Chapter 15 – Investments and International Operations
Exercise 15-3 (20 minutes)
1.
2015
Dec. 31 Fair Value Adjustment—Trading……………..…….. 6,000
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
Gain on Sale of Short-Term Investments...... 2,000
Short-Term Investments—Trading…………….. 33,000
To record sale of trading securities.
Exercise 15-4 (10 minutes)
a.
Exercise 15-5 (10 minutes)
a.
Aug. 1 Short-Term Investments—AFS (Houtte)………….. 450,000
Cash………………………………………………………… 450,000
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Chapter 15 – Investments and International Operations
Purchased 6-month, 10% debt securities.
b.
Oct. 30 Cash…..…………….…………….………………….………..………. 10,125
Interest Revenue……………………………………..… 10,125
Received cash interest payment
($450,000 x .09 x 90/360).
Exercise 15-6 (30 minutes)
2015
(a) Feb. 15 Short-Term Investments—HTM (A.G.)….………………………160,000
Cash………………………………………………………………… 160,000
Purchased 90-day, 10% notes.
(e) Sept. 1 Cash……………………………………………………………………...700
Dividend Revenue………………………..….….…….….…. 700
Received dividend on Fran shares
(700 x $1).
(f) Oct. 8 Cash*……………………………………………….….…….….….…..22,275
Long-Term Investments—AFS (Fran)**..………………… 17,925
Gain on Sale of L-T Investments……………………….. 4,350
Sold 350 shares of Fran stock.
*([350 x $64] – $125) **($35,850/2)
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Chapter 15 – Investments and International Operations
Exercise 15-7 (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 15-8 (15 minutes)
Computation of Fair Value Adjustment
Cost Fair
Value
Unrealized
Gain (Loss)
McDonald’s Corp. common stock……….….….…….….... 46,300 44,800
$164,750 $163,900 $ (850)
Dec. 31 Unrealized Loss—Equity…………………….….….…….….… 850
Fair Value Adjustment—AFS (ST)……………..…….… 850
Record fair value adjustment for securities.
Exercise 15-9 (15 minutes)
Computation of Fair Value Adjustment
12/31/2014 12/31/2015
Cost….….….…….….….....$120,483 $60,120
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Chapter 15 – Investments and International Operations
Fair value………………….. 118 ,556 90 ,271
Exercise 15-10 (30 minutes)
2013
Dec. 31 Unrealized Loss—Equity…………………….….….…….….…11,140
Fair Value Adjustment—AFS (LT)..….….…….….…... 11,140
Record fair value of securities
($372,000 – $360,860).
2014
Dec. 31 Fair Value Adjustment—AFS (LT)*……………….….……...38,440
2015
Dec. 31 Fair Value Adjustment—AFS (LT)*……………….….……...73,000
Unrealized Gain—Equity…………………………………… 73,000
Record fair value of securities.
* $600,200 – $700,500 = $100,300 net gain
($100,300 current period gain – $27,300 prior gain).
2016
Dec. 31 Unrealized Loss—Equity……………………..…….….…….…96,700
Exercise 15-11 (15 minutes)
1. Classification of Investments in Securities
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Chapter 15 – Investments and International Operations
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
Unrealized GainEquity…………………….….….….…… 10,825
Record fair value of securities ($255,800 – $266,625).
Long-term AFS securities Cost Fair Value
Exercise 15-12 (30 minutes)
2015
Jan. 2 Long-Term Investments—Grecco*..….….…………………….411,000
Cash………………………………………………………………… 411,000
Record purchase of investment ($408,000 + $3,000).
*Kodax’s investment equals 33 1/3% of Grecco’s stock (30,000/90,000).
Kodax should use the equity method to account for its investment.
2016
June 1 Cash……………………………………………………………………...63,000
Long-Term Investments—Grecco…………………….….. 63,000
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Chapter 15 – Investments and International Operations
Record receipt of cash dividend (30,000 x $2.10).
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
Long-Term Investments—Grecco*…….…………………. 233,183
Record sale of investment.
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Exercise 15-13 (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 15-14 (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
from 14.0% to 10.9%. However, without additional information, it is not
possible to determine whether Regae is within the normal range as
Exercise 15-15A (25 minutes)
2015
Dec. 16 Accounts ReceivableBronson Ltd…………………………24,791
Sales…………………………………………………….…….…... 24,791
Record credit sales (17,000 x $1.4583).
2016
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$60,300
($340,000 + $770,000)/2
$38,400
($210,000 + $340,000)/2
Chapter 15 – Investments and International Operations
Jan. 15 Cash (17,000 x $1.4482)……………………….…….….….……24,619
Accounts ReceivableBronson Ltd………………..…. 24,449
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