1

CEBU CPAR
PRACTICAL ACCOUNTING 1
INVESTMENT
PROF. U.C. VALLADOLID
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1. On December 31, 2007, Jostine Company had investments in trading securities as follows:
Cost Market Value
Man Company 1,000,000 1,300,000
Kemo Company 900,000 1,100,000
Fenn Company 1,100,000 900,000
3,000,000 3,300,000
Jostine’s December 31, 2007 balance sheet should report the trading securities at

a. 2,800,000 c. 3,300,000
b. 2,900,000 d. 3,000,000
2. On January 1, 2007, Jostine Company purchased marketable equity securities to be held as “trading” for
P4,000,000. The company also paid commission to the stockbroker in the amount of P100,000. No
securities were sold during 2007. The market value of the equity securities on December 31, 2007 is
P4,500,000.
What amount of unrealized gain on these securities should be reported in the 2007 income statement?

a. 500,000 c. 400,000
b. 300,000 d. 0
3. On January 1, 2007, Ramil 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, 2007. No securities were sold during
2007.
What amount of unrealized loss on these securities should be reported in the 2007 statement of
changes in equity?

a. 400,000 c. 600,000
b. 200,000 d. 0
4. Ramil Company was organized on January 1, 2007. At December 31, 2007, Ramil had the following
investment portfolio of marketable equity securities:
Trading Available for sale
Aggregate cost 3,000,000 4,500,000
Aggregate market value 2,400,000 3,700,000
Net unrealized loss 600,000 800,000
All of the decline are judged to be temporary.
What amount of unrealized loss should be shown as component of income and stockholders’ equity?
Income Stockholders’ equity
a. 0 1,400,000
b. 600,000 800,000
c. 800,000 600,000
1,400,000
d. 0

5.
During 2007, Jostine Company purchased marketable equity securities to be held as ‘available for
sale”. Pertinent data follow:
Market value at
Security Cost 12/31/2007
D 360,000 400,000
E 800,000 600,00
F 1,800,000 1,860,000
2,960,000 2,860,000
Jostine appropriately carries these securities at market value.
The amount of unrealized loss on these securities in Jostine’s 2007 income statement should be
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a. 200,000 c. 140,000
b. 100,000 d. 0
6. On its December 31, 2006 balance sheet, Ramil Company appropriately reported a P100,000 unrealized
loss. There was no change during 2007 in the composition of Ramil’s portfolio of marketable equity
securities held as “available for sale”. Pertinent data are as follows:
Market value at
Security Cost 12/31/2007
A 1,200,000 1,300,000
B 900,000 500,000
C 1,600,000 1,500,000
3,700,000 3,300,000
What amount of loss on these securities should be included in Ramil’s statement of stockholders’ equity
for the year ended December 31, 2007?

a. 400,000 c. 300,000
b. 100,000 d. 0
7. During 2006 Ramil Company purchased marketable equity securities as a trading investment. For the
year ended December 31, 2006, the company recognized an unrealized loss of P230,000. There were
no security transactions during 2007. Pertinent information at December 31, 2007 is as follows:
Security Cost Market value
A 2,450,000 2,300,000
B 1,800,000 1,820,000
4,250,000 4,120,000
In its 2007 income statement, Ramil should report

a. Unrealized gain of P100,000 c. Unrealized loss of P100,000

b. Unrealized loss of P130,000 d. Unrealized gain of P130,000
8. During 2006, Rolly Company purchased trading equity securities as a short-term investment. The cost
and market value at December 31, 2006 were as follows:
Security Cost Market Value
A – 1,000 shares 200,000 300,000
B – 10,000 shares 1,700,000 1,600,000
C – 20,000 shares 3,100,000 2,900,000
5,000,000 4,800,000
Rolly sold 10,000 shares of Company B stock on January 15, 2007, for P130 per share, incurring
P50,000 in brokerage commission and taxes.
On the sale, Rolly should report a loss of

a. 450,000 c. 400,000
b. 300,000 d. 350,000
9. On January 1, 2006 Rolly Company purchased equity securities to be held as “available for sale”. On
December 31, 2006, the cost and market value were:
Cost Market
Security X 2,000,000 2,400,000
Security Y 3,000,000 3,500,000
Security Z 5,000,000 4,900,000
On July 1, 2007, Rolly Company sold Security X for P2,500,000.
10. What amount of gain on sale of AFS securities should be reported in the 2007 income statement?

a. 500,000 c. 100,000
b. 400,000 d. 0
10. Data regarding Joe Company’s trading securities follow:
Cost Market
December 31, 2006 5,000,000 4,600,000
December 31, 2007 5,000,000 5,800,000
Differences between cost and market value are considered temporary.
The income statement for 2007 should report unrealized gain on these securities at

a. 1,200,000 c. 800,000
b. 400,000 d. 0
11. Data regarding Joe Company’s available for sale securities follow:
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Cost Market
December 31, 2006 4,000,000 3,500,000
December 31, 2007 4,000,000 3,200,000
Differences between cost and market value are considered temporary.
The stockholders’ equity section of the December 31, 2007 balance sheet should report unrealized loss
on these securities at

a. 800,000 c. 500,000
b. 300,000 d. 0
12. The following data pertains to the equity investments held by Joe Company held as “available for sale”:
Cost 3,000,000
Market value:
December 31, 2006 2,400,000
December 31, 2007 3,200,000
What amount should be reported as unrealized gain in December 31, 2007 stockholders’ equity?

a. 1,900,000 c. 800,000
b. 200,000 d. 0
13. Marivic Company acquired investments in available for sale equity securities for P5,000,000 on January
1, 2006. On December 31, 2007, Marivic decided to reclassify the available for sale securities as
nonmarketable equity securities. The market value of the securities was P4,500,000 on December 31,
2006 and P4,300,000 on December 31, 2007.
In its 2007 statement of changes in equity, Marivic should report unrealized loss on these securities at

a. 700,000 c. 500,000
b. 200,000 d. 0

14. Marivic Company had investments in bonds with face value of P8,000,000. The bonds were acquired at
face value on January 1, 2006 and classified as “available for sale”. The bond investment had the
following market value:
December 31, 2006 7,500,000
December 31, 2007 7,200,000
On December 31, 2007, Marivic decided to reclassify the bond investment as “held to maturity”.
What amount should be reported as unrealized loss on these securities in the 2007 statement of
changes in equity?

a. 500,000 c. 300,000
b. 800,000 d. 0
15. Mary 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, 2007, Mary decided to hold the investment
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, 2006, P5,300,000 at June 30, 2007, and
P4,900,000 at December 31, 2007.
What amount of loss from investment should Mary report in its 2007 income statement?

a. 1,200,000 c. 450,000
b. 850,000 d. 0
16. Mary 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, 2007, Mary decided to hold the investment
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, 2006, P5,300,000 at June 30, 2007, and
P4,900,000 at December 31, 2007.
. What amount should Mary report as net unrealized loss on these securities in its June 30, 2007
statement of stockholders’ equity?

a. 1,200,000 c. 1,600,000
b. 450,000 d. 400,000
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17. On January 1, 2006, Mary 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, 2007, Mary 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, 2007 is P5,200,000.
What amount of unrealized gain on these securities should be reported in the 2007 statement of
changes in equity?

a. 520,000 c. 638,000
b. 200,000 d. 0
18. The following investments are classified as trading unless otherwise stated and help by Captain B
Company as of December 31, 2007, its first year of operation.

Cost Market
Marketable equity securities
Wickham Corporation 2,000,000 1,900,000
Lawrence Company 1,000,000 880,000
Captain B Company 1,500,000 2,400,000
Edith Corporation 2,500,000 2,300,000
Dexter Company 2,500,000 2,700,000
Joey Company
(redeemable preferred stock) 1,500,000 1,250,000
Investment in stock rights
Jude Company 500,000 400,000
Marketable debt securities:
Edu Company (convertible bonds) 3,000,000 3,700,000
Demi Company 4,500,000 4,200,000
Investment in Dexter Company represents 30% of outstanding preferred stock. Total income reported
by Dexter for 2007 amounted to P10,000,000.
Captain B Company intends to hold its investment in Demi Company bonds to maturity.
How much income related to the investments should be reported in Captain B Company’s income
statement for 2007?

a. 2,870,000 c. 3,000,000
b. 130,000 d. 730,000
19. On January 2, 2007, Lea Company purchased 40,000 shares of RST stock at P100 per share.
Brokerage fees amounted to P120,000. A P5 dividend per share of RST stock had been declared on
December 15, 2006, to be paid on March 31, 2007 to stockholders of record on January 31, 2007. No
other transactions occurred in 2007 affecting the investment in RST stock. The cost of the investment is

a. 4,120,000 c. 4,000,000
b. 3,920,000 d. 3,800,000
20. On January 2, 2006, Lea Company purchased as a long-term investment 100,000 shares of Mill
Corporation’s common stock for P40 a share. On December 31, 2006, the market price of Mill’s stock
was P35 a share, reflecting a temporary decline in market price. On December 28, 2007 Lea sold 80,00
shares of Mill’s stock for P30 a share. For the year ended December 31, 2006,
Leas should report a loss on disposal of long-term investment of

a. 1,000,000 c. 900,000
b. 800,000 d. 400,000
21. Lea Company purchased 10,000 shares representing 2% ownership of Roe Company on February 11,
2007. Lea received a stock dividend of 2,000shares on March 31. 2007, when the carrying amount per
share on Roe’s books was P350 and the market value per share was P400. Roe paid a cash dividend
of P15 share on September 15, 2007. In Lea’s income statement for the year ended October 31, 2007,
what amount should Lea report as dividend income?

a. 980,000 c. 880,000
b. 180,000 d. 150,000
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22. Lea Company acquired 20,000 shares of Post Company common stock on October 1, 2006, at a cost of
P4,400,000. On April 1, 2007, Post distributed a 10% common stock dividend when the market price of
the stock was P300 per share. On December 30, 2007, Lea sold 2,000 shares of its Post stock for
P640,000. For the year ended December 31, 2007, how much should Lea report as gain on sale?

a. 240,000 c. 640,000
b. 400,000 d. 40,000
23. During 2006, Kit Company bought the shares of Burwood Company as follows:
June 1 20,000 shares @ P100 2,000,000
December 1 30,000 shares @ P120 3,600,000
5,600,000
The transactions for 2007 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 the sale of the shares assuming the FIFO approach is

a. 1,150,000 c. 950,000
b. 150,000 d. 550,000
24. Kit Company owns 20,000 shares of Arlo Company’s 200,000 shars of P100 par, 6% cumulative,
nonparticipating preferred stock and 10,000 shares representing 2% ownership of Arlo’s common stock.
During 2006, Arlo declared and paid dividends of P2,400,000 on preferred stock. No dividends had
been declared or paid during 2005. In addition, Kit received a 5% common stock dividend from Arlo
when the quoted market price of Arlo’s common stock was P10 per share. What amount should Kit
report as dividend income in its 2006 income statement?

a. 120,000 c. 125,000
b. 240,000 d. 245,000
25. Kit Company received dividends from its common stock investments during the year ended December
31, 2007 as follows:
 A stock dividend of 4,000 shares from Parr Corporation on July 31, 2007 when
the market price of Parr’s shares was P20 per share. Kit owns less than 1% of
Parr’s common stock.
 A cash dividend of P150,000 from Lark Corporation in which Kit owns a 25%
interest. A majority of Lark’s directors are also directors of Kit.
What amount of dividend revenue should Kit report in its 2007 income statement?

a. 230,000 c. 150,000
b. 80,000 d. 0
26. Information pertaining to dividends from Teng Company’s common stock investments for the year ended
December 31, 2007, follows:
 On September 1, Teng received a P500,000 cash dividend from Seco
Company in which Teng owns a 30% interest. A majority of Teng’s
directors are also directors of Seco.
 On October 1, Teng received a P60,000 liquidating dividend from King
Company. Teng owns a 5% interest in King Company.
 Teng owns a 2% interest in Bow Company, which declared a P2,000,000
cash dividend on November 15, 2007, to stockholders of record on
December 15, 2007, payable on January 5, 2007.
What amount should Teng report as dividend income in its income statement for the year ended
December 31, 2007?

a. 600,000 c. 560,000
b. 100,000 d. 40,000
27. In 2007, Teng Company held the following investments in common stock:
 30,000 shares of Brock Company’s 100,000 outstanding shares. Teng’s
level of ownership gives it the ability to exercise significant influence over
the financial and operating policies of Brock.
 6,000 shares of Amal Company’s 300,000 outstanding shares.
During 2007, Teng received the following distributions from its common stock
investments:
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November 15 – P300,000 cash dividends from Brock

November 31 – P15,000 cash dividend from Amal.
December 31 – 3% common stock dividend from Amal. The closing price of this
Stock on a national exchange was P150 per share.
What amount of dividend revenue should Teng report for 2007?

a. 15,000 c. 42,000
b. 315,000 d. 342,000
28. On March 1, 2007, Teng Company purchased 10,000 shares of LVC common stock at P80 per share.
On September 30, 2007, Teng received 10,00 stock rights to purchase an additional 10,000 shares at
P90 per share. The stock rights had an expiration date of February 1, 2008. On September 30, 2007,
LVC’s common stock had a market value ex-right of P95 per share and the stock rights had a market
value of P5 each.
What amount should Teng report on its September 30, 2007 balance sheet for investment in stock
rights?

a. 40,000 c. 50,000
b. 100,000 d. 150,000
29. Mercurio Company owns 30,000 shares of Wood Company common stock acquired on July 31, 2007, at
a total cost of P1,100,000. On December 1, 2007, Mercurio received 30,000 stock rights from Wood.
Each right entitles the holder to acquire one share of stock at P45. the market pMercurio of Wood’s
stock on this date, ex-right, was P50 and the market pMercurio of each right was P5. Mercurio 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 Mercurio at

a. 150,000 c. 140,000
b. 50,000 d. 40,000
30. Levie Company invested in stocks of Silangan Company acquired as follows:
Number of shares Cost
2005 22,500 1,800,000
2006 37,500 3,300,000
In 2007, Levie Company received 60,000 rights to purchase Silangan stock at P80 per share. Five
rights are required to purchase one share. At issue date, rights had a market value of P4 each and
stock was selling ex-right at P96. Levie Company used rights to purchase 9,000 additional shares of
Silangan 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. 873,000 c. 871,200
b. 720,000 d. 824,000
31. On January 1, 2007, Atlantica Company purchased as trading investment a P2,000,000 face value Kean
Company 8% bond for P1,850,000 plus accrued interest to yield 10%. The bonds mature on January 1,
2012, and pay interest annually on December 31. On December 31, 2007, the bonds had a market
value of P1,890,000. On February 15, 2008, Atlantica sold the bonds for P1,900,000. In its December
31, 2007 balance sheet,
What amount should Atlantica report for investments in trading securities?

a. 1,850,000 c. 1,875,000
b. 1,890,000 d. 1,900,000
32. On January 1, 2007, Atlantica 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, 2009 and pay interest of 8% annually every December 31 with a 10% effective yield. On
December 31, 2007, the bonds are quoted at 105.
What amount of unrealized gain on these bonds should be reported on the 2007 statement of
changes in equity?

a. 169,450 c. 199,500
b. 300,000 d. 179,500
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33. On January 1, 2006, Mavis 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, 2008 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, 2006 and at 94 on December 31, 2007.
What amount of unrealized loss on these bonds should be reported in the 2007 statement of changes in
equity?

a. 272,800 c. 117,280
b. 390,080 d. 211,000
34. On October 1, 2007, Mavis Company purchased 4,000 of the P1,000 face value, 10% bonds of Pell
Company for P4,400,000 which includes accrued interest of P100,000. The bonds, which mature on
January 1, 2014, pay interest semiannually on January 1 and July 1. Mavis uses the straight-line
method of amortization and appropriately recorded the bonds as a long-term investment. The bonds
should be shown on Mavis’s December 31, 2007 balance sheet at

a. 4,284,000 c. 4,288,000
b. 4,300,000 d. 4,400,000
35. On July 1, 2007, Sue 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%.
Sue uses the effective interest method to recognize interest income form this investment.
What should be reported as the carrying amount of the bonds in the December 31, 2007 balance
sheet?

a. 1,207,900 c. 1,198,000
b. 1,195,920 d. 1,193,050
36. On January 1, 2007, Richmond Company purchased Fay Company 9% bonds with a face amount of
P4,000,000 for P3,756,000 to yield 10%. The bonds are dated January 1, 2007, mature on December
31, 2016, and pay interest annually on December 31. Richmond uses the interest method of amortizing
bond discount. In its income statement for the year ended December 31, 2007, what total amount
should Richmond report as interest revenue from the long-term bond investment?

a. 400,000 c. 375,600
b. 360,000 d. 344,400
37. On January 1, 2007 Calgary 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 10 periods at 5% 7.72
Present value of an annuity of 1 for 10 periods at 4% 8.11
Present value of 1 for 10 periods at 4% 0.6756
What is the purchase price of the bonds?

a. 7,382,400 c. 8,617,600
b. 8,648,800 d. 7,351,200
38. On January 1, 2007, Alberta Company purchased 20% of Nova Scotia Company’s common stock for
P6,000,000. During 2007, Nova Scotia reported net income of P7,000,000 and paid cash dividend of
P4,000,000 on its common stock.
The balance in Alberta’s investment in Nova Scotia Corporation account at December 31, 2007 should
be

a. 5,200,000 c. 6,000,000
b. 6,600,000 d. 7,400,000
39. On January 1, 2006, Nova Scotia Company bought 15% of Quebec Company’s common stock for
P6,000. Nova Scotia appropriately accounts for this investments by the cost method. The following data
concerning Quebec are available for the years ended December 31, 2006 and 2007.
2006 2007
Net income 3,000,000 9,000,000
Cash dividend None 10,000,000

In this income statement for the year ended December 31, 2006, How much should Nova Scotia report
as income from this investment?
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a. 1,350,000 c. 1,500,000
b. 1,800,000 d. 450,000
40. On January 1, 2006, Quebec Company acquired 10% of Simple Company’s common stock for
P6,000,000. Quebec appropriately accounts for this investment by the cost method. Simple Company
reported the following for the years ended December 31, 2006 and 2007:
Net income Cash dividend
2006 400,000 0
2007 1,200,000 1,800,000
In its income statement for the year ended December 31, 2007, Quebec Company should report
dividend income at

a. 180,000 c. 160,000
b. 120,000 d. 0
41. On January 1, 2007, Billy Company acquired as a long-term investment a 20% common stock interest in
Eason Company. Billy paid P7,000,000 for this investment when the fair value of Eason’s net assets
was P35,000,000. Billy can exercise significant influence over Eason’s operating and financial policies.
For the year ended December 31, 2007, Eason’ reported net income of P4,000,000 and declared and
paid cash dividends of P1,600,000. How much revenue from this investment should Billy report for
2007?

a. 320,000 c. 480,000
b. 800,000 d. 0
42. On July 1, 2007, Shark Company Purchased 30,000 shares of Eagle Company’s 100,000 outstanding
shares of common stock for P200 per share. On December 15, 2007, Eagle paid P400,000 in dividends
to its common stockholders. Eagle’s net income for the year ended December 31, 2007 was
P1,200,000, earned evenly throughout the year. In its 2007 income statement, what amount of income
from this investment should Shark report?

a. 360,000 c. 180,000
b. 120,000 d. 60,000
43. On April 1, 2007, Shark Company purchased 40% of the outstanding common stock of Clarke Company
for P10,000,000. On that date, Clarke’s net assets were P20,000,000 and Shark cannot attribute the
excess of the cost of its investment in Clarke over its equity in Clarke’s net assets to any particular
factor. Clarke’s 2007 net income is P5,000,000. Shark plans to retain its investment in Clarke
indefinitely. Shark accounts for its investment in Clarke by the equity method. The maximum amount
which could be included in Shark’s 2007 income before tax to reflect Shark’s “equity in net income of
Clarke” is

a. 1,400,000 c. 1,500,000
b. 2,000,000 d. 1,850,000
44. On January 1, 2007, Superman Company purchased 30% interest in Pod Company for P2,500,000. On
this date Pod’s stockholders’ equity was P5,000,000. The carrying amounts of Pod’s identifiable net
assets approximated their fair values, except for land whose fair value exceeded its carrying amount by
P2,000,000. Pod reported net income of P1,000,000 for 2007 and paid no dividends. Superman
accounts for this investment using the equity method. In its December 31, 2007 balance sheet, what
amount should Superman report as investment in associate?

a. 2,100,000 c. 2,200,000
b. 2,800,000 d. 2,760,000
45. Country Company owns 20% of Anito Company’s preferred stock and 80% of its common stock. Anito’s
stock outstanding at December 31, 2007 is as follows:

10% cumulative preferred stock 5,000,000

Common stock 7,000,000

Anito reported net income P3,000,000 for the year ended December 31, 2007. What amount should
Country record as equity in earnings of Anito for the year ended December 31, 2007?

a. 2,000,000 c. 2,400,000
b. 2,100,000 d. 2,300,000
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46. On January 1, 2005, SM Company acquired 10% of the outstanding voting stock of Penny Company.
On January 1, 2006, SM gained the ability to exercise significant influence over financial and operating
control of Penny by acquiring an additional 20% of Penny’s outstanding stock. 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, 2005 and 2006, Penny reported the following:
2005 2006
Dividend paid 2,000,000 3,000,000
Net income 6,000,000 6,500,000

19. In 2006, what amounts should SM report as current year investment income and as an
adjustment, before income tax, to 2005 investment income?
2006 Adjustment to
Investment income 2005 investment income
a. 1,950,000 1,600,000
b. 1,950,000 1,000,000
c. 1,950,000 400,000
d. 1,050,000 400,000
47. SM Company acquired 30% of Uniwide Company’s voting stock for P2,000,000 on January 1, 2006.
SM’s 30% interest in Uniwide gave SM the ability to exercise significant influence over Uniwide’s
operating and financial policies. During 2006, Uniwide earned P800,000 and paid dividend of P500,000.
Uniwide reported earnings of P1,000,000 for the 6 months ended June 30, 2007. On July 1, 2007, SM
sold half of its stock in Uniwide for P1,500,000 cash. Uniwide paid dividend of P600,000 on October 1,
2007. Before income tax, what amount should SM include in its 2006 income statement as a result of
the investment?

a. 150,000 c. 240,000
b. 500,000 d. 800,000

Problem

48. You were engaged by AMAYA COMPANY to audit its financial statements for the year 2007.
During the course of your audit, you noted that the following trading securities were properly
reported as current assets at December 31, 2006:

Cost Market
Aquata Corporation, 10,000 shares,
convertible preferred shares P 900,000 P 975,000
Andrina, Inc., 60,000 shares of common stock 1,350,000 1,485,000
Attina Co., 20,000 shares of common stock 1,237,500 900,000
P3,487,500 P3,360,000

The following sale and conversion transactions transpired during 2007:

Mar. 27 Sold 25,000 shares of Andrina for P33.75 per share.
April 15 Sold 5,000 shares of Attina for P45 per share.
Sept. 21 Converted 5,000 shares of Aquata’s preferred stock into 15,000 shares
of Aquata’s common stock, when the market price was P78.75 per
share for the preferred stock and P47.25 per share for the common
stock.

The following 2007 dividend information pertains to stocks owned by AMAYA:

Jan. 12 Attina issued a 10% stock dividend when the market price of Attina’s
common stock was P49.50 per share.
March 31 and Aquata paid dividends of P2.50 per share on its preferred stock, to
Sept. 30 stockholders of record on March 15 and September 15, respectively.
Aquata did not pay dividends on its common stock during 2007.
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July 1 Andrina paid a P2.25 per share dividend on its common stock.
June 30 Adella paid semi-annual dividends of P1.50 on each of these dates.
and Dec. 31 Adella’s net income for the year ended December 31, 2007 was
P2,400,000.

On January 2, 2007, AMAYA purchased 100,000 shares of Adella Corporation common stock
for P3,600,000, representing 20% of Adella’s outstanding common stock and an underlying
equity of P3,150,000 in Adella’s net assets on January 2, 2007.

AMAYA intends to hold Adella’s stock as a long-term investment, with the remaining
investments being considered as held for trading. Market prices per share of the securities
were as follows:
12/31/2007 12/31/2006
Aquata Corp., preferred 92.25 97.50
Aquata Corp., common 42.75 38.25
Andrina, Inc., common 22.50 24.75
Attina Co., common 40.50 45.00
Adella Corp., common 40.00 36.75

All of the foregoing stocks are listed in the Philippine Stock Exchange. Declines in market value
from cost would not be considered permanent.

REQUIRED
Based on the above and the result of your audit, you are to provide the answers to the
following:
1. How much is the gain on sale of Andrina shares?
a. P225,000 b. P281,250 c. P562,500 d. P0
2. How much is the gain or loss on sale of Attina shares?
a. P20,455 gain b. P56,250 gain c. P56,250 loss d. P0
3. How much is the gain or loss on conversion of 5,000 Aquata preferred stock into 15,000
common stock?
a. P93,750 loss b. P258,750 gain c. P56,250 loss d. P0
4. How much is the total dividend income for the year 2007?
a. P128,750 b. P103,750 c. P202,750 d. P728,750
5. How much is the net investment income on investment in Adella Corp. in 2007?
a. P480,000 b. P457,500 c. P577,500 d. P502,500
6. How much is the carrying amount of AMAYA’s investment in Adella Corp. as of
December 31, 2007?
a. P3,780,000 b. P3,600,000 c. P3,757,500 d. P4,000,000
7. The trading securities should be reported on AMAYA’s December 31, 2007 balance
sheet at
a. P2,578,500 b. P2,587,500 c. P5,813,500 d. P2,421,000

8. How much should be reported as unrealized gain on trading securities?

a. P135,545 b. P9,000 c. P118,500 d. P0
49. On June 1, 2006, TENG Corporation purchased as a long term investment 4,000 of the P1,000
face value, 8% bonds of LEA Corporation. TENG Corporation has the positive intention and
ability to hold these bonds to maturity. The bonds were purchased to yield 10% interest.
Interest is payable semi-annually on December 1 and June 1. The bonds mature on June 1,
2012. On November 1, 2007, TENG Corporation sold the bonds for a total consideration of
P3,925,000.
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QUESTIONS:
Based on the above and the result of TENG audit, determine the following: (Round off present
value factors to four decimal places)
1. The purchase price of the bonds on June 1, 2006 is
a. P3,645,328 b. P3,696,736 c. P3,691,132 d. P3,624,596
2. The interest income for the year 2006 is
a. P215,850 b. P212,830 c. P215,521 d. P211,612
3. The carrying value of the investment in bonds as of December 31, 2006 is
a. P3,725,919 b. P3,719,986 c. P3,649,541 d. P3,671,491
4. The interest income for the year 2007 is
a. P306,607 b. P311,218 c. P310,715 d. P304,748
5. The gain on sale of investment in bonds on November 1, 2007 is
a. P21,196 b. P27,632 c. P80,235 d. P104,045