Exam 15: Accounting for Debt and Share Investments

Halifax Company purchased $50,000 worth of bonds par value) and held them tomaturity. The journal entry at maturity should include a debit to Cash for $50,000 and a credit to Long-term Investment in Bonds for $50,000.

Investments in shares are the same as debt investments.

On January 5, 2015, Erin Ridge Corp. purchased 28,000 shares of Forest Lawn Inc.common shares for $146,000 plus a broker's fee of $1,000. Forest Lawn Inc. has 50,000 common shares outstanding and has acknowledged the fact that its policies will besignificantly influenced by Erin Ridge. The investment should be accounted for as a non-equity investment using the fair value method.

As an investment in associates, Music City purchased 2,000 Asta Corp common shares for $143,000. Music City also paid $375 in commissions on the transaction. The entry to record the transaction would include a:

Investments in associates:

Music City owns Airport Corp bonds as a short-term equity investment with a carrying value of $65,000. The current market value is $68,500. Music City should record a:

The receipt of cash dividends from a significant influence investment is recorded as a reduction to retained earnings by the investor.

If one company owns more than 20% of the shares of another company and the shares are being held as a long-term investment, which method would normally be used toaccount for this investment?

When a corporation purchases the shares or bonds of other companies, it has made an intercorporate investment.

Under IFRS, investments in associates are accounted for using the fair value through profit or loss method.

Changes in investment values are recognized with a credit to short-term investments and a debit to unrealized gains.

Investments in non-strategic equity investments:

Classical City holds $40,000 worth of 7% bonds par value) as debt investments. The journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Income for $2,800.

Strategic investments include investments in associates, business combinations and joint arrangements.

"Share investment" and "equity security" are interchangeable terms.

Investors originally record non-strategic investments using the cost method.

Comoco purchased $3,000 of Borel Ltd shares intending to sell the shares within a short time at a profit. The journal entry to record the transaction would include a debit to cash and a credit to short-term investments.

Strategic investments are classified into three different categories: investments in associates, business combinations, or joint ventures.

Purchases of long-term debt investments are never initially recorded at fair value.