Exam 7: Financial Assets

Eastern Company contributes $5 million while Western Company contributes management expertise toward the creation of a joint venture called Ying.Ying purchases a building and obtains a mortgage to finance the purchase.The joint venture renovates the building with the help of contractors,who are paid 25 days after they render their services.After completion of renovations,Ying operates the building as a hotel.It also sells some of the rooms to individual investors.As a part of the purchase of each room,an investor has rights to 30% of the revenue from the hotel room purchased,while Ying retains 70% to cover operating costs. Identify all the financial assets involved in the above situation.

Explain what financial assets are,how they differ from other types of assets,and why there is a variety of measurement standards for different categories of financial assets.

Star Corp.purchases a $100,000 face value bond which matures in two years.The coupon rate is 6% and the market rate is 5%.At what amount will the bond be recorded (rounded)?

Fisher Corporation has the following investments at September 30,2016: What method of accounting will Fisher use to account for its investment in Brooke,if the intent of the business model is to hold the investment for the purpose of collecting contractual cash flows of principal and interest and profit from changes in value?

Nevill Corp invests in short term investments.The following information is available about its investments at December 31,2016: If Nevill accounts for these at fair value through OCI investments,what is the amount of gain/loss to be recorded in fiscal 2016 comprehensive income?

Fisher Corporation has the following investments at September 30,2016: What method of accounting can Fisher not use to account for its investment in Cookstown?

On January 1,2015,Cadance Company purchased bonds with a maturity value of $100,000 for $80,747.These bonds have a 12% coupon rate payable semi-annually on June 30 and December 31.The bond matures on December 31,2019.On January 1,2015,the market yield for bonds of equivalent risk and maturity was 18%. Required: Prepare an amortization schedule that shows the amortized cost of this bond at the end of each of five years and the amount of interest income for each of those five years.

Fisher Corporation has the following investments at September 30,2016: What method of accounting will Fisher use to account for its investment in Brooke,if the intent of the business model is to hold the investment for the purpose of collecting contractual cash flows of principal and interest?

Which statement is correct about joint arrangements?

On January 1,2016,the Polka Dot Company acquired a $20 million face value bond that has an 11% coupon rate (paying interest annually on December 31).The bond matures on December 31,2021.On January 1,2016 the market yield for bonds of equivalent risk and maturity was 9%. Required: a.How much did Polka Dot pay for this bond on January 1,2016? b.On December 31,2016,the market yield for bonds of equivalent risk and maturity is 10%.What would be the market value of this bond on December 31,2016 immediately after the coupon payment? c.On December 31,2017,the market yield for bonds of equivalent risk and maturity is 11%.What would be the market value of this bond on December 31,2017 immediately after the coupon payment? d.Assume each of three scenarios: the bond is classified as (i)amortized cost, (ii)at fair value through other comprehensive income,or (iii)at fair value through profit or loss: • How much would the balance sheet value of this bond be on December 31,2016 and December 31,2017? • How much income would be reported in 2016 and 2017 for this bond? • How much would other comprehensive income (OCI)and accumulated OCI be for fiscal years 2016 and 2017?

Which statement is correct about derivative instruments?

Sheila Investment Company (SIC)began operations on January 1,2016.It acquired the following investments: SIC earned interest of $12,000 during 2016.Dividends of $16,000 were declared on the shares it owned during 2016.Of that amount,$9,000 was received in December 2016 and $7,000 was received in January 2017 (note that the ex-dividend date for these shares was prior to the end of the year).At what value would SIC's investment in shares be recorded at in the balance sheet on December 31,2016?

Amacon Corporation has the following investments at December 31,2016: Amacon,whose year-end is Sept.30,purchased the share of Daisy on January 1,2015.If Amacon irrevocably elected to classify its investment in Daisy at fair value through OCI,what amount will be reported in other comprehensive income at September 30,2016?

Simply purchases a $100,000 face value bond which matures in two years.The coupon rate is 6% and the market rate is 5%.How much premium or discount will be amortized in the first year,if any?

Explain the difference between a joint arrangement,joint control,joint operation and a joint venture.Explain how each type of investment is accounted for under IFRS.Explain the underlying reasons for the difference in accounting methods for these investments.

On January 1,2017,a company pays $100,000 to purchase 100 Government of Canada bonds that have a maturity date of December 31,2021 and an interest rate of 5%.At December 31,2017,the bonds had a quoted price of $1,022 per bond.Assume that 20 of these bonds are sold on June 30,2018 for $1,100 per bond plus accrued interest.Determine the gain or loss that would be recorded in 2018 assuming: a.Classified at fair value through profit or loss. b.Classified at amortized cost.

On January 1,2017,a company paid $100,000 to purchase 100 Government of Canada bonds that have a maturity date of December 31,2021 and pay interest at 4%.At December 31,2017,the bonds had a quoted price of $1,050 per bond. Fill in the attached table assuming a.Classified at fair value through profit or loss b.Classified at fair value through other comprehensive income

Which financial asset classification best describes the business model that includes acquiring portfolio investments in debt securities with the intent to collect contractual cash flows to which it is entitled and profit from the change in value?

Which statement is correct about financial instruments?

How does having significant influence over an investee alleviate information asymmetry?