Baliwag Polytechnic College

Dalubhasaan Kong Mahal

Institute of Business
A.Y. 2020and Accountancy
– 2021

ACT15 INTERMEDIATE ACCOUNTING 1 E. Isip, CPA

PRE-FINAL QUIZ
Name: Date:
Course & Year: Score:

READ ALL THE INSTUCTIONS CAREFULLY:

a. Cheating or its equivalent in whatever form, manner, or method shall not be allowed nor tolerated.
b. Encode your answer for each item in the google form answer sheet provided via Google Classroom.
c. Do not forget to click the submit button in the google form answer sheet.
d. Once submitted, it will be considered final and any changes in your answer will not be allowed.
Review your answers carefully and meticulously.
GOODLUCK!

1. According to PFRS 9, a financial instrument is recognized

a. when the instrument has probable economic benefits that can be measured reliably.
b. only when the entity becomes a party to the contractual provisions of the instrument.
c. when the entity enters into a binding contract to deliver a variable number of its own equity instrument.
d. only when the instrument requires receipt of another financial instrument under conditions that are
potentially favorable.

2. Which of the following is a financial liability?

a. Income tax payable
b. Unearned revenue
c. Warranty obligation
d. Lease liability

3. During the period, an entity acquires an investment. The entity has a “hold to collect and sell” business
model. The investment should be classified as
a. investment measured at fair value through other comprehensive income.
b. investment measured at amortized cost.
c. investment measured at fair value through profit or loss.
d. any of these

4. Which of the following is measured at fair value with fair value changes recognized in profit or loss?
a. Held to maturity investments c. FVOCI
b. Financial assets designated at FVPL d. All of these

5. If an entity’s business model’s objective is to hold investments in order to collect contractual cash flows
that are solely payments for principal and interests, then investments should be classified as
a. subsequently measured at fair value through other comprehensive income.
b. subsequently measured at amortized cost.
c. subsequently measured at fair value through profit or loss.
d. any of these

6. Under PFRS 9, financial assets are classified

a. on the basis of the entity’s business model only.
b. based on the nature of the financial assets, i.e., debt or equity instrument.
c. as financial assets subsequently measured at FVPL, FVOCI (election), FVOCI (mandatory) or
Amortized cost.
d. all of these

7. According to PFRS 9, if an asset or a liability measured at fair value has a bid price and an ask price, the
price within the bid-ask spread that is most representative of fair value in the circumstances is used to
measure fair value. Bid price is
a. the maximum price at which market participants are willing to sell an asset.
b. the maximum price at which market participants are willing to buy an asset.
c. the minimum price at which market participants are willing to sell an asset.
d. the price that an entity will incur to bid farewell to an asset.

PRE-FINAL QUIZ – ACT15 | E. ISIP, CPA 1

8. The following are taken from the records of Lunch Co. as of year-end.
Cash 10,400 Investment in subsidiary 44,000
Accounts receivable 12,000 Treasury shares 44,800
Allowance for bad debts (1,600) Investment in bonds 9,600
Note receivable 4,000 Land 112,000
Interest receivable 1,600 Building 208,000
Claim for tax refund 9,600 Accum. depreciation (52,000)
Advances to suppliers 4,800 Investment property 40,000
Inventory 60,000 Biological assets 24,000
Prepaid expenses 4,000 Intangible assets 56,000
Petty cash fund 800 Deferred tax assets 48,000
Investment in equity securities 10,400 Cash surrender value 9,600
Investment in associate 16,000 Sinking fund 16,000
How much are the total financial assets disclosed in the notes?
a. 142,400 b. 132,000 c. 132,800 d. 92,800

Use the following information for the next three questions:

On January 1, 20x1, ABC Co. purchased 1,000 shares of XYZ, Inc. for ₱250,000. Commission paid to
broker amounted to ₱10,000. The equity securities were designated by management to be measured at fair
value through profit or loss. On December 31, 20x1, the shares are quoted at ₱200 per share. It was
estimated that transaction cost of ₱20 per share will be incurred if the shares were sold on that date.

9. How much is the unrealized gain (loss) on change in fair value recognized in the 20x1 profit or loss?
a. (70,000) b. (50,000) c. (40,000) d. 60,000

10. On January 3, 20x2, all the shares were sold at ₱300 per share. Commission paid for the sale amounted to
₱60,000. How much is the realized gain (loss) from the sale?
a. 60,000 b. (10,000) c. 40,000 d. (40,000)

11. If ABC Co. uses an allowance account to account for changes in fair values, how much is the balance of
this account on December 31, 20x1?
a. 70,000 debit b. 50,000 debit c. 40,000 credit d. 50,000 credit

Use the following information for the next three questions:

On Jan. 1, 20x1, Three Co. purchased 10,000 shares of AM, Inc. for ₱1,000,000. Three Co. paid broker’s
commission of ₱15,000 on the acquisition. Three Co. made an irrevocable choice to subsequently measure
the shares at fair value through other comprehensive income. The quoted prices per share on Dec. 31, 20x1
and Dec. 31, 20x2 were ₱90 and ₱108, respectively. On Jan. 3, 20x3, Three Co. sold all the shares at ₱105
per share. Three Co. paid broker’s commission of ₱16,000 on the sale.

12. How much is the unrealized gain (loss) recognized in Three Co.’s 20x1 profit or loss?
a. 115,000 b. (115,000) c. (85,000) d. 0

13. How much is the unrealized gain (loss) recognized in Three Co.’s 20x2 other comprehensive income?
a. 180,000 b. 65,000 c. (115,000) d. 0

14. How much is the cumulative gain (loss) transferred to retained earnings on Jan. 3, 20x3?
a. 19,000 b. 34,000 c. (19,000) d. (34,000)

15. On January 1, 20x1, ABC Co. purchased ₱1,000,000 bonds at a price that reflects a yield rate of 14%. The
bonds mature on January 1, 20x4 and pay 12% annual interest. The bonds are 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) on the change in fair value recognized in ABC’s 20x1 profit or loss?
a. 78,336 b. 83,561 c. 81,144 d. 0

16. If the acquisition cost of investment in bonds is less than the face amount, there is
a discount. b. premium. c. loss. d. gain.

17. The use of the effective-interest method in amortizing bond premiums and discounts results in
a. a greater amount of interest income over the life of the bond issue than would result from use of the
straight-line method.
b. a varying amount being recorded as interest income from period to period.
c. a variable rate of return on the book value of the investment.
d. a smaller amount of interest income over the life of the bond issue than would result from use of the
straight-line method.

PRE-FINAL QUIZ – ACT15 | E. ISIP, CPA 2

18. If the effective interest rate is higher than the nominal rate, there is
a. discount. c. loss.
b. premium. d. gain.

19. The true or actual rate of interest that a bondholder earns on the investment.
a. nominal rate c. effective interest rate
b. coupon rate d. stated rate

20. It is a type of serial bond wherein the holder is given the right to extend the initial maturity to a longer
maturity date.
a. extendible bond c. redeemable bond
b. retractable bond d. callable bond

21. Subsequent to their initial recognition, which financial assets with quoted market prices in an active market
are measured at fair value?
Financial assets Financial Assets with
at amortized cost fair values through
profit or loss
a. Yes No
b. Yes Yes
c. No Yes
d. No No

22. On January 1, 20x1, Impressed Co. acquired 8%, ₱1,000,000 face amount, 4-year ‘term’ bonds for
₱936,603. The bonds are measured at amortized cost and have a yield rate of 10%. How much is the
carrying amount of the investment on December 31, 20x2?
a. 1,000,000 b. 950,263 c. 965,289 d. 981,818

23. On October 1, Dennis Company purchased ₱200,000 face value, 12% bonds at 98 plus accrued interest
and brokerage fees and classified them as amortized cost assets. Interest is paid semiannually on January
1 and July 1. Brokerage fees for this transaction were ₱700. At what amount should this acquisition of
bonds be recorded?
a. 196,000 b. 196,700 c. 202,000 d. 202,700

24. On August 1, 2004, Bettis Company acquired ₱120,000 face value, 10% bonds of Hanson Corporation at
104 plus accrued interest. The bonds were dated May 1, 2004, and mature on April 30, 2009, with interest
payable each October 31 and April 30. The bonds are classified as subsequently measured at amortized
cost. What entry should Bettis make to record the purchase of the bonds on August 1, 2004?
a. Investment in bonds 124,800
Interest Revenue 3,000
Cash 127,800
b. Investment in bonds 127,800
Cash 127,800
c. Investment in bonds 127,800
Interest Revenue 3,000
Cash 124,800
d. Held-to-Maturity Securities 120,000
Premium on Bonds 7,800
Cash 127,800

25. On April 30, 20x1, Heidelberg Co. acquired ₱100,000 face amount, 10% bonds dated January 1, 20x1 at
102. The purchase price includes accrued interest. How much is the initial carrying amount of the
investment?
a. 102,000 b. 99,500 c. 98,667 d. 105,333

26. On January 1, 20x1, Honey Co. intends to buy 3-year, zero-coupon bonds with face amount of ₱3,000,000
and maturity value of ₱3,993,000. The effective interest rate is 16%. The bonds will be measured at
amortized cost. How much is estimated purchase price of the bonds on January 1, 20x1?
a. 2,299,341 b. 2,356,214 c. 2,558,146 d. 2,789,123

27. On January 1, 20x1, Santa Co. acquired 10%, ₱1,000,000 bonds at 92. Commission paid to brokers
amounted to ₱9,100. The bonds are classified as investment measured at amortized cost. Principal is due
on December 31, 20x3 but interest is due annually every December 31. The carrying amount of the
investment on December 31, 20x1 is most approximately equal to
a. 949,883. b. 958,364. c. 973,368. d. 938,341.

PRE-FINAL QUIZ – ACT15 | E. ISIP, CPA 3

28. On January 1, 20x1, Solicit Co. acquired 12%, ₱1,000,000 bonds for ₱1,049,737. The principal is due on
January 1, 20x4 but interest is due annually every December 31. The bonds are classified as investment
measured at amortized cost. The yield rate on the bonds is 10%. On September 30, 20x2, all the bonds
were sold at 110. Commission paid to the broker amounted to ₱10,000. How much is the gain (loss) on
the sale?
a. (67,686) b. 77,686 c. (77,686) d. (22,314)

29. On January 1, 20x1, MX Co. purchased 10%, ₱3,000,000 bonds for ₱3,105,726. The bonds are classified
as financial asset measured at amortized cost. Principal on the bonds mature as follows:
December 31, 20x1 1,000,000
December 31, 20x2 1,000,000
December 31, 20x3, 1,000,000
Total 3,000,000

Interest is due annually at each year-end. The effective interest rate on the bonds is 8%. How much is the
current portion of the investment on December 31, 20x1?
a. 1,051,542 b. 1,035,665 c. 2,054,184 d. 1,018,519

Use the following information for the next five questions:

On January 1, 20x1, NFCPAR, Inc. acquired 10%, ₱1,000,000 bonds for ₱827,135. The bonds mature on
December 31, 20x3 and pay annual interest every December 31. NFCPAR, Inc. incurred transaction costs of
₱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

30. 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

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

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

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

33. How much is the unrealized gain (loss) recognized in other comprehensive income on December 31, 20x2?
a. 9,221 b. 40,000 c. (7,219) d. 0

34. Disregard the previous questions. Assume the bonds were sold for ₱900,000 on July 1, 20x2. How much
is the total gain (loss) on the sale, including any reclassification adjustment to profit or loss?
a. (50,000) b. 50,000 c. (95,389) d. (99,523)

35. On January 1, 20x1, Staircase Glass Co. purchased 10%, ₱1,000,000 callable bonds for ₱966,199. The
bonds mature in 4 years’ time. Interest is due annually every Dec. 31. The investment is classified as
financial asset measured at amortized cost. The effective interest rate is 12%. If the carrying amount of
the investment on December 31, 20x1 is ₱982,143, what is the expected holding period for the investment?
a. 4 years b. 3 years c. 2 years d. none of these

36. It refers to purchase or sale of a financial asset under a contract whose terms require delivery of the asset
within the time frame established generally by regulation or convention in the marketplace concerned.
a. normal way c. special way
b. regular way d. no way

37. According to PFRS 9, which of the following represents a commencement of a financial asset’s
impairment accounting?
a. Reclassification of the financial asset from Amortized cost to FVPL
b. Reclassification of the financial asset from FVPL to Amortized cost
c. Reclassification of the financial asset from Amortized cost to FVOCI
d. Reclassification of the financial asset from FVOCI to Amortized cost

PRE-FINAL QUIZ – ACT15 | E. ISIP, CPA 4

Use the following information for the next two questions:
On December 29, 20x1, an entity commits itself to purchase a financial asset for ₱10,000. The transaction
will be settled on January 4, 20x2. On December 31, 20x1 and on January 4, 20x2, the fair value of the asset
is ₱12,000 and ₱15,000, respectively.

38. If the financial asset is measured at fair value through profit or loss and that the entity uses the settlement
date accounting, on what date and at what amount is the financial asset initially recognized?
a. December 29, 20x1, ₱10,000
b. January 4, 20x2, ₱10,000
c. January 4, 20x2, ₱12,000
d. January 4, 20x2, ₱15,000

39. If the financial asset is measured at fair value through other comprehensive income and that the entity uses
the trade date accounting, what amount of gain (loss) on fair value change is recognized on December 31,
20x1 and how is that gain (loss) recognized?
a. ₱2,000 gain in other comprehensive income
b. ₱3,000 gain in other comprehensive income
c. ₱2,000 gain in profit or loss
d. zero gain or loss

Use the following information for the next two questions:

On Jan. 1, 20x1, Cloudy Day Co. acquires ₱2,000,000 face amount, 10% bonds for ₱1,903,927. The bonds
are due on Jan. 1, 20x4 but pay annual interest every Dec. 31. The yield rate is 12%. Cloudy changes its
business model for managing financial assets on Sept. 1, 20x2. Cloudy only reports annually every Dec. 31.
The bonds are quoted at 101 on Sept. 1, 20x2, 103 on Dec. 31, 20x2 and 104 on Jan. 1, 20x3.

40. The bonds are reclassified from amortized cost to fair value through profit or loss. How much is the gain
(loss) on reclassification and where is that amount presented?
a. 128,471 in P/L c. 115,714 in P/L
b. (143,292) in OCI d. 115,714 in OCI

41. The bonds are reclassified from fair value through profit or loss to amortized cost. What is the amount of
premium or discount to be amortized over the remaining life of the bonds subsequent to the reclassification
date?
a. 80,000 discount c. 115,714 discount
b. 80,000 premium d. 115,714 premium

42. On March 31, 20x1, Likkig, Inc. declares cash dividends of ₱40 per share to shareholders of record on
April 15, 20x1, to be distributed on April 30, 20x1. On April 9, 20x1, Ceecee Co. purchases 10,000 Likkig
shares for ₱400 per share. The investment is classified as investment in equity securities measured at
FVOCI. How much is the initial carrying amount of the investment?
a. 4,000,000 b. 4,400,000 c. 3,600,000 d. 3,890,664

43. Devin Co holds 10,000 shares of Eureka, Inc. as investment in equity securities. On April 1, 20x1, Devin
receives shares with fair value of ₱520,000 and aggregate par value of ₱400,000 as share dividend. How
much is the dividend income?
a. 520,000 b. 400,000 c. 120,000 d. 0

44. On April 1, 20x1, Jean Co. received ₱480,000 cash dividends, one-third of which represents liquidating
dividends. How much is the dividend revenue?
a. 160,000 b. 320,000 c. 80,000 d. 0

45. On March 31, 20x1, Bogart Co. received from its investment in equity securities 10,000 stock rights to
subscribe to new shares at ₱60 per share for every 4 rights held. Immediately after 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

46. Which of the following may be classified as “other long-term investments?”

a. Shares of stocks purchased as long-term investment and irrevocably elected to be measured at fair
value through other comprehensive income.
b. Long-term investment in bonds held under a ‘hold to collect’ business model.
c. Treasury shares acquired at a deep discount and expected to be reissued at a future date that extends
beyond 12 months from the end of the reporting period.
d. Shares of stocks and bonds purchased using funds earmarked for the retirement of bonds payable.

PRE-FINAL QUIZ – ACT15 | E. ISIP, CPA 5

47. On March 1, 2001, a company established a sinking fund in connection with an issue of bonds due in
2013. At December 31, 2003, the independent trustee held cash in the sinking fund account representing
the annual deposits to the fund and the interest earned on those deposits. How should the sinking fund be
reported in the company’s balance sheet at December 31, 2003?
a. The cash in the sinking fund should appear as a current asset.
b. Only the accumulated deposits should appear as a noncurrent asset.
c. The entire balance in the sinking fund account should appear as a current asset.
d. The entire balance in the sinking fund account should appear as a noncurrent asset.

Use the following information for the next three questions:

On January 1, 20x1, Light Co. insured the life of one of its key management personnel for ₱10,000,000.
Light Co. is the beneficiary. The insurance policy requires annual payments of ₱280,000 at the start of each
year. Information on the cash surrender value is shown below:
Policy year Cash surrender value
Dec. 31, 20x1 -
Dec. 31, 20x2 -
Dec. 31, 20x3 180,000
Dec. 31, 20x4 216,000
Dec. 31, 20x5 260,000

Additional information:
 Light Co. received ₱4,000 cash dividend from the life insurance on April 1, 20x4.
 The key employee died on October 1, 20x5.

48. What amount of insurance expense is recognized in 20x4?

a. 280,000
b. 276,000
c. 244,000
d. 240,000

49. How much is the gain on the settlement of the life insurance in 20x5?
a. 9,681,000
b. 9,882,000
c. 10,000,000
d. 10,021,000

50. Which of the following statements is correct regarding the accounting for sinking fund?
a. Sinking fund that is expected to be used in settling a currently maturing obligation is presented as part
of cash even if the sinking fund includes investments in stocks and bonds.
b. Sinking fund is always presented as noncurrent asset.
c. The classification of a sinking fund as either current or noncurrent asset parallels the classification of
the related obligation for which the sinking fund was established.
d. The investment income earned by the sinking fund is recognized in other comprehensive income.

51. It is a financial instrument or other contract that derives its value from the changes in value of some other
underlying asset or other instrument.
a. embedded derivative c. financial asset
b. derivative d. all of these

52. Which of the following is not among the characteristics of a derivative?

a. it must have at least two or more notional amounts
b. its value changes in response to the change in an underlying
c. it requires no initial net investment or only a very minimal initial net investment
d. it is settled at a future date

53. Which of the following can be a notional amount for a derivative?

a. share price c. interest rate
b. number of currency units d. exchange rate

54. In which of the following derivative contracts would the investor most likely pay a marginal deposit,
which is treated as receivable, at the inception of the contract?
a. Forward contract c. Call option
b. Futures contract d. Put option

PRE-FINAL QUIZ – ACT15 | E. ISIP, CPA 6

55. These are options that can be exercised only at expiration time.
a. American options c. Bermudan options
b. European options d. Expired options

Use the following information for the next two questions:

Travel Co. expects the value of the yen to decrease in the next 30 days. Accordingly, on Dec. 15, 20x1,
Travel Co. enters into a 30-day forward contract to sell 1,000,000 yens at a forward rate of ₱0.47. The
forward rate on Dec. 31, 20x1 is ₱0.45, while the spot rate on Jan. 15, 20x2 is ₱0.48.

56. What amounts of derivative asset (liability) should Travel Co. recognize on Dec. 15, 20x1 and Dec. 31,
20x1, respectively?
a. 0; 20,000 c. 10,000; 20,000
b. 0; (20,000) d. (10,000); (20,000)

57. <List A> If the contract is settled on a net cash basis, how much is Travel Co.’s net cash receipt or
payment? <List B> If the contract is settled by the actual sale of yens, what amount of gain (loss) should
Travel Co. recognize on settlement date?
<List A> <List B>
a. net receipt of ₱10,000 ₱30,000 gain
b. net payment of ₱10,000 ₱30,000 loss
c. net receipt of ₱30,000 ₱10,000 gain
d. net payment of ₱30,000 ₱10,000 loss

Use the following information for the next three questions:

On Dec. 1, 20x1, Kalinga Blend Co. enters into a futures contract to purchase 1,000 kilos of coffee beans on
February 1, 20x2 for ₱200 per kilo. The broker requires an initial margin deposit of ₱20,000. The market
prices per kilo of coffee beans are: ₱200 on Dec. 1, 20x1; ₱205 on Dec. 31, 20x1; and ₱215 on Feb. 1, 20x2.

58. Kalinga Blend is said to be in the

a. short position.
b. long position.
c. call position.
d. wrong position.

59. What amounts of derivative asset (liability) should Kalinga Blend Co. recognize on Dec. 1, 20x1 and Dec.
31, 20x1, respectively?
c. 20,000; 15,000 c. 0; 5,000
d. (20,000); (15,000) d. 0; (5,000)

60. <List A> How much net cash did Kalinga Blend Co. receive from or pay to the broker on settlement date?
<List B> How much gain (loss) did Kalinga Blend Co. recognize on settlement date?
<List A> <List B>
a. 5,000 10,000
b. (5,000) (10,000)
c. 15,000 5,000
d. 35,000 10,000

Use the following information for the next two questions:

Jackhammer Co. purchased a foreign currency option to purchase 1,000,000 units of a specified currency at
₱47 per unit. Jackhammer Co. paid ₱7,500 for the option.

61. The option referred to above is a

a. call option.
b. text option.
c. put option.
d. remove option.

62. Which of the following statements is correct?

a. There is no entry for the option on initial recognition.
b. If the spot rate increases above the strike price, the option would be ‘out of the money’.
c. If the spot rate decreases below the strike price, the option would be ‘in the money’.
d. The maximum loss that Jackhammer Co. can recognize on the option is ₱7,500.

Use the following information for the next two questions:

On April 1, 20x1, Road Construction Co. acquired a put option on 1,000 shares of Pinewoods Co. The strike
price is ₱100 per share. The option expires on July 1, 20x1. Road paid ₱600 for the option. Information on

PRE-FINAL QUIZ – ACT15 | E. ISIP, CPA 7

current prices is as follows:
April 1, 20x1 June 30, 20x1 July 1, 20x1
Share prices ₱100/sh. ₱106/sh. ₱106/sh.
Time value of option ₱600 ₱400 0

63. How much is the carrying amount of the option in Road’s June 30, 20x1 statement of financial position?
a. 6,000 asset
b. 6,000 liability
c. 5,800 liability
d. 400 asset

64. How much gain (loss) did Road recognize on July 1, 20x1?
a. 5,800 gain
b. 5,800 loss
c. 400 loss
d. 200 loss

Use the following information for the next two questions:

On January 1, 20x1, Safe Journey Co. enters into an interest rate swap on a ₱2,000,000 loan. Under the
swap agreement, Safe agrees to pay fixed interest of 8% and receive interest based on whatever the current
market rate is at the start of each year. Swap payment shall be made on Dec. 31, 20x2. The following are the
current market rates:
Jan. 1, 20x1 8%
Jan. 1, 20x2 10%

65. What amounts of derivative asset (liability) should Safe recognize on Jan. 1, 20x1 and Dec. 31, 20x1,
respectively?
a. 0; 40,000 c. 40,000; 36,364
b. 0; (40,000) d. 0; 36,364

66. What amount gain (loss) should Safe recognize on Dec. 31, 20x2?
a. 3,636
b. (3,636)
c. (2,724)
d. 2,724

Use the following information for the next two questions:

On Jan. 1, 20x1, Confused Co. enters into an interest rate swap on a ₱2,000,000 loan whereby Confused Co.
agrees to receive variable interest and pay fixed interest of 9%. Swap payments shall be made every Dec. 31
in the next three years. The following are the current market rates:
Jan. 1, 20x1 9%
Jan. 1, 20x2 8%
Jan. 1, 20x3 12%

67. What amount of derivative asset (liability) should Confused Co. recognize on Dec. 31, 20x1?
a. (17,147)
b. 17,147
c. (35,665)
d. 35,665

68. What amount of gain (loss) should Confused Co. recognize on Dec. 31, 20x2?
a. 53,571
b. (53,571)
c. 69,236
d. 37,906

Use the following information for the next two questions:

The current rate on January 1, 20x1 is 10%. Annay Co. believes that market rates will decrease in the future.
Accordingly, on January 1, 20x1, Annay Co. enters into an interest rate swap on a ₱2,000,000 loan. Under
the agreement, Annay Co. agrees to receive fixed interest at 10% and pay variable interest. Swap payments
shall be made at the end of each year in the next three years. The following are the current market rates:
Jan. 1, 20x1 10%
Jan. 1, 20x2 12%
Jan. 1, 20x3 14%

PRE-FINAL QUIZ – ACT15 | E. ISIP, CPA 8

69. What amount of derivative asset (liability) should Annay Co. recognize on Dec. 31, 20x1?
a. 40,000
b. (40,000)
c. (35,714)
d. (67,602)

70. What amount of gain (loss) should Annay Co. recognize on Dec. 31, 20x3?
a. 2,573
b. (2,573)
c. (9,825)
d. 10,365

71. Investments in associates are accounted for under

a. PAS 8.
b. PFRS 9.
c. PAS 28.
d. PFRS 28.

72. An investment in equity securities is accounted for as investment in associate if

a. the investment represents 20% or more ownership interest over the investee.
b. the fair value of the equity securities cannot be determined on a continuing basis.
c. the investment provides the investor significant influence over the investee.
d. the entity’s management elects to do so.

Use the following information for the next two questions:

On January 1, 20x1, ABASE Co. purchased 20,000 out of the 100,000 total outstanding shares of PRAISE,
Inc. for ₱4,000,000. PRAISE’s assets and liabilities approximate their fair values. In 20x1, PRAISE, Inc.
reported profit of ₱12,000,000 and declared and paid cash dividends of ₱800,000. In 20x2, PRAISE
reported loss of ₱8,000,000, declared and issued 10% stock dividends, and reported gain on property
revaluation of ₱2,000,000 and loss on exchange differences on translation of foreign operations of
₱400,000.

73. How much are the amounts reported in ABASE Co.’s 20x1 (1) statement of profit or loss and (2) statement
of financial position?
a. 2,400,000; 6,240,000
b. 160,000; 4,000,000
c. 2,240,000; 6,240,000
d. 0; 6,400,000

74. How much are the amounts reported in ABASE Co.’s 20x2 (1) statement of profit or loss and (2) statement
of financial position?
a. (1,280,000); 4,960,000
b. (1,600,000); 4,960,000
c. (1,280,000); 4,000,000
d. 0; 4,960,000

75. AUSTERE Co. owns 20% of SEVERE, Inc.’s ordinary shares. SEVERE also has outstanding cumulative 6%
preference shares of ₱8,000,000, none of which is held by AUSTERE. Dividends are in arrears for three years as
of year-end. SEVERE reported year-end profit of ₱4,000,000 and declared no dividends. How much is AUSTERE
Co.’s share in the profit of the associate?
a. 704,000
b. 800,000
c. 512,000
d. 770,000

----------------------------------------- END ------------------------------------------

PRE-FINAL QUIZ – ACT15 | E. ISIP, CPA 9