net proceeds received from the sale and the carrying amount of
the investment as at the date of sale
d. the difference between the net proceeds received from the sale and the carrying amount of
the investment as at the date of sale adjusted for any accumulated fair value gains or losses
recognized since the investment was acquired.

13. For which type of investments would unrealized increases and decreases be accumulated in an
owners' equity account?
a. Equity method securities
b. FVOCI securities
c. Held for Trading securities
d. Held-to-maturity securities

14. If the combined fair value of held for trading securities at the end of the year is less than the fair
value of the same portfolio of held for trading securities at the beginning of the year, the
difference should be accounted for by
a. reporting an unrealized loss in security investments in the stockholders' equity section
of the balance sheet.
b. reporting an unrealized loss in security investments in the income statement.
c. a footnote to the financial statements.
d. a debit to Investment in Held for Trading Securities.

15. Information regarding Stone Co.’s portfolio of FVOCI securities is as follows:

Aggregate cost as of 12/31/03 170,000
Unrealized gains as of 12/31/03 4,000
Unrealized losses as of 12/31/03 26,000
Net realized gains during 2003 30,000

At December 31, 2002, Stone reported an unrealized loss of ₱1,500 in other comprehensive income to
reduce these securities to market. Under the accumulated other comprehensive income in
stockholders’ equity section of its December 31, 2003 balance sheet, what amount should Stone
report?
a. 26,000 c. 20,500
b. 22,000 d. 0
16. Caloy Co. bought 1,000 shares from Bayan Co. The shares have no active market, but an identical
or similar asset has an active market. The identical asset, however, has multiple markets. Caloy
determines that the identical asset has the following market values:
Market Market
A B

Quoted price 500 600

Related transaction
25 150
cost

How much is fair valuation of the investment?

a. 500,000 c. 450,000
b. 475,000 d. b or c

17. On January 1, 20x1, Allan Co. purchased P400,000 bonds for P392,000. The bonds mature on
January 1, 20x5 and pay 12% annual interest beginning January 1, 20x2. Transaction costs are
negligible. The bonds were classified as held for trading securities. On December 31, 20x1, the
bonds are selling at a yield rate of 10%. How much is the unrealized gain (loss) recognized on
December 31, 20x1?
a. 27,986
b. 31,298
c. 28,964
d. 27,896

18. On January 1, 20x1, Rizzi Co. purchased 12,000 shares of Andre, Inc. for P400,000. Commission
paid to broker amounted to P20,000. Management made an irrevocable choice to subsequently
measure the shares at fair value through other comprehensive income. On December 31, 20x1,
the shares are quoted at P40 per share. On January 3, 20x2, all of the shares were sold at P60 per
share. Commission paid for the sale amounted to P24,000. How much is the unrealized gain
(loss) recognized in profit or loss on December 31, 20x1?
a. (60,000)
b. 60,000
c. (80,000)
d. 0

Use the following information for the next two questions:

Karen Co. purchased the following equity securities on January 1, 20x1 for a total amount of
P360,000.
Cost
Alaska Co. preference shares P200,000
Valdez Co. ordinary shares 160,000
Totals P360,000
The shares did not qualify for recognition as held for trading, thus they were classified as investment
in equity securities measured at fair value through other comprehensive income.

On December 31, 20x1, the portfolio of Karen Co. comprised the following.
Fair value – 12/31/x1
Alaska Co. preference shares P240,000
Valdez Co. ordinary shares 60,000
Total P300,000

On December 31, 20x2, the portfolio of Karen Co. comprised the following:
Fair value – 12/31/x2
Alaska Co. preference shares P220,000
Valdez Co. ordinary shares 180,000
Total P400,000

On February 2, 20x3, all of the Alaska Co. preference shares were sold for P160,000 net of transaction
costs.

19. How much is the unrealized gain (loss) recognized in other comprehensive income on December
31, 20x1?
a. 60,000
b. (60,000)
c. 100,000
d. 0

20. How much is the unrealized gain (loss) accumulated in equity as of December 31, 20x2?
a. 40,000
b. (40,000)
c. 100,000
d. 0

“From the fruit of his mouth a man’s stomach is filled; with the harvest from his lips he is satisfied.” (Proverbs
18:20)

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