Question 1

Olde Corp. accounts for its investment in the common shares of Young Inc. under the equity method. Olde Corp. should record a cash dividend received from Young as

Accepted Answer

A)  a reduction of the carrying value of the investment. 
B)  additional paid-in capital. 
C)  an addition to the carrying value of the investment. 
D)  dividend income. 
A)  a reduction of the carrying value of the investment. 
B)  additional paid-in capital. 
C)  an addition to the carrying value of the investment. 
D)  dividend income. A

Question 2

At December 31, 2020, Swift Current Inc. has the following portfolio of common shares in which it does not have significant influence: $\begin{array}{c}
\begin{array}{lll}
\
\text { Apple Corp. }\
\text { Chester Inc.}\
\text { Dooley Ltd.}\
\
\end{array}
\begin{array}{l}
\underline{\text { Cost }}\
\$ 100,000 \
200,000 \
\underline{300,000}\
\$ 600,000 
\end{array}
\begin{array}{l}
\underline{\text { FairValue }}\
\$ 120,000 \
205,000 \
\underline{500,000 }\
\underline{ \$ 825,000}
\end{array}
\end{array}$
 Assuming Swift Current uses the fair value through other comprehensive income (FV-OCI) model to account for this portfolio of investments, the most informative entry to record the year-end adjustment is
a) PV-OCI Invertments ............................ $\quad 225,000$
Unrealized Gain or Loss-0CI ............................ $\quad 225,000$

b) $\mathrm { FV }$-oCI Investment in Apple Corp..................20,000
$\mathrm { FV }$-oCI lnvestment in Chester Inc............................ $\quad 5,000$
$\mathrm { F } V$-0CI Invertment in Dooley Ltd.............200,000
Unrealized Gain or Loss-OCI on Apple Corp......................20,000
Unrealized Gain or Loss-0Cl on Cherter Inc....... $\quad 5,000$
Unrealized Gain or Loss-OCl on Dooley Ltd. $\quad \mathbf { 2 0 0 , 0 0 0 }$

c) Unrealized Gain or Loss-0Cl on Apple Corp.............. $\quad 20,000$
Unrealized Gain or Loss-0Cl on Chester lnc.............. $\quad 5,000$
Unrealized Gain or Loss-0CI on Dooley Ltd. .............. $\quad 200,000$
$\mathrm { FV }$-OCI Investment in Apple Corp..............20,000
$\mathrm { FV }$-OCI Invertment in Chester Inc..............5,000
$\mathrm { FV }$-OCI Invertment in Dooley Ltd................200,000

d) Unrealized Gain or Loss-0CI............................225,000
$F V - 0 C$ Invetments..........................225,000

Accepted Answer

B

Question 3

When one corporation has a controlling interest in another corporation whose shares are not actively traded, under ASPE, the investment is accounted for using

Accepted Answer

A)  either the consolidation method or the equity method or the cost method. 
B)  the consolidation method. 
C)  either the consolidation method or the equity method. 
D)  either the consolidation method or the equity method or the cost method or the FV-OCI method. 
A)  either the consolidation method or the equity method or the cost method. 
B)  the consolidation method. 
C)  either the consolidation method or the equity method. 
D)  either the consolidation method or the equity method or the cost method or the FV-OCI method. A

Question 4

Investments in debt securities
Presented below are unrelated cases involving investments in debt securities:
Case 1:
A company owns another firm's debt securities in the form of bonds. The bonds were acquired at a discount and are accounted for under the amortized cost model.
Case 2:
An investment in notes receivable that had been held for several years is being sold. The investment was accounted for under the amortized cost model.
Case 3:
A portfolio of debt investments has been determined to be impaired.
Instructions
Indicate the accounting required and/or available for each individual case.

Accepted Answer

Case 1: The bonds would have been recogn

Question 5

The standards relating to the treatment of transaction costs differ under ASPE and IFRS. Which of the following statements best describe the difference?

Accepted Answer

A)  ASPE requires that transaction costs are capitalized, except for those investments that are accounted for under the fair value through net income model. 
B)  ASPE requires that transaction costs are expensed whenever cost-based measures are used. 
C)  IFRS requires that transaction costs are capitalized except for those investments that are accounted for under the fair value through net income model. 
D)  IFRS requires that all transaction costs are capitalized. 
A)  ASPE requires that transaction costs are capitalized, except for those investments that are accounted for under the fair value through net income model. 
B)  ASPE requires that transaction costs are expensed whenever cost-based measures are used. 
C)  IFRS requires that transaction costs are capitalized except for those investments that are accounted for under the fair value through net income model. 
D)  IFRS requires that all transaction costs are capitalized.

Question 6

Current IFRS rules for equity investments that are traded in an active market require that they

Accepted Answer

A)  can be accounted for under the cost model. 
B)  can be accounted for under the fair value through net income model. 
C)  should generally be accounted for under the fair value through other comprehensive income model. 
D)  cannot be accounted for under the fair value through net income model. 
A)  can be accounted for under the cost model. 
B)  can be accounted for under the fair value through net income model. 
C)  should generally be accounted for under the fair value through other comprehensive income model. 
D)  cannot be accounted for under the fair value through net income model.

Question 7

Accounting for debt instruments purchased at a discount - FV-NI model
On January 1, 2020, Pluto Corp. acquired 6%, $ 100,000 (face value) bonds of Uranus Ltd., to yield 8%. The bonds were dated January 1, 2020, and mature on December 31, 2025, with interest payable each January 1. Pluto intends to hold the bonds to maturity, and will use the FV-NI model and the effective-interest method of amortization of bond premium or discount.
Instructions
Prepare the following entries in Pluto's books:
a) Acquisition of bonds on January 1, 2020,
b) Year-end adjusting entry at December 31, 2020,
c) Receipt of the first interest payment on January 1, 2021.
Round all values to the nearest dollar.

Accepted Answer

The answer of  Accounting for debt instruments purchased at...

Question 8

Use the following information to solve the following questions:
During calendar 2020, Davel Corp. reported net income of $ 45,000 and paid total cash dividends of $ 15,000. Ryan Inc. owns 2,250 of the 7,500 outstanding shares of Davel and exercises significant influence.
-On December 31, 2020, Ryan Corp. acquired a 40% interest in Gosling Corp. for $ 315,000. During 2021, Gosling reported net income of $ 200,000 and paid total cash dividends of $ 50,000. Assuming Ryan uses the equity method, at December 31, 2021, the balance in the investment account should be

Accepted Answer

A)  $ 395,000. 
B)  $ 295,000. 
C)  $ 375,000. 
D)  $ 255,000. 
A)  $ 395,000. 
B)  $ 295,000. 
C)  $ 375,000. 
D)  $ 255,000.

Question 9

Shares acquired on margin
What does it mean when an investment in shares is acquired on margin and how is the asset recorded?

Accepted Answer

Investments in shares acquired on margin

Question 10

Jabba Inc. owns 35% of Hutt Corp., and has significant influence over Hutt. During the calendar year 2020, Hutt reported net income of $ 300,000 and paid dividends of $ 30,000. Jabba mistakenly recorded these transactions using the cost method rather than the equity method of accounting. What effect would this have on Jabba's investment account, net income, and retained earnings, respectively?

Accepted Answer

A)  understate, overstate, overstate 
B)  overstate, understate, understate 
C)  understate, understate, understate 
D)  overstate, overstate, overstate 
A)  understate, overstate, overstate 
B)  overstate, understate, understate 
C)  understate, understate, understate 
D)  overstate, overstate, overstate

Question 11

An investor who owns 15% of an entity's voting shares can

Accepted Answer

A)  potentially have influence over the investee if the shares are widely held. 
B)  always be assumed to have little or no influence over the investee. 
C)  be assumed to be using the cost model. 
D)  be assumed to always use the equity method. 
A)  potentially have influence over the investee if the shares are widely held. 
B)  always be assumed to have little or no influence over the investee. 
C)  be assumed to be using the cost model. 
D)  be assumed to always use the equity method.

Question 12

The concept of recycling within the context of investments

Accepted Answer

A)  refers to the transfer of previously unrealized gains or losses to net income. 
B)  refers to the switch of income between different investments categories. 
C)  should be used in the fair value through net income model. 
D)  should not be used in the fair value through other comprehensive income model. 
A)  refers to the transfer of previously unrealized gains or losses to net income. 
B)  refers to the switch of income between different investments categories. 
C)  should be used in the fair value through net income model. 
D)  should not be used in the fair value through other comprehensive income model.

Question 13

On November 1, 2020, Mack Co. purchased a 5-year, 8% bond with a face value of $ 200,000. The purchase price of $ 184,556 was consistent with a 10% yield. Interest is payable semi-annually on January 1 and July 1. The bonds mature on January 1, 2022. The amortized cost of the bond on the maturity date is

Accepted Answer

A)  $ 185,556. 
B)  $ 195,000. 
C)  $ 200,000. 
D)  $ 190,000. 
A)  $ 185,556. 
B)  $ 195,000. 
C)  $ 200,000. 
D)  $ 190,000.

Question 14

Fair value through net income method
On October 1, Whiteside Ltd. purchased a 7% bond with a face value of $ 1,000 for trading purposes, accounting for the investment at fair value through net income. The bond was priced at 1.023 to yield Whiteside 5%, and pays interest annually each October 1. Whiteside has a December 31 year end, and at this date, the bond's fair value was $ 1,050. Assume Whiteside applies IFRS and follows a policy of not reporting interest income separately from investment income.
Instructions
a) Prepare Whiteside's entry for the purchase of the investment.
b) Prepare Whiteside's entry for the December 31 interest accrual.
c) (i) Prepare Whiteside's entry for the year-end fair value adjustment. (ii) Assume Whiteside applies ASPE, uses the effective-interest method, and follows a policy of reporting interest income separately.

Accepted Answer

The answer of  Fair value through net income method
On...

Question 15

Use the following information to solve the following questions:
Red Corp. owns 3,000 of the 10,000 outstanding common shares of Grey Corp. and exercises significant influence. During 2020, Grey reported net income of $ 120,000 and paid total cash dividends of $ 40,000.
-Red Corp. should report investment revenue for 2020 of

Accepted Answer

A)  $ 12,000. 
B)  $ 24,000. 
C)  $ 36,000. 
D)  $ 48,000. 
A)  $ 12,000. 
B)  $ 24,000. 
C)  $ 36,000. 
D)  $ 48,000.

Question 16

Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the

Accepted Answer

A)  investor sells the investment. 
B)  investee declares a dividend. 
C)  earnings are reported by the investee in its financial statements. 
D)  investee pays a dividend. 
A)  investor sells the investment. 
B)  investee declares a dividend. 
C)  earnings are reported by the investee in its financial statements. 
D)  investee pays a dividend.

Question 17

Other comprehensive income does NOT include

Accepted Answer

A)  comprehensive income. 
B)  net income. 
C)  unrealized gains resulting from the application of the fair value through other comprehensive income model. 
D)  unrealized losses resulting from the application of the fair value through other comprehensive income model. 
A)  comprehensive income. 
B)  net income. 
C)  unrealized gains resulting from the application of the fair value through other comprehensive income model. 
D)  unrealized losses resulting from the application of the fair value through other comprehensive income model.

Question 18

The fair value through net income model requires that

Accepted Answer

A)  investments are measured at fair value. 
B)  transaction costs are expensed. 
C)  investments are measured at fair value and transaction costs are capitalized. 
D)  investments are measured at fair value and transaction costs are expensed. 
A)  investments are measured at fair value. 
B)  transaction costs are expensed. 
C)  investments are measured at fair value and transaction costs are capitalized. 
D)  investments are measured at fair value and transaction costs are expensed.

Question 19

On October 1, 2020, Moray Ltd. purchased 500 of the $ 1,000 face value, 8% bonds of Eel Ltd. for $ 585,000, including accrued interest of $ 10,000. The bonds, which mature on January 1, 2027, pay interest semi-annually on January 1 and July 1. Moray used the straight-line method of amortization and appropriately recorded the bonds as long-term. On Moray's December 31, 2021 balance sheet, the carrying value of the bonds would be

Accepted Answer

A)  $ 575,000. 
B)  $ 570,000. 
C)  $ 568,000. 
D)  $ 560,000. 
A)  $ 575,000. 
B)  $ 570,000. 
C)  $ 568,000. 
D)  $ 560,000.

Question 20

An investor who owns 11% of an entity's voting shares

Accepted Answer

A)  must use the equity method. 
B)  would be likely to prepare consolidated statements. 
C)  may have significant influence over the investee if the shares are closely held. 
D)  may have significant influence over the investee if the shares are widely held. 
A)  must use the equity method. 
B)  would be likely to prepare consolidated statements. 
C)  may have significant influence over the investee if the shares are closely held. 
D)  may have significant influence over the investee if the shares are widely held.

Olde Corp. accounts for its investment in the common shares of Young Inc. under the equity method. Olde Corp. should record a cash dividend received from Young as

When one corporation has a controlling interest in another corporation whose shares are not actively traded, under ASPE, the investment is accounted for using

The standards relating to the treatment of transaction costs differ under ASPE and IFRS. Which of the following statements best describe the difference?

Current IFRS rules for equity investments that are traded in an active market require that they

Shares acquired on margin What does it mean when an investment in shares is acquired on margin and how is the asset recorded?

An investor who owns 15% of an entity's voting shares can

The concept of recycling within the context of investments

Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the

Other comprehensive income does NOT include

The fair value through net income model requires that

An investor who owns 11% of an entity's voting shares

The Canadian Financial Reporting Environment

Conceptual Framework Underlying Financial Reporting

Measurement

Reporting Financial Performance

Financial Position and Cash Flows

Revenue Recognition

Cash and Receivables

Inventory

Property, Plant, and Equipment: Accounting Model Basics

Depreciation, Impairment, and Disposition

Intangible Assets and Goodwill

Accounting Information Systems and Adjusting Entries: A Comprehensive Guide

Filters

Exam 9: Investments

Olde Corp. accounts for its investment in the common shares of Young Inc. under the equity method. Olde Corp. should record a cash dividend received from Young as

When one corporation has a controlling interest in another corporation whose shares are not actively traded, under ASPE, the investment is accounted for using

The standards relating to the treatment of transaction costs differ under ASPE and IFRS. Which of the following statements best describe the difference?

Current IFRS rules for equity investments that are traded in an active market require that they

Shares acquired on margin What does it mean when an investment in shares is acquired on margin and how is the asset recorded?

An investor who owns 15% of an entity's voting shares can

The concept of recycling within the context of investments

Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the

Other comprehensive income does NOT include

The fair value through net income model requires that

An investor who owns 11% of an entity's voting shares

The Canadian Financial Reporting Environment

Conceptual Framework Underlying Financial Reporting

Measurement

Reporting Financial Performance

Financial Position and Cash Flows

Revenue Recognition

Cash and Receivables

Inventory

Property, Plant, and Equipment: Accounting Model Basics

Depreciation, Impairment, and Disposition

Intangible Assets and Goodwill

Accounting Information Systems and Adjusting Entries: A Comprehensive Guide

Filters