Exam 1: Accounting for Investments

Jamison Co. owned 60% of Tyler Co.'s voting shares and 25% of Simon Ltd.'s voting shares. Tyler owns 30% of Simon's voting shares. Which of the following statements is TRUE?

At the beginning of 2013, Zylon Ltd. acquired 15% of the voting shares of Hendrick Co. a public company for $150,000. Zylon does not have any significant influence over Hendrick.. In 2013, Hendrick earned net income of $70,000 and paid dividends of $40,000. The fair value of the 15% at the end of 2013 was $160,000. In 2014, Hendrick earned net income of $80,000 and paid dividends of $100,000. The fair value of the 15% at the end of 2014 was $157,000. At the end of 2014, what journal entry should Zylon make regarding its investment in Hendrick Co. in net income?

If a company makes a non-strategic investment, it is considered a financial asset. What is a financial asset?

Which of the following best illustrates a parent-subsidiary relationship?

Foster Corporation uses the equity method to account for its 25% investment in Vector Corporation and receives $25,000 in dividends. How should Foster account for these dividends?

In Canada, which subsidiaries must be included in consolidated financial statements?

If an investment is owned 100%, which methods will result in the same income and shareholders' equity appearing on the financial statements?

If a company makes a non-strategic investment it is considered a financial asset.

If Darlington Inc. owns 30% of a jointly controlled operation, it would reflect 100% of each asset, liability, income or expense that is part of the joint operation on its own financial statements.

There is a presumption that control exists where the company owns more than 50% of the voting shares of the investee.

Which of the following is NOT an indicator of significant influence?

Clausen Ltd. has a passive investment in Kaitlin Ltd. Clausen has elected to treat Kaitlin as a fair value through other comprehensive income (OCI)investment under IFRS 9 Financial Instruments. Which of the following statements is TRUE?

On January 1, 2013, Donner Co. purchased 3,000 shares, representing 30% of Ishwar Limited, for $390,000. Donner is a publicly traded company. Ishwar's total net income was $86,000 for the year ended December 31, 2013. Ishwar also paid dividends in total of $25,000 during 2013. At the year end, each share of Ishwar was trading at $150 per share. Required: Based on the information above, show the journal entries that Donner would have used to report its original purchase and any related investment income for Ishwar for 2013 assuming that Donner reports its investment in Ishwar using FVTPL. What is the investment account balance at the end of December 31, 2013?

The parties to a joint venture will initially record their share of the investment at the fair value of their contribution made. In subsequent periods, the cost method will be used for reporting purposes.

Leno Ltd. has invested in several domestic manufacturing corporations. Which of the following investments would most likely be accounted for under the equity method on Leno's financial statements?

On January 1, 2013, Tonya Ltd. started Chen Ltd. by contributing $600,000 and received 100% of the common shares of Chen. Chen reported net income of $40,000 in 2013 and $85,000 in 2014 and paid out 40% of its net income as dividends in each year. Under the equity method, which of the following amounts should be reported on Tonya's separate-entity 2014 financial statements?

A subsidiary is defined as an entity that is controlled by another company. Three criteria must be present in order for there to be control. The parent must have all of the following except:

Non-strategic investments can be classified as fair value through profit or loss (FVTPL)or as fair value through other comprehensive income (OCI)- through an irrevocable election. Which of the following statements is true?

Larsen Ltd. has the following shareholders: Miller Co. - 60% Sadaat Ltd. - 30% Peterson Ltd. - 10% Sadaat has two seats on Larsen's five-person board of directors. Which of the following statements is TRUE?

How are most significant influence investments in equity securities reported on the investor's financial statements?