On January 1, 2009, Hemingway Company acquired 200,000 ordinary shares of Universe Company for

P9,000,000. At the time of purchase, Universe Company had outstanding 800,000 shares with a book
value of P36,000,000. On December 31, 2009, the following events took place: * Universe Company
reported net income of P1,800,000 for the calendar year 2009. * Hemingway Company received from
Universe Company a dividend of P0.75 per ordinary share. * The market value of Universe Company
share had temporarily declined to P40.The investment in Universe Company is classified as available for
sale. What is the carrying value of the investment on December 31, 2009?
A. 8,000,000
B. 9,000,000
C. 9,300,000
D. 9,450,000

Data regarding Baggy Company's available for sale securities follow:

COST MARKETDecember 31, 2008 4,000,000
3,500,000December 31, 2009 4,000,000 3,200,000Differences between
cost and market value are considered temporary. The shareholders' equity section of the December 31,
2009 balance should report unrealized loss on these securities at:
A. 0
B. 300,000
C. 500,000
D. 800,000

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?
A. 0
B. 300,000
C. 500,000
D. 800,000

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:
A. 0
B. 200,000
C. 250,000
D. 500,000
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?
A. 0
B. 450,000
C. 850,000
D. 1,200,000

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?
A. 400,000
B. 450,000
C. 1,200,000
D. 1,600,000

The 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?
A. 130,000
B. 730,000
C. 2,870,000
D. 3,000,000

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?
A. 150,000
B. 180,000
C. 880,000
D. 980,000

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:
o A.
150,000
o B.
550,000
o C.
950,000
o D.
1,150,000

• 36.
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?
o A.
120,000
o B.
125,000
o C.
240,000
o D.
245,000

• 37.
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?
o A.
0
o B.
80,000
o C.
150,000
o D.
230,000

• 38.
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?
o A.
40,000
o B.
100,000
o C.
560,000
o D.
600,000

• 39.
In 2009, Neil Company held the following ordinary share investments: * 30,000 shares of Ash
Company's 100,000 outstanding shares. Neil's level of ownership gives it the ability to exercise
significant influence over the financial and operating policies of Ash. * 6,000 shares of Pikachu
Company's 300,000 outstanding shares.During 2009, Neil received the following distributions from its
investments:November 15 - P300,000 cash dividend from Ash.November 30 - P15,000 cash dividend
from Pikachu.December 31 - 3% stock dividend from Pikachu. The closing price of the share on a
national exchange was P150.What amount of dividend revenue should Neil report for 2009?
Discuss
o A.
15,000
o B.
42,000
o C.
315,000
o D.
342,000

• 40.

• 41.
Sushi Company owns 30,000 ordinary shares of Sashimi Company acquired on July 31, 2009, at a total
cost of P1,100,000. On December 1, 2009, Sushi received 30,000 stock rights from Sashimi. Each right
entitles the holder to acquire one share at P45. The market price of Sashimi's share on this date, ex-
right, was P50 and the market price of each right was P5. Sushi 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 Sushi at:
o A.
40,000
o B.
50,000
o C.
140,000
o D.
150,000

• 42.
On January 1, 2009, Fork Company purchased 50,000 ordinary shares of Ovaltine Company for
P3,600,000. On December 31, 2009, Fork received 50,000 stock rights from Ovaltine. Each right entitles
the holder to acquire on share for P85. The market price of Ovaltine's share was P100 immediately
before the rights were issued, and P90 a share immediately after the rights were issued. Fork sold its
rights on December 31, 2009 for P10 a right. Fork's gain from the sale of the rights is:
o A.
0
o B.
100,000
o C.
140,000
o D.
500,000

• 43.
Eve Company owns 50,000 ordinary shares of Blend Company, which has several hundred thousand
shares publicly traded. These 50,000 shares were purchased by Eve in 2007 for P100 per share. On
August 30, 2009, Blend distributed 50,000 stock rights to Eve. Eve was entitled to buy one new share of
Blend Company for P90 cash and two of these rights. On August 30, 2009, each share had a market
value of P 132 ex-right, and each right had a market value of P18. What cost should be recorded for each
new share that Eve acquired by exercising the rights?
A. 90
B. 114
C. 126
D. 132

Three Kings Company invested in shares of Eastern Company acquired as follows:

NUMBER OF SHARES COST2007 22,500
1,800,0002008 37,500 3,300,000In 2009, Three Kings
Company received 60,000 rights to purchase Eastern share at P80. Five rights are required to purchase
one share. At issue date, rights has a market value of P4 each and share was selling ex-right at P96.
Three Kings Company used rights to purchase 9,000 additional shares of Eastern 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. 720,000
B. 824,000
C. 871,200
D. 873,000
On January 1, 2009, Kent Company purchased 20% of Luther Company's ordinary shares outstanding for
P6,000,000. During 2009, Luther reported net income of P7,000,000 and paid cash dividend of
P4,000,000. The balance in Kent's investment in Luther Company account at December 31, 2009 should
be:
A. 5,200,000
B. 6,000,000
C. 6,600,000
D. 7,400,000

On January, 1 2008, Wayne Company bought 15% of Parrot Company's ordinary shares outstanding for
P6,000,000. Wayne appropriately accounts for this investment by the cost method. The following data
concerning Parrot are available for the years ended December 31, 2008 and 2009:
2008 2009Net income 3,000,000
9,000,000Cash dividend paid None 10,000,000In its income
statement for the year ended December 31, 2009, how much should Wayne report as income from this
investment?
A. 450,000
B. 1,350,000
C. 500,000
D. 1,800,000

On January 1, 2008, Tough Company acquired 10% of Complex Company's ordinary shares outstanding
for P6,000,000. Tough appropriately accounts for this investment by the cost method. Complex
Company reported the following for the years ended December 31, 2008 and 2007:
NET INCOME CASH DIVIDEND2008 400,000
02009 1,200,000 1,800,000In its income statement for
the year ended December 31, 2009, Easy Company should report dividend income at:
A. 0
B. 120,000
C. 160,000
D. 180,000

In January 2009, Fatty Company acquired 20% of the outstanding ordinary shares of David Company for
P8,000,000. This investment gave Fatty the ability to exercise significant influence over David. The book
value of the acquired shares was P6,000,000. The excess of cost over book value was attributed to a
depreciable asset which was undervalued on David's balance sheet and which had a remaining useful
life of ten years.For the year ended December 31, 2009, David reported net income of P1,800,000 and
paid cash dividends of P400,000 and thereafter issued 5% stock dividend. What is the proper carrying
value of Fatty's investment in David at December 31, 2009?
A. 7,720,000
B. 7,800,000
C. 8,000,000
D. 8,080,000

On July 1, 2009, Dino Company purchased 30,000 shares of Mammoth Company's 100,000 outstanding
ordinary shares for P200 per share. On December 15, 2009, Mammoth paid P400,000 in dividends to its
ordinary shareholders. Mammoth's net income for the year ended December 31, 2009 was P1,200,000,
earned evenly throughout the year. In its 2009 income statement, what amount of income from this
investment should Dino report?
A. 60,000
B. 120,000
C. 180,000
D. 360,000

On April 1, 2009, Zen Company purchased 40% of the outstanding ordinary shares of Ying Company for
P10,000,000. On that date, Ying's net assets were P20,000,000 and Zen cannot attribute the excess of
the cost of its investment in Ying over its equity in Ying's net assets to any particular factor.Ying's 2009
net income is P5,000,000. Zen plans to retain its investment in Ying indefinitely. Zen accounts for its
investment in Ying by the equity method. The maximum amount which could be included in Zen's 2009
income before tax to reflect Zen's "equity in net income of Ying" is:
A. 1,400,000
B. 1,500,000
C. 1,850,000
D. 2,000,000

On January 1, 2009, Annie Company purchased 20% of the outstanding ordinary shares of Duke
Company for P4,000,000 of which P1,000,000 was paid in cash and P3,000,000 is payable with 12%
annual interest on December 31, 2010. Annie also paid P500,000 to a business broker who helped find a
suitable business and negotiated the purchase.At the time of acquisition, the fair value of Duke's
identifiable assets and liabilities were equal to their carrying values except for an office building which
had a fair value in excess of book value of P2,000,000 and an estimated life of 10 years. Duke's
shareholders' equity on January 1, 2009 was P 13,000,0000.During 2009, Duke reported net income of
P5,000,000 and paid dividend of P2,000,000. What amount of income should Annie Company report for
2009 as a result of the investment?
A. 620,000
B. 810,000
C. 885,000
D. 960,000

On January 1, 2009, Southern Company purchased 40% of the outstanding ordinary shares of Northern
Company for P3,500,000 when the net assets of Northern amounted to P7,000,000. At acquisition date,
the carrying amounts of the identifiable assets and liabilities of Northern were equal to their fair value,
except for equipment for which the fair value was P1,500,000 greater than its carrying amount and
inventory whose fair value was P500,000 greater than its cost. The equipment has a remaining life of 4
years and the inventory was all sold during 2009. Northern Company reported net income of P4,000,000
for 2009 and paid no dividends during 2009. The maximum amount which could be included in
Southern's 2009 income before tax to reflect Southern's "equity in earnings of Northern Company"
should be:
A. 1,250,000
B. 1,350,000
C. 1,600,000
D. 1,700,000
On January 1, 2009, Beijing Company purchased 30,000 shares of Lake Company's 200,000 outstanding
ordinary shares for P6,000,000. On that date, the carrying amount of the acquired shares on Lake's
books was P4,000,000. Beijing attributed the excess of cost over carrying amount to patent. The patent
has a remaining useful life of 10 years.During 2009, Beijing's officers gained a majority on Lake's board
of directors. Lake reported earnings of P5,000,000 for the year ended December 31, 2009, and declared
and paid dividend of P3,000,000 during 2009. On December 31, 2009, Lake's ordinary share was trading
over-the-counter at P15.What is the carrying value of the investment in Lake's Company on December
31, 2009?
A. 6,000,000
B. 6,100,000
C. 6,300,000
D. 6,750,000

On July 1, 2009, Miles Company purchased 25% of Wally Company's outstanding ordinary shares and no
goodwill resulted from the purchase. Miles appropriately carries this investment at equity and the
balance in Miles' investment account was P1,900,000 at December 31, 2009. Wally reported net income
of P1,200,000 for the year ended December 31, 2009, and paid dividend totaling P480,000 during 2009.
How much did Miles pay for its 25% interest in Wally?
A. 1,720,000
B. 1,870,000
C. 2,020,000
D. 2,170,000

Blue Company owns 30% of the outstanding ordinary shares and 100% of the outstanding
noncumulative nonvoting preference shares of Pink Company. In 2009, Pink declared dividend of
P1,000,000 on its ordinary share capital and P600,000 on its preference share capital. What amount of
dividend revenue should Blue report in its income statement for the year ended December 31, 2009?
A. 0
B. 300,000
C. 600,000
D. 900,000

On January 1, 2009, Autobot Company bought 30% of the outstanding ordinary shares of Decepticon
Company for P5,000,000 cash. Autobot Company accounts for this investment by the equity method. At
the date of acquisition, Decepticon Company's net assets had a carrying value of P12,000,000. Assets
with an average remaining life of five years have a current market value that is P2,500,000 in excess of
their carrying value. The remaining difference between the purchase price and the value of the
underlying equity cannot be attributed to any identifiable tangible or intangible asset. Accordingly, the
remaining difference is allocated to goodwill. At the end of 2009, Decepticon Company reported net
income of P4,000,000. During 2009, Decepticon Company declared and paid cash dividends of
P1,000,000. What is the balance of Autobot Company's investment in Decepticon Company on
December 31, 2009?
A. 5,000,000
B. 5,400,000
C. 5,750,000
D. 5,900,000
Tom Company purchased 35% of Jerry Company on January 1, 2009 for P11,200,000 when Jerry's book
value was P32,400,000. On that day, the market value of the net assets of Jerry Company equaled their
book value with the following exceptions: BOOK
MARKETEquipment 7,000,000 5,600,000Building
1,600,000 2,600,000The equipment has a remaining useful life of 5 years, and the building
has a remaining useful life of 10 years. Jerry reported net income of P3,200,000 and cash dividends of
P1,000,000 for 2009. What is the investment income that will be reported in Tom Company for the year
2009?
A. 987,000
B. 1,120,000
C. 1,183,000
D. 1,260,000

On January 1, 2008, Massive Company acquired 10% of the outstanding ordinary shares of Quarter
Company. On January 1, 2009, Massive gained the ability to exercise significant influence over financial
and operating control of Quarter by acquiring an additional 20% of Quarter's outstanding ordinary
shares. 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, 2008 and 2009,
Quarter reported the following: 2008
2009Dividend paid 2,000,000 3,000,000Net income
6,000,000 6,500,000In 2009, what amounts should Massive report as current year
investment income and as an adjustment, before income tax, to 2008 investment income?
A. 2009 investment income 1,950,000 Adjustment to 2008 investment income 1,600,000
B. 2009 investment income 1,950,000 Adjustment to 2008 investment income 1,000,000
C. 2009 investment income 1,950,000 Adjustment to 2008 investment income 400,000
D. 2009 investment income 1,050,000 Adjustment to 2008 investment income 400,000

Granny Company acquired 30% of Seahorse Company's voting share capital for P2,000,000 on January 1,
2009. Granny's 30% interest in Seahorse gave Granny the ability to exercise significant influence over
Seahorse's operating and financial policies. During 2009, Seahorse earned P800,000 and paid dividend of
P500,000. Seahorse reported earnings of P1,000,000 for the 6 months ended June 30, 2010, and
P2,000,000 for the year ended December 31, 2010. On July 1, 2010, Granny sold half of its stock in
Seahorse for P1,500,000 cash. Seahorse paid dividend of P600,000 on October 1, 2010.In Granny's
December 31, 2009 balance sheet, what should be the carrying amount of this investment?
A. 2,000,000
B. 2,090,000
C. 2,240,000
D. 2,300,000

On January 1, 2009, Wind Company purchased as trading investment a P2,000,000 face value Kerby
Company 8% bond for P1,850,000 plus accrued interest to yield 10%. The bonds mature on January 1,
2014, and pay interest annually on December 31. On December 31, 2009, the bonds had a market value
of P1,890,000. On February 15, 2010, Wind sold the bonds for P1,900,000. In its December 31, 2009
balance sheet, what amount should Wind report for investments in trading securities?
A. 1,850,000
B. 1,875,000
C. 1,890,000
D. 1,900,000

On July 1, 2009, Palau Company purchased as trading investment a P1,000,000 face value 8% bond for
800,000 plus accrued interest and transaction costs of P50,000. The bond pays interest annually on
January 1. On December 31, 2009, the bond investment had a market value of P700,000. On February
15, 2010, Palau Company sold the bond investment for P810,000. In its 2009 income statement, what
amount should Palau report as unrealized loss?
A. 0
B. 100,000
C. 140,000
D. 150,000

On January 1, 2009, Anahaw 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, 2011 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, 2009 and at 94 on December 31, 2010. what amount
of unrealized loss on these bonds should be reported in the 2008 statement of changes in equity?
A. 117,280
B. 211,000
C. 272,800
D. 390,080

On October 1, 2009, York Company purchased 4,000 of the P1,000 face value, 10% bonds of Dell
Company for P4,400,00 which includes accrued interest of P100,000. The bonds, which mature on
January 1, 2016, pay interest semiannually on January 1 and July 1. York uses the straight-line method of
amortization and appropriately recorded the bonds as a long-term investment. The bonds should be
shown on York's December 31, 2009 balance sheet at:
A. 4,284,000
B. 4,288,000
C. 4,300,000
D. 4,400,000

On April 1, 2009, Sailor Company purchased P2,000,000 face value, 9%, Treasury Notes for P1,985,000,
including accrued interest of P45,000. The notes mature on July 1, 2010, and pay interest semiannually
on January 1 and July 1. Sailor uses the straight line method of amortization. In its October 31, 2009
balance sheet, the carrying amount of this investment should be:
A. 1,940,000
B. 1,968,000
C. 1,972,000
D. 1,990,000

On July 1, 2009 Hillary Company purchased as a long-term investment in Esau Company's ten-year 12%
bonds, with a face value of P5,000,000 for P4,760,000. Interest is payable semi-annually on January 1
and July 1. The bonds mature on July 1, 2013. Hillary uses the straight line method of amortization.
What is the amount of interest income that Hillary should report in its income statement for the year
ended December 31, 2009?
A. 270,000
B. 300,000
C. 330,000
D. 360,000

On July 1, 2009, Geizer Company purchased Durian Company 10-year, 12% bonds with a face value of
P2,000,000, for P2,180,000, which included P30,000 of accrued interest. The bonds, which mature on
March 1, 2016, pay interest semi-annually on March 1 and September 1. Geizer uses the straight-line
method of amortization. The amount of income Geizer should report for the calendar year 2009 as a
result of the long-term investment would be:
A. 112,500
B. 120,000
C. 127,500
D. 225,000

On July 1, 2009, Cola 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%. Cola
uses the effective interest method to recognize interest income from this investment. What should be
reported as the carrying amount of the bonds in December 31, 2009 balance sheet?
A. 1,207,900
B. 1,198,000
C. 1,195,920
D. 1,193,050

On July 1, 2009, Yolk Company purchased as a long-term investment P1,000,000 of Pack Company's 8%
bonds for P946,000, including accrued interest of P40,000. The bonds were purchased to yield 10%
interest. The bonds mature on January 1, 2015, and pay interest annually on January 1. Yolk uses the
effective interest method of amortization. In its December 31, 2009 balance sheed, what amount should
Yolk report as investment in bonds?
A. 911,300
B. 916,600
C. 953,300
D. 960,600

On January 1, 2009, Cart Company purchased Fae Company 9% bonds with a face amount of P4,000,000
for P3,756,000 to yield 10%. The bonds are dated January 1, 2009, mature on December 31, 2018, and
pay interest annually on December 31. Cart uses the interest method of amortizing bond discount. In its
income statement for the year ended December 31, 2009, what total amount should Cart report as
interest revenue from the long-term bond investment?
A. 344,400
B. 360,000
C. 375,600
D. 400,000

On January 1, 2009, Port Company purchased bonds with face value of P8,000,000 for P7,679,000. The
stated rate on the bonds is 10% but the bonds are acquired to yield 12%. The bonds mature at the rate
of P2,000,000 annually every December 31 and the interest is payable annually also every December 31.
The company uses the effective interest method of amortizing discount. Port Company should report
the investment in bonds on December 31, 2009 at:
Discuss
o A.
5,759,250
o B.
5,800,480
o C.
7,759,250
o D.
7,800,480

On January 1, 2009, Tag Company purchased bonds with face value of P2,000,000. The bonds are dated
January 1, 2009 and mature on January 1, 2013. the interest on the bonds is 10% payable semiannually
every June 30 and December 31. The prevailing market rate of interest on the bonds is 12%. what is the
present value of the bonds on January 1, 2009? Round off present value factor to two decimal places.
Discuss
o A.
1,360,000
o B.
1,480,000
o C.
1,881,000
o D.
1,888,000

• 98.

• 99.
On January 1, 2009, Cameron Company purchased bonds with face value of P5,000,000 at a cost of
P4,700,000. The stated interest is 10% payable annually every December 31. The bonds mature in 4
years or January 1, 2011.How much interest income should be reported by Cameron Company for the
year ended December 31, 2009 using the effective interest method?
o A.
470,000
o B.
500,000
o C.
517,000
o D.
562,590

• 100.
• 101.

• 102.

• 103.
On January 1, 2009, Man Company adopted plan to accumulate P5,000,000 by January 1, 2014. Man
plans to make 5 equal annual deposits tha will earn interest at 9% compounded annually. Man made the
first deposit on December 31, 2009. The future value of ordinary annuity of 1 at 9% for 5 periods is 6.52.
What amount must be deposited annually at the compound interest to accumulate the desired amount
of P5,000,000?
o A.
609,756
o B.
664,894
o C.
766,871
o D.
836,120

• 104.
Cebuana Company made an investment of P5,000,000 at 10% per annum compounded annually for 6
years. What is the amount of the investment on the date of maturity? Round off future value factor to
two decimal places.
o A.
5,500,000
o B.
8,050,000
o C.
8,850,000
o D.
9,750,000

• 105.
Mac Company made investment for 5 years at 12% per annum compounded semiannually to equal
P7,160,000 on the date of maturity. What amount must be deposited now at the compound interest to
provide the desired sum? Round off future value factor to two decimal places.
o A.
3,768,420
o B.
4,000,000
o C.
4,068,180
o D.
4,236,680

• 106.

• 107.

• 108.
• 109.

• 110.
Gallery Company ventured into construction of a condominium in Ortigas which is rated as the largest
state-of-the-art structure. The entity's board of directors decided that instead of selling the
condominium, the entity would hold this property for purposes of earning rentals by letting out space to
business executives in the area. The construction of the condominium was completed and the property
was placed in service on January 1, 2009. The cost of the construction was P50 million. The useful life of
the condominium is 25 years and its residual value is P5 million. An independent valuation expert
provided the following fair value at each subsequent year-end: December 31, 2009
55 million December 31, 2010 53 million December 31, 2011
60 millionUnder the fair value model, Gallery Company should recognize gain from change in fair value
in 2009 at:
o A.
0
o B.
3,000,000
o C.
5,000,000
o D.
7,000,000

• 111.

• 112.
On January 1, 2009, Passer Company entered into a two-year P3,000,000 variable interest rate loan at
the prevailing rate of 12%. In 2010, the interest rate is equal to the prevailing interest rate at the
beginning of the year.The principal loan is payable on December 31, 2010 and the interest is payable on
December 31 of each year. On January 1 , 2009, Passer Company entered into a "receive variable, pay
fixed" interest swap agreement with a speculator bank designated as a cash flow hedge.The prevailing
interest rate on January 1, 2010 is 14% and the present value of 1 at 14% for one period is .877. How
much should be reported as " interest rate swap receivable" on December 31, 2009?
o A.
0
o B.
30,000
o C.
52,620
o D.
60,000

• 113.
Cavite Company received a two-year variable interest rate loan of P5,000,000 on January 1, 2009. The
interest on the loan is payable on December 31 of each year and the principal is to be repaid on
December 31, 2010. On January 1, 2009, Cavite Company entered into a "receive variable, pay fixed"
interest rate swap agreement with a speculator bank designated as a cash flow hedge.The interest rate
for 2009 is the prevailing interest rate of 10% and the rate in 2010 is equal to the prevailing rate on
January 1, 2010. The market rate of interest on January 1, 2010 is 7% and the present value of 1 at 7%
for one period is .935. How much should be reported by Cavite Company on December 31, 2009 as
"interest rate swap payable"?
o A.
0
o B.
100,000
o C.
140,250
o D.
150,000

• 114.
On January 1, 2009, Tall Company received a 5-year variable interest rate loan of P6,000,000 with
interest payment at the end of each year and the principal to be repaid on December 31, 2013. The
interest rate for 2009 is 8% and the rate in each succeeding year is equal to market interest rate on
January 1 of each year.On January 1, 2009, Tall Company entered into an interest rate swap agreement
with a financial institution to the effect that Tall will receive a swap payment if the interest on January 1
is more than 8% and will make a swap payment if the interest is less than 8%. The swap payments are
made at the end of the year. This interest rate swap agreement is designated as a cash low hedge.On
January 1, 2010, the market rate of interest is 9%. The present value of an ordinary annuity of 1 at 9%
for four periods is 3.24. On December 31, 2009, Tall Company shall report "interest rate swap
receivable" at:
o A.
120,000
o B.
194,400
o C.
240,000
o D.
300,000

On January 1, 2009, Tree Company borrowed P5,000,000 from a bank at a variable rate of interest for 4
years. Interest will be paid annually to the bank on December 31 and the principal is due on December
31, 2012. Under the agreement, the market rate of interest every January 1 resets the variable rate for
that period and the amount of interest to be paid on December 31. In conjunction with the loan, Tree
Company entered into a "receive variable, pay fixed" interest rate swap agreement with another bank
speculator.The interest rate swap agreement was designated as a cash flow hedge. The market rates of
interest are:January 1, 2009 10%January 1, 2010
14%January 1, 2011 12%January 1, 2012
11%The present value of an ordinary annuity of 1 is as follows:At 14% for three periods
2.32At 12% for two periods 1.69At 11% for one period
0.90What is the derivative asset or liability on December 31, 2009?
o A.
464,000 asset
o B.
464,000 liability
o C.
600,000 asset
o D.
600,000 liability
• 115.

• 116.
• 117.
On January 1, 2009, Tree Company borrowed P5,000,000 from a bank at a variable rate of interest for 4
years. Interest will be paid annually to the bank on December 31 and the principal is due on December
31, 2012. Under the agreement, the market rate of interest every January 1 resets the variable rate for
that period and the amount of interest to be paid on December 31. In conjunction with the loan, Tree
Company entered into a "receive variable, pay fixed" interest rate swap agreement with another bank
speculator. The interest rate swap agreement was designated as a cash flow hedge. The market rates of
interest are: January 1, 2009 10% January 1, 2010
14% January 1, 2011 12% January 1, 2012 11%
The present value of an ordinary annuity of 1 is as follows: At 14% for three periods
2.32 At 12% for two periods 1.69 At 11% for one period
0.90 What is the derivative asset or liability on December 31, 2011?
A. 45,000 asset
B. 45,000 liability
C. 50,000 asset
o D.
50,000 liability

• 118.
Vacation Company is a golf course developer that constructs approximately 5 courses each year. On
January 1, 2009, Vacation Company has agreed to buy 5,000 trees on January 1, 2010 to be planted in
the courses it intends to build. In recent years, the price of trees has fluctuated wildly. On January 1,
2009, Vacation Company entered into a forward contract with a reputable bank. The price is set at P500
per tree.The derivative forward contract provides that if the market price on January 1, 2010 is more
than P500, the difference is paid by the bank to Vacation. On the other hand, if the market price is less
than P500, Vacation will pay the difference to the bank. This derivative forward contract was designated
as a cash flow hedge. The market price on December 31, 2009 and January 1, 2010 is P800. The
appropriate discount rate is 8% and the present value of 1 at 8% for one period is .926.On December 31,
2009, Vacation Company shall recognize a derivative asset at:
o A.
694,500
o B.
750,000
o C.
1,389,000
o D.
1,500,000

• 119.
Congo Grill operates a chain of seafood restaurants. On January 1, 2009, Congo Grill determined that it
will need to purchase 100,000 kilos of tuna fish on January 1, 2010. Because of the volatile fluctuation in
the price of tuna fish, on January 1, 2009, Congo negotiated a forward contract with a reputable
financial institution for Congo Grill to purchase 100,000 kilos of tuna fish in January 1, 2010 at a price of
P8,000,000 of P80 per kilo. This forward contract was designated as a cash flow hedge.On December 31,
2009 and January 1, 2010, the market price of tuna fish per kilo is P75. The appropriate discount rate is
6% and the present value of 1 at 6% for one period is .943. Congo Grill uses the perpetual system.Congo
Grill shall recognize a derivative liability on December 31, 2007 at:
o A.
0
o B.
250,000
o C.
471,500
o D.
500,000

• 120.
Chocolate Company operates a seafood restaurant. On October 1, 2009, Chocolate determined that it
will need to purchase 50,000 kilos of deluxe fish on March 1, 2010. Because of the volatile fluctuation in
the price of deluxe fish, on October 1, 2009, Chocolate negotiated a forward contract with a reputable
bank for Chocolate to purchase 50,000 kilos of deluxe fish on March 1, 2010 at a price of P50 per kilo or
P2,500,000. This forward contract was designated as a cash flow hedge.The derivative forward contract
provides that if the market price of deluxe fish on March 1, 2010 is more than P50, the difference is paid
by the bank to Chocolate. On the other hand, if the market price on March 1, 2010 is less than P50,
Chocolate will pay the difference to the bank.On December 31, 2009, the market price per kilo P60 and
on March 1, 2010, the market price is .93.What is the fair value of the derivative asset or liability on
December 31, 2009?
Discuss
o A.
500,000 asset
o B.
500,000 liability
o C.
465,000 asset
o D.
465,000 liability

• 121.
Chocolate Company operates a seafood restaurant. On October 1, 2009, Chocolate determined that it
will need to purchase 50,000 kilos of deluxe fish on March 1, 2010. Because of the volatile fluctuation in
the price of deluxe fish, on October 1, 2009, Chocolate negotiated a forward contract with a reputable
bank for Chocolate to purchase 50,000 kilos of deluxe fish onMarch 1, 2010 at a price of P50 per kilo or
P2,500,000. This forward contract was designated as a cash flow hedge. The derivative forward contract
provides that if the market price of deluxe fish on March 1, 2010 is more than P50, the difference is paid
by the bank to Chocolate. On the other hand, if the market price on March 1, 2010 is less than P50,
Chocolate will pay the difference to the bank. On December 31, 2009, the market price per kilo P60 and
on March 1, 2010, the market price is .93. What is the fair value of the derivative asset or liability on
December 31, 2010?
o A.
400,000 asset
o B.
400,000 liability
o C.
372,000 asset
o D.
372,000 liability

• 122.
Seaman Company operates a five-star hotel. The company makes very detailed long-term planning. On
October 1, 2009, Seaman Company determined that they would need to purchase 8,000 kilos of
Australian lobster on January 1, 2011. Because of the fluctuation in the price of Australian lobster, on
October 1, 2009 the company negotiated a special forward contract with a bank for Seaman to purchase
8,000 kilos of Australian lobster on January 1, 2011 at price of P9,600,000. The price of Australian
lobster was P1,200 per kilo on October 1. This forward contract was designated as a cash flow
hedge.The bank has a staff of financial analysts who specialize in forecasting lobster prices. These
analysts are predicting a drop in worldwide lobster prices between October 1, 2009 and January 1,
2011.On December 31, 2009, the price of a kilo of Australian lobster is P1,500. On December 31, 2010
and January 1, 2011, the price of a kilo of Australia lobster is P1,000. The appropriate discount rate
throughout this period is 10%. The present value of 1 at 10% for one period is .91. The periodic system is
used.What is the notional value of the forward contract?
o A.
4,800,000
o B.
7,200,000
o C.
9,600,000
o D.
12,000,000

• 123.
Seaman Company operates a five-star hotel. The company makes very detailed long-term planning. On
October 1, 2009, Seaman Company determined that they would need to purchase 8,000 kilos of
Australian lobster on January 1, 2011. Because of the fluctuation in the price of Australian lobster, on
October 1, 2009 the company negotiated a special forward contract with a bank for Seaman to purchase
8,000 kilos of Australian lobster on January 1, 2011 at price of P9,600,000. The price of Australian
lobster was P1,200 per kilo on October 1. This forward contract was designated as a cash flow hedge.
The bank has a staff of financial analysts who specialize in forecasting lobster prices. These analysts are
predicting a drop in worldwide lobster prices between October 1, 2009 and January 1, 2011. On
December 31, 2009, the price of a kilo of Australian lobster is P1,500. On December 31, 2010 and
January 1, 2011, the price of a kilo of Australia lobster is P1,000. The appropriate discount rate
throughout this period is 10%. The present value of 1 at 10% for one period is .91. The periodic system is
used.What is the derivative asset or liability on December 31, 2009?
o A.
2,400,000 asset
o B.
2,400,000 liability
o C.
2,184,000 asset
o D.
2,184,000 liability

• 124.
Seaman Company operates a five-star hotel. The company makes very detailed long-term planning. On
October 1, 2009, Seaman Company determined that they would need to purchase 8,000 kilos of
Australian lobster on January 1, 2011. Because of the fluctuation in the price of Australian lobster, on
October 1, 2009 the company negotiated a special forward contract with a bank for Seaman to purchase
8,000 kilos of Australian lobster on January 1, 2011 at price of P9,600,000. The price of Australian
lobster was P1,200 per kilo on October 1. This forward contract was designated as a cash flow hedge.
The bank has a staff of financial analysts who specialize in forecasting lobster prices. These analysts are
predicting a drop in worldwide lobster prices between October 1, 2009 and January 1, 2011. On
December 31, 2009, the price of a kilo of Australian lobster is P1,500. On December 31, 2010 and
January 1, 2011, the price of a kilo of Australia lobster is P1,000. The appropriate discount rate
throughout this period is 10%. The present value of 1 at 10% for one period is .91. The periodic system is
used. What is the derivative asset or liability on December 31, 2010?
o A.
1,600,000 asset
o B.
1,600,000 liability
o C.
800,000 asset
o D.
800,000 liability

• 125.
Indian Company requires 40,000 kilos of soy beans each month in its operations. To eliminated the price
risk associated with the purchase of soy beans, on December 1, 2009, Indian entered into a futures
contract as a cash flow hedge to buy 40,000 kilos of soy beans at P150 per kilo on January 1, 2010. The
market price on December 31, 2009 and January 1, 2010 is P160 per kilo. The appropriate discount rate
is 9% and the present value of 1 at 9% for one period is .917. The periodic system is used.Indian
Company shall recognize on December 31, 2009 a derivative asset at:
o A.
183,400
o B.
200,000
o C.
366,800
o D.
400,000

• 126.
Nata Company produces bottled grape juice. Grape juice concentrate is typically bought and sold by the
pound. Nata uses 50,000 pounds of grape juice concentrate each month.On November 1, 2009, Nata
entered into a grape juice concentrate futures contract as a cash flow hedge to buy 50,000 pounds of
concentrate on January 1, 2010 at a price of P50 per pound. The market price on December 31, 2009
and January 1, 2010 of the grape juice is P38 per pound. The appropriate discount rate is 11%. The
periodic system is used.Nata Company shall recognize on December 31, 2009 a derivative liability at:
o A.
270,300
o B.
300,000
o C.
540,600
o D.
600,000

• 127.
Tall Company requires 25,000 pounds of copper each month in its operations. To eliminate the price risk
associated with copper purchases, on December 1, 2009, Tall entered into a futures contract as a cash
flow hedge to buy 25,000 pounds of copper on June 1, 2010. The futures price is P50 per pound.The
futures contract is managed through an exchange, so Tall does not know the other party on the other
side of the contract. As with most derivative contracts, this futures contract is settled by an exchange of
cash on June 1, 2010 based on the price of copper on that date.The market price per pound is P45 on
December 31, 2009 and P42 on June 1, 2010. What is the fair value of the derivative asset or liability on
December 31, 2009?
o A.
125,000 asset
o B.
125,000 liability
o C.
200,000 asset
o D.
200,000 liability

• 128.
Legacy Company produces colorful 100% cotton T-shirts that are very popular among the youth. The
company uses 150,000 kilos of cotton each month in its production process. In accordance with the
company's long-term planning, the company normally procures one month supply of cotton to be used
in its production process.On December 31, 2009, Legacy Company purchased a call option as a cash flow
hedge to buy 150,000 kilos of cotton on July 1, 2010. The call option price is P30 per kilo. The company
paid P50,000 for the call option. The market price of cotton on July 1, 2010 is P 35 per kilo.Legacy
Company shall recognize gain on call option 2010 at:
o A.
350,000
o B.
375,000
o C.
700,000
o D.
750,000

• 129.
Book Company uses approximately 200,000 units of raw material in its manufacturing operations. On
December 31, 2009, Book Company purchased a call option to buy 200,000 units of the raw material on
July 1, 2010 at a price of P25 per unit. The company paid P20,000 for the call option. Book designated
the call option as a cash flow hedge against price fluctuation for its July purchase. The market price of
the raw material on July 1, 2010 is P22 per unit.Book Company shall recognize loss on call option in 2010
at:
o A.
20,000
o B.
550,000
o C.
600,000
o D.
650,000

• 130.

• 131.
On September 1, 2009, Denver Company purchased equipment from USA for $50,000 to be paid on
March 1, 2010. The exchange rate on September 1, 2009 is P45 to $1. On the same date, Denver
entered into a foreign currency forward contract and agreed to pay P2,250,000 at the rate of P45 to $1.
This forward contract is designated as a fair value hedge of the payable that is denominated in foreign
currency.The peso exchange rate to the dollar is P46 on December 31, 2009 and P49 on March 1,
2010.What is the gain on foreign currency forward contract that will be recognized in the 2010 income
statement?
Discuss
o A.
0
o B.
50,000
o C.
150,000
o D.
200,000

• 132.
Oregon Company has the Philippine peso as its functional currency. The company expects to purchase
goods from USA for $50,000 on March 31, 2010. Accordingly, the company is exposed to a foreign
currency risk. If the dollar increases before the purchase takes place, the company will have to pay more
pesos to obtain the $50,000 that it will have to pay for the goods.On October 1, 2009, Oregon Company
entered into a foreign currency forward contract with a bank speculator purchase $50,000 in six months
for a fixed amount of P2,300,000 or P46 to $1. This forward contract is designated as cash flow hedge of
the company's exposrue to increase in dollar exchange rate. On December 31, 2009, the exchange rate
is P47 to $1 and on March 31, 2010, the exchange rate is P49 to $1.What is the fair value of the
derivative asset or liability on December 31, 2009?
Discuss
o A.
150,000 asset
o B.
150,000 liability
o C.
50,000 asset
o D.
50,000 liability