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

On December 1,2008,CXC purchased 200,000 shares representing 45 percent of the outstanding shares of PTC for cash of $2,500,000.As a result of this purchase,CXC has the ability to exercise significant influence over the operating and financial policies of PTC.45 percent of the net income of PTC amounted to $20,000 for the month of December and $350,000 for the year ended December 31,2008.On January 15,2009,cash dividends of $0.30 per share were paid to shareholders of record on December 31,2008. Calculate CXC's Investment in PTC to be should be shown in CXC's December 31,2008,balance sheet.

It is not possible to have significant influence over another corporation without owning at least 25% of the outstanding voting shares.

FGH purchased a $100,000,6 percent bond at 104 plus $2,000 accrued interest.The bond pays semi-annual interest on each 6/30 and 12/31.FGH paid a brokerage fee of $1,500.What entry should FGH make to record this long-term investment? FGH adheres to ASPE. (1) Investment in FVTPL securities 101,500 Cash 101,500 (2) Investment in FVTPL securities 104,000 Brokerage expense. 1,500 Cash. 105,500 (3) Investment in FVTPL securities 105,500 Investment receivable. 2,000 Cash 107,500 (4) Investment in FVTOCI securities 105,500 Interest receivable 2,000 Cash 107,500

Only FVTPL and amortized cost investments are considered passive investments.

The balance in the OCI account related to the Investment in DEF account immediately following the sale of the shares was:

Assuming that ABC adheres to IFRS,what would be the balance in the Investment in Associate - DEF Inc.account on December 31^st,2011?

Under the equity method of accounting for an investment,an investor recognizes its share of earnings in the period in which the investee declares a dividend.

Using the cost method,an investment in a subsidiary is shown as an asset,while using the equity method,it is shown as part of shareholders' equity.

Under IFRS,Investments in Associates may be accounted for using either the Cost or Equity Methods.

On January 1,2015,IB Corporation purchased 30 percent of the outstanding common shares,no-par,of CXT at $2 per share.CXT data on this date were as follows: Book Value Market Value Assets not subject to depreciation \ 20,000 \ 24,000 Assets subject to depreciation (10 year life) 30,000 40,000 Liabilities 14,000 Same Stockholders' equity (40,000 shares outstanding) 36,000 Additional data for CXT,at end of accounting period December 31,2015: (Significant influence is in existence) 2015 net income was $10,000; total 2015 cash dividends declared and paid was $4,000. Required: 1.The goodwill purchased was $_____________________.

ABC Inc.made the following share purchases during 2012: 123 Inc: 400 shares @ $50 per share $20,000 456 Inc: 200 shares @ $60 per share $12,000 The 123 Inc shares were designated as FVTOCI while the 456 Inc shares were designated as FVTPL. On December 31^st,2012,the market values of the 123 Inc.and 456 Inc.shares were $52 and $66 per share respectively. Required: Prepare the required adjusting journal entries at December 31^st,2012.

Under the equity method of accounting for Investments in Associates,the investor's investment account is decreased by all dividends received from the investee.

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 gain on sale of this investment in Master's 2002 income statement?

Non-controlling interest (NCI) is a separate equity account which appears on the consolidated financial statements which is used to account for any portion of the subsidiary that is not owned by the parent.

Once an investor has power over an investee,consolidation is automatically required.

Cash dividends declared out of current earnings are distributed to an investor.How will the investor's investment account be affected by those dividends under each of the following accounting methods? Cost Method Equity Method 1 No effect No effect 2 No effect Decrease 3 Decrease No effect 4 Decrease Decrease

The accounting approach for recording a stock dividend received on a long-term equity investment is the same whether the cost or the equity method is used by the investor.

ABC Inc.bought 1,000 shares of 678 Inc.at $10 per share on July 1^st,2012.On December 30^th,678 Inc.declared a dividend of $1.20 per share.The shares are designated as FVTPL by ABC's management.The share price was $9 on December 31^st,2012. Required: Prepare all required journal entries for 2012. Suppose that early in 2013,a press release indicates that 678 Inc.will have going-concern issues.As a result of the news,the share price on January 2^nd drops to $3 per share.ABC Inc has determined that the likelihood of the shares ever rising above the $3 mark were minimal.Would this impact your journal entries in requirement 1? Explain.

Assuming that ABC adheres to IFRS,what effect (if any) would there be as on ABC's 2011 income as a result of this investment?

Which of the following investments need not be tested for impairment?