Exam 18: Investing Assets

Kelemen Asset Management invested in the bonds of DEF Co.on 1/1/16.Kelemen intends to hold the bonds until maturity.These 5-year bonds had a face vale of $300,000,pay 5% interest on 6/30 and 12/31 of each year,and were issued when the market rate of interest was 6%,resulting in a cost of $287,205.How much interest revenue will Kelemen record on 6/30/16?

Cross Clothiers invested $200,000 in a debt security that it properly classified as a trading security on 12/20/17.At 12/31/17,this trading security had a fair value of $201,500.Record the journal entries needed for this investment assuming this is the first and only trading debt security for Joss.

A company generally classifies securities as available-for-sale when it plans to actively buy and sell securities with the objective of generating a gain on the sale.

If an investor company has significant influence over an investee company,the investment is valued at the fair value of the stock on the balance sheet date.

Pepper Company owns 40% of the common stock and exercises significant influence over Salt Company.Pepper Company ________.

Investments in securities of other companies are classified as either debt securities or equity securities.

Are impairment reversal allowed in IFRS different than those allowed in U.S.GAAP?

Amortization of a Discount on Notes Receivable results in receiving less in Cash interest payments than earned Interest Revenue.

Other-than-temporary impairments are impairments that are most likely permanent in nature.

What are the primary effects of amortizing a discount on notes receivable?

Blue Co.holds a debt investment at amortized cost of $250,000.The fair value of this investment at year end is $220,000.Blue classified this investment as held-to-maturity,but due to financial constraints,they will most likely sell it before the market recovers.Determine if an impairment exists and record any necessary resulting journal entries.

Orlando Corporation completed the following investment transactions during the current year: Required: Prepare journal entries to record the above transactions for the year.

Zeng Jewelers purchased 3,000,000 of the outstanding 10,000,000 shares of Angel & Associates.Zeng has significant influence over Angel,so Zeng will account for this investment using the equity method.On the purchase date,Angel had net assets with a book value of $7,300,000 and a fair value of $8,000,000.The difference in fair value is a result of the higher fair value of equipment than it's book value.The remaining useful life of this equipment is 25 years.Assuming this investment was purchased on 1/1,how will Zeng record the difference in net assets for this investment on 12/31?

Ewok Enterprises recently elected the fair value option to account for its investment in Yoda Inc.Ewok purchased the shares for $210,000 and the shares are currently trading for $195,000 at year-end.Record the journal entries needed to purchase the investment,then adjust it to fair value.Then,show how this investment will be reported on the balance sheet.

Griffin buys and sells securities and typically classifies them as available for sale.On December 15,Griffin purchased $800,000 of Baker Corporation shares and elected the fair value option to account for the investment.As of December 31,the shares in Baker Corporation had a fair value of $875,000.In its December 31 financial statements,Griffin will report pretax ________.

On 1/1/16,Lantana Loan Co.,a calendar-year company,accepts a 5%,$500,000 three-year loan that pays interest semi-annually on 6/30 and 12/31 from Diamond Distributors,when the market rate of interest was 10%.In exchange for the note,Diamond agrees to make semi-annual interest payment and repay the full $500,000 at maturity.What is the amount of discount amortized and the amount of Interest Revenue recorded on 6/30/16,the date of the first interest payment?

If a note's interest rate is equal to the prevailing market rate of interest,which of the following will occur?

Norman Corporation owns an investment that it had originally classified as available for sale.This investment is now more appropriately treated as held to maturity.Norman would ________.

Rhoads purchased common shares of Company A and B for $10,000 and $12,000,respectively on 12/15.Rhoads intends to sell these securities within 30 days.At 12/31,Investments in Company A & B had a fair value of $9,000 and $15,000,respectively.Assuming this is the first trading investment for Rhoads,what is the unrealized gain or loss for these securities and how is it reported?

IFRS requires additional disclosures of summarized financial information of the investee,including total assets,liabilities,revenue,and net income or loss.