Exam 7: Financial Assets

Which statement is correct about an available-for-sale investment?

On January 1, 2012, CC Company acquired 60,000 shares of RR Limited at $5 per share, representing 20% of RR's outstanding voting shares. On July 31, 2012, RR declared and paid a dividend of $1 per share. RR's net income for 2012 was $2,800,000. On December 31, 2012, the shares of RR were trading on the Toronto Stock Exchange at $16 per share. Required: Provide the journal entries on CC's books relating to its investment in RR, assuming that CC classifies RR as an associate.

Which statement is correct about non-strategic financial assets ?

How should derivatives be classified?

On January 1, 2011, 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, 2015. On January 1, 2011, 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.

Identify whether each of the following items is a financial asset:

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.

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)?

What is the meaning of "joint control"?

Starts has a 60% joint operation interest in Fish. Based on the following information, what amount will be presented for current liabilities on Starts' proportionately consolidated balance sheet?

Nevill Corp invests in short term investments. The following information is available about its investments at December 31, 2012: If Nevill accounts for these as available-for-sale investments, what is the amount of gain/loss to be recorded in fiscal 2012 comprehensive income?

Fisher Corporation has the following investments at December 31, 2012: If Fisher classifies its investment in Brooke as held to maturity, what amount will be reported in Fisher's 2012 year-end balance sheet?

Kings has a 40% joint operation interest in Fisher. Based on the following information, what amount will be presented for "revenues" on Kings' proportionately consolidated income statement?

Elyse Inc. made the following investments during its 2012 fiscal year. a. The company places $3,000 in a 8-month term deposit with its bank. b. The company purchases from its broker a call option on 2,500 shares of BMO Financial, a publicly traded company, for $5,500, in anticipation of an increase in the stock price. c. The company buys 30% of the outstanding shares of NEXT Corp. The purchase was made in anticipation of a bid by BEFORE Corp. to purchase all of the shares of NEXT within the next nine months. d. The company buys $35,000 of shares in a publicly traded corporation with a market capitalization of more than $20 billion. Required: Identify how the company should categorize the above financial assets. Briefly explain the reason for the classification.

Which statement is correct about joint arrangements?

Invest Up Hardware operates a chain of hardware stores. Recent operations have been stable and profitable, resulting in a significant amount of cash inflows. During the past fiscal year ended December 31, the company made a number of investments, as described below. a. Invest Up bought 30,000 shares of Machine Mart, a supplier of equipment for construction and renovations. With in-depth knowledge of the hardware retailing business, Invest Up's management believes that Machine Mart's shares are undervalued and that the company could make a quick profit selling the shares within the next 12 months. Invest Up purchased the shares at $18 each, and received $0.30 per share dividends during the year. The shares traded at $29 at the fiscal year-end. b. The company purchased 12,000 units of a mutual fund which cost $28 each. Management had no specific trading intentions for this investment; rather, it was a means of parking excess cash. At the end of the year, the units had a quoted market value of $24. c. At the beginning of the year, Invest Up bought 25% of the common shares in Builder Bee, one of its smaller suppliers, for $6 million. These shares had a fair value of $6.6 million at the end of the year. During the year, Builder Bee reported net income of $1,500,000 and paid total dividends of $10,000 Required: Determine how Invest Up should report the above investments in its financial statements. Include both the effects on the balance sheet and the statement of comprehensive income.

McGyer Limited invests its excess cash in short term investments. The following information is available about its investments at December 31, 2012: If McGyer accounts for these as held-for-trading investments, what is the amount of gain/loss to be recorded in fiscal 2012?

Bountiful Corporation has the following investment portfolio at December 31, 2012: Required: a)Explain how each investment should be classified for financial reporting purposes and the accounting method that should be used. b)Prepare all of the required journal entries using the recommendations you have provided in (a)above. Round all values to nearest dollar. c)Fill in the following chart:

Explain the nature of and the appropriate accounting treatment for held-for-trading securities and available-for-sale securities.

Discuss three factors that are important in classifying an investment as a "loan or receivable."