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Chapter 15 - Investments and International Operations
Exercise 15-16A (25 minutes)
Quarter ended June 30, 2015
May 8 recorded amount (800,000 x $0.1323)...................... $105,840
June 30 balance sheet amount (800,000 x $0.1352)........... 108,160
Foreign exchange gain.........................................................
$ 2,320
Quarter ended September 30, 2015
Foreign exchange gain.........................................................
$ 1,280
Foreign exchange loss.........................................................
$ 2,640
Quarter ended March 31, 2016
Dec. 31 balance sheet amount ............................................ $106,800
Feb. 10, 2016, amount received (800,000 x $0.1386) ......... 110,880
Foreign exchange gain.........................................................
$ 4,080
Note — The combined net gain for all four quarters equals:
$5,040 ($2,320 + $1,280 - $2,640 + $4,080).
This amount also equals the difference between the number of dollars finally
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Chapter 15 - Investments and International Operations
Exercise 15-17 (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-
PROBLEM SET A
Problem 15-1A (60 minutes)
Part 1
2015
Jan. 20 Short-Term Investments—Trading (Ford).................. 20,925
Cash.................................................................. 20,925
Purchased Ford Motor Co.
shares [(800 x $26.00) + $125].
Dec. 31 Fair Value Adjustment—Trading (ST).................. 5,322
Unrealized Gain—Income............................... 5,322
Record fair value of securities.
$130,000 fair value - $124,678 cost; thus,
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Chapter 15 - Investments and International Operations
We could also use a T-account to determine the needed adjustment to fair value:
12/31/2015—F.V. Adj—Trading
Unadj
.
0
Problem 15-1A (Continued)
2016
Apr. 15 Cash...................................................................... 22,915
Gain on Sale of Short-Term Investments..... 1,990
Short-Term Investments—Trading (Ford)...... 20,925
Sold Ford Motor shares
[(800 x $29.00) - $285].
Dec. 31 Unrealized Loss—Income................................... 24,834
Fair Value Adjustment—Trading (ST)......... 24,834
Record fair value of securities.
$160,000 fair value - $179,512 cost*; thus,
FVA—Trading s/b $19,512 Cr.
Note: Unadjusted FVA is $5,322 Dr; Ending bal. FVA s/b
$19,512 Cr; thus, entry must be $24,834 Cr FVA.
*$124,678 - $20,925 - $5,825 + $48,444 + $33,140
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
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Chapter 15 - Investments and International Operations
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Chapter 15 - Investments and International Operations
Problem 15-1A (Concluded)
2017
Feb. 27 Short-Term Investments—Trading (HCA)................. 116,020
Cash................................................................ 116,020
Purchased HCA shares
[(3,400 x $34.00) + $420].
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
Loss on Sale of Short-Term Investments.......... 599
Short-Term Investments—Trading (D.Karan)..... 33,140
Sold Donna Karan shares
[(1,800 x $18.25) - $309].
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
2
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Chapter 15 - Investments and International Operations
Problem 15-2A (40 minutes)
Part 1
2015
Apr. 16 Short-Term Investments—AFS (Gem).......................... 97,180
Cash................................................................................. 97,180
Purchased 4,000 shares of Gem
[(4,000 x $24.25) + $180].
20 Short-Term Investments—AFS (Xerox)........................16,955
Cash......................................................................... 16,955
Purchased 1,000 shares of Xerox
[(1,000 x $16.75) + $205].
28 Cash*.....................................................................................
59,775
Short-Term Investments—AFS (Gem)**................. 48,590
Gain on Sale of Short-Term Investments............. 11,185
Sold 2,000 shares of Gem.
*(2,000 x $30) - $225 **($97,180 x 2,000/4,000)
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Chapter 15 - Investments and International Operations
31 Cash......................................................................... 2,600
Dividend Revenue............................................ 2,600
Received dividends on PepsiCo (2,000 x $1.30).
Problem 15-2A (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
$164,220 $159,750 $(4,470)
a Brokerage fee attached to remaining 2,000 shares: $180 x (4,000 sh –2,000 sh.)/ 4,000 sh.= $90.
b Brokerage fee attached to remaining 2,000 shares: Entire $175 (none sold).
c Brokerage fee attached to remaining 1,000 shares: Entire $205 (none sold).
Part 3
Dec. 31 Unrealized LossEquity................................................... 4,470
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
(b) Equity section of Balance sheet
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Chapter 15 - Investments and International Operations
Problem 15-3A (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].
Dec. 31 Unrealized LossEquity.................................................3,650
Fair Value Adjustment—AFS (LT)*........................... 3,650
Annual adjustment to fair values.
* Cost Fair Value
J & J................... $ 20,740 $ 21,500
Sony: 1,200 x $38.00 = $45,600
Mattel: 1,500 x $30.90 = $46,350
Fair Adj.: $117,100 - $113,450 = $3,650
Problem 15-3A (Continued)
2016
Apr. 15 Cash...........................................................................................22,975
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Chapter 15 - Investments and International Operations
[(1,000 x $23.50) - $525].
July 5 Cash...........................................................................................35,615
Loss on Sale of Investments...................................................5,080
Long-Term Investments—AFS (Mattel)............................... 40,695
Sold Mattel shares [(1,500 x $23.90) - $235].
Dec. 31 Unrealized LossEquity...........................................................10,168
Fair Value Adjustment—AFS (LT)*...................................... 10,168
Annual adjustment to fair values.
* Cost Fair Value
Kodak................... $15,498 $17,325
Sara Lee............... 13,980 12,000
Sony...................... 55,665 42,000
Total...................... $85,143 $71,325
Required change...… $10,168 Cr.
Problem 15-3A (Continued)
2017
Feb. 27 Long-Term Investments—AFS (Microsoft).................................161,325
Cash ....................................................................................161,325
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Chapter 15 - Investments and International Operations
Long-Term Investments—AFS (Sony)................................ 55,665
Sold Sony shares [(1,200 x $48.00) - $880].
Aug. 3 Cash ..........................................................................................9,315
Loss on Sale of Investments ..................................................4,665
Long-Term Investments—AFS (Sara Lee)............................ 13,980
Sold Sara Lee shares
[(600 x $16.25) - $435].
Dec. 31 Fair Value Adjustment—AFS (LT)*...........................................21,858
Unrealized Loss—Equity................................................... 13,818
Unrealized Gain—Equity.................................................... 8,040
Annual adjustment to fair values.
* Cost Fair Value
$212,160 - $220,200 = $8,040 (fair value exceeds cost)
Fair Value Adjustment account:
Required balance............ $ 8,040 Dr.
Unadjusted balance......... 13,818 Cr.
Required change............ $21,858 Dr.
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Chapter 15 - Investments and International Operations
Problem 15-3A (Concluded)
Part 2
12/31/2015 12/31/2016 12/31/2017
Long-Term AFS Securities (cost).................... $117,100 $85,143 $212,160
Part 3
2015 2016 2017
Realized gains (losses)
Sale of Johnson & Johnson shares....... $ 2,235
Sale of Mattel shares................................ (5,080)
Sale of Sara Lee shares........................... $(4,665)
Sale of Sony shares................................. 1,055
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