This Study Resource Was: Investments

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Chapter 9
Investments
NAME: Date:
Professor: Section: Score:
QUIZ 1: TRUE OR FALSE

1. According to PFRS 9 Financial instruments, investments in stocks are initially
recorded at cost and all commissions, taxes, and other fees are expensed as
incurred.
2. Unrealized holding gains and losses on investments in held for trading securities
are recognized in profit or loss.
3. Unrealized gains and losses on investments in equity securities measured at FVOCI

are recognized in the income statement.
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4. A debit balance in the “Fair Adjustment – FVOCI” account implies a corresponding
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owners' equity account with a credit balance of the same amount.
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5. According to PFRS 9, the classification of financial assets for subsequent
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measurement purposes is based on management's intentions.
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6. The net reported balance in the “investment in equity securities – FVOCI” account
is the original cost plus a credit balance in the fair value adjustment account or
minus a debit balance in the fair value adjustment account.
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7. When investments in held for trading securities are sold, the realized gain or loss is
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the difference in the fair value since acquisition.

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8. Unrealized holding gains on investments measured at fair value through other

comprehensive income are recognized as direct increases to owners' equity, rather
than through the statement of comprehensive income.
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9. Increases in the fair value of held for trading securities and investments in equity
securities measured at FVOCI cause the related fair value adjustment account to
decrease.
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10. Investments in held for trading securities may be classified as current or long-term.
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“Go ahead and be lazy; sleep on, but you will go hungry.” (Proverbs 19:15)
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- END –
ANSWERS TO QUIZ 1:
1. FALSE 6. FALSE
2. TRUE 7. FALSE
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3. FALSE 8. FALSE
4. TRUE 9. FALSE
5. FALSE 10. FALSE
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NAME: Date:
Professor: Section: Score:
QUIZ 2:
1. Changes in fair value of this type of securities are accumulated as a separate
component in the stockholders' equity section of the balance sheet.
a. Financial assets measured at amortized cost
b. FVOCI securities
c. Held for trading securities
d. Designated financial assets
2. Which category includes only debt securities?

a. Financial assets measured at amortized cost
b. FVPL assets
c. Held for trading securities
d. FVOCI (election)
3. A correct valuation is
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a. investment in equity securities at amortized cost.
b. held for trading securities at amortized cost.
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c. debt securities, to be held until maturity to collect cash flows from principal and
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interests, at fair value.
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d. none of these.
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4. Securities which could be classified as financial assets measured at amortized cost
are
a. investment in stocks.
b. warrants.
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c. municipal bonds.
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d. treasury stock.
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5. Which of the following is not correct regarding held for trading securities?
a. They are held to be sold in a short period of time.
b. Unrealized holding gains and losses are reported as part of profit or loss.
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c. Any discount or premium is not amortized.

d. All of these are correct.
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6. A debit balance in the “Fair Value Adjustment - FVOCI Securities” account at the
end of a year should be interpreted as
a. the net unrealized holding gain for that year.
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b. the net realized holding gain for that year.

c. the net unrealized holding gain to date.
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d. the net realized holding gain to date.
7. A debit balance in the “Fair Value Adjustment - Held for Trading Securities”
account at the end of a year should be interpreted as
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a. the net realized holding gain to date.

b. the net unrealized holding gain to date.
c. the net realized holding gain for that year.
d. the net unrealized holding gain for that year.
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8. Unrealized holding gains or losses which are recognized in profit or loss are from
securities classified as
a. amortized cost.
b. FVOCI.
c. held for trading.
d. designated and held for trading.
9. An unrealized holding gain on a company's FVOCI securities should be reflected in

the current financial statements as
a. an extraordinary item shown as a direct increase to retained earnings.
b. a current gain resulting from holding securities.
c. a note or parenthetical disclosure only.
d. other comprehensive income and included in the equity section of the balance
sheet.
10. Changes in fair value of an investment measured at fair value through other
comprehensive income
a. must be recognized in profit or loss.
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b. must be recognized directly in equity.
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c. may be recognized in profit or loss or directly in equity.
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d. must be recognized in other comprehensive income and accumulated in a
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separate equity account.
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11.
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At initial recognition, an entity may make an irrevocable election to present in
other comprehensive income subsequent changes in the fair value of an investment
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in equity securities within the scope of PFRS 9 that is not held for trading. In
accounting for such financial instruments, all of the following are true except
a. amounts presented in other comprehensive income are not be subsequently
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transferred to profit or loss.

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b. the entity may transfer any cumulative fair value gains or losses within equity.
c. dividends received on the investments are recognized in profit or loss.
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d. cumulative fair value gains or losses are transferred to profit or loss when the
financial asset is derecognized.
12. An entity sells an investment that is measured at FVPL during the year. The
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realized gain or loss on the sale is computed as

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a. the difference between the sale price and the carrying amount of the investment
as at the date of sale.
b. the difference between the sale price and the original acquisition cost of the
investment.
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c. the difference between the net proceeds received from the sale and the carrying
amount of the investment as at the date of sale.
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d. the difference between the net proceeds received from the sale and the carrying
amount of the investment as at the date of sale adjusted for any accumulated
fair value gains or losses recognized since the investment was acquired.
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13. For which type of investments would unrealized fair value gains and losses be
accumulated in an equity account?
a. Equity method securities
b. FVOCI securities
c. Held for Trading securities
d. Held-to-maturity securities
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14. If the combined fair value of held for trading securities at the end of the year is
less than the fair value of the same portfolio of held for trading securities at the
beginning of the year, the difference should be accounted for by
a. reporting an unrealized loss in security investments in the stockholders'
equity section of the balance sheet.
b. reporting an unrealized loss in security investments in profit or loss.
c. a footnote to the financial statements.
d. a debit to Investment in Held for Trading Securities.
15. Information regarding Stone Co.’s portfolio of FVOCI securities is as follows:

Aggregate cost as of 12/31/03 170,000
Unrealized gains as of 12/31/03 4,000
Unrealized losses as of 12/31/03 26,000
Net realized gains during 2003 30,000
At December 31, 2002, Stone reported an unrealized loss of ₱1,500 in other

comprehensive income to reduce these securities to market. Under the accumulated
other comprehensive income in stockholders’ equity section of its December 31, 2003
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balance sheet, what amount should Stone report?
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a. 26,000 c. 20,500
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b. 22,000 d. 0
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16. Caloy Co. bought 1,000 shares from Bayan Co. The shares have no active
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market, but an identical or similar asset has an active market. The identical asset,
however, has multiple markets. Caloy determines that the identical asset has the
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following market values:
Marke Marke
tA tB
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Quoted price 500 600

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Related transaction
25 150
cost
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How much is fair valuation of the investment?

a. 500,000 c. 450,000
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b. 475,000 d. b or c
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17. On January 1, 20x1, Allan Co. purchased ₱400,000 bonds for ₱392,000. The
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bonds mature on January 1, 20x5 and pay 12% annual interest beginning January 1,
20x2. Transaction costs are negligible. The bonds were classified as held for
trading securities. On December 31, 20x1, the bonds are selling at a yield rate of
10%. How much is the unrealized gain (loss) recognized on December 31, 20x1?
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a. 27,986
b. 31,298
c. 28,964
d. 33,359
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18. On January 1, 20x1, Rizzi Co. purchased 12,000 shares of Andre, Inc. for
₱400,000. Commission paid to broker amounted to ₱20,000. Management made an
irrevocable choice to subsequently measure the shares at fair value through other
comprehensive income. On December 31, 20x1, the shares were quoted at ₱40 per
share. On January 3, 20x2, all of the shares were sold at ₱60 per share. Commission
paid on the sale amounted to ₱24,000. How much is the unrealized gain (loss)
recognized in profit or loss on December 31, 20x1?
a. (60,000)
b. 60,000
c. (80,000)
d. 0
Use the following information for the next two questions:

Karen Co. purchased the following equity securities on January 1, 20x1 for a total
amount of ₱360,000.
Cost
Alaska Co. preference shares ₱200,000
Valdez Co. ordinary shares 160,000
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Totals ₱360,000
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The shares did not qualify for recognition as held for trading. Accordingly, they were
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classified as investment in equity securities measured at fair value through other
comprehensive income.
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On December 31, 20x1, the portfolio of Karen Co. comprised the following.
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Fair value – 12/31/x1
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Total ₱300,000
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On December 31, 20x2, the portfolio of Karen Co. comprised the following:
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Fair value – 12/31/x2

Total ₱400,000
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On February 2, 20x3, all of the Alaska Co. preference shares were sold for ₱160,000
net of transaction costs.
19. How much is the unrealized gain (loss) recognized in other comprehensive
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income on December 31, 20x1?

a. 60,000
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b. (60,000)
c. 100,000
d. 0
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20. How much is the cumulative unrealized gain (loss) that is presented as a
separate component in equity as of December 31, 20x2?
a. 40,000
b. (40,000)
c. 100,000
d. 0
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“From the fruit of his mouth a man’s stomach is filled; with the harvest from his lips he
is satisfied.” (Proverbs 18:20)
- END –
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SOLUTIONS TO QUIZ 2:
1. B
2. A
3. D
4. C
5. D
6. C
7. B
8. D
9. D
10. D
11. D
12. C
13. B
14. B
15. B
Solution:
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Unrealized gains as of 12/31/03 4,000
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Unrealized losses as of 12/31/03 (26,000)
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Accumulated net unrealized losses in equity
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as of 12/31/03 (22,000)
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16. A
Solution:
Market Market
A B
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Quoted price 500 600
Related transaction
cost (25) (150)
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Net selling price 475 450
The more advantageous market is Market A and the quoted price in this market is
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₱500.
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17. D [(400,000 x PV of 1 @10%, n=4) + (400,000 x 12% x PV ordinary annuity of 1

@10%, n=4) = 425,359 – 392,000 = 33,359
The fair value of the bonds on Dec. 31, 20x1 is computed as follows:
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PV Present
Future cash flows PV @10%, n=3 factors value
Principal 400,000 PV of P1 0.751315 300,526
Interest (400K x 12%) 48,000 PV of ordinary annuity 2.486852 119,369
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Fair value as of December 31, 20x1 419,895
(419,895 – 392,000) = 27,895
18. D – The investment is FVOCI. Any unrealized gain (loss) is recognized in OCI and
not P/L.
19. B (300,000 – 360,000) = (60,000)
20. A (400,000 FV 12/31/x2 – 360,000 cost) = 40,000 unrealized gain
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QUIZ 1: TRUE OR FALSE

3. Unrealized gains and losses on investments in equity securities measured at FVOCI

the difference in the fair value since acquisition.

8. Unrealized holding gains on investments measured at fair value through other

2. Which category includes only debt securities?

c. Any discount or premium is not amortized.

b. the net realized holding gain for that year.

d. the net realized holding gain to date.

a. the net realized holding gain to date.

9. An unrealized holding gain on a company's FVOCI securities should be reflected in

transferred to profit or loss.

realized gain or loss on the sale is computed as

15. Information regarding Stone Co.’s portfolio of FVOCI securities is as follows:

At December 31, 2002, Stone reported an unrealized loss of ₱1,500 in other

Quoted price 500 600

How much is fair valuation of the investment?

Use the following information for the next two questions:

Fair value – 12/31/x2

income on December 31, 20x1?

Quoted price 500 600

Net selling price 475 450

17. D [(400,000 x PV of 1 @10%, n=4) + (400,000 x 12% x PV ordinary annuity of 1

Principal 400,000 PV of P1 0.751315 300,526

Interest (400K x 12%) 48,000 PV of ordinary annuity 2.486852 119,369

Fair value as of December 31, 20x1 419,895

(419,895 – 392,000) = 27,895

19. B (300,000 – 360,000) = (60,000)

20. A (400,000 FV 12/31/x2 – 360,000 cost) = 40,000 unrealized gain

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