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Chapter 13: Q2ISTQ (page 658)
Information in a company’s first IFRS statements must:
(a) have a cost that does not exceed the benefits.
(b) be transparent.
(c) provide a suitable starting point.
(d) All the above.
The correct option is “d”.
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Journal Entries for Fair Value and Equity Methods) The following are two independent situations.
Situation 1: Conchita Cosmetics acquired 10% of the 200,000 shares of common stock of Martinez Fashion at a total cost of \(13 per
share on March 18, 2017. On June 30, Martinez declared and paid \)75,000 cash dividends to all stockholders. On December 31,
Martinez reported net income of \(122,000 for the year. At December 31, the market price of Martinez Fashion was \)15 per share.
Situation 2: Monica, Inc. obtained significant influence over Seles Corporation by buying 30% of Seles’s 30,000 outstanding shares
of common stock at a total cost of \(9 per share on January 1, 2017. On June 15, Seles declared and paid cash dividends of \)36,000
to all stockholders. On December 31, Seles reported a net income of $85,000 for the year.
Instructions
Prepare all necessary journal entries in 2017 for both situations.
(Fair Value Measurement Issues) Assume the same information as in E17-19 for Lilly Company. In addition,
assume that the investment in the Woods Inc. stock was sold during 2018 for \(195,000. On December 31, 2018, the following
information relates to its two remaining investments of common stock.
Cost Fair Value
(at purchase date) (at December 31)
Investment in Arroyo Company stock \)100,000 \(140,000
Investment in Lee Corporation stock 250,000 310,000
Total \)350,000 \(450,000
Net income before any security gains and losses for 2018 was \)905,000.
Instructions
(a) Compute the amount of net income or net loss that Lilly should report for 2018, taking into consideration Lilly’s securitytransactions for 2018.
(b) Prepare the journal entry to record unrealized gain or loss related to the investment in Arroyo Company stock atDecember 31, 2018.
Assume the same information as in IFRS 17-12 except that Roosevelt has an active trading strategy for these bonds.
The fair value of the bonds at December 31 of each end-year is as follows.
2017 \(534,200 2020 \)517,000
2018 \(515,000 2021 \)500,000
2019 $513,000
Instructions
(a) Pepare the journal entry at the date of the bond purchase.
(b) Prepare the journal entries to record the interest revenue and recognition of fair value for 2017.
(c) prepare the journal entry to record the recognition of fair value for 2018.
Grant Company has had a record-breaking year in terms of growth in sales and profitability. However, market research indicates that it will experience operating losses in two of its major businesses next year. The controller has proposed that the company record a provision for these future losses this year, since it can afford to take the charge and still show good results. Advise the controller on the appropriateness of this charge
Question: In determining the amount of a provision, a company using IFRS should generally measure:
(a) Using the midpoint of the range between the lowest possible loss and the highest possible loss.
(b) Using the minimum amount of the loss in the range.
(c) Using the best estimate of the amount of the loss expected to occur.
(d) Using the maximum amount of the loss in the range.
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