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

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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
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