ACCOUNTING 3 QUIZ 1: FINANCIAL ASSETS-EQUITY SECURITIES Exam Questions with Correct Answers
ACCOUNTING 3 QUIZ 1: FINANCIAL ASSETS-EQUITY SECURITIES
1.
... [Show More] Joyce Company owned 90,000 shares of another entity. On July 31, 2021, when the investment had a
carrying amount of P50 per share, the entity declared these shares as a dividend payable on March 1, 2022. The
entity originally paid P80 for each share. The shares are traded on a national stock exchange. The quoted market
price for a share was P70 on the declaration date, P40 on December 31, 2021 and P90 on the distribution date of
March 1, 2022 What amount should be recognized as impairment loss on 2021
P900,000
P2.700,000
P4,500,000
P0 Impairment does not exist in Equity Securities
2. On January 1, 2023, Everglade Company purchased the following securities and properly accounted for them
as securities at fair value through other comprehensive income:
Security Cost Fair Value on
12/31/2023
ABC $40,000 $55,000
DEF 72,000 65,000
XYZ 16,000 20,000
All declines in value are considered temporary. What amount should the Everglade Company report relative to
these securities in its 2023 income statement?
$0 FVOCI-Balance Sheet
$7.000 unrealized loss
$12.000 net unrealized gain
$19,000 unrealized gain
3. Lisa Co. sold its financial asset- equity securities for 1,500,000 and paid 50,000 brokers fees. How much is
Lisa Co’s gain or loss on sale assuming that the financial asset was purchased for 1.600.000 and its fair value
last December 31 is 1,400,000?
50,000 loss
100,000 loss
100,000 gain
50,000 gain
1,450,000 (net cash received)
Less: Fair value 1,400,000
50,000 gain4. The Groveled Company acquired financial asset at its market value of P320,000. Broker fees of P20,000,
were incurred in relation to the purchase. In accordance with PFRS 9 Financial Instruments: Recognition and
Measurement, at what amount should the financial asset initially recognized if it is classified as at fair market
value through profit or loss, or as fair market value to other comprehensive income?
P340,000 and P340.000
P320,000 and P320.000
P320,000 and P340,000 (In FVPL, transaction Cost are not added while in FVOCI, these are directly
attributed.)
P340,000 and P320,000
5. Trading securities are most commonly found on the books of
Foreign subsidiaries
Manufacturing companies
Banks
Oil companies
6. Data regarding Ted Co's trading securities follow:
Cost Market Value
December 31, 2022 5,000,000 4,600,000
December 31, 2023 5,000,000 4,800,000
Differences between cost and market value are considered temporary. In the 2023 income statement, what
amount should be reported as unrealized gain on these securities?
P 400,000
P 200,000 Computing unrealized gain: just focus on the fair market values in the given years
P 800,000
P0
7. The fair value of debt securities not regularly traded can be most reasonably approximated by
Using the relative fair value method
Calculating the discounted present value of the principal and interest
Determining the value using similar securities in the PSC market
Calling a licensed and registered stockbroker8. On its 31 December 2024 statement of financial position. Post & Co. reported its investment in Financial
Asset through OCI, which had cost $360,000, at fair value of $330.000. At 31 December 2025, the fair value of
the securities was $350,000. What should Post report on its 2025 income statement as a result of the increase in
fair value of the investments in 2025?
$0 You cannot report an income in the income statement if the equity securities are under FVOCI
Realized gain of $20,000
Unrealized loss of $10,000
Unrealized gain of $20,000
9. Lisa Co. sold its financial asset- equity securities for 1,500,000 net of 50,000 brokers fees. How much is Lisa
Co.'s gain or loss on sale assuming that the financial asset was purchased for 1,600,000 and its fair value last
December 31 is 1,400,000?
100,000 loss
200,000 gain
100,000 gain (Since the problem indicated that Liza received a net amount, just get the difference between the
fair value and amount sold/received.)
200,000 loss
10. Goofy Inc. bought 15.000 shares of Crazy Co.'s stock for $150,000 on May 5, 2022, and classified the
investment as Financial asset at FVOCI. The market value of the stock declined to $118,000 by December 31,
2022. Goofy reclassified this investment as trading securities in December of 2023 when the market value had
risen to $125.000. What effect on 2023 income should be reported by Goofy for the Crazy Co. shares?
$0 (Same with other previous items,)
$25,000 net loss
$2,000 net gain
$32,000 net loss
11. For trading securities, unrealized holding gains and losses are included in earnings
Only at the end of the fiscal year
Only when they exceed 10% of the underlying investment
Based on a vote of the board of directors
On each reporting date
12. Sloan & Co's financial assets at fair value through profit and loss portfolio which is appropriately included
in current assets is as follows:December 31, 2021
Cost Fair Value Unrealized Gain (Loss)
Arlington Ltd. 260,000 210,000 $(50,000)
Downs & Co. 245,000 265,000 20,000
505,000 475,000 $(30,000)
Ignoring income taxes, what amount should be reported as a charge against income Sloan's first year of
operation?
$0
$20,000
$50,000
$30,000
13. Investments in equity securities to be held for an unspecified period of time are reported at
Lower of cost or market
Present value
Historical cost
Fair value
14. Jeremiah Corporation purchased securities during 2023 and classified them as securities at fair value
through other comprehensive income:
12/31/2023
Security Cost Fair Value
A $40,000 $49,000
B 70,000 66,000
C 28,000 39,000
All declines are considered to be temporary. How much gain will be reported by Jeremiah Corporation in the
December 31, 2023, income statement relative to the portfolio?
$9,000
$0
$20,000
$14.00015. Hawk Corporation purchased 10,000 shares of Diamond Corporation stock in 2020 for $50 per share and
classified the investment as securities at fair value through other comprehensive income. Diamond's market
value was $60 per share on December 31, 2021 and $65 on December 31, 2022. During 2023, Hawk sold all of
its Diamond stock at $70 per share, in its 2023 income statement, Hawk would report:
0
A gain of $200,000
A gain of $50,000
A gain of $300,000
A gain of $150,000
16. When equity investments are carried at fair value
unrealized gains or losses are not recognized
unrealized gains or losses are recognized and included in equity
it is presented as noncurrent asset
unrealized gains or losses are recognized and included in the determination of income
17. All investments in debt and equity securities that don't fit the definitions of the other reporting categories are
classified as:
Consolidated securities
Securities Fair value through other comprehensive income
Securities Classified as amortized cost
Trading securities
18. Seybert Systems accounts for its investment in Wang Engineering at fair value through other comprehensive
income. Seybert's balance in accumulated other comprehensive income with respect to the Wang investment is a
credit balance of $20,000, and Seybert lists the investment at $100.000 on its statement of financial position.
Seybert purchased the Wang investment for (ignore taxes):
$120,000
$88,000
$80,000
$100.000
19. Denzel purchased 10,000 shares of Ronnil Co. for P150,000. At the date of purchase, Denzel also paid
20,000 and 5,000 for brokers fees and commission, respectively. Assuming that the purchase of shares does not
80,000 (purchase price)
20,000 gain on sale
100,000 (current amount)give rise to significant influence nor control and that Denzel irrevocably elected the instrument in Financial
Asset measured at Fair Value through Other Comprehensive Income, what amount should Denzel record its
financial asset?
$150,000
$175,000 (FVOCI: Since Denzel paid all the transaction costs, there are added to the initial amount of
investment)
$270,000
$155,000
20. Which of the following is not a financial asset?
Equity Investment
Receivables
Inventory
Cash
21. Financial assets include all of the following except
Loans receivable
Prepaid expenses
Trade accounts receivable
Cash on bank
22. Under IFRS 9, what is the principle for recognition of a financial asset?
A financial asset is recognized when it is probable that future economic benefits will flow to the entity and the
cost of the instrument can be measured reliably
A financial asset is recognized when the entity obtains the risks and rewards of ownership of the financial asset
and had the ability to dispose financial asset
A financial asset is recognized when the entity obtains control of the instrument
A financial asset is recognized when the entity becomes a part of the contractual provisions of the instrument.
23. Dim Corporation purchased 1.000 shares of Witt Corporation in 2020 for $800 per share and classified the
investment as securities at fair value through other comprehensive income. Wiit’s market value was $400 per
share on December 31, 2021, and $300 on December 31, 2022. During 2023, Dim sold all of its Witt stock at
$350 per share. In its 2023 income statement. Dim would report:
A trading gain of $50,000 and an unrealized, loss of $500.,000A realized pain of 550,000
A loss on the sale of investments of $450,000
A recognition of unrealized losses of $400,000
0
24. On February 2, 2022. I AM DETERMINED CO. purchased 10,000 shares of CPA CO. at P56 plus broker's
commission of P4 per share. The investment is not held for trading. During 2022 and 2023, the following events
occurred regarding the investment
12/15/22 CPA Co. declares and pays a P2.20 share dividend
12/31/22-The market price of CPA CO. share is P52 per share at year end
12/01/23 CPA CO. declares and pays a dividend of P2 per share
12/31/23 The market price of CPA CO. share is P55 per share at year end
The unrealized loss in Investment in marketable securities on 12/31/23 Statement of Financial Position is:
P10,000
P80,000
P50,000
P40,000
0 (Since the problem is silent, this indicates that it is under FVPL and unrealized gains and losses are reported
in the Income statement)
25. Hobson Company bought the securities listed below during 2022. These securities were classified as trading
securities. In its December 31, 2022, income statement Hobson reported a net unrealized loss of $13,000 on
these securities. Pertinent data at the end of December, 2023 are as follows:
Security Cost Fair Value
X $380,000 $352,000
Y 180,000 60,000
Z 420,000 414,000
What amount of loss on these securities should Hobson include in its income statement for the year ended
December 31, 2023?
$113,000 (28,000) Beg Bal: 13,000
(120,000) 141,000
(6,000) 154,000
154,000 end$141,000
$154,000
$0
26. Dyckman Dealers has an investment in Thomas Corporation that Dyckman accounts for as a trading
security. Thomas Corporation shares are publicly traded on the New York Stock Exchange, and the
prevalling price on that exchange indicates that Dyckman's investment is worth $20,000. However,
Dyckman management believes that the stock market is generally overvalued, and their analysis of the Thomas
investment suggests to them that it is worth $18.000. Dyckman should carry the Thomas investment on its
statement of financial position at:
$19.000, the midpoint of Dyckman's range of reasonably likely valuations of Thomas
either $18,000 or $20,000 as either are defensible valuations
$18,000
$20,000
27. Which of the following describes a principal market for establishing fair value of an asset?
Any broker or dealer market that buys or sells the asset
The market in which the amount received would be maximized
The market that has the greatest volume and level of activity of the asset
The most observable market in which the price of the asset is minimized
28. It is any contract that gives rise to both a financial asset of one entity and a financial liability or an equity
instrument of another entity.
Equity instrument
Debt instrument
Financial instrument
Derivative instrument
29. With regard to fair value measurement, IFRS regards fair value as
The price to transfer a liability
Neither the price to sell an asset nor the price to transfer a liability
The price to sell an asset
Both the price to sell an asset and the price to transfer a liability30. The IASB permits the following measurement categories for financial assets?
Fair Value: Amortized Cost
Yes: Yes
No: No
No: Yes
Yes: No
31. Denzel purchased 10,000 shares of Ronnil Co. for P150,000. At the date of purchase, Denzel also paid
20.000 and 5,000 for brokers fees and commission, respectively. Assuming that the purchase of shares does not
give rise to significant influence nor control, what amount should Denzel record its financial asset?
175.000
155,000
170,000
150,000 (The problem is silent hence; the securities are under FVPL where in transaction cost are not added in
the purchase price)
32. On January 1, 2022, Cyprus Co. purchased equity securities to be held as "at fair value through other
comprehensive income". On December 31, 2022, the cost and market values were:
Security Cost Fair Value
X 2,000,000 2,400,000
Y 3,000,000 3,500,000
Z 5,000,000 4,900,000
On July 1, 2023. Cyprus sold Security X for P 2500000 What amount of gain on sale of financial asset should
be reported in the 2023 income statement?
P 400,000
P100,000
P 500,000
P0
33. On June 30, 2023, Sky Company, which uses PFRS 9, sold an investment in other comprehensive income
for 1,200,000. This investment was originally purchased at a cost of P800,000. At the time of disposal, the
carrying amount of the investment at fair value was P900.000 The investment has a related fair value gain ofP100,000 that was recognized in the fair value reserve. What amount of unrealized gain or loss should be
transferred to retained earnings immediately after the sale?
P400,000 (1200,000 - 900,000)= 300,000
P100,000 (P900,000 -800,000)+ 100,000 = 200,000
P200,000
P300,000
34. Denzel purchased 10,000 shares of Ronnil Co. for P150.000. At the date of purchase, Ronnil Co. paid
20,000 and 5,000 for brokers fees and commission, respectively. Assuming that the purchase of shares does not
give rise to significant influence nor control and that Denzel irrevocably elected the instrument as Financial
Asset measured at Fair Value through Other Comprehensive Income, what amount should Denzel record its
financial asset?
170,000
150,000 (Since Ronnil paid the transaction costs these are not added to Denzel’s)
175,000
155,000
35. Under what circumstances can the profit or loss on an equity instrument carried at fair value be dealt with in
other comprehensive income?
When the profit or loss is capable of recycling
When the equity investment is available for sale
When the equity investment is field for trading
When the equity investment is not held for trading
BONUS
36. Pampano Company carries the following marketable equity securities on its books at December 31, 2022
and 2023. All securities were purchased during 2022.
Cost Fair Value Fair Value
12/31/2022 12/31/2023
Trading Securities:
Abacus Co 500,000 260,000 400,000
Belle Inc. 260,000 400,000 400,000
Cathay Pacific Co. 700,000 600,000 500,000
Total 1,460,000 1,260,000 1,300,000
FA@FVOCIDragon Air Co. 4,100,000 3,600,000 3,600,000
East West Co. 1,000,000 1,200,000 1,400,000
Total 5,100,000 4,800,000 5,000,000
The net amount to be recognized in the 2022 profit or loss is:
P160,000
P200,000
P40,000 [Show Less]