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QUIZ FINAL 1 2019, questions and answers

BS Accountancy (Saint Louis University Philippines)

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AE 121 QUIZ #1 FINALS 13. What is the effect of stock dividend of the same class on the
shareholders' investment balance and cost per share of investment,
1. The following define investments except respectively?
A. assets held by an entity for accretion of wealth, for capital A. Increase; increase C. decrease; decrease
appreciation or for other benefits accruing to the entity. B. No effect; decrease D. No effect; increase
B. occupy an auxiliary relationship to the central revenue producing
14. S1: When stock dividends of different class are received, a new
activities of a firm
investment account is debited and the original investment account is
C. assets not directly identified with the operating activities of a firm.
credited. S2: Shares received in lieu of cash dividend are recorded as
D. assets involved in the production or sale of goods and services
income at market value of the shared received. Hear
E. none of the above
A. both are true C. S1 is true
2. Current investments are investments that are by their very nature B. both are false D. S2 is true
A. readily realizable
15. Shares received in lieu of cash dividend are recorded as
B. intended to be held for not more than one year
A. income at book value of the shares received
C. readily realizable and intended to be held for more than 1 year
B. income at market value of the shared received
D. readily realizable and intended to be held within one year
C. income at the cash dividend that would have been received
3. Which of the following is considered a financial asset? D. share dividends
A. Inventories D. Patent purchased
16. Liquidating dividends are credited to
B. Shares issued E. B and C
A. Investment account C. Share capital
C. Accounts receivable
B. Retained earnings D. none of the above
4. Under PFRS 9, which is not a category of financial assets?
17. An investor uses the cost method to account for investment in
A. Financial assets at FVPL
ordinary shares. Dividends received this year exceeded the investor's
B. Financial assets at FVOCI
share of investee's undistributed earnings since the date of investment.
C. Financial assets at amortized cost
The amount of dividend revenue that should be reported in the investor's
D. Financial assets held for sale
income statement for this year would be
E. answer not given
A. the portion of the dividends received this year that were in excess
5. Which is not an equity instrument? of the investor's share of investee's undistributed earnings since the
A. Ordinary shares date of investment.
B. Preference shares B. the portion of the dividends received this year that were not in
C. Share warrants excess of the investor's share of investee's undistributed earnings
D. Redeemable preference shares since the date of investment.
E. answer not given C. the total amount of dividends received this year
D. zero
6. Under PFRS 9, the initial classification of investments in financial
assets is generally based on 18. S1: From the date share rights are issued until the date they expire,
A. whether the financial securities have active markets or not shares of the issuing corporation are said to sell ex-right. S2: When
B. Whether the financial securities are intended to be held within 1 share rights are received on investment in unquoted equity securities
year or not measured at cost, no entry is required to transfer a portion of the cost of
C. the entity's business model and the contractual cash flow the original investment to a separate account for the share rights.
characteristics of the financial asset A. both are true C. S1 is true
D. All of the above B. both are false D. S2 is true
7. Which is false regarding the classification of financial assets: 19. The cost of new shares acquired through the exercise of share rights
A. Only equity securities can be classified as FVOCI is the
B. Only debt securities can be classified as amortized cost A. subscription price
C. Both debt and equity securities can be classified as FVPL B. allocated cost of share rights
D. None of the above C. subscription price plus the cost of share rights exercised
E. All of the above D. subscription price less the allocated cost of the rights
8. The option to designate financial assets as FVPL and the election to 20. When an investment in FVPL is sold during the year, the realized
classify financial assets at FVOCI are available to an entity's gain or loss on sale is equal to the
management A. difference between the net proceeds and the carrying amount of
A. On initial recognition only investment at date of sale
B. Subsequent to initial recognition only B. difference between the net proceeds and the fair value of investment
C. On initial recognition and subsequent periods thereof at date of sale
D. Not available C. difference between the net proceeds and the acquisition cost of
investment
9. Transaction costs directly attributable to the acquisition of financial
D. none of the above
asset shall be capitalized as cost of the investment, except for
A. Trading securities 21. If a financial asset classified as FVOCI is sold during the year,
B. financial asset at FVOCI A. the gain or loss on sale is recognized in profit or loss
C. financial asset at amortized cost B. the gain or loss on sale is recognized directly in equity
D. investment in equity securities C. the cumulative unrealized gains or losses on the investment are
transferred directly to retained earnings
10. S1: The election to classify financial assets at FVOCI is made on an
D. profit in the year of sale is increased if the selling price exceeds the
instrument by instrument basis and is irrevocable. S2: Once a financial
acquisition cost of the investment
asset is classified as FVOCI, all fair value changes on the instrument is
E. A and C
recognized in other comprehensive income
A. both are true C. S1 is true 22. The following statements are true regarding equity method, except
B. both are false D. S2 is true A. The investment in associate is initially recorded at cost.
B. The investment in associate is increased or decreased by the
11. SABM Co. purchased ordinary shares of SLU Co., a non-publicly
investor's share of the profit or loss of the investee after the date of
listed company. If SABM Co. classified the ordinary shares as a regular
acquisition.
investment, it should measure the investment at
C. The investor's share of the profit or loss of investee is not
A. cost
recognized in the investor's profit or loss.
B. amortized cost
D. Distributions received from the investee reduce the carrying amount
C. fair value unless fair value cannot be determined reliably
of investment.
D. lower of cost or fair value
23. S1: Under the equity method of accounting, the maximum investor's
12. S1: Cash, property and shares received in lieu of cash are dividends
share in the loss of the investee is the carrying amount of investment
recognized as return on capital. S2: Liquidating, shares and cash
balance. S2: An investor shall discontinue to use the
Net Cumulative Lossequity method
= P148k FMC –from
P170k Cost
received in lieu of share are dividends not recognized as income.
the date that the investor ceases to have significant =influence
(P22,000)over the
A. both are true C. S1 is true Unrealized Loss = P22,000 – P1,500
investee.
B. both are false D. S2 is true
A. both are true B. both are false C. S1 is =true
P20,500 loss
D. S2 is true

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24.If under the equity method, an investor's share of losses of an E. answer not given
associate equals or exceeds the carrying amount of investment, which
31. Plack Co. purchased 10,000 shares (2% ownership) of Ty Corp. on
statement would be false?
February 14, 2018. Plack received a share dividend of 2.000 shares on
A. The investment is reported at NIL value
April 30, 2018, when the market value per share was P35. Ty paid a
B. The investor discontinues its share of further losses.
cash dividend of P2 per share on December 15. 2018. In its 2018 income
C. Additional losses are provided for or a liability is recognized, to the
statement, what amount should Plack report as dividend income?
extent that the investor has incurred legal or constructive
A. P20,000
obligations or made payments on behalf of the associate.
B. P24,000 Dividend Income = number of shares x div. per share
D. If the associate subsequently reports profits, the investor resumes = 12,000 x P2
C. P90,000
its share of those profits without regard to the share of net losses = P24,000
D. P94,000
not previously recognized.
E. answer not given
25. When the investor discontinues the use of the equity method because
significant influence is lost the investment in associate retained by the 32. On January 1, 2018, AC Co. purchased 10,000 ordinary shares of
investor shall be measured at SABM Co. at P90 per share. On December 31, 2018, AC Co. received
A. fair value C. original cost 2,000 share of SABM Co. in lieu of cash dividend of P10 per share. On
B. carrying amount D. answer not given this date, the SABM Company share has a quoted market price of P60
per share. In its 2018 income statement what amount should AC Co.
26. When an entity increases its interest in an investment in equity report as dividend income?
securities accounted for by fair value method, and changes to equity A. P120,000
method, what is the initial carrying amount for purposes of subsequent Number of Shares Received x Market Price per Share
B. P100,000 = 2,000 x P60
application of equity method? C. P20,000 Dividend Income = P120,000
A. Carrying amount at the date of the change D. P0
B. Original cost plus or minus the net market value change since E. answer not given
acquisition
C. Fair value at the date of change 33. On July 1, 2018, Beast Co, exchanged a land for 25,000 ordinary
D. The amount that would be reflected in the investment account had shares of Beauty Co. On this date, the land has carrying value of
equity method been used continually since the purchase of the P2,500,000 and fair value of P3,000,000 while the ordinary share of
investment. Beauty Co. has P60 carrying value and market value of P150.
On December 31, 2018, Beauty Co. have 250,000 ordinary shares with
27. Kado Inc. began operations in 2017. The company's trading P80 carrying value. On December 31, 2018, how much should be
securities portfolio, which did not change in composition during 2018, is reported by Beast Co. as investment in Beauty Co.?
as follows: A. P1,500,000 D. P3,750,000
Security Cost Market Value
B. P2,500,000 E. answer not given
12/31/18 12/31/17
DR P1,000,000 P1,000,000 P1,350,000 C. P3,000,000
F P2,000,000 P1,500,000 P2,100,000 34. Soprano Co. acquired 50,000 ordinary shares of Alto Co. on
INC P2,500,000 P2,600,000 P1,800,000
September 30, 2017 for P8,250,000. On October 30, the shares were
What amount should be reported as an unrealized gain (loss) on trading
split into 2:1 (split-up). On November 30, 2018, Alto distributed 10%
securities in Kado's 2018 income statement?
ordinary share dividends when the market price of the share was P250
A. (P150,000) 2017 2018 Change in MV per share. On December 31, 2018, Soprano sold 6,000 of its Alto shares
B. P150,000 DR 1.35M 1M (350k)
F 2.1M 1.5M (600k) for P600,000. For the year ended December 31, 2018, how much should
C. (P250,000)
INC 1.8M 2.6M 800k Soprano report as gain on sale of investment?
D. (P400,000)
(150,000) A. P105,000 8,250k/110 = 75 Cost per Share
E. answer not given
B. P150,000
28. At the end of 2017, Lane Co. held trading securities that cost Net Proceeds 600,000
C. P200,000 Cost (6,000 x 75) (450,000)
P86,000 and which had a market value of P92,000. During 2018, these D. P250,000 Gain on Sale 150,000
securities were sold for P104,500. During 2018, Lane Co. acquired
additional trading securities that cost P73,000 and had a year-end market 35. Wa Is Co. acquired 20,000 shares of ABC Co. on March 1, 2017 for
value of P71,000. What is the impact of these activities on Lane Co.'s P2,000,000 and acquired additional 30,000 shares of ABC CO. on
2018 income statement? October 31,2017 at P120 per share. Wais Company received cash
A. Loss of P2,000 Realized Gain on Securities Sold = Sales Price – CV dividend of P10 per share on February 14, 2018 and 20% share dividend
B. Gain of P10,500 = 104,500 – 92,000 = 12,500
Unrealized Loss in Sec. Acquired = Yr.-end MV – Cost on April 1,2018. On July 16,2018, Wa Is Co. sold 30,000 shares at P125.
C. Gain of P12,500 = 71,000 – 73,000 = (2,000) How much is the gain on sale of investment assuming the FIFO method
D. Gain of P18,500 Total I/S Impact = 12,500 + (2,000) = 10,500 gain is used?
E. answer not given A. P150,000 # of share Fraction Total Cost NP (30k x 125) 3,750k
29. During 2017, XYZ Co. purchased marketable equity securities to be B. P550,000 24,000 8333 2M TC (2,600k)
measured at fair value thru other comprehensive income. On December C. P950,000 6,000 100 600k Gain on Sale 1,150k
31, 2017, the balance of unrealized loss was P75,000. There were no D. P1,150,000 30,000 2.6M
security transactions during 2018. Pertinent data on December 31, 2018
are as follows: 36. Rome Inc. acquired 50,000 ordinary shares of Egypt Company at
Security Cost Market Value Gain (Loss) P120 per share. On February 14, 2018, Rome Inc. received 50,000 stock
ABC P1,000,000 P900,000 (P100k) rights entitling it to buy one new share at p90 for every two rights held.
DEF P850,000 P800,000 (P50k) On February 14, 2018, the market value of each share is P130 while that
MNO P950,000 P1,000,000 P50k
of each right is P20. On March 1, 2018, all the stock rights were
(P100k)
In the statement of changes in equity for 2018, how much should be exercised. If share rights are accounted for separately, what is the total
cost of the new investment in ordinary shares acquired?
included as cumulative unrealized loss as component of other
comprehensive income? A. P2,250,000
B. P3,050,000 Cost of Share (25,000 x P90) 2,250k
A. P25,000 C. P100,000 Cost of Share Rights (50,000 x P20) 1,000k
B. P75,000 D. answer not given C. P3,250,000 Cost of New Investment-OS 3,250k
D. P5,500,000
30. Data regarding Stone Co's portfolio of equity securities accounted
for as fair value through other comprehensive income is as follows: 37. Power Co. acquired 40% of Puff Inc.'s voting common stock on
Aggregate cost as of 12/31/2018 P170,000 January 2, 2018 for P400,000. The carrying amount of Puff Inc.'s net
Market value as of 12/31/2018 P148,000 assets at the purchase date totaled P900,000. Fair values equaled
Net realized gains during 2018 P30,000 carrying amounts for all items except equipment, for which fair values
At December 31, 2017, Stone Co. reported an unrealized loss of P1,500 exceeded carrying amounts by P100,000. The equipment has a five-year
to reduce investments to market value. This was the first such life. During 2018, Puff Inc. reported net income of P150,000. What
adjustment made by Stone Co. on these types of securities. In its 2018 amount of income from this investment should Power Co. report in its
statement of comprehensive income, what amount of unrealized loss 2018 incomeUndervalued
statement? Equipment P100k x 40% ownership = P40k/5 = P8k
should Stone report? A. P40,000 Share in Net Income (P150k x 40%) = P60,000
A. P30,000 Net Cumulative Loss = P148k FMV – P170k Cost B. P52,000 Less: Excess FV amortization 8,000
B. P22,000 = (P22,000) C. P56,000 Investment Income P52,000
C. P20,500 Unrealized Loss = (P22,000) – P1,500 D. P60,000
D. P0 = P20,500 Loss
E. answer not given

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Saba Co. has market value of P100.

38. On January 2, 2018, Maru Co. purchased 10% of Kang Inc.'s c. Purchased 50,000 shares (5% ownership) of Pineapple Co. on January
outstanding ordinary shares for P400,000. Maru Co. is the largest single 2, 2018 for P1,000,000. Pineapple Co. distributed a 10% stock
shareholder in Kang Inc., and Maru Co.'s officers are a majority on dividend
Kang Inc.'s board of directors. Kang Inc. reported net income of on March 31, 2018 and paid a cash dividend of P8 per share on
P500,000 for 2018, and paid dividends of P150,000. In its December 31, December 25, 2018. THY d. Acquired 5% interest in Orange Co. which
2018 balance sheet, what amount should Maru Co. report as investment declared P1,000,000 dividends on October 31, 2018, P150,000 of which
in Kang Inc.? Initial Cost 400,000 represents return of invested capital.
A. P385,000 Share in Net Income (P500k x 10%) 50,000 How much should be reported by FRUITY Co. as dividend income for
B. P400,000 Share in Dividends (P150k x 10%) (15,000) the year 2018?
C. P435,000 Total Investment 435,000 a. 400,000 x 10% 40,000
D. P450,000 b. 2,000 x P100 200,000
E. answer not given c. 55,000 x P8 440,000
d. 1M – 150k = 850k x 5% 42,500
39. On July 1, 2018, Ding Co. acquired 20% of the outstanding ordinary Dividend Income 722,500
shares of Dong Co. for P8.000.000. The book value of the shares
3. East Co. owns 20% of West Corporation's preferred shares and 40%
acquired is P6,000,000. The excess of cost over book value was
of its ordinary shares. West Corporation's share outstanding at December
attributed to a depreciable asset which was undervalued at Dong Co.'s
31, 2018 is as follows:
statement of financial position and which had a remaining useful life of
10% cumulative preferred shares P100,000
10 years.
ordinary shares P700,000
For the year 2018, Dong Co. reported net income of P1,800,000 and West Corporation reported net income of P60,000 and paid dividends of
paid cash dividends of P500,000 on December 31, 2018, and thereafter P10,000 to its preferred shareholders for the year ended December 31,
issued a 5% share dividend. What is the proper carrying amount of 2018. How much total revenue should East Co. record due to its
investment in associate at December 31, 2018? investment in West Corporation?
A. P7,980,000 Initial Cost 8,000,000 Net Income 60,000
B. P8,000,000 Share in Net Income (P1.8M x 20% x ½) 180,000 10% Cumulative Preferred Shares (10,000)
Share in Dividends (P500k x 20%) (100,000) 50,000
C. P8,030,000
Excess Attributable to Asset (P2M/10 x ½) (100,000) 40%
D. P8,060,000 20,000 20,000
Total Investment 7,980,000
E. answer not given
Dividends 10,000
40. North Inc. acquired 30% of South Co.'s voting shares for P200,000 20% Preferred Shares 20%
on January 2, 2017. During 2017, South Co. earned P80,000 and paid 2,000 2,000
dividends of P50,000. South Co. reported earnings of P100,000 for the Total Revenue 22,000
six months ended June 30, 2018, and P200,000 for the year ended
4. On January 3, 2017, Lonely Inc. purchased 10,000 shares of the X
December 31, 2018. On July 1, 2018, North Inc. sold half of its shares in
100,000 ordinary shares P50 par value of JOY Co. for P600,000.
South Co. for P150,000 cash. South Co. paid dividends of P60,000 on
Half of the excess over book value is attributable to an equipment of
October 1, 2018.
JOY Co. with remaining useful life of 8 years.
In its 2018 income statement, what amount should North Inc. report as On December 31, 2017, Lonely Inc. acquired additional 20,000 ordinary
gain from the sale of half of its investment? shares of JOY Co. for P1,700,000. On this date, the book value of JOY
A. P24,500 Co.'s net assets is P7,500,000. Investigation of records revealed that a
B. P30,500 building with remaining 5 years useful life has a carrying value of
C. P35,000 P3,000,000 and fair value of P 3, 400, 000 on December 31, 2017. JOY
D. P45,500 Co. had not issued additional shares of stock during 2018 and reported
E. answer not given the following for years 2017 and 2018:
Net Income Dividends
Purchase Price 1/2/17 200,000 2017 P700,000 P200,000
Add: Share in Net Income 2017 (80,000 x 30%) 24,000
2018 P1,200,000 P500,000
Less: Year 1 dividends (50,000 x 30%) (15,000)
Balance at 12/31/Year 1: 209,000 How much is the Investment balance as of December 31, 2018?
Add: Year 2 income - 1/2 yr (100,000 x 30%)= 30,000 FV 10% Interest 600,000
Balance at 6/30/Year 2 239,000 AC 20% Interest 1,700,000
Percentage Sold 50% Investment in Associate 2,300,000
Cost of Half Sold 119,500 Share Dividends (150,000)
Selling Price 150,000 Investment Income 406,000
Gain on Sale P30,500 Investment in Associate 2,556,000
Share in Net Income 2018 (1.2M x 30%) 360,000
Amortization of Excess (120k/5) (24,000)
STRAIGHT PROBLEMS Excess of FV over Cost 70,000
1. Tama Co. bought 2,000 shares of Home Inc. on January 2, 2018 at Investment Income 406,000
P150 per share and paid P2,250 as brokerage fee and P1,500 non-
Acquisition Cost 2,300,000
refundable tax. At the time of acquisition, Tama Co, had a positive intent
CA of NA acquired (7.5M x 30%) (2,250,000)
to hold this instrument for an indefinite period of time. On December 9, Excess of Cost over BV 50,000
2017, Home Inc. declared a P10 cash dividend to shareholders on record Attributable to Building (400k x 30%) (120,000)
as of January 31, 2018 payable on April 30, 2018. The shares of Home Goodwill (Excess of FV over Cost) (70,000)
Inc. have market value of P160. Prepare the journal entry on the books
of Tama Co. to record the acquisition of investment.
January 2 Investment in Shares 283,750
Dividend Receivable 20,000
Cash 303,750

Purchase Price (2,000 x P150) 300,000

Transaction Cost 3,750
Total Cost 303750
Dividends On (2,000 x P10) (20,000)
Investment in Shares 283,750

2. Below are transactions pertaining to FRUITY Co.'s investments in

ordinary shares during the year ended December 31, 2018:
a. Acquired 10% interest in Apple Co. which declared a cash dividend of
P400,000 on December 1, 2018 to all shareholders of record on
January
31,2019 and payable on February 14, 2019.
b. On January 1, 2018, purchased 10,000 ordinary shares of Saba Co. at
P90 per share. On December 31, 2018, it received 2,000 share of Saba
Co. in lieu of cash dividend of P10 per share. On this date, the share
of

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