Question 1

Changes in investment values are recognized with a credit to short-term investments and a debit to unrealized gains.

Accepted Answer

Changes in investment values are typically recognized with a debit to short-term investments and a credit to unrealized gains (or losses), reflecting the increase (or decrease) in the value of the investment that has not yet been realized through sale.

Question 2

Investments non-strategic debt investments require the investor to record interest income as it accrues.

Accepted Answer

Non-strategic debt investments typically include bonds or other fixed-income securities that generate interest income. This interest income is recorded as it accrues, meaning that the investor recognizes the income over time rather than all at once when the investment matures or is sold.

Question 3

Brokerage costs and transaction costs can be included as part of the cost of non-strategic investments.

Accepted Answer

Brokerage costs and transaction costs incurred in non-strategic investments can be added to the cost of investment and treated as part of the investment cost.

Question 4

Halifax Company purchased $50,000 worth of bonds (par value)and held them to maturity.The journal entry at maturity should include a debit to Cash for $50,000 and a credit to Long-term Investment in Bonds for $50,000.

Accepted Answer

When a company purchases and holds bonds until maturity, the journal entry at maturity includes a debit to Cash for the full par value of the bonds and a credit to Long-term Investment in Bonds for the same amount. This represents the payment received by the company and the retirement of the bonds.

Question 5

The distinguishing feature of debt investments held for the long-term is that they are held to maturity.

Accepted Answer

Debt investments held for the long-term are typically held to maturity, meaning that the investor intends to hold the investment until it matures and receives the full principal amount back. This is in contrast to debt investments held for the short-term, which are typically bought and sold with the intention of profiting from the price fluctuations in the market.

Question 6

The investor should report short-term investments at fair value.

Accepted Answer

According to accounting standards, short-term investments should be reported at fair value on the balance sheet. This means that they should be valued at their current market price or a reasonable estimate of it. This is because short-term investments are often bought and sold quickly, and their value can fluctuate rapidly. By reporting them at fair value, investors can get a more accurate picture of their current worth.

Question 7

Tool Co.received cash dividends of $3.5 per share on 300 Sharp Systems Inc.shares.The journal entry to record the transaction is a debit to Cash of $1,050 and a credit to Dividend Income of $1,050.

Accepted Answer

The journal entry to record the receipt of cash dividends is a debit to Cash and a credit to Dividend Income for the amount received, which in this case is $1,050 ($3.5 x 300 shares).

Question 8

After recording the initial purchase of non-strategic investments,an entity must continue to measure the investment at fair value; subsequent profits or losses arising are recognized in profit.

Accepted Answer

According to accounting standards, non-strategic investments should be measured at fair value and any subsequent profits or losses should be recognized in profit.

Question 9

Repeat Inc.purchased $60,000 (40%)worth of Quiet Corp.common shares.The journal entry to record the purchase should include a debit to Cash for $60,000 and a credit to Quiet Corp.Investment for $60,000.

Accepted Answer

The journal entry to record the purchase should include a debit to Quiet Corp. Investment for $60,000 and a credit to Cash for $60,000, not the other way around.

Question 10

Purchases of long-term debt investments are never initially recorded at fair value.

Accepted Answer

Purchases of long-term debt investments can be recorded at fair value if they meet the criteria for fair value accounting under accounting standards such as ASC 820. However, if the criteria are not met, they may be initially recorded at cost and subsequently adjusted for impairment.

Question 11

Non-strategic equity investments securities are equity securities that the company has the intent and ability to hold until maturity.

Accepted Answer

Non-strategic equity investments securities are equity securities that the company has the intent to sell in the near term or in response to changes in market conditions, and they are reported at fair value on the balance sheet.

Question 12

Classical City holds $40,000 worth of 7% bonds (par value)as debt investments.The journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Income for $2,800.

Accepted Answer

The answer of Classical City holds $40,000 worth of 7%...

Question 13

Investors originally record non-strategic investments using the cost method.

Accepted Answer

The answer of Investors originally record non-strategic investments using the...

Question 14

The sale of a short-term equity investment requires a debit to cash and a credit to short-term investments,with any resulting differences recognized as gains or losses.

Accepted Answer

This is the correct accounting treatment for the sale of a short-term equity investment.

Question 15

For non-strategic debt investments,the fair value through profit and loss method allows the inclusion of any transaction costs in addition to the purchase price.

Accepted Answer

For non-strategic debt investments accounted for at fair value through profit or loss, transaction costs are expensed as incurred and not included in the initial measurement of the investment.

Question 16

Comoco purchased $3,000 of Borel Ltd shares intending to sell the shares within a short time at a profit.The journal entry to record the transaction would include a debit to cash and a credit to short-term investments.

Accepted Answer

The journal entry would include a debit to short-term investments and a credit to cash, reflecting the purchase of shares (an investment) and the outflow of cash, respectively.

Question 17

Strategic investments are classified into three different categories: investments in associates,business combinations,or joint ventures.

Accepted Answer

This statement is true. Strategic investments can be classified as investments in associates, business combinations, or joint ventures.

Question 18

Non-strategic debt investments are initially recorded using either the fair value through profit or loss method or amortized cost method.

Accepted Answer

Non-strategic debt investments are initially recorded using either the fair value through profit or loss method or amortized cost method, depending on the company's intention for holding the investment.

Question 19

The method of accounting for an investment under the fair value under profit or loss is irrevocable after initial designation.

Accepted Answer

According to IFRS 9, once an investment is initially designated as fair value through profit or loss, the accounting method is irrevocable. Therefore, it cannot be changed to another accounting method such as amortized cost or fair value through other comprehensive income.

Question 20

An investor that significantly influences the operations of an investee should account for the investment using the equity method.

Accepted Answer

According to accounting standards, an investor that significantly influences the operations of an investee should account for the investment using the equity method. This means that the investor recognizes their share of the investee's net assets and profits or losses on their own financial statements.

Quiz 7: Accounting for Debt and Share Investments