Requirement 1
January 2 Debit Credit
Investments 105,000
February 14
Investments 7,200
May 15
Cash (300 shares × $62) 18,600
Loss (difference) 2,400
December 30
Cash 900
Dividend Revenue 900
Requirement 1 (concluded)
December 31
Investments 3,600
Unrealized Holding Gain–Other Comprehensive
Income
3,600
December 31
Investments 1,200
Unrealized Holding Gain–Other Comprehensive
Income
1,200
PROBLEMS: SET A
Problem D-1A (LO D-2)
Problem D-1A (concluded)
($ in millions)
Purchase: Debit Credit
Investments 178
Cash 178
Net income:
Investments 32.50
Equity Income 32.50
Dividends:
Cash 9.35
Investments 9.35
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 $ 133,984
Requirement 2
The balance of the Investments account on December 31 is $96,000, equal to the
Problem D-2A (LO D-3)
Problem D-3A (LO D-5)
Requirement 2
January 1
Investments 133,984
Cash 133,984
June 30
Cash ($150,000 × 6% × ½) 4,500
Investments (difference) 189
December 31
Cash ($150,000 × 6% × ½) 4,500
Investments (difference) 196
Requirement 3
December 31
Cash 145,000
Gain (difference) 10,631
Investments 134,369
Problem D-4A (LO D-5)
Requirement 1
Investments……………………………………………….. 152,000
Cash………………………………………………………. 152,000
(Purchase bonds)
Requirement 2
Cash ($180,000 × 8% × ½)………………………….. 7,200
Investments……………………………………………….. 400
Requirement 3
Cash ($180,000 × 8% × ½)………………………….. 7,200
Investment………………………………………………… 420
Requirement 4
Since these are held-to-maturity securities, Justin Investor reports its investment
in the December 31, balance sheet at its amortized cost – that is, its book value:
Increases and decreases in the fair value between the time a debt security is
acquired and the day it matures are relatively unimportant if sale before
maturity isn’t an alternative. For this reason, if an investor has the intent to hold
Requirement 4
Bond prices move in the opposite direction of market interest rates. Since bond prices
Requirement 1
February 2 Debit Credit
Investments 52,500
Cash 52,500
(Purchase common stock)
February 4
Investments 19,200
Cash 19,200
(Purchase preferred stock)
July 15
Cash (400 shares ×$40) 16,000
November 30
Cash 2,290
Dividend Revenue 2,290
Requirement 1 (concluded)
December 31
Unrealized Holding Loss–Other Comprehensive Income 4,400
Investments 4,400
December 31
Unrealized Holding Loss–Other Comprehensive Income 1,200
Investments 1,200
PROBLEMS: SET B
Problem D-1B (LO D-2)
Problem D-1B (concluded)
($ in millions)
Purchase: Debit Credit
Investments 52
Cash 52
(Purchase common stock)
Net income:
Investments 2.7
Equity Income 2.7
Dividends:
Cash 1.5
Investments 1.5
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 $ 419,422
Requirement 2
Requirement 2
The balance of the Investments account on December 31 is $52,100, equal to the
Problem D-2B (LO D-3)
Problem D-3B (LO D-5)
January 1
Investments 419,422
Cash 419,422
(Purchase bonds)
June 30
Cash ($450,000 × 7% × ½) 15,750
Investments (difference) 1,027
December 31
Cash ($450,000 × 7% × ½) 15,750
Investments (difference) 1,068
Requirement 3
December 31
Cash 415,000
Loss (difference) 6,517
Investments 421,517
Problem D-4B (LO D-5)
Requirement 1
Investments……………………………………………….. 124,728
Requirement 2
Cash ($130,000 × 7% × ½)………………………….. 4,550
Investments……………………………………………….. 439
Requirement 3
Cash ($130,000 × 7% × ½)………………………….. 4,550
Investments……………………………………………….. 457
Requirement 4
Since these are held-to-maturity securities, Tsunami Sushi reports its investment
in the December 31, balance sheet at its amortized cost – that is, its book value:
Increases and decreases in the fair value between the time a debt security is
acquired and the day it matures are relatively unimportant if sale before
maturity isn’t an alternative. For this reason, if an investor has the intent to hold
Requirement 4
Bond prices move in the opposite direction of market interest rates. Since bond