SET A

SAN PEDRO COLLEGE OF BUSINESS ADMINISTRATION

DEPARTMENT OF ACCOUNTANCY
ACG007 – INTERMEDIATE ACCOUNTING 1 (BSA 302)
MIDTERM EXAMINATION

Linda Inc. has trading securities purchased during 2018. At the end of 2018, the securities had a total
market value of P525,000. As of December 31, 2019, the records show cost and market values as follows:

Fair
Investment Cost Value
1 100,000 90,000
2 190,000 210,000
3 250,000 235,000

1. The gain or loss that would be reported in profit or loss as a result of the valuation of the
securities at the end of 2019 is?
a. 5,000
b. 10,000
c. 20,000
d. 25,000

B 535,000 – 525,000 = 10,000

On January 1, 2018, the Varilux Corp purchased marketable equity securities to be held as trading for
P2,000,000. The company also paid commission, taxes and other transaction costs amounting to P50,000.
The securities had the following market values at December 31, 2018 and 2019, respectively; P1,750,000
and P2,100,000.

No securities were sold during 2018.

2. What amount of unrealized gain or loss should be reported in the 2018 profit or loss section
of the statement of comprehensive income?
a. 200,000 loss
b. 250,000 loss
c. 50,000 gain
d. 100,000 gain

B 2,000,000 – 1,750,000 = 250,000 loss

On January 1, 2018, the Transitions Corp purchased marketable equity securities for P2,000,000. The
company also paid commission, taxes and other transaction costs amounting to P50,000. Because the
securities were acquired not for immediate trading, Transitions exercised its option to measure the change
in fair value through other comprehensive income. The securities had the following market values at
December 31, 2018 and 2019, respectively; P1,750,000 and P2,100,000.

No securities were sold during 2018 or 2019.

3. What amount of unrealized gain or loss should be reported in the December 31, 2019
statement of financial position as a component of shareholders’ equity?
a. 200,000 unrealized loss
b. 250,000 unrealized loss
c. 50,000 unrealized gain
d. 100,000 unrealized gain

C 2,100,000 – (2,000,000 + 50,000) = 50,000

Chickboy Company made investments in non-trading equity securities that were irrevocably elected to
present changes in fair value through other comprehensive income. The cumulative “Holding gain or loss”
account has a debit balance of P12,900 at December 31, 2018. An analysis of the investments on
December 31, 2018 showed the following:

No. of Cost Fair

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 SET A

Shares Value
Asia Textile ordinary 600 307,500 270,000
S-Mart, Inc 225 76,500 90,000
MJD Company ordinary 2,000 269,500 280,600
653,500 640,000

On July 1, 2019, the shares of S-Mart were sold for P70,000.

On December 31, 2019, Asia textile were quoted at P440 per share; RJ shares were quoted at P138 per
share.

4. How much is the required debit to other comprehensive income account at the end of 2019?
a. 43,500
b. 37,000
c. 30,600
d. 10,600

D FV 12/31/ Year 2 (600 x 440) + (2,000 x 138) = 540,000

FV 12/31/Year 1 = 270,000 + 280,600 = 550,600

Change in FV = 540,000 – 550,600 = 10,600 decrease or debit

Baeby Company bought 1,000 shares of Quezon Company as equity investments at fair value through OCI
on January 10, 2019 at P150 per share and paid P2,250 as brokerage fee. On December 5, 2018, a P10
dividend per share of Quezon had been declared to be paid on April 30, 2019 to shareholders as of
January 31, 2019.

There were no other transactions in 2019 affecting the investment in Quezon.

5. At what amount should the investment in equity securities be initially recognized on January
10, 2019?

a. 142,250
b. 150,000
c. 152,250
d. 162,250

A 1,000 x 150) + 2,250 = 152,250; 152,250 – (1,000 x 10) = 142,250

During 2018, Tiongco Company acquired financial asset at FVPL, ordinary shares of Anroz Company as
follows:

No. of Fair
Date Cost per share
Lot shares Value
A January 26 800 560 448,000
B April 25 600 600 360,000

Anroz Company effected a 20% bonus issue on February 14, 2018.

Stock rights on ordinary shares were issued on October 30, 2018, entitling the holders to purchase one
new ordinary share at P450 for each ten shares held. On this date, the stock ex-rights were being traded
at P620 per share

On November 8, 2018, Tiongco sold 500 rights that pertained to Lot A. Sales price was P20 per right. The
corporation paid a brokerage fee of P500 on the sale of the stock rights. Tiongco exercised the remaining
rights on November 11, 2018. Fair value of each share on December 31 was P650.

6. How many new ordinary shares of Anroz were acquired by Tiongco through the exercise of
the rights?
a. 168 shares
b. 140 shares
c. 118 shares
d. 106 shares

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 SET A

D 960-500 = 460; 460 + 600 = 1,060; 1,060/10 = 106 shares

7. Use the same information given in No. 6. How much total income from investments shall
Tiongco Corporation report during 2018?
a. 9,500
b. 18,020
c. 27,520
d. 28,020

BONUS!

Holiday Inc. had the following transaction in the ordinary shares in May Corporation:

Jan 5 Bought 4,000 shares, P100 par, at P88.

Jun 15 Received 10% bonus issue
Aug 31 Received P4 cash dividend for each ordinary share

8. What is the revised cost per share after receipt of the bonus issue?
a. 75
b. 80
c. 85
d. 90

B 88 ÷ 1.10 = 80

On December 31, 2018, Maroon 5 Company held 1,000 ordinary shares of Adam Co. in its portfolio of
long-term investments in equity securities. The shares were designated as at fair value through other
comprehensive income. The shares had a cost of P150 per share and had a market value of P130 per
share at Dec. 31, 2018.

During 2019, Maroon 5 acquired the following investments, all of which were designated as at FV-OCI:
900 Ordinary shares of Lany Co. for P180 per share and 800 ordinary shares of Lauv Co. for P220 per
share.

At the end of 2019, market values per share were: Adam – P140; Lany – P170; Lauv – P200

9. The adjusting entry on December 31, 2019 would:

a. increase unrealized loss by P35,000

b. increase unrealized loss by P15,000
c. decrease unrealized loss by P20,000
d. decrease unrealized loss by P15,000

B 1,000 x (140 - 130) + 900 x (170 – 180) + 800 x (200- 220) = 15,000 additional loss

10. Using the same information in No. 9, What is the net unrealized loss account balance
reported in the shareholder’s equity section of Maroon 5’s statement of financial position at
December 31, 2019?

a. 35,000
b. 20,000
c. 15,000
d. 0

A 1,000 x (20) + 15,000 = 35,000

On January 1, 2019, The Script Co. purchased 10,000 ordinary shares of One Republic Corp., a large,
publicly traded company listed on a major stock exchange. In December, One Republic distributed a 20%
bonus issue when the par value was P100 per share and the market value was P500 pr share.

11. How much income should The Script Co. report?

a. 0
b. 200,000
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 SET A

c. 1,000,000
d. 4,000,000

For Nos. 12 and 13

Ester Company owns 10,000 ordinary shares of Loko Company. The shares were purchased for P100 per
share early in 2016. On October 31, 2016, Loko distributed stock rights to Ester. Ester accounts for these
rights separately at fair value and was entitled to buy one new share for P80 and two of these rights. On
October 31, 2016, each share had a market value ex-right of P140 and each right had a market value of
P20. Ester exercises all these rights.

12. What is the cost per share of the new investment?

a. 140
b. 105
c. 120
d. 100

13. If Ester sold 12,000 shares at P150 each, what is the gain on sale to be reported?
a. 600,000
b. 760,000
c. 720,000
d. 560,000

14. All of the following are alternatives for an investor who receives stock rights except
a. Exercising the rights by purchasing additional stock.
b. Selling the rights.
c. Permitting the rights to expire.
d. Converting the rights into a cash dividend

Google Company purchased 10,000 shares representing 2% ownership of Yahoo Company on February
11, 2016 at a price of P2,500,000. Google received a 25% stock dividend on March 31, 2016, when the
market value per share was P400. Yahoo paid a cash dividend of P15 per share on September 15, 2016.
On December 31, 2016, Google sold 7,000 shares of this investment for P1,500,000.

15. What amount should Google report as gain on sale on this investment in the income
statement?
a. 250,000
b. 100,000
c. 180,000
d. 150,000

16. What is the total amount of income that shall be recognized in profit or loss?
a. 1,100,000
b. 287,500
c. 250,000
d. 1,500,000

17. At which of the following dates has the shareholder theoretically realized income from its
equity security investments?
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 SET A

a. Date of declaration of dividends.

b. Date of record.
c. Date of payment of dividends.
d. Date of receipt of dividends.

18. Any instrument representing ownership shares and the right to acquire ownership shares is
a. debt security
b. equity security
c. shareholders’ equity
d. marketable security

19. Equity securities acquired for trading shall be measured at

a. cost, being the purchase price
b. fair value, with changes in fair value taken to profit or loss
c. fair value, with changes in fair value taken to other comprehensive income
d. cost, being the purchase price plus transaction costs.

20. Under which type of investment classification is directly attributable cost of acquisition is
not included in the initial measurement basis?
a. financial assets at fair value trough profit or loss
b. financial assets at fair value trough other comprehensive income
c. financial assets at amortized cost
d. investment in associate

21. Which of the following shall be taken to profit or loss for investments measured at fair
value through other comprehensive income?
a. change in fair value during the reporting period
b. gain or loss on disposal of the securities
c. dividends received declared from current year’s earnings of the investee
d. impairment in the value of the securities

22.Which of the following is not correct regarding trading securities?

a. they are held with the intention of being sold in a short period of time
b. unrealized holding gains and losses are reported in profit or loss
c. any discount or premium on debt securities are not amortized
d. gain on sale is the excess of net selling price over cost of the securities sold

23. Under IFRS 9, the cumulative balance of 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 objective evidence of impairment
c. shall not be reversed to profit or loss but may be transferred to another equity account
d. shall not be reversed to profit or loss and may not be transferred to another equity account

24. IFRS requires entities to measure financial assets based on all of the following, except:
a. the entity’s business model for managing financial assets
b. whether the financial asset is a debt or equity investment
c. the contractual cash flow characteristics of the financial asset
d. all of these choices are IFRS requirement

Earth, Wind and Fire Company revealed provided the following data pertaining to dividends on ordinary
share investments for the current year:

*Received a stock dividend of 10,000 shares from Ice Company when the market price of the share was
P10.

*Received a cash dividend of P1,500,000 from Metal Inc. in which the entity owned a 15% interest

*Received 5,000 shares of Water Co. in lieu of cash dividend of P20 per share. The market price of the
share was P150. The entity had 50,000 shares of Water Co., that represent 5% of holding interest.

*Received a liquidating dividend from Charcoal Inc, P600,000

*The entity owned a 20% interest in Gold Co. which declared and paid a 4,000,000 cash dividend to
shareholders.

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 SET A

*Received from Lightning Inc. a dividend in kind of one share of Thunder Co. for every 4 Lightning Inc.
shares held. The entity had 100,000 Lightning Inc. shares which have a market value of P50 per share.
The market price of Thunder Co share was P10.

25.What amount should be reported as Dividend Income?

a. 4,150,000
b. 2,500,000
c. 1,500,000
d. 250,000

Ice Company – 0
Metal Inc. – 1,500,000
Water Co. - (5,000x150) 750,000
Charcoal, Inc – 0
Gold Co. – 0 (Investment in Associate, Equity Method, IAS 28)
Lightning, Inc. – (100,000/4) x10 250,000

Axe Co. owned 50,000 shares of another entity. These 50,000 shares were originally purchased for P100
per share. On October 1, 2019, the investee distributed 50,000 rights to the entity. The entity was entitled
to buy one new share for P140 and five of these rights. On October 1, 2019, each share had a market
value of P150 and each right had market value of P10. On December 31, 2019, the entity exercised all
rights. The stock rights are accounted for separately.

26.What total cost should be recorded for the new shares that are acquired by exercising the
rights?
a. 1,400,000
b. 1,900,000
c. 1,650,000
d. 1,000,000

Stock Rights 500,000 (50,000x10)

Investment in ES 500,0000

Investment in ES 1,900,000
Cash (50,000/5) x140 1,400,000
Stock Rights 500,000

Nomo Co. issued rights to subscribe to its stock, the ownership of 4 shares entitling the shareholders to
subscribe for 1 share at P100. An investor owned 50,000 shares with total cost of P5,000,000. The share
is quoted right-on at 125. The stock rights are accounted for separately.

27.What is the total cost of the new investment assuming all stock rights are exercised by the
investor?

a. 1,500,000
b. 1,250,000
c. 1,562,500
d. 1,450,000

TMV Right-on

(125-100) / 4+1 = 5

Stock Rights 250,000 (50,000x5)

Investment in ES 250,0000

Investment in ES 1,500,000
Cash (50,000/4) x100 1,250,000
Stock Rights 500,000 250,000

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 SET A

For Nos. 28 to 29
Avatar Co. revealed the following chronological transactions:

1. Purchased 80,000 shares, par P10, at P40 per share as long-term investment
2. Received a share dividend of one share for every four owned
3. Received a cash dividend of P5 per share
4. Received share rights to purchase one share at P30 for every five rights held. The market value of the
share rights is P5
5. Sold 40,000 share rights at P7 each
6. Exercised the remaining rights
7. Sold 80,000 shares at P35 per share

28.What is the total amount of financial assets that should be reported in the statement of
financial position?
a. 500,000
b. 80,000
c. 640,000
d. 1,220,000

BONUS! 1,200,000

29.What is the total amount to be reported in profit or loss?

a. 2,160,000
b. 540,000
c. 660,000
d. 1,200,000

BONUS! 500,000 + 80,000 + 640,000 = 1,220,000

-END-
ACO 

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