Investments (Theories)

Investments (Theories)
1. Investments in equity instruments that do not have a quoted market price in an active market, and
whose fair value cannot be measured reliably, are measured at:
a. Fair value through profit or loss
b. Amortized cost using effective interest method
c. Cost
d. Amortized cost using straight line method
2. Trading Securities and Available for Sale Securities are reported at their:
a. Amortized Cost
b. Cost Value
c. Fair Value
d. None of the above
3. Securities considered available for sale should be recorded in the balance sheet as:
a. Long-term Assets
b. Owner’s Equity
c. Current Assets
4. Securities can be exchanged in current transaction between willing parties at:
a. Historical Cost
b. Amortized Cost
c. Fair Value
d. None of the Above
5. These arise from holding an investment during a period in which its fair value changes.
a. Unrealized Gains
b. Unrealized Losses
c. Unrealized Holding Gains and Losses
d. Both a and b
6. Which of the following records an investment at its carrying amount?

b. Fair value through other comprehensive income
c. Investment at cost
d. Investment in Associate
7. Cumulative unrealized gains or losses are recorded in
a. Journal as a memorandum entry

b. Statement of Shareholders’ Equity
c. Comprehensive Income
d. Other Comprehensive Income
8. Cash dividends received from investing in associate is recorded as
a. Debit to retained earnings

b. Debit to dividend income
c. Credit to dividend income
d. Memorandum entry
9. The excess of cost over carrying amount may be due to
a. Goodwill
b. Undervaluation of liability
c. Unrealized gain on shares
d. Amortization
10. The effective interest method of amortizing premium provides for
a. Decreasing amortization and increasing interest income

b. Decreasing amortization and decreasing interest income
c. Increasing amortization and increasing interest income
d. Increasing amortization and decreasing interest income
11. Which of the following is not a debt security?
a. Convertible bonds
b. Commercial paper
c. Loans receivable
d. All of these are debt securities.
12. Securities which could be classified as held-to-maturity are
a. redeemable preferred stock

b. warrants
c. municipal bonds
d. treasury stock
13. Investments in debt securities are generally recorded at
a. cost including accrued interest

b. maturity value
c. cost including brokerage and other fees
d. maturity value with a separate discount or premium account
14. Investments in debt securities should be recorded on the date of acquisition at
a. lower of cost or market

b. market value
c. market value plus brokerage fees and other costs incident to the purchase
d. face value plus brokerage fees and other costs incident to the purchase
15. Which of the following is correct about the effective-interest method of amortization?
a. The effective interest method applied to investments in debt securities is different

from that applied to bonds payable
b. Amortization of a discount decreases from period to period
c. Amortization of a premium decreases from period to period
d. The effective-interest method produces a constant rate of return on the book
value of the investment from period to period
16. Trading bond investments are reported at

a. Amortized cost.
b. Face amount.
c. Fair value.
d. Maturity.
17. To compute the price to pay for a bond, what present value concept is used?
a. The present value of 1.
b. The future value of 1.
c. The present value of 1 and present value of an ordinary annuity of 1.
d. The ordinary annuity of 1
18. An investment property shall be measured initially at

a. Cost.
b. Cost less impairment loss.
c. Cost less depreciation.
d. Fair value less impairment loss.
19. The actual interest earned by the bondholder is:

a. Effective rate
b. Yield rate
c. Market rate
d. Effective rate, Yield rate, or Market rate.
20. The interest income for the year would be lower if a bond is purchased at
a. Quoted price
b. Face amount
c. Discount
d. Premium
21. Depending on the business model for managing financial assets, an entity shall classify
financial assets subsequent to initial recognition at
b. Fair value through other comprehensive income
c. Amortized cost
d. All of the above
22. Which of the following is not a characteristic of a financial instrument?
a. There must be a contract
b. There are at least two parties involved
c. The contract gives rise to a financial asset of one party and a financial liability or
equity instrument of another party
d. The contract gives rise to a financial asset of one party and a financial liability of
another party
23. Which of the following is not an example of equity instruments?
a. Ordinary share capital

b. Preference share capital
c. Warrants or written call options
24. This is the risk that an entity will encounter difficulty in meeting obligations associated
with financial liability.
a. Credit risk
b. Market risk
c. Liquidity risk
d. Debit risk
25. It is the cost of disposal that is directly attributable to the asset and would not have been
incurred had the decision to sell the asset not been made.
a. Fair value
b. Transaction cost
c. Cost model
d. Assessed value
26. This method of amortization provides an equal amount of premium or discount amortization
each accounting period.
A. Straight line method
B. Bond outstanding method
C. Effective interest method
D. None of the above
27.This method of amortization provides an increasing amount of amortization and it is also

called as the scientific method.
A. Bond outstanding method
B. Straight line method

C. Effective interest method
28. Investment in equity securities are accounted for as one of the following categories except
A. Investment in Associate
B. Investment in fund
C. Investment in subsidiary
D. Investment in unquoted equity instruments
29.Which of the following is not an example of investments?
A. Investment in joint venture
B. Investment in Associate
C. Investment in fund
30.This is a transaction whereby the outstanding shares are called in and replaced by a large
number accompanied by a reduction in the par or stated value of each share.
A. Split down
B. Special Assessments
C. Split up
D. Redemption of share
31. It is an entity over which the investor has significant influence.

a. Associate
b. Investee
c. Venture Capital Organization
d. Mutual Fund
32. If an entity owns and manages a hotel, services provided to guest are a significant component
of the arrangement as a whole. In such a case, the hotel is classified as:
a. Investment Property
b. Owner-occupied property
c. Partly Investment Property and partly Owner-occupied property
d. Neither Investment Property nor Owner-occupied property
33. Under the equity method of accounting for investments, an investor recognizes it's share of
the earnings in the period in which the
a. Investors sell the investment
b. Invstee declares a dividend
c. Investors pays dividend
d. Earnings are reported by the investee
34. When an investor uses the equity method to account for investment in ordinary shares , cash
dividends received by the investor from the investee shall be recorded as
a. Dividend income
b. A deduction from the investor's share of the investee's profits
c. A deduction from the investment account
d. A deduction from the shareholders' equity account, dividend s to shareholder
35. When an investor uses the cost method to account for investment in ordinary shares,cash
dividends received by the investor from the investee should be recorded as
a. Dividend Income
b. An addition to the investor's share of the investee's profit
c. A deduction from the investor's share of the investee' profit
d. A deduction from the investment account
36.) In Investments, an Associate means?
A) An entity that can be helped.
B) An entity over which the investor has significant influence.
C) A friend that you can trust.
D) Something that you can associate to.
37.) The relationship between risk and return in investing can be stated as:
A) Higher risk indicates lower return
B) Higher risk indicates higher return

C) Lower risk indicates higher return
D) No relationship exists between risk and return
38.) Which of the following is true in regards to investing in ordinary stock?
A) A stock investor may or may not receive a profit
B) A stock investor may receive a dividend
C) A stock investor owns a part of a company
D) All of the above
39.) A financial investment is ____________.
A) an asset you put money in with the hopes of making more money
B) playing blackjack at the casino
C) buying food at the grocery store for consumption
D) None of the answers are correct.
40.)Which one is a purpose of an investment property?
A) For sale in the ordinary course of business
B) For use in production
C) For use in supply of goods or services
D) All of the above
41. What should happen when the financial statements of an associate are not prepared to the
same date as the investor’s accounts?
(a.) The associate should prepare financial statements for the use of the
investor at the same date as those of the investor.
(b.) The financial statements of the associate prepared up to a different
accounting date will be used as normal.
(c.) Any major transactions between the date of the financial statements of the
investor and that of the associate should be accounted for
(d.) As long as the gap is not greater than three months, there is no problem
42. An investor uses the cost method to account for an investment in common stock. A portion of
the dividends received this year were in excess of the investors share of the investee’s earnings
subsequent to the date of investment. The amount of dividend revenue that should be reported
in the investor’s income statement for this year should be
(a.) The portion of the dividends received this year that were not excess of the
investor’s share of investee’s earnings subsequent to the date of
investment.
(b.) The total amount of dividends received this year.
(c.) The portion of the dividends received this year that were in excess of the
investor’s share of investee’s earnings subsequent to the date of
investment.
(d.) Zero
43. When an entity increases its interest in an investment in equity securities accounted for by the
fair value method, and changes to the equity method, what is the initial carrying value for
purposes of subsequent application of the equity method?
(a.) Book value at the date of the change
(b.) Original cost plus or minus the net market value change since acquisition
(c.) Market value at the date of the change
(d.)The amount that would be reflected in the investment account had equity
method been in use continually since the purchase of the securities
44. Which of the following is the incorrect statement?
(a) The fair value method of accounting is the most appropriate method of
accounting for short-term investments in marketable debt securities.
(b) Unrealized holding gains and losses on investments in trading securities are
recognized in income.
(c) All investments in available for sale securities are reported at fair value.
(d) Only investments in bonds are accounted for by the fair value method.
45. Which of the following is false?
(a) A debit valuation allowance balance for an investment in available for sale
securities implies a corresponding owners’ equity account with a credit
balance of the same amount.
(b) Unrealized holding gains on investments in available for sale securities may
be recognized as a direct increase to owners’ equity.
(c) Investments in trading securities may be classified as current or long-term.
(d) Investments in available for sale securities may be classified as current or

long-term.
46. Which is not appropriate under the equity method of accounting?

a. Investments are initially recognized at cost.
b. Cash dividends received from an equity investee increase the carrying amount of
the investment.
c. An investment must be in ordinary shares.
d. The investment in associate shall be recorded as noncurrent asset.
47. Dividends may be in the following forms, except

a. cash dividends
b. bonus issue
c. scrip dividends
d. none of the above
48. A share split

a. affects the equity of a shareholder
b. reduces the par or stated value of share capital while proportionately increasing
the number of shares outstanding
c. affects the issuing corporation's total shareholders' equity
d. decreases the numbers of shares outstanding, along with reduction in par or stated
value of share capital
49. If the investor pays more than the carrying amount of the net assets acquired, the difference
is commonly known as
a. excess of cost over fair value
b. excess of fair value over cost
c. excess of cost over carrying amount
d. excess of fair value over amortized cost
50. Which of the following does not evidence the existence of significant influence?
a. Participation in policy making process
b. Representation in the board of directors
c. Rights for share on the net income of the investee
d. Material transactions between the investor and the investee
Investments (Problems)
1. On December 31, 2019, Professor Company had investments in Trading Securities as:
Cost Value Market Value
Berlin Co. 1,200,000 1,300,000
Nairobi Co. 1,500,000 1,700,000
Tokyo Co. 1,100,000 1,250,000
Denver Co. 900,000 1,100,000
Total 4,700,000 5,350,000
Professor’s balance sheet on December 31, 2019 should report these trading securities at:
a. 4,700,000
b. 5,000,000
c. 5,350,000
d. 4,500,000
2. On January 1, 2018, Camp Half-Blood Company purchased equity securities as “available for
sale”. On December 31, 2018, the value of these securities is:
Cost Value Market Value
Security Zeus 3,000,000 3,200,000
Security Poseidon 2,500,000 3,000,000
Security Hades 6,000,000 5,700,000
On September 1, 2019, Camp Half-Blood Company sold Security Poseidon for 3,000,000. What
amount should Camp Half-Blood Company record as gain on sale of available-for-sale securities
in the 2019 income statement?
a. 0
b. 1,000,000
c. 500,000
d. 3,000,000
3. Stark Industries purchased equity securities on December 31, 2018 and identified as available for
sale, for 2,400,000 with market value at 2,000,000. On December 31, 2019, the market value of
the securities became 3,200,000. What amount should Stark Industries record as unrealized gain
in its December 31, 2019 Shareholder’s Equity?
a. 1,200,000
b. 400,000
c. 800,000
d. 0
4. IT Company had investments in marketable debt securities purchased at face value of 5,500,000
and classified as available for sale. On June 30, 2019, Sumo decided to hold the investments to
maturity and reclassified it from the available for sale category on that date. The investment’s
market value was P4,750,000 at December 31, 2018, P5,500,000 at June 30, 2019, and
P4,500,000 at December 31, 2019. What amount is IT Company’s unrealized gain (loss) on June
30, 2019?
a. 750,000
b. 1,000,000
c. 0
d. (500,000
5. On December 31, 2019, Earwin Company’s balance sheet showed the following information:
Available for sale securities at Market Value 4,000,000
Unrealized loss on available for sale securities (500,000)
What is the historical cost of the investment in available for sale securities?
a. 3,500,000
b. 4,000,000
c. 4,500,000
d. 5,000,000
6. Pewdiepie Co. purchased 200,000 of bonds at par. At December 31, the fair value of the bonds
was 195,000. No dividends has been received. In Pewdiepie’s year-end statement, how much
total income/loss will be reported on its income statement?
a. (5,000) b. 200,000 c. 195,000

d. 395,000
7. During 2020, Minecraft Company bought the shares of Blocks Co.
March 1 10,000 shares @ P150 1,500,000
April 1 20,000 shares @ P140 2,800,000
November 1 30,000 shares @ P130 3,900,000
8,200,000
On December 1, Minecraft received cash dividend of P20 per share. What amount should be
reported as dividend income for 2020?
a. 1,200,000 b. 8,200,000 c.
60,000 d. 9,400,000
8. On January 1, 2020, Cobble Company purchased 50% of Cob Web Company’s outstanding
ordinary shares for P2,000,000. The investee reported net income of P3,000,000 and paid cash
dividend of P1,000,000 in 2020. What amount should Cob Web report as investment in
December 31, 2020?
a. 4,000,000 b. 2,500,000 c. 6,000,000 d. 3,000,000
9. During 2019, Marvel Company purchased trading securities with the following cost and market
value on December 31, 2019.
Security Cost Market value
A 1,500,000 1,300,000
B 1,600,000 1,700,000
What amount of unrealized gain or loss should be reported in the income statement for 2019?
b. 100,00 gain b. 100,00 loss c. 100,00 gain d. 100,00 loss
10. At the beginning of current year, Villager Company bought 30% of Mob Company’s
outstanding shares for P5,000,000. The carrying amount of Mob’s net assets at the purchase date
totalled P10,000,000. What is the excess of cost over the carrying amount of net assets acquired?
a. 1,500,000 b. 3,500,000 c. 5,000,000 d. 2,000,000
11. Garcia Company owns 30,000 shares of Herras Company's 300,000 shares of PHP 100
par, 6% cumulative , no participating preference share capital and 10,000 shares representing
2% ownership of Herras' ordinary share capital.
During 2019, Herras Company declared and paid preference dividends of 2,450,000. No
dividends had been declared or paid during 2018.
In addition, Garcia Company received a 5% share dividend on ordinary share from Herras
Company when the quoted market price of Herras' ordinary share was PHP 10.
What amount should be reported as dividend income for 2019?
a. 120,000
b. 125,000
c. 240,000
d. 245,000
12. On March 1, Merlin Company purchased 10,000 ordinary share at PHP 80 per share.
On September 30, Merlin Company received 5,200 rights to purchase an additional 10,000
shares at PHP 90 per share.
On September 30, the share had a market value PHP 95 and the share right had a market value of
PHP 3.82.
What amount should be reported on September 30 for investment in share rights?
a. PHP 494,000
b. PHP 38,200
c. PHP 19,864
d. PHP 95,000
13. Triple J Corporation owned 50,000 ordinary shares od MGMG Company acquired on July 31
at a total cost of PHP 2,000,000.
On December 1, Triple J Corporation received 22,000 share rights from MGMG
Company. Each right entitles them holder to acquire one share at PHP 45.
The market price of MGMG's share on this date was PHP 50 and the market price of each right
was PHP 8. Rice sold the rights on December 31 for PHP 500,000 with commission for the
broker of PHP 65,000.
What amount should be reported as gain from the sale of the rights?
a. PHP 611,000
b. PHP 741,000
c. PHP 259,000
d. PHP 341,000
14. On July 1, 2018, Bryan Company purchased 30,000 shares of Grace Company's 100,000
outstanding ordinary shares for PHP 200 per share. On December 15, 2018, the investee paid
PHP 400,000 in cash dividend to the ordinary shareholders.
The investee's net income for the year ended December 31, 2018 was PHP 1,200,000, earned
evenly throughout the year.
What amount of income from the investment should be reported in 2018?
a. PHP 60,000
b. PHP 120,000
c. PHP 360,000
d. PHP 180,000
15. At the beginning of current year, JPIA Company purchased 10% of BSA Company's
outstanding ordinary shares for PHP 5,000,000.
JPIA Company is the largest single shareholder in BSA Company and JPIA Officers are the
majority of BSA Company's Board of Directors.
The investee reported net income of PHP 5,000,000 for the current year and paid cash dividend
of PHP 1,500,000.
What amount should be reported as investment in BSA Company using the equity method?
a. PHP 5,500,000
b. PHP 5,350,000
c. PHP 5,000,000
d. PHP 4,850,000
16. During 2020, Holland Corporation bought the shares of Stark Industries.
June 1 50,000 shares @P150 7,500,000
December 1 65,000 shares @P170 11,050,000
Transactions for 2021:
January 23 Received 20% share dividend
July 5 Received cash dividend of P10 per share
December 16 Sold 70,000 shares at P180 per share
What is the gain on sale of share under average approach?
a. 22,009,420
b. 21,149,520
c. 22,010,500
d. 20,862,000
17. On April 1, 2020, Peter Parker Company paid P2,120,000 for 10% bonds with a face amount
of P2,000,000 to be held as financial assets on amortized cost. Interest is paid on June 30 and
December 31. The bonds were purchased to yield 8%. The entity uses effective interest method.
What is the carrying amount of the bond investment on December 31, 2021?4
a. 2,120,000
b. 2,000,000
c. 2,104,800
d. 2,135,200
18. On August 1, 2020, Love Marie Company purchased 20% of the outstanding shares of an
associate for P5,000,000. On the same day, the investee’s net assets totaled P9,00,000 and Love
Marie Company cannot attribute the excess of cost of the investment over the equity in the
investee’s net assets to any particular factor. The investee reported net income of P2,000,000.
What amount should be reported as investment income for the current year?
a. 14,000.000
b. 400,000
c. 5,000,000
d. 2,000,000
19. Lisa Co. purchased 500,000 bonds at par. Lisa Co. has an active trading business model for
this investment. At December 31, Lisa received annual interest of 30,000 and the fair value of
the bonds was 523,160. At year-end, how much total income (loss) will be reported on its
income statement?
a. 6,840
b. 23,160
c. 30,000
d. 53,160
20. During 2020, Marvel Company purchased marketable equity securities as short-term
investment to be measured at fair value through other comprehensive income. The cost and
market value on December 31,2020 were as follows:
Security Cost Market value

A - 2,000 shares 450,000 600,000
B - 12,000 shares 1,860,000 1,700,000
The entity sold 2,000 shares of security A on April 5, 2020 for P250 per share and incurred
P50,000 in brokerage commission and taxes. What amount should be reported as gain (loss) on
sale of equity securities in 2021?
a. 150,000
b. 100,000
c. 50,000
d. 0
21.) During 2020, Franco Company bought partial shares of Uranus Company, below are the
transactions:
June 1 10,000 shares @ 100 Php1,000,000
December 1 20,000 shares @ 100 Php2,000,000
Transactions during 2021:
January 10 Received 10% share dividend
July 20 Received cash dividend of Php20 per share
December 10 Sold 10,000 shares @ Php200 per share
How much will be reported as dividend income for 2021?
A) Php660,000
B) Php600,000
C) Php330,000
D) Php33,000
transactions:
June 1 20,000 shares @ 100 Php2,000,000
December 1 10,000 shares @ 100 Php1,000,000
February 10 Received 10% stock dividend
What will be the total shares on 2020?
A) 24,000
B) 12,000
C) 36,000
D) 30,000
transactions:
June 1 2,000 shares @ 100 Php200,000
December 1 1,000 shares @ 100 Php100,000
What is the gain on the sale of shares under FIFO approach?
A) Php33,333
B) Php51,667
C) Php385,000
D) Php333,333
transactions:
June 1 2,000 shares @ 100 Php200,000
December 1 1,000 shares @ 100 Php100,000
What is the gain on the sale of shares under Average approach?
A) Php151,667
B) Php233,333
C) Php33,333
D) Php385,000
25.) On June 2, 2019 Moontoon Company purchased 20,000 ordinary shares @ Php100 per
share.
On November 30, 2019 Moontoon Company received 20,000 share rights to purchase an
additional 20,000 shares @90 per share.
On November 30, 2019 the share had a market value Php110 and the share right had a market
value of Php10.
What amount should be reported on November 30, 2019 for investment in share rights?
A) Php200,000
B) Php110,000
C) Php2,000,000
D) Php1,110,000
26. On July 1, 2017, Lu Company purchased 4,000 of the P1,000 face amount, 8% bonds of Oh
Corporation for P3,692,000 to yield 10% per annum. The bonds which mature on July 1, 2020,
pay interest semiannually on January 1 and July 1. Marcus Company classifies the securities as
held to maturity. What is the purchase price of the bonds in July 1, 2017? (use 5 decimal points
for annuity)
a. Php 4,000,000.00
b. Php 3,692,000.00
c. Php 3,798,590.40
d. Insufficient data
27. On January 1, 2019, Do Corporation purchased marketable equity securities to be held as non
trading for Php 12,000,000. The entity also paid commission, taxes and other transaction cost
amounting to P365, 000. The securities had market value of Php14,000,000 on December 31,
2019. There is an estimated cost of Php 165,000 that will be incurred upon sale. No securities
were sold during 2019. What amount of unrealized gain or loss on these securities should be
reported for 019?
a. Php 2,165,000
b. Php 1,365,000
c. Php 2,000,000
d. Php 1,530,000
28. During 2020, Do Company purchased marketable equity securities as a trading

investment. For the year ended December 31, 2020, the entity recognized an unrealized loss of
Php 2,300, 000. There were no security transactions during 2021. The information on
December 31, 2021 is as follows:
Security Cost Market Value
Kim Corp Php 8,800,000 Php 10,000,000
Park Enterprises 6,100,000 6,500,000
Oh Trading 9,400,000 10,100,000
Php 24,300,000 Php 26,600,000
In the 2021 income statement, what amount should be reported as unrealized gain or loss?
a. Php 4,300,000
b. Php 4,600,000
c. Php 2,300,000
d. Php 2,600,000
29. Wu Company purchased a financial instrument for Php 930,000 on March 31, 2021. The
financial instrument is classified as financial asset at fair value through profit or loss. The
acquisition cost amounted to Php 88,000. On December 31, 2021, the fair value of instrument
was 1,214,000. What gain or loss should be recognized in other comprehensive income for the
year-ended December 31, 2021?
a. Php 0
b. Php 196,000
c. Php 284,000
d. Php 372,000
30. Huang Co. purchased 68,000 shares of Byun Corp. common stock at Php 80 per share on
January 1, 2019. On September 4, 2019, Huang received 68,000 stock rights to purchase an
additional 68,000 shares at Php 90 per share. The stock rights had an expiration date of June 28,
2020. On November 14, 2019, Byun’s common stock had a market value, ex-rights, of Php 95
per share and the stock rights had a market value of Php 5 each. What amount should Huang Co
report on its November 14,2019 balance sheet as the cost of its investment in stock rights?
a. Php 6,460,000
b. Php 6,120,000
c. Php 680,000
d. Php 340,000
30. During 2019, Gaben Company acquired equity securities classified as short-term investment
and measure at fair value through other comprehensive income. The cost and market value of
the securities on December 31, 2020 shown as follows:
2,000 Shares – A P500,000 P500,000
12,000 Shares – B P1,800,000 P1,450,000
25,000 Shares – C P3,300,000 P2,700,000
Gaben sold 8,000 shares of B on January 8, 2020 for 180 per share and paid 40,000 for
brokerage fees and taxes. What amount should be reported as loss on sale of equity securities
in 2020?
(a.) P360,000
(b.) P10,000
(c.) P350,000
(d.) P0 (FA@FVOCI)
31. On April 1, 2019, Juggernaut Company purchased 25% of the outstanding ordinary shares of
an associate for P3,200,000. Today, the investee’s equity totaled P7,000,000 and Juggernaut
Company cannot attribute the difference of the cost of the investment over the equity in
investee’s equity in any particular reason. The investee reported a net income of 500,000 for
2020.
What is the amount could be included in Juggernaut’s Company in its income before tax
to mirror its equity earnings of the investee?
(a.) P125,000
(b.) P93,750 (500,000 x.25 = 125,000 x ¾)
(c.) P375,000
(d.) P218,750
32. Timbersaw purchased 500 ordinary shares of Treant Manufacturing as a trading investment of
P35,000. During the year, Treant Manufacturing paid a cash dividend of P5.00 per share. At
December 31, Treant Manufacturing shares were sold for P65.00 per share. On the Income
Statement of Timbersaw at December 31, what amount should be reported in unrealized
gain/loss and dividend revenue?
(a.) P32500
(b.) P2500
(c.) P5000 (500 x 65 = 32,500) (35,000 – 32,500 = 2500 + 2500 [500 x 5])
(d.) P0
33. During 2019, Lina Company purchased marketable equity securities measured at fair value
through other comprehensive income. Unrealized loss on the securities during 2020 were
100,000. There were no security transactions during 2020. Data on December 31, 2020 are as
follows:
X Security P2,000,000 P1,500,000
Y Security P1,800,000 P1,950,000
Z Security P1,000,000 P850,000
In the statement of changes in equity for December 31, 2020, what amount should be
reported as cumulative unrealized loss as component of other comprehensive income?
(a.) P500,000 (2 + 1.8 + 1 = 4.8) (4.8 – 1.5 – 1.95 - .85 = .5)
(b.) P600,000
(c.) P400,000
(d.) P0
34. On January 1, 2019. Brewmaster Company purchased 200,000 ordinary shares at 90 per
share. On October 31, 2019, Brewmaster received 200,000 stock right to purchase an additional
200,000 shares at 100 per share. The stock rights expire on March 1, 2019. On October 30,
2019, each share had a market value of P124 and the stock right had a market value of P10.
What amount should be reported on October 31, 2019 as investment in stock rights?
(a.) P2,000,000 (200,000 x 10)
(b.) P1,000,000
(c.) P24,800,000
(d.) P18,000,000
36. On January 1, 2019, Algerian Company purchased 4,500, P75 par ordinary shares of Chiller
Company for P85 per share plus 3% broker's commission. The shares represent 5% equity in
Chiller Company. The shares are to be held by Algerian Company as financial assets at fair
value through profit or loss. The entry to record the acquisition in the books of Algerian
Company includes:
a. Debit to Equity Investments of 393,975
b. Credit to Cash of 337,500
c. Debit to Equity Investments of 382,500
d. Credit to Cash of 347,625
37. At the beginning of year 2019, Lucida Company owns 2,000 ordinary shares of Tahoma
Company with carrying value at P135 per share. Later that year, Lucida received 20% bonus
issue from Tahoma Company. What should be recorded as the carrying value of each share of
Lucida in the books of Tahoma after receiving the share dividend?
a. 162
b. 135
c. 112.5
d. 113
38. On January 1, 2019, Comic Sans Company purchased 26,000 shares of 130,000
outstanding ordinary shares of Baskerville Company at P150 per share. The investment
represents a 20% equity interest and a significant influence over the investee. During the year,
Baskerville Company reported a net loss of P875,000. On December 31, 2019, what should be
reported as the carrying amount of Comic Sans Company in the books of
a. 3,025,000
b. 3,900,000
c. 3,120,000
d. 3,725,000
39. On March 1, 2018, Harrington Company purchased P500,000 of 10% Segoe Company
bonds for 475,982. The bonds pay interest annually every December 31. What will be the
carrying value of investment on December 31, 2019, assuming that the effective interest rate on
this investment is 12%?
a. 483,100
b. 491,072
c. 483,010
d. 491,027
40. During the current year, Verdana Company held 50,000 shares from Stencil Company's
200,000 outstanding shares. The investment represents 20% equity interest and a significant
influence over Stencil's. During the year, Verdana received P300,000 cash dividend. What
amount should be recorded as dividend revenue for the current year?
a. 0
b. 300,000
c. 1,500,000
d. 1,000,000
41. During 2021, The Ana Company bought the shares of Sel Company.
May 1. 30, 000 shares @ 120. 3,600,000

November 12 20,000 shares @100. 2,000,000
5,600,000
Transactions for 2022:
January 15. Received 20% share dividend
June 23. Received cash dividend of P 10 per share
December 12. Sold 30,000 shares at 130 per share
What is the gain on sales of share under average approach?

A. P 1,450,000.00
B. P 600,000.00
C. P 1,100,000.00
D. P 400,000.00
42. On April 02, Abby Company purchased 20,000 ordinary shares at P 60 per share.
On June 30, Abby Company received 20,000 share rights to purchased an additional 20,000
shares at 70
On June 30, the share had a market value of 80 and the share rights had a market value of P7
What Amount should be reported on September 30 for investment in share rights?

A. P 340,000
B. P 140,000
C. P 240,000
D. P 40,000
43. On March 1, 2022, Gwen Company purchased marketable equity securities to be held as
trading for P 5,950,000.The entity paid taxes and other transaction costs amounting to
P125,000.The securities had market value of P6,150,000 on December 31, 2022 and the
transaction cost that would be incurred on sale is estimated at 130,000. No securities were sold
during 2022. In 2022 income statement, what amount should be reported as unrealized gain or
loss on these securities?
A. 205,00
B. 200,000
C. 350,000
D. 275,000
44. On May 3, Klarice Company purchased 2,000 shares of common stock at 75 per share. On
August 19, Klarice Company received 2,000 stock rights to purchased an additional share of
2,000 for 85 per share. The stock rights will expire on January 02. On Aug 31 the common stock
had a market value of 90 per share and the stock right had a market value of 6 each.What
amount should Klarice Company report on its August 31 balance sheet as the cost its
investments in stock rights?
A. P18,000
B. P10,000
C. P15,000
D. P12,000
45.On October 01, 2020, Dan Company purchased marketable equity securities to be measured
at fair value through comprehensive income. On December 31, 2020, the balance in the
unrealized loss on these securities 350,000.There were no other security transactions during
2021. The information on December 31, 2021 are as follows :
D 2,000,000 1,450,000
E 2,150,000 1,650,000
N 1,150,000 1,000,000
G 1,050,0000 900,000
In 2021, Income statement what amount should be reported as unrealized loss?

A. P 1,350,000
B. P 1,000,000
C. P 950,000
D. P 1,500,000
46. On August 1, 2019, Andrea Company acquired ₱600,000 face value 10% bonds of Aleena
Corporation at 104 plus accrued interest. The bonds were dated May 1, 2019, and mature
on April 30, 2024, with interest payable each October 31 and April 30. The bonds will be
held to maturity. What entry should Andrea make to record the purchase of the bonds on
August 1, 2019?
a. Debt Investments................................................................... 624,000
Interest Revenue.................................................................... 15,000
Cash...........................................................................
639,000
b. Debt Investments................................................................... 639,000
Cash...........................................................................
639,000
c. Debt Investments................................................................... 639,000
Interest Revenue........................................................
15,000
Cash...........................................................................
624,000
d. Debt Investments................................................................... 600,000
Premium on Bonds................................................................. 39,000
Cash...........................................................................
639,000
47. On October 1, 2019, Merlyn Co. purchased to hold to maturity, 500, ₱1,000, 9% bonds for
₱520,000. An additional ₱15,000 was paid for accrued interest. Interest is paid semiannually
on December 1 and June 1 and the bonds mature on December 1, 2023. Merlyn uses
straight-line amortization. Ignoring income taxes, the amount reported in Merlyn's 2019
income statement from this investment should be
a. ₱11,250
b. ₱10,050
c. ₱12,450
d. ₱13,650
48. During 2017, Jhazz Co. purchased 3,000, ₱1,000, 9% bonds. The carrying value of the
bonds at December 31, 2019 was ₱2,940,000. The bonds mature on March 1, 2024, and
pay interest on March 1 and September 1. Jhazz sells 1,500 bonds on September 1, 2014,
for ₱1,482,000, after the interest has been received. Jhazz uses straight-line amortization.
The gain on the sale is
a. ₱0
b. ₱7,200
c. ₱12,000
d. ₱16,800
49. During 2019, Kristhell Company purchased 6,000 shares of Pamela, Inc. for ₱30 per
share. The investment was classified as a trading security. During the year Kristhell
Company sold 1,500 shares of Pamela, Inc. for ₱35 per share. At December 31, 2019 the
market price of Pamela, Inc.’s stock was ₱28 per share. What is the total amount of
gain/(loss) that Kristhell Company will report in its income statement for the year ended
December 31, 2019 related to its investment in Pamela, Inc. stock?
a. (₱12,000)
b. ₱7,500
c. (₱4,500)
d. (₱1,500)
50. Zeinab Corporation purchased 25,000 shares of common stock of the Clee Corporation
for ₱40 per share on January 2, 2017. Clee Corporation had 100,000 shares of common
stock outstanding during 2020, paid cash dividends of ₱120,000 during 2020, and reported
net income of ₱400,000 for 2020. Zeinab Corporation should report revenue from
investment for 2020 in the amount of
a. ₱30,000
b. ₱70,000
c. ₱100,000
d. ₱110,000
Answer Key (Investments)
Theories
1. C
2. C
3. C
4. C
5. C
6. D
7. B
8. C
9. A
10. D
11. C
12. C
13. C
14. C
15. D
16. B
17. B
18. A
19. D
20. D
21. D
22. D
23. D
24. C
25. B
26.A
27.C
28.B
29.D
30.C
31.A
32. A
33. D
34. C
35. A
36.) B
37.) B
38.) D
39.) A
40.) D
46. b
47. d
48. b
49. c
50. c
Problems
1. C
2.
3. C
4. C
5. C
6. A
7. A
8. B
9. B
10. D
11. D
12. C
13. C
14. D
15. B
16. A
17. C
18. B
19. A
20. D
21. A
22. C
23. B
24. A
25. A
26. C
27. B
28. B
29. A
30. D
36. c
37. c
38. d
39. b
40. A
41. C
42. B
43. B
44. D
45. B
46. A
47. B
48. B
49. D
50. C
Solutions (Problems)
1. Total Market Value = 5,350,000
2. Selling Price – Cost Price = 3,000,000 – 2,500,000 = 500,000 gain on sale.
3. Market Value, December 31, 2019 – Cost, December 31, 2018
= 3,200,000 – 2,400,000 = 800,000 unrealized gain
4. Market Value, June 30, 2019 – Cost, Face Value
= 5,500,000 – 5,500,000 = 0 unrealized gain (loss)
5. Market Value = 4,000,000, add back unrealized loss of 500,000 = 4,500,000

historical cost for the available for sale securities.
6. Fair value - Cost = 195,000 - 200,000 = (5,000) Loss
7. Total shares x cash dividend per share = 60,000 shares x P20

8.
Acquisition, January 1
2,000,000
Net income (50% x 3,000,000) 1,500,000
Total 3,500,000
Dividends (1,000,000)
CA of investment, December 31 2,500,000
9.
Cost 3,100,000
Market Value 3,000,000
Unrealized Loss (100,000)
10.
Acquisition cost
5,000,000
Net assets acquired (30% x P10,000,000)

(3,000,000)
Excess of cost over carrying amount 2,000,000
11. Solution:
(30,000/300,000= 0.1 × 2,450,000)

PHP 245,000
12.Solution:
Share Right × MV Share Right

(5,200 @PHP 3.82)= PHP 19,864
13. Solution:
Net sale price (PHP 500,000 - PHP 65,000). PHP435, 000

Initial cost of Rights (22,000 × PHP 8) (PHP 176,000)
Total Gain on sale of rights. PHP 259,000
14. Solution:
Interest Acquired (30,000/100,000×100) = 30%

Share in Net Income from 7/1 to 12/31
(PHP 1,200,000 × 6/12 × 30%) PHP 180,000
15.Solution:
Acquisition 1/1. PHP 5,000,000

Share in Net income (10% × PHP 5,000,000) PHP 500,000
Cash Dividends (10% × PHP 1,500,000) (PHP 150,000)
Investment 12/31. PHP 5,350,000
16. Sale Price 12,600,000
Cost of shares sold
(70,000 / 138,000 x 18,550,000) 9,409,420
Gain on sale 22,009,420
17. Date Stated rate Effective rate Amortized cost Carrying Amount
4/1 - - - 2,120,000
12/31 100,000 84,800 15,200 2,104,800
18. Share in net income (2,000,000 x 20%) 400,000
19. Net income 30,000
Fair value 12/31 523,160
Initial Carrying amount 500,000
Unrealized gain 23,160
Profit or Loss 6,840
20. Investment in stocks measured at fair value through other comprehensive income doesn’t
recognize gain (loss) on sales.
21.) Original shares (10,000+20,000) 30,000
Share dividend (30,000x10%) 3,000

Total shares 33,000
Dividend Income (33,000xPhp20) Php660,000
22.) June 1 December 1
Original shares 20,000 10,000
Stock dividend 20% 4,000 2,000
Total shares 24,000 12,000
24,000+12,000= 36,000
Stock dividend 50% 1,000 500
Sale price (3,500x110) Php385,000
Cost of shares sold:
June 1 (3,000 shares) Php300,000
December 1 (500 shares)
(500/1500xPhp100,000) Php33,333 Php333,333
Gain on sale Php51,667
Stock dividend 50% 1,000 500

Sale price (3,500x110) Php385,000
Cost of shares sold (3,500/4,500xPhp300,000) Php233,333
Gain on sale Php151,667
25.) Initial measurement @fair value (20,000xPhp10) Php200,000
26. C
Semiannual payments: 10% -> 5%, 8% -> 4%, 3 years = 6 periods
(4,000,000) [1/(1+5%) ]6
(4,000,000)(0.74622)
=2,986,480
[(4,000,000)(4%)][(1-(1/(1+5%) )/5%]
6
(160,000)[(1-0.74622)/5%]
(160,000)(5.07569)
=812,110.4
=Php 3,798,590.4
27. B
Purchase price
Php 12,000,000
Transaction cost
365,000
Acquisition cost of equity security Php
12,365,000
Fair Value, December 31, 2019 Php

14,000,000
Less: Acquisition Cost
12,365,000
Unrealized Gain (Loss) Php
1,635,000
28. B
Fair value (December 31,2021)
Php 26,600,000
Less: Fair value (December 31,2020)
(Php 24,300,000 – Php

2,300,000) (22,000,000)
Unrealized gain (loss)

Php 4,600,000
29. A
Php 0. The recognized gain or loss for financial asset at fair value through profit or loss
are recorded in the income statement, not in other comprehensive income. Thus, there is no
recognized gain for this trading security in other comprehensive income. However, there is an
unrealized gain of Php 284,000 recorded in the income statement.
30. D
Investment = 68,000 shares x stock right @ Php 5 each
=Php 340,000
36. c
Equity Investments 382,500

Broker's Commission 11,475
Cash 393,975
37. c
Original shares 2,000

Share divided 400
Total shares 2,400
Carrying amount of shares 270,000

by total number of shares 2,400 Carrying amount
per share 112.5
38. d
Acquisition cost 3,900,000

Net loss (875,000*20%) 175,000
Carrying amount 3,725,000
39. b
Amortization Table
Date Nominal Interest Effective Interest Discount Amortization Carrying Value
3/1/2018 475,982
12/31/2018 50,000 57,118 7,118 483,100
12/31/2019 50,000 57,972 7,972 491,072
12/31/2020 50,000 58,929 8,929 500,000
40. a
Under the equity method, cash dividend is not an income but a reduction of investment.
41. Original share (30,000+20,000). 50,00
Share Dividend (50,000x20%). 10,000
60,000
Sale price. 3,900,000. 00
Cost of share sold(30,000/60,000x5,600,000). ( 2,800,000.00)
Gain on sale 1,100,000.00
Answer: C
42.Initial measurement at fair value
(20,000 share rights x 7= 140,000.00)
Answer: B
43. Market Value- Cost
(6,150,000-5,950,000= 200,000)
Answer :B
44. Initial measurement at fair Value
(2,000 stock rights x 6=12,000)
Answer : D
45. Unrealized loss 350,000
Fair Value 12/31/21. 5,000,000

Fair Value 12/31/20. (6,000,000)
Unrealized Loss. 1,000,000
Answer : B
46. A
Dr. Debt Investments: ₱600,000 × 1.04 = ₱624,000
Dr. Interest Revenue: ₱600,000 × .05 × 3/6 = ₱15,000
Cr. Cash: ₱624,000 + ₱15,000 = ₱639,000
47. B
(₱500,000 × .09 × 3/12) – (₱20,000 × 3/50) = ₱10,050
48. B
Discount amortization: ₱60,000 × 8/50 = ₱9,600
(₱2,940,000 + ₱9,600) ÷ 2 = ₱1,474,800
₱1,482,000 – ₱1,474,800 = ₱7,200 gain
49. D
[(₱35 – ₱30) × 1,500] – [(₱30 – ₱28) × 4,500] = (₱1,500)
50. C
₱400,000 × (25,000 ÷ 100,000) = ₱100,000

Investments (Theories)

Enviado por

Dados do documento

Título original

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Investments (Theories)

Enviado por

Direitos autorais:

Formatos disponíveis

Investments (Theories)

a. Fair value through profit or loss

b. Amortized cost using effective interest method

d. Amortized cost using straight line method

d. None of the above

d. None of the above

4. Securities can be exchanged in current transaction between willing parties at:

d. None of the Above

c. Unrealized Holding Gains and Losses

6. Which of the following records an investment at its carrying amount?

a. Fair value through profit or loss

7. Cumulative unrealized gains or losses are recorded in

a. Journal as a memorandum entry

8. Cash dividends received from investing in associate is recorded as

a. Debit to retained earnings

9. The excess of cost over carrying amount may be due to

10. The effective interest method of amortizing premium provides for

a. Decreasing amortization and increasing interest income

11. Which of the following is not a debt security?

12. Securities which could be classified as held-to-maturity are

a. redeemable preferred stock

13. Investments in debt securities are generally recorded at

a. cost including accrued interest

14. Investments in debt securities should be recorded on the date of acquisition at

a. lower of cost or market

a. The effective interest method applied to investments in debt securities is different

16. Trading bond investments are reported at

18. An investment property shall be measured initially at

19. The actual interest earned by the bondholder is:

a. Fair value through profit or loss

b. Fair value through other comprehensive income

d. All of the above

22. Which of the following is not a characteristic of a financial instrument?

a. There must be a contract

b. There are at least two parties involved

23. Which of the following is not an example of equity instruments?

a. Ordinary share capital

c. Warrants or written call options

d. None of the above

A. Straight line method

B. Bond outstanding method

C. Effective interest method

D. None of the above

27.This method of amortization provides an increasing amount of amortization and it is also

A. Bond outstanding method

B. Straight line method

D. None of the above

D. Investment in unquoted equity instruments

29.Which of the following is not an example of investments?

A. Investment in joint venture

D. None of the above

31. It is an entity over which the investor has significant influence.

36.) In Investments, an Associate means?

A) An entity that can be helped.

B) An entity over which the investor has significant influence.

C) A friend that you can trust.

D) Something that you can associate to.

A) Higher risk indicates lower return

B) Higher risk indicates higher return

D) No relationship exists between risk and return

38.) Which of the following is true in regards to investing in ordinary stock?

A) A stock investor may or may not receive a profit

B) A stock investor may receive a dividend