Exam 7: Financial Assets

On January 1, 2011, Forrest Marine Supplies purchased a Government of Canada bond at par for $8,000. The bond has an interest rate of 5% and matures in three years. By December 31, 2011, market interest rates had increased such that the fair value of the bond decreased to $7,200. The fair value of the bond decreased further to $7,100 on December 31, 2012 (two years after purchase). Required: Assume that Forrest classifies the investment as available for sale. a. At what value should Forrest report this bond on its December 31, 2011 balance sheet? b. How much income or loss should Forrest report in 2011 in relation to this bond? c. How much other comprehensive income (OCI)should Forrest report for 2011 in relation to this bond? d. How much OCI (loss)should Forrest report for 2012 in relation to this bond? e. How much is accumulated OCI on the balance sheet at December 31, 2012?

Which statement is correct about an associate?

Which item is an example of a financial asset?

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.

Which statement is correct about joint arrangements?

What is a "joint arrangement"?

Mirvish Limited invests in short term investments. The following information is available about its investments at December 31, 2012: If Mirvish accounts for these as available-for-sale investments, what entry is necessary for fiscal 2012?

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

Which statement is not correct about "control"?

For each of the following financial asset classifications shown in the left column, identify the combinations of (i)the type of financial instrument in the middle column that can be put into that classification and (ii)the trading intent that would lead to that classification.

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.

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?

Which statement is correct about joint arrangements?

Which statement is correct about a loan or a receivable instrument?

Safe Investment Company (SIC)began operations on January 1, 2012. It acquired the following investments: SIC earned interest of $12,000 during 2012. Dividends of $16,000 were declared on the shares it owned during 2012. Of that amount, $9,000 was received in December 2012 and $7,000 was received in January 2013 (note that the ex-dividend date for these shares was prior to the end of the year). At what value would SIC's bonds (which were purchased at par)be recorded at in the balance sheet on December 31, 2012?

Which statement is not correct about "joint arrangements"?

Classify each of the following items into one of the eight categories of financial assets relevant for financial reporting purposes. Select the category that best suits the situation given.

Which statement is correct about debt instruments?

On January 1, 2013, a company pays $100,000 to purchase 100 Government of Canada bonds that have a maturity date of December 31, 2017 and an interest rate of 5%. At December 31, 2013, the bonds had a quoted price of $1,022 per bond. Fill in the attached table assuming a. Intention to trade b. No trading intention c. Intention to hold

During 2011, Farrah Ltd. purchased 4,000 shares of Rose of Sharon Corp. for $41 per share ($164,000 total). The company designated half of the shares as held for trading and half as available for sale. Farrah held these shares until September 2013, when it sold them for $52 per share. During these three years, Rose of Sharon paid dividends of $1 per share on July 31 each year. On Farrah's fiscal year-end (December 31), shares of Rose of Sharon closed at $51, $36, and $56 in 2011, 2012, and 2013, respectively. Required: Determine the amounts to be reported on Farrah's balance sheet and statement of comprehensive income with respect to the company's investment in Rose of Sharon Corp for 2011, 2012 and 2013.