Question 1

During Consolidation, the net assets of the subsidiary are revalued to fair value at acquisition.

Accepted Answer

A) True 
 B)False

Question 2

ABC Inc. bought 1,000 shares of 678 Inc. at $10 per share on July 1st, 2012. On December 30th, 678 Inc. declared a dividend of $1.20 per share. The shares are designated as FVTPL by ABC's management. The share price was $9 on December 31st, 2012.
Required:
Prepare all required journal entries for 2012.
Suppose that early in 2013, a press release indicates that 678 Inc. will have going-concern issues. As a result of the news, the share price on January 2nd drops to $3 per share. ABC Inc has determined that the likelihood of the shares ever rising above the $3 mark were minimal. Would this impact your journal entries in requirement 1? Explain.

Accepted Answer

@#IMG-DLM&
 *Note that since a permanent impairmen

Question 3

(a) A company purchased a $20,000, 9 percent (payable annually on each June 30), bond on 10/31 2002. Give the entry to record this transaction, assuming purchase at par plus any accrued interest. The bond is accounted for using the cost method.
(b) Give the adjusting entry (if any) that should be made on December 31, 2012, end of the accounting period.

Accepted Answer

The answer of (a) A company purchased a $20,000, 9...

Question 4

SR Company acquired 40 percent of the voting common shares of DKM, Inc., on January 1, 2001, for $120,000 cash. Income reported and cash dividends declared and paid by DKM in 2001 and 2002 were as follows:$\begin{array} { | l | l | l | } 
\hline & \text { Income } & \text { Dividends } \
\hline 2001 & \$ 20,000 & \$ 12,000 \
\hline 2002 & ( 5,000 ) & - 0 \text { - } \
\hline
\end{array}$
Give all of the 2001 and 2002 entries other than the acquisition, as they would appear in the accounts of SR. Assume that significant influence exists.
2001 entries:
2002 entries:

Accepted Answer

The answer of SR Company acquired 40 percent of the...

Question 5

Impairment losses on all investments are reversible under ASPE.

Accepted Answer

A) True 
 B)False

Question 6

Impairment tests are required for all investments except those designated FVTPL.

Accepted Answer

A) True 
 B)False

Question 7

ABC Inc purchased shares of DEF Inc as follows:

June 30S1U1P1thS1S1P0, 2013 4,000 shares @ $3 per share $12,000
June 30S1U1P1thS1S1P0, 2014 3,000 shares @ $4 per share $12,000
June 30S1U1P1thS1S1P0, 2015 3,000 shares @ $6 per share $18,000

The shares are considered to be passive investments. ABC Inc. has a December 31S1U1P1stS1S1P0, year-end.
The market value of the DEF shares at each year-end was as follows:
December 31S1U1P1stS1S1P0, 2013 $3.50 per share
December 31S1U1P1stS1S1P0, 2014 $5.00 per share
December 31S1U1P1stS1S1P0, 2015 $5.50 per share
On July 1S1U1P1stS1S1P0, 2015, ABC sold half its shares in DEF Inc. for $6.50 per share.

-Assuming that the shares are designated an FVTPL investment, the effect on ABC's 2014 income as a result of owning the DEF shares would be:

Accepted Answer

A)  Nil 
B)  A $2,000 unrealized holding loss. 
C)  A $7,000 unrealized holding gain. 
D)  A $9,000 unrealized holding gain. 
A)  Nil 
B)  A $2,000 unrealized holding loss. 
C)  A $7,000 unrealized holding gain. 
D)  A $9,000 unrealized holding gain.

Question 8

On January 1S1U1P1stS1S1P0, 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:
$\begin{array}{|l|l|l|}
\hline & \text { Income } & \text { Dividends } \
\hline 2011 & \$ 120,000& \$ 20,000 \
\hline 2012 & \$ 180,000& \$ 30,000 \
\hline
\end{array}$

-Assuming that ABC adheres to IFRS, what would be the balance in the Investment in Associate - DEF Inc. account on December 31st, 2011?

Accepted Answer

A)  $600,000. 
B)  $700,000. 
C)  $720,000. 
D)  $630,000. 
A)  $600,000. 
B)  $700,000. 
C)  $720,000. 
D)  $630,000.

Question 9

Level 1 inputs should be used to determine fair value in the absence of level 2 inputs.

Accepted Answer

A) True 
 B)False

Question 10

ABC Inc purchased shares of DEF Inc as follows:

June 30S1U1P1thS1S1P0, 2013 4,000 shares @ $3 per share $12,000
June 30S1U1P1thS1S1P0, 2014 3,000 shares @ $4 per share $12,000
June 30S1U1P1thS1S1P0, 2015 3,000 shares @ $6 per share $18,000

The shares are considered to be passive investments. ABC Inc. has a December 31S1U1P1stS1S1P0, year-end.
The market value of the DEF shares at each year-end was as follows:
December 31S1U1P1stS1S1P0, 2013 $3.50 per share
December 31S1U1P1stS1S1P0, 2014 $5.00 per share
December 31S1U1P1stS1S1P0, 2015 $5.50 per share
On July 1S1U1P1stS1S1P0, 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 2013 financial statements as a result of owning the DEF shares would be:

Accepted Answer

A)  Nil 
B)  A $2,000 unrealized holding loss. 
C)  A $2,000 unrealized holding gain. 
D)  A $2,000 credit to OCI. 
A)  Nil 
B)  A $2,000 unrealized holding loss. 
C)  A $2,000 unrealized holding gain. 
D)  A $2,000 credit to OCI.

Question 11

The equity method causes the balance in the investment account to approximate:

Accepted Answer

A)  Original cost of the investment. 
B)  Market value of the investment. 
C)  Original cost of the investment minus any dividends declared and paid by the other company. 
D)  Original cost of the investment plus a proportionate share of subsequent undistributed earnings of the investee company. 
A)  Original cost of the investment. 
B)  Market value of the investment. 
C)  Original cost of the investment minus any dividends declared and paid by the other company. 
D)  Original cost of the investment plus a proportionate share of subsequent undistributed earnings of the investee company.

Question 12

On January 1st, 2011, ABC Inc. purchased a $2,000 bond which pays interest semi-annually on June 30th and December 31st each year at the stated rate of 8% per annum. The market rate was 6% on January 1st, 2011. The bond matures on December 31st, 2015. There is no active market for the bond, so ABC will account or it using the amortized cost method.
Required:
a) How much was the bond purchased for (ignore brokerage fees)?
b) Provide all required journal entries for 2011.

Accepted Answer

a) Present Value of

Question 13

ABC owned the following equity securities held as long-term investments on December 31, 2013. All are traded over the counter. $$\begin{array} { | l | l | } 
\hline \text { Security } & \text { Percent Owmed } \
\hline \text { M, Common Stock } &15 \text { percent } \
\hline \text { N, Com mon Stock } & 25 \text { percent with signitic ant intluence } \
\hline \text { O, Comm on Stock } & 5 \text { percent } \
\hline
\end{array}$$ ABC should account for these securities by applying the:

Accepted Answer

A)  Equity method for all of these securities. 
B)  Equity method for securities M and N, and the LCM value method for security O. 
C)  Cost method for the securities of M and O and the equity method for security N. 
D)  Fair value method for all of these securities. 
E)  Cost method for all these securities. 
A)  Equity method for all of these securities. 
B)  Equity method for securities M and N, and the LCM value method for security O. 
C)  Cost method for the securities of M and O and the equity method for security N. 
D)  Fair value method for all of these securities. 
E)  Cost method for all these securities.

Question 14

WXC incurred the following costs during 2015 to purchase LXT shares: (a) 1,000 shares of LXT at $6 per share: $$\begin{array} { | l | r | } 
\hline \text { January } 1 \text { payment } & \$ 2,000 \
\hline \text { March } 1 \text { payment } & 1,000 \
\hline \text { May } 1 \text { payment } & 1,000 \
\hline \text { July } 1 \text { payment } & 1,000 \
\hline \text { september } 1 \text { payment } & 1,000 \
\hline \text { (b) inerest paid } &400 \
\hline \text { (c) Brokerage fee paid } &800 \
\hline \text { (d) excise tax paid } &300 \
\hline
\end{array}$$ Assuming the cost method is used, WXC should record this 2015 investment at:

Accepted Answer

A)  $6,000 
B)  $6,600 
C)  $6,900 
D)  $7,300 
A)  $6,000 
B)  $6,600 
C)  $6,900 
D)  $7,300

Question 15

Investments designated as FVTPL may be debt or equity instruments, while FVTOCI may include only equity instruments.

Accepted Answer

A) True 
 B)False

Question 16

Gains and losses realized from the sale of FVTOCI investments are transferred from OCI to earning when the sale occurs.

Accepted Answer

A) True 
 B)False

Question 17

If an investor company does not have a controlling interest in another company, it must use either the cost method or the equity method to account for that investment in equity securities.

Accepted Answer

A) True 
 B)False

Question 18

On January 1st, 2011, ABC Inc. purchased a $1,000 bond which pays interest semi-annually on June 30th and December 31st each year at the stated rate of 8% per annum. The market rate was 6% on January 1st, 2011. The bond matures on December 31st, 2015. There is no active market for the bond, so ABC will account or it using the amortized cost method.
Required:
a) How much was the bond purchased for (ignore brokerage fees)?
b) Provide all required journal entries for 2011.

Accepted Answer

a) Present Value of

Question 19

The interest revenue recorded using FVTOCI and Amortized Cost would usually be the same.

Accepted Answer

A) True 
 B)False

Question 20

Under ASPE, all passive investments must be accounted for using only FVTPL, Cost or Amortized Cost methods.

Accepted Answer

A) True 
 B)False

During Consolidation, the net assets of the subsidiary are revalued to fair value at acquisition.

Impairment losses on all investments are reversible under ASPE.

Impairment tests are required for all investments except those designated FVTPL.

Level 1 inputs should be used to determine fair value in the absence of level 2 inputs.

The equity method causes the balance in the investment account to approximate:

Investments designated as FVTPL may be debt or equity instruments, while FVTOCI may include only equity instruments.

Gains and losses realized from the sale of FVTOCI investments are transferred from OCI to earning when the sale occurs.

If an investor company does not have a controlling interest in another company, it must use either the cost method or the equity method to account for that investment in equity securities.

The interest revenue recorded using FVTOCI and Amortized Cost would usually be the same.

Under ASPE, all passive investments must be accounted for using only FVTPL, Cost or Amortized Cost methods.

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Revenue Recognition

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Long-Lived Assets

Depreciation, Amortization, and Impairment

Filters

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

During Consolidation, the net assets of the subsidiary are revalued to fair value at acquisition.

Impairment losses on all investments are reversible under ASPE.

Impairment tests are required for all investments except those designated FVTPL.

Level 1 inputs should be used to determine fair value in the absence of level 2 inputs.

The equity method causes the balance in the investment account to approximate:

Investments designated as FVTPL may be debt or equity instruments, while FVTOCI may include only equity instruments.

Gains and losses realized from the sale of FVTOCI investments are transferred from OCI to earning when the sale occurs.

If an investor company does not have a controlling interest in another company, it must use either the cost method or the equity method to account for that investment in equity securities.

The interest revenue recorded using FVTOCI and Amortized Cost would usually be the same.

Under ASPE, all passive investments must be accounted for using only FVTPL, Cost or Amortized Cost methods.

The Framework for Financial Reporting

Accounting Judgements

Statements of Income and Comprehensive Income

Statements of Financial Position and Changes in Equity; Disclosure Notes

The Statement of Cash Flows

Revenue Recognition

Financial Assets: Cash and Receivables

Cost-Based Inventories and Cost of Sales

Long-Lived Assets

Depreciation, Amortization, and Impairment

Filters