LONG QUIZ

Investments
Class IJ (5:30-7:30 TWFS)

1. On August 1, 2019, Arevalo Co. acquired 400, 1,000, 9% bonds at 97 plus accrued interest. The bonds were dated May
1, 2019, and mature on April 30, 2025, with interest paid each October 31 and April 30. The bonds will be added to
Arevalo’s FA-FVOCI. The preferred entry to record the purchase of the bonds on August 1, 2019 is

a. Debt Investments ................................................................. 388,000

Interest Revenue ..................................................................... 9,000
Cash ......................................................................... 397,000
b. Debt Investments ................................................................. 397,000
Cash ......................................................................... 397,000
c. Debt Investments ................................................................. 388,000
Interest Receivable................................................................... 9,000
Cash ......................................................................... 397,000
d. Debt Investments ................................................................. 400,000
Interest Revenue….. .................................................................. 9,000
Discount on Debt Investments.................................. 12,000
Cash ........................................................................ 397,000

2. Benigen Company purchased bonds with a face amount of P600,000 between interest payment dates. Benigen
purchased the bonds at 102, paid brokerage costs of P9,000, and paid accrued interest for three months of P15,000. The
amount to record as the cost of this long-term debt investment is
a. P621,000. b. P636,000. c. P612,000. d. P600,000.

Use the following information for questions 3 and 4.

Boado Company purchased P600,000 of 10% bonds of Bolayo Co. on January 1, 2019, paying P564,150. The bonds
mature January 1, 2029; interest is payable each July 1 and January 1. The discount of P35,850 provides an effective yield
of 11%. Boado Company uses the effective-interest method and plans to hold these bonds to maturity.

3. On July 1, 2019, Boado Company should increase its Debt Investments account for the Bolayo Co. bonds by
a. P3,588. b. P1,028. c. P2,056. d. P1,794.

4. For the year ended December 31, 2019, Boado Company should report interest revenue from the Bolayo Co bonds of:
a. P63,588. b. P62,113. c. P62,052. d. P60,000.

Use the following information for questions 5 and 6.

Bringas Co. purchased P1,000,000 of 8%, 5-year bonds from Bugnay, Inc. on January 1, 2019, with interest payable on
July 1 and January 1. The bonds sold for P1,041,580 at an effective interest rate of 7%. Using the effective-interest
method, Bringas Co. decreased the FVOCI Debt Investments account for the Bugnay, Inc. bonds on July 1, 2019 and
December 31, 2019 by the amortized premiums of P3,540 and P3,660, respectively.

5. At December 31, 2019, the fair value of the Bugnay, Inc. bonds was P1,060,000. What should Bringas Co. report as
other comprehensive income and as a separate component of stockholders' equity?
a. P18,420. b. P7,200. c. P25,620. d. No entry should be made.

6. At April 1, 2020, Bringas Co. sold the Bugnay bonds for P1,030,000. After accruing for interest, the carrying value of
the Bugnay bonds on April 1, 2020 was P1,033,750. Assuming Bringas Co. has a portfolio of FVOCI Debt Investments,
what should Bringas Co. report as a gain or loss on the bonds?
a. (P29,370). b. (P21,870). c. (P3,750). d. P 0.

7. On October 1, 2019, Bugnosen Co. purchased debt instruments, 2,000, P1,000, 9% bonds for P1,980,000 which
includes P30,000 accrued interest. The bonds, which mature on February 1, 2028, pay interest semiannually on February
1 and August 1. Bugnosen uses the straight-line method of amortization. The bonds should be reported in the December
31, 2019 balance sheet at a carrying value of
a. P1,950,000. b. P1,980,000. c. P1,980,500. d. P1,951,500.

8. On November 1, 2019, Caanawan Company purchased 900 of the P1,000 face value, 9% bonds of Cabrales,
Incorporated, for P948,000, which includes accrued interest of P13,500. The bonds, which mature on January 1, 2024,
pay interest semiannually on March 1 and September 1. Assuming that Caanawan uses the straight-line method of

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amortization and that the bonds are appropriately classified as FVOCI, the net carrying value of the bonds should be
shown on Caanawan's December 31, 2019, balance sheet at
a. P900,000. b. P934,500. c. P948,000. d. P933,120.

9. On October 1, 2019, Cascolan Co. purchased 500, P1,000, 9% bonds for P520,000. An additional P15,000 was paid for
accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2023.
Cascolan uses straight-line amortization. Ignoring income taxes, the amount reported in Cascolan's 2019 income
statement from this investment should be
a. P11,250. b. P12,450. c. P10,050. d. P13,650.

10. During 2019, Castañeda Co. purchased 3,000, P1,000, 9% bonds. The carrying value of the bonds at December 31,
2021 was P2,940,000. The bonds mature on March 1, 2026, and pay interest on March 1 and September 1. Castañeda
sells 1,500 bonds on September 1, 2023, for P1,482,000, after the interest has been received. Castañeda uses straight-
line amortization. The gain on the sale is
a. P0. b. P12,000. c. P7,200. d. P16,800.

Use the following information for 11 and 12.

On January 3, 2019, Castro Co. acquires P400,000 of Chantioco Company’s 10-year, 10% bonds at a price of P425,672 to
yield 9%. Interest is payable each December 31.

11. Assuming that Castro Co. uses the effective-interest method, what is the amount of interest revenue that would be
recognized in 2010 related to these bonds?
a. P40,000 b. P38,160 c. P42,568 d. P38,312

12. Assuming that Castro Co. uses the straight-line method, what is the amount of premium amortization that would be
recognized in 2021 related to these bonds?
a. P1,688 b. P2,568 c. P1,840 d. P2,008

Questions 13 and 14 are based on the following information:

Cipriano Co. purchased P600,000 of 8%, 5-year bonds from Copsiyat, Inc. on January 1, 2019, with interest payable on
July 1 and January 1. The bonds sold for P624,948 at an effective interest rate of 7%. Using the effective interest method,
Cipriano Co. decreased the FVOCI Debt Investments account for the Copsiyat, Inc. bonds on July 1, 2019 and December
31, 2019 by the amortized premiums of P2,124 and P2,196, respectively

13. At December 31, 2019, the fair value of the Copsiyat, Inc. bonds was P636,000. What should Cipriano Co. report as
other comprehensive income and as a separate component of stockholders’ equity?
a. P15,372 b. P4,320 c. P11,052 d. P0.

14. At February 1, 2020, Cipriano Co. sold the Copsiyat bonds for P618,000. After accruing for interest, the carrying value
of the Copsiyat bonds on February 1, 2020 was P620,250. Assuming Cipriano Co. has a portfolio of FVOCI debt
investments, what should Cipriano Co. report as a gain (or loss) on the bonds?
a. (P2,250) b. (P13,122). c. (P17,622) d. P0.

15. During 2019 Dacumos Company purchased 6,000 shares of Daguro, Inc. for P30 per share. The investment was
classified as a trading security. During the year Dacumos Company sold 1,500 shares of Daguro, Inc. for P35 per share. At
December 31, 2019 the market price of Daguro, Inc.’s stock was P28 per share. What is the total amount of gain/(loss)
that Dacumos Company will report in its income statement for the year ended December 31, 2019 related to its
investment in Daguro, Inc. stock?
a. (P12,000) b. (P1,500) c. P7,500 d. (P4,500)

Use the following information for questions 16 and 17.

Daluyen Corp. has the following investments which were held throughout 2019–2020:
Fair Value
Cost 12/31/19 12/31/20
Trading P450,000 P600,000 P570,000
Available-for-sale 450,000 480,000 540,000

16. What amount of gain or loss would Daluyen Corp. report in its income statement for the year ended December 31,
2020 related to its investments?
a. P30,000 gain. b. P30,000 loss. c. P210,000 gain. d. P120,000 gain.

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17. What amount would be reported as accumulated other comprehensive income related to investments in Daluyen
Corp.’s balance sheet at December 31, 2019?
a. P60,000 gain. b. P90,000 gain. c. P30,000 gain. d. P180,000 gain.

18. On its December 31, 2019, balance sheet, Dao-il Co. reported its investment in FVOCI, which had cost P600,000, at
fair value of P550,000. At December 31, 2020, the fair value of the securities was P585,000. What should Dao-il report on
its 2020 income statement as a result of the increase in fair value of the investments in 2020?
a. Unrealized loss of P15,000. b. Realized gain of P35,000. c. P0. d. Unrealized gain of P35,000.

19. During 2019, Dimaren Company purchased 40,000 shares of Eploy Corp. common stock for P630,000 as an FVOCI.
The fair value of these shares was P600,000 at December 31, 2019. Dimaren sold all of the Eploy stock for P17 per share
on December 3, 2020, incurring P28,000 in brokerage commissions. Dimaren Company should report a realized gain on
the sale of stock in 2020 of
a. P50,000. b. P52,000. c. P80,000. d. P22,000

20. On January 2, 2019 Esis Company purchased 25% of the outstanding common stock of Estillore, Inc. and
subsequently used the equity method to account for the investment. During 2019 Estillore, Inc. reported net income of
P630,000 and distributed dividends of P270,000. The ending balance in the Equity Investments account at December 31,
2019 was P480,000 after applying the equity method during 2019. What was the purchase price Esis Company paid for
its investment in Estillore, Inc?
a. P255,000 b. P570,000 c. P705,000 d. P390,000

21. Estong Corporation purchased 25,000 shares of common stock of the Gines Corporation for P40 per share on January
2, 2019. Gines Corporation had 100,000 shares of common stock outstanding during 2022, paid cash dividends of
P120,000 during 2022, and reported net income of P400,000 for 2022. Estong Corporation should report revenue from
investment for 2022 in the amount of
a. P30,000. b. P70,000. c. P100,000. d. P110,000.

Use the following information for questions 22 and 23

22. Gloria Co. owns 20,000 of the 50,000 outstanding shares of Goloyugo, Inc. common stock. During 2019, Goloyugo
earns P1,200,000 and pays cash dividends of P960,000. If the beginning balance in the investment account was
P750,000, the balance at December 31, 2019 should be
a. P1,230,000. b. P990,000. c. P846,000. d. P750,000.

23.. Gloria should report investment revenue for 2019 of

a. P384,000. b. P480,000. c. P96,000. d. P0.

24. During 2019, Paggadut Company purchased marketable equity securities as short-term investments to be measured
at FVOCI. The cost and market value on December 31, 2019 were
Security Cost Market Value
Paquit 1000 shares 300,000 350,000
Paralejas 10,000 shares 1,700,000 1,550,000
Quero 20,000 shares 3,150,000 2,950,000
The entity sold 10,000 shares of Paralejas on January 5, 2020 for 1,450,000. What total amount should be charged to
retained earnings as a result of the sale of equity securities in 2020?
a. P200,000. b. P250,000. c. 100,000. d. 50,000

25. MDC Company purchased the following investments during 2019:

Market Value
Classification Cost December 31,2019
Security A Trading 900,000 1,000,000
Security B Trading 1,000,000 1,600,000
On July 31, 2020, the entity sold all the shares of Security B for 1,100,000. On December 31,2020, the shares of Security
A had a market value of 600,000. No other activity occurred during 2020 in relation to the trading security portfolio.
What total loss should be reported in the income statement for 2020?
a. 900,000. b. 500,000. c. 400,000. d. 100,000.

Use the following information for number 26 and 27.

During 2019, COA Company bought shares of another entity to be held for trading.
June 1 20,000 shares @ P100 2,000,000
December 1 30,000 shares @ P120 3,600,000
TRANSACTIONS FOR 2020
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January 10 Received cash dividend at P10 per share
January 20 Received 20% share dividend
December 10 Sold 30,000 shares @ P125 per share

26. What is the gain on sale of investment using the average approach?
a. 950,000. b. 750,000. c. 800,000. d. 900,000.

27. What total amount should be reported as income from the investment using the FIFO approach?
a. 1,450,000 b. 1,650,000 c. 1,750,000 d. 500,000

28. At the beginning of the current year, Gonsoden Co purchased 50,000 shares of another entity for 3,800,000. During
the year, the entity received 50,000 share rights from the investee. The share rights are not accounted for separately.
Each right is entitled the shareholder to acquire one share for P80. The market price of the investee’s share was P100
immediately before the rights were issued and P90 after the rights were issued. The entity exercised all share rights
during the year.
At year end, the entity sold 25,000 shares at P90 per share. The FIFO approach is used. What amount of gain on sale of
investment should be recognized in the current year?
a. 300,000 b. 350,000 c. 600,000 d. 250,000

29. At the beginning of current year, Libunao Co purchased 40% of the outstanding ordinary shares of an investee paying
P2,560,000 when the carrying amount of the net assets of the investee equaled P5,000,000. The difference was
attributed to equipment which had a carrying amount of P1,200,000 and a fair market value of P2,000,000, and to
building with a carrying amount of P1,000,000 and a fair market value of P1,600,000.
The remaining useful life of the equipment and building was 4 years and 12 years, respectively. During the current year,
the investee reported net income of P1,600,000 and paid dividends of P1,000,000.
What is the carrying amount of the investment in associate at year-end?
a. 2,550,000 b. 2,800,000 c. 2,700,000 d. 3,050,000

30. Roberto Co owned 20% of Baniaga Company’s preference share capital and 50% of the ordinary share capital.
Baniaga Company’s share capital outstanding on December 31, 2019 is as follows:
10% cumulative preference share capital 2,000,000
Ordinary share capital 7,000,000
Baniaga Company reported net income of P5,000,000 for the year ended December 31, 2019. What amount should be
recorded as investment income for the year ended December 31, 2019?
a. 2,500,000 b. 2,600,000 c. 2,400,000 d. 2,700,000

Use the following for numbers 31 to 33.

On January 1, 2019, Lictag Co acquired a 10% interest in an investee for P3,000,000. The investment was accounted for
using the cost method. On January 1, 2020, the entity acquired a further 15% interest in the investee for P6,750,000. On
such date, the carrying amount of the net assets of the investee was P36,000,000 and the fair value of the 10% interest
was P4,500,000.

The fair value of the net assets of the investee is equal to carrying amount except for an equipment whose fair value
exceeds carrying amount by P4,000,000. The equipment has a remaining life of 5 years. The investee reported net
income of P8,000,000 for 2020 and paid dividend of P5,000,000 on December 31, 2020.

31. What is the gain in the remeasurement to equity to be recognized for 2020?
a. 0 b. 2,250,000 c. 4,500,000 d. 1,500,000

32. What is the goodwill arising from the acquisition on January 1, 2020?
a. 350,000 b. 1,350,000 c. 2,250,000 d. 1,250,000

33. What is the carrying amount of the investment in associate on December 31, 2020?
a. 14,300,000 b. 12,000,000 c. 11,800,000 d. 11,250,000

Use the following information for number 34 to 37

On January 1, 2019, Gavina Co purchased 12% bonds with face amount of P5,000,000 for P5,500,000 including
transaction cost of P100,000. The bonds provide an effective yield of 10%. The bonds are dated January 1, 2019 and pay
interest annually on December 31 of each year. The bonds are quoted at 115 on December 31, 2019. The entity has
irrevocably elected to use the fair value option.

34. What amount of gain from change in fair value should be reported for 2019?
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a. 750,000 b. 250,000 c. 350,000 d. 0

35. What amount of interest income should be reported for 2019?

a. 550,000 b. 600,000 c. 660,000 d. 540,000
36. What is the carrying amount of the bond investment on December 31, 2019?
a. 5,400,000 b. 5,750,000 c. 5,500,000 d. 5,450,000

37. What total amount of income from the investment should be reported in the income statement for 2019?
a. 950,000 b. 900,000 c. 890,000 d. 540,000

Use the following information for numbers 38-40

Uwian-Na Co acquired 30% of Goodluck Company’s voting share capital for P2,000,000 on January 1, 2019. Uwian-Na’s
30% interest in Goodluck gave Gavina the ability to exercise significant influence over Goodluck’s operating and financial
policies. During 2019, Goodluck earned P1,500,000 and paid dividends of P500,000. Goodluck reported earnings of
P1,000,000 for the six months ended June 30, 2020, and P2,500,000 for the year ended December 31, 2020 but paid
dividend of P1,000,000 on October 1, 2020.
On July 1, 2020, Uwian-Na sold half of the investment in Goodluck for P2,000,000 cash. On such date, the investment is
measured at fair value through profit or loss. The fair value of the retained investment is P2,200,000 on July 1, 2020 and
P2,400,000 on December 31, 2020.

38. What amount should be recognized as investment income for 2019 as a result of the investment?
a. 450,000 b. 500,000 c. 750,000 d. 150,000

39. In the December 31, 2019 statement of financial position, what is the carrying amount of the investment?
a. 2,000,000 b. 2,300,000 c. 2,450,000 d. 2,600,000

40. What total amount of income should be reported for 2020?

a. 2,100,000 b. 2,250,000 c. 1,950,000 d. 2,050,000

BONUS POINTS (RECLASSIFICATION)

Use the following information for number 1 and 2 (From FVOCI to amortized cost)
On January 1, 2019 Nanglihan Co purchased bonds with face amount of P5,000,000. The entity paid P4,500,000 plus
transaction cost of P168,600. The bonds mature on December 31, 2022 and pay 6% interest annually on December 31 of
each year with 8% effective yield. The bonds are quoted at 105 on December 31, 2019 and 110 on December 31, 2020.
The business model in managing the financial asset is to collect contractual cash flows and also to sell the bonds in the
open market. The entity has not elected the fair value option.
On December 31, 2020, the entity changed the business model to collect only contractual cash flows.
On December 31, 2021, the bonds are quoted at 115 and the market rate of interest is 10%.
1. Compute for the unrealized gain for 2019.
2. Compute for the unrealized gain for 2020.

3. (From amortized cost to FVOCI). On January 1, 2019, Naoh-ha Company purchased bonds with face amount of
P2,000,000 for 1,900,000 including transaction cost of P100,500. The bonds mature on December 31, 2021 and pay 8%
interest annually every December 31 with a 10% effective yield. On December 31, 2019, the entity changed the business
model for this investment to collect contractual cash floes and to sell the financial asset in the open market. The bonds
are quoted at 110 on January 1, 2020 and 120 on December 31, 2020. Compute the unrealized gain for 2020.

Use the following information for number 4 to 7 (From FVPL to FVOCI)

On January 1, 2019, Pacheco Company purchased 6% bonds with face amount of P4,000,000. The bonds mature on
January 1, 2024 and were purchased for P3,530,000 to yield 9%. The entity classified the bonds as held for trading and
interest is payable annually every December 31.
Fair Value Effective Rate
December 31, 2019 3,490,000 10%
December 31, 2020 3,425,000 12%

On December 31, the entity changed the business model to collect contractual cash flows and also to sell the bonds in
the open market. On January 1, 2020, the fair value of the bonds did not change.
4. What is the interest income in 2019?
5. What amount of unrealized loss is included in profit or loss for 2019?
6. What is the interest income for 2020?
7. What amount of unrealized loss is recognized in OCI for 2020?
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