Micah Corporation purchased an $ 850,500 investment in the common shares of Fortune Corporation on 15 July 20X5. The investment is a FVTPL investment. Fortune is a private company and few shares are bought and sold. Micah was speculating that the value of the Fortune common shares might increase dramatically when a major contract bid was accepted. Unfortunately, the bid was rejected in 20X6, and Micah management suggested that Fortune shares might be worth only half the price paid. Micah continued to hold the investment throughout 20X7, waiting for positive developments that would increase share value. There was no re-estimate of fair value in 20X7. The shares were finally sold in 20X8 for $ 477,100.

Required:

1. Assume that the Fortune Company FVTPL shares are carried at cost at the end of 20X5. Why might cost be appropriate? What criteria must be met for a subsequent value lower than cost to be recorded?

2. When the fair value of an investment written down subsequently increases, is the increase in value recorded? Is net income affected? Explain.

3. List the accounts and amounts that would appear in earnings and the statement of financial position for 20X5 to 20X8, inclusive. Assume that the management estimate of fair value was accepted as valid in 20X6. What evidence would be used to establish validity?

4. Repeat requirement 3 assuming that the investment was designated FVTOCI when it was initially acquired.