Pamantasan ng Cabuyao

Katapatan Subd., Banay Banay, City of Cabuyao

Accounting Review III - Practical Accounting I (ACCTG100C) P1 - 08

INVESTMENT PROPERTY AND OTHER INVESTMENT
1. Cabuyao Company and its subsidiaries provided the following properties owned by the group:
Land held for undetermined future use 1,000,000
Vacant building to be leased out under an operating lease 2,000,000
Property held for use in production 4,000,000
Property held by subsidiary, a real estate firm, in the ordinary course of business 3,000,000
Building owned by subsidiary and for which the subsidiary provides security
and maintenance services to the lessees 2,500,000
Land leased to a subsidiary under an operating lease 1,500,000
Equipment leased to an unrelated party under operating lease 500,000
Building under construction for use as investment property 3,500,000
In consolidated statement of financial position of Cabuyao Company and its subsidiaries, what total amount should be
reported as investment property?
A. 6,000,000 C. 8,000,000
B. 5,500,000 D. 9,000,000
2. Calamba Company purchased an investment property on January 1, 2015 at a cost of P2,200,000. The property had a useful
life of 40 years and on December 31, 2017 had a fair value of P3,000,000. On December 31, 2017, the property was sold for
net proceeds of P2,900,000. The entity used the cost model to account for investment properties. What is the gain or loss to
be recognized for the year ended December 31, 2017 regarding the disposal of the property?
A. 865,000 gain C. 100,000 loss
B. 810,000 gain D. 700,000 gain
3. Bay Company owns three properties which are classified as investment properties. Details of the properties are as follows:
Fair value Fair value
Initial cost 12/31/17 12/31/18
Property 1 2,700,000 3,200,000 3,500,000
Property 2 3,450,000 3,000,000 2,800,000
Property 3 3,300,000 3,900,000 3,400,000
Each property was acquired in 2012 with useful life of 50 years. The entity’s accounting policy is to use the fair value model
for investment properties. What is the gain or loss to be recognized for the year ended December 31, 2018?
A. 250,000 loss C. 300,000 gain
B. 400,000 loss D. 700,000 loss
4. On January 1, 2017, Pila Company adopted a plan to accumulate funds for a new building to be erected beginning January
1, 2016 at an estimated cost of P20,000,000. The entity intends to make four equal annual deposits in a fund beginning
December 31, 2017 that will earn interest at 12% compounded annually. The future value of an ordinary annuity of 1 at 12%
for four periods is 4.78 and the future value of an annuity of 1 in advance at 12% for 4 periods is 5.35. What is the annual
deposit to the fund?
A. 5,000,000 C. 3,738,318
B. 4,184,100 D. 3,149,606
5. The following information relates to a noncurrent investment that Lumban Company placed in trust as required by the
underwriter of its bonds:

Bond sinking fund – January 1, 2017 450,000

2012 additional investment 90,000
Dividends on investment 15,000
Interest revenue 30,000
Administration costs 5,000
Carrying amount of the bonds payable 1,025,000
What is the bond sinking fund balance on December 31, 2017?
A. 585,000 C. 575,000
B. 580,000 D. 540,000
6. Victoria Company insured the life of its president for P2,000,000, the entity being the beneficiary of an ordinary life policy.
The annual premium is P80,000 and the policy is dated January 1, 2014. The cash surrender values are:

December 31, 2016 15,000

December 31, 2017 19,000

The entity follows the calendar year as its fiscal period. The president died on October 1, 2017 and the policy is settled on
December 31, 2017. What amount should be reported as gain on life insurance settlement in the income statement for 2017?
A. 1,962,000 C. 1,961,000
B. 2,000,000 D. 1,981,000
7. On January 1, 2013, Magdalena Company purchased P2,000,000 ordinary life insurance policy on its president. Additional
data for 2017 are:

Cash surrender value, January 1 50,000

Cash surrender value, December 31 60,000
Annual advance premium paid on January 1, 2017 100,000
Dividend received on July 1, 2017 5,000

The entity is the beneficiary under the life insurance policy. What amount should be reported as life insurance expense for
2017?
A. 100,000 C. 85,000
B. 95,000 D. 90,000
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wep/ACCTG100C/propertyandotherinvestments