Question 1

Which statement is correct about non-strategic investments?

Accepted Answer

A) IFRS carries FVOCI investments at fair value with only unrealized losses going to net income. 
B) ASPE carries FVOCI investments at fair value with only unrealized losses going to net income. 
C) IFRS carries FVOCI investments at fair value with unrealized gains and losses going to OCI. 
D) ASPE carries FVOCI investments at fair value with unrealized gains and losses going to OCI. 
A) IFRS carries FVOCI investments at fair value with only unrealized losses going to net income. 
B) ASPE carries FVOCI investments at fair value with only unrealized losses going to net income. 
C) IFRS carries FVOCI investments at fair value with unrealized gains and losses going to OCI. 
D) ASPE carries FVOCI investments at fair value with unrealized gains and losses going to OCI.

Question 2

Quick Investment Company (QIC)began operations on January 1, 2020. It acquired the following investments: $$\begin{array} { | l | l | r | r | } 
\hline &&& { \text { Fair Value at } }\
 \text { Type } & \text { Category }&\text { Cost } & { \text { Year End } }  \

\hline \text { Bonds } & \text { Amortized cost } & \$ 195,000 & \$ 198,000 \
\hline \text { Shares } & \text { At fair value through } & 55,000 & 75,000 \
& \text { profit or loss } & & \
\hline \text { Shares } & \text { At fair value through } & 60,000 &70,000 \
 & \text { OCI } & & \
\hline
\end{array}$$ QIC earned interest of $12,000 during 2020. Dividends of $16,000 were declared on the FVPL 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). How much would QIC's total income from its investments be on the profit or loss portion of its statement of comprehensive income for the year ended December 31, 2020?

Accepted Answer

A) $21,000 
B) $28,000 
C) $48,000 
D) $58,000 
A) $21,000 
B) $28,000 
C) $48,000 
D) $58,000

Question 3

A bond has a maturity value of $300,000 payable in 4 years. These bonds have a 7% coupon rate payable semi-annually, and the market yield was 4% when the bonds were purchased. How much premium or discount will be recorded upon purchase (rounded)?

Accepted Answer

A) $32,668 premium. 
B) $32,668 discount. 
C) $32,965 discount. 
D) $32,965 premium. 
A) $32,668 premium. 
B) $32,668 discount. 
C) $32,965 discount. 
D) $32,965 premium.

Question 4

Other comprehensive income includes which of the following?

Accepted Answer

A) Unrealized holding losses on at fair value through OCI investments. 
B) Unrealized holding losses on at amortized cost investments. 
C) Unrealized holding gains on at fair value through profit or loss investments. 
D) Only realized gains and losses on investments. 
A) Unrealized holding losses on at fair value through OCI investments. 
B) Unrealized holding losses on at amortized cost investments. 
C) Unrealized holding gains on at fair value through profit or loss investments. 
D) Only realized gains and losses on investments.

Question 5

A bond has a maturity value of $50,000 payable in 4 years. These bonds have a 7% coupon rate payable semi-annually, and the market yield was 4% when the bonds were purchased.
Required:
a. Is this a discount bond or a premium bond?
b. Calculate the amount required to purchase this bond at the beginning of the 4-year period.

Accepted Answer

a. This is a premium bond because the co

Question 6

Fish Corp. purchases a $500,000 face value bond which matures in two years. The coupon rate is 6% and the market rate is 7%. What is the premium or discount?

Accepted Answer

A) $0 premium/discount. 
B) $9,039.40 discount. 
C) $9,039.40 premium. 
D) $500,000 discount. 
A) $0 premium/discount. 
B) $9,039.40 discount. 
C) $9,039.40 premium. 
D) $500,000 discount.

Question 7

ACE Inc has the following investments at December 31, 2020: $$\begin{array} { | l | r | r | r | r | } 
\hline & \text { Historical cost } & \begin{array} { c } 
\text { Fair value } \
\text { Sept } 30,2019
\end{array} & \begin{array} { c } 
\text { Fair value } \
\text { Sept 30, 2020 }
\end{array} & \begin{array} { c } 
\text { Fair value } \
\text { Dec } 31,2020
\end{array} \
\hline \text { Shares of DEF } & 25,000 & 15,000 & 27,000 & 30,000 \
\hline \text { Bonds of Brooke } & & & & 12,500 \
\text { (purchased at par value) } & 10,000 & 12,000 & 11,000 & 16,000 \
\hline \text { Shares of CooksTown } & 12,000 & 18,000 & 16,000 & 20,500 \
\hline \text { Shares of Daisy } & 18,000 & 16,500 & 19,500 & 120 \
\hline
\end{array}$$ If ACE classifies its investment in DEF at fair value through profit or loss, what amount will be reported in income for the three months ended December 31, 2020 pertaining to this investment?

Accepted Answer

A) $0 
B) $3,000 loss. 
C) $3,000 gain. 
D) $5,000 gain. 
A) $0 
B) $3,000 loss. 
C) $3,000 gain. 
D) $5,000 gain.

Question 8

What should an investment in a debt instrument be classified as when the business model does not include an intent to trade it?

Accepted Answer

A) Associate. 
B) Amortized cost. 
C) At fair value through OCI. 
D) At fair value through profit or loss. 
A) Associate. 
B) Amortized cost. 
C) At fair value through OCI. 
D) At fair value through profit or loss.

Question 9

Investment Company (IC)began operations on January 1, 2020. It acquired the following investments: $$\begin{array} { | l | l | r | r | } 
\hline &&& { \text { Fair Value at } }\
 \text { Type } & \text { Category }&\text { Cost } & { \text { Year End } }  \

\hline \text { Bonds } & \text { Amortized cost } & \$ 195,000 & \$ 198,000 \
\hline \text { Shares } & \text { At fair value through } & 55,000 & 75,000 \
& \text { profit or loss } & & \
\hline \text { Shares } & \text { At fair value through } & 60,000 &70,000 \
 & \text { OCI } & & \
\hline
\end{array}$$ IC 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). How much would be recorded as accumulated other comprehensive income on IC's balance sheet at December 31, 2020?

Accepted Answer

A) $10,000 gain. 
B) $10,000 loss. 
C) $30,000 gain. 
D) $30,000 loss. 
A) $10,000 gain. 
B) $10,000 loss. 
C) $30,000 gain. 
D) $30,000 loss.

Question 10

Willow Corp. is a real estate developer with its headquarters in Burlington, Ontario.
As a result of recent increases in land prices, Willow has accumulated a substantial amount of excess cash. It is looking to invest in a building supply company, but has not yet found a suitable company. To earn a reasonable return and to minimize risk, Willow invests its excess cash in common shares of large, stable corporations.
1. On Jan 1, 2019, Willow paid $1,080,000 to purchase 120,000 common shares of North Line.
2. On December 27, 2019, North Line declared and paid a dividend of $0.25 per common share.
3. On December 31, 2019, the market value of the common shares was $1,200,000.
4. On June 30, 2020, Willow sold the common shares for $1,620,000.
Required:
Using the following table, indicate the amounts to be reported in the balance sheet, through profit or loss, and through other comprehensive income for 2019 and 2020 under two scenarios:
a. Willow irrevocably elected to designates the investment in common shares as an at fair value through OCI (FVOCI)investment.
b. Willow designates the investment in common shares as an at fair value through profit or loss (FVPL)investment.
$\begin{array}{c}
\quad\quad \quad\quad\quad\quad\quad\quad\quad\quad\quad\quad \text { FVOCI } \quad\quad\quad\quad\quad\quad\text { FVPL }\ 
\begin{array}{|lll|}
\hline \text {  } \
\hline \text {  Balance sheet  } \
\hline \text { Amount through profit or loss  } \
\hline \text { Other comprehensive income  } \
\hline
\end{array}
\begin{array}{lll|}
\hline \text { 2019 } \
\hline \text {  } \
\hline \text {  } \
\hline \text {  } \
\hline
\end{array}
\begin{array}{lll|}
\hline \text { 2020 } \
\hline \text {  } \
\hline \text {  } \
\hline \text {  } \
\hline
\end{array}
\begin{array}{lll|}
\hline \text { 2019 } \
\hline \text {  } \
\hline \text {  } \
\hline \text {  } \
\hline
\end{array}
\begin{array}{lll|}
\hline \text { 2020 } \
\hline \text {  } \
\hline \text {  } \
\hline \text {  } \
\hline
\end{array}
\end{array}$

Accepted Answer

The answer of Willow Corp. is a real estate developer...

Question 11

Which statement is correct about derivative instruments?

Accepted Answer

A) Any contract that entitles the holder to joint interest in an entity after deducting all of its liabilities. 
B) A contract whose value changes according to a specified variable, requires little or no initial investment, and is settled at a future date. 
C) Any contract that gives rise to a financial asset for one entity and a financial liability or equity instrument for another entity. 
D) A contract that gives the holder the residual interest in an entity after deducting all of its liabilities. 
A) Any contract that entitles the holder to joint interest in an entity after deducting all of its liabilities. 
B) A contract whose value changes according to a specified variable, requires little or no initial investment, and is settled at a future date. 
C) Any contract that gives rise to a financial asset for one entity and a financial liability or equity instrument for another entity. 
D) A contract that gives the holder the residual interest in an entity after deducting all of its liabilities.

Question 12

On January 25, 2020, Mulroney Ltd. purchased 100 common shares of RBC (Royal Bank of Canada)for $40 each. During the remainder of 2020, Mulroney received $2.10 per share in dividends and RBC's earnings per share were $5.50. The closing price of the shares on the fiscal year-end date of December 31, 2020 was $41.
Required:
Assume that Mulroney irrevocably elected to classify its investment at fair value through OCI.
a. At what value should Mulroney report the RBC shares on its December 31, 2020 balance sheet?
b. How much income should Mulroney report in 2019 in relation to these shares?
c. How much other comprehensive income (OCI)should Mulroney report in 2020 in relation to these shares?

Accepted Answer

a. Mulroney should report the RBC shares

Question 13

For financial reporting purposes, financial assets can be put into one of seven categories: subsidiaries, joint ventures, associates, at fair value through profit or loss, at fair value through OCI, amortized cost, and joint operations. For each of the following items, identify the possible categories into which it can be placed. More than one category is possible for an item.
 $\begin{array}{|l|l|} 
\hline & \text { Financial asset categories } \
\hline \text { An exporter enters into a currency swap (a derivative contract) to } & \
\text { fix the exchange rate on the US dollar denominated sale. } & \
\hline \text { Sweet things buys } \$ 180,000 \text { bonds that mature in five years. } & \
\hline \text { Fish Firm Company buys } 300 \text { common shares of a publicly } & \
\hline\text { traded company that has } 100 \text { million shares outstanding. } &\
\hline
\end{array}$

Accepted Answer

\[\begin{array} { | l | l | } 
\hline &

Question 14

Explain the characteristics of a financial asset. Discuss if cash has the characteristics of a financial asset. Why is (or is not)cash a financial asset?

Accepted Answer

Generally speaking, a financial asset re

Question 15

Which statement is not correct about "control"?

Accepted Answer

A) Control is presumed when an entity has more than 50% of the voting power of the investee. 
B) Having control allows the entity to direct the strategic operations of the investee. 
C) Control is presumed when an entity owns more than 50% of the investee. 
D) Consolidation is used when an entity has control over the investee. 
A) Control is presumed when an entity has more than 50% of the voting power of the investee. 
B) Having control allows the entity to direct the strategic operations of the investee. 
C) Control is presumed when an entity owns more than 50% of the investee. 
D) Consolidation is used when an entity has control over the investee.

Question 16

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.

Accepted Answer

A joint arrangement is a contractual arr

Question 17

Accounting standards provide for a variety of different measurement bases for different types of financial assets. IFRS has several measurement bases, namely:
•consolidation
•fair value with changes through income
•proportionate consolidation
•fair value with changes through other comprehensive income
•equity method
•amortized cost
Required:
a. Explain why reporting entities should, on the one hand, use consolidation, proportionate consolidation, and the equity method for investments in subsidiaries, joint ventures, and associates, but on the other hand, use the fair value method for equity investments that are at fair value through profit or loss or at fair value through OCI.
b. Explain, for investments in debt securities, why measurement at amortized cost is more appropriate for debt investments for which the business model is to collect contractual cash flows, but one of the fair value methods is more appropriate for investments for which the business model includes an intent to profit from changes in value of the investment.
c. Explain why it is appropriate for changes in fair value to flow through income when the investment is classified as at fair value through profit or loss, but the same changes in fair value flow through other comprehensive income when the investment is classified as at fair value through OCI.

Accepted Answer

a. There are three reasons. First, the t

Question 18

Safe Investment Company (SIC)began operations on January 1, 2020. It acquired the following investments: $$\begin{array} { | l | l | r | r | } 
\hline &&& { \text { Fair Value at } }\
 \text { Type } & \text { Category }&\text { Cost } & { \text { Year End } }  \

\hline \text { Bonds } & \text { Amortized cost } & \$ 195,000 & \$ 198,000 \
\hline \text { Shares } & \text { At fair value through } & 55,000 & 75,000 \
& \text { profit or loss } & & \
\hline \text { Shares } & \text { At fair value through } & 60,000 &70,000 \
 & \text { OCI } & & \
\hline
\end{array}$$ 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 bonds (which were purchased at par)be recorded at in the balance sheet on December 31, 2020?

Accepted Answer

A) $183,000 
B) $195,000 
C) $198,000 
D) $207,000 
A) $183,000 
B) $195,000 
C) $198,000 
D) $207,000

Question 19

Which investment could be classified at amortized cost?

Accepted Answer

A) Equity instrument. 
B) Debt instrument. 
C) Derivative. 
D) Associate. 
A) Equity instrument. 
B) Debt instrument. 
C) Derivative. 
D) Associate.

Question 20

Fisher Corporation has the following investments at September 30, 2020: $\begin{array}{|l|r|r|r} 
\hline  & \text { Historical cost } & \begin{array}{r}
\text { Fair value } \
\text { Sept 30, 2019 }
\end{array} & \begin{array}{r}
\text { Fair value } \
\text { Sept 30, 2020 }
\end{array} \
\hline \text { Shares of ABC } & \$ 25,000 & \$ 15,000 & \$ 25,000 \
\hline \text { Bonds of Brooke } & 10,000 & 12,000 & 11,000 \
\hline \text { Shares of CooksTown } & 12,000 & 18,000 & 16,000 \
\hline \text { Shares of Davenport } & 18,000 & 20,000 & 19,000\
\hline 
\end{array}$
 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?

Accepted Answer

A) Amortized cost. 
B) Equity method. 
C) Fair value through other comprehensive income. 
D) Fair value through profit or loss. 
A) Amortized cost. 
B) Equity method. 
C) Fair value through other comprehensive income. 
D) Fair value through profit or loss.

Which statement is correct about non-strategic investments?

A bond has a maturity value of $300,000 payable in 4 years. These bonds have a 7% coupon rate payable semi-annually, and the market yield was 4% when the bonds were purchased. How much premium or discount will be recorded upon purchase (rounded)?

Other comprehensive income includes which of the following?

Fish Corp. purchases a $500,000 face value bond which matures in two years. The coupon rate is 6% and the market rate is 7%. What is the premium or discount?

What should an investment in a debt instrument be classified as when the business model does not include an intent to trade it?

Which statement is correct about derivative instruments?

Explain the characteristics of a financial asset. Discuss if cash has the characteristics of a financial asset. Why is (or is not)cash a financial asset?

Which statement is not correct about "control"?

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.

Which investment could be classified at amortized cost?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Cash and Receivables

Inventories

Property, Plant and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters

Exam 7: Financial Assets

Which statement is correct about non-strategic investments?

A bond has a maturity value of $300,000 payable in 4 years. These bonds have a 7% coupon rate payable semi-annually, and the market yield was 4% when the bonds were purchased. How much premium or discount will be recorded upon purchase (rounded)?

Other comprehensive income includes which of the following?

Fish Corp. purchases a $500,000 face value bond which matures in two years. The coupon rate is 6% and the market rate is 7%. What is the premium or discount?

What should an investment in a debt instrument be classified as when the business model does not include an intent to trade it?

Which statement is correct about derivative instruments?

Explain the characteristics of a financial asset. Discuss if cash has the characteristics of a financial asset. Why is (or is not)cash a financial asset?

Which statement is not correct about "control"?

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.

Which investment could be classified at amortized cost?

Fundamentals of Financial Accounting Theory

Conceptual Frameworks for Financial Reporting

Accrual Accounting

Revenue and Recognition

Cash and Receivables

Inventories

Property, Plant and Equipment

Intangible Assets, Goodwill, Mineral Resources, and Government Grants

Applications of Fair Value to Non-Current Assets

Filters