San Beda College Alabang

Final Examination 2nd Sem AY2018-2019

ACEINT1 Intermediate Accounting 1 – Prof. M. Cullano

Accountancy Department

Name: _______________________________________ Date: __________ Section:________

INSTRUCTION: Encircle the letter of the correct answer in each of the given question. STRICTLY NO CHEATING.

1. Which type of debt investments had characteristics wherein discount or premium is amortized
using the effective interest method?
I. Debt Investments at Amortized Cost
II. Debt Investments at Fair Value through Profit or Loss
III. Debt Investments at Fair Value through Other Comprehensive Income

A. I only
B. I and II only
C. I and III only
D. I, II, and III

2. It refers to the portion of lifetime expected credit losses that represent the expected credit
losses that result from default events on a financial instrument that are possible within the 12
months after the reporting date.
A. Lifetime expected credit losses
B. 12-month expected credit losses
C. Credit risk
D. Impairment of debt investments

3. Financial instruments issued by a company that typically have the following characteristics: (1) a
maturity value, (2) an interest rate (either fixed or variable) that specifies the periodic interest
payments, and (3) a maturity date are known as
A. Debt securities
B. Equity securities
C. Insurance
D. Financial asset

4. It refers to the expected credit losses that result from all possible default events over the
expected life of a financial instrument.
A. Lifetime expected credit losses
B. 12-month expected credit losses
 C. Credit risk
D. Impairment of debt investments

5. Which type of debt investments had characteristics wherein interest income is based on
effective interest method?
I. Debt Investments at Amortized Cost
II. Debt Investments at Fair Value through Profit or Loss
III. Debt Investments at Fair Value through Other Comprehensive Income

A. I only
B. I and II only
C. I and III only
D. I, II, and III

6. Under IFRS 9, the classification of investments in debt securities shall be made on the basis of
A. Business model test
B. Contractual cash flows characteristics test
C. Trading or selling in the near future
D. Both Business model test and Contractual cash flows characteristics test

7. The debt investments are classified as at amortized cost if the following characteristics are
present, except:
A. The objective is to hold the assets in order to collect contractual cash flows.
B. The contractual terms provide specified dates to cash flows that are solely payments of
principal and interest.
C. The enterprise does not use the fair value option for the investments.
D. The investments are held for trading.

8. Under IFRS 9, investments in debt securities that meet the business model test of collecting
contractual cash flows, and for which the enterprise does not exercise its option to measure at
fair value shall be initially recognized at
A. Purchase price
B. Fair value
C. Purchase price plus transaction costs.
D. Purchase price plus transaction costs plus accrued interest.

9. The following are the stages of impairment for debt securities under IFRS 9, except:
A. Recognition of 12-months expected credit losses, updated at each reporting date.
B. Breaches of covenants and failure of compliance with audited financial statements.
C. Recognition of lifetime expected credit losses and interest is presented on a gross basis.
D. Recognition of lifetime expected credit losses and interest is presented on a net basis.
10. Which type of debt investments had characteristics wherein interest income is based on
nominal interest rate applied to the face of the instrument and movement in fair value between
reporting dates is taken to profit or loss?
I. Debt Investments at Amortized Cost
II. Debt Investments at Fair Value through Profit or Loss
III. Debt Investments at Fair Value through Other Comprehensive Income

A. I only
B. II only
C. III only
D. I, II, and III

11. Which type of debt investments is initially recognized at purchase price?

I. Debt Investments at Amortized Cost
II. Debt Investments at Fair Value through Profit or Loss
III. Debt Investments at Fair Value through Other Comprehensive Income

A. I only
B. II only
C. III only
D. I, II, and III

12. Financial instruments that represent ownership in a company are known as

A. Debt securities
B. Equity securities
C. Insurance
D. Financial asset

13. If the bonds’ nominal rate is greater than the effective rate, the bonds sell at a
A. Premium
B. Discount
C. Face value
D. None of the above.

14. If the bonds’ nominal rate is less than the effective rate, the bonds sell at a
A. Premium
B. Discount
C. Face value
D. None of the above.

15. It refers to how an entity manages its financial assets to generate cash flows. It is applied at the
portfolio level and not on instrument-by-instrument approach.
 A. Business model test
B. Contractual cash flows characteristics test
C. Trading or selling in the near future
D. Both Business model test and Contractual cash flows characteristics test

16. On January 1, Year 1, Abi Company acquired 5-year, 15%, P8,000,000 face value bonds for
P8,274,646. Based on the company’s business model and the contractual cash flow collectible
from this instrument, Abu Company designates the bonds as bond investments at amortized
cost. Interest on the bonds is payable annually on December 31. The investments were acquired
at a price to yield 14%. What is the carrying value of debt investment on December 31, Year 3?
A. 8,070,173 C. 8,131,731
B. 8,185,729 D. 8,274,646

17. On January 1, Year 1, Glow Company purchased P1,000,000 12% bonds of Glow Company for
P1,063,394, a price that yields 10%. Interest on these bonds is payable every December 31. The
bonds mature on December 31, Year 4. The bonds are designated as investments at amortized
cost. What amount should the bond investments be shown on December 31, Year 2 statement
of financial position?
A. 1,060,000 C. 1,034,706
B. 1,049,733 D. 1,018,177

18. In addition to the information given on number 17, Glow Company sold P600,000 face value
bonds at 101 plus accrued interest on April 1, Year 3. What amount of gain or loss should Grow
recognize on the sale of investments on April 1, Year 3?
A. 12,225 gain C. 12,345 gain
B. 12,225 loss D. 12,345 loss

19. On January 1, Year 1, Glow Company purchased P1,000,000 12% bonds of Glow Company for
P1,063,394, a price that yields 10%. Interest on these bonds is payable every December 31. The
bonds mature on December 31, Year 4. The bonds were designated as at fair value through
profit or loss. Market value of the bonds on different dates is as follows:
December 31, Year 1 108
December 31, Year 2 106
December 31, Year 3 104
On April 1, Year 3, to pay a maturing obligation, Glow sold P600,000 face value bonds at 101
plus accrued interest. What amount of gain or loss should Glow report on the sale of the
bond investments on April 1, Year 3?
A. 30,000 gain C. 15,000 gain
B. 30,000 loss D. 15,000 loss
20. Using the information given on number 19, the bonds were designated as at fair value through
comprehensive income. What amount should the bond investments be shown on December 31,
Year 2 statement of financial position?
A. 1,060,000 C. 1,034,706
B. 1,049,733 D. 1,018,177

21. Any instrument representing ownership shares and the right to acquire ownership shares is
A. Debt security
B. Equity security
C. Shareholders’ equity
D. Marketable security

22. ABC Corporation purchased ordinary shares of XYZ Company. ABC does not intend to hold the
shares for trading purposes and the shares are not enough for ABC to exercise significant
influence over XYZ. Can ABC designate the shares as (A) at fair value through profit or loss or (B)
at fair value through other comprehensive income?
At FV through Profit of Loss? At FV through OCI?
A. Yes Yes
B. Yes No
C. No Yes
D. No No

23. Equity securities acquired for trading shall be measured at

A. Cost, being the purchase price.
B. Fair value, with change in fair value taken to profit or loss.
C. Fair value, with change in fair value taken to other comprehensive income.
D. Cost, being the purchase price plus transaction costs.

24. Under which type of investment classification is transaction cost of acquisition taken to profit or
loss?
A. Financial assets at fair value through profit or loss
B. Financial assets at fair value through other comprehensive income
C. Financial assets at amortized cost
D. Investment in associate

25. Which one of the following indicates that the investor does not exercise significant influence
over the investee?
A. The investor has representation in the investee’s board of directors.
B. Majority ownership of the investee is concentrated among a small group of shareholders
who operate the investee without regard to the views of the investor.
C. There are material intercompany transactions between the investor and the investee.
D. There is interchange of managerial personnel between the investor and the investee.
26. Under IFRS 9, the cumulative balance of equity as a result of measuring equity investments at
fair value through other comprehensive income
A. Shall be reversed to profit or loss at the date the security is sold.
B. Shall be reversed to profit or loss when there is objective evidence of impairment.
C. Shall not be reversed to profit or loss but may be transferred to another equity account.
D. Shall not be reversed to profit or loss and shall not be transferred to another equity account.

27. How should the investment in associate be measured and presented in the consolidated
financial statements and in the financial statements of an investor that does not have a
subsidiary?
A. Measured in accordance with equity method and included in the line item “Other non-
current financial assets”.
B. Measured at fair value and included in the line item “Other non-current financial assets”.
C. Measured in accordance with equity method and presented in a separate line item.
D. Measured at fair value and presented in a separate line item.

28. This refers to the proportionate distribution of earnings in the form of the issuing company’s
share capital. Also termed as share dividends or stock dividends.
A. Cash dividends
B. Liquidating dividends
C. Bonus issue
D. Property dividends

29. A joint arrangement whereby the parties that have joint control of the arrangement have rights
to the net assets of the arrangement is called
A. Joint control
B. Joint venture
C. Joint venturers
D. Investment in associate

30. It refers to a reduction in the par or stated value of share capital accompanied by a
proportionate increase in the number of shares outstanding.
A. Share split
B. Share warrants
C. Reverse share split
D. Stock rights

31. The power to participate in the financial and operating policies of the investee without having
control or joint control over those policies is called
A. Control
B. Significant influence
C. Investment in associate
 D. Investment in joint venture

32. These rights are issued to existing shareholders to buy share capital in order to maintain their
proportionate ownership interests.
A. Share split
B. Share warrants
C. Reverse share split
D. Stock rights

33. This refers to the date when the Board of Directors of a corporation declares the distribution of
dividends
A. Date of payment
B. Date of record
C. Date of declaration
D. Ex-date

34. Equity securities that give the holder the power to govern the financial and operating policies of
an entity so as to obtain benefits from its activities is known as
A. Investment in associate or joint venture
B. Investment in subsidiaries
C. Equity investments at fair value through profit or loss
D. Equity investments at fair value through other comprehensive income

35. These are costs incurred relating to purchase of securities such as commissions paid to
underwriter and transfer tax.
A. Transaction costs
B. Sunk costs
C. Filing Fees
D. Dividends

36. On January 1, 2019, the Pacita Corporation purchased equity securities to be held for trading
purposes for P2,000,000. The company also paid commission, taxes and other transaction costs
amounting to P50,000. The securities had fair values at December 31, 2019 and 2020,
respectively: P1,750,000 and P2,100,000. No securities were sold during 2020. What amount of
unrealized gain or loss should be reported in the 2020 profit or loss section of the statement of
comprehensive income?
A. P200,000 loss C. P350,000 gain
B. P250,000 loss D. P100,000 gain

37. On January 1, 2019, the Pacita Corporation purchased marketable equity securities for
P2,000,000. The company also paid commission, taxes and other transaction costs amounting to
P50,000. Because the securities were acquired not for immediate trading, Pacita exercised its
 option to take the change in fair value through other comprehensive income. The securities had
the following fair values at December 31, 2019 and 2020, respectively: P1,750,000 and
P2,100,000. No securities were sold during 2019 or 2020. What amount of unrealized gain or
loss should be reported in the December 31, 2020 statement of financial position as a
component of shareholders’ equity?
A. P200,000 cumulative unrealized loss C. P50,000 cumulative unrealized gain
B. P250,000 cumulative unrealized loss D. P100,000 cumulative unrealized gain

38. On December 30, 2019, Aloha Company, an entity with no subsidiary, purchased 10,000
ordinary shares of Sun Valley Corporation at P150 per share. At the time of the purchase, Sun
Valley has an outstanding 50,000 shares with a total shareholders’ equity of P7,500,000. For the
year 2020, Sun Valley reported profit of P3,000,000. On December 30, Aloha received a cash
dividend of P50 per share.

` Based only on the foregoing information, what is the investment carrying value at December 31,
2020?
A. 2,600,000 C. 1,600,000
B. 2,100,000 D. 1,500,000

39. On January 1, 2020, IBM Company paid P1,200,000 for 40,000 ordinary shares of Apple Corp.,
which represent a 25% investment in the net assets of Apple. IBM has the ability to exercise
significant influence over Apple. IBM received a dividend of P3 per share from Apple in 2020.
The reported profit of Apple for the year ended December 31, 2020 was P640,000.

The balance of IBM’s Investment in Apple at December 31, 2020 should be

A. 1,200,000 C. 1,360,000
B. 1,240,000 D. 1,480,000

40. On January 1, 2020, Admiral Company purchased 10,000 ordinary shares of LTS Corporation, a
large, publicly-traded company listed on a major stock exchange. In December, LTS distributed a
20% bonus issue when the par value was P100 per share and the market value was P500 per
share. How much income should Admiral Company report in 2020?
A. P0
B. P200,000
C. P1,000,000
D. P4,000,000

41. Which of the following is an essential characteristic of a liability?

I. It is a present obligation that requires settlement by probable future transfer or use of cash,
goods or services.
II. The liability must be an unavoidable obligation.
III. The transaction or other event creating the obligation must have already occurred.
IV. The obligation must be settled to a specifically identifiable party.
 A. I, II, III and IV
B. I, II and IV
C. II, III and IV
D. I, II and III

42. A company borrowed cash from a bank and issued to the bank a short-term non-interest
bearing note payable. The bank discounted the note at 10% and remitted the proceeds to the
company. Which of the following statements is true?
A. The effective interest rate is equal to the stated discount rate of 10%
B. The effective interest rate is more than the stated discount rate of 10%
C. The effective interest rate is less than the stated discount rate of 10%
D. The effective interest rate cannot be determined from the information given.

43. Which of the following shall generally be classified as current even if they are due to be settled
more than twelve months after the end of the reporting period?
A. Bonds payable
B. Trade payables and accrued operating expenses
C. Notes payable to Bank
D. Deferred Revenues

44. Bonds maturing on a single date are called

A. Callable bonds C. Serial bonds
B. Debenture bonds D. Term bonds

45. When a corporation issues a callable bond, this means that the
A. Investor may convert bonds held to cash at his or her option.
B. Issuer may retire the bonds by paying a specified call price during a specified period.
C. Issuer may retire the bonds by paying a specified market price at the open market at any
point in the life of the bond.
D. Issuer may convert bonds to some form of equity security during a specified period.

46. A kind of bond that gives the issuing company the right to call or retire the debt before maturity
date, usually specified on the bond indenture is known as
A. Callable bonds C. Serial bonds
B. Debenture bonds D. Term bonds

47. This is an obligation that derives from an entity’s actions where: (a) by an established pattern of
past practice, published policies or a sufficiently specific current statement, the entity has
indicated to other parties that it will accept certain responsibilities; and (b) as a result, the entity
has created a valid expectation on the part of those other parties that it will discharge those
responsibilities.
A. Current obligation
B. Passive obligation
C. Constructive obligation
 D. Legal obligation

48. This is an obligation that derives from: (a) a contract (through its explicit or implicit terms); (b)
legislation; or (c) other operation of law.
A. Current obligation
B. Passive obligation
C. Constructive obligation
D. Legal obligation

49. It is a financial instrument that gives the holder thereof the right to convert its bondholding into
ordinary shares or other securities of the issuing company within a specified period of time.
A. Callable bonds C. Convertible bonds
B. Debenture bonds D. Term bonds

50. This is an unsecured bond that is not protected by the pledge of any specific asset and is
generally issued based on the credit rating of the company since this is backed only by the
issuer’s favourable credit standing.
A. Callable bonds C. Convertible bonds
B. Debenture bonds D. Term bonds