Exam Prep Investments Chapter 12 - Answer Key + Test Bank | Intermediate Accounting 10e by J. David Spiceland, Mark W. Nelson, Wayne Thomas. DOCX document preview.
Intermediate Accounting, 10e (Spiceland)
Chapter 12 Investments
1) Securities classified as held-to-maturity could be reported as either current or long-term in a classified balance sheet, depending upon their maturity dates.
Difficulty: 1 Easy
Topic: Debt investments—Held-to-maturity
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
2) All investments in debt securities whose fair values are not readily determinable are carried at historical cost.
Difficulty: 1 Easy
Topic: Debt investments—Held-to-maturity; Debt investments—Distinguish categories
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
3) Both debt and equity securities can be categorized as trading securities.
Difficulty: 1 Easy
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
4) Net unrealized holding gains (losses) are reported in the income statement for trading securities.
Difficulty: 1 Easy
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
5) Purchases and sales of securities are always reported as investing activities in a statement of cash flows.
Difficulty: 2 Medium
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
6) Routine transfers of debt investments among the trading, available-for-sale, and held-to-maturity portfolios need not be disclosed in the financial statements.
Difficulty: 2 Medium
Topic: Transfer between debt investment categories
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
7) Both trading securities and securities available-for-sale are reported at their fair values.
Difficulty: 1 Easy
Topic: Debt investments—Distinguish categories
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
8) All securities considered available-for-sale should be reported as current assets in a classified balance sheet.
Difficulty: 1 Easy
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
9) Unrealized holding gains and losses are included in other comprehensive income for securities that are classified as available-for-sale.
Difficulty: 1 Easy
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
10) When available-for-sale securities are sold, the amount of unrealized holding gain or loss realized from the date of purchase is included in before-tax net income.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
11) Companies must always use the equity method when they hold between 25% and 50% of the common stock of an investee.
Difficulty: 2 Medium
Topic: Equity investments—Distinguish methods
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
12) The equity method is in many ways a partial consolidation.
Difficulty: 1 Easy
Topic: Equity method—Account for investment
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
13) Under the equity method of accounting for a stock investment, cash dividends received are considered a reduction of the investee's net assets.
Difficulty: 1 Easy
Topic: Equity method—Account for investment
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
14) When an equity-method investment is sold, a gain or loss is recognized for the difference between its selling price and its cost.
Difficulty: 1 Easy
Topic: Equity method—Account for investment
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
15) 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.
Difficulty: 2 Medium
Topic: Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
16) Selecting the fair value option for an available-for-sale investment is equivalent to reclassifying that investment as a trading security.
Difficulty: 2 Medium
Topic: Fair value option for investments
Learning Objective: 12-08 Explain how electing the fair value option affects accounting for investments.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
17) The fair value option cannot be elected for significant-influence investments because those must be accounted for under the equity method.
Difficulty: 2 Medium
Topic: Fair value option for investments
Learning Objective: 12-08 Explain how electing the fair value option affects accounting for investments.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
18) Under IFRS No. 9, investments for which the investor lacks significant influence use basically the same reporting classifications as those used under U.S. GAAP.
Difficulty: 1 Easy
Topic: IFRS—Investor lacks significant influence
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
19) Under IFRS No. 9, debt investments are classified as either "available-for-sale" or "fair value through profit or loss (FVPL)."
Difficulty: 1 Easy
Topic: IFRS—Distinguish investment categories
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
20) Under IFRS No. 9, debt investments are classified as either "amortized cost," or "fair value through profit or loss (FVPL)," or "fair value through other comprehensive income (FVOCI)."
Difficulty: 1 Easy
Topic: IFRS—Distinguish investment categories
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
21) Under IFRS No. 9, equity investments are classified as either "fair value through other comprehensive income (FVOCI)" or "fair value through profit or loss (FVPL)."
Difficulty: 1 Easy
Topic: IFRS—Distinguish investment categories
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
22) Under IFRS No. 9, a debt investment can be accounted for at amortized cost if the debt agreement includes only interest and principal and the investor intends to hold it to collect contractual cash flows.
Difficulty: 1 Easy
Topic: IFRS—Distinguish investment categories
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
23) The cash surrender value of a life insurance policy decreases each year by the portion of the premium paid that is related to the additional year that the insured person is still alive.
Difficulty: 2 Medium
Topic: Life insurance—Appendix A
Learning Objective: Appendix 12A Other Investments (Special Purpose Funds, Investments in Life Insurance Policies).
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
24) The investment category for which the investor's "positive intent and ability to hold" is important is:
A) Securities reported under the equity method.
B) Trading securities.
C) Securities classified as held-to-maturity.
D) Securities available-for-sale.
Difficulty: 1 Easy
Topic: Debt investments—Held-to-maturity; Debt investments—Distinguish categories
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
25) Which of the following investment securities held by Zoogle Inc. may be classified as held-to-maturity securities in its balance sheet?
A) Long-term debenture bonds.
B) Common stock.
C) Callable preferred stock.
D) All of these answer choices are correct.
Difficulty: 1 Easy
Topic: Debt investments—Held-to-maturity
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
26) Which of the following investment securities held by Zoogle Inc. are not reported at fair value in its balance sheet?
A) Debt securities held as available-for-sale securities.
B) Debt securities held-to-maturity.
C) Bonds held as trading securities.
D) All of these answer choices are reported at fair value.
Difficulty: 1 Easy
Topic: Debt investments—Held-to-maturity; Debt investments—Distinguish categories
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
27) 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.
Difficulty: 2 Medium
Topic: Debt investments—Held-to-maturity; Debt investments—Distinguish categories
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
28) Which category of securities is presented on the balance sheet at amortized cost?
A) Securities available-for-sale.
B) Equity investments of less than 20% ownership.
C) Held-to-maturity securities.
D) Trading securities.
Difficulty: 2 Medium
Topic: Debt investments—Held-to-maturity; Debt investments—Distinguish categories
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
29) In 2019, Osgood Corporation purchased $4 million worth of 10-year municipal bonds at face value. On December 31, 2021, the bonds had a fair value of $3,600,000 and Osgood reclassified the bonds from held-to-maturity to trading securities. Osgood's December 31, 2021, balance sheet and the 2021 income statement would show the following:
| Investment in bonds (TS) | Income statement loss on investments | |||||
a. | $ | 3,600,000 |
| $ | 0 |
| |
b. | $ | 3,600,000 |
| $ | 400,000 |
| |
c. | $ | 4,000,000 |
| $ | 400,000 |
| |
d. | $ | 4,000,000 |
| $ | 0 |
| |
A) Option a.
B) Option b.
C) Option c.
D) Option d.
Difficulty: 3 Hard
Topic: Transfer between debt investment categories
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
30) Beresford Inc. purchased several investments in debt securities during 2020, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values are not considered permanent.
Held-to-Maturity Securities: | Fair Value 12/31/2020 | Fair Value 12/31/2021 | Amortized Cost 12/31/2020 | Amortized Cost 12/31/2021 | |||||||||||||||
ABC Co. Bonds | $ | 375,000 |
| $ | 400,000 |
| $ | 367,500 |
| $ | 360,000 |
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Trading Securities: | Fair Value 12/31/2020 | Fair Value 12/31/2021 | Cost |
|
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| |||||||||||||
DEF Co. Bonds | $ | 48,000 |
| $ | 59,500 |
| $ | 66,000 |
|
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|
| |||||||
GEH Inc. Bonds | $ | 47,000 |
| $ | 77,000 |
| $ | 39,000 |
|
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IJK Inc. Bonds | $ | 44,000 |
| $ | 38,500 |
| $ | 32,900 |
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Available-for-Sale Securities: | Fair Value 12/31/2020 | Fair Value 12/31/2021 | Cost |
|
|
| |||||||||||||
LMN Co. Bonds | $ | 130,500 |
| $ | 150,400 |
| $ | 140,000 |
|
|
|
| |||||||
What balance sheet amount would Beresford report for the total of its investments in bonds at 12/31/2020?
A) $637,000.
B) $644,500.
C) $645,400.
D) None of these answer choices are correct.
Difficulty: 3 Hard
Topic: Debt investments—Distinguish categories
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
31) Beresford Inc. purchased several investments in debt securities during 2020, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values are not considered permanent.
Held-to-Maturity Securities: | Fair Value 12/31/2020 | Fair Value 12/31/2021 | Amortized Cost 12/31/2020 | Amortized Cost 12/31/2021 | |||||||||||||||
ABC Co. Bonds | $ | 375,000 |
| $ | 400,000 |
| $ | 367,500 |
| $ | 360,000 |
| |||||||
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|
|
|
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|
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|
|
|
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Trading Securities: | Fair Value 12/31/2020 | Fair Value 12/31/2021 | Cost |
|
|
| |||||||||||||
DEF Co. Bonds | $ | 48,000 |
| $ | 59,500 |
| $ | 66,000 |
|
|
|
| |||||||
GEH Inc. Bonds | $ | 47,000 |
| $ | 77,000 |
| $ | 39,000 |
|
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|
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IJK Inc. Bonds | $ | 44,000 |
| $ | 38,500 |
| $ | 32,900 |
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Available-for-Sale Securities: | Fair Value 12/31/2020 | Fair Value 12/31/2021 | Cost |
|
|
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LMN Co. Bonds | $ | 130,500 |
| $ | 150,400 |
| $ | 140,000 |
|
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|
| |||||||
What would be the balance in Beresford's accumulated other comprehensive income with respect to these investments in its 12/31/2021 balance sheet (ignore taxes)?
A) $55,100.
B) $26,500.
C) $10,400.
D) None of these answer choices are correct.
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
32) Beresford Inc. purchased several investments in debt securities during 2020, its first year of operations. The following information pertains to these securities. The fluctuations in their fair values are not considered permanent.
Held-to-Maturity Securities: | Fair Value 12/31/2020 | Fair Value 12/31/2021 | Amortized Cost 12/31/2020 | Amortized Cost 12/31/2021 | |||||||||||||||
ABC Co. Bonds | $ | 375,000 |
| $ | 400,000 |
| $ | 367,500 |
| $ | 360,000 |
| |||||||
|
|
|
|
|
|
|
|
|
|
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|
| |||||||
Trading Securities: | Fair Value 12/31/2020 | Fair Value 12/31/2021 | Cost |
|
|
| |||||||||||||
DEF Co. Bonds | $ | 48,000 |
| $ | 59,500 |
| $ | 66,000 |
|
|
|
| |||||||
GEH Inc. Bonds | $ | 47,000 |
| $ | 77,000 |
| $ | 39,000 |
|
|
|
| |||||||
IJK Inc. Bonds | $ | 44,000 |
| $ | 38,500 |
| $ | 32,900 |
|
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Available-for-Sale Securities: | Fair Value 12/31/2020 | Fair Value 12/31/2021 | Cost |
|
|
| |||||||||||||
LMN Co. Bonds | $ | 130,500 |
| $ | 150,400 |
| $ | 140,000 |
|
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|
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What total unrealized holding gain would Beresford report in its 2021 income statement relative to its investments in bonds?
A) $55,900.
B) $36,000.
C) $80,900.
D) $48,200.
Difficulty: 3 Hard
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
33) On January 1, 2021, Rupar Retailers purchased $100,000 of Anand Company bonds at a discount of $5,000. The Anand bonds pay 6% interest but were purchased when the market interest rate was 7% for bonds of similar risk and maturity. The bonds pay interest semiannually on June 30 and December 31 of each year. Rupar accounts for the bonds as a held-to-maturity investment, and uses the effective interest method. In Rupar's December 31, 2021, journal entry to record the second period of interest, Rupar would record a credit to interest revenue of:
A) $3,336.
B) $3,325.
C) $3,000.
D) $3,500.
1/1/2021 | Investment in bonds | $ | 100,000 |
|
|
| Discount on bond investment |
|
| $ | 5,000 |
| Cash |
|
| $ | 95,000 |
6/30/2021 | Cash (0.06/2) × ($100,000) | $ | 3,000 |
|
|
| Discount on bond investment (difference) | $ | 325 |
|
|
| Interest revenue (0.07/2) × ($100,000 - $5,000) |
|
| $ | 3,325 |
12/31/2021 | Cash (0.06/2) × ($100,000) | $ | 3,000 |
|
|
| Discount on bond investment (difference) | $ | 336 |
|
|
| Interest revenue (0.07/2) × ($100,000 – $5,000 + $325) |
|
| $ | 3,336 |
Difficulty: 3 Hard
Topic: Debt investments—Account for interest
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
34) On January 1, 2021, Rupar Retailers purchased $100,000 of Anand Company bonds at a premium of $5,000. The Anand bonds pay 7% interest but were purchased when the market interest rate was 6% for bonds of similar risk and maturity. The bonds pay interest semiannually on June 30 and December 31 of each year. Rupar accounts for the bonds as a held-to-maturity investment, and uses the effective interest method. In Rupar's December 31, 2021, journal entry to record the second period of interest, Rupar would record a credit to interest revenue of:
A) $3,336.
B) $3,140.
C) $3,000.
D) $3,500.
1/1/2021 | Investment in bonds | $ | 100,000 |
|
|
| Premium on bond investment | $ | 5,000 |
|
|
| Cash |
|
| $ | 105,000 |
6/30/2021 | Cash (0.07/2) × ($100,000) | $ | 3,500 |
|
|
| Premium on bond investment (difference) |
|
| $ | 350 |
| Interest revenue (0.06/2) × ($100,000 + $5,000) |
|
| $ | 3,150 |
12/31/2021 | Cash (0.07/2) × ($100,000) | $ | 3,500 |
|
|
| Premium on bond investment (difference) |
|
|
| 360 |
| Interest revenue (0.06/2) × ($100,000 + $5,000 – $350) |
|
| $ | 3,140 |
Difficulty: 3 Hard
Topic: Debt investments—Account for interest
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: Keyboard Navigation
35) If Dinsburry Company concluded that an investment originally classified as a trading security would now more appropriately be classified as held-to-maturity, Dinsburry would:
A) Not reclassify the investment, as original classifications are irrevocable.
B) Reclassify the investment as held-to-maturity and immediately recognize in net income all unrealized holding gains and losses that have not already been recognized as of the reclassification date.
C) Reclassify the investment as held-to-maturity and treat the fair value as of the date of reclassification as the investment's amortized cost basis for future amortization.
D) Reclassify the investment as held-to-maturity, but there would be no income effect.
Difficulty: 3 Hard
Topic: Transfer between debt investment categories
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
36) If Ziggy Company concluded that an investment originally classified as held-to-maturity would now more appropriately be classified as available-for-sale, Ziggy would:
A) Not reclassify the investment, as original classifications are irrevocable.
B) Reclassify the investment as available-for-sale and immediately recognize in net income any unrealized holding gain or loss on the reclassification date.
C) Reclassify the investment as available-for-sale and immediately recognize in accumulated other comprehensive income any unrealized holding gain or loss on the reclassification date.
D) Need to restate earnings, as the original classification was in error.
Difficulty: 3 Hard
Topic: Transfer between debt investment categories
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
37) If Dizbert Company concluded that an investment originally classified as available-for-sale would now more appropriately be classified as held-to-maturity, Dizbert would:
A) Not reclassify the investment, as original classifications are irrevocable.
B) Reclassify the investment as held-to-maturity and immediately recognize in net income any unrealized holding gain or loss on the reclassification date.
C) Reclassify the investment as held-to-maturity and treat the fair value as of the date of reclassification as the investment's amortized cost basis for future amortization.
D) Need to restate earnings, as the original classification was in error.
Difficulty: 3 Hard
Topic: Transfer between debt investment categories
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
38) Bonds that are purchased with the intent of selling them in the near future to take advantage of short-term price changes are classified as:
A) Securities available-for-sale.
B) Consolidating securities.
C) Held-to-maturity securities.
D) Trading securities.
Difficulty: 1 Easy
Topic: Debt investments—Distinguish categories; Debt investments—Trading securities
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
39) The income statement reports changes in fair value for which type of investment securities?
A) Securities reported under the equity method.
B) Trading securities.
C) Held-to-maturity securities.
D) Available-for-sale securities.
Difficulty: 1 Easy
Topic: Debt investments—Distinguish categories; Debt investments—Trading securities
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
40) Trading securities are most commonly found on the books of:
A) Oil companies.
B) Manufacturing companies.
C) Banks.
D) Foreign subsidiaries.
Difficulty: 1 Easy
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
41) For trading securities, unrealized holding gains and losses are included in net income:
A) Only at the end of the fiscal year.
B) On each reporting date.
C) Only when they exceed 10% of the underlying investment.
D) Based on a vote of the board of directors.
Difficulty: 1 Easy
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
42) Trading securities, by definition, are properly classified in the balance sheet as:
A) Shareholders' equity.
B) Intangible assets.
C) Current assets.
D) Other assets.
Difficulty: 1 Easy
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
43) Unrealized holding gains and losses on trading securities are included in net income because:
A) They measure the success or failure of taking advantage of short-term price changes.
B) The IRS mandates the inclusion.
C) The SEC mandates the inclusion.
D) They measure the book value of the securities at the balance sheet date.
Difficulty: 2 Medium
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
44) In the statement of cash flows, inflows and outflows of cash from buying and selling trading securities typically are considered:
A) Investing activities.
B) Operating activities.
C) Financing activities.
D) Noncash financing activities.
Difficulty: 2 Medium
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
45) Dyckman Dealers has an investment in Thomas Corporation bonds that Dyckman accounts for as a trading security. Thomas Corporation's bonds are publicly traded and the prevailing market price indicates that Dyckman's investment is worth $20,000. However, Dyckman management believes that the bond market is generally overvalued, and their analysis of the Thomas investment suggests to them that it is worth $18,000. Dyckman should carry the Thomas investment on its balance sheet at:
A) $20,000.
B) $18,000.
C) Either $18,000 or $20,000, as either are defensible valuations.
D) $19,000, the midpoint of Dyckman's range of reasonably likely valuations of Thomas.
Difficulty: 2 Medium
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
46) Nichols Enterprises has an investment in 250 bonds of Elliott Electronics that Nichols accounts for as a security available-for-sale. Elliott bonds are publicly traded, and The Wall Street Journal quotes a price for those bonds of $1,000 per bond, but Nichols believes the market has not appreciated the full value of the Elliott bonds and that a more accurate price is $1,200 per bond. Nichols should carry the Elliott investment on its balance sheet at:
A) $300,000.
B) $250,000.
C) Either $250,000 or $300,000, as either are defensible valuations.
D) $275,000, the midpoint of Nichols's range of reasonably likely valuations of Elliott.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
47) Anthers Inc. bought the following portfolio of trading securities near the end of 2021.
Security | Cost | Fair value 12/31/2021 | ||||
A | $ | 80,000 |
| $ | 84,000 |
|
B |
| 60,000 |
|
| 54,000 |
|
C |
| 22,000 |
|
| 22,000 |
|
What amount will be reported in the balance sheet for this portfolio at December 31, 2021, and how will it be classified?
| Amount | Classification | ||
a. | $ | 162,000 |
| Noncurrent Asset |
b. | $ | 162,000 |
| Current Asset |
c. | $ | 160,000 |
| Noncurrent Asset |
d. | $ | 160,000 |
| Current Asset |
A) Option a.
B) Option b.
C) Option c.
D) Option d.
Difficulty: 2 Medium
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
48) On January 1, 2021, Nana Company paid $100,000 for 8,000 shares of Papa Company common stock. The ownership in Papa Company is 10%. Nana Company does not have significant influence over Papa Company. Papa reported net income of $52,000 for the year ended December 31, 2021. The fair value of the Papa stock on that date was $45 per share. What amount will be reported in the balance sheet of Nana Company for the investment in Papa at December 31, 2021?
A) $284,400.
B) $300,000.
C) $315,600.
D) $360,000.
Difficulty: 3 Hard
Topic: Equity investments—FV through net income
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
49) Goofy Inc. bought a sizeable amount of Crazy Co.'s bonds for $150,000 on May 5, 2020, and classified the investment as available-for-sale. The market value of the bonds declined to $118,000 by December 31, 2020. Goofy reclassified this investment as trading securities in December of 2021 when the market value had risen to $125,000. What effect on 2021 net income should be reported by Goofy for the Crazy Co. bonds?
A) $0.
B) $25,000 net unrealized holding loss.
C) $7,000 net unrealized holding gain.
D) $32,000 net unrealized holding loss.
Difficulty: 3 Hard
Topic: Transfer between debt investment categories
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
50) Hobson Company bought the securities listed below during 2020. These securities were classified as trading securities. In its December 31, 2020, income statement Hobson reported a net unrealized holding loss of $13,000 on these securities. Pertinent data at the end of June 2021 is as follows:
Security | Cost | Fair Value | ||||
X | $ | 380,000 |
| $ | 352,000 |
|
Y |
| 180,000 |
|
| 160,000 |
|
Z |
| 420,000 |
|
| 414,000 |
|
What amount of unrealized holding loss on these securities should Hobson include in its income statement for the six months ended June 30, 2021?
A) $41,000.
B) $54,000.
C) $13,000.
D) $0.
Security | Cost | 06/30/2021 Value | |||||||
X |
| $ | 380,000 |
|
| $ | 352,000 |
| |
Y |
|
| 180,000 |
|
|
| 160,000 |
| |
Z |
|
| 420,000 |
|
|
| 414,000 |
| |
|
| $ | 980,000 |
|
| $ | 926,000 |
| |
Total unrealized holding loss to date: $980,000 − $926,000 | $ | 54,000 |
|
Less unrealized holding loss recognized in 2020 |
| 13,000 |
|
Unrealized holding loss to report for 2021 | $ | 41,000 |
|
Difficulty: 3 Hard
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
51) What is the effect on a company's cash flows and reported profit from accounting for an investment as a trading security as compared to accounting for it as an available-for-sale security?
| Effect on Total Cash Flows | Effect on Net Income |
a. | Little, if any, effect | Little, if any, effect |
b. | Significant effect | Significant effect |
c. | Little, if any, effect | Significant effect |
d. | Significant effect | Little, if any, effect |
A) Option a.
B) Option b.
C) Option c.
D) Option d.
Difficulty: 3 Hard
Topic: Debt investments—Trading securities; Debt investments—Available-for-sale
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze; Evaluate
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
52) The fair value of debt securities not regularly traded can be most reasonably approximated by:
A) Calculating the discounted present value of the principal and interest payments.
B) Determining the value using similar securities in the NASDAQ market.
C) Using the relative fair value method.
D) Calling a licensed and registered stockbroker.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
53) All investments in debt securities that don't fit the definitions of the other reporting categories are classified as:
A) Trading securities.
B) Securities available-for-sale.
C) Held-to-maturity securities.
D) Consolidated securities.
Difficulty: 1 Easy
Topic: Debt investments—Distinguish categories; Debt investments—Available-for-sale
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
54) Investments in debt securities available-for-sale are reported at:
A) Discounted present value.
B) Lower of cost or market.
C) Historical cost.
D) Fair value on the reporting date.
Difficulty: 1 Easy
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
55) All investment securities are initially recorded at:
A) Cost.
B) Present value.
C) Equity value.
D) None of these answer choices are correct.
Difficulty: 1 Easy
Topic: Debt investments—Distinguish categories; Equity investments—Distinguish methods
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.; 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
56) Accumulated Other Comprehensive Income in the shareholders' equity section of the balance sheet reflects changes in the fair value of securities for which type of securities?
A) Securities available-for-sale.
B) Trading securities.
C) Consolidated securities.
D) Held-to-maturity securities.
Difficulty: 1 Easy
Topic: Debt investments—Distinguish categories; Debt investments—Available-for-sale
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
57) GAAP regarding fair value accounting for investments in equity securities will generally apply to an investment when the percentage of ownership of another company is:
A) Less than 20%.
B) 20% to 50%.
C) Over 50%.
D) Exactly 100%.
Difficulty: 2 Medium
Topic: Equity investments—Distinguish methods
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
58) When an investor accounts for an investment in common stock at fair value through net income, cash dividends are classified by the investor as:
A) A return of capital.
B) A loss.
C) A deduction from the investment account.
D) Dividend income.
Difficulty: 1 Easy
Topic: Equity investments—FV through net income
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
59) When a debt security is appropriately carried and reported as available-for-sale, a gain should be reported in the income statement:
A) When the fair value of the security increases.
B) When the present value of the security increases.
C) Only when the Dow Jones Industrial Average increases at least 100 points.
D) Only when the security is sold.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
60) Investments in securities to be held for an unspecified period of time are reported at:
A) Historical cost.
B) Present value.
C) Lower of cost or market.
D) Fair value.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
61) Unrealized holding gains and losses on debt securities classified as available-for-sale would have the following effects on accumulated other comprehensive income:
| Gains |
| Losses |
a. | Increase |
| Increase |
b. | Decrease |
| Decrease |
c. | Decrease |
| Increase |
d. | Increase |
| Decrease |
A) Option a.
B) Option b.
C) Option c.
D) Option d.
Difficulty: 1 Easy
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
62) In the statement of cash flows, inflows and outflows of cash from buying and selling available-for-sale debt securities are considered:
A) Operating activities.
B) Financing activities.
C) Investing activities.
D) Noncash financing activities.
Difficulty: 1 Easy
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
63) Unrealized holding gains and losses on debt securities available-for-sale would have the following effects on retained earnings:
| Gains |
| Losses |
a. | Increase |
| No change |
b. | No change |
| Decrease |
c. | No change |
| No change |
d. | Increase |
| Decrease |
A) Option a.
B) Option b.
C) Option c.
D) Option d.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
64) Zwick Company bought 28,000 shares of the voting common stock of Handy Corporation in January 2021. In December, Handy announced $200,000 net income for 2021 and declared and paid a cash dividend of $2 per share on all 200,000 shares of its outstanding common stock. Zwick Company's dividend revenue from Handy Corporation in December 2021 would be:
A) $0.
B) $28,000.
C) $56,000.
D) None of these answer choices are correct.
Difficulty: 2 Medium
Topic: Equity investments—Distinguish methods; Equity investments—FV through net income
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
65) On January 2, 2020, Howdy Doody Corporation purchased 12% of Ranger Corporation's common stock for $50,000. Ranger's net income for the years ended December 31, 2020, and December 31, 2021, were $10,000 and $50,000, respectively. During 2021, Ranger declared and paid a dividend of $60,000. There were no dividends in 2020. On December 31, 2020, the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000. How much should Howdy Doody show in the 2021 income statement as income from this investment?
A) $26,000.
B) $7,200.
C) $20,000.
D) $27,200.
Investment revenue from dividends: |
|
|
|
$60,000 × 12% = | $ | 7,200 |
|
Increase in fair value: |
|
|
|
$70,000 − $50,000 = |
| 20,000 |
|
Total = | $ | 27,200 |
|
Difficulty: 3 Hard
Topic: Equity investments—FV through net income
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
66) Jeremiah Corporation purchased debt securities during 2021 and classified them as securities available-for-sale:
Security | Cost | Fair Value, 12/31/2021 | |||||||
A |
| $ | 40,000 |
|
| $ | 49,000 |
| |
B |
|
| 70,000 |
|
|
| 66,000 |
| |
C |
|
| 28,000 |
|
|
| 39,000 |
| |
All declines are considered to be temporary. How much gain will be reported by Jeremiah Corporation in the December 31, 2021, income statement relative to the portfolio?
A) $0.
B) $16,000
C) $20,000.
D) None of these answer choices are correct.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
67) Hawk Corporation purchased 1,000 Diamond Corporation bonds in 2018 for $500 per bond and classified the investment as securities available-for-sale. The value of the Diamond investment was $600 per bond on December 31, 2019, and $650 per bond on December 31, 2020. During 2021, Hawk sold all of its Diamond investment at $700 per bond.
In its 2021 income statement, Hawk would report:
A) A gain of $50,000.
B) A gain of $150,000.
C) A gain of $200,000.
D) A gain of $300,000.
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
68) Hawk Corporation purchased 1,000 Diamond Corporation bonds in 2018 for $500 per bond and classified the investment as securities available-for-sale. The value of the Diamond investment was $600 per bond on December 31, 2019, and $650 per bond on December 31, 2020. During 2021, Hawk sold all of its Diamond investment at $700 per bond.
If Hawk records unrealized holding gains and losses up to the moment of sale, what would be the amount of reclassification adjustment that Hawk would record upon sale?
A) A debit of $50,000.
B) A debit of $150,000.
C) A debit of $200,000.
D) A credit of $150,000.
| FV Adjustment | ||||
Balance on 12/31/2020 |
| $ | 150,000 |
| |
±Adjustment needed to update fair value |
|
| ? |
| |
Balance needed on date of sale |
| $ | 200,000 |
| |
Fair-Value Adjustment | |||
12/31/2020 | $150,000 |
|
|
Change needed | $50,000 |
|
|
Balance on date of sale | $200,000 |
|
|
Fair value adjustment | $50,000 |
|
Gain on investments (unrealized, OCI) |
| $50,000 |
Reclassification adjustment—OCI | $ 200,000 |
|
Fair value adjustment (account balance) |
| $ 200,000 |
Cash | $ | 700,000 |
|
|
Investment in bonds (AFS) |
|
| $ | 500,000 |
Gain on investments (NI) |
|
| $ | 200,000 |
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
69) Dim Corporation purchased 1,000 bonds of Witt Corporation in 2018 for $800 per bond and classified the investment as securities available-for-sale. The value of these holdings was $400 per bond on December 31, 2019, and $300 per bond on December 31, 2020. During 2021, Dim sold all of its Witt bonds at $350 per bond.
In its 2021 income statement, Dim would report:
A) A realized gain of $50,000.
B) A recognition of unrealized holding losses of $400,000.
C) A loss on the sale of investments of $450,000.
D) A trading gain of $50,000 and an unrealized holding loss of $500,000.
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
70) Dim Corporation purchased 1,000 bonds of Witt Corporation in 2018 for $800 per bond and classified the investment as securities available-for-sale. The value of these holdings was $400 per bond on December 31, 2019, and $300 per bond on December 31, 2020. During 2021, Dim sold all of its Witt bonds at $350 per bond.
If Dim records unrealized holding gains and losses up to the moment of sale, what would be the amount of reclassification adjustment that Dim would record upon sale?
A) A debit of $500,000.
B) A credit of $500,000.
C) A debit of $450,000.
D) A credit of $450,000.
| FV Adjustment | |||||
Balance on 12/31/2020 |
| $ | (500,000 | ) |
| |
± Adjustment needed to update fair value |
|
| ? |
|
| |
Balance needed on date of sale |
| $ | (450,000 | ) |
| |
Fair-Value Adjustment | |||
12/31/2020 |
| $500,000 |
|
Change needed | $50,000 |
|
|
Balance on date of sale |
| $450,000 |
|
Fair value adjustment | $50,000 |
|
Gain on investments (unrealized, OCI) |
| $50,000 |
Fair value adjustment (account balance) | $450,000 |
|
Reclassification adjustment—OCI |
| $450,000 |
Cash | $350,000 |
|
Loss on investments (NI) | $450,000 |
|
Investment in bonds |
| $800,000 |
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
71) On January 1, 2021, Everglade Company purchased the following debt securities and properly accounted for them as securities available-for-sale:
Security | Cost | Fair Value, 12/31/2021 | |||||||
ABC |
| $ | 40,000 |
|
| $ | 55,000 |
| |
DEF |
|
| 72,000 |
|
|
| 65,000 |
| |
XYZ |
|
| 16,000 |
|
|
| 20,000 |
| |
All declines in value are considered temporary. What amount should the Everglade Company report relative to these securities in its 2021 statement of other comprehensive income?
A) $0.
B) $19,000 unrealized holding gain.
C) $12,000 net unrealized holding gain.
D) $7,000 unrealized holding loss.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
72) Boulter, Inc., began business on January 1, 2021. At the end of December 2021, Boulter had the following investments in debt securities:
| Trading | Available-for-Sale | |||||
Cost | $ | 60,000 |
| $ | 110,000 |
| |
Fair value |
| 54,000 |
|
| 107,500 |
| |
All declines in value are deemed to be temporary in nature. How should the corresponding losses be reflected in the financial statements at December 31, 2021?
| Income Statement | Accumulated Other Comprehensive Income in Shareholders' Equity | ||||
a. | $ | 8,500 |
| $ | 0 |
|
b. | $ | 0 |
| $ | 8,500 |
|
c. | $ | 6,000 |
| $ | 2,500 |
|
d. | $ | 2,500 |
| $ | 6,000 |
|
A) Option a.
B) Option b.
C) Option c.
D) Option d.
Difficulty: 2 Medium
Topic: Debt investments—Trading securities; Debt investments—Available-for-sale
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
73) A weakness of ________ is that firms can increase or decrease net income by choosing to sell particular investments with net unrealized holding gains or unrealized holding losses.
A) the available-for-sale approach
B) the trading-securities approach
C) both the available-for-sale and trading-securities approaches
D) neither the available-for-sale nor the trading-securities approach
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Evaluate
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
74) If an available-for-sale debt investment is sold for which there are unrealized holding gains in accumulated other comprehensive income (AOCI), a reclassification adjustment affects other comprehensive income (OCI) in the period of sale by:
A) Reducing OCI for the amount of unrealized holding gains in AOCI.
B) Increasing OCI for the amount of unrealized holding gains in AOCI.
C) No effect on OCI, as OCI only includes the effects of unrealized holding gains and losses.
D) No effect on OCI, as the realized gain is included in AOCI.
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
75) If an available-for-sale investment in debt securities is sold for which there are unrealized holding losses in accumulated other comprehensive income (AOCI), the total effect on total comprehensive income is:
A) An increase.
B) A decrease.
C) No effect.
D) Cannot be determined given this information.
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
76) Seybert Systems accounts for its investment in Wang Engineering bonds as available-for-sale. Seybert's balance in accumulated other comprehensive income with respect to the Wang investment is a credit balance of $20,000, and Seybert reports the investment as $100,000 on its balance sheet. Seybert purchased the Wang investment for (ignore taxes):
A) $100,000.
B) $120,000.
C) $80,000.
D) Cannot be determined from this information.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
77) Sloan Company has owned a debt securities investment during 2021 that has increased in fair value. After all closing entries for 2021 are completed, the effect of the increase in fair value on total shareholders' equity would be:
A) Higher under the available-for-sale approach than under the trading-securities approach.
B) Lower under the available-for-sale approach than under the trading-securities approach.
C) The same amount under the available-for-sale and trading-securities approaches.
D) Not possible to identify whether the available-for-sale or trading-securities approach yields higher shareholders' equity given this information.
Difficulty: 3 Hard
Topic: Debt investments—Distinguish categories
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
78) When investments in debt securities are treated as available-for-sale, other comprehensive income (OCI) also includes the tax effects associated with unrealized holding gains and losses. As a result:
A) Accumulated other comprehensive income would be increased by the tax benefits typically associated with unrealized holding gains.
B) Other comprehensive income typically would be reduced by the tax expense associated with unrealized holding gains.
C) Accumulated other comprehensive income would not be affected by taxes.
D) None of these answer choices are correct.
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
79) The Guitar World (TGW) holds an investment in bonds that increased in fair value over 2021, and accounts for that investment as available-for-sale. When considering taxes, TGW would:
A) Recognize tax expense on the income statement, and probably increase taxes payable.
B) Recognize tax expense on the income statement, and probably increase its deferred tax liability.
C) Reduce accumulated other comprehensive income (AOCI) for tax expense, and probably increase taxes payable.
D) Reduce accumulated other comprehensive income (AOCI) for tax expense, and probably increase its deferred tax liability.
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
80) The equity method of accounting for investments in voting common stock is appropriate when:
A) The investor can significantly influence the investee.
B) The investor has voting control over the investee.
C) The investor intends to hold the common stock indefinitely.
D) The investor is assured of a continued supply of a valuable raw material.
Difficulty: 1 Easy
Topic: Equity investments—Distinguish methods
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
81) Consolidated financial statements are prepared when one company has:
A) Accounted for the investment using the equity method.
B) Accounted for the investment as securities available-for-sale.
C) Control over another company.
D) None of these answer choices are correct.
Difficulty: 1 Easy
Topic: Equity investments—Distinguish methods
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
82) If Pop Company owns 15% of the common stock of Son Company, then Pop Company typically:
A) Would record 15% of the net income of Son Company as investment income each year.
B) Would record dividends received from Son Company as investment revenue.
C) Would increase its investment account by 15% of Son Company income each year.
D) All of these answer choices are correct.
Difficulty: 2 Medium
Topic: Equity investments—FV through net income
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
83) If Pop Company exercises significant influence over Son Company and owns 40% of its common stock, then Pop Company:
A) Would record dividends received from Son Company as investment revenue.
B) Would increase its investment account when Son Company declares dividends.
C) Would record 40% of the net income of Son Company as investment income each year.
D) All of these answer choices are correct.
Difficulty: 2 Medium
Topic: Equity method—Account for investment
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
84) When using the equity method to account for an investment, cash dividends received by the investor from the investee should be recorded:
A) As a reduction in the investment account.
B) As an increase in the investment account.
C) As dividend income.
D) As a contra item to stockholders' equity.
Difficulty: 1 Easy
Topic: Equity method—Account for investment
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
85) When the equity method of accounting for investments is used by the investor, the investment account is increased when:
A) A cash dividend is received from the investee.
B) The investee reports net income for the year.
C) The investor records additional depreciation related to the investment.
D) The investee reports a net loss for the year.
Difficulty: 1 Easy
Topic: Equity method—Account for investment
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
86) Which of the following increases the investment account under the equity method of accounting?
A) Decreases in the market price of the investee's stock.
B) Dividends paid by the investee that were declared in the previous year.
C) Net loss of the investee company.
D) None of these answer choices are correct.
Difficulty: 2 Medium
Topic: Equity method—Account for investment
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
87) If the fair value of equity securities is not determinable and the equity method is not appropriate, the securities should be reported at:
A) Amortized cost.
B) Cost.
C) Consolidated value.
D) Net present value.
Difficulty: 2 Medium
Topic: Equity investments—Distinguish methods
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
88) When the investor's level of influence changes, it may be necessary to change from the equity method to another method. When the level of ownership falls from a range of 20% to 50% to less than 20%, the equity method typically would be discontinued and the investment account balance would be carried over at:
A) Amortized cost on the date of ownership change.
B) Fair value on the date of ownership change.
C) Discounted present value on the date of ownership change.
D) The current balance, and this balance would serve as the new "cost."
Difficulty: 2 Medium
Topic: Equity method—Change to or from equity
Learning Objective: 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
89) When the investor's level of influence changes, it may be necessary to change to the equity method from another method. When the level of ownership rises from less than 20% to a range of 20% to 50%, the equity method typically would become appropriate and the investment account balance should be:
A) Retrospectively adjusted to the balance that would have existed if the equity method had been in effect for prior years.
B) Carried over as is with no adjustment necessary.
C) Carried over at the fair value that exists on date of transfer.
D) Adjusted to reflect amortized cost.
Difficulty: 2 Medium
Topic: Equity method—Change to or from equity
Learning Objective: 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
90) On July 1, 2021, Tremen Corporation acquired 40% of the shares of Delany Company. Tremen paid $3,000,000 for the investment, and that amount is exactly equal to 40% of the book value of identifiable net assets on Delany's balance sheet. Delany recognized net income of $1,000,000 for 2021, and paid $150,000 of dividends each quarter to its shareholders. After all closing entries are made for the year ended December 31, 2021, Tremen's "Investment in Delany Company" account would have a balance of:
A) $3,200,000.
B) $3,160,000.
C) $3,000,000.
D) $3,080,000.
Difficulty: 3 Hard
Topic: Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
91) Which of the following is not true about accounting for investments using the equity method under IFRS?
A) IFRS requires the equity method when the investor exercises significant influence over the investee.
B) IFRS is more restrictive than U.S. GAAP concerning when an investor can elect the fair value option.
C) IFRS requires that the accounting policies of an investee be adjusted to correspond to those of the investor when applying the equity method.
D) IFRS does not allow use of the equity method where two or more investors have joint control.
Difficulty: 3 Hard
Topic: Equity method—Account for investment; IFRS—Equity method
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
92) Bloomfield Bakers accounts for its investment in Clor Confectionary under the equity method. Bloomfield carried the Clor investment at $150,000 and $165,000 at December 31, 2020, and December 31, 2021, respectively. During 2021 Clor recognized $80,000 of net income and paid dividends of $30,000. Assuming that Bloomfield owned the same percentage of Clor throughout 2021, its percentage ownership must have been:
A) 15%.
B) 18.75%.
C) 30%.
D) 50%.
Difficulty: 3 Hard
Topic: Equity method—Account for investment
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Apply; Analyze
AACSB: Knowledge Application; Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
93) Jack Corporation purchased a 20% interest in Jill Corporation for $1,500,000 on January 1, 2021. Jack can significantly influence Jill. On December 10, 2021, Jill declared and paid $1 million in dividends. Jill reported a net loss of $6 million for the year. What amount of loss should Jack report in its income statement for 2021 relative to its investment in Jill?
A) $1,000,000.
B) $1,200,000.
C) $1,400,000.
D) $1,500,000.
Difficulty: 3 Hard
Topic: Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
94) Hope Company bought 30% of Faith Corporation in the beginning of 2021. Hope's purchase price equaled 30% of the book value of Faith's net identifiable assets, which also equaled 30% of the fair value of Faith. During 2021, Faith reported net income in the amount of $4,000,000 and declared and paid dividends in the amount of $500,000. Hope mistakenly accounted for the investment using the fair value through net income method instead of using the equity method. What effect would this error have on the investment account and net income, respectively, for 2021?
A) Overstated by $1,050,000; understated by $1,050,000.
B) Understated by $1,050,000; understated by $1,050,000.
C) Understated by $1,200,000; overstated by $1,050,000.
D) Overstated by $1,200,000; overstated by $1,200,000.
Net Income: | FV through net income | Equity Method | ||
Investment |
|
| 1,200,000 |
|
Investment revenue |
|
|
| 1,200,000 |
Dividends |
|
|
|
|
Cash | 150,000 |
|
|
|
Investment revenue |
| 150,000 |
|
|
Cash |
|
| 150,000 |
|
Investment |
|
|
| 150,000 |
Difficulty: 3 Hard
Topic: Equity investments—Distinguish methods
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.
Bloom's: Apply; Analyze
AACSB: Knowledge Application; Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
95) Sox Corporation purchased a 40% interest in Hack Corporation for $1,500,000 on January 1, 2021. On November 1, 2021, Hack declared and paid $1 million in dividends. On December 31, Hack reported a net loss of $6 million for the year. What amount of loss should Sox report on its income statement for 2021 relative to its investment in Hack?
A) $1,100,000.
B) $2,400,000.
C) $1,500,000.
D) $1,600,000.
Difficulty: 2 Medium
Topic: Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
96) Assume that, on January 1, 2021, Matsui Co. paid $1,200,000 for its investment in 60,000 shares of Yankee Inc. Further, assume that Yankee has 200,000 total shares of stock issued. The book value and fair value of Yankee's identifiable net assets were both $4,000,000 at January 1, 2021. The following information pertains to Yankee during 2021:
Net income | $ | 200,000 |
|
Dividends declared and paid | $ | 60,000 |
|
Market price of common stock on 12/31/2021 | $ | 22 | /share |
What amount would Matsui report in its year-end 2021 balance sheet for its investment in Yankee?
A) $1,320,000.
B) $1,260,000.
C) $1,242,000.
D) None of these answer choices are correct.
Difficulty: 2 Medium
Topic: Equity method—Account for investment
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
97) Gerken Company concluded at the beginning of 2021 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:
A) Net income and retained earnings will be higher by $25,000.
B) Net income will be unchanged, and retained earnings will be higher by $25,000.
C) Net income and retained earnings will be higher by $75,000.
D) The accounts will be unchanged because no adjustment is necessary.
Difficulty: 2 Medium
Topic: Equity method—Change to or from equity
Learning Objective: 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
98) On April 1, 2021, BigBen Company acquired 30% of the shares of LittleTick, Inc. BigBen paid $100,000 for the investment, which is $40,000 more than 30% of the book value of LittleTick's identifiable net assets. BigBen attributed $15,000 of the $40,000 difference to inventory that will be sold in the remainder of 2021, and the rest to goodwill. LittleTick recognized a total of $20,000 of net income for 2021, and paid total dividends for the year of $10,000; these dividends were issued quarterly. BigBen's investment in LittleTick will affect BigBen's 2021 net income by:
A) A loss of $10,500.
B) Earnings of $4,500.
C) Earnings of $1,125.
D) Earnings of $3,450.
Difficulty: 3 Hard
Topic: Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
99) Cucumber Company concluded at the beginning of 2021 that the company's ownership interest in PickleCo had decreased to the point that it became appropriate to begin accounting for its investment under the fair value through net income method, rather than using the equity method as it had been doing. The balance in the investment account is $75,000 at the time of the change, and accountants working with company records determined that the balance would have been $50,000 if the investment had been accounted for as fair value through net income. At the time of implementing the change to the fair value through net income method, if financial statements were prepared:
A) Net income and retained earnings will be lower by $25,000.
B) Net income will be unchanged, and retained earnings will be lower by $25,000.
C) The accounts will be unchanged because no adjustment is necessary.
D) Other comprehensive income and accumulated other comprehensive income will be lower by $25,000.
Difficulty: 2 Medium
Topic: Equity method—Change to or from equity
Learning Objective: 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
100) When the equity method of accounting for investments is used by the investor, the amortization of additional depreciation due to differences between book values and fair values of investee assets on the date of acquisition:
A) Reduces the investment account and increases investment revenue.
B) Increases the investment account and increases investment revenue.
C) Reduces the investment account and reduces investment revenue.
D) Increases the investment account and reduces investment revenue.
Difficulty: 2 Medium
Topic: Equity method—Further adjustments
Learning Objective: 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
101) On January 1, 2021, Green Corporation purchased 20% of the outstanding voting common stock of Gold Company for $300,000. The book value of the acquired shares was $275,000. The excess of cost over book value is attributable to an intangible asset on Gold's books that was undervalued and had a remaining useful life of five years. For the year ended December 31, 2021, Gold reported net income of $125,000 and paid cash dividends of $25,000. What is the carrying value of Green's investment in Gold at December 31, 2021?
A) $295,000.
B) $300,000.
C) $315,000.
D) $320,000.
Cost | $ | 300,000 |
|
|
Share of NI: 20% × $125,000 | $ | 25,000 |
|
|
Share of dividends: 20% × $25,000 |
| (5,000 | ) |
|
Amortization of intangibles: ($300,000 - $275,000)/5 |
| (5,000 | ) |
|
Carrying value, 12/31/2021 | $ | 315,000 |
|
|
Difficulty: 3 Hard
Topic: Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
102) At the start of the current year, SBC Corp. purchased 30% of Sky Tech Inc. for $45 million. At the time of purchase, the carrying value of Sky Tech's net assets was $75 million. The fair value of Sky Tech's depreciable assets was $15 million in excess of their book value. For this year, Sky Tech reported a net income of $75 million and declared and paid $15 million in dividends.
The amount of purchased goodwill is:
A) $18 million.
B) $30 million.
C) $60 million.
D) None of the other answers are correct.
(in millions) |
|
|
|
|
Cost | $ | 45 |
|
|
FV: 30% × ($75 + $15) |
| (27 | ) |
|
Goodwill | $ | 18 |
|
|
Difficulty: 3 Hard
Topic: Equity method—Further adjustments
Learning Objective: 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
103) At the start of the current year, SBC Corp. purchased 30% of Sky Tech Inc. for $45 million. At the time of purchase, the carrying value of Sky Tech's net assets was $75 million. The fair value of Sky Tech's depreciable assets was $15 million in excess of their book value. For this year, Sky Tech reported a net income of $75 million and declared and paid $15 million in dividends.
The total amount of additional depreciation to be recognized by SBC over the remaining life of the assets is:
A) $4.5 million.
B) $15 million.
C) $27 million.
D) None of these answer choices are correct.
(in millions) |
|
|
|
|
FV in excess of book value | $ | 15 |
|
|
Share of ownership |
| 30 | % |
|
Additional depreciation, in total | $ | 4.5 |
|
|
Difficulty: 2 Medium
Topic: Equity method—Further adjustments
Learning Objective: 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
104) Assume that, on January 1, 2021, 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, 2021, 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 2021:
Net income | $ | 600,000 |
|
Dividends declared and paid | $ | 360,000 |
|
Market price of common stock on 12/31/2021 | $ | 80 | /share |
What amount would Sosa Enterprises report in its year-end 2021 balance sheet for its investment in Orioles Co.?
A) $3,200,000.
B) $3,180,000.
C) $3,135,000.
D) $3,027,000.
Difficulty: 3 Hard
Topic: Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
105) Smith buys and sells equity securities. On December 15, 2021, Smith purchased $500,000 of Jones shares and elected the fair value option to account for the Jones investment. As of December 31, 2021, the Jones shares had a fair value of $525,000. In the 2021 financial statements, Smith will report (ignore taxes):
A) Investment income of $25,000 in its income statement.
B) Other comprehensive income of $25,000.
C) Accumulated other comprehensive income of $525,000.
D) An investment in Jones of $500,000.
Difficulty: 2 Medium
Topic: Fair value option for investments
Learning Objective: 12-08 Explain how electing the fair value option affects accounting for investments.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
106) Which of the following is not true about the fair value option?
A) The fair value option is irrevocable.
B) The fair value option must be elected for all shares of an investment in a particular company.
C) Electing the fair value option for held-to-maturity investments simply reclassifies those investments as trading securities.
D) All of these answer choices are true.
Difficulty: 2 Medium
Topic: Fair value option for investments
Learning Objective: 12-08 Explain how electing the fair value option affects accounting for investments.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
107) Which of the following is true about the fair value option under IFRS?
A) The fair value option can be used to avoid an "accounting mismatch" that occurs in a risk-hedging arrangement.
B) The fair value option is less restrictive under IFRS than under U.S. GAAP.
C) The fair value option can be applied to most equity-method investments.
D) The fair value option is not allowed.
Difficulty: 2 Medium
Topic: Fair value option for investments
Learning Objective: 12-08 Explain how electing the fair value option affects accounting for investments.; 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: Keyboard Navigation
108) Which of the following is not true when the fair value option is elected for an investment that would normally be accounted for under the equity method?
A) No journal entry need be made to recognize the investor's portion of the investee's net income.
B) Unrealized holding gains and losses on that investment are recognized in net income.
C) No journal entry need be made to recognize the investor's portion of dividends paid by the investee.
D) All of these answer choices are true.
Difficulty: 2 Medium
Topic: Fair value option for investments
Learning Objective: 12-08 Explain how electing the fair value option affects accounting for investments.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
109) Under IFRS No. 9, which is not a category for accounting for investments?
A) Fair value through profit or loss (FVPL).
B) Fair value through other comprehensive income (FVOCI).
C) Held-to-maturity.
D) Amortized cost.
Difficulty: 2 Medium
Topic: IFRS—Distinguish investment categories
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
110) Which of the following is not true about the "fair value through profit or loss" (FVPL) approach for accounting for investments under IFRS?
A) Allowed under IFRS No. 9.
B) Includes unrealized holding gains in earnings.
C) Requires reclassification of realized gains from other comprehensive income.
D) Not vulnerable to other-than-temporary impairments.
Difficulty: 2 Medium
Topic: IFRS—Investor lacks significant influence
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
111) Under IFRS No. 9, an investment can be accounted for at amortized cost if:
A) The debt consists of interest and principal, and the investor is holding the debt to collect those cash flows.
B) The investor elects amortized cost.
C) The investor owns between 20% and 50% of outstanding shares.
D) The debt is not in technical default.
Difficulty: 2 Medium
Topic: IFRS—Distinguish investment categories
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
112) Which of the following is not true about accounting for an equity investment under IFRS No. 9?
A) The investor can elect to account for the investment as FVOCI.
B) Unrealized holding gains and losses on the investment will be recognized in income unless the investor elects to account for the investment as FVOCI.
C) If the investor elects to account for the investment as FVOCI, gains and losses will be recognized in net income when the investment is sold.
D) Unrealized holding gains and losses are recognized in net income if the investor accounts for the investments as FVPL.
Difficulty: 2 Medium
Topic: IFRS—Investor lacks significant influence; IFRS—Distinguish investment categories
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
113) Which of the following is not true about the "fair value through other comprehensive income" (FVOCI) approach for accounting for investments under IFRS No. 9?
A) Is allowed for equity-method investments.
B) Includes unrealized holding gains in other comprehensive income.
C) Does not require reclassification of realized gains from other comprehensive income.
D) Is allowed for equity investments.
Difficulty: 2 Medium
Topic: IFRS—Investor lacks significant influence
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
114) Wang Corporation purchased $100,000 of Hales Inc. 6% bonds at par in 2020 with the intent and ability to hold the bonds until the bonds mature in 2025, 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 2021. Wang applies the CECL model to account for its investment and calculates that, of the $30,000 drop in fair value, $10,000 of it relates to credit losses for amounts not expected to be collected, and the $20,000 remainder relates to noncredit losses. Wang's accounting for this impairment will reduce before-tax net income for 2021 by:
A) $0.
B) $10,000.
C) $20,000.
D) $30,000.
Difficulty: 2 Medium
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; Appendix 12B Impairment of Debt Investments.
Bloom's: Apply
AACSB: Diversity; Knowledge Application
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
115) Liang Corporation purchased $100,000 of Hales Inc. 6% bonds at par in 2020 with the intent and ability to hold the bonds until the bonds mature in 2025, so Liang 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 2021. When Liang applies the CECL model to account for its investment it calculates that, of the $30,000 drop in fair value, $10,000 of it relates to credit losses for amounts not expected to be collected. Liang's accounting for this impairment will reduce before-tax net income for 2021 by:
A) $0.
B) $10,000.
C) $20,000.
D) $30,000.
Difficulty: 2 Medium
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; Appendix 12B Impairment of Debt Investments.
Bloom's: Apply
AACSB: Diversity; Knowledge Application
AICPA/Accessibility: Keyboard Navigation
116) Durney Corporation purchased $100,000 of Hales Inc. 6% bonds at par, and Durney classifies its investment as available-for-sale. 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 2021. Durney does not believe it is more likely than not that it will have to sell the investment before its fair value recovers. When Durney applies the CECL model to account for its investment, Durney calculates that, of the $30,000 drop in fair value, $10,000 of it relates to credit losses and the $20,000 remainder relates to noncredit losses. Durney's accounting for this impairment will reduce before-tax net income for 2021 by:
A) $0.
B) $10,000.
C) $20,000.
D) $30,000.
Difficulty: 2 Medium
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.; Appendix 12B Impairment of Debt Investments.
Bloom's: Apply
AACSB: Diversity; Knowledge Application
AICPA/Accessibility: Keyboard Navigation
117) Witz Corporation purchased $100,000 of Hales Inc. 6% bonds at par, and Witz classifies its investment as available-for-sale. 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 2021. Witz believes it is more likely than not that it will have to sell the investment before its fair value recovers. When Witz applies the CECL model to account for its investment, Witz calculates that, of the $30,000 drop in fair value, $10,000 of it relates to credit losses and the $20,000 remainder relates to noncredit losses. Witz's accounting for this impairment will reduce before-tax net income for 2021 by:
A) $0.
B) $10,000.
C) $20,000.
D) $30,000.
Difficulty: 2 Medium
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.; Appendix 12B Impairment of Debt Investments.
Bloom's: Apply
AACSB: Diversity; Knowledge Application
AICPA/Accessibility: Keyboard Navigation
118) Espana Corporation purchased $100,000 of Hales Inc. 6% bonds at par in 2020 and reported the bonds at amortized cost. 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 2021. When Espana applies the ECL model to account for its investment in 2021, Espana concludes that the credit risk on the investment has increased significantly and calculates that, of the $30,000 drop in fair value, $10,000 of it relates to 12-month credit losses, $25,000 to lifetime credit losses (including the 12-month credit losses), and $5,000 to other factors. Espana's accounting for this impairment will reduce before-tax net income for 2021 by:
A) $0.
B) $10,000.
C) $20,000.
D) $25,000.
Difficulty: 2 Medium
Topic: IFRS—Impairments
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.; Appendix 12B Impairment of Debt Investments.
Bloom's: Apply
AACSB: Diversity; Knowledge Application
AICPA/Accessibility: BB Global; FN Measurement / Keyboard Navigation
119) KLR Corporation purchased $100,000 of Hales Inc. 6% bonds at par in 2020 and reported the bonds at amortized cost. 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 2021. KLR does not believe it is more likely than not that it will have to sell the investment before its fair value recovers. When KLR applies the ECL model to account for its investment in 2021, KLR concludes that the credit risk on the investment has not increased significantly and calculates that, of the $30,000 drop in fair value, $10,000 of it relates to 12-month credit losses, $25,000 to lifetime credit losses (including the 12-month credit losses), and $5,000 to other factors. KLR has not elected to always recognize lifetime credit losses. KLR's accounting for this impairment will reduce before-tax net income for 2021 by:
A) $0.
B) $10,000.
C) $20,000.
D) $25,000.
Difficulty: 2 Medium
Topic: IFRS—Impairments
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.; Appendix 12B Impairment of Debt Investments.
Bloom's: Apply
AACSB: Diversity; Knowledge Application
AICPA/Accessibility: Keyboard Navigation
120) If the fair value of a held-to-maturity investment declines below cost, and the company believes it may eventually need to sell the investment before fair value recovers:
A) The investment is not written down to fair value, but any credit losses are recognized in net income.
B) The investment is written down to fair value, and the entire impairment loss is recognized in net income.
C) The investment is written down to fair value, and the entire impairment loss is recognized in other comprehensive income.
D) Credit losses and other changes in fair value are not recognized for held-to-maturity investments.
Difficulty: 2 Medium
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; Appendix 12B Impairment of Debt Investments.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
121) If the fair value of a held-to-maturity investment declines below cost, and the company does not intend to sell the investment before fair value recovers:
A) The investment is not written down to fair value, but any credit losses are recognized in net income.
B) The investment is written down to fair value, and the entire impairment loss is recognized in net income.
C) The investment is written down to fair value, and the entire impairment loss is recognized in other comprehensive income.
D) Credit losses and other changes in fair value are not recognized for held-to-maturity investments.
Difficulty: 2 Medium
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; Appendix 12B Impairment of Debt Investments.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
122) If the fair value of a trading security declines because of a credit loss:
A) The investment is not written down to fair value.
B) The investment is written down to fair value, and an "impairment loss" is recognized in net income.
C) The investment is written down to fair value, and the impairment loss is recognized in other comprehensive income.
D) The investment is treated the same way as accounting for the investment as fair value through net income.
Difficulty: 2 Medium
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; Appendix 12B Impairment of Debt Investments.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
123) If the fair value of an available-for-sale investment declines below cost, and the company intends to sell the investment before fair value recovers:
A) The investment is not written down to fair value, but any credit losses are recognized in net income.
B) The investment is written down to fair value, and the entire impairment loss is recognized in net income.
C) The investment is written down to fair value, and the entire impairment loss is recognized in other comprehensive income.
D) The investment is written down to fair value, the credit loss is recognized in net income, and any remaining impairment is recognized in other comprehensive income.
Difficulty: 2 Medium
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.; Appendix 12B Impairment of Debt Investments.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
124) If the fair value of an available-for-sale investment declines below cost, and the company does not believe it is more likely than not that it will have to sell the investment before fair value recovers:
A) The investment is not written down to fair value, but any credit losses are recognized in net income.
B) The investment is written down to fair value, and the entire impairment loss is recognized in net income.
C) The investment is written down to fair value, and the entire impairment loss is recognized in other comprehensive income.
D) The investment is written down to fair value, the credit loss is recognized in net income, and any remaining impairment is recognized in other comprehensive income.
Difficulty: 2 Medium
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.; Appendix 12B Impairment of Debt Investments.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: Keyboard Navigation
125) Dicker Furriers purchased 1,000 bonds of Loose Corporation on January 10, 2020, for $800 per bond and classified the investment as securities available-for-sale. Loose's market value was $400 per bond on December 31, 2020, and the decline was due to a noncredit loss. As of December 31, 2021, Dicker still owned the Loose bonds whose market value had declined to $100 per bond. The additional decline is due to a credit loss of $300 per bond. Dicker does not believe (and never has believed) it is more likely than not that it would have to sell the Loose investment before fair value recovers. Dicker's December 31, 2021, balance sheet and the 2021 income statement would show the following:
| Investment in Loose bonds | Income statement loss on investments | ||||
a. | $ | 100,000 |
| $ | 700,000 |
|
b. | $ | 100,000 |
| $ | 300,000 |
|
c. | $ | 800,000 |
| $ | 0 |
|
d. | $ | 500,000 |
| $ | 300,000 |
|
A) Option a.
B) Option b.
C) Option c.
D) Option d.
Difficulty: 3 Hard
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.; Appendix 12B Impairment of Debt Investments.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: Keyboard Navigation
126) Dicker Furriers purchased 1,000 bonds of Loose Corporation on January 10, 2020, for $800 per bond and classified the investment as securities available-for-sale. Loose's market value was $400 per bond on December 31, 2020, and the decline was due to a noncredit loss. As of December 31, 2021, Dicker still owned the Loose bonds whose market value had declined to $100 per bond. The additional decline is due to a credit loss of $300 per bond. During 2021 Dicker determined for the first time that it was more likely than not that it would have to sell the Loose investment before fair value recovers. Dicker's December 31, 2021, balance sheet and the 2021 income statement would show the following:
| Investment in Loose bonds | Income statement loss on investments | ||||
a. | $ | 100,000 |
| $ | 700,000 |
|
b. | $ | 100,000 |
| $ | 300,000 |
|
c. | $ | 800,000 |
| $ | 0 |
|
d. | $ | 500,000 |
| $ | 300,000 |
|
A) Option a.
B) Option b
C) Option c.
D) Option d.
Difficulty: 3 Hard
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.; Appendix 12B Impairment of Debt Investments.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: Keyboard Navigation
127) Dicker Furriers purchased 1,000 bonds of Loose Corporation on January 10, 2020, for $800 per bond at par and classified the investment as a held-to-maturity investment. Loose's market value was $400 per bond on December 31, 2020, and the decline was due to a noncredit loss. As of December 31, 2021, Dicker still owned the Loose bonds whose market value had declined to $100 per bond. The additional decline is due to a credit loss of $300 per bond. Dicker does not believe (and never has believed) it is more likely than not that it would have to sell the Loose investment before fair value recovers. Dicker's December 31, 2021, balance sheet and the 2021 income statement would show the following:
| Investment in Loose bonds | Income statement loss on investments | ||||
a. | $ | 100,000 |
| $ | 700,000 |
|
b. | $ | 100,000 |
| $ | 300,000 |
|
c. | $ | 800,000 |
| $ | 0 |
|
d. | $ | 500,000 |
| $ | 300,000 |
|
A) Option a.
B) Option b.
C) Option c.
D) Option d.
Difficulty: 3 Hard
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; Appendix 12B Impairment of Debt Investments.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
128) Which of the following is not an example of a use of special purpose funds?
A) Petty cash.
B) Payroll.
C) Bond repayment.
D) Accounts receivable.
Difficulty: 1 Easy
Topic: Life insurance—Appendix A
Learning Objective: Appendix 12A Other Investments (Special Purpose Funds, Investments in Life Insurance Policies).
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: Keyboard Navigation
129) Several years ago, Cayuga Capital acquired a $1 million insurance policy on the life of its chief executive officer, naming Cayuga Capital as beneficiary. Annual premiums are $20,000, payable at the beginning of each year. In 2021, the cash surrender value of the policy increased from $12,000 to $15,000 according to the contract. Cayuga's journal entry to record payment of the insurance premium in 2021 would include a:
A) debit to cash of $20,000.
B) debit to cash surrender value of life insurance of $15,000.
C) debit to insurance expense of $17,000.
D) credit to surrender value revenue of $3,000.
|
|
|
|
|
Insurance expense (difference) | $ | 17,000 |
|
|
Cash surrender value of life insurance ($15,000 − $12,000) | $ | 3,000 |
|
|
Cash (2021 premium) |
|
| $ | 20,000 |
Difficulty: 2 Medium
Topic: Life insurance—Appendix A
Learning Objective: Appendix 12A Other Investments (Special Purpose Funds, Investments in Life Insurance Policies).
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: Keyboard Navigation
130) Which of the following is not an example of a financial instrument?
A) Evidence of an ownership interest in an entity.
B) Cash.
C) Accounts receivable.
D) Retained earnings.
Difficulty: 1 Easy
Topic: Financial instruments and derivatives
Learning Objective: 12-08 Explain how electing the fair value option affects accounting for investments.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: Keyboard Navigation
131) Which of the following is not an example of a derivative?
A) Interest rate swap.
B) Cash.
C) Stock option.
D) Forward contract.
Difficulty: 1 Easy
Topic: Financial instruments and derivatives
Learning Objective: 12-08 Explain how electing the fair value option affects accounting for investments.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
132) Which of the following is not true about derivatives?
A) Large losses on derivative investments have been reported in the press.
B) Derivatives are so named because their value is derived from some underlying measure.
C) Derivatives are useful instruments for managing risk.
D) Accounting for derivatives is fully resolved and no additional rules or interpretations are likely.
Difficulty: 2 Medium
Topic: Financial instruments and derivatives
Learning Objective: 12-08 Explain how electing the fair value option affects accounting for investments.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement / Keyboard Navigation
133) On January 12, 2021, Jefferson Corporation purchased bonds of Rose Corporation for $73 million at par and classified the securities as available-for-sale. On December 31, 2021, these bonds were valued at $67 million. Nine months later, on October 3, 2022, Jefferson Corporation sold these bonds for $87 million.
As part of the multistep approach to record the 2022 transaction, Jefferson Corporation should first update the fair value adjustment on the date of sale by recording:
A) An unrealized holding gain of $20 million in 2022.
B) A gain of $20 million in 2022.
C) An unrealized holding gain of $26 million in 2022.
D) A gain of $14 million in 2022.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
134) On January 12, 2021, Jefferson Corporation purchased bonds of Rose Corporation for $73 million at par and classified the securities as available-for-sale. On December 31, 2021, these bonds were valued at $67 million. Nine months later, on October 3, 2022, Jefferson Corporation sold these bonds for $87 million.
As part of the multistep approach to record the 2022 transaction, Jefferson Corporation should next take the second step of:
A) Reversing total accumulated unrealized holding gains of $20 million.
B) Reversing total accumulated unrealized holding gains of $6 million.
C) Reversing total accumulated unrealized holding gains of $14 million.
D) Reversing total accumulated unrealized holding gains of $26 million.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
135) On January 12, 2021, Jefferson Corporation purchased bonds of Rose Corporation for $73 million at par and classified the securities as available-for-sale. On December 31, 2021, these bonds were valued at $67 million. Nine months later, on October 3, 2022, Jefferson Corporation sold these bonds for $87 million.
As part of the multistep approach to record the 2022 transaction, Jefferson Corporation should finally take the third step of recording a sales transaction with a gain of:
A) $20 million.
B) $26 million.
C) $6 million.
D) $14 million.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
136) On March 25, 2021, Phillips Corporation purchased bonds of Atlas Corporation for $132 million and classified the securities as trading securities. On December 31, 2021, these bonds were valued at $150 million. Three months later, on April 3, 2022, Phillips Corporation sold these bonds for $140 million.
As part of the multistep approach to record the 2022 transaction, Phillips Corporation should first update the fair value adjustment by recording:
A) An unrealized holding gain of $28 million in 2022.
B) An unrealized holding loss of $10 million in 2022.
C) An unrealized holding gain of $8 million in 2022.
D) A gain of $8 million in 2022.
Difficulty: 2 Medium
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
137) On March 25, 2021, Phillips Corporation purchased bonds of Atlas Corporation for $132 million and classified the securities as trading securities. On December 31, 2021, these bonds were valued at $150 million. Three months later, on April 3, 2022, Phillips Corporation sold these bonds for $140 million.
As part of the multistep approach to record the 2022 transaction, Jefferson Corporation should next take the second step of recording a sales transaction where it:
A) Credits a fair value adjustment of $18 million.
B) Debits a fair value adjustment of $18 million.
C) Debits a fair value adjustment of $8 million.
D) Credits a fair value adjustment of $8 million.
Difficulty: 2 Medium
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement / Keyboard Navigation
138) Match the number for the level of stock ownership that most frequently relates to each concept listed below.
STOCK OWNERSHIP PERCENTAGE | CONCEPT | NUMBER |
1. Less than 20% | The investor can significantly influence, but not control, the investee's operating and financial policies. | ____ |
2. 20%–50% | The reporting of the investment depends on whether there is a readily determinable fair value for it. | ____ |
3. More than 50% | The investment is reported at cost, adjusted for subsequent growth in the investee. | ____ |
The investment is reported at fair value. | ____ | |
Financial statements are combined as if for a single company. | ____ | |
The investor controls the investee. | ____ | |
Unrealized holding gains and losses are recorded at each reporting date. | ____ | |
The investee is a subsidiary of the investor. | ____ | |
Assets and liabilities of the investee are combined with those of the investor for reporting purposes. | ____ | |
The investor does not include an investment account for the investee in the balance sheet. | ____ |
STOCK OWNERSHIP PERCENTAGE | CONCEPT | NUMBER |
1. Less than 20% | The investor can significantly influence, but not control, the investee's operating and financial policies. | 2 |
2. 20%–50% | The reporting of the investment depends on whether there is a readily determinable fair value for it. | 1 |
3. More than 50% | The investment is reported at cost, adjusted for subsequent growth in the investee. | 2 |
The investment is reported at fair value. | 1 | |
Financial statements are combined as if for a single company. | 3 | |
The investor controls the investee. | 3 | |
Unrealized holding gains and losses are recorded at each reporting date. | 1 | |
The investee is a subsidiary of the investor. | 3 | |
Assets and liabilities of the investee are combined with those of the investor for reporting purposes. | 3 | |
The investor does not include an investment account for the investee in the balance sheet. | 3 |
Difficulty: 2 Medium
Topic: Equity investments—Distinguish methods
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.; 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement
139) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term to indicate the way each of the investments usually should be accounted for under U.S. GAAP based on the information provided.
TERM | PHRASE | NUMBER |
1. None of the these choices apply | Treasury bonds held for their entire life. | ____ |
2. Trading Securities | Accounts Receivable. | ____ |
3. Consolidation | Treasury bonds held for short-term profit. | ____ |
4. Securities Held-to-Maturity | Corporate bonds held for immediate resale. | ____ |
5. Equity Method | 40% of the voting common stock of XYZ Company. | ____ |
85% of the voting common stock of ABC Corporation. | ____ | |
25% of the voting common stock of DEF Corporation. | ____ | |
50% of the voting common stock of JMG Corporation. | ____ | |
18% of voting common stock of Griggs Corporation; investor's CEO on the board of directors of Griggs Corporation; no other investor owns more than 1%. | ____ | |
Corporate bonds to be held for full term of 10 years. | ____ |
TERM | PHRASE | NUMBER |
1. None of these choices apply | Treasury bonds held for their entire life. | 4 |
2. Trading Securities | Accounts Receivable. | 1 |
3. Consolidation | Treasury bonds held for short-term profit. | 2 |
4. Securities Held-to-Maturity | Corporate bonds held for immediate resale. | 2 |
5. Equity Method | 40% of the voting common stock of XYZ Company. | 5 |
85% of the voting common stock of ABC Corporation. | 3 | |
25% of the voting common stock of DEF Corporation. | 5 | |
50% of the voting common stock of JMG Corporation. | 5 | |
18% of voting common stock of Griggs Corporation; investor's CEO on the board of directors of Griggs Corporation; no other investor owns more than 1%. | 5 | |
Corporate bonds to be held for full term of 10 years. | 4 |
Difficulty: 2 Medium
Topic: Debt investments—Distinguish categories; Equity investments—Distinguish methods
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.; 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.; 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement
140) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.
TERM | PHRASE | NUMBER |
1. Trading securities only | Temporary declines in the fair value of an available-for-sale security. | ____ |
2. Securities available-for-sale only | Reported at fair value. | ____ |
3. Unrealized holding losses | Changes in market value affect comprehensive income, but not net income. | ____ |
4. Dividends received | Changes in market value affect net income. | ____ |
5. Trading securities and securities available-for-sale | Reduces the investment account balance under the equity method. | ____ |
TERM | PHRASE | NUMBER |
1. Trading securities only | Temporary declines in the fair value of an available-for-sale security. | 3 |
2. Securities available-for-sale only | Reported at fair value. | 5 |
3. Unrealized holding losses | Changes in market value affect comprehensive income, but not net income. | 2 |
4. Dividends received | Changes in market value affect net income. | 1 |
5. Trading securities and securities available-for-sale | Reduces the investment account balance under the equity method. | 4 |
Difficulty: 1 Easy
Topic: Debt investments—Distinguish categories; Equity investments—Distinguish methods
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.; Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement
141) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms with respect to accounting for investments under IFRS. Match each phrase with the correct term by placing the number designating the best term in the space provided by the phrase.
TERM | PHRASE | NUMBER |
1. Business purpose test | Does not allow the "held-to-maturity" approach for debt investments. | ____ |
2. IFRS No. 9 | Can be accounted for as "fair value through profit or loss (FVPL)" or as "fair value through other comprehensive income (FVOCI)" under IFRS No. 9. | ____ |
3. Debt investments | One of the criteria that must be met under IFRS No. 9 to qualify for use of the amortized cost method. | ____ |
4. Fair value through other comprehensive income | Similar to available-for-sale investments, except realized gains and losses are not reclassified into net income. | ____ |
5. Accounting mismatch | One of the circumstances in which the fair value option can be used under IFRS. | ____ |
TERM | PHRASE | NUMBER |
1. Business purpose test | Does not allow the "held-to-maturity" approach for debt investments. | 2 |
2. IFRS No. 9 | Can be accounted for as "fair value through profit or loss (FVPL)" or as "fair value through other comprehensive income (FVOCI)" under IFRS No. 9. | 3 |
3. Debt investments | One of the criteria that must be met under IFRS No. 9 to qualify for use of the amortized cost method. | 1 |
4. Fair value through other comprehensive income | Similar to available-for-sale investments, except realized gains and losses are not reclassified into net income. | 4 |
5. Accounting mismatch | One of the circumstances in which the fair value option can be used under IFRS. | 5 |
Difficulty: 3 Hard
Topic: IFRS—Distinguish investment categories; IFRS—Fair value option
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement; BB Global
142) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.
TERM | PHRASE | NUMBER |
1. Change from the equity method | Result from a decline in fair value prior to sale. | ____ |
2. Financial instruments | Change accounted for prospectively. | ____ |
3. Unrealized holding losses | Method used for small ownership percentage of equity investments. | ____ |
4. Fair value through net income | Encompass cash, equity securities, and debt securities. | ____ |
5. Unrealized holding gains | When related to trading securities, they increase net income. | ____ |
TERM | PHRASE | NUMBER |
1. Change from the equity method | Result from a decline in fair value prior to sale. | 3 |
2. Financial instruments | Change accounted for prospectively. | 1 |
3. Unrealized holding losses | Method used for small ownership percentage equity investments. | 4 |
4. Fair value through net income | Encompass cash, equity securities, and debt securities. | 2 |
5. Unrealized holding gains | When related to trading securities, they increase net income. | 5 |
Difficulty: 2 Medium
Topic: Debt investments—Trading securities; Equity investments—FV through net income; Equity method—Change to or from equity; Financial instruments and derivatives
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.; 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.; 12-08 Explain how electing the fair value option affects accounting for investments.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement
143) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the number for the correct term.
TERM | PHRASE | NUMBER |
1. Securities held-to-maturity | Recognized only to the extent of carrying value under the equity method. | ____ |
2. Unrealized holding gains and losses | Reported in the income statement for trading securities. | ____ |
3. Impairment of securities available-for-sale | Reduces investment account under the equity method if its fair value is higher than its book value. | ____ |
4. Losses of investee | Requires positive intent and ability. | ____ |
5. Amortization of a patent that was obtained in a business acquisition | Requires recognition in the income statement if judged to be other than temporary. | ____ |
TERM | PHRASE | NUMBER |
1. Securities held-to-maturity | Recognized only to the extent of carrying value under the equity method. | 4 |
2. Unrealized holding gains and losses | Reported in the income statement for trading securities. | 2 |
3. Impairment of securities available-for-sale | Reduces investment account under the equity method if its fair value is higher than its book value. | 5 |
4. Losses of investee | Requires positive intent and ability. | 1 |
5. Amortization of a patent that was obtained in a business acquisition | Requires recognition in the income statement if judged to be other than temporary. | 3 |
Difficulty: 2 Medium
Topic: Debt investments—Trading securities; Debt investments—Available-for-sale; Impairment of debt investments; Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement
144) Listed below are five terms followed by a list of phrases that describe or characterize each of the terms. Match each phrase with the correct term.
TERM | PHRASE | NUMBER |
1. Investor's share of investee income | Can be required in the future when, at the time an equity-method investment is made, the fair value of investee's identifiable net assets exceeds their carrying value. | ____ |
2. Additional depreciation | Not recognized as revenue in equity-method investments. | ____ |
3. Equity method | Used when investor can significantly influence investee. | ____ |
4. Consolidation | Used when investor has effective control of investee. | ____ |
5. Dividends | Recognized as revenue for equity-method investments. | ____ |
TERM | PHRASE | NUMBER |
1. Investor's share of investee income | Can be required in the future when, at the time an equity-method investment is made, the fair value of investee's identifiable net assets exceeds their carrying value. | 2 |
2. Additional depreciation | Not recognized as revenue in equity-method investments. | 5 |
3. Equity method | Used when investor can significantly influence investee. | 3 |
4. Consolidation | Used when investor has effective control of investee. | 4 |
5. Dividends | Recognized as revenue for equity-method investments. | 1 |
Difficulty: 2 Medium
Topic: Equity investments—Distinguish methods; Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.; 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Understand
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement
145) On March 1, 2021, Navy Corporation used excess cash to purchase U.S. Treasury bonds for $103,000 plus accrued interest. The bonds were purchased at face value. The appropriate interest rate is 6%. Interest on these bonds is payable on January 1 and July 1 of each year. Navy's investment is accounted for as held-to-maturity. The fair value of the Treasury bonds is $104,000 at year-end.
Required:
Prepare the appropriate journal entries to record the transactions for the year, including any year-end adjustments. Show calculations, rounded to the nearest dollar.
Mar. 1 | Interest receivable ($103,000 × 6% × 2/12) | $1,030 | |
Investment in bonds | $103,000 | ||
Cash | $104,030 | ||
July 1 | Cash ($103,000 × 6% × 6/12) | $3,090 | |
Interest revenue | $2,060 | ||
Interest receivable | $1,030 | ||
Dec. 31 | Interest receivable | $3,090 | |
Interest revenue (held-to-maturity, so no fair value adjustment) | $3,090 |
Difficulty: 3 Hard
Topic: Debt investments—Account for interest; Debt investments—Held-to-maturity
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.; 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
146) On January 1, 2021, Wildcat Company purchased $93,000 of 10% bonds at face value. The bonds are to be held-to-maturity. The bonds pay interest semiannually on January 1 and July 1.
Required:
(1.) Prepare the appropriate journal entry to record the acquisition of the bonds.
(2.) Record the first two interest payments (ignore year-end accruals).
(1.) | 01/1/2021 | Investment in bonds | $93,000 | |
Cash | $93,000 | |||
(2.) | 07/1/2021 | Cash ($93,000 × 10% × 6/12) | $4,650 | |
Interest revenue | $4,650 | |||
01/1/2022 | Cash | $4,650 | ||
Interest revenue | $4,650 |
Difficulty: 2 Medium
Topic: Debt investments—Account for interest; Debt investments—Held-to-maturity
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.; 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
147) On January 1, 2021, Hoosier Company purchased $930,000 of 10% bonds at face value. The bond market value was $980,000 on December 31, 2021.
Required:
Prepare the appropriate journal entry on December 31, 2021, to properly value the bonds assuming the bonds are classified as:
(1.) Trading securities.
(2.) Securities available-for-sale.
(3.) Held-to-maturity securities.
(1.) | Fair value adjustment (TS) ($980,000 – $930,000) | $50,000 | |
Gain on investments (unrealized, NI) | $50,000 | ||
(2.) | Fair value adjustment, bonds (AFS) ($980,000 – $930,000) | $50,000 | |
Gain on investments (unrealized, OCI) | $50,000 |
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale; Debt investments—Trading securities; Debt investments—Held-to-maturity
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
148) FKG Inc. carries the following debt investments on its books at December 31, 2020, and December 31, 2021. All securities were purchased during 2020.
Trading Securities: | |||
Company | Cost | Value, Dec. 31, 2020 | Value, Dec. 31, 2021 |
A Company | $25,000 | $13,000 | $20,000 |
B Company | $13,000 | $20,000 | $20,000 |
C Company | $35,000 | $30,000 | $25,000 |
Available-for-Sale Securities: | |||
Company | Cost | Value, Dec. 31, 2020 | Value, Dec. 31, 2021 |
X Company | $210,000 | $130,000 | $50,000 |
Y Company | $ 50,000 | $ 60,000 | $70,000 |
Required:
(1.) Prepare the necessary journal entries for FKG on December 31, 2020, and December 31, 2021.
(2.) What net effect would the valuation of these debt investments have on 2020 net income?
(3.) What net effect would the valuation of these debt investments have on 2021 net income?
2020: | ||
Loss on investments (unrealized, NI) | $12,000 | |
Investment in A | $12,000 | |
Investment in B | $7,000 | |
Gain on investments (unrealized, NI) | $7,000 | |
Loss on investments (unrealized, NI) | $5,000 | |
Investment in C | $5,000 |
Alternative (combining all entries): | |||
Loss on investments (unrealized, NI) | $10,000 | ||
Fair value adjustment (TS) Loss on investments (unrealized, OCI) | $80,000 | $10,000 | |
Investment in X | $80,000 | ||
Investment in Y | $10,000 | ||
Gain on investments (unrealized, OCI) | $10,000 | ||
Alternative (combining all entries): | |||
Loss on investments (unrealized, OCI) | $70,000 | ||
Fair value adjustment (AFS) | $70,000 | ||
2021 | |||
Investment in A | $7,000 | ||
Gain on investments (unrealized, NI) | $7,000 | ||
NO ENTRY FOR B COMPANY | |||
Loss on investments (unrealized, NI) | $5,000 | ||
Investment in C | $5,000 | ||
Alternative (combining all entries): | |||
Fair value adjustment (TS) | $2,000 | ||
Gain on investments (unrealized, NI) | $2,000 | ||
Loss on investments (unrealized, OCI) | $80,000 | |
Investment in X | $80,000 | |
Investment in Y | $10,000 | |
Gain on investments (unrealized, OCI) | $10,000 |
Alternative (combining all entries): | |||
Loss on investments (unrealized, OCI) | 70,000 | ||
Fair value adjustment (AFS) | 70,000 | ||
Difficulty: 2 Medium
Topic: Debt investments—Trading securities; Debt investments—Available-for-sale
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
149) The following transactions occurred during the year for XYZ Corporation:
(a.) During the year, trading securities were purchased for $250,000.
(b.) During the year, securities available-for-sale were purchased for $80,000.
(c.) During the year, trading securities that are carried on the balance sheet at their fair value of $125,000 were sold for $125,000 cash.
(d.) At the end of the year, the trading securities portfolio has an aggregate fair value of $142,000 and an aggregate cost of $150,000.
(e.) At the end of the year the securities available-for-sale portfolio has an aggregate fair value of $95,000.
Required:
Indicate how each of these transactions would affect the statement of cash flows for a corporation. Assume the statement of cash flows is prepared using the indirect method. Each transaction is assumed to be independent of the other transactions.
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale; Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement
150) Jackson Company engaged in the following investment transactions during the current year.
Feb. 17 | Purchased 500 shares of Medical Company common stock for $20 per share plus a brokerage commission of $100. |
Jackson does not have significant influence over Medical. | |
April 1 | Bought 30,000 of the 100,000 outstanding shares of Olde |
Company for $300,000. Goodwill of $80,000 was included in the price. | |
June 25 | Received a $1.20 per share dividend on Medical Company stock. |
June 30 | Olde Company reported second-quarter profits of $20,000. |
Oct. 1 | Purchased 2,000 bonds of Alpha Company for $15 per bond plus a brokerage fee of $400. These bonds are classified as securities available-for-sale. |
Dec. 31 | Medical Co. shares are selling for $25 and Alpha bonds are selling for $12. |
Required:
Prepare the appropriate journal entries to record the transactions for the year, including year-end adjustments. Show calculations.
Feb. 17 | Investment in equity securities [($500 × $20) + $100] | $10,100 | |
Cash | $10,100 | ||
Apr. 1 | Investment in equity affiliate | $300,000 | |
Cash | $300,000 | ||
Jun. 25 | Cash (500 × $1.20) | $600 | |
Investment revenue | $600 | ||
Jun. 30 | Investment in equity affiliate ($20,000 × 30%) | $6,000 | |
Investment revenue | $6,000 | ||
Oct. 1 | Investment in bonds (AFS) [(2,000 × $15) + $400] | $30,400 | |
Cash | $30,400 | ||
Dec. 31 | Fair value adjustment (Medical) [(500 × $25) – $10,100] | $2,400 | |
Gain on investments (unrealized, NI) | $2,400 | ||
Dec. 31 | Loss on investments (unrealized, OCI) | $6,400 | |
Fair value adjustment (Alpha) [(2,000 × $12) – $30,400] | $6,400 |
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale; Equity investments—FV through net income; Equity method—Account for investment
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.; 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
151) Eastwood Enterprises owns 300 bonds of the Van Cleef Company (5% of the outstanding debt of Van Cleef). Eastwood is trying to determine the fair value of Van Cleef's bonds. The relevant facts are as follows:
• Eastwood bought the Van Cleef bonds earlier in the accounting period for $1,000/bond at a time when the bonds were publicly traded.
• Since Eastwood bought the bonds, Van Cleef Company has been delisted from the stock exchange and there is no longer an active market in the Van Cleef bonds.
• Eastwood's internal valuation specialist estimates the Van Cleef bonds to be worth $800/bond. Eastwood plans to continue holding the bonds, but may someday sell them if their value increases sufficiently.
Required:
(1) What is the fair value of Eastwood's investment in Van Cleef bonds? Briefly explain your choice of fair value, and relate that choice to the requirements of GAAP regarding fair value measurement.
(2) Prepare a journal entry to record any necessary fair value adjustment.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement
152) On March 17, 2020, Union Corporation purchased 500 bonds of AZQ as a long-term investment at $400 per bond. On December 31, 2020, and December 31, 2021, the market value of the AZQ bonds is $420 and $430, respectively.
Required:
(1.) What is the appropriate reporting category for this investment? Why?
(2.) Prepare the adjusting entry on December 31, 2020.
(3.) Prepare the adjusting entry on December 31, 2021.
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
Use the following to answer the question(s) below:
In its 2021 annual report to shareholders, Kirby Inc. included the following disclosure regarding its available-for-sale investments in securities:
December 31
2021 2020 2019
In thousands
Accumulated other comprehensive income
Gain (loss) on investments (unrealized):
Balance at beginning of year -- $(7,533) $(6,862)
Gain (loss) on investments for the year $1,509 $(3,564) $ (671)
Loss recognized in NI -- $11,097 --
Balance at end of year $1,509 -- $(7,533)
153) Required:
Prepare the journal entry (in thousands) that Kirby made at the end of 2021 to record unrealized holding gains arising during the year.
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
154) In 2020, Kirby made two adjustments to its available-for-sale investments.
Required:
Briefly explain the adjustments and why they occurred.
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking; Communication
AICPA/Accessibility: FN Measurement
Use the following to answer the question(s) below:
Fragrance International, a large perfume manufacturer, reported the following in its 2021 annual report to shareholders:
ACCUMULATED OTHER COMPREHENSIVE INCOME
The components of accumulated other comprehensive income (loss) ("AOCI") included in the accompanying consolidated balance sheets consist of the following:
YEAR ENDED JUNE 30
2021 2020 2019
($ in millions)
Gain on investments (unrealized)
beginning of year $ 2.9 $ 13.9 $ 6.1
Gain (loss) on investments for the year (5.0) (18.3) 13.0
Provision for deferred income taxes 2.0 7.3 (5.2)
Net gain (loss) on investments, end of year (0.1) 2.9 13.9
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30
2021 2020 2019
($ in millions)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures $(203.2) $(192.2) $(180.9)
Acquisition of businesses, net of
acquired cash (18.5) (16.0) (180.5)
Purchases of long-term investments -- -- (15.9)
Proceeds from disposition of long-term
investments 4.7 1.9 3.0
NET CASH FLOWS USED FOR
INVESTING ACTIVITIES (217.0) (206.3) (374.3)
Investments sold during 2021 originally cost $3.0 million.
155) What was the after-tax realized gain or loss on the sale of available-for-sale securities in 2021? Assume a 40% tax rate.
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement
156) Assuming a constant tax rate of 40%, what was the pre-tax accumulated unrealized holding gain or loss on available-for-sale securities at 7/1/2020?
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement
157) Prepare summary journal entries that Fragrance International recorded on June 30, 2021, to (1) record the total of any necessary changes to the fair value adjustment for available-for-sale securities and (2) record the total of any tax effects associated with those changes.
(1) | Loss on investments (unrealized, OCI) | $5.0 million | |
Fair value adjustment | $5.0 million | ||
(2) | Deferred income taxes | $2.0 million | |
Tax benefit–OCI | $2.0 million |
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
158) Bentz Corporation bought and sold several securities during 2021. Listed below is a summary of the transactions:
February 17 | Purchased $102,000 of U.S. Treasury 6% bonds at par plus |
accrued interest of $1,000. The security is to be held for short-term profits. | |
April 10 | Purchased 500 shares of Gauges Inc. common stock at $140 per share. |
This security will be held for an unspecified period of time. | |
August 8 | Sold 100 shares of Gauges Inc. for $150 per share. |
October 5 | Sold half of the U.S. Treasury bonds for $51,500 plus accrued interest of $300. |
Required:
Prepare the journal entries for the above transactions. Show calculations.
Feb. 17 | Investment in bonds (TS) | $102,000 | |
Interest receivable | $1,000 | ||
Cash | $103,000 | ||
Apr. 10 | Investment in equity securities | $70,000 | |
Cash | $70,000 |
FV Adjustment | |
Balance on 4/10/2021 | $0 |
±Adjustment needed to update fair value | ? |
Balance needed on 8/8/2021 [100 × ($150 – $140)] | $1,000 |
4/10/2021 Change needed $1,000 8/8/2021 $1,000 | 0 |
FV Adjustment | |
Balance on 2/17/2021 | $0 |
±Adjustment needed to update fair value | ? |
Balance needed on 10/5/2021 [51,500 – ($102,000 ÷ 2)] | $500 |
2/17/202 Change needed $500 10/5/2021 $500 | 0 |
Difficulty: 2 Medium
Topic: Debt investments—Account for interest; Debt investments—Trading securities; Equity investments—FV through net income
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
159) Krogstad Corporation bought 1,000 shares of Cole Inc. common stock for $90 per share Three months later, the shares were sold for $110 per share.
Required:
(1.) Prepare the appropriate journal entry to record the purchase of the stock.
(2.) Prepare the appropriate journal entry to record the sale of the stock.
FV Adjustment | |
Balance on 2/17/2021 | $0 |
±Adjustment needed to update fair value | ? |
Ending Balance Needed ($110,000 – $90,000) | $20,000 |
Beg. Balance Change needed $20,000 Ending Balance $20,000 | 0 |
Difficulty: 2 Medium
Topic: Equity investments—FV through net income
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
160) During 2021, Largent Enterprises purchased bonds as follows:
May 17, Purchased 100 Nugent bonds for $800 per bond.
July 12, Purchased 40 Alfredo bonds at $600 per bond, plus a $600 brokerage commission.
Largent accounts for these investments as securities available-for-sale. At December 31, 2021, the market values of the securities were as follows:
Security | Market Value per Bond |
Nugent | $720 |
Alfredo | $640 |
Required:
(1.) Prepare the journal entries to record the acquisition of the two investments.
(2.) Prepare any necessary adjusting entries assuming the bonds are both classified as available-for-sale securities.
(1.) | May 17 | Investment in bonds (Nugent) | $80,000 | |
Cash | $80,000 | |||
Jul. 12 | Investment in bonds (Alfredo) | $24,600 | ||
Cash | $24,600 | |||
(2.) | Dec. 31 | Loss on investments (unrealized, OCI) | $8,000 | |
Fair value adjustment (Nugent) | $8,000 | |||
Dec. 31 | Fair value adjustment (Alfredo) | $1,000 | ||
Gain on investments (unrealized, OCI) | $1,000 |
Alternative (combining all entries): | ||||||
Dec. 31 | Loss on investments (unrealized, OCI) | $7,000 | ||||
Fair value adjustment (AFS) | $7,000 | |||||
Difficulty: 2 Medium
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
Use the following to answer the question(s) below:
Cold Cat Inc., a snowmobile manufacturer, reported the following in its 20X5 annual report to shareholders:
NOTE B—SHORT-TERM INVESTMENTS
Short-term investments consist primarily of a diversified portfolio of municipal and corporate bonds and are classified as follows at March 31:
20X5 | 20X4 | |
Trading securities | $64,433,000 | $55,282,000 |
Available-for-sale debt securities | 3,196,000 | 7,113,000 |
$67,629,000 | $62,395,000 | |
Trading securities consist of $54,608,000 and $41,707,000 invested in various corporate bonds at March 31, 20X5 and March 31, 20X4, respectively, while the remainder of trading securities and available-for-sale securities consist primarily of A-rated or higher municipal bond investments. The amortized cost and fair value of debt securities classified as available-for-sale was $3,105,000 and $3,196,000, at March 31, 20X5. The unrealized holding gain on available-for-sale debt securities is reported, net of tax, as a separate component of shareholders' equity.
Cold Cat Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended March 31
Accumulated Other Comprehensive Income changed by the following amounts:
20X4: | ||
Loss on investments, net of tax (unrealized) | $(154,000) | |
20X5: | ||
Loss on investments, net of tax | ||
(unrealized) | (140,000) |
20X5 | 20X4 | |
Cash flows from | ||
investing activities: | ||
Sale and maturity of | ||
available-for-sale securities | $3,703,000 | $1,729,000 |
In its 20X4 annual report, Cold Cat disclosed, "The contractual maturities of available-for-sale debt securities at March 31, 20X4, are $3,573,000 within one year and $3,340,000 from one year through five years."
161) Assume Cold Cat did not purchase any trading securities during 20X5. Prepare a journal entry to record any unrealized holding gains or losses on trading securities during 20X5.
Difficulty: 2 Medium
Topic: Debt investments—Trading securities
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
162) How much did Cold Cat actually receive from the sale of available-for-sale securities during 20X5?
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement
163) What gain or loss would be realized if the available-for-sale securities on Cold Cat's 3/31/X5 balance sheet were sold immediately for their fair value? Prepare any reclassification entry and an entry that would record the sale (ignore taxes).
Reclassification entry: | |||||||
Reclassification adjustment–OCI | $91,000 | ||||||
Fair value adjustment (account balance) | $91,000 | ||||||
Record the sale transaction: | |||||||
Cash | $3,196,000 | ||||||
Investment in bonds | $3,105,000 | ||||||
Gain on investments (NI) | $91,000 | ||||||
Difficulty: 3 Hard
Topic: Debt investments—Available-for-sale
Learning Objective: 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement
164) Fredo, Inc., purchased 10% of Sonny Enterprises for $1,000,000 on January 1, 2021. Sonny recognized a total of $400,000 net income during 2021, paid $30,000 of dividends to Fredo during 2021, and at December 31, 2021, 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 (1) does not have significant influence or (2) does have significant influence over the operating and financial policies of the investee.
(1) | Investment in equity securities | $1,000,000 | |
Cash | $1,000,000 | ||
Cash | $30,000 | ||
Dividend revenue | $30,000 | ||
Fair value adjustment, Sonny | $40,000 | ||
Gain on investments (unrealized, NI) | $40,000 | ||
(2) | Investment in equity affiliate | $1,000,000 | |
Cash | $1,000,000 | ||
Investment in equity affiliate | $40,000 | ||
Investment revenue (10% × $400,000) | $40,000 | ||
Cash (Dividends received) | $30,000 | ||
Investment in equity affiliate | $30,000 |
Difficulty: 2 Medium
Topic: Equity investments—FV through net income; Equity method—Account for investment
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.; 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
165) On January 2, 2021, 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, 2021, include the following:
Net income $150,000
Dividends paid $75,000
Required:
Prepare any necessary journal entries for MBH at December 31, 2021, under the equity method of accounting for investments.
Investment in equity affiliate ($150,000 × 30%) | $45,000 | |
Investment revenue | $45,000 | |
Cash ($75,000 × 30%) | $22,500 | |
Investment in equity affiliate | $22,500 |
Difficulty: 2 Medium
Topic: Equity method—Account for investment
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
166) On January 1, 2021, 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, 2021, was $80,000. During 2021, 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, 2021.
Investment in equity affiliate: | ||
Purchase of investment | $210,000 | |
Share of net income (25% × $80,000) | 20,000 | |
Less cash dividend (25% × $24,000) | (6,000) | |
Balance, December 31, 2021 | $224,000 |
Difficulty: 2 Medium
Topic: Equity method—Account for investment
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
167) On January 1, 2021, 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, 2021, was $80,000. During 2021, Short also paid cash dividends in the amount of $24,000.
Required:
Prepare the journal entries necessary to record the above information on American Corporation's books during 2021.
Jan. 1 | Investment in equity affiliate | $210,000 | |
Cash | $210,000 | ||
Dec. 31 | Investment in equity affiliate (25% × $80,000) | $20,000 | |
Investment revenue | $20,000 | ||
Dec. 31 | Cash (25% × $24,000) | $6,000 | |
Investment in equity affiliate | $6,000 |
Difficulty: 2 Medium
Topic: Equity method—Account for investment
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
168) On July 1, 2021, Silverwood Company purchased for cash 35% of the voting common stock of Yellowstone Corporation. Both companies have a December 31 fiscal year-end. Yellowstone Corporation, which is publicly traded on an organized stock exchange, reported its net income for the year to Silverwood and paid a dividend to Silverwood during the year.
Required:
How should Silverwood report the above information in its year-end income statement and balance sheet? Discuss the rationale for your answer.
Difficulty: 2 Medium
Topic: Equity investments—Distinguish methods; Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Analyze
AACSB: Analytical Thinking; Communication
AICPA/Accessibility: FN Measurement
169) On July 1, 2021, Clearwater Inc. purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000. Mountain had 30,000 shares of outstanding common stock. The total book value and total fair value of Mountain's individual net assets on July 1, 2021, are both $700,000. The total fair value of the 30,000 shares of Mountain's common stock on December 31, 2021, is $760,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation during 2021:
Dividends declared and paid, January 1–June 30 | $12,000 |
Dividends declared and paid, July 1–December 31 | $12,000 |
Net income, January 1–June 30 | $14,000 |
Net income, July 1–December 31 | $18,000 |
Required:
(1.) Prepare the necessary entries for 2021 under the equity method (other than for the purchase).
(2.) Prepare any necessary entries for 2021 (other than for the purchase) that would be required if the securities were accounted for under the fair value through net income method.
(1.) | Cash ($12,000 dividends × 20%) | $2,400 | |
Investment in equity affiliate | $2,400 | ||
Investment in equity affiliate ($18,000 NI × 20%) | $3,600 | ||
Investment revenue | $3,600 | ||
(2.) | Cash ($12,000 dividends × 20%) | $2,400 | |
Dividend revenue | $2,400 | ||
Fair value adjustment [($760 – $700) × 20%] | $12,000 | ||
Gain on investments (unrealized, NI) | $12,000 |
Difficulty: 2 Medium
Topic: Equity investments—Distinguish methods; Equity investments—FV through net income; Equity method—Account for investment
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.; 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
170) Matrix, Inc., acquired 25% of Neo Enterprises for $2,000,000 on January 1, 2021. The fair value and book value of 25% of Neo's identifiable net assets was $2,000,000 and $1,600,000 on that date, and the difference was attributable to assets that would be depreciated over 10 years. During 2021 Neo recognized net income of $500,000 and paid dividends of $400,000. Neo had a total fair value of $10,000,000 as of December 31, 2021.
Required:
(1.) Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix accounts for that investment as an equity-method investment.
(2.) Prepare the journal entries necessary to account for the Neo investment, assuming that Matrix elects the fair value option.
(1) | Investment in equity affiliate | $2,000,000 | |
Cash | $2,000,000 | ||
Cash (25% × $400,000) | $100,000 | ||
Investment in equity affiliate | $100,000 | ||
Investment in equity affiliate (25% × $500,000) | $125,000 | ||
Investment revenue | $125,000 | ||
Investment revenue ($2,000,000 – $1,600,000)/10 | $40,000 | ||
Investment in equity affiliate | $40,000 | ||
(2) | Investment in equity affiliate | $2,000,000 | |
Cash | $2,000,000 | ||
Cash (25% × $400,000) | $100,000 | ||
Investment revenue | $100,000 | ||
Fair value adjustment | $500,000 | ||
Gain on investments (unrealized, NI) (25% × $10,000,000) – $2,000,000 | $500,000 |
Difficulty: 3 Hard
Topic: Equity method—Account for investment; Equity method—Further adjustments; Fair value option for investments
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.; 12-08 Explain how electing the fair value option affects accounting for investments.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
171) Bourne, Inc., acquired 50% of David Webb Enterprises for $5,000,000 on January 1, 2021. The total fair value and book value of Webb's identifiable net assets was $8,000,000 on that date. During 2021 Webb recognized net income of $1,000,000 and paid dividends of $1,200,000. Webb had a fair value of $11,000,000 as of December 31, 2021.
Required: Determine the amounts that will be associated with the Investment in affiliate account and the goodwill calculated upon the purchase of Webb's stock, assuming Bourne accounts for the Webb investment under the equity method.
Difficulty: 2 Medium
Topic: Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Analyze
AACSB: Analytical Thinking
AICPA/Accessibility: FN Measurement
172) Damon, Inc., acquired 25% of Jolie Enterprises for $8,000,000 on October 1, 2021. The total fair value of Jolie's identifiable net assets was $27,000,000 on that date, and the total book value of those net assets was $23,000,000. The difference between fair value and book value is attributed to equipment that has a remaining useful life of four years. During 2021 Jolie recognized net income of $2,000,000 and paid dividends of $1,200,000 ($300,000 per quarter). Jolie had a fair value of $36,000,000 as of December 31, 2021.
Required: Assume Damon accounts for the Jolie investment under the equity method. Indicate the total effect of the Jolie investment on Damon's:
1) net income for 2021.
2) the balance in Damon's investment in equity affiliate account on December 31, 2021.
Difficulty: 3 Hard
Topic: Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
173) On July 1, 2021, Clearwater Inc. purchased 6,000 shares of the outstanding common stock of Mountain Corporation at a cost of $140,000. Clearwater will have significant influence over the financial and operating policies of Mountain. Mountain had 30,000 shares of outstanding common stock. Assume the total book value and fair value of identifiable net assets is $650,000. Both companies have a January through December fiscal year. The following data pertains to Mountain Corporation during 2021:
Dividends declared and paid, January 1–June 30 | $12,000 |
Dividends declared and paid, July 1–December 31 | $12,000 |
Net income, January 1–June 30 | $14,000 |
Net income, July 1–December 31 | $18,000 |
Required:
(1.) Prepare the entry to record the original investment in Mountain.
(2.) Compute the goodwill (if any) on the acquisition.
(3.) Prepare the necessary entries (other than acquisition) for 2021 under the equity method.
(1.) | Investment in equity affiliate | $140,000 | |
Cash | $140,000 | ||
(2.) | Purchase price | $140,000 | |
Fair value of identifiable net assets purchased | |||
($650,000 × 20%) | $130,000 | ||
Goodwill purchased (difference) | $10,000 | ||
(3.) | Cash ($12,000 × 20%) | $2,400 | |
Investment in equity affiliate | $2,400 | ||
Investment in equity affiliate ($18,000 × 20%) | $3,600 | ||
Investment revenue | $3,600 |
Difficulty: 2 Medium
Topic: Equity method—Account for investment; Equity method—Further adjustments
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
174) On January 1, 2020, Bactin Corporation acquired 10% of Oakton Company for $100,000. On that date, the total book value and fair value of Oakton's identifiable net assets was $900,000. Any difference between cost and fair value is attributable to goodwill. In 2020, Oakton reported net income of $60,000 and paid dividends of $30,000. On January 1, 2021, Bactin Corporation bought another 10% of Oakton for $100,000, and on that date, the book value and fair value of Oakton's net assets still was $900,000 (the fair value of Oakton did not change during 2020). Bactin concluded that its 20% ownership now allowed it to significantly influence Oakton's operations. In 2021, Oakton reported net income of $80,000 and paid dividends of $40,000.
Required:
Prepare all journal entries for Bactin for 2020 and 2021, assuming no change in fair value of the Oakton stock during that time period.
1/1/2020 | Investment in equity securities | $100,000 | |
Cash | $100,000 | ||
12/31/2020 | Cash ($30,000 × 10%) | $3,000 | |
Dividend revenue | $3,000 | ||
1/1/2021 | Investment in equity securities | $100,000 | |
Cash | $100,000 | ||
1/1/2021 | Investment in equity affiliate | $200,000 | |
Investment in equity securities | $200,000 | ||
12/31/2021 | Cash ($40,000 × 20%) | $8,000 | |
Investment in equity affiliate | $8,000 | ||
12/31/2021 | Investment in equity affiliate ($80,000 × 20%) | $16,000 | |
Investment revenue | $16,000 |
Difficulty: 2 Medium
Topic: Equity method—Change to or from equity; Equity method—Account for investment; Equity investments—Distinguish methods
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.; 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
175) LaBelle Corporation owns a $6 million whole life insurance policy on the life of its CEO, naming LaBelle as beneficiary. The annual premiums are $95,000 and are payable at the beginning of each year. The cash surrender value of the policy was $56,000 at the beginning of 2021.
Required:
(1.) Prepare the appropriate 2021 journal entry to record insurance expense and the increase in the investment, assuming the cash surrender value of the policy increased according to the contract to $70,000.
(2.) The CEO died at the end of 2021. Prepare the appropriate journal entry.
1) | Insurance expense (difference) | $81,000 | |
Cash surrender value of life insurance ($70,000 – $56,000) | $14,000 | ||
Cash (2021 premium) | $95,000 | ||
2) | Cash (death benefit) | $6,000,000 | |
Cash surrender value of life insurance (account balance) | $70,000 | ||
Gain on life insurance settlement (to balance) | $5,930,000 |
Difficulty: 3 Hard
Topic: Life insurance—Appendix A
Learning Objective: Appendix 12A Other Investments (Special Purpose Funds, Investments in Life Insurance Policies).
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
Use the following to answer the question(s) below:
In early December of 2021, Blue Corp. purchased $40,000 of Yellow Company bonds, which constitutes less than 3% of Yellow's outstanding debt. Blue accounts for the Yellow investment as available-for-sale. By December 31, 2021, the value of the Yellow investment had fallen to $30,000, and Blue determined that $4,000 of that decline was due to a credit loss. Blue did not believe it was more likely than not that it would have to sell the investment before fair value recovered. By December 31, 2022, the value of the Yellow investment had fallen to $15,000, Blue determined that $2,000 of the additional decline was due to additional credit loss, and Blue determined that it is more likely than not that it will need to sell the bonds before their fair value recovers. By December 31, 2023, Blue still owned the bonds and their fair value had recovered to $20,000.
176) Prepare appropriate entry(ies) at December 31, 2021, and indicate how the scenario will affect net income, OCI, and comprehensive income.
December 31, 2021 | ||
Credit loss expense | $4,000 | |
Allowance for credit losses | $4,000 |
December 31, 2021 | ||
Loss on AFS investment (unrealized, OCI) | $6,000 | |
Fair value adjustment | $6,000 |
Difficulty: 2 Medium
Topic: Impairment of debt investments—Appendix B
Learning Objective: Appendix 12B Impairment of Debt Investments.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
177) Prepare appropriate entry(ies) at December 31, 2022, and indicate how the scenario will affect net income, OCI, and comprehensive income.
December 31, 2022 | ||
Loss on impairment (NI) | $21,000 | |
Discount on bond investment | $21,000 |
December 31, 2022 | ||
Fair value adjustment (account balance) | $6,000 | |
Reclassification adjustment (OCI) | $6,000 |
December 31, 2022 | |||
Allowance for credit losses | $4,000 | ||
Discount on bond investment | $4,000 |
Difficulty: 3 Hard
Topic: Impairment of debt investments—Appendix B
Learning Objective: Appendix 12B Impairment of Debt Investments.
Bloom's: Apply
AACSB: Knowledge Application
AICPA/Accessibility: FN Measurement
178) Prepare appropriate entry(ies) at December 31, 2023, and indicate how the scenario will affect net income, OCI, and comprehensive income.
Difficulty: 2 Medium
Topic: Impairment of debt investments—Appendix B
Learning Objective: Appendix 12B Impairment of Debt Investments.
Bloom's: Apply; Analyze
AACSB: Knowledge Application; Analytical Thinking
AICPA/Accessibility: FN Measurement
179) Stanhope Associates accounts for the following investments under IFRS No. 9:
1. 10 shares of Blackstone equity, held for long-term investment, no election of FVOCI.
2. 10 shares of Erickson equity, held for risk management, election to classify as FVOCI.
3. 10 shares of AT&E equity, held for immediate resale.
4. 10 bonds (consisting of only interest and principal) issued by Filo Inc., held for long-term collection of cash flows.
5. 10 bonds (consisting of only interest and principal) of SimSung, held for risk management but also might be sold.
6. 10 bonds (consisting of only interest and principal) issued by Attachi, held for immediate resale.
Required:
For each investment, indicate (a) the accounting approach that will be used to account for the investment, and briefly explain why that approach is appropriate, and (b) the effect on earnings of an increase in the fair value of the investment in the period following acquisition of the investment, assuming that Stanhope does not sell the investment. You may group the specific investments if they have the same answers. Identify the investments you are including in the group.
Difficulty: 3 Hard
Topic: IFRS—Distinguish investment categories
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Communication; Diversity
AICPA/Accessibility: FN Measurement; BB Global
180) From time to time, debt securities must be reclassified when conditions and circumstances surrounding the investment change.
Required:
Describe the general accounting procedures for reclassifying securities from one category to another: held-to-maturity, available-for-sale, or trading.
Difficulty: 2 Medium
Topic: Transfers between debt investment categories
Learning Objective: 12-02 Demonstrate how to identify and account for debt investments classified for reporting purposes as held-to-maturity.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Remember
AACSB: Reflective Thinking
AICPA/Accessibility: FN Measurement
181) The current accounting standards require fair value reporting for trading securities and securities available-for-sale. Some accountants believe that the FASB was inconsistent when GAAP was issued, requiring changes in the value of trading securities to be reported in the income statement and balance sheet, while changes in the value of securities available-for-sale are reported only in the balance sheet.
Required:
Evaluate the rationale for these two diverse reporting requirements for debt securities. What arguments could be made to support each treatment?
Difficulty: 2 Medium
Topic: Debt investments—Distinguish categories; Debt investments—Available-for-sale; Debt investments—Trading securities
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.; 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Evaluate
AACSB: Communication; Reflective Thinking
AICPA/Accessibility: FN Measurement
182) In its 20X4 annual report to shareholders, Honemark Corporation included the following disclosures in its income statement and related disclosure notes:
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31 | ||||||
20X4 | 20X3 | 20X2 | ||||
(In thousands) | ||||||
Loss on debt securities | $(7,230) | $(17,600) | --- | |||
Special Charges and Loss on Securities
During the fourth quarter of 20X4, the Company recorded special charges and loss on debt securities totaling $17.0 million, or $13.5 million after taxes. Special charges of $9.8 million, or $6.2 million after taxes, were associated with a salaried workforce reduction of approximately 250 employees. Cash expenditures for 20X4 related to this charge were $3.7 million. Loss on debt securities of $7.2 million resulted from the write-down of the remaining investment in bonds of an Internet-related company.
During the fourth quarter of 20X3, the Company recorded special charges and loss on debt securities totaling $57.5 million, or $36.5 million after taxes. Special charges of $39.9 million, or $25.3 million after taxes, were associated with terminated product initiatives, asset write-downs, and executive severance costs related to management changes. Loss on debt securities of $17.6 million, or $11.2 million after taxes, resulted from a lower market valuation of debt securities of TurboChief Technologies, Inc., and debt investments in bonds of Internet-related Companies. The loss on debt securities charge of $17.6 million was noncash.
Required:
Discuss the possible rationale behind the losses on securities reported by Honemark in 20X3 and 20X4.
Difficulty: 3 Hard
Topic: Impairment of debt investments; Impairment of debt investments—Appendix B
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; Appendix 12B Impairment of Debt Investments.
Bloom's: Analyze
AACSB: Analytical Thinking; Communication
AICPA/Accessibility: FN Measurement
183) Companies need to consider GAAP regarding fair value measurements when determining the fair value of an investment that distinguishes between various levels of inputs to fair value determination.
Required:
Describe the various levels of inputs, explaining key aspects that distinguish them, and indicate which level is most preferred and which is least preferred.
Difficulty: 2 Medium
Topic: Debt investments—Distinguish categories
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.
Bloom's: Remember
AACSB: Communication; Reflective Thinking
AICPA/Accessibility: FN Measurement
184) Jaycom Enterprises has invested its excess cash in the bonds 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?
Difficulty: 2 Medium
Topic: Transfer between debt investment categories; Debt investments—Distinguish categories
Learning Objective: 12-03 Demonstrate how to identify and account for debt investments classified for reporting purposes as trading securities.; 12-04 Demonstrate how to identify and account for debt investments classified for reporting purposes as available-for-sale securities.
Bloom's: Create
AACSB: Analytical Thinking; Communication
AICPA/Accessibility: FN Measurement
185) Newjohn Company owns stock in several affiliated companies. Investments in some of these affiliates are accounted for as fair value through net income while some are accounted for using the equity method.
Required:
(1.) What factors determine which method should be used?
(2.) What events are recorded when the equity method is used?
(3.) What events are recorded when the securities are accounted for as fair value through net income?
Difficulty: 2 Medium
Topic: Equity investments—Distinguish methods
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.; 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.
Bloom's: Understand
AACSB: Communication; Reflective Thinking
AICPA/Accessibility: FN Measurement
186) Discuss the following questions.
Required:
What securities must be classified within one of the three categories of held-to-maturity, available-for-sale, and trading? (Do not describe how to determine how securities are classified among these three categories.) Identify the four primary recording activities related to investments in securities.
Difficulty: 2 Medium
Topic: Debt investments—Distinguish categories
Learning Objective: 12-01 Describe the key characteristics of a debt investment and demonstrate how to account for a purchase and for interest revenue.
Bloom's: Remember
AACSB: Communication; Reflective Thinking
AICPA/Accessibility: FN Measurement
187) When an investor owns 20% to 50% of the voting stock of an investee company, the investor is presumed to exercise significant influence over the investee unless there is evidence to the contrary.
Required:
(1.) What factors could be evidence of significant influence?
(2.) What factors could be evidence of lack of significant influence?
Difficulty: 2 Medium
Topic: Equity method—Account for investment
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.
Bloom's: Understand
AACSB: Communication; Reflective Thinking
AICPA/Accessibility: FN Measurement
188) 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?
Difficulty: 2 Medium
Topic: Equity method—Account for investment
Learning Objective: 12-05 Demonstrate how to identify and account for equity investments classified for reporting purposes as fair value through net income.
Bloom's: Understand
AACSB: Communication; Reflective Thinking
AICPA/Accessibility: FN Measurement
189) Sometimes companies change the extent to which they can significantly influence an investee, such that they have to change to the equity method or from the equity method of accounting for the investment.
Required:
Describe the adjustments necessary when a company (1) changes to the equity method from another method, and (2) when a company changes from the equity method to another method.
Difficulty: 2 Medium
Topic: Equity method—Change to or from equity
Learning Objective: 12-07 Explain the adjustments made in the equity method when the fair value of the net assets underlying an investment exceeds their book value at acquisition.
Bloom's: Remember
AACSB: Communication; Reflective Thinking
AICPA/Accessibility: FN Measurement
190) Assume Gibson Company is an equal partner in a joint venture with Glover Company. Each company owns 50% of Pesci Company and equally shares decision-making authority.
Required:
Describe how U.S. GAAP and IFRS differ in how they would have Gibson account for this investment.
Difficulty: 2 Medium
Topic: Equity method—Account for investment; Fair value option for investments; IFRS—Fair value option
Learning Objective: 12-06 Demonstrate how to identify and account for equity investments accounted for under the equity method.; 12-08 Explain how electing the fair value option affects accounting for investments.; 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Understand
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: FN Measurement; BB Global
191) According to GAAP, companies can elect the fair value option when accounting for many investments.
Required:
Describe how accounting for a held-to-maturity investment, an available-for-sale investment, and an equity-method investment is affected by a company electing the fair value option.
Difficulty: 2 Medium
Topic: Fair value option for investments
Learning Objective: 12-08 Explain how electing the fair value option affects accounting for investments.
Bloom's: Remember
AACSB: Communication; Reflective Thinking
AICPA/Accessibility: FN Measurement
192) 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 holding gains and losses?
Difficulty: 3 Hard
Topic: IFRS—Investor lacks significant influence; IFRS—Distinguish investment categories
Learning Objective: 12-09 Discuss the primary differences between U.S. GAAP and IFRS with respect to investments.
Bloom's: Remember
AACSB: Reflective Thinking; Diversity
AICPA/Accessibility: FN Measurement; BB Global
193) 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 holding gains and losses?
Difficulty: 3 Hard
Topic: IFRS—Distinguish investment categories; IFRS—Investor lacks significant influence
Learning Objective: 12-08 Explain how electing the fair value option affects accounting for investments.
Bloom's: Remember
AACSB: Communication; Reflective Thinking; Diversity
AICPA/Accessibility: FN Measurement; BB Global
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Connected Book
Answer Key + Test Bank | Intermediate Accounting 10e
By J. David Spiceland, Mark W. Nelson, Wayne Thomas