Question 1

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

Accepted Answer

Debt investments held to earn interest revenue are typically reported at amortized cost on the statement of financial position, reflecting the cost adjusted for any amortization of premium or discount over the life of the investment.

Question 2

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 3

At acquisition, the investment account is debited for the cost of the shares under both the cost and equity methods of accounting for strategic investments.

Accepted Answer

This is true for both the cost method and equity method of accounting for strategic investments.

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

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

Accepted Answer

Equity and debt investments are reported as current or non-current assets based on their intended holding period, not solely at fair value.

Question 6

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

Accepted Answer

Corporations typically avoid investing in equity securities for short-term cash management due to their higher risk and volatility compared to other short-term, low-risk investments like money-market funds, bankers' acceptances, and treasury bills.

Question 7

Dividends received on investments are accounted for in the same way under the fair value through profit or loss model cost and the equity method.

Accepted Answer

Dividends received on investments are treated differently under these methods. Under the fair value through profit or loss model, dividends are recognized in profit or loss. In contrast, under the equity method, dividends reduce the carrying amount of the investment.

Question 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

The answer of Realized gains and losses are always reported...

Question 10

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 11

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

Accepted Answer

Corporations typically invest in other companies to use excess cash, generate revenue, or meet strategic goals, but not to influence the market value, which is not a primary reason for investment.

Question 12

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

This statement is true. When a bond is issued at a premium, its value exceeds its face amount. The premium is amortized over the life of the bond, and each year the carrying value of the bond is reduced by the amount of the amortization. This results in a decrease in the bond's book value over time.

Question 13

Interest revenue 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 revenue is calculated by multiplying the carrying amount of the bond investment by the effective interest rate prorated by the portion of the payment period covered during the year.

Question 14

Under both IFRS and ASPE, investors can use either the cost model or the equity method for significantly influenced investments.

Accepted Answer

Under IFRS, investors can use the equity method for significantly influenced investments, while under ASPE, both the cost and equity methods are allowed for such investments.

Question 15

Unless there is evidence to the contrary, an investor owning at least 20% of the shares of an investee is assumed to have significant influence.

Accepted Answer

According to International Accounting Standards (IAS) 28, an investor owning at least 20% of the shares of an investee is presumed to have significant influence unless there is evidence to the contrary.

Question 16

Securities that can be purchased for strategic purposes

Accepted Answer

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

Question 17

When investing excess cash for short periods of time,

Accepted Answer

Corporations typically invest in debt securities with low risk and high liquidity for short-term investments to ensure safety and easy access to cash when needed.

Question 18

Using the fair value through profit and loss model of accounting for an equity investment, the journal entry to record the receipt of dividends involves a credit to Dividend Revenue.

Accepted Answer

In the fair value through profit and loss model, dividends received are recognized as income, so the journal entry would include a credit to Dividend Revenue.

Question 19

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 considered as financial instruments and are generally measured at fair value through profit or loss model. This means that any changes in the fair value are recognized in the profit or loss account.

Question 20

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.

Quiz 12: Reporting and Analyzing Investments