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