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Exam 12: Investments

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Question 81

Multiple Choice

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In which investment category are fair values and subsequent growth of an investee not relevant for reporting?

A) Securities reported under the equity method.
B) Trading securities.
C) Held-to-maturity securities.
D) Securities available for sale.

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Question 82

Multiple Choice

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On January 1,2016,Everglade Company purchased the following securities and properly accounted for them as securities available for sale: All declines in value are considered temporary.What amount should the Everglade Company report relative to these securities in its 2016 statement of other comprehensive income?

A) $0.
B) $19,000 unrealized gain.
C) $12,000 net unrealized gain.
D) $7,000 unrealized loss.

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Question 83

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Under IFRS No.9,debt investments are classified as either "amortized cost," or "fair value through profit and loss (FVPL)," or "fair value through other comprehensive income (FVOCI)."

In the statement of cash flows,inflows and outflows of cash from buying and selling available for sale securities are considered:

IFRS No.9 is a standard that indicates accounting for investments when the investor does not have significant influence over the investee. Required: Explain how equity 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?

All securities considered available for sale should be reported as current assets in a classified balance sheet.

Jaycom Enterprises has invested its excess cash in the stock of several different companies and desires to maximize income over the short run.Jaycom is unsure about the appropriate investment policy and thus what reporting practice to follow. Required: What classification procedure and subsequent classification could Jaycom follow in order to meet its objective? How will Jaycom justify its choice to the Jaycom auditors?

On January 2,2016,MBH Inc.acquired 30% of the voting common stock of Construction Corporation as a long-term investment.Data from Construction Corporation's financial statements for the year ended December 31,2016,include the following: Net income $150,000 Dividends paid $75,000 Required: Prepare any necessary journal entries for MBH at December 31,2016,under the equity method of accounting for investments.

Under IAS No.39,transfers of debt investments out of the FVPL category into AFS or HTM are permitted under "rare circumstances."

Unrealized holding gains and losses on securities available for sale would have the following effects on accumulated other comprehensive income:

If an available-for-sale investment is sold for which there are unrealized losses in accumulated other comprehensive income (AOCI) ,the total effect on total comprehensive income is:

A weakness of ___?____ is that firms can increase or decrease net income by choosing to sell particular investments with net unrealized gains or unrealized losses.

Which of the following investment securities held by Zoogle Inc.are not reported at fair value in its balance sheet?

In the statement of cash flows,inflows and outflows of cash from buying and selling trading securities typically are considered:

Gerken Company concluded at the beginning of 2016 that the company's ownership interest in DillCo had increased to the point that it became appropriate to begin using the equity method to account for the investment.The balance in the investment account is $50,000 at the time of the change,and accountants working with company records determined that the balance would have been $75,000 if the account had been adjusted for investee net income and dividends as prescribed by the equity method.After implementing the change to the equity method,if financial statements were prepared:

If an investment is accounted for under the equity method,the investor reduces investment income and the investment account for amortization of goodwill acquired in the investment.

Assume that,on January 1,2016,Sosa Enterprises paid $3,000,000 for its investment in 36,000 shares of Orioles Co.Further,assume that Orioles has 120,000 total shares of stock issued and estimates an eight-year remaining useful life and straight-line depreciation with no residual value for its depreciable assets. At January 1,2016,the book value of Orioles' identifiable net assets was $7,000,000,and the fair value of Orioles was $10,000,000.The difference between Orioles' fair value and the book value of its identifiable net assets is attributable to $1,800,000 of land and the remainder to depreciable assets.Goodwill was not part of this transaction. The following information pertains to Orioles during 2016: What amount would Sosa Enterprises report in its year-end 2016 balance sheet for its investment in Orioles Co.?

During 2016,Largent Enterprises purchased stock as follows: May 17,Purchased 1,000 shares of Nugent common stock for $80 per share. July 12,Purchased 400 shares of Alfredo common stock at $60 per share,plus a $600 brokerage commission. Largent accounts for these investments as securities available for sale.At December 31,2016,the market values of the securities were as follows: Required: (1. )Prepare the journal entries to record the acquisition of the two investments. (2. )Prepare any necessary adjusting entries assuming the stocks are both classified as available for sale securities.

When an equity method investment is sold,a gain or loss is recognized for the difference between its selling price and its cost.

Fredo,Inc. ,purchased 10% of Sonny Enterprises for $1,000,000 on January 1,2016.Sonny recognized a total of $400,000 net income during 2016,paid $30,000 of dividends to Fredo during 2016,and at December 31,2016,the market value of the Sonny investment increased to $1,040,000. Required: Prepare the journal entries necessary to account for the Sonny investment,assuming that Fredo accounts for that investment as (1)an available-for-sale investment,and (2)elects the fair-value option.