1.
Investment: The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment.
Equity investments: The financial instruments which claim ownership in the issuing company and pay a dividend revenue to the investor company, are referred to as equity securities. The investments in equity securities are referred to as equity investments.
Equity method: Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company.
Fair value: Fair value is the price at which, both seller and buyer agree to exchange the asset. So, fair value is the selling price to the seller and the purchase price for the buyer.
Debit and credit rules:
- Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in
stockholders’ equity accounts. - Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.
To Journalize: The entries related to the investments during 2018, for Company R assuming the investment is made under fair value option method.
2.
To Journalize: The entries related to the investments during 2018, for Company R assuming the investment is made under equity method.
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INTERMEDIATE ACCT VOL.2>CUSTOM<
- 5. Changes in the fair value of the effective portion of a hedging financial instrument are recognized as a part of current earnings of the period for which of the following? Cash Flow Hedge Fair Value Hedge a. Yes Yes b. No Yes c. Yes No d. No No Multiple Choice a. b. c. d.arrow_forward1. Under IFRS 2 Share-Based Payment, what is the basis for measurement of share options? A. Fair value at the date of grant. B. Fair value at each reporting date. C. Expected fair value at the date pf exercise. D. Intrinsic value at each reporting date. 2. Under IFRS 2, Share-Based Payment, the value of the options that lapse after vesting shall A. be credited to expense during the period the options lapse. B. be credited to income during the period that the options lapse C. remain in equity. D. be converted into a liability. 3. When should the compensation expense be recorded as a result of share options granted by the enterprise to its employees?A. During the year of grant B. During the year that the options ultimately vest C. During the years when services are required to be rendered by the employees D. During the year when the option first becomes exercisablearrow_forwardRequired (a)Discuss TWO (2) rationales of hedging with a derivative instead of disposing of the shares at market price. (b) Calculate the number of contracts and determine the strategy to hedge against your riskexposure with each of the alternatives above. (c) Assume that it is out of your expectation that the interest rate does not decline and ABC Financial Bhd.’s share price appreciated to RM7.00 due to economic recovery.Compute the payoff for both alternatives above and determine the better alternative with appropriate justification.arrow_forward
- All investments in equity instruments and contracts on those instruments must be measured at fair value. Cost may be an appropriate estimate of fair value in which of the following? 1. Insufficient more recent information is available to measure fair value. 2. There is a wide range of possible fair value measurements and cost represents the best estimate of fair value within that range. 3. Investments in quoted equity instruments. A.1 only B.Either 1 or 2 C.None of these D. 2 onlyarrow_forward6. Derivative securities are also called contingent claims because a. their owwners may hoose whether or not to exxercise them b. a large contingent of investors hold them c. the writers may choose whether or not the exercise them. d. their payoffs depend on the prices of other assets. e. contingency management is used in adding them to portfolios.arrow_forwardQ6. In the context of the adjusted present value (APV) model of firm valuation, one major assumption is that firms will have zero bankruptcy costs in the future. True of falsearrow_forward
- All investments in equity instruments and contracts on those instruments must be measured at fair value. Cost may be an appropriate estimate of fair value in which of the following? 1. Insufficient more recent information is available to measure fair value. 2. There is a wide range of possible fair value measurements and cost represents best estimate of fair value within that range. 3. Investments in quoted equity instruments. 1 only None of these 2 only Either 1 or 2arrow_forwardQuestion 9 Which of the following is not a determinant of option value? A) The exercise price B) The price of the underlying asset C) The volatility of underlying asset D) The willingness of government to increase interest ratearrow_forwardQUESTION 16 A call option gives its holder the right to buy the underlying asset at the exercise price and potentially profit from a price increase O TRUE FALSEarrow_forward
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