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Chapter 13: 7IFRS (page 658)
Indicate how unrealised holding gains and losses should be reported for investments classified as trading and held-for-collection.
Unrealised holding gains or loss is not included in held-for-collection securities.
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Define a provision, and give three examples of a provision.
Eddie Zambrano Corporation began operations on January 1, 2017. During its first 3 years of operations, Zambrano reported net income and declared dividends as follows.
Net Income Dividends Declared
2014 \( 40,000 \) –0–
2015 125,000 50,000
2016 160,000 50,000
The following information relates to 2017.
Income before income tax \(240,000
Prior period adjustment: understatement of 2015 depreciation expense (before taxes) \)25,000
Cumulative decrease in income from change in inventory methods (before taxes) \(35,000
Dividends declared (of this amount, \)25,000 will be paid on Jan. 15, 2018) \(100,000
Effective tax rate 40%
Instructions
How is present value related to the concept of a liability?
Fairbanks Corporation purchased 400 ordinary shares of Sherman Inc. as a trading investment for \(13,200. During the year, Sherman paid a cash dividend of \)3.25 per share. At year-end, Sherman shares were selling for $34.50 per share. Prepare Fairbanks’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment
EXCEL (Equity Securities Entries and Disclosures) Parnevik Company has the following securities in its
investment portfolio on December 31, 2017 (all securities were purchased in 2017): (1) 3,000 shares of Anderson Co. common
stock which cost \(58,500, (2) 10,000 shares of Munter Ltd. common stock which cost \)580,000, and (3) 6,000 shares of King Company
preferred stock which cost \(255,000. The Fair Value Adjustment account shows a credit of \)10,100 at the end of 2017.
In 2018, Parnevik completed the following securities transactions.
1. On January 15, sold 3,000 shares of Anderson’s common stock at \(22 per share less fees of \)2,150.
2. On April 17, purchased 1,000 shares of Castle’s common stock at \(33.50 per share plus fees of \)1,980.
On December 31, 2018, the market prices per share of these securities were Munter \(61, King \)40, and Castle $29. In addition, the
accounting supervisor of Parnevik told you that, even though all these securities have readily determinable fair values, Parnevik
will not actively trade these securities because the top management intends to hold them for more than one year.
Instructions
(a) Prepare the entry for the security sale on January 15, 2018.
(b) Prepare the journal entry to record the security purchase on April 17, 2018.
(c) Compute the unrealized gains or losses and prepare the adjusting entry for Parnevik on December 31, 2018.
(d) How should the unrealized gains or losses be reported on Parnevik’s income statement and balance sheet?
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