Problem 1:
On January 1, 2016, Alexis Company purchased marketable equity securities to be held as
“trading” for P5,000,000. The entity also paid transaction cost amounting to P200,000.
The securities had a market value of P5,500,000 on December 31, 2016 and the transaction
cost that would be incurred on sale is estimated at P100,000. No securities were sold during
2016.
What amount of unrealized gain or loss on these securities should be reported in the 2016
income statement?
a. 500,000 gain
b. 500,000 loss
c. 300,000 gain
d. 400,000 gain
Problem 2:
Pare Company purchased 10% of Tot Company's 100,000 outstanding ordinary shares on
January 1, 2016 for P500,000.
On December 31, 2016, Pare purchased an additional 20,000 shares of Tot for P1,500,000. Tot
had not issued any additional shares during 2016.
The investee reported earnings of P3,000,000 for 2016.
The fair value of the 10% interest is P900,000 on December 31, 2016.
What is the carrying amount of the investment in associate on December 31, 2016?
a. 2,300,000
b. 2,000,000
c. 2,400,000
d. 2,900,000
Problem 3:
On January 1, 2013, Bart Company acquired as a long term investment for P7,000,000, a 40%
interest in Hall Company when the fair value of Hall’s net assets was P17,500,000. Hall
Company reported the following net losses:
2013: 5,000,000 2014: 7,000,000 2015: 8,000,000 2016: 4,000,000
On January 1, 2015, Bart Company made cash advances of P2,000,000 to Hall Company. On
December 31, 2016, it is not expected that Bart Company will provide further financial support
for Hall Company.
What amount should be reported as loss from investment for 2016?
a. 1,600,000
b. 4,000,000
c. 1,000,000
d. 600,000
Problem 4:
On January 1, 2016, Marissa Company acquired 25% of the outstanding shares of an investee
at a total cost of ₱7,000,000. At the time, the carrying amount of net assets of the investee
totaled ₱24,000,000.
The investee owned equipment with 5-year remaining life and with a fair value of ₱2,000,000
more than carrying amount. The investee owned land with a fair value of ₱1,000,000 more than
carrying amount.
The investee earned net income of ₱5,000,000 evenly during the current year. The investee
declared and paid a cash dividend of ₱3,000,000 to shareholders at year-end. The fair value of
the investment at year-end is ₱7,500,000.
1. What is the goodwill arising from the investment in associate?
a. 750,000
b. 500,000
c. 250,000
d. 0
2. What is the investment income for 2016?
a. 1,250,000
b. 1,150,000
c. 900,000
d. 650,000
3. What is the carrying amount of the investment on December 31, 2016?
a. 7,400,000
b. 7,500,000
c. 7,000,000
d. 8,150,000
Problem 5:
Day Company received dividends from share investments during the year ended December 31,
2016 as follows:
• A stock dividend of 4,000 shares from Parr Company on July 31, 2016 when the market price
of Parr’s share was P20. Day owns less than 1% of Parr’s share capital. • A cash dividend of
P150,000 from Lark Company in which Day owns a 25% interest. A majority of Lark’s directors
are also directors of Day.
What amount of dividend revenue should be reported in 2016?
a. 230,000
b. 150,000
c. 80,000
d. 0
Problem 6:
During 2016, Lawan Company bought the shares of Burwood Company as follows:
● June 1: 20,000 shares @ P100 = 2,000,000
● December 1: 30,000 shares @ P120 = 3,600,000
● Total: 5,600,000
Transactions for 2017:
● January 10: Received cash dividend at P10 per share.
● January 20: Received 20% stock dividend.
● December 10: Sold 30,000 shares at P125 per share.
If the FIFO approach is used, what is the gain on the sale of the shares?
a. 1,150,000
b. 950,000
c. 150,000
d. 550,000
Problem 7:
On January 1, 2016, ABC Company purchased 40,000 shares at P100 per share to be held for
trading. Brokerage fees amounted to P120,000.
A P5 dividend per share had been declared on December 15, 2015, to be paid on March 31,
2016 to shareholders of record on January 31, 2016. No other transactions occurred in 2016
affecting the investment.
What is the initial measurement of the investment?
a. 4,120,000
b. 4,000,000
c. 3,920,000
d. 3,800,000
Problem 8:
On December 31, 2016, Fay Company appropriately reported a P100,000 unrealized loss.
There was no change during 2017 in the composition of the portfolio of nontrading equity
securities held at fair value through other comprehensive income.
Security Cost Market value December 31, 2017
A 1,200,00 1,300,000
0
B 900,000 500,000
C 1,600,00 1,500,000
0
Total 3,700,00 3,300,000
0
1.
What is the market value of the investment on December 31, 2016?
a. 3,600,000
b. 3,700,000
c. 3,500,000
d. 3,800,000
2. What amount of loss on these securities should be included in the statement of
comprehensive income for the year ended December 31, 2017 as a component of other
comprehensive income?
a. 400,000
b. 300,000
c. 100,000
d. 0
3. What cumulative amount of loss on these securities should be reported in the statement
of changes in equity for the year ended December 31, 2017 as a component of other
comprehensive income?
a. 100,000
b. 200,000
c. 400,000
d. 0
Problem 9:
Carmela Company acquired a nontrading equity instrument for P4,000,000 on March 31, 2016.
The equity instrument is classified as a financial asset at fair value through other comprehensive
income.
The transaction cost incurred amounted to P700,000.
On December 31, 2016, the fair value of the instrument was P5,500,000 and the transaction
cost that would be incurred on the sale of the investment is estimated at P600,000.
What amount of gain should be recognized in other comprehensive income for the year ended
December 31, 2016?
a. 200,000
b. 900,000
c. 800,000
d. 600,000
Problem 10:
Problem 40-1 (AICPA Adapted)
On July 1, 2016, Cody Company paid P1,198,000 for 10%, 20-year bonds with a face amount of
P1,000,000. Interest is paid on June 30 and December 31.
The bonds were purchased to yield 8%. The effective interest method is used to recognize
interest income from this long-term investment.
What is the carrying amount of the investment in bonds on December 31, 2016?
a. 1,207,900
b. 1,198,000
c. 1,195,920
d. 1,193,050
Problem 11:
On January 1, 2016, Purl Company purchased as a long-term investment P5,000,000 face
value of Shaw Company's 8% bonds for P4,562,000. The bonds were purchased to yield 10%
interest.
The bonds mature on January 1, 2021 and pay interest annually on December 31. The interest
method of amortization is used.
1. What is the interest income for 2017? a. 456,200 b. 461,820 c. 400,000 d. 369,456
2. What is the carrying amount of the bond investment on December 31, 2017?
a. 4,680,020
b. 4,662,000
c. 4,618,200
d. 4,562,000
Problem 12:
On July 1, 2016, York Company purchased as a long-term investment P1,000,000 of Park
Company's 8% bonds for P946,000, including accrued interest of P40,000. The bonds were
purchased to yield 10% interest.
The bonds mature on January 1, 2022, and pay interest annually on January 1. York Company
used the effective interest method of amortization.
1. What is the interest income for 2016?
a. 80,000
b. 90,600
c. 45,300
d. 40,000
2.. On December 31, 2016, what is the carrying amount of the investment in bonds?
a. 911,300
b. 916,600
c. 953,300
d. 960,600
Problem 13:
On January 1, 2016, Portugal Company purchased bonds with face value of P8,000,000 for
P7,679,000 as a long-term investment. The stated rate on the bonds is 10% but the bonds are
acquired to yield 12%.
The bonds mature at the rate of P2,000,000 annually every December 31 and the interest is
payable annually also every December 31. The entity used the effective interest method of
amortizing discount.
What is the interest income for 2016?
a. 800,000
b. 921,480
c. 960,000
d. 767,900
What is the carrying amount of the investment in bonds on December 31, 2016?
a. 5,759,250
b. 7,759,250
c. 7,800,480
d. 5,800,480
Problem 14:
Problem 40-8 (AICPA Adapted)
Jent Company purchased bonds at a discount of P100,000. Subsequently, Jent sold these
bonds at a premium of P140,000.
During the period that Jent held this long-term investment, amortization of the discount
amounted to P20,000.
What amount should be reported as gain on the sale of bonds?
a. 120,000
b. 220,000
c. 240,000
d. 260,000
Problem 15:
On October 1, 2016, Danica Company purchased P2,000,000 face value 12% bonds for 98 plus
accrued interest and brokerage fee. Interest is paid semiannually on January 1 and July 1.
Brokerage fee for this transaction was P50,000.
At what amount should this acquisition of bonds be recorded?
a. 1,960,000
b. 2,010,000
c. 2,020,000
d. 2,070,000
Problem 16:
On January 1, 2016, Russia Company purchased 5-year bonds with face amount of ₱8,000,000
and stated interest of 10% per year payable semiannually on June 30 and December 31.
The bonds were acquired to yield 8%.
Present value of an annuity of 1 for 10 periods at 5%: 7.72 Present value of an annuity of 1 for
10 periods at 4%: 8.11 Present value of 1 for 10 periods at 4%: 0.6756
1. What is the market price or purchase price of the bonds?
a. 7,382,400
b. 8,617,600
c. 8,648,800
d. 7,351,200
2. What is the carrying amount of the bond investment on December 31, 2016?
a. 8,594,752
b. 8,540,704
c. 8,538,542
d. 8,302,848
Problem 17:
On January 1, 2016, Cambodia Company purchased bonds with face amount of ₱5,000,000 at
a cost of ₱4,700,000 to be held as financial asset at amortized cost. The stated interest is 10%
payable annually every December 31. The bonds mature in 4 years or January 1, 2020.
What amount of interest income should be reported for the year ended December 31, 2016
under the effective interest method?
a. 500,000
b. 470,000
c. 517,000
d. 562,590
Problem 18:
On January 1, 2016, Queen Company purchased bonds with face amount of ₱5,000,000 for
₱4,760,000 including transaction cost of ₱160,000. The business model is to collect contractual
cash flows and to sell the financial asset.
The bonds mature on December 31, 2018 and pay 10% interest annually on December 31 with
a 12% effective yield.
The bonds are quoted at 102 on December 31, 2016 and 105 on December 31, 2017. The
bonds are sold on June 30, 2018 plus accrued interest.
What amount of unrealized gain should be reported as component of other comprehensive
income for 2016?
1. a. 268,800
b. 100,000
c. 340,000
d. 0
2. What amount of unrealized gain should be reported as a component of other
comprehensive income for 2017?
a. 339,056
b. 221,200
c. 70,256
d. 0
3. What amount should be recognized as gain on sale of the bond investment on June 30,
2018?
a. 544,528
b. 794,528
c. 250,000
d. 589,056
Problem 19:
On January 1, 2016, Michelle Company purchased bonds with face amount of P5,000,000. The
entity paid P4,600,000 plus transaction cost of P142,000.
The bonds mature on December 31, 2018 and pay 6% interest annually on December 31 of
each year with 8% effective yield.
The bonds are quoted at 105 on December 31, 2016 and 110 on December 31, 2017.
The business model in managing the financial asset is to collect contractual cash flows that are
solely payments of principal and interest and also to sell the bonds in the open market.
What amount of unrealized gain should be reported as component of other comprehensive
income for 2016?
a. 250,000
b. 400,000
c. 428,640
d. 0
What cumulative amount of unrealized gain should be reported as component of other
comprehensive income in the statement of changes in equity for 2017?
a. 500,000
b. 592,931
c. 164,291
d. 0
What is the interest income for 2017?
a. 300,000
b. 379,360
c. 385,709
d. 392,931
Problem 20:
On January 1, 2016, Dumaguete Company purchased bonds with a face amount of ₱4,000,000
for ₱4,206,000. The business model in managing the financial asset is to collect contractual
cash flows that are solely payments of principal and interest and also to sell the bonds in the
open market.
The bonds mature on December 31, 2018 and pay 10% interest annually on December 31 each
year with 8% effective yield.
The bonds are quoted at 95 on December 31, 2016 and 90 on December 31, 2017.
What amount of unrealized loss should be reported as component of other comprehensive
income in 2016?
a. 342,480
b. 406,000
c. 469,520
d. 0
What amount of unrealized loss should be reported as component of other comprehensive
income in 2017?
a. 473,878
b. 131,398
c. 200,000
d. 0
What amount of cumulative unrealized loss should be reported in the statement of changes in
equity for 2017?
a. 406,000
b. 606,000
c. 473,878
d. 0
What is the carrying amount of the bond investment to be reported on December 31, 2017?
a. 4,206,000
b. 3,600,000
c. 3,800,000
d. 4,673,878
On January 1, 2016, Dumaguete Company purchased bonds with face amount of P4,000,000
for P4,206,000.
The business model in managing the financial asset is to collect contractual cash flows that are
solely payments of principal and interest and also to sell the bonds in the open market.
The bonds mature on December 31, 2018 and pay 10% interest annually on December 31 each
year with 8% effective yield.
The bonds are quoted at 95 on December 31, 2016 and 90 on December 31, 2017.
1. What amount of unrealized loss should be reported as component of other
comprehensive income in 2016?
a. 342,480
b. 406,000
c. 469,520
d. 0
2. What amount of unrealized loss should be reported as component of other comprehensive
income in 2017?
a. 473,878
b. 131,398
c. 200,000
3. What amount of cumulative unrealized loss should be reported in the statement of changes in
equity for 2017?
a. 406,000
b. 606,000
c. 473,878
d. 0
4. What is the carrying amount of the bond investment to be reported on December 31, 2017?
a. 4,206,000
b. 3,600,000
c. 3,800,000
d. 4,673,878