In: Accounting
1. What factor is important in classifying an investment at fair value through profit or loss?
a. Whether the instrument has a set maturity date.
b.What is the business model within which the investments are held?
c.Whether the instrument is a debt, equity or derivative instrument.
ACE Inc has the following investments at December 31,
2020:
Historical cost | Fair value Sept 30, 2019 |
Fair value Sept 30, 2020 |
Fair value Dec 31, 2020 |
|
Shares of DEF | 25,000 | 15,000 | 27,000 | 30,000 |
Bonds of Brooke (purchased at par value) |
10,000 | 12,000 | 11,000 | 12,500 |
Shares of CooksTown | 12,000 | 18,000 | 16,000 | 16,000 |
Shares of Daisy | 18,000 | 16,500 | 19,500 | 20,500 |
4..If ACE classifies its investment in DEF at fair value through profit or loss, what amount will be reported in income for the three months ended December 31, 2020 pertaining to this investment?
a |
$3,000 gain. |
|
b |
$5,000 gain. |
|
c |
$3,000 loss. |
|
d |
$0 |
d.Whether the instrument generates dividends.
2. What should an investment in a debt investment be classified as when management has not specifically identified the classification? That is to say, in the absence of an election, what is the default category?
a.At fair value through OCI. |
||
b |
Amortized cost |
|
c |
Associate. |
|
d |
At fair value through profit or loss. |
3. Fisher Corporation has the following investments at September
30, 2020:
Historical cost | Fair value Sept 30, 2019 |
Fair value Sept 30, 2020 |
|
Shares of ABC | $25,000 | $15,000 | $25,000 |
Bonds of Brooke | 10,000 | 12,000 | 11,000 |
Shares of CooksTown (Fisher holds 35% of the outstanding voting shares of CooksTown) | 12,000 | 18,000 | 16,000 |
Shares of Davenport | 18,000 | 20,000 | 19,000 |
What method of accounting can Fisher not use to account for its investment in Cookstown?
a.Fair value through other comprehensive income. |
||
b |
Fair value through profit or loss. |
|
c |
Equity method. |
|
d |
Amortized cost. |
1. What factor is important in classifying an investment at fair value through profit or loss?
Answer : c.Whether the instrument is a debt, equity or derivative instrument.
Explanation:
- Debt instruments are measured at amortized cost, fair value through other comp. income (FVOCI), or fair value through profit or loss (FVPL)
- Equity instruments are measured at FVPL or at FVOCI. Equity that is held for trading must be measured at FVPI. Derivatives are measured at FVPL.
4. .If ACE classifies its investment in DEF at fair value through profit or loss, what amount will be reported in income for the three months ended December 31, 2020 pertaining to this investment?
Answer:- a. $3,000 gain. (30,000 - 27,000)
2. What should an investment in a debt investment be classified as when management has not specifically identified the classification? That is to say, in the absence of an election, what is the default category?
Answer:- d. At fair value through profit or loss.
3. What method of accounting can Fisher not use to account for its investment in Cookstown?
Answer:- c Equity method.
Please give me a Thumbs up ?.Thanks!!