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REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICEFINANCIAL ASSETS

1. Data regarding Kiangan Company’s trading securities follow:

Cost Market_ December 31, 2004 10,000,000 8,500,000December 31, 2005 10,000,000 9,500,000

Differences between cost and market value are considered temporary. The income statement for 2005 should report unrealized gain on these securities at a. 1,500,000b. 1,000,000c. 500,000d. 0

2. Data regarding Lamut Company’s available for sale securities follow:

Cost Market_ December 31, 2004 10,000,000 8,500,000December 31, 2005 10,000,000 11,000,000

Differences between cost and market value are considered temporary. The 2005 statement of stockholders’ equity should report unrealized gain on these securities ata. 2,500,000b. 1,000,000c. 1,500,000d. 0

3. Banawe Company was organized on January 1, 2005. At December 31, 2005, Banawe had the following investments:

Trading Available for saleAggregate cost 10,000,000 10,000,000Aggregate market value 9,000,000 8,500,000

The declines are judged to be nontemporary. In 2005, what amount of unrealized loss should be shown as component of income and stockholders’ equity?

Income Stockholders’ equitya. 2,500,000 0b. 0 2,500,000c. 1,000,000 1,500,000d. 1,500,000 1,000,000

4. Lagawe Company purchased trading equity securities. The cost and market value at December 31, 2004 were:Security Cost Market_ A – 20,000 shares 2,000,000 2,500,000 B – 40,000 shares 4,000,000 3,000,000 C – 60,000 shares 6,000,000 5,500,000Lagawe sold 60,000 shares of Security C on January 31, 2005, for P5,000,000, incurring P100,000 in brokerage commission and taxes. On the sale, Lagawe should report a realized loss ofa. 1,100,000b. 1,000,000c. 600,000d. 500,000

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5. Information about Ifugao Company’s portfolio of available for sale securities is:

Aggregate cost – December 31, 2005 9,000,000Unrealized gains– December 31, 2005 500,000Unrealized losses – December 31, 2005 2,000,000Net unrealized gains during 2005 300,000

On January 1, 2005 Ifugao reported an unrealized loss of P400,000 as a component of stockholders’ equity. In its December 31, 2005 stockholders’ equity, Ifugao should report what amount of unrealized loss?a. 2,000,000b. 1,500,000c. 1,100,000d. 1,200,000

6. Hungduan Company had acquired investments in available for sale securities for P15,000,000 on January 1, 2004. On December 31, 2005, Hungduan decided to reclassify the available for sale securities as trading securities. The market value of the securities was P13,000,000 on December 31, 2004 and P12,000,000 on December 31, 2005. In its 2005 income statement, Hungduan should report unrealized loss on the transfer of AFS securities at

a. 2,000,000b. 3,000,000c. 1,000,000d. 0

7. Hingyon Company had investments in marketable debt securities costing P10,000,000 which were acquired on January 1, 2004 and classified as “available for sale”. On December 31, 2005, the company decided to hold the investments to maturity and accordingly reclassified them as “held to maturity” on that date. The investments’ market value was P9,000,000 at December 31, 2004, and P7,500,000 on December 31, 2005. What amount should Hingyon Company report as unrealized loss on these securities in its 2005 statement of stockholders’ equity?

a. 2,500,000b. 1,000,000c. 1,500,000d. 0

8. On December 31, 2004, Mayayao Company purchased trading securities. Pertinent data on December 31, 2005 are as follows:

Security Cost Market_value X 4,000,000 3,500,000 Y 6,000,000 7,500,000 Z 8,000,000 6,000,000

On December 31, 2005, Mayayao reclassified its investment in security Z from trading to available for sale. What amount of unrealized loss on the transfer of trading securities should be shown in the 2004 income statement?

a. 2,000,000b. 1,000,000c. 3,000,000d. 0

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