Long-quiz-in-intermediate-accounting-1-part-1a.docx

Long Quiz in Intermediate Accounting 1 Part 1 NAME: Professor:

Section:

Date: Score:

INSTRUCTION: WRITE/SELECT THE BEST ANSWER FOR EACH OF THE FOLLOWING QUESTIONS. SHOW YOUR SOLUTIONS ON A SEPARATE SHEET OF PAPER.

1. Information regarding Stone Co.’s portfolio of FVOCI securities is as follows: Aggregate cost as of 12/31/03 Unrealized gains as of 12/31/03 Unrealized losses as of 12/31/03 Net realized gains during 2003

170,000 4,000 26,000 30,000

At December 31, 2002, Stone reported an unrealized loss of ₱1,500 in other comprehensive income to reduce these securities to market. Under the accumulated other comprehensive income in stockholders’ equity section of its December 31, 2003 balance sheet, what amount should Stone report? ANSWER_______________________________

2. Caloy Co. bought 1,000 shares from Bayan Co. The shares have no active market, but an identical or similar asset has an active market. The identical asset, however, has multiple markets. Caloy determines that the identical asset has the following market values: Quoted price Related transaction cost

Market A 500

Market B 600

25

150

How much is fair valuation of the investment?

a. 500,000 b. 475,000

c. 450,000 d. b or c

3. On January 1, 20x1, Allan Co. purchased P400,000 bonds for P392,000. The bonds mature on January 1, 20x5 and pay 12% annual interest beginning January 1, 20x2. Transaction costs are negligible. The bonds were classified as held for trading securities. On December 31, 20x1, the bonds are selling at a yield rate of 10%. How much is the unrealized gain (loss) recognized on December 31, 20x1? ANSWER_______________________________

4. On January 1, 20x1, Rizzi Co. purchased 12,000 shares of Andre, Inc. for P400,000. Commission paid to broker amounted to P20,000. Management made an irrevocable choice to subsequently measure the shares at fair value through other comprehensive income. On December 31, 20x1, the shares are quoted at P40 per share. On January 3, 20x2, all of the shares were sold at P60 per share. Commission paid for the sale amounted to P24,000.How much is the unrealized gain (loss) recognized in profit or loss on December 31, 20x1? ANSWER_______________________________ Use the following information for the next two questions: Karen Co. purchased the following equity securities on January 1, 20x1 for a total amount of P360,000. Cost Alaska Co. preference shares P200,000 Valdez Co. ordinary shares 160,000 Totals P360,000 The shares did not qualify for recognition as held for trading, thus they were classified as investment in equity securities measured at fair value through other comprehensive income. On December 31, 20x1, the portfolio of Karen Co. comprised the following. Fair value – 12/31/x1 Alaska Co. preference shares P240,000 Valdez Co. ordinary shares 60,000 Total P300,000 On December 31, 20x2, the portfolio of Karen Co. comprised the following: Fair value – 12/31/x2 Alaska Co. preference shares P220,000 Valdez Co. ordinary shares 180,000 Total P400,000 On February 2, 20x3, all of the Alaska Co. preference shares were sold for P160,000 net of transaction costs.

5. How much is the unrealized gain (loss) recognized in other comprehensive income on December 31, 20x1? a. 60,000 b. (60,000)

c. 100,000 d. 0

6. How much is the unrealized gain (loss) accumulated in equity as of December 31, 20x2? ANSWER_______________________________ inv in de Use the following information for the next two questions: On January 1, 20x1, Kevin Co. acquired 12%, P4,000,000 bonds for P 4,198,948. The principal is due on December 31, 20x3 but interest is made annually starting December 31, 20x1. The effective interest rate on the bonds is 10%. 1.

How much is the interest income recognized in 20x1? ANSWER_______________________________

2.

How much is the carrying amount of the investment on December 31, 20x1? a. 4,198,948 b. 4,138,843

c. 4,072,727 d. 4,000,000

3.

On April 1, 20x1, Ronald Ryan Co. acquired 12%, P4,000,000 bonds dated January 1, 20x1 at 98 includinginterest. The bonds mature on December 31, 20x3 but pays annual interest at each year-end. How much is the initial carrying amount of the investment? ANSWER_______________________________

4.

On January 1, 20x1, Mitch Co. acquired 12%, P4,000,000 bonds at 98. Commission paid to brokers amounted to P204,000. Principal is due on December 31, 20x4 but interest payments are made annually starting December 31, 20x1. The adjusted effective interest rate on the investment is closest to ANSWER_______________________________

Use the following information for the next three questions: On January 1, 20x1, ABC Co. acquired 10%, ₱1,000,000 bonds for ₱827,135. The bonds mature on December 31, 20x3 and pay annual interest every December 31. ABC Co. incurred transaction costs ₱80,000 on the acquisition. The effective interest rate adjusted for the effect of the transaction costs is 14%. The bonds are to be held under a “hold to collect and sell” business model. Information on fair values is as follows: December 31, 20x1…………………………….98 December 31, 20x2……………………………102 December 31, 20x3……………………………100 5.

How much is the carrying amount of the investment on December 31, 20x1? ANSWER_______________________________

6.

How much is the unrealized gain (loss) recognized in other comprehensive income on December 31, 20x1? ANSWER_______________________________

7.

How much is the interest income recognized in 20x2? a. 126,999 c. 135,088 b. 130,779 d. 144,388

8.

On December 29, 20x1, an entity commits itself to purchase a financial asset for ₱10,000, which is its fair value on commitment date (trade date). Transaction costs are immaterial. On December 31, 20x1 and on January 4, 20x2 (settlement date) the fair values of the asset are₱12,000 and ₱15,000, respectively. If the entity uses the settlement date accounting and that the investment is classified as held for trading, how much is the carrying amount of the investment in the December 31, 20x1 statement of financial position? ANSWER_______________________________

9.

On January 1, 20x1, Dagul Co. acquired 10%, ₱4,000,000 bonds for ₱3,807,853. The principal is due on January 1, 20x4 but interest is due annually starting December 31, 20x1. The yield rate on the bonds is 12%. On July, 1 20x1, Dagul Co. changed its business model. It was ascertained that the investment in bonds at amortized cost should be reclassified to held for trading securities on reclassification date. The bonds were quoted at 102, 103 and 104 on July 1, 20x1, December 31, 20x1 and January 1, 20x2, respectively. How much is the gain (loss) on reclassification on January 1, 20x2? a. 243,676 c. 295,205 b. 255,205 d. 0

10. On March 31, 20x1, Budoy Co. received 10,000 stock rights from its investment in equity securities to subscribe to new shares at ₱60 per share for every 4 rights held. Prior to issuance of stock rights, the shares were selling at ₱80 per share. How much is the initial carrying amount of the stock rights?

a. 20,000 b. 40,000

c. 50,000 d. cannot be determined

basic derive 11. Entity X enters into a forward contract to sell 1,000,000 foreign currency units at a forward rate of ₱0.50. At the reporting date and on settlement date, the current rates are ₱0.48 and ₱0.52, respectively. Identify the notional amount and the underlying in the contract. Notional amount a. ₱0.50 b. 1,000,000 c. 1,000,000 d. ₱0.50, ₱0.48 and ₱0.52

Underlying 1,000,000 Foreign currency Forward rates 1,000,000

Use the following information for the next two questions: ABC Co. expects the value of wons to increase in the next 30 days. Accordingly, on December 15, 20x1, ABC Co. enters into a 30-day forward contract to buy 10,000 wons at the forward rate of ₱1.24. On December 31, 20x1, the forward rate was ₱1.27 and by January 15, 20x2, the spot rate moved to ₱1.30. 12. How much is the carrying amount of the derivative on December 31, 20x1?

a. 0 b. 300

c. 600 d. 1,400

13. How much is the net cash settlement on January 15, 20x1?

a. 300 receipt b. 300 payment

c. 600 receipt d. 600 payment

Use the following information for the next two questions: On December 1, 20x1, ABC Co. enters into a futures contract tosell 10,000 units of a commodity on January 31, 20x2 for ₱100 per unit. The broker requires an initial margin deposit of ₱10,000. The quoted prices per unit are as follows: Dec. 1, 20x1 100

Dec. 31, 20x1 98

Jan. 31, 20x2 97

14. How much is the gain (loss) on the remeasurement of the derivative on December 31, 20x1? ANSWER_______________________________ 15. How much is the net cash settlement on January 31, 20x1?

a. 30,000 receipt b. 30,000 payment

c. 40,000 receipt d. 40,000 payment

16. Drive Co. acquires a call option on 1,000 units of a commodity at a strike price of ₱100 for ₱400 on March 1, 20x1. The call option is exercisable on July 1, 20x1. The movements in prices are shown below:

Spot prices Time value of option

Mar. 1, 20x1 ₱100 400

June 30, 20x1 ₱120 100

How much is the net cash settlement on January 31, 20x1? ANSWER_______________________________ 17. Tuba Co. enters into a “receive variable, pay fixed” interest swap on January 1, 20x1 for a notional amount of ₱1,000,000. Under the terms of the contract, if the current rate increases above 12% (i.e., the set rate), Tuba Co. shall receive the excess interest. If the current rate falls below 12%, Tuba Co. shall pay the deficiency. Swap payment shall be made on December 31, 20x2. The current rates are as follows: Jan. 1, 20x1……………………………12% Jan. 1, 20x2……………………………15% How much is the carrying amount of the derivative on December 31, 20x1?

a. 30,0000 liability b. 30,000 asset

c. 26,087 asset d. 26,087 liability

Inv in ass Use the following information for the next nine questions: The summarized balance sheets of Elston Company and Alley Company as of December 31, 2004 are as follows:

Elston Company Balance Sheet December 31, 2004 Assets

₱800,000 ₱100,000 400,000 300,000 ₱800,000

Liabilities Capital stock Retained earnings Total equities Alley Company Balance Sheet December 31, 2004 Assets Liabilities Capital stock Retained earnings Total equities

₱600,000 ₱150,000 370,000 80,000 ₱600,000

1. If Elston Company acquired a 20% interest in Alley Company on December 31, 2004 for ₱130,000 and the fair value method of accounting for the investment were used, the amount of the debit to Investment in Alley Company Stock would have been ANSWER_______________________________ 2. If Elston Company acquired a 30% interest in Alley Company on December 31, 2004 for ₱150,000 and the equity method of accounting for the investment were used, the amount of the debit to Investment in Alley Company Stock would have been a. 190,000. b. 150,000. c. 120,000. d. 135,000. 3. If Elston Company acquired a 30% interest in Alley Company on December 31, 2004 for ₱135,000 and during 2005 Alley Company had net income of ₱50,000 and paid a cash dividend of ₱20,000, applying the equity method would give a debit balance in the Investment in Alley Company Stock account at the end of 2005 of a. 135,000. b. 144,000. c. 150,000. d. 145,000. 4.

Elston Co. acquires 30% interest in Alley Company on December 31, 2004. The carrying amount of Alley’s net assets on December 31, 2004 approximates its fair value. If the acquisition did not result to any implied goodwill, how much is the acquisition cost of the investment? ANSWER______________________________

5.

Elston Co. acquired 25% interest in Alley Company many years ago. The acquisition did not result to any goodwill. At the time of acquisition, the carrying amount of Alley’s net assets approximates its fair value. There have been no impairment losses on the investment. Alley Company reported profit of ₱200,000 and declared dividends of ₱40,000 in 2004. How much is the carrying amount of the investment on December 31, 2003? a. 72,500. b. 98,500 c. 112,500. d. Cannot be determined; given information is insufficient

6.

Elston Co. acquired 25% interest in Alley Company many years ago. The acquisition did not result to any goodwill. At the time of acquisition, the carrying amount of Alley’s net assets approximates its fair value. There have been no impairment losses on the investment. The carrying amount of the investment on January 1, 2004 is ₱98,500. Alley Company declared dividends of ₱40,000 in 2004. How much is the profit Alley in 2004? a. 200,000. b. 24,000 c. 96,000. d. Cannot be determined; given information is insufficient

7.

Karter Company purchased 200 of the 1,000 outstanding shares of Flynn Company's common stock for ₱180,000 on January 2, 2004. During 2004, Flynn Company declared dividends of ₱30,000 and reported earnings for the year of ₱120,000. If Karter Company uses the equity method of accounting for its investment in Flynn Company, its Investment in Flynn Company account at December 31, 2004 should be ANSWER_______________________________