Reference no: EM132601716
Walker Inc. began operations on January 1, 20X5. The company reports its financial statements in accordance with IFRS. On December 31, 20X5, the company owned the following investments:
Type Category Cost Fair value at year end other
5% bonds Amortized cost $250,000 $249,000 Purchased at par on January 1, 20x5 Fair value is $250,000.
Shares fair value through 85,000 93,000 15,000 dividends declared in 20X5; $11,000 was received in the 20X5.
profit or loss (FVPL) fiscal year and the remaining $4,000 was received in the 20X6 FY
Shares fair value through other
comprehensive income
(FVOCI) 45,000 32,000
Question 1: What is the total income from investments that Walker reported in the calculation of net income before taxes in the statement of comprehensive income for the year ended December 31, 20X5?
a) $21,500
b) $22,500
c) $31,500
d) $35,500
Question 2: On July 1, 20X1, Hathaway Inc. purchased a $100,000, five-year, 6% bond when the market rate of interest was 7%. Interest was payable semi-annually on June 30 and December 31. The price paid for the bond was $95,842. Hathaway has a December 31 year end and reports its financial results in accordance with IFRS. Hathaway irrevocably elects to classify this investment at FVPL to significantly reduce a measurement inconsistency. On December 31, 20X1, the bond was actively trading for $96,900. How much income will Hathaway recognize on its financial statement for the year ended December 31, 20X1, relating to this investment?
a) $1,058
b) $3,355
c) $4,058
d) $4,413
Question 3: Carlton Corp.'s investment strategy focuses on purchasing debt instruments such as bonds, mortgages, and loans. The company values its investments in these financial instruments at FVOCI, a decision that is consistent with its business model. Separate entries are prepared to record interest revenue and the adjustment to fair value. Currently Carlton has an investment in one bond. Pertinent details follow:
Book value (net carrying value) of investment on December 30, 20X4 $98,500
Interest received on investment on December 31, 20X4 $3,000
Interest revenue recognized on investment on December 31, 20X4 $3,157
Market value of investment on December 31, 20X4 $98,700
The adjusting journal entry on December 31, 20X4, to bring the investment to its fair value would include which of the following components?
a) Debit "investment in financial asset at FVOCI" for $43.
b) Debit "investment in financial asset at FVOCI" for $200.
c) Credit "OCI - holding gain on investment in financial assets at FVOCI" for $200.
d) Credit "OCI - holding gain on investment in financial assets at FVOCI" for $357
Question 4: On December 31, 20X5, Gretta Inc., which reports its financial results in accordance with IFRS, had an investment at FVOCI-elect in Gidget Corp. Gretta initially paid $13,000 for the investment. Its fair value at December 31, 20X5, was $14,000. On February 15, 20X6, Gretta sold its investment in Gidget for $14,600. Gretta's policy is to transfer previously unrealized holding gains and losses to retained earnings when the investment is derecognized. The journal entry to record the sale of the investment in Gidget would include which of the following?
a) Credit gain on sale - P&L for $600
b) Debit OCI $1,000 (net)
c) Credit gain on derecognition - P&L for $1,600
d) Credit retained earnings $1,600
Question 5: On January 1, 20X4, Dudas Accounting Corp. bought $1,000,000 of 4.5% bonds that pay interest semi-annually on June 30 and December 31. The market rate of interest on January 1, 20X4, was 4%. The company intends to hold on to the bonds up to their December 31, 20X8, maturity date to collect all of the contractual cash flows. The market value of the bonds on December 31, 20X4, was $1,023,000. Dudas reports its financial results in accordance with IFRS. At what amount will Dudas report the bonds on its December 20X4 statement of financial position?
a) $1,018,149
b) $1,018,314
c) $1,022,456
d) $1,023,000