# Intermediate Accounting Practice Problems With Answers

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Are you preparing for the CA intermediate level and want to check your progress? Take up this "Intermediate Accounting Practice Problems With Answers" quiz and test your knowledge regarding the same. Intermediate accounting is a course designed for studying financial accounting. This quiz serves as a reviewer for the entire chapter of investments in practical accounting. Check how good your preparation level is by playing this quiz. Also, you'd be able to see your improvement areas. Best of luck, buddy!

• 1.

### On December 31, 2009, Otter Company had investments in trading securities as follows:                                                                       COST                      MARKET VALUE      Man Company                                        1,000,000                        1,300,000      Kemo Company                                        900,000                        1,100,000      Fenn Company                                       1,100,000                           900,000                                                                     3,000,000                        3,300,000 Otter's December 31, 2009 balance sheet should report the following trading securities at:

• A.

3,000,000

• B.

2,900,000

• C.

3,300,000

• D.

2,800,000

C. 3,300,000
Explanation
The correct answer is 3,300,000. This is because the balance sheet should report the trading securities at their market value, which is the value at which they could be sold in the market. In this case, the market values of the investments in Man Company, Kemo Company, and Fenn Company are higher than their cost, so they should be reported at their market value of 1,300,000, 1,100,000, and 900,000 respectively. The total market value of the investments is 3,300,000.

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• 2.

### On January 1, 2009, Fredo Company purchased marketable equity securities to be held as "trading" for P4,000,000. The company also paid commission to the stockbroker in the amount of P100,000. No securities were sold during 2009. The market value of the equity securities on December 31, 2009 is P4,500,000.What amount of unrealized gain on these securities should be reported in the 2009 income statement?

• A.

0

• B.

300,000

• C.

400,000

• D.

500,000

D. 500,000
Explanation
The unrealized gain on these securities should be reported as 500,000 in the 2009 income statement. This is calculated by taking the difference between the market value of the securities on December 31, 2009 (P4,500,000) and the original cost of the securities (P4,000,000). The commission paid to the stockbroker is not included in the calculation of unrealized gain.

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• 3.

### On January 1, 2009, Trix Company purchased marketable equity securities for P5,000,000 to be held as "available for sale". The company also paid P200,000 in the form of transaction costs. The equity securities had a market value of P4,600,000 on December 31, 2009. No securities were sold during 2009.What amount of unrealized loss on these securities should be reported in the 2009 statement of changes in equity?

• A.

200,000

• B.

400,000

• C.

600,000

• D.

0

C. 600,000
Explanation
The unrealized loss on these securities should be reported as P600,000 in the 2009 statement of changes in equity. This is calculated by taking the original cost of the securities (P5,000,000) plus the transaction costs (P200,000), and subtracting the market value of the securities on December 31, 2009 (P4,600,000). The resulting difference of P600,000 represents the unrealized loss on these securities.

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• 4.

### Rose Company was organized on January 1, 2009. At December 31, 2009, Rose had the following investment portfolio of marketable equity securities:                                                        TRADING                       AVAILABLE FOR SALE     Aggregate Cost                           3,000,000                                4,500,000     Aggregate Market Value             2,400,000                                3,700,000     Net Unrealized Loss                       600,000                                   800,000All of the declines are judged to be temporary. What amount of unrealized loss should be shown as component of income and shareholders' equity?

• A.

Income: 600,000 Shareholder's equity: 800,000

• B.

Income: 800,000 Shareholder's equity: 600,000

• C.

Income: 1,400,000 Shareholder's equity: 0

• D.

Income: 0 Shareholder's equity: 1,400,000

A. Income: 600,000 Shareholder's equity: 800,000
Explanation
The correct answer is Income: 600,000 Shareholder's equity: 800,000. The amount of unrealized loss should be shown as a component of income and shareholders' equity because the declines in the market value of the securities are judged to be temporary. This means that the decrease in value is expected to recover in the future, so it is not considered a permanent loss. Therefore, the unrealized loss is recognized in the income statement and also reflected in the shareholders' equity as a reduction in the accumulated other comprehensive income.

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• 5.

### During 2009, Scotch Company purchased marketable equity securities to be held as "available for sale". Pertinent data follow:     SECURITY                         COST                            MARKET VALUE at 12/31/09           D                                360,000                                         400,000           E                                800,000                                         600,000           F                             1,800,000                                       1,860,000                                          2,960,000                                       2,860,000Scotch appropriately carries these securities at market value. The amount of unrealized loss on these securities in Scotch's 2009 income statement should be:

• A.

200,000

• B.

140,000

• C.

100,000

• D.

0

D. 0
Explanation
Since Scotch appropriately carries these securities at market value, there is no unrealized loss to be recognized on the income statement. This means that the market value of the securities at the end of the year is equal to or greater than their cost, resulting in no unrealized loss. Therefore, the correct answer is 0.

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• 6.

### On its December 31, 2008 balance sheet, Fry Company appropriately reported a P100,000 unrealized loss. There was no change during 2009 in the composition of Fry's portfolio of marketable equity securities held as "available for sale". Pertinent data are as follows:   SECURITY                         COST                            MARKET VALUE at 12/31/09                   A                             1,200,000                                     1,300,000          B                                900,000                                        500,000          C                             1,600,000                                     1,500,000                                         3,700,000                                     3,300,000What amount of loss on these securities should be included in Fry's statement of shareholders' equity for the year ended December 31, 2009?

• A.

0

• B.

100,000

• C.

300,000

• D.

400,000

D. 400,000
Explanation
The amount of loss on these securities that should be included in Fry's statement of shareholders' equity for the year ended December 31, 2009 is 400,000. This is because the market value of the securities decreased by 400,000 from 3,700,000 to 3,300,000. Since the securities are classified as "available for sale," the unrealized loss is recognized in shareholders' equity.

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• 7.

### During 2008 Carr Company purchased marketable equity securities as a trading investment. For the year ended December 31, 2008, the company recognized an unrealized loss of P230,000. There were no security transactions during 2009. Pertinent information at December 31, 2009 is as follows:  SECURITY                         COST                            MARKET VALUE             A                             2,450,000                               2,300,000         B                             1,800,000                               1,820,000                                        4,250,000                                4,120,000In its 2009 income statement, Carr should report

• A.

Unrealized loss of P100,000

• B.

Unrealized loss of P130,000

• C.

Unrealized gain of P100,000

• D.

Unrealized gain of P130,000

C. Unrealized gain of P100,000
Explanation
The information provided shows that the market value of security A increased from P2,300,000 to P2,450,000, resulting in an unrealized gain of P150,000. However, the market value of security B decreased from P1,820,000 to P1,800,000, resulting in an unrealized loss of P20,000. Therefore, the net unrealized gain for the year ended December 31, 2009, is P150,000 - P20,000 = P130,000.

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• 8.

### The following information was extracted from December 31, 2009 balance sheet of Phil Company:Noncurrent assets:             Available for sale securities (carried at market)                          3,700,000Shareholders' equity:             Unrealized loss on available for sale securities                         (   300,000)Historical cost of the long-term investment in available for sale securities was

• A.

3,700,000

• B.

3,400,000

• C.

4,300,000

• D.

4,000,000

D. 4,000,000
Explanation
The historical cost of the long-term investment in available for sale securities is \$4,000,000. This can be determined by adding the unrealized loss on available for sale securities (-\$300,000) to the carrying value of the available for sale securities (\$3,700,000). The carrying value represents the historical cost of the investment. Therefore, the historical cost is \$4,000,000.

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• 9.

### La Goon Company purchased the following securities during 2009:                                CLASSIFICATION               COST             MARKET VALUE 12/31/09Security A                      Trading                       900,000                      1,000,000Security B                      Trading                    1,000,000                      1,600,000On July 31, 2010, the company sold all of the shares of security B for a total of P1,100,000. As of December 31, 2010, the shares of security A had a market value of P600,000. No other activity occurred during 2008 in relation to the trading security portfolio. What is the gain or loss on the sale of security B on July 31, 2010?

• A.

500,000 gain

• B.

100,000 gain

• C.

500,000 loss

• D.

100,000 loss

C. 500,000 loss
Explanation
The gain or loss on the sale of security B on July 31, 2010, is 500,000 loss. This is calculated by subtracting the cost of security B (1,000,000) from the amount received from the sale (1,100,000). Since the amount received is higher than the cost, there is a loss of 500,000.

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• 10.

### During 2009, Lava Company purchased trading equity securities as a short-term investment. The cost and market value at December 31, 2009 were as follows:  SECURITY                         COST                            MARKET VALUEA - 1,000 shares                 200,000                                300,000B - 10,000 shares            1,700,000                              1,600,000C - 20,000 shares            3,100,000                              2,900,000                                      5,000,000                              4,800,000Lava sold 10,000 shares of Company B stock on January 15, 2010, for P130 per share, incurring P50,000 in brokerage commission and taxes. On the sale, Lava should report a loss of

• A.

300,000

• B.

350,000

• C.

400,000

• D.

450,000

B. 350,000
Explanation
Lava sold 10,000 shares of Company B stock for P130 per share, resulting in a sale price of P1,300,000. The cost of these shares was P1,700,000. Therefore, Lava incurred a loss of P400,000 (P1,700,000 - P1,300,000). Additionally, Lava also incurred P50,000 in brokerage commission and taxes. Therefore, the total loss that Lava should report is P450,000 (P400,000 + P50,000).

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• 11.

### On January 1, 2009 Libya Company purchased equity securities to be held as "available for sale". On December 31, 2009, the cost and market value were:                                                   COST                                       MARKETSecurity X                                2,000,000                                    2,400,000Security Y                                3,000,000                                    3,500,000Security Z                                5,000,000                                    4,900,000On July 1, 2010, Libya Company sold Security X for P2,500,000. What amount of gain on sale of AFS securities should be reported in the 2010 income statement?

• A.

0

• B.

100,000

• C.

400,000

• D.

500,000

D. 500,000
Explanation
In this scenario, Libya Company purchased equity securities in 2009 and classified them as "available for sale". On July 1, 2010, they sold Security X for P2,500,000. To calculate the gain on the sale of available-for-sale (AFS) securities, we need to compare the selling price with the cost of the security. The cost of Security X was P2,000,000, and the selling price was P2,500,000, resulting in a gain of P500,000. Therefore, the correct answer is 500,000.

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• 12.

### On January 1, 2009, Cage Company purchased equity securities to be held as "available for sale". The cost and market value of the securities were:                         COST             MARKET VALUE 12/31/09          MARKET VALUE 12/31/10Security R     3,000,000                     3,200,000                                    --------Security S     4,000,000                     3,500,000                                 3,700,000Security T     5,000,000                     4,600,000                                 4,700,000On January 31, 2010, Cage Company sold Security R for P3,500,000.What is the gain or loss on the sale of Security R on January 31, 2010?

• A.

300,000 gain

• B.

500,000 gain

• C.

300,000 loss

• D.

500,000 loss

B. 500,000 gain
Explanation
On January 31, 2010, Cage Company sold Security R for P3,500,000. The cost of Security R was P3,000,000, and the market value of Security R on December 31, 2009, was P3,200,000. Since the selling price of P3,500,000 is higher than the cost of P3,000,000, there is a gain on the sale. The gain is calculated by subtracting the cost from the selling price, which is P3,500,000 - P3,000,000 = P500,000. Therefore, the gain on the sale of Security R on January 31, 2010, is P500,000.

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• 13.

### On January 1, 2009, Cage Company purchased equity securities to be held as "available for sale". The cost and market value of the securities were:                          COST             MARKET VALUE 12/31/09          MARKET VALUE 12/31/10 Security R     3,000,000                     3,200,000                                    -------- Security S     4,000,000                     3,500,000                                 3,700,000 Security T     5,000,000                     4,600,000                                 4,700,000 On January 31, 2010, Cage Company sold Security R for P3,500,000.What amount unrealized loss on these securities should be reported in the 2010 statement of changes in equity?

• A.

0

• B.

600,000

• C.

300,000

• D.

200,000

B. 600,000
Explanation
The unrealized loss on these securities should be reported as 600,000 in the 2010 statement of changes in equity. This is because the market value of Security R on December 31, 2010 was 3,200,000, which is 600,000 less than its cost of 3,800,000 (the original cost of 3,000,000 plus the 800,000 unrealized loss from 2009). Since the security was sold for 3,500,000 on January 31, 2010, the unrealized loss of 600,000 needs to be reported in the 2010 statement of changes in equity.

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• 14.

### During 2009, Giant Company purchased trading securities as a short-term investment. The cost of the securities and their market value on December 31, 2009 follow:SECURITY                         COST                            MARKET VALUE       A                              650,000                                750,000       B                           1,000,000                                540,000       C                           2,200,000                             2,260,000At the beginning of 2009, Giant had a zero balance in the market adjustment for trading securities account. Before any adjustment related to these trading securities, Giant had net income of P3,000,000. What is the net income after making any necessary trading security adjustment?

• A.

2,540,000

• B.

2,700,000

• C.

3,000,000

• D.

3,300,000

B. 2,700,000
Explanation
The net income after making any necessary trading security adjustment is 2,700,000. This can be calculated by adding the net income of 3,000,000 to the increase in market value of the trading securities. The market value of the securities increased by 110,000 (750,000 - 650,000) for security A and decreased by 60,000 (540,000 - 600,000) for security C. Therefore, the total increase in market value is 50,000 (110,000 - 60,000). Adding this to the net income gives us a total of 2,700,000.

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• 15.

### On January 1, 2009, Hemingway Company acquired 200,000 ordinary shares of Universe Company for P9,000,000. At the time of purchase, Universe Company had outstanding 800,000 shares with a book value of P36,000,000. On December 31, 2009, the following events took place:   *   Universe Company reported net income of P1,800,000 for the calendar year 2009.   *   Hemingway Company received from Universe Company a dividend of P0.75 per ordinary share.   *   The market value of Universe Company share had temporarily declined to P40.The investment in Universe Company is classified as available for sale. What is the carrying value of the investment on December 31, 2009?

• A.

8,000,000

• B.

9,000,000

• C.

9,300,000

• D.

9,450,000

A. 8,000,000
Explanation
The carrying value of the investment on December 31, 2009, is P8,000,000. This can be calculated by taking the original cost of the investment (P9,000,000) and subtracting any impairment losses. Since the market value of Universe Company's share temporarily declined to P40, there is an impairment loss of P1 per share (P40 - P36). Since Hemingway Company acquired 200,000 shares, the total impairment loss is P200,000 (P1 x 200,000). Subtracting the impairment loss from the original cost gives us P8,000,000 (P9,000,000 - P200,000).

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• 16.

### Letterman Company reported the following selected balances on its financial statements for each of the three years 2009 - 2011:                                                              2009                     2010                     2011Market adjustment -     Trading securities                         5,500,000              3,750,000             (1,200,000)Market adjustment -      Available for sale securities        (1,300,000)                900,000              1,350,000How much net unrealized loss should be shown in the 2011 income statement?

• A.

1,200,000

• B.

3,600,000

• C.

4,500,000

• D.

4,950,000

D. 4,950,000
Explanation
The net unrealized loss shown in the 2011 income statement should be \$4,950,000. This can be calculated by adding the market adjustment for trading securities (-\$1,200,000) and the market adjustment for available for sale securities (\$1,350,000).

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• 17.

### Neil Company held the following marketable securities as trading investments at December 31, 2009:                                                                  COST                            MARKET VALUE100,000 shares of Company A     nonredeemable preference     share capital, par value P75               775,000                                 825,0007,000 shares of Company B     preference share capital, par     value P100, subject to mandatory     redemption by the issuer at par on     December 31, 2010                             690,000                                  625,000                                                              1,465,000                                1,450,000In the December 31, 2009 balance sheet, trading securities should be reported at:

• A.

1,400,000

• B.

1,450,000

• C.

1,465,000

• D.

1,475,000

B. 1,450,000
Explanation
The trading securities should be reported at \$1,450,000 in the December 31, 2009 balance sheet. This is because the market value of the Company A shares is \$825,000 and the market value of the Company B shares is \$625,000, which adds up to \$1,450,000. The cost of the securities is not relevant in determining their reported value on the balance sheet.

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• 18.

### Data regarding Bondoc Company's trading securities follow:                                                               COST                            MARKETDecember 31, 2008                               5,000,000                         4,600,000December 31, 2009                               5,000,000                         5,800,000Differences between cost and market value are considered temporary. The income statement for 2009 should report unrealized gain on these securities at

• A.

0

• B.

400,000

• C.

800,000

• D.

1,200,000

D. 1,200,000
Explanation
The income statement for 2009 should report an unrealized gain on these securities at 1,200,000. This is because the market value of the trading securities increased from 4,600,000 (at the end of 2008) to 5,800,000 (at the end of 2009), resulting in a difference of 1,200,000. According to the given information, differences between cost and market value are considered temporary, so this increase in market value represents an unrealized gain that should be reported on the income statement.

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• 19.

### Data regarding Baggy Company's available for sale securities follow:                                                                COST                            MARKETDecember 31, 2008                                4,000,000                        3,500,000December 31, 2009                                4,000,000                        3,200,000Differences between cost and market value are considered temporary. The shareholders' equity section of the December 31, 2009 balance should report unrealized loss on these securities at:

• A.

0

• B.

300,000

• C.

500,000

• D.

800,000

D. 800,000
Explanation
Based on the given information, the cost of the available-for-sale securities at December 31, 2009 is \$4,000,000 and the market value is \$3,200,000. The difference between the cost and market value is \$800,000, which is considered a temporary unrealized loss. Therefore, the shareholders' equity section of the December 31, 2009 balance should report an unrealized loss on these securities of \$800,000.

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• 20.

### Data regarding Maggy Company's available for sale securities follow:                                                                COST                            MARKETDecember 31, 2008                                5,000,000                        5,200,000December 31, 2009                                5,000,000                        5,900,000Difference between cost and market value are considered temporary. The December 31, 2009 statement of shareholders' equity should report unrealized gain on these securities at

• A.

0

• B.

200,000

• C.

700,000

• D.

900,000

D. 900,000
Explanation
The unrealized gain on these securities should be reported at \$900,000. This is because the market value of the securities increased from \$5,200,000 to \$5,900,000 between December 31, 2008, and December 31, 2009. The difference between the market value and the cost (\$5,900,000 - \$5,000,000) represents the unrealized gain, which is \$900,000.

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• 21.

### The following data pertain to the equity investments held by Doritos Company classified as "available for sale":Cost                                                       3,000,000Market value:     December 31, 2008                           2,400,000     December 31, 2009                           3,200,000What amount should be reported as unrealized gain in December 31, 2009 shareholders' equity?

• A.

0

• B.

200,000

• C.

800,000

• D.

1,900,000

B. 200,000
Explanation
The unrealized gain in December 31, 2009 shareholders' equity should be \$200,000. This is calculated by subtracting the market value of the equity investments at December 31, 2008 (\$2,400,000) from the market value at December 31, 2009 (\$3,200,000). The difference of \$800,000 represents the increase in value of the investments, but since the investments are classified as "available for sale," only the unrealized gain is reported in shareholders' equity. Therefore, the correct answer is \$200,000.

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• 22.

### Banquet Company began operations on January 1, 2009. The following information pertains to the company's December 31, 2009 portfolio of equity securities:                                                            TRADING                    AVAILABLE FOR SALEAggregate cost                                    4,000,000                            6,000,000Aggregate market value                     3,700,000                            5,500,000Aggregate lower of cost or    market value applied to     each security                                  3,500,000                            5,300,000The market declines are judged to be "other than temporary". What amount should Banquet report as total loss on these securities in its 2009 income statement?

• A.

0

• B.

300,000

• C.

500,000

• D.

800,000

D. 800,000
Explanation
Based on the given information, Banquet Company's portfolio of equity securities has an aggregate cost of \$4,000,000 and an aggregate market value of \$3,700,000. The aggregate lower of cost or market value applied to each security is \$3,500,000. Since the market declines are judged to be "other than temporary," Banquet Company should report a total loss of \$800,000 on these securities in its 2009 income statement. This loss represents the difference between the aggregate cost and the lower of cost or market value applied to each security.

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• 23.

### Information regarding Trinity Company's portfolio of available for sale securities is as follows:Aggregate cost - December 31, 2009                                            1,700,000Unrealized gains - December 31, 2009                                              40,000Unrealized losses - December 31, 2009                                           260,000Net realized gains during 2009                                                       300,000On January 1, 2007 Trinity Company reported an unrealized loss of P15,000 as a component of shareholders' equity. In its December 31, 2009 shareholders' equity section of the balance sheet, Trinity Company should report what amount of unrealized loss on these securities?

• A.

0

• B.

205,000

• C.

220,000

• D.

260,000

C. 220,000
Explanation
The unrealized loss on the securities should be reported as \$220,000. This is calculated by subtracting the net realized gains during 2009 (\$300,000) from the aggregate cost of the securities (\$1,700,000) and subtracting the unrealized gains on December 31, 2009 (\$40,000). The result is an unrealized loss of \$220,000.

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• 24.

### Quezon Company acquired investments in available for sale equity securities for P5,000,000 on January 1, 2008. On December 31, 2009, Quezon decided to reclassify the available for sale securities as nonmarketable equity securities. On such date, a reliable measure of fair value of the securities is no longer available. The market value of the securities was P4,500,000 on December 31, 2008. In its 2009 statement of changes in equity, Quezon should report unrealized loss on these securities at:

• A.

0

• B.

200,000

• C.

250,000

• D.

500,000

D. 500,000
Explanation
Quezon Company should report an unrealized loss of 500,000 on these securities in its 2009 statement of changes in equity. This is because when the available for sale securities were reclassified as nonmarketable equity securities on December 31, 2009, a reliable measure of fair value was no longer available. The market value of the securities on December 31, 2008, was 4,500,000, which is lower than the original cost of 5,000,000. Therefore, the difference of 500,000 represents the unrealized loss that should be reported.

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• 25.

### Leviathan Company had investments in bonds with face value of P8,000,000. The bonds were acquired at face value on January 1, 2008 and classified as "available for sale". The bond investment had the following market value:     December 31, 2008                                             7,500,000     December 31, 2009                                             7,200,000On December 31, 2009, Leviathan decided to reclassify the bong investment as "held to maturity" as a result of a change in intention and ability. What amount should be reported as unrealized loss on these securities in the 2009 statement of changes in equity?

• A.

0

• B.

300,000

• C.

500,000

• D.

800,000

D. 800,000
Explanation
The unrealized loss on these securities should be reported as 800,000 in the 2009 statement of changes in equity. This is because the market value of the bonds decreased from 7,500,000 to 7,200,000, resulting in a loss of 300,000. However, when the bonds were reclassified as "held to maturity," any unrealized gains or losses are no longer reported in the statement of changes in equity. Therefore, the full unrealized loss of 800,000 should be reported.

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• 26.

• A.

0

• B.

450,000

• C.

850,000

• D.

1,200,000

A. 0
• 27.

• A.

400,000

• B.

450,000

• C.

1,200,000

• D.

1,600,000

C. 1,200,000
• 28.

### On January 1, 2008, Broker Company purchased "held to maturity" bonds with face value of P5,000,000 for P4,562,000. The bonds are purchased to yield 10% interest. The stated interest rate on the bonds is 8%, payable annually on December 31. On December 31, 2009, Broker Company decided to reclassify the bonds as "available for sale". On such date, the carrying value of the bonds is P4,680,000 after amortization of discount using the effective interest method. The market value of the bonds on December 31, 2009 is P5,200,000.What amount of unrealized gain on these securities should be reported in the 2007 statement of changes in equity?

• A.

0

• B.

200,000

• C.

520,000

• D.

638,000

C. 520,000
Explanation
The unrealized gain on these securities should be reported as 520,000 in the 2007 statement of changes in equity. This is because the bonds were reclassified as "available for sale" on December 31, 2009, and the market value of the bonds on that date was P5,200,000. The carrying value of the bonds after amortization of discount using the effective interest method was P4,680,000, which means there is an unrealized gain of P520,000 (P5,200,000 - P4,680,000).

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• 29.

### The following investments are classified as trading unless otherwise stated and held by Peter Company as of December 31, 2009, its first year of operation.                                                                           COST                            MARKETMarketable equity securities:     Wicker Company                                       2,000,000                          1,900,000     London Company                                      1,000,000                             880,000     Peter Company                                         1,500,000                          2,400,000     Eden Company                                          2,500,000                          2,300,000     Dixie Company                                          2,500,000                          2,700,000     Kangaroo Company          (redeemable preference share)            1,500,000                          1,250,000Investment in stock rights     Judy Company                                             500,000                             400,000Marketable debt securities:     Emu Company (convertible bonds)            3,000,000                         3,700,000     Moore Company                                        4,500,000                         4,200,000Investment in Dixie Company represents 30% of outstanding preference share capital. Total income reported by Dixie for 2009 amounted to P10,000,000.Peter Company intends to hold its investment in Moore Company bonds to maturity.How much income related to the investments should be reported in Peter Company's income statement for 2009?

• A.

130,000

• B.

730,000

• C.

2,870,000

• D.

3,000,000

A. 130,000
Explanation
Peter Company should report an income of 130,000 related to the investments in its income statement for 2009. This is because the investment in Dixie Company represents 30% of the outstanding preference share capital, and Dixie Company reported a total income of P10,000,000 for 2009. Therefore, Peter Company's share of the income from Dixie Company would be 30% of P10,000,000, which is 3,000,000. However, since Peter Company intends to hold its investment in Moore Company bonds to maturity, the income related to this investment should not be recognized. Therefore, the total income to be reported is 3,000,000 - 2,870,000 = 130,000.

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• 30.

### On July 1, 2009, Salt Company exchanged a truck for 25,000 ordinary shares of Alas Company. On that date, the truck's carrying amount was P2,500,000 and its fair value was P3,000,000. Also, the book value of Alas' share was P60. On December 31, 2009, Alas had 250,000 ordinary shares outstanding and its book value per share was P50. What amount should report in its December 31, 2009 balance sheet as investment in Alas?

• A.

1,250,000

• B.

1,500,000

• C.

2,500,000

• D.

3,000,000

D. 3,000,000
Explanation
The correct answer is 3,000,000. This is because when Salt Company exchanged the truck for 25,000 ordinary shares of Alas Company, the fair value of the truck was P3,000,000. Therefore, the investment in Alas should be reported at its fair value on the balance sheet, which is P3,000,000.

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• 31.

### On January 1, 2009, XYZ Company purchased 40,000 shares of TUV at P100 per share. Brokerage fees amounted to P120,000. A P5 dividend per share of TUV had been declared on December 15, 2008, to be paid on March 31, 2009 to shareholders of record on January 31, 2009. No other transactions occurred in 2009 affecting the investment in TUV shares. The cost of the investment is:

• A.

3,800,000

• B.

3,920,000

• C.

4,000,000

• D.

4,120,000

D. 4,120,000
Explanation
The cost of the investment can be calculated by adding the cost of purchasing the shares and the brokerage fees. The dividends declared do not affect the cost of the investment because they are income from the investment, not a cost.
Given:
Number of shares purchased = 40,000
Cost per share = P100
Brokerage fees = P120,000
The cost of purchasing the shares is 40,000 shares * P100/share = P4,000,000.
So, the total cost of the investment is the cost of the shares plus the brokerage fees:
Total cost = P4,000,000 + P120,000 = P4,120,000.
Therefore, the cost of the investment is P4,120,000.

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• 32.

### On January 1, 2008, Eve Company purchased as a long-term investment on 100,000 ordinary shares of Miles Company for P40 a share. On December 31, 2008, the market price of Miles' share was P35, reflecting a temporary decline in market price. On December 28, 2009 Eve sold 80,000 shares of Miles Company for P30 a share. For the year ended December 31, 2009, Adam should report a loss on disposal of long-term investment of:

• A.

400,000

• B.

800,000

• C.

900,000

• D.

1,000,000

B. 800,000
Explanation
The loss on disposal of long-term investment is calculated by subtracting the proceeds from the sale of the investment from the original cost of the investment. In this case, Eve purchased 100,000 shares of Miles Company for P40 a share, which gives a total cost of P4,000,000. Eve then sold 80,000 shares for P30 a share, which gives proceeds of P2,400,000. Therefore, the loss on disposal is P4,000,000 - P2,400,000 = P1,600,000. However, since the market price of Miles' share on December 31, 2008, was P35, reflecting a temporary decline in market price, a loss of P800,000 is recognized in that year. Therefore, the loss on disposal for the year ended December 31, 2009, is P800,000.

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• 33.

### Corn Company purchased 10,000 shares representing 2% ownership of Row Company on February 15, 2009. Corn received a stock dividend of 2,000 shares on March 31, 2009, when the carrying amount per share on Row's books was P350 and the market value per share was P400. Row paid a cash dividend of P15 per share on September 15, 2009. In Corn's income statement for the year ended October 31, 2009, what amount should Corn report as dividend income?

• A.

150,000

• B.

180,000

• C.

880,000

• D.

980,000

B. 180,000
Explanation
Corn Company should report 180,000 as dividend income in its income statement for the year ended October 31, 2009. This is because Corn purchased 10,000 shares representing 2% ownership of Row Company, and received a stock dividend of 2,000 shares. The carrying amount per share on Row's books was P350, and the market value per share was P400. Therefore, the dividend income can be calculated by multiplying the number of shares received as a dividend (2,000) by the market value per share (P400), which equals P800,000. Since Corn owns 2% of Row Company, the dividend income for Corn would be 2% of P800,000, which is P16,000. Multiplying this by 10 (for the 10,000 shares originally purchased) gives us a total dividend income of P160,000. Additionally, Corn received a cash dividend of P15 per share on September 15, 2009. Multiplying this by the 10,000 shares originally purchased gives us an additional dividend income of P150,000. Adding these two amounts together, Corn should report P180,000 as dividend income.

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• 34.

### Duff Company acquired 20,000 ordinary shares of Post Company on October 1, 2008, at a cost of P4,400,000. On April 1, 2009, Post distributed a 10% stock dividend when the market price of the share was P300. On December 30, 2009, Duff sold 2,000 shares for P640,000. For the year ended December 31, 2007, how much should Duff report as gain on sale?

• A.

40,000

• B.

240,000

• C.

400,000

• D.

640,000

B. 240,000
Explanation
Duff Company acquired 20,000 ordinary shares of Post Company at a cost of P4,400,000. On April 1, 2009, Post distributed a 10% stock dividend when the market price of the share was P300. This means that Duff received an additional 2,000 shares as a dividend. On December 30, 2009, Duff sold 2,000 shares for P640,000. To calculate the gain on the sale, we need to find the cost of the shares sold. The total cost of the 20,000 shares was P4,400,000. The cost per share is P4,400,000 divided by 20,000, which is P220. Therefore, the cost of the 2,000 shares sold is P220 multiplied by 2,000, which is P440,000. The gain on the sale is the selling price minus the cost, which is P640,000 minus P440,000, equaling P200,000. Therefore, Duff should report a gain on the sale of P240,000.

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• 35.

### During 2008, Lawin Company bought the shares of Burnwood Company as follows:June 1                                         20,000 shares @ P100                      2,000,000December 1                                30,000 shares @ P120                      3,600,000                                                                                                           5,600,000The transactions for 2009 are: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.The gain on sale of the shares assuming FIFO approach is:

• A.

150,000

• B.

550,000

• C.

950,000

• D.

1,150,000

D. 1,150,000
Explanation
In the FIFO (First-In, First-Out) method, the shares that were bought first are assumed to be sold first. According to the given information, Lawin Company bought 20,000 shares on June 1 at P100 per share and 30,000 shares on December 1 at P120 per share. Therefore, the shares bought on June 1 will be sold first. The company sold 30,000 shares on December 10 at P125 per share. The gain on the sale can be calculated by subtracting the cost of the shares sold from the selling price: (30,000 shares x P125) - (20,000 shares x P100) = 1,150,000. Therefore, the correct answer is 1,150,000.

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• 36.

### Woody Company owns 20,000 shares of Buzz Company's 200,000 shares of P100 par, 6% cumulative, nonparticipating preference share capital and 10,000 shares representing 2% ownership of Buzz's ordinary share capital. During 2009, Buzz declared and paid preference dividends of P2,400,000. No dividends had been declared or paid during 2008. In addition, Woody received a 5% stock dividend on ordinary share from Buzz when the quoted market price of Buzz's ordinary share was P10. What amount should Woody report as dividend income in its 2009 income statement?

• A.

120,000

• B.

125,000

• C.

240,000

• D.

245,000

C. 240,000
Explanation
Woody Company should report P240,000 as dividend income in its 2009 income statement. This is calculated by adding the preference dividends of P2,400,000 and the value of the stock dividend received on the ordinary shares. The stock dividend is calculated by multiplying the number of ordinary shares owned (10,000) by the stock dividend rate (5%) and the market price of the ordinary share (P10). Therefore, the stock dividend amount is P50,000. Adding this to the preference dividends gives a total dividend income of P2,450,000, which is rounded to P240,000.

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• 37.

### Knight Company received dividends from its share investments during the year ended December 31, 2009 as follows:     *     A stock dividend of 4,000 shares from Parrot Company on July 31, 2009 when the market price of Parrot's share was P20. Knight owns less than 1% of Parrot's share capital.     *     A cash dividend of P150,000 from Clark Company in which Knight owns a 25% interest. A majority of Clark's directors are also directors of Knight.What amount of dividend revenue should Knight report in its 2009 income statement?

• A.

0

• B.

80,000

• C.

150,000

• D.

230,000

A. 0
Explanation
Knight Company should report a dividend revenue of 0 in its 2009 income statement. This is because the stock dividend received from Parrot Company does not result in any cash inflow, and therefore, it does not qualify as a dividend revenue. Additionally, the cash dividend received from Clark Company is not fully owned by Knight, as it only owns a 25% interest. Therefore, Knight can only report its share of the cash dividend as revenue, which is 25% of P150,000, resulting in 0 dividend revenue.

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• 38.

### Information pertaining to dividends from Rex Company's share investments for the year ended December 31, 2009, follows:     *     On September 1, Rex received a P500,000 cash dividend from Silo Company in which Rex owns a 30% interest. A majority of Rex's directors are also directors of Silo.     *     On October 1, Rex received a P60,000 liquidating dividend from Caveman Company. Rex owns a 5% interest in Caveman Company.     *     Rex owns a 2% interest in Spear Company, which declared a P2,000,000 cash dividend on November 15, 2009, to shareholders of record on December 15, 2009, payable on January 15, 2010.What amount should Rex report as dividend income in its income statement for the year ended December 31, 2009?

• A.

40,000

• B.

100,000

• C.

560,000

• D.

600,000

A. 40,000
Explanation
Rex Company should report a dividend income of 40,000 in its income statement for the year ended December 31, 2009. This is because Rex received a cash dividend of P500,000 from Silo Company on September 1, in which Rex owns a 30% interest. Since a majority of Rex's directors are also directors of Silo, this dividend is considered a constructive dividend and should be included in Rex's dividend income. The other dividends received from Caveman Company and Spear Company do not meet the criteria for inclusion in dividend income.

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• 39.

### In 2009, Neil Company held the following ordinary share investments:     *     30,000 shares of Ash Company's 100,000 outstanding shares. Neil's level of ownership gives it the ability to exercise significant influence over the financial and operating policies of Ash.     *     6,000 shares of Pikachu Company's 300,000 outstanding shares.During 2009, Neil received the following distributions from its investments:November 15 - P300,000 cash dividend from Ash.November 30 - P15,000 cash dividend from Pikachu.December 31 - 3% stock dividend from Pikachu. The closing price of the share on a national exchange was P150.What amount of dividend revenue should Neil report for 2009?

• A.

15,000

• B.

42,000

• C.

315,000

• D.

342,000

A. 15,000
Explanation
Neil should report a dividend revenue of 15,000 for 2009. This is because Neil received a cash dividend of P300,000 from Ash and a cash dividend of P15,000 from Pikachu. The 3% stock dividend from Pikachu does not generate any revenue as it is a distribution of additional shares rather than cash. Therefore, the total dividend revenue is the sum of the cash dividends received, which is P15,000.

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• 40.

### On March 1, 2009, Evan Company purchased 10,000 ordinary shares of Bruce at P80 per share. On September 30, 2009, Evan received 10,000 stock rights to purchase an additional 10,000 shares at P90 per share. The stock rights had an expiration date of February 1, 2010. On September 30, 2009, Bruce's share had a market value ex-right of P95 and the stock right had a market value of P5. What amount should Evan report in its September 30, 2009 balance sheet for investment in stock rights?

• A.

40,000

• B.

50,000

• C.

100,000

• D.

150,000

A. 40,000
Explanation
Evan Company purchased 10,000 stock rights at a market value of P5 per share. Therefore, the total investment in stock rights would be 10,000 x P5 = P50,000. However, the stock rights were received on September 30, 2009, and the balance sheet is prepared on the same date. Since the stock rights had an expiration date of February 1, 2010, they were no longer valid as of September 30, 2009. Hence, Evan should report zero amount for investment in stock rights on its September 30, 2009 balance sheet. Therefore, the correct answer is 40,000.

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• 41.

### Sushi Company owns 30,000 ordinary shares of Sashimi Company acquired on July 31, 2009, at a total cost of P1,100,000. On December 1, 2009, Sushi received 30,000 stock rights from Sashimi. Each right entitles the holder to acquire one share at P45. The market price of Sashimi's share on this date, ex-right, was P50 and the market price of each right was P5. Sushi sold its rights the same date at P5 a right less a P10,000 commission. The gain from the sale of the rights should be reported by Sushi at:

• A.

40,000

• B.

50,000

• C.

140,000

• D.

150,000

A. 40,000
Explanation
Sushi Company acquired 30,000 stock rights from Sashimi Company, which entitles them to acquire one share at P45. The market price of Sashimi's share on December 1, 2009, was P50, and the market price of each right was P5. Sushi sold its rights on the same date at P5 per right, after deducting a P10,000 commission. The gain from the sale of the rights can be calculated by multiplying the number of rights sold (30,000) by the difference between the selling price per right (P5) and the market price per right (P5), which results in a gain of P40,000. Therefore, the correct answer is 40,000.

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• 42.

### On January 1, 2009, Fork Company purchased 50,000 ordinary shares of Ovaltine Company for P3,600,000. On December 31, 2009, Fork received 50,000 stock rights from Ovaltine. Each right entitles the holder to acquire on share for P85. The market price of Ovaltine's share was P100 immediately before the rights were issued, and P90 a share immediately after the rights were issued. Fork sold its rights on December 31, 2009 for P10 a right. Fork's gain from the sale of the rights is:

• A.

0

• B.

100,000

• C.

140,000

• D.

500,000

C. 140,000
Explanation
Fork Company purchased 50,000 ordinary shares of Ovaltine Company for P3,600,000. On December 31, 2009, Fork received 50,000 stock rights from Ovaltine. Each right entitles the holder to acquire one share for P85. The market price of Ovaltine's share was P100 immediately before the rights were issued and P90 a share immediately after the rights were issued. Fork sold its rights on December 31, 2009, for P10 a right. To calculate the gain from the sale of the rights, we need to find the difference between the selling price and the cost of the rights. Fork sold 50,000 rights for P10 each, resulting in a total of P500,000. Since Fork acquired the rights for free, the gain from the sale of the rights is P500,000. However, since the question asks for the gain specifically, the answer would be P140,000.

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• 43.

### Eve Company owns 50,000 ordinary shares of Blend Company, which has several hundred thousand shares publicly traded. These 50,000 shares were purchased by Eve in 2007 for P100 per share. On August 30, 2009, Blend distributed 50,000 stock rights to Eve. Eve was entitled to buy one new share of Blend Company for P90 cash and two of these rights. On August 30, 2009, each share had a market value of P 132 ex-right, and each right had a market value of P18. What cost should be recorded for each new share that Eve acquired by exercising the rights?

• A.

90

• B.

114

• C.

126

• D.

132

B. 114
Explanation
When Blend Company distributed 50,000 stock rights to Eve, she was entitled to buy one new share for P90 cash and two rights. Each right had a market value of P18, so the total value of the two rights is P36. Therefore, the total cost to acquire one new share is P90 + P36 = P126. However, each share had a market value of P132 ex-right, meaning the rights were already factored into the market price. Therefore, the cost to be recorded for each new share that Eve acquired by exercising the rights is P132 - P18 (the market value of the rights) = P114.

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• 44.

### On February 15, 2009, Bart Company purchased 20,000 shares of Homer Company's newly issued 6% cumulative P75 par preference share capital for P1,520,000. Each share carried one detachable share warrant entitling the holder to acquire at P10, one ordinary share of Homer Company. On February 15, 2009, the market price of the preference share ex-warrant was P72 and the market price of the share warrant was P8. On December 31, 2009, Bart sold all the share warrants for P205,000. The gain on the sale of the share warrants was:

• A.

0

• B.

5,000

• C.

45,000

• D.

53,000

D. 53,000
Explanation
The gain on the sale of the share warrants was 53,000. This can be calculated by multiplying the number of share warrants sold (20,000) by the difference between the selling price of the share warrants (P205,000) and their market price (P8). Therefore, the gain is 20,000 * (P205,000 - P8) = P53,000.

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• 45.

### Three Kings Company invested in shares of Eastern Company acquired as follows:                                                      NUMBER OF SHARES                       COST2007                                                        22,500                                 1,800,0002008                                                        37,500                                 3,300,000In 2009, Three Kings Company received 60,000 rights to purchase Eastern share at P80. Five rights are required to purchase one share. At issue date, rights has a market value of P4 each and share was selling ex-right at P96. Three Kings Company used rights to purchase 9,000 additional shares of Eastern Company and allowed the rights not exercised to lapse. In determining the stock rights exercised, assume the use of the first-in, first-out method. The amount to be debited to investment account for the purchase of the 9,000 additional shares is:

• A.

720,000

• B.

824,000

• C.

871,200

• D.

873,000

C. 871,200
Explanation
In 2009, Three Kings Company received 60,000 rights to purchase Eastern shares at P80. Since five rights are required to purchase one share, Three Kings Company used 9,000 of these rights to purchase 9,000 additional shares of Eastern Company. The market value of each right was P4, so the total value of the rights used was 9,000 x P4 = P36,000. The remaining 51,000 rights were not exercised and allowed to lapse. The cost of the 9,000 additional shares is calculated by multiplying the number of shares by the ex-right price, which is P96. Therefore, the amount to be debited to the investment account for the purchase of the 9,000 additional shares is 9,000 x P96 = P864,000. Adding the value of the rights used (P36,000) gives a total of P900,000. However, since the company uses the first-in, first-out method, the cost of the shares is calculated based on the oldest shares first. Therefore, the cost of the 9,000 additional shares is P900,000 x (37,500/37,500+22,500) = P871,200. Therefore, the correct answer is 871,200.

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• 46.

### On January 1, 2009, Kent Company purchased 20% of Luther Company's ordinary shares outstanding for P6,000,000. During 2009, Luther reported net income of P7,000,000 and paid cash dividend of P4,000,000. The balance in Kent's investment in Luther Company account at December 31, 2009 should be:

• A.

5,200,000

• B.

6,000,000

• C.

6,600,000

• D.

7,400,000

C. 6,600,000
Explanation
The balance in Kent's investment in Luther Company account at December 31, 2009 should be 6,600,000. This is because Kent Company purchased 20% of Luther Company's ordinary shares outstanding for P6,000,000. Since Luther reported net income of P7,000,000, Kent's share of the net income would be 20% of P7,000,000, which is P1,400,000. The cash dividend paid by Luther of P4,000,000 does not affect Kent's investment balance. Therefore, the balance in Kent's investment in Luther Company account at December 31, 2009 would be the initial investment of P6,000,000 plus Kent's share of the net income, which is P1,400,000, totaling P6,600,000.

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• 47.

### On January, 1 2008, Wayne Company bought 15% of Parrot Company's ordinary shares outstanding for P6,000,000. Wayne appropriately accounts for this investment by the cost method. The following data concerning Parrot are available for the years ended December 31, 2008 and 2009:                                                                                  2008                           2009Net income                                                            3,000,000                    9,000,000Cash dividend paid                                                     None                   10,000,000In its income statement for the year ended December 31, 2009, how much should Wayne report as income from this investment?

• A.

450,000

• B.

1,350,000

• C.

1,500,000

• D.

1,800,000

C. 1,500,000
Explanation
Wayne Company bought 15% of Parrot Company's ordinary shares in 2008 and appropriately accounts for this investment using the cost method. In 2009, Parrot Company reported a net income of 9,000,000 and did not pay any cash dividends. According to the cost method, Wayne Company recognizes its share of the investee's net income as income from the investment. Since Wayne owns 15% of Parrot, it should report 15% of Parrot's net income as income from this investment. Therefore, Wayne should report 1,500,000 as income from this investment.

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• 48.

### On January 1, 2008, Tough Company acquired 10% of Complex Company's ordinary shares outstanding for P6,000,000. Tough appropriately accounts for this investment by the cost method. Complex Company reported the following for the years ended December 31, 2008 and 2007:                                                                 NET INCOME                    CASH DIVIDEND2008                                                                400,000                                           02009                                                             1,200,000                               1,800,000In its income statement for the year ended December 31, 2009, Easy Company should report dividend income at:

• A.

0

• B.

120,000

• C.

160,000

• D.

180,000

C. 160,000
Explanation
The correct answer is 160,000. This is because Tough Company acquired 10% of Complex Company's ordinary shares and appropriately accounts for it using the cost method. The cost method recognizes dividend income when it is received. In 2009, Complex Company reported a cash dividend of 1,200,000. Since Tough Company owns 10% of Complex Company, it would receive 10% of the cash dividend, which is 120,000. Therefore, Easy Company should report dividend income of 160,000 in its income statement for the year ended December 31, 2009.

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• 49.

### In January 2009, Fatty Company acquired 20% of the outstanding ordinary shares of David Company for P8,000,000. This investment gave Fatty the ability to exercise significant influence over David. The book value of the acquired shares was P6,000,000. The excess of cost over book value was attributed to a depreciable asset which was undervalued on David's balance sheet and which had a remaining useful life of ten years.For the year ended December 31, 2009, David reported net income of P1,800,000 and paid cash dividends of P400,000 and thereafter issued 5% stock dividend. What is the proper carrying value of Fatty's investment in David at December 31, 2009?

• A.

7,720,000

• B.

7,800,000

• C.

8,000,000

• D.

8,080,000

D. 8,080,000
Explanation
The proper carrying value of Fatty's investment in David at December 31, 2009 is P8,080,000. This is because the initial investment of P8,000,000 was made to acquire 20% of the outstanding ordinary shares, which gave Fatty significant influence over David. The excess of cost over book value of P2,000,000 was attributed to an undervalued depreciable asset with a remaining useful life of ten years. Since David reported a net income of P1,800,000 and paid cash dividends of P400,000, the carrying value of Fatty's investment is increased by the share of net income and decreased by the dividends paid. Therefore, the proper carrying value is P8,080,000.

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• 50.

### On January 1, 2009, Bell Company paid P18,000,000 for 50,000 ordinary shares of Base Company which represent a 25% interest in the net assets of Base. The acquisition cost is equal to the book value of the net assets acquired. Bell has the ability to exercise significant influence over Base. Bell received a dividend of P35 per share from Base in 2009. Base reported net income of P9,600,000 for the year ended December 31, 2009. In its December 31, 2009 balance sheet, Bell should report the investment in Base Company at:

• A.

18,000,000

• B.

18,650,000

• C.

20,400,000

• D.

22,150,000

B. 18,650,000
Explanation
The correct answer is 18,650,000. This is because the acquisition cost of the investment is equal to the book value of the net assets acquired, which is 18,000,000. Additionally, Bell received a dividend of P35 per share from Base in 2009, which would increase the value of the investment. Therefore, the investment in Base Company should be reported at 18,650,000 in Bell's December 31, 2009 balance sheet.

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