Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
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Chapter 12, Problem 12.8Q
To determine
Held-to-maturity security: The debt securities which are held by the investor with an intent to hold the investment till its maturity, are referred to as held-to-maturity securities.
Trading securities: These are short-term investments in debt and equity securities with an intention of trading and earning profits due to changes in market prices.
Available-for-sale (AFS) securities: These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.
To indicate: The reclassified category of debt investment in Company L, in the books of Company WD
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4. Boss Co. purchased bonds at a discount in the open market as
an investment. The bonds will be held in order to collect their
contractual cash flows. Boss should account for these bonds at
a. Cost.
c. Fair value through OCI.
d. Lower of cost or market.
b. Amortized cost.
5. According to PFRS 9, on initial recognition, the entity has the
option of designating financial assets to be measured at FVPL
1. Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: How much unrealized gain (loss) is to be reflected in the statement of changes in equity and statement of comprehensive income at yearend 2020?
2. Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: What is the carrying value of the investment on December 31, 2020?
3. Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: Determine the gain or (loss) to be recorded upon the sale of the investment.
Franklin Corp. has a debt investment that it has held forseveral years. When it purchased the debt investment,Franklin classified and accounted for it as available-forsale.Can Franklin use the fair value option for thisinvestment? Explain.
Chapter 12 Solutions
Intermediate Accounting, 10 Ed
Ch. 12 - All investments in debt securities are classified...Ch. 12 - When market rates of interest rise after a...Ch. 12 - Does GAAP distinguish between fair values that are...Ch. 12 - When a debt investment is acquired to be held for...Ch. 12 - Prob. 12.5QCh. 12 - What is comprehensive income? Its composition...Ch. 12 - Why are holding gains and losses treated...Ch. 12 - Prob. 12.8QCh. 12 - Prob. 12.9QCh. 12 - Prob. 12.10Q
Ch. 12 - Under IFRS No. 9, which reporting categories are...Ch. 12 - Prob. 12.12QCh. 12 - Do U.S. GAAP and IFRS differ in the amount of...Ch. 12 - Under what circumstances is the equity method used...Ch. 12 - The equity method has been referred to as a...Ch. 12 - In the application of the equity method, how...Ch. 12 - Prob. 12.17QCh. 12 - Prob. 12.18QCh. 12 - Prob. 12.19QCh. 12 - How does IFRS differ from U.S. GAAP with respect...Ch. 12 - What is the effect of a company electing the fair...Ch. 12 - Define a financial instrument. Provide three...Ch. 12 - Some financial instruments are called derivatives....Ch. 12 - (Based on Appendix 12A) Northwest Carburetor...Ch. 12 - Prob. 12.25QCh. 12 - Prob. 12.26QCh. 12 - (Based on Appendix 12B) Reporting an investment at...Ch. 12 - Prob. 12.28QCh. 12 - Prob. 12.17BECh. 12 - Prob. 12.18BECh. 12 - Prob. 12.20BECh. 12 - Prob. 12.8ECh. 12 - Prob. 12.15PCh. 12 - Prob. 12.2DMPCh. 12 - Prob. 12.4DMPCh. 12 - Continuing Cases Target Case LO12-4, LO12-6...
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Similar questions
- Which of the following is true regarding accounting for debt investments? A) The classification of the debt investments would affect how we record the purchase of the investments. B) The classification of the debt investments would affect how we record the interest revenue from the investments. C) The classification of the debt investments would affect how we record the sale of the investments. D) All of the above. Which of the following is NOT true when fair value option is elected for held - to - maturity debt investments? A) The fair value option must be elected at the time of purchase. B) The fair value option must be elected for all such investments. C ) Unrealized holding gains and losses on that investment will be recognized in net income. D) The investment is reported at fair value on the balance sheet.arrow_forward14. Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: Determine the initial valuation of the investment. 15. Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: How much interest income is to be recognized on December 31, 2020? 16. Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: How much is the interest receivable to be recognized on December 31, 2020?arrow_forwardWhen an investment in an available-for-sale debt security is transferred to trading because the company anticipates selling the security in the near future, the carrying value assigned to the investment when transferring it to the trading portfolio should be O the higher of its original cost or its fair value at the date of the transfer. O the lower of its original cost or its fair value at the date of the transfer. O its fair value at the date of the transfer. O its original cost.arrow_forward
- Examples of when an entity has retained substantially all the risks and rewards of ownership of transferred financial asset include A. All of these. B.A sale and repurchase transaction where the repurchase price is a fixed price or the sale price plus a lender's return. C.A sale of a financial asset together with a total return swap that transfers the market risk exposure back to the entity. D.A sale of short-term receivables in which the entity guarantees to compensate the transferee for credit losses that are likely to occur.arrow_forwardAssuming that the company’s business model has an objective of holding debt securities to collect contractual cash flows and hold investment available for sale when opportunity arises, what is the realized gain on sale of the Yankee bonds in 2021?arrow_forwardIFRS requires companies to measure their financial assets at fair value except when based on:(a) whether the equity method of accounting is used.(b) whether the fi nancial asset is a debt investment.(c) whether the fi nancial asset is an equity investment.(d) whether an investment is classifi ed as trading.arrow_forward
- 1. Assuming that the company’s business model has an objective of holding the debt securities to collect contractual cash flows, what is the realized gain on sale of the Yankee bonds in 2021? 2. Assuming that the company's business model has an objective of holding debt securitiees to collect contractual cash flows, what is the total unrealized holding gain/loss to be reported in the profit/loss for 2021?arrow_forwardWhy would the company redeem the bonds prior to the maturity date if they were going to recognize a loss? Can you think of an example of such a decision we might face in our personal lives?arrow_forwardBailey Enterprises purchased bonds on the open market at a discount. The company intends to hold the bonds until maturity and ha sthe ability to do so. Bailey should account for the bonds at A. Cost B. Lower of cost or market C. Fair Value D. Amortizied costarrow_forward
- Bradley Co. is expanding its operations and is in the process of selecting the method of financing this program. After some investigation, the company determines that it may (1) issue bonds and with the proceeds purchase the needed assets or (2) lease the assets on a long term basis. Without knowing the comparative costs involved, answer these question: a. What disclosures should be made by lessees and lessors related to futurepayments?arrow_forward1. Assuming the investment is appropriately recognized as a financial asset intended to collect contractual cash flows and also to sell the bonds in open market: How much interest income is to be recognized in 2021?arrow_forwardThe fair value option allows a company to report most financial instruments at fair value at each reporting date. record the unrealized gains and losses related to changes in the fair value of available-for-sale debt securities in net income. account for held-to-maturity securities at amortized cost. all of these choices are true of the fair value option.arrow_forward
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