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

All investments are recorded at fair value upon acquisition.

MNO Company purchased 10 $1,000, 9 percent bonds on February 28, 2014, at 105 plus $300 total accrued interest. MNO intends to sell the bonds to finance office remodelling in 2015. Interest is paid each April 30 and October 31. MNO paid $120 in broker's fees at the date of purchase. MNO's reporting year ends December 31. MNO should report this FVTPL investment on its 2014 balance sheet at:

Realized gains and losses on the sale of equity instruments that are designated FVTOCI must be reclassified from AOCI to earnings.

ABC Inc. owns equity investments that are held in a foreign currency. These are designated as FVTPL investments. As a result, changes in the value of these investments arising from foreign currency fluctuations must be reported separately from changes in the value of the equity instruments in the foreign currency.

ABC Inc. is a publicly traded enterprise which holds bonds in DEF Inc. The unadjusted carrying value of the bonds as at the most recent reporting date was $682,000. There was a credit balance of $5,000 in the company's Loss Allowance account with respect to these bonds at that date. ABC Inc. is doubtful about DEF's future viability, as the company has been experiencing problems as of late. ABC expects additional credit losses of $4,000 and a lifetime of credit losses totaling $500,000. The preceding amounts have already been discounted. However, DEF Inc. has not yet defaulted on any interest payments. Based on the above information, ABC Inc. should record a loss of:

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 would be the balance in the Investment in Associate - DEF Inc. account on December 31^st, 2012?

ABC paid $10,500 for 500 shares of ZTC common and 800 shares of WTC common. The ZTC shares were currently selling for $8 per share, and the WTC shares were selling for $10 per share. Calculate the debits to the investment accounts for each share.

On January 1, 2014, XYC purchased 100 shares (1 percent) of AB common shares at $120 per share. XYC uses the cost method to account for the AB shares. Subsequent to purchase, the following transactions and events happened: June 1, 2014, received a 20 percent stock dividend on the AB shares; March 31, 2015, XYC sold half of the AB shares at $108 per share. At the date of the sale, XYC should recognize a gain (loss) on the sale of the AB shares of:

On 1-1-0-2007 Gall purchased 40% of Gull Corporation for $30,000. At that time, Gull's owners' equity was $4,000, and Gull had the following assets with market values exceeding book value by the following amounts: Land $20,000 Buildings $30,000 (10 years life remaining) Patent 10,000 (5 years life remaining) Gull earned $10,000 in 2007 and paid $20,000 dividends. We amortize all intangibles over 5 years. Calculate the 2007 ending balance in the Investment in Gull account.

When 30% of another company's common shares are purchased for a price in excess of 30% of the market value of its net assets, why is the excess of market value of assets over its book value amortized by the investor over its remaining useful life?

Under IFRS, discounts or premiums on amortized cost investments may be amortized using either the straight line or effective interest methods.

When shares are not actively traded on open markets, it is impossible to estimate their fair value.

ABC owns a 35 percent interest in the voting common of XYZ and uses the equity method. For 2013, XYZ reported income of $120,000 and declared cash dividends of $40,000. If the carrying value of XYZ investment was $290,000 on January 1, 2013, ABC should (a) recognize investment revenue for 2013, and (b) report the carrying value of the investment, as follows: (a) Imrestment Resenue (b) Camying Value 1) \ 14,000 \ 276,000 2) \ 28,000 \ 290,000 3) \ 42,000 \ 318,000 4) \ 42,000 \ 332,000

Investor Inc. owns 40 percent of Ailmand Corporation. During the calendar year, Ailmand had net earnings of $100,000 and paid cash dividends of $10,000. Investor mistakenly recorded these transactions using the cost method rather than the equity method of accounting. What effect would this have on the investment account, net earnings, and retained earnings, respectively?

Masters Inc. acquired 30% of Continental Corp.'s voting shares on January 1, 2001 for $100,000. During 2001, Continental earned $40,000 and paid dividends of $25,000. Master's 30% interest in Continental gives Masters the ability to exercise significant influence over Continental's operating and financial policies. During 2002, Continental earned $50,000 and paid dividends of $15,000 on April 1 and $15,000 on October 1. On July 1, 2002, Masters sold half of its shares in Continental for $66,000 cash. Calculate the gain on sale of this investment in Master's 2002 income statement?

On September 1, 2013, WXY bought 20 $1,000, 9 percent bonds at 94 plus $300 total accrued interest. The bonds were to be sold to finance a new machine to be purchased in the following year. Therefore, the bonds will be sold during 2014. Interest is paid each June 30 and December 31. The bonds were designated as FVTPL investments. On the purchase date, WXY paid a brokerage fee of $340. WXY should record the cost of this investment at:

Amortized cost investments must have contractual terms that give rise to cash flows on specific dates.

List 3 factors that exhibit evidence of the existence of significant influence.

If an investment is accounted for by using the equity method, a stock dividend received on the investment will:

At December 31, 2001, end of the reporting period, AB owned the following FVTPL investments: AB should report 2001 dividend and interest revenue of: $__________.