Bright Company acquired 40% interest in an associate, Win Company, for P5,000,000 on January

1, 2016. At the acquisition date, there were no differences between fair value and carrying amount
of identifiable assets and liabilities. Win Company reported the following net income and dividend
for 2016 and 2017:
2016 2017
Net Income 2,000,000 3,000,000
Dividend Paid 800,000 1,000,000
The following transactions occurred between Bright and Win Company:
 On January 1, 2016, Win Company sold an equipment costing P500,000 to Bright
Company for P800,000. Bright Company applied a 10% straight line depreciation.
 On July 1, 2017, Win Company, sold an equipment for P900,000 to Bright Company.
The carrying amount of the equipment is P500,000 at the time of sale. The remaining life
of the equipment is 5 years and Bright Company used the straight line depreciation.
 On December 1, 2017, Win company sold an inventory to Bright Company for P2,800,000.
The inventory had a cost of P2,000,000 and was still on hand on December 31, 2017.
1. What is the investor's share in the profit of the associate for 2016? *
a) 692,000
b) 800,000
c) 680,000
d) 920,000
2. What is the carrying amount of the investment in associate as of December 31, 2016? *
a) 5,692,000
b) 5,000,000
c) 5,372,000
d) 5,360,000
3. What is the investor's share in the profit of the associate for 2017? *
a) 880,000
b) 748,000
c) 720,000
d) 732,000
4. What is the carrying amount of the investment in associate as of December 31, 2017? *
a) 5,692,000
b) 5,704,000
c) 5,720,000
d) 6,120,000
5. Òn July 1, 2016, Miller Company purchased 25% of Wall Company's outstanding
ordinary shares and no goodwill resulted from the purchase. Miller appropriate carried
this investment at equity and the balance in Miller's investment was P1,900,000 on
December 31, 2016. Wall company reported net income P1,200,000 for the year ended
December 31, 2016 and paid dividend totaling P480,000 on December 31, 2016. How
much did Miller pay for the 25% interest in Wall? *
a) 2,170,000
b) 1,720,000
c) 2,020,000
d) 1,870,000
6. Alpha Company acquired 20,000 shares of Beta Company January 1, 2016 at P120 per
share. Beta Company had 80,000 shares outstanding with a carrying of P8,000,000. The
difference betweeen the carrying amount and fair value of Beta Company on January is
attributable to a broadcast license which is an intangible asset. Beta Company recorded
earnings of P3,600,000 and P3,900,000 for 2016 and 2017 respectively, and paid per
share dividend of P16 in 2016 and P20 in 2017. Alpha Company has 20-year straight line
amortization policy for the broadcast license. What is the carrying amount of the
investment in associate on December 31, 2016? *
a) 2,060,000
b) 3,300,000
c) 2,960,000
d) 2,980,000
7. What is the investment income for 2017? *
a) 995,000
b) 975,000
c) 935,000
d) 955,000
8. What is the carrying amount of the investment in associate on December 31, 2017? *
a) 4,275,000
b) 2,400,000
c) 3,515,000
d) 3,555,000
9. The excess of the investor's share of the net fair value of the associate's net assets over
the cost of the investment is *
a) Credited to retained earnings
b) Included in other comprehensive income
c) Recognized as an income in the determination of the investor's share of the associate's
profit or loss
d) A deferred gain
10. An investor uses the equity method to account for impairment in ordinary shares. The
purchase price implies a fair value of the investee's depreciable assets in excess of the
investee's net carrying amount . The investor's amortization of the excess *
a) Increases the investment revenue account
b) Decreases the investment account
c) Decreases the goodwill account
d) Does not affect the investment account
11. The investor shall discontinue the use of the equity method when
a) The investor ceases to have significant influence over the associate.
 b) The associate operates under severe long-term restrictions.
c) The investor ceases to have control over the associate.
d) The business activities of the investor and associate are dissimilar.
12. On January 1, 2016, Ronald Company purchased 40% of the outstanding ordinary shares
of New Company, paying P6,400,000 when the carrying amount of the net assets of New
Company equaled P12,500,000. The difference was attributed to equipment which had a
carrying amount of P3,000,000 and a fair market value of P5,000,000 and to building
which had a carrying amount P2,500,000 and a fair value of P4,000,000. The remaining
useful life of the equipment and building was 4 years and 12 years respectively. During
2016, New Company reported net income of P5,000,000 and paid dividends of
P2,500,000. What amount should be reported share in net income for 2016? *
a) 1,750,000
b) 1,800,000
c) 1,000,000
d) 2,000,000
13. The existence of significant influence by an investor is usually evidenced in one or more
of the following ways: (I) Representation on the board of directors of or equivalent
governing body of the investee. (II) Participation in the policy making process. (III)
Material transactions between the investor and investee. (IV) Interchange of managerial
personnel. (V) Provision of Provision of essential technical information. *
a) I, II, III, IV, V
b) I, II, III, IV only
c) I, II IV onlu
d) I, II only
14. On January 2, 2018, Miya Company purchased 10% of Layla company's outstanding
ordinary shares for P20,000,000. Miya is the largest single shareholder in Layla and this
gives Miya the power to participate in the financial and operating policy decisions of the
Layla but is not control over those policies. Layla reported profit of P10,000,000 and
paid dividend of P4,000,000. Carrying amount? *
20,000,000
20,600,000
21,000,000
21,400,000

15. If an associate has outstanding cumulative preference shares held by outside interests,
the investor computes share of profit or loss *
After adjusting for preference dividends which were actually paid during the year.
After adjusting for the preference dividends only when declared.
Without regard for preference dividends.
After adjusting for the preference dividends whether or not the dividends have been declared
 16. On July 1, 2016, Diamond Company paid P1,000,000 for 100,000 outstanding shares
which represent 40% of Ashley Company. At that date, the net assets of Ashley totaled
P2,500,000 and the fair values of all of Ashley's identifiable assets and liabilities were
equal to their carrying amount. Ashley reported net income of P500,000 for 2016, of
which P300,000 was for the six months ended December 31, 2016. Ashely paid cash
dividends of P250,000 on September 30, 2016. What amount of income should be
reported from the investment in Ashley? *
200,000
80,000
120,000
100,000

17. An investor uses the equity method to account for the purchase of another entity ordinary
shares. On the date of the acquisition, the fair value of the investee's inventory and land
exceeded their carrying amount. How do these excesses of fair value over carrying
amount affect the investor's equity in earnings of the investee for the current year?
(Inventory excess, Land Excess) *
Increase, No Effect
Decrease, Decrease
Increase, Increase
Decrease, No Effect

18. How is the impairment test carried out for an investment in associate? *
The recoverable amounts of all investments in associates shall be assessed together.
The goodwill's impairment tested individually.
The carrying amount of the investment shall be compared with the market value.
The entire carrying amount of the investment is tested for impairment by comparing the
recoverable amount with the carrying amount.

19. Pak Company owns 50% of Ganern Company's cumulative preference shares and 30%
of its ordinary shares. Ganern's shares outstanding at December 31, 2018 include
P10,000,000 of 10% cumulative preference shares and P40,000,000 of ordinary shares .
Ganern reported profit of P8,000,000 for the year ended December 21, 2018. Ganern
declared and paid P1,500,000 preference shares dividends during 2018. Ganern paid no
preference share dividends during 2017. How much is the total amount to be recognized
by Pak Company in its 2018 profit or loss related to its investment in associate? *
1,950,000
2,100,000
1,800,000
2,400,000

20. At the beginning of the current year, Keann Company purchased 30% interest in Pod
Company for P2,500,000. On this date Pod's shareholders' equity was P5,000,000. The
carrying amounts of Pod's identifiable net assets approximated their fair values, except
for land whose fair value exceeded the carrying amount by P2,000,000. The investee
reported net income of P1,000,000 and paid no dividends during the current year. What
amount should be reported as investment in associate at year-end? *
2,760,000
2,800,000
2,200,000
2,100,000

21. On January 1, 2016, Saxe Company purchased 20% of Lex Company's Ordinary shares
outstanding for P6,000,000. The acquisition cost is equal to the carrying amount of the
net assets acquired. During 2016, the investee reported net income of P7,000,000 and
paid cash dividend of P4,000,000. The balance of the investment in associate on
December 31, 2016? *
5,200,000
6,000,000
6,600,000
7,400,000

22. After the date of the acquisition, the investment account using the equity method would *
Be increased by the share of the earnings of the investee but not be affected by the share of the
losses of the investee
Not be affected by the share of the earnings or losses of the investee
Be increased by the share of the earnings of the investee and decreased by the share of the losses
of the investee
Not be affected by the share of the earnings of the investee but be decreased by the share of the
losses of the investee