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Chapter 15 - Investments and International Operations
Problem 15-4A (30 minutes)
Part 1
1. Journal entries (assuming significant influence)
2015
Jan. 5 Long-Term Investments—Kildaire..............................................1,560,000
Cash.....................................................................................1,560,000
Purchased Kildaire shares.
2016
Oct. 15 Cash...........................................................................................156,000
Long-Term Investments—Kildaire........................................156,000
Record cash dividend (60,000 x $2.60).
Dec. 31 Long-Term Investments—Kildaire..............................................295,200
Earnings from Long-Term Investment.............................295,200
Record equity in investee earnings
($1,476,000 x 20%).
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Chapter 15 - Investments and International Operations
Problem 15-4A (Continued)
2. Carrying value per share, January 1, 2017 (see computations in part 1)
$1,740,000 / 60,000 shares = $29
Part 2
1. Journal entries (assuming NO significant influence)
2015
Jan. 5 Long-Term Investments—AFS (Kildaire)...................................1,560,000
Cash.....................................................................................1,560,000
Purchased Kildaire shares.
2016
Oct. 15 Cash...........................................................................................156,000
Dividend Revenue..............................................................156,000
Received cash dividends (60,000 x $2.60).
15-2
Chapter 15 - Investments and International Operations
Problem 15-4A (Concluded)
2017
Jan. 2 Cash...........................................................................................1,894,000
Long-Term Investments—AFS (Kildaire).............................1,560,000
2. Investment cost per share, January 1, 2017
$1,560,000 / 60,000 shares = $26
3. Change in Selk’s equity due to stock investment
Dividend Revenue (2015)............................... $192,000
Problem 15-5A (40 minutes)
Part 1
Available-for-sale securities on December 31, 2015
Security Cost Fair Value
3,500 shares of Company B common stock..............$ 79,690 $ 81,375
17,500 shares of Company C common stock..............662,750 610,312
Disclosure
15-3
Education.
Chapter 15 - Investments and International Operations
Part 2
Dec. 31 Fair Value Adjustment—AFS*.................................................20,002
Unrealized Loss—Equity.................................................. 20,002
Adjustment to fair value for AFS securities..
* December 31, 2014, available-for-sale securities
Cost _ Fair Value
$1,357,430 $1,284,938
December 31, 2015, adjustment to the Fair Value Adjustment account:
$1,357,430 - $1,284,938 = $ 72,492 Cr. balance on Dec. 31, 2014
Part 3
Only gains or losses realized on the sale of available-for-sale securities
appear on the 2015 income statement. Unrealized gains or losses appear
in the equity section of the balance sheet.
Year 2015 realized gains (losses)
Stock Sold Cost Sale Gain (Loss)
3,500 shares of Company B stock............ $ 79,690 $ 77,688 $ (2,002)
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Chapter 15 - Investments and International Operations
Problem 15-6AA (60 minutes)
Part 1
2015
Apr. 8 Cash...........................................................................................5,938
Sales.................................................................................... 5,938
July 21 Accounts ReceivableSumito.................................................14,100
Sales.................................................................................... 14,100
(1,500,000 yen x $0.0094/yen)
Dec. 31 Accounts ReceivableSmithers..............................................103
Foreign Exchange Gain *................................................... 103
*Original measure = (19,000£ x $1.4566/£) = $27,675
Year-end measure = (19,000£ x $1.4620/£) = 27,778
Gain for the period ……………………... = $ 103
Dec. 31 Foreign Exchange Loss*.........................................................77
Accounts ReceivableHamid Albar.................................. 77
*Original measure = (17,000 ringgits x $0.4501/ ringgits) = $7,652
Loss for the period ............................................. = $ 77
2016
Jan. 12 Cash*.........................................................................................27,928
Accounts ReceivableSmithers**..................................... 27,778
Foreign Exchange Gain..................................................... 150
*(19,000£ x $1.4699/£) **($27,675 + $103)
Problem 15-6AA (Continued)
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Chapter 15 - Investments and International Operations
Part 2
Foreign exchange loss reported on the 2015 income statement
Part 3
To reduce the risk of foreign exchange gain or loss, Doering could attempt
to negotiate foreign customer sales that are denominated in U.S. dollars.
NOTE: A few students may also understand Doering's opportunity for hedging.
This involves selling foreign currency futures to be delivered at the time the
receivables from foreign customers will be collected.
PROBLEM SET B
Problem 15-1B (60 minutes)
Part 1
2015
Mar. 10 Short-Term Investments—Trading (AOL)....................
143,505
Cash................................................................... 143,505
Purchased AOL shares
[(2,400 x $59.15) + $1,545].
15-6
Chapter 15 - Investments and International Operations
Sept. 1 Short-Term Investments—Trading (UPS)...............69,950
Cash................................................................... 69,950
Purchased UPS shares
[(1,200 x $57.25) + $1,250].
We could also use a T-account to determine the needed adjustment to fair value:
12/31/2015—F.V. Adj—Trading
Unadj
0
15-7
2016
Apr. 26 Cash........................................................................ 170,450
Loss on Sale of Short-Term Investments............ 13,655
Short-Term Investments—Trading (MTV)........ 184,105
Sold MTV shares [(5,000 x $34.50) - $2,050].
Apr. 27 Cash........................................................................ 70,812
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
Unrealized Gain—Income............................... 33,298
12/31/2016—F.V. Adj—Trading
Unadj. 17,56
0
15-8
Chapter 15 - Investments and International Operations
Problem 15-1B (Concluded)
2017
Jan. 28 Short-Term Investments—Trading (Pepsi)............. 88,890
Cash................................................................... 88,890
Purchased PepsiCo shares
[(2,000 x $43.00) + $2,890].
Sept. 3 Short-Term Investments—Trading (Voda).............. 62,430
Cash................................................................... 62,430
Purchased Vodaphone shares
[(1,500 x $40.50) + $1,680].
Oct. 9 Cash......................................................................... 47,155
Gain on Sale of Short-Term Investments............. 848
Short-Term Investments—Trading (W-M)............. 46,307
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
15-9
Chapter 15 - Investments and International Operations
Problem 15-2B (40 minutes)
Part 1
Feb. 6 Short-Term Investments—AFS (Nokia)............ 143,250
Cash............................................................. 143,250
Purchased 3,400 shares of Nokia
[(3,400 x $41.25) + $3,000].
June 2 Short-Term Investments—AFS (Merck)........... 184,140
Cash............................................................. 184,140
Purchased 2,500 shares of Merck
[(2,500 x $72.50) + $2,890].
30 Cash................................................................... 646
Dividend Revenue......................................... 646
Received dividends on Nokia stock
(3,400 x $0.19).
*($20,000 x .06 x 6/12)
24 Cash................................................................... 120
Dividend Revenue......................................... 120
Received dividends on Dell stock (1,200 x $0.10).
Nov. 9 Cash................................................................... 510
Dividend Revenue......................................... 510
Received dividends on Nokia stock
(2,550 x $0.20).
15-10
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