PRE-TEST - INVESTMENTS

1. Financial Assets include all of the following, except:

a. Cash in Bank
b. Trade Accounts and Notes Receivable
c. Equity Investments
d. Inventory, equipment, intangible assets and prepaid expenses

2. The irrevocable election to present in OCI changes in fair value of financial asset is applicable to
a. An investment in equity instrument held for trading
b. An investment in equity instrument not held for trading
c. A financial asset measured at amortized cost
d. A financial asset measured at fair value through profit or loss

3. A debt investment shall be measured subsequently at amortized cost

a. By irrevocable designation
b. When the debt investment is managed and evaluated on a document risk-management strategy
c. When the debt investment is held for trading
d. When the business model is to collect contractual cash flows that are solely principal and interest

4. A debt investment shall be measured at fair value through other comprehensive income
a. When the debt investment is held for trading
b. When the debt investment is not held for trading
c. By irrevocable designation
d. When the business model is to collect contractual cash flows and also to sell the financial asset

5. Under the fair value option, an entity may

a. Irrevocably designate a debt investment as a measured at fair value through profit or loss even if the
amortized cost or FVOCI measurement is satisfied
b. Irrevocably designate a debt investment as measured at FVOCI
c. Revocably designate a debt investment measured at FVPL
d. Designate all instruments as measured at fair value through profit or loss

6. When can classification of an instrument on initial recognition be changed?

a. Reclassification is only permitted on the change of the contractual cash flow
b. Reclassification is only permitted on the change of an entity’s business model
c. Reclassification is only permitted where a category becomes tainted
d. Reclassification is not permitted

7. Entities account for transfers of investments between categories

a. Prospectively, at the end of the period after the change in the business model
b. Prospectively, at the beginning of the period after the change in the business model
c. Retroactively, at the end of the period after the change in the business model
d. Retroactively, at the beginning of the period after the change in the business model

8. Which statement is incorrect concerning the equity method?

a. The investment in associate is initially recorded at cost
b. The investment in associate is increased or decreased by the investor’s share of the profit or loss of the
investee after the date of acquisition
c. The investor’s share of the profit or loss of the investee is recognized in the investor’s profit or loss
d. Dividends received from the investee are accounted for as dividend income

9. An investor shall discontinue the use of the equity method when

a. The investor ceases to have significant influence over the associate
b. The associate operates undue severe long-term restrictions
c. The investor ceases to have control over the associate
d. Under all circumstances

10. The equity method is not applicable under all of the following circumstances, except
a. The investor is a wholly-owned subsidiary
b. The investor’s debt and equity instruments are not traded
c. The investor is in the process of filing statements with a regulatory body for the purpose of issuing debt
and equity instruments in a public market
d. The ultimate parent of the investor produces consolidated financial statements
During 2023, Ali Corporation purchased trading securities with the following cost and market value on December 31,
2023:

Security Cost Market Value

A – 1,000 shares P 200,000 P 300,000
B – 10,000 shares 1,700,000 1,600,000
C – 20,000 shares 3,100,000 2,900,000

The entity sold 10,000 shares of security B on January 15, 2024 for P150 per share.

11. What amount of unrealized gain or loss should be reported in the income statement for 2023?
a. 200,000 loss
b. 200,000 gain
c. 300,000 loss
d. 300,000 gain

12. What amount should be reported as loss on sale of trading investment in 2024?
a. 200,000 gain
b. 200,000 loss
c. 100,000 gain
d. 100,000 loss

During 2023, Jj Corporation purchased marketable equity securities as short-term investment to be measured at
FVOCI. The cost and market value on December 31, 2023 were:

Security Cost Market Value

A – 1,000 shares P 200,000 P 350,000
B – 10,000 shares 1,700,000 1,550,000
C – 20,000 shares 3,150,000 2,950,000

The entity sold 10,000 shares of B on January 5, 2024 for P1450,000.

13. What total amount should be charged to retained earnings as a result of the sale of equity investments in
2024?
a. 200,000
b. 100,000
c. 250,000
d. 150,000

Erich Company provided the following data for the current year:
• On August 1, Erich Company received a P1,000,000 cash dividend from Rys Company in which Erich
Company owned 35% interest.
• On November 1, Erich Company received P50,000 liquidating dividend from King Company in which the
former owned 5% interest.
• Erich Company owned a 10% interest in Nuna Company, which declared and paid P2,000,000 cash
dividend on November 15.

14. What amount should be reported as dividend income for the current year?
a. 700,000
b. 560,000
c. 500,000
d. 200,000

Mikay Company acquired 20,000 shares of Nuna Company on January 1, 2023 at P120 per share. The latter had
80,000 shares outstanding with a carrying amount of P8,000,000. The difference between the carrying amount and
the fair value of Nuna Company on January 1, 2023 is attributable to a broadcast license which is an intangible asset.
Nuna Company recorded earnings of P3,600,000 and P3,900,000 for 2023 and 2024, respectively, and paid per-
share dividend of P16 in 2023 and P20 in 2024. Mikay Company has a 20-year straight line amortization policy for the
broadcast license.

15. What amount should be reported as investment income for 2023?

a. 900,000
b. 880,000
c. 320,000
d. 920,000
 16. What is the carrying amount of the investment in associate on December 31, 2023?
a. 2,980,000
b. 2,960,000
c. 3,300,000
d. 2,060,000

17. What amount should be reported as investment income for 2024?

a. 975,000
b. 995,000
c. 955,000
d. 935,000

18. What is the carrying amount of the investment in associate on December 31, 2024?
a. 3,515,000
b. 2,400,000
c. 3,555,000
d. 4,275,000

On January 1, 2023, Balignot Company purchased as a long-term investment P5,000,000 face amount of Rohose
Company’s 8% bonds for P4,562,000. The bonds were purchased to yield 10% interest. The bonds mature on
January 1, 2028 and pay interest annually on December 31. The interest method of amortization is used.

19. What amount should be reported as interest income for 2024?

a. 456,200
b. 461,820
c. 400,000
d. 369,456

20. What is the carrying amount of the bond investment on December 31, 2024?
a. 4,680,020
b. 4,662,000
c. 4,618,200
d. 4,562,000

On July 1, 2023, Ali Company paid P1,198,000 of 10%, 20-year bonds with a face amount of P1,000,000. Interest is
paid on June 30 and December 31. The bonds were purchased to yield 8%. The effective interest method is used to
recognize interest income from this long-term investment.

21. What is the carrying amount of the investment in bonds on December 31, 2023?
a. 1,207,900
b. 1,198,000
c. 1,195,920
d. 1,193,050

On January 1, 2023, Curry Corporation purchased 12% bonds with face amount of P5,000,000 for P5,500,000
including transaction cost of P100,000. The bonds provide an effective yield of 10%. The bonds are dated January 1,
2023 and pay interest annually on December 31 of each year. The bonds are quoted at 115 on December 31, 2023.
The entity has irrevocably elected the fair value option.

22. What amount of gain from change in fair value should be reported for 2023?
a. 750,000
b. 250,000
c. 350,000
d. 0

23. What amount of interest income should be reported for 2023?

a. 600,000
b. 550,000
c. 660,000
d. 540,000
 24. What is the carrying amount of the bond investment on December 31, 2023?
a. 5,750,000
b. 5,400,000
c. 5,500,000
d. 5,450,000

25. What total amount of income from the investment should be reported in the income statement for 2023?
a. 540,000
b. 950,000
c. 890,000
d. 900,000

An entity owned 50,000 shares of another entity. These 50,000 shares were originally purchased for P100 per share.
The investee distributed 50,000 rights to the entity. The entity was entitled to buy one new share for P140 and five of
these rights. Each share had a market value of P150 and each right had market value of P10 on the date of issuance.
The entity exercised all rights. The share rights are accounted for separately and measured initially at fair value.

26. What total cost should be recorded for the new shares that are acquired by exercising the rights?
a. 1,400,000
b. 1,900,000
c. 1,650,000
d. 1,000,000

At the beginning of the current year, an entity purchased for P5,000,000, 30,000 newly issued 6% cumulative
preference shares with par value of P100. Each preference share had one share warrant attached which entitled the
holder to acquire at P120 an ordinary share with P50 par value plus two share warrants held. The market price on the
date of acquisition of the preference share was P150 without the share warrant and the market price of the share
warrant was P50.

27. What amount should be reported as investment in share warrants?

a. 1,500,000
b. 1,250,000
c. 3,750,000
d. 0

28. What amount should be reported as cost of the investment in ordinary shares upon exercise of the share
warrants?
a. 3,050,000
b. 1,800,000
c. 2,000,000
d. 3,600,000

On January 1, 2023, an entity purchased as a long-term investment P5000,000 face value of 8% bonds for
P4,530,000. The bonds were purchased to yield 10% interest. The bonds pay interest annually on December 31. The
effective interest method of amortization is used.

29. What is the interest income for 2024?

a. 500,000
b. 400,000
c. 453,000
d. 458,300

30. What is the carrying amount of the investment in bonds on December 31, 2024?
a. 5,000,000
b. 4,583,000
c. 4,477,000
d. 4,461,300

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