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Chapter 13: 4IFRS (page 658)
Which types of investments are valued at amortized cost? Explain the rationale for this accounting.
Held-for-maturity investments are valued as amortised costs.
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Faith Battle operates a health food store, and she has been the only employee. Her business is growing, and she is considering hiring some additional staff to help her in the store. Explain to her the various payroll deductions that she will have to account for, including their potential impact on her financial statements, if she hires additional staff.
(Equity Method) On January 1, 2017, Pennington Corporation purchased 30% of the common shares of Edwards
Company for \(180,000. During the year, Edwards earned a net income of \)80,000 and paid dividends of $20,000.
Instructions
Prepare the entries for Pennington to record the purchase and any additional entries related to this investment in Edwards Company
in 2017.
(Fair Value Measurement) Presented below is information related to the purchases of common stock by Lilly
Company during 2017.
Cost Fair Value
(at purchase date) (at December 31)
Investment in Arroyo Company stock \(100,000 \) 80,000
Investment in Lee Corporation stock 250,000 300,000
Investment in Woods Inc. stock 180,000 190,000
Total \(530,000 \)570,000
Instructions
(Assume a zero balance for any Fair Value Adjustment account.)
(a) What entry would Lilly make at December 31, 2017, to record the investment in Arroyo Company stock if it chooses to
report this security using the fair value option?
(b) What entry(ies) would Lilly make at December 31, 2017, to record the investments in the Lee and Woods corporations,
assuming that Lilly did not select the fair value option for these investments?
Under what conditions should a short-term obligation be excluded from current liabilities?
(Equity Method) Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out
40% of net income in dividends each year.
Instructions
Use the information in the following T-account for the investment in Sub to answer the following questions.
Investment in Sub Co.
1,000,000
110,000
44,000
(a) How much was Parent Co.’s share of Sub Co.’s net income for the year?
(b) What was Sub Co.’s total net income for the year?
(c) What were Sub Co.’s total dividends for the year?
(d) How much was Parent Co.’s share of Sub Co.’s dividends for the year?
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