LA SALLE UNIVERSITY

COLLEGE OF BUSINESS AND ACCOUNTANCY

Second Semester of A.Y. 2019-2020
INTEGRATED ENHANCEMENT COURSE FOR ACCOUNTANCY
FAR: Financial Accounting and Reporting by Lowelle C. Pacot, CPA, MMA
MULTIPLE CHOICE

1. Under IFRS 9, which of the following is not a category a. Its cost, including transaction costs directly
of financial assets? attributable to the purchase origination or
a. Financial assets at fair value through profit or loss issuance of the financial instrument.
b. Financial assets at fair value through other b. Its estimated value determined using discounted
comprehensive income cash flow technique, option pricing model or other
c. Financial assets at amortized cost valuation technique.
d. Financial assets held for sale c. Its quoted price, if an active market exists for the
financial instrument.
2. A financial asset is held for trading if (choose the d. The present value of the contractual cash flows
incorrect one) less impairment.
a. It is acquired principally for the purpose of selling
or repurchasing it in the near term 7. Which of the following is true for measuring an asset
b. On initial recognition, it is part of a portfolio of at fair value?
financial assets that are managed together and for a. The price of the asset should be adjusted for
which there is evidence of a recent actual pattern transaction cost.
of short-term profit taking b. The fair value of the asset should be adjusted for
c. It is derivative that is not designated as an cost to sell.
effective hedging instrument c. The fair value is based upon an entry price to
d. It is a derivative that is designated as an effective purchase the asset.
hedging instrument d. The price should be adjusted for transportation
cost to transport the asset to its principal market.
3. Transaction costs that are directly attributable to the
acquisition of a financial asset shall be 8. The contractual agreement between the investor and
a. Capitalized as cost of the financial asset the bond issuer is contained in the formal document
b. Expensed when incurred known as
c. Charged to retained earnings a. Contract of debt
d. Included as a component of other comprehensive b. Bond indenture
income c. Bond certificate
d. Bond agreement
4. Depending on the business model for managing
financial assets, an entity shall classify financial assets 9. If a 5-year bond matures on October 1, 2021 and
subsequent to initial recognition at interest is payable semiannually, the interest dates are
a. Fair value a. April 1 and October 1
b. Amortized cost b. January 1 and July 1
c. Either fair value or amortized cost c. May 1 and November 1
d. Neither fair value nor amortized cost d. Not determinable

5. Which statement is true concerning subsequent
measurement of financial asset at fair value?
I. The financial assets shall be measured at fair value
if the business model is not to collect contractual
cash flows on specified dates and the contractual
cash flows are not solely payments of principal
and interest.
II. An entity may irrevocably designate a financial
asset as measured at fair value through profit or
loss even if the financial asset satisfies the
amortized cost measurement.
a. I only
b. II only
c. Both I and II
d. Neither I nor II
10. The interest rate written on the face of the bond is
known as
a. Nominal rate
b. Coupon rate
c. Stated rate
d. All of the above
11. Bonds usually sell at a discount when
a. Investors are willing to invest in the bonds at the
stated interest rate.
b. Investors are willing to invest in the bonds at rates
that are lower than stated interest rate.
c. Investors are willing to invest in the bonds only at
rates that are higher than the stated interest rate.
d. An unrealized gain is expected.

6. What is the best evidence of fair value of a financial 12. The effective interest rate on bonds is lower than the
instrument? stated rate when bonds sell
a. At maturity value
b. Above face value

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 c. Below face value d. ₱3,400,000 and ₱3,400,000
d. At face value
19. On January 1, 2018, Alexis Company purchased
13. How is the premium or discount on bonds purchased marketable equity securities to be held as “trading” for
as a “trading” investment reported in financial ₱5,000,000. The entity also paid commission, taxes
statements? and other transaction costs amounting to ₱200,000.
a. As an integral part of the cost of an asset acquired The securities had a market value of ₱5,500,000 on
and amortized over the remaining life of the bond December 31, 2018 and the transaction costs that
issue. would be incurred on sale are estimated at ₱100,000.
b. As an integral part of the cost of the asset acquired No securities were sold during 2018.
until such time as the investment is sold.
c. As expense or revenue in the period the bonds are What amount of unrealized gain or loss on these
purchased. securities should be reported in the 2018 income
d. As an integral part of the cost of the asset acquired statement?
and amortized over the period the bonds are a. ₱500,000 unrealized gain
expected to be held. b. ₱500,000 unrealized loss
c. ₱300,000 unrealized gain
14. An investor purchased a bond classified as a long-term d. ₱400,000 unrealized gain
investment between interest dates at a premium. At
the purchase date, the carrying amount of the bond is 20. Carmela Company acquired a financial instrument for
more than the ₱4,000,000 on March 31, 2018. The financial
a. Cash paid to seller instrument is classified as financial asset through
b. Face value of bond other comprehensive income. The direct acquisition
c. Both a and b costs incurred amounted to ₱700,000. On December
d. Neither a nor b 31, 2018, the fair value of the instrument was
₱5,500,000 and the transaction costs that would be
15. An investor purchased a bond as a long-term incurred on the sale of the investment are estimated at
investment on January 1. Annual interest was received ₱600,000.
on December 31. The investor’s interest income for the
year would be lower if the bond was purchased at What gain would be recognized in other
a. A discount comprehensive income for the year ended December
b. A premium 31, 2018?
c. Par a. ₱200,000
d. Face value b. ₱900,000
c. ₱800,000
16. When the interest payment dates of a bond are May 1 d. ₱0
and November 1, and a bond is purchased on June 1,
the amount of cash paid by the investor would be 21. On December 31, 2017, Fay Company appropriately
a. Decreased by accrued interest from June 1 to reported a ₱100,000 unrealized loss. There was no
November 1. change during 2018 in the composition of Fay’s
b. Decreased by accrued interest from May 1 to June portfolio of marketable security securities held as
1. financial asset at fair value through other
c. Increased by accrued interest from June 1 to comprehensive income. Pertinent data are as follows:
November 1. Market value
d. Increased by accrued interest from May 1 to June Security Cost December 31, 2018
1. A ₱1,200,000 ₱1,300,000
B 900,000 500,000
17. A bond purchased on June 1 of the current year has C 1,600,000 1,500,000
interest payment dates of April 1 and October 1. Bond ₱3,700,000 ₱3,300,000
interest income for the current year ended December
What amount of loss on these securities should be
31 is for
included in the statement of comprehensive income
a. 3 months
for the year ended December 31, 2018 as component
b. 4 months
of other comprehensive income?
c. 6 months
a. ₱400,000
d. 7 months
b. ₱300,000
c. ₱100,000
18. Raiser Company acquired a financial asset at its
d. ₱0
market value of ₱3,200,000. Broker fees of ₱200,000
were incurred in relation to the purchase. At what
22. During 2017, Garr Company purchased marketable
amount should the financial asset initially be
equity securities as a trading investment. For the year
recognized respectively if it classified as at fair value
ended December 31, 2017, the entity recognized an
through profit or loss, or as at fair value through OCI?
unrealized loss of ₱230,000. There were no security
a. ₱3,400,000 and ₱3,200,000
transactions during 2018. Pertinent information on
b. ₱3,200,000 and ₱3,200,000
December 31, 2018 is as follows:
c. ₱3,200,000 and ₱3,400,000

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 Security Cost Market value Before any adjustment related to these trading
A ₱2,450,000 ₱2,300,000 securities, Little had net income of ₱3,000,000 in
B 1,800,000 1,820,000 2018.
₱4,250,000 ₱4,120,000
What is the net income after making any necessary
In the 2018 income statement, what amount should be trading security adjustment?
reported as unrealized gain or loss? a. ₱3,000,000
b. ₱2,700,000
a. Unrealized gain of ₱100,000 c. ₱3,300,000
b. Unrealized loss of ₱100,000 d. ₱2,540,000
c. Unrealized loss of ₱130,000
d. Unrealized gain of ₱130,000 26. On January 1, 2018, Remington Company acquired
200,000 ordinary shares of Universal Company for
23. During 2018, Latvia Company purchased trading ₱9,000,000. At the time of purchase, Universal
equity securities as a short-term investment. The cost Company had outstanding 800,000 ordinary shares
and market value on December 31, 2018 were as with a book value of ₱36,000,000. On December 31,
follows: 2018, the following events took place:
Security Cost Market value  Universal Company reported net income of
A – 1,000 shares ₱ 200,000 ₱ 300,000 ₱1,800,000 for the calendar year 2018.
B – 10,000 shares 1,700,000 1,600,000
 Remington Company received from Universal
C – 20,000 shares 3,100,000 2,900,000
Company a dividend of ₱0.75 per ordinary share.
₱5,000,000 ₱4,800,000
 The market value of Universal Company share had
Latvia sold 10,000 shares of Security B on January 15, temporarily declined to ₱40.
2017, for ₱130 per share, incurring ₱50,000 in
brokerage commission and taxes. The investment in Universal Company is classified as
financial asset at fair value through other
What should be reported as loss on sale of trading comprehensive income.
investment in 2017?
a. ₱450,000 What is the carrying amount of the investment on
b. ₱400,000 December 31, 2018?
c. ₱300,000 a. ₱9,000,000
d. ₱350,000 b. ₱8,000,000
c. ₱9,300,000
24. On January 1, 2017, Carnage Company purchased d. ₱9,450,000
equity securities to be held as financial asset measured
“at fair value through other comprehensive income”. 27. On October 1, 2018, Yost Company purchased 4,000 of
The cost and market value of the securities were: the ₱1,000 face value, 10% bonds of Pell Company for
Market – Market – ₱4,400,000 which includes accrued interest of
Security Cost 12/31/2017 12/31/2018 ₱100,000. The bonds, which mature on January 1,
R ₱3,000,00 ₱3,200,000 2025, pay interest semiannually on January 1 and July
0 1. Yost uses the straight-line method of amortization
S 4,000,000 3,500,000 ₱3,700,000 and appropriately recorded the bonds as held to
T 5,000,000 4,600,000 4,700,000 maturity. What is the carrying amount of the bonds in
the December 31, 2018 statement of financial
On January 31, 2018, Carnage Company sold Security position?
R for ₱3,500,000. a. ₱4,284,000
b. ₱4,288,000
What unrealized gain or loss on the remaining c. ₱4,300,000
financial assets should be reported in the 2018 d. ₱4,400,000
statement of comprehensive income as component of
other comprehensive income? 28. On October 1, 2018, Danica Company purchased
a. ₱600,000 gain 2,000,000 face value 12% bonds for 98 plus accrued
b. ₱600,000 loss interest and brokerage fee. Interest is paid
c. ₱300,000 gain semiannually on January 1 and July 1. Brokerage fee
d. ₱300,000 loss for this transaction was ₱50,000. At what amount
should this acquisition of bonds be recorded?
25. During 2018, Little Company purchased trading a. ₱1,960,000
securities as a short-term investment. The cost of the b. ₱2,010,000
securities and their market value on December 31, c. ₱2,020,000
2018 follow: d. ₱2,070,000
Security Cost Market value
A ₱ 650,000 ₱ 750,000 29. On January 1, 2018, Purl Company purchased as a
B 1,000,000 540,000 long-term investment ₱5,000,000 face value of Shaw
C 2,200,000 2,260,000 Company’s 8% bonds for ₱4,562,000. The bonds were
purchased to yield 10% interest. The bonds mature on

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 January 1, 2023 and pay interest annually on 32. On January 1, 2018, Dean Company purchased ten-
December 31. Purl uses the interest method of year bonds with a face value of ₱1,000,000 and a
amortization. stated interest rate of 8% per year payable
semiannually July 1 and January 1. The bonds were
What carrying amount (rounded to nearest ₱100) acquired to yield 10%.
should Purl report in its December 31, 2018 statement
of financial position for this investment? What is the purchase price of the bonds?
a. ₱4,680,000 a. ₱1,124,620
b. ₱4,662,000 b. ₱1,100,000
c. ₱4,618,000 c. ₱1,000,000
d. ₱4,562,000 d. ₱875,380

30. On July 1, 2018, East Company purchased as a long- 33. On January 1, 2018, Tabular Company purchased
term investment ₱5,000,000 face amount, 8% bonds bonds with face value of ₱2,000,000. The bonds are
of Rand Company for ₱4,615,000 to yield 10% per dated January 1, 2018 and mature on January 1, 2022.
year. The bonds pay interest semiannually on January The interest on the bonds is 10% payable
1 and July 1. semiannually every June 30 and December 31. The
prevailing market rate of interest on the bonds is 12%.
In the December 31, 2018 statement of financial
position, what should be reported as interest What is the present value of the bonds on January 1,
receivable? 2018?
a. ₱184,600 a. ₱1,881,000
b. ₱200,000 b. ₱1,888,000
c. ₱230,750 c. ₱1,360,000
d. ₱250,000 d. ₱1,480,000

31. On July 1, 2018, Pell Company purchased Green
Company ten-year, 8% bonds with face amount of
₱5,000,000 for ₱4,200,000. The bonds mature on June
30, 2026 and pay interest semiannually on June 30 and
December 31. Using the interest method, Pell recorded
bond discount amortization of ₱18,000 for the six
months ended December 31, 2018.
From this bond investment, what should be reported
as interest income for 2018?
a. ₱168,000
b. ₱182,000
c. ₱200,000
d. ₱218,000
34. On January 1, 2018, Cambodia Company purchased
bonds with face value of ₱5,000,000 at a cost of
₱4,700,000 to be held as financial asset at amortized
cost. The stated interest is 10% payable annually every
December 31. The bonds mature in 4 years or January
1, 2022.
How much interest income should be reported by
Cambodia Company for the year ended December 31,
2018 under the effective interest method?
a. ₱500,000
b. ₱470,000
c. ₱517,000
d. ₱562,590

SUGGESTED ANSWER KEY:

1. D 4. C 7. D 10. D 13. B 16. D 19. A 22. A 25. B 28. B 31. D 34. D
2. D 5. C 8. B 11. C 14. B 17. D 20. C 23. D 26. B 29. C 32. D
3. A 6. C 9. A 12. B 15. B 18. C 21. B 24. C 27. B 30. B 33. A

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