Intermediate Accounting: Investments (Problems) 132 Questions + Test your knowledge. You have unlimited time to answer all the problems. Time yourself before you begin to see how ffast ast you can solve all the problems. This quiz only serves as a reviewer for the entire chapter of investments in practical accounting 1. This is strictly for 2BSA only. The questions are arranged randomly. Good luck!
Questions and Answers 1. On December 31, 2009, Otter Company had investments in trading securities as follows: COST 1,300,000
MARKET VALUE Kemo Company
Company 3,000,000
3,000,000 B. 2,900,000 C. 3,300,000 D.
1,000,000
900,000 1,100,000
1,100,000
Fenn
900,000
3,300,000Otter's December 31, 2009 balance sheet should report the
following trading securities at: A.
Man Company
2,800,000 2. On January 1, 2009, Fredo Company purchased marketable equity securities to be held as "trading" for P4,000,000. The company also paid commission to the stockbroker in t he amount of P100,000. No securities were sold during 2009. The market value of the equity securities on December 31, 2009 is P4,500,000.What amount of unrealized gain on these securities should be reported in the 2009 income statement? A. 0 B. 300,000 C. 400,000 D. 500,000 3. On January 1, 2009, Trix Company purchased marketable equity securities for P5,000,000 to be held as "available for sale". The company also paid P200,000 in the form of transaction costs. The equity securities had a market value of P4,600,000 on December 31, 2009. No securities were sold during 2009.What amount of unrealized loss on these securities should be reported in the 2009 statement of changes in equity? A. 200,000 B. 400,000 C. 600,000
2,800,000 2. On January 1, 2009, Fredo Company purchased marketable equity securities to be held as "trading" for P4,000,000. The company also paid commission to the stockbroker in t he amount of P100,000. No securities were sold during 2009. The market value of the equity securities on December 31, 2009 is P4,500,000.What amount of unrealized gain on these securities should be reported in the 2009 income statement? A. 0 B. 300,000 C. 400,000 D. 500,000 3. On January 1, 2009, Trix Company purchased marketable equity securities for P5,000,000 to be held as "available for sale". The company also paid P200,000 in the form of transaction costs. The equity securities had a market value of P4,600,000 on December 31, 2009. No securities were sold during 2009.What amount of unrealized loss on these securities should be reported in the 2009 statement of changes in equity? A. 200,000 B. 400,000 C. 600,000
D. 0 4. Rose Company was organized on January 1, 2009. At D ecember 31, 2009, Rose had the following investment portfolio of marketable equity securities: TRADING 4,500,000
AVAILABLE FOR SALE Aggregate Market Value
Unrealized Loss
Aggregate Cost
3,000,000
2,400,000
600,000
3,700,000
Net
800,000All of the declines are judged to
be temporary. What amount of unrealized loss should be shown as component of income and shareholders' equity? A. Income: 600,000 Shareholder's equity: 800,000 B. Income: 800,000 Shareholder's equity: 600,000 C. Income: 1,400,000 Shareholder's equity: 0 D. Income: 0 Shareholder's equity: 1,400,000 5. During 2009, Scotch Company purchased marketable equity securities to be held as "available for sale". Pertinent data follow: at 12/31/09 800,000 1,860,000
D
SECURITY
COST
360,000 600,000 2,960,000
F
MARKET VALUE 400,000
E
1,800,000 2,860,000Scotch appropriately
carries these securities at market value. The amount of unrealized loss on these securities in Scotch's 2009 income statement should be: A. 200,000 B.
140,000 C. 100,000 D. 0 6. On its December 31, 2008 balance sheet, Fry Company appropriately reported a P100,000 unrealized loss. There was no change during 2009 in the composition of Fry's portfolio of marketable equity securities held as "available for sale". Pertinent data are as follows: SECURITY
COST
1,200,000 500,000
MARKET VALUE at 12/31/09 1,300,000
C
3,700,000
B
1,600,000
A
900,000 1,500,000
3,300,000What amount of loss on these securities should be
included in Fry's statement of shareholders' equity for the year ended December 31, 2009? A. 0 B. 100,000 C. 300,000 D. 400,000 7. During 2008 Carr Company purchased marketable equity securities as a trading investment. For the year ended December 31, 2008, the company recognized an unrealized loss of P230,000. There were no security transactions during 2009. Pertinent information at December 31, 2009 is as follows: SECURITY 2,450,000
COST 2,300,000
B
MARKET VALUE 1,800,000
A
1,820,000
4,250,000
4,120,000In its 2009 income
statement, Carr should report A. Unrealized loss of P100,000 B. Unrealized loss of P130,000 C. Unrealized gain of P100,000 D. Unrealized gain of P130,000 8. The following information was extracted from December 31, 2009 balance sheet of Phil Company:Noncurrent assets: Available for sale securities (carried at market) 3,700,000Shareholders' equity:
Unrealized loss on available for sale securities
( 300,000)Historical cost of the long-term investment in available for sale securities was A. 3,700,000 B. 3,400,000 C. 4,300,000 D. 4,000,000 9. La Goon Company purchased the following securities during 2009: CLASSIFICATION
COST
MARKET VALUE 12/31/09Security A
Trading
900,000
1,000,000Security B
Trading
1,000,000
1,600,000On July 31, 2010, the company sold all of the shares of security B for a total of P1,100,000. As of December 31, 2010, the shares of security A had a market value of P600,000. No other activity occurred during 2008 in relation to the trading security portfolio. What is the gain or loss on the sale of security B on July 31, 2010? A. 500,000 gain B. 100,000 gain C. 500,000 loss D. 100,000 loss 10. During 2009, Lava Company purchased trading equity securities as a short-term investment. The cost and market value at December 31, 2009 were as follows: SECURITY MARKET VALUEA - 1,000 shares 1,700,000 2,900,000
200,000
1,600,000C - 20,000 shares 5,000,000
300,000B - 10,000 shares 3,100,000 4,800,000Lava sold 10,000 shares of
Company B stock on January 15, 2010, for P130 per share, incurring P50,000 in brokerage commission and taxes. On the sale, Lava should report a loss of A. 300,000 B. 350,000 C. 400,000 D.
COST
450,000 11. On January 1, 2009 Libya Company purchased equity securities to be held as "available for sale". On December 31, 2009, the cost and market value were: MARKETSecurity X
COST
2,000,000
3,000,000
2,400,000Security Y
3,500,000Security Z
5,000,000
4,900,000On July 1, 2010, Libya Company sold Security X for P2,500,000. What amount of gain on sale of AFS securities should be reported in the 2010 income statement? A. 0 B. 100,000 C. 400,000 D. 500,000 12. On January 1, 2009, Cage Company purchased equity securities to be held as "available for sale". The cost and market value of the securities were: 12/31/09
COST
MARKET VALUE 12/31/10Security R
--------Security S 5,000,000
4,000,000 4,600,000
3,500,000
3,000,000
MARKET VALUE 3,200,000 3,700,000Security T
4,700,000On January 31, 2010, Cage
Company sold Security R for P3,500,000.What is the gain or loss on the sale of Security R on January 31, 2010? A. 300,000 gain B. 500,000 gain
C. 300,000 loss D. 500,000 loss 13. On January 1, 2009, Cage Company purchased equity securities to be held as "available for sale". The cost and market value of the securities were: 12/31/09
MARKET VALUE 12/31/10 Security R
-------- Security S 5,000,000
4,000,000 4,600,000
COST 3,000,000
MARKET VALUE 3,200,000
3,500,000 3,700,000 Security T 4,700,000 On January 31, 2010, Cage
Company sold Security R for P3,500,000.What amount unrealized loss on these securities should be reported in the 2010 statement of changes in equity? A. 0 B. 600,000 C. 300,000 D. 200,000 14. During 2009, Giant Company purchased trading securities as a short-term investment. The cost of the securities and their market value on December 31, 2009 follow:SECURITY COST B
MARKET VALUE 1,000,000
A
650,000 540,000
C
750,000 2,200,000
2,260,000At the beginning of 2009, Giant had a zero balance in the market adjustment for trading securities account. Before any adjustment related to these trading securities, Giant had net income of P3,000,000. What is the net income after making any necessary trading security adjustment?
A. 2,540,000 B. 2,700,000 C. 3,000,000 D. 3,300,000 15. On January 1, 2009, Hemingway Company acquired 200,000 ordinary shares of Universe Company for P9,000,000. At the time of purchase, Universe Company had outstanding 800,000 shares with a book value of P36,000,000. On December 31, 2009, the following events took place: * Universe Company reported net income of P1,800,000 for the calendar year 2009. * Hemingway Company received from Universe Company a dividend of P0.75 per ordinary share. * The market value of Universe Company share had temporarily declined to P40.The investment in Universe Company is classified as available for sale. What is the carrying value of the investment on December 31, 2009? A. 8,000,000 B. 9,000,000 C. 9,300,000 D. 9,450,000 16.
Letterman Company reported the following selected balances on its financial statements for each of the three years 2009 - 2011: 2011Market adjustment -
2009
Trading securities
(1,200,000)Market adjustment -
5,500,000
Available for sale securities
2010 3,750,000
(1,300,000)
900,000
1,350,000How much net unrealized loss should be shown in the 2011 income statement? A. 1,200,000 B. 3,600,000 C. 4,500,000 D. 4,950,000 17. Neil Company held the following marketable securities as trading investments at December 31, 2009:
COST
of Company A
nonredeemable preference
825,0007,000 shares of Company B mandatory 625,000
MARKET VALUE100,000 shares
share capital, par value P75
preference share capital, par
redemption by the issuer at par on
value P100, subject to
December 31, 2010
1,465,000
1,450,000In the
December 31, 2009 balance sheet, trading securities should be reported at: A. 1,400,000 B. 1,450,000 C. 1,465,000 D.
775,000 690,000
1,475,000 18. Data regarding Bondoc Company's trading securities follow: COST
MARKETDecember 31, 2008
4,600,000December 31, 2009
5,000,000
5,000,000
5,800,000Differences
between cost and market value are considered temporary. The income statement for 2009 should report unrealized gain on these securities at A. 0 B. 400,000 C. 800,000 D. 1,200,000 19. Data regarding Baggy Company's available for sale securities follow: COST
MARKETDecember 31, 2008
3,500,000December 31, 2009
4,000,000
4,000,000 3,200,000Differences
between cost and market value are considered temporary. The shareholders' equity section of the December 31, 2009 balance should report unrealized loss on these securities at: A. 0 B. 300,000 C. 500,000
D. 800,000 20. Data regarding Maggy Company's available for sale securities follow: COST
MARKETDecember 31, 2008
5,200,000December 31, 2009
5,000,000
5,000,000
5,900,000Difference
between cost and market value are considered temporary. The December 31, 2009 statement of shareholders' equity should report unrealized gain on these securities at A. 0 B. 200,000 C. 700,000 D. 900,000 21. The following data pertain to the equity investments held by Doritos Company classified as "available for sale":Cost 2008
2,400,000
3,000,000Market value: December 31, 2009
December 31,
3,200,000What amount
should be reported as unrealized gain in December 31, 2009 shareholders' equity? A. 0 B. 200,000 C. 800,000
D. 1,900,000 22. Banquet Company began operations on January 1, 2009. The following information pertains to the company's December 31, 2009 portfolio of equity securities: TRADING
AVAILABLE FOR SALEAggregate cost
6,000,000Aggregate market value lower of cost or market value applied to
4,000,000
3,700,000
5,500,000Aggregate
each security
3,500,000
5,300,000The market declines are judged to be "other than temporary". What amount should Banquet report as total loss on these securities in its 2009 income statement? A. 0 B. 300,000 C. 500,000 D. 800,000 23. Information regarding Trinity Company's portfolio of available for sale securities is as follows:Aggregate cost - December 31, 2009 - December 31, 2009 260,000Net realized gains during 2009
1,700,000Unrealized gains 40,000Unrealized losses - December 31, 2009 300,000On January 1,
2007 Trinity Company reported an unrealized loss of P15,000 as a component of shareholders' equity. In its December 31, 2009 shareholders' equity section of the balance sheet, Trinity Company should report what amount of unrealized loss on these securities? A. 0 B.
205,000 C. 220,000 D. 260,000 24. Quezon Company acquired investments in available for sale equity securities for P5,000,000 on January 1, 2008. On December 31, 2009, Quezon decided to reclassify the available for sale securities as nonmarketable equity securities. On such date, a reliable measure of fair value of the securities is no longer available. The market value of the securities was P4,500,000 on December 31, 2008. In its 2009 statement of changes in equity, Quezon should report unrealized loss on these securities at: A. 0 B. 200,000 C. 250,000 D. 500,000 25. Leviathan Company had investments in bonds with face value of P8,000,000. The bonds were acquired at face value on January 1, 2008 and classified as "available for sale". The bond investment had the following market value: 7,500,000
December 31, 2008
December 31, 2009
7,200,000On December 31, 2009,
Leviathan decided to reclassify the bong investment as "held to maturity" as a result of a change in intention and ability. What amount should be reported as unrealized loss on these securities in the 2009 statement of changes in equity?
A. 0 B. 300,000 C. 500,000 D. 800,000 26. Sumo Company had investments in marketable debt securities which were acquired at the face value of P6,500,000 and classified as available for sale. On June 30, 2009, Sumo decided to hold the investments to maturity and accordingly reclassified them from the available for sale category on that date. The investments' market value was P5,750,000 at December 31, 2008, P5,300,000 at June 30, 2009, and P4,900,000 at December 31, 2009.What amount of loss from investments should Sumo report in its 2009 income statement? A. 0 B. 450,000 C. 850,000 D. 1,200,000 27. Sumo Company had investments in marketable debt securities which were acquired at the face value of P6,500,000 and classified as available for sale. On June 30, 2009, Sumo decided to hold the investments to maturity and accordingly reclassified them from the available for sale
category on that date. The investments' market value was P5,750,000 at December 31 , 2008, P5,300,000 at June 30, 2009, and P4,900,000 at December 31, 2009.What amount should Sumo report as unrealized loss on these securities in its June 30, 2007 statement of shareholders' equity? A. 400,000 B. 450,000 C. 1,200,000 D. 1,600,000 28. On January 1, 2008, Broker Company purchased "held to maturity" bonds with face value of P5,000,000 for P4,562,000. The bonds are purchased to yield 10% interest. The stated interest rate on the bonds is 8%, payable annually on December 31. On December 31, 2009, Broker Company decided to reclassify the bonds as "available for sale". On such date, the carrying value of the bonds is P4,680,000 after amortization of discount using the effective interest method. The market value of the bonds on December 31, 2009 is P5,200,000.What amount of unrealized gain on these securities should be reported in the 200 7 statement of changes in equity? A. 0 B. 200,000 C. 520,000 D.
638,000 29. The following investments are classified as trading unless otherwise stated and held by Peter Company as of December 31, 2009, its first year of operation. COST
MARKETMarketable equity securities:
2,000,000 880,000
1,900,000
London Company
Peter Company
Company
Wicker Company 1,000,000
1,500,000 2,500,000
2,400,000
2,300,000
Dixie Company
2,500,000
2,700,000
1,500,000
1,250,000Investment in stock rights
Judy Company
500,000
400,000Marketable debt securities:
Emu Company (convertible
bonds) 4,500,000
3,000,000
Kangaroo Company
Eden
3,700,000
(redeemable preference share)
Moore Company
4,200,000Investment in Dixie Company represents 30% of outstanding
preference share capital. Total income reported by Dixie for 2009 amounted to P10,000,000.Peter Company intends to hold its investment in Moore Company bonds to maturity.How much income related to the investments should be reported in Peter Company's income statement for 2009? A. 130,000 B. 730,000 C. 2,870,000 D. 3,000,000 30. On July 1, 2009, Salt Company exchanged a truck for 25,000 ordinary shares of Alas Company. On that date, the truck's carrying amount was P2,500,000 and its fair value was P3,000,000. Also, the book value of Alas' share was P60. On December 31, 2009, Alas had 250,000 ordinary shares outstanding and its book value per share was P50. What amount should report in its December 31, 2009 balance sheet as investment in Alas?
A. 1,250,000 B. 1,500,000 C. 2,500,000 D. 3,000,000 31. On January 1, 2009, XYZ Company purchased 40,000 shares of T UV at P100 per share. Brokerage fees amounted to P120,000. A P5 dividend per share of TUV had been declared on December 15, 2008, to be paid on March 31, 2009 to shareholders of record on January 31, 2009. No other transactions occurred in 2009 affecting the investment in TUV shares. The cost of the investment is: A. 3,800,000 B. 3,920,000 C. 4,000,000 D. 4,120,000 32. On January 1, 2008, Eve Company purchased as a long-term investment on 100,000 ordinary shares of Miles Company for P40 a share. On December 31, 2008, the market price of Miles' share was P35, reflecting a temporary decline in market price. On December 28, 2009 Eve sold
80,000 shares of Miles Company for P30 a share. For the year ended December 31, 2009, Adam should report a loss on disposal of long-term investment of: A. 400,000 B. 800,000 C. 900,000 D. 1,000,000 33. Corn Company purchased 10,000 shares representing 2% ownership of Row Company on February 15, 2009. Corn received a stock dividend of 2,000 shares on March 31, 2009, when the carrying amount per share on Row's books was P350 and the market value per share was P400. Row paid a cash dividend of P15 per share on September 15, 2009. In Corn's income statement for the year ended October 31, 2009, what amount should Corn report as dividend income? A. 150,000 B. 180,000 C. 880,000 D. 980,000 34.
Duff Company acquired 20,000 ordinary shares of Post Company on October 1, 2008, at a cost of P4,400,000. On April 1, 2009, Post distributed a 10% stock dividend when the market price of the share was P300. On December 30, 2009, Duff sold 2,000 shares for P640,000. For the year ended December 31, 2007, how much should Duff report as gain on sale? A. 40,000 B. 240,000 C. 400,000 D. 640,000 35. During 2008, Lawin Company bought the shares of Burnwood Company as follows:June 1 20,000 shares @ P100 P120
2,000,000December 1
30,000 shares @
3,600,000
5,600,000The transactions for 2009 are:January 10 - Received cash dividend at P10 per share.January 20 - Received 20% stock dividend.December 10 - Sold 30,000 shares at P125 per share.The gain on sale of the shares assuming FIFO approach is: A. 150,000 B. 550,000 C. 950,000 D. 1,150,000
36. Woody Company owns 20,000 shares of Buzz Company's 200,000 shares of P100 par, 6% cumulative, nonparticipating preference share capital and 10,000 shares representing 2% ownership of Buzz's ordinary share capital. During 2009, Buzz declared and paid preference dividends of P2,400,000. No dividends had been declared or paid during 2008. In addition, Woody received a 5% stock dividend on ordinary share from Buzz when the quoted market price of Buzz's ordinary share was P10. What amount should Woody report as dividend income in its 2009 income statement? A. 120,000 B. 125,000 C. 240,000 D. 245,000 37. Knight Company received dividends from its share investments during the year ended December 31, 2009 as follows:
*
A stock dividend of 4,000 shares from Parrot Company on
July 31, 2009 when the market price of Parrot's share was P20. Knight owns less than 1% of Parrot's share capital.
*
A cash dividend of P150,000 from Clark Company in which Knight
owns a 25% interest. A majority of Clark's directors are also directors of Knight.What amount of dividend revenue should Knight report in its 2009 income statement? A. 0 B. 80,000 C.
150,000 D. 230,000 38. Information pertaining to dividends from Rex Company's share investments for the year ended December 31, 2009, follows:
*
On September 1, Rex received a P500,000 cash dividend
from Silo Company in which Rex owns a 30% interest. A majority of Rex's directors are also directors of Silo.
*
On October 1, Rex received a P60,000 liquidating dividend from
Caveman Company. Rex owns a 5% interest in Caveman Company.
*
Rex owns a 2%
interest in Spear Company, which declared a P2,000,000 cash dividend on November 15, 2009, to shareholders of record on December 15, 2009, payable on January 15, 2010.What amount should Rex report as dividend income in its income statement for the year ended December 31, 2009? A. 40,000 B. 100,000 C. 560,000 D. 600,000 39. In 2009, Neil Company held the following ordinary share investments:
*
30,000 shares of
Ash Company's 100,000 outstanding shares. Neil's level of ownership gives it the ability to exercise significant influence over the financial and operating policies of Ash.
*
6,000
shares of Pikachu Company's 300,000 outstanding shares.During 2009, Neil received the following distributions from its investments:November 15 - P300,000 cash dividend from Ash.November 30 - P15,000 cash dividend from Pikachu.December 31 - 3% stock dividend from Pikachu. The closing price of the share on a national exchange was P150.What amount of dividend revenue should Neil report for 2009?
A. 15,000 B. 42,000 C. 315,000 D. 342,000 40. On March 1, 2009, Evan Company purchased 10,000 ordinary shares of Bruce at P80 per share. On September 30, 2009, Evan received 10,000 stock rights to purchase an additional 10,000 shares at P90 per share. The stock rights had an expiration date of February 1, 2010. On September 30, 2009, Bruce's share had a market value ex-right of P95 and the stock right had a market value of P5. What amount should Evan report in its September 30, 2009 balance sheet for investment in stock rights? A. 40,000 B. 50,000 C. 100,000 D. 150,000 41. Sushi Company owns 30,000 ordinary shares of Sashimi Company acquired on July 31, 2009, at a total cost of P1,100,000. On December 1, 2009, Sushi received 30,000 stock rights from Sashimi. Each right entitles the holder to acquire one share at P45. The market price of
Sashimi's share on this date, ex-right, was P50 and the market price of each right was P5. Sushi sold its rights the same date at P5 a right less a P10,000 commission. The gain from the sale of the rights should be reported by Sushi at: A. 40,000 B. 50,000 C. 140,000 D. 150,000 42. On January 1, 2009, Fork Company purchased 50,000 ordinary shares of Ovaltine Company for P3,600,000. On December 31, 2009, Fork received 50,000 stock rights from Ovaltine. Each right entitles the holder to acquire on share for P85. The market price of Ovaltine's share was P100 immediately before the rights were issued, and P90 a share immediately after the rights were issued. Fork sold its rights on December 31, 2009 for P10 a right. Fork's gain from the sale of the rights is: A. 0 B. 100,000 C. 140,000 D. 500,000 43.
Eve Company owns 50,000 ordinary shares of Blend Company, which has several hundred thousand shares publicly traded. These 50,000 shares were purchased by Eve in 2007 for P100 per share. On August 30, 2009, Blend distributed 50,000 stock rights to Eve. Eve was entitled to buy one new share of Blend Company for P90 cash and two of these rights. On August 30, 2009, each share had a market value of P 132 ex-right, and each right had a market value of P18. What cost should be recorded for each new share that Eve acquired by exercising the rights? A. 90 B. 114 C. 126 D. 132 44. On February 15, 2009, Bart Company purchased 20,000 shares of Homer Company's newly issued 6% cumulative P75 par preference share capital for P1,520,000. Each share carried one detachable share warrant entitling the holder to acquire at P10, one ordinary share of Homer Company. On February 15, 2009, the market price of the preference share ex-warrant was P72 and the market price of the share warrant was P8. On December 31, 2009, Bart sold all the share warrants for P205,000. The gain on the sale of the share warrants was: A. 0 B. 5,000 C. 45,000 D.
53,000 45. Three Kings Company invested in shares of Eastern Company acquired as follows: NUMBER OF SHARES 1,800,0002008
COST2007
22,500 37,500
3,300,000In 2009, Three
Kings Company received 60,000 rights to purchase Eastern share at P80. Five rights are required to purchase one share. At issue date, rights has a market value of P4 each and share was selling ex-right at P96. Three Kings Company used rights to purchase 9,000 additional shares of Eastern Company and allowed the rights not exercised to lapse. In determining the stock rights exercised, assume the use of the first-in, first-out method. The amount to be debited to investment account for the purchase of the 9,000 additional shares is: A. 720,000 B. 824,000 C. 871,200 D. 873,000 46. On January 1, 2009, Kent Company purchased 20% of Luther Company's ordinary shares outstanding for P6,000,000. During 2009, Luther reported net income of P7,000,000 and paid cash dividend of P4,000,000. The balance in Kent's investment in Luther Company account at December 31, 2009 should be: A. 5,200,000 B. 6,000,000
C. 6,600,000 D. 7,400,000 47. On January, 1 2008, Wayne Company bought 15% of Parrot Company's ordinary shares outstanding for P6,000,000. Wayne appropriately accounts for this investment by the cost method. The following data concerning Parrot are available for the years ended Decembe r 31, 2008 and 2009: income None
3,000,000
2008 2009Net 9,000,000Cash dividend paid
10,000,000In its income statement for the year ended December 31, 2009, how
much should Wayne report as income from this investment? A. 450,000 B. 1,350,000 C. 1,500,000 D. 1,800,000 48. On January 1, 2008, Tough Company acquired 10% of Complex Company's ordinary shares outstanding for P6,000,000. Tough appropriately accounts for this investment by the cost method. Complex Company reported the following for the years ended December 31, 2008 and 2007: 400,000
NET INCOME 02009
CASH DIVIDEND2008 1,200,000
1,800,000In its income statement for the year ended December 31, 2009, Easy Company should report dividend income at: A.
0 B. 120,000 C. 160,000 D. 180,000 49. In January 2009, Fatty Company acquired 20% of the outstanding ordinary shares of David Company for P8,000,000. This investment gave Fatty the ability to exercise significant influence over David. The book value of the acquired shares was P6,000,000. The excess of cost over book value was attributed to a depreciable asset which was undervalued on David's balance sheet and which had a remaining useful life of ten years.For the year ended December 31, 2009, David reported net income of P1,800,000 and paid cash dividends of P400,000 and thereafter issued 5% stock dividend. What is the proper carrying value of Fatty's investment in David at December 31, 2009? A. 7,720,000 B. 7,800,000 C. 8,000,000 D. 8,080,000 50. On January 1, 2009, Bell Company paid P18,000,000 for 50,000 ordinary shares of Base Company which represent a 25% interest in the net assets of Base. The acquisition cost is equal
to the book value of the net assets acquired. Bell has the ability to exercise significant influence over Base. Bell received a dividend of P35 per share from Base in 2009. Base reported net income of P9,600,000 for the year ended December 31, 2009. In its December 31, 2009 balance sheet, Bell should report the investment in Base Company at: A. 18,000,000 B. 18,650,000 C. 20,400,000 D. 22,150,000 51. On January 1, 2009, Weller Company purchased 10% of Pea Company's outstanding ordinary shares for P4,000,000. Weller is the largest single shareholder in Pea and Weller's officers are a majority of Pea's board of directors. Pea reported net income of P5,000,000 for 2009 and paid dividends of P1,500,000. In its December 31, 2009 balance sheet, what amount should Weller report as investment in Pea? A. 3,850,000 B. 4,000,000 C. 4,350,000 D. 4,500,000 52.
On January 1, 2009, Dryer Company acquired as a lo ng-term investment a 20% ordinary share interest in Epson Company. Dryer paid P7,000,000 for this investment when the fair value of Epson's net assets was P35,000,000. Dryer can exercise significant influence over Epson's operating and financial policies. For the year ended December 31, 2009, Epson reported net income of P4,000,000 and declared and paid cash dividends of P1,600,000. How much revenue from this investment should Dryer report for 2009? A. 320,000 B. 480,000 C. 800,000 D. 1,120,000 53. On July 1, 2009, Dino Company purchased 30,000 shares of Mammoth Company's 100,000 outstanding ordinary shares for P200 per share. On December 15, 2009, Mammoth paid P400,000 in dividends to its ordinary shareholders. Mammoth's net income for the year ende d December 31, 2009 was P1,200,000, earned evenly throughout the year. In its 2009 income statement, what amount of income from this investment should Dino report? A. 60,000 B. 120,000 C. 180,000 D.
360,000 54. On April 1, 2009, Zen Company purchased 40% of the outstanding ordinary shares of Ying Company for P10,000,000. On that date, Ying's net assets were P20,000,000 and Zen cannot attribute the excess of the cost of its investment in Ying over its equity in Ying's net assets to any particular factor.Ying's 2009 net income is P5,000,000. Zen plans to retain its investment in Ying indefinitely. Zen accounts for its investment in Ying by the equity method. The maximum amount which could be included in Zen's 2009 income before tax to reflect Zen's "equity in net income of Ying" is: A. 1,400,000 B. 1,500,000 C. 1,850,000 D. 2,000,000 55. On January 1, 2009, Ron Company purchased 40% of the outstanding ordinary shares of Kim Company, paying P6,400,000 when the book value of the net assets of Kim Company equaled P12,500,000. The difference was attributed to equipment which had a book value o f P3,000,000 and a fair market value of P5,000,000 and to building which had a book value of P2,500,000 and a fair value of P4,000,000. The remaining useful life of the equipment and building was 4 years and 12 years, respectively. During 2009, Kim Company reported net income of P5,000,000 and paid dividends of P2,500,000. Ron Company shall report investment income for 2009 at: A. 1,000,000 B.
1,750,000 C. 1,800,000 D. 2,000,000 56. On January 1, 2009, Ken Company purchased 30% interest in Barbie Company for P2,500,000. On this date Barbie's shareholders' equity was P5,000,000. The carrying amounts of Barbie's identifiable net assets approximated their fair values, except for land whose fair value exceeded its carrying amount by P2,000,000. Barbie reported net income of P1,000,000 for 2009 and paid no dividends. Ken accounts for this investment using the equity method. In its December 31, 2009 balance sheet, what amount should Ken report as investment in associate? A. 2,100,000 B. 2,200,000 C. 2,760,000 D. 2,800,000 57. Seed Company bought 40% of Adam Company's outstanding ordinary shares on January 1, 2009, for P4,000,000. The carrying amount of Adam's net assets at the purchase date totaled P9,000,000. Fair values and carrying amounts were the same for all items except for plant and inventory, for which fair values exceeded their carrying amounts by P900,000 and P100,000, respectively. The plant has an 18-year life. All inventory was sold during 2009. During 2009, Adam reported net income of P1,200,000 and paid a P200,000 cash dividend. What amount should Seed report in its income statement from its investment in Adam for the year ended December 31, 2009?
A. 320,000 B. 360,000 C. 420,000 D. 480,000 58. On January 1, 2009, Annie Company purchased 20% of the outstanding ordinary shares of Duke Company for P4,000,000 of which P1,000,000 was paid in cash and P3,000,000 is payable with 12% annual interest on December 31, 2010. Annie also paid P500,000 to a business broker who helped find a suitable business and negotiated the purchase.At the time of acquisition, the fair value of Duke's identifiable assets and liabilities were equal to their carrying values except for an office building which had a fair value in excess of book value of P2,000,000 and an estimated life of 10 years. Duke's shareholders' equity on January 1, 2009 was P 13,000,0000.During 2009, Duke reported net income of P5,000,000 and paid dividend of P2,000,000. What amount of income should Annie Company report for 2009 as a result of the investment? A. 620,000 B. 810,000 C. 885,000 D. 960,000 59.
On January 1, 2009, Southern Company purchased 40% of the outstanding ordinary shares of Northern Company for P3,500,000 when the net assets of Northern amounted to P7,000,000. At acquisition date, the carrying amounts of the identifiable assets and liabilities of Northern were equal to their fair value, except for equipment for which the fair value was P1,500,000 greater than its carrying amount and inventory whose fair value was P500,000 greater than its cost. The equipment has a remaining life of 4 years and the inventory was all sold during 2009. Northern Company reported net income of P4,000,000 for 2009 and paid no dividends during 2009. The maximum amount which could be included in Southern's 2009 income before tax to reflect Southern's "equity in earnings of Northern Company" should be: A. 1,250,000 B. 1,350,000 C. 1,600,000 D. 1,700,000 60. On January 1, 2009, Beijing Company purchased 30,000 shares of Lake Company's 200,000 outstanding ordinary shares for P6,000,000. On that date, the carrying amount of the acquired shares on Lake's books was P4,000,000. Beijing attributed the excess of cost over carrying amount to patent. The patent has a remaining useful life of 10 years.During 2009, Beijing's officers gained a majority on Lake's board of directors. Lake reported earnings of P5,000,000 for the year ended December 31, 2009, and declared and paid dividend of P3,000,000 during 2009. On December 31, 2009, Lake's ordinary share was trading over-the-counter at P15.What is the carrying value of the investment in Lake's Company on December 31, 2009? A. 6,000,000 B. 6,100,000
C. 6,300,000 D. 6,750,000 61. On July 1, 2009, Miles Company purchased 25% of Wally Company's outstanding ordinary shares and no goodwill resulted from the purchase. Miles appropriately carries this investment at equity and the balance in Miles' investment account was P1,900,000 at December 31, 2009. Wally reported net income of P1,200,000 for the year ended December 31, 2009, and paid dividend totaling P480,000 during 2009. How much did Miles pay for its 25% interest in Wally? A. 1,720,000 B. 1,870,000 C. 2,020,000 D. 2,170,000 62. Blue Company owns 30% of the outstanding ordinary shares and 100% of the outstanding noncumulative nonvoting preference shares of Pink Company. In 2009, Pink declared dividend of P1,000,000 on its ordinary share capital and P600,000 on its preference share capital. What amount of dividend revenue should Blue report in its income statement for the year ended December 31, 2009? A. 0 B.
300,000 C. 600,000 D. 900,000 63. On January 1, 2009, Autobot Company bought 30% of the outstanding ordinary shares of Decepticon Company for P5,000,000 cash. Autobot Company accounts for this investment by the equity method. At the date of acquisition, Decepticon Company's net assets had a carrying value of P12,000,000. Assets with an average remaining life of five years have a current market value that is P2,500,000 in excess of their carrying value. The remaining difference between the purchase price and the value of the underlying equity cannot be attributed to any identifiable tangible or intangible asset. Accordingly, the remaining difference is allocated to goodwill. At the end of 2009, Decepticon Company reported net income of P4,000,000. During 2009, Decepticon Company declared and paid cash dividends of P1,000,000. What is the balance of Autobot Company's investment in Decepticon Company on December 31, 2009? A. 5,000,000 B. 5,400,000 C. 5,750,000 D. 5,900,000 64. Tom Company purchased 35% of Jerry Company on January 1, 2009 for P11,200,000 when Jerry's book value was P32,400,000. On that day, the market value of the net assets of Jerry Company equaled their book value with the following exceptions: BOOK
MARKETEquipment
7,000,000
5,600,000Building
1,600,000
2,600,000The
equipment has a remaining useful life of 5 years, and the building has a remaining useful life of 10 years. Jerry reported net income of P3,200,000 and cash dividends of P1,000,000 for 2009. What is the investment income that will be reported in Tom Company for the year 2009? A. 987,000 B. 1,120,000 C. 1,183,000 D. 1,260,000 65. On January 1, 2009, Beige Company purchased 25,000 shares of the 100,000 outstanding shares of Falls Company for a total of P1,000,000. At the time of the purchase, the book value of Falls Company's equity was P3,000,000. Falls Company assets having a market value greater than book value at the time of the acquisition were as follows: VALUE
MARKET VALUE
500,000
REMAINING LIFEInventory
Less than 1 yearEquipment
5 yearsGoodwill
0
2,000,000 400,000
BOOK 400,000 2,500,000 IndefiniteFalls
Company's net income in 2009 was P700,000. Dividends per share paid by Falls Company amounted to P3 in 2009. What is the balance of Beige Company's investment in Falls Company on December 31, 2009? A. 1,000,000 B. 1,050,000 C. 1,075,000
D. 1,100,000 66. Uno Company acquired 20,000 shares of Dos Company on January 1, 2009 at P120 per share. Dos Company had 80,000 shares outstanding with a book value of P8,000,000. The difference between the book value and fair value of Dos Company on January 1, 2009 is att ributable to a broadcast license intangible asset. Dos Company recorded earnings of P3,600,000 and P3,900,000 for 2009 and 2010, respectively, and paid per-share dividend of P16 in 2009 and P20 in 2010. Uno Company has a 20-year straight-line amortization policy for the broadcast license. What is the balance of Uno Company's investment in Dos Company on December 31, 2010? A. 2,400,000 B. 3,515,000 C. 3,555,000 D. 4,275,000 67. Seko Company has 100,000 ordinary shares outstanding. Kobe Company acquired 30,000 shares of Seko for P120 per share in 2007. The securities are being held as long-term investment. Changes in retained earnings for Seko for 2009 and 2010 are as follows:Retained earnings (deficit), January 1, 2009 700,000Retained earnings, December 31, 2009 for 2010 31, 2010
(500,000)Net income for 2009 200,000Net income 800,000Cash dividend paid on December
(400,000)Retained earnings, December 31, 2010
600,000What is the balance of Kobe Company's investment in Seko Company on December 31, 2010? A.
3,600,000 B. 3,780,000 C. 3,930,000 D. 4,080,000 68. On January 1, 2009 Mary Company purchased 40% of the outstanding ordinary shares of Letter Company paying P2,560,000 when the book value of the net assets of Letter equaled P5,000,000. The difference was attributed to equipment which had a book value of P1,200,000 and a fair value of P2,000,000, and to building with a book value of P1,000,000 and a fair value of P1,600,000. The remaining useful life of the equipment and building was 4 years and 12 years, respectively. During 2009, Letter reported net income of P1,600,000 and paid dividends of P1,000,000. What is the carrying amount of the investment in Letter Company on December 31, 2009? A. 2,550,000 B. 2,700,000 C. 2,800,000 D. 3,050,000 69. Chalk Company acquired a 40% interest in Film Company for P1,700,000 on January 1, 2009. The shareholder's equity of Film Company on January 1 and December 31, 2009 is presented
below. 3,000,000
JANUARY 1
DECEMBER 31Share capital
3,000,000Revaluation surplus
1,300,000Retained earnings
1,000,000
1,500,000On January
1, 2009, all the identifiable assets and liabilities of Film Company were recorded at fair value. Film Company reported profit of P650,000, after income tax expense of P350,000 and paid dividend of P150,000 to shareholders during the current year.The revaluation surplus is the result of the revaluation of land recognized by Film Company on December 31, 2009. Additionally, depreciation is provided by Film Company on the diminishing balance method whereas Chalk Company uses the straight line. Had Fil m Company used the straight line, the accumulated depreciation would be increased by P200,000. The tax rate is 35%What is the carrying value of Chalk Company's investment in Film Company on December 31, 2009? A. 1,700,000 B. 1,900,000 C. 2,320,000 D. 2,420,000 70. Mass Company owns 20% of Dub Company's preference share capital and 80% of its ordinary share capital. Dub's square capital outstanding at December 31, 2009 is as follows:10% cumulative preference share capital
5,000,000Ordinary share capital
7,000,000Dub reported net income P3,000,000 for the year ended December 31, 2009. What amount should Mass record as equity in earnings of Dub for the year ended December 31, 2009. A. 2,000,000 B. 2,100,000
C. 2,300,000 D. 2,400,000 71. Dude Company purchased 10% of Pal Company's 100,000 outstanding ordinary shares on January 1, 2009 for P500,000. On December 31, 2009, Dude purchased an additional 20,000 shares of Pal for P1,500,000. The was no goodwill as a result of either acquisition, and Pal had not issued any additional shares during 2009. Pal reported earnings of P3,000,000 for 2009. What amount should Dude report in its December 31, 2009 balance sheet as investment in Pal? A. 1,700,000 B. 2,000,000 C. 2,300,000 D. 2,900,000 72. On January 1, 2008, Massive Company acquired 10% of the outstanding ordinary shares of Quarter Company. On January 1, 2009, Massive gained the ability to exercise significant influence over financial and operating control of Quarter by acquiring an additional 20% of Quarter's outstanding ordinary shares. The two purchases were made at prices proportionate to the value assigned to Penny's net assets, which equaled their carrying amounts. For the years ended December 31, 2008 and 2009, Quarter reported the following: 2008
2009Dividend paid
3,000,000Net income
2,000,000 6,000,000
6,500,000In 2009,
what amounts should Massive report as current year investment income and as an adjustment, before income tax, to 2008 investment income?
A. 2009 investment income 1,950,000 Adjustment to 2008 investment income 1,600,000 B. 2009 investment income 1,950,000 Adjustment to 2008 investment income 1,000,000 C. 2009 investment income 1,950,000 Adjustment to 2008 investment income 400,000 D. 2009 investment income 1,050,000 Adjustment to 2008 investment income 400,000 73. Granny Company acquired 30% of Seahorse Company's voting share capital for P2,000,000 on January 1, 2009. Granny's 30% interest in Seahorse gave Granny the ability to exercise significant influence over Seahorse's operating and financial policies. During 2009, Seahorse earned P800,000 and paid dividend of P500,000. Seahorse reported earnings of P1,000,000 for the 6 months ended June 30, 2010, and P2,000,000 for the year ended December 31, 2010. On July 1, 2010, Granny sold half of its stock in Seahorse for P1,500,000 cash. Seahorse paid dividend of P600,000 on October 1, 2010.Before income tax, what amount should Granny include in its 2009 income statement as a result of the investment? A. 150,000 B. 240,000 C. 500,000 D. 800,000 74.
Granny Company acquired 30% of Seahorse Company's voting share capital for P2,000,000 on January 1, 2009. Granny's 30% interest in Seahorse gave Granny the ability to exercise significant influence over Seahorse's operating and financial policies. During 2009, Seahorse earned P800,000 and paid dividend of P500,000. Seahorse reported earnings of P1,000,000 for the 6 months ended June 30, 2010, and P2,000,000 for the year ended December 31, 2010. On July 1, 2010, Granny sold half of its stock in Seahorse for P1,500,000 cash. Seahorse paid dividend of P600,000 on October 1, 2010.In Granny's December 31, 2009 balance sheet, what should be the carrying amount of this investment? A. 2,000,000 B. 2,090,000 C. 2,240,000 D. 2,300,000 75. On January 1, 2006, Bert Company acquired as a long term investment for P7,000,000, a 40% interest in Hallway Company when the fair value of Hallway's net assests was P17,500,000. Hallway Company reported the following net losses: 5,000,000 8,000,000
2007 2009
2006 7,000,000 2008 4,000,000On January 1, 2008, Bert
Company made cash advances of P 2,000,000 to Hallway Company. On December 31, 2009, it is not expected that Bert Company will provide further financial support for Hallway Company. Bert Company should report in 2009 a loss from investment of: A. 600,000 B. 1,000,000
C. 1,600,000 D. 4,000,000 76. On January 1, 2009, Wind Company purchased as trading investment a P2,000,000 face value Kerby Company 8% bond for P1,850,000 plus accrued interest to yield 10%. The bonds mature on January 1, 2014, and pay interest annually on December 31. On December 31, 2009, the bonds had a market value of P1,890,000. On February 15, 2010, Wind sold the bonds for P1,900,000. In its December 31, 2009 balance sheet, what amount should Wind report for investments in trading securities? A. 1,850,000 B. 1,875,000 C. 1,890,000 D. 1,900,000 77. On July 1, 2009, Palau Company purchased as trading investment a P1,000,000 face value 8% bond for 800,000 plus accrued interest and transaction costs of P50,000. The bond pays interest annually on January 1. On December 31, 2009, the bond investment had a market value of P700,000. On February 15, 2010, Palau Company sold the bond investment for P810,000. In its 2009 income statement, what amount should Palau report as unrealized loss? A. 0
B. 100,000 C. 140,000 D. 150,000 78. On January 1, 2009, Paloma Company purchased bonds with face value of P2,000,000 for P1,900,500 including transaction costs of P100,500 to be held as "available for sale". The bonds mature on December 31, 2011 and pay interest of P8% annually every December 31 with a 10% effective yield. On December 31, 2009, the bonds are quoted at P105. What amount of unrealized gain on these bonds should be reported on the 2009 statement of changes in equity? A. 169,450 B. 179,500 C. 199,500 D. 300,000 79. On January 1, 2009, Anahaw Company purchased bonds with face value of P5,000,000 to be held as "available for sale". The company paid P5,100,000 plus transaction costs of P148,000. The bonds mature on December 31, 2011 and pay 12% interest annually on December 31 of each year with a 10% effective yield. The bonds are quoted at 98 on December 31, 2009 and at 94 on December 31, 2010. what amount of unrealized loss on these bonds should be reported in the 2008 statement of changes in equity?
A. 117,280 B. 211,000 C. 272,800 D. 390,080 80. On January 1, 2009, Augustine Company purchased bonds with face value of P5,000,000 to be held as "available for sale". The company paid P4,600,000 plus transaction costs of P142,000. The bonds mature on December 31, 2011 and pay 6% interest annually on December 31 of each year with 8% effective yield. The bonds are quoted at 105 on December 31, 2009. The bonds are sold at 110 on December 31, 2010. What amount of gain on sale on these bonds should be reported in the 2010 income statement? A. 250,000 B. 500,000 C. 592,931 D. 758,000 81. On October 1, 2009, York Company purchased 4,000 of the P1,000 face value, 10% bonds of Dell Company for P4,400,00 which includes accrued interest of P100,000. The bonds, which mature on January 1, 2016, pay interest semiannually on January 1 and July 1. Y ork uses the
straight-line method of amortization and appropriately recorded the bonds as a long-term investment. The bonds should be shown on York's December 31, 2009 balance sheet at: A. 4,284,000 B. 4,288,000 C. 4,300,000 D. 4,400,000 82. On October 1, 2008, Pentel Company purchased 6,000 of the P1,000 face value, 10% bonds of Ophra Company for P6,600,000 including accrued interest of P150,000. The bonds , which mature on January 1, 2015, pay interest semiannually on January 1 and July 1. Pentel used the straight line method of amortization and appropriately recorded the bonds as a long-term investment. On Pentel’s December 31, 2009 balance sheet, the bonds should be reported at:
A. 6,450,000 B. 6,432,000 C. 6,426,000 D. 6,360,000 83.
On April 1, 2009, Sailor Company purchased P2,000,000 face value, 9%, Treasury Notes for P1,985,000, including accrued interest of P45,000. The notes mature on July 1, 2010, and pay interest semiannually on January 1 and July 1. Sailor uses the straight line method of amortization. In its October 31, 2009 balance sheet, the carrying amount of this investment should be: A. 1,940,000 B. 1,968,000 C. 1,972,000 D. 1,990,000 84. On July 1, 2009 Hillary Company purchased as a long-term investment in Esau Company's tenyear 12% bonds, with a face value of P5,000,000 for P4,760,000. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2013. Hillary uses the straight line method of amortization. What is the amount of interest income that Hillary should report in its income statement for the year ended December 31, 2009? A. 270,000 B. 300,000 C. 330,000 D. 360,000
85. On July 1, 2009, Geizer Company purchased Durian Company 10-year, 12% bonds with a face value of P2,000,000, for P2,180,000, which included P30,000 of accrued interest. The bonds, which mature on March 1, 2016, pay interest semi-annually on March 1 and September 1. Geizer uses the straight-line method of amortization. The amount of income Geizer should report for the calendar year 2009 as a result of the long-term investment would be: A. 112,500 B. 120,000 C. 127,500 D. 225,000 86. Comma Company acquired long term 12% bonds. P2,000,000 face value for P2,192,000 including accrued interest and brokerage of P92,000 on January 1, 2009. The bonds pay semiannual interest and mature May 1, 2015. On December 31, 2009, Comma sold all bonds for P2,300,000 excluding accrued interest. What is the gain on sale of bonds? A. 108,000 B. 148,000 C. 172,000 D. 300,000
87. Jacob Company purchased bonds at a discount of P100,000. Subsequently, Jacob sold these bonds at a premium of P140,000. During the period that Jacob held this investment, amortization of the discount amounted to P20,000. What amount should Jacob report as gain on the sale of the bonds? A. 120,000 B. 220,000 C. 240,000 D. 260,000 88. On July 1, 2009, Cola Company paid P1,198,000 of 10%, 20-year bonds with a face amount of P1,000,000. Interest is paid on December 31 and June 30. The bonds were purchased to yield 8%. Cola uses the effective interest method to recognize interest income from this investment. What should be reported as the carrying amount of the bonds in December 31, 2009 balance sheet? A. 1,207,900 B. 1,198,000 C. 1,195,920 D. 1,193,050
89. On January 1, 2008, Pearl Company purchased as a long-term investment P5,000,000 face value of Show Company's 8% bonds for P4,562,000. The bonds were purchased to yield 10% interest annually on January 1. Pearl uses the interest method of amortization. What amount (rounded to nearest P100) should Pearl report on its December 31, 2009 balance sheet for this long -term investment? A. 4,562,000 B. 4,618,000 C. 4,662,000 D. 4,680,000 90. On July 1, 2009, Yolk Company purchased as a long-term investment P1,000,000 of Pack Company's 8% bonds for P946,000, including accrued interest of P40,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2015, and pay interest annually on January 1. Yolk uses the effective interest method of amortization. In its December 31, 2009 balance sheed, what amount should Yolk report as investment in bonds? A. 911,300 B. 916,600 C. 953,300 D.
960,600 91. On July 1, 2009, Easter Company purchased as a long-term investment P5,000,000 face amount, 8% bonds of Ranch Company for P4,615,000 to yield 10% per year. The bonds pay interest semiannually on January 1 and July 1. In its December 31, 2009 balance sheet Eastern should report interest receivable of: A. 184,600 B. 200,000 C. 230,750 D. 250,000 92. On January 1, 2009, Cart Company purchased Fae Company 9% bonds with a face amount of P4,000,000 for P3,756,000 to yield 10%. The bonds are dated January 1, 2009, mature on December 31, 2018, and pay interest annually on December 31. Cart uses the interest method of amortizing bond discount. In its income statement for the year ended December 31, 2009, what total amount should Cart report as interest revenue from the long-term bond investment? A. 344,400 B. 360,000 C. 375,600 D.
400,000 93. On July 1, 2009, Pellet Company purchased Grown Company ten-year, 8% bongs with a face amount of P5,000,000 for P4,200,000. The bongs mature on June 30, 2017 and pay interest semiannually on June 30 and December 31. Using the interest method, Pellet recorded bond discount amortization of P18,000 for the six months ended December 31, 2009. From this longterm investment, Pellet should report 2009 revenue of: A. 168,000 B. 182,000 C. 200,000 D. 218,000 94. On January 1, 2009, Port Company purchased bonds with face value of P8,000,000 for P7,679,000. The stated rate on the bonds is 10% but the bonds are acquired to yield 12%. The bonds mature at the rate of P2,000,000 annually every December 31 and the interest is payable annually also every December 31. The company uses the effective interest method of amortizing discount. Port Company should report the investment in bonds on December 31, 2009 at: A. 5,759,250 B. 5,800,480 C.
7,759,250 D. 7,800,480 95. On January 1, 2009, Den Company purchased ten-year bonds with a face value of P1,000,000 and a stated interest rate of 8% per year payable semiannually July 1 and January 1. The bonds were acquired to yield 10%. Present value factors are as follows:Present value of 1 for 10 periods at 10%
.386Present value of 1 for 20 periods at
5%
.377Present value of an annuity of 1 for 10 periods at 10%
6.145Present value of an annuity of 1 for 20 periods at 5%
12.462The
purchase price of the bonds is: A. 875,380 B. 1,000,000 C. 1,100,000 D. 1,124,620 96. On January 1, 2009 Russo Company purchased 5-year bonds with face value of P8,000,000 and stated interest of 10% per year payable semiannually January 1 and July 1. The bonds were acquired to yield 8%. Present value factors are:Present value of an annuity of 1 for 1 periods at 5%
7.72Present value of an annuity of 1 for 10 periods at 4%
8.11Present value of 1 for 10 periods at 4% purchase price of the bonds? A. 7,351,200
0.6756What is the
B. 7,382,400 C. 8,617,600 D. 8,648,800 97. On January 1, 2009, Tag Company purchased bonds with face value of P2,000,000. The bonds are dated January 1, 2009 and mature on January 1, 2013. the interest on the bonds is 10% payable semiannually every June 30 and December 31. The prevailing market rate of interest on the bonds is 12%. what is the present value of the bonds on January 1, 2009? Round off present value factor to two decimal places. A. 1,360,000 B. 1,480,000 C. 1,881,000 D. 1,888,000 98. On January 1, 2009, Riyadh Company purchased serial bonds with face value of P3,000,000 and stated 12% interest payable annually every December 31. The bonds mature at an annual installment of P1,000,000 every December 31. The rounded present value of 1 at 10% for: One period 0.83
0.91 Three periods
bonds on January 1, 2009?
Two periods 0.75What is the market price of the serial
A. 3,060,000 B. 3,045,000 C. 3,106,800 D. 3,149,400 99. On January 1, 2009, Cameron Company purchased bonds with face value of P5,000,000 at a cost of P4,700,000. The stated interest is 10% payable annually every December 31. The bonds mature in 4 years or January 1, 2011.How much interest income should be reported by Cameron Company for the year ended December 31, 2009 using the effective interest method? A. 470,000 B. 500,000 C. 517,000 D. 562,590 100. In January 1, 2009, Camelot Company established a sinking fund in connection with its issue of bonds due in 2014. A bank was appointed as independent trustee of the fund. On December 31, 2009, the trustee held P364,000 cash in the sinking fund account representing P300,000 in annual deposits. How should the sinking fund be reported in Camelot's balance sheet at December 31, 2009?
A. No part of the sinking fund should appear in Cameron's balance sheet B. P64,000 should appear as a current asset C. P364,000 should appear as a current asset D. P364,000 should appear as a noncurrent asset 101. The following information relates to noncurrent investments that Hall Company placed in trust as required by the underwriter of its bonds:Bond sinking fund balance, January 1, 2009 4,500,0002009 additional investment on investments 300,000Administration costs amount of bonds payable
900,000Dividends 150,000Interest revenue 50,000Carrying 8,000,000What amount should Hall
report in its December 31, 2009 balance sheet related to its noncurrent investment for bond sinking fund requirements? A. 5,400,000 B. 5,750,000 C. 5,800,000 D. 5,850,000 102.
On January 1, 2009, Bell Company adopted a plan to accumulate funds for a new plant building to be erected beginning July 1, 2014, at an estimated cost of P6,000,000. Bell intends to make five equal annual deposits in a fund that will earn interest at 8% compounded annually. The first deposit is made on July 1, 2009. Present value and future amount factors are as follows:Present value of 1 at 8% for 5 periods
0.68Present value
of 1 at 8% for 6 periods
0.63Future amount of ordinary annuity
of 1 at 8% for 5 periods
5.87Future amount of annuity in advance of 1 at 8% for 5
periods
6.34Bell should make five annual deposits (rounded) of:
A. 756,000 B. 816,000 C. 946,400 D. 1,022,150 103. On January 1, 2009, Man Company adopted plan to accumulate P5,000,000 by January 1, 2014. Man plans to make 5 equal annual deposits tha will earn interest at 9% compounded annually. Man made the first deposit on December 31, 2009. The future value of ordinary annuity of 1 at 9% for 5 periods is 6.52. What amount must be deposited annually at the compound interest to accumulate the desired amount of P5,000,000? A. 609,756 B. 664,894 C. 766,871
D. 836,120 104. Cebuana Company made an investment of P5,000,000 at 10% per annum compounded annually for 6 years. What is the amount of the investment on the date of maturity? Round off future value factor to two decimal places. A. 5,500,000 B. 8,050,000 C. 8,850,000 D. 9,750,000 105. Mac Company made investment for 5 years at 12% per annum compounded semiannually to equal P7,160,000 on the date of maturity. What amount must be deposited now at the compound interest to provide the desired sum? Round off future value factor to two decima l places. A. 3,768,420 B. 4,000,000 C. 4,068,180 D.
4,236,680 106. Bulk Company purchased a P1,000,000 ordinary life insurance policy on its president. The policy year and Bulk's accounting year coincide. Additional data are available for the year ended December 31, 2009:Cash surrender value, 1/1 surrender value, 12/31 20,000Dividend received 7/1
43,500Cash 54,000Annual advance premium paid 1/1 3,000Bulk Company is the
beneficiary under the life insurance policy. How much should Bulk report as life insurance expense for 2009? A. 6,500 B. 9,500 C. 17,000 D. 20,000 107. Crane Company purchased a P1,000,000 life insurance policy on its president, of which Crane is the beneficiary. Information regarding the policy for the year ended December 31, 2009, follows:Cash surrender value, 1/1 value, 12/31
87,000Cash surrender 108,000Annual advance premium paid 1/1
40,000During 2009, dividend of P6,000 was applied to increase the cash surrender value of the policy. What amount should Crane report as life insurance expense for 2009? A. 13,000 B. 19,000
C. 25,000 D. 40,000 108. Silvana Company insured the life of its president for P2,000,000, the company being the beneficiary of an ordinary life insurance policy. The annual premium is P80,000 and the policy is dated January 1, 2006. The cash surrender values are:December 31, 2008 15,000December 31, 2009 19,000The company follows the calendar year as its fiscal period. The president dies on October 1, 2009 and the policy is settled on December 31, 2009.Silvana Company should report gain on life insurance settlement in its 2009 income statement at: A. 1,961,000 B. 1,962,000 C. 1,981,000 D. 2,000,000 109. Gallery Company ventured into construction of a condominium in Ortigas which is rated as the largest state-of-the-art structure. The entity's board of directors decided that instead of selling the condominium, the entity would hold this property for purposes of earning rentals by letting out space to business executives in the area.The construction of the condominium was completed and the property was placed in service on January 1, 2009. The cost of the construction was P50 million. The useful life of the condominium is 25 years and its residual value is P5 million. An independent valuation expert provided the following fair value at each subsequent year-end:December 31, 2009
55 millionDecember 31, 2010
53 millionDecember 31, 2011
60 millionUnder the cost model, Gallery
Company should report depreciation of investment property for 2009 at: A. 0 B. 1,800,000 C. 2,000,000 D. 2,200,000 110. Gallery Company ventured into construction of a condominium in Ortigas which is rated as the largest state-of-the-art structure. The entity's board of directors decided that instead of selling the condominium, the entity would hold this property for purposes of earning rentals by letting out space to business executives in the area. The construction of the condominium was completed and the property was placed in service on January 1, 2009. The cost of the construction was P50 million. The useful life of the condominium is 25 years and its residual value is P5 million. An independent valuation expert provided the following fair value at each subsequent year-end: December 31, 2009 2010
53 million December 31, 2011
55 million December 31, 60
millionUnder the fair value model, Gallery Company should recognize gain from change in fair value in 2009 at: A. 0 B. 3,000,000 C. 5,000,000
D. 7,000,000 111. Elven Company and its subsidiaries own the following properties that are accounted for in accordance with international accounting standards:Land held by Elven for undetermined use 5,000,000A vacant building owned by Elven and to be
leased out under an operating lease
3,000,000Property held by a subsidiary of Elven, a real business
2,000,000Property held by Elven for use in production
4,000,000Building owned by a subsidiary of Elven and security
estate firm, in the ordinary course of for which the subsidiary provides
and maintenance services to the lessees
leased by Elven to a subsidiary under an
1,500,000Land
operating lease.
2,500,000Property under construction for use as an investment
property
6,000,000Land held for future factory site 3,500,000Machinery leased out by Elven to an unrelated
party under and operating lease
1,000,000What will be the total investment property to be shown in the consolidated balance sheet of the parent and its subsidiaries? A. 9,500,000 B. 10,500,000 C. 12,000,000 D. 15,500,000 112. On January 1, 2009, Passer Company entered into a two-year P3,000,000 variable interest rate loan at the prevailing rate of 12%. In 2010, the interest rate is equal to the prevailing interest rate at the beginning of the year.The principal loan is payable on December 31, 2010 and the interest is payable on December 31 of each year. On January 1 , 2009, Passer Company entered into a "receive variable, pay fixed" interest swap agreement with a speculator bank designated
as a cash flow hedge.The prevailing interest rate on January 1, 2010 is 14% and the present value of 1 at 14% for one period is .877. How much should be reported as " interest rate swap receivable" on December 31, 2009? A. 0 B. 30,000 C. 52,620 D. 60,000 113. Cavite Company received a two-year variable interest rate loan of P5,000,000 on January 1, 2009. The interest on the loan is payable on December 31 of each year and the principal is to be repaid on December 31, 2010. On January 1, 2009, Cavite Company entered into a "receive variable, pay fixed" interest rate swap agreement with a speculator bank designated as a cash flow hedge.The interest rate for 2009 is the prevailing interest rate of 10% and the rate in 2010 is equal to the prevailing rate on January 1, 2010. The market rate of interest on January 1, 2010 is 7% and the present value of 1 at 7% for one period is .935. How much should be reported by Cavite Company on December 31, 2009 as "interest rate swap payable"? A. 0 B. 100,000 C. 140,250 D.
150,000 114. On January 1, 2009, Tall Company received a 5-year variable interest rate loan of P6,000,000 with interest payment at the end of each year and the principal to be repaid on December 31, 2013. The interest rate for 2009 is 8% and the rate in each succeeding year is equal to market interest rate on January 1 of each year.On January 1, 2009, Tall Company entered into an interest rate swap agreement with a financial institution to the effect that Tall will receive a swap payment if the interest on January 1 is more than 8% and will make a swap payment if the interest is less than 8%. The swap payments are made at the end of the year. This interest rate swap agreement is designated as a cash low hedge.On January 1, 2010, the market rate of interest is 9%. The present value of an ordinary annuity of 1 at 9% for four periods is 3.24. On December 31, 2009, Tall Company shall report "interest rate swap receivable" at: A. 120,000 B. 194,400 C. 240,000 D. 300,000 115. On January 1, 2009, Tree Company borrowed P5,000,000 from a bank at a variable rate of interest for 4 years. Interest will be paid annually to the bank on December 31 and the principal is due on December 31, 2012. Under the agreement, the market rate of interest every January 1 resets the variable rate for that period and the amount of interest to be paid on December 31. In conjunction with the loan, Tree Company entered into a "receive variable, pay fixed" interest rate swap agreement with another bank speculator.The interest rate swap agreement was designated as a cash flow hedge. The market rates of interest are:January 1, 2009 10%January 1, 2010 12%January 1, 2012 of 1 is as follows:At 14% for three periods
14%January 1, 2011 11%The present value of an ordinary annuity 2.32At 12% for two periods
1.69At 11% for one period
0.90What is the derivative asset or liability on
December 31, 2009? A. 464,000 asset B. 464,000 liability C. 600,000 asset D. 600,000 liability 116. On January 1, 2009, Tree Company borrowed P5,000,000 from a bank at a variable rate of interest for 4 years. Interest will be paid annually to the bank on December 31 and the principal is due on December 31, 2012. Under the agreement, the market rate of interest every January 1 resets the variable rate for that period and the amount of interest to be paid on December 31. In conjunction with the loan, Tree Company entered into a "receive variable, pay fixed" interest rate swap agreement with another bank speculator. The interest rate swap agreement was designated as a cash flow hedge. The market rates of interest are: January 1, 2009 10% January 1, 2010
14% January 1, 2011
12% January 1, 2012
11% The present value of an ordinary annuity
of 1 is as follows: At 14% for three periods 1.69 At 11% for one period on December 31, 2010? A. 200,000 asset B. 200,000 liability C. 169,000 asset
2.32 At 12% for two periods 0.90 What is the derivative asset or liability
D. 169,000 liability 117. On January 1, 2009, Tree Company borrowed P5,000,000 from a bank at a variable rate of interest for 4 years. Interest will be paid annually to the bank on December 31 and the principal is due on December 31, 2012. Under the agreement, the market rate of interest every January 1 resets the variable rate for that period and the amount of interest to be paid on December 31. In conjunction with the loan, Tree Company entered into a "receive variable, pay fixed" interest rate swap agreement with another bank speculator. The interest rate swap agreement was designated as a cash flow hedge. The market rates of interest are: January 1, 2009 10% January 1, 2010
14% January 1, 2011
12% January 1, 2012
11% The present value of an ordinary annuity
of 1 is as follows: At 14% for three periods 1.69 At 11% for one period
2.32 At 12% for two periods 0.90 What is the derivative asset or liability
on December 31, 2011? A. 45,000 asset B. 45,000 liability C. 50,000 asset D. 50,000 liability 118. Vacation Company is a golf course developer that constructs approximately 5 courses each year. On January 1, 2009, Vacation Company has agreed to buy 5,000 trees on January 1, 2010 to be planted in the courses it intends to build. In recent years, the price of trees has fluctuated wildly. On January 1, 2009, Vacation Company entered into a forward contract with a reputable bank. The price is set at P500 per tree.The derivative forward contract provides that if the market price on January 1, 2010 is more than P500, the difference is paid by the bank to Vacation. On
the other hand, if the market price is less than P500, Vacation will pay the difference to the bank. This derivative forward contract was designated as a cash flow hedge. The market price on December 31, 2009 and January 1, 2010 is P800. The appropriate discount rate is 8% and the present value of 1 at 8% for one period is .926.On December 31, 2009, Vacation Company shall recognize a derivative asset at: A. 694,500 B. 750,000 C. 1,389,000 D. 1,500,000 119. Congo Grill operates a chain of seafood restaurants. On January 1, 2009, Congo Grill determined that it will need to purchase 100,000 kilos of tuna fish on January 1, 2010. Because of the volatile fluctuation in the price of tuna fish, on January 1, 2009, Congo negotiated a forward contract with a reputable financial institution for Congo Grill to purchase 100,000 kilos of tuna fish in January 1, 2010 at a price of P8,000,000 of P80 per kilo. This forward contract was designated as a cash flow hedge.On December 31, 2009 and January 1, 2010, the market price of tuna fish per kilo is P75. The appropriate discount rate is 6% and the present value of 1 at 6% for one period is .943. Congo Grill uses the perpetual system.Congo Grill shall recognize a derivative liability on December 31, 2007 at: A. 0 B. 250,000 C. 471,500
D. 500,000 120. Chocolate Company operates a seafood restaurant. On October 1, 2009, Chocolate determined that it will need to purchase 50,000 kilos of deluxe fish on March 1, 2010. Because of the volatile fluctuation in the price of deluxe fish, on October 1, 2009, Chocolate negotiated a forward contract with a reputable bank for Chocolate to purchase 50,000 kilos of deluxe fish on March 1, 2010 at a price of P50 per kilo or P2,500,000. This forward contract was designated as a cash flow hedge.The derivative forward contract provides that if the market price of deluxe fish on March 1, 2010 is more than P50, the difference is paid by the bank to Chocolate. On the other hand, if the market price on March 1, 2010 is less than P50, Chocolate will pay the difference to the bank.On December 31, 2009, the market price per kilo P60 and on March 1, 2010, the market price is .93.What is the fair value of the derivative asset or liability on December 31, 2009? A. 500,000 asset B. 500,000 liability C. 465,000 asset D. 465,000 liability 121. Chocolate Company operates a seafood restaurant. On October 1, 2009, Chocolate determined that it will need to purchase 50,000 kilos of deluxe fish on March 1, 2010. Because of the volatile fluctuation in the price of deluxe fish, on October 1, 2009, Chocolate negotiated a forward contract with a reputable bank for Chocolate to purchase 50,000 kilos of deluxe fish onMarch 1, 2010 at a price of P50 per kilo or P2,500,000. This forward contract was designated as a cash flow hedge. The derivative forward contract provides that if the market price of deluxe fish on March 1, 2010 is more than P50, the difference is paid by the bank to Chocolate.
On the other hand, if the market price on March 1, 2010 is less than P50, Chocolate will pay the difference to the bank. On December 31, 2009, the market price per kilo P60 and on March 1, 2010, the market price is .93. What is the fair value of the derivative asset or liability on December 31, 2010? A. 400,000 asset B. 400,000 liability C. 372,000 asset D. 372,000 liability 122. Seaman Company operates a five-star hotel. The company makes very detailed long-term planning. On October 1, 2009, Seaman Company determined that they would need to purchase 8,000 kilos of Australian lobster on January 1, 2011. Because of the fluctuation in the price of Australian lobster, on October 1, 2009 the company negotiated a special forward contract with a bank for Seaman to purchase 8,000 kilos of Australian lobster on January 1, 2011 at price of P9,600,000. The price of Australian lobster was P1,200 per kilo on October 1. This forward contract was designated as a cash flow hedge.The bank has a staff of financial analysts who specialize in forecasting lobster prices. These analysts are predicting a drop in worldwide lobster prices between October 1, 2009 and January 1, 2011.On December 31, 2009, the price of a kilo of Australian lobster is P1,500. On December 31, 2010 and January 1, 2011, the price of a kilo of Australia lobster is P1,000. The appropriate discount rate throughout this period is 10%. The present value of 1 at 10% for one period is .91. The periodic system is used.What is the notional value of the forward contract? A. 4,800,000 B. 7,200,000
C. 9,600,000 D. 12,000,000 123. Seaman Company operates a five-star hotel. The company makes very detailed long-term planning. On October 1, 2009, Seaman Company determined that they would need to purchase 8,000 kilos of Australian lobster on January 1, 2011. Because of the fluctuation in the price of Australian lobster, on October 1, 2009 the company negotiated a special forward contract with a bank for Seaman to purchase 8,000 kilos of Australian lobster on January 1, 2011 at price of P9,600,000. The price of Australian lobster was P1,200 per kilo on October 1. This forward contract was designated as a cash flow hedge. The bank has a staff of financial analysts who specialize in forecasting lobster prices. These analysts are predicting a drop in worldwide lobster prices between October 1, 2009 and January 1, 2011. On December 31, 2009, the price of a kilo of Australian lobster is P1,500. On December 31, 2010 and January 1, 2011, the price of a kilo of Australia lobster is P1,000. The appropriate discount rate throughout this period is 10%. The present value of 1 at 10% for one period is .91. The periodic system is used.What is the derivative asset or liability on December 31, 2009? A. 2,400,000 asset B. 2,400,000 liability C. 2,184,000 asset D. 2,184,000 liability 124. Seaman Company operates a five-star hotel. The company makes very detailed long-term planning. On October 1, 2009, Seaman Company determined that they would need to purchase
8,000 kilos of Australian lobster on January 1, 2011. Because of the fluctuation in the price of Australian lobster, on October 1, 2009 the company negotiated a special forward contract with a bank for Seaman to purchase 8,000 kilos of Australian lobster on January 1, 2011 at price of P9,600,000. The price of Australian lobster was P1,200 per kilo on October 1. This forward contract was designated as a cash flow hedge. The bank has a staff of financial analysts who specialize in forecasting lobster prices. These analysts are predicting a drop in worldwide lobster prices between October 1, 2009 and January 1, 2011. On December 31, 2009, the price of a kilo of Australian lobster is P1,500. On December 31, 2010 and January 1, 2011, the price of a kilo of Australia lobster is P1,000. The appropriate discount rate throughout this period is 10%. The present value of 1 at 10% for one period is .91. The periodic system is used. What is the derivative asset or liability on December 31, 2010? A. 1,600,000 asset B. 1,600,000 liability C. 800,000 asset D. 800,000 liability 125. Indian Company requires 40,000 kilos of soy beans each month in its operations. To eliminated the price risk associated with the purchase of soy beans, on December 1, 2009, Indian entered into a futures contract as a cash flow hedge to buy 40,000 kilos of soy beans at P150 per kilo on January 1, 2010. The market price on December 31, 2009 and January 1, 2010 is P160 per kilo. The appropriate discount rate is 9% and the present value of 1 at 9% for one period is .917. The periodic system is used.Indian Company shall recognize on December 31, 2009 a derivative asset at: A. 183,400 B.
200,000 C. 366,800 D. 400,000 126. Nata Company produces bottled grape juice. Grape juice concentrate is typically bought and sold by the pound. Nata uses 50,000 pounds of grape juice concentrate each month.On November 1, 2009, Nata entered into a grape juice concentrate futures contract as a cash flow hedge to buy 50,000 pounds of concentrate on January 1, 2010 at a price of P50 per pound. The market price on December 31, 2009 and January 1, 2010 of the grape juice is P38 per pound. The appropriate discount rate is 11%. The periodic system is used.Nata Company shall recognize on December 31, 2009 a derivative liability at: A. 270,300 B. 300,000 C. 540,600 D. 600,000 127. Tall Company requires 25,000 pounds of copper each month in its operations. To eliminate the price risk associated with copper purchases, on December 1, 2009, Tall entered into a futures contract as a cash flow hedge to buy 25,000 pounds of copper on June 1, 2010. The futures price is P50 per pound.The futures contract is managed through through an exchange, so Tall does not know the other party on the other side of the contract. As with most derivative contracts, this futures contract is settled by an exchange of cash on June 1, 2010 based on the price of copper
on that date.The market price per pound is P45 on December 31, 2009 and P42 on June 1, 2010. What is the fair value of the derivative asset or liability on December 31, 2009? A. 125,000 asset B. 125,000 liability C. 200,000 asset D. 200,000 liability 128. Legacy Company produces colorful 100% cotton T-shirts that are very popular among the youth. The company uses 150,000 kilos of cotton each month in its production process. In accordance with the company's long-term planning, the company normally procures one month supply of cotton to be used in its production process.On process.On December 31, 2009, Legacy Company purchased a call option as a cash flow hedge to buy 150,000 kilos of cotton on July 1, 2010. The call option price is P30 per kilo. The company paid P50,000 for the call option. The market price of cotton on July 1, 2010 is P 35 per kilo.Legacy Company shall recognize gain on call option 2010 at: A. 350,000 B. 375,000 C. 700,000 D. 750,000 129.
Book Company uses approximately 200,000 units of raw material in its manufacturing operations. On December 31, 2009, Book Company purchased a call option to buy 200,000 units of the raw material on July 1, 2010 at a price of P25 per unit. The company paid P20,000 for the call option. Book designated the call option as a cash flow hedge against price fluctuation for its July purchase. The market price of the raw material on July 1, 2010 is P22 per unit.Book Company shall recognize loss on call option in 2010 at: A. 20,000 B. 550,000 C. 600,000 D. 650,000 130. Socks Company uses approximately 300,000 units of raw material in its manufacturing operations. On December 1, 2009, Socks Company purchased a call option to buy 300,000 units of the raw material on March 1, 2010 at a price of P25 per unit. Socks paid P50,000 for the call option and designated the call option as a cash flow hedge against price fluctuation for its March purchase.On December 31, 2009, the market price of the raw material is P27 per unit and on March 1, 2010, the market price is P28.What is the fair value of the call option or derivative asset on December 31, 2009? A. 550,000 B. 600,000 C. 850,000
D. 900,000 131. On September 1, 2009, Denver Company purchased equipment from USA for $50,000 to be paid on March 1, 2010. The exchange rate on September 1, 2009 is P45 to $1. On the same date, Denver entered into a foreign currency forward contract and agreed to pay P2,250,000 at the rate of P45 to $1. This forward contract is designated as a fair value hedge of the payable that is denominated in foreign currency.The peso exchange rate to the dollar is P46 on December 31, 2009 and P49 on March 1, 2010.What is the gain on foreign currency forward contract that will be recognized in the 2010 income statement? A. 0 B. 50,000 C. 150,000 D. 200,000 132. Oregon Company has the Philippine peso as its functional currency. The company expects to purchase goods from USA for $50,000 on March 31, 2010. Accordingly, the company is exposed to a foreign currency risk. If the dollar increases before the purchase takes place, the company will have to pay more pesos to obtain the $50,000 that it will have to pay for the goods.On October 1, 2009, Oregon Company entered into a foreign currency forward contract with a bank speculator purchase $50,000 in six months for a fixed amount of P2,300,000 or P46 to $1. This forward contract is designated as cash flow hedge of the company's exposrue to increase in dollar exchange rate. On December 31, 2009, the exchange rate is P47 to $1 and on March 31, 2010, the exchange rate is P49 to $1.What is the fair value of the derivative asset or liability on December 31, 2009? A.
150,000 asset B. 150,000 liability C. 50,000 asset D. 50,000 liability Related Quizzes Accounting, Test 1 Managerial Accounting Accounting Chapter 10-quiz Accounting Chapter 1 Accounting Knowledge Accounting 1 Final Exam Featured Quizzes Parts Of The Brain Quiz What Game Should I Play? Are You An Introvert Or Extrovert? Is Husband Still In Love With You ? Does Your Crush Like You? GIRLS ONLY! Related Topics Finance Banking Insurance
