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Exam 12: Investments

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Question 21

True/False

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Unrealized gains and losses are included in other comprehensive income for securities that are classified as available for sale.

A) True
B) False

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Question 22

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Both debt and equity securities can be categorized as trading securities.

A) True
B) False

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Question 23

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Which of the following increases the investment account under the equity method of accounting?

What balance sheet amount would Beresford report for its total investment securities at 12/31/2012?

Trading securities are most commonly found on the books of:

GAAP regarding accounting for unrealized gains and losses on investments in equity securities will apply to an investment when the percentage of ownership of another company is:

When an equity security is appropriately carried and reported as securities available for sale, a gain should be reported in the income statement:

Zwick Company bought 28,000 shares of the voting common stock of Handy Corporation in January 2013. In December, Hart announced $200,000 net income for 2013 and declared and paid a cash dividend of $2 per share on the 200,000 shares of outstanding common stock. Zwick Company's dividend revenue from Handy Corporation in December 2013 would be:

Which of the following is not true about the "fair value through profit and loss" approach for accounting for investments under IFRS?

Under IFRS No. 9, equity investments are classified as either "fair value through other comprehensive income (FVTOCI)" or "fair value through profit and loss (FVTPL)."

Which of the following is a criterion for a debt instrument to be viewed as having a lending or customer financing business purpose?

The total amount of additional depreciation to be recognized by SBC over the remaining life of the assets is:

Routine transfers of debt and equity investments among the trading, available for sale, and held to maturity portfolios need not be disclosed in the financial statements.

On January 1, 2013, American Corporation purchased 25% of the outstanding voting shares of Short Supplies common stock for $210,000 cash. On that date, Short's book value and fair value were both $840,000. The equity method is deemed appropriate for this investment. Short's net income reported on December 31, 2013, was $80,000. During 2013, Short also paid cash dividends in the amount of $24,000. Required: Compute the amount that would be reported for the investment on American Corporation's financial statements at December 31, 2013.

Many corporations own more than 50% of the voting stock in other corporations. Sometimes these affiliated companies operate within the same industry, and many times the companies are in unrelated industries. Required: What is the significance of owning more than 50% of the voting common stock of another company?

Sloan Company has owned an investment during 2013 that has increased in fair value. After all closing entries for 2013 are completed, the effect of the increase in fair value on total shareholders' equity would be:

IFRS No. 9 is a standard that indicates accounting for investments when the investor does not have significant influence under the investee. Required: Explain how debt investments are accounted for under IFRS No. 9. What alternative accounting approaches are available, what determines whether an investment qualifies for each approach, and what are the key features of each approach with respect to accounting for unrealized gains and losses?

Wang Corporation purchased $100,000 of Hales Inc. 6% bonds at par with the intent and ability to hold the bonds until they matured in 2017, so Wang classifies its investment as held to maturity. Unfortunately, a combination of problems at Hales and in the debt market caused the fair value of the Hales investment to decline to $70,000 during 2013. Wang calculates that, of the $30,000 drop in fair value, $10,000 of it relates to credit losses and $20,000 relates to non-credit losses. If Wang accounts for the Hales bonds under IFRS, before-tax net income for 2013 will be reduced by:

The fair value of debt securities not regularly traded can be most reasonably approximated by:

For trading securities, unrealized holding gains and losses are included in earnings: