Chapter 15

Question 1

non strategic equity investment

Answer 1

• share investment
• current asset
• less than 20% of shares
• uses FVTPL

Question 2

FVTPL for non strategic equity investments:

Answer 2

-recorded at cost and continued to be measured at fair value

Question 3

NSE (non strategic equity investment) purchase entry

Answer 3

dr investment- name
Dr transaction fees (if need be)
cr cash

Question 4

NSE dividend entry

Answer 4

dr cash

cr dividen income

Question 5

NSE fair value adjustment

Answer 5

book value > fair value
dr investment
cr investment income

Book value < fair value
dr investment income
cr investment

Question 6

NSE selling shares

Answer 6

loss
dr cash 
dr transaction fees 
dr investment income
       cr investment 

gain 
dr cash 
dr transaction fees 
   cr investment income
    cr investment

Question 7

strategic equity investments (SE)

Answer 7

INVESTMENTS IN ASSOCAITES

• 20-50% of shares
• USE EQUITY METHOD
• share purchases recorded at cost
• profit/loss recorded
• dividends decrease investment

Question 8

SE purchase of shares

Answer 8

dr investment in associates

cr cash

Question 9

SE profit entry

Answer 9

dr investments in associates (profit x % of shares)

cr investment income

Question 10

SE loss entry

Answer 10

dr investment income

Cr investment in associates

Question 11

SE cash dividend entry

Answer 11

dr cash

cr investment in associates

Question 12

SE selling shares

Answer 12

gain
dr cash
cr investment income
cr investment in associates

 loss
dr cash 
dr investment income 
   cr investment in associates 
** before selling shares the investment account must be brought up to date from profit, loss and dividends

Question 13

debt investments FVTPL

Answer 13

• purchase recorded at cost
• investment income/loss from fair value test is recorded on income statment
• carrying value is adjusted to fair value on the balance sheet

Question 14

FVTPL purchase of bond

Answer 14

dr investment-bond
dr transaction fee
cr cash

Question 15

FVTPL accrued interest on bond

Answer 15

dr interest receivable

cr interest income

Question 16

FVTPL carrying value adjustment for bond

Answer 16

gain 
dr investment 
cr investment income 
loss 
dr investment income 
cr investment

Question 17

amortized cost method ( DEBT INVESTMENT)

Answer 17

• recorded at Present value of future cash flows
• uses effective interest method
• RECORDED AT COST PAID FOR BOND(which is pv )
• interest recorded and premium/ discount amortization

Question 18

purchase of bond entry (discount)

Answer 18

dr investment - bond 28477

cr cash 28477

Question 19

interest earned bond discount entry

Answer 19

dr cash (par value x contract rate x time) 
 dr investment 
       cr interest income ( carrying value x market rate time)

Question 20

discount

Answer 20

carrying value starts out as less and increases to par value ( dr investment) until discount is fully amortized

Question 21

collection at maturity bond

Answer 21

dr cash

cr investment bond

Question 22

Premium

Answer 22

carrying value wills tart higher than par value and decrease ( cr investment) as the premium is amortized

Question 23

Premium purchase entry

Answer 23

dr investment bond 34,900

cr cash 34,900

Question 24

Premium interest entry

Answer 24

dr cash
cr investment bond
cr interest income

Question 25

how to determine cash payment and interest income for bonds with discount/ premium

Answer 25

cash int payment= par value x contract rate x time

interest income= carrying value x market rate x time