Exam 9: Investments

Under the fair value through net income model, holding gains are

On November 1, 2020, Jepson Ltd. purchased 300 of the $ 1,000 face value, 9% bonds of Carly Corp., for $ 316,000, which included accrued interest of $ 4,500. The bonds, which mature on January 1, 2025, pay interest semi-annually on March 1 and September 1. The bonds will be held to maturity. Assuming that Jepson uses the straight-line method of amortization and that the bonds are accounted for under the amortized cost method, the carrying value of the bonds should be shown on Jepson's December 31, 2020, statement of financial position at

When it comes to measuring investments, which of the following statements is true?

Generally, transaction costs are

An interest-bearing investment is sold mid-way through the year. At the time of sale, how is the accrued interest typically treated?

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 cost model to account for its investment in Rindu, Fidel's Investment in Rindu Ltd. account at December 31, 2020 should be

When an investor is using the equity method and receives dividends from the investee, the journal entry will include a

Equity method - IFRS Capricorn Corporation decided to purchase 35% of the outstanding shares of Aquarius Ltd. Capricorn's CFO conducted an extensive evaluation of the financial statements of Aquarius and reported his findings to the board of directors in the following memo: Dear Board of Directors, Following your request, I conducted a detailed analysis of Aquarius Ltd. I found out that the liabilities reported in its books at December 31, 2019 in the amount of $ 20M fairly represent their economic values. As for the assets, their book value is $ 45M. The company owns an office building in downtown Toronto where its headquarters are located. The net book value of this building, including the land, is $ 10M. Aquarius purchased the land for $ 6M some 20 years ago and then constructed the building. I consulted with real estate experts and currently the fair value of the land is $ 9M and the fair value of the building is $ 8M. The remaining useful life of the building in Aquarius's books is 20 years and I find this estimate realistic. The firm has developed a patent. According to my analysis, the fair value of the patent is $ 12M. Given future advances in technology, I expect the value of the patent to decline and become worthless 6 years from now. The patent was developed by the company and all the related costs were recorded as research and development expenses. Sincerely, Jake Connor, CPA The board of directors of Capricorn Corporation adopted the report by Mr. Connor and on January 1, 2020, purchased 35% of the shares of Aquarius, based on its fair value according to Mr. Connor's analysis. After the acquisition of the shares, Capricorn was able to exercise significant influence over Aquarius. In 2020, Aquarius reported net income of $ 10M and distributed 40% of it as cash dividends. In 2021, the earnings of Aquarius doubled compared with 2020. Aquarius distributed 60% of its income as cash dividends. On December 31, 2021, Capricorn sold its investment in Aquarius Ltd. for $ 20M. Instructions Assuming Capricorn accounts for this investment using the method required under IFRS, a) Record the initial purchase by Capricorn Corp. b) Record the entries related to the investment in Aquarius Ltd. for 2020. c) Record the entries related to the investment in Aquarius Ltd. for 2021.

The premium or discount on bonds accounted for under the cost/amortized cost model is

Under the fair value through other comprehensive income model, unrealized gains and losses are

On October 1, 2020, Barrick Corp. purchased 800, $ 1,000, 9% bonds for $ 792,000, which included $ 12,000 accrued interest. The bonds, which mature on February 1, 2029, pay interest semi-annually on February 1 and August 1. The bonds will be held to maturity. Barrick uses the straight-line method of amortization. The bonds, which are accounted for under the amortized cost model, should be reported in the December 31, 2020 balance sheet at a carrying value of

The disclosure requirements for private entities are usually less extensive as compared to those for public entities because

Which of the following is NOT a motivation for investment in debt and equity instruments issued by other companies?

How investments are accounted for does NOT usually depend on

Application of cost/amortized cost method Luke Corporation purchased $ 60,400 of 6-year, 7% bonds of Reed Inc. for $ 57,566 to yield an 8% return, and classified the purchase as an amortized cost method investment. The bonds pay interest semi-annually. a) Assuming Luke Corporation applies IFRS, prepare its journal entries for the purchase of the investment and receipt of semi-annual interest and discount amortization for the first two interest payments that will be received. a). b) Assuming Luke Corporation applies ASPE and has chosen the straight-line method of discount amortization, prepare the same three entries requested in part

On October 1, 2020, Berlin Corp. purchased 250, $ 1,000, 9% bonds for $ 260,000. An additional $ 7,500 was paid for the accrued interest, which is paid semi-annually on December 1 and June 1. The bonds mature on December 1, 2024 and will be held to maturity. Berlin uses the straight-line method of amortization and the amortized cost model for these bonds. Ignoring income taxes, the amount to be reported in Berlin's 2020 income statement as a result of this investment is

A bond is purchased at a discount and will be accounted for under the amortized cost model. The entry to record the amortization of the discount includes a

Incurred loss, expected loss, and impairment Tyne Corporation owns corporate bonds at December 31, 2020, accounted for using the amortized cost model. These bonds have a par value of $ 864,000 and an amortized cost of $ 851,000. After an impairment review was triggered, Tyne determined that the discounted impaired cash flows are $ 796,500 using the current market rate of interest, but are $ 793,000 using the market rate when the bonds were first acquired. The company follows a policy of directly reducing the carrying amount of any impaired assets. Instructions a) Assuming Tyne Corporation is a private enterprise that applies ASPE, prepare any necessary journal entry(ies) related to the impairment at December 31, 2020. b) Assuming Tyne Corporation is a private enterprise that applies ASPE, prepare any necessary journal entry(ies) related to a December 31, 2021, fair value of $ 821,000 and an adjusted carrying amount at that date of $ 801,000. c) Assuming Tyne applies IFRS and has adopted IFRS 9, prepare any necessary journal entry related to the impairment at December 31, 2020. d) Assuming Tyne applies IFRS and has adopted IFRS 9, prepare any necessary journal entry(ies) related to a December 31, 2021 fair value of $ 821,000 and an adjusted carrying amount at that date of $ 801,000.

When one corporation acquires control of another entity, the investor corporation is referred to as the parent and the investee corporation as the

On August 1, 2020, Peterson Corp. acquired 20, $ 1,000, 8% bonds at 95 plus accrued interest. The bonds were dated May 1, 2020, and mature on April 30, 2020, with interest paid semi-annually on 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.................9,500 Interest Income...........................................200 Cash............................................................................9,700 b)Bond Investment at Amortized Cost...........9,700 Cash...........................................................................9,700 c)Bond Investment at Amortized Cost.........9,500 Interest Receivable..............................................200 Cash...........................................................................9,700 d) Bond Investment at Amortized Cost...........10,000 Interest Income.....................................................200 Discount on Debt Securities..........................500 Cash ......................................................................9,700