ACC 122 (Intermediate Accounting I)

General Review for Dean’s Exam

A. ACC 111 Component

1. The premium on a three-year insurance policy expiring on December 31, 2019, was paid in total
on January 1, 2017. The original payment was initially debited to a prepaid asset account. The
appropriate journal entry has been recorded on December 31, 2017. The balance in the prepaid
asset account on December 31, 2017, should be
a. Zero.
b. The same as it would have been if the original payment had been debited initially to an
expense account.
c. The same as the original payment.
d. Higher than if the original payment had been debited initially to an expense account.

2. A company would report a net loss when

a. retained earnings decreased due to paying dividends to stockholders.
b. its assets decreased during an accounting period.
c. its liabilities increased during an accounting period.
d. its expenses exceeded its revenues for an accounting period.

3. Rica Corporation reported the following amounts at the end of the first year of operations,
December 31, 2019: share capital P20,000; sales revenue P95,000; total assets P85,000, no
dividends, and total liabilities P35,000. What would shareholders' equity and total expenses be?
a. Shareholders' equity, P50,000 and expenses P65,000.
b. Shareholders' equity, P60,000 and expenses P75,000.
c. Shareholders' equity, P80,000 and expenses P40,000.
d. Shareholders’ equity, P85,000 and expenses P50,000.

4. Which of the following would increase retained earnings?

a. an increase to an expense c. an increase to a revenue
b. a cash dividend d. issuance of additional common stock

5. Which of the following transactions would cause retained earnings to increase?

a. Collection of a customer's account. c. Loan from a bank.
b. Sale of service to a customer. d. Wage costs owed to employees

6. The effect on total assets of the purchase of land for cash is

a. an increase in total assets. c. a decrease in total assets.
b. total assets remain unchanged. d. an increase in total assets and total liabilities.

7. Most businesses earn revenues

a. when they collect accounts receivable.
b. through sales of goods or services to customers.
c. by borrowing money from a bank.
d. by selling shares of stock to stockholders.

8. At the beginning of 2019, Nikka Corporation had assets of 540,000 and liabilities of 320,000.
During the year, assets increased by 50,000 and liabilities decreased by 10,000. What was the
total amount of stockholders' equity at the end of 2019?
a. 220,000 b. 280,000 c. 380,000 d. 500,000

9. Ahjie Co. reported the following data at year-end. Sales, 500,000; beginning inventory, P40,000;
ending inventory, 45,000; cost of goods sold, 350,000; and gross margin, 150,000. What was the
amount of merchandise purchased during the year?
a. P370,000 b. P348,000 c. P355,000 d. P341,000

10. The following information pertained to Vincent Co. for the year:
 Purchases ₱102,800
Purchase discounts 10,280
Freight in 15,420
Freight out 5,140
Beginning inventory 30,840
Ending inventory 20,560

What amount should Vincent Co. report as cost of goods sold for the year?
a. ₱102,800 b. ₱118,220 c. ₱123,360 d. ₱128,500

11. On Mar. 1, Nesmah Company received P36,000 as one year’s rent that Nesmah credited to Rent
Income. At year end, what amount of Unearned Rent Income will be shown in the statement of
financial position?
a. P36,000 b. P30,000 c. P6,000 d. P3,000

12. On September 1, Vanessa Company pays P24,000 for one year’s insurance that Vanessa debit to
Prepaid Rent. At year end, what amount of Prepaid Rent will be shown in the statement of
financial position?
a. P24,000 b. P8,000 c. P16,000 d. P2,000

13. Angeline Company borrows P30,000 at 8% interest for three months on December 1. If adjusting
entries are written on December 31, the adjusting entry will include a
a. Debit to interest receivable for P200 c. Debit to Interest expense of P2,400
b. Credit to Interest Income for P2,400 d. Credit to Interest Payable for P200

B. ACC 121 Component

14. Generally accepted accounting principles

a. Are accounting adaptations based on law.
b. Derive their credibility and authority from legal rulings and court precedents.
c. Derive their credibility and authority from a government regulatory authority.
d. Derive their credibility and authority from general recognition and acceptance by the
accountancy profession.

15. Which best describes the term “going concern”?

a. When current liabilities exceed current assets
b. The ability of the entity to continue in operation for the foreseeable future
c. The potential to contribute to the flow of cash and cash equivalents to the entity
d. The expenses exceed income

16. What is an enhancing quality of accounting information?

a. Information must be decision-useful to all users.
b. General-purpose financial reporting is the primary source of information for statement
users.
c. Users need reasonable knowledge of business and financial accounting matters to
understand the information contained in financial statements
d. All of the choices are correct.

17. When classifying assets as current and noncurrent

a. The amount at which current assets are carried and reported must reflect realizable cash
value.
b. Prepayments for items such as insurance are included in “other assets” rather than as
current assets as they will ultimately be expensed.
c. The time period by which current assets are distinguished from noncurrent assets is
determined by the seasonal nature of the business.
d. Assets are classified as current if they are reasonably expected to be realized in cash or
consumed during the normal operating cycle.
18. Liabilities are defined as
a. possible debts or obligations of an entity as a result of future transactions which will be
paid with assets or services.
b. possible debts or obligations of an entity as a result of past transactions which will be paid
with assets or services.
c. probable debts or obligations of an entity as a result of future transactions which will be
paid with assets or services.
d. probable debts or obligations of an entity as a result of past transactions which will be
paid with assets or services.

19. The following statements relate to cash. Which statement is true?

a. The term “cash equivalent” refer to demand credit instruments such as money order and
bank drafts.
b. The purpose of establishing a petty cash fund is to keep enough cash on hand to cover all
normal operating expenses for a period of time.
c. Classification of a restricted cash balance as current or noncurrent should parallel the
classification of the related obligation for which the cash was restricted.
d. Compensating balance required by a bank should always be excluded from “cash and cash
equivalent”.

20. Marian Company had the following account balances at December 31, 2019: Cash in banks
P2,250,000; Cash on hand P125,000; Cash legally restricted for additions to plant (expected to be
disbursed in 2020) P1,600,000. Cash in banks includes P600,000 of compensating balances against
short-term borrowing arrangements. The compensating balances are not legally restricted as to
withdrawal by Marian. In the current assets section of Marian’s December 31, 2019 balance sheet,
total cash should be reported at
a. 1,775,000 b. 2,250,000 c. 2,375,000 d. 3,975,000

21. Arnold Co. entity reported the checkbook balance on December 31, 2015 at P8,000,000. In
addition, the entity held the following items in the safe on that date:

Check payable to Arnold Co., dated January 2, 2016 in payment of a sale,

not included in December 31 check book balance 1,000,000
Check payable to Arnold Co., deposited December 15 and included in
December 31 checkbook balance, but returned by bank on
December 30 stamped “NSF”. The check was redeposited on
January 2, 2016 and cleared on January 5, 2016 3,000,000
Check drawn on Arnold Co.’s account, dated and recorded on
December 31, 2015 but not mailed until January 15, 2016 2,500,000
Coins and currencies on hand 800,000
Three-month money market instruments 1,500,000

What is the correct amount of “cash” on December 31, 2015?

a. 7,500,000 b. 9,300,000 c. 8,300,000 d. 9,800,000

22. Bianca is preparing its bank reconciliation for Account 001 in Aife Bank for the month of December
with the following information:

 Cash balance of Account 001 per bank statement on Dec. 31 P763,234

 Cash receipts entered twice in the books of Bianca 35,236
 Interest earned by the company and credited by Aife Bank on account 001 23,623
but not yet recorded by Bianca
 Deposit in transit on December 31 84,345
 NSF check returned by Aife bank on December 10 but recorded by the company 74,345
On December 25
 Checks of Bianca not yet enchased by the payees 29,123
 How much is the Unadjusted Book balance of Account 001 on Dec 31?
a. P830,069 b. P803,069 c. P 830,096 d. P 803,906

23. The following information is from Jevie Co.’s first year of operations:

Merchandised purchased, P450,000

Ending merchandise inventory, P123,000
Collections from customers, P150,000
All sales are on account and good sell at 30% above cost

What is the accounts receivable balance at the end of Jevie’s first year of operations?
a. P275,100 b. P78,900 c. P595,000 d. P435,000

24. On the December 31, 2017 balance sheet of Novelyn Co., the current receivables consisted of the
following:

Trade accounts receivable P60,000

Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit (November 2017) 3,000
Selling price of unsold goods sent by Novelyn on consignment 26,000
at 130% of cost (not included in Seattle 's ending inventory)
Security deposit on lease of warehouse used for storing some 30,000
inventories
TOTAL P117,000

At December 31, 2017, the correct total of Novelyn's current net receivables was
a. P61,000 b. P87,000 c. P91,000 d. P117,000

25. When a specific customer’s account receivable is written off as uncollectible, what will be the
effect on net income under each of the following methods of recognizing bad debt expense?
Allowance Direct writeoff
a. None Decrease
b. Decrease None
c. Decrease Decrease
d. None None

26. When the allowance method of recognizing uncollectible accounts is used, the entry to record the
writeoff of a specific account would
a. Decrease both accounts receivable and the allowance for uncollectible accounts.
b. Decrease accounts receivable and increase the allowance for uncollectible accounts.
c. Increase the allowance for uncollectible accounts and decrease net income.
d. Decrease both accounts receivable and net income.

27. On January 1, 2014, Christine Company's allowance for doubtful accounts had a credit balance of
P300,000. During 2014, Christine charged P640,000 to doubtful accounts expense, wrote off
P460,000 of uncollectible accounts receivable, and unexpectedly recovered P 120,000 of bad
debts written off in the prior year. The allowance for doubtful accounts at December 31, 2014
should be
a. 600,000 b. 640,000 c. 940,000 d. 480,000

28. Rosebelle Company uses the allowance method of accounting for bad debts. The following
summary schedule was prepared from an aging of accounts receivable outstanding on December
31 of the current year:

Number of days Probability of

Amount
outstanding collection
0-30 days 5,000,000 .98
31-60 days 2,000,000 .90
 Over 60 days 1,000,000 .80

29. The following additional information is available for the current year

Net credit sales for the year 40,000,000

Allowance for doubtful accounts:
Balance, January 1 450,000 (cr)

Balance before adjustment, Dec 31 20,000 (dr)

If Rosebelle Company bases its estimate of bad debts on the aging of accounts receivable,
doubtful accounts expense for the current year should be
a. 500,000 b. 520,000 c. 470,000 d. 480,000

30. On January 2, 2017, Nihaya Company sold equipment with a carrying amount of ₱480,000 in
exchange for a ₱600,000 non-interest bearing note due January 2, 2020. There was no established
exchange price for the equipment. The prevailing rate of interest for a note of this type was 10%.
The present value of 1 at 10% for three periods is 0.7513.

What is the carrying value of the note receivable as of December 31, 2017 Statement of Financial
Position?
a. ₱450,780 b. ₱495,858 c. ₱545,444 d. ₱600,000

31. On December 31, 2015, Paulco Co. received two P2,000,000 notes receivable from customers. On
both notes, interest is calculated on the outstanding principal balance at the annual rate of 3%
and payable at maturity. The first note, made under customary trade terms, is due in nine months
and the second note is due in five years. The market interest rate for similar notes on December
31, 2015 was 8%. The PV of 1 at 8% due in nine months is .944, and the PV of 1 at 8% due in 5
years is .68. On December 31, 2015, what total carrying amount should be reported for the two
notes receivable?
a. 3,248,000 b. 3,494,400 c. 3,360,000 d. 3,564,000

C. ACC 122 Component

32. A bank granted a 10-year loan to a borrower in the amount of P1,500,000 with stated interest
rate of 6%. Payments are due monthly and are computed to be P16,650. The bank incurred
P40,000 of direct loan origination cost and P20,000 of indirect loan origination cost. In addition,
the bank charged the borrower a 4-point nonrefundable loan origination fee. What is the carrying
amount of the loan receivable to be reported initially by the bank?
a. 1,440,000 b. 1,480,000 c. 1,500,000 d. 1,520,000

33. On July 1 of the current year, an entity received a one-year note bearing interest at the market
rate. The face amount of the note receivable and the entire amount of the interest are due in one
year. When the note receivable was recorded on July 1, which of the following was debited?
I. Interest receivable
II. Unearned discount on note receivable
a. I only b. Both I and II c. Neither I nor II d. II only

34. On July 1 of the current year, an entity received a one-year note receivable bearing interest at the
market rate. The face amount of the note receivable and the entire amount of the interest are
due on June 30 next year. At December 31 of the current year, the entity should report in its
balance sheet
a. A deferred credit for interest applicable to next year
b. No interest receivable
c. Interest receivable for the entire amount of the interest due on June 30 of next year
d. Interest receivable for the interest accruing in the current year
35. April Company factored P5,000,000 of accounts receivable. Control was surrendered by the
entity. The finance company assessed a fee of 5% and retains a holdback equal to 10% of the
accounts receivable. In addition, the finance company charged 12% interest computed on a
weighted average time to maturity of the accounts receivable for 30 days. What is the amount
initially received from the factoring of accounts receivable?
a. 4,250,000 c. 4,700,685
b. 4,700,685 d. 4,200,685

36. On December 1, 2018, Ranie Company assigned on a non-notification basis accounts receivable
of P5,000,000 to a bank in consideration for a loan of 80% of the accounts less a 5% service fee
on the accounts assigned. The entity signed a note for the bank loan. On December 31, 2018, the
entity collected assigned accounts of P2,000,000 less discount of P200,000. The entity remitted
the collections to the bank in partial payment for the loan. The bank applied first the collection to
the interest and the balance to the principal. The agreed interest is 1% per month on the loan
balance. The entity accepted sales returns of P100,000 on the assigned accounts and wrote off
assigned accounts totaling P300,000. What is the balance of accounts receivable assigned on
December 31, 2018?
a. 3,000,000 c. 2,400,000
b. 2,600,000 d. 2,900,000

37. Inventories are defined as

I. Assets held for sale in the ordinary course of business, in the process of production for
such sale, or in the form of materials or supplies to be consumed in the production
process or in the rendering of services
II. Assets held for sale, in the process of production, or in the form of materials or supplies
to be consumed in the production process
III. Tangible assets held for sale in the ordinary course of business, in the process of
production, or in the form of materials or supplies to be consumed in the production
process or in the rendering of services

a. I, II and III b. I and II only c. I only d. II and III only

38. At reporting date, inventories are measured at

a. Net realizable value c. lower of cost and market value
b. Lower of cost and net realizable value d. higher of cost and net realizable value

39. An entity reported inventory on December 31, 2015 at P6,000,000 based on a physical count at
cost and before any necessary year-end adjustments relating to the following:

 Included in the physical count were goods billed to a customer FOB shipping point on December
30, 2015. These goods had a cost of P125,000 and were picked up by the carrier on January 7,
2016.
 Goods shipped FOB shipping point on December 28, 2015 from a vendor to the entity were
received on January 4, 2016. The invoice cost was P300,000.

What amount should be reported as inventory on December 31, 2015?

a. 5,875,000 b. 6,000,000 c. 6,175,000 d. 6,300,000

40. The closing inventory of Jezah Company amounted to P284,000 at December 31, 2018. This total
includes two inventory lines about which the inventory taker is uncertain.
• 500 items which had a cost of P15 each and which were included at P7,500. These items were
found to have been defective at the balance sheet date. Remedial work after the balance
sheet date cost P1,800 and they were then sold for P20 each. Selling expenses were P400.
• 100 items that had cost P10 each but after the balance sheet date, these were sold for P8
each with selling expenses of P150
What figure should appear in Jezah’s statement of financial position for inventory?
a. 283,650 b. 283,950 c. 284,000 d. 284,300
41. Carl Corporation values its inventory at the lower of cost or net realizable value as required by
IFRS. Brady has the ff. information regarding its inventory:
Historical cost P1,000
Estimated selling price 900
Estimated costs to complete and sell 50
Replacement cost 800

What is the amount for inventory that Carl should report on the statement of financial position
under the lower of cost or net realizable value method?
a. P1,000 b. P 900 c. P 850 d. P 750

42. Kristel Company determined the ff. values for its inventory as of the end of its fiscal year:
Historical cost P100,000
Current replacement cost 70,000
Net realizable value 90,000
Net realizable value less a normal profit 85,000
Fair value 95,000

What amount should the company report as inventory on its statement of financial position?
a. P70,000 b. P85,000 c. P90,000 d. P95,000

43. On December 1, 2018, Jay-Ann entered into a commitment to purchase 100,000 barrels of
aviation fuel for P55 per barrel on March 31, 2019. The entity entered into this purchase
commitment to protect itself against the volatility in the aviation fuel market. By December 31,
2018, the purchase price of aviation fuel had fallen to P50 per barrel. However, by March 31,
2019, when the entity took delivery of the 100,000 barrels the price of aviation fuel had risen to
P58 per barrel. What amount should be recognized as gain on purchase commitment for 2019?
a. 500,000 b. 300,000 c. 800,000 d. 0

44. A mark up of 25 percent on selling price is equivalent to what markup on cost?

a. 15 percent b. 20 percent c. 25 percent d. 33 percent

45. On December 31, 2015, Camille Co. provided the following information:

Cost Retail

Inventory, January 1 735,000 1,015,000

Purchases 4,165,000 5,775,000
Additional markup 210,000

Sales for the year totaled P5,500,000. Markdown amounted to P100,000. Under the approximate
lower of average cost or NRV retail method, what is the inventory on December 31, 2015?
a. 1,050,000 b. 1,400,000 c. 994,000 d. 980,000

46. On January 1, a store had inventory of P55,000. January purchases were P46,000 and January
sales were P105,000. On February 1, a fire destroyed most of the inventory. The rate of gross
profit was 25% of cost. Merchandise with a selling price of P7,500 remained undamaged after the
fire. Compute the amount of the fire loss, assuming the store had no insurance coverage.
a. 11,000 b. 9,500 c. 14,750 d. 16,625

47. Jaime Co. budgeted the following sales.

June July August

Sales on account 1,800,000 1,840,000 1,900,000

Cash sales 180,000 200,000 260,000
 All merchandise is marked up to sell at invoice cost plus 20%. Merchandise inventory at the
beginning of each month is 30% of that month's projected cost of goods sold. What is the amount
of anticipated purchases for July?
a. 1,632,000 b. 2,076,000 c. 1,700,000 d. 1,730,000

48. Anne Company reported the following information for 2013:

Inventory, January 1 5,000,000
Net Purchases 23,000,000
Sales 30,000,000
Sales Return 3,000,000
Sales Discounts 1,000,000
A physical inventory taken on December 31, 2013 resulted in an ending inventory of P4,000,000.
On December 31, 2013, unsold goods on consignment with selling price of P1,000,000 are in the
hands of a consignee. The gross profit was 25% on cost. On December 31, 2013, what is the
estimated cost of inventory shortage?
a. 2,400,000 b. 1,400,000 c. 1,600,000 d. 1,275,000

49. Lushelle Co. provided the following information about assets in forest plantation:

Freestanding trees 5,000,000

Land under trees 900,000
Roads in forest 500,000
Animals related to recreational activities 2,000,000
Rubber trees and grape vines 1,500,000

What total amount should be reported as biological assets?

a. 5,000,000 b. 8,500,000 c. 6,500,000 d. 9,900,000

50. Dave Company is in the business of deer farming. A herd 50 3-year old deer with a total fair value
less point of sale costs of P400,000 were held as of January 1, 2015. On January 2, 2015, 50 one-
year old deer were purchased at a price of P2,000 each. On July 1, 2015, 50 one-year and 6 month-
old deer were purchased at a price of P2,200 each.

The relevant data are as follows:

Fair value of a 1-year old deer at December 31, 2015 P 2,400
Fair value of a 1 ½ -year old deer at December 31, 2015 P 4,000
Fair value of a 2-year old deer at December 31, 2015 P 6,000
Fair value of a 3 -year old deer at December 31, 2015 P 9,000
Fair value of a 4 -year old deer at December 31, 2015 P12,000

How much of the increase in the fair value of the biological assets during 2015 due to physical
change?
a. P160,000 b. P220,000 c. P430,000 d. P450,000

51. How much of the increase in the fair value of the biological assets during 2015 due to price
change?
a. 160,000 b. P220,000 c. P430,000 d. P450,000

52. Financial asset is any asset that is (choose the exception)

a. Cash
b. A non-derivative for which the entity is or may be obliged to deliver a variable number
of the entity’s own equity instruments.
c. A contractual right to receive cash or another financial asset from another entity.
d. An equity instrument of another entity.

53. Transaction cost is not included in the initial recognition of financial asset at
a. FVTPL b. FVOCI c. Amortized cost d. B and C
54. Changes in fair value of financial assets are included in the net income for financial asset at
a. FVTPL c. Both A and B
b. FVOCI d. Neither A nor B

55. On January 1, 2018, Trisha Company purchased equity securities held for trading
Purchase price Transaction cost Market – 12/31/18
Security A 1,000,000 100,000 1,200,000
Security B 2,000,000 200,000 1,500,000
Security C 3,000,000 300,000 3,100,000
On July 1, 2019, the entity sold Security A for P1,800,000. What amount should be reported as
gain on sale of trading securities in the 2019 income statement?
a. 800,000 b. 600,000 c. 300,000 d. 700,000

56. On January 1, 2018, Abubacar Company acquired a non-trading equity investment for P5,000,000.
On December 31, 2018, the market value of the investment was P4,000,000. On December 31,
2019, the issuer of the equity instrument was in severe financial difficulty and the fair value of the
equity investment had fallen to P1,500,000. The decline is judged to be temporary. What
cumulative loss should be reported in the statement of changes in equity for 2019 as a component
of OCI if the investment is measured at FVTOCI?
a. 1,000,000 b. 2,500,000 c. 3,500,000 d. 0

57. Diannah Company provided the following information on December 31, 2018:
Trading Nontrading
Aggregate cost 3,600,000 5,500,000
Aggregate market 3,200,000 4,500,000
Aggregate lower of cost or market applied individually 3,040,000 4,200,000
The cost of disposal is estimated at P100,000 for trading securities and P150,000 for nontrading
securities. The nontrading securities are designated as measured at FVOCI. What total amount
should be reported as unrealized loss in the 2018 income statement?
a. 400,000 b. 560,000 c. 1,400,000 d. 500,000

58. Cristal Corp. began operations in 2017. An analysis of Cristal’s equity securities portfolio acquired
in 2017 shows the following totals at December 31, 2017 for trading and available-for-sale
securities:
Trading Available-for-Sale
Securities Securities
Aggregate cost P90,000 P110,000
Aggregate fair value 65,000 95,000
What amount should Cristal report in its 2017 income statement for unrealized holding loss?
a. P40,000.
b. P10,000.
c. P15,000.
d. P25,000.

59. Mae Ann Company began operations on January 1, 2016. The following information pertains to
the company’s December 31, 2016 portfolio of equity securities:
Trading Available for sale
Aggregate cost 4,000,000 6,000,000
Aggregate market value 3,700,000 5,500,000
Aggregate lower of cost or market
value applied to each security 3,500,000 5,300,000
The market declines are judged to be temporary. What amount should Royce report as loss on
these securities in its 2016 balance sheet?
Trading Available for sale
a. 300,000 500,000
b. 500,000 700,000
c. 300,000 0
 d. 0 500,000

60. Elyne Company received dividends from ordinary share investments during the current year as
follows:
 A stock dividend of 10,000 shares from A Company when the market price of the share was
P10.
 A cash dividend of P1,500,000 from B Company in which the entity owned a 15% interest.
 5,000 shares of C Company in lieu of cash dividend of P20 per share. The market price of the
share was P150. The entity had 50,000 shares of C Company and owned 5% interest in C
Company.
What amount of dividend revenue should be reported for the current year?
a. 2,500,000
b. 2,250,000
c. 1,500,000
d. 2,350,000

61. Jane Company provided the following data pertaining to dividends on ordinary share investments
for the current year.
 On October 1, the entity received P600,000 liquidating dividend from A Company. The entity
owned a 10% interest in A Company.
 The entity owned a 20% interest in B Company which declared and paid a P4,000,000 cash
dividend to shareholders on December 31.
 On December 1, the entity received from C Company a dividend in kind of one share of D
Company for every 4 C Company shares held. The entity had 100,000 C Company shares
which have a market price of P50 per share on December 1. The market price of D Company
share was P10.

What amount should be reported as dividend income for the current year?
a. 1,650,000
b. 1,050,000
c. 850,000
d. 250,000

62. A method of accounting whereby the investment is initially recognized at cost and adjusted
thereafter for the post-acquisition change in the investor’s share of the investee’s net assets.
a. Cost method c. Revaluation method
b. Fair value method d. Equity method

63. An entity over which the investor has significant influence

a. Affiliate c. Associate
b. Subsidiary d. Related party

64. Initial measurement of investment in associate would be

a. Recorded at cost to the investor.
b. Adjusted to reflect the fair values of assets acquired.
c. Reduced by the amount of goodwill component of the cost to the investor.
d. Recorded at the investor’s share of the fair value of the investee’s net assets.

65. If an investor's share of losses of an associate equals or exceeds its "interest in the associate"
a. Significant influence is deemed lost and the investor should discontinue the use of equity
method.
b. The share in losses should be recorded in OCI until the investee earned profits.
c. The investor discontinues recognizing its share of further losses.
d. The investment in associate account will have a credit balance and be reported in the liability
section.

66. On July 1, Year 1, Pamela Company acquired 20% of the outstanding ordinary shares of another
entity for P5,000,000. The carrying amount of the acquired shares was P4,000,000. The excess of
 cost over carrying amount was attributable to an identifiable intangible asset which was
undervalued on the investee’s statement of financial position and which had a remaining useful
life of 5 years. The investee reported net income of P6,000,000 for Year 1 and paid cash dividends
of P1,000,000 on ordinary shares and issued 10% stock dividend on December 31, Year 1. The
carrying amount of the investment in associate on December 31, Year 1 would be
A. 5,900,000 b. 5,400,000 c. 5,300,000 d. 5,800,000

67. On January 1, 2017, Jaya Company purchased 10% of Rose Company’s ordinary share capital for
P6,000,000. Rose Company reported net income of P500,000 for 2017 and P2,000,000 for 2018,
and paid dividend of P3,000,000 on December 31, 2018. What amount should be reported as
dividend income for 2018?
a. 300,000 b. 200,000 c. 250,000 d. 500,000

68. At the beginning of current year, Alrose Company purchased 25% of the outstanding ordinary
shares of an investee. During the current year, the investee reported net income of P4,200,000
and distributed dividends of P1,800,000. The carrying amount of the investment at year-end was
P3,200,000 after applying the equity method. What was the purchase price paid for the
investment?
a. 1,700,000 b. 2,600,000 c. 3,800,000 d. 4,700,000

69. Trading bond investments are reported at

a. Amortized cost c. Fair value
b. Face value d. Maturity value

70. A gain or loss on sale of trading bond investment is the difference between
a. Sale price and carrying amount c. Fair value and carrying amount
b. Sale price and fair value d. Face amount and carrying amount

71. On April 1, 2017, Rochelle Company purchased P2,000,000 face amount, 9%, Treasury Notes for
P1,985,000, including accrued interest of P45,000. The notes mature on July 1, 2018, and pay
interest semiannually on January 1 and July 1. The entity used the straight line method of
amortization. What is the carrying amount of this investment on October 31, 2017?
a. 1,940,000 b. 1,968,000 c. 1,972,000 d. 1,990,000

72. On July 1, 2017, Jeanalie Company purchased as a long-term investment in Ruth Company’s ten-
year 12% bonds with a face amount of P5,000,000 for P4760,000. Interest is payable semiannually
on January 1 and July 1. The bonds mature on July 1, 2021. Jeanalie Company used the straight-
line method of amortization. What amount of interest income should be reported in the income
statement for the year ended December 31, 2017?
a. 270,000 b. 360,000 c. 300,000 d. 330,000

73. On October 1, 2017, Kimberly Company purchased P2,000,000 face amount 12% bonds for 98 plus
accrued interest and transaction cost and classified them as financial assets at amortized cost.
Interest is paid semiannually on January 1 and July 1. Transaction cost was P50,000. At what
amount should the investment in bonds be recorded?
a. 1,960,000 b. 2,010,000 c. 2,020,000 d. 2,070,000

74. Michael Company purchased bonds at a discount of P100,000. Subsequently, the entity sold these
bonds at a premium of P140,000. During the period that the entity held this investment,
amortization of the discount amounted to P20,000. What amount should be reported as gain on
sale of bonds?
a. 120,000 b. 220,000 c. 240,000 d. 260,000

75. On January 1, 2017, Flor Company purchased 9% bonds with a face amount of P4,000,000 for
P3,756,000 to yield 10%. The bonds are dated January 1, 2017, mature on December 31, 2026,
and pay interest annually on December 31. The bonds are measured at amortized cost. What
amount should be reported as interest revenue for 2017?
a. 400,000 b. 344,400 c. 360,000 d. 375,600