Financial Assets at Fair Value

1. Raiza Co. acquired a financial asset at the market value of P3,200,000. Broker fees if P200,000
were incurred in relation to the purchase. At what amount should the financial asset initially be
recognized respectively if it is classified as at fair value through profit or loss, or as at fair value
through other comprehensive income?
a. 3,400,000 and 3,200,000 c. 3,200,000 and 3,400,000
b. 3,200,000 and 3,400,000 d. 3,400,000 and 3,400,000

2. On January 1, 2018, Alexis Co. purchased marketable equity securities to be held as “trading” for
P5,000,000. The entity also paid commission, taxes and other transaction cost s amounting to
P200,000. The securities had a market value of P5,500,000 on December 31, 2018 and the
transaction costs that would be incurred on sale are estimated at P100,000. No securities were
sold during 2018. What amount of unrealized gain or loss on these securities should be reported
in the 2018 income statement?
a. 500,000 unrealized gain c. 300,000 unrealized gain
b. 500,000 unrealized loss d. 400,000 unrealized gain

3. Carmela Co. acquired a financial instrument for P4,000,000 on March 31, 2018. The financial
instrument is classified as financial asset at fair value through other comprehensive income. The
direct acquisition costs incurred amounted to P700,000. On December 31, 2018, the fair value of
the instrument was P5,500,000 and the transaction costs that would be incurred on the sale of the
investment are estimated at P600,000. What gain should be recognized in other comprehensive
income for the year ended December 31, 2018?
a. 200,000 c. 800,000
b. 900,000 d. 0

4. On December 31, 2018, Fay Co. appropriately reported a P100,000 unrealized loss. There was no
change during 2019 in the composition of the portfolio of marketable equity securities held as
financial asset at fair value through other comprehensive income. Pertinent data are as follows:
Security Cost Market value 12/31/2019
A 1,200,000 1,300,000
B 900,000 500,000
C 1,600,000 1,500,000
3,700,000 3,300,000
=========================
What amount of loss on these securities should be included in the statement of comprehensive
income for the year ended December 31, 2019 as component of other comprehensive income?
a. 400,000 c. 100,000
b. 300,000 d. 0

5. During 2018, Garr Co. purchased marketable equity securities as a trading investment. For the
year ended December 31, 2018, the entity recognized an unrealized loss of P230,000. There were
no security transactions during 2019. Pertinent information on December 31, 2019 is as follows:
Security Cost Market Value
A 2,450,000 2,300,000
B 1,800,000 1,820,000
4,250,000 4,120,000
=========================
In 2019 income statement, what amount should be reported as unrealized gain or loss?
a. Unrealized gain of P100,000
 b. Unrealized loss of P100,000
c. Unrealized loss of P130,000
d. Unrealized gain of P130,000

Inspiration Co. trading and nontrading investments held throughout 2018 and 2019. The
nontrading investments are measured at fair value through other comprehensive income the
investments had a cost of P3,000,000 for trading and P3,000,000 for nontrading. The investments
had the following fair value at year-end:
December 31, 2018 December 31, 2019
Trading 4,000,000 3,800,000
Nontrading 3,200,000 3,700,000
6. What amount of unrealized gain or loss should be reported in the income statement for 2019?
a. 200,000 gain c. 300,000 gain
b. 200,000 loss d. 300,000 loss

7. What amount of cumulative unrealized gain or loss should be reported as component of other
comprehensive income in the statement of changes in equity on December 31, 2019?
a. 500,000 gain c. 700,000 gain
b. 500,000 loss d. 700,000 loss

8. On January 1, 2018, Caraga Co. purchased equity securities to be held as financial assets
measured “at fair value through other comprehensive income.” The cost and market value were:
Cost Market 12/31/2018 Market 12/31/2019
Security R 3,000,000 3,200,000 -
Security S 4,000,000 3,500,000 3,700,000
Security T 5,000,000 4,600,000 4,700,000
On January 31, 2019, the entity sold Security R for P3,500,000. What unrealized gain or loss on
the remaining financial assets should be reported in the 2019 statement of comprehensive income
as component of other comprehensive income?
a. 600,000 gain c. 300,000 gain
b. 600,000 loss d. 300,000 loss

9. Anchor Co. acquired the following portfolio of investment through profit or loss securities during
2018 and reported the following balances at December 31, 2018:
Security Cost December 31, 2018 market value
R 350,000 360,000
P 425,000 400,000
N 525,000 640,000
No sales occurred during 2018. What is the carrying value of the securities on December 31, 2018
on Anchor’s statement of financial position?
a. 1,275,000 c. 1,400,000
b. 1,300,000 d. 1,425,000

10. Cordial Co purchased the following portfolio equity securities through profit or loss during 2018
and reported the following balances at the December 31,2018. No sales occurred during 2018. All
declines are considered to be temporary
Security Cost December 31, 2018 market value
X P 800,000 P 820,000
Y 1,400,000 1,320,000
Z 320,000 280,000
 How much should Cordial Co reported as unrealized loss related to the securities transactions om
its 2018 profit or loss?
a. None c. 100,000 unrealized loss
b. 20,000 unrealized loss d. 120,000 unrealized loss

11. National Company began business in February of 2018. During the year, National Co. purchased
the three equity securities through profit or loss listed below. In its December 31, 2018 statement
of financial position, National Co. appropriately reported a P40,000 debit balance in its “fair
value adjustment- account. There was no change during 2019 in the composition of National
company’s portfolio of equity securities. Pertinent data are as follows:
Security Cost December 31, 2019 market value
A P 1,200,000 P 1,260,000
B 900,000 950,000
C 1,600,000 1,620,000
3,700,000 3,830,000
============ =======
What amount of gain on these securities should be included in National Company’s profit or loss
for the year ended December 31, 2019?
a. None c. P90,000
b. P40,000 d. P130,000

12. During 2019 Hongkong Bank purchased marketable equity securities as a short-term investment
in equity to profit or loss. The cost and market value at December 31, 2019 were as follows:
Security Shares Cost December 31, 205 market value
X 200 P84,000 P102,000
Y 2,000 430,000 459,000
Z 4,000 945,000 885,000
Hongkong Bank sold the investment in security Y on March 9, 2020 for P250 per share. How
much should Hong Kong Bank report as realized gain on the sale?
a. 5,000 c. 41,000
b. 30,000 d. 70,000

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

Realized gain on sale of investment P 40,000
Unrealized gains arising during from change in value
of investment to profit or loss 120,000
What amount of other comprehensive income should Trust Co. disclose in its statement of
comprehensive income?
a. None c. 120,000
b. P40,000 d. 160,000

Investment in Equity Securities

14. On January 1, 2018 Adam Co. purchased as a long-term investment 100,000 ordinary shares of
Mill Co for P40 a share. On Dec. 31, 2018, the market price of Mill’s share was P35, reflecting
temporary decline in market price. On Dec. 28, 2019, Adam Co. sold 80,000 shares of Mill Co.
for P30 a share. For the year ended December 31, 2019, what amount should be reported as loss
on disposal of long-term investment?
a. 1,000,000 c. 800,000
b. 900,000 d. 400,000
15. Cobb Co. purchased 10,000 shares representing 2% ownership of Roe Co. on February 15, 2018.
Cobb Co received a stock dividend of 2,000 shares on March 31, 2018, when the carrying amount
per share was P350 and the market value per share was P400. Roe Co. paid a cash dividend of
P15 per share on September 15, 2018. In the income statement for the year ended October 31,
2018, what amount should be reported as dividend income?
a. 980,000 c. 180,000
b. 880,000 d. 150,000

16. During 2018, Lawan Co. bought the shares of Burwood Co. as follows:
June 1 20,000 shares @P100 2,000,000
December 1 30,000 shares @P120 3,600,000
5,600,000
=======
The transactions for 2019 are:
January 10 Received cash dividend at P10 per share
January 20 Received 20% stock dividend
December 10 Sold 30,000 shares at P125 per share
If the FIFO approach is used, what is the gain on the sale of the shares?
a. 1,150,000 c. 150,000
b. 950,000 d. 550,000

17. Wray Co. provided the following data for 2018:

 On September 1, Wray received a P500,000 cash dividend from Seco Co. in which Wray
owns a 30% interest
 On October 1, Wray received a P60,000 liquidating dividend from King Co. Wray owns
a 5% interest in King
 Wray owns a 2% interest in Bow Co. which declared a P2,000,000 cash dividend on
November 15, 2018 payable on January 15, 2019.
What amount should be reported as dividend income for 2018?
a. 600,000 c. 100,000
b. 500,000 d. 40,000

18. Rice Co. owned 30,000 ordinary shares of Wood Co. acquired on July 31, 2018, at a total cost of
P1,100,000. On December 1, 2018, Rice received 30,000 stock rights from Wood. Each right
entitles the holder to acquire one share at P45. The market price of Wood’s share on this date was
P50 and the market price of each right was P10. Rice sold its rights on December 31, 2018 for
P450,000 less a P10,000 commission. What amount should be reported as gain from the ale of the
rights?
a. 150,000 c. 250,000
b. 140,000 d. 240,000

19. Adam Co. owned 50,000 ordinary shares of Bland Co. these 50,000 shares were purchased by
Adam in 2016 for 120 per share. On August 30, 2018 Bland distributed 50,000 stock rights to
Adam. Adam was entitled to buy one new share of Bland Co. for P90 cash and two of these
rights. On August 30, 2018, each share had a market value of P130 and each right had a market
value of P20. What total cost should be recorded for the new shares that are acquired by
exercising the rights?
a. 2,250,000 c. 3,050,000
b. 3,250,000 d. 5,500,000
20. Excelsia Co. issued rights to subscribe to its stock, the ownership of 4 shares entitling the
shareholders to subscribe for 1 share at P100. Jealina Co. owns 50,000 shares of Excelsia Co.
with total cost of P5,000,000. The share is quoted right-on at P125. The stock rights are
accounted for separately. What is the cost of the new investment if all of the stock rights are
exercised by JEalina Co.?
a. 1,500,000 c. 1,562,500
b. 1,250,000 d. 1,450,000

21. Victory Co. acquired 20,000 ordinary shares of Wall Co. for P25 per share and classified as
investment to other comprehensive income. Victory Co. also paid P30,000 transaction costs for
the acquisition of the security. Victory’s Dec. 31, 2018 financial statements were issued on Feb.
1, 2019 and the auditor’s report was dated January 19, 2019.
Market Value, 12/31/2018 460,000
Market Value, 1/19/2019 480,000
Market Value , 2/1/2019 490,000
If the securities are to be sold, Victory Company would have to incur P30,000 transaction cost.
How much should be reported on Victory’s statement of financial position at December 31, 2018
for equity securities?
a. 430,000 c. 490,000
b. 460,000 d. 500,000

Gerald Co. acquired securities during the year 2018 that are designated as fair value to other
comprehensive income. An analysis of the investments on December 31, 2018 showed the
following:
Securities Cost Market
P 1,500,000 1,400,000
I 2,200,000 2,300,000
C 3,000,000 2,900,000
U 3,800,000 4,000,000
22. In Gerald’s December 31, 2018 statement of financial position, how much should be reported as
the carrying value of the securities?
a. 10,300,000 c. 10,500,000
b. 10,400,000 d. 10,600,000

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

Grand Co. has 60,000 ordinary shares of Brand Corp. that has been designated as fair value to
other comprehensive income. These shares were acquired at fair market value, which was P80 per
share on May 2, 2018. On Dec. 31, 2018, the market value of these shares is P90 per share. On
January 22, 2019 Grand Co. sold 42,000 shares of its investment in brand Corp. for P85 per
share.
24. What amount of loss should Grand Co. recognize in selling these shares?
a. None c. 300,000
b. 210,000 d. 420,000

25. What amount of unrealized gain or loss that should be transferred to retained earnings?
a. None c. 210,000
b. 180,000 d. 420,000
26. What amount of unrealized gain or loss should Grand Co. carry over the next measurement date?
a. None c. 210,000
b. 180,000 d. 420,000

On Sept. 30, 2019, Pilgrims Co. exchanged equipment for 2,500 of Theme Co’s ordinary share.
On that date, the equipment had a carrying value of P250,000 and its fair market value was not
clearly determinable. The par value of Theme’s share was P80 per share but its market value on
Seotember 30, 2019 is P90 per share.
27. What is the cost of the investment?
a. 225,000 c. 290,000
b. 250,000 d. 290,100

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

Threshold Co. purchased 20,000 shares out of 200,000 shares outstanding of Power Co.’s
ordinary shares on February 23, 2019 for P924,000. Threshold Co. has designated the equity
security at fair value to other comprehensive income. Threshold Co. received a P40,000 cash
dividend on Power Co. on July 1, 2019. Power declared a 10% share dividend on Dec. 1, 2019 to
shareholders of record as of Dec. 31, 2019. The dividend was distributed on January 31, 2020.
The market price of the share was P38 on Dec. 1, 2019, P40 on Dec. 31, 2019 and P42 on January
31, 2020.
29. What amount should Threshold record as dividend revenue for the year ended Dec. 31, 2019?
a. 40,000 c. 116,000
b. 88,000 d. 120,000
30. What amount should Threshold Co. report the investment in its 2019 statement of financial
position?
a. 800,000 c. 880,000
b. 836,000 d. 924,000

Kite Co. acquired 4,000 shares of Sky Corp. ordinary shares on November 2, 2018 at a cost of
P440,000. Sky Co. designated the investment at fair value to other comprehensive income. On
Jan. 2, 2019, Sky distributed a 10% ordinary share dividend. On November 30, Kite Co. received
a cash dividend of P10 per share. On Dec. 31, 2019, Sky Co. shares are selling at P110 per share.
If the shares are to be sold Kite Co. will have to incur P5,000 transaction cost. On January 31,
2015, Kite sold 2,400 shares of its Sky shares for P276,000 and incurred transaction cost of
P3,000.
31. For the year ended Dec. 31, 2019, what amount of dividend income should the company
recognize?
a. None c. 40,000
b. 4,000 d. 44,000

32. What amount of unrealized gain should the company disclose separately in the other
comprehensive income in 2019?
a. None c. 40,000
b. 4,000 d. 44,000

33. What amount gain or loss on the sale of the security should the company recognize?
a. 9,000 c. 33,000
b. 12,000 d. 36,000
Investment in Associate
34. On January 1, 2018, Saxe Co. purchased 20% of Lex Co.’s ordinary shares outstanding for
P6,000,000. The acquisition cost is equal to the carrying amount of the net assets acquired.
During 2018, the investee reported net income of P7,000,000 and paid cash dividend of
P4,000,000. What is the balance in the investment in associate on December 31, 2018?
a. 5,200,000 c. 6,600,000
b. 6,000,000 d. 7,400,000

35. On July 1, 2018, Denver Co. purchased 30,000 shares of Eagle Co.’s 100,000 outstanding
ordinary shares for P200 per share. On December 15, 2018, the investee paid P400,000 in
dividends to the ordinary shareholders. The investee’s net income for the year ended December
31, 2018 was P1,200,000, earned evenly throughout the year. What amount of income from the
investment should be reported in 2018?
a. 360,000 c. 120,000
b. 180,000 d. 60,000

36. On April 2, 2018, Ben Co. purchased 40% of the outstanding ordinary shares of Clarke Co. for
P10,000,000. On that date, Clarke’s net assets were P20,000,000 and Ben cannot attribute the
excess of the cost of its investment in Clarke over its equity in Clarke’s net assets to any
particular factor. The investee’s net income for 2018 is P5,000,000. What is the maximum
amount which could be included in 2018 income before tac to reflect the “equity in net income of
investee”?
a. 1,400,000 c. 2,000,000
b. 1,500,000 d. 1,850,000

On December 31, 2011, Jag Co., a medium sized entity, acquired 30% of the ordinary shares that
carry voting rights of Company Jig for P1,000,000. Jag Co. incurred transaction costs of P10,000
in acquiring these shares. Jag Co. uses the cost model to account for its investments in associates.
In January 2, 2012, Jig Co. declared and paid dividend of P200,000 out of profits earned in 2011.
No further dividends were paid in 2012, 2013, 2014, in accordance with section 27 for SMEs
Impairment of Assets, management assessed the fair values of its investment in Company Jog as
P1,020,000, P1,100,000 and P900,000. Cost to sell are estimated at P40,000 throughout.
37. At what amount should the investment account be disclosed in December 31, 2012, 2013 and
2014 respectively?
a. P1,000,000; P1,000,000 and P1,000,000
b. P950,000; P950,000 and P860,000
c. P980,000; P1,060,000 and P860,000
d. P980,000; P1,010,000 and P860,000

38. What amount of gain on recovery (impairment loss) should the company disclose in its December
31, 2012, 2013 and 2014 statement of comprehensive income related to the investment in
associate?
a. (P30,000); P30,000 and (P150,000)
b. (P20,000); P20,000 and (P140,000)
c. (P30,000); P80,000 and (P200,000)
d. (P20,000); P30,000 and (P150,000)

39. On January 2, 2019, Iron Company acquired as a long term investment for P700,000, a 20%
ordinary share interest in Calcium Co. when the fair value of Calcium’s net assets was
 P3,500,000. Iron can exercise significant influence over operating and financial policies of
Calcium. For the year ended December 31, 2019. Calcium reported net income of P360,000,
declared and paid cash dividends of P100,000. How much investment income from this
investment should Iron report for 2019?
a. 20,000 c. 72,000
b. 52,000 d. 92,000

40. On January 2, 2018, Faith Corp. bought 30% of the outstanding ordinary shares of Love Corp. for
P2,580,000 cash. Faith accounts for this investment by the equity method. At the date of
acquisition of the stock, Love’s net assets had a book and fair value of P6,200,000. Love’s net
income for the year ended Dec. 31, 2018 was P1,800,000. During 2018, Love declared and paid
cash dividends of P200,000. Love Company also reported the following changes in equity that
were not included in the profit or loss; Unrealized loss on available for sale P300,000 and
revaluation of property, plant and equipment, P800,000. On December 31, 2018 how much
should Faith carry its investment in Love?
a. 2,340,000 c. 3,060,000
b. 2,580,000 d. 3,210,000

41. On January 2, 2018, Sing Co. purchased 20% of Song Co.’s ordinary shares for P4,500,000.
During 2018, Song reported net income of P4,000,000 and paid cash dividends of P3,000,000 on
its ordinary shares. What is the balance of Sing Co’s Investment in Song account at Dec. 31,
2018?
a. 4,300,000 c. 4,500,000
b. 4,400,000 d. 4,700,000

42. On September 1, 2019, Tender Co. purchased 30% of the outstanding ordinary shares of Care
Corp. for P3,000,000 when the book value of net assets of Care Corp. was P9,000,000. The fair
values of the assets are equal to their carrying values except for a land which was undervalued by
P1,000,000. Care reported net earnings throughout the year in the amount of P2,400,000 and paid
total dividends of P1,000,000. What is the maximum amount of income Tender Co. could include
in its 2019 profit or loss as “income from investment”?
a. 207,500 c. 237,500
b. 235,000 d. 240,000

Financial Instruments Debt Instruments

43. On May 1, 2011, Graham Co. purchased a short-term P2,000,000 face value, 9% debt instruments
for P1,860,000 including the accrued interest and classified it as an investment to profit or loss
security. The debt instruments classified it as an investment to profit or loss security. The debt
instruments mature on Jan. 1, 2014 and pay interest semi-annually on January 1 and July 1. On
December 31, the fair market value of the instruments is 98%. On March 2, 2012, Graham Co.
sold the trading security for P1,980,000. At what amount should the investment be initially
recorded?
a. 1,800,000 c. 1,860,000
b. 1,845,000 d. 2,000,000

44. On October 1, 2019 Orbit Co. purchased a 10-year, 10% P3,000,000 face value bonds for 110
incurring incidental transaction cost of P36,000. Interest are received semi-annually on January 1
and July 1. Orbit Co. has a business model of collecting all contractual cash flows of debt
instruments until maturity. What is the total carrying value of the bonds on January 1, 2019?
a. 3,000,000 c. 3,300,000
b. 3,264,000 d. 3,336,000
45. On May 1, 2011, Parrot Co. purchased a debt security having a face value of P2,000,000 with an
interest rate of 9% for P2,100,000 including the accrued interest. Parrot Co. intends to hold the
instrument for an indefinite period but not until maturity. The bonds mature on January 1, 2016,
and pay interest semi-annually on January 1 and July1. On December 31. 2011, the bonds had a
market value of P2205,000. What amount should Parrot report for short-term investment in debt
securities?
a. 2,000,000 c. 2,100,000
b. 2,040,000 d. 2,205,000

On January 1, 2019, Bell Co. purchased 4,000 of P1,000 face value, 10% bonds of Pepper Co. for
4,270,600. The bonds will mature on January 1, 2020 pay interest semi-annually on January 1 and
July 1. Bonds effective interest rate is 8%. Bell Co. measures its investment at amortized cost.
46. In its December 31, 2019 profit or loss, how much should Bell Co. report as an interest income on
the bonds?
a. 160,000 c. 170,824
b. 169,657 d. 340,481
47. In its December 31, 2019 statement of financial position, how much should Bell Co. report as
debt investment?
a. 4,211,081 c. 4,270,000
b. 4,241,424 d. 4,377,000

48. On July 1, 2014, Royal Corp acquired a long-term investment in Blood Co’s 10-year 12% bonds,
with face value of P5,000,000 for P5,386,300. Interest is payable semi-annually on January 1 and
July 1. The bonds mature on July 1, 2019. Bonds effective rate is 10%. Royal Co. has a business
model with the objective of collecting all contractual cash flows until maturity for all debt
instruments. What is the carrying value of the bond investment and interest income to be reported
in Royal’s financial statements on Dec, 31, 2014, respectively?
a. 5,386,300 and 269,315 c. 5,355,615 and 300,000
b. 5,386,300 and 300,000 d. 5,335,615 and 269,315