Rushia Company has an available-for-sale investment in the 10%, 10-year bonds of Pear Co. The investment's carrying value is $3,200,000 at December 31, 2010. On January 9, 2011, Rushia learns that Pear Co. has lost its primary manufacturing facility in an uninsured fire. As a result, Rushia determines that the investment is impaired and now has a fair value of $2,300,000. In June, 2012, Pear Co. has succeeded in rebuilding its manufacturing facility, and its prospects have improved as a result.

If Rushia Company determines that the fair value of the investment is now $3,900,000 and is using U.S. GAAP for its external financial reporting, which of the following is true?

a. Rushia is prohibited from recording the recovery in value of the impaired investment.
b. Rushia may record a recovery of $900,000.
c. Rushia may record a recovery of $700,000.
d. Rushia may record a recovery of $1,600,000.


Answer: A

If Rushia Company determines that the fair value of the investment is now $2,900,000 and is using iGAAP for its external financial reporting, which of the following is true?

a. Rushia is prohibited from recording the recovery in value of the impaired investment.
b. Rushia may record a recovery of $600,000.
c. Rushia may record a recovery of $900,000.
d. Rushia may record a recovery, but is limited to 80% of the value of the recovery.


Answer: B

Match the approach and location where gains and losses from available-for-sale securities are reported: Location where gains/ Approach losses reported_ __

Match the approach and location where gains and losses from available-for-sale securities are reported:
Location where gains/
Approach losses reported_ __

a. GAAP Equity
b. iGAAP Equity
c. GAAP Income
d. iGAAP Comprehensive income

Answer: B

On December 31, 2010, Patel Co. purchased equity securities as trading securities. Pertinent data are as follows:

On December 31, 2010, Patel Co. purchased equity securities as trading securities. Pertinent data are as follows:

Fair Value
Security Cost At 12/31/11
A $132,000 $117,000
B 168,000 186,000
C 288,000 258,000

On December 31, 2011, Patel transferred its investment in security C from trading to available-for-sale because Patel intends to retain security C as a long-term investment. What total amount of gain or loss on its securities should be included in Patel's income statement for the year ended December 31, 2011?

a. $3,000 gain.
b. $27,000 loss.
c. $30,000 loss.
d. $45,000 loss.

Answer: B

On January 1, 2010, Reston Co. purchased 25% of Ace Corp.'s common stock; no goodwill resulted from the purchase. Reston appropriately carries this investment at equity and the balance in Reston's investment account was $720,000 at December 31, 2010. Ace reported net income of $450,000 for the year ended December 31, 2010, and paid common stock dividends totaling $180,000 during 2010. How much did Reston pay for its 25% interest in Ace?

On January 1, 2010, Reston Co. purchased 25% of Ace Corp.'s common stock; no goodwill resulted from the purchase. Reston appropriately carries this investment at equity and the balance in Reston's investment account was $720,000 at December 31, 2010. Ace reported net income of $450,000 for the year ended December 31, 2010, and paid common stock dividends totaling $180,000 during 2010. How much did Reston pay for its 25% interest in Ace?

a. $652,500.
b. $765,000.
c. $787,500.
d. $877,500.

Answer: A