QUIZ 4 – AFTER MIDTERMS – OTHER LONG-TERM INVESTMENTS

1. Statement No. 1: Appropriation of retained earnings is made only in conjunction to a legal

requirement.
Statement No. 2: Cash surrender value may apply to non-life insurance.
Answer: False, False

2. Phillip company insured the life of its president for 2,000,000, the entity being the beneficiary of an
ordinary life insurance policy. The annual premium is 80,000 and the policy is dated January 1, 2018.
The cash surrender values are:
Dec. 31, 2020 - 15,000
Dec.31, 2021 – 19,000
The entity follows the calendar year as its fiscal period. The president died on October 1, 2021 and the
policy is settled on Dec. 31, 2021. What amount should Phillip Company report as life insurance
expense for 2021?
Answer: 57,000

3. Statement No. 1: The income earned by a sinking fund forms part of the sinking fund balance.
Statement No. 2: A change in management’s intention for holding particular financial assets would
trigger the reclassifications of financial assets between the measurement categories of PFRS 9.
Answer: True, False

4. An entity reclassifies debt securities from FVOCI to Amortized cost. What amount of gain or loss is
recognized in profit or loss on the reclassification date?
a. The difference between the asset's amortized cost on reclassification date and the reclassification
date fair value.
b. The cumulative amount of fair value changes from the date of acquisition up to the reclassification
date.
C. The difference between the reclassification date fair value and the fair value on the asset's
acquisition date.
d. None
Answer: None

5. Statement No. 1: Cash Dividends received on a life insurance, in which the accounting for cash
surrender applies, are accounted for as reduction in the investment account rather than income.

Statement No. 2: The reclassification of financial assets between the amortized cost and FVOCI
classifications would result in a change in the measurement of expected credit losses.
Answer: False, False

6. An entity reclassifies debt securities from FVOCI to FVPL. What amount of gain or loss is recognized
in profit or loss on the reclassification date?
Answer: The cumulative amount of fair value changes from the date of acquisition up to the
reclassification date.

7. An entity reclassifies debt securities from FVOCI to amortized cost. On reclassification date, the
amount debited to the asset's new classification is equal to the asset’s
Answer: Amortized cost as at the reclassification date.

8. Phillip Company insured the life of its president for P2,000,000, the entity being the beneficiary of an
ordinary life insurance policy. The annual premium is P80,000 and the policy is dated January 1, 2018.
The cash surrender values are:
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 December 31, 2020 – 15,000
December 31, 2021 – 19,000

The entity follows the calendar year as its fiscal period. The president died on October 1, 2021 and the
policy is settled on December 31, 2021. What amount should Phillip Company report as gain on life
insurance settlement in its 2021 income statement?
Answer: 1,962,000

9. At the beginning of the current year, ABC Company declared a 10% stock dividend. The market price
of the entity's 30,000 outstanding shares of P20 par value was P90 per share on that date. The stock
dividend was distributed on July 1, when the market price was P100 per share. What amount should
be credited to share premium for the stock dividend?
Answer: 210,000

10. CF Company sets aside funds to be used in opening a new branch. In CF's statement of financial
position, the fund is most likely to be presented under which of the following captions?
Answer: Other long-term investments

11. Statement No. 1: After the date of declaration but before the date of record, shares are said to be selling
ex-dividend.

Statement No. 2: Reclassification entries are made on the date an entity changes its business model for
managing financial assets.
Answer: False, False

12. What is the effect of a subsequent increase in cash surrender value?

Answer: Decrease in Insurance Expense, increase in profit, increase in total assets

13. A debt-type financial asset's impairment accounting commences when the asset is reclassified from
Answer: FVPL to FVOCI

14. Which of the following reclassifications of financial assets is permitted under PFRS9?
Answer: Reclassification from amortized cost and to FVPL

15. ABC Company purchased a P1,000,000 life insurance policy on its president, of which ABC is the
beneficiary. Information regarding the policy for the year ended December 31, 2021 follows:

Cash surrender value, January 1-87,00

Cash surrender value, December 31- 108,000
Annual advance premium paid January 1 - 40,000

During 2021, dividend of P6,000 was applied to increase the cash surrender value of the policy. What
amount should ABC report as life insurance expense for 2021?
Answer: 19,000

16. On January 1, 2021, ABC Company adopted a plan to accumulate funds for a new plant building to be
erected beginning July 1, 2026, at an estimated cost of P6,000,000. ABC intends to make five equal
annual deposits in a fund that will earn interest at 8% compounded annually. The first deposit is made
on July 1, 2021. Present value and future value factors are as follows:

Present value of 1 at 8% for 5 periods - 0.68 Present value of 1 at 8% for 6 periods - 0.63
Future value of an ordinary annuity of 1 at 8% for 5 periods - 5.87
Future value of an annuity of 1 in advance at 8% for 5 periods - 6.34

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 What is the annual deposit to the fund? (Round-up your answer to the nearest hundreds)
Answer: 946,400

17. ABC Company declared and distributed 10% stock dividend with fair value of P1,500,000 and par
value of P1,000,000, and 25% stock dividend with fair value of P4,000,000 and par value of
P3,500,000. What aggregate amount should be debited to retained earnings for the stock dividends?
Answer: 5,000,000

18. Which of the following may be reported as part of other long-term investments?
Answer: Insurance Fund

19. On March 15, 2021, ABC Company adopted a plan to accumulate P5,000,000 by September 1, 2025.
ABC plans to make four equal annual deposits to a fund that will earn interest at 10% compounded
annually. ABC made the first deposit on September 1. 2021. Future value factors are as follows:

Future value of 1 at 10% for 4 periods - 1.46

Future value of an ordinary annuity of 1 at 10% for 4 periods - 4.64 Future value of an annuity of 1 in
advance at 10% for 4 periods - 5.11

What is the annual deposit to the fund? (Round up your answer to the nearest hundreds)
Answer: 978,500

20. ABC Company purchased a P1,000,000 ordinary life insurance policy on its president. ABC Company
is the beneficiary under the life insurance policy. The policy year and ABC's accounting year coincide.
Additional data available for the year ended December 31. 2021 are as follows:

Cash surrender value, January 1-43,500

Cash surrender value, December 31 - 54,000
Annual advance premium paid January 1-20,000
Dividend received July 1-3,000

What amount should be reported as life insurance expense for 2021?

Answer: 6,500

21. An entity reclassifies debt securities from Amortized cost to FVOCI. What amount of gain or loss is
recognized in other comprehensive income on the reclassification date?
Answer: The difference between the asset's amortized cost on reclassification date and the
reclassification date fair value

22. Statement No. 1: The increase in cash surrender value is accounted for as income.

Statement No. 2: Only debt-type financial assets can be reclassified when an entity changes its business
model for managing financial assets.
Answer: False, True

23. The following information relates to a bond sinking fund that ABC Company placed in trust as required
by the underwriter:
Bond sinking fund, January 1, 2021-4,500,000
Additional investment in 2021-900,000
Dividends on investments - 150,000
Interest revenue - 300,000
Administration costs - 50,000
Carrying amount of bonds payable - 8,000,000
- What is the carrying amount of the bond sinking fund on December 31, 2021?
Answer: 5,800,000
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 24. ABC Company declared a 5% stock dividend on 100,000 issued and outstanding shares of P20 par
value, which had a fair value of P50 per share before the stock dividend was declared. This stock
dividend was distributed 60 days after the declaration date. What is the increase in current liabilities
as a result of the stock dividend declaration?
Answer: 0

25. When cash surrender value is initially recognized,

Answer: Insurance expense is credited

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