Exercise C-3 (20 minutes)
1.
2015
Dec. 31 Fair Value Adjustment—Trading……………….…... 6,000
Unrealized Gain—Income…………………….….. 6,000
To reflect an unrealized gain in fair values of
trading securities.
2. The accounts in part (1) are reported on different financial statements.
i. The $6,000 debit balance in the Fair Value Adjustment—Trading
account is an adjunct asset account in the balance sheet. It increases
3.
2016
Jan. 3 Cash………..………………………………….………………... 35,000
Exercise C-4 (10 minutes)
a.
Jun. 15 Short-Term Investments—HTM (Remedy).............1,000,000
Cash………………………………………..…………….... 1,000,000
Purchased 90-day, 10% debt securities.
b.
Sep. 16 Cash……………………………………………….……………..1,025,000
Short-Term Investments—HTM (Remedy).... 1,000,000
with interest of $1,000,000 x .10 x 90/360.
Exercise C-5 (10 minutes)
a.
Aug. 1 Short-Term Investments—AFS (Houtte)………….. 450,000
Purchased 6-month, 10% debt securities.
b.
Oct. 30 Cash……….……..……..…….……..……………….………..……… 10,125
Exercise C-6 (30 minutes)
2015
(a) Feb. 15 Short-Term Investments—HTM (A.G.)…..……………………..160,000
(b) Mar. 22 Long-Term Investments—AFS (Fran)…………………..….…..35,850
Cash………………………………………..………………………. 35,850
Purchased 700 shares of Fran common
stock ([700 x $51] + $150).
(c) May 15 Cash………………………………………..………………………….…164,000
Short-Term Investments—HTM (A.G.)……………………. 160,000
(d) July 30 Short-Term Investments—Trading (MP3).……………………..100,000
Cash………………………………………..………………………. 100,000
Purchased 8% notes, due Jan. 30, 2016.
(e) Sept. 1 Cash…………..…………………..……………..……………………...700
(f) Oct. 8 Cash*………………………………………….…..……….…….……..22,275
Long-Term Investments—AFS (Fran)**..………………… 17,925
(g) Oct. 30 Cash……………………………..……………..………………………..2,000
Exercise C-7 (15 minutes)
Unrealized
Available-for-Sale Portfolio Cost Fair Value Gain (Loss)
Verrizano Corporation bonds payable…............ $ 89,600 $ 91,600
Preble Corporation notes payable…….…………… 70,600 62,900
Dec. 31 Unrealized Loss—Equity…..……..…….……..…..……..…… 9,100
Fair Value Adjustment—AFS (ST)..….……....... 9,100
To reflect unrealized loss.
Exercise C-8 (15 minutes)
Computation of Fair Value Adjustment
Cost Fair
Value
Unrealized
Gain (Loss)
Nintendo Co. common stock………………………..…………$ 44,450 $ 48,900
Atlantic bonds payable…………..……………..…..……….….49,000 47,000
Dec. 31 Unrealized Loss—Equity………….…………………….……… 850
Record fair value adjustment for securities.
Exercise C-9 (15 minutes)
Dec. 31 Fair Value Adjustment—AFS (LT)…..……….….……….….32,078
Unrealized Loss—Equity……………………….….……... 1,927
Computation of Fair Value Adjustment
12/31/2014 12/31/2015
Cost…..……….…….…......$120,483 $60,120
Exercise C-10 (30 minutes)
2013
Dec. 31 Unrealized Loss—Equity………….…………………….………11,140
2014
Dec. 31 Fair Value Adjustment—AFS (LT)*………………..….……..38,440
Unrealized Loss—Equity……………………….….……... 11,140
Unrealized Gain—Equity……….……………..…………… 27,300
2015
Dec. 31 Fair Value Adjustment—AFS (LT)*………………..….……..73,000
2016
Dec. 31 Unrealized Loss—Equity……………………….……….………96,700
Unrealized Gain—Equity……………..…………….……………100,300
Exercise C-11 (15 minutes)
1. Classification of Investments in Securities
a. The Brava Company bonds are a long-term investment in held-to-
maturity debt securities.
c. The Buffa stock is a long-term investment in available-for-sale
equity securities.
2. Fair Value Adjustment entry at December 31, 2015
Dec. 31 Fair Value Adjustment—AFS (LT)…..….…….…….……….10,825
Long-term AFS securities Cost Fair Value
Buffa common stock……………..……….….…$165,500 $178,000
Exercise C-12 (30 minutes)
2015
Jan. 2 Long-Term Investments—Grecco*………………….…….……411,000
Cash………………………………………..………………………. 411,000
Sept. 1 Cash………………………………….………………..………………...45,000
Dec. 31 Long-Term Investments—Grecco………………………………162,300
Earnings from Long-Term Investment..….............. 162,300
Record equity in investee earnings ($486,900/3).
2016
June 1 Cash…………………………………………….………………………..63,000
Dec. 31 Long-Term Investments—Grecco………………………………234,250
Earnings from Long-Term Investment..….............. 234,250
Record equity in investee earnings ($702,750/3).
Dec. 31 Cash………………………………………………..…………………….320,000
Gain on Sale of Investments……..…….….….………... 86,817
Exercise C-13 (10 minutes)
1. Consolidated financial statements show the financial position, results of
2. The equity method with consolidation is used to account for long-term
Exercise C-14 (15 minutes)
2015 return on total assets 2016 return on total assets
= 14.0% = 10.9%
Regae Industries appears to be less efficient in the use of its total assets in
2016 than in 2015 as suggested by the decline in return on total assets
$38,400
($210,000 + $340,000)/2
$60,300
($340,000 + $770,000)/2
Exercise C-15A (25 minutes)
2015
Dec. 16 Accounts ReceivableBronson Ltd…………………..……24,791
Dec. 31 Foreign Exchange Loss*…………..…..….……….…….…….342
Accounts ReceivableBronson Ltd…………….……. 342
Record year-end adjustment.
2016
Jan. 15 Cash (17,000 x $1.4482)………………………..…….…….……24,619
Accounts ReceivableBronson Ltd…………….……. 24,449
Financial and Managerial Accounting, 6th Edition
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