Fundamental Accounting Principles, 21st Edition
880
Exercise 15-14 (15 minutes)
2013 return on total assets 2014 return on total assets
Regae Industries appears to be less efficient in the use of its total assets in
2014 than in 2013 as suggested by the decline in return on total assets
from 14.0% to 10.9%. However, without additional information, it is not
Exercise 15-15A (25 minutes)
2013
Dec. 16
Accounts Receivable⎯Bronson Ltd. ……..………………
24,791
Sales ……………………………………………….………
24,791
Record credit sales (17,000 x $1.4583).
Dec. 31
Foreign Exchange Loss* ………………………..…
342
Accounts Receivable⎯Bronson Ltd …………………
342
Record year-end adjustment.
*Original measure = (17,000 x $1.4583) = $24,791
Year-end measure = (17,000 x $1.4382) = 24,449
Loss for the period = $ 342
2014
Jan. 15
Cash (17,000 x $1.4482) …………………………..
24,619
Accounts Receivable⎯Bronson Ltd. ..………………
24,449
Foreign Exchange Gain* …………………..………
170
Record cash receipt on account.
*Year-end measure = (17,000 x $1.4382) = $24,449
Final measure = (17,000 x $1.4482) = 24,619
Gain for the period = $ 170
($210,000 + $340,000)/2
($340,000 + $770,000)/2
Exercise 15-16A (25 minutes)
$105,840
108,160
$ 2,320
$108,160
109,440
$ 1,280
$109,440
106,800
$ 2,640
$106,800
110,880
$ 4,080
Fundamental Accounting Principles, 21st Edition
882
Exercise 15-17 (15 minutes)
1. Accounting for available–for-sale securities (and as explained in
Carrefour’s description of these securities), implies that any
2. The entirety of the € 18 million net unrealized losses on available-for-
PROBLEM SET A
Problem 15-1A (60 minutes)
Part 1
2013
Jan. 20
Short-Term Investments—Trading (Ford) …………....
20,925
Cash ……………………………………………………….
20,925
Purchased Ford Motor Co.
shares [(800 x $26.00) + $125].
Feb. 9
Short-Term Investments—Trading (Lucent) …...
97,928
Cash ……………………………………………………….
97,928
Purchased Lucent shares
[(2,200 x $44.25) + $578].
Oct. 12
Short-Term Investments—Trading (Z-Seven) …..
5,825
Cash ……………………………………………………….
5,825
Purchased Z-Seven shares
[(750 x $7.50) + $200].
2014
Apr. 15
Cash …………………………………………………………….
22,915
Gain on Sale of Short-Term Investments ….
1,990
Short-Term Investments—Trading (Ford) …..
20,925
Sold Ford Motor shares
[(800 x $29.00) – $285].
July 5
Cash …………………………………………………………….
7,585
Gain on Sale of Short-Term Investments ….
1,760
Short-Term Investments—Trading (Z-Seven) ...
5,825
Sold Z-Seven shares
[(750 x $10.25) – $102.50].
22
Short-Term Investments—Trading (Hunt) ………..
48,444
Cash ……………………………………………………….
48,444
Purchased Hunt shares
[(1,600 x $30.00) + $444].
Aug. 19
Short-Term Investments—Trading (D.Karan)…...
33,140
Cash ……………………………………………………….
33,140
Purchased Donna Karan shares
[(1,800 x $18.25) + $290].
Fundamental Accounting Principles, 21st Edition
884
Problem 15-1A (Concluded)
2015
Feb. 27
Short-Term Investments—Trading (HCA) …………....
116,020
Cash ……………………………………………………….
116,020
Purchased HCA shares
[(3,400 x $34.00) + $420].
Mar. 3
Cash …………………………………………………………….
39,750
Loss on Sale of Short-Term Investments …………....
8,694
Short-Term Investments—Trading (Hunt) …..
48,444
Sold Hunt shares [(1,600 x $25.00) – $250].
June 21
Cash …………………………………………………………….
91,980
Loss on Sale of Short-Term Investments ……...
5,948
Short-Term Investments—Trading (Lucent) ….
97,928
Sold Lucent shares [(2,200 x $42.00) – $420].
30
Short-Term Investments—Trading (B&D) ………..
57,595
Cash ……………………………………………………….
57,595
Purchased Black & Decker shares
[(1,200 x $47.50) + $595].
Nov. 1
Cash …………………………………………………………….
32,541
Loss on Sale of Short-Term Investments ……...
599
Short-Term Investments—Trading (D.Karan) ….
33,140
Sold Donna Karan shares
[(1,800 x $18.25) – $309].
Part 2 (Adjusting entry at Dec. 31, 2015)
Dec. 31
Fair Value Adjustment—Trading* …………………………
985
Unrealized Gain—Income ………………………………
985
To reflect an unrealized gain in fair values of
trading securities.
* Fair Value adjustment computations
Trading securities’
portfolio
Shares
Share Price
at 12/31/15
Fair
Value
Cost
Unrealized
Gain (Loss)
HCA …………………..………
3,400
$36.00
$122,400
$116,020
$ 6,380
Black and Decker ….……….
1,200
$43.50
52,200
57,595
(5,395)
Totals………………………….
$174,600
$173,615
$ 985
Problem 15-2A (40 minutes)
Part 1
2013
Apr. 16
Short-Term Investments—AFS (Gem) …………….………
97,180
Cash …………………………………………………………………….
97,180
Purchased 4,000 shares of Gem
[(4,000 x $24.25) + $180].
May. 1
Short-Term Investments—AFS (T-bills) …………..………
100,000
Cash ……………………………………………………….
100,000
Purchased U.S. Treasury bills.
July 7
Short-Term Investments—AFS (Pepsi) ……………………
98,675
Cash ……………………………………………………….
98,675
Purchased 2,000 shares of PepsiCo
[(2,000 x $49.25) + $175].
20
Short-Term Investments—AFS (Xerox) ……………………
16,955
Cash ……………………………………………………….
16,955
Purchased 1,000 shares of Xerox
[(1,000 x $16.75) + $205].
Aug. 3
Cash …………………………………………………………….………
101,500
Short-Term Investments—AFS (T-bills) ……..………
100,000
Interest Revenue ………………………………………………….
1,500
Proceeds of U.S. Treasury bills
($100,000 x .06 x 3/12).
15
Cash ………………………………………………………………………….
3,400
Dividend Revenue …………………………………..………
3,400
Received dividends on Gem (4,000 x $0.85).
28
Cash* ………………………………………………………………..……….
59,775
Short-Term Investments—AFS (Gem)** ……..………
48,590
Gain on Sale of Short-Term Investments ….………
11,185
Sold 2,000 shares of Gem.
*(2,000 x $30) – $225 **($97,180 x 2,000/4,000)
Oct. 1
Cash ……………………………………………………………………
3,800
Dividend Revenue …………………………………..…
3,800
Received dividends on PepsiCo (2,000 x $1.90).
Dec. 15
Cash …………………………………………………………….…
2,100
Dividend Revenue …………………………………..…
2,100
Received dividends on Gem (2,000 x $1.05).
31
Cash …………………………………………………………….…
2,600
Dividend Revenue …………………………………..…
2,600
Received dividends on PepsiCo (2,000 x $1.30).
Fundamental Accounting Principles, 21st Edition
886
Problem 15-2A (Continued)
Part 2
Comparison of Cost and Fair Values for AFS Portfolio
Unrealized
Cost Fair Value Gain (Loss)
Gem Co. (2,000 x $24.25) + 90a …………… $ 48,590
2,000 x $26.50 ……………………. $ 53,000
PepsiCo (2,000 x $49.25) + 175b …………. 98,675
2,000 x $46.50 ……………………. 93,000
Part 3
Dec. 31
Unrealized Loss⎯Equity ………………………………………...
4,470
Fair Value Adjustment—AFS (ST) ………………...
4,470
To reflect an unrealized loss in fair values of
available-for-sale securities.
Part 4
The balance sheet would report the cost of these short-term investments in
available-for–sale securities at $164,220 and show a subtraction of $4,470
Part 5
(a) Income statement
(i) Interest Revenue, $1,500
(ii) Dividend Revenue, $11,900 [$3,400 + $3,800 + $2,100 + $2,600]
(iii) Gain on Sale of Short-Term Investments, $11,185
(iv) Net effect on income is $24,585
Problem 15-3A (60 minutes)
Part 1
2013
Jan. 20
Long-Term Investments—AFS (J&J) ………………………..
20,740
Cash ………………………………………………………………..
20,740
Purchased Johnson & Johnson
shares [(1,000 x $20.50) + $240].
Feb. 9
Long-Term Investments—AFS (Sony) ………………..……..
55,665
Cash ………………………………………………………………..
55,665
Purchased Sony shares
[(1,200 x $46.20) + $225].
June 12
Long-Term Investments—AFS (Mattel) …………………………..
40,695
Cash …………………………………………………………………………
40,695
Purchased Mattel shares
[(1,500 x $27.00) + $195].
Dec. 31
Unrealized Loss⎯Equity ………………………………..……..
3,650
Fair Value Adjustment—AFS (LT)* ……………………..
3,650
Annual adjustment to fair values.
*
Cost
Fair Value
J & J ……………...
$ 20,740
$ 21,500
Sony ……………...
55,665
45,600
Mattel …………....
40,695
46,350
Total ……………...
$117,100
$113,450
J & J: 1,000 x $21.50 = $21,500
Sony: 1,200 x $38.00 = $45,600
Mattel: 1,500 x $30.90 = $46,350
Fair Adj.: $117,100 – $113,450 = $3,650
Fundamental Accounting Principles, 21st Edition
888
Problem 15-3A (Continued)
2014
Apr. 15
Cash ………………………………………………………………………………
22,975
Gain on Sale of Investments ………………………..…
2,235
Long-Term Investments—AFS (J&J) …………………………..
20,740
Sold Johnson & Johnson shares
[(1,000 x $23.50) – $525].
July 5
Cash ………………………………………………………………………………
35,615
Loss on Sale of Investments ……………………………..……………
5,080
Long-Term Investments—AFS (Mattel) …………………………
40,695
Sold Mattel shares [(1,500 x $23.90) – $235].
July 22
Long-Term Investments—AFS (Sara Lee) …………………………..
13,980
Cash …………………………………………………………………………
13,980
Purchased Sara Lee shares
[(600 x $22.50) + $480].
Aug. 19
Long-Term Investments—AFS (Eastman Kodak) ……..……………
15,498
Cash …………………………………………………………………………
15,498
Purchased Eastman Kodak shares
[(900 x $17.00) + $198].
Dec. 31
Unrealized Loss⎯Equity …………………………………..……………
10,168
Fair Value Adjustment—AFS (LT)* ………………….……….
10,168
Annual adjustment to fair values.
*
Cost
Fair Value
Kodak ……………....
$15,498
$17,325
Sara Lee …………...
13,980
12,000
Sony ………………...
55,665
42,000
Total ………………...
$85,143
$71,325
Kodak: 900 x $19.25 = $17,325
Sara Lee: 600 x $20.00 = $12,000
Sony: 1,200 x $35.00 = $42,000
$85,143 – $71,325 = $13,818
Fair Value Adjustment account:
Required balance ….. $13,818 Cr.
Unadjusted balance.. 3,650 Cr.
Required change…… $10,168 Cr.
Problem 15-3A (Continued)
2015
Feb. 27
Long-Term Investments—AFS (Microsoft) …………..………………
161,325
Cash ………………………………………………………..………………
161,325
Purchased Microsoft shares
[(2,400 x $67.00) + $525].
June 21
Cash ……………………………………………………………..………………
56,720
Gain on Sale of Investments ……………………..……
1,055
Long-Term Investments—AFS (Sony) ………….………………
55,665
Sold Sony shares [(1,200 x $48.00) – $880].
June 30
Long-Term Investments—AFS (Black & Decker) ……………………
50,835
Cash ………………………………………………………..………………
50,835
Purchased Black & Decker shares
[(1,400 x $36.00) + $435].
Aug. 3
Cash ……………………………………………………………..………………
9,315
Loss on Sale of Investments …………………………..
4,665
Long-Term Investments—AFS (Sara Lee) ………………………
13,980
Sold Sara Lee shares
[(600 x $16.25) – $435].
Nov. 1
Cash ……………………………………………………………..………………
19,850
Gain on Sale of Investments …………………….…….
4,352
Long-Term Investments—AFS (E. Kodak) ……..………………
15,498
Sold Eastman Kodak shares
[(900 x $22.75) – $625].
Dec. 31
Fair Value Adjustment—AFS (LT)* …………………………..
21,858
Unrealized Loss—Equity …………………………..
13,818
Unrealized Gain—Equity ……………………………………………
8,040
Annual adjustment to fair values.
*
Cost
Fair Value
Black & Decker ……………..
$ 50,835
$ 54,600
Microsoft ………………………
161,325
165,600
Total……………………………..
$212,160
$220,200
Black & Decker: 1,400 x $39.00 = $ 54,600
Microsoft: 2,400 x $69.00 = $165,600
$212,160 – $220,200 = $8,040 (fair value exceeds cost)
Fair Value Adjustment account:
Required balance ………… $ 8,040 Dr.
Unadjusted balance……… 13,818 Cr.
Required change …………. $21,858 Dr.
Fundamental Accounting Principles, 21st Edition
890
Problem 15-3A (Concluded)
Part 2
12/31/2013
12/31/2014
12/31/2015
Long-Term AFS Securities (cost)……………....
$117,100
$85,143
$212,160
Fair Value Adjustment ………………………....
(3,650)
(13,818)
8,040
Long-Term AFS Securities (fair value) ……....
$113,450
$71,325
$220,200
Part 3
2013
2014
2015
Realized gains (losses)
Sale of Johnson & Johnson shares …….
$ 2,235
Sale of Mattel shares …………………………..
(5,080)
Sale of Sara Lee shares ……………………...
$(4,665)
Sale of Sony shares …………………………..
1,055
Sale of Eastman Kodak shares …………...
______
_______
4,352
Total realized gain (loss) ……………………...
$ 0
$ (2,845)
$ 742
Unrealized gains (losses) at year–end*…..
$(3,650)
$(13,818)
$ 8,040
* Equals the balance of the Fair Value Adjustment account.
Problem 15-4A (40 minutes)
Part 1
Available–for-sale securities on December 31, 2013
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
4,500 shares of Company X common stock …….…….
128,312
118,125
8,500 shares of Company Z common stock …….…….
270,350
278,800
$1,141,102
$1,088,612
Disclosure
The portfolio of available-for-sale securities would be reported on the
December 31, 2013, balance sheet at its fair value of $1,088,612.
Part 2
Dec. 31
Fair Value Adjustment—AFS* ………………………..…
20,002
Unrealized Loss—Equity …………………………..
20,002
Adjustment to fair value for AFS securities..
* December 31, 2012, available-for-sale securities
Cost _
Fair Value
$ 535,300
$ 490,000
159,380
154,000
662,750
640,938
$1,357,430
$1,284,938
December 31, 2013, adjustment to the Fair Value Adjustment account:
$1,357,430 – $1,284,938 = $ 72,492 Cr. balance on Dec. 31, 2012
$1,141,102 – $1,088,612 = 52,490 Cr. balance required on Dec. 31, 2013
$ 20,002 Dr. to adjust cost to fair value
Part 3
Only gains or losses realized on the sale of available-for-sale securities
Year 2013 realized gains (losses)
Stock Sold
Cost
Sale
Gain (Loss)
3,500 shares of Company B stock ………...
$ 79,690
$ 77,688
$ (2,002)
40,000 shares of Company A stock ……....
535,300
510,900
(24,400)
Realized gain (loss) ……………………………..
$(26,402)
Fundamental Accounting Principles, 21st Edition
892
Problem 15-5A (30 minutes)
Part 1
1. Journal entries (assuming significant influence)
2013
Jan. 5
Long-Term Investments—Kildaire …………………………..
1,560,000
Cash ……………………………………………………….
1,560,000
Purchased Kildaire shares.
Oct. 23
Cash ………………………………………………………………………………
192,000
Long-Term Investments—Kildaire …………………………..
192,000
Received cash dividend (60,000 x $3.20).
Dec. 31
Long-Term Investments—Kildaire …………………………..
232,800
Earnings from Long-Term Investment ….……………………
232,800
Record equity in investee earnings
($1,164,000 x 20%).
2014
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%).
2015
Jan. 2
Cash ………………………………………………………………………………
1,894,000
Gain on Sale of Investments …………………………..
154,000
Long-Term Investments—Kildaire* ………….……………….
1,740,000
Sold Kildaire shares.
* Investment carrying value, January 2, 2015
Original cost ……………………………………..
$1,560,000
Less 2013 dividends ………………………....
(192,000)
Plus 2013 earnings …………………………..
232,800
Less 2014 dividends ………………………....
(156,000)
Plus 2014 earnings …………………………..
295,200
Carrying value at date of sale ……………..
$1,740,000
Problem 15-5A (Continued)
2. Carrying value per share, January 1, 2015 (see computations in part 1)
$1,740,000 / 60,000 shares = $29
3. Change in Selk’s equity due to stock investment
Earnings from Kildaire (2013) …………………….…….
$232,800
Earnings from Kildaire (2014) …………………….…….
295,200
Gain on sale of investments …………………………..
154,000
Net increase ……………………………………………..………..
$682,000
Part 2
1. Journal entries (assuming NO significant influence)
2013
Jan. 5
Long-Term Investments—AFS (Kildaire) ……….………………….
1,560,000
Cash ……………………………………………………….
1,560,000
Purchased Kildaire shares.
Oct. 23
Cash ………………………………………………………………………………
192,000
Dividend Revenue ……………………………….……………………
192,000
Received cash dividend (60,000 x $3.20).
Dec. 31
Fair Value Adjustment—AFS (LT)* ……………..……………
240,000
Unrealized Gain—Equity …………………………..
240,000
Record fair value adjustment.
*60,000 x $30.00 = $1,800,000
$1,800,000 – $1,560,000 = $240,000
2014
Oct. 15
Cash ………………………………………………………………………………
156,000
Dividend Revenue ……………………………….……………………
156,000
Received cash dividends (60,000 x $2.60).
Dec. 31
Fair Value Adjustment—AFS (LT)* ……………..……………
120,000
Unrealized Gain—Equity …………………………..
120,000
Record fair value adjustment.
*60,000 x $32.00 = $1,920,000
$1,920,000 – $1,560,000 = $360,000
$360,000 – $240,000 = $120,000
Fundamental Accounting Principles, 21st Edition
894
Problem 15-5A (Concluded)
2015
Jan. 2
Cash ………………………………………………………………………………
1,894,000
Long-Term Investments—AFS (Kildaire) ….……………………
1,560,000
Gain on Sale of Investments ………………..…………
334,000
Sold Kildaire shares.
Jan. 2
Unrealized Gain—Equity …………………………………………………
360,000
Fair Value Adjustment—AFS (LT) …………………………..
360,000
To remove fair value adjustment and related
accounts ($240,000 + $120,000 = $360,000).
2. Investment cost per share, January 1, 2015
3. Change in Selk’s equity due to stock investment
Dividend Revenue (2013) ………………………….
$192,000
Dividend Revenue (2014) ………………………….
156,000
Gain on sale of investments ……………………..
334,000
Net increase …………………………………………….
$682,000