FARAP Day 2 Quiz 1

On January 1, 2018, New Delhi Company acquired 25% of the outstanding shares of an investee at a total cost of P7,000,000. At the time, the carrying amount of net assets of the investee totaled P24,000,000.

 

The investee owned equipment with 5-year remaining life and with a fair value of P2,000,000 more than carrying amount. The investee owned land with a fair value of P1,000,000 more than carrying amount.

 

The investee earned net income of P5,000,000 evenly during the current year. The investee declared and paid a cash dividend of P3,000,000 to shareholders at year-end. The fair value of the investment at year-end is P7,500,000.

 

What is the investment income for 2018?

• 1,250,000

• 1,150,000

• 900,000

• 650,000

On January 1, 2018, Oton Company purchased 5-year bonds with face amount of P8,000,000 and stated interest of 10% per year payable semiannually on June 30 and December 31. The bonds were acquired to yield 8%. What is the market price of the bonds?

• 7,382,400

• 8,617,600

• 8,648,800

• 7,351,200

On January 1, 2018, Sta. Barbara Company purchased 12% bonds with face amount of P5,000,000 for P5,380,000. The bonds provide an effective yield of 10%. The bonds are dated January 1, 2018, mature on January 1, 2023 and pay interest annually on December 31 of each year.

 

The bonds are quoted at 120 on December 31, 2018. The entity has elected the fair value option for the bond investment. What total income should be reported for 2018?

• 1,220,000

• 1,120,000

• 1,138,000

• 600,000

Opal Company’s accounting policy with respect to investment property is to measure the property at fair value at the end of each reporting period. One investment property was measured at P8,000,000 on December 31, 2018. The property had been acquired on January 1, 2018 for a total of P7,600,000, made up of P6,900,000 paid to the vendor, P300,000 paid to the local authority as a property tax transfer tax and P400,000 paid to professional advisers. The useful life of the property is 40 years. What is the amount of gain to be recognized in profit or loss for the year ended December 31, 2018 in respect of the investment property?

• 400,000

• 700,000

• 800,000

• 590,000

What total amount should be reported as noncurrent investment on December 31, 2018?

• 7,500,000

• 4,500,000

• 7,450,000

• 2,300,000

Beijing Company bought 40% of China Company’s outstanding ordinary shares on January 1, 2018, for P4,000,000.

 

The carrying amount of China’s net assets at the purchase date totaled P9,000,000.

 

Fair values and carrying amounts were the same for all items except for plant and inventory, for which the fair values exceeded their carrying amounts by P900,000 and P100,000, respectively. The plant has an 18-year life. All inventory was sold during 2018.

 

During 2018, the investee reported net income of P1,200,000 and paid a P200,000 cash dividend.

 

What amount should be reported as investment income for 2018?

• 480,000

• 420,000

• 360,000

• 320,000

On January 1, 2018, Molo Company purchased bonds with a face value of P8,000,000 for P7,679,000 as a long-term investment. 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 entity used the effective interest method of amortizing discount.

 

What is the interest income for 2018?

• 800,000

• 921,480

• 960,000

• 767,900

On January 1, 2018, Cabatuan Company purchased bonds with face amount of P4,000,000. The business model in managing the financial asset is to collect contractual cash flows that are solely payments of principal and interest and also to sell the bonds in the open market. The entity paid P4,206,000 for the bond investment.

 

The bonds mature on December 31, 2020 and pay 10% interest annually on December 31 each year with 8% effective yield.

 

The bonds are quoted at 95 on December 31, 2018 and 90 on December 31, 2019.

 

What amount of unrealized loss should be reported as component of other comprehensive income in 2018?

• 342,480

• 406,000

• 469,520

• 0

What is the initial cost of the trademark?

• 1,000,000

• 1,155,000

• 1,465,000

• 1,585,000

On January 1, 2016, Leganes Company signed a 12-year lease for warehouse space. The entity has an option to renew the lease for an additional 8-year period on or before January 1, 2020.

 

During January 2018, the entity made substantial improvement to the warehouse. The cost of the improvement was P540,000 with an estimated life of 15 years. 

 

On December 31, 2018, the entity intended to exercise the renewal option.

 

On December 31, 2018, what is the carrying amount of the leasehold improvement?

• 486,000

• 504,000

• 510,000

• 513,000