ADM3340A Fall 2008
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Quiz #1
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Question 1
For each situation below, indicate how the investment would be classified by the investor. Assume
none of the investments are classified as held for trading upon initial recognition by the investor.
a)
Investment in $1,000,000 of 12 year bonds, intended to be held to maturity. Another investment in
bonds, intended to be held to maturity, was sold last year because interest rate fluctuations made
the market price attractive.
See CICA HB 3855.83 below:
See also the bottom paragraph of the textbook’s (4
th
edition) page 585.
b)
Common shares are bought in a small, family-owned business. The investor is the only non-family
shareholder, but sits on the family-owned Board. The investor also allows the company to use
patented processes for a fee, a right not granted to any other company, and provides $5,000,000
in long-terms loans to the company.
Significant influence.
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