MAC 407- Assessment 1

Investment in Equity Security to Profit or Loss

1. 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

2. 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 on its 2018 profit or loss?
a. None c. 100,000 unrealized loss
b. 20,000 unrealized loss d. 120,000 unrealized loss

3. 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

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

term investment in equity to profit or loss. The cost and market value at
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

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

Realized gain on sale of investment P 40,000
Unrealized gains arising during from change in value
of investment to profit or loss 120,000

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
Financial Instruments: Equity Securities to Other Comprehensive Income
6. 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

7. 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

8. What amount of unrealize gain should be reported in Gerald’s Dec. 31, 2018 the
profit or loss?
a. None c. 200,000
b. 100,000 d. 300,000
 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.
9. What amount of loss should Grand Co. recognize in selling these shares?
a. None c. 300,000
b. 210,000 d. 420,000

10. 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

11. 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 September 30, 2019 is
P90 per share.

12. What is the cost of the investment?

a. 225,000 c. 290,000
b. 250,000 d. 290,100

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

14. What amount should Threshold record as dividend revenue for the year
ended Dec. 31, 2019?
a. 40,000 c. 116,000
b. 88,000 d. 120,000

15. 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.

16. 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
 17. What amount of unrealized gain should the company disclose separately in
the other comprehensive income in 2019?
a. None c. 40,000
b. 4,000 d. 44,000

18. 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
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.

19. At what amount should the investment account be disclosed in December

31, 2012, 2013 and 2014 respectively?
a. P1,000,000; P1,000,000 and P1,000,000
b. P950,000; P950,000 and P860,000
c. P980,000; P1,060,000 and P860,000
d. P980,000; P1,010,000 and P860,000

20. 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)
21. 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

22. 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
 23. 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

24. 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

25. 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
26. 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

27. 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 P2,205,000.

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.

28. In its December 31, 2019 profit or loss, how much should Bell Co. report as
an interest income on the bonds?
a. 160,000 c. 170,824
b. 169,657 d. 340,481
29. In its December 31, 2019 statement of financial position, how much should
Bell Co. report as debt investment?
a. 4,211,081 c. 4,270,000
b. 4,241,424 d. 4,377,000

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