ACCTG 104

IES #1

NOT YET THE CORRECT ANSWER

1. PFRS 9 permits an entity to make an irrevocable election to present in other comprehensive

income changes in the fair value of an investment in an equity instrument. Amounts presented
in other comprehensive income
a. Neither to profit or loss or retained earnings
b. May be subsequently transferred to profit or loss.
c. Shall be subsequently transferred to retained earnings.
d. Either to profit or loss or retained earnings

2. When a company has acquired a "passive interest" in another corporation, the acquiring
company should account for the investment
a. By consolidation.
b. By using the equity method.
c. By using the fair value method.
d. By using the effective interest method.

3. DfntlyLuvly Co. owned 30,000 shares of Alluring, Inc. at a cost of P2,000,000. On October 31, the
company received 30,000 stock rights from Alluring, entitling the holder to acquire one share at
P45. The market price of Alluring’s shares on this date was P50 and each right was quoted at
P10. DfntlyLuvly sold the rights on December 8 for P450,000 and the broker’s fee amounted to
P10,000. What amount should be reported as gain from the sale of rights?
a. 240,000
b. 150,000
c. 140,000
d. 250,000

4. What is the principle for recognition of a financial asset in PFRS 9?

a. A financial asset is recognized when, and only when, the entity obtains the risks and rewards of
ownership of the financial asset and has the ability to dispose of the financial asset.
b. A financial asset is recognized when, and only when, it is probable that future economic benefits will flow
to the entity and the cost or value of the instrument can be measured reliably.
c. A financial asset is recognized when, and only when, the entity becomes a party to the contractual
provisions of the instrument.
d. A financial asset is recognized when, and only when, the entity obtains control of the instrument and has
the ability to dispose of the financial asset independent of the actions of others.

5. Investments in equity instruments are financial assets because they are

a. Cash equivalents.
b. Contractual rights to exchange financial assets or financial liabilities with another entity under conditions
that are potentially favorable to the entity.
c. Contractual rights to receive cash or another financial asset from another entity.
d. Equity instruments of another entity.

6. On January 2, 2020, Cheers Company purchased 40,000 shares of Jeers, Inc. stock at P100 per
share. Brokerage fees amounted to P120,000. The shares are designated as FVTOCI. On
December 31, 2020 the investment has a fair value of P4,200,000. How much should be
recognized in the 2020 other comprehensive income related to these securities?
a. P280,000
b. P400,000
c. P200,000
d. P 80,000

7. On January 1, 2019, Smart Co. purchased 100,000 equity securities for trading for P40 per share,
excluding transaction cost which amounts to P1 per share. On December 28, the company sold
80,000 shares for P50 a share. What amount should be reported as gain on sale of trading
securities?
a. 800,000
b. 200,000
c. 900,000
d. 400,000
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 8. Dividends are recognized in profit or loss only when:
a. Answer not given.
b. The investor's name appears on the date of record
c. It is received
d. The entity’s right to receive payment of the dividend is established.

9. Inlove Co. acquired for P4,000,000 equity instruments classified as FAFVTOCI. Transaction cost
incurred in the acquisition amounted to P700,000. On December 31, 2020, the fair value of the
instrument was P5,500,000 and the estimated transaction costs that would be incurred if the
instruments were sold amounts to P600,000. What amount of gain should be recognized in other
comprehensive income for the year ended December 31, 2020?
a. 200,000
b. 0
c. 900,000
d. 800,000

10. On January 2, 2020, Happy Co. purchased 40,000 shares of Merry, Inc. stock at P100 per share.
Brokerage fees amounted to P120,000. A P5 dividend per share of Merry, Inc. shares had been
declared on December 15, 2019, to be paid on March 31, 2020 to shareholders of record on
January 31, 2020. The shares are designated as FVTOCI. On December 31, 2020 the investment
has a fair value of P4,200,000. How much should be recognized in the 2020 other
comprehensive income related to these securities?
a. P200,000
b. P 80,000
c. P280,000
d. P400,000

11. Glad Co. acquired an investment in equity instrument for P800,000 on 31 March 2020. The direct
acquisition costs incurred were P140,000. On 31 December 2020 the fair value of the instrument
was P1,100,000 and the transaction costs that would be incurred on sale were estimated at
P120,000. If the investment were designated as FA@FVTOCI, what gain would be recognized in
the financial statements for the year ended 31 December 2020?
a. P420,000
b. P40,000
c. P0
d. P160,000

12. Uplifted Co carries the following marketable equity securities on its books at December 31, 2019
and 2020. All the securities were purchased during 2019. FA@FVTOCI Cost, P5,100,000; FV
12.31.19 P4,800,000; FV 12.31.20, P5,000,000. The net unrealized gain/loss at December 31, 2020
in accumulated other comprehensive income in shareholders' equity is
a. P100,000 loss
b. P200,000 gain
c. P260,000 loss
d. P40,000 gain

13. When an equity security is appropriately carried and reported as FA@FVOCI, a gain should be
reported in the income statement:
a. When the present value of the security increases.
b. Only when the security is sold.
c. When the fair value of the security increases.
d. Never.

14. Pretty Co. purchased 10,000 shares of Prettier Inc. on June 30, 2020. Pretty received a share
dividend of 2,000 shares on August 15, 2020 when the carrying amount per share was P400 and
the market value was P350. Par value per share was P100. Prettier Inc. declared and paid cash
dividend of P15 per share on September 15, 2020. What amount of dividend income will be
reported in the income statement of Pretty Co. for the year ended September 30, 2020?
a. 150,000
b. 980,000
c. 180,000
d. 880,000

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 15. Handsome Co. purchased 10,000 shares of equity securities at P80 per share on April 1. On July
31, the company received 10,000 share warrants to purchase an additional 10,000 shares at 90
per share. The shares and the share warrants were quoted at P95 and P5, respectively on this
date. The share warrants will expire on December 31. What amount should be reported on July
31 for the investment in stock rights?
a. 60,000
b. 50,000
c. 100,000
d. 150,000

16. An investment in equity instrument may not be classified as a financial asset subsequently
measured at
a. Amortized cost
b. Fair value through other comprehensive income
c. Answer not given
d. Fair value through profit or loss

17. Inspired Co. carries the following marketable equity securities classified as FA@FVTOCI on its
books at December 31, 2019 and 2020. All the securities were purchased during 2019. Cost,
P5,100,000; FV 12.31.19 P4,800,000; FV 12.31.20, P5,000,000. The net amount to be recognized in
2020 comprehensive income is
a. P240,000 gain
b. P200,000 gain
c. P260,000 loss
d. P60,000 loss

18. During 2019, Confident Co. purchased trading securities at a cost of P4,2540,000. For the year
ended December 31, 2019, the company recognized an unrealized loss of P230,000. There were
no transactions in 2020. The securities were quoted at P4,120,000 at year-end 2020. What
amount of unrealized gain or loss should be reported in the 2020 income statement?
a. Unrealized gain of P130,000
b. Unrealized loss of P100,000
c. Unrealized loss of P130,000
d. Unrealized gain of P100,000

19. Irresistible Co. purchased marketable equity securities to be held for trading for P5,000,000 and
paid transaction cost amounting toP200,000 on March 1, 2020. The securities had a market
value of P5,500,000 on December 31, 2020. What amount of unrealized gain or loss on these
securities should be reported in the income statement?
a. 300,000 gain
b. 500,000 loss
c. 500,000 gain
d. 400,000 gain

20. When an investor classifies an investment in common stock as trading securities, cash
dividends are classified by the investor as:
a. A return of capital.
b. A deduction from the investment account.
c. Dividend income.
d. A loss.

ACCTG 104
IES #2

NOT YET THE CORRECT ANSWER

1. Joyful Co. owns 50,000 shares of Gloom Co. at a cost of P5,000,000. Subsequently, Joyful
received stock share rights entitling it to purchase 12,500 shares at P100 per share. The share is
quoted right-on at P125. What is the cost of the new investment if all of the stock rights are
exercised (stock right accounted for separately)?
a. 1,500,000
b. 1,450,000
c. 1,250,000
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d. 1,562,500

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 2. An equity instrument is any contract that evidencing a residual interest in the assets of an entity
after deducting all of its liabilities. It include all of the following, except
a. Ordinary share capital
b. Warrants that allow the holder to subscribe for or purchase a fixed amount of ordinary shares of
the issuing entity in exchange for a fixed amount of cash.
c. Preference shares capital with mandatory redemption date or redeemable at the option of the holder.
d. Options that allow the holder to subscribe for or purchase a fixed amount of ordinary shares of the
issuing entity in exchange for a fixed amount cash.

3. What is the effect of stock dividend of the same class?

a. No effect on investment account but increase in cost per share.
b. No effect on investment account but decrease in cost per share.
c. Increase in investment account and increase in cost per share.
d. Decrease in investment account and decrease in cost per share.

4. In 2018, Upbeat Co. purchased 20,000 shares of Downcast Co. for P100 per share on May 15. An
additional 30,000 shares were bought in July 19 for P120 each. Upbeat received cash dividends
at P10 per share on August 18 and a 20% stock dividend on September 8. On December 11,
Upbeat sold 30,000 shares of its investment at P125 per share. What is the gain on the sale of
the shares (use average method)?
a. 1,150,000
b. 950,000
c. 150,000
d. 550,000

5. What is the effect of share split up?

a. Increase in number of shares and increase in cost per share.
b. Decrease in number of share and decrease in cost per share.
c. Increase in number of shares and decrease in cost per share.
d. Decrease in number of shares and increase in cost per share.

6. The following categories may be composed of both equity and debt securities, except
a. Financial assets at fair value through other comprehensive income.
b. Answer not given.
c. Financial assets at fair value through profit or loss.
d. Financial assets at amortized cost.

7. When stock dividends of different class are received, which is incorrect?

a. It decreases the total cost of the original investment.
b. Cash is debited and dividend income is credited
c. The procedure is to allocate the cost of the original investment between the original shares and the
“different” stock dividends on the basis of fair value.
d. A new investment account is debited and the original investment account is credited.

8. It is a transaction whereby the outstanding shares are called in and replaced by a larger number,
accompanied by a reduction in the par or stated value.
a. Share split down
b. Share split
c. Share split up
d. Bonus issue

9. An entity has preference shares which are redeemable on 12/31/23. Such preference shares & its
related preference dividend are presented in the 2020 financial statements as
a. Equity and finance cost, respectively
b. Equity and deduction from retained earnings, respectively
c. Noncurrent liability and finance cost, respectively
d. Noncurrent liability and deduction from retained earnings, respectively

10. In 2018, Upbeat Co. purchased 20,000 shares of Downcast Co. for P100 per share on May 15. An
additional 30,000 shares were bought in July 19 for P120 each. Upbeat received cash dividends at P10
per share on August 18 and a 20% stock dividend on September 8. On December 11, Upbeat sold
30,000 shares of its investment at P125 per share. What is the gain on the sale of the shares (use FIFO
method)?
a. 150,000
b. 550,000
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c. 1,150,000

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 d. 950,000

11. Smilelang Co. owns 20,000 shares of Frowning Co.’s, P100 par, 6% cumulative, nonparticipating
preference share capital and 10,000 ordinary shares. During 2019, Frowning declared and paid
preference dividends. No dividends had been declared or paid during 2018. In addition,
Smilelang, received a 5% share dividend on ordinary shares from Frowning when the quoted
market price of Frowning’s ordinary share was P10. What amount of dividend income should be
reported in 2019?
a. 120,000
b. 125,000
c. 245,000
d. 240,000

12. A financial asset is any asset that is (choose the incorrect one)
a. Cash
b. A contractual right to exchange financial instruments with another entity under conditions that
are potentially unfavorable.
c. A contractual right to receive cash or another financial asset of another entity.
d. An equity instrument of another entity.

13. Stock rights as a form of a financial assets are measured initially at

a. Fair value
b. Amortized cost
c. Fair value less cost to sell
d. Cost

14. On January 2, 2020, Happy Co. purchased 40,000 shares of Merry, Inc. stock at P100 per share
to be held for trading. Brokerage fees amounted to P120,000. A P5 dividend per share of Merry,
Inc. shares had been declared on December 15, 2019, to be paid on March 31, 2020 to
shareholders of record on January 31, 2020. What is the initial measurement of the investment?
a. P4,000,000
b. P4,150,000
c. P3,920,000
d. P3,800,000

15. At which of the following dates has the shareholder theoretically realized income from
dividend?
a. The date of record
b. The date the dividend check is mailed by the corporation.
c. The date the dividend is declared
d. The date the dividend check is received by the stockholder.

16. On derecognition of nonmarketable equity securities, the difference between the consideration
received and the carrying amount of the investment.
a. Shall not be recognized
b. Shall be recognized in profit or loss
c. Shall be recognized in equity
d. Shall be included in retained earnings

17. Property dividends

a. Dividend income at fair value of the property.
b. Memorandum only.
c. Return of investment and therefore credited to investment account.
d. Dividend income at cost of the property.

18. Liquidating dividends (choose the incorrect statement)

a. Are credited to income
b. Represent return of invested capital
c. Are not income
d. Are credited to investment account

19. iCare Co. acquired an equity investment for P1,500,000 and classified it as FVTOCI. On
December 31, 2018, the cumulative loss recognized in other comprehensive income was
P200,000 and the carrying amount of the investment was P1,300,000. On December 31, 2019 the
investee was in financial difficulty and the fair value of the investment had fallen to P600,000.
What cumulative amount of unrealized should be reported as component of other
comprehensive income in the statement of changes in equity for the year ended December 31,
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2019?

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 a. 500,000
b. 700,000
c. 900,000
d. 0

20. Under the PFRS 9, which one is not a category of financial assets?
a. Financial assets at fair value through other comprehensive income.
b. Financial assets at fair value through profit or loss.
c. Financial assets at amortized cost.
d. Financial assets held for sale.

21. An entity shall derecognized a financial asset when either one of the following conditions is
met, except
a. The contractual rights to the cash flows of the financial asset have expired.
b. The entity has lost control over the asset when the other party or transferee has the practical ability to
sell asset in its entirety to a third party without attaching any restrictions to the transfer.
c. The entity has retained substantially all risk and rewards.
d. The entity as transferred substantially all risk and rewards.

22. Smilelang Co. owns 20,000 shares of Frowning Co.’s 200,000 shares of P100 par, 6%
noncumulative, nonparticipating preference share capital and 10,000 ordinary shares,
representing 2% ownership of Frowning Co.. During 2019, Frowning declared and paid
preference dividends. No dividends had been declared or paid during 2018. In addition,
Smilelang, received a 5% share dividend on ordinary shares from Frowning when the quoted
market price of Frowning’s ordinary share was P10. What amount of dividend income should be
reported in 2019?
a. 125,000
b. 240,000
c. 120,000
d. 245,000

23. It is any contract gives rise to both a financial asset of the one entity and a financial liability or
equity instrument of another entity.
a. Debt instrument
b. Financial instrument
c. Investment
d. Equity instrument

24. The IAS term for stock dividend is

a. Preference share
b. Ordinary share
c. Stock bonus
d. Bonus issue

25. Which of the following statements is correct regarding unrealized gains or losses?
a. Unrealized gains or losses on trading securities are included in profit or loss of the current period.
b. All statements are correct.
c. Unrealized gains or losses on financial asset at amortized cost are not recognized.
d. Unrealized gains or losses on financial asset at fair value through other comprehensive income
should be classified as component of other comprehensive income.

26. Transactions costs incurred in connections with financial assets at fair value through profit or
loss are
a. Capitalized as part of the cost if financial asset.
b. Debited to retained earnings.
c. Not recognized.
d. Expensed outright

27. In 2017, Irresistible Co. purchased 10,000 equity securities at P45 per share designated as a
financial asset at fair value through profit or loss. It sold 2,000 shares for P51 per share in 2018
and another 2,500 shares for P33 per share in 2019. The shares were quoted per share at P47,
P39, and P31 at December 31, 2017, 2018 and 2019, respectively. How much should be
recognized in 2019 profit or loss as a result of the fair value changes?
a. 44,000
b. 0
c. 11,000
d. 77,000
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 28. Financial assets include
a. Deposit of cash
b. Property, plant and equipment
c. Gold bullion deposited in bank
d. Prepaid rent

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