Investment Quiz: 20 Questions Part 1

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  • 1/20 Questions

    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                        3,300,000Otter's December 31, 2009 balance sheet should report the following trading securities at:

    • 3,000,000
    • 2,900,000
    • 3,300,000
    • 2,800,000
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About This Quiz

This Investment Quiz: 20 Questions Part 1 assesses knowledge on trading securities, marketable equity securities, and unrealized gains and losses. It evaluates understanding of financial statements impact and market value adjustments, essential for finance professionals.

Investment Quiz: 20 Questions Part 1 - Quiz

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  • 2. 

    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:

    • 1,400,000

    • 1,450,000

    • 1,465,000

    • 1,475,000

    Correct Answer
    A. 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 100,000 shares of Company A is $825,000 and the market value of the 7,000 shares of Company B is $625,000, totaling $1,450,000.

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  • 3. 

    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?

    • 2,540,000

    • 2,700,000

    • 3,000,000

    • 3,300,000

    Correct Answer
    A. 2,700,000
    Explanation
    Based on the information given, the net income after making necessary trading security adjustments can be calculated by adding the market value of the securities (750,000 + 540,000 + 2,260,000) to the net income before adjustments (3,000,000). This gives us a total of 6,550,000. However, since the cost of the securities (650,000 + 1,000,000 + 2,200,000) is greater than their market value, a loss needs to be recognized. The loss is calculated by subtracting the market value from the cost (650,000 + 1,000,000 + 2,200,000) - (750,000 + 540,000 + 2,260,000), which equals 1,380,000. Therefore, the net income after making necessary trading security adjustments is 6,550,000 - 1,380,000 = 5,170,000.

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  • 4. 

    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

    • 0

    • 200,000

    • 700,000

    • 900,000

    Correct Answer
    A. 900,000
    Explanation
    The December 31, 2009 statement of shareholders' equity should report unrealized gain on these securities at $900,000. This is because the market value of the securities increased from $5,200,000 to $5,900,000, resulting in a gain of $700,000. However, since the difference between the cost and market value is considered temporary, only 50% of the gain is recognized. Therefore, the unrealized gain on these securities is $700,000 * 50% = $350,000.

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  • 5. 

    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?

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

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

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

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

    Correct Answer
    A. Income: 600,000 Shareholder's equity: 800,000
    Explanation
    The correct answer is Income: 600,000 Shareholder's equity: 800,000. This is because the net unrealized loss of 600,000 should be recognized as a component of income, reducing the overall income by that amount. At the same time, it should also be reflected in the shareholders' equity as a reduction in the value of the available-for-sale securities. Therefore, the unrealized loss of 600,000 is shown as a component of income and shareholders' equity.

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  • 6. 

    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?

    • 200,000

    • 400,000

    • 600,000

    • 0

    Correct Answer
    A. 600,000
    Explanation
    The unrealized loss on these securities should be reported as 600,000. This is because the market value of the equity securities decreased from 5,000,000 to 4,600,000, resulting in a loss of 400,000. Additionally, the company paid 200,000 in transaction costs, which also contributes to the total unrealized loss of 600,000.

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  • 7. 

    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

    • 300,000

    • 350,000

    • 400,000

    • 450,000

    Correct Answer
    A. 350,000
    Explanation
    Lava sold 10,000 shares of Company B stock for P130 per share, resulting in a total selling price of P1,300,000. The cost of these shares was P1,700,000, so Lava incurred a loss of P400,000 on the sale. However, the brokerage commission and taxes of P50,000 should be added to the loss, resulting in a total loss of P450,000. Therefore, the correct answer is 450,000.

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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:

    • 3,700,000

    • 3,400,000

    • 4,300,000

    • 4,000,000

    Correct Answer
    A. 4,000,000
    Explanation
    The historical cost of the long-term investment in available for sale securities was 4,000,000. This is because the balance sheet states that the available for sale securities are carried at market value, which is 3,700,000. However, there is also an unrealized loss on these securities of 300,000 in the shareholders' equity section. This means that the securities were originally purchased at a higher cost of 4,000,000, but their market value has decreased by 300,000. Therefore, the historical cost of the investment is 4,000,000.

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  • 9. 

    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?

    • 8,000,000

    • 9,000,000

    • 9,300,000

    • 9,450,000

    Correct Answer
    A. 8,000,000
    Explanation
    The carrying value of the investment on December 31, 2009, is 8,000,000. This can be calculated by subtracting the accumulated depreciation from the original cost of the investment. Since the investment is classified as available for sale, any changes in the market value of the shares are not recognized in the carrying value. Therefore, the decline in the market value of the shares to P40 is not considered in determining the carrying value.

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  • 10. 

    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? 

    • 0

    • 300,000

    • 400,000

    • 500,000

    Correct Answer
    A. 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 market value of the securities on December 31, 2009 (4,500,000) and subtracting the original cost of the securities (4,000,000). The resulting difference of 500,000 represents the unrealized gain, which is the increase in value of the securities that has not yet been realized through a sale.

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  • 11. 

    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?

    • 500,000 gain

    • 100,000 gain

    • 500,000 loss

    • 100,000 loss

    Correct Answer
    A. 500,000 loss
    Explanation
    The gain or loss on the sale of security B on July 31, 2010, can be calculated by subtracting the cost of the security from the selling price. The cost of security B is P1,000,000 and the selling price is P1,100,000. Therefore, the gain or loss is P1,100,000 - P1,000,000 = P100,000. However, since the answer provided is 500,000 loss, it seems like there might be a mistake in the given answer.

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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?

    • 300,000 gain

    • 500,000 gain

    • 300,000 loss

    • 500,000 loss

    Correct Answer
    A. 500,000 gain
    Explanation
    The gain on the sale of Security R on January 31, 2010 is $500,000. This can be calculated by subtracting the cost of Security R ($3,000,000) from the selling price ($3,500,000). The difference between the selling price and the cost represents the gain or loss on the sale, and in this case, it is a gain of $500,000.

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  • 13. 

    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?

    • 0

    • 100,000

    • 300,000

    • 400,000

    Correct Answer
    A. 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 at the end of the year is lower than their cost, resulting in an unrealized loss. Since there was no change in the composition of the portfolio during the year, the entire unrealized loss of 400,000 should be included in the statement of shareholders' equity.

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  • 14. 

    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:

    • 0

    • 300,000

    • 500,000

    • 800,000

    Correct Answer
    A. 800,000
    Explanation
    The unrealized loss on these securities can be calculated by finding the difference between the cost and market value of the securities at the end of the year. In this case, the cost of the securities is $4,000,000 and the market value is $3,200,000. Therefore, the difference is $800,000, which represents the unrealized loss on these securities.

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  • 15. 

    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?

    • 0

    • 600,000

    • 300,000

    • 200,000

    Correct Answer
    A. 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 January 31, 2010, when it was sold, was 3,200,000, while the cost of Security R was 3,000,000. Therefore, the difference between the cost and market value represents an unrealized loss of 200,000 for Security R. Since the question asks for the total unrealized loss on all securities, we need to consider the unrealized loss for all securities. The unrealized loss for Security S is 0 (since the market value is higher than the cost), and the unrealized loss for Security T is 400,000 (since the market value is lower than the cost). Adding these together, we get a total unrealized loss of 600,000.

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  • 16. 

    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?

    • 0

    • 100,000

    • 400,000

    • 500,000

    Correct Answer
    A. 500,000
    Explanation
    The gain on the sale of AFS securities should be reported in the 2010 income statement as 500,000. This is because the cost of Security X was 2,000,000 and it was sold for 2,500,000, resulting in a gain of 500,000.

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  • 17. 

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

    • 0

    • 400,000

    • 800,000

    • 1,200,000

    Correct Answer
    A. 1,200,000
    Explanation
    The income statement for 2009 should report unrealized gain on these securities at 1,200,000. This is because the market value of the trading securities increased from 4,600,000 to 5,800,000 between December 31, 2008, and December 31, 2009. The difference between the cost and market value is considered temporary, and since the market value increased, it resulted in an unrealized gain of 1,200,000.

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  • 18. 

    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:

    • Unrealized loss of P100,000

    • Unrealized loss of P130,000

    • Unrealized gain of P100,000

    • Unrealized gain of P130,000

    Correct Answer
    A. Unrealized gain of P100,000
  • 19. 

    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:

    • 200,000

    • 140,000

    • 100,000

    • 0

    Correct Answer
    A. 0
    Explanation
    Since the securities are carried at market value and the market value at 12/31/09 is higher than the cost, there is no unrealized loss. Therefore, the amount of unrealized loss on these securities in Scotch's 2009 income statement should be 0.

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  • 20. 

    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?

    • 1,200,000

    • 3,600,000

    • 4,500,000

    • 4,950,000

    Correct Answer
    A. 4,950,000
    Explanation
    The net unrealized loss shown in the 2011 income statement should be $4,950,000. This can be determined by adding the market adjustment for trading securities ($-1,200,000) and the market adjustment for available for sale securities ($1,350,000). The net of these two amounts is $150,000, which represents the net unrealized loss on the financial statements for 2011.

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