CLOZE (1 points each, 7 in total) 1. Brokerage fees are reported as____________ when debt investment is classified as amortization Cost or FVTOCI, while FVTPL report such fees as ____________. expense 2. When an investor owns between 20% and 50% of the ordinary shares of a corporation, it is generally presumed that the investor has _______________ sigmificant influence over the investee and therefore, the appropriate method of accounting for this type of investment is the _______________ method. equity 3. An unrealized loss on trading securities is reported under____________________ other income an on the income expenge statement. 4. Under the cost method, dividends received from an investee company are credited to Dividend Revenue account, whereas under the equity method, dividends received from an investee the_______________ company are credited to the Share _______________ Investments account. Question 1 (38 points) On December 31, 2021, Ollala owned the following securities. The securities are not held for influence or control of the investee. Ordinary Shares Shares Cost River Co. 9,000 45,000 5 Racuzi Co. 6,000 240,000 $ $ 2 ⽄ , 0 v 0 40 Ollala made an irrevocable option to measure the River’s equity investment as FVTOCI and other equity investments as FVTPL. On December 31, 2021, the total fair value of the securities was equal to its cost. The following transactions occurred. 6100 Sept. 1, 2022 Sold 3,000 ordinary shares of River Co. for cash at £8 per share. Oct. 1, 2022 Sold 800 ordinary shares of Racuzi Co. for cash at £33 per share. ” Nov 1, 2022 Purchased an additional 600 ordinary shares of River Co. at £5 per share. Dec. 15,2022 Received £0.70 per share cash dividend on Racuzi Co. ordinary shares. 31,2022 Received £1 per share annual cash dividend on River Co. ordinary shares. 1, 2023 Sold 4,000 Racuzi Co ordinary shares at £38 per share 1, 2023 Sold 1,600 River Co. ordinary shares at £7 per share Jan. 5 , 6 , 60 On December 31,2022 the fair values per share of the ordinary shares were River Co.£8 and Racuzi Co. £43. Instructions Journalize the transactions (including the adjusting entry at Dec. 31,2022 to show the fair value for all investments and closing entry for FVTOCI ). 2 2022 Q / 1 1 1 . % 么 , 9 , 00 OCI - Value Adjustment Fair 000 , FVTOCI - 9 FUTOCIEquieyFinancial Assets at 1 Gain LoSs or OCI - 9 , , , 00 900 1 Value 9 Earnings Cash Fair 15 000 9 1 Fair 000 , 000 AOCI Retained 5 Income ss - or Adjustment 600 , FUTPL - 5 26 , Adjustment Valne FUTPL - 000 , , 60 40 600 5 , Financial Equiey Assets at Fl TPL F at VTocIEquieyFinancialAssety 3 32 ( Cash [ Cash 000 , 了 , 3 Dividend Revenue Dividend 3 640 , 600 . 6 Revenue , 600 19 VTOCI Adjustment 800 Fair Value , Unrealiced Gain 6 ain LoSs or Lo or - 3 s - 19 OCL OCL 19 . 19 Fair Value Adjustment Unrealiced bain Unrealized bain Fair Value or Lo 3 s FVTPL - 15 , 1 1 Unrealized 1 Cash Valne Adjustment - 600 20 - - , Fair Value Fair or Loss 20 , 00 FUTPL 8 FUTPL - OCI Adjustment - . 00 000 , 1 11 - 160 , 00 600 , FUTOCI 1 Value Adjustment 60 000 EguieyFinancial Assety at FV TPL Gain 800 800 15 . Incomel ss Adjustment , Income 152 Cash Fair or - , 80 AOCI 1 00 640 , 6 Uurealized 000 , Casb 1 Y Loss or 24 AOCI 1 23 Gain Cash [ l w Unrealized Unrealized 1 么 1 Unrealized bain 以 以5 000 , UTOCI Fairvalue Adjustment . 600 , 200 FUTOCI FUTOCIEguityFinancial Assety at 3 200 , 8 000 , %、 1 [ AOCI Unrealiced Ketained AOCI 1 Gain orLo tarnings 3 s - . 600 1 . OCI ! 600 1 . 600 60 Question 2 (35 points) The following selected transactions relate to bonds acquired as an investment by YLong, whose fiscal year ends on December 31. YLong plans to hold Franco’s bonds to collect contractual cash flows only, 。 and Blanco’s bonds to collect contractual cash flows and to sell. 2022 Jan. 1 Purchased 2 bonds at face value HK$2,000,000 of Franco Nursing Centers, 10-year, 7% bonds dated January 1, 2022, directly from Franco. Interest is paid on Jan.1 and July 1 of each year. July 1 Received the interest on the Franco bonds. 1 Purchased 1 bonds at face value HK$500,000 of Blanco Wine Cellar, 15-year, 6% bonds dated July 1, 2022, directly from Franco. Interest is paid on July 1 of each year. Dec. 31 The Fair value of Franco’s bonds are HK$4,000,000, and the fair value of Blanco’s bonds are HK$450,000. 31 Accrual of interest at year-end on the bonds and closing entry for Blanco’s Bonds. 1 Received the interest on the bonds. 1 Sold 1 bond of Franco bonds at 105. 1 Sold 1 bond of Blanco bonds at HK$580,000. The fair value has not changed since Dec. 2025 July 31, 2022. Dec. 31 Accrual of interest at year-end on the bonds and closing entry for Blanco. 1 Received the interest on the Franco bonds. 1 Sold the rest of the bonds back to Franco at face value. 2032 Jan. Instructions a. Journalize the listed transactions for the years 2022, 2025 and 2032 mentioned above. b. Post to the account Unrealized Holding gain or loss-OCI. (Use the T-account form.) 2 a ' 2022 . Q ”/ " l / / 以 1 rinancial Assetsat 1 Unrealived gain , 1 % ” 1 Cash 1 112 /么 2025 1 Financial Assets 时 H 1 lost 000 , , 000 4 000 , Cash , 1 Inferese , 400 , 000 Revenue 1 FVTOCI 400 , 000 , Debt - 500 , 00 Cash 500 , loss or - 0 ocr 1 1 Interest 1 Cash Unrealiced gain loss or Receivable 155 Sale OO 155 , 00 15 000 , . 100100 Financial Assets of Amortized . , 00 2 on 100 s Fair Value Adjustment FUTOCI 130 1 Cash GainorLosS Financial Assets atFVTOCI 时 1 Interest 时 Unrealized bain on - of Debt 500 80 1 s Income at on 000 , 00 , 00 Debt 90 , 000 Yoo 0 Revenue olIbain or loss 50 000 , - , 00 50 Sale FVTOCI InCome , 80 AOCI 6 ain , 00 Financial Assets Receivable Interest 00 80 - FUTOCI at - 00 , 00 OcAbain orloss Sale 000 , 2 130 , Adjustment FUTOCI Value 000 , 00 OCI - 580 , Fair , Cost Financial Assets at Amortized lost Unrealired 000 , , 00 Receivable Cash bain 50 Revenue Interest , 00 000 155 170 Inferest , Ocl - Revenue Interest at 0 50 AOCI 00 000 , Fair Value Adjustment FUTOCI Unrealized 1 Amortired at - of Financial Assets 80 , 000 Debt 80 Summary Summary Retained Earnings 0 , 000 80 , 00 , 000 00 432 % 7 o tereselKeceivable b , 00 70 , Cash 1 么 , 2 Financial As 3 cts at o , 0 000100 Amortized Cost Unrealived 2 000 . ocIomn " ∞ r 5 s " ^ , // … m 8 000 o , 000 orloss - . 202 5 131 = " / 00050 , 130 , 000 ← … , 000 Question 3 (20 points) Control A Ltd. acquired the outstanding ordinary shares of Walter Company on January 1, 2022, by paying£600,000 for the 25,000 shares. Walter declared and paid£100,000 on March 15, and£0.40 per share cash dividends on September 15. Walter reported net income of £320,000 for the year. At December 31, 2022, the market price of Walter ordinary shares was£28 per share. Instructions a. Prepare the journal entries for Control A for 2022, assuming Control A cannot exercise significant influence over Walter. Use the cost method and assume that Walter ordinary shares should be classified as FVTPL securities( received 20,000 cash dividend on march 15.) b. Prepare the journal entries for Control A for 2022, assuming Control A can exercise 35% significant 。 influence over Walter. Use the equity method. c. Compare the account balances- Equity Investments, Unrealized Holding Gain or loss—Income, Dividend Revenue, and Loss/Revenue from Equity Investments at December 31, 2022, under each method of accounting. zo a "— 2 , 3 了 5 915 ' b , 2 × 22 ; / 600 , Financial AsselsatFUTPLEqnity 0 00 ( , Cash 1 Cash 1 Cash 600 10 20 000 , , 00 Dividend Revenue 10 00 , Fair lalue Adjustment - FVTDL Unrealined } bainor los 3 9/ 100 , 00 100 , 00 Inome , 00 600 Cash 35 , 15 lash Invesementnity 么Inwestmenttquity Revenue fom 35 , , , 000 00 Investmenttquity 10 s - Equity Investment 600 31/ 15lash l 000 20 , 00 Dividend Revenue 时 , . 00 00 10 , 00 112 , 000 Invesementquity 112 , 00 thta oamiiytnetmmm Dividundkne " . … … o WnredinidlAilding bsian avenm … tsm - o or ' , o . … 坐 … … turbysity Inosimani %"… ," | o 2 . … … 0 0