Exam 7: Financial Assets

Koala had the following transactions relating to its investments during 2013. Koala uses the effective interest method of amortization of premiums or discounts when applicable. a. On July 1, 2013, Koala acquired a $400,000, 16%, 8-year government bond with interest paid semi-annually on January 1 and July 1. Because the market rate of interest was 12% on that date, Koala paid $480,847 for the bond. The bonds were classified as held-to-maturity by Koala and had a fair value of $440,000 plus accrued interest on December 31, 2013. b. On July 1, 2013, Koala acquired 10,000 shares of Gorilla at a price of $41 per share. On December 31, 2013, the ex-dividend date, dividends of $2.00 per share were declared with an expected date of payment of January 15, 2014. On December 31, 2013, the fair value of the Gorilla shares had increased to $42 per share. The shares are classified as available-for-sale by Koala. c. On July 1, 2013, Koala acquired 45,000 shares (20%)of the outstanding shares of Black Bear at a price of $15 per share, giving it significant influence over Black Bear. Black Bear had net income of $600,000 for the six months ended December 31, 2013 and declared and paid total dividends of $10,000 to its shareholders on December 31, 2013. On December 31, 2013, Black Bear's shares had a fair value of $19 per share. Required: Provide all journal entries required relating to these investments on July 1, 2013 and December 31, 2013, including any journal entries required relating to the change in fair value for the year.

Fisher Corporation has the following investments at September 30, 2012: What method of accounting will Fisher use to account for its investment in Cookstown if this investment is classified as an associate?

Amacon Corporation has the following investments at December 31, 2012: If Amacon classifies its investment in DEF as held for trading, what amount will be reported in other comprehensive income at December 31, 2012?

Explain the characteristics of a financial asset. Discuss if cash has the characteristics of a financial asset. Why is (or is not)cash a financial asset?

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. Intention to hold

What is a financial asset?

For financial reporting purposes, financial assets can be put into one of eight categories: subsidiaries, joint ventures, associates, held for trading, available for sale, held to maturity, joint operations, and loans and receivables. For each of the following items, identify the possible categories into which it can be placed. More than one category is possible for an item.

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. Assume that 20 of these bonds are sold on June 30, 2014 for $1,100 per bond plus accrued interest. Determine the gain or loss that would be recorded in 2014 assuming: a. Intention to trade b. Intention to hold

Investment Company (IC)began operations on January 1, 2012. It acquired the following investments: IC 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). How much would be recorded as accumulated other comprehensive income on IC's balance sheet at December 31, 2012?

Which investment could be classified as held for maturity?

Satellite Corporation has the following investments at December 31, 2012: If Satellite classifies its investment in Davenport as held for trading, what amount will be reported for the investment at September 30, 2012?

Which statement is not correct?

Fisher Corporation has the following investments at September 30, 2012: What method of accounting will Fisher use to account for its investment in Brooke if this investment is classified as available for sale?

Simply purchases a $200,000 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?

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.

Victoria purchases a hotel with 100 similar rooms. To help finance this purchase, Victoria sells these rooms to individual investors for $200,000 each. An investor who owns a single room receives 55% of 1% of the revenue of the hotel (i.e., 0.55%), while the hotel retains the other 0.45%. An investor who wishes to liquidate his/her investment may sell his/her room back to Victoria for the original $200,000, but cannot otherwise sell the room to other parties. Identify all the financial assets involved in the above situation.

What factor is not important in classifying an investment as held for trading?

Explain the meaning of and give an example for the following categories of financial instruments: equity, a derivative, or debt.

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

Fisher Corporation has the following investments at September 30, 2012: What method of accounting will Fisher use to account for its investment in Brooke, if this investment is classified as held to maturity?