Exam 15: Accounting for Debt and Share Investments

When an investment in equity securities is sold, the gain or loss is calculated bycomparing proceeds from the sale with the book value of the investment on the date of sale.

Brokerage costs and transaction costs can be included as part of the cost of non-strategic investments.

Dax purchased 200 of the 500 outstanding Minisoft Corporation common shares at $55 per share plus a $100 brokerage fee as an investment in an associate. If Minisoft hasprofit for the year of $50,000 and pays a dividend of $5/share, what information should Dax report on its income statement relating to the investment?

Strategic investments that occur when the investor can significantly influence the strategic operating, investing, and/or financing policies of the investee are called:

Repeat Inc. purchased $60,000 40%) worth of Quiet Corp. common shares. Thejournal entry to record the purchase should include a debit to Cash for $60,000 and a credit to Quiet Corp. Investment for $60,000.

Micron owns 16% of JVT as an investment in an associate. JVT paid $78,000 in total dividends to its shareholders. Micron should record a:

Long-term bonds are examples of non-strategic investments.

When a company purchases the shares of another company with the goal ofparticipating in new markets or technologies, they are considered non-strategic investors.

When a business operates as a parent company with subsidiaries, the accounting records are combined into one set of consolidated records.

Non-strategic equity investments are accounted for using the:

The method of accounting for an investment under the fair value under profit or loss is irrevocable after initial designation.

Proportionate consolidation combines the financial statement of an investor and a joint operation enterprise based on the investors proportionate share of the joint operations.

Non-strategic debt investments are accounted for using:

Under both IFRS and ASPE, fair value through profit or loss can be used as the initial measurement of non-strategic investments.

A joint arrangement can be classified as either a joint operation or a joint venture.

For non-strategic debt investments, the fair value through profit and loss method allows the inclusion of any transaction costs in addition to the purchase price.

When using the equity method, the receipt of cash dividends is recorded as revenue because the investor has earned a distribution of earnings by the investee.

Micron owns 35% of Martok Corp common shares, and is considered to havesignificant influence. Martok paid a total of $47,000 in common dividends. Micron would record the dividend transaction with a:

A decrease in the fair value of a security that has not yet been confirmed by the sale of the security is called an):

Consolidated financial statements show the financial position, results of operations, and cash flows of all companies under the parent's control, including all subsidiaries.