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Integrated Review 1Standalone assignmentQuiz 1 FVPL/FVOCI/FAACSubmissionsHere are your latest answers:Question 1On January 1, 200A, Gelyka Company purchased 12% bonds with face amount of P5,000,000 for P5,500,000 including transaction cost of P100,000. The bonds provide an effective yield of 10%. Th...

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10/1/2020

Submissions - Integrated Review 1 - SBCA-JBN

Integrated Review 1

Standalone assignment

Quiz 1.03 FVPL/FVOCI/FAAC Submissions Here are your latest answers:

Question 1 On January 1, 200A, Gelyka Company purchased 12% bonds with face amount of P5,000,000 for P5,500,000 including transaction cost of P100,000. The bonds provide an effective yield of 10%. The bonds are dated January 1, 200A and pay interest annually on December 31 of each year. The bonds are quoted at 115 on December 31, 200A. The entity has irrevocably elected the fair value option. What amount of interest income should b reported for 200A? Response: 600,000 Feedback: Interest income (12% x 5,000,000)

600,000

Correct answer: 600,000 Score: 1 out of 1 Yes

Question 2 Neal Company held the following financial assets as trading investments on December 31, 200A: Cost 100,000 shares of Company A nonredeemable preference share capital, par value P75

Market value 775,000

825,000

690,000 1,465,000

625,000 1,450,000

7,000 shares of Company B preference share capital, par value P100, subject to mandatory redemption by the issuer at par on December 31, 200B

On December 31, 200A, what is the total carrying amount of the investments? Response: 1,450,000 Feedback: The nonredeemable preference share is an equity security. The redeemable preference share is a debt security. Whether equity or debt security, financial assets held for trading are measured at fair value through profit or loss. Correct answer: 1,450,000 Score: 1 out of 1 Yes

Question 3 Wood Company owns 20,000 shares of Arlo Company's 200,000 shares of P100 par, 6% cumulative, nonparticipating preference share capital and 10,000 shares representing 2% ownership of Arlo's ordinary share capital. During 200B, Arlo Company declared and paid preference dividends of P2,400,000. No dividends had been declared or paid during 200A. In addition, Wood Company received a 5% share dividend on ordinary share from Arlo Company when the quoted market price of Arlo's ordinary share was P10. jbnavallo.edu20.org/student quiz assignment/submissions/16264544

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What amount should be reported as dividend income for 200B? Response: 240,000 Feedback: Dividend income on preference share (20,000/200,000% 3 10% x 2,400,000)

240,000

Correct answer: 240,000 Score: 1 out of 1 Yes

Question 4 On January 1, 200A, Myopic Company purchased bonds with face amount of P2,000,000 for P1,900,500 including transaction cost of P100,500. The business model for this investment is to collect contractual cash flows which are solely payments of principal and interest. The entity did not elect the fair value option. The bonds mature on December 31, 200C and pay 8% interest annually every December 31 with a 10% effective yield. On December 31, 200A, the entity changed the business model for this investment to collect contractual cash flows and to sell the financial asset in the open market. The bonds are quoted at 110 on January 1, 200B and 120 on December 31, 200B. What cumulative amount in OCI is recognized in the statement of changes in equity for 200B? Response: 436,395 Feedback: Table of amortization Date

Interest received

Interest Income

Discount amortization

1/1/200A

Carrying amount 1,900,500

12/31/200A

160,000

190,050

30,050

1,930,550

12/31/200B

160,000

193,055

33,055

1,963,605

Fair value December 31, 200B (2,000,000 x 120)

2,400,000

Carrying amount per table - December 31, 200A

(1,963,605)

Cumulative unrealized gain in OCI - 12/31/200B

436,395

Correct answer: 436,395 Score: 1 out of 1 Yes

Question 5 On January 1, 200B, Muchos Company purchased 4,000 shares of another entity for P110 per share. Transaction costs amounted P12,000. The investment is measured at fair value through other comprehensive income. A P10 dividend per share had been declared on December 15, 200A, to be paid on March 31, 200B to share holders of record on January 31, 200B. No other transactions occurred in 200B affecting the investment. The shares sells for P480,000 on December 31, 200B, transaction cost that would have been incurred upon sale is P15,000. What is the initial measurement of the investment on January 31,200B? Response: 412,000 Feedback: Purchase price of shares (dividends-on)

110

Dividends per share

(10)

Price of shares (ex-dividends) Multiply: Number of shares bought Purchase price of shares (ex-dividends) jbnavallo.edu20.org/student quiz assignment/submissions/16264544

100 x 4,000 400,000 2/13

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Transaction cost Initial measurement of investment

12,000 412,000

Correct answer: 412,000 Score: 1 out of 1 Yes

Question 6 On January 1, 200A, Reign Company purchased 12% bonds with face amount of P5,000,000 for P5,380,000 with an effective yield of 10%. The bonds are dated January 1, 200A, mature on January 1, 2024 and pay interest annually on December 31 of each year. The bonds are quoted at 120 on December 31, 200A. The entity has clected the fair value option for the bond investment. What total income should be reported for 200A? Response: 1,220,000 Feedback: Market value - December 31, 200A (5,000,000 x 120) Carrying amount- January 1, 200A

6,000,000 (5,380,000)

Gain from change in fair value

620,000

Interest income (5,000,000 x 12%)

600,000

Total income

1,220,000

PFRS 9, paragraph 4.1.5, provides that an entity at initial recognition may irrevocably designate a financial asset as measured at fair value through profit or loss even if the financial asset satisfies the amortized cost measurement or fair value through other comprehensive income measurement. In other words, investment in bonds can be designated irrevocably as measured at fair value through profit or loss even if the bonds are held for collection or held for collection and for trading as business model. Under the fair value option, all changes in fair value are recognized in profit or loss. Moreover, the interest income is based on the nominal interest rate rather than the effective interest rate. Correct answer: 1,220,000 Score: 1 out of 1 Yes

Question 7 On July 31, 200A, Colagen Company exchanged a land for 25,000 ordinary shares of Ace Company. On this date, the land's carrying amount was P2,500,000 and its fair value was P3,300,000. On date of exchange, Ace Company shares have a par value of P60 and are unquoted in the market. On November 15, 200A, Colagen received 2,500 of Ace's shares as a result of a share dividend declared during 200A On December 10, Colagen sold 7,500 shares for P1,500,000. What is the gain on sale of Investment in equity securities? Response: 600,000 Feedback: Selling price of shares sold

1,500,000

Carrying amount of shares sold

(900,000)

Gain on sale of investment

600,000

Fair value of asset given

3,300,000

Divide: Inclusive shares (25,000 + 2,500)

¸ 27,500

Carrying amount per share Multiply: Shares sold Carrying amount of shares sold

jbnavallo.edu20.org/student quiz assignment/submissions/16264544

120 7,500 900,000

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Correct answer: 600,000 Score: 1 out of 1 Yes

Question 8 At the beginniing of current year, Carmela Company acquired nontrading equity instrument for P4,000,000. The transaction cost incurred amounted to P700,000. The fair value of the instrument was P5,500,000 at year-end and the transaction cost that would be incurred on the sale of the investment is estimated at P600,000. What amount of gain should be recognized in other comprehensive income for the current year? Response: 800,000 Feedback: Fair value

5,500,000

Acquisition cost

(4,700,000)

Unrealized gain other comprehensive income

800,000

Acquisition price

4,000,000

Transaction cost

700,000

Total acquisition cost of investment

4,700,000

Under PFRS 9, any transaction cost is included as part of the initial measurement of a financial asset measured at fair value through other comprehensive income or FVOCI. The transaction cost that would be incurred on the sale of the investment is ignored because the equity investment at fair value through other comprehensive is measured at fair value and not fair value less cost of disposal. Correct answer: 800,000 Score: 1 out of 1 Yes

Question 9 On January 1, 200A, Gala Company purchased marketable debt securities, to be held as financial asset at fair value through profit or loss, for P5,038,800. The entity also paid commission, taxes and other transaction costs amounting to P125,000. The principal amount of the debt security is P5,000,000 paying annual interest of 12.0% every December 31. The securities have a market value of P5,418,800 on December 31, 200A. No securities were sold during 200A. The transaction cost that would be incurred on the disposal of the investments are estimated at P75,000. What is the Gala’s unrealized gain on financial asset at fair value through profit or loss? Response: 380,000 Feedback: Market value of Trading Security on December 31, 200A

P

Measurement value of TS on January 1, 200A

5,418,800 (5,038,800)

Unrealized gain on Financial Asset at FVPL

P

380,000

The transsction cost that would be incurred on sale is ignored because the financial asset held for trading is measured at fair value and not at fair value less cost of disposal. Correct answer: 380,000 Score: 1 out of 1 Yes

Question 10 On December 31, 200A, Fay Company appropriately reported a P100,000 unrealized loss. There was no change during 200B in the composition of the portfolio of nontrading equity securities held at fair value through other comprehensive income. Security

Cost

Market value December 31, 200B

A

1,200,000

1,300,000

B

900,000

500,000

jbnavallo.edu20.org/student quiz assignment/submissions/16264544

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Submissions - Integrated Review 1 - SBCA-JBN C

1,600,000 3,700,000

1,500,000 3,300,000

What amount of loss on these securities should be included in the statement of comprehensive income for the year ended December 31,200B as component of other comprehensive income? Response: 300,000 Feedback: Market value - December 31, 200B

3,300,000

Original historical cost

(3,700,000)

Cumulative unrealized loss- December 31, 200B

(400,000)

Unrealized loss in 200A

100,000

Unrealized loss in 200B

(300,000)

Only the unrealized loss of P300,000 is shown in the statement of comprehensive income for 200B as component of other comprehensive. Correct answer: 300,000 Score: 1 out of 1 Yes

Question 11 On January 1, 200A, Queen Company purchased bonds with face amount of P5,000,000 for P4,760,000 including transaction cost of P160,000. The business model is to collect contractual cash flows and to sell the financial asset. The bonds mature on December 31, 200C and pay 10% interest annually on December 31 with a 12% effective yield. The bonds are quoted at 102 on December 31. 200A and 105 on December 31,200B. The bonds are sold on June 30, 200C plus accrued interest. What amount of unrealized gain should be reported as component of other comprehensive income for 200A? Response: 268,800 Feedback: PFRS 9. paragraph 4.1.2A, provides that a financial asset shall be measured at fair value through other comprehensive income if both of the following conditions are met: a. The business model is achieved both by collecting contractual cash flows and by selling the financial asset. b. The contractual cash flows are solely payments of principal and interest on the principal outstanding. Note that the business model includes selling the financial asset in addition to collecting contractual cash flows. In this case, interest income is recognized using the effective interest method as in amortized cost measurement. On derecognition, the cumulative gain or loss recognized in other comprehensive income shall be reclassified to profit or loss. Table of amortization of discount Date

Interest received

Interest Income

Discount amortization

1/1/200A

Carrying amount 4,760,000

12/31/200A

500,000

571,200

71,200

4,831,200

12/31/200B

500,000

579,744

79,744

4,910,944

12/31/200C

500,000

589,056

89,056

5,000,000

Interest received is equal to 10% multiplied by face amount. Interest income is equal to 12% multiplied by carrying amount. The transaction cost is part of the cost of the bond investment if the financial asset is measured at fair value through other comprehensive income. Market value December 31, 200A (5,000,000 x 102%) Carrying amount-December 31, 200A Unrealized gain-OCI for 200A

jbnavallo.edu20.org/student quiz assignment/submissions/16264544

5,100,000 (4,831,200) 268,800

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Correct answer: 268,800 Score: 1 out of 1 Yes

Question 12 At the beginning of current year, Alexis Company purchased marketable equity securities to be held as "trading" for P5,000,000. The entity also paid transaction cost amounting to P200,000. The securities had a market value of P5,500,000 at year-end and the transaction cost that would be incurred on sale is estimated at P100,000. No securities were sold during the current year. What amount of unrealized gain or loss on these securities should be reported in the income statement for the current year? Response: 500,000 gain Feedback: Fair value Acquisition cost-Trading Unrealized gain -included in profit or loss

5,500,000 (5,000,000) 500,000

Under PFRS 9, any transaction cost is not included as part of the initial measurement of a financial asset at fair value through profit or loss. A financial asset held for "trading" is a financial asset measured at fair value through profit or loss. The transsction cost that would be incurred on sale is ignored because the financial asset held for trading is measured at fair value and not at fair value less cost of disposal. Correct answer: 500,000 gain Score: 1 out of 1 Yes

Question 13 Trinidad Company provided the following portfolio of equity investments measured at fair value through other comprehensive income: Aggregate cost- December 31, 200A

1,700,000

Unrealized gain December 31, 200A

40,000

Unrealized loss - December 31, 200A

260,000

Net realized gain during 200A

300,000

On January 1, 200A, the entity reported an unrealized loss of P15,000 as a component of other comprehensive income. In the 200A statement of changes in equity, what cumulative amount should be reported as unrealized loss on these securities? Response: 220,000 Feedback: Unrealized loss

260,000

Unrealized gain

(40,000)

Cumulative net unrealized loss December 31, 200A

220,000

Unrealized loss - January 1, 200A

(15,000)

Increase in unrealized loss

205,000

The increase in unrealized loss of P205,000 is reported in the statement of comprehensive income as component of other comprehensive income. However, the statement of changes in equity for 200A would report the cumulative net unrealized loss of P220,000. Incidentally, the net realized gain represents gain from the investment that is actually sold and should be directly credited to retained earnings. Correct answer: 220,000 Score: 1 out of 1 Yes

jbnavallo.edu20.org/student quiz assignment/submissions/16264544

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Question 14 At year-end, Rim Company held several investments with the intent of selling them in the near term. The investments consisted of P1,000,000 8% five-year bonds purchased for P920,000 and equity securities purchased for P350,000. At year-end, the bonds were selling on the open market for P1,050,000 and the equity securities had a market value of P500,000. What amount should be reported as trading securities at year-end? Response: 1,550,000 Feedback: Bond investment

1,050,000

Equity investment

500,000

Total market value

1,550,000

Trading investments are measured at fair value through profit or loss (FVPL). Correct answer: 1,550,000 Score: 1 out of 1 Yes

Question 15 On August 30, Valedictorian effected a stock split up 2-to-1. It also issued rights to subscribe to its stock on September 15, the ownership of 4 shares entitling the shareholders to subscribe for 1 share at P50.00. The Valedictorian's share is quoted rights-on at P62.50. On August 15, Vast Company acquired 50,000 shares of Valedictorian Company with total cost of P5,000,000. The stock rights are accounted for separately. Vast exercised 40,000 stock rights and sold the remainder for P8.00 each. What is the cost to Vast Company of the new investment in Valedictorian Company? Response: 650,000 Feedback: Correct answer: 600,000 Score: 0 out of 1 No

Question 16 On January 1, 200A, Remington Company acquired 200,000 ordinary shares of Universal Company for P9,000,000. At the time of purchase, universal Company had outstanding 800,000 shares with a carrying amount of P36,000,000. The following events took place during the year: •

Universal Company reported net income of P1,800,000 for the calendar year 200A.

•

Remington Company received from Universal Company a dividend of P0.75 per ordinary share.

•

The market value of Universal Company share had temporarily declined to P40.

Remington Company has elected irrevocably to measure the investment at fair value through other comprehensive income. What is the carrying amount of the investment on December 31, 200A? Response: 8,000,000 Feedback: Market value - December 31, 200A (200,000 x 40)

8,000,000

Although the interest is 25%, 200,000 shares divided by 800,000 shares, the equity method is not applied because the entity has elected to measure the equity investment at fair value through other comprehensive income or FVOCI. The unrealized loss on the financial asset of P1,000,000 (P9,000,000 - P8,000,000) is shown in the statement of comprehensive income as component of other comprehensive income. Correct answer: 8,000,000 Score: 1 out of 1 Yes

Question 17 On January 1, 200A, Michelle Company purchased bonds with face amount of P5,000,000. The entity paid P4,600,000 plus transaction cost of P142,000. jbnavallo.edu20.org/student q...