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
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