TRUE OR FALSE

1.According to PFRS 9 Financial instruments, investments in stocks are initially recorded at cost and all commissions, taxes, and other fees are expensed as incurred.

2.Unrealized holding gains and losses on investments in held for trading securities are recognized in profit or loss.

3.Unrealized gains and losses on investments in equity securities measured at FVOCI are recognized in the income statement.

4.A debit balance in the "Fair Adjustment - FVOCI" account implies a corresponding owners' equity account with a credit balance of the same amount.

5.According to PFRS 9, the classification of financial assets for subsequent measurement purposes is based on management's intentions.

6.The net reported balance in the "investment in equity securities - FVOCI" account is the original cost plus a credit balance in the fair value adjustment account or minus a debit balance in the fair value adjustment account.

7.When investments in held for trading securities are sold, the realized gain or loss is the difference in the fair value since acquisition.

8.Unrealized holding gains on investments measured at fair value through other comprehensive income are recognized as direct increases to owners' equity, rather than through the statement of comprehensive income.

9.Increases in the fair value of held for trading securities and investments in equity securities measured at FVOCI cause the related fair value adjustment account to decrease.

10.Investments in held for trading securities may be classified as current or long-term.

mULTIPLE cHOICE

1.Changes in fair value of this type of securities are accumulated as a separate component in the stockholders' equity section of the balance sheet.

a.

Financial assets measured at amortized cost

b.

FVOCI securities

c.

Held for trading securities

d.

Designated financial assets

2.Which category includes only debt securities?

a.

Financial assets measured at amortized cost

b.

FVPL assets

c.

Held for trading securities

d.

FVOCI (election)

3.A correct valuation is

a.investment in equity securities at amortized cost.

b.held for trading securities at amortized cost.

c.debt securities, to be held until maturity to collect cash flows from principal and interests, at fair value.

d.none of these.

4.Securities which could be classified as financial assets measured at amortized cost are

a.investment in stocks.

b.warrants.

c.municipal bonds.

d.treasury stock.

5.Which of the following is not correct regarding held for trading securities?

a.They are held to be sold in a short period of time.

b.Unrealized holding gains and losses are reported as part of profit or loss.

c.Any discount or premium is not amortized.

d.All of these are correct.

6.A debit balance in the "Fair Value Adjustment - FVOCI Securities" account at the end of a year should be interpreted as

a.

the net unrealized holding gain for that year.

b.

the net realized holding gain for that year.

c.

the net unrealized holding gain to date.

d.

the net realized holding gain to date.

7.A debit balance in the "Fair Value Adjustment - Held for Trading Securities" account at the end of a year should be interpreted as

a.

the net realized holding gain to date.

b.

the net unrealized holding gain to date.

c.

the net realized holding gain for that year.

d.

the net unrealized holding gain for that year.

8.Unrealized holding gains or losses which are recognized in profit or loss are from securities classified as

a.amortized cost.

b.FVOCI.

c.held for trading.

d.designated and held for trading.

9.An unrealized holding gain on a company's FVOCI securities should be reflected in the current financial statements as

a.an extraordinary item shown as a direct increase to retained earnings.

b.a current gain resulting from holding securities.

c.a note or parenthetical disclosure only.

d.other comprehensive income and included in the equity section of the balance sheet.

10.Changes in fair value of an investment measured at fair value through other comprehensive income

1. must be recognized in profit or loss.
2. must be recognized directly in equity.
3. may be recognized in profit or loss or directly in equity.
4. must be recognized in other comprehensive income and accumulated in a separate equity account.

11.At initial recognition, an entity may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in equity securities within the scope of PFRS 9 that is not held for trading. In accounting for such financial instruments, all of the following are true except

1. amounts presented in other comprehensive income are not be subsequently transferred to profit or loss.
2. the entity may transfer any cumulative fair value gains or losses within equity.
3. dividends received on the investments are recognized in profit or loss.
4. cumulative fair value gains or losses are transferred to profit or loss when the financial asset is derecognized.

12.An entity sells an investment that is measured at FVPL during the year. The realized gain or loss on the sale is computed as

1. the difference between the sale price and the carrying amount of the investment as at the date of sale.
2. the difference between the sale price and the original acquisition cost of the investment.
3. the difference between the net proceeds received from the sale and the carrying amount of the investment as at the date of sale.
4. the difference between the net proceeds received from the sale and the carrying amount of the investment as at the date of sale adjusted for any accumulated fair value gains or losses recognized since the investment was acquired.

13.For which type of investments would unrealized fair value gains and losses be accumulated in an equity account?

a.

Equity method securities

b.

FVOCIsecurities

c.

Held for Trading securities

d.

Held-to-maturity securities

14.If the combined fair value of held for trading securities at the end of the year is less than the fairvalue of the same portfolio of held for trading securities at the beginning of the year, the difference should be accounted for by

a.

reporting an unrealized loss in security investments in the stockholders' equity section of the balance sheet.

b.

reporting an unrealized loss in security investments in profit or loss.

c.

a footnote to the financial statements.

d.

a debit to Investment in Held for Trading Securities.

15.Information regarding Stone Co.'s portfolio of FVOCI securities is as follows:

Aggregate cost as of 12/31/03 170,000

Unrealized gains as of 12/31/03 4,000

Unrealized losses as of 12/31/03 26,000

Net realized gains during 2003 30,000

At December 31, 2002, Stone reported an unrealized loss of 1,500 in other comprehensive income to reduce these securities to market. Under the accumulated other comprehensive income in stockholders' equity section of its December 31, 2003 balance sheet, what amount should Stone report?

a. 26,000c. 20,500

b. 22,000d. 0

16.Caloy Co. bought 1,000 shares from Bayan Co. The shares have no active market, but an identical or similar asset has an active market. The identical asset, however, has multiple markets. Caloy determines that the identical asset has the following market values:

Market A

Market B

Quoted price

500

600

Related transaction cost

25

150

How much is fair valuation of the investment?

a.500,000 c. 450,000

b.475,000 d. b or c

17.On January 1, 20x1, Allan Co. purchased 400,000 bonds for 392,000. The bonds mature on January 1, 20x5 and pay 12% annual interest beginning January 1, 20x2. Transaction costs are negligible. The bonds were classified as held for trading securities. On December 31, 20x1, the bonds are selling at a yield rate of 10%. How much is the unrealized gain (loss) recognized on December 31, 20x1?

a. 27,986

b. 31,298

c. 28,964

d. 33,359

18.On January 1, 20x1, Rizzi Co. purchased 12,000 shares of Andre, Inc. for 400,000. Commission paid to broker amounted to 20,000. Management made an irrevocable choice to subsequently measure the shares at fair value through other comprehensive income. On December 31, 20x1, the shares were quoted at 40 per share. On January 3, 20x2, all of the shares were sold at 60 per share. Commission paid on the sale amounted to 24,000. How much is the unrealized gain (loss) recognized in profit or loss on December 31, 20x1?

a. (60,000)

b. 60,000

c. (80,000)

d. 0

Use the following information for the next two questions:

Karen Co. purchased the following equity securities on January 1, 20x1 for a total amount of 360,000.

Cost

Alaska Co. preference shares 200,000

Valdez Co. ordinary shares160,000

Totals360,000

The shares did not qualify for recognition as held for trading. Accordingly, they were classified as investment in equity securities measured at fair value through other comprehensive income.

On December 31, 20x1, the portfolio of Karen Co. comprised the following.

Fair value - 12/31/x1

Alaska Co. preference shares 240,000

Valdez Co. ordinary shares60,000

Total300,000

On December 31, 20x2, the portfolio of Karen Co. comprised the following:

Fair value - 12/31/x2

Alaska Co. preference shares 220,000

Valdez Co. ordinary shares180,000

Total400,000

On February 2, 20x3, all of the Alaska Co. preference shares were sold for 160,000 net of transaction costs.

19.How much is the unrealized gain (loss) recognized in other comprehensive income on December 31, 20x1?

a. 60,000

b. (60,000)

c. 100,000

d. 0

20.How much is the cumulative unrealized gain (loss) that is presented as a separate component in equity as of December 31, 20x2?

a. 40,000

b. (40,000)

c. 100,000

d. 0