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Problem 15-2B (40 minutes)
Part 1
Feb. 6 Short-Term Investments—AFS (Nokia)............ 143,250
15 Short-Term Investments—AFS (T-bills)........... 20,000
Apr. 7 Short-Term Investments—AFS (Dell)............... 48,655
June 2 Short-Term Investments—AFS (Merck)........... 184,140
30 Cash.................................................................. 646
Aug. 11 Cash*............................................................... 38,050
16 Cash................................................................. 20,600
24 Cash................................................................. 120
Nov. 9 Cash.................................................................. 510
Dec. 18 Cash.................................................................. 180
Problem 15-2B (Concluded)
Part 2
Comparison of Cost and Fair Values of AFS Portfolio
Unrealized
Cost Fair Value Gain (Loss)
Nokia (2,550 x $41.25) + $2,250a......... $107,437
a Brokerage fee attached to remaining 2,550 shares: $3,000 x (3,400 sh.– 850 sh.)/ 3,400 sh. = $2,250.
Part 3
Dec. 31 Unrealized Loss—Equity............................................ 41,494
Part 4
The balance sheet would report the cost of these short-term investments in
available-for-sale securities at $340,232 and show a subtraction of $41,494
for the fair value adjustment. This yields $298,738 as the net fair value for
these securities reported in the current assets section. An alternative
presentation is to list these securities at the fair value of $298,738 with a
note disclosure of the cost.
Part 5
(a) Income statement
(i) Interest Revenue, $600
(b) Equity section of Balance sheet
Problem 15-3B (60 minutes)
Part 1
2015
Mar. 10 Long-Term Investments—AFS (Apple)...................................31,400
Cash.................................................................................. 31,400
April 7 Long-Term Investments—AFS (Ford).....................................57,283
Cash.................................................................................. 57,283
Purchased Ford shares
Sept. 1 Long-Term Investments—AFS (Polaroid)...............................29,090
Dec. 31 Unrealized Loss—Equity........................................................2,873
Fair Value Adjustment—AFS (LT)*.............................................. 2,873
Annual adjustment to fair values.
* Cost _ Fair Value
Apple.....................$ 31,400 $ 33,000
Problem 15-3B (Continued)
2016
Apr. 26 Cash........................................................................................50,043
Loss on Sale of Investments.................................................7,240
June 2 Long-Term Investments—AFS (Duracell)................................35,700
Cash.................................................................................. 35,700
Purchased Duracell shares
June 14 Long-Term Investments—AFS (Sears)....................................25,480
Nov. 27 Cash .......................................................................................29,755
Gain on Sale of Investments............................................ 665
Dec. 31 Fair Value Adjustment—AFS (LT)*.........................................................
5,093
* Cost _ Fair Value
Apple........... $31,400 $34,800
Apple: 1,200 x $29.00 = $34,800
Fair Value Adjustment account:
Problem 15-3B (Continued)
2017
Jan. 28 Long-Term Investments—AFS (Coca-Cola)............................41,480
Aug. 22 Cash .......................................................................................23,950
Sept. 3 Long-Term Investments—AFS (Motorola)...............................84,780
Oct. 9 Cash .......................................................................................28,201
Oct. 31 Cash .......................................................................................26,102
Dec. 31 Unrealized GainEquity.........................................................2,220
* Cost _ Fair Value
Coca-Cola........................ $ 41,480 $ 48,000
Problem 15-3B (Concluded)
Part 2
12/31/2015 12/31/2016 12/31/2017
Long-Term AFS Securities (cost)............... $117,773 $92,580 $126,260
Part 3
2015 2016 2017
Realized gains (losses)
Sale of Ford shares............................... $(7,240)
Sale of Polaroid shares........................ 665
Problem 15-4B (50 minutes)
Part 1
1. Journal entries (assuming significant influence)
2015
Jan. 5 Long-Term Investments—Bloch............................................200,500
Aug. 1 Cash........................................................................................21,000
Dec. 31 Long-Term Investments—Bloch............................................20,500
2016
Aug. 1 Cash........................................................................................27,000
Long-Term Investments—Bloch......................................
27,000
Record cash dividend (20,000 x $1.35).
Dec. 31 Long-Term Investments (Bloch)............................................19,500
2017
Jan. 8 Cash........................................................................................375,000
Sold Bloch shares.
*Investment carrying value at Jan. 7, 2017
Original cost.........................................$200,500
Less 2015 dividends............................. (21,000)
Problem 15-4B (Continued)
2. Carrying value per share (see computations in part 1)
3. Change in Brinkley’s equity
Earnings from Bloch (for 2015)..........................$ 20,500
Problem 15-4B (Concluded)
2016
Aug. 1 Cash........................................................................................27,000
Dec. 31 Fair Value Adjustment—AFS (LT)*.........................................35,000
*20,000 x $13.65 = $273,000
2017
Jan. 8 Cash........................................................................................375,000
Jan. 8 Unrealized Gain—Equity........................................................72,500
2. Investment cost per share, January 7, 2017
3. Change in Brinkley's equity
Dividend Revenue (for 2015)..............................$ 21,000
Problem 15-5B (40 minutes)
Part 1
Available-for-sale securities on December 31, 2015
Security Cost Fair Value
27,500 shares of Company R common stock............$559,125 $568,125
Disclosure
The portfolio of available-for-sale securities would be reported on the
Part 2
Dec. 31 Unrealized LossEquity.........................................................16,267
*December 31, 2014, available-for-sale securities:
Cost Fair Value
$ 559,125 $ 599,063
December 31, 2015, adjustment to the Fair Value Adjustment account:
Part 3
Only gains or losses realized on the sale of available-for-sale securities
Year 2015 realized gain (loss)
Stock Sold Cost Sale Gain (Loss)
Problem 15-6BA (60 minutes)
Part 1
2015
May 26 Accounts Receivable—Fuji....................................................60,450
July 25 Cash*.......................................................................................59,800
Oct. 15 Accounts Receivable—Martinez Brothers............................38,556
Dec. 6 Accounts Receivable—Chi-Ying............................................ 35,975
Dec. 31 Accounts Receivable--Martinez Brothers.............................1,512
*Original measure = (378,000 pesos x $0.1020/peso) = $38,556
*Original measure = (250,000 yuans x $0.1439/yuan) = $35,975
2016
Jan. 5 Cash*.......................................................................................39,500
Jan. 13 Cash*.......................................................................................39,274
Problem 15-6BA (Concluded)
Part 2
Foreign exchange gain reported on 2015 income statement
July 25.................................................. $ (650)
Part 3
To reduce the risk of foreign exchange gain or loss, Datamix could attempt
to negotiate foreign customer sales that are denominated in U.S. dollars.
NOTE: A few students may also understand the company’s opportunity for
hedging. This involves selling foreign currency futures to be delivered at the time
the receivables from foreign customers will be collected.
