Ch 16 Textbook Solutions PDF

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CHAPTER 16InvestmentsSOLUTIONS TO BRIEF EXERCISESBRIEF EXERCISE 16-(a) 4. Investments at amortized cost (AC) (b) 1. Strategic investments (c) 3. Investments at fair value through profit or loss (FVTPL) (d) 2. Non-strategic investmentsLO 1 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM...

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

CHAPTER 16 Investments SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 16-1 (a) (b) (c) (d)

4. Investments at amortized cost (AC) 1. Strategic investments 3. Investments at fair value through profit or loss (FVTPL) 2. Non-strategic investments

LO 1 BT: K Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 16-2

1. 120-day treasury bill 2. Common shares purchased by a bank for resale in the near future at a gain 3. 15% of the common shares of a public company designated as FVTOCI 4. Five-year bonds purchased by a company to hold and earn interest 5. 10-year bonds

(a) Reason Nonstrategic Nonstrategic

(b) (c) Classification Measurement Current asset Amortized cost

NonStrategic

Non-current asset

Fair value

Nonstrategic

Non-current asset

Amortized cost

Non-

Current asset Fair value

Current asset Fair value

Solutions Manual 16-1 Chapter 16 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

purchased to sell in the near future at a gain

Accounting Principles, Eighth Canadian Edition

strategic

LO 1 BT: C Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual 16-2 Chapter 16 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 16-3 (a) Dec. 2 Investments at Amortized Cost, Treasury Bill............................... 148,900 Cash.............................................. To record purchase of investment. (b) Dec. 31 Investments at Amortized Cost, Treasury Bill.............................. Interest Revenue......................... To accrue interest revenue. (c) Apr. 1 Investments at Amortized Cost, Treasury Bill.............................. Interest Revenue1........................ 1 ($150,000 - $148,900 – $275) = $825 To accrue interest revenue.

148,900

275 275

825 825

Cash.................................................. 150,000 Investments at Amortized Cost, Treasury Bill.............................. 150,000 To record maturity of treasury bill investment. LO 2 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual 16-3 Chapter 16 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

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Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 16-4 (a) Jan. 1 Investments at Amortized Cost......... 600,000 Cash................................................... 600,000 To record purchase of bond investment. (b) July 1 Cash ($600,000 × 4% × 6/12)................. Interest Revenue............................... Collection of interest revenue. (c) Dec. 31 Interest Receivable................................ Interest Revenue............................... To accrue interest revenue.

12,000 12,000 12,000 12,000

Since the bonds are held to earn interest income, there is no fair value adjustment at December 31. LO 2 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 16-5 (a) June 30 Investments at Amortized Cost......... 297,000 Cash ($300,000 × .99)..................... 297,000 To record purchase of bond investment. (b) Dec. 31 Cash ($300,000 × 4% × 6/12).............. 6,000 Investments at Amortized Cost......... 273 Interest Revenue............................ To record collection of interest on bonds.

6,273

Since the bonds are being held to earned interest income, there is no fair value adjustment at December 31. LO 2 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 16-6 2021 July

1 Investments at Amortized Cost ........ 420,000 Cash................................................ 420,000 To record purchase of bond investment.

Dec. 31 Interest Receivable1............................ Investments at Amortized Cost3.... Interest Revenue2........................... 1 ($400,000 x 6% x 6/12 = $12,000) 2 ($420,000 x 5% x 6/12 = $10,500) 3 ($12,000 - $10,500 = $1,500) To accrue interest revenue.

12,000 1,500 10,500

2022 June 30 Cash..................................................... 24,000 Investments at Amortized Cost..... 1,500 Interest Receivable........................ 12,000 Interest Revenue............................ 10,500 To record collection of interest on bonds. LO 3 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

Solutions Manual 16-6 Chapter 16 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission is prohibited.

Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 16-7 (a) June 30 Investments at FVTPL ....................... 300,000 Cash................................................ 300,000 To record purchase of investment. (b) Dec. 31 Cash ($300,000 × 4% × 6/12).............. Investment Income or Loss........... (c) Dec. 31 Investment Income or Loss1.............. Investments at FVTPL.................... 1 (($300,000 × .98) – $300,000) To record fair value adjustment.

6,000 6,000 6,000 6,000

LO 3 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 16-8 Aug. 01 Investments at FVTPL........................ 114,000 Cash................................................ To record purchase of investment. Oct. 15 Cash (3,000 × $2.75)............................ Investment Income or Loss........... Collection of dividend.

114,000

8,250

Dec. 01 Cash..................................................... 120,000 Investments at FVTPL.................... Investment Income or Loss........... To record sale of investment.

8,250

114,000 6,000

LO 3 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 16-9 Apr. 01 Investments at FVTOCI1..................... Cash................................................ 1 (40,000 x $15) To record purchase of investment. Dec.

5 Cash (40,000 × $0.10).......................... Dividend Revenue.......................... Collection of dividend.

600,000 600,000

4,000

Dec. 31 Investments at FVTOCI....................... 80,000 OCI - Holding Gain or Loss2.......... 2 [(40,000 x $17) - $600,000 = $80,000] To record fair value adjustment.

4,000

80,000

LO 3 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 16-10 Jan. 15 Cash......................................................... 690,000 OCI—Gain or Loss on Sale of Investments................................ 10,000 Investments at FVTOCI...................... 680,000 To record sale of investment. LO 3 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 16-11 Jan. 1 Investment in Associate...................... 250,000 Cash.................................................. To record investment in associate. Dec. 31 Investment in Associate...................... 44,000 Income from Investment in Associate (20% × $220,000)...... To record investment income. Dec. 31 Cash (20% × $15,000)........................... Investment in Associate................. Collection of dividend.

250,000

44,000

3,000 3,000

LO 4 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 16-12 Jan. 1 Investment in Associate...................... 175,000 Cash.................................................. To record investment in associate. Dec. 31 Cash ($12,000 × 25%)........................... Dividend Revenue........................... Collection of dividend.

175,000

3,000 3,000

LO 4 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 16-13 (a) Equity Method Balance Sheet: Non-current assets Investment in Associate, Dong Ltd., at cost Investment in Associate, Dong Ltd., at equity Income Statement: Dividend revenue Income from investment in associate 1

Investment in Associate, at equity Less dividend (20% × $20,000) Add: associate’s profit (20% × $250,000) Carrying amount of investment

(b) Cost Method

$300,000 $346,0001 0 $50,000

$4,000 $300,000 (4,000) 50,000 $346,000

LO 4 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 16-14 ATWATER CORPORATION Statement of Comprehensive Income (Partial) Year Ended April 30, 2021 Profit from operations................................................. Other expenses Loss on fair value adjustment— FVTPL ............... Profit before income taxes.......................................... Income tax expense1................................................... Profit............................................................................. Other comprehensive income Other comprehensive income – holding gain or loss net of $24,7692 income tax..................................... Comprehensive income..............................................

$650,000 50,000 600,000 210,000 390,000 46,000 $436,000

1

($600,000 x 35% = $210,000) ($46,000 ÷ (1-35%) = $70,769) tax is $70,769 x 35% = $24,769

2

LO 5 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 16-15 Financial Statement

Classification

Investments at FVTPL — bonds

Balance Sheet

Current assets

Dividend revenue

Income Statement

Other revenue

Investment in associate

Balance Sheet

Long-term investments

Investments at amortized cost— bonds

Balance Sheet

Long-term investments

Gain on sale of investments— FVTPL

Income Statement

Other revenue

Other comprehensive income—holding gain or loss

Statement of Comprehensive Income

Other comprehensive income

Investment income or loss

Income Statement

Other revenue or expense

Interest revenue

Income Statement

Other revenue

LO 5 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Accounting Principles, Eighth Canadian Edition

BRIEF EXERCISE 16-16 SABRE CORPORATION Balance Sheet (Partial) November 30, 2021 Assets Current assets Investments at amortized cost, treasury bill........... Investments at fair value through profit or loss1.... Non-Current assets Investments at fair value through other comprehensive income......................... Investments at amortized cost................................ Investment in associate........................................

$25,125 74,000 99,125

105,000 150,000 250,000 505,000

1

($26,000 + $48,000) = $74,000

LO 5 BT: AP Difficulty: S Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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SOLUTIONS TO EXERCISES EXERCISE 16-1 1.

2.

3.

4.

5.

Strategic investment  Management’s intention is to influence the operations of Lewis Telecommunications. Non-Strategic investment  The purpose is to generate investment income. Since the investment is in bonds, influence on the operations of Li Internet Ltd. cannot be exercised. Strategic investment 95% of the common  The percentage of ownership shares of Barlow Internet Services Inc. gives Awisse Telecommunications control over the operations of Barlow. 120-day treasury bill Non-Strategic investment  The investment does not consist of common shares and the intention is to generate interest income. 10% of the common Non-Strategic investment shares of Talk to Us  The investment was made with Ltd. the intention to generate gains from trading the investment. 15% of the common shares of Lewis Telecommunications Inc. 100% of 15-year bonds of Li Internet Ltd.

LO 1 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

EXERCISE 16-2 1.

10-year BCE bonds

2.

10-year GE bonds

3.

One-year Government of Canada bonds 180-day treasury bill

4. 5. 6. 7. 8. 1

Bank of Montreal preferred shares Loblaw common shares Pizzutto Holdings common shares Kesha Inc., common shares – 22% interest

a. Nonstrategic Nonstrategic Nonstrategic Nonstrategic Nonstrategic Nonstrategic Strategic 1

b. c. NonAmortized cost current Fair value Noncurrent Current Amortized cost Current Amortized cost Current Fair value Current Fair value

Noncurrent Strategic Noncurrent

Assume exercises significant influence

LO 1 BT: C Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

EXERCISE 16-3 a. Jan. 02 Investments at Amortized Cost, Treasury Bill............................... 39,760 Cash................................................ To record purchase of investment.

39,760

May 01 Cash..................................................... 40,000 Investments at Amortized Cost, Treasury Bill................................ 39,760 Interest Revenue............................ 240 To record maturity of treasury bill investment. Aug. 01 Investments at Amortized Cost, Money-Market Fund........................ 65,000 Cash................................................ To record purchase of investment. 31 Investments at Amortized Cost, Money-Market Fund................... Interest Revenue............................ To accrue interest revenue. Sept. 30 Investments at Amortized Cost, Money-Market Fund................. Interest Revenue............................ To accrue interest revenue. Oct.

65,000

163 163

163

1 Investments at Amortized Cost, Treasury Bills............................... 29,821 Cash................................................ To record purchase of investment. 15 Cash..................................................... 65,408 Interest Revenue............................ Investments at Amortized Cost, Money-Market Fund1................... 1 ($65,000 + $163 + $163)

163

29,821

82 65,326

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

Cashed in money market fund.

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Accounting Principles, Eighth Canadian Edition

EXERCISE 16-3 (Continued) b. Oct. 31 Investments at Amortized Cost, Treasury Bills.............................. Interest Revenue2........................... 2 ($29,821 x 2.4% x 1/12) To accrue interest revenue.

60 60

LO 2 BT: AP Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

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Weygandt, Kieso, Kimmel, Trenholm, Warren, Novak

Accounting Principles, Eighth Canadian Edition

EXERCISE 16-4 a. (1) Imperial (investor) July 1 Investments at Amortized Cost......... Cash................................................ To record purchase of investment.

461,000 461,000

(2) Acme (investee) July 1 Cash..................................................... 461,000 Bonds Payable............................... 461,000 To record issuance of bonds payable. b. (1) Imperial (investor) Dec. 31 Interest Receivable ($500,000 × 4% × 6/12)........................ Investments at A...