Exercise D-4 (LO D-2)
Requirement 1
March 1 Debit Credit
Investments (3,000 shares × $62) 186,000
July 1
Cash ($1.25 × 3,000 shares) 3,750
October 1
Cash (750 shares × $70) 52,500
Investments (750 shares × $62) 46,500
December 31
Investments (2,250 shares × $13) 29,250
Requirement 2
The balance of the investment account on December 31 is $168,750, equal to
the 2,250 remaining shares times $75 per share fair value. The balance of the
investment account can be verified by posting all journal entries to a t-account.
Investments
186,000
29,250
46,500
168,750
Exercise D-5 (LO D-2)
Requirement 1
Comprehensive income is an expansion of the familiar net income. Most
revenues, expenses, gains, and losses are included in net income. A few less
traditional gains and losses, though, are reported outside the income statement in
the more inclusive statement of comprehensive income in which we report all
Requirement 2
Sales Revenue $ 260,000
Operating expenses (140,000)
Gain on sale of investments 13,000
Exercise D-6 (LO D-3)
January 1 Debit Credit
Investments 700,000
Cash 700,000
December 31
Investments 40,000
Equity Income 40,000
December 31
Cash 15,000
Investments 15,000
Exercise D-7 (LO D-3)
January 1 Debit Credit
Investments 600,000
Cash 600,000
(Purchase common stock)
December 31
Investments 45,500
Equity Income 45,500
December 31
Cash 14,000
Investments 14,000
(Receive cash dividends)
Under the equity method, no adjustment is made to fair value.
Exercise D-8 (LO D-2, D-3)
Requirement 1
Purchase: Debit Credit
Investments 360,000
Cash 360,000
(Purchase common stock)
Net income:
No entry for Midlin’s net income
Dividends:
Cash 15,000
Dividend Revenue 15,000
Fair value adjustment:
Investments 15,000
Unrealized Holding Gain–Other Comprehensive
Income
15,000
Exercise D-8 (concluded)
Requirement 2
Purchase: Debit Credit
Investments 360,000
Cash 360,000
(Purchase common stock)
Net income:
Investments 27,000
Equity Income 27,000
Dividends:
Cash 15,000
Investments 15,000
Fair value adjustment:
No adjustment is made under the equity method
Exercise D-9 (LO D-4)
1. 10% of the common stock of Beta.
2. 40% of the bonds of Gamma.
X 3. 75% of the common stock of Delta.
Exercise D-10 (LO D-5)
Requirement 1
(1)
Date
(2)
Cash
Received
(3)
Interest
Revenue
(4)
Increase in
Carrying
Value
(5)
Carrying
Value
Face Amount
× Stated Rate
Carrying Value
× Market Rate (3) – (2)
Prior Carrying
Value + (4)
1/ 1 $159,869
Requirement 2
January 1
Investments 159,869
Cash 159,869
(Purchase bonds)
June 30
Cash ($175,000 × 7% × ½) 6,125
Investments (difference) 270
December 31
Cash ($175,000 × 7% × ½) 6,125
Investments (difference) 281
Exercise D-11 (LO D-5)
Requirement 1
(1)
Date
(2)
Cash
Received
(3)
Interest
Revenue
(4)
Decrease in
Carrying
Value
(5)
Carrying
Value
Face Amount
× Stated Rate
Carrying Value
× Market Rate (2) − (3)
Prior Carrying
Value − (4)
1/ 1 $ 549,001
Requirement 2
January 1
Investments 549,001
Cash 549,001
(Purchase bonds)
June 30
Cash ($500,000 × 7% × ½) 17,500
Investments (difference) 1,030
December 31
Cash ($500,000 × 7% × ½) 17,500
Investments (difference) 1,061