E9.1 (LO 1, 2, 3, 4) (Investment Classifications) Each of the following investments is independent of the others. 1. A bond that will mature in four years was bought one month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold. 2. Ten percent of the outstanding shares of Farm Corp. were purchased. The company is planning on eventually getting a total of 30% of the outstanding shares. 3. Ten-year bonds were purchased this year. The bonds mature on January 1 of next year. 4. Bonds that will mature in five years are purchased. The company would like to hold them until they mature, but money has been tight recently and the bonds may need to be sold. 5. A bond that matures in 10 years was purchased with money that the company had set aside for an expansion project that is planned for 10 years from now. 6. Preferred shares were purchased for their consistent dividends. The company is planning to hold the preferred shares for a long time. 7. Common shares of a distributor are purchased to meet a regulatory requirement for doing business in the distributor's region. The investment is expected to be held indefinitely. Instructions a. Identify the best accounting model classification(s) for each of the investments described above under (1) ASPE and (2) IFRS. Note where there are choices or options. Assume that the criteria for the fair value option (FV-NI) under IFRS are not met. Assume the investment is not impaired. b. The controller of the company would like to use methods that create "less volatility in net income." Identify which methods create less volatility and explain why this is so. c. Ethics Discuss whether it is ethical to make a decision as to which method should be used based on the controller's wishes as explained in part (b).
E9.1 (LO 1, 2, 3, 4) (Investment Classifications) Each of the following investments is independent of the others. 1. A bond that will mature in four years was bought one month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold. 2. Ten percent of the outstanding shares of Farm Corp. were purchased. The company is planning on eventually getting a total of 30% of the outstanding shares. 3. Ten-year bonds were purchased this year. The bonds mature on January 1 of next year. 4. Bonds that will mature in five years are purchased. The company would like to hold them until they mature, but money has been tight recently and the bonds may need to be sold. 5. A bond that matures in 10 years was purchased with money that the company had set aside for an expansion project that is planned for 10 years from now. 6. Preferred shares were purchased for their consistent dividends. The company is planning to hold the preferred shares for a long time. 7. Common shares of a distributor are purchased to meet a regulatory requirement for doing business in the distributor's region. The investment is expected to be held indefinitely. Instructions a. Identify the best accounting model classification(s) for each of the investments described above under (1) ASPE and (2) IFRS. Note where there are choices or options. Assume that the criteria for the fair value option (FV-NI) under IFRS are not met. Assume the investment is not impaired. b. The controller of the company would like to use methods that create "less volatility in net income." Identify which methods create less volatility and explain why this is so. c. Ethics Discuss whether it is ethical to make a decision as to which method should be used based on the controller's wishes as explained in part (b).
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:E9.1 (LO 1, 2, 3, 4) (Investment Classifications) Each of the following investments is independent of the others.
1. A bond that will mature in four years was bought one month ago when the price dropped. As soon as the value increases, which is
expected next month, it will be sold.
2. Ten percent of the outstanding shares of Farm Corp. were purchased. The company is planning on eventually getting a total of 30%
of the outstanding shares.
3. Ten-year bonds were purchased this year. The bonds mature on January 1 of next year.
4. Bonds that will mature in five years are purchased. The company would like to hold them until they mature, but money has been
tight recently and the bonds may need to be sold.
5. A bond that matures in 10 years was purchased with money that the company had set aside for an expansion project that is planned
for 10 years from now.
6. Preferred shares were purchased for their consistent dividends. The company is planning to hold the preferred shares for a long
time.
7. Common shares of a distributor are purchased to meet a regulatory requirement for doing business in the distributor's region. The
investment is expected to be held indefinitely.
Instructions
a. Identify the best accounting model classification(s) for each of the investments described above under (1) ASPE and (2) IFRS. Note
where there are choices or options. Assume that the criteria for the fair value option (FV-NI) under IFRS are not met. Assume the
investment is not impaired.
b. The controller of the company would like to use methods that create "less volatility in net income." Identify which methods create
less volatility and explain why this is so.
c. Ethics Discuss whether it is ethical to make a decision as to which method should be used based on the controller's wishes as
explained in part (b).
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