Exam 9: Investments

Assuming the revised amount and timing of cash flows for an investment can be reasonably determined, the incurred loss impairment model uses which discount rate?

Use the following information to solve the following questions: On July 1, 2020, Harry Ltd. purchased $ 200,000 (par value) of Prince's 8% bonds. Because the market rate was 9%, Harry purchased them for $ 186,992. The bonds pay interest semi-annually on December 31 and June 30. Harry uses the amortized cost model and the effective-interest method to recognize interest income on bond investments. -Rounding values to the nearest dollar (if necessary), the entry to recognize receipt of the first interest payment on December 31, 2020 will include a

Investment in shares of other entities - cost model Manson Corp. acquired 10,000 shares of Digicex Corp. on July 1, 2020 at $ 15 per share. There is no quoted market price for Digicex shares as it is a private company. Manson reports under ASPE and has elected to account for the investment using the cost method. On September 1, Digicex declared and paid a $ 0.75 per share dividend and on December 31, Manson sells the shares at $ 12 per share. Instructions Prepare the journal entries to record the above transactions.

Investment in debt securities at a premium On January 1, 2020, Genevieve Ltd. purchased 8%, $ 100,000 (par value) bonds for $ 108,530. The bonds were purchased to yield 6%. Interest is paid on July 1 and January 1 and the bonds mature on January 1, 2025. Genevieve uses the amortized cost method and the effective-interest method to amortize the premium. Genevieve has a year end of December 31 and follows ASPE. Instructions a) Prepare the journal entry to record the purchase. b) Prepare the journal entries for the receipt of interest and amortization of the premium for the remainder of 2020. Round all values to the nearest dollar. c) To the nearest dollar, what is the carrying value of the investment at the end of 2021?

Use the following information to solve the following questions: The summarized balance sheets of Thunder Bay Corp. and Fort William Corp. at December 31, 2020, are as follows: $\quad$$\quad$$\quad$$\quad$ THUNDER BAY CORP. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Balance Sheet $\quad$$\quad$$\quad$$\quad$$\quad$ December 31, 2020 Assets. Liabilities. \5 0,000 Common shares 200,000 Retained earnings Total equities $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ FORT WILLIAM CORP. $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Balance Sheet $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ December 31, 2020 Assets FORT WILLIAM CORP. Balance Sheet December 31,2020 Assets. Liabilities Common shares. Retained earnings. Total equities. \ 75,000 185,000 -If Thunder Bay acquired a 30% interest in Fort William on December 31, 2020, for $ 67,500 and during 2021 Fort William reported net income of $ 25,000 and paid a total cash dividend of $ 30,000, applying the equity method would give a debit balance in the Investment in Fort William Corp. account at the end of 2021 of

Regarding the reporting of investment income under the FV-NI method, for companies reporting in accordance with ASPE, which of the following statements is true?

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. -What amount should Ryan show in the investment account at December 31, 2020 if the beginning of the year balance in the account was $ 60,000?

Significant influence Julep Corporation purchases a 25% interest in Orange Corporation on January 2, 2020, for $ 800. At that time, the carrying amount of Orange's net assets was $ 2,952. Any excess of the cost of the investment over Julep's share of Orange's carrying amount can be attributed to unrecorded intangibles with a useful life of 20 years. Orange declared and paid a dividend of $ 16 and reported net income of $ 52 for its year ended December 31, 2020. Instructions Prepare Julep's 2020 entries to record all transactions and events related to the investment in its associate. Assume Julep is a publicly accountable enterprise that applies IFRS.

On August 1, 2020, Franklin Inc. acquired $ 120,000 (face value) 10% bonds of Machu Corporation at 102 plus accrued interest. The bonds were dated May 1, 2020, and mature on April 30, 2023, with interest payable each October 31 and April 30. The bonds will be held to maturity. Assuming the amortized cost model is used, the entry to record the purchase of the bonds on August 1, 2020 is a) Bond Investment at Amortized Cost................................125,400 Cash ................................................................125,400 b)Bond Investment at Amortized Cost........................122,400 Interest Income...............................3,000 Cash.....................................................125,400 c) Bond Investment at Amortized Cost........................125,400 Interest Income...............................3,000 Cash.....................................................122,400 d) Bond Investment at Amortized Cost.................. 120,000 Premium on Bonds................................................5,400 Cash............................................................................125,400

When the investor has control over the investee, the reporting model to be used is the

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. -How much income from its investment in Davel should Ryan report in 2020?

Accounting for debt investments purchased at a premium - FV-NI model On January 1, 2020, Pluto Corp. acquired 8%, $ 100,000 (face value) bonds of Uranus Ltd., to yield 6%. 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.

Under the fair value through other comprehensive income model, with recycling, previously unrealized holding gains and/or losses to the date of disposal are

Application of the cost model to the investment one company makes in another entity's shares is straightforward and includes all of the following EXCEPT

On January 2, 2020, Fidel Corp. purchased 200 of the 1,000 outstanding common shares of Rindu Ltd. for $ 60,000. During 2020, Rindu declared total cash dividends of $ 10,000 and reported net income for the year of $ 40,000. If Fidel uses the equity method of accounting for its investment in Rindu, Fidel's Investment in Rindu Ltd. account at December 31, 2020 should be

Year-end adjustments for temporary investments Mercury Corp. has the following portfolio of common shares (without significant influence) at December 31, 2020: Investment Cost Fair value Albania Inc. \ 480,000 \ 570,000 Bulgaria Ltd. 90,000 620,000 Czech Corp. 120,000 220,000 Total \ 690,000 \ 1,410,000 Instructions Provide the entry to record the year-end adjustment for these investments, assuming Mercury uses one control account and has adopted the FV-NI model.

On January 1, 2020 Limoyo Corporation purchased 600 of $ 1,000 face value, 8% bonds of Leon Company, for $ 553,668, to yield 10%. The bonds, which mature on January 1, 2025, pay interest semi-annually on January 1 and July 1. Assuming that Limoyo uses the straight-line method of amortization and that the bonds are accounted for under the amortized cost method, the net carrying value of the bonds should be shown on Limoyo's December 31, 2020, statement of financial position at

During 2020, Brandon Inc. purchased 2,000, $ 1,000, 9% bonds. The bonds mature on March 1, 2025, and pay interest on March 1 and September 1. The carrying value of the bonds at December 31, 2020 was $ 1,960,000. On September 1, 2021, after the semi-annual interest was received, Brandon sold half of these bonds for $ 988,000. Brandon uses straight-line amortization and has accounted for the bonds under the amortized cost model. The gain on the sale is

In early January 2020, Janus Inc., a private enterprise that applies ASPE, purchased 40% of the common shares of Keqing Corp. for $ 484,000. Janus was now able to exercise considerable influence in decisions made by Keqing's management. Keqing Corp.'s statement of financial position reported the following information at the date of acquisition: Assets notsubject to being amortized \ 242,000 Ascetssubject to amortization (10 years average life remaining 732,000 Liabilities 136,000 Additional information: 1. Both the carrying amount and fair value are the same for assets that are not subject to amortization and for the liabilities. 2. The fair value of the assets subject to amortization is $ 885,000. 3. The company amortizes its capital assets on a straight-line basis. 4. Keqing reported net income of $ 192,000 and declared and paid dividends of $ 132,000 in 2020. Instructions a) Prepare the journal entry to record Janus's investment in Keqing Corp. Assume that any unexplained payment is goodwill. b) Assuming Janus applies the equity method to account for its investment in Keqing, prepare the journal entries to record Janus' equity in the net income and the receipt of dividends from Keqing Corp. in 2020. c) Assume the same factors as above and in part (b), except that Keqing's net income included a loss on discontinued operations of $ 45,000 (net of tax). Prepare the journal entries necessary to record Janus's equity in the net income of Keqing for 2020.

On January 1, 2019, Titanic Corp. bought 30,000 shares of the available 100,000 common shares of Iceberg Inc., a publicly traded firm. This acquisition provided Titanic with significant influence. Titanic paid $ 700,000 cash for the investment. At the time of the acquisition, Iceberg reported assets of $ 2,500,000 and liabilities of $ 1,200,000. Asset values reflected fair market value, except for capital assets that had a net book value of $ 500,000 and a fair market value of $ 730,000. These assets had a remaining useful life of five years. For 2019 Iceberg reported net income of $ 400,000 and paid total cash dividends of $ 100,000. On May 16, 2020, Titanic sold 15,000 of its shares in Iceberg for $ 425,000. Titanic has no immediate plans to sell its remaining investment in Iceberg. Iceberg is actively traded, and stock price information follows: January 1, $2019 \quad \quad\quad\$ 23$ December 31, $2019 \quad\quad\$ 25$ January 1, $2020 \quad\quad\quad \$ 26$ Instructions a) Assuming Titanic is using ASPE, did the initial investment include a payment for goodwill? Provide support for your answer. b) At the end of 2019, what would appear on the income statement and balance sheet of Titanic in connection with its investment in Iceberg? Show supporting calculations. c) Provide the entry to account for Titanic’s sale of the shares in May 2020. How should Titanic account for its remaining investment in Iceberg?