Question 1

On January 1^st, 2011, ABC Inc. purchased a $1,000 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.

Accepted Answer

The answer of On January 1^st, 2011, ABC Inc. purchased...

Question 2

On March 1, 2014, ABC paid $10,000 for 500 shares of XTC and 600 shares of YTC. The XTC shares were quoted at $12 per share on March 1, 2014. There was no quoted selling price for the YTC shares; however, one year earlier it was selling for $8 per share.
Calculate the debits to the investment accounts for each share.

Accepted Answer

The answer of On March 1, 2014, ABC paid $10,000...

Question 3

The data below pertains to the values of various FVTPL investments held by a client company: $$\begin{array} { | l | r | l | l | } 
\hline \text { Stock }&\text { Shares } & \text { Cost } & \text { Market Value (1281/2011) } \
\hline X & 500 & \$ 30 = \$ 15,000 & \$ 24 = \$ 12,000 \
\hline Y & 1,000 & 20 = 20,000 & 30 = 30,000 \
\hline Z & 750 & 24 = 18,000 & 30 = 22,500 \
\hline
\end{array}$$ The company's entire FVTPL portfolio should be valued at which amount on December 31st, 2011?

Accepted Answer

A)  $50,000 
B)  $53,000 
C)  $64,500 
D)  $67,500

Question 4

The book value of a bond purchased at a premium or discount and classified, as an investment in marketable securities must be adjusted each period for amortization of the premium or discount.

Accepted Answer

A) True 
 B)False

Question 5

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.

-The balance in the OCI account related to the Investment in DEF account immediately following the sale of the shares was:

Accepted Answer

A)  $16,000 Cr. 
B)  $5,500 Cr. 
C)  $16,000 Dr. 
D)  $5,500 Dr.

Question 6

A bond must be held until maturity in order to be classified as an amortized cost investment.

Accepted Answer

A) True 
 B)False

Question 7

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, 2001 balance sheet.

Accepted Answer

The answer of Masters Inc. acquired 30% of Continental Corp.'s...

Question 8

For each situation, give the appropriate journal entry(s). Assume the cost method is used.
(a) On January 1, 2013, Investor A purchased (for cash) a long-term investment, 1,000 shares (1 percent) of 6 percent, cumulative, preferred shares of Corporation B at $48 per share, when one year of dividends was in arrears.
(b) On March 1, 2013, Investor A received a 100 percent stock split on the B stock.
(c) On December 31, 2014, Investor A received notice that the board of directors of Corporation B had declared cash dividends on the preferred stock sufficient to cover the arrears and the current year.

Accepted Answer

The answer of For each situation, give the appropriate journal...

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

The book value of a bond purchased at a premium or discount and classified, as an investment in marketable securities must be adjusted each period for amortization of the premium or discount.

A bond must be held until maturity in order to be classified as an amortized cost investment.