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

On January 1,2001,MNO purchased 30 percent of the 10,000 shares of the outstanding common shares,of RST for $60,000 cash (and properly computed goodwill of $5,000 amortizable over 10 years).On December 31,2001,RST reported net income of $40,000 and declared a cash dividend of $2 per share. Select the appropriate combination below for the December 31,2001,account balances to be reported by MNO. Balance sheet-Dec. 31, 2001 Income Statement-2001, Investment Account Investment Revenue 1) \ 60,000 \ 6,000 2) \ 65,500 \ 5,500 3) \ 65,500 \ 11,500 4) \ 65,500 \ 12,000

Assuming that ABC adheres to IFRS,what effect (if any) would there be as on ABC's 2012 income as a result of this investment?

On 1-1-2014 Sea Inc.purchased 40% of Gull Corporation for $30,000.At that time,Gull's owners' equity was $4,000,and Gull had the following assets with market values exceeding book value by the following amounts: Land $20,000 Buildings 30,000 (10 years life remaining) Patent 10,000 (5 years life remaining) Gull earned $10,000 in 2014 and paid $20,000 dividends.We amortize all intangibles over 5 years.What is the 2014 ending balance in the Investment in Gull account?

ABC Inc.is a Canadian public company that reports its results in Canadian dollars.The company purchased an investment in a U.S firm for $1 million U.S.during Year 1 when the Canadian dollar was trading at par.The investment pays no dividends.At the end of Year 1,$1CDN=$1.02 US.This will result in

Fair-value-through-profit-and-loss (FVTPL) investments are usually held for the purpose of resale in the near-term.

Over time,the total gain or loss flowing through income will be the same,regardless of whether an investment is designated as FVTPL or FVTOCI.

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

ABC paid $10,500 for 500 shares of ZTC common and 800 shares of WTC common.The ZTC shares were currently selling for $8 per share,and the WTC shares were selling for $10 per share.Calculate the debits to the investment accounts for each share.

A company purchased a $20,000,8.4 percent bond (interest payable each October 1) on March 31,2014,as a short-term investment.The total cash paid was $20,300.The investment is to be classified as a FVTPL investment. (a) Give the entry required by the company on March 31,2014. (b) Give any adjusting entry the company required on December 31,2014,end of reporting period.If none is required,so state.

At December 31,2001,end of the reporting period,AB owned the following FVTPL investments: Date Amount Security Acquired Owned Additional Data Common shares 3/31/2001 600 shares Dividends of \ 1 per share declared on Dec. 31, 2001; payable 3/15/2002 Debt security, 9\% 8/31/2001 \ 10,000 purchase price 60₡ Preferred 10/30/2001 800 shares Noncumulative shares AB should report 2001 dividend and interest revenue of: $__________.

Gains and losses realized from the sale of FVTOCI investments are transferred from OCI to earning when the sale occurs.

If an investment is accounted for by using the equity method,a cash dividend received on the investment will:

Level 1 inputs should be used to determine fair value in the absence of level 2 inputs.

FVTOCI is an investment classification that is prohibited for:

ABC owned the following equity securities held as long-term investments on December 31,2013.All are traded over the counter. Security Percent Owned M, Common Stock 15 percent N, Common Stock 25 percent with significant influence O, Common Stock 5 percent ABC should account for these securities by applying the:

The balance in the Investment in DEF account immediately prior to the sale of the shares was:

The equity method of accounting for long-term investments in equity securities is based on the presumption that the investor owns a sufficient number of the outstanding voting shares of another company to exercise significant influence over the operating and financing policies of the other company.

The total gain or loss realized on the sale of the shares was:

If an investment is accounted for by using the equity method,a stock dividend received on the investment will:

On September 1,2013,WXY bought 20 $1,000,9 percent bonds at 94 plus $300 total accrued interest.The bonds were to be sold to finance a new machine to be purchased in the following year.Therefore,the bonds will be sold during 2014.Interest is paid each June 30 and December 31.The bonds were designated as FVTPL investments.On the purchase date,WXY paid a brokerage fee of $340.WXY should record the cost of this investment at: