Question 1

When one corporation has control over another corporation, the investor corporation

Accepted Answer

A)  is referred to as an associate. 
B)  is referred to as the subsidiary. 
C)  can determine the investee's strategic operating and financing policies. 
D)  must have obtained at least 50% of the investee's issued common shares. 
A)  is referred to as an associate. 
B)  is referred to as the subsidiary. 
C)  can determine the investee's strategic operating and financing policies. 
D)  must have obtained at least 50% of the investee's issued common shares.

Question 2

In January 2020, Haddock Ltd. had purchased an investment for $ 150,000. By December 31, 2020, the fair market value of that investment had increased by $ 20,000. Assuming this gain was included in the company's 2020 net income, which accounting method did Haddock use to account for this investment?

Accepted Answer

A)  cost 
B)  fair value through other comprehensive income (FV-OCI) 
C)  fair value through net income (FV-NI) 
D)  equity 
A)  cost 
B)  fair value through other comprehensive income (FV-OCI) 
C)  fair value through net income (FV-NI) 
D)  equity

Question 3

The fair value loss impairment model

Accepted Answer

A)  is used for all investments that are not accounted for as FV-NI. 
B)  requires a separate impairment test. 
C)  calculates the impairment loss as the difference between the asset's fair value and its current carrying amount. 
D)  calculates the impairment loss as the difference between the asset's original cost and its current carrying amount. 
A)  is used for all investments that are not accounted for as FV-NI. 
B)  requires a separate impairment test. 
C)  calculates the impairment loss as the difference between the asset's fair value and its current carrying amount. 
D)  calculates the impairment loss as the difference between the asset's original cost and its current carrying amount.

Question 4

Long-term investment - FV-NI method
Ceres Corporation is considering making a significant long-term investment in Pisces Ltd., a young and very promising company. Ceres decides to make a smaller investment first, and if Pisces turns out to be successful, Ceres intends to make an additional investment to reach significant influence. Pisces has 200,000 shares authorized, and 110,000 shares outstanding.
On January 1, 2020, Pisces issues Ceres 10,000 shares for $ 400,000 in cash (so now there are 120,000 shares outstanding).
Additional information:
1. On November 1, 2020, Pisces declares a total cash dividend of $ 180,000.
2. Pisces reports $ 225,000 net income for 2020. Its stock price on December 31, 2020 is $ 38.
3. On November 1, 2021, Pisces announces a total dividend of $ 270,000 to be paid on January 2, 2022.
4. Pisces reports $ 360,000 net income for 2021. Its stock price on December 31, 2021 is $ 44.
5. On March 15, 2022, Ceres is approached by an investment fund which offers to buy all their Pisces shares for $ 55 per share, a 25% premium over the current stock price of $ 44. Ceres accepts the offer and sells the shares on that day.
Instructions
Assuming Ceres uses the fair value through net income model (FV-NI) to account for this investment:
a) Prepare the journal entries in Ceres's books for the 2020 calendar year.
b) Prepare the journal entries in Ceres's books for the 2021 calendar year.
c) Prepare the journal entries in Ceres's books for the 2022 calendar year.

Accepted Answer

The answer of Long-term investment - FV-NI method
Ceres Corporation is...

Question 5

When the cost model is applied to an investment in debt securities, such as bonds, it is referred to as the

Accepted Answer

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

Question 6

Transaction costs
Discuss whether transaction costs (fees, commissions, or transfer taxes), directly related to the acquisition of financial assets initially measured at their fair value should be expensed immediately or added to the cost of the asset acquired.

Accepted Answer

The answer is-it depends. It is logical

Question 7

Which of the following situations would NOT necessarily indicate the potential impairment of the underlying securities?

Accepted Answer

A)  The issuing entity is experiencing major financial difficulties. 
B)  The issuing entity is unable to pay its liabilities. 
C)  The issuing entity has temporarily halted dividend payments in order to retain cash for future expansion. 
D)  The issuing entity is undergoing a major reorganization. 
A)  The issuing entity is experiencing major financial difficulties. 
B)  The issuing entity is unable to pay its liabilities. 
C)  The issuing entity has temporarily halted dividend payments in order to retain cash for future expansion. 
D)  The issuing entity is undergoing a major reorganization.

Question 8

Temporary investments - FV-NI model
During your examination of the financial statements of Venus Corporation for the year ended December 31, 2020, you found a new account called "Investments." Your examination revealed that during 2020, Venus began a program of investments, and all investment-related transactions were entered in this account. Your analysis of this account for 2020 follows:
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $VENUS CORPORATION
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Analysis of Investments
 $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $ $\quad $Year Ended December 31, 2020

$\begin{array}{c}
\begin{array}{lll}
 \underline{\text {Date-2020}}\
 \text {(i)}\
\
 \text {Feb. 14}\
 \text {Jul. 26}\
\
 \text {Sep. 28}\
\
\end{array}
\begin{array}{lll}
\
\
 \underline{\text {Iupiter Ltd. Common Shares}}\
 \text {Purchased 3,000 shares @ \$55 per share........ }\
 \text { Received 300 Jupiter common shares }\
 \text {as a stock dividend. (Memorandum entry) }\
 \text {Sold the 300 Jupiter common shares }\
 \text {received July \( 26 @ \$ 70 $ per share............... }

\end{array}
\begin{array}{lll}
 \underline{\text {Debit}}\
\
\
\$ 165,000\
\
\
\
\ 
\end{array}
\begin{array}{lll}
 \underline{\text {Credit}}\
\
\
\
\
\
\
\$ 21,000\ 
\end{array}
\end{array}\)

$\begin{array}{c}
\begin{array}{lll}
 \text {(ii)}\
\
\
\
 \text {Apr. 30}\
 \text {Oct. 28} 
\end{array}
\begin{array}{lll}
\
\
 \underline{\text {Mars Ltd. Common Shares}}\
\text {Purchased 5,000 shares @ \$40 per share.......}\
\text {Received dividend of $ \$ 1.20 $ per share......} 
\end{array}
\begin{array}{lll}
\
 \underline{\text {Debit}}\
\
\$ 200,000\
\ 
\end{array}
\begin{array}{lll}
\
 \underline{\text {Credit}}\
\
\
\$ 6,000\ 
\end{array}
\end{array}$

Additional information:
1. The market values for each security during 2020 follow:
$$\begin{array} { l r r r r r } 
\text { Security } & \text { Feb 14 } & \text { Apr 30 }  &  \text { Jul 26 } & \text { Sep 28 } & \text { Dec 31 } \
\text { Jupiter Ltd. } & \$ 55 & & \$ 62 & \$ 70 & \$ 72 \
\text { Mars Ltd. } & & \$ 40 & & & 32 \
\text { Venus Corp. } & 25 & 28 & 30 & 33 & 35
\end{array}$$
2. All of the investments of Venus are nominal in respect to percentage of ownership (five percent or less).
3. Each investment is considered by Venus's management to be temporary.
4. The company has adopted ASPE and intended to use the FV-NI method to account for these investments.
5. Venus follows a policy of separately reporting dividend income.
Instructions
a) Prepare any necessary correcting journal entries related to investments (i) and (ii).
b) Prepare the entry, if necessary, to record the proper valuation of these investments at December 31, 2020.

Accepted Answer

The answer of Temporary investments - FV-NI model
During your examination...

Question 9

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.
-If the beginning 2020 balance in the Investment in Grey Corp. account was $ 180,000, the balance at December 31, 2020 should be

Accepted Answer

A)  $ 260,000. 
B)  $ 204,000. 
C)  $ 180,000. 
D)  $ 132,000. 
A)  $ 260,000. 
B)  $ 204,000. 
C)  $ 180,000. 
D)  $ 132,000.

Question 10

George Inc. owns bonds that are accounted for under the fair value through net income model. On December 31, 2020, the bonds have a carrying value of $ 124,365. The fair value at that date is $ 123,000. The entry to record the year-end adjustment is a) Invertment Income or Loss............................1,365
$\mathrm { F } \boldsymbol { V }$-NI Invertments......................................................1,365
b) Unrealized Gain or Loss OCI..........................1,356
F $\boldsymbol { V }$-Nl Invertments.......................................1,356
c) FV-NI Inve-tments..................................................1,365
Invetment Income or Loss.................................................1,365
D) No adjustment is required.

Accepted Answer

The answer of George Inc. owns bonds that are accounted...

Question 11

The price of a debt instrument is quoted as a percentage of its

Accepted Answer

A)  face or par value. 
B)  fair market value. 
C)  book value. 
D)  present value. 
A)  face or par value. 
B)  fair market value. 
C)  book value. 
D)  present value.

Question 12

Which of the following is NOT a debt security?

Accepted Answer

A)  convertible bonds 
B)  commercial paper 
C)  loans receivable 
D)  government treasury bills 
A)  convertible bonds 
B)  commercial paper 
C)  loans receivable 
D)  government treasury bills

Question 13

When an investor is using the equity method and the investee reports a net loss, the journal entry will include a

Accepted Answer

A)  debit to the Investment account. 
B)  debit to Retained Earnings. 
C)  credit to the Investment account. 
D)  credit to Investment Income or Loss. 
A)  debit to the Investment account. 
B)  debit to Retained Earnings. 
C)  credit to the Investment account. 
D)  credit to Investment Income or Loss.

Question 14

Which of the following is NOT an equity instrument?

Accepted Answer

A)  common shares 
B)  preferred shares 
C)  convertible bonds 
D)  put options 
A)  common shares 
B)  preferred shares 
C)  convertible bonds 
D)  put options

Question 15

The accounting for investments in another entity's equity instruments depends mainly on

Accepted Answer

A)  the level of influence the investor is able to exert. 
B)  the level of influence the investor actually exerts. 
C)  the quality of earnings of the investee. 
D)  whether the investee pays dividends. 
A)  the level of influence the investor is able to exert. 
B)  the level of influence the investor actually exerts. 
C)  the quality of earnings of the investee. 
D)  whether the investee pays dividends.

Question 16

Accounting of impairment losses is required for investments that are measured using the

Accepted Answer

A)  cost/amortized cost model. 
B)  FV-NI model. 
C)  FV-OCI model. 
D)  All of these (all of these models require a method of accounting for impairment). 
A)  cost/amortized cost model. 
B)  FV-NI model. 
C)  FV-OCI model. 
D)  All of these (all of these models require a method of accounting for impairment).

Question 17

At December 31, 2020, Silicon Corp.'s stock investment portfolio, which is being accounted for by the fair value through net income (FV-NI) model, shows a general ledger balance of $ 318,600. It is determined that the fair value of the securities is actually $ 326,200. The entry to adjust the portfolio to fair value will include a

Accepted Answer

A)  debit to Investment Income or Loss of $ 7,600. 
B)  credit to Cash of $ 7,600. 
C)  debit to FV-NI Investments of $ 7,600. 
D)  credit to FV-NI Investments of $ 7,600. 
A)  debit to Investment Income or Loss of $ 7,600. 
B)  credit to Cash of $ 7,600. 
C)  debit to FV-NI Investments of $ 7,600. 
D)  credit to FV-NI Investments of $ 7,600.

Question 18

An investment in an entity's debt instruments makes that investor a(n)

Accepted Answer

A)  owner of the issuing entity. 
B)  creditor of the issuing entity. 
C)  parent company. 
D)  subsidiary. 
A)  owner of the issuing entity. 
B)  creditor of the issuing entity. 
C)  parent company. 
D)  subsidiary.

Question 19

Any contract that is evidence of a residual interest in an entity's assets is called a(n)

Accepted Answer

A)  debt security. 
B)  liability. 
C)  derivative. 
D)  equity security. 
A)  debt security. 
B)  liability. 
C)  derivative. 
D)  equity security.

Question 20

An investor that has subsidiaries

Accepted Answer

A)  is required to prepare consolidated financial statements under IFRS. 
B)  is required to prepare consolidated financial statements under ASPE. 
C)  does not have to prepare consolidated financial statements under IFRS. 
D)  ignores the noncontrolling interest on the consolidated financial statements. 
A)  is required to prepare consolidated financial statements under IFRS. 
B)  is required to prepare consolidated financial statements under ASPE. 
C)  does not have to prepare consolidated financial statements under IFRS. 
D)  ignores the noncontrolling interest on the consolidated financial statements.

When one corporation has control over another corporation, the investor corporation

In January 2020, Haddock Ltd. had purchased an investment for $ 150,000. By December 31, 2020, the fair market value of that investment had increased by $ 20,000. Assuming this gain was included in the company's 2020 net income, which accounting method did Haddock use to account for this investment?

The fair value loss impairment model

When the cost model is applied to an investment in debt securities, such as bonds, it is referred to as the

Transaction costs Discuss whether transaction costs (fees, commissions, or transfer taxes), directly related to the acquisition of financial assets initially measured at their fair value should be expensed immediately or added to the cost of the asset acquired.

Which of the following situations would NOT necessarily indicate the potential impairment of the underlying securities?

The price of a debt instrument is quoted as a percentage of its

Which of the following is NOT a debt security?

When an investor is using the equity method and the investee reports a net loss, the journal entry will include a

Which of the following is NOT an equity instrument?

The accounting for investments in another entity's equity instruments depends mainly on

Accounting of impairment losses is required for investments that are measured using the

An investment in an entity's debt instruments makes that investor a(n)

Any contract that is evidence of a residual interest in an entity's assets is called a(n)

An investor that has subsidiaries

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

When one corporation has control over another corporation, the investor corporation

The fair value loss impairment model

When the cost model is applied to an investment in debt securities, such as bonds, it is referred to as the

Transaction costs Discuss whether transaction costs (fees, commissions, or transfer taxes), directly related to the acquisition of financial assets initially measured at their fair value should be expensed immediately or added to the cost of the asset acquired.

Which of the following situations would NOT necessarily indicate the potential impairment of the underlying securities?

The price of a debt instrument is quoted as a percentage of its

Which of the following is NOT a debt security?

When an investor is using the equity method and the investee reports a net loss, the journal entry will include a

Which of the following is NOT an equity instrument?

The accounting for investments in another entity's equity instruments depends mainly on

Accounting of impairment losses is required for investments that are measured using the

An investment in an entity's debt instruments makes that investor a(n)

Any contract that is evidence of a residual interest in an entity's assets is called a(n)

An investor that has subsidiaries

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