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Chapter 13: Q2ISTQ (page 658)

Which of the following statements is correct?

(a) IFRS permits the fair value option for the equity method of accounting.

(b) GAAP permits recovery of impairment losses.

(c) Under IFRS, non-trading equity investments are accounted for at amortised cost.

(d) IFRS and GAAP both have a trading investment classification

Short Answer

Expert verified

Option (d) is correct option

Step by step solution

01

Definition of GAAP

It stands for Generally Accepted Accounting Principles; it contains all the principles and rules which are used in the accounting of the company.

02

Correct statement

All of the given statements are incorrect except for one real piece of information. Statement four is true that IFRS and GAAP both have a trading investment classification

Hence, option (d) is correct.

Option (a) is incorrect because the IFRS does not permit an equity method for accounting.

Option (b) is incorrect because GAAP does not permit the recovery of impairment losses.

Option © Is incorrect because non-trading securities are accounted for fair value in IFRS.

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Most popular questions from this chapter

Identify and explain the different types of classifications for investments in equity securities.

(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?

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.

(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?

BE13-1 (L01) Roley Corporation uses a periodic inventory system and the gross method of accounting for purchase discounts. On July 1, Roley purchased \(60,000 of inventory, terms 2/10, n/30, FOB shipping point. Roley paid freight costs of \)1,200. On July 3, Roley returned damaged goods and received credit of $6,000. On July 10, Roley paid for the goods. Prepare all necessary journal entries for Roley.
See all solutions

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