UP Junior Philippine Institute of Accountants

Education and Research Committee

rd
Academic Year 2016-2017 BA 99.2 3 Long Exam

I. THEORY
1. The effective interest method of amortizing discount provides for
A. Increasing amortization and increasing interest income
B. Increasing amortization and decreasing interest income
C. Decreasing amortization and decreasing interest income
D. Decreasing amortization and decreasing interest income

2. An investor purchased a bond as a long---term investment on January 1. Annual interest was received on December
31. The investor‟s interest income for the year would be lower if the bond was purchased at
A. A discount
B. A premium
C. Par
D. Face value

3. At which of the following dates has the shareholder theoretically realized income from dividends?
A. Date the dividend is declared

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B. Date of record

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C. Date the dividend check is mailed by the entity

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D. Date the dividend check is received by the shareholder

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4. Which of the following is not a characteristic of an FVTPL security

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A. Acquired principally for the purpose of generating a profit from short-term fluctuations in price margin

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B. Normally classified as current assets
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C. Acquired with the intent of holding until maturity
D. Changes in fair value are reflected in the Income Statement

5. The following are the characteristics of investments, except:

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A. They are not directly identified with the operating activities of an entity
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B. They are held by entities for ownership control

C. They occupy a major relationship to the central revenue producing activities of the entity
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D. They are acquired for capital appreciation

6. Transaction costs directly attributable to the acquisition of trading securities shall be

A. Capitalized as cost of the investment
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B. Expensed immediately
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C. Charged to retained earnings

D. Treated as a component of equity

7. Which of the following is true regarding trading securities?

A. Unrealized gain or loss from changes in market value is reported in the Revenue (expense) section of Income
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Statement
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B. During sale between interest payment dates, accrued interest should not be included in the selling price in
determining he amount of gain or loss
C. Gain or loss is determined by comparing the original cost with the selling price of the securities
D. Interest is not accrued if balance sheet does not fall on interest payment dates

8. The equity method is a method of accounting whereby

I. The investment is initially recorded at cost and adjusted thereafter for the post acquisition change in the investor‟s
share in the net assets of the investee.
II. The investment is initially recorded at cost and the income statement reflects income from the investment only to the
extent that the investor receives distributions from accumulated net profits of the investee arising subsequent to the date
of acquisition
A. I only
B. II only
C. Both I and II
D. Neither I nor II
9. In its financial statements, Bryan Corporation uses the equity method of accounting for its 30% ownership of
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 ShE&Rlock Corporation. At December 31, 2009, Bryan has a dividends receivable from ShE&Rlock. How should the
receivable be reported in Bryan‟s 2009 financial statement?
A. The entire receivable should be offset against Bryan‟s investments in ShE&Rlock Corporation
B. Seventy percent of the receivable should be separately reported, with the balance offset against 30% of
ShE&Rlock „s payable to Bryan
C. The total receivable should be disclosed separately
D. The total receivable should be included as part of the investment in ShE&Rlock, without separate disclosure

10. These investments are known as “financial assets at fair value through profit of loss”
A. Available for sale securities
B. Loans and receivables
C. Trading securities
D. Held to maturity securities

11. Which statement is incorrect concerning subsequent measurement of financial assets?

A. Held to maturity securities are measured at amortized cost using the straight line method
B. Trading securities are measured at fair value
C. Available for sale securities are measured at fair value
D. Nonmarketable equity securities are measured at cost

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12. In classifying investments in the balance sheet, which of the following statements is incorrect?

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A. Trading accounts are necessarily classified as current assets

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B. Held to maturity investments are necessarily classified as current

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C. Available for sale securities are necessarily classified as current assets
D. Loans and Receivables can be classified as current or noncurrent

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13. Investing activities include:
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A. Cash payments for future contracts, forward contract, option contract and swap contract
B. Cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease
C. Cash repayments of borrowed funds
D. Cash payments to and on behalf of employees
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14. To have control over an entity, you need an ownership percentage of

A. < 20%
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B. 20% ≤ x ≤ 50%
C. ≥ 50%
D. > 50%
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15. In recording interest income in debt investments, which of the following statements is correct?
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A. Trading accounts uses the coupon interest

B. Held to maturity investments uses the effective interest
C. Available for sale securities uses the effective interest
D. All of the above
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16. A credit balance in the unrealized gain or loss – other comprehensive income is reported as a/an
A. Increase in stockholder‟s equity
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B. Decrease in stockholder‟s equity

C. Increase in income statement
D. Decrease in income statement

17. The primary purpose of the statement of cash flows is

A. To provide relevant information about cash receipts and cash payments of an entity during the period
B. To help investors, creditors and other users to assess the entity‟s ability to generate positive future net cash flows
C. To disclose separately noncash investing and financing activities
D. To assess the ability of the entity to pay dividends to stockholders

18. An entity shall prepare a statement of cash flows and shall present it as
A. Supplementary financial statement
B. Note to financial statement
C. Supporting schedule for amount appearing as cash and cash equivalent
D. Integral part of the entity‟s basic financial statements
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 19. An entity may hold securities for dealing or trading purposes. Cash flows arising from the purchase and sale of
dealing or trading securities are
A. Classified as operating activities
B. Classified as investing activities
C. Classified as financing activities
D. Not reported in the cash flow statement

20. Cash receipts from issuing shares and other equity instruments are
A. Cash inflows from investing activities
B. Cash outflows from investing activities
C. Cash inflows from financing activities
D. Cash outflows from financing activities

21. These are the principal revenue---producing activities of the entity

A. Operating activities
B. Investing activities
C. Financing activities
D. Borrowing activities

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22. Which classification of the cash flow arising from the proceeds from an earthquake disaster settlement would be most

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appropriate?

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A. Cash flows from operating activities

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B. Cash flows from investing activities
C. Cash flows from financing activities

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D. Does not appear in the statement of cash flows

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23. In a statement of cash flows using indirect approach for operating activities, an increase in inventory is presented as
A. Outflow of cash
B. Inflow and outflow of cash
C. Addition to net income
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D. Deduction from net income

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24. In a statement of cash flows, depreciation is treated as an adjustment to reported net earnings because depreciation
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A. Is a direct source of cash

B. Reduces reported net earnings but does not involve an outflow of cash
C. Reduces reported net earnings and involves an inflow of cash
D. Is an inflow of cash to a reserve account for replacement of assets
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25. The amortization of bond discount related to long-term debt is presented in a statement of cash flows prepared using
the indirect method as
A. Inflow and outflow of cash
B. Outflow of cash
C. Deduction from net income
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D. Addition to net income

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26. An entity purchased a three-month BSP Treasury Bill. In preparing the entity‟s cash flow statement, this purchase
would
A. Have no effect
B. Be treated as an inflow for financing activities
C. Be treated as an outflow for operating activities
D. Be treated as an outflow for investing activities

27. Noncash investing and financing transactions include all of the following, except
A. The acquisition of asset by assuming directly related liability
B. The acquisition of an entity by means of an equity issue
C. The conversion of debt to equity
D. Noncash items such as depreciation, deferred taxes and unrealized foreign currency gains and losses

28. Would the following be added back to net income when reporting cash flows from operating activities by the indirect
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 method?
I. Excess of treasury stock acquisition cost over sales proceeds
II. Bond discount amortization
A. I only
B. II only
C. Both I and II
D. Neither I nor II

II. SHORT PROBLEMS

1. On December 31, 2016, JM Company had investments in trading securities as follows:
Cost Market Value
Marielle Company 1,000,000 1,300,000
Lawrence Company 900,000 1,100,000
Alyssa Company 1,100,000 900,000
JM Company‟s December 31, 2016 balance sheet should report trading securities at:

2. On July 1, 2015, Faith Company exchanged a truck for 25,000 ordinary shares of Vinoya 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 Vinoya‟s share
was P60. On December 31, 2015, Vinoya had 250,000 ordinary shares outstanding and its book value per share was
P50. What amount should Faith report in its December 31, 2015 balance sheet as investment in Vinoya?

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3. On January 1, 2015, Wilbert Company purchased as a long-term investment 100,000 ordinary shares of Kevin
Company for P40 a share. On December 31, 2015, the market price of Kevin‟s share was P35, reflecting a temporary

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decline in market price. On December 28, 2016 Wilbert sold 80,000 shares of Kevin Company for P30 a share. For the
year ended December 31, 2016, Wilbert should report a loss on disposal of long-term investment of _________.

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4. On January 1, 2010, Laureen Company purchased as trading investment a P2,000,000 face value Jehiel Company 8%
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bond for P1,850,000 plus accrued interest to yield 10%. The bonds mature on January 1, 2015, and pay interest annually
on December 31. On December 31, 2010, the bonds had a market value of P1,890,000. On February 15, 2011, Laureen
sold the bonds for P1,900,000. In its December 31, 2010 balance sheet, what amount should Laureen report for
investments in trading securities?
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5. Angel Company purchased bonds at a discount of P100,000. Subsequently, Angel sold these bonds at a premium of
P140,000. During the period that Angel held this investment, amortization of the discount amounted to P20,000. What
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amount should Angel report as gain on sale of bonds?

6. On July 1, 2016, Justin 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%. Justin uses the effective interest method to
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recognize interest income from this investment. What should be reported as the carrying amount of the bonds in the
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December 31, 2016 balance sheet?

7. David Company provided the following data for the current year:

Cash balance, beginning of the year 1,300,000

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Cash flow from financing activities 1,000,000

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Total shareholders‟ equity, end of year 2,300,000

Cash flow from operating activities 400,000
Cash flow from investing activities (1,500,000)
Total shareholders‟ equity, beginning of year 2,000,000

What is the cash balance at the end of the current year?

8. Jason Company provided the following data for the preparation of the cash flow statement for the current year:

Dividends declared and paid 800,000

Cash flow from investing activities (2,500,000)
Cash flow from financing activities (800,000)

January 1 December 31
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 Cash 1,200,000 2,100,000
Other assets 22,700,000 21,000,000
Liabilities 11,700,000 10,500,000
Share capital 2,000,000 2,000,000
Retained earnings 10,200,000 10,600,000

How much was reported as cash flow from operating activities?

9. The following information pertains to Lanuzo Company during the current year.

Dividend received 500,000

Dividend paid 1,000,000
Cash received from customers 9,000,000
Proceeds from issuing share capital 1,500,000
Interest received 200,000
Proceeds from sale of long term investments 2,000,000
Cash paid to suppliers and employees 6,000,000
Interest paid on long term debt 400,000
Income taxes paid 300,000

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Cash balance, January 1 1,800,000

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What is the net cash provided by operating activities for the current year using the direct method?

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10. Kayla Company had the following account balances for the current year:

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Accounts payable
January 1
700,000
December 31
500,000
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Inventory 450,000 300,000
Accounts receivable 750,000 800,000
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All purchases of inventory were on account. Kayla Company provided the following income statement information for the
current year.
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Revenue 9,800,000
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Cost of goods sold (4,000,000)

Other expenses (1,300,000)
Depreciation expense (1,000,000)
Loss on sale of equipment (100,000)
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Net income 3,400,000

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The cash flow statement should show net cash flow from operating activities at ___________.

11. Zuriel Company had the following account balances for the current year:
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January 1 December 31
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Accounts payable 650,000 500,000

Inventory 250,000 300,000
Accounts receivable 900,000 800,000
Prepaid expenses 600,000 400,000

All purchases of inventory were on account. Depreciation expense of P900,000 was recognized during the year.
Equipment was sold during the year and a gain of P300,000 was recognized.

Zuriel provided the following cash flow information for the current year:
Cash collected from customers 9,500,000
Cash paid for inventory (4,100,000)
Cash paid for other expenses (1,400,000)
Cash flow from operations 4,000,000
What was Zuriel‟s net income for the current year?

12. The transactions of Sigrid Company for the year ended December 31, 2016 included the following:
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 Purchase of real estate for cash (cash was borrowed from bank) 5,500,000
Sale of investment securities for cash 5,000,000
Dividends paid 6,000,000
Issuance of ordinary shares for cash 2,500,000
Purchase of patent for cash 1,250,000
Payment of bank loan 1,500,000
Increase in customers‟ deposit 200,000
Issuance of bonds payable for cash 3,000,000

Sigrid‟s net cash provided by financing activities was ___________.

13. Assume same information provided in number 12, Sigrid‟s net cash used in investing activities was _____________.

14. Ethan Company reported a P50,000 Unrealized loss on its December 31, 2015 balance sheet. There was no change
in Ethan‟s equity securities held as available-for-sale. The cost and market value of the securities are as follows:

Cost Market Value at 12/31/2016

Romel Company 1,300,000 1,250,000
Raphael Company 1,100,000 1,200,000

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Renzo Company 950,000 1,100,000

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A. What amount should be reported as unrealized gain or loss in Ethan‟s December 31, 2016 balance sheet?

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Indicate whether it is a gain or a loss.
B. Give the entry for Market Adjustment.

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15. Kurt Company purchased available-for-sale securities on October 1, 2009 for P2,000,000. The company also incurred
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transaction costs worth P250,000. The securities had a market value of P2,200,000 on December 31, 2009. There was no
other transaction relating to the securities on 2009. What is the Unrealized Gain or Loss reported in the 2009 statement of
changes in equity of Kurt Company? Indicate whether it is a gain or loss.
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16. On January 1, 2012, Austin Company purchased 25% of Michelle Company‟s common stock for P5,000,000. During
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2012, Michelle reported net income of P6,500,000 and paid cash dividend of P3,800,000 on its common stock. At
December 31, 2012, what should be the balance of the investment in Austin Company?
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17. On January 1, 2008, Nica Company paid P5,617,000 of 12%, 10-year bonds classified as “held-to-maturity”. The
bonds had a face value of P5,000,000, and interest is paid annually on December 31. The bonds were purchased to yield
10%. What amount of interest income on the bonds should be reported on Nica Company‟s December 31, 2009 income
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statement?
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III. LONG PROBLEM

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 E&R Company provided the following data:

2016 2015
Cash 300,000 200,000
Accounts receivable, net 840,000 580,000
Merchandise inventory 660,000 420,000
Prepaid expenses 100,000 50,000
Long-term investment 80,000 -
Property, plant and equipment 1,130,000 600,000
Accumulated depreciation 110,000 50,000
Accounts payable 530,000 440,000
Accrued expenses 140,000 130,000
Dividend payable 70,000 -
Note payable – long-term debt 500,000 -
Share capital 1,200,000 900,000
Retained earnings 560,000 330,000
Net credit sales 6,400,000 4,000,000
Cost of goods sold 5,000,000 3,200,000
Expenses 1,000,000 520,000

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Income 400,000 280,000

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All accounts receivable and accounts payable relate to trade merchandise. Accounts payable are

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recorded net and always paid to take all of the discounts allowed. The allowance for doubtful accounts at the end
of 2016 was the same as at the end of 2015. No receivables were charged against the allowance during 2016.

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The proceeds from the note payable were used to finance a new store building. Share capital was sold to provide
additional working capital.
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a. Cash collections in 2016 from customers amounted to:
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b. Cash payments to merchandise creditors in 2016 amounted to:
c. Net cash provided by financing activities for 2016 totaled:
d. Net cash used in investing activities during 2016 was:
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