Tarlac State University – College of Business & Accountancy FAR 1 – Q1 (Final_Term)

Name: ____________________________________________ Score: _______________

1. Shares received in lieu of cash dividends are recognized as income and are measured equal to the [A] original amount of
cash dividends intended to be declared and paid [B] fair value of the shares received [C] par value of the shares received
[D] higher between the fair value of the shares received and the original amount of cash dividends intended to be declared
and paid received

2. Bonds held as trading securities are initially measured at [A] price paid for the bonds plus accrued interest if acquired
between interest dates [B] price paid for the bonds plus accrued interest less any transaction costs related to the acquisition
[C] price paid for the bonds without regard to accrued interest and any transaction costs related to the acquisition [D] price
paid for the bonds plus transaction costs related to the acquisition less any accrued interest

3. An investor owns 25% of the outstanding preference shares of the investee. At the end of the year, the investor held
inventories acquired from the investee at a gross profit rate of 20% above cost. How would the profit on ending
inventories affect the investment income and investment account respectively? [A] increase, decrease [B] decrease,
increase [C] decrease, decrease [D] no effect, no effect

4. The cost of the new investment acquired through the exercise of stock rights that are not accounted for separately is equal
to the [A] total of the cost of stock rights exercised plus the subscription price for the new shares [B] subscription price for
the new shares [C] excess of the subscription price for the new shares over the cost of the stock rights exercised [D] higher
between the subscription price of the shares and its par value

5. The amortization of the excess of acquisition price over the carrying amount of the net assets acquired by an investor over
an associate that was allocated to an undervalued depreciable asset will [A] increase the investment income [B] decrease
the investment balance [C] have no effect on investment income and investment balance [D] increase both investment
income and investment balance

6. If bonds are acquired between interest dates, the accrued interest [A] must be included in the cost of the bonds [B] must be
recorded separately as bond premium [C] will increase the total cash to be paid upon acquisition [D] must be deducted
from the amount of premium or discount resulting from the acquisition of the bonds.

(Problem No. 1) JAMES BONDS Co. acquired 12%, Php 4,000,000 face value bonds maturing on December 31, 2020 for Php
3,740,000 on January 1, 2017. The bonds are dated January 1, 2017 and pay interest annually every December 31.
Transaction costs amounting to Php 26,900 were excluded from the aforementioned acquisition price. The bonds were
acquired to yield 14%. The bonds were classified as financial assets at amortized cost. On July 01, 2019, the investor sold all
of the bonds at 115.
Required:
1. How much is the carrying amount of the bonds as at December 31, 2017?
2. How much interest income should be recognized for the year 2018?
3. How much is the carrying amount of the bonds as at the date of sale?
4. How much is the gain or loss on the sale of the bonds?

(Problem No. 2) On January 1, 2017, SIGNIFICANT Corp. acquired 25% of the outstanding ordinary shares of INFLUENCE
Corp. by paying Php 1,260,000 cash when the carrying amount of the net assets of INFLUENCE Corp. equaled Php 6,000,000.
The difference was attributed to an equipment which had a carrying amount of Php 2,000,000 and a fair market value of Php
1,600,000, and to a building with a carrying amount of Php 1,000,000 and a fair market value of Php 1,200,000. The
remaining useful life of the equipment and building was 4 years and 10 years respectively. On June 30, 2017, INFLUENCE
Corp. sold furniture to SIGNIFICANT Corp. at a loss of Php 20,000. On the date of the sale, the furniture had a remaining life
of 5 years. At year end, the investor held inventory which it acquired from the investee for Php 50,000. The goods had a cost
of Php 40,000. INFLUENCE Corp. reported net income of Php 1,000,000 in 2017 and Php 1,500,000 and paid dividends of
Php 300,000 in 2017 and Php 500,000 in 2018.
Required:
1. Goodwill/ (Income from acquisition)
2. Investment income for the year 2017
3. Investment balance, December 31, 2017
4. Investment income for the year 2018
5. Investment balance, December 31, 2018

(Problem No. 3) The following transactions for Dibby Dean Corp. transpired in the following chronological order:
a. Dibby Dean Corp. bought 20,000 unquoted ordinary shares of NaperFek Co at Php 30 per share.
b. Received 50% stock dividend from NaperFek Co.
c. Received stock rights from NaperFek Co. enabling shareholders to buy a share for Php 30 plus 4 rights. The shares were
selling Php 42 – ex right as at the date of granting of the rights. Rights are accounted for separately.
d. Received from NaperFek a cash dividend of Php 5 per share.
e. Exercised all the rights received in item “C”.
f. Received a dividend in kind of 1 ordinary share of Gaga-Lingan Co. with a market price of Php 5 per share for every five
(5) NaperFek ordinary shares held.
g. Sold 5,000 ordinary shares of NaperFek Co at Php 65 per share.
Required:
1. Amount debited to stock rights in transaction “C”
2. Amount credited to dividend income in transaction “D”
3. Cost of the new investment in transaction “E”
4. Amount credited to dividend income in transaction “F”
5. Gain / (loss) on the sale of NaperFek Co. ordinary shares in transaction “G”