Question 1

For investments accounted for under the equity method, companies disclose the fair value for those investments.

Accepted Answer

A) True 
 B)False  True

Question 2

Ewok Enterprises recently elected the fair value option to account for its investment in Yoda Inc. Ewok purchased the shares for $204,000 and the shares are currently trading for $190,000 at year-end. What is the carrying value of this investment on the balance sheet of Ewok?

Accepted Answer

A)  $204,000 
B)  $14,000 
C)  $394,000 
D)  $190,000 
A)  $204,000 
B)  $14,000 
C)  $394,000 
D)  $190,000 D

Question 3

Cassa & Associates purchased the bonds of JayBird. These bonds pay 6% interest semi-annually. The effective rate of interest at the date of investment was 3%. Did Cassa & Associates purchase these bonds at a discount or premium?

Accepted Answer

A)  These bonds were purchased at a discount because the stated rate exceeds the market rate. 
B)  These bonds were purchased at a premium because the stated rate exceeds the market rate. 
C)  These bonds were purchased at a discount because the market rate exceeds the stated rate. 
D)  These bonds were purchased at a premium because the market rate exceeds the stated rate. 
A)  These bonds were purchased at a discount because the stated rate exceeds the market rate. 
B)  These bonds were purchased at a premium because the stated rate exceeds the market rate. 
C)  These bonds were purchased at a discount because the market rate exceeds the stated rate. 
D)  These bonds were purchased at a premium because the market rate exceeds the stated rate. B

Question 4

The face value and present value of a long-term note receivable are always different and require present value techniques to calculate this difference.

Accepted Answer

A) True 
 B)False

Question 5

For investing assets reported at fair value, companies disclose information to enable users to assess the fair value estimates and reasonableness of assumptions made in determining fair value. How is this accomplished?

Accepted Answer

Companies report securities based on a f

Question 6

Olympic Corporation purchased a debt security for $500,000 on July 1, 2020 and properly classified it as a trading security. As of the last day of 2020, the fair value of the security was $494,000. The proper journal entry on this date includes ________.

Accepted Answer

A)  a credit to Fair Value Adjustment - Trading Debt Investments for $6,000 
B)  a debit to Fair Value Adjustment - Trading Debt Investments for $494,000 
C)  a debit to Unrealized Loss - Net Income for $494,000 
D)  a credit to Unrealized Loss - Net Income for $6,000 
A)  a credit to Fair Value Adjustment - Trading Debt Investments for $6,000 
B)  a debit to Fair Value Adjustment - Trading Debt Investments for $494,000 
C)  a debit to Unrealized Loss - Net Income for $494,000 
D)  a credit to Unrealized Loss - Net Income for $6,000

Question 7

Debt securities represent an investment by one company into the common or preferred shares of another company.

Accepted Answer

A) True 
 B)False

Question 8

How does IFRS account for equity investments when there is no significant influence?

Accepted Answer

Unlike U.S. GAAP, IFRS does not distingu

Question 9

On January 1, Seahawk Company purchased $770,000 of 12% bonds at face value. At December 31, the market value of the bonds was $810,000.
Required:
Prepare the fair value adjusting entry on December 31 of the current year assuming that the bonds are classified as:
1. Trading securities
2. Available-for-sale securities
3. Held-to-maturity securities

Accepted Answer

(1)
 \[\begin{array} { | l | l | l | }

Question 10

Which of the following must be disclosed for held-to-maturity securities?

Accepted Answer

A)  the name of the investee and the percentage ownership 
B)  net carrying amount 
C)  total gains and losses accumulated in other comprehensive income 
D)  difference between the carrying value of the investment and the amount of underlying equity in net assets 
A)  the name of the investee and the percentage ownership 
B)  net carrying amount 
C)  total gains and losses accumulated in other comprehensive income 
D)  difference between the carrying value of the investment and the amount of underlying equity in net assets

Question 11

Cider Jewelers purchased 3,000,000 of the outstanding 10,000,000 shares of Angel & Associates. At the time of the acquisition, the book value of Angel's net assets equals their fair market value. Angel declared and paid dividends of $285,000 during the year. Which of the following is the correct journal entry for this transaction?

Accepted Answer

A)  $\begin{array}{|l|c|r|}
\hline\text { Cash } & 85,500 \
\hline \text { Investment in Angel \& Associates } &&85,500\
\hline
\end{array}$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Investment in Angel \& Associates } & 85,500 & \
\hline \text { Dividend Revenue } & & 85,500 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 285,000 & \
\hline \text { Investment in Angel \& Associates } & & 285,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Investment in Angel \& Associates } & 285,000 & \
\hline \text { Dividend Revenue } & & 285,000 \
\hline
\end{array}$$ 
A)  $\begin{array}{|l|c|r|}
\hline\text { Cash } & 85,500 \
\hline \text { Investment in Angel \& Associates } &&85,500\
\hline
\end{array}$ 
B)  $$\begin{array} { | l | r | r | } 
\hline \text { Investment in Angel \& Associates } & 85,500 & \
\hline \text { Dividend Revenue } & & 85,500 \
\hline
\end{array}$$ 
C)  $$\begin{array} { | l | r | r | } 
\hline \text { Cash } & 285,000 & \
\hline \text { Investment in Angel \& Associates } & & 285,000 \
\hline
\end{array}$$ 
D)  $$\begin{array} { | l | r | r | } 
\hline \text { Investment in Angel \& Associates } & 285,000 & \
\hline \text { Dividend Revenue } & & 285,000 \
\hline
\end{array}$$

Question 12

Unrealized gains and losses from fair value adjustments for equity investments with no significant influence and a readily determinable fair value are reported as part of other comprehensive income, while gains and losses from the sale of these investments are reported in net income.

Accepted Answer

A) True 
 B)False

Question 13

HdG, Inc. accepts a $800,000, 7% note from Aberdeen Unlimited on April 1, 2019, and lends money to Aberdeen. Aberdeen agrees to pay 5 equal annual payments on this note beginning March 31, 2020. The market rate at the date of issuance of this note was 7%. How much Interest Revenue will HdG record on December 31, 2019, the end of its fiscal year?

Accepted Answer

A)  HdG will not record Interest Revenue until it receives the first installment payment on this note on March 31, 2020. 
B)  $28,000 
C)  $56,000 
D)  $42,000 
A)  HdG will not record Interest Revenue until it receives the first installment payment on this note on March 31, 2020. 
B)  $28,000 
C)  $56,000 
D)  $42,000

Question 14

Goo Goo Enterprises invested in the bonds of Greater Glouster. These bonds pay interest of 2%. The effective rate of interest for similar bonds on the date of investment was 6%. Did Goo Goo purchase the bonds at a discount or premium?

Accepted Answer

A)  These bonds were purchased at a discount because the stated rate exceeds the market rate. 
B)  These bonds were purchased at a premium because the stated rate exceeds the market rate. 
C)  These bonds were purchased at a discount because the market rate exceeds the stated rate. 
D)  These bonds were purchased at a premium because the market rate exceeds the stated rate. 
A)  These bonds were purchased at a discount because the stated rate exceeds the market rate. 
B)  These bonds were purchased at a premium because the stated rate exceeds the market rate. 
C)  These bonds were purchased at a discount because the market rate exceeds the stated rate. 
D)  These bonds were purchased at a premium because the market rate exceeds the stated rate.

Question 15

On April 1, 2018, Ellucian Corporation invested in the bonds issued by the City of Westminster on January 1, 2018. These 10-year, $600,000 bonds pay interest of 2% with semiannual payments every June 30 and December 31. Ellucian paid par value plus accrued interest. Ellucian's fiscal year ends on December 31. What is Ellucian's net interest revenue for 2018?

Accepted Answer

A)  $9,000 
B)  $12,000 
C)  $3,000 
D)  $6,000 
A)  $9,000 
B)  $12,000 
C)  $3,000 
D)  $6,000

Question 16

On July 1, Year 1, Broadway Financing agrees to loan Choctaw Investment Group money in exchange for a non-interest bearing note with a face value of $800,000, due in four years. The current market interest rate is 11%. Broadway has a fiscal year that ends on December 31.
Required:
1. What are the proceeds of the note?
2. Prepare the journal entry to record the issuance of the note.
3. Prepare the adjusting journal entries for December 31 Year 1 and Year 2.
4. What is the carrying value of the note at the end of Year 2?

Accepted Answer

1. The present value of the note is $526

Question 17

Which of the following statements regarding trading debt securities is false?

Accepted Answer

A)  If a trading debt security is purchased at a premium, the premium must be amortized on a periodic basis. 
B)  Fair value adjustments are treated as adjustments to net income. 
C)  If the fair value of trading debt securities is less than the amortized cost, the fair value adjustment account will have a credit balance. 
D)  Fair value adjustments are treated as adjustments to other comprehensive income. 
A)  If a trading debt security is purchased at a premium, the premium must be amortized on a periodic basis. 
B)  Fair value adjustments are treated as adjustments to net income. 
C)  If the fair value of trading debt securities is less than the amortized cost, the fair value adjustment account will have a credit balance. 
D)  Fair value adjustments are treated as adjustments to other comprehensive income.

Question 18

How are equity method investment disclosures different for IFRS companies than for U.S. GAAP companies?

Accepted Answer

A)  IFRS requires additional disclosure related to fair value measurement used when the fair value option was elected. 
B)  IFRS require all fair values to be reported, while GAAP only requires disclosures of fair value if the fair value option was elected. 
C)  IFRS requires additional disclosures for summarized financial information of the investee, including total assets, liabilities, income and loss. 
D)  IFRS requires more detailed disclosures explaining the areas where significant influence was exerted over the investee during the reporting period. 
A)  IFRS requires additional disclosure related to fair value measurement used when the fair value option was elected. 
B)  IFRS require all fair values to be reported, while GAAP only requires disclosures of fair value if the fair value option was elected. 
C)  IFRS requires additional disclosures for summarized financial information of the investee, including total assets, liabilities, income and loss. 
D)  IFRS requires more detailed disclosures explaining the areas where significant influence was exerted over the investee during the reporting period.

Question 19

Companies determine the cost of held-to-maturity debt securities as the present value of the future cash flows, discounted at the stated rate of interest.

Accepted Answer

A) True 
 B)False

Question 20

If a debt security is not classified as held-to-maturity or trading, then it is classified as an available-for-sale security.

Accepted Answer

A) True 
 B)False

For investments accounted for under the equity method, companies disclose the fair value for those investments.

Ewok Enterprises recently elected the fair value option to account for its investment in Yoda Inc. Ewok purchased the shares for $204,000 and the shares are currently trading for $190,000 at year-end. What is the carrying value of this investment on the balance sheet of Ewok?

Cassa & Associates purchased the bonds of JayBird. These bonds pay 6% interest semi-annually. The effective rate of interest at the date of investment was 3%. Did Cassa & Associates purchase these bonds at a discount or premium?

The face value and present value of a long-term note receivable are always different and require present value techniques to calculate this difference.

For investing assets reported at fair value, companies disclose information to enable users to assess the fair value estimates and reasonableness of assumptions made in determining fair value. How is this accomplished?

Olympic Corporation purchased a debt security for $500,000 on July 1, 2020 and properly classified it as a trading security. As of the last day of 2020, the fair value of the security was $494,000. The proper journal entry on this date includes ________.

Debt securities represent an investment by one company into the common or preferred shares of another company.

How does IFRS account for equity investments when there is no significant influence?

Which of the following must be disclosed for held-to-maturity securities?

Unrealized gains and losses from fair value adjustments for equity investments with no significant influence and a readily determinable fair value are reported as part of other comprehensive income, while gains and losses from the sale of these investments are reported in net income.

Goo Goo Enterprises invested in the bonds of Greater Glouster. These bonds pay interest of 2%. The effective rate of interest for similar bonds on the date of investment was 6%. Did Goo Goo purchase the bonds at a discount or premium?

Which of the following statements regarding trading debt securities is false?

How are equity method investment disclosures different for IFRS companies than for U.S. GAAP companies?

Companies determine the cost of held-to-maturity debt securities as the present value of the future cash flows, discounted at the stated rate of interest.

If a debt security is not classified as held-to-maturity or trading, then it is classified as an available-for-sale security.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

Filters

Exam 16: Investing Assets

For investments accounted for under the equity method, companies disclose the fair value for those investments.

Ewok Enterprises recently elected the fair value option to account for its investment in Yoda Inc. Ewok purchased the shares for $204,000 and the shares are currently trading for $190,000 at year-end. What is the carrying value of this investment on the balance sheet of Ewok?

Cassa & Associates purchased the bonds of JayBird. These bonds pay 6% interest semi-annually. The effective rate of interest at the date of investment was 3%. Did Cassa & Associates purchase these bonds at a discount or premium?

The face value and present value of a long-term note receivable are always different and require present value techniques to calculate this difference.

For investing assets reported at fair value, companies disclose information to enable users to assess the fair value estimates and reasonableness of assumptions made in determining fair value. How is this accomplished?

Olympic Corporation purchased a debt security for $500,000 on July 1, 2020 and properly classified it as a trading security. As of the last day of 2020, the fair value of the security was $494,000. The proper journal entry on this date includes ________.

Debt securities represent an investment by one company into the common or preferred shares of another company.

How does IFRS account for equity investments when there is no significant influence?

Which of the following must be disclosed for held-to-maturity securities?

Unrealized gains and losses from fair value adjustments for equity investments with no significant influence and a readily determinable fair value are reported as part of other comprehensive income, while gains and losses from the sale of these investments are reported in net income.

Goo Goo Enterprises invested in the bonds of Greater Glouster. These bonds pay interest of 2%. The effective rate of interest for similar bonds on the date of investment was 6%. Did Goo Goo purchase the bonds at a discount or premium?

Which of the following statements regarding trading debt securities is false?

How are equity method investment disclosures different for IFRS companies than for U.S. GAAP companies?

Companies determine the cost of held-to-maturity debt securities as the present value of the future cash flows, discounted at the stated rate of interest.

If a debt security is not classified as held-to-maturity or trading, then it is classified as an available-for-sale security.

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Long-Term Operating Assets: Departures From Historical Cost

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

Filters