Republic of the Philippines
CAGAYAN STATE UNIVERSITY
College of Business ,Entrepreneurship and Accountancy
Andrews Campus , Caritan Tuguegarao City, Cagayan
Intermediate Accounting
1st Semester, S.Y. 2022-2023
Midterm Examination
Instructions: Read each question-and-answer choice carefully. Choose the
BEST answer for each of the following items. Write your final answer before
the given question. Strictly no erasure allowed.
Name: _____________________________Course Year/Section:___________
Score:_______
1. Depending on the business model for managing financial assets, an
entity shall classify financial assets at subsequent to initial
recognition at
a. Fair value through profit or loss
b. Amortized cost
c. Fair value through other comprehensive income
d. All of these are used in measuring financial assets
2. How does the standard distinguish between the measurement methods to
be used?
a. By reviewing the business model and the risks and rewards of the
transaction.
b. By reviewing the business model and the contractual cash flow
characteristics of the instrument.
c. By reviewing the realizability and the and the contractual cash flow
characteristics of the instrument.
d. By reviewing the realizability and the and risk and rewards of
ownership.
3. The irrevocable election to present subsequent changes in fair value
in other comprehensive income is applicable only to
a. Investment in equity instrument that is not held for trading
b. Investment in equity instrument that is held for trading
c. Financial asset at amortized cost
d. Financial asset at fair value
4. A debt investment shall be measured at fair value through other
comprehensive income
a. When the debt investment is held for trading
b. When the debt investment is not held for trading
c. By irrevocable designation
d. When the business model is to collect contractual cash flows that
are solely payments of principal interest and also to sell the
financial asset.
5. Under IFRS, the presumption is that equity instruments are
a. Held for trading
b. Held to profit from profit changes
c. Held for trading and held to profit from price changes
d. Held as financial assets at fair value through other comprehensive
income
6. Reclassifications of investments between categories are accounted for
a. Prospectively, at the end of the period after the change in the
business model.
b. Prospectively, at the beginning of the period after the change in
business model.
c. Retrospectively, at the end of the period after the change in
business model.
d. Retrospectively, at the beginning of the period after the change in
the business model.
7. Which of the following describes a principal market for establishing
fair value of an asset?
a. The market that has the greatest volume and level of activity for
the asset
b. Any broker or dealer market
c. The most observable market
d. The market in which the amount received would be maximized
8. Which of the following assumption used in fair value measurement?
a. The asset must be in-use
b. The asset must be considered in-exchange
c. The most conservative estimate must be used
d. The asset is the highest and best use
9. At which of the following dates has the shareholder theoretically
realized income from dividend?
a. The date the dividend is declared
b. The date of record
c. The date the dividend check is mailed by the entity
d. The date the dividend check is received by the shareholder
10. Liquidating dividends are credited to
a. Income
b. Retained earnings
c. Investment account
d. Share capital
11. What is the effect of share dividend of the same class?
a. Increase in investment account and increase in cost per share
b. Decrease in investment account and decrease in cost per share
c. No effect in investment account but decrease in cost per share
d. No effect in investment account but decrease in cost per share
12. Shares received in lieu of cash dividend are recorded as
a. Income at fair value of the shares received
b. Income at par value of the shares received
c. Income at the cash dividend that would have been received
d. Stock dividends
13. Cash dividends in lieu of share dividends is accounted for as
a. Dividend income
b. Return of investment
c. Partly dividend income and partially return of investment
d. If the share dividends are received and subsequently sold at the
cash received and gain or loss is recognized
14. What is the effect of share split up?
a. Increase in number of shares and increase in cost per share
b. Decrease in number of shares and decrease in cost per share
c. Increase in number of shares and decrease in cost per share
d. Decrease in number of shares and increase in cost per share
15. The equity method is not required when the associate has been
acquired and held with a view of disposal withing what time period?
a. Six months from the end of reporting period
b. Twelve months from the end of reporting period
c. Twelve months from the date of classification as held for sale
d. In the near future
16. The excess of the investor’s share of the net fair value of the
associate’s net assets over the cost of investment is
a. Included in other comprehensive income
b. Credited to retained earnings
c. Recognized as income in the determination of the investor’s share of
the associate’s profit or loss
d. A deferred gain
17. Under the equity method of accounting for investments, an
investor recognizes its share in the earnings in the period in which
the
a. Investor sells the investment
b. Investee declares a dividend
c. Investee pays dividend
d. Earnings are reported by the investee
18. Why would an entity sell accounts receivable to another entity?
a. To improve the quality of credit granting process
b. To limit its legal liability
c. To accelerate access to amount collected
d. To comply with customer agreements
19. The practice of realizing cash from trade receivables prior to
maturity date is widespread. Which term is not associated with this
practice?
a. Hypothecation
b. Factoring
c. Defalcation
d. Pledging
20. When the accounts receivable is sold outright, the accounts
receivable have been
a. Pledged
b. Assigned
c. Factored
d. Collateralized
Problem 1
The Stipend Company has the following transactions relating to investments
during 2021:
January 5 Acquired 10,000 shares of Hoax Co. for P1,000,000 paying
additional P20,000 for brokerage and another P5,000 for
commission.
Acquired 15,000 shares of Defray Co. for P1,000,000
paying additional P20,000 for brokerage and another
P5,000 for commission.
February Received P20,000 dividends from Hoax Co. The dividends
14 were declared on January 2, 2021 with an ex-dividend date
is on January 31, 2021.
Received P15,000 dividends from Defray Co. The dividends
were declared on January 2, 2021 with an ex-dividend date
is on January 31, 2021.
On December 31, 2021 and 2022, the market value per share of the Defray
stock is P80 and P90, respectively.
Based on the above data, answer the following:
21. How much is the initial carrying amount of investment in Hoax
assuming it is classified as FVTPL?
a. 1, 025,000 b. 1,000,000 c. 1, 005,000 d. 975,000
22. How much is the initial carrying amount of investment in Defray
assuming it is designated as FVTOCI?
a. 1, 025,000 b. 1,000,000 c. 1, 005,000 d. 985,000
23. How much is the dividend income to be presented in P&L from the
investment in Hoax assuming it is designated as FVTOCI?
a. 20,000 b. 15,000 c. 10,000 d. Nil
24. How much is the dividend income to be presented in P&L from the
investment in Hoax assuming it is designated as FVTPL?
a. 20,000 b. 15,000 c. 10,000 d. Nil
25. On December 31, 2022, how much is the gain (loss) to be presented
in the SFP from the investment in Defray assuming it is designated as
FVTOCI?
a. 190,000 b. 150,000 c. 340,000 d. Nil
PROBLEM 2
The following transactions transpired for Synthetic Corporation during the
year:
Synthetic Corp. owns 15,000 ordinary shares representing 15% of the
shares outstanding of Prowess Corp. On December 1, 2021, Prowess
declared P2 per share dividends on ordinary shares to the shareholders
of record on December 15 payable on December 31.
Synthetic owns 15% of the outstanding ordinary shares of Albeit Corp.
On November 1, 2021, Albeit declared its inventory as property
dividends. Data relating to the fair values of the inventory follow:
Date Total Fair Value of Property
Dividends
November 1, 2021 P250,000
December 31, 2021 300,000
February 15, 2022 310,000
Questions:
Based on the above data, answer the following:
26. How much is the dividend income to be recognized in 2021 in
relation to Prowess investment?
a. Nil b. P30,000 c. P15,000 d. 7,500
27. The journal entry on December 1, 2021 in relation to the Prowess
investment will include a debit to?
a. Dividend receivable-P15,000
b. Dividend income-P15,000
c. Cash-P15,000
d. Investment-P15,000
28. How much is the dividend income to be recognized in 2021 in
relation to Albeit investment?
a. Nil b. P37,500 c. P45,000 d. P46,500
29. The journal entry on December 1, 2021 in relation to Albeit
investment will include a credit to?
a. Dividend receivable-P37,500
b. Dividend income-P37,500
c. Cash-P37,500
d. None
30. The journal entry on February 15, 2022 in relation to the Albeit
investment will include a debit to?
a. Noncash asset -P37,500
b. Dividend receivable-P37, 500
c. Noncash-asset-P46,500
d. None
PROBLEM 3
At December 31, 2022, BAGCPARS Company properly reported the following
Trading equity securities.
Cost Market Value
EDA Corp., 1,000 P40,000 30,000
shares, Preference
shares
DJOA, Inc., 6,000 60,000 90,000
shares of ordinary
share
RVFE Co., 2, 000 55,000 80,000
shares of ordinary
share
Total P155,000 P200,000
During 2021, the following transactions occurred among others:
January 5 Acquired 8,000 shares of ARP, Co. for P880,000 incurring
additional P10,000 for brokerage and another P10,000 for
commission. These shares are to be initially recognized as trading
securities.
February 14 Received dividends from ARP, Co. declared January 10, 2021,
P16,000.
March 18 Received dividends of P2 per share from DJOA Inc.
November 15 Sold 2,500 shares of DJOA, Inc. for P50,000. Commissions and
taxes for P5,000 were paid for the sale.
December 15 Recorded a transfer of all remaining DJOA’s shares to FVTOCI
when the fair value was P14.
On December 31, 2021, the following are the available market values per
share:
EDA Corp.-preference share P50
DJOA, Inc.-ordinary share 15
RVFE 45
ARP Co 100
Based on the above and the result of your audit, determine the following:
31. The correct cost of investment acquired on January 5.
a. P880,000 b. 900,000 c. 864,000 d. 884,000
32. The total dividend income during the year
a. P28,000 b. 16,000 c. 12,000 d. 40,000
33. The gain or loss on sale of DJOA Inc.
a. 20,000 gain b. 20,000 loss c. 7,500 gain d.
7,500 loss
34. The unrealized gain(loss) and where do we present the unrealized
gain(loss) at the end of the year:
a. P50,000 gain to the income statement
b. 50,000 loss to the income statement
c. 37,500 gain to the balance sheet
d. 37,500 loss to the balance sheet
35. The total adjusted carrying value of the investment at the end of
the year
a. P992,500 b. 1, 062, 500 c. 1, 026,500 d. 1, 025,000
PROBLEM 4
On January 1, 2020, Virginia Co. acquired a 5-year bond with a total face
value of P5,000,000 for P5,379, 079. The bonds carry an interest of 12% per
year payable every December 31. The bonds are to be appropriately classified
as held for trading. On December 31, 2020, the bonds are quoted at 104%.
On January 3, 2021, the ½ of the bonds were sold at 105.
On November 1, 2021, Virginia changes its business model. It was determined
that the remaining investment in bonds should be reclassified to financial
asset measured at amortized cost on reclassification date. On December 31,
2022, the bonds are quoted at 102.
On January 1, 2022, the bonds were quoted at 104.
Based on the above data, answer the following:
36. How much is the interest income for 2020?
a. Nil b. 537, 908 c. 600,000 d. 645, 489
37. How much is the unrealized gain(loss) in 2020 to be recognized in
the profit or loss
a. Nil b. (179,079) c. 200,000 d. (379,079)
38. How much is the realized gain (loss) on sale in 2021 to be
recognized in the profit or loss
a. Nil b. 25,000 c. (33, 494) d. (64,540)
39. How much is the interest income for 2021?
a. 265, 849 b. 300,000 c. 531, 699 d. 600,000
40. How much is the gain(loss) on reclassification to be recognized
in the profit or loss on January 1, 2022?
a. Nil b. 24, 343 c. 50,000 d. 100,000
PROBLEM 5
On January 4, 2021, Tamara Bakery paid P30 million for 1 million shares of
Jade Company ordinary shares. The investment represents a 20% interest in
the net assets of Jade and gave Tamara the ability to exercise significant
influence over Jade’s operations. Tamara received dividends of P1.00 per
share on December 31, 2021 and Jade reported net income of P8 million for
the year-ended December 31, 2021. The market value of Jade’s ordinary shares
at December 31, 2021 was P32 per share. On the purchase date, the book value
of Jade’s net assets was P120 million and the fair market value of Jade’s
depreciable assets, with an average remaining useful life of six years,
exceeded their book value by P6 million. The remainder of the excess of the
cost of investment over the book value of net assets purchased was
attributable to goodwill.
Based on the above data, answer the following:
41. How much is the implied goodwill from acquisition?
a. 4, 800,000 b. 6,000,000 c. 7,200,000 d. 6,000,000
42. What amount of investment revenue should Tamara report on its
income statement for the year ended December 31, 2021, under the fair
value method?
a. 1, 400,000 b. 1, 600,000 c. 1,000,0000 d. 1,800,000
43. What amount of investment revenue should Tamara report on its
income statement for the year ended December 31, 2021, under the
equity method?
a. 1, 400,000 b. 1, 600,000 c. 1,000,0000 d. 1,800,000
44. Under the equity method, the carrying value of the Tamara
Company’s investment in ordinary shares of Jade Co. on December 31,
2021, should be
a. 31, 600,000 b. 30,400,000 c. 31, 400,000 d. 32,000,000
45. What amount should Tamara Company report on its December 31, 2021
SFP as its investment in Jade Co. under fair value method?
a. 31,600,000 b. 30,400,000 c. 31, 400,000 d. 32,000,000
PROBLEM 6
On January 1, 2021, Krizzia Co. acquired 20,000 ordinary shares out of the
100,000 outstanding ordinary shares of Bacunawa Inc. for P5,000,000.
Bacunawa’s assets and liabilities approximate their fair values except for
inventories with carrying amount of P600,000 and fair value of P650,000,
machinery with carrying amount of P1,000,000 and fair value of P1,500,000
and land with carrying amount of P1,500,000 and fair value of P1,200,000.
The remaining useful life of the machinery is 10 years. Bacunawa’s net
assets have a book value of P12,000,000.
On December 31, 2021, Bacunawa reported net income of P8,000,000 and
declared and paid cash dividends of P2,000,000.
On April 1, 2022, the land of Bacunawa was sold at gain of P200,000.
On December 31, 2022, Bacunawa reported net income of P10,000,000 and
declared and paid cash dividends of P3,000,000.
Based on the above data, answer the following:
46. How much is the implied goodwill from acquisition?
a. 2,550,000 b. 2,600,000 c. 2, 610,000 d. 2,710,000
47. How much is the net share in the profit or loss of the associate
(investment income) in 2021?
a. 1,580,000 b. 1,600,000 c. 1, 610,000 d. 1, 640,000
48. How much is the carrying amount of the investment as of December
31, 2021?
a. 6, 180,000 b. 6,210,000 c. 6,240,000 d.6,600,000
49. How much is the net share in the profit or loss of the associate
(investment income) in 2022?
a. 2,000,000 b. 2, 010,000 c. 2,050,000 d. 2,090,000
50. How much is the carrying amount of the investment as of December
31, 2022?
a. 7,630,000 b. 8,200,000 c. 8,240,000 d. 8,280,000
