Lesson%2010%20Solutions

Lesson%2010%20Solutions - Suggested Solutions for ACCT 351...

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Unformatted text preview: Suggested Solutions for ACCT 351 Adapted from Beechy, T. H., & Conrod, J. E. D. (2005). Solutions manual to accompany intermediate accounting, volume 1 (3 rd Can. ed.). Toronto: McGraw-Hill Ryerson. Reproduced with permission. Page 1 of 24 Lesson 10, Chapter 11 Assignment 11-2 (text, pp. 658–659) Investment Classification & Accounting Method 1. Strip bonds Available-for-sale investment (intent is short-term profit) Fair value method (gains and losses are included in other comprehensive income until realized; the discount must be amortized to income to avoid misstatement) 2. Bonds Available-for-sale investment (item is intended to be held to maturity but category is not open because of prior sale) Fair value method (gains and losses are included in other comprehensive income until realized; the discount must be amortized to income to avoid misstatement) 3. Common Shares Available-for-sale investment (no significant influence; barring evidence to the contrary as shareholder is outside the family unit in control) Fair value method (likely carried at cost because fair value is not available; gains and losses, if any, are included in other comprehensive income until realized) 4. Common Shares Joint venture by virtue of common control Proportionate consolidation 5. Common Shares Significant influence investment, probably (need to verify that the investor has influence on board, but the largest shareholder usually has clout). If you may make alternate assumption—available-for-sale investment and fair value. Equity method 6. Common Shares Significant influence (strong significant influence is not control; the shareholder does not have a majority of the board of directors) Equity method Suggested Solutions for ACCT 351 Page 2 of 24 Assignment 11-2 continued 7. Common Shares Significant influence (as with #3, the investor is an outsider in a family-controlled company but unlike #3 provides technical and financial support, so is much more likely to have significant influence) Equity method 8. Common Shares Available-for-sale investment (it is management’s intent to sell them when the price is right; clearly not held for the long-term) Fair value method (gains and losses are included in other comprehensive income until realized) Suggested Solutions for ACCT 351 Page 3 of 24 Assignment 11-4 (text, p. 659) Requirement 1 Entry to record purchase of bonds: Held-to-maturity investment: Beagle bonds............................. 49,250 Cash ($50,000 × .985)................................................... 49,250 Requirement 2 31 December 20X5: Entry to record receipt of interest payment, and amortization of discount on investment in bonds: Cash ....................................................................................... 4,500 Held-to-maturity investment: Beagle bonds 1 ............................ 250 Investment income: interest................................................ 4,750 1 Bonds at maturity value ............................... $50,000...
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This note was uploaded on 09/22/2009 for the course ACCOUNTING ACCT-351 taught by Professor Charko during the Fall '09 term at Humber.

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Lesson%2010%20Solutions - Suggested Solutions for ACCT 351...

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