Question 1

When shares are not actively traded on open markets,it is impossible to estimate their fair value.

Accepted Answer

A) True 
 B)False

Question 2

On January 1st,2011,ABC Inc.purchased a $2,000 bond which pays interest semi-annually on June 30th and December 31st each year at the stated rate of 6% per annum.The market rate was 8% on January 1st,2011.The bond matures on December 31st,2015.There is no active market for the bond,so ABC will account or it using the amortized cost method.
Required:
a) How much was the bond purchased for (ignore brokerage fees)?
b) Provide all required journal entries for 2011.

Accepted Answer

Present Value of Bond on Janua

Question 3

On February 1,2014,ABC purchased 10 $1,000,12 percent bonds at 96 as a short-term investment.Interest is payable semi-annually on July 1 and January 1 of each year.How much cash did ABC spend on February 1,2014? What amount should be debited to the investment account? $\begin{array}{|l|l|l|} 
\hline& \text { Total Cash Spent } & \text { Debit to Investment Account } \
\hline 1) & \$ 10,100 & \$ 10,000\
\hline2) & \$ 9,600 & \$ 9,700 \
\hline3) & \$ 9,700 & \$ 9,600 \
\hline4) & \$ 10,000 & \$ 10,100\\hline
\end{array}$

Accepted Answer

A) Choice 1 
B) Choice 2 
C) Choice 3 
D) Choice 4 
A) Choice 1 
B) Choice 2 
C) Choice 3 
D) Choice 4

Question 4

A parent corporation that uses the equity method of accounting for its investment in a 40 percent owned subsidiary,which earned $20,000 and paid $5,000 in dividends,made the following entries: $\begin{array}{lll}
\text {Investment in Associate. }&8,000\
\text { Investment revenue.}&& 8,000\
\text {Cash. }&2,000\
\text {Dividend revenue }&&2,000 \
\end{array}$ What effect will these entries have on the parent's balance sheet?

Accepted Answer

A) Overstate investment, overstate retained earnings 
B) Understate investment, understate retained earnings 
C) Overstate investment, understate retained earnings 
D) Financial position will be fairly stated 
E) Understate investment, overstate retained earnings 
A) Overstate investment, overstate retained earnings 
B) Understate investment, understate retained earnings 
C) Overstate investment, understate retained earnings 
D) Financial position will be fairly stated 
E) Understate investment, overstate retained earnings

Question 5

A publicly quoted share price would be an example of a Level 2 input in determining fair value.

Accepted Answer

A) True 
 B)False

Question 6

The data below pertains to the values of various FVTOCI investments held by a client company: $\begin{array}{|l|l|l|l|}
\hline\text { Stock } & \text { Shares } & \text { Cost } & \begin{array}{l}
\text { Market Value } \
(\mathbf{1 2} / \mathbf{3 1} / \mathbf{2 0 1 1})
\end{array} \
\hline\mathrm{X} & 500 & \$ 30=\$ 15,000 & \$ 24=\$ 12,000 \
\hline Y & 1,000 & 20=20,000 & 30=30,000 \
\hline Z & 750 & 24=18,000 & 30=22,500\\hline
\end{array}$ The company's entire FVTOCI portfolio should be valued at which amount on December 31st,2011?

Accepted Answer

A) $50,000 
B) $53,000 
C) $64,500 
D) $67,500 
A) $50,000 
B) $53,000 
C) $64,500 
D) $67,500

Question 7

When fair-value is not determinable,investments may be carried at cost.

Accepted Answer

A) True 
 B)False

Question 8

On 1-1-0-2007 Gall 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 2007 and paid $20,000 dividends.We amortize all intangibles over 5 years.Calculate the 2007 ending balance in the Investment in Gull account.

Accepted Answer

The answer of On 1-1-0-2007 Gall purchased 40% of Gull...

Question 9

On January 1st,2011,ABC Inc.purchased a $1,000 bond which pays interest semi-annually on June 30th and December 31st each year at the stated rate of 6% per annum.The market rate was 8% on January 1st,2011.The bond matures on December 31st,2015.There is no active market for the bond,so ABC will account or it using the amortized cost method.
Required:
a) How much was the bond purchased for (ignore brokerage fees)?
b) Provide all required journal entries for 2011.

Accepted Answer

a) Present Value of Bond on Ja

Question 10

On January 1,2014,BCD paid $600,000 for 60,000 shares of MNO's common which represents a 25 percent investment in MNO.BCD has the ability to exercise significant influence over MNO.BCD received a cash dividend of $1 per share from MNO at the end of 2014.MNO reported net income of $320,000 for the year ended December 31,2014.The balance in BCD's investment account,at December 31,2001,should be:

Accepted Answer

A) $540,000 
B) $600,000 
C) $620,000 
D) $680,000 
A) $540,000 
B) $600,000 
C) $620,000 
D) $680,000

Question 11

On April 1,2014,a company purchased a $20,000,7.2 percent bond; interest is payable annually each September 31.The bond is accounted for using the cost method and was purchased for $20,800 including accrued interest.The accounting period ends December 31.Give the adjusting entry at the end of 2014.

Accepted Answer

The answer of On April 1,2014,a company purchased a $20,000,7.2...

Question 12

TBC purchased 10,000 shares in ETC for $12 per share.However,TBC's broker arranged for TBC to pay only $4 cash per share now with the remaining balance to be paid in monthly instalments.TBC should record the investment by:

Accepted Answer

A) Debiting the investment account for $40,000 
B) Debiting the investment account for $120,000 
C) Debiting the investment account for $100,000 and crediting a contra account for $60,000 
D) No entry should be made until the securities are fully paid for 
A) Debiting the investment account for $40,000 
B) Debiting the investment account for $120,000 
C) Debiting the investment account for $100,000 and crediting a contra account for $60,000 
D) No entry should be made until the securities are fully paid for

Question 13

456 Inc.made the following share purchases during 2012:
ABC Inc: 500 shares @ $60 per share $30,000
XYZ Inc: 500 shares @ $30 per share $15,000
The ABC Inc shares were designated as FVTOCI while the XYZ Inc shares were designated as FVTPL.
On December 31st,2012,the market values of the ABC Inc.and XYZ Inc.shares were $70 and $35 per share respectively.
Required:
Prepare the required adjusting journal entries at December 31st,2012.

Accepted Answer

Question 14

When two or more classes of equity securities are purchased for a lump sum,and the market value of neither security can be reliably determined,the lump sum payment should be allocated between the classes of securities based on the number of shares of each security purchased.

Accepted Answer

A) True 
 B)False

Question 15

Investments designated as FVTPL may be debt or equity instruments,while FVTOCI may include only equity instruments.

Accepted Answer

A) True 
 B)False

Question 16

Under IFRS,discounts or premiums on amortized cost investments may be amortized using either the straight line or effective interest methods.

Accepted Answer

A) True 
 B)False

Question 17

When a company holds between 20% and 50% of the outstanding shares of an investee,which of the following statements applies:

Accepted Answer

A) The investor should always use the equity method to account for its investment 
B) The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise significant influence over the investee. 
C) The investor must use the cost method unless it can clearly demonstrate the ability to exercise significant influence over the investee 
D) The investor should always use the cost method to account for its investment 
A) The investor should always use the equity method to account for its investment 
B) The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise significant influence over the investee. 
C) The investor must use the cost method unless it can clearly demonstrate the ability to exercise significant influence over the investee 
D) The investor should always use the cost method to account for its investment

Question 18

During Consolidation,the net assets of the subsidiary are revalued to fair value at acquisition.

Accepted Answer

A) True 
 B)False

When shares are not actively traded on open markets,it is impossible to estimate their fair value.

A publicly quoted share price would be an example of a Level 2 input in determining fair value.

When fair-value is not determinable,investments may be carried at cost.

On April 1,2014,a company purchased a $20,000,7.2 percent bond; interest is payable annually each September 31.The bond is accounted for using the cost method and was purchased for $20,800 including accrued interest.The accounting period ends December 31.Give the adjusting entry at the end of 2014.

TBC purchased 10,000 shares in ETC for $12 per share.However,TBC's broker arranged for TBC to pay only $4 cash per share now with the remaining balance to be paid in monthly instalments.TBC should record the investment by:

When two or more classes of equity securities are purchased for a lump sum,and the market value of neither security can be reliably determined,the lump sum payment should be allocated between the classes of securities based on the number of shares of each security purchased.

Investments designated as FVTPL may be debt or equity instruments,while FVTOCI may include only equity instruments.

Under IFRS,discounts or premiums on amortized cost investments may be amortized using either the straight line or effective interest methods.

When a company holds between 20% and 50% of the outstanding shares of an investee,which of the following statements applies:

During Consolidation,the net assets of the subsidiary are revalued to fair value at acquisition.

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Property,Plant,and Equipment; Intangibles; and Goodwill

Depreciation,Amortization,and Impairment

Filters

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

When shares are not actively traded on open markets,it is impossible to estimate their fair value.

A publicly quoted share price would be an example of a Level 2 input in determining fair value.

When fair-value is not determinable,investments may be carried at cost.

On April 1,2014,a company purchased a $20,000,7.2 percent bond; interest is payable annually each September 31.The bond is accounted for using the cost method and was purchased for $20,800 including accrued interest.The accounting period ends December 31.Give the adjusting entry at the end of 2014.

TBC purchased 10,000 shares in ETC for $12 per share.However,TBC's broker arranged for TBC to pay only $4 cash per share now with the remaining balance to be paid in monthly instalments.TBC should record the investment by:

When two or more classes of equity securities are purchased for a lump sum,and the market value of neither security can be reliably determined,the lump sum payment should be allocated between the classes of securities based on the number of shares of each security purchased.

Investments designated as FVTPL may be debt or equity instruments,while FVTOCI may include only equity instruments.

Under IFRS,discounts or premiums on amortized cost investments may be amortized using either the straight line or effective interest methods.

When a company holds between 20% and 50% of the outstanding shares of an investee,which of the following statements applies:

During Consolidation,the net assets of the subsidiary are revalued to fair value at acquisition.

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Property,Plant,and Equipment; Intangibles; and Goodwill

Depreciation,Amortization,and Impairment

Filters