Deck 8: Investments

Question 1

If an investment is valued at an amount that is most relevant to the type of investment, it will allow investors to better predict future cash flows of the company.

Answer 1

True

Question 2

The degree of influence determines how a strategic investment is classified.

Answer 2

True

Question 3

The purchaser of the bonds, or the bondholder, is known as the investor.

Answer 3

True

Question 4

When investing excess cash for short periods of time, corporations usually invest in shares of other companies.

Question 5

A treasury bill is normally recorded at the face value of the instrument.

Question 6

A treasury bill will be shown at its amortized cost on the balance sheet.

Question 7

For companies reporting under IFRS, a short-term debt instrument that is held for trading will be valued at fair value on the balance sheet.

Question 8

At acquisition, a debt instrument is recorded at its fair value on the date of purchase.

Question 9

Interest revenue is reported under other revenues on the income statement.

Question 10

If a bond investment that is held to earn interest is sold before maturity, an entry must be made to update any unrecorded interest and amortization of the discount or premium.

Question 11

When a bond investment that is held to earn interest is sold, a gain will be recorded when the amortized cost of the bond is less than the cash received.

Question 12

If a debt instrument is sold before maturity, then a gain is recorded if the cash received is less than the carrying amount of the instrument.

Question 13

Investments in equity securities bought for the purposes of trading are reported at amortized cost.

Question 14

Investments that are purchased principally for selling in the near future are called trading investments.

Question 15

The purpose of the investment is the most important factor in determining the balance sheet classification and measurement method.

Question 16

The purpose of a strategic investment is to generate investment income.

Question 17

A short-term debt instrument that is held to earn interest will be valued at fair value on the balance sheet.

Question 18

When a debt instrument is reported at amortized cost, the interest expense is calculated by multiplying the market rate of interest by the carrying value of the investment.

Question 19

An equity investment that is held for trading will be valued at cost on the balance sheet.

Question 20

Companies purchase investments as a strategic investment with the intention of establishing and maintaining a long-term operating relationship with another company.

Question 21

Under ASPE, if there is NOT an active market for an equity instrument that has no significant influence, the investment will be reported at fair value.

Question 22

Under IFRS, a strategic investment, in which the company does NOT exercise significant influence, may report any holding gains or losses from changes in the fair value, as other comprehensive income.

Question 23

If the market rate changes after a public company purchases bonds to trade, the bonds carrying amount will NOT change.

Question 24

The profit earned by an investee over which the company exercises significant influence, will NOT affect the value of the strategic investment asset account.

Question 25

When an investment is accounted for under the equity method, the payment of a dividend by the associate will reduce the amount shown on the balance sheet of the investor.

Question 26

Under IFRS, if an investor holds less than 20% of a strategic investment but holds a majority of seats on the board of directors of the investment, then the investment should be valued at fair value.

Question 27

If an investor owns more than 20% of an investee's common shares, it is presumed that the investor has significant influence over the investee's decisions.

Question 28

Under IFRS, investments reported at fair value may include investments in common shares, preferred shares, and debt investments.

Question 29

Under IFRS, companies have the choice to use the effective-interest method or straight-line method to amortize any discounts or premiums and record interest expense.

Question 30

If there is a bond premium, interest revenue is increased by the amortization amount.

Question 31

For a company reporting under IFRS, if it holds less than 20% of a strategic investment and does NOT exercise significant influence on the investment, then the investment will be accounted for using the equity method.

Question 32

The advantage of using fair value for investments held for trading is that it allows users to better predict future cash flows.

Question 33

A fair value adjustment at the balance sheet date is required only on investments that will be sold within 30 days of the balance sheet date.

Question 34

Dividend revenue is reported under revenues from operations on the income statement.

Question 35

When a dividend is received from a strategic investment over which the company exercises significant influence, the dividend will reduce the amount of the strategic investment asset account.

Question 36

Generally, if an investor holds more than 50% of a strategic investment, then the investor will prepare consolidated financial statements.

Question 37

Companies reporting under IFRS will report all investments in debt instruments at amortized cost.

Question 38

Under ASPE, only debt instruments will be reported at fair value.

Question 39

Under IFRS, all investments held for trading are valued at amortized cost on the balance sheet.

Question 40

Fair value through profit and loss means that fair value adjustments are recorded as holding gains and losses on the income statement, and: therefore, are included in the determination of either a profit or loss for a company.

Question 41

Which of the following would NOT normally be considered a motive for making an equity investment in another corporation?

A) to invest surplus cash
B) use of the investment for expanding its own operations
C) use of the investment to diversify its own operations
D) an increase in the amount of interest revenue from the equity investment

Question 42

One of the differences between IFRS and ASPE is that under ASPE there is no other comprehensive income.

Question 43

All of the following are considered debt instruments EXCEPT

A) term deposits.
B) treasury bills.
C) bonds.
D) preferred shares.

Question 44

For a company reporting under IFRS, a strategic investment over which the company exercises significant influence will be reported at fair value on the balance sheet.

Question 45

Treasury bills will be shown at amortized cost on the balance sheet.

Question 46

Excess cash may be invested for the long term to

A) generate dividend income on bonds.
B) generate interest income on bonds.
C) generate interest income on shares.
D) generate additional operating income.

Question 47

Short- or long-term debt instruments held for trading are recorded as

A) current assets at amortized cost.
B) non-current assets at amortized cost.
C) current asset at fair value.
D) non-current assets at fair value.

Question 48

Investments held for trading may be classified as either long-term or current based solely on the maturity date of the underlying investment.

Question 49

Long-term debt instruments held to earn interest income are recorded as

A) current assets at amortized cost.
B) non-current assets at amortized cost.
C) current asset at fair value.
D) non-current assets at fair value.

Question 50

Which of the following statements is INCORRECT with regards to non-strategic instruments?

A) They can be debt instruments.
B) They maintain an operating relationship with another company.
C) They can be equity instruments.
D) They generate investment income.

Question 51

All of the following are examples of money-market investments EXCEPT

A) money-market funds.
B) term deposits.
C) treasury bills.
D) shares of a privately held corporation.

Question 52

Which of the following is a true statement regarding an investment in short-term debt instruments?

A) The instruments usually do not pay interest.
B) They are often made when the company has surplus cash on hand.
C) This type of investment is never traded in the securities market.
D) A chequing account is a type of short-term debt investment.

Question 53

Equity instruments held for trading are recorded as

A) current assets at amortized cost.
B) non-current assets at amortized cost.
C) current asset at fair value.
D) non-current assets at fair value.

Question 54

All equity securities that are purchased for strategic purposes are classified as non-current assets.

Question 55

Debt & equity securities that are purchased for the purpose of selling in the short term at a gain are referred to as

A) debt instruments.
B) equity instruments.
C) long-term instruments.
D) trading investments.

Question 56

Which of the following is the most accurate?

A) Non-strategic investments maintain a long-term operating relationship with another company.
B) Non-strategic investments are purchased to generate investment income.
C) Preferred shares and common shares are debt instruments.
D) Strategic investments are always short-term instruments.

Question 57

Short-term and long-term debt instruments purchased to earn interest are reported at

A) cost.
B) unamortized cost.
C) fair value.
D) amortized cost.

Question 58

A strategic investment by a public company over which the company does NOT exercise significant influence, will be reported at cost on the balance sheet.

Question 59

Short-term debt instruments that are held to earn interest income are recorded as

A) current assets at amortized cost.
B) non-current assets at amortized cost.
C) current asset at fair value.
D) non-current assets at fair value.

Question 60

For companies reporting under IFRS, debt instruments purchased to trade are reported on the balance sheet at

A) amortized cost.
B) cost.
C) fair value.
D) lower of cost and market.

Question 61

Which of the following statements is INCORRECT with regard to treasury bills?

A) They are issued by the federal government.
B) They are unsafe investments with maturity dates of up to 5 years.
C) They are purchased at a discount.
D) They generate interest income.

Question 62

On January 1, 2021, Manny Manufacturing Ltd. purchased at face value, a $ 1,000, 5%, bond that pays interest on January 1 and July 1. Manny Manufacturing has a calendar year end. The adjusting entry on December 31, 2021, is

Question 63

At the end of Players Corporation's fiscal year, its portfolio of FVTPL investments purchased during the year is as follows: At the end of the year, Players Corporation normally would

A) make no entry.
B) increase the investment accounts to market value.
C) report an loss on the income statement for $ 3,000 under "Other Expenses".
D) report an loss on the income statement for $ 1,000 under "Other Expenses".

Question 64

Instruments that mature within 12 months of the balance sheet date are

A) long-term debt instruments.
B) fair value instruments.
C) short-term debt instruments.
D) unamortized instruments.

Question 65

Companies make strategic investments for several reasons. Which of the following reasons is INCORRECT?

A) to speculate that their investment will increase in value and result in a gain when it is sold
B) to become a part of a different industry
C) to expand operations
D) to eliminate competition

Question 66

Any premium or discount on an investment in bonds to earn interest is amortized

A) to interest expense over the remaining term of the bonds.
B) only if the effective-interest method is used.
C) to interest revenue over the remaining term of the bonds.
D) only if the investor owns 20% or more of the bonds.

Question 67

On January 1, 2021, Windows and Doors Ltd. purchased at face value, a $ 1,000, 5%, bond that pays interest on January 1 and July 1. Windows and Doors has a calendar year end. The entry for the receipt of interest on July 1, 2021, is

Question 68

On January 1, 2021, Peter Plumbing Ltd. purchased at face value, a $ 1,000, 5%, bond that pays interest on January 1 and July 1. Peter Plumbing has a calendar year end. The entry for the receipt of interest on January 1, 2022, is

Question 69

Which of the following is a true statement about the accounting for investments held for trading under IFRS?

A) The investment is initially recorded at fair value.
B) Gains and losses are recorded in OCI when the market value is different from the purchase price.
C) The accounting for trading investments is the same as the accounting for short-term investments in debt instruments purchased to earn interest.
D) The investment is initially recorded at face value.

Question 70

Interest income is calculated by multiplying

A) market rate of interest by the face value of the investment.
B) contract rate of interest by the face value of the investment.
C) market rate of interest by the carrying value of the investment.
D) stated interest rate by the carrying value of the investment.

Question 71

Investments held for trading in equity instruments are reported on the balance sheet at

A) amortized cost.
B) cost.
C) fair value.
D) lower of cost and fair value.

Question 72

If a bond investment is sold at a price that is greater than the amortized cost of the bond

A) a loss is reported in balance sheet.
B) a gain is reported in balance sheet.
C) a gain is reported on the income statement.
D) a loss is reported on the income statement.

Question 73

On January 1, Wendy Welding Ltd. purchases a $ 100,000 150 day treasury bill for $ 97,560. The treasury bills are trading at a market rate of interest of 6% annually. The entry to record the investment is

Question 74

If the cost of an investment held for trading exceeds its fair value by $ 40,000, the entry to recognize the loss

A) is not required since the share prices will likely rebound in the long run.
B) will show a debit to an expense account in the operating section of the income statement.
C) will show a credit to a contra asset account that appears in the shareholders' equity section of the balance sheet.
D) will show a debit to a holding gain or loss account that appears in the other expenses section of the income statement.

Question 75

At the end of McDougal Corporation's fiscal year, its portfolio of FVTPL investments is as follows:

Question 76

Losses and gains on the sale of FVTPL instruments are reported on

A) the income statement under current operations.
B) the balance sheet with long-term investments.
C) the income statement under other revenue and expenses.
D) the balance sheet with short-term investments.

Question 77

On October 1, Sally Sailing Ltd. purchased a $ 10,000, 150-day treasury bill for $ 9,756. Similar treasury bills are trading on the market at a rate of 6% annually. Assuming Sally Sailing has a December 31 year end, the amount accrued as interest revenue on the treasury bill at December 31 is

A) $ 146.
B) $ 160.
C) $ 195.
D) $ 200.

Question 78

Vlad Corporation sells 100 common shares being held as a trading investment. The shares were acquired six months ago at a cost of $ 50 a share Vlad sold the shares for $ 40 a share. The entry to record the sale is

Question 79

In recognizing a decline in the market value of a FVTPL investment, Investment Income or Loss account is debited

A) because management intends to realize this loss in the near future.
B) to reflect the fair value of the investment on the balance sheet.
C) because the company is no longer a going concern.
D) because there is a permanent decline in the fair value.

Question 80

Regardless of the bonds purchase price, their amortized cost at maturity will equal

A) face value.
B) face value less premium amounts.
C) purchase price.
D) face value plus discount amounts.