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Flashcards in IVES Deck (67):
1

An investor uses the cost adjusted for fair value method to account for an investment in common stock that is carried in an available-for-sale portfolio. A portion of the dividends received this year were in excess of the investor's share of investee's earnings subsequent to the date of investment. The amount of dividend revenue that should be reported in the investor's income statement for this year would be 

The portion of the dividends received this year that were not in excess of the investor's share of investee's earnings subsequent to the date of investment. 

2

The following information pertains to Lark Corp.'s available-for-sale securities portfolio:

                              December 31 

                        year 2                  year I 

Cost                 $200,000           $200,000

Market value      240,000              180,000

Lark does not elect to use the fair value option for reporting financial assets. Differences between cost and market values are considered to be temporary. The decline in market value was properly accounted for at December 31, year I. What is the amount of "Unrealized gain (loss) on marketable equity securities," component of other comprehensive income, for the year ended to December 31, year 2?

$60,000

3

On January I, year 2, Miller Company purchased 25% of Wall Corporation's common stock; no goodwill resulted from the purchase. Miller uses the equity method to account for this investment, and the balance in Miller's investment account was $190,000 at December 31, year 2. Wall reported net income of $120,000 for the year ended December 31, year 2 and paid common stock dividends totaling $48,000 during year 2.

How much did Miller pay for its 25% interest in Wall? 

$172,000

4

On its December 31, year I balance sheet, the Noble Corporation reported the following as investments in long-term marketable equity securities:

Investment in long-term marketable equity securities at market $300,000 

Less

Adjustment to reflect decline in market value of marketable equity securities 28,000

At December 31, year I, the market valuation of the portfolio was $298,000. Noble does not elect to use the fair value option of reporting financial assets. What should Noble report on its year I Statement of Income as a result of the increase in the market value of the investments in year I? 

$0

5

In January year 2, Farley Corporation acquired 20% of the outstanding common stock of Davis Company for $800,000. This investment gave Farley the ability to exercise significant influence over Davis. The book value of the acquired shares was $600,000. The excess of cost over book value was attributed to an identifiable intangible asset which was undervalued on Davis's balance sheet and which had a remaining useful life of 10 years. For the year ended December 31, year 2, Davis reported net income of $180,000 and paid cash dividends of $40,000 on its common stock. Assume Farley uses the equity method to account for this investment. What is the proper carrying value of Farley's investment in Davis at December 31, year 2? 

$808,000

6

Anchor Co. owns of 40% Main Co.'s common stock outstanding and 75% of Main's noncumulative preferred stock outstanding. Anchor exercises significant influence over Main's operations. During the current period, Main declared dividends of $200,000 on its common stock and $100,000 on its noncumulative preferred stock. Anchor does not elect the fair value option for reporting its investment in Main. What amount of dividend income should Anchor report on its income statement for the current period related to its investment in Main? 

$75,000

7

An investor uses the equity method to account for an investment in common stock. Assuming the fair value option of reporting financial assets is not elected, after the date of acquisition, the investment account of the investor would 

Be increased by its share of the earnings of the investee, and decreased by its share of the losses of the investee.

8

During year I Anthony Company purchased marketable equity securities as long-term investment. Pertinent data are as follows: Security        Cost          Market value at 12/31/Y1

A                  $ 20,000       $17,000

B                      40,000       30,000

C                      90,000       92,000

                      $150,000    $139,000

Anthony appropriately carries these securities at their fair market value, and the decline in value of Security a is not considered to be temporary. The decline in value of securities A and C is considered to be temporary. Anthony does not elect to use the fair value option in reporting financial assets. The amount of loss on these securities that will appear on Anthony's balance sheet as a component of "Accumulated other comprehensive income" at should be 

$1,000

9

A marketable equity security is transferred from the available-for-sale portfolio to the trading securities portfolio. At the transfer date, the security's cost exceeds its market value. What amount is used at the transfer date to record the security in the trading portfolio? 

Market value, regardless of Whether the decline in market value below cost is considered permanent or temporary.

10

Endo Inc, reports under IFRS. Which statement regarding fair value through profit or loss (FVTPL) is true?

a. An election can be made to use the fair value through profit or loss (FVTPL) method for held-to-maturity security requiring the security to be recorded at cost and subsequently measured at amortized cost.

b. An asset that is classified as fair value through profit or loss (FVTPL) is remeasured to fair value each reporting period and the profit or loss is recognized in income for the period. 

c. An asset that is classified as fair value through profit or loss (FVTPL) is remeasured to fair value each reporting period and the profit or loss is recognized in other comprehensive income.

d. An election can be made to use the fair value through profit or loss (FVTPL) method when an equity security has no active market. 

An asset that is classified as fair value through profit or loss (FVTPL) is remeasured to fair value each reporting period and the profit or loss is recognized in income for the period. 

11

Lee, Inc. acquired 30% of Polk Corp.'s voting stock on January I, year I, for $100,000. Lee uses the equity method to account for its investment in Polk. During year I, Polk earned $40,000 and paid dividends of $25,000. Lee's 30% interest in Polk gives Lee the ability to exercise significant influence over Polk's operating and financial policies. During year 2, Polk earned $50,000 and paid dividends of $15,000 on April I and $15,000 on October I. Polk's income was earned evenly throughout the year. On July I, year 2, Lee sold half of its stock in Polk for $66,000 cash. What should be the gain on sale of this investment in Lee's year 2 income statement? 

$12,250

12

On January I, year I, Grade Company paid $300,000 for 20,000 shares of Medium Company's common stock which represents a I 15%, investment in Medium. Grade does not have the ability to exercise significant influence over Medium. Medium declared and paid a dividend of $1 a share to its stockholders during year I. Medium reported net income of $260,000 for the year ended December 31, year I, and had a market value of $300,000 at December 31, year I. The balance in Grade's balance sheet account "Investment in Medium Company" at December 31, year I, should be 

$300,000

13

Beach Co. determined that the decline in the fair value (FV) of an investment was below the amortized cost and permanent in nature. The investment was classified as available-for-sale on Beach's bocks. Beach Co. does not elect the fair value option to account for these securities. The controller would properly record the decrease in EV by including it in which of the following?

a. Extraordinary items section of the income statement and writing down the cost basis to FV.

b. Other comprehensive income section of the income statement, and writing down the cost basis to FV.

c. Earnings section of the income statement and writing down the cost basis to FV.

d. Other comprehensive income section of the income statement only.

Earnings section of the income statement and writing down the cost basis to FV. 

14

Information pertaining to dividends from Wray Corp.'s common stock investments for the year ended December 31, year 2, follows:

On September 8, year 2, Wray received a $50,000 cash dividend from Saco, Inc., in which Wray owns a 30% interest. A majority of Wray's directors are also directors of Seco. The equity method of accounting is used.

On October 15, year 2, Wray received $6,000 liquidating dividend from King Co. Wray owns a 5% interest in King Co.

Wray owns a 2% interest in Bow Corp., which declared a $200,000 cash dividend on November 27, year 2, to stockholders of record on December 15, year 2, payable on January 5, year 3.

What amount should Wray report as dividend income in its income statement for the year ended December 31, year 2?

$4,000

15

Cook Company had the following investment portfolio of stocks that were purchased during year 2.

Stock              Classification           Cost             Fair Value 12-31-Y2

Company R     Available-for-sale     $30,000      $32,000

Company S     Trading                    $42,000      $46,000

Company T     Available-for-sale     $15,000       $18,000

Cook elects to use the fair value option for reporting the investment in Company R. Which of the following statements is true?

a. Cook may not elect the fair value method for the investment in Company R unless it also uses the fair value method for investments in Companies S and T.

b. Cook will report an unrealized gain on securities for $6,000 on the year 2 income statement.

c. Cook will report an unrealized gain on securities for $9,000 on the year 2 income statement.

d. Cook will report an unrealized gain in other comprehensive income for $5,000 in year 2. 

Cook will report an unrealized gain on securities for $6,000 on the year 2 income statement. 

16

On December 29, year 2, Co. sold a marketable equity security that had been purchased on January 4, year I. owned no other marketable equity security. An unrealized loss was reported as components of "Other comprehensive income" and "Accumulated other comprehensive income" in the year I balance sheet. A realized gain was reported in the year 2 income statement. Cc. did not elect to use the fair value option in reporting financial assets. Was the marketable equity security classified as a trading security and did its year I market price decline exceed its year 2 market price recovery?

    Trading               year I market price decline exceeded year

                                2 market price recovery

a. Yes                        Yes

b. Yes                        No

c. No                          Yes

d. No                          No

No                          No

17

Green Corp. owns 30% of the outstanding common stock and 100% of the outstanding noncumulative nonvoting preferred stock of Axel Corp. In year 2, Axel declared dividends of $100,000 on its common stock and $60,000 on its preferred stock. Green exercises significant influence over Axel's operations. Green uses the equity method to account for its investment in Axel. What amount of dividend revenue should Green report in its income statement for the year ended December 31, year 2? 

$60,000

18

 In year I, Wallace Corporation purchased marketable securities, and at 12/31/YI, had the following marketable equity securities:

                                       Cost         Market      Unrealized gain (loss) 

In trading portfolio:                     

Security X                       $80,000   $50,000     $(30,000)

Security Y                         15,000      20,000           5,000

Totals                             $95,000    $70,000      $(25,000)

In available-for-sale portfolio:      

Security Q                     $60,000    $70,000         $10,000

Security R                        90,000      45,000          (45,000)

TotaIs                            $150,000   $115,000        $(35,000)

Wallace does not elect the fair value option for reporting financial assets.  At December 31, year I, what amounts should be charged to        Net income    Other comorehensive income

a.     $ 0                  $60,000

b.     $25,000          $0

c.     $25,000         $35,000

d.     $60,000         $0

 $25,000         $35,000

19

On January 10, year I, Wayne, Inc., purchased 5,000 shares of Jason Corporation's common stock at $60 per share. The purchase is a long-term investment and is less than 20% of Jason's outstanding shares. This investment is appropriately reflected in Wayne's balance sheet in an available-for-sale securities portfolio at December 31, year I. The market value of Wayne's investment in Jason's common stock was as follows:

                                        Market value

Date                          Per share    Total

December I5, year I   $47             $235,000

December 31, year I     46               230,000

On December I5, year I, Wayne determined that there had been an other than temporary decline in the market value. What amount should Wayne record as loss in its income statement for the year ended December 31, year I? 

$70,000

20

On December 31, year I, Ott Co. had investments in marketable equity securities as follows:

                            Cost       Market value   

Mann Co.            $10,000    $ 8,000

Kama, Inc.              9,000      10,000

Fenn Corp.            11,000        9,000

                          $30,000    $27,000        

The Mann investment is classified as held-to-maturity, while the remaining securities are classified as available-for-sale. Ott does not elect the fair value option for reporting financial assets. Ott's December 31, year I balance sheet should report total marketable equity securities as

$29,000 

21

The market price of the common stock of an investee company increased during the year. How will the investor's investment account be affected by the increase in market price of that common stock under each of the following accounting methods?

   Cost adiusted for fair value method    Equity method

a.    No effect                                           No effect

b.    No effect                                          Increase

c.    Increase                                            No effect

d.    Increase                                            Increase 

 Increase                                            No effect

22

On April I, year 2, Calico Corp. purchases 10,000 shares of stock in Linwood Corporation for $60 per share, representing 5% of the outstanding shares of Linwood. Calico classifies the investment as an available-for-sale security. During year 2, Linwood pays a dividend of $.30 per share. On December 31, year 2, the Linwood shares are valued at $62 per share. Calico elects to use the fair value option for reporting its investment in Linwood. What is the amount that Calico will record as unrealized gain on the securities in its year 2 income statement? 

$20,000

23

Gil Co. began operations on January 3, year I. The following information was extracted from Gil Co.'s December 31, year I balance sheet:

Noncurrent assets: $96,450

Long-term investments in marketable equity securities Stockholders' equity:

   Accumulated other comprehensive income:  

      Net unrealized loss on investments in marketable equity securities (less tax benefit of 4,800) (15,000)

Gil Co. did not elect to use the fair value option for reporting financial assets. Historical cost of the long-term investments in marketable equity securities was 

$116,250

24

During year I, Wall Co. purchased 2,000 shares of Hemp Corp. common stock for $31,500 and properly classified the investment as available-for-sale. The market value of this investment was $29,500 at December 31, year I. Wall did not elect to use the fair value option for reporting financial assets. Wall sold all of the Hemp common stock for $14 per share on December I5, year 2, incurring $1,400 in brokerage commissions and taxes. On the sale, Wall should report a realized loss of 

$4,900

25

The equity method of accounting for an investment in the common stock of another company should be used when the investment 

Enables the investor to exercise significant influence over the investee. 

26

On July I, year 2, Denver Corp. purchased 3,000 shares of Eagle Co.'s 10,000 outstanding shares of common stock for $20 per share. On December I5, year 2, Eagle paid $40,000 in dividends to its common stockholders. Eagle's net income for the year ended December 31, year 2, was $120,000, earned evenly throughout the year. Denver uses the equity method to account for its shares in Eagle. In its year 2 income statement, what amount of income from this investment should Denver report? 

$18,000

27

Velma Corporation does not elect to use the fair value option for reporting financial assets. The market value of Velma's available-for-sale securities portfolio is lower than its cost. How should Velma report this difference? 

Accounted for separately in other comprehensive income.

28

On January 2, year I, Troquel Corporation bought 15% of Zafacon Corporation's capital stock for $30,000. Troquel accounts for this investment by the cost adjusted for fair value method and carries the securities in an available-for-sale portfolio. Zafacon's net income for the years ended December 31, year I, and December 31, year 2, was $10,000 and $50,000, respectively. During year 2, Zafacon declared a dividend of $70,000. No dividends were declared in year I. How much should Troquel show on its year 2 income statement as income from this investment? 

$9,000

29

At the end of year I, Lane Co. held trading securities that cost $86,000 and which had a year-end market value of $92,000. During year 2, all of these securities were sold for $104,500. At the end of year 2, Lane had acquired additional trading securities that cost $73,000 and which had a year-end market value of $71,000. What is the impact of these stock activities on Lane's year 2 income statement? 

Gain of $10,500

30

On both December 31, year I, and December 31, year 2, Leman Co.'s only marketable equity security had the same fair value, which was below cost. Leman considered the decline in value to be temporary in year I but other than temporary in year 2. At the end of both years the security was classified as a noncurrent asset. Leman considers the investment to be available-for-sale. Assume that Leman does not elect the fair value option to account for its available-for-sale securities. What should be the effects of the determination that the decline was other than temporary on Leman's year 2 net noncurrent assets and net income? 

No effect on net noncurrent assets and a decrease in net income.

31

Dey Corp. began operations in year I. An analysis of Dey's marketable securities portfolio acquired in year I shows the following totals at December 31, year I, for available-for-sale and held-to-maturity securities:

                                      Available-for-sale     Held-to-maturity

Aggregate cost                 $45,000                  $65,000

Aggregate market value      39,000                     57,000

Dey does not elect to use the fair value option in reporting financial assets. What amount of unrealized loss should Dey report in its December 31, year I balance sheet? 

$6,000

32

An investor uses the equity method to account for an investment in common stock. Assuming the fair value option of reporting financial assets is not elected, the investor's equity in the earnings of the investee would be affected by

    Cash dividends from investee A change in of the investee 's                                                             common stock

a.   No                                           Yes

b.   No                                           No

c.   Yes                                          No

d.   Yes                                          Yes

No                                           No

33

On January 2, year I, Seal, Inc. acquired a $70,000 Whole-life insurance policy on its president. The annual premium is $2,000. The company is the owner and beneficiary. Seal charged officer's life insurance expense as follows: 

Year 1    $2,000    
Year 2     1,800 
Year 3     1,500
Year 4     1,100 
Total      $6,400 I
n Seal's December 31, year 4 balance sheet, the investment in cash surrender value should be 

$1,600

34

In its financial statements, Pulham Corp. uses the equity method of accounting for its 30% ownership of Angles Corp. At December 31, year 2, Pulham has receivable from Angles. How should the receivable be reported in Pulham's year 2 financial statements? 

The total amount of the receivable should be disclosed separately.

35

Under IFRS, to qualify for the equity method, the entity must have significant influence over the investee. Significant influence is presumed when the investor owns

Between 20% and 50% of the investee. 

36

On May I, year I, Reynolds purchased 5,000 shares of common stock of Haywood Corp. for $250,000 and classified the investment as available-for-sale securities. On December 31, year I, the Haywood stock had a fair value of $257,000. Reynolds Corp. prepares its financial statements in accordance with IFRS. Reynolds elects to use fair value through profit or loss to record its investments in available-for-sale securities. How is the gain on the investment in Haywood stock reported in Reynolds's year I financial statements?

As a $7,000 gain in current earnings of the period.

37

A short-term marketable debt security was purchased on September I, year I, between interest dates. The next interest payment date was February I, year 2. the balance sheet at December 31, year I, the debt security should be carried at  

Market value. 

38

Zinc Company does not elect to use the fair value option for reporting financial assets. An unrealized gain, net of tax, on Zinc's held-to-maturity portfolio of marketable debt securities should be reflected in the current financial statements as

A footnote or parenthetical disclosure only.

39

Simms Corporation reports under IFRS. Simms reports the cost and fair value of its securities at year end as

                             Cost            Fair value

Held to maturity    $22,500     $25,000

Held for trading      $15,000     $13,000

Simms elects the fair value through profit or loss (FVTPL) method to account for its securities.  The amount of gain or loss to be recognized in current earnings is  

$500 gain. 

40

Clara Corp. does not elect to use the fair value option to report financial assets. For marketable debt securities included in Clara's held-to-maturity portfolio, which the following amounts should be included in the period's net income?

I. Unrealized temporary losses during the period.

Il. Gains on securities sold during the period.

Ill. Permanent decline in value. \

II and III

41

Assume the fair value option is not elected for reporting financial assets. When an investor uses the equity method to account for investments in common stock, the investment account will be increased when the investor recognizes 

A proportionate interest in the net income of the investee.

42

Cobb Co. purchased 10,000 shares (2% ownership) of Roe Co. on February 12, year 2. Cobb received a stock dividend of 2,000 shares on March 31, year 2, when the carrying amount per share on Roe's books was $35 and the market value per share was $40. Roe paid a cash dividend of $1.50 per share on September 15, year 2. In Cobb's income statement for the year ended October 31, year 2, what amount should Cobb report as dividend income?

$18,000

43

Cook Company had the following investment portfolio of stocks that were purchased during year I.

Stock            Classification          Cost           Fair Value 12-31-YI 

Company R    Available-for-sale   $30,000    $32,000

Company S    Trading                  $42,000    $46,000

Company T    Available-for-sale     $15,000   $18,000

Cook does not elect to use the fair value option for reporting its financial assets.  Cook chooses instead to report securities in accordance with the provisions of ASC Topic 320. What is the unrealized gain on the income statement in year I? 

$4,000

44

Clarion had the following investments in its portfolio that were purchased during year 2.

Investment                 Classification        Cost                Fair Value

                                                                                     12-31-Y2

Common stock of

Company X                 Trading                $100,000        $121,000 

Bond of Company Y    Available-for-sale  $ 96,000       $101,000

Bond of Company Z    Held-to-maturity    $ 64,000       $ 63,000 On December 31, year 2, the amortized cost of Bond Y was $97,000, and the amortized cost of Bond Z was $63,500. Clarion uses the fair value option for all instruments in its investment portfolio. What amount should Clarion record as an unrealized gain in its year 2 income statement? 

$25,000

45

On January I, year 2, Justo purchases 30,000 shares of the 100,000 outstanding shares of stock in Bonita Corp. for $5 per share. During the year, Bonita Corporation has $20,000 of net income and pays $4,000 in dividends. On December 31, year 2, the value of a share of acnita Corporation stock is $6 per share. Assuming Justo uses the equity method of accounting for Bonita stock, what is the amount shown for Investment in Bonita on the December 31, year 2 balance sheet? 

$154,800

46

Taft Corp. uses the equity method to account for its 25% investment in Flame, Inc. During year 2, Taft received dividends of $30,000 from Flame and recorded $180,000 as its equity in the earnings of Flame. Additional information follows:

All the undistributed earnings of Flame will be distributed as dividends in future periods.

The dividends received from Flame are eligible for the dividends received deduction.

There are no other temporary differences.

Enacted income tax rates are 30% for year 2 and thereafter.

In its December 31, year 2 balance sheet, what amount should Taft report for deferred income tax liability? 

$9,000 

47

On January 15, year I, Ward Company purchased 10,000 shares (10%) of the outstanding common stock of Diamond, Inc. for $25 per share. The purchase was appropriately recorded as an available-for-sale investment and accounted for under the cost adjusted for fair value method. The market price of the stock was $24 per share on December 31, year I. Ward did not elect the fair value option for reporting financial assets. During year 2 Diamond experienced severe financial difficulties and Ward disposed of its entire investment in Diamond stock for $10 per share on November 10, year 2. Ward's effective income tax rate was 30% for year 2. In its income statement for the year ended December 31, year 2, how much should Ward report as unusual loss from disposal of the investment?

$150,000

48

On January 2, year I, Winn Company purchased as a long-term investment 5,000 shares of Pyle Corp. common stock for $70 per share, which represents a 1% interest. On December 31, year I, the market price of the stock was $75 per share. On December 18, year 2, Winn needed additional cash for operations and sold all 5,000 shares of stock for $100 per share. Winn's income tax rate was 40% for year 2. For the year ended December 31, year 2, Winn should include in its income from continuing operations a realized gain on disposal of long-term investment of 

$150,000

49

The auditor's report was dated Desno Corporation reports on a calendar-year basis. Its December 31, year I financial statements were issued on February 3, year 2. January 22, year 2. The following information pertains to Desno's aggregate marketable equity securities portfolio:

Cost                                  $500,000

Market value, 12/31/Y1         400,000

Market value, 1/22,Y2          350,000

Market value, 2/3/Y2            300,000

How much should be reported on Desno's balance sheet at December 31, year I, for marketable equity securities? 

$400,000

50

On January I, year I, Justo purchases 30,000 shares of the 100,000 outstanding shares of stock in Bonita Corp. for $5 per share. During the year, Bonita Corporation has $20,000 of net income and pays $4,000 in dividends. On December 31, year I, the value of a share of acnita Corporation stock is $6 per share. Assuming Justo elects the fair value option to account for its investment in Bonita, what is the amount recorded as Investment in Bonita on the December 31, year I balance sheet?

$180,000

51

Simms reports the cost and fair value of its securities at year end as

                            Cost                    Fair value

Held to maturity   $22,500             $25,000

Held for trading    $15,000               $13,000

Beirn does not elect the fair value through profit or loss (FVTPL) method to account for all securities. The amount of gain or loss to be recognized in current earnings is 

$2,000 loss. 

52

On April I, year I, Zag, Inc. purchased $200,000 face value, LIS Treasury Notes for $197,500, including accrued interest of $3,500. The notes mature July I, year 2, and pay interest semiannually on January I and July I. Zag uses the straight-line method of amortization and intends to hold the notes to maturity. Zag does not elect the fair value option for recording the securities. In its October 31, year I balance sheet, the carrying amount of this investment should be 

$196,800

53

On January I, year I, Ball, Inc. purchased a $1,000,000 ordinary life insurance policy on its president.  The policy year and Ball's accounting year coincide.  Additional data are available for the year ended

Cash surrender value, 1/1/Y3                   $43,500

Cash surrender value, 12/31/Y3                 54,000

Annual advance premium paid 1/1/Y3        20,000

Dividend received 7/1/Y3                             3,000

Ball, Inc. is the beneficiary under the life insurance policy. How much should Ball report as life insurance expense for year 3? 

$ 6,500

54

According to ASC Topic 320, the amount by which the aggregate cost of marketable securities portfolio exceeds its aggregate market value should be reported in earnings when 

a. It is a trading portfolio

b. It is a trading portfolio and The decline is other than temporary

c. The decline is other than temporary

d. Neither

It is a trading portfolio and The decline is other than temporary

55

A security in an available-for-sale securities portfolio is transferred to held-to-maturity securities portfolio.  The security should be transferred between the corresponding portfolios at 

The market value at date of transfer, regardless of its cost.

56

Assume a company does not elect the fair value option for reporting financial assets. Realized gains from the sale of marketable debt securities should be included in net income of the period of sale when the marketable debt securities portfolio of which they are a part is classified as

a. Available-for-sale

b. Abailable-for-sale or Held-to-maturity

c. Held-to-maturity

d. Neither

Abailable-for-sale or Held-to-maturity

57

Clarion had the following investments in its portfolio that were purchased during year 2.

Investment                 Classification        Cost                Fair Value

                                                                                     12-31-Y2

Common stock of

Company X                 Trading                $100,000        $121,000 

Bond of Company Y    Available-for-sale  $ 96,000       $101,000

Bond of Company Z    Held-to-maturity    $ 64,000       $ 63,000

On December 31, year 2, the amortized cost of Bond Y was $97,000, and the amortized cost of Bond Z was $63,500. Clarion does not elect the fair value option for reporting financial assets. What amount should Clarion record as an unrealized gain in its year 2 income statement? 

$21,000

58

When an investor uses the cost adjusted for fair value method to account for investments in common stock held in either trading or available-for-sale portfolio, cash dividends received by the investor from the investee should normally be recorded as 

Dividend income

59

Rollin Corporation purchases 100 shares of stock in Boyle Corp., and classifies the investment as trading securities. Rollin should report these trading securities at

Fair value, with holding gains and losses included in earnings. 

60

Under IFRS, financial instruments should be classified as 

a. Tradable or Fair value through profit or loss

b. Tradable

c. Neither

d. Fair value through profit or loss

Fair value through profit or loss

61

Park Co. uses the equity method to account for its January I, year 2 purchase of Tun Inc.'s common stock. On January I, year 2, the fair values of Tun's FIFO inventor,' and land exceeded their carrying amounts. How do these excesses of fair values over carrying amounts affect Park's reported equity in Tun's year 2 earnings? 

   Inventory excess   Land excess

a. Decrease              Decrease

b. Decrease              No effect

c. Increase                Increase  

d. Increase                No effect 

Decrease              No effect

62

At year-end, Rim Co. held several investments with the intent of selling them in the near term. The investments consisted of $100,000, five-year bonds, purchased for $92,000, and equity securities purchased for $35,000. At year-end, the bonds were selling on the open market for $105,000 and the equity securities had a market value of $50,000. What amount should Rim report as trading securities in its year-end balance sheet? 

$155,000

63

On December 31, year I, Clark Company, an investment banker, purchased marketable equity securities with the intent to sell them for quick profit.  Pertinent data are as follows:

Security      Cost       Market value at 12/31/YI

W               $24,000  $26,000

X                  36,000     33,000

Y                   72,000     65,000    

On December 31, year 2, Clark reclassified its investment in security Y from trading to available-for-sale because Clark intends to retain security Y as a long-term investment. Assume Clark does not elect the fair value option for reporting financial assets. What total amount of loss on these securities should be included in Clark's income statement for the year ended December 31, year 2?

$8,000

64

On July I, year 2, Metaa Corporation purchased for $108,000, 2,000 shares of Jean Corporation's newly issued cumulative $20 par value preferred stock. Each share also had one stock warrant attached, Which entitled the holder to acquire, at $19, one share of Jean $10 par value common stock for each two warrants held. On July 2, year 2, the market price of the preferred stock (without warrants) was $50 per share and the market price of the stock warrants was $10 per warrant. On September I, year 2, Metaro sold all the stock warrants for $19,800. What should be the gain on the sale of the stock warrants?

$1,800

65

An investor uses the equity method to account for investments in common stock and does not elect to use the fair value option for reporting financial assets. The purchase price implies a fair value of the investee's depreciable assets in excess of the investee's net asset carrying values. The investor's amortization of the excess

Decreases the investment account.

66

Cook Company had the following investment portfolio of stocks that were purchased during year 2.

Stock              Classification           Cost             Fair Value 12-31-Y2

Company R     Available-for-sale     $30,000      $32,000

Company S     Trading                    $42,000      $46,000

Company T     Available-for-sale     $15,000       $18,000

Cook elects to use the fair value option for reporting all of its financial assets. What is the unrealized gain recognized on the income statement in year 2? 

$9,000 

67

Cash dividends declared out of current earnings are distributed to an investor. How will the investor's investment account be affected by those dividends under each of the following accounting methods?

   Cost adiusted for fair value method    Equity method

a.  Decrease                                          No effect 

b.  Decrease                                          Decrease 

c.   No effect                                          Decrease

d.   No effect                                         No effect 

No effect                                          Decrease