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EXERCISES
Exercise 15-1 (10 minutes)
3. Short-term investments are securities that (1) management intends to
4. Long-term investments in securities are defined as those securities that
Exercise 15-2 (15 minutes)
a.
Mar. 22 Short-Term Investments—Trading (RIP)............. 10,080
b.
Sept. 1 Cash...................................................................... 1,000
c.
Oct. 8 Cash*.................................................................... 7,450
Exercise 15-3 (20 minutes)
1.
2015
Dec. 31 Fair Value Adjustment—Trading........................ 6,000
2. The accounts in part (1) are reported on different financial statements.
i. The $6,000 debit balance in the Fair Value Adjustment—Trading
ii. The Unrealized Gain of $6,000 is reported in the Other Revenues and
Gains section of the income statement.
3.
2016
Jan. 3 Cash...................................................................... 35,000
Exercise 15-4 (10 minutes)
a.
Jun. 15 Short-Term Investments—HTM (Remedy).............1,000,000
b.
Sep. 16 Cash......................................................................1,025,000
Exercise 15-5 (10 minutes)
a.
Aug. 1 Short-Term Investments—AFS (Houtte)............. 450,000
b.
Oct. 30 Cash.............................................................................. 10,125
Exercise 15-6 (30 minutes)
2015
(a) Feb. 15 Short-Term Investments—HTM (A.G.)..............................160,000
(b) Mar. 22 Long-Term Investments—AFS (Fran)...............................35,850
(c) May 15 Cash..............................................................................164,000
(d) July 30 Short-Term Investments—Trading (MP3)..........................100,000
(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 15-7 (15 minutes)
Unrealized
Available-for-Sale Portfolio Cost Fair Value Gain (Loss)
Verrizano Corporation bonds payable............... $ 89,600 $ 91,600
Dec. 31 Unrealized Loss—Equity............................................. 9,100
Exercise 15-8 (15 minutes)
Computation of Fair Value Adjustment
Cost Fair
Value
Unrealized
Gain (Loss)
Nintendo Co. common stock.......................................$ 44,450 $ 48,900
Dec. 31 Unrealized Loss—Equity.............................................. 850
Exercise 15-9 (15 minutes)
Dec. 31 Fair Value Adjustment—AFS (LT)................................32,078
Record fair value of AFS securities.
Computation of Fair Value Adjustment
12/31/2014 12/31/2015
Exercise 15-10 (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
2015
Dec. 31 Fair Value Adjustment—AFS (LT)*...............................73,000
Unrealized Gain—Equity........................................ 73,000
Record fair value of securities.
2016
Dec. 31 Unrealized Loss—Equity..............................................96,700
Exercise 15-11 (15 minutes)
1. Classification of Investments in Securities
a. The Brava Company bonds are a long-term investment in
held-to-maturity debt securities.
b. The Baybridge stock is a long-term investment in equity securities
where the investor has a significant influence over the investee.
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
Exercise 15-12 (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
2016
June 1 Cash..............................................................................63,000
Dec. 31 Long-Term Investments—Grecco...................................234,250
Dec. 31 Cash..............................................................................320,000
* Book value (Grecco stock) at 12/31/2016:
Original cost.....................................................................................$411,000
Exercise 15-13 (10 minutes)
1. Consolidated financial statements show the financial position, results of
Exercise 15-14 (15 minutes)
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
from 14.0% to 10.9%. However, without additional information, it is not
possible to determine whether Regae is within the normal range as
compared to similar companies. In addition, conditions may exist that
explain the apparent decline in efficiency between 2015 and 2016. For
example, Regae may have increased its investment in plant assets in 2016
in anticipation of increased production and sales in 2017. Or, its
competitors’ returns may have fallen even more than that of Regae’s
returns.
Exercise 15-15A (25 minutes)
2015
Dec. 16 Accounts ReceivableBronson Ltd.............................24,791
Sales........................................................................ 24,791
*Original measure = (17,000 x $1.4583) = $24,791
2016
Jan. 15 Cash (17,000 x $1.4482)................................................24,619
Accounts ReceivableBronson Ltd....................... 24,449
