Question 1

Jamison Co. owned 60% of Tyler Co.'s voting shares and 25% of Simon Ltd.'s voting shares. Tyler owns 30% of Simon's voting shares. Which of the following statements is TRUE?

Accepted Answer

A) Tyler is the only subsidiary of Jamison. 
B) Simon is a subsidiary of both Tyler and Jamison. 
C) Simon is the only subsidiary of Tyler. 
D) Both Tyler and Simon are subsidiaries of Jamison.

Question 2

At the beginning of 2013, Zylon Ltd. acquired 15% of the voting shares of Hendrick Co. a public company for $150,000. Zylon does not have any significant influence over Hendrick.. In 2013, Hendrick earned net income of $70,000 and paid dividends of $40,000. The fair value of the 15% at the end of 2013 was $160,000. In 2014, Hendrick earned net income of $80,000 and paid dividends of $100,000. The fair value of the 15% at the end of 2014 was $157,000. At the end of 2014, what journal entry should Zylon make regarding its investment in Hendrick Co. in net income?

Accepted Answer

A) 
$\begin{array}{|c|c|}
\hline \text { DR Investment in Hendrick } & 12,000 \
\hline \text { CR Investment income } & 12,000\\hline 
\end{array}$ 
B) 
$\begin{array} { | c | c |c| } 
\hline \text { DR Investment in Hendrick } & 80,000 \
\hline \text { CR Investment income } && 80,000  \
\hline
\end{array}$ 
C) No entry is required 
D) 
$\begin{array} { | c | c | } 
\hline \text { DR Investment in Hendrick } & 15,000 \
\hline \text { CR Investment income } &15,000 \
\hline
\end{array}$

Question 3

If a company makes a non-strategic investment, it is considered a financial asset. What is a financial asset?

Accepted Answer

The answer of If a company makes a non-strategic investment,...

Question 4

Which of the following best illustrates a parent-subsidiary relationship?

Accepted Answer

A) Company A owns 55% of the outstanding voting shares of Company B. They have the right to appoint 8/10 members of the board of directors of Company B, however they choose not to get involved in the day-to-day operations of Company B. 
B) Company A owns 75% of the outstanding shares of Company B and they have the right to appoint 1/10 members of the board of directors of Company B. 
C) Company A and Company B have set up a separate entity that they each jointly control. 
D) Company A owns 45% of the outstanding shares of Company B and provides accounting function assistance as their controller quit during the year.

Question 5

Foster Corporation uses the equity method to account for its 25% investment in Vector Corporation and receives $25,000 in dividends. How should Foster account for these dividends?

Accepted Answer

A) An increase in assets. 
B) An increase in income. 
C) A decrease in the investment. 
D) A decrease in income.

Question 6

In Canada, which subsidiaries must be included in consolidated financial statements?

Accepted Answer

A) All subsidiaries, except for ones in unrelated industries. 
B) All domestic subsidiaries. 
C) All subsidiaries, except for ones where control is impaired. 
D) All subsidiaries.

Question 7

If an investment is owned 100%, which methods will result in the same income and shareholders' equity appearing on the financial statements?

Accepted Answer

A) Cost and consolidation. 
B) Equity and consolidation. 
C) Cost and equity. 
D) Each method results in different income and shareholder's equity amounts.

Question 8

If a company makes a non-strategic investment it is considered a financial asset.

Accepted Answer

A) True 
 B)False

Question 9

If Darlington Inc. owns 30% of a jointly controlled operation, it would reflect 100% of each asset, liability, income or expense that is part of the joint operation on its own financial statements.

Accepted Answer

A) True 
 B)False

Question 10

There is a presumption that control exists where the company owns more than 50% of the voting shares of the investee.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following is NOT an indicator of significant influence?

Accepted Answer

A) The investor and the investee share office space and use the same accounting firm. 
B) The investor has representation on the investee's board of directors. 
C) There are material transactions between the investor and the investee. 
D) The investor provides computing services to the investee.

Question 12

Clausen Ltd. has a passive investment in Kaitlin Ltd. Clausen has elected to treat Kaitlin as a fair value through other comprehensive income (OCI)investment under IFRS 9 Financial Instruments. Which of the following statements is TRUE?

Accepted Answer

A) Dividends that are a return of capital from Kaitlin are reported as a separate component of Clausen's shareholders' equity. 
B) Year to year changes in the fair value of the Investment in Kaitlin are reported as net income in Clausen's SCI. 
C) Fair value accumulated gains and losses in the Investment in Kaitlin should be reported as a separate component in Clausen's shareholders' equity. 
D) Dividends from Kaitlin are reported as other comprehensive income in Clausen's Statement of Comprehensive Income.

Question 13

On January 1, 2013, Donner Co. purchased 3,000 shares, representing 30% of Ishwar Limited, for $390,000. Donner is a publicly traded company. Ishwar's total net income was $86,000 for the year ended December 31, 2013. Ishwar also paid dividends in total of $25,000 during 2013. At the year end, each share of Ishwar was trading at $150 per share.
Required:
Based on the information above, show the journal entries that Donner would have used to report its original purchase and any related investment income for Ishwar for 2013 assuming that Donner reports its investment in Ishwar using FVTPL. What is the investment account balance at the end of December 31, 2013?

Accepted Answer

The answer of On January 1, 2013, Donner Co. purchased...

Question 14

The parties to a joint venture will initially record their share of the investment at the fair value of their contribution made. In subsequent periods, the cost method will be used for reporting purposes.

Accepted Answer

A) True 
 B)False

Question 15

Leno Ltd. has invested in several domestic manufacturing corporations. Which of the following investments would most likely be accounted for under the equity method on Leno's financial statements?

Accepted Answer

A) A holding of 20,000 of the 25,000 outstanding common shares of Riser Co. 
B) A holding of 3,000 of the 10,000 outstanding preferred shares of Riser Co. 
C) A holding of 15,000 of the 50,000 outstanding common shares of Riser Co. 
D) A holding of 5,000 of the 60,000 outstanding common shares of Riser Co.

Question 16

On January 1, 2013, Tonya Ltd. started Chen Ltd. by contributing $600,000 and received 100% of the common shares of Chen. Chen reported net income of $40,000 in 2013 and $85,000 in 2014 and paid out 40% of its net income as dividends in each year. Under the equity method, which of the following amounts should be reported on Tonya's separate-entity 2014 financial statements?

Accepted Answer

A) 
$\begin{array} { | l | l | } 
\hline \text { Investment in Chen } & \text { Investment Income } \
\hline \$ 600,000 & \$ 34,000 \
\hline
\end{array}$ 
B) 
$\begin{array} { | l | l | } 
\hline \text { Investment in Chen } & \text { Investment Income } \
\hline \$ 675,000 & \$ 85,000 \
\hline
\end{array}$ 
C) 
$\begin{array} { | l | l | } 
\hline \text { Investment in Chen } & \text { Investment Income } \
\hline \$ 625,000 & \$ 34,000 \
\hline
\end{array}$ 
D) 
$\begin{array} { | l | l | } 
\hline \text { Investment in Chen } & \text { Investment Income } \
\hline \$ 625,000 & \$ 40,000 \
\hline
\end{array}$

Question 17

A subsidiary is defined as an entity that is controlled by another company. Three criteria must be present in order for there to be control. The parent must have all of the following except:

Accepted Answer

A) The ability to direct the financial and operating policies of another company. 
B) The ability to obtain returns from another company. 
C) The ability to use its power to affect the returns from another company. 
D) The ability to issue any class of securities in a public market on behalf of another company.

Question 18

Non-strategic investments can be classified as fair value through profit or loss (FVTPL)or as fair value through other comprehensive income (OCI)- through an irrevocable election. Which of the following statements is true?

Accepted Answer

A) Under both FVTPL and OCI, changes in the fair value of the investment are reported as other comprehensive income on the statement of comprehensive income. 
B) Under both FVTPL and OCI, changes in the fair value of the investment are reported under the net income section on the statement of comprehensive income. 
C) Under both FVTPL and OCI, dividends received from the investee are reported as other comprehensive income on the statement of comprehensive income. 
D) Under both FVTPL and OCI, dividends received from the investee are reported under the net income section on the statement of comprehensive income.

Question 19

Larsen Ltd. has the following shareholders: Miller Co. - 60%
Sadaat Ltd. - 30%
Peterson Ltd. - 10%
Sadaat has two seats on Larsen's five-person board of directors. Which of the following statements is TRUE?

Accepted Answer

A) Larsen is a structured entity to Sadaat. 
B) Sadaat has control over Larsen. 
C) Sadaat should treat Larsen as a non-strategic investment. 
D) Sadaat has significant influence over Larsen.

Question 20

How are most significant influence investments in equity securities reported on the investor's financial statements?

Accepted Answer

A) Using the equity method. 
B) Using proportionate consolidation. 
C) On a fully consolidated basis. 
D) Using the cost method.

Exam 1: Accounting for Investments

Jamison Co. owned 60% of Tyler Co.'s voting shares and 25% of Simon Ltd.'s voting shares. Tyler owns 30% of Simon's voting shares. Which of the following statements is TRUE?

If a company makes a non-strategic investment, it is considered a financial asset. What is a financial asset?

Which of the following best illustrates a parent-subsidiary relationship?

Foster Corporation uses the equity method to account for its 25% investment in Vector Corporation and receives $25,000 in dividends. How should Foster account for these dividends?

In Canada, which subsidiaries must be included in consolidated financial statements?

If an investment is owned 100%, which methods will result in the same income and shareholders' equity appearing on the financial statements?

If a company makes a non-strategic investment it is considered a financial asset.

If Darlington Inc. owns 30% of a jointly controlled operation, it would reflect 100% of each asset, liability, income or expense that is part of the joint operation on its own financial statements.

There is a presumption that control exists where the company owns more than 50% of the voting shares of the investee.

Which of the following is NOT an indicator of significant influence?

Clausen Ltd. has a passive investment in Kaitlin Ltd. Clausen has elected to treat Kaitlin as a fair value through other comprehensive income (OCI) investment under IFRS 9 Financial Instruments. Which of the following statements is TRUE?

The parties to a joint venture will initially record their share of the investment at the fair value of their contribution made. In subsequent periods, the cost method will be used for reporting purposes.

Leno Ltd. has invested in several domestic manufacturing corporations. Which of the following investments would most likely be accounted for under the equity method on Leno's financial statements?

A subsidiary is defined as an entity that is controlled by another company. Three criteria must be present in order for there to be control. The parent must have all of the following except:

Non-strategic investments can be classified as fair value through profit or loss (FVTPL) or as fair value through other comprehensive income (OCI) - through an irrevocable election. Which of the following statements is true?

Larsen Ltd. has the following shareholders: Miller Co. - 60% Sadaat Ltd. - 30% Peterson Ltd. - 10% Sadaat has two seats on Larsen's five-person board of directors. Which of the following statements is TRUE?

How are most significant influence investments in equity securities reported on the investor's financial statements?