Solutions to Brief Exercises

SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 12-1
(a) (b) (c)

Debt or Equity Non-Strategic or Reason for Making
Investment? Strategic the Investment?
Investment?
1. 120-day treasury bill Debt Non-Strategic Interest revenue for
120 days
2. A few common shares of Equity Non-Strategic Share price
a small oil company appreciation (capital
purchased with a gain) and dividend
temporary surplus of revenue
cash that will be held
temporarily
3. 30% of the common Equity Strategic Influence the
shares of a company operations of the
purchased in order to other company
obtain a position on the
board of directors
4. Bonds purchased with a Debt Non-Strategic Interest revenue
temporary cash surplus
that will be held to
maturity
5. 100% of the common Equity Strategic Control the
shares of a company operations of the
purchased to combine its other company
operations with those of
the investor
6. Five-year bonds intended Debt Non-Strategic Interest revenue
to be held for the entire over the long term
term of the bonds
LO 1 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 12-2
(a)
Jan. 1 Held for Trading Investments ........................................ 200,000
Cash ....................................................................... 200,000
(b)
July 1 Cash ................................................................................ 10,000
Interest Revenue ($200,000 × 10% × 6/12)..... 10,000
(c)
Dec. 31 Interest Receivable ........................................................ 10,000
Interest Revenue ($200,000 × 10% × 6/12).... 10,000
Dec. 31 Unrealized Loss on Held for Trading Investments ..... 6,000

Held for Trading Investments ............................. 6,000
($200,000 – [$200,000 × 97%])
LO 2 BT: AP Difficulty: M Time: 10 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 12-6
(a)
Jan. 1 Investment in Associates.................................................... 800,000
Cash ............................................................................. 800,000
Dec. 31 Cash (25% × $40,000)........................................................ 10,000

Investment in Associates .......................................... 10,000
31 Investment in Associates (25% × $80,000) ..................... 20,000

Income from Associates.......................................... 20,000
(b) Rook would report $20,000 of revenue from its investment in Hook for the year.
BRIEF EXERCISE 12-7

(a)
Jan. 1 Investment in Associates.................................................... 800,000
Cash ............................................................................. 800,000
Dec. 31 Cash (25% × $40,000)........................................................ 10,000

Dividend Revenue ...................................................... 10,000
(b) Since Rook uses the cost model to account for its investment, the only revenue
that Rook should report is its pro-rata share of any dividends declared by Hook,
which amounts to $10,000 (25% × $40,000).
(c) Accounting for the investment using the cost model is different from using the
equity method which records a pro-rata share of income from Hook and records
receipt of dividends as a reduction of the investment account on the statement of
financial position.
BRIEF EXERCISE 12-8
(a) Significant influence – The balance in the equity investment account at December
31, would be $287,000. The investment would be reported as an investment in
associates in long-term investments.
Cost of investment $225,000
Add: Share of Dong’s net income (20% × $350,000) 70,000
Less: Dividends received from Dong (20% × $40,000) (8,000)
$287,000
(b) Without significant influence, the investment would be reported at the fair value of
$275,000 in long-term investments.
(c) Under the cost model, the investment would be reported at its purchase price of
$225,000. It would be reported as an investment in associates in long-term
investments.
LO 2,3,4 BT: AP Difficulty: C Time: 15 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 12-9
(a) (b) (c)

Significant No-Significant
Influence Influence
Equity FVTPL
Method Model* Cost Model
Statement of Financial
Position:
Long-term investments $287,000 $275,000 $225,000
Income Statement:
Other revenues and expenses
Dividend revenue 0 $ 8,000 $8,000
Income from associates $70,000 0 0
Unrealized gain on long-
term investments 0 50,000 0
*Fair value through profit or loss model
LO 2,3,4 BT: AP Difficulty: C Time: 15 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 12-10
Financial Statement Classification
A bond investment that will mature Statement of financial Current assets

next year position
Dividend revenue from a held for Income statement Other revenues and
trading investment expenses
Investment in associate Statement of financial Long-term
position investments
Investment of a few hundred Statement of financial Current assets
common shares in a large publicly position
traded company that is held for
trading purposes
A bond investment that management Statement of financial Long-term
intends to hold for 10 years position investments
Realized gain on a held for trading Income statement Other revenues and
investment expenses
Unrealized gain on a held for trading Income statement Other revenues and
investment expenses
Dividends received from a strategic Statement of financial Long-term
investment accounted for using the position investments
equity method (Investment in
Associate is
reduced)
Interest earned on a held for trading Income statement Other revenues and
investment expenses
LO 4 BT: C Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting
BRIEF EXERCISE 12-13
Brookfield’s purchase of investment in associates should be reported on the company’s

statement of cash flows as a cash outflow in investing activities.
The amount would also be included in the statement of financial position in long-term
investments as an investment in associates.
Brookfield’s share of income from associates would be reported on the company’s income
statement in the other revenues and expenses section. The amount would also cause an
increase in the investment in associates account in the long-term investments section on
the statement of financial position.
Dividends received from associates would be reported on the company’s statement of

cash flows as a cash inflow as an operating activity or an investing activity. The amount
would also reduce the investment in associates account on the statement of financial
position.
The year-end balance of investment in associates would be reported on the statement of

financial position in long-term investments.
LO 4 BT: C Difficulty: M Time: 15 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
SOLUTIONS TO EXERCISES
EXERCISE 12-2
(a) (b) (c)

1. 10-year BCE bonds Non- Held until Non-current
Strategic maturity
2. 10-year GE bonds Non- Held for Current
Strategic trading
3. 5-year Government of Non- Held for Current
Canada bonds Strategic trading
4. 180-day treasury bill Non- Held for Current
Strategic trading
5. Bank of Montreal Non- Neither held Non-current
preferred shares* Strategic for trading
or held to
maturity
6. Common shares Non- Held for Current
Strategic trading
* Note that if Kroshka is a public company, it has the choice and can elect to value these
preferred shares using the fair value through other comprehensive income model. If
Kroshka reports under ASPE, the investment would be carried using the fair value through
income or loss model.
LO 1,4 BT: K Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting
EXERCISE 12-5
(a)
Dec. 31 Held for Trading Investments ................................. 2,000

Unrealized Gain on Held for Trading Investments 2,000
($54,000 – $52,000)
(b)
YANIK INC.
Statement of Financial Position (Partial)
December 31, 2018
Current assets
Held for trading investments ......................................................... $54,000
YANIK INC.
Income Statement (Partial)
Year Ended December 31, 2018

Unrealized gain on held for trading investments .............. $2,000
(c)
Mar. 22 Cash .................................................................................... 22,000
Realized Gain on Held for Trading Investments .... 1,000
Held for Trading Investments .................................... 21,000
LO 2,4 BT: AP Difficulty: M Time: 15 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
EXERCISE 12-7
(a)
Oct. 1 Investment in Associates ....................................... 500,000
Cash (200,000 × $2.50) ................................... 500,000
Dec. Dividend Receivable ($80,000 × 20%*) ......……. 16,000

Investment in Associates ................................. 16,000
31 Investment in Associates ....................................... 40,000

Income from Associates
($200,000 × 20%*) ............................................ 40,000
(b)
Oct. 1 Long-Term Investments ......................................... 500,000
Cash (200,000 × $2.50) ................................... 500,000
Dec. Dividend Receivable ($80,000 × 20%*) ............... 16,000

Dividend Revenue ............................................. 16,000
31 No entry
* 200,000 shares / 1,000,000 shares
EXERCISE 12-9
Held for
Trading Investment
(a) Account Investments in Associates
Balance, beginning of year $100,000 $300,000

Purchases of investments during the year 30,000 40,000
Carrying amount of investments sold
during the year (43,000)* (42,000)**
Dividends received (8,000)
Share of associates’ income 43,000
Fair value adjustment derived($94,000−$100,000
- $30,000 +$43,000) 7,000
Balance, end of year $94,000 $333,000
* $55,000 less gain of $12,000
** $32,000 plus loss of $10,000
(b) Held for Trading Investments
Held for Trading Investments............................................. 30,000
Cash .......................................................................... 30,000
Cash .................................................................................... 55,000

Realized Gain on Held for Trading Investments .. 12,000
Held for Trading Investments .................................. 43,000
Cash .................................................................................... 3,000

Dividend Revenue .................................................... 3,000
Held for Trading Investments............................................. 7,000

Unrealized Gain on Held for Trading Investments . 7,000
EXERCISE 12-9 (CONTINUED)
(b) (continued)
Investment in Associates
Investment in Associates .................................................. 40,000
Cash .......................................................................... 40,000
Cash .................................................................................... 32,000

Realized Loss on Investment in Associates................... 10,000
Investment in Associates ........................................ 42,000
Cash .................................................................................... 8,000

Investment in Associates ........................................ 8,000
Investment in Associates .................................................. 43,000

Income from Associates........................................ 43,000
(c)
Held for Trading Investment
Investments in Associates
Statement of Financial Position:
Held for trading investments $94,000
Investment in associates $333,000
Income Statement:
Realized gain on held for trading investments $12,000
Unrealized gain on held for trading investments 7,000
Dividend revenue 3,000
Income from associates $43,000
Realized loss from investment in associates (10,000)
LO 2,3,4 BT: AP Difficulty: M Time: 40 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
EXERCISE 12-10
(a) 100% Cameco Europe – equity method but then investment is eliminated when the
subsidiary accounts are consolidated together with those of the parent company.
20.3% UEX – equity method

24% GE-Hitachi Global – equity method
Unnamed public company – fair value through profit or loss model
All of the first three investments exceed 20% ownership in each corporation.
Control is exerted over Cameco Europe and significant influence over the other
two investees’ operations by Cameco is assumed. Other factors should be
examined to determine if significant influence does exist regardless of the
percentage of ownership. If there is significant influence, the equity method would
be used.
For the insignificant investment in an unnamed public company, the fair value
through profit or loss model is used for this long-term investment. Fair value is
easily determined as the investee is a public company.
(b) Cameco Europe should be consolidated with Cameco’s operations because

Cameco is the parent company of a fully owned subsidiary, Cameco Europe.
LO 4 BT: AN Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting
SOLUTIONS TO PROBLEMS
PROBLEM 12-1A
(a) Feb. 1 Held for Trading Investments ................................. 208,000

Cash ($200,000 × 1.04) ................................. 208,000
Aug. 1 Cash ($200,000 × 3% × 6/12) ................................ 3,000

Interest Revenue............................................. 3,000
2 Cash ($80,000 × 1.02)............................................. 81,600

Realized Loss on Held for Trading Investments 1,600
Held for Trading Investments ($208,000 × 40%*) 83,200
*80,000/200,000 = 40%
Dec. 31 Interest Receivable

($120,000 × 3% × 5/12)........................................... 1,500
Interest Revenue............................................. 1,500
31 Unrealized Loss on Held for Trading Investments

($208,000 – $83,200) – $120,000 ......................... 4,800
Held for Trading Investments........................ 4,800
(b)
GIVARZ CORPORATION
December 31, 2018
Current assets
Interest receivable ....................................................................... $ 1,500
Held for trading investments ...................................................... 120,000
PROBLEM 12-1A (CONTINUED)
(c)
GIVARZ CORPORATION

Interest revenue ($3,000 + $1,500)................................. ...... $4,500
Unrealized loss on held for trading investments .........$4,800
Realized loss on held for trading investments ............... 1,600 (6,400)
............................................................................. $(1,900)
PROBLEM 12-2A
(a) Feb. 1 Held for Trading Investments .................................. 36,000

Cash ................................................................. 36,000
Mar. 1 Held for Trading Investments .................................. 24,000

Cash .................................................................. 24,000
Apr. 1 Held for Trading Investments .................................. 60,000

Cash ................................................................. 60,000
July 1 Cash ($3 × 600)......................................................... 1,800

Dividend Revenue ........................................... 1,800
Aug. 1 Cash ($58 × 200) ..................................................... 11,600

Realized Loss on Held for Trading Investments 400
Held for Trading Investments ........................ 12,000
[($36,000 ÷ 600) × 200]
Sept. 1 Cash ($1.50 × 800) ................................................... 1,200

Dividend Revenue ........................................... 1,200
Oct. 1 Cash ($60,000 × 7% × 6/12) ................................... 2,100

Interest Revenue ............................................. 2,100
1 Cash ............................................................................ 62,000

Realized Gain on Held for Trading Investments
($62,000 – $60,000) ........................................ 2,000
Held for Trading Investments ........................ 60,000
Dec. 31 Unrealized Loss on Held for Trading Investments

($48,000 – $46,800)............................................. 1,200
Held for Trading Investments.................... 1,200
Security Cost Fair Value
CBF common $24,000* $22,000 (400 × $55)
RSD common 24,000 24,800 (800 × $31)
$48,000 $46,800
*$36,000 − $12,000 = $24,000

(b) KAKISA FINANCIAL CORPORATION

December 31, 2018
Current assets
Held for trading investments .................................................. $46,800
(c) KAKISA FINANCIAL CORPORATION


Dividend revenue ($1,800 + $1,200)...................................... $3,000
Interest revenue ........................................................................ 2,100
Realized gain on held for trading investments...................... 2,000
7,100
Unrealized loss on held for trading investments ..... $1,200
Realized loss on held for trading investments ............ 400 1,600
$5,500
Note that it would not be wrong to combine realized gains and losses for a specific
category of investments for presentation purposes.
PROBLEM 12-3A
(a)
Mar. 1 Cash .................................................................................. 23,600
Realized Gain on Held for Trading Investments 1,600
Held for Trading Investments .............................. 22,000
June 1 Held for Trading Investments ........................................ 28,000

Cash ........................................................................ 28,000
Sept. 1 Cash ($1.50 × 800) ......................................................... 1,200

Dividend Revenue ................................................. 1,200
Oct. 1 Cash ................................................................................. 12,500

Realized Gain on Held for Trading Investments 100
Held for Trading Investments (400 × $31) ......... 12,400
Dec. 31 Unrealized Loss on Held for Trading Investments .... 5,200

Held for Trading Investments ($40,400 – $35,200) 5,200
Security Carrying Amount Fair Value
RSD common $12,400* $13,200 (400 × $33)

KEF common 28,000 22,000 (2,000 × $11)
$40,400 $35,200
*$24,800 – $12,400 = $12,400
(b) KAKISA FINANCIAL CORPORATION

December 31, 2019
Current assets
Held for trading investments ................................................... $35,200
(c) KAKISA FINANCIAL CORPORATION


Realized gain on held for trading investments ($1,600 + $100) ........ $1,700
Dividend revenue .................................................................................... 1,200
Unrealized loss on held for trading investments .................................. (5,200)
(2,300)
LO 2,4 BT: AP Difficulty: M Time: 30min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
PROBLEM 12-4A
(a)
Cost Fair Value
Debt Securities Quantity Unit Total Unit Total
Dominion bonds 4,000 $100 $400,000 $ 97 $388,000
Government of Canada
bonds 2,000 100 200,000 135 270,000
Sub-total 600,000 658,000
Cost Fair Value

Equity Securities Quantity Unit Total Unit Total
Bank of Calgary 4,000 $55 $220,000 $61 $244,000
Matco Inc. 10,000 29 290,000 32 320,000
Argenta Corp. 10,000 36 360,000 40 400,000
Sub-total 870,000 964,000
Total $1,470,000 $1,622,000
(b) 1. If Val d’Or’s entire portfolio is comprised of held for trading investments, they
would be carried at their fair value of $1,622,000.
2. An unrealized gain of $152,000 ($1,622,000 – $1,470,000) would appear
under other revenues and expenses on the company’s income statement.
(c) 1. If Val d’Or intends to hold the debt securities to maturity, this portion of the
portfolio should be reported at amortized cost on the statement of financial
position. The premium or discount would be amortized and the carrying
amount of the bonds would be adjusted. If the bonds were purchased at par,
they would be carried at their cost of $600,000. The portfolio of debt
securities would be classified as a long-term investment.
(c) (continued)
2. No unrealized gains or losses would be recognized for the debt
portfolio on the income statement for the bonds.
The equity securities would be carried at fair value of $964,000. The
portfolio of equity securities would be classified as current assets. An
unrealized gain of $94,000 ($964,000 – $870,000) would appear under other
revenues on the company’s income statement for the equity securities.
(d) If Val d’Or cannot obtain fair value information relating to the securities in its
portfolio, the portfolio should be reported at amortized cost on the statement of
financial position. No unrealized gains or losses would be recognized on the
income statement.
LO 2,4 BT: AN Difficulty: M Time: 40 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
PROBLEM 12-5A
(a)
Statement of Financial Position Income Statement

Shareholders’ Other Other Net
Assets Liabilities Equity Revenues Expenses Income
1. NE
NE NE NE NE NE
(+/-)
2. + NE + + NE +
3. NE
NE NE NE NE NE
(+/-)
4. + NE + + NE +
5. -
NE - NE + -
(+/-)
6. NE
NE NE NE NE NE
(+/-)
7. - NE - NE + -
8. NE
NE NE NE NE NE
(+/-)
9. - NE - NE + -
10. NE NE NE NE NE NE
(b) Under IFRS, Lai could have accounted for the bonds using the fair value through
profit or loss model and the following transaction would change:

10. + NE + + NE +
(c) Under ASPE, using the cost model to account for investment in associates is
allowed if the fair value of the investment is not known. Under these
circumstances, the following transactions would change:

Shareholders’ Other Other
Assets Liabilities Equity Revenues Expenses Net Income
8. + NE + + NE +
LO 2,3,4 BT: C Difficulty: M Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting
PROBLEM 12-6A
(a) No significant influence

Jan. 1 Long-Term Investments ...................................... 3,600,000
Cash ................................................................. 3,600,000
Mar. 15 Cash (200,000 x $.50) ........................................ 100,000

Dividend Revenue ......................................... 100,000
June 15 Cash (200,000 x $.50) ........................................ 100,000

Dividend Revenue ......................................... 100,000
Sept. 15 Cash (200,000 x $.50) ........................................ 100,000

Dividend Revenue .......................................... 100,000
Dec. 15 Cash (200,000 x $.50) ........................................ 100,000

Dividend Revenue .......................................... 100,000
31 Unrealized Loss on Long-Term Investments

[$3,600,000 – (200,000 × $17)].......................... 200,000
Long-Term Investments ................................ 200,000
(b) Significant influence

Jan. 1 Investment in Associates .................................... 3,600,000
Cash ................................................................. 3,600,000
Mar. 15 Cash (200,000 x $.50) ........................................ 100,000

Investment in Associates 100,000
June 15 Cash (200,000 x $.50) ........................................ 100,000

Investment in Associates .............................. 100,000
Sept. 15 Cash (200,000 × $0.50) ...................................... 100,000

Dec. 15 Cash (200,000 x $.50) ........................................ 100,000

31 Investment in Associates .................................... 550,000

($2,200,000 × 25%) .................................... 550,000
(c) Several factors should be examined to determine whether one company can
exercise significant influence over another. Although an ownership interest of 20%
or more implies significant influence, this is just a rule of thumb. Other factors
should be taken into consideration. One factor would be the presence of a member
of the investor’s management on the investee’s board of directors. A second factor
to be considered would
be whether or not the investor influences the investee’s policy-making process.
Third, the presence of material transactions between the investor and investee
might indicate significant influence. Fourth, there is an exchange of managerial
personnel. Fifth, the investor is providing key technical information to the investee.
Another consideration is the distribution of the investee’s common shares. That is,
are the investee’s shares widely held or owned by relatively few shareholders? If
someone owns 20% of the outstanding shares and none of the shareholders
holding the other 80% owns more than 1% of the shares, there is probably
significant influence, but if there is only one other shareholder who owns 80%,
there may not be significant influence.
(d) Cost model

Jan. 1 Long-Term Investments ............................................ 3,600,000
Cash ....................................................................... 3,600,000
Mar. 15 Cash (200,000 x $.50) .............................................. 100,000

Dividend Revenue ................................................ 100,000
June 15 Cash (200,000 x $.50) .............................................. 100,000

Sept. 15 Cash (200,000 x $.50) .............................................. 100,000

Dec. 15 Cash (200,000 x $.50) .............................................. 100,000

(e) ASPE is a set of standards developed for use primarily by private companies.
Private companies are more likely to invest in other private companies and the
shares of such companies do not trade actively on public stock exchanges. It is
therefore more common for private companies to have difficulty reporting
investments at fair value because such values are not readily obtained. So, if fair
value cannot be determined, ASPE allows the use of the cost method. Under ASPE,
companies can choose to use the cost model rather than the equity method to
account for investments subject to significant influence if the fair value of the shares
is not known. Private companies often have few users of the financial statements
and the information provided by the equity method may not be relevant.
(f)
No Significant Significant
Influence Influence Cost Model
Statement of Financial
Position:
Long-term investments:
Purchase price $3,600,000 $3,600,000 $3,600,000
Receipt of dividends
($100,000 × 4) 0 (400,000) 0
Investee’s income 0 550,000 0
Fair value adjustment (200,000) 0 0
Carrying amount $3,400,000 $3,750,000 $3,600,000
Income Statement:
Dividend revenue $400,000 $0 $400,000
Income from
associates 0 550,000 0
Unrealized loss on long-
term investments (200,000) 0 0
LO 2,3,4 BT: AN Difficulty: C Time: 50 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
PROBLEM 12-7A
(a) 1. Under situation 1, it is unlikely that significant influence has been achieved as
the percentage of Hat’s total shares outstanding that is held by CT Inc. is too
low at 12.5%. (25,000 ÷ 200,000 = 12.5% ownership)
2017
Oct. 3 Long-Term Investments ......................................... 1,250,000
Cash (25,000 × $50) ......................................... 1,250,000
2018
Sept. 30 Cash ($0.25 × 25,000)............................................ 6,250
Dividend Revenue ............................................. 6,250
30 Long-Term Investments ......................................... 75,000

Unrealized Gain on Long-Term
Investments ([$53 – $50] × 25,000) ............ 75,000
(a) 2.
Situation 1
Beginning balance $ 0
Purchase price 1,250,000
Fair value adjustment 75,000
Carrying amount end of year $1,325,000
Income Statement:
Dividend revenue $ 6,250
Unrealized gain on long-term investments 75,000
(b) 1. Under situation 2, it is likely that significant influence has been achieved as
the percentage of Hat’s total shares outstanding that is held by CT Inc. is
35%. (70,000 ÷ 200,000 = 35% ownership)
(b) (continued)
2017
Oct. 3 Investment in Associates ....................................... 3,500,000
Cash (70,000 × $50) ......................................... 3,500,000
2018
Sept. 30 Cash ($0.25 × 70,000)............................................ 17,500
Investment in Associates ................................. 17,500
30 Investment in Associates ....................................... 201,250

($575,000 × 35%).............................................. 201,250
(b) 2.
Situation 2
Investments in Associates:
Receipt of dividends (17,500)
Investee’s income 201,250
Income Statement:
Dividend revenue $ 0
Income from associates 201,250
Unrealized gain on long-term investments 0
(c) Under IFRS, CT Inc. has no option but to account for its investment in Hat using
the equity method when significant influence has been achieved. On the other
hand, under ASPE, CT Inc. has options. If the fair value of the shares of the
investee is known, CT Inc. can account for the investment using the equity method
or fair value through profit or loss. If fair value is not known, CT Inc. can choose
the equity method or the cost model.
(d) In Situation 3, under IFRS, consolidated financial statements are required for
financial reporting purposes because CT Inc. owns 100% of Hat. Under IFRS, CT
Inc. has no option but to prepare consolidated financial statements. Under ASPE,
CT Inc. can choose not to consolidate its subsidiary and instead use the equity
method or the cost model unless the fair value of Hat’s shares is available, in which
case the fair value through profit or loss method or equity method would be used.
(e) Consolidated financial statements show the combined assets and liabilities of both
the parent and subsidiary companies. In order to avoid duplication, the investment
account is eliminated. The (parent) investor’s name: CT Inc. will appear on the
consolidated financial statements.
(f) For situation 1, because the fair value of the Hat shares is unknown, CT Inc. would
only be able to use the cost model. For situation 2, CT Inc. can choose the equity
method or the cost model. Under situation 3, CT Inc. can choose not to consolidate
its subsidiary and instead use the equity method or the cost model.
LO 2,3,4 BT: AN Difficulty: M Time: 40 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
PROBLEM 12-8A
(a) Kang purchased 30,000 shares [($1,320,000 – $120,000) ÷ $40]
(b) Kang owns 25% (30,000 ÷ 120,000) of Sandhu shares.
(c) The cash dividend per share was $3.00 ($90,000 ÷ 30,000 shares)
(d) The fair value per share was $44 ($1,320,000 ÷ 30,000)
(e) Because Kang can exercise significant influence over Sandhu Travel Agency, the
equity method will be used to account for the long-term investment. Accordingly,
the investment account will be increased for the acquisition of shares and for
Kang‘s share of Sandhu’s income for the year that it held the investment in Sandhu.
The investment account will be decreased when Sandhu pays dividends.
Accordingly, the investment account contains the following:
Investment in Sandhu Travel Agency

(30,000 shares × $40) $1,200,000
Less: cash dividends received (90,000)
1,110,000
Plus: 25% of Sandhu Travel Agency’s income for the
year that the investment was owned - derived
($1,400,000 – $1,110,000) 290,000
Balance of investment, December 31, 2018 $1,400,000
If $290,000 is 25% of Sandhu’s income for the year, then Sandhu Travel Agency must
have earned $1,160,000 throughout the year ($290,000 ÷ 25%).
(f) Under the equity method, Kang would report its share of Sandhu Travel Agency’s
income as follows:
KANG INC.

Income from associates ......................................................... $290,000
(g) Under the cost model, Kang would report only the dividends received as revenues
as follows:
KANG INC.

Dividend revenue ........................................................................ $90,000
PROBLEM 12-9A
(a)
Held for Investments Long-Term
Trading in Investments
Investments Associates (at cost)
Balance, beginning of year $50,000 $250,000 $30,000
Unrealized loss (3,500)
Dividends earned and received (7,000)
Share of income 22,000
Carrying amount of investments sold (6,000)* ______ (8,300)**
Balance, end of year $40,500 $265,000 $21,700
*(Proceeds $10,000 - gain $4,000)
** (Proceeds $6,300 + loss $2,000)
(b) Income statement

Interest revenue $1,200
Dividend revenue 1,000 $ 800
Realized gain on held for trading investments 4,000
Realized loss on long-term investments (2,000)
Unrealized loss on held for trading investments (3,500) _______ _______
$2,700 $22,000 $(1,200)
*PROBLEM 12-10A
(a)
Jan. 1 Long-Term Investments ......................................... 1,515,397
Cash .................................................................... 1,515,397
(b) Bond Amortization Schedule
Interest Interest
Semi-Annual Received Revenue Discount Amortized
Interest Period 1.5% 2% Amortization Cost
Jan. 1 2018 $1,515,397
July 1 2018 $24,000 $30,308 $6,308 1,521,705
Jan. 1 2019 24,000 30,434 6,434 1,528,139
July 1 2019 24,000 30,563 6,563 1,534,702
Jan. 1 2020 24,000 30,694 6,694 1,541,396
July 1 2020 24,000 30,828 6,828 1,548,224
Jan. 1 2021 24,000 30,964 6,964 1,555,188
July 1 2021 24,000 31,104 7,104 1,562,292
Jan. 1 2022 24,000 31,246 7,246 1,569,538
July 1 2022 24,000 31,391 7,391 1,576,929
Jan. 1 2023 24,000 31,539 7,539 1,584,468
July 1 2023 24,000 31,689 7,689 1,592,157
Jan. 1 2024 24,000 31,843 7,843 1,600,000
(c)
July 1 Cash ......................................................................... 24,000
Long-Term Investments ......................................... 6,308
Interest Revenue .............................................. 30,308
(d)
Sept. 30 Interest Receivable ($24,000 × 3/6) ..................... 12,000
Interest Revenue ($30,434 × 3/6) .................. 15,217
*PROBLEM 12-10A (CONTINUED)
(e)
JACKSON CORP.
September 30, 2018
Current assets
Interest receivable ........................................................ $ 12,000
Long-term investments ......................................................... 1,524,922

($1,515,397 + $6,308 + $3,217)
(f)
2024
Jan. 1 Cash .......................................................... 1,600,000
Long-Term Investments ................... 1,600,000
Note that interest would also be received on January 1, 2018.
LO 5 BT: AP Difficulty: C Time: 40 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
*PROBLEM 12-11A
(a) Feb. 1 Long-Term Investments ................................... 2,880,000

Cash ($3,000,000 × 96%) .......................... 2,880,000
Aug. 1 Cash ($3,000,000 × 4% × 6/12) ...................... 60,000

Long-Term Investments ................................... 10,560
Interest Revenue
($2,880,000 × 4.9% × 6/12) ....................... 70,560
(b) Feb. 1 Held for Trading Investments .......................... 2,880,000

Cash ($3,000,000 × 96%) ......................... 2,880,000
Aug. 1 Cash ($3,000,000 × 4% × 6/12) ...................... 60,000

Interest Revenue ......................................... 60,000
(c) Feb. 1 Cash .................................................................... 9,600,000

Bonds Payable ............................................ 9,600,000
($10,000,000 × 96%)
Aug. 1 Interest Expense

($9,600,000 × 4.9% × 6/12) ............................. 235,200
Bonds Payable............................................. 35,200
Cash ($10,000,000 × 4% × 6/12).............. 200,000
(d) When the bonds are purchased with the intention of holding them to maturity, the
recording of the bonds for the investor and investee are mirror images. The bonds
have the same proportionate carrying amount. This is not the case if the bonds
were purchased by Otutye on the open market. The purchase price would reflect a
different effective rate than the rate that existed at issuance of the bond and would
be different than the selling price obtained by UHL when the bond was issued.
There are also differences in accounting for the investor and investee when the
bonds are purchased for trading purposes. Any premium or discount is not
amortized by the investor even though the company issuing the bonds would
continue to amortize any discount or premium. If the bonds are held at year-end,
their carrying amount would be adjusted to fair value on the investor’s books while
the issuer would carry the liability at amortized cost. If Otutye had sold its bonds on
the open market, the issuer, UHL, would not have been affected by this transaction
because it took place between Otutye and another company.
LO 5 BT: AN Difficulty: C Time: 40 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
PROBLEM 12-1B
(a) Jan. 1 Held for Trading Investments ................................... 192,000

Cash ($200,000 × .96) ..................................... 192,000
July 1 Cash ($200,000 × 3% × 6/12) .................................. 3,000

Interest Revenue............................................... 3,000
2 Cash ($50,000 x .99) ................................................. 49,500

Held for Trading Investments ($50,000 *.96) 48,000
Dec. 31 Interest Receivable ($150,000 × 3% × 6/12) ......... 2,250

Interest Revenue............................................... 2,250
31 Held for Trading Investments

([$150,000 × 1.01] – $144,000*) .............................. 7,500
*$192,000 – $48,000 = $144,000
$150,000 x .96 = $144,000
(b)
LIU CORPORATION
December 31, 2018
Current assets
Interest receivable .................................................................... $ 2,250
Held for trading investments .................................................. 151,500
(c) LIU CORPORATION


Interest revenue ($3,000 + $2,250) ........................................ $5,250
Realized gain on held for trading investments...................... 1,500
Unrealized gain on held for trading investments .................. 7,500
14,250
PROBLEM 12-2B
(a) Feb. 1 Held for Trading Investments ........................................ 30,000

Cash ........................................................................ 30,000
Mar. 1 Held for Trading Investments ........................................ 29,000

Cash ........................................................................ 29,000
Apr. 1 Held for Trading Investments ........................................ 90,000

Cash ....................................................................... 90,000
July 1 Cash ($2 × 1,000) ........................................................... 2,000

Dividend Revenue ................................................. 2,000
Aug. 1 Cash (350 × $33) ............................................................ 11,550

Held for Trading Investments
[($30,000 ÷ 1,000) × 350].................................... 10,500
Sept. 1 Cash ($1.50 × 500) ......................................................... 750

Dividend Revenue ................................................. 750
Oct. 1 Cash ($90,000 × 6% × 6/12) ......................................... 2,700

Interest Revenue ................................................... 2,700
1 Cash ................................................................................. 86,000

Realized Loss on Held for Trading Investments ........ 4,000
Dec. 31 Held for Trading Investments........................................ 700

Unrealized Gain on Held for Trading Investments
($49,200 – $48,500) .............................................. 700
Security Cost Fair Value

IBF Common $19,500* $18,200 (650 × $28)
RST Common 29,000 31,000 (500 × $62)
$48,500 $49,200
*$30,000 – $10,500 = $19,500

PROBLEM 12-2B (CONTINUED)
(b) CHEQUE MART LTD.

December 31, 2018
Current assets
Held for trading investments ............................................... $49,200
(c) CHEQUE MART LTD.


Dividend revenue ($2,000 + $750) ...................................... $2,750
Interest revenue ..................................................................... 2,700
Realized gain on held for trading investments................... 1,050
Unrealized gain on held for trading investments ............... 700
Realized loss on held for trading investments ................... (4,000)
3,200
PROBLEM 12-3B
(a)
Mar. 1 Cash .................................................................................. 22,100
June 1 Held for Trading Investments ........................................ 18,000

Cash ........................................................................ 18,000
Sept. 1 Cash ($1.50 × 500) ......................................................... 750

Dividend Revenue ................................................. 750
Oct. 1 Cash ................................................................................. 14,250

Realized Loss on Held for Trading Investments ........ 1,250
(250 × $62)
Dec. 31 Held for Trading Investments ........................................ 4,500

(See below: $38,000 – $33,500)
Security Carrying Amount Fair Value

RST Common $15,500* $14,000 (250 × $56)
DEF Common 18,000 24,000 (2,000 × $12)
$33,500 $38,000
*$31,000 – $15,500 = $15,500 which is the same as 250 × $62
(b) CHEQUE MART LTD.

December 31, 2019
Current assets
Held for trading investments ............................................... $38,000
(c) CHEQUE MART LTD.


Unrealized gain on held for trading investments .................................. $4,500
Realized gain on held for trading investments...................................... 3,900
Dividend revenue .................................................................................... 750
Realized loss on held for trading investments ...................................... (1,250)
7,900
PROBLEM 12-4B
(a)
Security Quantity Cost
Ajax Ltd. shares 9,400 $ 100,4001
Beta Corp. shares 5,000 36,0002
Citrus Inc. bonds 600 60,0003
$ 196,400
1 (3,000 × $12) + (2,400 × $11) + (2,000 × $9) + (2,000 × $10) = $100,400

2 (4,000 × $7) + (1,000 × $8) = $36,000
3 (600 × $100) = $60,000
Security Quantity Fair Value
Ajax Ltd. shares 9,400 $ 56,4001

Beta Corp. shares 5,000 45,0002
Citrus Inc. bonds 600 64,2003
$ 165,600
1 9,400 × $6 = $56,400
2 5,000 × $9 = $45,000
3 600 × $100 × 1.07 = $64,200
(b) 1. If Sturge’s entire portfolio is comprised of held for trading investments, they
would be carried at their fair value of $165,600.
2. An unrealized loss of $30,800 ($196,400 – $165,600) would be reported

under other revenues and expenses on the company’s income statement.
(c) 1. If Sturge’s intends to hold the Citrus bonds to maturity, this portion of the
portfolio should be reported at amortized cost on the statement of financial
position. The premium or discount would be amortized and the carrying
amount of the bonds would be adjusted. If the bonds were purchased at par,
they would be carried at their cost of $60,000. The portfolio of debt securities
would be classified as a long-term investment.
2. No unrealized gains or losses would be recognized for the Citrus bonds on

the income statement. Only on the equity portion of the investment would an
unrealized loss be recorded at $35,000 [($100,400 + $36,000) – ($56,400 +
$45,000)] under other revenues and expenses on the income statement.
The equity securities would be carried at fair value of $101,400 ($165,600 –

$64,200) or ($56,400 + $45,000) and would be classified as a current
investment.
(d) If Sturge cannot obtain fair value information relating to the securities in its
portfolio, the portfolio should be reported at cost on the statement of financial
position. No unrealized gains or losses would be recognized on the income
statement.
LO 2,4 BT: AN Difficulty: M Time: 40 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
PROBLEM 12-5B
(a)

1. NE
NE NE NE NE NE
(+/-)
2. + NE + + NE +
3. NE
NE NE NE NE NE
(+/-)
4. + NE + + NE +
5. +
NE + + NE +
(+/-)
6. NE
NE NE NE NE NE
(+/-)
7. + NE + + NE +
8. NE
NE NE NE NE NE
(+/-)
9. + NE + + NE +
(b) Under IFRS, Olsztyn could have accounted for the bonds using the fair value
through profit or loss model and the following transaction would change:

10. - NE - NE + -
(c) Under ASPE, using the cost model to account for the investment in associates is
an allowed alternative if the fair value of the investment is not known. Under these
circumstances, the following transactions would change:

8. + NE + + NE +
LO 2,3,4 BT: C Difficulty: M Time: 30 min. AACSB: None CPA: cpa-t001 CM: Reporting
PROBLEM 12-6B
(a) No significant influence

Cash.............................................................. 6,000,000
June 30 Cash (200,000 × $0.50) ...................................... 100,000

Dividend Revenue ...................................... 100,000
Dec. 31 Cash (100,000 × $0.50) ...................................... 100,000

31 Long-Term Investments
($31 × 200,000) – $6,000,000 ............................ 200,000
Investments ............................................. 200,000
(b) Significant influence

Jan. 1 Investment in Associates .................................... 6,000,000
Cash.............................................................. 6,000,000
June 30 Cash (200,000 × $0.50) ...................................... 100,000

Investment in Associates ........................... 100,000
Dec. 31 Cash (100,000 × $0.50) ...................................... 100,000

Investment in Associates ........................... 100,000
31 Investment in Associates .................................... 672,000

($3,360,000 × 20%) .................................... 672,000
(c) Several factors should be examined to determine whether one company can
exercise significant influence over another. Although an ownership interest of 20%
or more implies significant influence, this is just a rule of thumb. Other factors
should be taken into consideration. One factor would be the presence of a member
of the investor’s management on the investee’s board of directors. A second factor
to be considered would be whether or not the investor influences the investee’s
policy-making process. Third, the presence of material transactions between the
investor and investee might indicate significant influence. Fourth, there is an
exchange of managerial personnel. Fifth, the investor is providing key technical
information to the investee. Another consideration is the distribution of the
investee’s common shares. That is, are the investee’s shares widely held or owned
by relatively few shareholders? If someone owns 20% of the outstanding shares
and none of the shareholders holding the other 80% owns more than 1% of the
shares, there is probably significant influence, but if there is only one other
shareholder who owns 80%, there may not be significant influence.
(d) Cost model

Cash.............................................................. 6,000,000
June 30 Cash (200,000 × $0.50) ...................................... 100,000
Dec. 31 Cash (200,000 × $0.50) ...................................... 100,000

(e) ASPE is a set of standards developed for use primarily by private companies.
Private companies are more likely to invest in other private companies and the
shares of such companies do not trade actively on public stock exchanges. It is
therefore more common for private companies to have difficulty reporting
investments at fair value because such values are not readily obtained. So if fair
value cannot be determined, ASPE allows the use of the cost method. Under
ASPE, companies can choose to use the cost model rather than the equity method
to account for investments subject to significant influence if the fair value of the
shares is not known. Private companies often have few users of the financial
statements, and the information provided by the equity method may not be
relevant.
(f)
No
Significant Significant Cost
Influence Influence Model
Purchase price $6,000,000 $6,000,000 $6,000,000
Receipt of dividends
($100,000 × 2) 0 (200,000) 0
Investee’s income 0 672,000 0
Fair value adjustment 200,000 0 0
Carrying amount $6,200,000 $6,472,000 $6,000,000
Income Statement:
Dividend revenue $200,000 $0 $200,000
Income from
associates 0 672,000 0
Unrealized gain on long-
term investments 200,000 0 0
PROBLEM 12-7B
(a) 1. Under situation 1, it is unlikely that significant influence has been achieved as
the percentage of Sub’s total shares outstanding that is held by Partridge is
too low at 12%. (60,000 ÷ 500,000 = 12% ownership)
2018
Jan. 2 Long-Term Investments ................................... 600,000
Cash (60,000 × $10) ............................... 600,000
Dec. 31 Cash (60,000 × $0.50)...................................... 30,000

Dividend Revenue................................... 30,000
31 Long-Term Investments ................................... 120,000

Investments ($12 – $10) × 60,000 120,000
(a) 2.
Situation 1
Purchase price 600,000
Fair value adjustment 120,000
Carrying amount end of year $720,000
Income Statement:
Dividend revenue $ 30,000
Unrealized gain on long-term investments 120,000
(b) 1. Under situation 2, it is likely that significant influence has been achieved as
the percentage of Sub’s total shares outstanding that is held by Partridge is
25%. (125,000 ÷ 500,000 = 25% ownership)
2018
Jan. 2 Investment in Associates ................................. 1,250,000
Cash (125,000 × $10) .......................... 1,250,000
Dec. 31 Cash (125,000 × $0.50) ................................... 62,500

Investment in Associates ..................... 62,500
31 Investment in Associates ................................. 87,500

Income from
Associates ($350,000 × 25%) ........ 87,500
(b) 2.
Situation 2
Investments in Associates:
Receipt of dividends (62,500)
Investee’s income 87,500
Income Statement:
Dividend revenue $ 0
Income from associates 87,500
Unrealized gain on long-term investments 0
(c) Under IFRS, Partridge has no option but to account for its investment in Sub using
the equity method when significant influence has been achieved. On the other
hand, under ASPE, Partridge has options. If fair value of the shares of the investee
is known, Partridge can account for the investment using either the equity method
or fair value through profit or loss. If fair value is not known, Partridge can choose
the equity method or the cost model.
(d) In Situation 3, under IFRS, consolidated financial statements are required for
financial reporting purposes because Partridge owns 100% of Sub. Under IFRS,
Partridge has no option but to prepare consolidated financial statements. Under
ASPE, Partridge can choose not to consolidate its subsidiary and instead use the
equity method or the cost model unless the fair value of Sub’s shares is available,
in which case the fair value through profit or loss method or equity method would
be used.
(e) Consolidated financial statements show the combined assets and liabilities of both
the parent and subsidiary companies. In order to avoid duplication, the investment
account is eliminated. The (parent) investor’s name (Partridge Inc.) will appear on
the consolidated financial statements.
(f) For situation 1, because the fair value of the Sub shares is unknown, Partridge
would only be able to use the cost model. For situation 2, Partridge can choose
the equity method or the cost model. Under situation 3, Partridge can choose not
to consolidate its subsidiary and instead use the equity method or the cost model.
PROBLEM 12-8B
(a) Hadley’s accountant used the equity method to account for the investment which
resulted in Hadley recognizing 20% of Letourneau’s income as revenue ($200,000
÷ $1,000,000). Therefore, Hadley Inc. must own 20% of the common shares of
Letourneau Cycles Corp.
(b) Hadley would have received 20% of any dividends declared by Letourneau, or
$40,000 ($200,000 × 20%).
(c) Hadley purchased 80,000 common shares of Letourneau Cycles Corp. This
amount could be calculated as follows:
Balance in long-term investment account, Dec. 31 $960,000

Less: Hadley’s share of Letourneau’s income (200,000)
Add: Hadley’s share of Letourneau’s dividends 1 40,000
Investment account (at cost) $800,000*
*Since the cost of the investment was $800,000 and the issue price of
Letourneau’s shares was $10 per share, it follows that 80,000 shares were
purchased.
1 Part (b) above
(d) Among the questions that should be considered in determining an investor’s

influence are whether:
• the investor has representation on the investee’s board of directors

• the investor participates in the investee’s policy-making process
• there are material transactions between the investor and the investee
• the investor and investee are exchanging managerial personnel
• the investor is providing key technical information to the investee
(d) (continued)
In addition, we should also consider whether the common shares held by other
shareholders are concentrated or dispersed. Companies are required to use
judgement in determining if significant influence exists instead of blindly following
the guideline of 20% or greater ownership.
(e) If significant influence does not exist, Hadley should use the fair value method to
account for the investment in Letourneau Cycles Corp. Under the fair value
method, Hadley would report the investment in Letourneau Cycles Corp. as
follows:
HADLEY INC.
December 31, 2018
Investments
Long-term investments ...................................................... $950,000
HADLEY INC.
Other revenue
Dividend revenue ............................................................... $ 40,000
Unrealized gain on long-term investments..................... 150,000
($950,000 – $800,000)
(f) Under the cost model, Hadley would report the investment at cost of $800,000 on
the statement of financial position and only the dividends received of $40,000 as
Other revenue on the income statement.
PROBLEM 12-9B
(a)
Balance, beginning of year $100,000 $500,000 $60,000
Unrealized loss (8,200)
Dividends earned and received (15,000)
Share of income 37,000
Carrying amount of investments sold (12,000)* _______ (17,600)**
Balance, end of year $79,800 $522,000 $42,400
*(Proceeds $21,000 - gain $9,000)
** (Proceeds $12,600 + loss $5,000)
(b) Income statement

Interest revenue $2,800
Dividend revenue 3,000 $1,200
Realized gain on held for trading investments 9,000
Realized loss on long-term investments (5,000)
Unrealized loss on held for trading investments (8,200) _______ _______
$6,600 $37,000 $(3,800)
LO 2,3,4 BT: AN Difficulty: C Time: 30 min. AACSB: Analytic CPAL cpa-t001 CM: Reporting
*PROBLEM 12-10B
(a)
Jan. 1 Long-Term Investments ......................................... 850,916

Cash .................................................................... 850,916
(b) Bond Amortization Schedule
Interest Interest
Semi-Annual Received Revenue Discount Amortized
Interest Period 1% 1.5% Amortization Cost
Jan. 1 2018 $850,916
July 1 2018 $9,000 $12,764 $3,764 854,680
Jan. 1 2019 9,000 12,820 3,820 858,500
July 1 2019 9,000 12,878 3,878 862,378
Jan. 1 2020 9,000 12,936 3,936 866,314
July 1 2020 9,000 12,995 3,995 870,309
Jan. 1 2021 9,000 13,055 4,055 874,364
July 1 2021 9,000 13,115 4,115 878,479
Jan. 1 2022 9,000 13,177 4,177 882,656
July 1 2022 9,000 13,240 4,240 886,896
Jan. 1 2023 9,000 13,303 4,303 891,199
July 1 2023 9,000 13,368 4,368 895,567
Jan. 1 2024 9,000 13,433 4,433 900,000
(c)
July 1 Cash ......................................................................... 9,000
Interest Revenue .............................................. 12,764
(d)
Oct. 31 Interest Receivable ($9,000 × 4/6) ....................... 6,000
Long-Term Investments ($3,820 × 4/6) ............... 2,547
Interest Revenue ($12,820 × 4/6) ................... 8,547
*PROBLEM 12-10B (CONTINUED)
(e)
MORRISETTE INC.
October 31, 2018
Current assets
Interest receivable .................................................................... $ 6,000
Long-term investments .................................................................... 857,227

($850,916 + $3,764+ $2,547)
(f)
2024
Jan. 1 Cash .......................................................................... 900,000
Long-Term Investments ................................... 900,000
Note that interest would also be received on January 1, 2024.
LO 5 BT: AP Difficulty: C Time: 40 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
*PROBLEM 12-11B
(a) Densmore Consulting — Held for Trading

Jan. 1 Held for Trading Investments .......................... 204,000
Cash ($200,000 × 1.02) ............................. 204,000
June 30 Cash ($200,000 × 4% × 6/12) ......................... 4,000

Interest Revenue ........................................ 4,000
July 1 Cash ($200,000 × 1.03) ................................... 206,000

Held for Trading Investments .................... 204,000
(b) Densmore Consulting — Hold to Maturity

Jan. 1 Long-Term Investments ................................... 204,000
Cash .............................................................. 204,000
June 30 Cash ($200,000 × 4% × 6/12) ......................... 4,000

Long-Term Investments ............................. 430
Interest Revenue ......................................... 3,570
($204,000 × 3.5% × 6/12)
July 1 Cash ($200,000 × 1.03) ................................... 206,000

Long-Term Investments
($204,000 – $430) ...................................... 203,570
Realized Gain on Long-Term Investments 2,430
*PROBLEM 12-11B (CONTINUED)
(c) CASB
Jan. 1 Cash ($1,000,000 × 1.02) ................................ 1,020,000
..............................................................................
Bonds Payable............................................. 1,020,000
June 30 Interest Expense

($1,020,000 × 3.5% × 6/12) ............................. 17,850
Bonds Payable................................................... 2,150
Cash ($1,000,000 × 4% × 6/12) ................ 20,000
Dec. 31 Interest Expense................................................

([$1,020,000 – $2,150] × 3.5% × 6/12) .... 17,812
Bonds Payable................................................... 2,188
Cash ($1,000,000 × 4% × 6/12) ................ 20,000
(d) When the bonds are purchased with the intention of holding them to maturity, the
recording of the bonds for the investor and investee are mirror images. The bonds
have the same proportionate carrying amount. This would not be the case if the
bonds were purchased by Densmore on the open market. The purchase price
would reflect a different effective rate than the rate that existed at issuance of the
bond and would be different than the selling price received by CASB when the
bonds were issued.
There are also differences in accounting for the investor and investee when the
bonds are purchased for trading purposes. Any premium or discount is not
amortized by the investor even though the company issuing the bonds would
continue to amortize any discount or premium. If the bonds are held at year-end,
their carrying amount would be adjusted to fair value on the investor’s books while
the issuer would carry the liability at amortized cost. When Densmore sold its
bonds on the open market, the issuer, CASB, was not affected by this transaction
because it took place between Densmore and another company.
LO 5 BT: AN Difficulty: C Time: 40 min. AACSB: Analytic CPA: cpa-t001 CM: Reporting
CT12-1 FINANCIAL REPORTING CASE
(a) North West does not have held for trading securities. According to note 10 titled
Other Assets, North West has a 50% interest in a jointly controlled entity discussed
in note 23 called Transport Nanuk Inc. This is a strategic investment in a company
that supplies freight handling and shipping services.
(b) The companies mentioned in note 23 are subsidiaries of North West. The balances
in the investment accounts for these companies have been eliminated when the
financial statements of these subsidiaries were consolidated along with their parent
company. This is why the financial statement titles include the word “consolidated.”
LO 1,4 BT: K Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions to Brief Exercises

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Solutions to Brief Exercises

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SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 12-1

(a) (b) (c)

Dec. 31 Unrealized Loss on Held for Trading Investments ..... 6,000

BRIEF EXERCISE 12-6

Dec. 31 Cash (25% × $40,000)........................................................ 10,000

31 Investment in Associates (25% × $80,000) ..................... 20,000

BRIEF EXERCISE 12-7

Dec. 31 Cash (25% × $40,000)........................................................ 10,000

(a) (b) (c)

Financial Statement Classification

A bond investment that will mature Statement of financial Current assets

Brookfield’s purchase of investment in associates should be reported on the company’s

Dividends received from associates would be reported on the company’s statement of

The year-end balance of investment in associates would be reported on the statement of

(a) (b) (c)

Dec. 31 Held for Trading Investments ................................. 2,000

Other revenues and expenses

Dec. Dividend Receivable ($80,000 × 20%*) ......……. 16,000

31 Investment in Associates ....................................... 40,000

Cash (200,000 × $2.50) ................................... 500,000

Dec. Dividend Receivable ($80,000 × 20%*) ............... 16,000

* 200,000 shares / 1,000,000 shares

Balance, beginning of year $100,000 $300,000

Cash .................................................................................... 55,000

Cash .................................................................................... 3,000

Held for Trading Investments............................................. 7,000

Cash .................................................................................... 32,000

Cash .................................................................................... 8,000

Investment in Associates .................................................. 43,000

20.3% UEX – equity method

(b) Cameco Europe should be consolidated with Cameco’s operations because

(a) Feb. 1 Held for Trading Investments ................................. 208,000

Aug. 1 Cash ($200,000 × 3% × 6/12) ................................ 3,000

2 Cash ($80,000 × 1.02)............................................. 81,600

Dec. 31 Interest Receivable

31 Unrealized Loss on Held for Trading Investments

Other revenues and expenses

(a) Feb. 1 Held for Trading Investments .................................. 36,000

Mar. 1 Held for Trading Investments .................................. 24,000

Apr. 1 Held for Trading Investments .................................. 60,000

July 1 Cash ($3 × 600)......................................................... 1,800

Aug. 1 Cash ($58 × 200) ..................................................... 11,600

Sept. 1 Cash ($1.50 × 800) ................................................... 1,200

Oct. 1 Cash ($60,000 × 7% × 6/12) ................................... 2,100

1 Cash ............................................................................ 62,000

Dec. 31 Unrealized Loss on Held for Trading Investments

*$36,000 − $12,000 = $24,000

(b) KAKISA FINANCIAL CORPORATION

(c) KAKISA FINANCIAL CORPORATION

Other revenues and expenses

June 1 Held for Trading Investments ........................................ 28,000

Sept. 1 Cash ($1.50 × 800) ......................................................... 1,200

Oct. 1 Cash ................................................................................. 12,500

Dec. 31 Unrealized Loss on Held for Trading Investments .... 5,200

Security Carrying Amount Fair Value

RSD common $12,400* $13,200 (400 × $33)

*$24,800 – $12,400 = $12,400

(b) KAKISA FINANCIAL CORPORATION

(c) KAKISA FINANCIAL CORPORATION

Other revenues and expenses

Cost Fair Value