Question 1

If a parent company owns 90% of a subsidiary's outstanding shares, the parent should generally account for the subsidiary's income under the

Accepted Answer

A)  cost/amortized cost model. 
B)  fair value through net income model. 
C)  fair value through other comprehensive model. 
D)  consolidation method. 
A)  cost/amortized cost model. 
B)  fair value through net income model. 
C)  fair value through other comprehensive model. 
D)  consolidation method.

Question 2

On its December 31, 2020, balance sheet, Red Corp. reported a short-term investment in equity securities, under the fair value through net income model, at $ 330,000. At December 31, 2021, the fair value of the securities was $ 350,000. What should Red report on its 2021 income statement as a result of the increase in fair value of the investments during 2021?

Accepted Answer

A)  $ 0. 
B)  loss on investments of $ 20,000. 
C)  unrealized gain of $ 20,000. 
D)  investment income of $ 20,000. 
A)  $ 0. 
B)  loss on investments of $ 20,000. 
C)  unrealized gain of $ 20,000. 
D)  investment income of $ 20,000.

Question 3

The standards relating to consolidation differ under ASPE and IFRS. Which of the following statements best describes the difference?

Accepted Answer

A)  IFRS requires consolidation whereas ASPE offers a choice of methods. 
B)  ASPE requires consolidation whereas IFRS offers a choice of methods. 
C)  Consolidation is specifically excluded as one of the choices under ASPE. 
D)  Consolidation is specifically excluded as one of the choices under IFRS. 
A)  IFRS requires consolidation whereas ASPE offers a choice of methods. 
B)  ASPE requires consolidation whereas IFRS offers a choice of methods. 
C)  Consolidation is specifically excluded as one of the choices under ASPE. 
D)  Consolidation is specifically excluded as one of the choices under IFRS.

Question 4

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

Accepted Answer

A)  the investor's internal rate of return 
B)  the historical interest rate 
C)  the current market rate 
D)  either the historical rate or the current market rate 
A)  the investor's internal rate of return 
B)  the historical interest rate 
C)  the current market rate 
D)  either the historical rate or the current market rate

Question 5

To calculate the amount of interest to recognize each period for a bond investment (unless it held for trading purposes),

Accepted Answer

A)  ASPE requires the use of the effective-interest method. 
B)  IFRS requires the use of the effective-interest method. 
C)  IFRS allows the use of either the effective-interest or the straight-line method. 
D)  ASPE requires the use of the straight-line method. 
A)  ASPE requires the use of the effective-interest method. 
B)  IFRS requires the use of the effective-interest method. 
C)  IFRS allows the use of either the effective-interest or the straight-line method. 
D)  ASPE requires the use of the straight-line method.

Question 6

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
$\begin{array}{llcc}
  \text {Assets.  } &\underline{\$400,000}  \
 \text {Liabilities.  } &\$50,000\
 \text { Common shares } &200,000\
 \text { Retained earnings } &\underline{150,000}\
 \text { Total equities } &\underline{\$400,000}\
\end{array}$

$\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
$\begin{array}{llcc}
  \text { Assets } & \underline{\$300,000} \
\end{array}$
 
$\begin{array}{c}
\text {FORT WILLIAM CORP.}\
\text {Balance Sheet}\
\text {December 31,2020}\
\begin{array}{lll}
 \text { Assets.}\
 \text { Liabilities}\
 \text { Common shares.}\
 \text { Retained earnings.}\
 \text { Total equities.}
\end{array}
\begin{array}{l}
\underline{\$ 300,000}\
\$ 75,000 \
185,000 \
\underline{40,000} \
\underline{\$ 300,000 }\
\end{array}
\end{array}$

-If Thunder Bay acquired a 20% interest in Fort William on December 31, 2020, for $ 45,000, and during 2021 Fort William reported net income of $ 25,000 and paid a total cash dividend of $ 10,000, applying the equity method would give a debit balance in the Investment in Fort William Corp. account at the end of 2021 of

Accepted Answer

A)  $ 37,000. 
B)  $ 45,000. 
C)  $ 48,000. 
D)  $ 50,000. 
A)  $ 37,000. 
B)  $ 45,000. 
C)  $ 48,000. 
D)  $ 50,000.

Question 7

The fair value through net income (FV-NI) model is sometimes referred to as

Accepted Answer

A)  the fair value through profit or loss (FVTPL). 
B)  held for trading. 
C)  discontinued operations. 
D)  available for sale. 
A)  the fair value through profit or loss (FVTPL). 
B)  held for trading. 
C)  discontinued operations. 
D)  available for sale.

Question 8

Significant influence
Describe how to determine if an investment results in significant influence.

Accepted Answer

If the ownership is less than 20%, it is

Question 9

The standards relating to the treatment of interest and dividend income differ under ASPE and IFRS. Which of the following statements is INCORRECT?

Accepted Answer

A)  IFRS requires the use of the effective-interest method when interest income is to be reported separately. 
B)  IFRS requires certain dividends to be recognized in other comprehensive income. 
C)  ASPE allows the use of either the straight-line or effective-interest method. 
D)  When using the equity method, IFRS allows a dividend from an investee to be recorded as income, while ASPE does not. 
A)  IFRS requires the use of the effective-interest method when interest income is to be reported separately. 
B)  IFRS requires certain dividends to be recognized in other comprehensive income. 
C)  ASPE allows the use of either the straight-line or effective-interest method. 
D)  When using the equity method, IFRS allows a dividend from an investee to be recorded as income, while ASPE does not.

Question 10

Match between columns
                        Premises: _______The investor may use the equity method to account for the investment if certain conditions are met and ASPE is followed.
_______Investments in subsidiaries must be accounted for under the equity method.

_______Transaction costs must be capitalized except when the investment is accounted for under the fair value through net income model.
_______Under IFRS, the investment would generally require more extensive disclosures.
_______Gains and losses are always recognized in net income.
_______The investor may use the cost method to account for the investment if certain conditions are met and IFRS is followed.

_______Reclassifications between measurement models are allowed in rare circumstances.

Accepted Answer

The Answer of True and False is...

Question 11

Masma Corp. began operations in 2020. An analysis of Masma's equity securities portfolio acquired in 2020 shows the following totals at the end of the year. Masma accounts for these investments using the fair value through net income (FV-NI) model. $$\begin{array} { l l } 
\text { Total cast } & \$ 182,400 \
\text { Total feir market value } & 153,600
\end{array}$$ Based on this information, what amount should Masma report in its 2020 income statement for "Investment Income or Loss"?

Accepted Answer

A)  $ 12,800 loss 
B)  $ 16,000 gain 
C)  $ 28,800 gain 
D)  $ 28,800 loss 
A)  $ 12,800 loss 
B)  $ 16,000 gain 
C)  $ 28,800 gain 
D)  $ 28,800 loss

Question 12

The gain on disposal of this investment in Abalone's 2021, income statement should be

Accepted Answer

A)  $ 8,000. 
B)  $ 20,750. 
C)  $ 25,250. 
D)  $ 32,000. 
A)  $ 8,000. 
B)  $ 20,750. 
C)  $ 25,250. 
D)  $ 32,000.

Question 13

When an investor, using the equity method, pays more than its share of the investee's book value, the difference is

Accepted Answer

A)  ignored. 
B)  accounted for on the investor's books by a debit to Goodwill. 
C)  accounted for on the investee's books by a debit to Goodwill. 
D)  requires that the investor's Investment account and any investment income from the associate be adjusted over time. 
A)  ignored. 
B)  accounted for on the investor's books by a debit to Goodwill. 
C)  accounted for on the investee's books by a debit to Goodwill. 
D)  requires that the investor's Investment account and any investment income from the associate be adjusted over time.

Question 14

Fair value of bonds What is the fair value of a $ 100,000 face value bond priced at
A) 102
B) 100
C) 98

Accepted Answer

a) $ 100,000 X 102%

Question 15

Cost and equity methods
Compare the cost and equity methods of accounting for investments in shares subsequent to acquisition (when permitted by ASPE).

Accepted Answer

Under the cost method, the investment is

Question 16

Realized gains and losses on investment disposals are recognized in net income for all investment instruments EXCEPT those classified as

Accepted Answer

A)  FV-NI. 
B)  FV-OCI with recycling. 
C)  cost/amortized cost. 
D)  FV-OCI without recycling. 
A)  FV-NI. 
B)  FV-OCI with recycling. 
C)  cost/amortized cost. 
D)  FV-OCI without recycling.

Question 17

Hanuman Corp is a medium-sized corporation that has long dominated their market. With a strong cash-flow position, they have decided to invest excess cash strategically. In particular, Hanuman made periodic investments with their main supplier, Shiva. Although Hanuman currently owns 18% of the common shares of Shiva, it does not yet have significant influence over the operations of this investee company. Hanuman accounts for its investments in Shiva using IFRS 9 and the fair value through other comprehensive income model without recycling.
The controller has gathered the following information about relevant transactions and requests your assistance in preparing required adjusting entries:
1. In 2020, Hanuman acquires shares of Ahimsa Corp and Metta Ltd, for short-term trading purposes. Hanuman purchased 100,000 shares of Ahimsa for $ 1.2 million and the shares currently have a fair value of $ 1.4 million. Hanuman's investment in Metta has not been profitable: the company acquired 45,000 shares of Metta at $ 20 per share and they currently have a fair value of $ 634,500.
2. Before 2020, Hanuman had invested $ 22.4 million in Shiva and, at December 31, 2019, the investment had a fair value of $ 21.3 million. While Hanuman did not sell or purchase any Shiva shares this year, Hanuman declared and paid a dividend totalling $ 2.2 million on all its common shares, and reported 2020 net income of $ 13.6 million. Hanuman's 18% ownership of Shiva has a December 31, 2020, fair value of $ 21,405,000.
Instructions
a) Prepare the appropriate adjusting entries for Hanuman as at December 31, 2020.
b) Prepare the dividend and adjusting entries for the Shiva investment, assuming that Hanuman's 18% interest results in significant influence over Shiva's activities.

Accepted Answer

@#IMG-DLM&
To bring the investment to its fair val

Question 18

Accumulated comprehensive income is included as part of

Accepted Answer

A)  retained earnings. 
B)  net income. 
C)  shareholders' equity. 
D)  unearned revenue. 
A)  retained earnings. 
B)  net income. 
C)  shareholders' equity. 
D)  unearned revenue.

Question 19

In practice, under the cost/amortized cost method and ASPE, any discount or premium on a bond investment is

Accepted Answer

A)  required to be recognized and reported separately, and amortized using the effective-interest rate method. 
B)  not recognized or reported separately; amortized using either the straight-line or effective-interest method. 
C)  not recognized or reported separately; amortized using the effective-interest method. 
D)  required to be recognized and reported separately, and amortized using the straight-line method. 
A)  required to be recognized and reported separately, and amortized using the effective-interest rate method. 
B)  not recognized or reported separately; amortized using either the straight-line or effective-interest method. 
C)  not recognized or reported separately; amortized using the effective-interest method. 
D)  required to be recognized and reported separately, and amortized using the straight-line method.

Question 20

Under ASPE, for accounting for investments in associates,

Accepted Answer

A)  the cost method must be used for all such investments. 
B)  the fair value method can be used for shares quoted in an active market. 
C)  the investor may use the cost method for one investment and the fair value for another. 
D)  the fair value method must be used for all such investments. 
A)  the cost method must be used for all such investments. 
B)  the fair value method can be used for shares quoted in an active market. 
C)  the investor may use the cost method for one investment and the fair value for another. 
D)  the fair value method must be used for all such investments.

If a parent company owns 90% of a subsidiary's outstanding shares, the parent should generally account for the subsidiary's income under the

The standards relating to consolidation differ under ASPE and IFRS. Which of the following statements best describes the difference?

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

To calculate the amount of interest to recognize each period for a bond investment (unless it held for trading purposes),

The fair value through net income (FV-NI) model is sometimes referred to as

Significant influence Describe how to determine if an investment results in significant influence.

The standards relating to the treatment of interest and dividend income differ under ASPE and IFRS. Which of the following statements is INCORRECT?

The gain on disposal of this investment in Abalone's 2021, income statement should be

When an investor, using the equity method, pays more than its share of the investee's book value, the difference is

Fair value of bonds What is the fair value of a $ 100,000 face value bond priced at A) 102 B) 100 C) 98

Cost and equity methods Compare the cost and equity methods of accounting for investments in shares subsequent to acquisition (when permitted by ASPE).

Realized gains and losses on investment disposals are recognized in net income for all investment instruments EXCEPT those classified as

Accumulated comprehensive income is included as part of

In practice, under the cost/amortized cost method and ASPE, any discount or premium on a bond investment is

Under ASPE, for accounting for investments in associates,

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

If a parent company owns 90% of a subsidiary's outstanding shares, the parent should generally account for the subsidiary's income under the

The standards relating to consolidation differ under ASPE and IFRS. Which of the following statements best describes the difference?

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

To calculate the amount of interest to recognize each period for a bond investment (unless it held for trading purposes),

The fair value through net income (FV-NI) model is sometimes referred to as

Significant influence Describe how to determine if an investment results in significant influence.

The standards relating to the treatment of interest and dividend income differ under ASPE and IFRS. Which of the following statements is INCORRECT?

The gain on disposal of this investment in Abalone's 2021, income statement should be

When an investor, using the equity method, pays more than its share of the investee's book value, the difference is

Fair value of bonds What is the fair value of a $ 100,000 face value bond priced at A) 102 B) 100 C) 98

Cost and equity methods Compare the cost and equity methods of accounting for investments in shares subsequent to acquisition (when permitted by ASPE).

Realized gains and losses on investment disposals are recognized in net income for all investment instruments EXCEPT those classified as

Accumulated comprehensive income is included as part of

In practice, under the cost/amortized cost method and ASPE, any discount or premium on a bond investment is

Under ASPE, for accounting for investments in associates,

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