01multiple Choice

38/
45
01Multiple Choice
0/ 1
On January 1, 20x1, Allan Co. purchased ₱400,000 bonds for ₱392,000. 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?
27,986
27,986

33,359
33,359

28,964
28,964

31,298
31,298
02Multiple Choice
1/ 1
The summarized balance sheets of Elston Company and Alley Company as of December 31, 2004 are
as follows:

Elston Company
Balance Sheet
December 31, 2004
Assets ₱800,000
Liabilities ₱100,000
Capital stock 400,000
Retained earnings 300,000
Total equities ₱800,000

Alley Company
Balance Sheet
December 31, 2004
Assets ₱600,000

Elston Co. acquired 25% interest in Alley Company many years ago. The acquisition did not result to any goodwill. At
the time of acquisition, the carrying amount of Alley’s net assets approximates its fair value. There have
been no impairment losses on the investment. Alley Company reported profit of ₱200,000 and declared
dividends of ₱40,000 in 2004. Theoretically, the carrying amount of the investment on December
31, 2003 would approximate which of the following amounts?

Cannot be determined; given information is insufficient
Cannot be determined; given information is insufficient,

98,500
98,500

112,500
112,500

72,500
72,500
03Multiple Choice
1/ 1
A correct valuation is

held for trading securities at amortized cost.
held for trading securities at amortized cost.,

debt securities, to be held until maturity to collect cash flows from principal and interests, at fair value.
debt securities, to be held until maturity to collect cash flows from principal and interests, at fair
value.,

none of these.
none of these.

investment in equity securities at amortized cost
investment in equity securities at amortized cost,
04Multiple Choice
0/ 1
On January 1, 20x1, Rizzi Co. purchased 12,000 shares of Andre, Inc. for ₱400,000. Commission paid to broker
amounted to ₱20,000. Management made an irrevocable choice to subsequently measure the shares at fair value
through other comprehensive income. On December 31, 20x1, the shares were quoted at ₱40 per share. On January
3, 20x2, all of the shares were sold at ₱60 per share. Commission paid on the sale amounted to ₱24,000. How much
is the unrealized gain (loss) recognized in profit or loss on December 31, 20x1?
(80,000)
(80,000)

(60,000)
(60,000)

60,000
60,000

0
0
05Multiple Choice
1/ 1
Solo Co. purchased ₱300,000 bonds for ₱315,000. The securities are to be held until maturity to collect the
contractual cash flows. The entry to record the investment includes
a debit to Investment in bonds measured at amortized cost for ₱315,000

a debit to Investment in bonds measured at amortized cost for , ₱, 315,000

a debit to Held-for-Trading Securities at ₱300,000

a debit to Held-for-Trading Securities at , ₱, 300,000

none of these
none of these

a credit to Premium on Investments of ₱15,000

a credit to Premium on Investments of , ₱, 15,000
06Multiple Choice
1/ 1
as follows:

Elston Company
Balance Sheet
December 31, 2004
Assets ₱800,000

Alley Company
Balance Sheet
December 31, 2004
Assets ₱600,000
If Elston Company acquired a 20% interest in Alley Company on December 31, 2004 for ₱130,000 and the
fair value method of accounting for the investment were used, the amount of the debit to Investment in Alley
Company Stock would have been
74,000
74,000

120,000
120,000

130,000
130,000

90,000
90,000
07Multiple Choice
0/ 1
as follows:

Elston Company
Balance Sheet
December 31, 2004
Assets ₱800,000

Alley Company
Balance Sheet
December 31, 2004
Assets ₱600,000

If Elston Company acquired a 20% interest in Alley Company on December 31, 2003 for ₱90,000 and during 2004
Alley Company had net income of ₱50,000 and paid a cash dividend of ₱20,000, applying the fair value method would
give a debit balance in the Investment in Alley Company Stock account at the end of 2004 of

None of these
None of these,

100,000
100,000

74,000
74,000

90,000
90,000
08Multiple Choice
1/ 1
On January 1, 20x1, ABC Co. acquired 10%, ₱1,000,000 bonds for ₱827,135. The bonds mature on December 31,
20x3 and pay annual interest every December 31. ABC Co. incurred transaction costs ₱80,000 on the acquisition.
The effective interest rate adjusted for the effect of the transaction costs is 14%.
The bonds are to be held under a “hold to collect and sell” business model. Information on fair
values is as follows:
December 31, 20x1…………………………….98
December 31, 20x2……………………………102
December 31, 20x3……………………………100

How much is the interest income recognized in 20x2?
135,088
135,088

130,779
130,779

126,999
126,999

144,388
144,388
09Multiple Choice
1/ 1
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 equity securities within the scope of PFRS 9 that is not held
for trading. In accounting for such financial instruments, all of the following are true except
dividends received on the investments are recognized in profit or loss.

dividends received on the investments are recognized in profit or loss.

the entity may transfer any cumulative fair value gains or losses within equity
the entity may transfer any cumulative fair value gains or losses within equity

amounts presented in other comprehensive income are not be subsequently transferred to profit or
loss
amounts presented in other comprehensive income are not be subsequently transferred to profit or
loss

cumulative fair value gains or losses are transferred to profit or loss when the financial asset is
derecognized
cumulative fair value gains or losses are transferred to profit or loss when the financial asset is
derecognized
10Multiple Choice
0/ 1
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 cost 25 150

How much is fair valuation of the investment?
450,000
450,000

500,000
500,000

475,000
475,000

b or c
b or c
11Multiple Choice
0/ 1
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?
0
0

20,500
20,500

22,000
22,000

26,000
26,000
12Multiple Choice
1/ 1
MODULATE Co. has the following assets.
Vacant building to be leased out under operating lease 4,000,000

Building being constructed for TO ADJUST, Inc. 800,000
Building under construction to be used as office 1,600,000
Building under construction to be rented out under operating lease 400,000
Building rented out to MODULATE’s employees who pay rent at market rates 3,200,000
Office building awaiting disposal 200,000

How much is the total investment property?
7,600,000
7,600,000

4,400,000
4,400,000

4,600,000
4,600,000

4,200,000
4,200,000
13Multiple Choice
1/ 1
On April 1, 20x1, Ronald Ryan Co. acquired 12%, P4,000,000 bonds dated January 1, 20x1 at 98 including interest.
The bonds mature on December 31, 20x3 but pays annual interest at each year-end. How much is the initial carrying
amount of the investment?
4,000,000
4,000,000

4,120,000
4,120,000

3,920,000
3,920,000

3,800,000
3,800,000
14Multiple Choice
1/ 1
December 31, 20x1…………………………….98
December 31, 20x2……………………………102
December 31, 20x3……………………………100

How much is the unrealized gain (loss) recognized in other comprehensive income on December 31, 20x1?
0
0

(37,899)
(37,899)

45,866
45,866

(45,866)
(45,866)
15Multiple Choice
1/ 1
Which of the following would not be reported as investment property?

Property held by the entity to be leased out under one or more operating leases
Property held by the entity to be leased out under one or more operating leases

Property owned by the entity and leased out under one or more operating leases.
Property owned by the entity and leased out under one or more operating leases.,

Real estate held for an undetermined future use.

Real estate held for an undetermined future use.

Property owned by the entity and leased out to another entity under a finance lease
Property owned by the entity and leased out to another entity under a finance lease
16Multiple Choice
1/ 1
On December 31, 20x1, DECAPITATE BEHEAD Co. decided to lease out under operating lease one of its buildings
that was previously used as office space. The building has an original cost of ₱12,000,000 and accumulated
depreciation of ₱8,000,000 as of January 1, 20x1. Annual depreciation is ₱400,000. DECAPITATE Co. uses the fair
value model for investment property. The fair value of the building on December 31, 20x1 is ₱6,000,000. The entry to
record the transfer of the building to investment property includes a
credit to revaluation surplus for ₱2,400,000

credit to revaluation surplus for , ₱, 2,400,000

debit to building for ₱12,000,000.
debit to building for ₱ 12,000,000.,

credit to revaluation surplus for ₱2,000,000

credit to revaluation surplus for , ₱, 2,000,000

credit to gain on reclassification for ₱2,000,000

credit to gain on reclassification for , ₱, 2,000,000
17Multiple Choice
1/ 1
A debit balance in the “Fair Value Adjustment - FVOCI Securities” account at the end of a year
should be interpreted as
the net unrealized holding gain for that year.

the net unrealized holding gain for that year.

the net realized holding gain for that year.

the net realized holding gain for that year.

the net unrealized holding gain to date

the net unrealized holding gain to date

the net realized holding gain to date.

the net realized holding gain to date.
18Multiple Choice
1/ 1
December 31, 20x1…………………………….98
December 31, 20x2……………………………102
December 31, 20x3……………………………100
How much is the carrying amount of the investment on December 31, 20x1?
980,000
980,000

1,002,000
1,002,000

935,134
935,134

965,443
965,443
19Multiple Choice
1/ 1
In accounting for investments in debt securities that are classified as held for trading securities,
a discount is reported separately

a discount is reported separately

a premium is reported separately

a premium is reported separately

any discount or premium is not amortized

any discount or premium is not amortized

none of these
none of these
20Multiple Choice
1/ 1
Karen Co. purchased the following equity securities on January 1, 20x1 for a total amount of ₱360,000.
Cost
Alaska Co. preference shares ₱200,000
Valdez Co. ordinary shares 160,000
Totals ₱360,000

The shares did not qualify for recognition as held for trading. Accordingly, 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

Total ₱300,000

On December 31, 20x2, the portfolio of Karen Co. comprised the following:

Total ₱400,000

On February 2, 20x3, all of the Alaska Co. preference shares were sold for ₱160,000 net of transaction costs.

How much is the cumulative unrealized gain (loss) that is presented as a separate component in equity as of
December 31, 20x2?
40,000
40,000

100,000
100,000

0
0

(40,000)
(40,000)
21Multiple Choice
1/ 1
Securities classified as financial asset measured at amortized cost are reported at
acquisition cost plus amortization of a premium

acquisition cost plus amortization of a premium

fair value
fair value

acquisition cost
acquisition cost

acquisition cost plus amortization of a discount

acquisition cost plus amortization of a discount
22Multiple Choice
0/ 1
On January 1, 20x1, Mitch Co. acquired 12%, P4,000,000 bonds at 98. Commission paid to brokers amounted to
P204,000. Principal is due on December 31, 20x4 but interest payments are made annually starting December 31,
20x1.
The adjusted effective interest rate on the investment is closest to
11%
11%

indeterminable
indeterminable

12%
12%

10.2650%
10.2650%
23Multiple Choice
1/ 1
Pippen Co. purchased ten-year, 10% bonds that pay interest semiannually. The bonds are sold to
yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the table
value for
10 periods and 8% from the present value of 1 table.

10 periods and 8% from the present value of 1 table.

10 periods and 10% from the present value of 1 table





24Multiple Choice
1/ 1
When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following
statements applies?
The investor must use the fair value method unless it can clearly demonstrate the ability to exercise
"significant influence" over the investee
The investor must use the fair value method unless it can clearly demonstrate the ability to exercise
"significant influence" over the investee

The investor should always use the equity method to account for its investment.
The investor should always use the equity method to account for its investment.

The investor should always use the fair value method to account for its investment.
The investor should always use the fair value method to account for its investment.

The investor should use the equity method to account for its investment unless circumstances indicate
that it is unable to exercise "significant influence" over the investee
The investor should use the equity method to account for its investment unless circumstances
indicate that it is unable to exercise "significant influence" over the investee
25Multiple Choice
1/ 1
When an investor uses the equity method, cash dividends received from the investee are recorded as
dividend revenue
dividend revenue

a deduction from the investor's share of the investee's profits

a deduction from the investor's share of the investee's profits

an increase in the investment account

an increase in the investment account

a deduction from the investment account.
a deduction from the investment account.,
26Multiple Choice
1/ 1
Securities which could be classified as financial assets measured at amortized cost are
treasury stock
treasury stock

investment in stocks
investment in stocks

municipal bonds
municipal bonds

warrants
warrants
27Multiple Choice
1/ 1
as follows:

Elston Company
Balance Sheet
December 31, 2004
Assets ₱800,000

Alley Company
Balance Sheet
December 31, 2004
Assets ₱600,000

If Elston Company acquired a 30% interest in Alley Company on December 31, 2004 for ₱135,000 and during 2005
Alley Company had net income of ₱50,000 and paid a cash dividend of ₱20,000, applying the equity method would
give a debit balance in the Investment in Alley Company Stock account at the end of 2005 of
145,000
145,000

150,000
150,000

135,000
135,000

144,000
144,000
28Multiple Choice
1/ 1
On January 1, 20x1, Kevin Co. acquired 12%, P4,000,000 bonds for P4,198,948. The principal is due on December
31, 20x3 but interest is made annually starting December 31, 20x1. The effective interest rate on the bonds is 10%.
How much is the interest income recognized in 20x1?
419,895
419,895

413,884
413,884

407,273
407,273

480,000
480,000
29Multiple Choice
1/ 1
Counting Crow’s investment property has a carrying amount of ₱3,600,000 under the fair value
model, before adjustment. If the fair value at year-end is ₱3,000,000, how much should be the gain or
loss on transfer if Counting Crow would shift to cost model?

loss of ₱600,000 reported as other loss in the income statement

loss of , ₱, 600,000 reported as other loss in the income statement

loss of ₱600,000 reported in equity as decrease in revaluation surplus
loss of ₱ 600,000 reported in equity as decrease in revaluation surplus,

gain of ₱600,000 reported as other comprehensive income
gain of ₱ 600,000 reported as other comprehensive income,

zero
zero
30Multiple Choice
1/ 1
Changes in fair value of an investment measured at fair value through other comprehensive income
must be recognized in other comprehensive income and accumulated in a separate equity account
must be recognized in other comprehensive income and accumulated in a separate equity account

may be recognized in profit or loss or directly in equity

may be recognized in profit or loss or directly in equity

must be recognized directly in equity

must be recognized directly in equity

must be recognized in profit or loss.

must be recognized in profit or loss.
31Multiple Choice
1/ 1
as follows:

Elston Company
Balance Sheet
December 31, 2004
Assets ₱800,000

Alley Company
Balance Sheet
December 31, 2004
Assets ₱600,000

Elston Co. acquires 30% interest in Alley Company on December 31, 2004. The carrying amount of Alley’s net assets
on December 31, 2004 approximates its fair value. If the acquisition did not result to any implied goodwill, how much
is the acquisition cost of the investment?
144,000
144,000

150,000
150,000

135,000
135,000

145,000
145,000
32Multiple Choice
1/ 1
Which category includes only debt securities?
FVOCI (election)
FVOCI (election)

Financial assets measured at amortized cost


Held for trading securities


FVPL assets
FVPL assets
33Multiple Choice
1/ 1
A property is classified as investment property if
it is rented between a parent entity and a subsidiary and consolidated financial statements are
prepared for the group
it is rented between a parent entity and a subsidiary and consolidated financial statements are
prepared for the group

the entity provides relatively insignificant ancillary services (e.g., security, janitorial services, and the
like) to the occupants of the property.
the entity provides relatively insignificant ancillary services (e.g., security, janitorial services, and the
like) to the occupants of the property.

it is leased out under a finance lease

it is leased out under a finance lease

the owner-occupied portion of the property is significant.

the owner-occupied portion of the property is significant.
34Multiple Choice
1/ 1
An unrealized holding gain on a company's FVOCI securities should be reflected in the current
financial statements as
an extraordinary item shown as a direct increase to retained earnings.

an extraordinary item shown as a direct increase to retained earnings.

a current gain resulting from holding securities.

a current gain resulting from holding securities.

other comprehensive income and included in the equity section of the balance sheet.
other comprehensive income and included in the equity section of the balance sheet.

a note or parenthetical disclosure only.

a note or parenthetical disclosure only.
35Multiple Choice
1/ 1
On March 31, 20x1, Budoy Co. received 10,000 stock rights from its investment in equity securities to subscribe to
new shares at ₱60 per share for every 4 rights held. Prior to issuance of stock rights, the shares were selling at ₱80
per share. How much is the initial carrying amount of the stock rights?
20,000
20,000

50,000
50,000

40,000
40,000

cannot be determined
cannot be determined
36Multiple Choice
1/ 1
Karen Co. purchased the following equity securities on January 1, 20x1 for a total amount of ₱360,000.
Cost
Totals ₱360,000

The shares did not qualify for recognition as held for trading. Accordingly, 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.

Total ₱300,000

On December 31, 20x2, the portfolio of Karen Co. comprised the following:

Total ₱400,000

On February 2, 20x3, all of the Alaska Co. preference shares were sold for ₱160,000 net of transaction costs.

How much is the unrealized gain (loss) recognized in other comprehensive income on December 31,
20x1?
60,000
60,000

(60,000)
(60,000)

0
0

100,000
100,000
37Multiple Choice
1/ 1
Changes in fair value of this type of securities are accumulated as a separate component in the stockholders' equity
section of the balance sheet.
FVOCI securities
FVOCI securities





Designated financial assets

Designated financial assets
38Multiple Choice
1/ 1
Under the equity method of accounting for investments, an investor recognizes its share of the
earnings in the period in which the
earnings are reported by the investee in its financial statements

earnings are reported by the investee in its financial statements

investor sells the investment

investor sells the investment

investee pays a dividend
investee pays a dividend

investee declares a dividend

investee declares a dividend
39Multiple Choice
1/ 1
According to PFRS 9 Financial Instruments, investments in debt securities that are classified at
amortized cost are initially measured at
cost including brokerage and other fees

cost including brokerage and other fees

maturity value
maturity value

cost including accrued interest

cost including accrued interest

fair value plus brokerage and other fees

fair value plus brokerage and other fees
40Multiple Choice
0/ 1
Unrealized holding gains or losses which are recognized in profit or loss are from securities classified as
designated and held for trading

designated and held for trading

held for trading

held for trading

amortized cost
amortized cost

FVOCI
FVOCI
41Multiple Choice
1/ 1
On January 1, 20x1, Kevin Co. acquired 12%, P4,000,000 bonds for P4,198,948. The principal is due on December
31, 20x3 but interest is made annually starting December 31, 20x1. The effective interest rate on the bonds is
10%. How much is the carrying amount of the investment on December 31, 20x1?
4,138,843
4,138,843

4,198,948
4,198,948

4,072,727
4,072,727

4,000,000
4,000,000
42Multiple Choice
1/ 1
Nadare Company and its subsidiaries provided the following properties owned by the group:
Land held by Nadare for undetermined future use 1,000,000
Vacant building owned by Nadare to be leased out
under an operating lease 2,000,000
Property held by Nadare for use in production 4,000,000
Property held by a subsidiary of Nadare, a real estate firm,
in the ordinary course of its business 3,000,000
Building owned by subsidiary of Nadare, and for which the subsidiary
provides security and maintenance services to the lessees 2,500,000
Land leased by Nadare to a subsidiary under an operating lease 1,500,000
Equipment leased by Nadare to an unrelated party under
an operating lease 500,000
Building under construction by Nadare for use as investment property 3,500,000
In the consolidated statement of financial position of Nadare Company and its subsidiaries, what
total amount should be reported as investment property?

9,000,000
9,000,000

7,500,000
7,500,000

8,000,000
8,000,000

8,500,000
8,500,000
43Multiple Choice
1/ 1
Which of the following is not correct regarding held for trading securities?
Unrealized holding gains and losses are reported as part of profit or loss
Unrealized holding gains and losses are reported as part of profit or loss

They are held to be sold in a short period of time

They are held to be sold in a short period of time

All of these are correct

All of these are correct

Any discount or premium is not amortized

Any discount or premium is not amortized
44Multiple Choice
1/ 1
as follows:

Elston Company
Balance Sheet
December 31, 2004
Assets ₱800,000

Alley Company
Balance Sheet
December 31, 2004
Assets ₱600,000

Elston Co. acquired 25% interest in Alley Company many years ago. The acquisition did not result to any goodwill. At
the time of acquisition, the carrying amount of Alley’s net assets approximates its fair value. There have
been no impairment losses on the investment. In principle, the equity method would result to a carrying
amount of the investment on December 31, 2004 of
112,500
112,500

135,000
135,000

144,000
144,000

Cannot be determined; given information is insufficient
Cannot be determined; given information is insufficient,
45Multiple Choice
1/ 1
Karter Company purchased 200 of the 1,000 outstanding shares of Flynn Company's common stock for ₱180,000 on
January 2, 2004. During 2004, Flynn Company declared dividends of ₱30,000 and reported earnings for the year
of ₱120,000. If Karter Company uses the equity method of accounting for its investment in Flynn Company, its
Investment in Flynn Company account at December 31, 2004 should be
₱180,000
₱, 180,000

₱204,000
₱, 204,000

₱198,000
₱, 198,000

₱174,000

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38/

a debit to Investment in bonds measured at amortized cost for ₱315,000

a debit to Held-for-Trading Securities at ₱300,000

a credit to Premium on Investments of ₱15,000

How much is the interest income recognized in 20x2?

dividends received on the investments are recognized in profit or loss.

How much is fair valuation of the investment?

Aggregate cost as of 12/31/03 170,000

Vacant building to be leased out under operating lease 4,000,000

How much is the total investment property?

Real estate held for an undetermined future use.

credit to revaluation surplus for ₱2,400,000

credit to revaluation surplus for ₱2,000,000

credit to gain on reclassification for ₱2,000,000

the net unrealized holding gain for that year.

the net realized holding gain for that year.

the net unrealized holding gain to date

the net realized holding gain to date.

a discount is reported separately

a premium is reported separately

any discount or premium is not amortized

Fair value – 12/31/x1

Fair value – 12/31/x2

acquisition cost plus amortization of a premium

acquisition cost plus amortization of a discount

The adjusted effective interest rate on the investment is closest to

10 periods and 8% from the present value of 1 table.

10 periods and 10% from the present value of 1 table

20 periods and 5% from the present value of 1 table

20 periods and 4% from the present value of 1 table

a deduction from the investor's share of the investee's profits

an increase in the investment account

loss of ₱600,000 reported as other loss in the income statement

may be recognized in profit or loss or directly in equity

must be recognized directly in equity

must be recognized in profit or loss.

Financial assets measured at amortized cost

Held for trading securities

it is leased out under a finance lease

the owner-occupied portion of the property is significant.

an extraordinary item shown as a direct increase to retained earnings.

a current gain resulting from holding securities.

a note or parenthetical disclosure only.

Fair value – 12/31/x1

Fair value – 12/31/x2

Financial assets measured at amortized cost

Held for trading securities

Designated financial assets

earnings are reported by the investee in its financial statements

investor sells the investment

investee declares a dividend

cost including brokerage and other fees

cost including accrued interest

fair value plus brokerage and other fees

designated and held for trading

held for trading

They are held to be sold in a short period of time

All of these are correct

Any discount or premium is not amortized

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