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

On January 1^st, 2011, ABC Inc. purchased a $2,000 bond which pays interest semi-annually on June 30^th and December 31^st each year at the stated rate of 6% per annum. The market rate was 8% on January 1^st, 2011. The bond matures on December 31^st, 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.

It is not possible to have control over another company without owning at least half of the outstanding voting shares.

A publicly quoted share price would be an example of a Level 2 input in determining fair value.

Dividends received on an investment in equity shares held as an Investment in Associate causes which of the following effects?

ABC Inc. made the following share purchases during 2012: 123 Inc: 400 shares @ $50 per share $20,000 456 Inc: 200 shares @ $60 per share $12,000 The 123 Inc shares were designated as FVTOCI while the 456 Inc shares were designated as FVTPL. On December 31^st, 2012, the market values of the 123 Inc. and 456 Inc. shares were $52 and $66 per share respectively. Required: Prepare the required adjusting journal entries at December 31^st, 2012.

On February 1, 2014, ABC purchased 10 $1,000, 12 percent bonds at 96 as a short-term investment. Interest is payable semi-annually on July 1 and January 1 of each year. How much cash did ABC spend on February 1, 2014? What amount should be debited to the investment account? Total Cash Spent Debit to Investment Account 1 \ 10,100 \ 10,000 2 \ 9,600 \ 9,700 3 \ 9,700 \ 9,600 4 \ 10,000 \ 10,100

Using the cost method, an investment in a subsidiary is shown as an asset, while using the equity method, it is shown as part of shareholders' equity.

The equity method has all the following characteristics except:

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 OCI account related to the Investment in DEF account on December 31^st, 2015 was:

Under ASPE, management may choose to account for any strategic investments using either the cost or equity methods.

In a lump-sum purchase of the shares of two or more companies, their relative par values are used as the basis of the allocation of cost to each.

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 carrying amount of this investment in Mater's December 31, 2002 balance sheet.

ABC Inc. is a Canadian public company that reports its results in Canadian dollars. The company purchased an investment in a U.S firm for $1 million U.S. during Year 1 when the Canadian dollar was trading at par. The investment pays no dividends. At the end of Year 1, $1CDN=$1.02 US. This will result in

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 FVTPL investment, the effect on ABC's 2013 income as a result of owning the DEF shares would be:

The intent to control overrides the ability to do so when determining whether control exists (and henceforth consolidation is required).

A triggering event must occur in order for an impairment loss to be recognized on bonds that have been designated as FVTOCI or Amortized Cost.

On January 1, 2014, BCD paid $600,000 for 60,000 shares of MNO's common which represents a 25 percent investment in MNO. BCD has the ability to exercise significant influence over MNO. BCD received a cash dividend of $1 per share from MNO at the end of 2014. MNO reported net income of $320,000 for the year ended December 31, 2014. The balance in BCD's investment account, at December 31, 2001, should be:

The accounting approach for recording a stock dividend received on a long-term equity investment is the same whether the cost or the equity method is used by the investor.

Non-controlling interest (NCI) is a separate equity account which appears on the consolidated financial statements which is used to account for any portion of the subsidiary that is not owned by the parent.

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