Ch 16 Investments

Question 1

associate

Answer 1

An investee in which the investor has significant influence. (p. 853)

Question 2

consolidated financial statements

Answer 2

Financial statements that combine the parent company’s financial statements with the financial statements of the companies that are controlled by the parent. (p. 853)

Question 3

debt instruments

Answer 3

Debt obligations such as money-market instruments, bonds or similar items that can be bought and sold. (p. 834)

Aka debt securities

Question 4

equity instruments

Answer 4

An ownership interest in a corporation such as preferred and common shares. (p. 834)

Aka equity securities

Question 5

equity method

Answer 5

An accounting method in which the investment in common shares is initially recorded at cost. The investment account is then adjusted annually to show the investor’s equity in the associate (investee). (p. 853)

Question 6

fair value

Answer 6

The amount an investment can be sold for in the market. Typically this will be the quoted market price in a public market. (p. 845)

Question 7

fair value adjustment

Answer 7

An accounting entry to adjust the carrying value of an investment for any increases or decreases in its fair value. (p. 845)

Question 8

fair value through other comprehensive income (FVTOCI)

Answer 8

Investment classification made by management for an investment in equity securities. Fair value adjustments for these investments are reported as gains and losses int eh other comprehensive income portion of the statement comprehensive income. (p. 845)

Question 9

fair value through profit or loss (FVTPL)

Answer 9

Investment classification for any investments in debt or equity securities that do not meet the criteria established for amortized cost investments and have not been designed by management as fair value through other comprehensive income. Fair value adjustments are reported as gains and losses on the income statement and are therefore included in the determination of either a profit or loss for a company. (p. 845)

Question 10

held-for-trading investments

Answer 10

Debt or equity securities that are bought and held for sale in the near term, mainly to generate earnings from short-term price differences. (p. 835)

Aka trading investments

Question 11

investee

Answer 11

The corporation that issues (sells) the debt or equity securities that investors purchase. (p. 839)

Question 12

investor

Answer 12

The corporation that buys (owns) the debt or equity securities issued by another company. (p. 839)

Question 13

long-term debt instruments

Answer 13

Debt instruments with a maturity of longer than 12 months after the balance sheet date. (p. 838)

Question 14

money-market instruments

Answer 14

Short-term debt instruments that are low risk and highly liquid, such as money-market funds, term deposits, and treasury bills. (p. 834)

Question 15

non-strategic investment

Answer 15

An investment that is purchased mainly to generate investment income. (p. 834)

Question 16

parent company

Answer 16

A company that controls, or owns more than 50% of the common shares of, another company. (p. 834)

Question 17

securities

Answer 17

Debt or equity instruments that a company may invest in. (p. 834)

Question 18

short-term debt instruments

Answer 18

Debt instruments that mature within 12 months of the balance sheet date. (p. 838)

Question 19

strategic investment

Answer 19

An investment in equity securities that is purchased to maintain a long-term operating relationship with another company. (p. 834)

Question 20

subsidiary company

Answer 20

A company whose common shares are controlled by another company. Usually, more than 50% of its common shares are owned by the other company. (p. 853)