Exam 11: Financial Instruments: Investments in Debt and Equity Securities

Steens Corp.acquired a 30% interest in Proctor Co.on January 1,2015,for $900,000.At that time,Proctor had 2 million of its no-par common shares issued and outstanding.During 2015,Proctor paid cash dividends of $340,000 and thereafter declared and issued a 5% common stock dividend when the market value was $2 per share.Proctor's net income for 2015 was $720,000.What should be the balance in Steen's investment account at the end of 2015?

On January 1,2014,XYC purchased 100 shares (1 percent) of AB common shares at $120 per share.XYC uses the cost method to account for the AB shares.Subsequent to purchase,the following transactions and events happened: June 1,2001,received a 20 percent stock dividend on the AB shares; March 31,2015,XY sold half of the AB shares at $108 per share.Calculate XYC's recognize a gain (loss) on the sale of the AB shares.

The equity method causes the balance in the investment account to approximate:

ABC owns a 35 percent interest in the voting common of XYZ and uses the equity method.For 2013,XYZ reported income of $120,000 and declared cash dividends of $40,000.If the carrying value of XYZ investment was $290,000 on January 1,2013,ABC should (a) recognize investment revenue for 2013,and (b) report the carrying value of the investment,as follows:

Under ASPE,all passive investments must be accounted for using only FVTPL,Cost or Amortized Cost methods.

Impairment tests are required for all investments except those designated FVTPL.

The Mon Corporation acquired a 30% interest in the Soon Company on 1/1/2014 for $600,000.At that time,Soon had 2,000,000 shares of its common stock issued and outstanding.During 2014,Soon paid cash dividends of $20,000 and thereafter declared and issued a 5% common stock dividend when the market value was $2 per share.Soon's net income for 2014 was $120,000.What should be the balance in Mon's investment in Soon Co.account at the end of 2014? ( Assume the company uses the equity method to record the investments)

SR Company acquired 40 percent of the voting common shares of DKM,Inc.,on January 1,2001,for $120,000 cash.Income reported and cash dividends declared and paid by DKM in 2001 and 2002 were as follows: Income Dividends 2001 \ 20,000 \ 12,000 2002 (5,000) -0- Give all of the 2001 and 2002 entries other than the acquisition,as they would appear in the accounts of SR.Assume that significant influence exists. 2001 entries: 2002 entries:

123 Inc.made the following share purchases during 2012: GHI Inc: 300 shares @ $60 per share $18,000 JKL Inc: 300 shares @ $30 per share $9,000 The GHI Inc shares were designated as FVTOCI while the JKL Inc shares were designated as FVTPL. On December 31^st,2012,the market values of the GHI Inc.and JKL Inc.shares were $63 and $34 per share respectively. Required: Prepare the required adjusting journal entries at December 31^st,2012.

The equity method has all the following characteristics except:

On January 1^st,ABC purchased 80% of the voting shares of DEF Inc.for $300,000. On that date,DEF's fair values approximated its book values with the exception of a Patent which was identified and estimated to have a value of $50,000,and DEF's inventories,which had an estimated fair value $20,000 higher than book value.ABC adheres to IFRS. The balance sheets of both companies immediately following the acquisition were as follows: ASSETS ABC DEF Cash \ 300,000 \ 120,000 Accounts Receivable \ 120,000 \ 40,000 Inventories \ 100,000 \ 20,000 Plant \& Equipment (net) \ 160,000 \ 40,000 Investment in DEF Ine \ 300,000 Patent \ 220,000 TOTAL ASSETS LIABILITIES \& EQUITY Current Liabilities \ 200,000 \ 80,000 Bonds Payable \ 800,000 \ 70,000 Common Shares \ 100,000 \ 20,000 Retained Earnings \ 100,000 \ 50,000 LIABILITIES \& EQUITY \ Required: Prepare ABC's consolidated balance sheet immediately following the acquisition.Ignore any income tax effects.

Assuming that the shares are designated an FVTPL investment,the effect on ABC's 2013 income as a result of owning the DEF shares would be:

Investor Inc.owns 40 percent of Ailmand Corporation.During the calendar year,Ailmand had net earnings of $100,000 and paid cash dividends of $10,000.Investor mistakenly recorded these transactions using the cost method rather than the equity method of accounting.What effect would this have on the investment account,net earnings,and retained earnings,respectively?

Assuming that ABC adheres to ASPE and opts to use the cost method,what effect (if any) would there be as on ABC's 2011 income as a result of this investment?

On March 1,2014,ABC paid $10,000 for 500 shares of XTC and 600 shares of YTC.The XTC shares were quoted at $12 per share on March 1,2014.There was no quoted selling price for the YTC shares; however,one year earlier it was selling for $8 per share. Calculate the debits to the investment accounts for each share.

For each situation,give the appropriate journal entry(s).Assume the cost method is used. (a) On January 1,2013,Investor A purchased (for cash) a long-term investment,1,000 shares (1 percent) of 6 percent,cumulative,preferred shares of Corporation B at $48 per share,when one year of dividends was in arrears. (b) On March 1,2013,Investor A received a 100 percent stock split on the B stock. (c) On December 31,2014,Investor A received notice that the board of directors of Corporation B had declared cash dividends on the preferred stock sufficient to cover the arrears and the current year.

Masters Inc.acquired 30% of Continental Corp.'s voting shares on January 1,2001 for $100,000.During 2001,Continental earned $40,000 and paid dividends of $25,000.Master's 30% interest in Continental gives Masters the ability to exercise significant influence over Continental's operating and financial policies.During 2002,Continental earned $50,000 and paid dividends of $15,000 on April 1 and $15,000 on October 1.On July 1,2002,Masters sold half of its shares in Continental for $66,000 cash. Calculate the carrying amount of this investment in Mater's December 31,2002 balance sheet.

Assuming that ABC adheres to IFRS,what would be the balance in the Investment in Associate - DEF Inc.account on December 31^st,2012?

The balance in the OCI account related to the Investment in DEF account on December 31^st,2015 was:

When an investor uses the cost method to account for investments in common stock,cash dividends received by the investor from the investee should normally be recorded as: