978-0077862275 Chapter 15 Solution Manual Part 4

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

15-1

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,

15-2

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

15-3

Chapter 15 – Investments and International Operations

15-4

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

15-5

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)

15-6

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 LossEquity………..…………..…………..………... 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

15-7

15-8

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 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: 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

15-9

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 LossEquity………………………………………………..…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

15-10

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.

15-11

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

15-12