Question 1

If Dinsburry Company concluded that an investment originally classified as a trading security would now more appropriately be classified as held to maturity,Dinsburry would:

Accepted Answer

A) Not reclassify the investment,as original classifications are irrevocable. 
B) Reclassify the investment as held to maturity and immediately recognize in net income all unrealized gains and losses that have not already been recognized as of the reclassification date. 
C) Reclassify the investment as held to maturity and treat the fair value as of the date of reclassification as the investment's amortized cost basis for future amortization. . 
D) Reclassify the investment as held to maturity,but there would be no income effect. 
A) Not reclassify the investment,as original classifications are irrevocable. 
B) Reclassify the investment as held to maturity and immediately recognize in net income all unrealized gains and losses that have not already been recognized as of the reclassification date. 
C) Reclassify the investment as held to maturity and treat the fair value as of the date of reclassification as the investment's amortized cost basis for future amortization. . 
D) Reclassify the investment as held to maturity,but there would be no income effect.

Question 2

From time to time,debt and equity securities must be reclassified when conditions and circumstances surrounding the investment change.
Required:
Describe the general accounting procedures for reclassifying securities from one category to another-held to maturity,available for sale,or trading.

Accepted Answer

When a security is reclassified between

Question 3

On July 1,2016,Silverwood Company purchased for cash 35% of the voting common stock of Yellowstone Corporation.Both companies have a December 31 fiscal year-end.Yellowstone Corporation,which is publicly traded on an organized stock exchange,reported its net income for the year to Silverwood and paid a dividend to Silverwood during the year.
Required:
How should Silverwood report the above information in its year-end income statement and balance sheet? Discuss the rationale for your answer.

Accepted Answer

The Silverwood Company should follow the

Question 4

Holding gains and losses on trading securities are included in earnings because:

Accepted Answer

A) They measure the success or failure of taking advantage of short-term price changes. 
B) The IRS mandates the inclusion. 
C) The SEC mandates the inclusion. 
D) They measure the book value of the securities in the balance sheet date. 
A) They measure the success or failure of taking advantage of short-term price changes. 
B) The IRS mandates the inclusion. 
C) The SEC mandates the inclusion. 
D) They measure the book value of the securities in the balance sheet date.

Question 5

Indicate (by number)the level of stock ownership that most frequently relates to each concept listed below.

Accepted Answer

The answer of Indicate (by number)the level of stock ownership...

Question 6

Which of the following is not true about accounting for investments using the equity method under IFRS?

Accepted Answer

A) IFRS requires the equity method when the investor exercises significant influence over the investee. 
B) IFRS is more restrictive than U.S.GAAP concerning when an investor can elect the fair value option. 
C) IFRS requires that the accounting policies of an investee be adjusted to correspond to those of the investor when applying the equity method. 
D) IFRS does not allow use of the equity method where two or more investors have joint control. 
A) IFRS requires the equity method when the investor exercises significant influence over the investee. 
B) IFRS is more restrictive than U.S.GAAP concerning when an investor can elect the fair value option. 
C) IFRS requires that the accounting policies of an investee be adjusted to correspond to those of the investor when applying the equity method. 
D) IFRS does not allow use of the equity method where two or more investors have joint control.

Question 7

On January 1,2016,American Corporation purchased 25% of the outstanding voting shares of Short Supplies common stock for $210,000 cash.On that date,Short's book value and fair value were both $840,000.The equity method is deemed appropriate for this investment.Short's net income reported on December 31,2016,was $80,000.During 2016,Short also paid cash dividends in the amount of $24,000.
Required:
Prepare the journal entries necessary to record the above information on American Corporation's books during 2016.

Accepted Answer

The answer of On January 1,2016,American Corporation purchased 25% of...

Question 8

Securities classified as held to maturity could be reported as either current or long-term in a classified balance sheet,depending upon their maturity dates.

Accepted Answer

A) True 
 B)False

Question 9

If the fair value of a debt investment that is classified as an available-for-sale investment declines for a reason that is viewed as "other than temporary" because it is viewed as "more likely than not" that the investor will be required to sell the investment prior to recovering the amortized cost of the investment less any credit losses arising in the current year:

Accepted Answer

A) The investment is not written down to fair value. 
B) The investment is written down to fair value,and the impairment loss is recognized in net income. 
C) The investment is written down to fair value,and the impairment loss is recognized in accumulated other comprehensive income. . 
D) The investment is written down to fair value,and only the noncredit loss is included in net income. 
A) The investment is not written down to fair value. 
B) The investment is written down to fair value,and the impairment loss is recognized in net income. 
C) The investment is written down to fair value,and the impairment loss is recognized in accumulated other comprehensive income. . 
D) The investment is written down to fair value,and only the noncredit loss is included in net income.

Question 10

Dim Corporation purchased 1,000 shares of Witt Corporation stock in 2013 for $800 per share and classified the investment as securities available for sale.Witt's market value was $400 per share on December 31,2014,and $300 on December 31,2015.During 2016,Dim sold all of its Witt stock at $350 per share.In its 2016 income statement,Dim would report:

Accepted Answer

A) A realized gain of $50,000. 
B) A recognition of unrealized losses of $400,000. 
C) A loss on the sale of investments of $450,000. 
D) A trading gain of $50,000 and an unrealized loss of $500,000. 
A) A realized gain of $50,000. 
B) A recognition of unrealized losses of $400,000. 
C) A loss on the sale of investments of $450,000. 
D) A trading gain of $50,000 and an unrealized loss of $500,000.

Question 11

Stanhope Associates accounts for the following investments under IFRS No.9:
1.10 shares of Blackstone equity,held for long-term investment,no election of FVOCI.
2.10 shares of Erickson equity,held for risk management,election to classify as FVOCI.
3.10 shares of AT&E equity,held for immediate resale.
4.10 bonds (consisting of only interest and principal)issued by Filo Inc. ,held for long-term collection of cash flows.
5.10 bonds (consisting of only interest and principal)of SimSung,held for risk management but also might be sold
6.10 bonds (consisting of only interest and principal)issued by Attachi,held for immediate resale.
Required:
For each investment,indicate: (a)the accounting approach that will be used to account for the investment,and briefly explain why that approach is appropriate,and (b)the effect on earnings of an increase in the fair value of the investment in the period following acquisition of the investment,assuming that Stanhope does not sell the investment.You may group the specific investments if they have the same answers.Identify the investments you are including in the group.

Accepted Answer

1,3 and 6:(a)The accounting approach is

Question 12

Trading securities are most commonly found on the books of:

Accepted Answer

A) Oil companies. 
B) Manufacturing companies. 
C) Banks. 
D) Foreign subsidiaries. 
A) Oil companies. 
B) Manufacturing companies. 
C) Banks. 
D) Foreign subsidiaries.

Question 13

Under the equity method of accounting for a stock investment,cash dividends received are considered a reduction of the investee's net assets.

Accepted Answer

A) True 
 B)False

Question 14

Wang Corporation purchased $100,000 of Hales Inc.6% bonds at par with the intent and ability to hold the bonds until they matured in 2020,so Wang classifies its investment as held to maturity.Unfortunately,a combination of problems at Hales and in the debt market caused the fair value of the Hales investment to decline to $70,000 during 2016.Wang views this decline as an other-than-temporary (OTT)impairment.Wang calculates that,of the $30,000 drop in fair value,$10,000 of it relates to credit losses and $20,000 relates to non-credit losses.If Wang accounts for the Hales bonds under IAS No.39,before-tax net income for 2016 will be reduced by:

Accepted Answer

A) $0. 
B) $10,000. 
C) $20,000. 
D) $30,000. 
A) $0. 
B) $10,000. 
C) $20,000. 
D) $30,000.

Question 15

Sox Corporation purchased a 40% interest in Hack Corporation for $1,500,000 on January 1,2016.On November 1,2016,Hack declared and paid $1 million in dividends.On December 31,Hack reported a net loss of $6 million for the year.What amount of loss should Sox report on its income statement for 2016 relative to its investment in Hack?

Accepted Answer

A) $1,100,000. 
B) $2,400,000. 
C) $1,500,000. 
D) $1,600,000. 
A) $1,100,000. 
B) $2,400,000. 
C) $1,500,000. 
D) $1,600,000.

Question 16

When the equity method of accounting for investments is used by the investor,the investment account is increased when:

Accepted Answer

A) A cash dividend is received from the investee. 
B) The investee reports net income for the year. 
C) The investor records additional depreciation related to the investment. 
D) The investee reports a net loss for the year. 
A) A cash dividend is received from the investee. 
B) The investee reports net income for the year. 
C) The investor records additional depreciation related to the investment. 
D) The investee reports a net loss for the year.

Question 17

The Guitar World (TGW)holds an investment that increased in fair value over 2016,and accounts for that investment as available for sale.When considering taxes,TGW would:

Accepted Answer

A) Recognize tax expense on the income statement,and probably increase taxes payable. 
B) Recognize tax expense on the income statement,and probably increase its deferred tax liability. 
C) Reduce accumulated other comprehensive income (AOCI)for tax expense,and probably increase taxes payable. 
D) Reduce accumulated other comprehensive income (AOCI)for tax expense,and probably increase its deferred tax liability. 
A) Recognize tax expense on the income statement,and probably increase taxes payable. 
B) Recognize tax expense on the income statement,and probably increase its deferred tax liability. 
C) Reduce accumulated other comprehensive income (AOCI)for tax expense,and probably increase taxes payable. 
D) Reduce accumulated other comprehensive income (AOCI)for tax expense,and probably increase its deferred tax liability.

Question 18

What would be the balance in Beresford's accumulated other comprehensive income with respect to these investments in its 12/31/2016 balance sheet (ignore taxes)?

Accepted Answer

A) $55,100. 
B) $26,500. 
C) $10,400. 
D) None of these answer choices is correct. 
A) $55,100. 
B) $26,500. 
C) $10,400. 
D) None of these answer choices is correct.

Question 19

When an impairment of an equity investment that is classified as available for sale occurs for a reason that is judged to be "other than temporary," the investment is written down to its fair value and the amount of the write-down is:

Accepted Answer

A) Recorded as a deferred credit. 
B) Included in net income. 
C) Recorded as deferred asset. 
D) Treated as unrealized. 
A) Recorded as a deferred credit. 
B) Included in net income. 
C) Recorded as deferred asset. 
D) Treated as unrealized.

Question 20

All investment securities are initially recorded at:

Accepted Answer

A) Cost. 
B) Present value. 
C) Equity value. 
D) None of these answer choices is correct. 
A) Cost. 
B) Present value. 
C) Equity value. 
D) None of these answer choices is correct.

If Dinsburry Company concluded that an investment originally classified as a trading security would now more appropriately be classified as held to maturity,Dinsburry would:

From time to time,debt and equity securities must be reclassified when conditions and circumstances surrounding the investment change. Required: Describe the general accounting procedures for reclassifying securities from one category to another-held to maturity,available for sale,or trading.

Holding gains and losses on trading securities are included in earnings because:

Indicate (by number)the level of stock ownership that most frequently relates to each concept listed below.

Which of the following is not true about accounting for investments using the equity method under IFRS?

Securities classified as held to maturity could be reported as either current or long-term in a classified balance sheet,depending upon their maturity dates.

Trading securities are most commonly found on the books of:

Under the equity method of accounting for a stock investment,cash dividends received are considered a reduction of the investee's net assets.

When the equity method of accounting for investments is used by the investor,the investment account is increased when:

The Guitar World (TGW)holds an investment that increased in fair value over 2016,and accounts for that investment as available for sale.When considering taxes,TGW would:

What would be the balance in Beresford's accumulated other comprehensive income with respect to these investments in its 12/31/2016 balance sheet (ignore taxes)?

When an impairment of an equity investment that is classified as available for sale occurs for a reason that is judged to be "other than temporary," the investment is written down to its fair value and the amount of the write-down is:

All investment securities are initially recorded at:

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, comprehensive Income, and the Statement of Cash Flows

Income Measurement

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, plant, and Equipment and Intangible Assets: Acquisition and Disposition

Property, plant, and Equipment and Intangible Assets: Utilization and Impairment

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes

The Statement of Cash Flows

Filters

Exam 12: Investments

If Dinsburry Company concluded that an investment originally classified as a trading security would now more appropriately be classified as held to maturity,Dinsburry would:

From time to time,debt and equity securities must be reclassified when conditions and circumstances surrounding the investment change. Required: Describe the general accounting procedures for reclassifying securities from one category to another-held to maturity,available for sale,or trading.

Holding gains and losses on trading securities are included in earnings because:

Indicate (by number)the level of stock ownership that most frequently relates to each concept listed below.

Which of the following is not true about accounting for investments using the equity method under IFRS?

Securities classified as held to maturity could be reported as either current or long-term in a classified balance sheet,depending upon their maturity dates.

Trading securities are most commonly found on the books of:

Under the equity method of accounting for a stock investment,cash dividends received are considered a reduction of the investee's net assets.

When the equity method of accounting for investments is used by the investor,the investment account is increased when:

The Guitar World (TGW)holds an investment that increased in fair value over 2016,and accounts for that investment as available for sale.When considering taxes,TGW would:

What would be the balance in Beresford's accumulated other comprehensive income with respect to these investments in its 12/31/2016 balance sheet (ignore taxes)?

When an impairment of an equity investment that is classified as available for sale occurs for a reason that is judged to be "other than temporary," the investment is written down to its fair value and the amount of the write-down is:

All investment securities are initially recorded at:

Environment and Theoretical Structure of Financial Accounting

Review of the Accounting Process

The Balance Sheet and Financial Disclosures

The Income Statement, comprehensive Income, and the Statement of Cash Flows

Income Measurement

Time Value of Money Concepts

Cash and Receivables

Inventories: Measurement

Inventories: Additional Issues

Property, plant, and Equipment and Intangible Assets: Acquisition and Disposition

Property, plant, and Equipment and Intangible Assets: Utilization and Impairment

Current Liabilities and Contingencies

Bonds and Long-Term Notes

Leases

Accounting for Income Taxes

Pensions and Other Postretirement Benefits

Shareholders Equity

Share-Based Compensation and Earnings Per Share

Accounting Changes

The Statement of Cash Flows

Filters