Question 1

Under IFRS No. 9, investments for which the investor lacks significant influence use basically the same reporting classifications as those used under U.S. GAAP.

Accepted Answer

False

Question 2

All securities considered available for sale should be reported as current assets in a classified balance sheet.

Accepted Answer

Securities considered available for sale should be reported as either current or non-current assets depending on their maturity date. If the securities will mature within one year or the operating cycle, whichever is longer, they should be reported as current assets. If the securities will mature in more than one year, they should be reported as non-current assets.

Question 3

Net unrealized holding gains (losses) are reported in the income statement for trading securities.

Accepted Answer

True

Question 4

When available-for-sale securities are sold, the amount of gain or loss realized from the date of purchase is included in before-tax net income.

Accepted Answer

When available-for-sale securities are sold, the amount of gain or loss realized from the date of purchase is included in before-tax net income.

Question 5

If an investment is accounted for under the equity method, the investor reduces investment income and the investment account for amortization of goodwill acquired in the investment.

Accepted Answer

Under the equity method, the investor does not amortize goodwill acquired in the investment. Goodwill is not separately amortized but is tested for impairment.

Question 6

Selecting the fair value option for an available-for-sale investment is equivalent to reclassifying that investment as a trading security.

Accepted Answer

When an available-for-sale investment is selected for fair value option, it is reclassified as a trading security.

Question 7

Both trading securities and securities available for sale are reported at their fair values.

Accepted Answer

Both trading securities and securities available for sale are reported at their fair values on the balance sheet.

Question 8

Both debt and equity securities can be categorized as trading securities.

Accepted Answer

Trading securities are securities that are bought and held with the intention of selling them in the near term to generate profits. Both debt and equity securities can be bought and sold for this purpose, so they can be categorized as trading securities.

Question 9

Companies must always use the equity method when they hold between 25% and 50% of the common stock of an investee.

Accepted Answer

The equity method is generally used when an investor has significant influence over the investee, typically indicated by ownership of 20% to 50% of the voting stock. However, the decision to use the equity method also depends on the actual ability to exercise significant influence, not just the percentage ownership. Other methods may be used if significant influence is not present.

Question 10

All investments in debt securities whose fair values are not readily determinable are carried at historical cost.

Accepted Answer

All investments in debt securities whose fair values are not readily determinable are carried at fair value or at the price paid, adjusted for amortization of premiums or accretion of discounts. This is in accordance with the accounting standards set by the Financial Accounting Standards Board (FASB).

Question 11

Routine transfers of debt and equity investments among the trading, available for sale, and held to maturity portfolios need not be disclosed in the financial statements.

Accepted Answer

Routine transfers of debt and equity investments among the trading, available for sale, and held to maturity portfolios must be disclosed in the financial statements as they impact the financial position and results of operations of the entity.

Question 12

Purchases and sales of securities are always reported as investing activities in a statement of cash flows.

Accepted Answer

Purchases and sales of securities can be reported as either operating or investing activities in a statement of cash flows, depending on the nature of the securities and the purpose for which they were acquired.

Question 13

Under IAS No. 39, investments for which the investor lacks significant influence use basically the same reporting classifications as those used under U.S. GAAP.

Accepted Answer

Under IAS No. 39, investments for which the investor lacks significant influence are classified as either held-to-maturity, available-for-sale, or held-for-trading, which are similar to the reporting classifications used under U.S. GAAP.

Question 14

Securities classified as held to maturity could be reported as either current or long-term in a classified balance sheet, depending upon their maturity dates.

Accepted Answer

Securities classified as held to maturity are reported as either current or long-term assets on a classified balance sheet based on their maturity dates. If the maturity date is within one year (or the operating cycle, if longer), they are classified as current assets. If the maturity date is beyond one year, they are classified as long-term assets.

Question 15

The equity method is in many ways a partial consolidation.

Accepted Answer

The equity method is a method of accounting for investments in which the investor has significant influence over the investee. Under this method, the investor recognizes its share of the investee's net assets and income on its own financial statements. This can be seen as a type of partial consolidation, as the investor is accounting for its portion of the investee's financial results. However, it is important to note that the equity method is not the same as consolidation, which involves combining the financial statements of multiple entities into a single set of financial statements.

Question 16

Unrealized gains and losses are included in other comprehensive income for securities that are classified as available for sale.

Accepted Answer

Unrealized gains and losses for available for sale securities are recognized in other comprehensive income until the securities are sold or considered impaired.

Question 17

Under the equity method of accounting for a stock investment, cash dividends received are considered a reduction of the investee's net assets.

Accepted Answer

Under the equity method of accounting, an investor records its share of earnings and losses of the investee as an adjustment to its investment account. Cash dividends received are considered a return of the investor's investment and are not recorded as revenue. Instead, they are considered a reduction of the investee's net assets and reduce the investor's investment account accordingly.

Question 18

When an equity method investment is sold, a gain or loss is recognized for the difference between its selling price and its cost.

Accepted Answer

When an equity method investment is sold, a gain or loss is recognized for the difference between its selling price and its carrying amount on the investor's books, not its original cost. The carrying amount includes the investor's share of the investee's earnings and losses over time, adjusted for any dividends received.

Question 19

The fair value option cannot be elected for significant-influence investments because those must be accounted for under the equity method.

Accepted Answer

The answer of The fair value option cannot be elected...

Question 20

Under IFRS No. 9, debt investments are classified as either "available for sale" or "fair value through profit and loss (FVTPL)."

Accepted Answer

Under IFRS 9, debt investments are classified as "amortized cost," "fair value through other comprehensive income (FVOCI)," or "fair value through profit or loss (FVTPL)," not "available for sale."

Quiz 12: Investments

Under IFRS No. 9, investments for which the investor lacks significant influence use basically the same reporting classifications as those used under U.S. GAAP.

All securities considered available for sale should be reported as current assets in a classified balance sheet.

Net unrealized holding gains (losses) are reported in the income statement for trading securities.

When available-for-sale securities are sold, the amount of gain or loss realized from the date of purchase is included in before-tax net income.

If an investment is accounted for under the equity method, the investor reduces investment income and the investment account for amortization of goodwill acquired in the investment.

Selecting the fair value option for an available-for-sale investment is equivalent to reclassifying that investment as a trading security.

Both trading securities and securities available for sale are reported at their fair values.

Both debt and equity securities can be categorized as trading securities.

Companies must always use the equity method when they hold between 25% and 50% of the common stock of an investee.

All investments in debt securities whose fair values are not readily determinable are carried at historical cost.

Routine transfers of debt and equity investments among the trading, available for sale, and held to maturity portfolios need not be disclosed in the financial statements.

Purchases and sales of securities are always reported as investing activities in a statement of cash flows.

Under IAS No. 39, investments for which the investor lacks significant influence use basically the same reporting classifications as those used under U.S. GAAP.

Securities classified as held to maturity could be reported as either current or long-term in a classified balance sheet, depending upon their maturity dates.

The equity method is in many ways a partial consolidation.

Unrealized gains and losses are included in other comprehensive income for securities that are classified as available for sale.

Under the equity method of accounting for a stock investment, cash dividends received are considered a reduction of the investee's net assets.

When an equity method investment is sold, a gain or loss is recognized for the difference between its selling price and its cost.

The fair value option cannot be elected for significant-influence investments because those must be accounted for under the equity method.

Under IFRS No. 9, debt investments are classified as either "available for sale" or "fair value through profit and loss (FVTPL)."