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Bourne, Inc., acquired 50% of David Webb Enterprises for $5,000,000 on January 1, 2013. The total fair value and book value of Webb's identifiable net assets was $8,000,000 on that date. During 2013 Webb recognized net income of $1,000,000 and paid dividends of $1,200,000. Webb had a fair value of $11,000,000 as of December 31, 2013. Required: Determine the amounts that will be associated with the Investment in Webb account and the Goodwill on Bourne's balance sheets, assuming Bourne accounts for the Webb investment (1) under the equity method under IFRS, and (2) under proportionate consolidation as allowed by IFRS.

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First note that, at purchase, fair value...

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

A) True
B) False

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If the fair value of a trading security declines for a reason that is viewed as "other than temporary":


A) The investment is not written down to fair value.
B) The investment is written down to fair value, and an "impairment loss" is recognized in net income.
C) The investment is written down to fair value, and the impairment loss is recognized in accumulated other comprehensive income.
D) The investment is treated the same way it would be treated if the decline in fair value was viewed as temporary.

E) A) and D)
F) A) and C)

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According to GAAP, companies can elect the fair value option when accounting for many investments. Required: Describe how accounting for a held-to-maturity investment, an available-for-sale investment, and an equity-method investment is affected by a company electing the fair value option.

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When a company elects the fair value opt...

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Discuss the following questions. Required: What securities must be classified within one of the three categories of held to maturity, available for sale, and trading? (Do not describe how to determine how securities are classified among these three categories.) Identify the four primary recording activities related to investments in securities.

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The three categories listed apply to all...

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Smith buys and sells securities, which it typically classifies as available for sale. On December 15, 2013, Smith purchased $500,000 of Jones shares and elected the fair value option to account for the Jones investment. As of December 31, 2013, the Jones shares had a fair value of $525,000. In the 2013 financial statements, Smith will show (ignore taxes) :


A) Investment income of $25,000 in its income statement.
B) Other comprehensive income of $25,000.
C) Accumulated other comprehensive income of $525,000.
D) An investment in Jones of $500,000.

E) A) and B)
F) A) and D)

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