Pamantasan ng Cabuyao

Katapatan Subd., Banay Banay, City of Cabuyao

Task No. 3
Name: _________________________________ Score: ___________
Auditing and Assurance: Concepts and Principles, Part I Mr.W. E. Peralta
INSTRUCTION: Solve the following problems. Show your solutions in good form.
1. James Company acquired a financial asset at its fair value of P5,000,000. Broker fees of P500,000 were incurred in
relation to the purchase. What amount should initially be recognized for the financial asset, respectively it is classified as
at fair value through profit or loss, or as available for sale (financial assets at fair value through other comprehensive
income)?
A. 5,000,000 and 5,500,000 C. 5,500,000 and 5,500,000
B. 5,500,000 and 5,000,000 D. 5,000,000 and 5,000,000
2. Kobe Company began operations on January 1, 2016. The following information pertains to the portfolio of marketable
equity securities on December 31, 2021:
Trading Available for sale
Aggregate cost 3,600,000 5,500,000
Aggregate market value 3,200,000 4,500,000
Aggregate lower of cost or market applied individually 3,040,000 4,200,000
The transaction cost that would be incurred on sale of investment are estimated at P100,000 for trading securities and
P150,000 for available for sale securities. What total amount should be reported as unrealized loss in the 2021 income
statement?
A. 1,400,000 C. 400,000
B. 560,000 D. 500,000
3. On January 1, 2020
4. , Dwayne Company purchased “trading” equity securities. The cost and market value on December 31, 2017 were:
Cost Market
Security A 1,000,000 1,200,000
Security B 2,000,000 1,500,000
Security C 3,000,000 3,100,000
On July 1, 2021, the entity sold Security A for P1,800,000. What amount should be reported as gain on sale of trading
securities in the 2021 income statement?
A. 800,000 C. 500,000
B. 600,000 D. 400,000

5. James Company received dividends from its ordinary share investments during 2021 as follows:
• A stock dividend of 10,000 shares from Z Company when the market price of the share was P10.
• A cash dividend of P1,500,000 from Y Company in which the entity owns a 15% interest.
• 5,000 shares of X Company in lieu of cash dividend of P20 per share. The market price of the share was P150.
The entity holds originally 50,000 shares of X Company and owns 5% interest in X Company.
What amount of dividend revenue should be reported in the income statement for 2021?
A. 2,500,000 C. 1,500,000
B. 2,250,000 D. 2,350,000
6. Data pertaining to dividends on Peter Company’s ordinary share investments for 2021 were as follows:
• On October 1, the entity received P600,000 liquidating dividend from SanMig Company. The entity owns 10%
interest in SanMig Company.
• The entity owns a 20% interest in PF Company which declared and paid a P4,000,000 cash dividend to
shareholders on December 31, 2021.
• On December 1, the entity received from Derby Company a dividend in kind of one share of Coney Company
for every 4 Derby Company shares held. The entity holds 100,000 Derby Company shares which have a
market price of P50 per share on December 1. The market price of Coney Company share is P10.
What amount should be reported as dividend income in the income statement for 2021?
A. 1,650,000 C. 850,000
B. 1,050,000 D. 250,000
7. Marc Company owns 300,000 shares of another entity’s 1,000,000 shares at P50 par, 10% cumulative, nonparticipating
preference share capital and 200,000 shares representing 5% of the investee’s ordinary share capital. During 2021, the
investee declared and paid preference dividends of P8,000,000. No dividends had been declared or paid during 2020. In
addition, the entity received a 10% ordinary stock dividend from the investee when the quoted market price of ordinary
share was P20. What amount should be reported as dividend income in the income statement for 2021?
A. 2,400,000 C. 2,800,000
B . 3,000,000 D. 0
8. On July 1, 2021, Batman Company purchased as trading investment a P1,000,000 face value 8% bond for P910,000
plus transaction costs of P50,000 and accrued interest to yield 10%. The bond pays interest annually on December 31.
On December 31, 2021, the bond investment had a market value of P945,000. Cost to sell on that date is P45,000. On
April 1, 2022, before the issuance of the financial statements, the entity sold the bond investment for P920,000 plus
accrued interest. What is the carrying amount of the bond investment in December 31, 2021?
A. 910,000 C. 920,000
B. 900,000 D. 945,000
9. On January 1, 2021, Robin Company purchased bonds with face value of P2,000,000 for P1,900,500 including
transaction costs of P100,500 to be held as “available for sale”. The bonds mature on December 31, 2022 and pay
interest annually every December 31 with a 10% effective yield. The bonds are quoted at 110 on December 31, 2020
and 120 on December 31, 2021. What amount of unrealized gain on these bonds should be reported as component of
other comprehensive income for 2021?
A. 269,450 C. 166,945
B. 436,395 D. 499,500
10. On July 1, 2021, Goku Company paid P1,198,000 for 10% bonds with a face amount of P1,000,000 to be held to
maturity. Interest is paid on June 30 and December 31. The bonds were purchased to yield 8%. The entity used the
effective method to recognize interest income from this investment. What is the carrying amount of the bond investment
on December 31, 2021?
A. 1,207,900 C. 1,195,920
B. 1,198,000 D. 1,193,050
11. On July 1, 2021, Naruto Company purchased as a long-term investment P1,000,000 face value 8% bonds for P946,000
including accrued interest of P40,000. The bonds were purchased to yield 10% interest. The bonds pay interest annually
on December 31. The effective interest method of amortization is used. What is the carrying amount of the investment in
bonds on December 31, 2021?
A. 911,300 C. 953,300
B. 916,600 D. 960,600

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wep/ACP103/investments/task3