UNIVERSITY OF SANTO TOMAS

AMV-COLLEGE OF ACCOUNTANCY
CA5105-INTERMEDIATE ACCOUNTING I
MOCK QUIZ – May 23, 2021

THEORIES

1. Under PFRS 9, the cumulative balance of unrealized gain or loss in equity as a result of
measuring financial assets 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 an objective evidence of
impairment
c. Shall not be reversed to profit or loss but may be transferred to retained
earnings account at the date the security is sold
d. Shall not be reversed to profit or loss but may be transferred to revaluation
surplus account at the date the security is sold

2. Which of the following is not correct regarding Fair Value though Profit or Loss?
a. They are classified as current assets
b. Unrealized gains and losses are reported in profit or loss
c. Cash dividend shall be recognized as dividend income
d. Share in profit of the investee increases carrying of the investment

3. Investments in equity securities that provide neither control nor significant influence
over the investee are measured at the end of the reporting period at
a. Fair value
b. Cost
c. Carrying value using equity method
d. Fair value less cost to sell

4. Which of the following dividends received by an investor holding equity investments

valued at fair value is not recognized as dividend income?
a. Cash dividend
b. Property dividend
c. Liquidating dividend
d. None of the above

5. The following statements are based on PAS 28 (Investment in Associates):

Statement I: An investment in an associate shall be accounted for using the equity
method.
Statement II: An investor shall discontinue the use of equity method from the date when
it ceases to have significant influence over an associate and shall account for the
investment at Fair value
Statement III: On the loss of significant influence, the investor shall measure at
historical cost any investment the investor retains in the former associate.
a. Only statement I is false
b. Only statement II is true
c. Only statement III is false
d. All of the statements are false

6. In case of an investment in associate reclassified to fair value through OCI due to loss of
significant influence, the gain/loss from cessation that is unrealized shall
a. Be reported in profit or loss
b. Be reported in OCI
c. Be directly reported in retained earnings
d. Not be accounted for

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7. Which of the following items does not affect the Investment in Associate account of the
investor?
A. Share in net loss of the associate
B. Cash dividends received from the associate
C. Share in Other comprehensive income recognized by the associate
D. None of the choices

8. How would an increase in the fair value of the ordinary shares affect the investment
account under each of the following appropriate classification?

Trading equity securities Investment in Associate

A. Increase Increase
B. Increase No effect
C. No effect No effect
D. No effect Increase

9. Unrealized gains or losses which are recognized in the Statement of Comprehensive

Income are from securities classified as
a. FVPL only
b. FVPL and FVOCI
c. FVOCI and Investment in Associate
d. FVOCI only

10. These investments are initially recorded at purchase price plus transaction costs.
I. Financial assets at Fair Value through Profit or Loss
II. Financial assets at Fair Value through Other Comprehensive Income
III. Investment in Associate
a. I only
b. II only
c. I and II
d. II and III

11. What is the effect of a stock split known as ‘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

12. Which of the following does NOT describe the EQUITY method of accounting for equity
investment?
a. It is based on economic relationship between an investor and an investee (i.e.,
investor and investee are viewed as a single economic unit).
b. Investment is initially carried at cost and is subsequently increased by the net
income of investee but is not affected by the investee’s net loss.
c. When investee declares dividends, the investor recognizes the same as
somewhat a return of investment.
d. It is used when investor holds, directly or indirectly, exactly 20% up to exactly
50% of the voting stock of the investee. This gives rise to the presumption of
existence of significant influence.

13. Existence of significant influence may be evidenced by which of the following ways?
a. Representation in the board of directors and participation in policy making
process
b. Material transaction between investor and investee
c. Interchange of managerial personnel and provision of essential technical
information
d. All of the above

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 14. If an associate has a preference share, the proper way of computing the share in net
income of an associate would be
a. Deduct pref. dividend whether declared or not if non-cumulative
b. Deduct pref. dividend when declared only if cumulative
c. Deduct pref. dividend whether declared or not if cumulative
d. Deduct pref. and ordinary dividend whether declared or not if cumulative

15. Gains or losses on sale of Investment at FVOCI are recognized

a. In profit or loss whether debt or equity securities
b. In profit or loss when debt securities only
c. In other comprehensive income whether debt or equity securities
d. In profit or loss when equity securities only

PROBLEM SOLVING

Nitrogen Trading has the following securities in its investment at Fair Value through Other Comprehensive
Income. An analysis of the investments on December 31, 2019 showed the following:

No. of shares Cost Market values

NI Co. ordinary 600 shares 307,500 270,000
TRO Inc. ordinary 225 shares 76,500 90,000
GEN Co. ordinary 2,000 shares 269,500 280,600

On July 1, 2020, all shares of TRO were sold for P 70,000. On December 31, 2020, NI shares were quoted
at P 440 per share; GEN shares were quoted at P 138 per share.

1. How much is the unrealized gain or loss that should be reported in the Statement of
Financial Position on December 31, 2020?
a. 37,000 unrealized loss c. 10,600 unrealized loss
b. 37,000 unrealized gain d. 10,600 unrealized gain

2. How much is the total net amount transferred to Retained Earnings upon sale of TRO
shares?
a. 6,500 c. 13,500
b. 20,000 d. 70,000

3. How much is the total amount reported in 2020 profit or loss assuming the designation is
Investment at Fair Value through Profit or Loss?
a. 20,000 c. 10,600
b. 37,000 d. 30,600

Philippines Inc. has the following securities in its Investment at Fair Value through Profit or Loss on
December 31, 2020:

Aggregate Number of Aggregate

Number Fair values of shares as Fair values of
of shares remaining of remaining
originally Original shares as of 12/31/2020 shares as of
acquired Cost 12/31/2019 12/31/2020
Phi Co. ordinary 9,000 P45,000 P50,000 9,000 P60,000
Lip Inc. ordinary 30,000 300,000 250,000 15,000 90,000
Pines Corp. 2,400 36,000 30,000 2,400 24,000
preference

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All of the above securities were bought in 2019. The only transaction affecting the portfolio is the disposal
of half of the investments in Lip Inc. ordinary shares on June 30, 2020 at P8 per share.

4. How much is the total net unrealized gain or loss to be reported in the 2020 Profit or Loss
Statement?
a. 31,000 b. 156,000 c. 57,000 d. 207,000

On January 2, 2020, Ruby Corporation purchased 20,000 ordinary shares at P100 per share of Topaz
Company representing 20% interest in Topaz Company. The net assets of Topaz on the date of acquisition
have a carrying amount of P8,000,000. Topaz’s identifiable assets equal their fair values except for land
which has a fair value in excess of carrying amount of P200,000, and building which has a fair value in
excess of carrying amount of P400,000. Cash dividends of P5 per share were received during the year. Net
income reported by Topaz Company for the year 2020 is P1,000,000. The building has an estimated
remaining useful life of 10 years on the date of acquisition.

5. How much is the total income that should be reported in Ruby Corporation’s profit or loss
for the year 2020?
a. 200,000 b. 192,000 c. 152,000 d. 92,000

6. How much is the carrying value of the Investment in Topaz Company on December 31,
2020?
a.2,200,000 b. 2,192,000 c. 2,092,000 d. 2,052,000

7. How much from the acquisition cost on January 2, 2020 is attributable to goodwill?
a. 280,000 b. 360,000 c. 320,000 d. 0

Pomelo Company purchased 150,000 ordinary shares of the 750,000 ordinary shares and 100,000
preference shares of the 200,000, P100 par, 12% preference shares of Kiwi Company. On December 31,
2020, Kiwi reported net income of P5,000,000 and declared P2,150,000 preference dividends.

8. How much is the share in net income assuming the preference share is non-cumulative?
a. 1,000,000 c. 520,000
b. 570,000 d. 760,000

9. How much is the share in net income assuming the preference share is cumulative?
a. 1,000,000 c. 520,000
b. 570,000 d. 760,000

On January 1, 2020, Lychee Company acquired 25%, equivalent to 30,000 shares of Tomato Company for
P3,000,000. All identifiable assets and liabilities of Tomato show carrying values equal to their fair values.
On December 31, 2020, Tomato reported a net income of P5,000,000. Lychee received from Tomato a
total cash dividends of P400,000. Fair value of the shares on December 31, 2020 is P140 per share.

On January 1, 2021, Lychee sold 12,000 shares of Tomato at fair value existing at end of 2020. A loss of
significant influence occurred as a result of sale. During 2021, Tomato reported a net income of
P2,000,000 and distributed a total dividends of P600,000. Fair value at the end of 2021 is P160 per share.

10. How much is the total income taken to profit or loss that should be recognized on
January 1, 2021?
a. 140,000 c. 350,000
b. 210,000 d. 800,000

11. How much is the total income that should be taken to 2021 profit or loss assuming the
investment was reclassified to FVPL?
a. 350,000 c. 230,000
b. 800,000 d. 570,000

12. How much is the unrealized gain or loss that should be reported in Oher Comprehensive
Income for the year 2021 assuming the investment was reclassified to FVOCI?
a. 800,000 c. 570,000
b. 440,000 d. 360,000

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On January 1, 2020, PAM Company invested P600,000 in equity securities representing 20,000 ordinary
shares of BAWI Company. PAM Company incurred transaction cost of P5,000 related to the acquisition
of the securities. On December 31, 2020, these securities had a fair value of P35 per share. Cost to sell on
this date was P2,000.

13. How much is the carrying value of the Investment on December 31, 2020?
a. 700,000 b. 698,000 c. 595,000 d. 702,000

Morgan Company began business in October of 2019. During the year, Morgan purchased a portfolio
of securities listed below designated as FVOCI. In its December 31, 2019 Statement of Financial Position,
Morgan appropriately reported a P300,000 debit balance in its “Unrealized gain/loss” account. The composition
of the securities did not change during the year 2020. Pertinent data are as follows:

Security Cost Market Value, December 31, 2020

P P2,400,000 P2,450,000
Q 2,500,000 2,550,000
R 1,900,000 2,000,000

P6,800,000 P7,000,000

14. What amount of unrealized gain or loss on these securities should be included in Morgan’s
Statement of Comprehensive Income for the year ended December 31, 2020? 500,000

15. What amount of unrealized gain or loss on these securities should be included in Morgan’s
Statement of Financial Position as of December 31, 2020? 200,000

“The great thing in the world is not so much where you are but in what direction you are going”

GOOD LUCK AND GOD BLESS!!!

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