INVESTMENTS

Amortized cost is the initial recognition amount of the investment minus
a. Repayments and net of any reduction for uncollectibility

b. Cumulative amortization and net of any reduction for uncoilectibility
c. Repayments plus or minus cumulative amortization and net of any reduction for uncollectibility
d. Repayments plus or minus cumulative amortization.
Which statement is correct about the effective interest method of amortization?

a. The effective-interest method applied to debt investments is different from that applied to
bonds payable
b. Amortization of a discount decreases from period to period.
c. Amortization of a premium decreases from period to period
d. The effective interest method applies the effective interest rate to the beginning carrying
amount for each interest period.
All of these are characteristics of financial assets classified as held-to-maturity investments, except:
a. The have fixed or determinable payments
b. The holder can recover substantially all of its investment (unless there has been credit
deterioration)
c. They are quoted in an active market
d. The holder has demonstrated positive intention and ability to hold them to maturity
Securities could be classified as held-to-maturity are

a. Redeemable preferred shares
b. Warrants
c. Mutual funds
d. Treasury stock
Which of the following information is not required to be disclosed about the significance of financial
instruments?
a. Carrying amounts of categories of financial instruments
b. Fair value of financial instruments
c. Information about use of hedge accounting
d. Information about financial instruments, contracts and obligations under share-based payment
transactions
Theory of Accounts - Financial Instruments (Average)

Question 2
Which of the following is not a valuation technique used in fair value estimates?
Income approach
Residual value approach
Market approach
Cost approach
Question 3
Which of the following is not a financial asset?
Cash
An equity instrument of another entity
A contractual right to receive cash
A contractual right exchange financial assets or financial liability with another entity under conditions
that are potentially favourable or unfavourable to the entity.
Theory of Accounts - Financial Instruments (Easy)

Question 4
Which of the following is not among the categories of financial assets?
Held-to-maturity investments
Loans and receivables
Financial assets at fair value through profit or loss
Non-monetary assets

Question 5
The process of bifurcation
Protects an entity from loss by entering into a transaction
Includes entering into agreements between two counterparties to exchange cash flows over specified
period of time in the future
Is the interaction of the price or rate with an associated asset or liability
Separates an embedded derivative from its host contract

Question 6
Which of the following is not a category of financial assets?
Financial assets at fair value through profit or loss
Available for sale financial asset
Held for sale investments

Question 7
All of the following financial assets shall be measured at fair value through profit or loss, except
Financial assets held for trading
Financial assets designated on initial recognition as at fair value through profit or loss
Investments in quoted equity instruments
Financial assets at amortized cost
Question 8
Which of the following should be reported at fair value?
Debt investments
Equity investments
Both debt and equity investments
None of these

Question 9
These instruments provide the holder with the contractual right to receive payments on account of
interest at fixed dates extending into the indefinite future, either with a right or no right to a return of
principal.
Perpetual debt instruments
Compound financial instruments
Derivative financial instruments
Financial instruments

Question 10
Which one of the following is true when the effective interest method of amortizing bond discount is
used?
Interest expense as a percentage of the bonds' carrying amount varies from period to period
Interest expense remains constant for each period
Interest expense increases each period
The interest rate decreases each period
Question 1
Which of the following is an assumption used in fair value measurement?
The asset must be in-use.
The asset must be considered in-exchange.
The most conservative estimate must be used.
The asset is in its highest and best use

Question 3
The market approach valuation technique for measuring fair value requires which of the following?
Present value of future cash flows.
Prices and other relevant information of transactions from identical or comparable assets.
The price to replace the service capacity of the asset.
The weighted average of the present value of future cash flows.
Question 4
Purchasing power gain or loss results from
Monetary asset only
Monetary liability only
Both monetary asset and monetary liability
Both nonmonetary asset and nonmonetary liability

Question 6
In accordance with IFRS7 Financial instruments; disclosure, which of the following best describes the risk
that an entity will encounter if it has in meeting obligations associated with its financial liabilities?
Liquidity risk
Credit risk
Financial risk
Payment risk

Question 7
The Rissa Company has entered into a contract on June 1, 20X3 that requires it to issue its own ordinary
shares with a value of CU250,000 on 31 May 20X6. In accordance with PAS32, Financial instruments
presentation, the company should classify the contract as
Financial asset
Financial liability
Equity instrument
Embedded derivative

Question 8
Debt investments not held for collection are reported at
Amortized cost
Fair value
The lower of amortized cost or fair value
Net realizable value

Question 9
PFRS requires entities to measure financial assets based on all of the following, except
The entity's business model for managing its financial assets
Whether the financial asset is a debt or equity investment
The contractual cash flow characteristics of the financial asset
All of the choices are PFRS requirements.

Question 10
A bond or similar instrument convertible by the holder into a fixed number of ordinary shares of the
entity is
A compound financial instrument
A primary financial instrument
A derivative financial instrument
An equity
Question 1
Under PFRS 7, the risks arising from financial instruments that are required to be disclosed include all of
the following, except
Qualitative and quantitative information about credit risk.
Qualitative and quantitative information about liquidity risk.
Qualitative and quantitative information about market risk.
Qualitative and quantitative information about operational risk.

Question 3
Under IFRIC 2, members' shares in cooperatives may give the holder the right to request redemption for
cash or other financial asset. Such members' shares shall be accounted for as
Equity
Liability
Either as equity or liability
Partly equity and partly liability

Question 7
Depending on the business model for managing financial assets, an entity shall classify financial assets
subsequent to initial recognition at
Fair value
Amortized cost
Either fair value or amortized cost
Neither fair value nor amortized cost

Question 8
Debt investments that meet the business model and contractual cash flow tests are reported at
Net realizable value
Fair value
Amortized cost
The lower of amortized cost or fair value

Question 10
In theory disregarding any other marketplace variables, the proceeds from the sale of a bond will be
equal to
The face amount of the bond
The present value of the face amount of the bond plus the present value of the interest payments to be
made during the life of the bond
The face amount of the bond plus the present value of the interest payments made during the life of
the bond
The sum of the face amount of the bond and the periodic interest payments
uestion 1
Under PAS 28, what accounting method should be used for an investment in an associate where it is
operating under severe long-term restrictions, for example, where the government of the entity has
temporary control over the associate?
PAS 39 should be applied
The equity method should be applied if significant influence can be exerted
The associate should be shown at cost
Consolidation method should be used
Theory of Accounts - Investment In Associate (Average)

Question 2
The equity method is not required to be applied when the associate has been acquired and held with a
view to its disposal within a certain time period. What is the period within which the associate must be
disposed of?
Six months
Twelve months
Two years
In the near future

Question 3
How is goodwill arising on the acquisition of an associate dealt with in the financial statements?
It is amortized
It is impairment tested individually
It is written off against profit or loss
Goodwill is not recognized separately within the carrying amount of the investment.

Question 4
Organization to which PAS28 Investments in Association applies include:
Unincorporated entities
Venture capital organizations
Mutual funds
Unit trusts
Theory of Accounts - Investment In Associate (Easy)

Question 5
The accounting method applied to investments in associates, known as equity method, is also known as
the
Entity method of consolidation
Proprietary method of consolidation
Multiple line consolidation method
One-line consolidation method
Question 1
Laydo Company purchased P500,000 of bonds at par. The management has an active trading business
model for this investment. At year-end, the entity received annual interest of P20,000, and the fair value
of the bonds was P470,400. In the year-end statement of financial position, how much total income
(loss) will be reported in the income statement?
20,000
20,000
(9,600)
49,600
The Matthew Company purchases P2,000,000 of bonds. The asset has been designated as one at fair
value through profit or loss. One year later, 10% of the bonds are sold for P400,000. Total cumulative
gains previously recognized in Polythene Pam's financial statements in respect of the asset are
P100,000. In accordance with PAS 39 Financial instruments' recognition and measurement, what is the
amount of the gain or disposal to be recognized in profit or loss?
190,000
90,000
200,000
100,000
Question 1
During January 2012, Noel, Inc. acquired 30% of the outstanding common stock of George Co. for
P1,400,000. This investment gave Noel the ability to exercise significant influence over George. George’s
assets on that date were recorded at P6,400,000 with liabilities of P3,000,000. Any excess of cost over
book value of Noel’ investment was attributed to unrecorded patents having a remaining useful life of
ten years.
In 2012, George reported net income of P600,000. For 2013, George reported net income of P750,000.
Dividends of P200,000 were paid in each of these two years. What was the reported balance of Noel’s
Investment in George Co. at December 31, 2013?
1,609,000
1,485,000
1,685,000
1,647,000
1,054,300
Practical Accounting 1 - Investment In Equity Securities (Average)

Question 2
On January 3, 2013, Marcos Corp. purchased 25% of the voting common stock of Enrile Co., paying
P2,500,000. Marcos decided to use the equity method to account for this investment. At the time of the
investment, Enrile’s total stockholders’ equity was P8,000,000. Marcos gathered the following
information about Enrile’s assets and liabilities:
Book value Fair value
Buildings (10 year life) 400,000 500,000
Equipment (5 year life) 1,000,000 1,300,000
Franchises (8 year life) 0 400,000
For all other assets and liabilities, book value and fair value were equal. Any excess of cost over fair
value was attributed to goodwill, which has not been impaired.
What is the amount of goodwill associated with the investment?
500,000
200,000
0
300,000
400,000
Practical Accounting 1 - Investment In Equity Securities (Difficult)

Question 3
On January 1, 2012, Nick Inc. acquired 15% of Daryl Co.’s outstanding common stock for P62,400 and
categorized the investment as an available-for-sale security. Daryl earned net income of P96,000 in 2012
and paid dividends of P36,000. On January 1, 2013, Nick bought an additional 10% of Daryl for P54,000.
This second purchase gave Nick the ability to significantly influence the decision making of Daryl. During
2013, Daryl earned P120,000 and paid P48,000 in dividends. As of December 31, 2013, Daryl reported a
net book value of P468,000. For both purchases, Nick concluded that Daryl Co.’s book values
approximated fair values and attributed any excess cost to goodwill.
On Nick’s December 31, 2013 balance sheet, what balance was reported for the Investment in Daryl Co.
account?
139,560
143,400
310,130
186,080
182,250

Question 4
On January 1, 2013, Mike, Incorporated, paid P100,000 for a 30% interest in Rose Corporation. This
investee had assets with a book value of P550,000 and liabilities of P300,000. A patent held by Rose
having a book value of P10,000 was actually worth P40,000 with a six year remaining life. Any goodwill
associated with this acquisition is considered to have an indefinite life. During 2013, Rose reported
income of P50,000 and paid dividends of P20,000 while in 2014 it reported income of P75,000 and
dividends of P30,000. Assume Mike has the ability to significantly influence the operations of Rose.
The equity in income of Rose for 2014, is
22,500
21,000
12,000
13,500
75,000

Question 5
Dodge, Incorporated acquires 15% of Gates Corporation on January 1, 2012, for P105,000 when the
book value of Gates was P600,000. During 2012 Gates reported net income of P150,000 and paid
dividends of P50,000. On January 1, 2013, Dodge purchased an additional 25% of Gates for P200,000.
Any excess cost over book value is attributable to goodwill with an indefinite life. The fair-value method
was used during 2012 but Dodge has deemed it necessary to change to the equity method after the
second purchase. During 2013 Gates reported net income of P200,000 and reported dividends of
P75,000.
Which adjustment would be made to change from the fair-value method to the equity method?
A debit to additional paid-in capital for P15,000.
A credit to additional paid-in capital for P15,000.
A debit to retained earnings for P15,000.
A credit to retained earnings for P15,000.
A credit to a gain on investment.

Question 6
On January 1, 2012, Garry, Incorporated purchased 15,000 shares of Lanz Company for P150,000 giving
Garry a 15% ownership of Lanz. On January 1, 2013 Garry purchased an additional 25,000 shares (25%)
of Lanz for P300,000. This last purchase gave Garry the ability to apply significant influence over Lanz.
The book value of Lanz on January 1, 2012, was P1,000,000. The book value of Lanz on January 1, 2013,
was P1,150,000. Any excess of cost over book value for this second transaction is assigned to a database
and amortized over five years.Lanz reports net income and dividends as follows. These amounts are
assumed to have occurred evenly throughout the years:
Net Income Dividends
2012 P200,000 P50,000
2013 225,000 50,000
2014 250,000 60,000
On April 1, 2014, just after its first dividend receipt, Garry sells 10,000 shares of its investment.
How much income did Garry report from Lanz during 2013?
90,000
110,000
67,500
87,500
78,750

Question 7
2012 P200,000 P50,000
2013 225,000 50,000
2014 250,000 60,000
What was the balance in the investment account at December 31, 2013?
517,500
537,500
520,000
540,000
211,250

Question 8
Daryl Inc. owns 30% of Winston Inc. and appropriately applies the equity method. During the current
year, Winston bought inventory costing P52,000 and then sold it to Daryl for P80,000. At year-end, all of
the merchandise had been sold by Daryl to other customers. What amount of unrealized intercompany
profit must be deferred by Daryl?
0
8,400
28,000
52,000
80,000
Practical Accounting 1 - Investment In Equity Securities (Easy)

Question 9
JP Inc. bought 30% of Mark Company on January 1, 2013 for P450,000. The equity method of accounting
was used. The book value and fair value of the net assets of Mark on that date were P1,500,000. Mark
began supplying inventory to JP as follows:
Cost to Transfer Amount Held by
Year Mark Price JP at Year-End
2013 P30,000 P45,000 P 9,000
2014 P48,000 P80,000 P20,000
Mark reported net income of P100,000 in 2013 and P120,000 in 2014 while paying P40,000 in dividends
each year.
What is the balance in JP’s Investment in Mark account at December 31, 2014?
488,700
489,600
492,000
494,400
514,500

Question 10
On January 1, 2013, Vic Corporation acquired 30 percent of Roger Company's stock for P150,000. On the
acquisition date, Roger reported net assets of P450,000 valued at historical cost and P500,000 stated at
fair value. The difference was due to the increased value of buildings with a remaining life of 15 years.
During 2013 and 2014 Roger reported net income of P25,000 and P15,000 and paid dividends of
P10,000 and P12,000, respectively. Vic uses the equity method.
Had Vic Corporation used the cost method, what would have been the balance in the investment
account on Dec 31, 2014?
150,000
157,500
153,400
153,500
Question 1
On January 1, 2013, Ian Company purchased 30% of the voting common stock of Ash Corp. for
P1,000,000. Any excess of cost over book value was assigned to goodwill. During 2013, Ash paid
dividends of P24,000 and reported a net loss of P140,000. What is the balance in the investment
account on December 31, 2013?
950,800
958,000
836,000
990,100
956,400

Question 3
A company has been using the fair-value method to account for its investment. The company now has
the ability to significantly control the investee and the equity method has been deemed appropriate.
Which of the following statements is true?
A cumulative effect change in accounting principle must occur.
A prospective change in accounting principle must occur.
A retrospective change in accounting principle must occur.
The investor will not receive future dividends from the investee.
Future dividends will continue to be recorded as revenue.

Question 4
2012 P200,000 P50,000
2013 225,000 50,000
2014 250,000 60,000
What was the balance in the investment account at April 1, 2014 just before the sale of shares?
468,281
468,750
558,375
616,000
624,375

Question 5
On January 4, 2012, Rey, Inc. acquired 40% of the outstanding common stock of Jeff Co. for P2,400,000.
This investment gave Rey the ability to exercise significant influence over Jeff. Jeff’s assets on that date
were recorded at P10,500,000 with liabilities of P4,500,000. There were no other differences between
book and fair values.During 2012, Jeff reported net income of P500,000. For 2013, Jeff reported net
income of P800,000. Dividends of P300,000 were paid in each of these two years.
How much income did Rey report from Jeff for 2013?
120,000
200,000
300,000
320,000
500,000

Questi on 6
On January 4, 2013, Frances Co. purchased 40,000 shares (40%) of the common stock of Alan Corp.,
paying P560,000. At that time, the book value and fair value of Alan’s net assets was P1,400,000. The
investment gave Frances the ability to exercise significant influence over the operations of Alan. During
2013, Alan reported income of P150,000 and paid dividends of P40,000. On January 2, 2014, Frances
sold 10,000 shares for P150,000.
What is the appropriate journal entry to record the sale of the 10,000 shares?
A) Cash 150,000
Investment in Alan 150,000
B) Cash 150,000
Gain on sale of investment 20,000
C) Cash 150,000
Loss on investment 1,000
D) Cash 150,000
Gain on sale of investment 1,000
E) Cash 150,000
Loss on sale of investment 10,000
A Above
B Above
C Above
D Above
E Above

Question 7
On January 4, 2013, Mac Corp. purchased 40% of the voting common stock of Allan Co., paying
P3,000,000. Mac properly accounts for this investment using the equity method. At the time of the
investment, Allan’s total stockholders’ equity was P5,000,000. Mac gathered the following information
about Allan’s assets and liabilities whose book values and fair values differed:
Book Value Fair Value
Buildings (20-year life) P1,000,000 P1,800,000
Equipment (5-year life) 1,500,000 2,000,000
Franchises (10-year life) 0 700,000
Any excess of cost over fair value was attributed to goodwill, which has not been impaired. Allan Co.
reported net income of P400,000 for 2013, and paid dividends of P200,000 during that year.
How much goodwill is associated with this investment?
(500,000)
0
100,000
200,000
2,000,000

Question 8
On January 1, 2013, Harold Corporation acquired 25 percent of the outstanding shares of Geronimo
Corporation for P100,000 cash. Geronimo Company reported net income of P75,000 and paid dividends
of P30,000 for both 2013 and 2014. The fair value of shares held by Harold was P110,000 and P105,000
on December 31, 2013 and 2014 respectively.
What amount will be reported by Harold as income from its investment in Geronimo for 2014, if it used
the equity method of accounting?
7,500
11,250
18,750
26,250

Question 9
Under the cost method of accounting for a stock investment, the differential
is written off
is amortized
is written down if related to limited-life assets
is not amortized or written off

Question 10
Which of the following observations is consistent with the equity method of accounting?
Dividends declared by the investee are treated as income by the investor
It is used when the investor lacks the ability to exercise significant influence over the investee
It may be used in place of consolidation
Its primary use is in reporting nonsubsidiary investments
Question 1
The Meanne Company acquired an equity investment a number of years ago for P300,000 and classified
it as available for sale. At 31 December 2012, the cumulative loss recognized in other comprehensive
income was P40,000 and the carrying amount of the investment was P260,000. At December 31, 2013,
the issuer of the equity was in severe financial DIF and the fair value of the equity investment had fallen
to P120,000. In accordance with PAS 39, what amount should be recognized in profit or loss in the year
ended 31 December 2013?
140,000
180,000
100,000
0
n January 3, 2013, Marcos Corp. purchased 25% of the voting common stock of Enrile Co., paying
P2,500,000. Marcos decided to use the equity method to account for this investment. At the time of the
investment, Enrile’s total stockholders’ equity was P8,000,000. Marcos gathered the following
information about Enrile’s assets and liabilities:
Book value Fair value
Buildings (10 year life) 400,000 500,000
Equipment (5 year life) 1,000,000 1,300,000
Franchises (8 year life) 0 400,000
For all other assets and liabilities, book value and fair value were equal. Any excess of cost over fair
value was attributed to goodwill, which has not been impaired.
For 2013, what is the total amount of excess amortization for Marcos’s 25% investment in Enrile?
27,500
20,000
30,000
120,000
Question 3
All of the following would require use of the equity method for investments except
material intercompany transactions.
investor participation in the policy-making process of the investee.
valuation at fair value.
technological dependency.
significant control.
70,000
January 4, 2013, Mac Corp. purchased 40% of the voting common stock of Allan Co., paying P3,000,000.
Mac properly accounts for this investment using the equity method. At the time of the investment,
Allan’s total stockholders’ equity was P5,000,000. Mac gathered the following information about Allan’s
assets and liabilities whose book values and fair values differed:
Book Value Fair Value
Buildings (20-year life) P1,000,000 P1,800,000
Equipment (5-year life) 1,500,000 2,000,000
Franchises (10-year life) 0 700,000
Any excess of cost over fair value was attributed to goodwill, which has not been impaired. Allan Co.
reported net income of P400,000 for 2013, and paid dividends of P200,000 during that year.
What is the amount of excess amortization expense for Mac’s investment in Allan for the first year?
0
84,000
100,000
160,000
400,000
Question 1
The summarized equities of Ace Company and Martin Company on December 31, 2012 are as follows:
Ace Martin
Liabilities 150,000 225,000
Share capital - ordinary 600,000 555,000
Retained earnings 450,000 120,000
Ace Company acquired a 30% interest in Martin Company on December 31, 2012 for P202,500. During
2013, Martin Company had net income of P75,000 and paid a cash dividend of P30,000. What is the
debit balance in the Equity Investment account at the end of 2013?
202,500
216,500
225,000
217,500
Question 2
Rolly Company reported the following equity securities held as AFS in its December 31, 2012 statement
of financial position:
Francis Company ordinary shares, at cost 2,000,000
Market adjustment for unrealized loss (300,000)
Market value 1,700,000
On December 31, 2013, the market value of Rolly's investment is P1,950,000. As a result of the change in
market value, Rolly's statement of comprehensive income for 2013 should report
An unrealized loss of P50,000
An unrealized gain of P250,000
An unrealized gain of P50,000
Neither unrealized gain nor loss.
Question 5
All of the following statements regarding the investment account using the equity method are true
except
The investment is recorded at cost.
Dividends received are reported as revenue.
Net income of investee increases the investment account.
Dividends received reduce the investment account.
Amortization of fair value over cost reduces the investment accou
Question 1
Maan Company sells loans with a P2,200 fair value and a carrying amount of P2,000. The entity obtains
an option to purchase similar loans and assumes a recourse obligation to repurchase loans. The entity
also agrees to provide a floating rate of interest to the transferee entity. The fair values are listed.
Cash proceeds 2,100
Interest rate swap 140
Call option 80
Recourse obligation (120)
Assume that Maan Company agreed to service the loans without explicitly stating the compensation.
The fair value of the service is P50. What are the gain (loss) on the sale?
200
250
150
(250)
Practical Accounting 1 - Receivable Financing (Average)

Question 2
Raffy Corporation factored, with recourse, P300,000 of accounts receivable with Huskie Financing. The
finance charge is 3%, and 5% was retained to cover sales discounts, sales returns, and sales allowances.
Raffy estimates the recourse obligation at P7,200. What amount should Raffy report as a loss on sale of
receivables?
0
9,000
16,200
31,200
Practical Accounting 1 - Receivable Financing (Easy)

Question 3
Paul Co. assigned P400,000 of accounts receivable to Peter Finance Co. as security for a loan of
P335,000. Peter charged a 2% commission on the amount of the loan; the interest rate on the note was
10%. During the first month, Paul collected P110,000 on assigned accounts after deducting P380 of
discounts. Paul accepted returns worth P1,350 and wrote off assigned accounts totaling P2,980.
The amount of cash Paul received from Peter at the time of the transfer was
301,500
327,000
328,300
335,000
Practical Accounting 1 - Receivable Financing (Easy)

Question 4
On December 1, 2014, Doo Company assigned specific accounts receivable totaling P2,000,000 as
collateral on a P 1,500,000, 12% note from a certain bank. Doo Company will continue to collect the
assigned accounts receivable. In addition to the interest on the note, the bank also charged a 5% finance
fee deducted in advance on the P 1,500,000 value of the note. The December collections of assigned
accounts receivable amounted to P 1,000,000 less cash discounts of P50,000. On December 31, Doo
Company remitted the collections to the bank in payment for the interest accrued on December 31 and
the note payable.
How much cash was received from the assignment of accounts receivable on December 1?
2,000,000
1,500,000
1,900,000
1,425,000

Question 5
On December 1, 2014, Doo Company assigned specific accounts receivable totaling P2,000,000 as
collateral on a P 1,500,000, 12% note from a certain bank. Doo Company will continue to collect the
assigned accounts receivable. In addition to the interest on the note, the bank also charged a 5% finance
fee deducted in advance on the P 1,500,000 value of the note. The December collections of assigned
accounts receivable amounted to P 1,000,000 less cash discounts of P50,000. On December 31, Doo
Company remitted the collections to the bank in payment for the interest accrued on December 31 and
the note payable.
How much is the equity of Doo Company in assigned accounts on December 31?
500,000
450,000
435,000
270,000

Question 6
Min Company factored P6,000,000 of accounts receivable to Jin Company on October 1. Control was
surrendered by Min. Jin assessed a fee of 3% and retains a holdback equal to 5% of the accounts
receivable. In addition, Jin charged 15% interest computed on a weighted average time to maturity of
the accounts receivable of 54 days.
Min will receive and record cash of
5,296,850
5,386,850
5,476,850
5,556,850

Question 7
Min Company factored P6,000,000 of accounts receivable to Jin Company on October 1. Control was
surrendered by Min. Jin assessed a fee of 3% and retains a holdback equal to 5% of the accounts
receivable. In addition, Jin charged 15% interest computed on a weighted average time to maturity of
the accounts receivable of 54 days.
Assuming all receivables are collected, Min Company's cost of factoring the receivables would be
313,150
180,000
433,150
613,150

Question 8
On July 1, June Company sold P5,800,000 in accounts receivable for cash of P5,000,000. The factor
withheld 10% of the cash proceeds to allow for possible customer returns and other adjustments. An
allowance for bad debts of P600,000 had previously been established by June in relation to these
accounts. What was the loss on factoring recognized by June Company?
200,000
700,000
500,000
800,000

Question 9
Joshua Company sold accounts receivable without recourse with face amount of P6,000,000. The factor
charged 15% commission on all accounts receivable factored and withheld 10% of the accounts factored
as protection against customer returns and other adjustments. Joshua Company had previously
established an allowance for doubtful accounts of P200,000 for these accounts. By year-end, the entity
had collected the factor's holdback there being no customer returns and other adjustments.
How much cash was initially received from factoring?
4,500,000
5,400,000
5,100,000
6,000,000
Question 10
On June 30, 2014, Nori Company discounted at the bank a customer's P6,000,000, 6-month, 10% note
receivable dated April 30, 2014. The bank discounted the note at 12% without recourse.
The proceeds from the note receivable discounting amounted to
5,640,000
5,760,000
6,048,000
6,174,000
uestion 2
Victor Company had net sales in 2013 of P7,000,000. At December 31, 2013, before adjusting entries,
the balances in selected accounts were : accounts receivable P1,250,000 debit, and allowance for
doubtful accounts P12,000 debit. Victor estimates that 2% of its accounts receivable will prove to be
uncollectible. What is the cash realizable value of the receivable reported on the statement of financial
position at December 31, 2013?
1,122,000
1,225,000
1,110,000
1,098,000
Robert Corporation had a 1/1/13 balance in the Allowance for Doubtful Accounts of P10,000. During
2013, it wrote off P7,200 of accounts and collected P2,100 on accounts previously written off. The
balance in Accounts Receivable was P200,000 at 1/1 and P240,000 at 12/31. At 12/31/13, Robert
estimates that 5% of accounts receivable will prove to be uncollectible. What is Bad Debt Expense for
2013?
2,000
7,100
9,200
12,000
balance before adjustments included the following:
Debit Credit
Sales 425,000
Sales return 14,000
Accounts receivable 43,000
Allowance for bad debts 760
If the estimate of uncollectibles is made by taking 2% of net sales, the amount of the adjustment is
6,700
8,220
8,500
9,740
Before year-end adjusting entries, Matthew Company's account balances at December 31, 2013, for
accounts receivable and the related allowance for uncollectible accounts were P600,000 and P45,000,
respectively. An aging of accounts receivable indicated that P62,500 of the December 31 receivables are
expected to be uncollectible. The net realizable value of accounts receivable after adjustment is
582,500
537,500
492,500
555,000
he following information relates to Jay Co’s accounts receivable for 2013:
Trade accounts receivable, 1/1/13 650,000
Credit sales for 2013 2,700,000
Sales returns for 2013 75,000
Accounts written off during 2013 40,000
Collections from customers during 2013 2,150,000
Estimated future sales returns at 12/31/13 50,000
Estimated uncollectible accounts at 12/31/13 110,000
What amount should Jay report for accounts receivable before allowances for returns and uncollectible
accounts?
1,200,000
1,125,000
1,085,000
925,000
asabi Corp.’s accounts receivable subsidiary ledger shows the following information:
Customer Account balance Invoice Date Invoice

Amount
Ruel, Inc 35,180 12/6/12 14,000
11/29/12 21,180
Blanca, Inc 20,920 9/27/12 12,000
8/20/12 8,920
Hannah, Inc 30,600 12/8/12 20,000
10/25/12 10,600
Renee, Inc 45,140 11/17/12 23,140
10/9/12 22,000
Henry, Inc 31,600 12/12/12 19,200
12/2/12 12,400
Edmund, Inc. 17,400 9/12/12 17,400
The estimated bad debt rates are based on Wasabi Corp’s receivable collection experience.
Age of Accounts Rate
0-30 days 1%
31-60 days 1.5%
61-90 days 3%
91-120 days 10%
Over 120 days 50%
The allowance for bad debts account had a debit balance of P5,500 on December 31, 2012, before
adjustment.
What is the net realizable value of accounts receivable at December 31, 2012?
165,641
171,141
196,039
186,340
Question 8
Dada Company uses the allowance method of accounting for uncollectible accounts. During 2014, Dada
had charged P800,000 to bad debt expense, and wrote off accounts receivable of P900,000 as
uncollectible. What was the decrease in working capital as a result of these entries?
900,000
800,000
100,000
0
Question 9
James Company's allowance for doubtful accounts was P 1 ,000,000 at the end of2014 and P900,000 at
the end of 2013. For the year ended December 31, 2014, James reported bad debt expense of P 160,000
in its income statement. What amount did James debit to the appropriate account in 2014 to write off
actual bad debts?
60,000
100,000
160,000
260,000
Practical Accounting 1 - Accounts Receivable (Average)

Question 10
Min Company began operations on January 1, 2013. Min has found that its estimated bad debt expense
has been consistently higher than actual bad debts. Management proposes lowering the percentage
from 3% of credit sales to 2%. If 2% had been used since 2013, the balance in allowance for bad debts at
the beginning of2014 would have been P320,000 rather than P690,000. Credit sales for 2014 totaled
P5,000,000, and accounts written off as uncollectible during 2014 totaled P550,000.
What is the bad debt expense for 2014?
150,000
100,000
550,000
240,000
uestion 1
On June 1, 2013, Michael Corp. loaned Lebron P300,000 on a 12% note, payable in five annual
installments of P60,000 beginning January 2, 2014. In connection with this loan, Lebron was required to
deposit P3,000 in a zero-interest-bearing escrow account. The amount held in escrow is to be returned
to Lebron after all principal and interest payments have been made. Interest on the note is payable on
the first day of each month beginning July 1, 2013. Lebron made timely payments through November 1,
2013. On January 2, 2014, Michael received payment of the first principal installment plus all interest
due. At December 31, 2013, Michael's interest receivable on the loan to Lebron should be
0
3,000
6,000
9,000
Practical Accounting 1 - Receivables (Average)

Question 2
On January 1, 2012, Kobe Co. exchanged equipment for a P400,000 zero-interest-bearing note due on
January 1, 2015. The prevailing rate of interest for a note of this type at January 1, 2012 was 10%. The
present value of P1 at 10% for three periods is 0.75. What amount of interest revenue should be
included in Kobe's 2013 income statement?
0
30,000
33,000
40,000
Question 1
Jaia Company purchased 800 ordinary shares of Federer Industries as a trading investment for P148,800.
During the year, Federer Industries paid a cash dividend of P32 per share. At year-end, Federer's shares
were selling for P174 per share. In the income statement for the current year-end, what net amount of
unrealized gain/loss and dividend revenue should be reported by Jaia Company?
16,000
25,600
9,600
32,500
uestion 1
Financial assets at fair value through other comprehensive income refer to
Trading securities
Held-to-maturity securities
Available-for-sale securities
Trading and available-for-sale securities
Theory of Accounts - Financial Asset at Fair Value (Average)

Question 2
Significant change in the market value of trading securities occurring after the balance sheet date should
Be considered in the valuation of securities at balance sheet date and disclosed in the notes to the
financial statements
Be treated as a prior period error in next year's financial statements
Not be considered in the valuation of the securities at the balance sheet date but disclosed in the notes
to the financial statements
Result in an adjustment of the market value used in the lower of cost or market valuation at balance
sheet date
Theory of Accounts - Financial Asset at Fair Value (Difficult)

Question 3
An investor uses the cost method to account for investment. Dividends received in excess of the
investor's share of investee's earnings subsequent to the date of investment
Increase other comprehensive income
Decrease the investment account
Increase the investment account
Increase dividend revenue

Question 4
Unrealized gains and losses for available for sale securities are
Included in the determination of income
Included in income for unrealized gains and included in equity for unrealized losses
Included in income for unrealized losses and included in equity for unrealized gains
Included in other comprehensive income and stockholder's equity
Theory of Accounts - Financial Asset at Fair Value (Easy)

Question 5
The market value of Security A exceeds its cost, and the market value of Security B is less than its cost at
the balance sheet date. Both securities are held as investments in debt securities. Security A is classified
as trading and Security B is classified as available-for-sale. How should each of these assets be reported
on the balance sheet?
Security A (market value); Security B (market value)
Security A (amortized costs); Security B (market value)
Security A (market value); Security B (amortized costs)
Security A (amortized costs); Security B (amortized costs)

Question 6
Which of the following is not correct in regard to trading investments?
Trading investments are held with the intention of selling them in a short period of time
Unrealized holding gains and losses are reported as part of net income.
Any discount or premium is not amortized
All of these are correct.

Question 7
The fair value option
Must be applied to all instruments the entity holds
May be selected as a valuation method by the entity at any time during the first two years of ownership
Reports all gains and losses in income
All of the choices are correct.

Question 8
The fair value at initial recognition is
The price paid to acquire the asset
The price paid to acquire the asset less transaction costs
The price paid to transfer or sell the asset
The carrying amount of the asset acquired

Question 9
Which of the following are observable inputs used for fair value measurement?
Bank prime rate
Default rate on loan
Financial forecast
Bank prime rate and default on loan

Question 10
In addition to financial assets at fair value through profit or loss, which of the following categories of
financial assets is measured at fair value in the balance sheet?
Available-for-sale financial assets
Held-to-maturity investments
Investments in unquoted equity instruments
rading on the equity is
The ratio of the entity's cash dividends to net income.
A return on assets that is higher than the cost of financing these assets.
The amount each share would receive if the entity were liquidated.
The "revaluation surplus" related to increases or decreases in items such as property, plant, and
equipment.
Question 4
The fair value option allows an entity to
Record income when the fair value of its investment increases.
Value its debt investments at fair value in some years but not other years.
Report most financial instruments at fair value by recording gains and losses as a separate component
of shareholders' equity.
All of these are true of the fair value option.
ich of the following statements is true for measuring an asset at fair value?
The price of the asset should be adjusted for transaction costs
The fair value of the asset should be adjusted for costs to sell
The fair value is based upon an entry price to purchase the asset
The price should be adjusted for transportation costs to transport the asset to its principal market
Question 7
A change in valuation technique used to measure fair value should be reported as
A change in accounting policy with retrospective restatement
An error correction with restatement of the financial statements or previous periods
A change in accounting estimate reported on a prospective basis
As a component of the current year's income
Question 8
It is defined as a market in which transactions for the asset or liability take place with sufficient
frequency and volume to provide pricing information on an ongoing basis
Active market
Principal market
Global market
Stock market
all of the following are characteristics of financial assets classified as loan and receivables, except:
The have fixed or determinable payments
The holder can recover substantially all of its investment (unless there has been credit deterioration)
They are quoted in an active market
The holder has demonstrated positive intention and ability to hold them to maturity
On July 1 2014, TCV purchased 10,000 of BPO’s 50,000 outstanding shares at a price of P6.00 per
share. BPO had earnings of P3,000 per month during 20141 and paid dividends of P 10,000 on March
1,2014 and 12,500 on December 1,2014. The market value of BPO’s shares was P6.501 per share on
December 31,2014.
11. Assuming that TGV accounts for its investments as held for trading investment, what would be the
total effect on TGV’s profit or loss for the year ended December 31,2014.
Ans. 7,500
12. Assuming that TGV accounts for its investments as Available for sale, what would be the total effect
on TGV’s profit or loss for the year ended December 31,2014.
Ans. 2,500

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Amortized cost is the initial recognition amount of the investment minus

a. Repayments and net of any reduction for uncollectibility

Which statement is correct about the effective interest method of amortization?

Securities could be classified as held-to-maturity are

Theory of Accounts - Financial Instruments (Average)

Theory of Accounts - Financial Instruments (Easy)

Theory of Accounts - Financial Instruments (Easy)

Theory of Accounts - Financial Instruments (Average)

Theory of Accounts - Financial Instruments (Average)

Theory of Accounts - Financial Instruments (Average)

Theory of Accounts - Financial Instruments (Easy)

Theory of Accounts - Financial Instruments (Average)

Theory of Accounts - Financial Instruments (Average)

Theory of Accounts - Financial Instruments (Easy)

Theory of Accounts - Financial Instruments (Easy)

Theory of Accounts - Financial Instruments (Average)

Theory of Accounts - Financial Instruments (Average)

Theory of Accounts - Financial Instruments (Average)

Theory of Accounts - Financial Instruments (Average)

Theory of Accounts - Financial Instruments (Average)

Theory of Accounts - Financial Instruments (Average)

Theory of Accounts - Financial Instruments (Average)

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Theory of Accounts - Investment In Associate (Average)

Theory of Accounts - Investment In Associate (Average)

Theory of Accounts - Investment In Associate (Easy)

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Practical Accounting 1 - Investment In Equity Securities (Difficult)

Practical Accounting 1 - Investment In Equity Securities (Average)

Practical Accounting 1 - Investment In Equity Securities (Average)

Practical Accounting 1 - Investment In Equity Securities (Average)

Practical Accounting 1 - Investment In Equity Securities (Average)

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Practical Accounting 1 - Investment In Equity Securities (Difficult)

Practical Accounting 1 - Investment In Equity Securities (Average)

Practical Accounting 1 - Investment In Equity Securities (Difficult)

Practical Accounting 1 - Investment In Equity Securities (Average)

Practical Accounting 1 - Investment In Equity Securities (Average)

Practical Accounting 1 - Investment In Equity Securities (Average)

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Practical Accounting 1 - Investment In Equity Securities (Average)

Practical Accounting 1 - Investment In Equity Securities (Average)

Practical Accounting 1 - Investment In Equity Securities (Average)

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Practical Accounting 1 - Receivable Financing (Easy)

Practical Accounting 1 - Receivable Financing (Average)

Practical Accounting 1 - Receivable Financing (Average)

Practical Accounting 1 - Receivable Financing (Average)

Practical Accounting 1 - Receivable Financing (Average)

Practical Accounting 1 - Receivable Financing (Average)

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Theory of Accounts - Financial Asset at Fair Value (Average)

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