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Which of the following items is required to be reported at fair value in a company's financial statements? A. Bonds payable. . B. Financial futures contracts. C. Written loan commitments. O D. Trade receivables.4 2 " b For which of the following situations would a cash ow hedge be most appropriate? ' A. A company has a receivable and enters into an interest rate swap to hedge the position. i B. A company has an adjustable-rate note payable and enters into an interest rate swap to pay a xed rate. 0 c. A company with crude oil inventory is concerned about declining prices and enters into a futures contract. " D. A company believes that crude oil prices will increase and enters into a futures contract to profit from the changes. 4 D 43") In 20x2, Gem Corp, which prepares its nancial statements in accordance with IFRS, made a $125,000 investment in marketable equity securities. The securities are not held for trading and Gem has elected to recognize changes in fair value in other comprehensive income rather than prot or loss. At December 31, 20X2, the investment had a fair value of only $95,000 and it was determined that it was required to recognize an impairment loss in income. At December 31, 20x3, the investment had a market value of $140,000. At what amount will the investment be reported on the balance sheet and how will the change be recognized by Gem? \\ A. The investment will be reported at $125,000 and $30,000 will be reported in other comprehensive income. " B. The investment will be reported at $140,000 and $45,000 will be reported in other comprehensive income. 0 c. The investment will be reported at $140,000 and $30,000 will be recognized in prot or loss and $15,000 will be reported in other comprehensive income. ' D. The investment will be reported at $125,000 and $30,000 will be recognized in prot or loss. 4) {4"} On December 31, Year 1. and December 31, Year 2. Kopp Co.'s only marketable debt security had the same fair value. which was below cost. Kopp considered the decline in value to be temporary in Year 1. In Year 2, management determined that it is more likely than not the impairment will require the asset to be sold. At the end of both years the security was classied as a noncurrent security available-for-sale. All declines are related to market risk (noncredit). What is the effect of this change regarding the decline in value of the security on Kopp's Year 2 net noncurrent assets and net income? Net noncurrent assets Net income " A. No effect No effect . B. No effect Decreases O C. Decreases No effect . D. Decreases Decreases {5'} On December 1 of the current year, Bann Co. entered into an option contract to purchase 2,000 shares of Norta Co. stock for $40 per share (the same as the current market price) by the end of the next two months. The time value of the option contract is $600. At the end of December. Norta's stock was selling for $43. and the time value of the option is now $400. If Bann does not exercise its option until January of the subsequent year, which of the following changes would reect the proper accounting treatment forthis transaction on Bann's December 31, year-end nancial statements? " A. The option value will be disclosed in the footnotes only. \\ B. Other comprehensive income will increase by $6,000. 0 0. Net income will increase by $5,800. \\ D. Current assets will decrease by $200. 46"} On January 10, Year 2, Box, Inc. purchased marketable debt securities of Knox. Inc. and Scot, Inc. Box classied both debt securities as noncurrent assets but does not intend to hold them to maturity. At December 31 , Year 2, the cost of each investment was greater than its fair value. The loss on the Knox investment was considered noncredit-related, and Box intends to sell the investment. The loss on Scot was considered temporary and noncredit-related. How should Box report the loss related to these investments in its Year 2 nancial statements? ' A. There is an unrealized holding loss for both investments recognized in other comprehensive income. " B. There is a realized loss for both investments recognized in net income. ' C. There is an unrealized holding loss for Scot recognized in other comprehensive income and a realized loss forthe Knox investment recognized in net income. 0 D. There is an unrealized holding loss for Knox recognized in other comprehensive income and a realized loss for the Scot investment in net income. 17 On November 2, Year 1, Platt Co. entered into a 90-day futures contract to purchase 50,000 Swiss francs when the contract quote was $0.70. The purchase was for speculation in price movement. The following exchange rates existed during the contract period: 30-day futures Spot rate November 2, Year 1 $0.62 $0.63 December 31, Year 1 0.65 0.64 January 30, Year 2 0.65 0.68 What amount should Platt report as foreign currency exchange loss in its income statement for the year ended December 31, Year 1? O A. $2,500 O B. $3,000 O C. $3,500 O D. $4,00048"} Crick Co. purchased bonds at a premium on the open market as an investment and intends to hold these bonds to maturity. Crick should account for these bonds at . A. Lower of cost or market ' B. Cost 0 c. Fairvalue ' D. Amortized cost 9 On January 2, 20X4, Crawford Co. purchased 15% of Cobb, Inc.'s outstanding common shares for $600,000. Crawford owned zero shares of Cobb before this purchase. Crawford is Cobb's largest supplier and upon purchase owns 25% of the Cobb's voting stock, the largest portion of Cobb's voting stock held by any one entity or voting bloc. Cobb reported net income of $400,000 for 20X4, and paid dividends of $100,000. Crawford does not elect the fair value option to report its investment in Cobb. In its December 31, 20X4 balance sheet, what amount should Crawford report as investment in Cobb? O A. $670,000 O B. $645,000 O C. $585,000 O D. $600,000410'} Under IFRS the equity method of accounting is used for both joint operations and joint ventures. Joint ventures involve both shared control and rights to the arrangement's net assets. Joint operations involve shared control but no rights to the arrangement's net assets. and are accounted for with an equity method approach known as ' A. Joint equity. ' B. Proportionate consolidation. 0 C. Allocated equity. ' D. Shared value through prot and loss. 411'} Which of the following is characteristic of a perfect hedge? ' A. No possibility of future gain or loss. ' B. No possibility of future gain only. 0 C. No possibility of future loss only. D. The possibility of future gain and no future loss. 12 On January 1, Year 3, Point, Inc., purchased 10% of lona Co.'s common stock. Point purchased additional shares, bringing its ownership up to 40% of lona's common stock outstanding on August 1, Year 3. During October Year 3, lona declared and paid a cash dividend on all of its outstanding common stock. Point uses the equity method to account for its investment in lona. How much income from the lona investment should Point's Year 3 income statement report? O A. 10% of lona's income for January 1 to July 31, Year 3, plus 40% of lona's income for August 1 to December 31, Year 3. B. 40% of lona's income for August 1 to December 31, Year 3 only. O C. 40% of lona's Year 3 income. O D. Amount equal to dividends received from lona.413') Sun Corp. had investments in marketable debt securities costing $650,000 that were classified as available-forsale. On June 30, Year 3, Sun decided to hold the investments to maturity and accordingly reclassied them to the held-tomaturity category on that date. The investments' market value was $575,000 at December 31, Year 2; $530,000 at June 30, Year 3; and $490,000 at December 31, Year 3. The changes in market value were noncredit related. Sun does not elect the fair value option to account for these investments. What amount of loss from investments should Sun report in its Year 3 income statement? A. $0 " B. $45,000 0 0. $85,000 ' D. $120,000 414'} Gordon Ltd., a 100% owned British subsidiary of a US. parent company, reports its nancial statements in local currency, the British pound. A local newspaper published the following us. exchange rates to the British pound at year end: Current rate $1.50 Historical rate (acquisition) $1.70 Average rate $1.55 Inventory (FIFO) $1.60 Which currency rate should Gordon use to convert its income statement to US. dollars at year end? ' A. 1.50 ' B. 1.55 O C. 1.60 ' D. 1.70 {15"} A company from the United Kingdom uses British pounds in its normal operations, reports in the European Union in euros. and reports in the United States in US. dollars. The company is owned by a private equity firm in Japan. What is the company's functional currency? \" A. The euro. 0 B. The British pound. " C. The U.S. dollar. ' D. The Japanese yen. 416') On December 12. Year 1, Imp Co. entered into a forward exchange contract to purchase 100,000 local currency units (LCUs) on March 12, Year 2. The relevant exchange rates are as follows: Forward rate 5pm (for March 12Ye+ar21 December 12, Year 1 $0.88 $0.90 December 31, Year 1 $0.92 $0.93 Imp entered into the forward contract to hedge a commitment to purchase equipment being manufactured to Imp's specications. On December 31 , Year 1, what amount of foreign currency transaction gain should Imp include in income from this forward contract? " A. $2,000 ' B. $3,000 0 C. $4,000 ' D. $5,000 417') On June 30, Trey Co. purchased a bond, with a face value of $200,000 and a stated interest rate of 5%, at 98% of face value. Interest is payable on June 30 and December 31. The company intends to hold the investment until maturity and does not elect the fair value option. What is the initial carrying value on June 30? O A. $195,000 ' B. $196,000 " C. $200,000 \\ D. $204,000 418'} Under IFRS, a cash ow hedge and a hedge of a net investment in foreign operations are accounted for by " A. Not recognizing gains and losses. " B. Recognizing gains and losses in other comprehensive income. 0 c. Recognizing gains and losses in prot and loss. ' D. Recognizing gains and losses when the hedge is closed out. {19"} Anchor Co. owns 40% of Main Co.'s common stock outstanding and 75% of Main's noncumulative preferred stock outstanding. Anchor exercises signicant inuence over Main's operations. During the current period, Main declared dividends of $200,000 on its common stock and $100,000 on its noncumulative preferred stock. What amount of dividend income should Anchor report on its income statement for the current period related to its investment in Main? ' A. $75,000 " B. 380,000 ' C. $120,000 0 D. $225,000 420' At year end, Mayce Co. held investments with the intent of selling them in the near future. The investments consisted of $300,000, 9%, seven-year bonds purchased for $268,000 and other debt securities purchased for $75,000. At year end, the bonds were selling on the open market for $320,000, and the other debt securities had a fair value of $70,000. What amount should Mayce report in its year-end balance sheet and income statement related to the trading securities? Balance sheet Income statement 0 A. $343,000 $0 gain or loss ' B. $370,000 $27,000 gain 2 C. $390,000 $47,000 gain 7' D. $395,000 $52,000 gain