PROBLEM SET B
Problem C-1B (60 minutes)
Part 1
2015
Sept. 1 Short-Term Investments—Trading (UPS)…............69,950
Cash…………………………………..…………….………. 69,950
Purchased UPS shares
[(1,200 x $57.25) + $1,250].
Dec. 31 Unrealized Loss—Income…………………..…….….….17,560
Fair Value Adjustment—Trading (ST)............. 17,560
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
.
0
Adj. 17,56
0
Problem C-1B (Continued)
2016
June 2 Short-Term Investments—Trading (SPW)……………… 622,450
June 14 Short-Term Investments—Trading (W-M)………….. 46,307
Cash…………………………………..……………………. 46,307
Purchased Wal-Mart shares
[(900 x $50.25) + $1,082].
Dec. 31 Fair Value Adjustment—Trading (ST)…..…….…... 33,298
We could also use a T-account to determine the needed adjustment to fair value:
12/31/2016—F.V. Adj—Trading
Unadj. 17,56
0
Problem C-1B (Concluded)
2017
Jan. 28 Short-Term Investments—Trading (Pepsi)............. 88,890
Cash…………………………….…………………………… 88,890
Aug. 22 Cash………………………………….………………..……….… 133,720
Loss on Sale of S-T Investments………………….…. 9,785
Short-Term Investments—Trading (AOL)……….. 143,505
Sold AOL shares [(2,400 x $56.75) – $2,480].
Sept. 3 Short-Term Investments—Trading (Voda)……........ 62,430
Cash…………………………….…………………………… 62,430
Dec. 31 Unrealized Loss—Income…………………..…….….…. 27,058
Fair Value Adjustment—Trading (ST)............. 27,058
Record fair value of securities.
We could also use a T-account to determine the needed adjustment to fair value:
12/31/2017—F.V. Adj—Trading
Unadj
15,738
Problem C-2B (40 minutes)
Part 1
Feb. 6 Short-Term Investments—AFS (Nokia)…......... 143,250
Cash…………………………………..…………….…. 143,250
Apr. 7 Short-Term Investments—AFS (Dell)…………… 48,655
Cash…………………………………..…………….…. 48,655
Purchased 1,200 shares of Dell
[(1,200 x $39.50) + $1,255].
June 2 Short-Term Investments—AFS (Merck)........... 184,140
Cash…………………………………..…………….…. 184,140
Aug. 11 Cash*………………….………………..……….…………. 38,050
Gain on Sale of Short-Term Investments.... 2,237
Short-Term Investments—AFS (Nokia)**.... 35,813
Sold 850 shares of Nokia. (rounded)
* [(850 x $46.00) – $1,050] **($143,250 x 850/3,400)
16 Cash………….…………………….…………….……….… 20,600
Short-Term Investments—AFS (T-bills)……… 20,000
Nov. 9 Cash……………………………………………..………….. 510
Dividend Revenue………………..….…………….. 510
Received dividends on Nokia stock
(2,550 x $0.20).
Dec. 18 Cash……………………..…………..…………..…………. 180
Problem C-2B (Concluded)
Part 2
Comparison of Cost and Fair Values of AFS Portfolio
Unrealized
Cost Fair Value Gain (Loss)
Nokia (2,550 x $41.25) + $2,250a….…… $107,437
2,550 x $40.25 (rounded)......... $102,638
Dell (1,200 x $39.50) + $1,255b......... 48,655
1,200 x $40.50………..…..…....... 48,600
Part 3
Dec. 31 Unrealized Loss—Equity…….……..…………..………..….. 41,494
Fair Value Adjustment—AFS (ST)……............. 41,494
Part 4
The balance sheet would report the cost of these short-term investments in
available-for-sale securities at $340,232 and show a subtraction of $41,494
Part 5
(a) Income statement
(i) Interest Revenue, $600
(b) Equity section of Balance sheet
(i) Subtraction from equity of Unrealized Loss—Equity, $41,494
Problem C-3B (60 minutes)
Part 1
2015
Mar. 10 Long-Term Investments—AFS (Apple)………………………………31,400
Cash…………………………….………………………………….……..… 31,400
Sept. 1 Long-Term Investments—AFS (Polaroid)…………………………..29,090
Cash…………………………….………………………………….……..… 29,090
Dec. 31 Unrealized Loss—Equity……………..………..….……….…………...2,873
* Cost _ Fair Value
Apple…….…………...$ 31,400 $ 33,000
Ford…………………...57,283 52,500
Polaroid….............. 29,090 29,400
Total………..……..…..$117,773 $114,900
Apple: 1,200 x $27.50 = $33,000
Problem C-3B (Continued)
2016
Apr. 26 Cash………………….…………………………………….……………………..50,043
June 2 Long-Term Investments—AFS (Duracell)……………………..…….35,700
Cash…………………………….………………………………….……..… 35,700
June 14 Long-Term Investments—AFS (Sears)………………….……………25,480
Cash ……..…………………….………………………………….……..… 25,480
Dec. 31 Fair Value Adjustment—AFS (LT)*………………………………………...…...…
5,093
Unrealized Loss—Equity………………………….…….………….. 2,873
Unrealized Gain—Equity…..……………………………………….. 2,220
Annual adjustment to fair values.
* Cost _ Fair Value
Sears........... 25,480 27,600
Total….…..…. $92,580 $94,800
$92,580 – $94,800 = $2,220
Fair Value Adjustment account:
Required balance ….. $2,220 Dr.
Problem C-3B (Continued)
2017
Jan. 28 Long-Term Investments—AFS (Coca-Cola)………………………..41,480
Aug. 22 Cash …………………………………………..…………………….…………...23,950
Loss on Sale of Investments……….………………..…………….…..7,450
Oct. 9 Cash ………………………………………….…………………….…………….28,201
Gain on Sale of Investments …….……………….……………... 2,721
Oct. 31 Cash …………………………..……………..…………………….…………....26,102
Loss on Sale of Investments ………………………..…………….…..9,598
* Cost _ Fair Value
Coca-Cola……….…..…..….. $ 41,480 $ 48,000
Motorola…………..………….. 84,780 72,000
Total………..……..……..…….. $126,260 $120,000
$126,260 – $120,000 = $6,260
Fair Value Adjustment account:
Required balance...... $6,260 Cr.
Problem C-3B (Concluded)
Part 2
12/31/2015 12/31/2016 12/31/2017
Long-Term AFS Securities (cost)……………. $117,773 $92,580 $126,260
Part 3
2015 2016 2017
Realized gains (losses)
Sale of Ford shares…..…………………..... $(7,240)
Sale of Polaroid shares…………….……… 665
Sale of Duracell shares…..……………..... $ (9,598)
Sale of Apple shares………………………… (7,450)
Sale of Sears shares…………………..….… ______ ______ 2 ,721