Professional Documents
Culture Documents
THEORIES
1. It is any contract that gives rise to both a financial asset of one entity and
a financial liability or an equity instrument of another entity
a.
Financial instrument
b.
Equity instrument
c.
Debt instrument
d.
Derivative instrument
2. A financial asset is any asset that is (choose incorrect answer)
a. Cash
b. Contractual right to receive cash or another financial asset from
another entity
c. A contractual right to exchange financial instruments under conditions
that are potentially unfavorable
d. An equity of another entity
3. It is any contract that evidences residual interest in the assets of an entity
after deducting all of its liabilities
a. Equity instrument
b. Debt instrument
c. Loan and receivable
d. Loans receivable
4. Financial assets include all of the following except
a. Prepaid expenses
b. Cash on bank
c. Trade accounts receivable
d. Loans receivable
5. A financial liability is any liability that is a contractual obligation
I.
II.
a.
b.
c.
d.
6. These are assets held by an enterprise for the accretion of wealth, for capital
appreciation or for other benefits accruing to the investing enterprise
a.
Investments
b.
Inventories
c.
Property, plant and equipment
d.
Current assets
7. When current investments are carried at market value
a.
Unrealized gains or losses are not recognized
b.
Unrealized gains and losses are recognized and included in equity
c.
Unrealized gains and losses are recognized and included in determination of
income
d.
Current assets
8. Long-term investments are
a.
Acquired primarily for accretion of wealth
b.
Readily realizable
c.
Classified as current assets
d.
Intended to be held for more than one year
9. Specifically, these securities represent ownership shares such as common stock,
preferred stock and other capital stock
a.
b.
c.
d.
Equity securities
Debt securities
Marketable securities
Current investments
10. It is the date on which the stock and transfer book of the corporation is closed for
registration. Only those stockholders registered as of this date are entitled to receive
dividends
a.
Date of declaration
b.
Date of record
c.
Date of payment
d.
Date of mailing
CHAINPROBLEMS
PROBLEMNO.1
2.
3.
a.
b.
5.
a. P671,800
b. P511,800
c. P639,000 d. P459,000
123
SuggestedSolution:QuestionNo.1
Acquisition cost (400,000 x 20% x P30) Dividends received(P40,000 x
20%) Investment income (P140,000 x 20%) Carrying value, 12/31/04
QuestionNo.2
Carrying value, 12/31/04 (see no. 1) Dividends received (P48,000 x 20%)
Investment income (P160,000 x 20%) Carrying value, 12/31/05
QuestionNo.3
Sales proceeds (20,000 x P31)Less carrying value of investment sold
(P2,442,400 x 20/80) Gain on sale of investment
QuestionNo.4
Dividend income (P20,000 x 15%*)
*[20%(20,000/400,000x100%)]QuestionNo.5
P2,400,000 (8,000) 28,000 P2,420,000
P2,420,000 (9,600) 32,000 P2,442,400
P620,000 610,600
P
9,400 P3,000
P2,442,400 610,600 1,831,800 1,320,000 P 511,800
You were able to gather the following in connection with your audit of
Obando, Inc. On December 31, 2015, Obando reported the following
available for sale securities:
124
50,000 P100,000
125
14 15 31 27
FVR reported net income and paid dividends of:Net income
Dividend per share None None
P1.30
Year ended December 31, 2015Six months ended June 30, 2016Six
months ended December 31, 2016
(dividend was paid on 10/1/2016)
P700,000 400,000
740,000
There were no other intercompany transactions between Obando and
FVR.
QUESTIONS:
Based on the above and the result of your audit, determine the following:
1. Net unrealized gain or loss on available for sale securities as of
December 31, 2016a. P95,000 gain c. P 5,000 lossb. P37,000 loss d.
P55,000 loss
2.
3.
Net investment income from FVR Corp. for year ended December 31,
2016 a. P237,500 c. P262,000 b. P225,000 d. P305,000
4.
8/30
(P300,000 x 1.5/15)Reclassification of Investment in FVR AFS, 12/31/06
before mark-to-market
P 1,870,000
(30,000) (1,350,000) 490,000
126
Fair value of AFS, 12/31/06:GMA [(10,000 x 1.1) x 23] P253,000 ERAP
(20,000 x 14) 280,000
Decrease in unrealized loss on AFS Unrealized loss on AFS, 12/31/05
(P100,000 - P2,000 - P50,000)
(seenotebelow)
Unrealized loss, 12/31/06 - as adjusted
P
533,000 43,000
48,000 5,000
Note:Alternatively,theunrealizedlossonAFScanbecomputedbycomparingthetotal
fairvalueandtotalcostofAFSasofDecember31,2016.Incidentally,thejournalentries
torecordthereceiptofstockrightsandreclassificationoftheinvestmentinFVRfollow:
Stock rights P 32,000 Available for sale securities (P300,000 x 1.5/15)
Unrealized loss on AFS (P20,000 x 1.5/15)
P30,000 2,000
Investment in associateAvailable for sale securities
Unrealized loss on AFS
QuestionsNo.2to4
Reclassification of investment in FVR (see no. 1) Retroactive adjustment
Note:Theexcessofcostoverthebookvalueofnetassetsacquiredwillbeattributedto
Goodwill.Therefore,theexcesswillnotaffecttheinvestmentincomeandthecarrying
valueoftheinvestmentsinceGoodwillisnotamortized.
127
QuestionNo.5
Sales proceedsLess cost of stock rights (see no. 1) Gain on sale of stock
rights
2.
4.
a.
b.
5.
a.
P6,861 loss
b.
P4,714 loss
c. P4,849 loss
d. P9,416 gain
128
SuggestedSolution:
QuestionNo.1
Thefollowingamortizationschedulewillbeusefulincomputingfortherequirements:
Date 01/01/04 07/01/04 12/31/04 07/01/05 12/31/05 07/01/06
12/31/06 07/01/07 12/31/07 07/01/08 12/31/08
Effective Nominal interest interest
P9,228 P8,000 9,289 8,000 9,354 8,000 9,421 8,000 9,492 8,000 9,567
8,000 9,645 8,000 9,728 8,000 9,814 8,000 9,905 8,000
Discount amortization
P1,228 1,289 1,354 1,421 1,492 1,567 1,645 1,728 1,814 1,905
Carrying value
P184,557 185,785 187,074 188,428 189,849 191,341 192,908 194,553
196,281 198,095 200,000
P 9,228 9,289 P18,517
shallberecognizedinprofitorloss.However,interestcalculatedusingeffectiveinterest
methodshallberecognizedinprofitorloss.
QuestionNo.2
Fair value the bonds, 12/31/04Carrying value, 12/31/04 (see
amortization schedule) Unrealized gain on AFS, 12/31/04
QuestionNo.3
1/1/05 to 6/30/05 (see amortization schedule) 7/1/05 to 12/31/0 (see
amortization schedule) Total interest income for 2015
P190,449 187,074 P 3,375
P 9,354 9,421 P18,775
129
QuestionNo.4
Fair value the bonds, 12/31/05Carrying value, 12/31/05 (see
amortization schedule) Unrealized loss on AFS, 12/31/05
Incidentally,theadjustingentryon12/31/05follows:
P186,363 189,849
(P
3,486)
( (P
3,486) 181,514 186,363
4,849)
Note:PAS39par.26statesthatonderecognitionofafinancialassetinitsentirety,the
differencebetween(a)thecarryingamountand(b)thesumoftheconsiderationreceived
andanycumulativegainorlossrecognizeddirectlyinequity,shallberecognizedin
profitorloss.Incidentally,thejournalentrytorecordthesaleis:
CashRealized loss on sale of AFS
Available for sale securities Unrealized loss on AFS
Answers:1)C; 2)B; 3)A; 4)B, 5)CPROBLEMNO.12
P185,000 4,849
P186,363 3,486
On June 1, 2015, Pandi Corporation purchased as a long term
investment 4,000 of the P1,000 face value, 8% bonds of Violet
Corporation. The bonds were purchased to yield 10% interest. Interest is
payable semi-annually on December 1 and June 1. The bonds mature on
June 1, 2011. Pandi uses the effective interest method of amortization.
On November 1, 2016, Pandi sold the bonds for a total consideration of
P3,925,000. Pandi intended to hold these bonds until they matured, so
year-to-year market fluctuations were ignored in accounting for bonds.
130
QUESTIONS:
Based on the above and the result of your audit, determine the following:
(Roundoffpresentvaluefactorstofourdecimalplaces)
1.
2.
The interest income for the year 2015 isa. P215,850 c. P212,829 b.
P215,521 d. P211,612
3.
a.
P3,725,919 c. P3,719,986
b.
P3,649,541 d. P3,671,490
4.
The interest income for the year 2016 isa. P306,607 c. P311,218 b.
P310,715 d. P304,748
5.
Computationofcarryingvalue,12/1/05:
P182,266 160,000
P3,645,328
22,266 P3,667,594
131
QuestionNo.3
Carrying value, 12/1/05 (see no. 2) Add discount amortization,
12/1/05 to 12/31/05:Effective interest (P3,667,594 x 10% x 1/12)
Nominal interest (P4,000,000 x 8% x 1/12)
Carrying value, 12/31/05
QuestionNo.4
Jan. 1 to May 31 (P3,667,594 x 10% x 5/12) June 1 to Nov. 1
(P3,690,974b x 10% x 5/12) Total interest income for 2016
b
Computationofcarryingvalue,6/1/06:
26,667
3,896 P3,671,490
160,000
P3,925,000 133,333 3,791,667 3,711,432 80,235
23,380 P3,690,974
132
P153,791 133,333
P3,690,974
20,468 P3,711,432
PROBLEMNO.13
On May 1, 2013, Plaridel Corporation acquired P1,600,000 of J & B
Corporation 9% bonds at 97 plus accrued interest. Interest on bonds is
payable semiannually on March 1 and September 1, and bonds mature
on September 1, 2016. Plaridel intends to hold these bonds until they
matured.
Due to an isolated event that is beyond Plaridels control, is nonrecurring and could not have been reasonably anticipated by Plaridel, the
company sold bonds of P480,000 for 103 plus accrued interest on May 1,
2014.
On July 1, 2015, bonds of P640,000 were exchanged for 90,000 shares of
J & B Corporation, common, no par value, quoted on the market on this
date at P8 per share. Interest was received on bonds to date of exchange.
2.
3.
4.
5.
SuggestedSolution:QuestionNo.1
Nominal interest (P1,600,000 x 9% x 8/12) Discount amortization for
2013 (P48,000 x 8/40) Total interest income for 2013
QuestionNo.2
Carrying value, 5/1/03 (P1,600,000 x 97%) Add discount amortization
for 2013 (see no. 1) Carrying value, 12/31/03
QuestionNo.3
Selling price (P480,000 x 1.03) Less carrying value of bonds sold:
P480,000 10,080
PAS39par.52statesthatwheneversalesorreclassificationsofmorethanan
insignificantamountofheldtomaturityinvestmentsdonotmeetanyoftheconditionsin
par.9,anyremainingheldtomaturityinvestmentsshallbereclassifiedasavailablefor
sale.SincethesaleofthebondsonMay1,2014isduetoanisolatedeventthatisbeyond
Plaridelscontrol,isnonrecurringandcouldnothavebeenreasonablyanticipatedby
Plaridel,theinvestmentisnotrequiredtobereclassifiedasavailableforsale.
QuestionNo.4
Fair value of stocks received (P90,000 x P8) Less carrying value of bonds
exchanged:
Face valueLess unamortized bond discount, 7/1/05
to 9/1/06 (P48,000 x 640/1,600 x 14/40) Gain on exchange of bonds
QuestionNo.5
Face value of remaining bonds (P1,600,000 - P480,000 - P640,000)
P640,000 6,720
P720,000
633,280 P 86,720
P480,000 21,600 P501,600
PROBLEMNO.14
Pulilan Companys accounting records showed the following investments
at January 1, 2016:
Common stock:Jang Company (1,000 shares) Geum Company (5,000
shares)
Parking lot (leased to Jewel Company) TrademarkTotal investments
Additional information:
P 500,000 5,000,000 2,500,000 2,000,000 P10,000,000
THEORIES:
1.
A
2.
C
3.
A
4.
A
5.
C
6.
A
7.
C
8.
D
9.
A
10.
B