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Assignment 03
Investments in Debt Securities

NAME: JELLA MAE YCALINA Date: 12/15/21

Professor: Sir Erik Legaspi Section:BSA-2B Score:

MULTIPLE CHOICE:
1. Securities classified as financial asset measured at amortized cost are reported at
a. acquisition cost.
b. acquisition cost plus amortization of a discount.
c. acquisition cost plus amortization of a premium.
d. fair value.

2. In accounting for investments in debt securities that are classified as held for trading securities,
a. a discount is reported separately.
b. a premium is reported separately.
c. any discount or premium is not amortized.
d. none of these.

3. According to PFRS 9 Financial Instruments, investments in debt securities that are classified at
amortized cost are generally recorded at
a. cost including accrued interest.
b. maturity value.
c. cost including brokerage and other fees.
d. fair value at initial recognition plus brokerage and other fees.

4. Pippen Co. purchased ten-year, 10% bonds that pay interest semiannually. The bonds are sold to
yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the
table value for
a. 10 periods and 10% from the present value of 1 table.
b. 10 periods and 8% from the present value of 1 table.
c. 20 periods and 5% from the present value of 1 table.
d. 20 periods and 4% from the present value of 1 table.

5. Solo Co. purchased ₱300,000 of bonds for ₱315,000. The securities are to be held until maturity to
collect the contractual cash flows. The entry to record the investment includes
a. a debit to Held-for-Trading Securities at ₱300,000.
b. a credit to Premium on Investments of ₱15,000.
c. a debit to Investment in bonds measured at amortized cost for ₱315,000.
d. none of these.

6. When an investment in a debt security measured at amortized cost is transferred to held for
trading security, the carrying amount assigned to the held for trading security should be
a. its original cost.
b. its fair value at the date of the transfer.
c. the lower of its original cost or its fair value at the date of the transfer.
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d. the higher of its original cost or its fair value at the date of the transfer.

7. When an investment in equity securities irrevocably elected on initial recognition to be

subsequently measured at FVOCI is transferred to held for trading because the company
anticipates selling the stock in the near future, the carrying amount assigned to the investment
upon entering it in the trading portfolio should be
a. its original cost.
b. its fair value at the date of the transfer.
c. the higher of its original cost or its fair value at the date of the transfer.
d. None of these

8. According to PFRS 9 Financial Instruments, investments in debt securities classified under the
amortized cost measurement category should be recorded on the date of acquisition at
a. lower of cost or market.
b. market value.
c. fair value plus brokerage fees and other costs incident to the purchase.
d. face value.

9. Which of the following is correct about the effective interest method of amortization?
a. The effective interest method applied to investments in debt securities is different from that
applied to bonds payable.
b. The amortization of a discount decreases from period to period.
c. The amortization of a premium decreases from period to period.
d. The effective interest method produces a constant rate of return on the book value (carrying
amount) of the investment from period to period.

10. A debt security is purchased at a discount. The entity wants to classify the investment as a
financial asset measured at FVOCI. The entry to record the amortization of the discount includes
a
a. debit to investment account.
b. debit to the discount account.
c. debit to Interest Revenue.
d. none of these.

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%.

11. How much is the interest income recognized in 20x1?

a. 419,895 c. 407,273
b. 413,884 d. 480,000

12. How much is the carrying amount of the investment on December 31, 20x1?
a. 4,198,948 c. 4,072,727
b. 4,138,843 d. 4,000,000
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13. On April 1, 20x1, Ronald Ryan Co. acquired 12%, P4,000,000 bonds dated January 1, 20x1 at
98 including interest. 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?
a. 3,920,000 b. 3,800,000 c. 4,000,000 d. 4,120,000

14. 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

a. 12% b. 11% c. 10.2650% d. indeterminable

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

15. How much is the carrying amount of the investment on December 31, 20x1?
a. 935,134 b. 1,002,000 c. 980,000 d. 965,443

16. How much is the unrealized gain (loss) recognized in other comprehensive income on
December 31, 20x1?
a. 45,866 b. (45,866) c. (37,899) d. 0

17. How much is the interest income recognized in 20x2?

a. 126,999 c. 135,088
b. 130,779 d. 144,388

18. 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?
a. 10,000 c. 15,000
b. 12,000 d. 0
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19. 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

20. 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 c. 50,000
b. 40,000 d. cannot be determined

“Come to me, all you who are weary and burdened, and I will give you rest. 29 Take my yoke upon you and
learn from me, for I am gentle and humble in heart, and you will find rest for your souls.” (Matthew 11:28-29)

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