1 passive investments can be classified as fair value through profit or loss fvtpl o 4309952

 

1) Passive investments can be classified as fair value through profit or loss (FVTPL) or as fair value through other comprehensive income (FVTOCI). Which of the following statements is true?

A) Under both FVTPL and FVTOCI, changes in the fair value of the investment are reported as other comprehensive income on the statement of comprehensive income.

B) Under both FVTPL and FVTOCI, changes in the fair value of the investment are reported under the net income section on the statement of comprehensive income.

C) Under both FVTPL and FVTOCI, dividends received from the investee are reported under the net income section on the statement of comprehensive income.

D) Under both FVTPL and FVTOCI, dividends received from the investee are reported as other comprehensive income on the statement of comprehensive income.

2) Rudd Ltd. has a passive investment in Burke Ltd. Rudd has elected to treat Burke as a fair value through other comprehensive income (FVTOCI) investment under IFRS 9 Financial Instruments. Which of the following statements is true?

A) Dividends from Burke are reported as other comprehensive income in Rudd's Statement of Comprehensive Income (SCI)

B) Dividends from Burke are reported as a separate component of Rudd's shareholders' equity.

C) Year to year changes in the fair value of the Investment in Burke are reported as net income in Rudd's SCI.

D) Fair value accumulated gains and losses in the Investment in Burke should be reported as a separate component in Rudd's shareholders' equity.

3) Townsend Ltd. has the following shareholders:

Palermo Co. — 60%

Nix Ltd. — 30%

Riley Ltd. — 10%

Nix does not conduct any business with Townsend, nor has it been able to secure a seat on the Board of Directors. Which of the following statements is true?

A) Nix has significant influence over Townsend.

B) Nix should consider Townsend to be a special purpose entity.

C) Nix should consider Townsend to be an associated company.

D) Nix should treat Townsend as a non-strategic investment.

4) O'Reilly Ltd. incorporated O'Reilly R&D Co. to conduct research and development activities. O'Reilly R&D is a(n) ________.

A) associated company

B) joint venture

C) special purpose entity

D) passive investment

5) What is securitization?

A) It is the process of issuing long-term debt for financing.

B) It is the process of issuing preferred and common shares for financing.

C) It is the process of transferring long-term liabilities to a special purpose entity.

D) It is the process of transferring receivables to a special purpose entity and issuing bonds to finance those receivables.

6) In Canada, what subsidiaries must be included in consolidated financial statements?

A) All subsidiaries

B) All subsidiaries, except for ones in unrelated industries

C) All domestic subsidiaries

D) All subsidiaries, except for ones where control is impaired

7) Bela Ltd. has invested in several domestic manufacturing corporations. Which of the following investments would most likely be accounted for under the equity method on Bela's financial statements?

A) A holding of 15,000 of the 50,000 outstanding common shares of Earthwise Co.

B) A holding of 3,000 of the 10,000 outstanding preferred shares of Earthbent Co.

C) A holding of 5,000 of the 60,000 outstanding common shares of Earth-Kind Co.

D) A holding of 20,000 of the 25,000 outstanding common shares of Earth-Clean Co.

8) On January 1, 20X1, Best Décor Ltd. started Chic Styles Ltd. by contributing $500,000 and received 100% of the common shares of Chic Styles. Chic Styles reported net income of $50,000 in 20X1 and $75,000 in 20X2 and paid out 40% of its net income as dividends in each year. Under the equity method, what amount should be reported as Investment in Chic Styles on Best Décor's separate-entity 20X2 financial statements?

A)

Investment in Chic Styles	Investment Income
$500,000	$30,000

B)

Investment in Chic Styles	Investment Income
$575,000	$75,000

C)

Investment in Chic Styles	Investment Income
$625,000	$30,000

D)

Investment in Chic Styles	Investment Income
$625,000	$75,000

9) Townsend Ltd. has the following shareholders:

Palermo Co. — 60%

Nix Ltd. — 30%

Riley Ltd. — 10%

Nix has two seats on Townsend's five-person board of directors. Which of the following statements is true?

A) Nix has significant influence over Townsend.

B) Nix has control over Townsend.

C) Townsend is a special purpose entity to Nix.

D) Nix should treat Townsend as a passive investment.

10) Which of the following is not an indicator of significant influence?

A) The investor has representation on the investee's board of directors.

B) There are material transactions between the investor and the investee.

C) The investor and the investee share office space and use the same accounting firm.

D