978-0077862275 Chapter 15 Solution Manual Part 5

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).

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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

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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 ReceivableSumito…………………………………….……14,100

Sales………………………………………………………….…………….. 14,100

(1,500,000 yen x $0.0094/yen)

Dec. 31 Accounts ReceivableSmithers……………………………………….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 ReceivableHamid 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 ReceivableSmithers**……………………..……….. 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].

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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

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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

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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

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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).

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