Question 1

Debt investments include all the following except

Accepted Answer

Debt investments typically involve lending money in exchange for interest income and the return of principal. Common shares represent equity ownership in a company and do not constitute a loan or debt arrangement, unlike guaranteed investment certificates, treasury bills, and bonds, which are all forms of debt investments.

Question 2

Under both IFRS and ASPE, the investor must use the effective-interest method to amortize bond premium or discount.

Accepted Answer

The answer of Under both IFRS and ASPE, the investor...

Question 3

Corporations invest in other companies for all the following reasons except to

Accepted Answer

Corporations invest in other companies to use excess cash until needed, generate investment revenue, and meet strategic goals, but not specifically to influence the market value. Influencing the market value is not a direct reason for investment; it might be a consequence but not a primary objective.

Question 4

Premiums and discounts must be amortized on all bond investments.

Accepted Answer

Premiums and discounts need to be amortized on held-to-maturity and available-for-sale bond investments, but not necessarily on trading securities, where changes in fair value are typically recognized in earnings.

Question 5

Interest income is calculated by multiplying the carrying amount of the bond investment by the market rate of interest when the bond was purchased prorated by the portion of the payment period covered during the year.

Accepted Answer

Interest income on a bond is calculated using the effective interest method, which involves multiplying the carrying amount of the bond by the market rate at purchase, adjusted for the period covered.

Question 6

Which of the following would never be classified as a long-term investment?

Accepted Answer

Trading investments are intended for short-term profit and are not held with the intention of long-term investment, unlike the other options listed.

Question 7

When investing excess cash for short periods of time, corporations generally invest in any of the following, except

Accepted Answer

Equity securities, such as stocks, are generally not considered short-term investments due to their volatility and the longer time horizon usually required to mitigate such risks. Corporations looking for short-term places to park excess cash typically prefer more liquid and less volatile investments like money-market funds, bankers' acceptances, and treasury bills.

Question 8

Trading Investments are all of the following except

Accepted Answer

Trading investments are typically held for short-term profit from price fluctuations or for earning capital gains, and can be either debt or equity securities. Strategic investments, however, are made for long-term purposes and to exert influence or control over another entity, which does not align with the primary goals of trading investments.

Question 9

Which one of the following would not be classified as a non-strategic investment?

Accepted Answer

Idle cash in a chequing account is not considered a non-strategic investment because it does not represent an active investment decision aimed at achieving long-term financial goals. It is simply cash that is not currently being used or invested.

Question 10

Both equity and debt investments are reported as current assets on the statement of financial position at fair value.

Accepted Answer

Equity and debt investments can be classified as either current or non-current assets depending on their nature and the intent of holding them. They are reported at fair value only if they are classified as held for trading or available-for-sale; otherwise, they may be reported at cost or amortized cost.

Question 11

All the following statements concerning strategic investments are true, except

Accepted Answer

Strategic investments are made for the purpose of influencing or benefiting from relationships with other companies, and they are typically long-term equity securities. They are distinct from trading investments, which are bought and sold for short-term profit generation.

Question 12

Consolidated financial statements are appropriate when one company has significant influence over another company.

Accepted Answer

Consolidated financial statements are appropriate when one company has control over another company, typically through ownership of more than 50% of the voting shares, not just significant influence.

Question 13

Realized gains and losses are always reported in the statement of income.

Accepted Answer

Realized gains and losses are reported in the statement of income when they result from transactions involving assets not held for investment purposes. However, gains and losses from investment assets are often reported in other comprehensive income or directly in equity, depending on the accounting standards applied.

Question 14

Debt investments held to earn interest income are reported at amortized cost in the statement of financial position.

Accepted Answer

Debt investments held with the intention to earn interest income and not for trading purposes are reported at amortized cost in the statement of financial position, reflecting the adjustment for the amortization of any discount or premium relative to the face value over the life of the investment.

Question 15

If there is a bond premium on a long-term bond investment, the carrying amount of the investment is reduced by the amount of the amortization.

Accepted Answer

When there is a bond premium, the carrying amount of the bond investment decreases over time as the premium is amortized. This amortization expense effectively reduces the carrying amount of the investment to its face value by the maturity date.

Question 16

Investments in associates are reported as current assets on the statement of financial position at fair value.

Accepted Answer

Investments in associates are typically reported as non-current assets on the statement of financial position and are accounted for using the equity method, not at fair value.

Question 17

When investing excess cash for short periods of time,

Accepted Answer

Corporations typically invest excess cash in debt securities that offer low risk and high liquidity to ensure that the funds are both safe and readily accessible when needed.

Question 18

Securities that can be purchased for strategic purposes

Accepted Answer

The answer of Securities that can be purchased for strategic...

Question 19

When an investment in bonds is made, the investment account is debited for the face value of the bond less any premium or plus any discount.

Accepted Answer

When an investment in bonds is made, the investment account is debited for the purchase price of the bonds, which may include the face value plus any premium or minus any discount.

Question 20

Short-term investments in bonds are accounted for using the fair value through profit or loss model.

Accepted Answer

Short-term investments in bonds are often accounted for using the fair value through profit or loss model, especially if they are held for trading purposes or designated at fair value through profit or loss at inception. This method involves recognizing changes in fair value in the profit or loss for the period.

Quiz 12: Reporting and Analyzing Investments