JFA/Page 1 of 3

PLV- College of Accountancy

2nd Semester, A.Y. 2016-2017
FINANCIAL ACCOUNTING AND REPORTING I [ACCTG 3]
FINAL TERM ASSIGNMENT NO. 4

GENERAL DIRECTIONS: Use black permanent ink pen in writing your final
answers in your answer sheet. Erasure and/or superimposition of any kind is
strictly not allowed. Doing such shall automatically render your answers
INCORRECT. Choices are CASE- SENSITIVE. DO NOT CHEAT. GOD IS
WATCHING YOU.
PART I
1. Guess Company purchased 50,000 shares (5% ownership) of Casio Company
on January 15, 2014. Guess received a share dividend of 15% on March 31, 2014
when the market price of the share is P 40. On December 15, 2014, Guess received
a cash dividend of P 8 per share. In the statement of comprehensive income for
the year ended December 31, 2014, what amount should Guess report as dividend
income?

A. 60,000 B. 150,000 C. 400,000 D. 460,000

2. On January 2, 2014, Tender Company acquired 16,000 shares of A Company
ordinary shares at P 50 per share. On July 1, 2014, the A Company shares were
split 5 to 1. On October 1, 2014, Tender Company received from A Company a
preference share dividend of one share for every 10 ordinary shares held. On this
date, the market price of A Companys ordinary shares is P 15 per share and the
preference shares is P 10 per share. On December 31, 2014, A Company
transferred to Tender Company its investment in B Company representing 5,000
ordinary shares as dividend. The market price of B Company shares is P 15 per
share and its par value is P 10 per share. What is the amount of dividend income
that should appear in the December 31, 2014 financial statement of Tender Co.?

A. None B. 50,000 C. 75,000 D. 90,000

3. Table owns 50% and 20% of Chair Corporations ordinary and preference
shares, respectively. Chairs shares outstanding at December 31, 2014 follow:

Ordinary Shares P 4,000,000

10% cumulative preference share 900,000
Chair reported net income of P 600,000 for the year ended December 31, 2014
and declared the current year dividend on the preference shares. What total
amount of revenue should Table Company disclose in the statement of
comprehensive income related to its investment in Chair Company for the year
ended December 31, 2014?
A. None B. P 255,000 C. 273,000 D. 300,000
4. On October 1, 2013, Graham Company with a business model of trading debt
securities, purchased a P 2,000,000 face value 9% debt instruments for with a
remaining term of 2 years and three months for P 2,174,867. The prevailing
market rate of interest at the time of acquisition was 8%. Interest is being received
every December 31. On December 31, the fair market value of the instruments is
P 2,072,321 based on prevailing market rate of 7%. What amount of unrealized
gain or loss should Graham Company report in its December 31, 2013 profit or
loss?

A. None B. 32,454 C. 102,456 D. 135,000

5. On January 1, 2014, Sun Company purchased the debt instruments of Silk
Company with a face value of P 5,000,000 bearing interest rate of 8% for P
4,621,006 to yield 10% interest per year. The bonds mature on January 1, 2019
and pay interest annually on December 30. On December 31, 2014, the fair value
of the investment is P 4,838,014 which is based on the prevailing market rate of
9%. If the companys business model has the objective of collecting all the
contractual cash flows, including interest and principal, at what amount should the
investment be reported in the companys statement of financial position for the
year ended December 31, 2014?
A. 4,621,006 B. 4,683,107 C. 4,751,418 D. 4,838,014
6. On January 2, 2013, Saint Company invested in a 4-year 10% bond with a face
value of P 6,000,000 in which interest is to be paid every December 31. The bonds
has an effective interest rate of 9% and was acquired for P 6,194,383. On
December 31, 2014, the management of Saint Company decided to dispose P
4,000,000 face value debt instrument which will be used to settle an obligation
and to finance some of its operating costs. The company has a business model of
collecting the contractual cash flows for all their debt security investments. What
is the amortized cost of the debt instrument on December 31, 2014?
A. 6,055,046 B. 6,105,547 C. 6,151,877 D. 6,194,383
7. On January 1, 2014, Trunk Company has an investment property acquired at
cost of P 4,000,000. Depreciation of P 200,000 is recognized annually and periodic
continuing maintenance of P 20,000 per year as well as property tax of P 40,000
are incurred by the company on an annual basis. As of December 31, 2014, the
property has no determinable fair value. What should be the carrying value of the
investment property on December 31, 2014?

A. None B. 3,800,000 C. 3,840,000 D. 3,860,000 JFA/Page 2 of 3

8. The following information relates to non- current investments that Dragon
Company placed in trust as required by underwriter of its bonds:
Bond sinking fund balance, 1/1/14, P 2,000,000; Additional investment during
2014, P 500,000; Interest revenue, P 20,000; Administrative costs, P 15,000;
Carrying value of bonds payable, P 3,000,000. What amount should Dragon
Company report in its December 31, 2014 balance sheet related to its non- current
investment for bond sinking fund requirements?
A. 2,000,000 B. 2,500,000 C. 2,505,000 D. 3,000,000
9. On January 1, 2011, Crane Company purchased a P 4,000,000 ordinary life
insurance policy on its president. Additional data for the year 2014 are as follows:
Cash Surrender value, January 1, P 200,000; Cash Surrender value, December 31,
P 220,000; Annual insurance premium paid on January 1, 2014, P 80,000; Dividend
received on August 1, P 10,000; Crane Company is the beneficiary under the life
insurance policy. Crane should report life insurance expense for 2014 of
A. 50,000 B. 60,000 C. 70,000 D. 80,000
Use the following information for the next two questions:
On April 1, 2015, Purefoods Company purchased as a short- term investment a P
1,000,000 face value 8% bond for P 910,000 including accrued interest and
commission. The commission to acquire the bonds was P 5,000. The bonds are
classified as held for trading. The bonds are dated January 1, 2015 and mature on
January 1, 2020, and pay interest semi- annually on January 1 and July 1. On
December 31, 2015, the bonds had a fair value of P 920,000. On April 1, 2016,
Purefoods sold the bonds for a total consideration of P 950,000.
10. What amount should Purefoods report as unrealized gain in its 2015 profit or
loss?
A. 35,000 B. 15,000 C. 30,000 D. 0
11. How much is the gain from the sale of investment in debt securities on April
1, 2016?
A. 30,000 B. 45,000 C. 10,000 D. 65,000
12. On January 1, 2015, Alaska Corporation purchased P 1,000,000 10% bonds for
P 1,051,510 (including brokers commission of P 20,000). Interest is payable
annually every December 31. The bonds mature on December 31, 2017. The
prevailing market rate for the bonds is 9% at December 31, 2015. (Round off
present value factors to four decimal places). If the bonds are classified as held
for trading, the amount to be recognized as fair value adjustment loss in its 2015
profit or loss?
A. 33,900 B. 26,180 C. 13,900 D. 6,180
13. On April 1, 2015, Saxe, Inc. purchased P 2,000,000 face value, 9%, Treasury
Notes for P 1,985,000, including accrued interest of P 45,000. The notes mature
on July 1, 2016, and pay interest semi-annually on January 1 and July 1. Saxe
uses the straight- line method of amortization. If the notes are classified as held-
to- maturity, the carrying amount of this investment in the companys October 31,
2015 statement of financial position should be
A. 1,985,000 B. 1,968,000 C. 1,976,000 D. 1,964,000
14. On January 1, 2011, JAN Inc. invested P 926,405 in the bonds of FEB Ltd. The
face value of the bonds is P 1,000,000. The bonds pay interest of 5% per annum
and mature on December 31, 2020. The bonds are held to maturity. The market
value of the bonds was P 940,340 on December 31, 2015. The carrying amount of
the investment in bonds at December 31, 2015 is
A. 940,340 B. 950,834 C. 957,920 D. 965,357
15. On July 1, 2015, Morales Corp acquired P 4,000,000 face value of X
Corporation bonds with a nominal interest rate of 4%. The bonds mature on July
1, 2020 and pay interest semi- annually each July 1 and January 1, with the first
interest payment due on January 1, 2016. The bonds are held to maturity. At the
date of issuance, the bonds had a market interest rate of 6%. On December 31,
2015, the market value of the bonds was P 3,700,000. The amount to be
recognized in 2015 profit or loss related to the bond investment is
A. 109,764 B. 109,896 C. 219,529 D. 219,791
16. On April 1, 2015, Etcha Co. purchased 25,000 ordinary shares of Pwera Co.
at P 180 per share which reflected book value as of that date. At the time of the
purchase, Pwera had 100,000 ordinary shares outstanding. The shares are
intended as a long- term investment. The first quarter statement ending March
31, 2015 of Pwera recorded profit of P 480,000. For the year ended December
31, 2015, Pwera reported profit of P 2,400,000. Pwera paid Etcha dividends of P
60,000 on June 1, 2015 and again P 60,000 on December 31, 2015. The shares of
Pwera are selling at P 190 per share on December 31, 2015.
Etcha is entitled to appoint two directors to the board, which consists of eight
members. The remaining of the voting rights are held by two other companies,
each of which is entitled to appoint three directors. The board makes decisions
on the basis of simple majority. Because board meetings are often held at very
short notice, Etcha does not always have representation on the board. Often the
suggestions of the representative of Etcha are ignored, and the decisions of the
Board seem to take little notice of any representations made by the director from
Etcha Corp. Based on the above information, the carrying amount of the
investment in Pwera Co. as of December 31, 2015 should be
A. 4,750,000 B. 4,500,000 C. 4,860,000 D. 4,950,000 JFA/Page 3 of 3
17. On July 1, 2011, Cleopatra Corporation acquired 25% of the shares of Marcus,
Inc for P 1,000,000. At that date, the equity of Marcus was P 4,000,000, with all
the identifiable assets and liabilities being measured at amounts equal to fair value.
The table below shows the profits and losses made by Marcus during 2011 to
2015:
Year Profit (Loss)
2011 200,000
2012 (2,000,000)
2013 (2,500,000)
2014 160,000
2015 300,000
How much share of profit of associate should Cleopatra report in its 2015 profit
or loss?
A. Nil B. 15,000 C. 60,000 D. 75,000
18. Nueva Vizcaya Company has the following accounts included in its December
31 trial balance:
Trading Securities P 1,000,000
Available- for sale securities 2,000,000
Held- to- maturity securities 3,000,000
Investment in Associate 4,000,000
Interest rate swap receivable 100,000
Forward contract receivable 200,000
Futures contract receivable 250,000
Call Option 150,000
Petty Cash Fund 50,000
Payroll cash fund 500,000
Dividend cash fund 200,000
Interest fund 150,000
Sinking fund 2,000,000
Plant Expansion Fund 1,800,000
Stock redemption fund 1,000,000
Contingency fund 1,100,000
Insurance Fund 1,000,000
Investment Property 4,000,000
Prepaid rent 200,000
Cash surrender value of life insurance 100,000
How much is the total amount normally considered as non-current investments?
A. 20,000,000 B. 18,000,000 C. 17,900,000 D. 14,000,000
19. The following information is available concerning the Mauro Corporations
sinking fund transactions in 2015. There is no trustee.
January 1 Established a sinking fund to retire an outstanding bond issue by
contributing P 425,000
January 15 Purchased securities for P 400,000
July 30 Sold securities originally costing P 48,000 for P 45,000
December 31 Collected dividends and interest on the remaining securities in the
amount of P 49,000; the securities had a market value of P 360,000 at this time.
The sinking fund balance on December 31, 2015 is
A. 479,000 B. 474,000 C. 471,000 D. 442,000
20. If P 900,00 is put in a savings account today for 8% interest compounded
annually, what amount will be available six years from now?
A. 900,000 x 0.6302
B. 900,000 x 1.08 x 1.4693
C. 900,000 x 0.6806 x 0.9259
D. 900,000 x (1.08+ 1.4693)

- END OF PART 1 -