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Chapter 14: 3ISTQ (page 718)

IFRS requires companies to measure their financial assets at fair value except when based on: (a) whether the equity method of accounting is used. (b) whether the financial asset is a debt investment (c) whether the financial asset is an equity investment. (d) whether an investment is classified as trading.

Short Answer

Expert verified

Correct option is Option (a).

Step by step solution

01

Definition of IFRS

International financial reporting standard (IFRS) is the group of rules and regulations which regulate and define how the transaction is reported in the financial statements of the company.

02

An explanation for the correct option

Companies do not measure the financial asset at fair value in the equity method of accounting. IFRS does not permit the fair value option for the equity method.

03

An explanation for incorrect option

IFRS measures the financial assets at amortized cost or fair value for debt investment. Debt investments that are not held for collection are measured at fair value. Equity investments not passing the cash flow test are also measured at fair value.

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Most popular questions from this chapter

What are the two methods of amortizing discount and premium on bonds payable? Explain each.

What disclosures are required relative to long-term debt and sinking fund requirements?

On January 1, 2017, Henderson Corporation redeemed \(500,00 of bonds at 99. At the time of redemption, the unamortized premium was \)15,000. Prepare the corporation’s journal entry to record the reacquisition of the bonds.

(b) What type of concessions might a creditor grant the debtor in a troubled-debt situation?

(Entries and Questions for Bond Transactions) On June 30, 2017, Mischa Auer Company issued \(4,000,000 face value of 13%, 20-year bonds at \)4,300,920, a yield of 12%. Auer uses the effective-interest method to amortize bond premium or discount. The bonds pay semi-annual interest on June 30 and -December 31.

Instructions

(Round answers to the nearest cent.)

(a) Prepare the journal entries to record the following transactions.

(1) The issuance of the bonds on June 30, 2017.

(2) The payment of interest and the amortization of the premium on December 31, 2017.

(3) The payment of interest and the amortization of the premium on June 30, 2018.

(4) The payment of interest and the amortization of the premium on December 31, 2018.

(b) Show the proper balance sheet presentation for the liability for bonds payable on the December 31, 2018, balance sheet.

(c) Provide the answers to the following questions.

(1) What amount of interest expense is reported for 2018?

(2) Will the bond interest expense reported in 2018 be the same as, greater than, or less than the amount that would be reported if the straight-line method of amortization were used?

(3) Determine the total cost of borrowing over the life of the bond.

(4) Will the total bond interest expense for the life of the bond be greater than, the same as, or less than the total interest expense if the straight-line method of amortization were used?
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