‘’Chapter 36 Cost 4,250,000

Financial asset at fair value Unrealized loss-2016 230,000

Measurement-FVPL and FVOCI Market value- December 31, 2016 4,020,000

Problem 1 Problem 3
On January 1, 2016, Alexis Company purchased During 2016, Latvia Company purchased trading
marketable equity securities to be held as “trading” for securities with the following cost and market value on
5,000,000. The entity also paid transaction cost December 31, 2016:
amounting to 200,000. Security Cost Market Value
The securities had a market value of 5,500,000 on A-1,000 shares 200,000 300,000
December 31, 2016 and the transaction cost that would B-10,000 shares 1,700,000 1,600,000
be incurred on sale is estimated at 100,000. No securities C-20,000 shares 3,100,000 2,900,000
were sold during 2016. The entity sold 10,000 shares of security B on January
What amount of unrealized gain or loss on these 15, 2017 for 150 per share.
securities should be reported in the 2016 income 1. What amount of unrealized gain or loss should be
statement? reported in the income statement for 2016?
a. 500,000 gain a. 200,000 loss
b. 500,000 loss b. 200,000 gain
c. 300,000 gain c. 300,000 loss
d. 400,000 gain d. 300,000 gain
Answer: a 2. What amount should be reported as loss on sale of
Fair value 5,500,000 trading investment in 2017?
Acquisition cost –Trading 5,000,000 a. 200,000 gain
Unrealized gain b. 200,000 loss
including in profit and loss 500,000 c. 100,000 gain
d. 100,000 loss
Problem 2
During 2016, Garr Company purchased marketable Answer 1- A
equity securities as a trading investment. For the year Total market value- December 2016 4,800,000
ended December 31, 2016, the entity recognized Total cost- December 2016 5,000,000
unrealized loss of 230,000. Unrealized loss in 2016 200,000
There were no security transactions during 2017. The Answer 2- D
entity provided the following information on December Sale price (10,000 x 150) 1,500,000
31, 2017: Carrying amount of B shares 1,600,000
Loss on sale of trading investment 100,000
Security Cost Market Value
A 2,450,000 2,300,000 Problem 4
B 1,800,000 1,820,000 Carmela Company acquired non trading equity
In the 2017 income statement, what amount should be instrument for 4,000,000 on March 31, 2016. The equity
reported as unrealized gain or loss? instrument is classified as financial asset at fair value
a. Unrealized gain of 100,000 through other comprehensive income.
b. Unrealized loss of 100,000 The transaction cost incurred amounted to 700,000.
c. Unrealized loss of 130,000 On December 31, 2016, the fair value of the instrument
d. Unrealized gain of 130,000 was 5,500,000 and the transaction cost that would be
incurred on the sale of the investment is estimated at
Answer: A 600,000.
Market value-December 31, 2017 4,120,000 What amount of gain should be recognized in other
Carrying amount 2016 4,020,000 comprehensive income for the year ended December 31,
Unrealized gain in 2017 100,000 2016?
a. 200,000 Answer 1- A
b. 900,000 Total cost 3,700,000
c. 800,000 Unrealized loss in 2016 (100,000)
d. 0 Market value-12/31/16 3,600,000

Answer: C Answer 2- B
Fair value- December 2016 5,500,000 Market value- December 31, 2017 3,300,000
Acquisition cost 4,700,000 Market value- December 31, 2016 3,600,000
Unrealized gain- OCI 800,000 Unrealized loss 2017 (300,000)
Unrealized loss-December 31, 2016 (100,000)
Acquisition cost 4,000,000 Cumulative unrealized loss-2017 (400,000)
Transaction cost 700,000
Total acquisition cost 4,700,000 Answer 3-C
Market value-12/31/17 3,300,000
Problem 5 Original acquisition cost 3,700,000
On December 31, 2016, Fay Company appropriately Cumulative unrealized loss (400,000)
reported a 100,000 unrealized loss. There was no change
during 2017 in the composition of the portfolio of non- Problem 6
trading equity securities held at fair value through other Benquet Company began operations on January1, 2016.
comprehensive income. The following information pertains to the December 31,
2016 portfolio of equity securities:
Security Cost Market value 2017 Trading Non-trading
A 1,200,000 1,300,000 Aggregate cost 4,000,000 6,000,000
B 900,000 500,000 Aggregate market value 3,700,000 5,500,000
C 1,600,000 1,500,000 Aggregate lower cost 3,500,000 5,300,000
3,700,000 3,300,000
The market declines are judged to be other than
1. What is the market value of the investment on temporary. The non-trading securities are designated at
December 31, 2016? fair value through other comprehensive income.
a. 3,600,000 What amount should be reported as total loss on these
b. 3,700,000 securities in the income statement for 2016?
c. 3,500,000 a. 800,000
d. 3,800,000 b. 500,000
2. What amount of loss on these securities should be c. 300,000
included in the statement of comprehensive income fot d. 0
the year ended December 31, 2017 as component of
other comprehensive income? Answer: C
a. 400,000 Trading Non-trading
b. 300,000 Aggregate market value 3,700,000 5,500,000
c. 100,000 Cost 4,000,000 6,000,000
d. 0 Unrealized loss (300,000) (500,000)
3. What cumulative amount of loss on these securities
should be reported in the statement of changes in equity Problem 7
for the year ended December 31, 2017 as component of Judicious Company acquired an entity investment a
other comprehensive income? number of years ago for 3,000,000 and classified it as
a. 100,000 fair value through other comprehensive income.
b. 200,000 On December 31, 2016, the cumulative loss recognized
c. 400,000 in other comprehensive income was 400,000 and the
d. 0 carrying amount of the investment was 2,600,000.
On December 31, 2017 the issuer of the equity 1. What amount should be recognized directly in
investment was in severe financial difficulty and the fair retained earnings?
value of the equity investment had fallen to 1,200,000. a. 500,000
What cumulative amount of unrealized loss should be b. 300,000
reported as component of other comprehensive income c. 200,000
in the statement of changes in equity for the year ended d. 0
December 31, 2017? 2. What cumulative unrealized gain or loss on the
a. 1,400,000 remaining financial assets should be reported in the
b. 1,800,000 statement of changes in equity on 2017?
c. 1,000,000 a. 600,000 gain
d. 0 b. 600,000 loss
c. 300,000 gain
Answer: B d. 300,000 loss
Market value (2017) 1,200,000
Historical cost 3,000,000 Answer 1: A
Cumulative unrealized loss (1,800,000) Sale price-Security R 3,500,000
Historical cost- Security R 3,000,000
Problem 8 Cumulative credit to retained earnings (500,000)
On January 1, 2016, Lebanon Company purchased
equity securities to be held at fair value through other Answer 2: B
comprehensive income. On December 31, 2016, the cost Market value Security S-12/31/17 3,700,000
and market value were: Market value Security T- 12/31/17 4,700,000
Cost Market Total market value 8,400,000
Security X 2,000,000 2,400,000 Historical cost S and T 9,000,000
Security Y 3,000,000 3,500,000 Cumulative unrealized loss-12/31/17 (600,000)
Security Z 5,000,000 4,900,000
On July 1, 2017, the entity sold Security X for Problem 10
2,500,000. At the beginning of the current year, Remington
What amount should be recognized directly in retained Company acquired 200,000 ordinary shares of Universal
earnings as a result of the sale of financial asset in 2017? Company for 9,000,000.
a. 500,000 At the time of purchase, Universal Company had
b. 100,000 outstanding 800,000 shares with carrying amount of
c. 400,000 36,000,000.
d. 0 The following events took place during the current year:
Answer: A Universal Company reported net income of 1,800,000 fo
Sale price- Security X 2,500,000 the current year.
Historical cost- Security X 2,000,000 Remington Company received from Universal Company
Cumulative credit to retained earnings (500,000) a dividend of 0.75 per ordinary share.
The market value of Universal Company share had
Problem 9 temporarily declined to 40.
On January 1, 2016, Caraga Company purchased equity Remington Company has elected irrevocably to
securities to be held as financial assets measured at fair measure the investment at fair value through other
value through other comprehensive income. comprehensive income.
Cost Market-12/31/16 Market-12/31/17 What is the carrying amount of the investment at year
Security R 3,000,000 3,200,000 end?
Security S 4,000,000 3,500,000 3,700,000
Security T 5,000,000 4,600,000 4,700,000
a. 9,000,000
On January 31, 2017, the entity sold security R for b. 8,000,000
3,500,000. c. 9,300,000
d. 9,450,000
Answer: B Unrealized loss 260,000
Market value at year end (200,000x40) 8,000,000 Unrealized gain 40,000
Acquisition cost 9,000,000 Cumulative net realized loss- 2016 220,000
Unrealized loss- January 1, 2016 15,000
Unrealized loss on financial asset-OCI (1,000,000)
Increase in unrealized loss 205,000

Problem 11 Problem 13
Neal Company held the following financial assets as Gil Company provided the following information on
trading investments on December 31, 2016: December 31, 2016 regarding equity investment:
Cost Market value Non-current assets:
100,000 shares of Company A Financial asset-FVOCI 3,700,000
non-redeemable preference Shareholder’s equity:
share capital, par value 75 775,000 825,000 Unrealized loss- OCI (300,000)
The entity paid transaction cost of 100,000 related to the
7,000 shares of Company B acquisition of the investment.
preference share capital, par value 100, The entity elected to measure the equity investment at fair
subject to mandatory redemption value through other comprehensive income.
by the issue at par on What was the historical cost of the financial asset?
December 31, 2017 690,000 625,000 a. 3,700,000
1,465,000 1, 450,000 b. 3,400,000
c. 3,900,000
On December 31, 2016, what is the total carrying amount of d. 4,000,000
the investments?
a. 1,400,000 Answer: D
b. 1,450,000 Historical cost (3,700,000+300,000) 4,000,000
c. 1,465,000
d. 1,475,000 Problem 14
On July 1, 2016, Bellirose Company purchased 1,000,000 face
Answer: B value 8% bonds for 910,000 plus accrued interest to yield
The nonredeemable preference share is an equity security. 10%. The bonds mature on January 1, 2021, pay interest
The non-redeemable preference share is a debt security annually on January 1, and are classified as trading securities.
whether debt or equity security, financial assets held for On December 31, 2016, the bonds had a market value of
trading are measured at fair value through profit or loss. 945,000. On February 15, 2017, the entity sold the bonds for
920,000.
Problem 12 On December 31, 2016, what amount should be reported for
Trinidad Company provided the following portfolio of equity trading securities?
investments measured at fair value through other a. 910,000
comprehensive income; b. 920,000
Aggregate cost- December 31, 2016 1,700,000 c. 945,000
Unrealized gain- December 31, 2016 40,000 d. 950,000
Unrealized loss- December 31, 2016 260,000
Net realized gain during 2016 300,000
Answer: C
On January 1, 2016, the entity reported an unrealized loss of Financial asset held for trading- FVPL 945,000
15,000 as a component of other comprehensive income.
In the 2016 statement of changes in equity, what cumulative
amount should be reported as unrealized loss on these
securities?
a. 260,000
b. 220,000
c. 205,000
d. 0

Chapter 37
Answer: B
Investment inequity Securities Original shares 10,000
Dividend, share split and stock right Stock dividend 2,000
Total shares 12,000
Problem 1 Dividend Income (12,000x15) 180,000
On January 1, 2016, ABC Company purchased 40,000 shares
at 100 per share to be held for trading. Brokerage fees Problem 4
amounted to 120,000. During 2016, Lawan Company bought the shares of Burwood
A 5-peso dividend per share had been declared on December Company as follows:
15, 2015 to be paid on March 31, 2016 to shareholders of
record on January 31, 2016. No other transactions occurred in June 1 20,000 shares at 100 2,000,000
2016 affecting the investment. December 1 30,000 shares at 120 3,600,000
What is the initial measurement of the investment? 5,600,000
a. 4,120,000 Transactions for 2017
b. 4,000,000 January 10 Received a cash dividend at 10 per share
c. 3,920,000 January 20 Received 20% stock dividend
d. 3,800,000 December 10 Sold 30,000 shares at 125 per share

Answer: D If the FIFO approach is used, what is the gain on sale of the
Purchase price (40,000x100) 4,000,000 shares?
Less: Purchased dividend (40,000x5) 200,000 a. 1,150,000
Cost of investment 3,800,000 b. 950,000
c. 150,000
Problem 2 d. 550,000
On January 1, 2016, Adam Company purchased as a long term
investment unlisted 100,000 ordinary shares of Mill Company Answer:A
for 40 a share. On December 28, 2016, Adam Company sold FIFO approach June 1 Dec 1
80,000 shares of Mill Company for 50 a share. Original shares 20,000 30,000
For the year ended December 31, 2016, what amount should Stock dividend-20% 4,000 6,000
be reported as gain on disposal of long term investment? Total shares 24,000 36,000
a. 200,000
b. 900,000 Sale price (30,000x125) 3,750,000
c. 800,000 Cost of shares sold:
d. 400,000 From June 1 (24,000 shares) 2,000,000
From December 1 (6,000 shares) 600,000 2,600,000
Answer: C Gain on sale 1,150,000
Sale price (80,000x50) 4,000,000
Cost of investment (80,000x40) (3,200,000) Problem 5
Gain on disposal of investment 800,000 Wood Company own 20,000 shares of Arlo Company’s
200,000 shares of P100 par, 6% cumulative, non-participating
Problem 3 preference share capital and 10,000 shares representing 2%
Cobb Company purchased 10,000 shares representing 2% ownership of Arlo’s ordinary share capital.
ownership of Roe Company on February 15, 2016. Cobb During 2016, Arlo declared and paid preference dividends of
Company received a stock dividend of 2,000 shares on March 2,400,000. No dividends had been declared or paid during
31, 2016, when the carrying amount per share was 350 and the 2015.
market value per share was 400. In addition, Wood received a 5% stock dividend on ordinary
Roe Company paid a cash dividend of 15 per share on share from Arlo when the quoted market price of Arlo’s
September 15, 2016. ordinary share was 10.
In the income statement for the year ended October 31, 2016, What amount should be reported as dividend income for
what amount should be reported as dividend income? 2016?
a. 980,000 a. 120,000
b. 880,000 b. 125,000
c. 180,000 c. 240,000
d. 150,000 d. 245,000
Answer: C Answer: C
Dividend income on preference share Cash dividend from Amal
(20,000/200,000=10%x2,400,000) 240,000 (6,000/300,000=2% interest) 15,000

Problem 6 Problem 8
Day Company received dividends from share investments On March 1, 2016, Evan Company purchased 10,000 ordinary
during the year ended December 31, 2016 as follows: shares at 80 per share. On September 30, 2016, Evan received
 A stock dividend of 4,000 shares from Parr Company on 10,000 stock rights to purchase an additional 10,000 shares at
July 31, 2016, when the market price of Parr’s share was 90 per share.
20. Day owns less than 1% of Parr’s share capital. The stock rights had an expiration date on February 1, 2017.
 A cash dividend of 150,000 from Lark Company in which On September 30, 2016, the share had a market value P95 and
Day owns a 25% interest. A majority of Lark’s directors the stock right had a market value of P5.
are also directors of Day. What amount should be reported on September 30, 2016 for
What amount of dividend revenue should be reported in 2016? investment in stock rights?
a. 230,000 a. 150,000
b. 150,000 b. 100,000
c. 80,000 c. 50,000
d. 0 d. 60,000
Answer: D
The stock dividend from Parr Company is not an income. Answer: C
Initial measurement at fair value
Problem 7 (10,000 rights x 5) 50,000
Wray Company provided the following data for 2016:
 On September 1, Wray received a 50,000 cash dividend Problem 10
from Seco Company in which Wray owns a 30% interest. Rice Company owned 30,000 ordinary shares of Wood
 On October 1, Wray received a 60,000 liquidating Company acquired on July 31, 2016, at total cost of 1,100,000.
dividend from King Company. Wray owns a 5% interest On December 1, 2016, Rice received 30,000 stock rights from
in King. Wood. Each right entitles the holder to acquire one share at 45.
 Wray owns a 2% interest in Bow Company which The market price of Wood’s share on this date was P50 and the
declared a 2,000,000 cash dividend on November 15, market price of each right was P10. Rice sold the rights on
2016 payable on January 15, 2017. December 31, 2016 for 450, 000 less a 10,000 commission.
What amount should be reported as dividend income for What amount should be reported as gain from the sale of
2016? rights?
a. 600,000 a. 150,000
b. 560,000 b. 140,000
c. 100,000 c. 250,000
d. 40,000 d. 240,000

Answer: D Answer: B
Cash dividend from Bow Company (2%x 2,000,000) 40,000 Net sale price (450,000-10,000) 440,000
Initial cost of rights sold (30,000 x 10) (300,000)
Problem 8 Gain on sale of rights 140,000
During 2016, Neil Company held 30,000 shares of Brock
Company’s 100,000 outstanding shares and 6,000 shares of
Amal Company’s 300,000 shares. During the year, Neil
Company received P300,000 cash dividend from Brock,
15,000 cash dividend and 3% stock dividend from Amal. The
closing of Amal share is 150.
What amount should be reported as dividend revenue for
2016?
a. 342,000
b. 315,000
c. 442,000
d. 15,000 Problem 11
Answer: D
Adam Company owned 50,000 ordinary shares of Bland b. 700,000
Company. These 50,000 shares were purchased by Adam for c. 287,500
P120 per share. d. 125,000
On August 30, 2016, Bland distributed 50,000 stock rights to
Adam. Adam was entitled to buy one new share of Bland Answer: A
Company for P90 cash and two of these rights. FIFO Approach
On August 30, 2016, each share had a market value of P130 Sale price (25,000x90) 2,250,000
and each right had a market value of P20. Cost of shares sold
What total cost should be recorded for the new shares that are (25,000/50,000 x 3,600,000) 1,800,000
acquired by exercising the rights? Gain on sale 450,000
a. 2,250,000
b. 3,250,000 Problem 14
c. 3,050,000 2014
d. 5,500,000 Jan. 1 Christopher Company purchased 20,000 shares of
Bay Company, P100 par, at P110 per share.
Answer: B March 1 Bay Company issued rights to Christopher Company,
Initial cost of rights (50,000x20) 1,000,000 each permitting the purchase of ¼ share at par. No
Cash paid for new shares (25,000x90) 2,250,000 entry was made. The bid price of the share was 140
Total cost of new shares 3,250,000 and there was no quoted price for the rights.
April 1 Christopher Company paid for the new shares
Problem 12 charging the payment to the investment.
Excelsia Company issued rights to subscribe to its stock, the Since Christopher Company felt that it had been
ownership of 4 shares entitling the shareholders to subscribe assessed by Bay Company, the dividends received
for 1 share at P100. Jealina Company owns 50,000 shares of from Bay Company in 2014 and 2015 were credited
Excelsia Company with total cost of 5,000,000. The share is to the investment account until the debit for payment
quoted right on at 125. of the new share was fully offset.
What is the cost of the new investment if all of the stock rights Dec. 31 Christopher Company received annual dividend of
are exercised by the investor? 250,000 from Bay Company.
a. 1,500,000 2015
b. 1,250,000 Dec. 31 Christopher Company received annual dividend of
c. 1,562,500 250,000 from Bay Company.
d. 1,450,000 2016
Jan 1 Christopher Company received 50% stock dividend
Answer: A from Bay Company.
Theoretical value of right (125-100/4+1) 5.00 On same date, the shares received as stock dividend
Initial cost of rights (50,000 x 5) 250,000 were sold at 160 per share and the proceeds were
Cash paid for new shares (50,000/4=12,500x100) 1,250,000 credited to income.
Cost of new investment 1,500,000 Dec 31 The shares of Bay Company were split 2 for 1.
Christopher Company found that each new share was
Problem 13 worth P5 more than P110 paid for the original shares.
On January 1, 2016, Mylene Company purchased 50,000 Accordingly, Christopher Company debited the
shares of another entity for 3,600,000. On October 1, 2016, the investment account with the additional shares
entity received 50,000 stock rights from the investee. Each received at P110 per share and credited income.
right entitled the shareholder to acquire one share for P85. 2017
The market price of the investee’s share was P100 June 30 Christopher Company sold one-half of the investment
immediately before the rights were issued and P90 at P92 per share and credited the proceeds to the
immediately after the rights were issued. investment account
On December 1, 2016, the entity exercised all stock rights. On
December 31, 2016, the entity sold 25,000 shares at P90 per 1. What is the balance of the investment on December 31,
share. The stock rights are not accounted for separately. The 2017 as it was kept by Christopher Company?
FIFO approach is used. a. 3,150,000
What is the gain on sale of investment that should be b. 2,650,000
recognized in 2016? c. 2,200,000
a. 450,000 d. 4,950,000
2. Using the average method, what is the correct balance of the Investment in Associate
investment on December 31, 2017? BASIC PROBLEMS
a. 2,200,000
b. 1,800,000 Problem 1
c. 900,000 On January 1, 2016, Saxe Company purchased 20% of Lex
d. 0 Company’s ordinary shares outstanding for 6,000,000. The
3. What is the net adjustment to retained earnings on acquisition cost is equal to the carrying amount of the net
December 31, 2017? assets acquired.
a. 3, 650,000 debit During 2016, the investee reported net income of 7,000,000
b. 3, 150,000 debit and paid cash dividend of 4,000,000.
c. 3, 650,000 credit What is the balance in the investment in associate on
d. 3, 150,000 credit December 31, 2016?
4. What amount of gain on sale of investment should be a. 5,200,000
reported in 2017? b. 6,000,000
a. 1,400,000 c. 6,600,000
b. 1,100,000 d. 7,400,000
c. 2,500,000
d. 1,900,000 Answer: C
Acquisition cost 6,000,000
Answer 1: B Add: Share in net income (20% x 7,000,000) 1,400,000
Shares Cost Total 7,400,000
1/1/14 (20,000x110) 20,000 2,200,000 Less: share in cash dividend (20% x 4,000,000) 800,000
2/1/14 (5,000x100) 5,000 500,000 Carrying amount 6,600,000
12/31/14 (dividend received) - (250,000)
12/31/15 (dividend received) - (250,000) Problem 2
12/31/16 (25,000x110) 25,000 2,750,000 In January 2016, Farley Company acquired 20% of the
6/30/17 (25,000x92) (25,000) (2,300,000) outstanding ordinary shares of Davis Company for 8,000,000.
Investment account per book 25,000 2,650,000 This investment gave Farley the ability to exercise significant
influence over Davis. The carrying amount of the acquired
Answer 2: C shares was 6,000,000.
Shares Cost The excess of cost over carrying amount was attributed to the
1/1/14 (20,000x110) 20,000 2,200,000 depreciable asset which was undervalued on Davi’s statement
4/1/14 (5,000x100) 5,000 500,000 of financial position and which had a remaining useful life of
12/31/14 dividend received 12,500 - ten years.
Balance 37,500 2,700,000 For the year ended December 31, 2016, the investee reported
1/1/2016 (12,500/37,500x 2,700,000) (12,500) (900,000) net income of 1,800,000 and paid cash dividends of 400,000
Balance 25,000 1,800,000 and thereafter issued 5% stock dividend.
12/31/16 (2 for 1 split) 25,000 -
What is the carrying amount of the investment in associate on
Balance 50,000 1,800,000
6/30/17 (25,000/50,000x 1,800,000) (25,000) (900,000) December 31, 2016?
Balance December 31, 2017 25,000 900,000 a. 7,720,000
b. 7,800,000
Answer 3: B c. 8,000,000
Credit adjustment 500,000 d. 8,080,000
Debit adjustment (900,000)
Debit adjustment (2,750,000) Answer: D
Net debit adjustment (3,150,000) Original cost 8,000,000
Share in net income (20% x 1,800,000) 360,000
Answer 4: A Share in cash dividends (20% x400,000) (80,000)
Sale price (25,000 x 92) 2,300,000 Amortization of excess of cost- 12/31/16 (200,000)
Cost of shares sold (25,000/50,000x1,800,000) (900,000) Carrying amount of investment -12/31/16 8,080,000
Gain on sale of investment 1, 400,000
Acquisition cost 8,000,000
Carrying amount of interest required (6,000,000)
Chapter 38 Excess of cost over carrying amount 2,000,000
Problem 3
On January 1, 2016, Well Company purchased 10% of Rea Answer: C
Company’s outstanding ordinary shares for 4,000,000. Share in net income from July 1 to December 31, 2016
Well Company is the largest single shareholders in Rea and (300,000x40%) 120,000
Well’s officers are a majority of Rea’s board of directors.
The investee reported net income of 5,000,000 for 2016 and Problem 6
paid dividends of 1,500,000. On July 1, 2016, Denver Company purchased 30,000 shares of
On December 31, 2016, what amount should be reported as the Eagle Company’s 100,000 outstanding ordinary shares for
investment in Rea Company? P200 per share. On December 15, 2016, the investee paid
a. 4,500,000 400,000 in dividends to the ordinary shareholders.
b. 4,350,000 The investee’s net income for the year ended December 31,
c. 4,000,000 2016 was 1,200,000, earned evenly throughout the year.
d. 3,850,000 What amount of income from the investment should be
reported in 2016?
Answer: B a. 360,000
Acquisition, January 1 4,000,000 b. 180,000
Add: Share in net income (10% x 5,000,000) 500,000 c. 120,000
Total 4,500,000 d. 60,000
Less: Share in cash dividends (10% x 1,500,000) 150,000
Carrying amount of investment, 12/31 4,350,000 Answer: D
Share in net income from July 1 to December 31, 2016
Problem 4 (1,200,000 x 6/12 x 30%) 180,000
On January 1, 2016, Dyer Company acquired as long-term Interest acquired (30,000/100,000) 3%
investment a 20% ordinary share interest in Eason Company.
Dyer paid 7,000,000 for this investment when the fair value of Problem 7
Eason’s net assets was 35,000,000. For the year ended On April 1, 2016, Ben Company purchased 40% of the
December 31, 2016, the investee reported net income of outstanding ordinary shares of Clarke Company for
4,000,000 and declared and paid cash dividends of 1,600,000. 10,000,000. On that date Clarke’s net assets were 20,000,000
What amount of revenue from the investment should be and Ben cannot attribute the excess of the cost of its
reported for 2016? investment in Clarke over its equity in Clarke’s net asset to
a. 1,120,000 any particular factor. The investee’s net income for 2016 is
b. 480,000 5,000,000.
c. 800,000 What is the maximum amount which could be included in
d. 320,000 2016 income before tax to reflect the equity in net income of
investee?
Answer: C a. 1,400,000
Share in net income (20% x 4,000,000) 800,000 b. 1,500,000
c. 2,000,000
Problem 5 d. 1,850,000
On July 1, 2016, Diamond Company paid 1,000,000 for
100,000 outstanding shares which represent 40% of Ashley Answer: B
Company. At that date, the net assets of Ashley totaled Share in net income from April 1 to December 31, 2016
2,500,000 and the fair values of all Ashley’s identifiable assets (5,000,000 x 9/12 x 40%) 1,500,000
and liabilities were equal to their carrying amount.
Ashley reported net income of 500,000 for 2016of which Acquisition cost 10,000,000
300,000 was for the six months ended December 31, 2016. Carrying amount of net assets acquired
Ashley paid cash dividends of 250,000 on September 30, 40% x 20,000,000 (8,000,000)
2016. Good will not amortized 2,000,000
What amount of income should be reported from the
investment in Ashley? Problem 8
a. 200,000 On January 1, 2016, Ronald Company purchased 40% of the
b. 100,000 outstanding ordinary shares of New Company, paying
c. 120,000 6,400,000 when the carrying amount of the net assets of New
d. 80,000 Company equalled 12,500,000.
The difference was attributed to equipment which had a Acquisition cost, January 1 2,500,000
carrying amount of 3,000,000 and a fair market value of Share in net income (30% x 1,000,000) 300,000
5,000,000 and to building which had a carrying amount of Carrying amount of investment 2,800,000
2,500,000 and a fair market value of 4,000,000.
The remaining useful life of the equipment and building was 4 Problem 10
years and 12 years, respectively. At the beginning of the current year, Sage Company bought
During 2016, New Company reported net income of 5,000,000 40% of Eve Company’s outstanding ordinary shares for
and paid dividends of 2,500,000. 4,000,000.
What amount should be reported as investment income for The carrying amount of Eve’s net assets at the purchase date
2016? totaled 9,000,000.
a. 2,000,000 Fair values and carrying amounts were the same for all items
b. 1,000,000 except for plant and inventory, for which fair values exceeded
c. 1,800,000 their carrying amounts by 900,000 and 100,000, respectively.
d. 1,750,000 The plant has an 18-year life. All inventories were sold during
the current year.
Answer: d During the current year, the investee reported net income of
Acquisition cost 6,400,000 1,200,000 and paid 200,000 cash dividend.
Net assets acquired (40%x 12,500,000) (5,000,000) What amount should be reported as investment income for the
Excess of cost 1,400,000 current year?
a. 480,000
Excess of attributable to equipment (40%x2M) 800,000 b. 420,000
Excess of attributable to building (40% x 1.5M) 600,000 c. 360,000
1,400,000 d. 320,000

Share in net income (40% x 5,000,000) 2,000,000 Answer: B

Amortization excess: Acquisition cost 4,000,000
Equipment (800,000/4) (200,000) Net assets acquired (40%x9M) (3,600,000)
Building (600,000/12) (50,000) Excess of cost over carrying amount 400,000
Investment income 1,750,000
The excess of cost is identified as follows:
Problem 9 Understatement of plant 40%x900,000 360,000
At the beginning of the current year, Kean Company Understatement of inventory 40%x100,000 40,000
purchased 30% interest in Pod Company for 2,500,000. Total excess of cost 400,000
On this date Pod’s shareholder’s equity was 5,000,000. The
carrying amounts of Pod’s identifiable assets approximated the Share in net income (40%x1,200,000) 480,000
fair values, except for land whose fair value exceeded the Less: Amortization of excess of cost:
carrying amount by 2,000,000. Depreciation of plant (360,000/18) 20,000
The investee reported net income of 1,000,000 and paid no Inventory totally sold 40,000 60,000
dividends during the current year. Investment income 420,000
What amount should be reported as investment in associate at
year-end? Problem 11
a. 2,100,000 On January 1, 2016, Anne Company purchased 20% of the
b. 2,200,000 outstanding ordinary shares of Dune Company for 4,000,000
c. 2,800,000 of which 1,000,000 was paid in cash and 3,000,000 is payable
d. 2,760,000 which 12% annual interest on December 31, 2016. Dune’s
shareholder’s equity on January 1, 2016 was 13,000,000.
Answer: C Anne also paid 500,000 to business broker who helped find a
Acquisition cost 2,500,000 suitable business and negotiated the purchase.
Carrying amount of net assets acquired At the time of acquisition, the fair values of Dune’s
30% x 5,000,000 (1,500,000) identifiable assets and liabilities were equal to their carrying
Excess of cost over carrying amount 1,000,000 amounts except for an office building which had a fair value in
Amount attributable to undervaluation of land excess of carrying amount of 2,000,000 and an estimated life
30% x 2,000,000 (600,000) of 10 years.
Good will not amortized 400,000
During 2016, Dune Company reported net income of Share in net income (40%x4M) 1,600,000
5,000,000 and paid dividend of 2,000,000. Excess of fair value over cost 100,000
What amount of income should be reported for 2016 as a Excess of cost over carrying amount:
result of the investment? Equipment (600,000/4) (150,000)
a. 810,000 Inventory – all sold (200,000)
b. 620,000 Investment income 1,350,000
c. 960,000
d. 885,000 Problem 13
At the beginning of current year, Bing Company purchased
Answer: C 30,000 shares of Latt Company’s 200,000 outstanding
Acquisition cost (4M+500,000) 4,500,000 ordinary shares for 6,000,000. On that date, the carrying
Carrying amount of net assets acquired amount of the acquired shares on Latt’s books was 4,000,000.
(20% x 13,000,000) (2,600,000) Bing attributed the excess of cost over the carrying amount to
Excess of cost 1,900,000 patent. The patent has a remaining useful life of 10 years.
Excess of attributable to building (20%x2M) (400,000) During the current year, Bing’s officers gained a majority on
Excess of attributable to goodwill-not amortized 1,500,000 Latt’s board of directors.
Latt Company reported earnings of 5,000,000 for the current
Share in net income (20% x 5M) 1,000,000 year and declared and paid dividend of 3,000,000 at year end.
Amortization of excess of cost: What is the carrying amount of the investment in associate at
Attributable to building (400,000/10) (40,000) year end?
Investment income 960,000 a. 6,000,000
b. 6,100,000
Problem 12 c. 6,300,000
At the beginning of current year, Occidental Company d. 6,750,000
purchased 40% of the outstanding ordinary shares of Manapla
Company for 3,500,000 when the net assets of Manapla Answer: B
amounted to 7,000,000. Acquisition cost 6,000,000
At acquisition date, the carrying amounts of the identifiable Carrying amount of net assets acquired (4,000,000)
assets and liabilities of Manapla were equal to the fair value, Excess of cost applicable to patent 2,000,000
except for fair value for which the fair value was 1,500,000
greater than the carrying amount and the inventory whose fair Acquisition cost 6,000,000
value was 500,000 greater than the cost. Share in net income (5Mx15%) 750,000
The equipment has a remaining life of 4 years and the Share in cash dividend (3Mx15%) (450,000)
inventory was all sold during the current year. Amortization of patent (2M/10) (200,000)
Manapla Company reported net income of 4,000,000 and paid Carrying amount of investment 6,100,000
no dividends during the current year.
What is the maximum amount of the equity in earnings of the Interest acquired (30,000/200,000) 15%
investee?
a. 1,350,000 Problem 14
b. 1,250,000 On July 1, 2016, Miller Company purchased 25% of Wall’s
c. 1,600,000 Company’s outstanding ordinary shares and no good will
d. 1,700,000 resulted from the purchase.
Miller appropriately carried this investment at equity and the
Answer: A balance in Miller’s investment account was 1,900,000 on
Cost 3,500,000 December 31, 2016.
Carrying amount of interest acquired Wall Company reported net income of 1,200,000 for the year
40% x 7,000,000 (2,800,000) ended December 31, 2016, and paid dividend totalling
Excess of cost over carrying amount 700,000 480,000 on December 31, 2016.
Excess applicable to inventory 40%x1.5M (600,000) How much did Miller pay for the 25% interest in Wall?
Excess applicable to inventory 40%x500K (200,000) a. 1,720,000
Excess of fair value over cost (100,000) b. 2,020,000
c. 1,870,000
d. 2,170,000
Answer: C b. 480,000
Acquisition cost, July 1 (SQUEEZE) 1,870,000 c. 484,000
Add: Share in net income in 7/1 to 12/31 d. 400,000
(1,200,000x6/12x25%) 150,000
Total 2,020,000 Answer: D
Less: share in cash dividend 25% x 480K (120,000) Net income 600,000
Investment balance, Dec 31 1,900,000 Preference dividend (100,000)
Net income to ordinary shares 500,000
Problem 15
At the beginning of the current year, Cyber Company bought Share in net income-ordinary shares
30% of the outstanding ordinary shares of Free Company for (80% x 500,000) 400,000
5,000,000 cash. Cyber Company accounts for this investment
by the equity method. Problem 17
At the date of the acquisition, Free Company’s net assets had At the beginning of the current year, Alpha Company acquired
carrying amount of 12,000,000. 40% of the outstanding ordinary shares of an investee for
Depreciable assets with an average remaining life of five years 6,500,000. The carrying amount of the net assets of the
have a current market value that is 2,500,000 in excess of their investee equalled 12,500,000. Any excess of cost over
carrying amount. carrying amount is attributable to goodwill.
The remaining difference between the purchase price and the The investee reported net loss of 4,000,000 and paid dividends
carrying amount of the underlying equity cannot be attributed of 2,500,000.
to any identifiable tangible or intangible asset. Accordingly, What is the carrying amount of the investment at year end?
the remaining difference is allocated to good will. a. 6,500,000
Free Company reported net income of 4,000,000 and paid cash b. 3,900,000
dividends of 1,000,000 during the current year. c. 4,900,000
What is the carrying amount of the investment in associate at d. 5,500,000
year end?
a. 5,000,000 Answer: B
b. 5,900,000 Acquisition cost 6,500,000
c. 5,750,000 Share in net loss 40% x 4,000,000 (1,600,000)
d. 5,400,000 Share in cash dividend 40%x2.5M (1,000,000)
Carrying amount-12/31/16 3,900,000
Answer: C
Acquisition cost 5,000,000
Net assets acquired (30%x12M) (3,600,000)
Excess of cost over carrying amount 1,400,000
Excess attributable to depreciable assets CHAPTER 40
30% x 2,500,000 (750,000) Financial Asset at Amortized Cost
Excess attributable to good will 650,000
Problem 1
Acquisition cost 5,000,000 On July 1, 2016, Cody Company paid 1,198,000 of 10%, 20
Share in net income (30% x 4M) 1,200,000 year bonds with a face amount of 1,000,000. Interest is paid on
Share in cash dividends (30% x 1M) (300,000) June 30 and December 31.
Amortization of depreciable assets (750K/10) (150,000) The bonds were purchased to yield 8%. The effective interest
Carrying amount of investment 5,750,000 method is used to recognize interest income from long term
investments.
Problem 16 What is the carrying amount of the investment in bonds on
Moss Company owned 20% of Dubro Company’s preference December 31, 2016?
share capital and 80% of the ordinary share capital on a. 1,207,900
December 31, 2016. The investee reported net income 600,000 b. 1,198,000
for the year ended December 31, 2016. c. 1,195,920
10% cumulative preference share capital 1,000,000 d. 1.193,050
Ordinary share capital 7,000,000
What is the equity in earnings of the investee for 2016?
a. 420,000
Answer: C Purchase price 946,000
Date Interest Interest Premium Carrying amount Accrued interest (40,000)
Received Income amortization Cost of investment 906,000
7/1/16 1,198,000
12/31/16 50,000 47,920 2,080 1,195,920 Amortization of discount from 7/1-12/31
Interest income 906,000 x 10% x 6/12 45,300
Interest received=1Mx10% x 6/12
Interest received 1M x 8% x 6/12 40,000 5,300
=50,000
Interest income= 1,198,000x 8% x 6/12
Carrying amount 12/31/16 911,300
=47,920
Problem 4
Problem 2 On January 1, 2016, Portugal Company purchased bonds with
On January 1, 2016, Purl Company purchased as a long term face value of 8,000,000 for 7,679,000 as a long term
investment 5,000,000 face value of Shaw Company’s 8% bonds for investment. The stated rate on the bonds is 10% but the bonds
4,562,000. The bonds were purchased to yield 10% interest. acquired to yield 12%.
The bonds mature on January 1, 2021 and pay interest annually on The bonds mature at the rate of 2,000,000 annually ever
December 31. The interest method of amortization is used.
December 31 and the interest is payable only also every
1. What is the interest income for 2017?
December 31. The entity used the effective interest metjod of
a. 456,200
b. 461,820 amortizing discount.
c. 400,000 1. What is the interest income for 2016?
d. 369,456 a. 800,000
b. 921,480
Answer 1: B c. 960,000
Answer 2: A d. 767,900
2. What is the carrying amount of the investment in bonds on
Carrying amount-1/1/16 4,562,000 December 31, 2016?
Amortization of discount for 2016
a. 5,759,250
Interest income (456,200 x 10%) 456,200
b. 7,759,250
Interest received (5,000,000x8%) 400,000 56,200
Carrying amount-12/31/16 4,618,200 c. 7,800,480
Amortization of discount for 2017 d. 5,800,480
Interest income (4,618,200 x 10%) 461,820
Interest received (5,000,000x8%) 400,000 61,820 Answer 1: B
Carrying amount-12/31/17 4,680,020 Interest income 7,679,000 x 12% 921,480
Interest received 8,000,000 x 10% 800,000
Problem 3 Discount on amortization 121,480
On July 1, 2016, York Company purchased as a long term investment
1,000,000 of Park Company’s 8% bonds for 946,000 including
Answer 2: D
accrued interest of 40,000. The bonds were purchased to yield 10%
interest. Cost 7,679,000
The bonds matured on January 1, 2022, and pay interest annually on Discount on amortization 121,480
January 1. York Company used the effective interest method of Annual instalment (2,000,000)
amortization. Carrying amount 5,800,480
1. what is the interest income for 2016?
a. 80,000 Problem 5
b. 90,600 On July 1, 2016, East Company purchased as a long term
c. 45,300 investment 5,000,000 face amount, 8% bonds of Rand
d. 40,000 Company for 4,615,000 to yield 10% per year. The bonds pay
2. On December 31, 2016, what is the carrying amount of the interest semi-annually on January 1 and July 1.
investment in bonds? On December 31, 2016, what amount should be reported as
a. 911,300 interest receivable?
b. 916,600 a. 184,600
c. 953,300 b. 200,000
d. 960,600 c. 230,750
d. 250,000
Answer 1: C
Answer 2: A
Answer: B Problem 8
Interest receivable from July 1-Dec 31 Jent Company purchased bonds at a discount of 100,000.
5,000,000 x 8% x 6/12 200,000 Subsequently, Jent sold these bonds at a premium of 140,000.
During the period that Jent hold this long term investment,
Problem 6 amortization of the discount amounted to 20,000.
On July 1, 2016, Pell Company purchased Green Company ten What amount should be reported as gain on the sale of bonds?
year, 8% bonds with a face amount of 5,000,000 for a. 120,000
4,200,000. b. 220,000
The bonds mature on June 30, 2026 and pay interest semi- c. 240,000
annually June 30 and December 31. d. 260,000
Using the interest method, the entity record bond discount
amortization of 18,000 for the six months ended December 31, Answer: B
2016. Premium on sale of bonds 140,000
What amount should be reported as interest income for 2016? Unamortized discount 100,000-20,000 80,000
a. 168,000 Gain on sale of bonds 220,000
b. 182,000
c. 200,000 Problem 9
d. 218,000 On October 1, 2016, Danica Company purchased 2,000,000
face value of 12% bonds for 98 plus accrued interest and
Answer: d brokerage fee. Interest is paid semi-annually on January 1 and
Interest received from 7/1-12/31 July 1. Brokerage fee for this transaction is 50,000.
5M x 8% x 6/12 200,000 At what amount should this acquisition of bonds be recorded?
Bond discount amortization for six months 18,000 a. 1,960,000
Interest income for 2016 218,000 b. 2,010,000
c. 2,020,000
Problem 7 d. 2,070,000
On January 1, 2016, Gilberto Company purchased 9% bonds
with a face amount of 4,000,000 for 3,756,000 to yield 10%. Answer: B
The bonds are dated January 1, 2016, mature on December 31, Purchase price 2,000,000 x 98% 1,960,000
2025 and pay interest annually on December 31. The interest Brokerage fee 50,000
method of amortizing bond discount is used. Total acquisition cost 2,010,000
1. What amount should be reported as interest revenue for
2016? CHAPTER 41
a. 338,040 MARKET PRICE FOR BONDS
b. 360,000
c. 375,600 Problem 1
d. 400,000 On January 1, 2016, Tagbilaran Company purchased bonds
2. What amount should be reported as interest revenue for with face amount of 2,000,000. The bonds are dated January 1,
2017? 2016 and mature on January 1, 2020.
a. 400,000 The interest on the bonds is 10% payable semi-annually every
b. 375,600 June 30 and December 31. The prevailing market rate of
c. 360,000 interest on the bonds is 12%.
d. 377,160 The present value of 1 at 6% for 8 periods is .63 and the
Answer 1: C present value of an ordinary annuity of 1 at 6% for 8 periods is
Answer 2: D 6.21.
Carrying amount- 1/1/16 3,756,000 What is the present value of the bonds on January 1, 2016?
Discount amortization for 2016: a. 1,881,000
Interest income 10% x 3,756,000 375,600 b. 1,888,000
Interest received 9% x 4,000,000 360,000 15,600 c. 1,360,000
Carrying amount- 12/31/16 3,771,600 d. 1,480,000
Discount amortization for 2017:
Interest income 10% x 3,771,600 377,600
Interest received 360,000 17,160
Carrying amount- 12/31/17 3,788,760
Answer: A The bonds are quoted at 102 on December 31, 2016 and 105
PV of principal (2M x .63) 1,260,000 on December 31, 2017. The bonds are sold on June 30, 2018
PV of semi-annual interest payments plus accrued interest.
100,000 x 6.21 621,000 1. What amount of unrealized gain should be reported as
Present value or market price of bonds 1,881,000 component of other comprehensive income for 2016?
a. 268,800
Semi-annual interest payments b. 100,000
2,000,000 x 10% x 6/12 100,000 c. 340,000
d. 0
Problem 2 2. What amount of unrealized gain should be reported as
On January 1, 2016, Arabian Company purchased serial bonds component of other comprehensive income for 2017?
with face amount of 3,000,000 and stated 12% interest payable a. 339,056
annually every December 31. b. 221,200
The bonds are to be held as financial asset at amortized cost c. 70,256
with a 10% effective yield. d. 0
The bonds mature at an annual instalment of 1,000,000 every 3. What amount should be recognized as gain on sale of the
December 31. The present value of 1 at 10% for: bond investment on June 30, 2018?
1 period 0.91 a. 544,528
2 periods 0.83 b. 794,528
3 periods 0.75 c. 250,000
What is the present value of the serial bonds on January 1, d. 589,056
2016?
a. 3,106,800 Answer 1: A
b. 3,060,000 Date interest interest discount carrying amount
c. 3,045,000 Receive income amortization
d. 3,149,000 1/1/16 4,760,000
12/31/16 500,000 571,200 71,200 4,831,200
Answer: A
12/31/17 500,000 579,744 79,744 4,910,944
Principal payment 1,000,000
12/31/18 500,000 589,056 89,056 5,000,000
Interest payment 3M x 12% 360,000
Total payment on 12/31/16 1,360,000 Market value-12/31/16 5M x 102% 5,100,000
Carrying amount- 12/31/16 4,831,200
Principal payment 1,000,000 Unrealized gain-OCI for 2016 268,800
Interest payment 2M x 12% 240,000
Total payment on 12/31/17 1,240,000
Answer 2: C
Market value 12/31/17
Principal payment 1,000,000
5M x 105% 5,250,000
Interest payment 1M x 12% 120,000
Investment balance- 12/31/17
Total payment on 12/31/18 1,120,000
5,100,000+ 79,744 5,179,744
Increase in unrealized gain in 2017 70,256
12/31/16 payment 1,360,000 x .91 1,237,600
12/31/17 payment 1,240,000 x .83 1,029,200
Answer 3: A
12/31/18 payment 1,120,000 x .75 840,000
Sale price 5,500,000
Total present value on 1/1/16 3,106,800
Cumulative unrealized gain- OCI 339,056
Total 5,839,056
CHAPTER 42
Carrying amount per table- 6/30/18
BOND INVESTMENT-FVOCI
4,910,944+44,528 4,955,472
Gain on sale of financial asset 544,528
Problem 1
On January 1, 2016, Queen Company purchased bonds with
Amortization of discount 1/1 to 6/30
face amount of 5,000,000 for 4,760,000 including transaction
89,056 x 6/12 44,528
cost of 160,000. The business model is to collect contractual
cash flows and to sell the financial asset.
The bonds mature on December 31, 2018 and pay 10%
interest annually on December 31 with a 12% effective yield.
Problem 2 Problem 3
On January 1, 2016, Michelle Company purchased bonds with On January 1, 2016, Dumaguete Company purchased bonds
face amount of 5,000,000. The entity paid 4,600,000 plus with face amount of 4,000,000 for 4,206,000.
transaction cost of 142,000. The business model in managing the financial asset is to
The bonds mature on December 31, 2018 and pay 6% interest collect contractual cash flows that are solely payments of
annually on December 31of each year with 8% effective yield. principal and interest and also to sell the bonds in the open
The bonds are quoted at 105 on December 31, 2016 and 110 market.
on December 31, 2017. The bonds mature on December 31, 2018 and pay 10%
The business model in managing the financial asset is to interest annually on December 31 each year with 8% effective
collect contractual cash flows that are solely payments of yield.
principal and interest and also to sell the bonds in the open The bonds are quoted at 95 on December 31, 2016 and 90 on
market. December 31, 2017.
1. What amount of unrealized gain should be reported as 1. What amount of unrealized loss should be reported as
component of other comprehensive income for 2016? component of other comprehensive income in 2016?
a. 250,000 a. 342,480
b. 400,000 b. 406,000
c. 428,640 c. 469,520
d. 0 d. 0
2. What cumulative amount of unrealized gain should be 2. What amount of unrealized loss should be reported as
reported as component of other comprehensive income in the component of other comprehensive income in 2017?
statement of changes in equity for 2017? a. 473,878
a. 500,000 b. 131,398
b. 592,931 c. 200,000
c. 164,291 d. 0
d. 0 3. What amount of cumulative unrealized loss should be
3. What is the interest income for 2017? reported in the statement of changes in equity for 2017?
a. 300,000 a. 406,000
b. 379,360 b. 606,000
c. 385,709 c. 473,878
d. 392,931 d. 0
4. What is the carrying amount of the bond investment to be
Answer 1: C reported on December 31, 2017?
Date interest interest discount carrying amount a. 4,206,000
Receive income amortization b. 3,600,000
1/1/16 4,742,000 c. 3,800,000
12/31/16 300,000 379,360 79,360 4,821,360
d. 4,673,878
12/31/17 300,000 385,709 85,709 4,907,069
12/31/18 300,000 392,931 92,931 5,000,000
Answer 1: A
Date interest interest discount carrying amount
Market value-12/31/16 5M x 105% 5,250,000
Receive income amortization
Carrying amount- 12/31/16 4,821,360
1/1/16 4,206,000
Unrealized gain- 12/31/16 2016 428,640 12/31/16 400,000 336,480 63,520 4,142,480
12/31/17 400,000 331,398 68,602 4,073,878
Answer 2: B 12/31/18 400,000 326,122 73,878 54000,000
Market value-12/31/17 (5M x 110%) 5,500,000
Carrying amount per table-12/31/17 (4,907,069) Market value-12/31/16 3,800,000
Cumulative unrealized gain-12/31/17 592,931 Carrying amount- 12/31/16 4,142,480
Unrealized gain-12/31/16 428,640 Unrealized gain- 12/31/16 2016 342,480
Increase in unrealized gain in 2017 164,291
Answer 2: B
Answer 3: C Market value-12/31/17 (4M x 90%) 3,600,000
Interest income for 2017 (8% x 4,821,360) 385,709 Carrying amount per table-12/31/17 (4,073,878)
Cumulative unrealized gain-12/31/17 (473,878)
Unrealized loss-12/31/16 (342,480)
Increase in unrealized gain in 2017 (131,398)
Answer 3: C 473,878 Problem 5
Answer 4: B (4M x 90%) 3,600,000 On January 1, 2016, Reign Company purchased 12% bonds with face
amount of 5,000,000 for 5,380,000. The bonds provide an effective
yield of 10%. The bonds are dated January 1, 2015, mature on
Problem 4
January 1, 2021 and pay interest annually on December 31, 2016. The
Love Company purchased 5,000,000 of 8%, 5-year bonds on
entity has elected the fair value option for the bond investment.
January 1, 2016 with interest payable on July 1 and January 1. What total income should be reported for 2016?
The bonds were purchased for 5,208,000 at an effective a. 1,220,000
interest rate of 7%. b. 1,120,000
The business model for this investment is to collect c. 1,138,000
contractual cash flows and sell the bonds in the open market. d. 600,000
On December 31, 2016, the bonds were quoted at 106.
1. What amount of interest income should be reported for Answer: A
2016? Market vvalue-12/31/16 (5Mx120) 6,000,000
Carrying amount – 1//1/16 5,380,000
a. 400,000
Gain from change in fair value 620,000
b. 200,000
Interest income (5M x 12%) 600,000
c. 364,560 Total income 1,220,000
d. 363,940
2. What amount should be recognized in OCI in the statement Problem 6
of comprehensive income for 2016? On January 1, 2016, Gleyka Company purchased 12% bonds with
a. 300,000 face amount of 5,000,000 for 5,500,000 including transaction cost of
b. 125,440 100,000. The bonds provide an effective yield of 10%.
c. 128,060 The bonds are dated January 1, 2016 and pay interest annually on
December 31 of each year.
d. 92,000
The bonds are quoted at 115 on December 31, 2016. The entity has
3. If the entity elected the fair value option, what total amount
irrevocably elected to use the fair value option.
of income should be recognized for 2016? 1. What amount of gain from change in fair value should be reported
a. 400,000 for 2016?
b. 492,000 a. 750,000
c. 208,000 b. 250,000
d. 300,000 c. 350,000
d. 0
Answer 1: D 2. What amount of interest income should be reported for 2016?
Date interest interest discount carrying amount a. 600,000
Receive income amortization b. 550,000
Jan 1 5,208,000 c. 660,000
12/31/16 200,000 182,280 17,720 5,190,280 d. 540,000
12/31/17 200,000 181,660 18,340 5,171,940 3. What is the carrying amount of the bond investment on December
31, 2016?
Interest income 1/1 to 6/30 a. 5,750,000
7% x 5,208,000 x 1//2 182,280 b. 5,400,000
Interest income 7/1 to 12/31 c. 5,500,000
7% x 5,190,280 x ½ 181,660 d. 5,450,000
Total interest income for 2016 363,940 4. What total amount of income from the investments should be
reported in the income statement for 2016?
Answer 2: C a. 540,000
FV- 12/31/16 (5M x 106%) 5,300,000 b. 950,000
Carrying amount per book- 12/31/16 (5,171,940) c. 890,000
Unrealized gain OCI 128,060 d. 900,000

Answer 3: B Answer 1: C
Interest income (5M x 8%) 400,000 Purchase price 5,500,000
Gain from change in fair value 92,000 Transaction cost (100,000)
Total income 492,000 Adjusted cost 5,400,000

Market value 5,300,000 Market value (5M x 115%) 5,750,000

Acquisition cost 5,208,000 Adjusted cost 5,400,000
Gain from change in fair value 92,000 Gain from change in fair value 350,000
Answer 2: A Problem 2
Interest income 12% x 5,000,000 600,000 Eragon Company and its subsidiaries own the following properties at
year end:
Answer 3: A Land held by Eragon for undetermined use 5,000,000
Carrying amount equal to market value at year end 5,750,000 A vacant building owned by Eragon and to be
leased out under an operating lease 3,000,000
Answer 4: B Property held by a subsidiary of Eragon, a real
Gain from change in fair value 350,000 estate firm, in the ordinary course of business 2,000,000
Interest income 600,000 Property held by Eragon for use in production 4,000,000
Total income from investment 950,000 Building owned by a subsidiary of Eragon and for which
the subsidiary provides security and maintenance
CHAPTER 43 service to the lessees 1,500,000
INVESTMENT PROPERTY Land leased by Eragon to a subsidiary under an
operating lease 2,500,000
Problem 1 Property under construction for the use as
Galore Company ventured into construction of condominium in investment property 6,000,000
Makati which is rated as the largest state of the art structure. Land held for future factory site 3,500,000
The board of directors decided that instead of selling the Machinery leased out by Eragon to an unrelated party
condominium, the entity would hold this property for purposes of under an operating lease 1,000,000
earning rentals by letting out space to business executives in the area.
The construction of the condominium was completed and the 1. What is the total investment property that should be reported in the
property was placed in service in January 1, 2016. consolidated statement of financial position of the parent and its
The cost of the construction was 50,000. The useful life of the subsidiaries?
condominium is 25 years and the residual value is 5,000,000. a. 12,500,000
An independent valuation expert provided the following fair value at b. 15,500,000
each subsequent year end: c. 10,500,000
December 31, 2016 55,000,000 d. 9,500,000
December 31, 2017 53,000,000 2. What total amount should be considered as owner-occupied
December 31, 2018 60,000,000 property and included in property, plant and equipment in the
1. Under the cost model, what amount should be reported as consolidated statement of financial position?
depreciation of investment property for 2016? a. 11,000,000
a. 1,800,000 b. 13,000,000
b. 2,000,000 c. 10,500,000
c. 2,200,000 d. 8,500,000
d. 0
2. Under the fair value model, what amount should be recognized as Answer 1: B
gain from change in fair value in 2016? Land held by Eragon for undetermined use 5,000,000
a. 5,000,000 A vacant building owned by Eragon and to be
b. 3,000,000 leased out under an operating lease 3,000,000
c. 7,000,000 Building owned by a subsidiary of Eragon and for which
the subsidiary provides security and maintenance
Answer 1: A service to the lessees 1,500,000
Cost of investment property 50,000,000 Property under construction for the use as
Residual value (5,000,000) investment property 6,000,000
Depreciable amount 45,000,000 Total investment property 15,500,000

Annual depreciation 45,000,000/25 1,800,000 Answer 2: A

Property held by Eragon for use in production 4,000,000
Answer 2: A Land leased by Eragon to a subsidiary under an
Fair value- 12/31/16 55,000,000 operating lease 2,500,000
Cost- 1/1/16 50,000,000 Land held for future factory site 3,500,000
Gain from change in fair value in 2016 5,000,000 Machinery leased out by Eragon to an unrelated party
under an operating lease 1,000,000
Total PPE 11,000,000
Problem 3 The building was classified as an investment property and accounted
Bona Company purchased an investment property on January 1, 2014 for under the cost model.
for 2,200,000. The property had a useful life of 40 years and on 1. What is the depreciation of the investment property and accounted
December 31, 2016 had a fair value of 3,000,000. for 2016?
On December 31, 2016, the property was sold for net proceeds of a. 300,000
2,900,000. The entity used the cost model to account for the b. 320,000
investment property. c. 330,000
1. What is the carrying amount of the investment property on d. 0
December 31, 2016? 2. What is the carrying amount of the investment property on
a. 2,200,000 December 31, 2017?
b. 2,035,000 a. 8,400,000
c. 2,145,000 b. 9,000,000
d. 2,090,000 c. 9,900,000
2. What is the gain or loss to be recognize for the year ended d. 9,570,000
December 31, 2016 regarding the disposal of the property?
a. 865,000 gain Answer 1: A
b. 810,000 gain Depreciation for 2016 9,000,000/30 300,000
c. 100,000 loss
d. 700,000 gain Answer 2: A
Cost- 1/1/16 9,000,000
Answer 1: B Accumulated depreciation 9M/30 x 2 (600,000)
Cost- 1/1/14 2,200,000 Carrying amounts- 12/31/17 8,400,000
Accumulated depreciation 2.2M/40 x 3 (165,000)
Carrying amount- 12/31/16 2,035,000 Problem 6
On January 1, 2014, Crosswind Company owned an investment
Answer 2: A property which had an original cost of 5,800,000 and useful life of 40
Sale price 2,900,000 years.
Carrying amount- 12/31/16 2,035,000 On December 31, 2016, the fair value was 6,000,000 and on
Gain on disposal of property 865,000 December 31, 2017, the fair value was 5,900,000.
1. Under the fair value model, what is the expense to be recognize for
Problem 4 the year ended December 31, 2017?
Dayanara Company owned three properties which are classified as a. 147,500
investment property. b. 100,000
Initial Cost FV-12/31/16 FV-12/31/17 c. 200,000
Property 1 2,700,000 3,200,000 3,500,000 d. 0
Property 2 3,450,000 3,050,000 2,850,000 2. Under the cost model, what is the expense to be recognized for the
Property 3 3,300,000 3,850,000 3,600,000 year ended December 31, 2017?
a. 145,000
Each property was acquired three years ago with a useful life of 25 b. 150,000
years. The accounting policy is to use the fair value model for c. 147,500
investment property. d. 0
What is the gain or loss to be recognized for the year ended
December 31, 2017? Answer 1: B
a. 189,000 loss Fair value model
b. 150,000 gain Fair value- 12/31/17 5,900,000
c. 300,000 gain Fair value- 12/31/16 6,000,000
d. 450,000 loss Loss from change in fair value (100,000)

Answer: B Answer 2: A
FV-12/31/16 FV-12/31/17 Gain (loss) Cost model
Property 1 3,200,000 3,500,000 300,000 Depreciation expense for 2017 (5,800,000/40) 145,000
Property 2 3,050,000 2,850,000 (200,000)
Property 3 3,850,000 3,600,000 (250,000)
Net loss from change in fair value (150,000)

Problem 5
Mikka Company acquired a building on January 1, 2016 for
9,000,000. At that date, the building had a useful life of 30 years.
On December 31, 2016, the fair value of the building was 9,600,000
and on December 31, 2017, the fair value was 9,900,000.
Problem 7 Answer 1: C
Paradise Company’s accounting policy with respect to investment FV of building- 12/31/16 35,000,000
property is to measure the property at fair value at the end of each Carrying amount of building- 12/31/16 (20,000,000)
reporting period. Revaluation surplus 15,000,000
One investment property was measured at 8,000,000 on December
31, 2016. Answer 2: C
The property had been acquired on January 1, 2016 for a total of FV of land- 12/31/16 15,000,000
7,600,000, made up of 6,900,000 paid to the vendor, 300,000 paid to Carrying amount of land- 12/31/16 (10,000,000)
the local authority as a property transfer tax and 400,000 paid to Gain on reclassification 5,000,000
professional advisers.
The useful life of the property is 40 years. CHAPTER 44
What is the amount of gain to be recognized in profit or loss for the FUND AND OTHER INVESTMENTS
year ended December 31, 2016 in respect of the investment property?
a. 400,000 Problem 1
b. 700,000 Fall Company provided the following information in relation to a
c. 800,000 bond sinking fund that was placed in trust as required by the
d. 590,000 underwriter:
Bond dinking fund, 1/1/16 4,500,000
Answer: A Additional investment in 2016 900,000
FV 8,000,000 Dividends on investments 150,000
Acquisition cost 7,600,000 Interest revenue 300,000
Gain from change in fair value 400,000 Administration costs 50,000
Carrying amount of bonds payable 8,000,000
Payment to vendor 6,900,000 What is the carrying amount of the bond sinking fund on December
Property transfer tax 300,000 31, 2016?
Payment to professional advisers 400,000 a. 5,850,000
Total acquisition cost 7,600,000 b. 5,800,000
c. 5,750,000
Problem 8 d. 5,400,000
Rhino Company, a real estate entity, had a building with a carrying
amount of 20,000,000 on December 31, 2016. The building was used Answer: B
as offices of the entity’s administrative staff. Sinking fund- 1/1/16 4,500,000
On December 31, 2016, the entity intended to rent out the building to Add: Additional investment in 2016 900,000
independent third parties. The staff will be moved to a new building Dividends on investment 150,000
purchased early in 2016. Interest revenue 300,000 1,350,000
On December 31, 2016, the original building had a fair value of Total 5,850,000
35,000,000. Less: Administration costs (50,000)
On December 31, 2016, the entity also had land that was held for sale Sinking fund- 12/31/16 5,800,000
in the ordinary course of business.
The land had a carrying amount of 10,000,000 and fair value of Problem 2
15,000,000 on December 31, 2016. In January 2016, Cameron Company established a sinking fund in
On such date, the entity decided to hold the land for capital connection with an issue of bonds due in 2018. A bank was appointed
appreciation. as independent trustee of the fund. On December 31, 2016, the trustee
The accounting policy is to carry all investment property at fair value. held 365,000 cash in the sinking fund account representing 300,000
1. On December 31, 2016, what amount should be recognized in in annual deposits to the fund, and 65,000 of interest earned on thoe
revaluation surplus as a result of transfer of the building to deposits.
investment property? How should the sinking fund be reported on December 31, 2016?
a. 20,000,000 a. No part of the sinking fund should appear in Cameron’s statement
b. 35,000,000 of financial position
c. 15,000,000 b. 65,000 should appear as a current asset
d. 0 c. 365,000 should appear as a current asset
2. On December 31, 2016, what amount should be recognized in d. 365,000 should appear as a non-current asset
profit or loss as a result of transfer of the land to investment property?
a. 15,000,000 Answer: D
b. 10,000,000
c. 5,000,000
d. 0
Problem 3 Problem 6
On March 15, 2016, Ashe Company adopted a plan to accumulate Cebu Company made an investment of 5,000,000 at 10% per annum
5,000,000 by September 1, 2020. The entity plans to make four equal compounded annually for 6 years. Round off future value factor to
annual deposits to a fund that will learn interest at 10% compounded two decimal places.
annually. The entity made the first deposit on September 1, 2016. What is the amount of the investment on the date of maturity?
FV of 1 at 10% for 4 periods 1.46 a. 8,850,000
FV of an ordinary annuity of 1 at 10% for 4 periods 4.64 b. 8,050,000
FV of an annuity of 1 in advance at 10% for 4 periods 5.11 c. 9,750,000
What is the annual deposit to the fund? d. 5,500,000
a. 1,250,000
b. 1,077,500 Answer: A
c. 978,500 Principal amount 5,000,000
d. 730,000 Multiply by FV of 1 for 6 periods at 10% 1.77
Future value at maturity 8,850,000
Answer: C
5,000,000/5.11 987,500 Problem 7
On January 1, 2016, Duripan Company invested 1,000,000 in 5 year
Problem 4 certificate of deposit at 8% interest.
On January 1, 2016, Beal Company adopted a plan to accumulate The market interest rate at maturity is 10%. The entity does not elect
funds for a new plant building to be erected beginning July 1, 2021, the fair value option in reporting financial asset.
at an estimated cost of 6,000,000. Future amount of 1 at 5% for 5 periods 1.469
The entity intends to make five equal annual deposits in a fund that Future amount of 1 at 10% for 5 periods 1.611
will earn interest at 8% compounded annually. Future amount of an ordinary annuity of 1 at 8% for 5 periods 5.867
The first deposit is made on July 1, 2016. Future amount of an annuity of 1 in advance at 10% for 5 periods 6.105
Present value of 1 at 8% for 5 periods .68 What is the maturity value of the certificate of deposit?
Present value of 1 at 8% for 6 periods .63 a. 5,867,000
Future value of an ordinary annuity of 1 at 8% for 5 periods 5.87 b. 1,611,000
Future value of an annuity of 1 in advance at 8% for 5 periods 6.34 c. 1,469,000
What is the annual deposit to the fund? d. 6,105,000
a. 1,022,150
b. 816,000 Answer: C
c. 946,400 Investment in certificate of deposit 1M
d. 756,000 Multiply by future amount of 1 at 8% for 5 periods 1.469
Maturity value 1,469,000
Answer: C
Annual deposit 6M/6.34 946,400 Problem 8
Mactan Company made investment for 5 years at 12% per annum
Problem 5 compounded semi-annually to equal 7,160,000 on the date of
On January 1, 2016, Mandaue Company adopted a plan to maturity. Round off future value factor to two decimal places.
accumulate 5,000,000 by January 1, 2021. What amount must be deposited now at the compound interest to
The entity plans to make 5 equal deposits that will earn interest at 9% provide the desired sum?
compounded annually. a. 4,000,000
The entity made the first deposits on December 31, 2016. b. 4,068,000
The future value of an ordinary annuity of 1 at 9% for 5 periods is c. 4,236,680
5.98 and the future value of an annuity due of 1 at 9% for 5 periods is d. 3,768,420
6.52.
What amount must be deposited annually at the compound interest to Answer: A
accumulate the desired amount? Future value at maturity 7,160,000
a. 766,871 Divide by future value of 1 for 10 periods at 6% 1.79
b. 836,120 Initial investment 4,000,000
c. 664,894
d. 609,756

Answer: B
Annual deposit 5M/5.98 836,120
Problem 9 Problem 11
Ball Company purchased a 1,000,000 ordinary life insurance policy Slovenia Company insured the life of its president for 2,000,000, the
on its president. Ball Company is the beneficiary under the life entity being the beneficiary of an ordinary life insurance policy. The
insurance policy. The policy year and the entity’s accounting year annual premium is 80,000 and the policy is dated January 1, 2013.
coincide: The cash surrender values are 15,000 on December 31, 2015 and te
The entity provided the following data for the year ended December 19,000 on December 31, 2016.
31, 2016: 1. What is the gain on life insurance settlement?
Cash surrender value, January1 43,500 a. 1,962,000
Cash surrender value, December 31 54,000 b. 2,000,000
Annual advance premium paid January 1 20,000 c. 1,961,000
Dividend received July 1 3,000 d. 1,981,000
What amount should be reported as life insurance expense for 2016? 2. What is the life insurance expense for 2016?
a. 17,000 a. 80,000
b. 20,000 b. 60,000
c. 6,500 c. 77,000
d. 9,500 d. 57,000

Answer: C Answer 1: A
Annual premium paid 20,000 Cash surrender value-12/31/15 15,000
Less: Increase in cash surrender value 10,500 CSV from 1/1 to 10/1/16 4,000 x 9/12 3,000
Dividend received 3,000 13,500 Cash surrender value- 101/16 18,000
Life insurance expense 6,500
Face of policy 2,000,000
Cash surrender value- 12/31 54,000 Cash surrender value (18,000)
Cash surrender value- 1/1 43,500 Unexpired premium (80k x 3/12) (20,000)
Increase in cash surrender value 10,500 Gain on life insurance settlement 1,962,000

Problem 10 Answer 2: D
Chain Company purchased a 1,000,000 life insurance policy on its Annual premium paid on Jan 1, 2016 80,000
president, of which Chain Company is the beneficiary. Unexpired premium on 10/1/16 (20,000)
The entity provided the following information regarding the policy Increase in CSV from 1/1 to 10/1 (3,000)
for the year ended December 31, 2016: Life insurance expense for 2016 57,000
Cash surrender value, 1/1 87,000
Cash surrender value, 12/31 108,000 Problem 12
Annual advance premium paid Jan 1 40,000 Grand Company reported the following accounts at the end of the
During 2016, dividend of 6,000 was applied to increase the cash reporting period:
surrender value of the policy. Petty cash fund 10,000
What amount should be reported as life insurance expense for 2016? Payroll fund 100,000
a. 40,000 Sinking fund cash 500,000
b. 25,000 Sinking fund securities 1,000,000
c. 19,000 Accrued interest receivable- sinking fund securities 50,000
d. 13,000 Plant expansion fund 600,000
Cash surrender value 150,000
Answer: C Investment property 3,000,000
Premium paid 40,000 Advances to subsidiary 200,000
Less: Increase in cash surrender value 21,000 Investment in associate 2,000,000
Life insurance expense 19,000 What total amount should be reported as non-current investments at
the end of the reporting period?
Cash surrender value Dec. 31 108,000 a. 7,500,000
Cash surrender value Jan 1 87,000 b. 4,500,000
Increase in cash surrender value 21,000 c. 7,450,000
d. 2,300,000

Answer: A
Sinking fund cash 500,000
Sinking fund securities 1,000,000
Accrued interest receivable- sinking fund securities 50,000
Plant expansion fund 600,000
Cash surrender value 150,000
Investment property 3,000,000
Advances to subsidiary 200,000 Problem 2
Investment in associate 2,000,000 Problem 2
Total non-current investments 7,500,000 Pare Company purchased 10% of Tot Company’s 100,000
outstanding ordinary shares on January 1, 2016 for 500,000.
CHAPTER 39 On December 31, 2016, Pare purchased an additional 20,000 shares
INVESTMENT IN ASSOCIATE of Tot for 1,500,000. Tot had not issued any additional shares during
COMPREHENSIVE PROBLEMS 2016.
The investee reported earnings of 3,000,000 for 2016.
On January 1, 2016, Marissa Company acquired 25% of the The fair value of the 10% interest is 900,000 on December 31, 2016.
outstanding shares of an investee at a total cost of 7,000,000. At the What is the carrying amount of the investment in associate on
time, the carrying amount of net assets of the investee totalled December 31, 2016?
24,000,000. a. 2,300,000
The investee owned equipment with 5-year remaing life with a fair b. 2,000,000
value of 2,000,000 more than the carrying amount. The investee c. 2,400,000
owned land with a fair value of 1,000,000 more than the carrying d. 2,900,000
amount.
The investee earned net income of 5,000,000 evenly during the Answer: C
current year. The investee declared and paid cash dividend of FV of 10% interest 900,000
3,000,000 to shareholders at year end. The fair value of the Cost of 12/31 20,000/100,000= 20% 1,500,000
investment at year end is 7,500,000. Carrying amount- 12/31/16 2,400,000
1. What is the goodwill arising from the investment in associate?
a. 750,000 Problem 3
b. 500,000 On January 1, 2016, Forensic Company acquired a 10% interest in an
c. 250,000 investee for 3,000,000. The investment was accounted for using the
d. 0 cost method.
2. What is the investment income for 2016? On January 1, 2017, the entity acquired a further 15% interest in the
a. 1,250,000 investee for 6,750,000.
b. 1,150,000 On such date, the carrying amount of the net assets of the investee
c. 900,000 was 36,000,000 and the fair value of the 10% interest was 4,500,000.
d. 650,000 The fair value of the net assets of the investee is equal to carrying
3. What is the carrying amount of the investment on December 31, amount except for equipment whose fair value exceeds the carrying
2016? amount except for an equipment whose fair value exceeds carrying
a. 7,400,000 amount by 4,000,000. The equipment has a remaining life of 5 years.
b. 7,500,000 The investee reported net income of 8,000,000 for 2017 and paid
c. 7,000,000 dividend 5,000,000 on December 31, 2017.
d. 8,150,000 1. What is the gain on re-measurement to equity to be recognized for
2017?
Answer 1: C a. 1,500,000
Acquisition cost 7,000,000 b. 4,500,000
Carrying amount of net assets acquired c. 2,250,000
25% x 24,000,000 6,000,000 d. 0
Excess cost 1,000,000 2. What is the goodwill arising from the acquisition on January 1,
Attributable to equipment 25% x 2M (500,000) 2017?
Attributable to the land 25% x 1M (250,000) a. 2,250,000
Good will 250,000 b. 1,250,000
c. 1,350,000
Answer 2: B d. 350,000
Share in net income 25% x 5M 1,250,000 3. What is the carrying amount of the investment of the investment in
Amortization of excess attributable to equipment associate on December 31, 2017?
500,000/5 (100,000) a. 11,250,000
Investment income 1,150,000 b. 11,800,000
c. 12,000,000
Answer 3: A d. 14,300,000
Acquisition cost 7,000,000
Share in net income 1,250,000 Answer: A
Share in cash dividend (750,000) FV of 10% interest 4,500,000
Amortization of excess attributable to equipment Carrying amount of 10% interest 3,000,000
500,000/5 (100,000) Gain on re-measurement to equity 1,500,000
Carrying amount- 12/31/16 7,400,000
 Answer 3: B
Answer 2: B Fair value of 10% interest 6,000,000
FV of 10% interest 4,500,000 Cost of 20% interest 10,000,000
Cost of additional 15% interest 6,750,000 Total cost of investment- 1/1/17 16,000,000
Total cost of investment 11,250,000 Share in net income for 2017 (30% x 6,500,000) 1,950,000
FV of net assets acquired 25% of 36,000,000 9,000,000 Share in cash dividend for 2017 (30% x 3M) (900,000)
Excess of cost 2,250,000 Carrying amount- 12/31/17 17,050,000
Excess attributable to equipment 25% x 4M 1,000,000
Goodwill 1,250,000 Problem 5
Seiko Company had 100,000 ordinary shares outstanding. Hlobe
Answer 3: B Company acquired 30,000 shares of Seiko for 120 per share in 2014
Total cost of investment- 1/1/17 11,250,000 representing 30% interest.
Share in net income 25% x 8M 2,000,000 Change in retained earnings for Seiko for 2016 and 2017 are as
Share in cash dividend 25% x 5M (1,250,000) follows:
Amortization of excess (1M/5) (200,000) Retained earnings (deficit) 1/1/16 (500,000)
Carrying amount- 12/31/17 11,800,000 Net income for 2016 700,000
Retained earnings, 12/31/16 200,000
Problem 4 Net income for 2017 800,000
On January 1, 2016, Mega Company acquired 10% of the outstanding Cash dividend paid on 12/31/17 (400,000)
ordinary shares of Penny Company for 4,000,000. The investment Retained earnings, December 31, 2017 600,000
was appropriately accounted for under the cost method. What is the carrying amount of the investment in associate on
On January 1, 2017, Mega gained the ability to exercise significant December 31, 2017?
influence over financial and operating control of Penny by acquiring a. 3,600,000
an additional 20% of Penny’s outstanding ordinary shares for b. 3,930,000
10,000,000. c. 3,780,000
The fair value Penny’s net assets equalled carrying amount. The fair d. 4,080,000
value of the 10% interest on January 1, 2017 was 6,000,000.
For the years ended December 31, 2016 and 2017, the investee Answer: C
reported the following: Acquisition cost 3,600,000
2016 2017 Share in retained earnings- 12/31/17
Dividend paid 2,000,000 3,000,000 30% x 600,000 180,000
Net income 6,000,000 6,500,000 Carrying amount of investment- 12/31/17 3,780,000

1. What is the investment income in 2016? Problem 6

a. 200,000 Chur Company acquired a 40% interest in Flim Company for
b. 400,000 1,700,000 on January 1, 2016. The shareholder’s equity of Flim
c. 600,000 Company on January 1 and December 31, 2016 is presented below.
d. 300,000 January 1 December 31
2. What is the investment income in 2017? Share capital 3,000,000 3,000,000
a. 1,300,000 Revaluation surplus 1,300,000
b. 1,950,000 Retained earnings 1,000,000 1,500.000
c. 1,000,000
d. 1,900,000 On January 1, 2016, all identifiable assets and liabilities of Flim
3. What is the carrying amount of the investment in associate on Company were recorded at fair value. Flim Company reported profit
December 31, 2017? of 7,000,000 after income tax expense of 300,000 and paid dividend
a. 16,000,000 of 200,000 to shareholders during the current year.
b. 17,050,000 The revaluation surplus is the result of the revaluation of land
c. 15,050,000 recognized by Flim Company on December 31, 2016. Additionally,
d. 16,700,000 depreciation is provided by Flim Company on the diminishing
balance method whereas Chur Company used the straight line. Had
Answer 1: A Flim Company used the straight line, the accumulated depreciation
Interest income for 2016 equal to the dividend received in 2016 would be increased by 200,000.
10% x 2,000,000 200,000 What is the carrying amount of the investment in associate on
December 31, 2016?
a. 2,420,000
b. 1,700,000
Answer 2: B c. 1,900,000
Investment income for 2017 d. 2,320,000
30% x 6,500,000 1,950,000
Answer: A
Acquisition cot 1,700,000 3. In the income statement for 2017, what amount should be reported
Net assets acquired (40% x 4M) 1,600,000 as gain from sale of investment?
Goodwill- not amortized 100,000 a. 245,000
b. 305,000
Acquisition cost 1,700,000 c. 350,000
Net income 40% x 700,000 280,000 d. 455,000
Cash dividend 40% x 200,000 (80,000) 4. In the income statement for 2017, what amount should be reported
Revaluation surplus 40% x 1,300,000 520,000 as gain from re-measurement of the retained investment?
Carrying amount of investment- 12/31/16 2,420,000 a. 605,000
b. 405,000
Problem 7 c. 710,000
Aye Company acquired 30% of the issued share capital of Bee d. 910,000
Company for 1,000,000 on January 1, 2016. The accumulated profit
of Bee Company on this date totalled 2,000,000. The entities Answer 1: B
prepared their financial statements on December 31 of each year. Share in 2016 net income 30% x 800,000 240,000
The abbreviated statement of financial position of Bee Company on
December 31, 2017 is as follows: Answer 2: B
Sundry net assets 6,000,000 Acquisition cost, 1/1/16 2,000,000
Share capital, 10 par 1,000,000 Add: Share in 2016 net income 240,000
Share premium 2,000,000 Total 2,240,000
Retained earnings 3,000,000 Les: Share in 2016 dividend 30% x 500,000 150,000
The fair value of the net assets of Bee Company at the date of Carrying amount of investment, 12/31/16 2,090,000
acquisition was 5,000,000.
The recoverable amount of the net assets of Bee Company is Answer 3: B
7,000,000 on December 31, 2017. Carrying amount of investment, 12/31/16 2,090,000
What is the carrying amount of the investment in associate on Add: Share in net 1/1 to 6/30/17
December 31, 2017? 30% x 1,000,000 300,000
a. 1,800,000 Carrying amount of investment 1/30/17 2,390,000
b. 2,100,000
c. 1,500,000 Sale price 1,500,000
d. 1,000,000 Cost of investments sold (1,195,000)
Gain from sale of investment 305,000
Answer: A
Investment in associate 30% x 6,000,000 1,800,000 Answer 4: B
Fair value- 1/1/17 1,600,000
Problem 8 Carrying amount of retained investment 1,195,000
Grant Company acquired 30% of South Company’s voting share Gain from re-measurement 405,000
capital for 2,000,000 on January 1, 2016. Grant’s 30% interest in
South gave Grant the ability to exercise significant influence over FV – 12/31/17 1,800,000
South’s operating and financial policies. During 2016, South earned FV -7/1/17 1,600,000
800,000 and paid dividend of 500,000. South reported earnings of Unrealized gain on financial asset 200,000
1,000,000 for the six months ended June 30, 2017, and 2,000,000 for
the year ended December 31, 2017. On July 1, 2017, Grant sold half Problem 9
of the investment in South for 1,500,000 cash. South paid dividend of On January 1, 2016, Marie Company purchased 40% of the
600,000 on October 1, 2017. outstanding ordinary shares of Lester Company paying 2,560,000
The fair value of the retained investment is 1,600,000 on July 1, 2017 when the carrying amount of the net assets of Lester equalled
and 1,800,000 on December 31, 2017. The retained investment is to 5,000,000.
be held as financial asset at fair value through profit or loss. The difference was attributed to equipment which had carrying
1. Before income tax, what amount should be included in the 2016 amount of 1,200,000 and a fair value of 2,000,000 and to building
income statement as a result of the investment? with a carrying amount of 1,000,000 and a fair value of 1,600,000.
a. 150,000 The remaining useful life of the equipment and building was 4 years
b. 240,000 and 12 years respectively.
c. 500,000 During 2016, Lester Company reported net income of 1,600,000 and
d. 800,000 paid dividends of 1,000,000.
2. On December 31, 2016, what is the carrying amount of the 1. What is the excess of acquisition cost over carrying amount?
investment in associate? a. 560,000
a. 2,000,000 b. 320,000
b. 2,090,000 c. 240,000
c. 2,240,000 d. 0
d. 2,300,000 2. What is the investment income for 2016?
a. 640,000 1. Depending on the business model for managing financial assets, an
b. 540,000 entity shall classify financial assets subsequent to initial recognition
c. 560,000 at
d. 500,000 a. Fair value through profit and loss
3. What is the carrying amount of the investment in associate on b. Amortized cost
December 31, 2016? c. Fair value through comprehensive income
a. 2,250,000 d. All of these are used in measuring financial asset
b. 2,700,000 Answer: D
c. 2,800,000
d. 3,050,000 2. How does the standard distinguish between the measurement
methods to be used?
Answer 1: A a. By reviewing the business model and the risks and rewards of the
Acquisition cost 2,560,000 transaction.
Net assets acquired 40% x 5,000,000 2,000,000 b. By reviewing the business model and the contractual cash flow
Excess of cost over carrying amount 560,000 characteristics of the instrument.
c. By reviewing the realizability and the contractual cash flow
Attributable to equipment 40% x 800,000 320,000 characteristics of the instrument.
Attributable to building 40% x 600,000 240,000 d. By reviewing the realizability of the instrument and risks and
560,000 rewards of ownership
Answer 2: B Answer: B
Share in net income 40% x 1,600,000 640,000
Amortization of excess: 3. Which of the following is not a characteristic of financial asset
Equipment 320,000/4 (80,000) held for trading?
Building 240,000/12 (20,000) a. It is acquired principally for the purpose of selling or repurchasing
Investment income 540,000 it in the near term.
b. On initial recognition, it is part of a portfolio of financial assets
Answer 3: C that are managed together and for which there is evidence of a recent
Acquisition cost 2,560,000 actual pattern of short term profit taking.
Investment income 540,000 c. It is derivative that it is not designated as an effective hedging
Share in cash dividend 40% x 1,000,000 (400,000) instrument.
Carrying amount- 12/31/16 2,700,000 d. It is derivative that it is designated as an effective hedging
instrument
Problem 10 Answer: D
On January 1, 2013, Bart Company acquired as a long term
investment for 7,000,000, a 40% interest in Hall Company when the 4. If all of the following financial assets shall be measured at fair
fair value of Hall’s net assets was 17,500,000. Hall Company value through profit or loss, except
reported the following net losses: a. Financial assets held for trading
2013 5,000,000 b. Financial assets designated on initial recognition as at fair value
2014 7,000,000 through profit or loss
2015 8,000,000 c. Investments in quoted equity instruments
2016 4,000,000 d. Financial assets at amortized cost
On January 1, 2015, Bart Company made cash advances of 2,000,000 Answer: D
to Hall Company. On December 31, 2016, it is not expected that Bart
Company will provide further financial support for Hall Company. 5. A debt investment shall be measured at subsequently at amortized
What amount should be reported as loss from investment for 2016? cost
a. 1,600,000 a. By irrevocable election
b. 4,000,000 b. When the debt investment is manage and evaluated on a document
c. 1,000,000 risk-management strategy.
d. 600,000 c. When the debt investment is held for trading
d. When the business model is to collect contractual cash flows that
Answer: C are solely payments of principal and interest.
Original cost 7,000,000 Answer: d
Cash advances 2,000,000
Total investment 9,000,000 6. The irrevocable election to present subsequent changes in fair
Net loss from 2013 to 2015 40% x 20M (8,000,000) value in other comprehensive income is applicable only to
Carrying amount of investment 1,000,000 a. Investment in equity instrument that is not held for trading.
THEORIES b. Investment in equity instrument that is held for trading.
FINANCIAL ASSET AT FAIR VALUE c. Financial asset measured at amortized cost.
d. Financial asset measured at fair value.
A Answer: A
 a. Based on discounted contractual cash flows
7. A debt investment shall be measured at fair value through other b. Recognized as component of other comprehensive income
comprehensive income c. Based on fair value for non-trading investment and on negotiated
a. When the debt investment is held for trading. value for held for collection investments
b. When the debt investment is not held for trading. d. Evaluated at each reporting date for every held for collection
c. By irrevocable designation investment
d. When the business model is to collect contractual cash flows that Answer: D
are solely payments of principal and interest and also to sell the
financial asset. 8. An impairment loss is the excess of the carrying amount of the
Answer: D investment over the
a. Expected cash flows
2 b. Present value of the expected cash flows
1. Under the IFRS, the presumption is that equity investments are c. Contractual cash flows
a. Held for trading d. Present value of the contractual cash flows
b. Held to profit from price changes Answer: B
c. Held for trading and held to profit from price changes
d. Held as financial assets at fair value through other comprehensive 3
income 1. Reclassification of investments between categories are accounted
Answer: C for
a. Prospectively, at the end of the period after the change in the
2. Equity investments irrevocably accounted for at fair value through business model
other comprehensive income b. Prospectively, at the beginning of the period after the change in the
a. Non-trading investments where an entity has holdings o less than business model
20%. c. Retrospectively, at the end of the period after the change in the
b. Trading investments where an entity has holdings of less than 20%. business model
c. Investments where an entity has holdings if between 20% and 50%. d. Retrospectively, at the beginning of the period after the change in
d. Investments where an entity has holdings of more than 50%. the business model
Answer: A Answer: B

3. Entities are required to measure financial asset based on all of the 2. Transfers of investments between categories
following except a. Result in omitting recognition of fair value in the year of the
a. The business model for managing financial asset. transfer
b. Whether the financial asset is a debt or an equity investment b. Are accounted for at fair value for all transfers
c. The contractual cash flow characteristics of the financial asset. c. Are not recognized if investments are transferred from held for
d. All of the choices are required. collection to fair value
Answer: B d. Should always affect net income
Answer: B
4. Debt investment that meet the business model and contractual cash
flow tests are reported at 3. When a debt investment at amortized cost is reclassified to FVPL,
a. Net realizable value the difference between the previous carrying amount and fair value at
b. Fair value reclassification date is
c. Amortized cost a. Recognized in profit and loss
d. The lower of amortized cost and fair value b. Not recognized
Answer: C c. Recognized in other comprehensive income
d. Included in retained earnings
5. Debt investments not held for collection are reported at Answer: A
a. Amortized cost
b. Fair value 4. When a debt investment at FVPL is reclassified to amortized cost,
c. The lower of amortized cost and fair value what is the new carrying amount at amortized cost?
d. Net realizable value a. Fair value at reclassification date
Answer: B b. Face amount of the debt investment
c. Present value of the contractual cash flows
6. What financial assets are assessed for impairment? d. Original carrying amount of the debt investment
a. Equity investments at FVPL Answer: A
b. Equity investments at FVOCI
c. Debt investments at FVPL 5. Which statement is true when a debt investment at amortized cost
d. Debt investments at amortized cost and debt investments at FVOCI is reclassified to FVOCI?
Answer: D a. The debt investment is measured at fair value at reclassification
date.
7. Impairments of debt investments are
b. The difference between the previous carrying amount and fair d. The price should be adjusted for cost to transport the asset to the
value at reclassification date is recognized in other comprehensive principal market
income. Answer: D
c. The original effective rate is not adjusted.
d. All of these statements are true. 4. Which of the following would meet the qualifications as market
Answer: D participants?
a. A liquidation market in which sellers are compelled to sell.
6. Which statement is true when a debt investment at FVOCI is b. A subsidiary of the reporting unit interested in purchasing assets
reclassified at amortized cost? similar to those being valued.
a. The fair value at reclassification date becomes the new carrying c. An independent entity that is knowledgeable about the asset
amount. d. A broker or dealer that wishes to establish new market for the asset.
b. The cumulative gain or loss previously recognized in OCI is Answer: C
removed from equity and adjusted against the fair value at
reclassification date. 5. Which of the following is an assumption used in fair value
c. The original effective rate is not adjusted. measurement?
d. All of these statements are true. a. The asset must be in use.
Answer: D b. The asset must be considered in exchange.
c. The most conservative estimate must be used.
7. When a financial asset at FVPL is reclassified to FVOCI, the new d. The asset is in the highest and best use.
carrying amount is equal to Answer: D
a. Fair value at reclassification date
b. Original carrying amount 6. The fair value at initial recognition is
c. Present value of contractual cash flow a. The price to acquire the asset
d. Present value of contractual cash flow representing principal b. The price paid to acquire the asset less transaction cost.
Answer: A c. The price paid to transfer or sell the asset.
d. The carrying amount of the asset acquired.
8. Which statement is true when a financial asset at FVOCI is Answer: A
reclassified to FVPL?
a. The financial asset continues to be measured at fair value. 7. Which of the following is not a valuation technique used in fair
b. The fair value at reclassification date becomes the new carrying value measurement?
amount a. Income approach
c. The cumulative gain or loss previously recognized in OCI is b. Residual value approach
reclassified to profit or loss. c. Market approach
d. All of these statements are true. d. Cost approach
Answer: D Answer: B

4 8. Valuation techniques for fair value that include the Black-Scholes

1. Fair value of an asset should be based upon formula, a binomial model, or discounted cash flow are examples of
a. The replacement cost of an asset which valuation technique?
b. The price that would be received to sell the asset at the a. Income approach
measurement date. b. Market approach
c. The original cost of the asset plus an adjustment for obsolescence. c. Cost approach
d. The price that would be paid to acquire cost. d. Exit value approach
Answer: B Answer: A

2. Which of the following describes a principal market for 9. The market approach for measuring fair value requires which of
establishing fair value of an asset? the following?
a. The market value that has the greatest volume and level of activity a. Present value of future cash flows
for the asset b. Prices and other relevant information of transactions from identical
b. Any broker or dealer market that buys or sells the asset or comparable assets
c. The most observable market in which the price of the asset is c. The price to replace the service capacity of the asset
minimized. d. The weighted average of the present value of future cash flows
d. The market in which the amount received would be maximized. Answer: B
Answer: A
10. Which of the following would be considered Level 2 input for fair
3. Which statement is true for measuring an asset at fair value? value measurement?
a. The price of the asset should be adjusted for transaction cost a. Quoted market price on a stock exchange for an identical asset
b. The fair value of the asset should be adjusted for cost of disposal b. Quoted market price available from a business broker for a similar
c. The fair value is based upon an entry price to purchase the asset. asset
c. Historical performance and return on the investment
d. All of these would be considered Level 2 input for fair value 8. Cash received in lieu of stock dividends is accounted for as
measurement a. Dividend income
Answer: B b. Return of investment
c. Partly dividend income and partly return of investment
5 d. If the stock dividends are received and subsequently sold at the
1. It is the date on which the stock and transfer book of the entity is cash received and gain or loss is recognized.
closed for registration. Only those shareholders registered as of this Answer: D
date are entitled to receive dividends.
a. Date of declaration 9. What is the effect of share split up?
b. Date of record a. Increase in number of shares and increase in cost per share
c. Date of payment b. Decrease in number of shares and decrease in cost per share
d. Date of mailing the dividend check c. Increase in number of shares and decrease in cost per share
Answer: B d. Decrease in number of shares and increase in cost per share
Answer: C
2. At which of the following dates has the shareholder theoretically
realized income from dividend? 10. An investor owns 10% of the ordinary shares of an investee
a. The date the dividend is declared throughout the year. The investee has no preference shares
b. The date of record outstanding. What is the right of the investor?
c. The date of the dividend check is mailed by the entity a. To be paid 10% of the investee’s net income in cash each year
d. The date the dividend check is received by the shareholder b. To receive dividend equal to 10% of the par value each year
Answer: A c. To receive dividend equal to 10% of the total dividend paid by the
investee for the year to shareholders
3. Property dividends are recorded d. To keep investee from issuing any additional shares unless the
a. As dividend income at carrying amount of the property investor is willing to buy 10% of the newly issued shares
b. As dividend income at fair value of the property Answer: C
c. As return of investment and therefore credited to investment
account INVESTMENT IN ASSOCIATE
d. By means of memorandum only
Answer: B 1. It is an entity over which the investor has significant influence.
a. Associate
4. Liquidating dividends are credited to b. Investee
a. Income c. Venture capital organization
b. Retained Earnings d. Mutual fund
c. Investment account Answer: A
d. Share capital
Answer: C 2. Which statement best describes “significant influence”?
a. The holding of significant proportion of the share capital in another
5. What is the effect of stock dividend of the same class? entity
a. Increase in investment account and increase in cost per share b. The contractually agreed sharing of control over an economic
b. Decrease in investment account and decrease in cost per share entity.
c. No effect on investment account but decrease in cost per share c. The power to participate in the financial and operating policy
d. No effect on investment account but increase in cost per share decisions of an entity
Answer: C d. The mutual sharing in the risks and benefits of combined entity
Answer: C
6. When stock dividends of different class are received
a. No formal entry is made but only a memorandum 3. In which of the following statement is true concerning significant
b. Cash is debited and dividend income is credited influence?
c. A new investment account is debited and the original investment a. If an investor holds, directly or indirectly, less than 20% of the
income account is credited voting power of the investee it is presumed that the investor does not
d. A new investment account is debited and the original investment have significant influence, unless such influence can be clearly
account is credited demonstrated.
Answer: D b. If an investor holds, directly or indirectly, 20% or more of the
voting power of the investee, it is presumed that the investor does not
7. Share received in lieu of cash dividend are recorded as have significant influence unless it can be clearly demonstrated that
a. Income at fair value of the shares received this is not the case.
b. Income at par value of the shares received c. A substantial or majority ownership by another investor does not
c. Income at cash dividend that would have been received necessarily preclude an investor from having significant influence.
d. Stock dividends d. All of these statements are true about significant influence.
Answer: A Answer: D
4. When an entity holds between 20% and 50% of the voting power
of an investee, which of the following statements is true? 10. On the loss of significant influence, the investor shall recognize in
a. The investor must use the equity method. profit or loss any difference between
b. the investor should use the equity method unless circumstances a. The initial carrying amount of the retained investments, any
indicate that it is unable to exercise significant influence over the proceeds from disposing of the part interest and the carrying amount
investee. of the investment at the date when significant influence is loss
c. The investor must use the fair value method unless it can be clearly b. The fair value of any retained investment and the carrying amount
demonstrated that the investor has significant influence over the of the investment at the date significant influence is loss
investee. c. Any proceeds from disposing of the part interest and the carrying
d. The investor must use the fair value method. amount of the investment at the date significant influence is lost.
Answer: B d. The fair value of any retained investment, any proceeds from
disposing of the part interest and the carrying amount of the
5. Which of the following statement is incorrect concerning the investment at the date significant influence is lost.
equity method? Answer: D
a. The investment is initially recorded at cost
b. The investment in associate is increased or decreased by the 2
investor’s share of the profit or loss of the investee after the date of 1. The equity method is not required when the associate has been
acquisition. acquired and held with a view of disposal within what time period?
c. The investor’s share of the profit or loss of the investee is a. six months from the end of the reporting period
recognized in the investor’s profit or loss. b. Twelve months from the end of the reporting period
d. Distributions received from the investee are accounted for as c. Twelve months from the date of acquisition as held for sale
dividend income d. In the near future
Answer: D Answer: C

6. Goodwill arising from an investment in associate is 2. How is the impairment test carried out for an investment?
a. Included in the carrying amount of the investment and amortized a. The goodwill is impairment tested individually
over the useful life. b. The entire carrying amount of the investment is tested for
b. Included in the amount of the carrying amount of the investment an impairment by comparing the recoverable amount with carrying
not amortized amount
c. Charged to retained earnings c. The carrying amount of the investment shall be compared with fair
d. Charged to expense immediately value
Answer: B d. The recoverable amounts of all investment in associates shall be
assessed together
7. If an associate has outstanding cumulative preference shares held Answer: B
by outside interests, the investor computes share of profit or loss
a. After adjusting for preference dividends which were actually paid 3. The excess of the investor’s share of the net fair value of the
during the year. associate’s net assets over the cost of investment is
b. Without regard for preference dividends a. Included in other comprehensive income
c. After adjusting for preference dividends only when declared b. Credited to retained earnings
d. After adjusting for preference dividends, whether or not the c. Recognized as income in the determination of the investor’s share
dividend has been declared of the associate’s profit or loss
Answer: D d. A deferred gain
Answer: C
8. An investor shall discontinue the use of the equity method when
a. The investor ceases to have significant influence over an associate 4. What should happen when the financial statements of an associate
b. The associate operates under severe long term restrictions are not prepared as of the same date as the financial statements of the
c. The investor ceases to have control over an associate investor?
d. The business activities of the investor and associate are dissimilar a. The associate shall prepare financial statements at the same date as
Answer: A that of the investor
b. The financial statements of the associate prepared up to a different
9. When an investment ceases to be an associate and is accounted for date would be used
in accordance with IFRS 9, the fair value of the investment at the date c. Any major transactions during the time gap of the financial
when it ceases to be an associate statements shall be accounted for
a. Is regarded as its cost on initial recognition as financial asset d. As long as the gap is not greater than three months, there is no
b. Is regarded as its fair value on initial recognition as financial asset problem.
c. Is regarded as its fair value on initial recognition as financial Answer: A
liability
d. Is regarded as its amortized cost on initial recognition as an 3
investment
Answer: B
1. After the date of acquisition, the investment account using the d. Increase No effect
equity method would Answer: B
a. Not be affected by the share of the earnings or losses of the
investee 7. When an investor purchases sufficient ordinary shares to gain
b. Not be affected by the share of the earnings of the investee but be significant influence over the investee, what is the proper accounting
decreased by the share of the losses of the investee treatment of any excess of cost over the carrying amount of the net
c. Be increased by the share of the earnings of the investee but not be assets acquired?
affected by the share of the losses of the investee a. The excess remains in the investment account until it sold
d. Be increase by the share of the earnings of the investee and b. The excess is immediately expensed in the period in which the
decreased by the share of the losses of the investee investment is made
Answer: D c. The excess is amortized over the time period that is reasonable in
the light of the underlying cause of the excess
2. Under the equity method of accounting for investments, an d. The excess is charged to retained earnings at the time the investor
investor recognizes its share of the earnings in the period in which the resells the investment
a. Investor sells the investment Answer: C
b. Investee declares a dividend
c. Investee pays a dividend 8. An investor uses the equity method of accounting for 30%
d. Earnings are reported by the investee ownership in an investee. At year end, the investor has a receivable
Answer: D from the investee. How should the receivable be reported in the
investor’s financial statements for the current year?
3. When an investor uses the equity method to account for investment a. None of the receivable should be reported but the entire receivable
in ordinary shares, the investment account is increased when the should be offset against investee’s payable to the investor
investor recognizes b. Seventy percent of the receivable should be separately reported
a. A proportionate interest in the net income of the investee with the balance offset against 30% of investee’s payable to the
b. A cash dividend received from investee investor
c. Periodic amortization of the goodwill related to the purchase c. The total receivable should be disclosed separately
d. Depreciation related to the excess of market value over carrying d. The total receivable should be included as part of the investment in
amount of the investee’s depreciable assets at the date of purchase by associate, without separate disclosure
investor Answer: C
Answer: A
4
4. When an investor uses the equity method to account for investment 1. When an investor uses the cost method to account for investment
in ordinary shares, cash dividends received by the investor from the in ordinary shares, cash dividends received by the investor from the
investee shall be recorded as investee should be recorded as
a. Dividend income a. Dividend income
b. A deduction from the investor’s share of the investee’s profits b. An addition to the investor’s share of the investee’s profit
c. A deduction from the investment account c. A deduction from the investor’s share of the investee’s profit
d. A deduction from the shareholder’s equity account; dividends to d. A deduction from the investment account
shareholders Answer: A
Answer: C
5. An investor uses the equity method to account for investment in 2. An investor uses the cost method to account for investment in
ordinary shares. The purchase price implies a fair value of the ordinary shares. Dividends received in excess of the investor’s share
investee’s depreciable assets in excess of the investee’s net asset of investee’s earnings subsequent to the date of investment
carrying amount. The investor’s amortization of the excess a. Increase other comprehensive income
a. Decrease the investment account b. Decrease the investment account
b. Decrease the goodwill account c. Increase the investment account
c. Increases the investment revenue account d. Increase in the dividend revenue
d. Does not affect the investment account Answer: D
Answer: A
3. On January 1 of the current year, an entity purchased 10% of
6. An investor uses the equity method to account for the purchase of another entity’s ordinary shares. The entity purchased additional
another entity’s ordinary shares. On the date of acquisition, the fair shares bringing the ownership up to 40% of the investee’s ordinary
value of the investee’s inventory and land exceeded their carrying shares outstanding on August 1 of the current year. During October of
amount. How do these excess of fair value over carrying amount the current year, the investee declared and paid cash dividend on all
affect the investor’s equity in earnings of the investee for the current of the outstanding ordinary shares. How much income from the
year? investment should be reported for the year?
Investor excess Land excess a. 10% of investee’s income from January 1 to July 31, plus 40% of
a. decrease Decrease investment’s income from August 1 to December 31
b. Decrease No effect b. 40% of investment’s income from August 1 to December 31 only
c. Increase Increase c. 40% of investment’s income for the current year
d. Amount equal to dividends received from investee b. Face amount
Answer: B c. A discount
d. A premium
Answer: C
INVESTMENT IN BONDS
4. The interest income for the year would be lower if a bond is
1 purchased at
1. Trading bond investments are reported at a. Quoted price
a. Amortized cost b. Face amount
b. Face amount c. A discount
c. Fair value d. A premium
d. Maturity Answer: D
Answer: C
3
2. Which of the following statements is correct in regard to trading 1. The actual interest earned by the bondholder is
bond investments? a. Effective rate
a. Trading bond investments are held with the intention of selling b. Yield rate
them in a short period of time. c. Market rate
b. Unrealized gains and losses are reported as part of net income d. Effective rate, yield rate or market rate
c. Any discount or premium is not amortized Answer: D
d. All of these statements are correct
Answer: D 2. The interest rate written on the face of the bond is known as
a. Nominal rate
3. Bond investments at amortized cost are b. Coupon rate
a. Held for collection c. Stated rate
b. Not held for collection d. Nominal rate, coupon rate or stated rate
c. Either held for collection or not held for collection depending on Answer: D
market strategy
d. Current investments 3. To compute the price to pay for a bond, what present value concept
Answer: A is used?
a. The present value of 1
4. Amortized cost is the initial recognition amount of the bond b. The present value of ordinary annuity of 1
investments minus c. The present value of 1 and the present value of ordinary annuity of
a. Repayments and net of any reduction for uncollectibility 1
b. Cumulative amortization and net of any reduction for d. The future value of 1
uncollectibility Answer: C
c. Repayments plus or minus cumulative amortization and net of any
reduction for uncollectibility 4. Bonds usually sell at a discount when investors are willing to
d. Repayments plus or minus cumulative amortization invest in bonds
Answer: C a. At the stated interest rate
b. At rate lower than the stated interest rate
2 c. At rate higher than the stated interest rate
1. Accrued interest on bonds that are purchased between interest dates d. Because a capital gain is expected.
a. Is ignored by both the seller and the buyer Answer: C
b. Increases the amount a buyer must pay
c. Is recorded as a loss on the sale of the bonds 5. Bonds usually sell at a premium
d. Decreases the amount a buyer must pay a. When market rate is greater than the stated rate
Answer: B b. When the stated rate is greater than the market rate
c. When the price of the bonds is greater than the maturity amount
2. When an investor purchased a bond between interest dates at a d. In none of these cases
premium, the cash paid to the seller is Answer: B
a. The same as the face amount of the bond
b. The same as the face amount of the bond plus accrued interest 6. The effective interest rate method of amortizing discount provides
c. More than the face amount of the bond for
d. Less than the face amount of the bond a. Increasing amortization and increasing interest income
Answer: C b. Increasing amortization and decreasing interest income
c. Decreasing amortization and increasing interest income
3. The interest income for the year ended would be higher if the bond d. Decreasing amortization and decreasing interest income
was purchased at Answer: A
a. Quoted price
7. The effective interest method of amortizing premium provides for d. Property held for capital appreciation
a. Increasing amortization and increasing interest income Answer: C
b. Increasing amortization and decreasing interest income
c. Decreasing amortization and decreasing interest income 2. An owner occupied property held by an owner
d. Decreasing amortization and increasing interest income a. For use in the production of goods and services
Answer: B b. For administrative purposes
c. For sale in the ordinary course of business
8. When the interest payment dates of a bond are May 1 and d. For use in the production of goods and services and for
November 1, and a bond is purchased on June 1, the amount of cash administrative purposes
paid by the investor would be Answer: D
a. Decreased by accrued interest from June1 to November 1
b. Decreased by accrued interest from May 1 to June 1 3. Investment property includes all of the following except
c. Increased by accrued interest from June 1 to November 1 a. Land held for long term capital appreciation
d. Increased by accrued interest from May 1 to June 1 b. Land held for currently undetermined use
Answer: D c. Building owned by the reporting entity or held by a finance lessee
leased out under an operating lease
d. Property held for sale in the ordinary course of business
Answer: D
4
1. Which of the following statements are true about interest method? 4. Which of the following is an investment property?
a. The interest method does not use a constant rate of interest a. Property being constructed or developed on behalf of third parties
b. Amortization of discount decreases from period to period b. Property that is being constructed and developed as investment
c. Amortization of premium decreases from period to period property
d. The interest method applies the effective interest rate to the c. Property held for future development and subsequent use as owner-
beginning carrying amount occupied property
Answer: D d. Owner occupied property awaiting disposal
Answer: B
2. The fair value option
a. Must be applied to all debt instruments 5. Which of the following statements is true if the property is partly
b. May be selected as a valuation method at any time investment and partly owner-occupied?
c. Reports all gains and losses in income I. If the investment and owner occupied portions could be sold or
d. All of the choices are correct leased out separately, the portions shall be accounted for separately as
Answer: C investment property and owner-occupied property.
II. If the investment and owner occupied portions could not be sold or
3. The fair value option allows an entity to leased out separately, the property is investment property if only an
a. Record income when the fair value increases insignificant portion is held for manufacturing or administrative
b. Measure bond investments at fair value in some years purposes.
c. Report most financial instruments at fair value a. I only
d. All of these statements are correct b. II only
Answer: A c. Both I and II
d. Neither I nor II
4. Under what condition can an entity classify financial asset that Answer: C
meets the amortized cost criteria as at fair value through profit or
loss? 6. If an entity owns and manages a hotel, services provided to guests
a. Where the instrument is held to maturity are significant component of the arrangement as a whole. In such
b. Where the business model approach is adopted aces, the hotel is classified as
c. Where the financial asset passes the contractual cash flow a. Investment property
characteristics test b. Owner-occupied property
d. If doing so eliminates or reduces an accounting mismatch c. Partly investment property and partly occupied property
Answer: D d. Neither investment property nor owner occupied property
Answer: B
INVESTMENT PROPERTY
7. Directly attributable expenditures related to investment property
1 include
1. Which of the following statements best describes investment a. Professional fees for legal services, property transfer taxes and
property? other transaction cost
a. Property held for sale in the ordinary course of business b. Start-up costs
b. Property held for use in the production and supply of goods or c. Initial operating losses incurred before the investment property
services and property held for administrative purposes achieves the plan level of occupancy
c. Property held to earn rentals or for capital appreciation
d. Abnormal amount of wasted material, labor and other resources d. Changes in fair value are reported as deferred revenue for the
incurred in constructing or developing the property period
Answer: A Answer: A

8. Which of the following statements is true concerning property 3. If the entity uses the fair value model for investment property,
leased to an affiliate? which of the following statements is true?
a. The entity should value the property at cost less accumulated
I. From the perspective of the individual entity that owns it, the depreciation and impairment
property leased to an affiliate is considered an investment property. b. The entity should report the increase in fair value in other
II. From the perspective of the affiliates as a group and for purposes comprehensive income for the period
of consolidated financial statements, the property is treated as owner c. The entity depreciates the equipment using normal depreciation
occupied property method.
d. The entity does not record depreciation on the investment property
a. Both I and II Answer: D
b. Neither I nor II
c. I only 4. Transfer from investment property to property, plant and
d. II only equipment are appropriate
Answer: A a. When there is change of use
b. Based on the discretion of management
9, An investment property is recognized when c. Only when the entity adopts the fair value model
d. The entity can never transfer property into another classification
I. It is probable that the future economic benefits that are associated once it is classified as investment property
with the investment property will flow to the entity Answer: A
II. The cost of the investment property can be measured reliably
5. When the entity uses the cost model, transfer between investment
a. Both I and II property, owner occupied property and inventory shall be accounted
b. Neither I nor II for at
c. I only a. Fair value
d. II only b. Carrying amount
Answer: A c. Cost
d. Assessed value
10. Which of the following statements is incorrect in determining the Answer: B
fair value of an investment property?
a. An entity’s shall determine the fair value of investment property by 6. A transfer from investment property carried at fair value to owner
deducting transaction cost that may be incurred upon disposal occupied shall be accounted for at
b. The fair value of investment property shall reflect market a. Fair value, which becomes the deemed cost for subsequent
conditions at the end of the reporting period accounting
c. If an office is leased on a furnished basis, the fair value of the b. Carrying amount
office generally includes the fair value of the furniture because the c. Historical cost
rental income relates to the furnished office. d. Fair value less cost of disposal
d. The fair value of investment property excludes prepaid or accrued Answer: A
operating lease income.
Answer: A 7. If owner occupied property is transferred to investment property
that is to be carried at fair value, the difference between the carrying
2 amount of the property and the fair value shall be
1. Subsequent to initial recognition, the investment property shall be a. Included in profit or loss
measured using b. Included in retained earnings
a. Fair value model or revaluation model c. Included in equity
b. Fair value through profit or loss model d. Accounted for as revaluation property, plant and equipment
c. Cost model or fair value model Answer: D
d. Cost model or revaluation model
Answer: C 8. If an inventory is transferred to investment property that is to be
carried at fair value, the re-measurement to fair value is
2. If the entity uses the fair value model for the investment property, a. Included in profit or loss
which of the following statements is true? b. Included in equity
a. Changes in the fair value are reported in profit or loss in the c. Included in retained earnings
current period d. Accounted for as revaluation of inventory
b. Changes in fair value are reported as an extraordinary gain Answer: A
c. Changes in the fair value are reported in other comprehensive
income for the period.