Remerciez-le!

Remerciez @Admin pour avoir partagé cet document gratuitement, de la manière la plus simple, en partageant sur les réseaux sociaux.

CHAPTER 17 INVESTMENTS CHAPTER LEARNING OBJECTIVES 1. Describe the accounting f

CHAPTER 17 INVESTMENTS CHAPTER LEARNING OBJECTIVES 1. Describe the accounting for debt investments. 2. Describe the accounting for equity investments. 3. Explain the equity method of accounting. 4. Evaluate other major issues related to debt and equity investments. *5. Describe the uses of and accounting for derivatives. *6. Explain the accounting for hedges. *7. Identify special reporting issues related to derivative financial instruments that cause unique accounting problems. *8. Describe required fair value disclosures. TRUE-FALSE—Conceptual 1. The IASB requires that investments meeting the business model (held-for-collection) and contractual cash flow tests be valued at fair value. 2. The IASB requires that companies classify financial assets into two measurement categories – amortized cost and fair value. 3. Amortized cost is the initial recognition amount of the investment minus cumulative amortization. 4. Companies measure debt investments at fair value if the objective of the company’s business model is to hold the financial asset to collect the contractual cash flows. 5. The gain on sale of debt investments is the excess of the selling price over the fair value of the bonds. 6. The Unrealized Holding Gain or Loss–Income account is reported in the other income and expense section of the income statement. 7. At each reporting date, companies adjust debt investments’ amortized cost to fair value, with any unrealized holding gain or loss reported as part of their comprehensive income. 8. Over the life of a debt investment, interest revenue and the gain on sale are the same using either amortized cost or fair value measurement. Test Bank for Intermediate Accounting, IFRS Edition, 4e 9. The fair value option is generally available only at the time a company first purchases the financial asset or incurs a financial liability. 10. Equity security holdings between 20 and 50 percent indicates that the investor has a controlling interest over the investee. 11. The Unrealized Holding Gain/Loss—Equity account is reported as a part of other compre- hensive income. 12. Non-trading equity investments are recorded at fair value, with unrealized gains and losses reported in other comprehensive income. 13. An investment of more than 50 percent of the voting stock of an investee should lead to a presumption of significant influence over an investee. 14. All dividends received by an investor from the investee decrease the investment’s carrying value under the equity method. 15. Under the fair value method, the investor reports as revenue its share of the net income reported by the investee. 16. A controlling interest occurs when one corporation acquires a voting interest of more than 50 percent in another corporation. 17. An impairment loss is the difference between an investment’s cost and the expected future cash flows. 18. If a company determines that an investment is impaired, it writes down the amortized cost basis of the individual security to reflect this loss in value. 19. Companies account for transfers between investment classifications retroactively, at the end of the accounting period after the change in the business model. 20. Transferring an investment from one classification to another should occur only when the business model for managing the investment changes. True-False Answers—Conceptual Item Ans. Item Ans. Item Ans. Item Ans. 1. F 6. T 11. T 16. T 2. T 7. F 12. T 17. F 3. F 8. T 13. F 18. T 4. F 9. T 14. T 19. F 5. F 10. F 15. F 20. T 17 - 2 Investments MULTIPLE CHOICE—Conceptual 21. Which of the following is not a financial asset? a. Cash b. Equity investment c. Inventory d. Receivables 22. Debt investments not held for collection are reported at a. amortized cost. b. fair value. c. the lower of amortized cost or fair value. d. net realizable value. 23. Debt investments that meet the business model and contractual cash flow tests are reported at a. net realizable value. b. fair value. c. amortized cost. d. the lower of amortized cost or fair value. 24. Which of the following are reported at fair value? a. Debt investments. b. Equity investments. c. Both debt and equity investments. d. None of these answers choices are correct. 25. The IASB permits which of the following measurement categories for financial assets? Fair value Amortized cost a. No No b. Yes No c. Yes Yes d. No Yes 26. IFRS requires companies to measure their financial assets based on all of the following except a. The company’s business model for managing its financial assets. b. Whether the financial asset is a debt or equity investment. c. The contractual cash flow characteristics of the financial asset. d. All of these answer choices are IFRS requirements. 27. Match the investment accounting approach with the correct valuation approach: Not held-for-collection Held-for-collection a. Amortized cost Amortized cost b. Fair value Fair value c. Fair value Amortized cost d. Amortized cost Fair value 17 - 3 Test Bank for Intermediate Accounting, IFRS Edition, 4e S28. Debt investments that are accounted for and reported at amortized cost, are a. debt investments which are managed and evaluated based on a documented risk- management strategy. b. trading debt investments. c. held-for-collection debt investments. d. All of these answer choices are correct. 29. Amortized cost is the initial recognition amount of the investment minus a. repayments and net of any reduction for uncollectibility. b. cumulative amortization and net of any reduction for uncollectibility. c. repayments plus or minus cumulative amortization and net of any reduction for uncollectibility. d. repayments plus or minus cumulative amortization. 30. A gain on sale of a debt investment is the excess of the selling price over the bonds a. market price. b. fair value. c. face value. d. book value. 31. Held-for-collection investments are reported at a. acquisition cost. b. amortized cost. c. maturity value. d. fair value. 32. A held-for-collection debt investment is purchased at a premium. The entry to record the amortization of the premium includes a a. Credit to Debt Investments. b. Credit to Interest Receivable. c. Credit to Interest Revenue. d. None of these answers are correct. 33. Which of the following is correct about the effective-interest method of amortization? a. The effective-interest method applied to debt investments is different from that applied to bonds payable. b. Amortization of a discount decreases from period to period. c. Amortization of a premium decreases from period to period. d. The effective-interest method applies the effective-interest rate to the beginning carrying amount for each interest period. 34. Which of the following is not generally correct about recording a sale of a debt investment before maturity date? a. Accrued interest will be received by the seller even though it is not an interest payment date. b. An entry must be made to amortize a discount to the date of sale. c. The entry to amortize a premium to the date of sale includes a debit to Debt investments. d. A gain on the sale is the excess of the selling price over the book value of the bonds. 17 - 4 Investments 35. An unrealized holding gain or loss on a trading debt investment is the difference between the investment’s a. fair value and original cost. b. face value and amortized cost. c. fair value and amortized cost. d. face value and original cost. 36. Which of the following is not correct in regard to trading investments? a. They are held with the intention of selling them in a short period of time. b. Unrealized holding gains and losses are reported as part of net income. c. Any discount or premium is not amortized. d. All of these answer choices are correct. 37. In accounting for debt investments that are classified as trading investments, a. any unrealized gain (loss) is reported as part of equity. b. a premium is reported separately. c. the fair value is compared to amortized cost to compute any unrealized gain (loss). d. no discount or premium amortization is required. 38. Investments in trading debt investments are generally reported at a. amortized cost. b. face value. c. fair value. d. maturity value. 39. Investments in trading debt investments should be recorded on the date of acquisition at a. face value. b. fair value. c. amortized cost. d. the lower of face value or amortized cost. 40. Which of the following statements is true regarding the differences between amortized cost and fair value for debt investments? a. When bonds sold at a discount and are accounted for using amortized cost, interest revenue will be greater than the interest revenue recorded under fair value. b. When bonds sold at a premium and are accounted for using amortized cost, interest revenue will be less than the interest revenue recorded under fair value. c. Under the fair value approach, an unrealized gain or loss is recorded in each year whereas no unrealized gains or losses are recorded under the amortized cost method. d. All of these answer choices are correct. 41. Under IFRS, the fair value option a. must be applied to all instruments the company holds. b. may uploads/Finance/ ch-17.pdf