Question 1

Strategic investments are classified into three different categories: investments in associates,business combinations,or joint ventures.

Accepted Answer

A) True 
 B)False

Question 2

When using the equity method,the receipt of cash dividends is recorded as revenue because the investor has earned a distribution of earnings by the investee.

Accepted Answer

A) True 
 B)False

Question 3

Investments in associates

Accepted Answer

A) Can be either debt or equity securities 
B) Are not actively managed 
C) Are purchased to earn interest,dividends,or for appreciation in value 
D) Are accounted for using the equity method 
E) All of these

Question 4

Classical City holds $40,000 worth of 7% bonds (par value)as debt investments.The journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Income for $2,800.

Accepted Answer

A) True 
 B)False

Question 5

Bleth owns 40% of the outstanding Aurora Corp common shares.Aurora paid $127,000 in total cash dividends to its shareholders.Bleth's entry to record the transaction should include a

Accepted Answer

A) Debit to Dividends for $127,000 
B) Debit to Dividends for $50,800 
C) Debit to investment in Martok Common Shares for $127,000 
D) Credit to Investment in Martok Common Shares for $50,800 
E) Debit to Cash for $127,000

Question 6

Capilano Corporation has just decided to purchase 30% of the outstanding common shares of its major supplier Langkwat Corporation.Give two reasons why Capilano Corporation may have made this investment.The reasons given cannot include: ? To earn greater dividend income on available excess cash than can be earned by leaving the cash in a typical bank account.? To earn a gain over the original purchase price on the eventual sale of the purchased shares.

Accepted Answer

The answer of Capilano Corporation has just decided to purchase...

Question 7

The equity method is used in accounting for significant influence investments in associates.

Accepted Answer

A) True 
 B)False

Question 8

Strategic investments include investments in associates,business combinations and joint arrangements.

Accepted Answer

A) True 
 B)False

Question 9

Explain how investments in associates are accounted for.

Accepted Answer

The answer of Explain how investments in associates are accounted...

Question 10

A joint arrangement requires the use of consolidation to account for the investment in the joint operation.

Accepted Answer

A) True 
 B)False

Question 11

Receipt of dividends increases the value of a significant influence investment.

Accepted Answer

A) True 
 B)False

Question 12

Under both IFRS and ASPE,fair value through profit or loss can be used as the initial measurement of non-strategic investments.

Accepted Answer

A) True 
 B)False

Question 13

Explain the difference between investments in debt securities and investments in equity securities.

Accepted Answer

The answer of Explain the difference between investments in debt...

Question 14

Halifax Company purchased $50,000 worth of bonds (par value)and held them to maturity.The journal entry at maturity should include a debit to Cash for $50,000 and a credit to Long-term Investment in Bonds for $50,000.

Accepted Answer

A) True 
 B)False

Question 15

When a company purchases the shares of another company with the goal of participating in new markets or technologies,they are considered non-strategic investors.

Accepted Answer

A) True 
 B)False

Question 16

Non-strategic investments that are intended to be held longer than one year are reported on the balance sheet in the

Accepted Answer

A) Current asset section 
B) Intangible asset section 
C) Non-current section called long-term investments 
D) Plant and equipment section 
E) Same section as held-for-trading investments

Question 17

On January 1, 2020, Ildiko Corporation purchased a 35% interest in the common shares of Rance Ltd. for $60,000. Rance Ltd. reported profit and paid dividends as follows: 2020 - profit $40,000; dividends paid $50,000

2021 - profit $85,000; dividends paid $70,000. Assume that Ildiko Corporation uses the equity method to account for its investment in Rance Ltd.

-A controlling influence over the investee is based on the investor owning voting shares exceeding

Accepted Answer

A) 10% 
B) 20% 
C) 30% 
D) 40% 
E) 50%

Question 18

Consolidated statements are prepared as if a company is organized as one entity,with the amounts allocated for subsidiaries reported in the investment accounts.

Accepted Answer

A) True 
 B)False

Question 19

Proportionate consolidation combines the financial statement of an investor and a joint operation enterprise based on the investors proportionate share of the joint operations.

Accepted Answer

A) True 
 B)False

Question 20

Investments non-strategic debt investments require the investor to record interest income as it accrues.

Accepted Answer

A) True 
 B)False

Exam 7: Accounting for Debt and Share Investments

Strategic investments are classified into three different categories: investments in associates,business combinations,or joint ventures.

When using the equity method,the receipt of cash dividends is recorded as revenue because the investor has earned a distribution of earnings by the investee.

Investments in associates

Classical City holds $40,000 worth of 7% bonds (par value)as debt investments.The journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Income for $2,800.

Bleth owns 40% of the outstanding Aurora Corp common shares.Aurora paid $127,000 in total cash dividends to its shareholders.Bleth's entry to record the transaction should include a

The equity method is used in accounting for significant influence investments in associates.

Strategic investments include investments in associates,business combinations and joint arrangements.

Explain how investments in associates are accounted for.

A joint arrangement requires the use of consolidation to account for the investment in the joint operation.

Receipt of dividends increases the value of a significant influence investment.

Under both IFRS and ASPE,fair value through profit or loss can be used as the initial measurement of non-strategic investments.

Explain the difference between investments in debt securities and investments in equity securities.

Halifax Company purchased $50,000 worth of bonds (par value)and held them to maturity.The journal entry at maturity should include a debit to Cash for $50,000 and a credit to Long-term Investment in Bonds for $50,000.

When a company purchases the shares of another company with the goal of participating in new markets or technologies,they are considered non-strategic investors.

Non-strategic investments that are intended to be held longer than one year are reported on the balance sheet in the

Consolidated statements are prepared as if a company is organized as one entity,with the amounts allocated for subsidiaries reported in the investment accounts.

Proportionate consolidation combines the financial statement of an investor and a joint operation enterprise based on the investors proportionate share of the joint operations.

Investments non-strategic debt investments require the investor to record interest income as it accrues.