Pre-Test 2
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BLACKPINKLisaRoseJisooJenniePre-Test 2
Uploaded by
BLACKPINKLisaRoseJisooJenniePre-Test 2
Answer this test wisely.
1. During 2010, Hong Kong Bank purchased marketable equity securities as a short-term investment
and then as trading securities. The cost and Market value at December 31, 2010 were as follows:
12.31.10
Security Shares Cost Market Value
X 200 P 84,000 P102,000
Y 2,000 430,000 459,000
Z 4,000 945,000 885,000
Hong Kong Bank sold the investment in security Y on March 9, 2011 for P250 per share. How much
should Hong Kong Bank report as realized gain on the sale?
a. P 5,000 c. P30,000
b. P41,000 d. P70,000
Solution: B
Net Selling price (2,000 x P250) P500,000
Less: MV of Security Y P459,000
Gain on Sales P 41,000
Note: When a single equity security is sold “in part” from an equity portfolio of trading securities, the
realized gain or loss is the difference of the selling price and carrying value of the last valuation date.
2. Information regarding ABC Bank’s portfolio of trading securities is as follows:
Aggregate Cost, 12.31.10 P3,000,000
Unrealized gain, 12.31.10 90,000
Unrealized losses, 12.31.10 (300,000)
Net realized gain during 2010 350,000
In its December 31, 2010 profit or loss, what amount of net realized gain should the company report?
a. P90,000 c. P140,000
b. P350,000 d. P440,000
Solution: C
Unrealized losses P(300,000)
Unrealized gains 90,000
Net realized losses – 12.31.10 P(210,000)
Add: Net realized gains during 2010 P 350,000
Net realized gains P 140,000
Note: Net realized gains during 2010 were a result of a disposal of a security. The unrealized gain or
loss is the difference between MV of the securities & historical cost.
3. PCIB Corporation has the following short-term marketable securities classified as trading
securities as December 31, 2009:
Historical Cost Market Value
ABC P1,625,000 P1,700,000
DEF 2,375,000 2,400,000
On March 31, 2010, PCIB Corporation decided to dispose ABC and DEF securities for a sum of
P4,365,000. What is the amount of realized gain PCIB should report in its 2010 profit or loss result of the
sale of securities?
a. None c. P265,000
b. P340,000 d. P365,000
Solution: C
Selling price P4,365,000
Less: Carrying Value (MV) P4,100,000
Realized gain on sale P 265,000
Note: Realized gain or loss on a sale of all trading securities is determined by comparing the selling price
versus the carrying value (MV) of the securities at the time of sale since any increase or decrease
(unrealized gain or loss) recognized previously is not reversible.
4. PNB Company purchased the following portfolio of trading securities and reported the following
balance at December 31, 2009. All declines are judged to be temporary:
12/31/09
Security Historical Cost Market Value,
P P 450,000 P 465,000
I 650,000 675,000
C 375,000 400,000
P1,475,000 P1,540,000
On February 1, 2010. PNB Company decided to sell all the securities receiving net proceeds of
P1,750,000. What is the total amount of realized gain that PNB Company should recognize on the sale of
the securities?
a. None c. P210,000
b. P215,000 d. P275,000
Solution: C
Net proceeds from sales P1,750,000
Less: Carrying value of securities P1,540,000
Realized gain P 210,000
Available for Sale Securities
5. Red Company had the following portfolio of available for sale equity securities at December 31,
2010:
Security Cost Market Value
A P 400,000 P 410,000
B 700,000 660,000
Total P1,100,000 P1,070,000
In Red’s December 31, 2010 statement of financial position, how much should be reported as the carrying
value of the portfolio?
a. P1,060,000 c. P1,070,000
b. P1,100,000 d. P1,110,000
Solution: C
