Unit 4: Accounting for Investment in Equity Securities

Question 1

The date when the stock transfer books are closed to determine the names of the shareholders who are entitled to receive dividend.

Answer 1

Record Date

Question 2

It is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Answer 2

Financial Instrument

Question 3

Under this method of accounting, dividends received from investee are classified as return of investment rather than dividend income.

Answer 3

Equity Method

Question 4

This is evident when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Answer 4

Control

Question 5

Any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities.

Answer 5

Equity Instrument

Question 6

It is an entity over which the investor has significant influence.

Answer 6

Associate

Question 7

It is an arrangement of which two or more parties have joint control.

Answer 7

Joint Arrangement

Question 8

It is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Answer 8

Fair Value

Question 9

It is a form of dividend which increases the existing number of shares of an investor.

Answer 9

Share/Stock Dividend

Question 10

It is the power to participate in the financial and operating policy decisions of the investee but is not considered control or joint control of those policies.

Answer 10

Significant Influence

Question 11

[T/F]. Cash dividends received from FVOCI equity investments are reported in the income statement.

Answer 11

True

Question 12

[T/F]. Equity investments measured at fair value are not subject to impairment.

Answer 12

True

Question 13

[T/F]. Transaction costs on purchase of equity securities (shares) are capitalized for all types of investments.

Answer 13

False

Question 14

[T/F]. When a company disposes its FVOCI investments, reclassification adjustment is necessary to transfer unrealized gains/losses in other comprehensive income to realized gain/loss in profit or loss.

Answer 14

False

Question 15

The gain resulting from purchase of investment in associates below the fair value of the net identifiable assets of the investee increases the investor’s investment income.

Answer 15

True

Question 16

The unrealized gain (loss) on FVPL and FVOCI securities resulting from the movements in fair value are both reported in the SFP.

Answer 16

True

Question 17

When SI is achieved in stages, the previously-held interest is to be remeasured at fair value on the purchase date of the additional shares.

Answer 17

True

Question 18

Investment in associates accounted for under the equity method is not subject to impairment.

Answer 18

False

Question 19

Companies must always use the equity method when they hold between 20% and 50% of the voting rights of an investee.

Answer 19

False

Question 20

Under the equity method, the investor shares not only in the profits but also in the other comprehensive income.

Answer 20

True