MULTIPLE CHOICE - Problems

1. On July 1, 2012, Clincox Company purchased as held to maturity securities, Enreign

Corporation's 10-year, 8% bonds with a face amount of P1,000,000 for P840,000. The bonds pay
interest semi-annually on June 30, and December 31. Clincox recorded bond discount
amortization of P3,600 for the six months ended December 31, 2012. How much is the interest
revenue of Clincox from this investment in 2012?

A. P33,600
B. P36,400
C. P40,000
D. P43,600

2. On January 1, 2012, Bay Company purchased as held to maturity securities, P2.000.000 of

Epvaign Company's 8% bonds for P1,812,000. The bonds were purchased to yield 10% interest.
The bonds mature on January 1, 2019 and pay interest semi-annually on January 1 and July 1.
Bay uses the effective interest method of amortization.

In its December 31, 2012 statement of comprehensive income, what amount should Bay report
as interest revenue?
A. P200,000
B. P181,730
C. P181,200
D. P160,000

3. On January 1, 2011, Bretzign Company purchased as held to maturity securities, P1,000,000

face value of Bautzen, Inc.'s 8% bonds for P912,400. The bonds were purchased to yield 10%.
The bonds mature on January 1, 2017 and pay interest annually on January 1. Bretzign uses the
interest method of amortization.

What amount (rounded to nearest P100) should Bretzign report as held to maturity securities on
December 31, 2012 statement of financial position?
A. P912,400
B. P923,600
C. P932,400
D. P936,000

4. What is the interest revenue reported by Bretzign from this investment for the year ended
December 31, 2012?

A. P80,000
B. P91,240
C. P91,521
D. P92,360
5. On July 1, 2012, Sprakenheit Company purchased as trading securities P500,000 face value
Swazzeg, 8% bonds for P455,000 plus accrued interest. The bonds mature on January 1, 2019
and pay interest annually on January 1. On December 31, 2012, the bonds have a market value
of P472,500. On February 14, 2013, Sprakenheit sold the bonds for P460,000.

On its December 31, 2012 statement of financial position, what amount should Sprakenheit
report as trading securities?

A. P455,000 C. P460,000
B. P457,750 D. P472,500

6. What is the interest revenue reported by Sprakenheit for the year 2012?

A. P15,000 C. P20,000
B. P18,000 D. P22,750

7. What is the gain or loss on the sale of the bond investment in 2013?

A. P 5,000 gain C. P40,000 gain

B. P12,500 loss D. No gain or loss

8. Pragheux Company purchased held to maturity bonds at a discount of P20,000. Subsequently,

Pragheux sold these bonds at a premium of P28,000. During the period that Pragheux held this
investment, amortization of discount amounted to P4,000.

What amount should Pragheux report as gain on the sale of the bond investment?

A. P24,000 C. P48,000
B. P44,000 D. P52,000

9. On January 1, 2012, Scruffy Company purchased eight-year bonds with a face value of
P2,000,000 and a stated interest rate of 12%, payable semi- annually on June 30 and December
31. The bonds were purchased to yield 14%. Present value (PV) factors are:

12% 14% 6% 7%
PV of 1 for 8 periods 0.4039 0.3506 0.6274 0.5820
PV of 1 for 16 periods 0.1631 0.1229 0.3936 0.3387
PV of annuity of 1 for 8 periods 4.9676 4.6389 6.2098 5.9713
PV of annuity of 1 for 16 periods 6.9740 6.2651 0.1059 9.4466

What is the purchase price for the bond?

A. P1,163,080 C. P1,814,536
B. P1,810,992 D. P2,000,000
10. October 1, 2012, Ghregny Company purchased as trading securities, P100,000, 14% bonds of
Hampyn Company for 99 plus accrued interest and broker's fees. Interest is paid semi-annually
on February 1 and August 1. Broker's fees incident to this purchase amounted to P500.

What is the amount of interest revenue reported by Ghregny on this bond investment in the
2012 statement of comprehensive income?
A. PO
B. P3,465
C. P3,483
D. P3,500

11. On September 1, 2012, the Sumsunekeni Company acquired P1,000,000 face value, 12% bonds
of Key Company at 104 plus accrued interest. The bonds are intended to be held until maturity.
The bonds were dated May 1, 2012 and mature on April 30, 2016 with interest payable each
October 31 and April 30.

What entry should Sumsunekeni Company make to record the purchase of the bonds on
September 1, 2012?

A. Held to maturity securities 1,040,000

Interest receivable 40,000
Cash 1,080,000

B. Held to maturity securities 1,080,000

Cash 1,080,000

C. Held to maturity securities 1,080,000

Interest receivable 40,000
Cash 1,040,000

D. Held to maturity securities 1,000,000

Premium on bonds 80,000
Cash 1,080,000

12. On January 1, 2011, Vivacompenhagen Company purchased bonds with a face value of
P3,000,000 for P3,108,000 to yield 12%. The bonds are due on December 31, 2015 and carry a
13% interest rate. Interest is receivable annually on December 31.

On June 30, 2012, one-half of the bonds were sold for P1,595,000 plus accrued interest. The
remainder was reclassified as available for sale securities. At December 31, 2012, the bonds
were quoted at 101.

What is the gain on the sale of the bond investment?

A. P95,000
B. P54,291
C. P49,250
D. P41,000
13. What is the carrying value of the remaining bond investment reported in Vivacompenhagen's
December 31, 2012 statement of financial position?

A. P1,556,250
B. P1,541,250
C. P1,526,250
D. P1,515,000

14. On June 1, 2011, Schrouck Company purchased as held to maturity securities, 8,000 of P1.000
face value, 8% bonds of Spark Company for P7,383,000. 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, 2016. Schrouck uses the effective interest method of amortization.

On June 1, 2012, Schrouck sold the bonds for P7,850,000. This amount includes the appropriate
accrued interest.

What is the gain or loss on the sale of the bond investment?

A. P368,700
B. P366,240
C. P 48,700
D. P 46,240

15. If Schrouck's accounting year is the calendar year (ending on December 31), how much is the
interest revenue for the year ended December 31, 2011?

A. P320,000
B. P369,150
C. P371,608
D. P431,085

16. On July 1. 2012. Lay Company purchased term bonds of Beef Company for a total amount of
P3,050,000 which included direct transaction costs of P100.000 and appropriate accrued
interest.

The face value of the bonds was 23,000,000 and the coupon rate is 10% The bonds will mature
on December 31, 2016 and pay interest annually on December 31. Because of market
opportunities, Beef bonds were classified as trading securities by Lay Company. The bonds are
quoted at 105 on December 31, 2012.

What is the unrealized gain to be recognized in Lay Company's profit and loss for 2012?
A. P50,000
B. P200,000
C. P250,000
D. P350,000
17. On December 31, 2011, Smith Company purchased P3,000,000 serial bonds with a nominal rate
of 10% and effective rate at that time is 13%. Bonds with a face value of P1,000,000 mature on
December 31, 2012 and every December 31 thereafter. Smith classifies this investment as held
to maturity securities. Present value factors at 13% are as follows: 1 period 0.885: 2 periods -
0.783; 3 periods -0.693.

What is the initial cost of the bond investment?

A. P2.586,000
B. P2,852,400
C. P3,000,000
D. P3,001,900

18. What is carrying value initial cost of the bond investment on December 31, 2012?
A. P1,923,212
B. P2,852,400
C. P2,923,212
D. P3,000,000

19. On January 1, 2011, Well Company purchased 3,000, P1,000 face value term bonds with a
stated rate of 10% as held to maturity securities. The bonds pay interest annually on December
31 and will be redeemed entirely by the issuer on December 31, 2014. The bond investment
was purchased for P2,819,100 at an effective rate of 12%. On December 31, 2012, this
investment was reclassified as available for sale securities to be held indefinitely, at which date,
the bonds are quoted at 101.

What is the carrying value of the bond investment on December 31, 2012 prior to
reclassification?
A. P3,000,000
B. P2,900,279
C. P2,857,392
D. P2,780,808

20. What is the amount at which the available for sale securities shall be recorded upon
reclassification on December 31, 2012?

A. At market value of P3,030,000 and the difference between market value and amortized cost
is taken to equity
B. At market value of P3,030,000 and the difference between market value and amortized cost
is taken to profit or loss
C. at amortized cost
D. At face value
21. Power company purchased the following securities during 2012:

Feb.1 Blossom ordinary shares, 2,000 shares for P374,000. The shares
represent 2% of the total outstanding shares of blossom.
April.1 10% treasury bonds due April 1, 2022; interest is payable April 1 and October 1; 100 of
P10,000 face value bonds purchase @100.
July.1 Buttercup 12% bonds, P150,000, face value dated March 1, 2012; purchased at face
value plus accrued interest. Interest is payable annually on March 1. The bonds are due
on March 1, 2022.

All of these securities are classified as financial assets at fair value through profit or loss.

How much total income shall Power report for the year 2012 as a result of its holdings in the
above securities?
A. P(1,000)
B. P83,000
C. P84,000
D. P89,000

22. On January 1, 2011, Desiree Company purchased bonds with face value of P5,000,000 to be
held as available for sale. The company paid P4.742,000. The bonds mature on December 31,
2013 and pay 6% interest annually on December 31 of each year with 8% effective yield. The
bonds are quoted at 105 on December 31, 2011. The bonds are sold at 110 on December 31,
2012.

What amount of gain on sale on these bonds should be reported in the 2012 statement of
comprehensive income?
A. P758,000
B. P592,931
C. P500,000
D. P250,000

23. Palazzo Company purchased P4.000.000 of 10% bonds of Sapphire Company on January 1,
2012, paying P3,761,000. The bonds mature January 1, 2022; interest is payable each July 1 and
January 1. The discount of P239,000 provides an effective yield of 11%. Palazzo Company uses
the effective-interest method and plans to hold these bonds to maturity.

On July 1, 2012, Palazzo Company should increase its Held-to-Maturity Debt Securities account
for the Sapphire Company bonds by

A. P23,900
B. P13,710
C. P11,950
D. P6,855
24. For the year ended December 31, 2012, Palazzo Company should report interest revenue from
the Sapphire bonds of

A. P376,000
B. P414,087
C. P413,710
D. P400,000

25. Orchard Company purchased P500,000 of 8%, 5-year bonds from Ritchie, Inc. on January 1,
2012, with interest payable on July 1 and January 1. The bonds sold for P520,790 at an effective
interest rate of 7%. Using the effective-interest method, Orchard Company decreased the
Available-for- Sale Debt Securities account for the Ritchie, Inc. bonds on July 1, 2012 and
December 31, 2012 by the amortized premiums of P1,770 and P1,830. respectively.

At December 31, 2012, the fair value of the Ritchie, Inc. Bonds was P530,000.

What should Orchard Company report as other comprehensive income and as a separate
component of shareholders' equity?

A. P12,810
B. P 9,210
C. P 3,600
D. No entry should be made