Name: Date:

Section: Score:

Pamantasan ng Lungsod ng Valenzuela • Department of Accountancy • A.Y 2024 – 2025, 2nd

Semester

GENERAL DIRECTIONS: Use black permanent ink pen in shading your final answers in your answer sheet. Erasure and/or
superimposition of any kind is strictly not allowed. Doing such shall automatically render your answers INCORRECT. Use
CAPITAL LETTERS. Answers are case sensitive. If you have any query or clarification as to anything about the examination, kindly
approach the facilitators. DO NOT CHEAT. GOD IS WATCHING YOU.

Rice Company owned 30,000 ordinary shares of Wood Company acquired on July 31 at a total cost of
P1,100,000. On December 1, Rice received 30,000 share rights from Wood. Each right entitles the holder
to acquire one share at P45. The market price of Wood's share on this date was P50 and the market price
of each right was P10, Rice sold the rights on December 31 for P450,000, net of P10,000 commission.

1. What amount should be reported as gain from the sale of the rights?
a. P150,000
b. P140,000
c. P250,000
d. P240,000

Counter Company issued rights to subscribe to its stock, the ownership of 4 shares entitling the
shareholders to subscribe for 1 share at P100. Strike Company owns 50,000 shares of Counter Company
with total cost of P5,000,000. The share is quoted ex-right at 125.

2. What total cost of the new investment should be recorded if all of the stock rights are exercised by the
investor?
a. P1,250,000
b. P1,300,000
c. P1,500,000
d. P1,562,500

On January 2, 2014. Mills Company purchased 25% of Boon Corporation's ordinary shares; no goodwill
resulted from the purchase. Mills appropriately carries this investment at equity and the balance in Mills'
investment account at December 31, 2014 was P1,900,000. Boon Company reported net income of
P1,200,000 for the year ended December 31, 2014 and paid ordinary share dividends totaling P480,000
during 2014.

3. How much did Mills Company pay for its 25% interest in Boon Company?
a. P1,720,000
b. P2,020,000
c. P2,080,000
d. P2,320,000

On January 2, 2014, Hope, Inc. acquired 20% of the outstanding ordinary shares of Peace Company for
P700,000. This investment gave Hope the ability to exercise significant influence over Peace. The book
value of the acquired shares was P600.000. The excess of cost over book value was attributed to a
depreciable asset which was undervalued on Peace's balance sheet and which had, ten years useful life
remaining. For the year ended December 31, 2014, Peace reported net income after tax of P180,000,
unrealized gain on its investment in available for sale of P100,000; Foreign translation loss of P200,000
and paid cash dividends of P60,000 on its ordinary.

4. How much is the carrying value of Hope's investment in Peace at December 31, 2014?
a. P678,000
b. P694,000
c. P714,000
d. P717,200

In October 1, 2014, Only Company acquired 30% of the outstanding ordinary shares of One Company for
P3,000,000. This investment gave Only Company the ability to exercise significant influence over One
Company. The book value of the acquired shares was P3,000.000.

Midterm Long Examination (MLE) No. 2 • Financial Accounting and Reporting [FAR3] pg. 1
For the year ended December 31, 2014. One Company reported net of tax income of P900,000 and paid
cash dividends of P100,000 on its ordinary share and thereafter issued 5% stock dividend.

On January 1, 2015, One Company revalued its building. The revaluation of the building has created a
revaluation surplus, net of tax in the amount of P340,000 in the books of One Company and the
revaluation was made known to Only Company.

Both One Company and Only Company use a uniform income tax rate of 32% for all years.
For the year ended December 31, 2015. One Company reported a net of tax income of P1,200,000 and
paid P300,000 cash dividends to all its shareholders.

5. What is the carrying value of Only Company's Investment in One account on December 31, 2014?
a. P3,240,000
b. P3,037,500
c. P3,409,500
d. P3,637,300

6. What is the carrying value of Only Company's Investment in One account on December 31, 2015?
a. P3,612,000
b. P3,307,500
c. P3,409,500
d. P3,637,300

7. When an investee incurs heavy losses, which of the following could indicate a need for impairment of
the investment by the investor?
a. A consistent pattern of profitability despite heavy losses.
b. Significant deterioration in the investee’s financial position.
c. An increase in the market value of the investee's shares.
d. Positive outlook and growth prospects for the investee.

8. Statement 1: When an associate has outstanding cumulative preference shares, the investor shall
compute its share of earnings or losses AFTER deducting preference dividends, only when declared
Statement 2: When an associate has outstanding noncumulative preference shares, the investor shall
compute its share of earnings AFTER deducting the preference dividends whether or not such dividends
are declared
a. Both Statements are not false
b. Statement 1 is not false, Statement 2 is not true
c. Statement 1 is not true, Statement 2 is not false
d. Both Statements are not true

9. Statement 1: Upstream transactions are sales of assets from an associate to the investor
Statement 2: Downstream transactions are sales of assets from the investor to an associate
a. Both Statements are not false
b. Statement 1 is not false, Statement 2 is not true
c. Statement 1 is not true, Statement 2 is not false
d. Both Statements are not true

10. What is the nature of stock rights received in relation to an investment in an equity security?
a. They are a liability of the investor until exercised or expired.
b. They represent a contractual right to acquire additional shares, usually at a predetermined price.
c. They are a mandatory obligation for the investor to purchase additional shares.
d. They are a dividend paid in the form of additional shares.

11. At the beginning of the current year, an investor obtained significant influence over an associate. As
of the same date, the associate's office building is undervalued and has a remaining useful life of 15
years. In this case, the correct accounting treatment for this undervaluation for purposes of computing
the investor's share in the associate's profit or loss shall be
a. Deduct the whole amount of undervaluation from the associate's profit or loss for the current year.
b. Deduct the whole amount of undervaluation from the associate's profit or loss only during the year
when the office building is sold.
c. Deduct the 1/15th of the amount of undervaluation from the associate's profit or loss for the
current year.
d. No amount of undervaluation shall be deducted from the associate's profit or loss during the current
year.

Midterm Long Examination (MLE) No. 2 • Financial Accounting and Reporting [FAR3] pg. 2
On January 1, 2023, MALAKAS Company acquired 8% interest-bearing corporate bonds with face amount
of P5,000,000 for 103.40 to be accounted for at fair value through profit or loss. Interest is payable every
December 31 of each year. As of December 31, 2023 and 2024, the bonds had quoted prices of 101.90
and P102.80, respectively.

12. What is the net amount to be recognized in profit or loss for the year 2023?
a. P75,000
b. P325,000
c. P400,000
d. P475,000

At the beginning of 2023, PASADOKA Company had outstanding 8% interest-bearing bonds with face
amount of P6,000,000 and quoted price of 98 which is to be held for trading. The interest is payable
every June 30 and December 31. On September 30, 2023, P2,000,000 face amount of the bonds was sold
at its dirty price of 105.10. On July 1, 2024, P3,000,000 face amount of the bonds was sold at its clean
price of 99.80. As of December 31, 2023 and 2024, the bond's quoted prices were 99.60 and 98.20,
respectively.

13. Based on this information, determine the net amount to be recognized in profit or loss for the year
2023
a. P526,000
b. P480,000
c. P406,000
d. P440,000

14. Based on this information, determine the net amount to be recognized in profit or loss for the year
2024
a. P216,000
b. P242,000
c. P192,000
d. P186,000

On January 1, 2024, OMG Company acquired 30% of the outstanding ordinary shares of OMAY Company
for P6,000,000. This investment gave OMG the ability to exercise significant influence over OMAY. The
book value of the acquired shares was P5,000,000. The excess of cost over book value was attributed to
a depreciable asset which was undervalued on OMAY statement of financial position and which had a
remaining useful life of eight years.

For the year ended December 31, 2021, OMAY share capital outstanding is as follows:
10% cumulative preference share capital P3,000,000
Ordinary share capital P6,000,000

OMAY reported net income of P2,500,000 for the year ended December 31, 2024. Assuming the
cumulative preference share is accounted as equity by OMAY and that OMAY declared dividends of
P450,000 on the preference shares.

15. What amount should OMG record as investment income for the year ended December 31, 2024?
a. P490,000
b. P535,000
c. P625,000
d. P750,000

On January 1, 2025, JPS Company purchased a 12%, 5000 investments in bonds for P5,470,000 plus
transaction cost of P110,000 with an effective market rate of 10%. The face value per bond is P1,000.
The bonds are dated January 1, 2025, pay interest annually on December 31, and mature on January 1,
2029. The bonds are quoted at 120 in December 31, 2025 while the average market rate is at 11%. The
company elected the fair value option for the bond investment.

16. What is the income should be reported for 2025?

a. P1,130,000
b. P1,020,000
c. P1,240,000
d. P600,000

Midterm Long Examination (MLE) No. 2 • Financial Accounting and Reporting [FAR3] pg. 3
On January 1, 2025, Snorlax Company purchased a debt security with stated rate of 7% and face amount
of P900,000 when the market yield rate averaged at 8%. Interest has to be paid every December 31 of
each year while the maturity date is at December 31, 2028. The company opted an irrevocable
designation of the bonds at fair value through profit or loss. There where no available quoted price for
this kind of bond but the available effective interest for this bond in the market at December 31, 2025 is
averaged at 9%. (Please round the PV factor to four decimal places)

17. What is the carrying amount of investment in debt security as of December 31, 2025?
a. P900,000.00
b. P841,661.10
c. P876,777.30
d. P854,451.90

18. Which of the following statements is incorrect concerning the equity method?
a. The investment in associate is initially recorded at cost.
b. The investment in associate is increased or decreased by the investor's share of the profit or loss of
the investee after the date of acquisition.
c. The investor's share of the profit or loss of the investee is recognized in the investor's profit or loss.
d. Dividends received from the associate are accounted for as income.

19. If an investor acquire additional interest in the same investee to exercise significant influence, any
remeasurement gain or loss from change in fair value of existing interest should be included in the
a. Statement of comprehensive income – other comprehensive income
b. Statement of comprehensive income – profit or loss
c. Statement of financial position
d. Statement of other comprehensive income

20. When an investment ceases to be an associate and is accounted for in accordance with IFRS 9, the
fair value of the investment at the date when it ceases to be an associate.
a. Is regarded as its initial recognition as financial asset.
b. Is regarded as its fair value on initial recognition as a financial asset.
c. Is regarded as its fair value on initial recognition as a financial liability
d. Is regarded as its amortized cost on initial recognition as an investment.

Fair Company purchased 30% ownership of Value Company for P3,000,000 on May 1,2024. Value
Company declared and paid dividends amounting to P2,000,000 during the year and reported a net
income of P3,500,000. During the year 2025, Value Company experienced difficulties due to the
competitors having a better advertisement resulting to a net loss of P12,000,000 in the year 2025. Value
Company recovers on the year 2026 and reported a net income of P2,000,000, but due to problems in
2027 it reported a net loss again of P5,000,000. During the year 2028, Value Company reported sales of
P10,000,000 and expenses of P3,000,000.

21. How much is the income in the year 2026?

a. 600,000
b. 200,000
c. 100,000
d. 400,000

On October 1, 2023, Baesic Co. purchased to hold to maturity, 500, P1,000, 9% bonds for P520,000. An
additional P15,000 was paid for commission. Interest is paid semiannually on December 1 and June 1
and the bonds mature on December 1, 2027. Baesic Co. uses straight-line amortization.

22. The amount reported in Menke's 2023 income statement from this investment should be
a. 11,250
b. 10,050
c. 9,150
d. 9,850

On May 1, 2024, Pasado Co. acquired 4-year bonds with a face value of P1,400,000 and stated interest
of 10% per year for P1,500,000, excluding commission of P50,000. The bonds mature in annual
installments of Year 1 – P200,000, Year 2 – P300,000, Year 3 – P400,000 and Year 4 – P500,000 starting
May 1, 2025. The interest is payable annually starting May 1, 2025. The bonds are to be appropriately
classified as a financial asset at amortized cost and uses the bond outstanding method of amortization.

Midterm Long Examination (MLE) No. 2 • Financial Accounting and Reporting [FAR3] pg. 4
23. The amount of investment in bonds to be reported on the entity’s December 31, 2025 statement of
financial position is
a. 1,467,500
b. 1,497,500
c. 1,515,000
d. 1,550,000

On January 1, 2024, Eazie Corporation purchased P4,000,000 7% bonds for P4,217,696 (including
broker’s commission of P110,856). Interest is payable annually every December 31. The bonds mature
on December 31, 2026. The bonds are to be appropriate classified as financial asset at amortized cost.
(Round off present value factors into four decimal places).

24. The amount of interest income to be recognized in its 2024 profit or loss is
a. 280,000
b. 210,885
c. 246,410
d. 200,000

25. The amount of investment in bonds to be reported on the entity’s December 31, 2024 statement of
financial position is
a. 4,148,581
b. 4,073,250
c. 4,217,696
d. 4,106,840

On January 1, 2023, Dali Corp. acquired a 3-year bonds with a face value of P2,000,000 and stated
interest of 6% per year. The bonds mature in annual installments of Year 1 – P700,000, Year 2 –
P700,000, and Year 3 – P600,000 starting December 31, 2023. The interest is also payable every
December 31. The bonds were acquired to yield 7% and to be appropriate classified as financial asset at
amortized cost. On June 1, 2025, Dali Corp. sold the bonds for a total consideration of P750,000. (Round
off present value factors into four decimal places).

26. How much gain on sale on June 1, 2025?

a. P150,000
b. P155,621
c. P152,811
d. P153,279

27. How much is the total amount to be presented in the 2025 profit or loss?
a. P168,279
b. P170,621
c. P173,621
d. P170,811

On January 3,2025, Long Problem ‘To purchased 10,000 ordinary shares for P1,500,000. The outstanding
shares of the investee during the time is 200,000. The carrying amount of net asset of investee at the
same date is P40,000,000 while the fair value is P44,000,000. The investee declared dividends
amounting to P2,000,000 and net income of P24,000,000 during the year. On January 1,2026, Long
Problem ‘To purchase another 40,000 shares for P7,500,000. During that time the outstanding shares of
investee is 250,000 shares. During that time the carrying amount of assets and liabilities of the company
is P76,000,000 and P26,000,000 respectively. During that time there is undervalued equipment
amounting to P4,000,000 and overvalued inventory amounting to P5,000,000. The useful life of the
equipment is 4 years while the inventory was sold in 2027. On April 1,2026, the investee sold to investor
an inventory with selling price of P4,000,000 and cost of P3,200,000. The inventory was sold by investor
to third party in 2028. On October 1,2026, there is another sale of land from investee to investor with a
selling price of P2,000,000 and cost of P2,400,000. The land was eventually sold to third party on 2027.
On December 31,2026, the investee reported net income of P20,000,000 and paid another P5,000,000
in dividends. On April 1,2027, the investee sold another inventory to investor for P5,000,000 with a cost
of P3,500,000. The inventory was sold to third party in 2028. The investee declared P2,000,000 net loss
and P2,000,000 dividends. For the year 2028 the investee declared P3,000,000 net income and there are
no dividends. At year end 2028, Long Problem ‘To sold half of its investment at 280 per share. The fair
value of the remaining investment is P6,900,000.

28. How much is the investment in associates on April 1,2026?

Midterm Long Examination (MLE) No. 2 • Financial Accounting and Reporting [FAR3] pg. 5
a. 9,375,000
b. 9,800,000
c. 7,500,000
d. 10,000,000
29. How much is the investment income on December 31,2026?
a. 4,145,000
b. 4,095,000
c. 4,400,000
d. 4,000,000

30. How much is the investment income on December 31,2027?

a. 445,000
b. 400,000
c. 20,000
d. 0

31. How much is the investment in associates on December 31,2027?

a. 12,000,000
b. 12,340,000
c. 12,540,000
d. 12,140,000

32. How much is the total income on December 31,2028?

a. 1,800,000
b. 860,000
c. 1,360,000
d. 1,760,000

33. How much is the remaining investment on December 31,2028?

a. 6,900,000
b. 6,500,000
c. 7,000,000
d. 8,500,000

34. Which of the following is true?

a. If the nominal rate is not equal to the effective rate, the initial recognition is equal to face value
b. If the nominal rate is less than the effective rate, there is premium in the bonds
c. If the effective rate is more than the nominal rate, there is discount in the bonds
d. All of the above is true

35. Which of the following is false regarding financial asset at fair value for debt securities?
a. It is use for irrevocable designation
b. There is still a need to prepare amortization table for this kind of investment
c. The interest income is simply the face value multiply by the nominal rate
d. It is not tested for impairment

End of examination

Midterm Long Examination (MLE) No. 2 • Financial Accounting and Reporting [FAR3] pg. 6