MAC 407- Assessment 1 account.

There was no change during 2019 in the composition of National

company’s portfolio of equity securities. Pertinent data are as follows:
Investment in Equity Security to Profit or Loss Security Cost December 31, 2019 market value
1. Anchor Co. acquired the following portfolio of investment through profit or A P 1,200,000 P 1,260,000
loss securities during 2018 and reported the following balances at December B 900,000 950,000
31, 2018: C 1,600,000 1,620,000
Security Cost December 31, 2018 market value 3,700,000 3,830,000
R 350,000 360,000 ============ =======
P 425,000 400,000 What amount of gain on these securities should be included in National
N 525,000 640,000 Company’s profit or loss for the year ended December 31, 2019?
No sales occurred during 2018. What is the carrying value of the securities on a. None c. P90,000
December 31, 2018 on Anchor’s statement of financial position? b. P40,000 d. P130,000
a. 1,275,000 c. 1,400,000
b. 1,300,000 d. 1,425,000

4. During 2019 Hongkong Bank purchased marketable equity securities as a

short-term investment in equity to profit or loss. The cost and market value at
2. Cordial Co purchased the following portfolio equity securities through profit December 31, 2019 were as follows:
or loss during 2018 and reported the following balances at the December Security Shares Cost December 31, 205 market value
31,2018. No sales occurred during 2018. All declines are considered to be X 200 P84,000 P102,000
temporary Y 2,000 430,000 459,000
Security Cost December 31, 2018 market value Z 4,000 945,000 885,000
X P 800,000 P 820,000 Hongkong Bank sold the investment in security Y on March 9, 2020 for P250
Y 1,400,000 1,320,000 per share. How much should Hong Kong Bank report as realized gain on the
Z 320,000 280,000 sale?
How much should Cordial Co reported as unrealized loss related to the a. 5,000 c. 41,000
securities transactions om its 2018 profit or loss? b. 30,000 d. 70,000
a. None c. 100,000 unrealized
loss
b. 20,000 unrealized loss d. 120,000 unrealized
loss

5. The following information related to Trust Co. for 2019:

Realized gain on sale of investment P 40,000
Unrealized gains arising during from change in value
of investment to profit or loss 120,000
3. National Company began business in February of 2018. During the year, What amount of other comprehensive income should Trust Co. disclose in its
National Co. purchased the three equity securities through profit or loss listed statement of comprehensive income?
below. In its December 31, 2018 statement of financial position, National Co. a. None c. 120,000
appropriately reported a P40,000 debit balance in its “fair value adjustment- b. P40,000 d. 160,000
Financial Instruments: Equity Securities to Other Comprehensive Income market value of these shares is P90 per share. On January 22, 2019 Grand Co.
6. Victory Co. acquired 20,000 ordinary shares of Wall Co. for P25 per share and sold 42,000 shares of its investment in brand Corp. for P85 per share.
classified as investment to other comprehensive income. Victory Co. also paid 9. What amount of loss should Grand Co. recognize in selling these shares?
P30,000 transaction costs for the acquisition of the security. Victory’s Dec. 31, a. None c. 300,000
2018 financial statements were issued on Feb. 1, 2019 and the auditor’s report b. 210,000 d. 420,000
was dated January 19, 2019.
Market Value, 12/31/2018 460,000
Market Value, 1/19/2019 480,000
Market Value , 2/1/2019 490,000
If the securities are to be sold, Victory Company would have to incur P30,000
transaction cost. How much should be reported on Victory’s statement of
financial position at December 31, 2018 for equity securities?
a. 430,000 c. 490,000 10. What amount of unrealized gain or loss that should be transferred to retained
b. 460,000 d. 500,000 earnings?
a. None c. 210,000
b. 180,000 d. 420,000

Gerald Co. acquired securities during the year 2018 that are designated as fair
value to other comprehensive income. An analysis of the investments on
December 31, 2018 showed the following:
Securities Cost Market
P 1,500,000 1,400,000 11. What amount of unrealized gain or loss should Grand Co. carry over the next
I 2,200,000 2,300,000 measurement date?
C 3,000,000 2,900,000 a. None c. 210,000
U 3,800,000 4,000,000 b. 180,000 d. 420,000
7. In Gerald’s December 31, 2018 statement of financial position, how much On Sept. 30, 2019, Pilgrims Co. exchanged equipment for 2,500 of Theme Co’s
should be reported as the carrying value of the securities? ordinary share. On that date, the equipment had a carrying value of P250,000
a. 10,300,000 c. 10,500,000 and its fair market value was not clearly determinable. The par value of
b. 10,400,000 d. 10,600,000 Theme’s share was P80 per share but its market value on Seotember 30, 2019
is P90 per share.
12. What is the cost of the investment?
a. 225,000 c. 290,000
b. 250,000 d. 290,100

8. What amount of unrealize gain should be reported in Gerald’s Dec. 31, 2018
the profit or loss?
a. None c. 200,000
b. 100,000 d. 300,000

13. What is the amount of gain or loss on the disposal of the equipment?
a. None c. 25,000 loss
b. 25,000 gain d. 40,000 gain

Grand Co. has 60,000 ordinary shares of Brand Corp. that has been designated
as fair value to other comprehensive income. These shares were acquired at fair
market value, which was P80 per share on May 2, 2018. On Dec. 31, 2018, the
Threshold Co. purchased 20,000 shares out of 200,000 shares outstanding of Power 18. What amount gain or loss on the sale of the security should the company
Co.’s ordinary shares on February 23, 2019 for P924,000. Threshold Co. has designated recognize?
the equity security at fair value to other comprehensive income. Threshold Co. received a. 9,000 c. 33,000
a P40,000 cash dividend on Power Co. on July 1, 2019. Power declared a 10% share b. 12,000 d. 36,000
dividend on Dec. 1, 2019 to shareholders of record as of Dec. 31, 2019. The dividend
was distributed on January 31, 2020. The market price of the share was P38 on Dec. 1,
2019, P40 on Dec. 31, 2019 and P42 on January 31, 2020.
14. What amount should Threshold record as dividend revenue for the year ended
Dec. 31, 2019?
a. 40,000 c. 116,000
b. 88,000 d. 120,000 Investment in Associate
On December 31, 2011, Jag Co., a medium sized entity, acquired 30% of the
ordinary shares that carry voting rights of Company Jig for P1,000,000. Jag Co.
incurred transaction costs of P10,000 in acquiring these shares. Jag Co. uses
15. What amount should Threshold Co. report the investment in its 2019 statement the cost model to account for its investments in associates. In January 2, 2012,
of financial position? Jig Co. declared and paid dividend of P200,000 out of profits earned in 2011.
a. 800,000 c. 880,000 No further dividends were paid in 2012, 2013, 2014, in accordance with section
b. 836,000 d. 924,000 27 for SMEs Impairment of Assets, management assessed the fair values of its
investment in Company Jog as P1,020,000, P1,100,000 and P900,000. Cost to
sell are estimated at P40,000 throughout.
19. At what amount should the investment account be disclosed in December 31,
2012, 2013 and 2014 respectively?
a. P1,000,000; P1,000,000 and P1,000,000
b. P950,000; P950,000 and P860,000
c. P980,000; P1,060,000 and P860,000
Kite Co. acquired 4,000 shares of Sky Corp. ordinary shares on November 2, d. P980,000; P1,010,000 and P860,000
2018 at a cost of P440,000. Sky Co. designated the investment at fair value to
other comprehensive income. On Jan. 2, 2019, Sky distributed a 10% ordinary
share dividend. On November 30, Kite Co. received a cash dividend of P10 per
share. On Dec. 31, 2019, Sky Co. shares are selling at P110 per share. If the
shares are to be sold Kite Co. will have to incur P5,000 transaction cost. On
January 31, 2015, Kite sold 2,400 shares of its Sky shares for P276,000 and
incurred transaction cost of P3,000.
16. For the year ended Dec. 31, 2019, what amount of dividend income should the 20. What amount of gain on recovery (impairment loss) should the company
company recognize? disclose in its December 31, 2012, 2013 and 2014 statement of comprehensive
a. None c. 40,000 income related to the investment in associate?
b. 4,000 d. 44,000 a. (P30,000); P30,000 and (P150,000)
b. (P20,000); P20,000 and (P140,000)
c. (P30,000); P80,000 and (P200,000)
d. (P20,000); P30,000 and (P150,000)

17. What amount of unrealized gain should the company disclose separately in the
other comprehensive income in 2019?
a. None c. 40,000
b. 4,000 d. 44,000
21. On January 2, 2019, Iron Company acquired as a long term investment for 24. On September 1, 2019, Tender Co. purchased 30% of the outstanding ordinary
P700,000, a 20% ordinary share interest in Calcium Co. when the fair value of shares of Care Corp. for P3,000,000 when the book value of net assets of Care
Calcium’s net assets was P3,500,000. Iron can exercise significant influence Corp. was P9,000,000. The fair values of the assets are equal to their carrying
over operating and financial policies of Calcium. For the year ended December values except for a land which was undervalued by P1,000,000. Care reported
31, 2019. Calcium reported net income of P360,000, declared and paid cash net earnings throughout the year in the amount of P2,400,000 and paid total
dividends of P100,000. How much investment income from this investment dividends of P1,000,000. What is the maximum amount of income Tender Co.
should Iron report for 2019? could include in its 2019 profit or loss as “income from investment”?
a. 20,000 c. 72,000 a. 207,500 c. 237,500
b. 52,000 d. 92,000 b. 235,000 d. 240,000

22. On January 2, 2018, Faith Corp. bought 30% of the outstanding ordinary shares Financial Instruments Debt Instruments
of Love Corp. for P2,580,000 cash. Faith accounts for this investment by the 25. On May 1, 2011, Graham Co. purchased a short-term P2,000,000 face value,
equity method. At the date of acquisition of the stock, Love’s net assets had a 9% debt instruments for P1,860,000 including the accrued interest and
book and fair value of P6,200,000. Love’s net income for the year ended Dec. classified it as an investment to profit or loss security. The debt instruments
31, 2018 was P1,800,000. During 2018, Love declared and paid cash dividends classified it as an investment to profit or loss security. The debt instruments
of P200,000. Love Company also reported the following changes in equity that mature on Jan. 1, 2014 and pay interest semi-annually on January 1 and July 1.
were not included in the profit or loss; Unrealized loss on available for sale On December 31, the fair market value of the instruments is 98%. On March 2,
P300,000 and revaluation of property, plant and equipment, P800,000. On 2012, Graham Co. sold the trading security for P1,980,000. At what amount
December 31, 2018 how much should Faith carry its investment in Love? should the investment be initially recorded?
a. 2,340,000 c. 3,060,000 a. 1,800,000 c. 1,860,000
b. 2,580,000 d. 3,210,000 b. 1,845,000 d. 2,000,000

23. On January 2, 2018, Sing Co. purchased 20% of Song Co.’s ordinary shares for 26. On October 1, 2019 Orbit Co. purchased a 10-year, 10% P3,000,000 face value
P4,500,000. During 2018, Song reported net income of P4,000,000 and paid bonds for 110 incurring incidental transaction cost of P36,000. Interest are
cash dividends of P3,000,000 on its ordinary shares. What is the balance of received semi-annually on January 1 and July 1. Orbit Co. has a business model
Sing Co’s Investment in Song account at Dec. 31, 2018? of collecting all contractual cash flows of debt instruments until maturity. What
a. 4,300,000 c. 4,500,000 is the total carrying value of the bonds on January 1, 2019?
b. 4,400,000 d. 4,700,000 a. 3,000,000 c. 3,300,000
b. 3,264,000 d. 3,336,000
 2019. Bonds effective rate is 10%. Royal Co. has a business model with the
27. On May 1, 2011, Parrot Co. purchased a debt security having a face value of objective of collecting all contractual cash flows until maturity for all debt
P2,000,000 with an interest rate of 9% for P2,100,000 including the accrued instruments. What is the carrying value of the bond investment and interest
interest. Parrot Co. intends to hold the instrument for an indefinite period but income to be reported in Royal’s financial statements on Dec, 31, 2014,
not until maturity. The bonds mature on January 1, 2016, and pay interest semi- respectively?
annually on January 1 and July1. On December 31. 2011, the bonds had a a. 5,386,300 and 269,315 c. 5,355,615 and 300,000
market value of P2205,000. What amount should Parrot report for short-term b. 5,386,300 and 300,000 d. 5,335,615 and 269,315
investment in debt securities?
a. 2,000,000 c. 2,100,000
b. 2,040,000 d. 2,205,000

On January 1, 2019, Bell Co. purchased 4,000 of P1,000 face value, 10% bonds
of Pepper Co. for 4,270,600. The bonds will mature on January 1, 2020 pay
interest semi-annually on January 1 and July 1. Bonds effective interest rate is
8%. Bell Co. measures its investment at amortized cost.
28. In its December 31, 2019 profit or loss, how much should Bell Co. report as an
interest income on the bonds?
a. 160,000 c. 170,824
b. 169,657 d. 340,481

29. In its December 31, 2019 statement of financial position, how much should
Bell Co. report as debt investment?
a. 4,211,081 c. 4,270,000
b. 4,241,424 d. 4,377,000

30. On July 1, 2014, Royal Corp acquired a long-term investment in Blood Co’s
10-year 12% bonds, with face value of P5,000,000 for P5,386,300. Interest is
payable semi-annually on January 1 and July 1. The bonds mature on July 1,