Exam 7: Financial Assets

Which statement about investments is not correct?

Amacon Corporation has the following investments at December 31, 2020: Historical cost Fair value Sept 30,2019 Fair value Sept 30, 2020 Fair value Dec 31, 2020 Shares of DEF \ 25,000 \ 15,000 \ 25,000 \ 30,000 Bonds of Brooke (purchased at par value) 10,000 12,000 11,000 12,500 Shares of CooksTown 12,000 18,000 16,000 16,000 Shares of Daisy 18,000 16,500 19,500 20,500 -According to the above table.If Amacon classifies its investment in DEF at fair value through OCI, what amount will be reported in other comprehensive income at December 31, 2020?

What is the meaning of "control"?

Fisher Corporation has the following investments at September 30, 2020: Fistorical cost Fair value Sept 30,2019 Fair value Sept 30,2020 Shares of ABC \ 25,000 \ 15,000 \ 25,000 Bonds of Brooke 10,000 12,000 11,000 Shares of CooksTown (Fisher holds 30\% of the outstanding voting shares of CooksTown) 12,000 18,000 16,000 Shares of Davenport 18,000 20,000 19,000 What method of accounting will Fisher use to account for its investment in Brooke, if the intent of the business model is to hold the investment for the purpose of collecting contractual cash flows of principal and interest and profit from changes in value?

On January 1, 2020, a company pays $100,000 to purchase 100 Government of Canada bonds that have a maturity date of December 31, 2024 and an interest rate of 5%. At December 31, 2020, the bonds had a quoted price of $1,022 per bond. Assume that 45 of these bonds are sold on June 30, 2021 for $1,100 per bond plus accrued interest. Determine the gain or loss that would be recorded in 2021 assuming: a. Classified at fair value through profit or loss b. Classified at amortized cost

Which statement is not correct about strategic investments?

Fisher Corporation has the following investments at September 30, 2020: Fistorical cost Fair value Sept 30,2019 Fair value Sept 30,2020 Shares of ABC \ 25,000 \ 15,000 \ 25,000 Bonds of Brooke 10,000 12,000 11,000 Shares of CooksTown (Fisher holds 35\% of the outstanding voting shares of CooksTown) 12,000 18,000 16,000 Shares of Davenport 18,000 20,000 19,000 -According to the table above.What method of accounting will Fisher use to account for its investment in Cookstown if this investment is classified as an associate?

Elyse Inc. made the following investments during its 2019 fiscal year. a. The company places $3,000 in a 8-month term deposit with its bank. b. The company purchases from its broker a call option on 2,500 shares of BMO Financial, a publicly traded company, for $5,500, in anticipation of an increase in the stock price. c. The company buys 30% of the outstanding shares of NEXT Corp. The purchase was made in anticipation of a bid by BEFORE Corp. to purchase all of the shares of NEXT within the next nine months. d. The company buys $35,000 of shares in a publicly traded corporation with a market capitalization of more than $20 billion. Required: Identify how the company should categorize the above financial assets. Briefly explain the reason for the classification.

Which statement is correct about an at fair value through profit or loss investment?

Explain the nature of and the appropriate accounting treatment for investments in subsidiaries, joint ventures, and associates.

On January 1, 2020, CC Company acquired 60,000 shares of RR Limited at $5 per share, representing 20% of RR's outstanding voting shares. On July 31, 2020, RR declared and paid a dividend of $1 per share. RR's net income for 2020 was $2,800,000. On December 31, 2020, the shares of RR were trading on the Toronto Stock Exchange at $16 per share. Required: Provide the journal entries on CC's books relating to its investment in RR, assuming that CC classifies RR as an associate.

Based on the following information, what amount will be presented for "equity" on the consolidated balance sheet of Investor for its wholly owned subsidiary? Investor Investee Current assets \ 500 \ 550 Long-term assets 300 50 Investment in investee 200 0 Current liabilities 350 200 Long-term liabilities 450 300 Equity 200 100

Which statement is correct about subsidiaries?

Explain the difference between a joint arrangement, joint control, joint operation and a joint venture. Explain how each type of investment is accounted for under IFRS. Explain the underlying reasons for the difference in accounting methods for these investments.

Which of the following is correct about joint operations?

Describe the single most important characteristic of a financial asset that distinguishes it from a real asset.

On January 25, 2020, Harper Ltd. purchased 2,500 common shares of RBC (Royal Bank of Canada)for $10 each. During the remainder of 2020, Harper received $2.75 per share in dividends and RBC's earnings per share were $5.25. The closing price of the shares on the fiscal year-end date of December 31, 2020 was $14. Required: Assume that Harper classified the investment at fair value through profit or loss. a. At what value should the company report the RBC shares on its December 31, 2020 balance sheet? b. How much income should the company report in relation to these shares? c. How much other comprehensive income (OCl)should Harper report in relation to these shares?

Sheila Investment Company (SIC)began operations on January 1, 2020. It acquired the following investments: Fair Value at Type Category Cost Year End Bonds Amortized cost \ 195,000 \ 198,000 Shares At fair value through 55,000 75,000 profit or loss Shares At fair value through 60,000 70,000 OCI SIC earned interest of $12,000 during 2020. Dividends of $16,000 were declared on the shares it owned during 2020. Of that amount, $9,000 was received in December 2020 and $7,000 was received in January 2021 (note that the ex-dividend date for these shares was prior to the end of the year). At what value would SIC's investment in shares be recorded at in the balance sheet on December 31, 2020?

Star Corp. purchases a $100,000 face value bond which matures in two years. The coupon rate is 6% and the market rate is 5%. How much is the premium or discount (rounded)?

Explain the nature of and the impact on the balance sheet and the income statement of investments subsequently measured at amortized cost.