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Exam 12: Investments

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Question 91

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Prepare appropriate entry(s)at December 31,2016,and indicate how the scenario will affect net income,OCI,and comprehensive income.

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Blue must record an unrealized loss of $...

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Question 92

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Matrix,Inc. ,acquired 25% of Neo Enterprises for $2,000,000 on January 1,2016.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 2016 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 31,2016. 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.

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Question 93

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Use the following to answer questions Arctic Cat Inc. ,the 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 bonds and money market funds and are classified as follows at March 31: Trading securities consist of $54,608,000 and $41,707,000 invested in various money market funds at March 31,20X5 and 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 gain on available-for-sale debt securities is reported,net of tax,as a separate component of shareholders' equity. Arctic Cat Inc. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years Ended March 31, Accumulated Other Comprehensive Income changed by the following amounts: In its 20X4 annual report,Arctic 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." -Assume Arctic Cat did not purchase any trading securities during 20X5.Write a journal entry to record any unrealized holding gains or losses on trading securities during 20X5.

If the fair value of a debt investment that is classified as an available-for-sale investment declines for a reason that is viewed as "other than temporary" because the company has incurred a credit loss on the investment:

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

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:

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?

Anthers Inc.bought the following portfolio of trading securities near the end of 2016. What amount will be reported in the balance sheet for this portfolio at December 31,2016,and how will it be classified?

If the fair value of a trading security declines for a reason that is viewed as "other than temporary":

Eastwood Enterprises owns 30,000 shares of the Van Cleef Company (5% of the outstanding equity of Van Cleef).Eastwood is trying to determine Van Cleef's fair value.The relevant facts are as follows: Eastwood bought the Van Cleef shares earlier in the accounting period for $10/share at a time when the shares were publicly traded on the New York Stock Exchange. Since Eastwood bought the shares,Van Cleef has been delisted and there is no longer an active market in the Van Cleef shares. Eastwood's internal valuation specialist estimates the Van Cleef shares to be worth $8/share.Eastwood plans to continue holding the shares,but may someday sell them if their value increases sufficiently. Required: (1)What is the fair value of Eastwood's investment in Van Cleef? 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.

On January 1,2016,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 31,2016,was $80,000.During 2016,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 31,2016.

Which of the following is not true about the "fair value through other comprehensive income" approach for accounting for investments under IFRS No.9?

Investments in securities to be held for an unspecified period of time are reported at:

The equity method of accounting for investments in voting common stock is appropriate when:

Seybert Systems accounts for its investment in Wang Engineering 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 at $100,000 on its balance sheet.Seybert purchased the Wang investment for (ignore taxes) :

Unrealized holding gains and losses on securities available for sale would have the following effects on retained earnings:

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 2016. Required: (1. )Prepare the appropriate 2016 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 2016.Prepare the appropriate journal entry.

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.

Which of the following is not an example of a derivative?