CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS
MAY 2024 CPALE BATCH 95
EQUITY INVESTMENTS
1. On January 1, 2024, an entity purchased equity investments held for trading.
Purchase price Transaction cost Market – 12/31/2024
Security A 1,000,000 100,000 1,200,000
Security B 2,000,000 200,000 1,500,000
Security C 3,000,000 300,000 3,100,000
On July 1, 2025, the entity sold Security C for P3,500,000.
I. The unrealized loss on trading investment should be reported at P200,000 in 2024.
II. The gain in sale of equity investment should be reported at P400,000 in 2025.
III. Transaction cost on trading equity investment should be treated as outright expense
IV. Any unrealized gain or loss on equity investment held for trading should be included in profit or
loss.
a. All statements are true
b. All statements are not true
c. Only statements I and II are true
d. Statement IV is false

2. On January 1, 2024, an entity purchased nontrading equity investments which are irrevocably
designated at FVOCI:
Purchase price Transaction cost Market – 12/31/2024
Security A 1,000,000 100,000 700,000
Security B 2,000,000 200,000 2,900,000
Security C 4,000,000 400,000 4,600,000
On July 1, 2025, the entity sold Security C for P5,200,000.
I. The entity should recognize unrealized gain of P500,000 in OCI for 2024.
II. The net adjustment to retained earnings as a result of sale of security C on July 1, 2025 is credit of
P800,000.
III. Only nontrading equity investment may be irrevocably designated at FVOCI.
a. All statements are true
b. All statements are not true
c. Only statements I and I are true
d. Only statements I and III are true

3. On December 31, 2024, an entity appropriately reported on unrealized loss of P100,000 for a nontrading
equity investments measured at FVOCI. There was no change during 2025 in the portfolio of the equity
investments.
Market value
Cost 12/31/2025
Security A 1,200,000 1,300,000
Security B 900,000 500,000
Security C 1,600,000 1,500,000
I. The amount of unrealized loss that should be reported in the statement of comprehensive income for
2025 as component of OCI is P300,000.
II. The cumulative amount of unrealized loss that should be reported in the statement of changes in
equity for 2025 as component of OCI is P400,000.
a. Statements I and II are true
b. Statements I and II are false
c. Only statement I is true
d. Only statement II is true

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4. An entity received the following dividends during the current year:

• P500,000 cash dividend from Seco Company in which the entity owned a 30% interest.
• P600,000 liquidating dividend from King Company in which entity owned a 5% interest.
• P400,000 cash dividend from Bow Company in which entity owned a 10% interest.
• Share dividend of 4,000 shares from Parr Company with the market price of P20 per share.
• 5,000 shares of Lark Company in lieu of cash dividend of P20 per share. The entity owned 50,000
shares of Lark Company with market price of P150.
What amount should be reported as dividend income for the current year?
a. 1,650,000
b. 1,000,000
c. 1,150,000
d. 1,400,000

5. An entity owned 50,000 shares of another entity. These 50,000 shares were originally purchased for P120
per share. The investee distributed 50,000 rights to the entity. The entity was entitled to buy one new
share for P90 and two of these rights. Each share had a market value of P130 and each right had market
value of P20 on the date of issuance. What total cost should be recorded for the new shares that are
acquired by exercising the rights?
a. 2,250,000
b. 3,250,000
c. 3,050,000
d. 5,500,000

6. An entity issued rights entitling the shareholders to subscribe for 1 share at P100 plus 4 rights. An investor
owned 50,000 shares with total cost of P5,000,000. The share is quoted right-on at 125. What is the cost
of new investment if all rights are exercised?
a. 1,500,000
b. 1,250,000
c. 1,562,500
d. 1,450,000

7. An entity purchased for P2,400,000, 50,000 newly issued 6% cumulative P20 par value preference shares.
Each preference share had one share warrant attached which entitled the holder to acquire at P150 one
ordinary share of P100 par value for each two warrants held. The market price on this date of the
preference share without warrant was P50 and the market price of the share warrant was P10. All the
share warrants were sold for P700,000 during the year.
I. The investment in preference shares should recorded at cost P2,400,000.
II. The investment in share warrants should be recorded at zero value.
III. No gain on sale of share warrants should be recognized
IV. When preference shares are purchased with share warrants, the purchase price should be allocated
between the preference shares and share warrants prorata based on market value.
a. All statements are true
b. All statements are false
c. Only statement IV is true
d. Only statement IV is false

End

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