Exam 11: Financial Instruments: Investments in Bonds and Equity Securities

A company purchased a $20,000, 8.4 percent bond (interest payable each October 1) on March 31, 2014, as a short-term investment. The total cash paid was $20,300. The investment is to be classified as a FVTPL investment. (a) Give the entry required by the company on March 31, 2014. (b) Give any adjusting entry the company required on December 31, 2014, end of reporting period. If none is required, so state.

On January 1^st, 2011, ABC Inc. purchased 30% of the outstanding voting shares of DEF Inc, a company whose operations rely heavily on ABC's managerial involvement, for $600,000. On that date, DEF's net assets had a fair value equivalent to their book values. During 2011 and 2012, DEF Inc. earned income and paid dividends as follows: Income Dividends 2011 \ 120,000 \ 20,000 2012 \ 180,000 \ 30,000 -Assuming that ABC adheres to IFRS, what effect (if any) would there be as on ABC's 2011 income as a result of this investment?

ABC Inc purchased shares of DEF Inc as follows: June 30^th, 2013 4,000 shares @ $3 per share $12,000 June 30^th, 2014 3,000 shares @ $4 per share $12,000 June 30^th, 2015 3,000 shares @ $6 per share $18,000 The shares are considered to be passive investments. ABC Inc. has a December 31^st, year-end. The market value of the DEF shares at each year-end was as follows: December 31^st, 2013 $3.50 per share December 31^st, 2014 $5.00 per share December 31^st, 2015 $5.50 per share On July 1^st, 2015, ABC sold half its shares in DEF Inc. for $6.50 per share. -The balance in the Investment in DEF account immediately prior to the sale of the shares was:

Under IFRS, equities with no directly quoted market value may usually be valued at cost.

The Mon Corporation acquired a 30% interest in the Soon Company on 1/1/2014 for $600,000. At that time, Soon had 2,000,000 shares of its common stock issued and outstanding. During 2014, Soon paid cash dividends of $20,000 and thereafter declared and issued a 5% common stock dividend when the market value was $2 per share. Soon's net income for 2014 was $120,000. What should be the balance in Mon's investment in Soon Co. account at the end of 2014? ( Assume the company uses the equity method to record the investments)

ZTC purchased shares of W common on the following dates: Purchases Cash January 1,500 shares at \ 3 1,500 March 30,200 shares at \ 2 400 June 20,100 shares at \ 5 500 August 30,50 shares at \ 7 350 The shares were designated FVTPL securities. ZTC then sold 150 of the March 30 shares that were purchased on September 9. The sale price was $7.00 per share. This sale should be recorded as follows (Round your intermediate calculations to two decimal places): (1) Cash 1,050 Investment in W stock 1,000 Gain on sale of investment 50 (2) Cash 1,050 Inestment in w stock 486 Gain on sale of investment 564 (3) Cash 1,050 Investment in W stock 1,050 (4) Cash 1,050 Investment in w stock 400 Gain on sale of investment 650

On January 1, 2015, HJ paid $600,000 for 20,000 shares of MN's common shares, which represents a 15 percent investment in MN. HJ does not have the ability to exercise significant influence over MN. MN declared and paid a dividend of $1 a share to its stockholders during 2015. MN reported net income of $520,000 for the year ended December 31, 2015. The balance in HJ's balance sheet account "Investment in MN" at December 31, 2001 under the cost method, should be:

ABC Inc purchased shares of DEF Inc as follows: June 30^th, 2013 4,000 shares @ $3 per share $12,000 June 30^th, 2014 3,000 shares @ $4 per share $12,000 June 30^th, 2015 3,000 shares @ $6 per share $18,000 The shares are considered to be passive investments. ABC Inc. has a December 31^st, year-end. The market value of the DEF shares at each year-end was as follows: December 31^st, 2013 $3.50 per share December 31^st, 2014 $5.00 per share December 31^st, 2015 $5.50 per share On July 1^st, 2015, ABC sold half its shares in DEF Inc. for $6.50 per share. -Assuming that the shares are designated an FVTOCI investment, the effect on ABC's 2014 financial statements as a result of owning the DEF shares would be:

On January 1^st, 2011, ABC Inc. purchased 30% of the outstanding voting shares of DEF Inc, a company whose operations rely heavily on ABC's managerial involvement, for $600,000. On that date, DEF's net assets had a fair value equivalent to their book values. During 2011 and 2012, DEF Inc. earned income and paid dividends as follows: Income Dividends 2011 \ 120,000 \ 20,000 2012 \ 180,000 \ 30,000 -Assuming that ABC adheres to ASPE and opts to use the cost method, what effect (if any) would there be as on ABC's 2011 income as a result of this investment?

On January 1, Year 1, ABC purchased $1,200,000 USD worth of bonds for $1,150,000, which are accounted as FVTPL investments. On that date, $1 US was worth $1.20 CDN. ABC Inc. reports its results in Canadian dollars. On December 31^st, Year 1, the bonds were trading for $1,120,000 USD and $1 US was worth $1.25 CDN. Based on the information provided, which of the following choices best describes the entry(ies) required by ABC Inc. on December 31^st, Year 1, the company's year-end? Choice 1: Investment in DEF Bonds 20,000 Foreign Exchange Gain 20,000 Choice 2: Foreign Exchange Loss 20,000 Investment in DEF Bonds 20,000 Choice 3: Investment in DEF Bonds 20,000 Investment Revenue - Unrealized Holding Gain 17,000 Foreign Exchange Gain 3,000 Choice 4: Investment in DEF Bonds 20,000 Foreign Exchange Loss 3,000 Investment Revenue - Unrealized Holding Gain 23,000

The data below pertains to the values of various FVTOCI investments held by a client company: Stock Shares Cost Market Value (1281/2011) X 500 \ 30=\ 15,000 \ 24=\ 12,000 Y 1,000 20=20,000 30=30,000 Z 750 24=18,000 30=22,500 The company's entire FVTOCI portfolio should be valued at which amount on December 31^st, 2011?

When fair-value is not determinable, investments may be carried at cost.

ABC Inc purchased shares of DEF Inc as follows: June 30^th, 2013 4,000 shares @ $3 per share $12,000 June 30^th, 2014 3,000 shares @ $4 per share $12,000 June 30^th, 2015 3,000 shares @ $6 per share $18,000 The shares are considered to be passive investments. ABC Inc. has a December 31^st, year-end. The market value of the DEF shares at each year-end was as follows: December 31^st, 2013 $3.50 per share December 31^st, 2014 $5.00 per share December 31^st, 2015 $5.50 per share On July 1^st, 2015, ABC sold half its shares in DEF Inc. for $6.50 per share. -The balance in Investment in DEF account on December 31^st, 2015 was:

Only FVTPL and amortized cost investments are considered passive investments.

The equity method of accounting for a consolidated company probably will be used when the proportion of its voting shares held is as low as:

Fair-value-through-profit-and-loss (FVTPL) investments are usually held for the purpose of resale in the near-term.

Once an investor has power over an investee, consolidation is automatically required.

A change from the equity method to the cost method is a prospective accounting change.

When the equity method is used by an investor to account for investments in common stock, the investment account will be increased when the investor recognizes cash dividend received from investee.

Cash dividends declared out of current earnings are distributed to an investor. How will the investor's investment account be affected by those dividends under each of the following accounting methods? Cost Method Equity method 1 No effect No effect 2 No effect Decrease 3 Decrease No effect 4 Decrease Decrease