GEN 010 – GENDER AND SOCIETY (for BSA Students)

ACCOUNTING FOR INVESTMENTS

Intermediate 1 Chapter 9, 10, 14

Direction: Choose the best answer.

1. According to PFRS 9, a financial instrument is recognized

a. when the instrument has probable economic benefits that can be measured reliably.
b. only when the entity becomes a party to the contractual provisions of the instrument.
c. when the entity enters into a binding contract to deliver a variable number of its own equity
instrument.
d. only when the instrument requires receipt of another financial instrument under conditions
that are potentially favorable.

2. Which of the following is a financial liability?

a. Income tax payable
b. Unearned revenue
c. Warranty obligation
d. Lease liability

3. During the period, an entity acquires an investment. The entity has a “hold to collect and sell”
business model. The investment should be classified as
a. investment measured at fair value through other comprehensive income.
b. investment measured at amortized cost.
c. investment measured at fair value through profit or loss.
d. any of these

4. Which of the following is measured at fair value with fair value changes recognized in profit or
loss?
a. Held to maturity investments
b. Financial assets designated at FVPL
c. FVOCI
d. All of these

5. If an entity’s business model’s objective is to hold investments in order to collect contractual

cash flows that are solely payments for principal and interests, then investments should be
classified as
a. subsequently measured at fair value through other comprehensive income.
b. subsequently measured at amortized cost.
c. subsequently measured at fair value through profit or loss.
d. any of these

6. Under PFRS 9, financial assets are classified

a. on the basis of the entity’s business model only.
b. based on the nature of the financial assets, i.e., debt or equity instrument.
c. as financial assets subsequently measured at FVPL, FVOCI (election), FVOCI (mandatory) or
Amortized cost.
d. all of these

7. According to PFRS 9, if an asset or a liability measured at fair value has a bid price and an
ask price, the price within the bid-ask spread that is most representative of fair value in the
circumstances is used to measure fair value. Bid price is
a. the maximum price at which market participants are willing to sell an asset.
b. the maximum price at which market participants are willing to buy an asset.
c. the minimum price at which market participants are willing to sell an asset.
d. the price that an entity will incur to bid farewell to an asset.

8. The following are taken from the records of Lunch Co. as of year-end.
Cash 10,400 Investment in subsidiary 44,000
Accounts receivable 12,000 Treasury shares 44,800
Allowance for bad debts (1,600) Investment in bonds 9,600
Note receivable 4,000 Land 112,000
Interest receivable 1,600 Building 208,000
Claim for tax refund 9,600 Accum. Depreciation (52,000)
Advances to suppliers 4,800 Investment property 40,000
Inventory 60,000 Biological assets 24,000
Prepaid expenses 4,000 Intangible assets 56,000
Petty cash fund 800 Deferred tax assets 48,000
Investment in equity Cash surrender value 9,600
securities 10,400
Investment in associate 16,000 Sinking fund 16,000

How much are the total financial assets disclosed in the notes?
a. 142,400 b. 132,000 c. 132,800 d. 92,800

Use the following information for the next three questions:

On January 1, 20x1, ABC Co. purchased 1,000 shares of XYZ, Inc. for ₱250,000. Commission paid to
broker amounted to ₱10,000. The equity securities were designated by management to be measured at
fair value through profit or loss. On December 31, 20x1, the shares are quoted at ₱200 per share. It
was estimated that transaction cost of ₱20 per share will be incurred if the shares were sold on
that date.
9. How much is the unrealized gain (loss) on change in fair value recognized in the 20x1 profit or
loss?
a. (70,000) b. (50,000) c. (40,000) d. 60,000

10. On January 3, 20x2, all the shares were sold at ₱300 per share. Commission paid for the sale
amounted to ₱60,000. How much is the realized gain (loss) from the sale?
a. 60,000 b. (10,000) c. 40,000 d. (40,000)

11. If ABC Co. uses an allowance account to account for changes in fair values, how much is the
balance of this account on December 31, 20x1?
a. 70,000 debit c. 40,000 credit
b. 50,000 debit d. 50,000 credit

Use the following information for the next three questions:

On Jan. 1, 20x1, Three Co. purchased 10,000 shares of AM, Inc. for ₱1,000,000. Three Co. paid
broker’s commission of ₱15,000 on the acquisition. Three Co. made an irrevocable choice to
subsequently measure the shares at fair value through other comprehensive income. The quoted prices
per share on Dec. 31, 20x1 and Dec. 31, 20x2 were ₱90 and ₱108, respectively. On Jan. 3, 20x3, Three
Co. sold all the shares at ₱105 per share. Three Co. paid broker’s commission of ₱16,000 on the
sale.

12. How much is the unrealized gain (loss) recognized in Three Co.’s 20x1 profit or loss?
a. 115,000 b. (115,000) c. (85,000) d. 0

13. How much is the unrealized gain (loss) recognized in Three Co.’s 20x2 other comprehensive
income?
a. 180,000 b. 65,000 c. (115,000) d. 0

14. How much is the cumulative gain (loss) transferred to retained earnings on Jan. 3, 20x3?
a. 19,000 b. 34,000 c. (19,000) d. (34,000)

15. On January 1, 20x1, ABC Co. purchased ₱1,000,000 bonds at a price that reflects a yield rate of
14%. The bonds mature on January 1, 20x4 and pay 12% annual interest. The bonds are 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) on the change in fair value recognized in ABC’s 20x1
profit or loss?
a. 78,336 b. 83,561 c. 81,144 d. 0

16. If the acquisition cost of investment in bonds is less than the face amount, there is
a. discount. b. premium. c. loss. d. gain.

17. The use of the effective-interest method in amortizing bond premiums and discounts results in
a. a greater amount of interest income over the life of the bond issue than would result from
use of the straight-line method.
b. a varying amount being recorded as interest income from period to period.
c. a variable rate of return on the book value of the investment.
d. a smaller amount of interest income over the life of the bond issue than would result from
use of the straight-line method.

18. If the effective interest rate is higher than the nominal rate, there is
a. discount. b. premium. c. loss. d. gain.

19. The true or actual rate of interest that a bondholder earns on the investment.
a. nominal rate c. effective interest rate
b. coupon rate d. stated rate

20. It is a type of serial bond wherein the holder is given the right to extend the initial maturity
to a longer maturity date.
a. extendible bond c. redeemable bond
b. retractable bond d. callable bond

21. Subsequent to their initial recognition, which financial assets with quoted market prices in an
active market are measured at fair value?
Financial assets Financial Assets with
at amortized cost fair values through
profit or loss
a. Yes No
b. Yes Yes
c. No Yes
d. No No

22. On January 1, 20x1, Impressed Co. acquired 8%, ₱1,000,000 face amount, 4-year ‘term’ bonds for
₱936,603. The bonds are measured at amortized cost and have a yield rate of 10%. How much is the
carrying amount of the investment on December 31, 20x2?
a. 1,000,000 b. 950,263 c. 965,289 d. 981,818

23. On October 1, Dennis Company purchased ₱200,000 face value, 12% bonds at 98 plus accrued
interest and brokerage fees and classified them as amortized cost assets. Interest is paid
semiannually on January 1 and July 1. Brokerage fees for this transaction were ₱700. At what
amount should this acquisition of bonds be recorded?
a. 196,000 b. 196,700 c. 202,000 d. 202,700

24. On August 1, 2004, Bettis Company acquired ₱120,000 face value, 10% bonds of Hanson Corporation
at 104 plus accrued interest. The bonds were dated May 1, 2004, and mature on April 30, 2009,
 with interest payable each October 31 and April 30. The bonds are classified as subsequently
measured at amortized cost. What entry should Bettis make to record the purchase of the bonds on
August 1, 2004?
a. Investment in bonds 124,800
Interest Revenue 3,000
Cash 127,800
b. Investment in bonds 127,800
Cash 127,800
c. Investment in bonds 127,800
Interest Revenue 3,000
Cash 124,800
d. Held-to-Maturity Securities 120,000
Premium on Bonds 7,800
Cash 127,800

25. On April 30, 20x1, Heidelberg Co. acquired ₱100,000 face amount, 10% bonds dated January 1, 20x1
at 102. The purchase price includes accrued interest. How much is the initial carrying amount of
the investment?
a. 102,000 b. 99,500 c. 98,667 d. 105,333

26. On January 1, 20x1, Honey Co. intends to buy 3-year, zero-coupon bonds with face amount of
₱3,000,000 and maturity value of ₱3,993,000. The effective interest rate is 16%. The bonds will
be measured at amortized cost. How much is estimated purchase price of the bonds on January 1,
20x1?
a. 2,299,341 b. 2,356,214 c. 2,558,146 d. 2,789,123

27. On January 1, 20x1, Santa Co. acquired 10%, ₱1,000,000 bonds at 92. Commission paid to brokers
amounted to ₱9,100. The bonds are classified as investment measured at amortized cost. Principal
is due on December 31, 20x3 but interest is due annually every December 31. The carrying amount
of the investment on December 31, 20x1 is most approximately equal to
a. 949,883. b. 958,364. c. 973,368. d. 938,341.

28. On January 1, 20x1, Solicit Co. acquired 12%, ₱1,000,000 bonds for ₱1,049,737. The principal is
due on January 1, 20x4 but interest is due annually every December 31. The bonds are classified
as investment measured at amortized cost. The yield rate on the bonds is 10%. On September 30,
20x2, all the bonds were sold at 110. Commission paid to the broker amounted to ₱10,000. How
much is the gain (loss) on the sale?
a. (67,686) b. 77,686 c. (77,686) d. (22,314)

29. On January 1, 20x1, MX Co. purchased 10%, ₱3,000,000 bonds for ₱3,105,726. The bonds are
classified as financial asset measured at amortized cost. Principal on the bonds mature as
follows:
December 31, 20x1 1,000,000
December 31, 20x2 1,000,000
December 31, 20x3, 1,000,000
Total 3,000,000

Interest is due annually at each year-end. The effective interest rate on the bonds is 8%. How much
is the current portion of the investment on December 31, 20x1?
a. 1,051,542 b. 1,035,665 c. 2,054,184 d. 1,018,519

Use the following information for the next five questions:

On January 1, 20x1, NFCPAR, Inc. acquired 10%, ₱1,000,000 bonds for ₱827,135. The bonds mature on
December 31, 20x3 and pay annual interest every December 31. NFCPAR, Inc. incurred transaction costs
of ₱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

30. How much is the carrying amount of the investment on December 31, 20x1?
a. 935,134 b. 1,002,000 c. 980,000 d. 965,443

31. How much is the unrealized gain (loss) recognized in other comprehensive income in 20x1?
a. 45,866 b. (45,866) c. (37,899) d. 0

32. How much is the interest income recognized in 20x2?

a. 126,999 b. 130,779 c. 135,088 d. 144,388

33. How much is the unrealized gain (loss) recognized in other comprehensive income on December 31,
20x2?
a. 9,221 b. 40,000 c. (7,219) d. 0

34. Disregard the previous questions. Assume the bonds were sold for ₱900,000 on July 1, 20x2. How
much is the total gain (loss) on the sale, including any reclassification adjustment to profit
or loss?
a. (50,000) b. 50,000 c. (95,389) d. (99,523)

35. On January 1, 20x1, Staircase Glass Co. purchased 10%, ₱1,000,000 callable bonds for ₱966,199.
The bonds mature in 4 years’ time. Interest is due annually every Dec. 31. The investment is
classified as financial asset measured at amortized cost. The effective interest rate is 12%. If
 the carrying amount of the investment on December 31, 20x1 is ₱982,143, what is the expected
holding period for the investment?
a. 4 years b. 3 years c. 2 years d. none of these

36. Investments in associates are accounted for under

a. PAS 8.
b. PFRS 9.
c. PAS 28.
d. PFRS 28.

37. An investment in equity securities is accounted for as investment in associate if

a. the investment represents 20% or more ownership interest over the investee.
b. the fair value of the equity securities cannot be determined on a continuing basis.
c. the investment provides the investor significant influence over the investee.
d. the entity’s management elects to do so.

Use the following information for the next two questions:

On January 1, 20x1, ABASE Co. purchased 20,000 out of the 100,000 total outstanding shares of
PRAISE, Inc. for ₱4,000,000. PRAISE’s assets and liabilities approximate their fair values. In 20x1,
PRAISE, Inc. reported profit of ₱12,000,000 and declared and paid cash dividends of ₱800,000. In
20x2, PRAISE reported loss of ₱8,000,000, declared and issued 10% stock dividends, and reported gain
on property revaluation of ₱2,000,000 and loss on exchange differences on translation of foreign
operations of ₱400,000.

38. How much are the amounts reported in ABASE Co.’s 20x1 (1) statement of profit or loss and (2)
statement of financial position?
a. 2,400,000; 6,240,000
b. 160,000; 4,000,000
c. 2,240,000; 6,240,000
d. 0; 6,400,000

39. How much are the amounts reported in ABASE Co.’s 20x2 (1) statement of profit or loss and (2)
statement of financial position?
a. (1,280,000); 4,960,000
b. (1,600,000); 4,960,000
c. (1,280,000); 4,000,000
d. 0; 4,960,000

40. On January 1, 20x1, ABET Co. purchased 25% interest in the ordinary shares of ENCOURAGE, Inc.
for ₱8,000,000. ENCOURAGE’s assets and liabilities approximate their fair values except for
inventories with carrying amount of ₱2,000,000 and fair value of ₱400,000 and depreciable asset
with carrying amount of ₱12,000,000 and fair value of ₱20,000,000. The remaining useful life of
the depreciable asset is 10 years. ENCOURAGE’s net assets have a book value of ₱20,000,000.
ENCOURAGE reported ₱4,800,000 profit in 20x1 and declared and paid dividends of ₱2,000,000 on
December 31, 20x1. How much are the (1) implied goodwill on the investment; (2) share in the
associate’s profit in 20x1; and (3) carrying amount of the investment on Dec. 31, 20x1?
a. 6,600,000; 1,200,000; 8,900,000
b. 1,400,000; 1,000,000; 8,320,000
c. 0; 1,400,000; 8,00,000
d. 1,400,000; 1,400,000; 8,900,000

41. AFFICIONADO Co. owns 15,000 shares out of the 100,000 outstanding shares of FAN, Inc. As of
year-end, AFFICIONADO holds 20,000 stock rights which enable AFFICIONADO to acquire additional
shares from FAN on a “2 rights for 1 share” basis. The stock rights are exercisable immediately.
However, AFFICIONADO Co.’s management does not intend to exercise the stock rights. FAN does not
have any other stock rights outstanding aside from those held by AFFICIONADO. FAN reports year-
end profit of ₱4,000,000 and declares cash dividends of ₱400,000. The investment has a carrying
amount of ₱1,200,000 before any year-end adjustment. At what amount should the investment be
reported in AFFICIONADO Co.’s year-end financial statements?
a. 1,200,000
b. 1,800,000
c. 1,740,000
d. 1,849,200

42. AUSTERE Co. owns 20% of SEVERE, Inc.’s ordinary shares. SEVERE also has outstanding cumulative
6% preference shares of ₱8,000,000, none of which is held by AUSTERE. Dividends are in arrears
for three years as of year-end. SEVERE reported year-end profit of ₱4,000,000 and declared no
dividends. How much is AUSTERE Co.’s share in the profit of the associate?
a. 704,000
b. 800,000
c. 512,000
d. 770,000

43. On January 1, 20x1, ALLEVIATE Co. acquired 30,000 ordinary shares representing 30% interest in
LESSEN Co.’s net assets for ₱12,000,000. At the time of acquisition, LESSEN’s net assets had a
fair value of ₱40,000,000 and a carrying amount of ₱32,000,000. The difference between the fair
value and the carrying amount is attributable to a building which has a remaining useful life of
10 years. In 20x1, LESSEN reported profit of ₱4,000,000 and paid cash dividends of ₱2,400,000.
LESSEN’s shares were selling at ₱400 per share on December 31, 20x1.

On July 1, 20x2, ALLEVIATE sold 60% of its investment in LESSEN at the prevailing market price of
₱480 per share. The retained interest does not give ALLEVIATE significant influence over LESSES;
thus, ALLEVIATE reclassified the remaining investment to held for trading securities. LESSEN
reported interim profit of ₱2,000,000 for the six months ended June 30, 20x2. LESSEN reported total
profit of ₱4,800,000 in 20x2 and declared ₱4,000,000 cash dividend on December 31, 20x2. LESSEN’s
shares were selling at ₱540 per share on December 31, 20x2.
How much is the total investment-related income recognized in ALLEVIATE’s profit or loss in 20x2?
a. 2,640,000
b. 2,968,000
c. 3,360,000
d. 3,780,000

44. Porky Co. owns 40% of Watwat, Inc.’s ordinary shares. On July 1, 20x2, Porky Co. sells half of
its investment in Watwat shares for ₱800,000. The adjusted balances of the related accounts
immediately before the sale are as follows:
 Investment in associate ₱2,400,000
 Cumulative share in Watwat’s revaluation gains 1,000,000

Porky retains significant influence over Watwat after the sale.

How much of the cumulative share in Watwat’s revaluation gains is derecognized on July 1, 20x2?
a. 1,000,000
b. 500,000
c. 250,000
d. 0

45. On January 1, 20x1, POSTULATE Co. acquired 10,000 shares representing a 10% interest in DEMAND,
Inc.’s 100,000 outstanding shares for ₱3,200,000. In 20x1, DEMAND reported profit of ₱20,000,000
and declared and paid dividends of ₱4,000,000. The investment was initially classified as
investment in held for trading securities. The fair value of the shares on December 31, 20x1 was
₱340 per share.

On July 1, 20x2, POSTULATE Co. acquired additional 15,000 shares of DEMAND, Inc. at ₱280 per share
(the fair value on this date), resulting to an increase in its ownership interest to 25%. The
transaction did not give rise to any goodwill or negative goodwill. In 20x2, DEMAND reported profit
of ₱24,000,000, of which ₱16,000,000 were earned in the second half of the year. In addition, DEMAND
declared and paid dividends of ₱4,000,000 on December 31, 20x2. The DEMAND shares were quoted at
₱360 per share on December 31, 20x2.

How much are the (1) total amount recognized in profit or loss in 20x2 in relation to the
investment; and (2) carrying amount of the investment on Dec. 31, 20x2?
a. 3,000,000; 12,400,000
b. 3,400,000; 10,000,000
c. 4,000,000; 10,000,000
d. 4,600,000; 12,400,000

-END-
*COC_AJCG,CPA,MBA*