Investment Quiz: 20 Questions Part 2

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  • 1/19 Questions

    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?

    • 150,000
    • 180,000
    • 880,000
    • 980,000
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Investment Quiz: 20 Questions Part 2 - Quiz

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  • 2. 

    The following data pertain to the equity investments held by Doritos Company classified as "available for sale":Cost                                                       3,000,000Market value:     December 31, 2008                           2,400,000     December 31, 2009                           3,200,000What amount should be reported as unrealized gain in December 31, 2009 shareholders' equity?

    • 0

    • 200,000

    • 800,000

    • 1,900,000

    Correct Answer
    A. 200,000
    Explanation
    The unrealized gain in December 31, 2009 shareholders' equity should be reported as $200,000. This is calculated by subtracting the market value of the equity investments on December 31, 2008 ($2,400,000) from the market value on December 31, 2009 ($3,200,000). The difference of $800,000 represents the increase in value, but since the investments are classified as "available for sale," only the unrealized gain is reported in shareholders' equity, which is $200,000.

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  • 3. 

    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?

    • 40,000

    • 100,000

    • 560,000

    • 600,000

    Correct Answer
    A. 40,000
    Explanation
    Rex should report P40,000 as dividend income in its income statement for the year ended December 31, 2009. This is because Rex received a P500,000 cash dividend from Silo Company, in which it owns a 30% interest. However, since a majority of Rex's directors are also directors of Silo, this indicates that Rex has significant influence over Silo and therefore should account for the dividend using the equity method. Under the equity method, Rex would recognize its share of Silo's net income, which is 30% of the P500,000 dividend, resulting in P150,000. However, the question asks for the amount to be reported as dividend income, so only the dividend portion should be considered, which is P40,000 (30% of P500,000).

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  • 4. 

    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:

    • 0

    • 200,000

    • 250,000

    • 500,000

    Correct Answer
    A. 500,000
    Explanation
    Quezon Company should report an unrealized loss of P500,000 on these securities in its 2009 statement of changes in equity. This is because the available for sale securities were reclassified as nonmarketable equity securities, and a reliable measure of fair value was no longer available. As of December 31, 2008, the market value of the securities was P4,500,000, which is P500,000 lower than the original cost of P5,000,000. Therefore, the unrealized loss should be reported as P500,000.

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  • 5. 

    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 2007 statement of changes in equity?

    • 0

    • 200,000

    • 520,000

    • 638,000

    Correct Answer
    A. 520,000
    Explanation
    The unrealized gain on these securities should be reported as 520,000 in the 2007 statement of changes in equity. This is because the market value of the bonds on December 31, 2009 is higher than their carrying value after amortization of the discount. The difference between the market value and the carrying value represents the unrealized gain. In this case, the unrealized gain is P5,200,000 - P4,680,000 = P520,000.

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  • 6. 

    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?

    • 40,000

    • 50,000

    • 100,000

    • 150,000

    Correct Answer
    A. 40,000
    Explanation
    Evan Company purchased 10,000 stock rights at a market value of P5 per share. Therefore, the total value of the stock rights is 10,000 * P5 = P50,000. This is the amount that Evan should report in its September 30, 2009 balance sheet for investment in stock rights.

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  • 7. 

    Information regarding Trinity Company's portfolio of available for sale securities is as follows:Aggregate cost - December 31, 2009                                            1,700,000Unrealized gains - December 31, 2009                                              40,000Unrealized losses - December 31, 2009                                           260,000Net realized gains during 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?

    • 0

    • 205,000

    • 220,000

    • 260,000

    Correct Answer
    A. 220,000
    Explanation
    The amount of unrealized loss on these securities that Trinity Company should report in its December 31, 2009 shareholders' equity section of the balance sheet is $220,000. This is calculated by subtracting the net realized gains during 2009 ($300,000) from the aggregate cost ($1,700,000), and then adding the unrealized gains ($40,000) and subtracting the unrealized losses ($260,000). The resulting amount is $220,000.

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  • 8. 

    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?

    • 40,000

    • 240,000

    • 400,000

    • 640,000

    Correct Answer
    A. 240,000
    Explanation
    Duff Company acquired 20,000 ordinary shares of Post Company 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. This means that Duff received an additional 2,000 shares as a dividend. On December 30, 2009, Duff sold 2,000 shares for P640,000. To calculate the gain on sale, we need to determine the cost of the shares sold. The total cost of the shares acquired was P4,400,000. Since Duff received an additional 2,000 shares as a dividend, the cost of each share is P4,400,000/22,000 = P200. Therefore, the cost of the 2,000 shares sold is 2,000 x P200 = P400,000. The gain on sale is the selling price minus the cost, which is P640,000 - P400,000 = P240,000. Therefore, Duff should report a gain on sale of P240,000.

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  • 9. 

    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:

    • 400,000

    • 800,000

    • 900,000

    • 1,000,000

    Correct Answer
    A. 800,000
    Explanation
    In this scenario, Eve Company purchased 100,000 ordinary shares of Miles Company for P40 a share on January 1, 2008. On December 31, 2008, the market price of Miles' share declined to P35. This decline in market price is considered temporary. On December 28, 2009, Eve sold 80,000 shares of Miles Company for P30 a share. The loss on disposal of long-term investment is calculated by subtracting the selling price from the cost of the investment. Therefore, the loss on disposal for Adam in the year ended December 31, 2009, would be 80,000 shares multiplied by (P40 - P30), which equals P800,000.

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  • 10. 

    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?

    • 1,250,000

    • 1,500,000

    • 2,500,000

    • 3,000,000

    Correct Answer
    A. 3,000,000
    Explanation
    The correct answer is 3,000,000. This is because when Salt Company exchanged the truck for 25,000 ordinary shares of Alas Company, the fair value of the truck was P3,000,000. Therefore, the investment in Alas should be reported at its fair value of P3,000,000 on the December 31, 2009 balance sheet.

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  • 11. 

    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?

    • 0

    • 80,000

    • 150,000

    • 230,000

    Correct Answer
    A. 0
    Explanation
    Knight Company should report a dividend revenue of 0 in its 2009 income statement. This is because the stock dividend received from Parrot Company is not considered as revenue since Knight owns less than 1% of Parrot's share capital. Additionally, the cash dividend received from Clark Company is not considered as revenue either because a majority of Clark's directors are also directors of Knight, indicating a related party transaction. Therefore, no dividend revenue should be reported.

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  • 12. 

    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?

    • 0

    • 450,000

    • 850,000

    • 1,200,000

    Correct Answer
    A. 0
    Explanation
    The correct answer is 0. Since the investments were reclassified from available for sale to held to maturity, any unrealized losses that were previously recognized in other comprehensive income are reversed. Therefore, there is no loss to be reported in the income statement for 2009.

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  • 13. 

    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?

    • 400,000

    • 450,000

    • 1,200,000

    • 1,600,000

    Correct Answer
    A. 1,200,000
  • 14. 

    2The 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:     Wicker Company                                       2,000,000                          1,900,000     London Company                                      1,000,000                             880,000     Peter Company                                         1,500,000                          2,400,000     Eden Company                                          2,500,000                          2,300,000     Dixie Company                                          2,500,000                          2,700,000     Kangaroo Company          (redeemable preference share)            1,500,000                          1,250,000Investment in stock rights     Judy Company                                             500,000                             400,000Marketable debt securities:     Emu Company (convertible bonds)            3,000,000                         3,700,000     Moore Company                                        4,500,000                         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?

    • 130,000

    • 730,000

    • 2,870,000

    • 3,000,000

    Correct Answer
    A. 130,000
  • 15. 

    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                                    4,000,000                            6,000,000Aggregate market value                     3,700,000                            5,500,000Aggregate lower of cost or    market value applied to     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?   

    • 0

    • 300,000

    • 500,000

    • 800,000

    Correct Answer
    A. 800,000
    Explanation
    Banquet Company should report a total loss of $800,000 on these securities in its 2009 income statement. This is because the aggregate lower of cost or market value applied to each security is $3,500,000, and the aggregate market value is $3,700,000. The difference between these two amounts, $200,000, represents an impairment loss. Since the market declines are judged to be "other than temporary," this impairment loss of $200,000 should be recognized as a loss on the income statement. Additionally, the aggregate cost of the securities is $4,000,000, so the total loss is $800,000.

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  • 16. 

    On January 1, 2009, XYZ Company purchased 40,000 shares of TUV 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:

    • 3,800,000

    • 3,920,000

    • 4,000,000

    • 4,120,000

    Correct Answer
    A. 3,920,000
    Explanation
    The cost of the investment is calculated by multiplying the number of shares purchased (40,000) by the purchase price per share (P100). This gives us a total cost of P4,000,000. However, we need to subtract the brokerage fees (P120,000) from this total cost to get the actual cost of the investment. Therefore, the correct answer is P3,920,000.

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  • 17. 

    During 2008, Lawin Company bought the shares of Burnwood Company as follows:June 1                                         20,000 shares @ P100                      2,000,000December 1                                30,000 shares @ P120                      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:

    • 150,000

    • 550,000

    • 950,000

    • 1,150,000

    Correct Answer
    A. 1,150,000
    Explanation
    Lawin Company bought 20,000 shares of Burnwood Company on June 1 for P100 per share, totaling P2,000,000. Then, on December 1, they bought an additional 30,000 shares for P120 per share, totaling P3,600,000. In 2009, Lawin Company received a cash dividend of P10 per share on January 10 and a 20% stock dividend on January 20. On December 10, they sold 30,000 shares at P125 per share. To calculate the gain on the sale of shares using the FIFO (First-In, First-Out) approach, we consider the first shares purchased (20,000 shares @ P100) and the shares sold (30,000 shares @ P125). The gain is calculated as (30,000 shares x P125) - (20,000 shares x P100) = P1,150,000.

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  • 18. 

    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?

    • 120,000

    • 125,000

    • 240,000

    • 245,000

    Correct Answer
    A. 240,000
    Explanation
    Woody Company should report 240,000 as dividend income in its 2009 income statement. This is because they own 20,000 shares of Buzz Company's preference share capital, which declared and paid preference dividends of P2,400,000. Since Woody owns 2% of Buzz's ordinary share capital, they also received a 5% stock dividend on the ordinary shares. Therefore, the total dividend income for Woody in 2009 is P2,400,000 + (5% of P10 * 10,000 shares) = P240,000.

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  • 19. 

    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:     December 31, 2008                                             7,500,000     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?

    • 0

    • 300,000

    • 500,000

    • 800,000

    Correct Answer
    A. 800,000
    Explanation
    The unrealized loss on these securities in the 2009 statement of changes in equity should be reported as 800,000. This is because the market value of the bonds decreased from 7,500,000 on December 31, 2008 to 7,200,000 on December 31, 2009. Since the bonds were reclassified as "held to maturity" on December 31, 2009, any difference between the original cost (8,000,000) and the new classification market value (7,200,000) should be reported as an unrealized loss on the statement of changes in equity. In this case, the difference is 800,000.

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    Quiz Edited by
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  • Sep 23, 2009
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