978-0077633059 Appendix C Solution Manual Part 3

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Exercise C-16A (25 minutes)

Quarter ended June 30, 2015

May 8 recorded amount (800,000 x $0.1323)….…............... $105,840

Exercise C-17 (15 minutes)

1. Accounting for available-for-sale securities (and as explained in

Carrefour’s description of these securities), implies that any

2. The entirety of the € 18 million net unrealized losses on available-for-

sale securities are reported in Carrefour’s balance sheet as part of its

PROBLEM SET A

Problem C-1A (60 minutes)

Part 1

2015

Jan. 20 Short-Term Investments—Trading (Ford)……..…..….. 20,925

Feb. 9 Short-Term Investments—Trading (Lucent)........ 97,928

Cash…………………………………..………………….… 97,928

Purchased Lucent shares

[(2,200 x $44.25) + $578].

Oct. 12 Short-Term Investments—Trading (Z-Seven)…….. 5,825

Dec. 31 Fair Value Adjustment—Trading (ST)…..…….…... 5,322

Unrealized Gain—Income………..…….……….… 5,322

Record fair value of securities.

We could also use a T-account to determine the needed adjustment to fair value:

12/31/2015—F.V. Adj—Trading

Unadj

Adj. 5,322

End. 5,322

Problem C-1A (Continued)

2016

Apr. 15 Cash…………………………………….….………………….. 22,915

Gain on Sale of Short-Term Investments..... 1,990

July 5 Cash…………………….……………..……….……………… 7,585

July 22 Short-Term Investments—Trading (Hunt)………... 48,444

Cash………………………………….….………….……. 48,444

Purchased Hunt shares

[(1,600 x $30.00) + $444].

Aug. 19 Short-Term Investments—Trading (D.Karan)….... 33,140

Dec. 31 Unrealized Loss—Income………….………….……… 24,834

Fair Value Adjustment—Trading (ST)……... 24,834

Record fair value of securities.

We could also use a T-account to determine the needed adjustment to fair value:

12/31/2016—F.V. Adj—Trading

Unadj

5,322

Adj. 24,83

Problem C-1A (Concluded)

2017

Feb. 27 Short-Term Investments—Trading (HCA)……..…..…. 116,020

Mar. 3 Cash…………………………………….….………………….. 39,750

Loss on Sale of Short-Term Investments…..…..….... 8,694

Short-Term Investments—Trading (Hunt)...... 48,444

Sold Hunt shares [(1,600 x $25.00) – $250].

June 21 Cash…………………………………….….………………….. 91,980

June 30 Short-Term Investments—Trading (B&D)............ 57,595

Cash……………………………..……..………………... 57,595

Purchased Black & Decker shares

[(1,200 x $47.50) + $595].

Nov. 1 Cash……………………………..…………………….………. 32,541

Dec. 31 Fair Value Adjustment—Trading (ST)…………….. 25,897

Unrealized Gain—Income………..…………….... 25,897

We could also use a T-account to determine the needed adjustment to fair value:

12/31/2017—F.V. Adj—Trading

Unadj. 19,51

Problem C-2A (40 minutes)

Part 1

2015

Apr. 16 Short-Term Investments—AFS (Gem)…………………..… 97,180

May. 1 Short-Term Investments—AFS (T-bills)…..…...............100,000

Cash………………………………………..…………………….. 100,000

Purchased U.S. Treasury bills.

July 7 Short-Term Investments—AFS (Pepsi)……………………98,675

20 Short-Term Investments—AFS (Xerox)……………………16,955

Cash………………………………………..…………………….. 16,955

Purchased 1,000 shares of Xerox

[(1,000 x $16.75) + $205].

Aug. 3 Cash..………………………………….…………………………….…101,500

15 Cash………………………………………..………….……..……………….

3,400

Dividend Revenue……..…………………..………………. 3,400

Received dividends on Gem (4,000 x $0.85).

28 Cash*….…………………………………………..…………………..…..…

59,775

Oct. 1 Cash…………..……………………………………..…..…..…..….... 3,800

Dec. 15 Cash…………………………………….……………….….……. 2,100

Dividend Revenue……..…..………………..……….. 2,100

Received dividends on Gem (2,000 x $1.05).

31 Cash………….……………………………………………….….. 2,600

Problem C-2A (Continued)

Part 2

Comparison of Cost and Fair Values for AFS Portfolio

Unrealized

Cost Fair Value Gain (Loss)

Gem Co. (2,000 x $24.25) + 90a…............ $ 48,590

2,000 x $26.50…..….…..…..….... $ 53,000

PepsiCo (2,000 x $49.25) + 175b….......... 98,675

2,000 x $46.50…..….…..…..….... 93,000

Part 3

Dec. 31 Unrealized LossEquity………………………………………….. 4,470

available-for-sale securities.

Part 4

The balance sheet would report the cost of these short-term investments in

available-for-sale securities at $164,220 and show a subtraction of $4,470

Part 5

(a) Income statement

(i) Interest Revenue, $1,500

(ii) Dividend Revenue, $11,900 [$3,400 + $3,800 + $2,100 + $2,600]

(b) Equity section of Balance sheet

(i) Subtraction from equity due to the Unrealized Loss, $4,470

Problem C-3A (60 minutes)

Part 1

2015

Jan. 20 Long-Term Investments—AFS (J&J)….……………………..20,740

Cash………………………………………..………………………. 20,740

Purchased Johnson & Johnson

shares [(1,000 x $20.50) + $240].

Feb. 9 Long-Term Investments—AFS (Sony)……..…………………55,665

June 12 Long-Term Investments—AFS (Mattel)……………………………….40,695

Dec. 31 Unrealized LossEquity………………………………..……….3,650

Fair Value Adjustment—AFS (LT)*……………………... 3,650

Annual adjustment to fair values.

* Cost Fair Value

J & J………………. $ 20,740 $ 21,500

Sony………………. 55,665 45,600

Problem C-3A (Continued)

2016

Apr. 15 Cash…………………………………………………………………………….…22,975

July 5 Cash…………….………………….…………………………………..…………35,615

July 22 Long-Term Investments—AFS (Sara Lee)…………………….………13,980

Cash………………………………………..……………………………..… 13,980

Purchased Sara Lee shares

[(600 x $22.50) + $480].

Aug. 19 Long-Term Investments—AFS (Eastman Kodak)………………..….15,498

Dec. 31 Unrealized LossEquity………………………………………………….10,168

Fair Value Adjustment—AFS (LT)*..……………………………… 10,168

Annual adjustment to fair values.

* Cost Fair Value

Kodak: 900 x $19.25 = $17,325

Sara Lee: 600 x $20.00 = $12,000

Sony: 1,200 x $35.00 = $42,000

$85,143 – $71,325 = $13,818