Problem 15-6AA (60 minutes)
Part 1
2013
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)
Oct. 14
Accounts Receivable⎯Smithers …………………………..
27,675
Sales …………………………………………………….…
27,675
(19,000£ x $1.4566/£)
Nov. 18
Cash …………………………………………………………..………………….
13,800
Foreign Exchange Loss ………………………………………………….
300
Accounts Receivable⎯Sumito ……………….………….
14,100
(1,500,000 yen x $0.0092/yen)
Dec. 20
Accounts Receivable⎯Hamid Albar …………….…………….
7,652
Sales …………………………………………………….…
7,652
(17,000 ringgits x $0.4501/ringgits)
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
Year-end measure = (17,000 ringgits x $0.4456/ ringgits) = 7,575
Loss for the period ……………………………………… = $ 77
2014
Jan. 12
Cash* ………………………………………………………….………………….
27,928
Accounts Receivable⎯Smithers** ………….……………….
27,778
Foreign Exchange Gain …………………………..
150
*(19,000£ x $1.4699/£) **($27,675 + $103)
Jan. 19
Cash* ………………………………………………………….………………….
7,514
Foreign Exchange Loss ………………………………………………….
61
Accounts Receivable⎯Hamid Albar** …….………………….
7,575
*(17,000 ringgits x $0.4420/ ringgits) **($7,652 – $77)
Fundamental Accounting Principles, 21st Edition
896
Problem 15-6AA (Continued)
Part 2
Foreign exchange loss reported on the 2013 income statement
November 18 ………………………………...
$(300)
December 31………………………………….
103
December 31………………………………….
(77)
Total ……………………………………………...
$(274)
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.
PROBLEM SET B
Problem 15-1B (60 minutes)
Part 1
2013
Mar. 10
Short-Term Investments—Trading (AOL) ………….
143,505
Cash …………………………………………………….
143,505
Purchased AOL shares
[(2,400 x $59.15) + $1,545].
May 7
Short-Term Investments—Trading (MTV) ………
184,105
Cash …………………………………………………….
184,105
Purchased MTV shares
[(5,000 x $36.25) + $2,855].
Sept. 1
Short-Term Investments—Trading (UPS) ………
69,950
Cash …………………………………………………….
69,950
Purchased UPS shares
[(1,200 x $57.25) + $1,250].
2014
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].
27
Cash ………………………………………………………….
70,812
Gain on Sale of Short-Term Investments .
862
Short-Term Investments—Trading (UPS) …
69,950
Sold UPS shares [(1,200 x $60.50) – $1,788].
June 2
Short-Term Investments—Trading (SPW) …………
622,450
Cash …………………………………………………….
622,450
Purchased SPW shares
[(3,600 x $172.00) + $3,250].
14
Short-Term Investments—Trading (W-M) ………
46,307
Cash …………………………………………………….
46,307
Purchased Wal-Mart shares
[(900 x $50.25) + $1,082].
Fundamental Accounting Principles, 21st Edition
898
Problem 15-1B (Concluded)
2015
Jan. 28
Short-Term Investments—Trading (Pepsi) …..…
88,890
Cash …………………………………………………..…
88,890
Purchased PepsiCo shares
[(2,000 x $43.00) + $2,890].
31
Cash ………………………………………………………..…
602,760
Loss on Sale of Short-Term Investments …..…
19,690
Short-Term Investments—Trading (SPW) ……
622,450
Sold SPW shares [(3,600 x $168) – $2,040].
Aug. 22
Cash ………………………………………………………..…
133,720
Loss on Sale of S-T Investments ……………….…
9,785
Short-Term Investments—Trading (AOL) ……
143,505
Sold AOL shares [(2,400 x $56.75) – $2,480].
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
Sold Wal-Mart shares
[(900 x $53.75) – $1,220].
Part 2 (Adjusting entry at December 31, 2015)
Dec. 31
Unrealized Loss—Income ………………………………..
13,820
Fair Value Adjustment—Trading* …………..
13,820
To reflect an unrealized loss in fair values of
trading securities.
* Fair value adjustment computations
Trading Securities’
Portfolio
Shares
Price at
12/31/15
Fair
Value
Cost
Unrealized
Gain (Loss)
PepsiCo …………….………..
2,000
$41.00
$ 82,000
$ 88,890
$ (6,890)
Vodaphone …………………..
1,500
$37.00
55,500
62,430
(6,930)
Totals ……………….………..
$137,500
$151,320
$(13,820)
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].
15
Short-Term Investments—AFS (T-bills) ………..
20,000
Cash …………………………………………………...
20,000
Purchased U.S. Treasury bills.
Apr. 7
Short-Term Investments—AFS (Dell) …………..
48,655
Cash …………………………………………………...
48,655
Purchased 1,200 shares of Dell
[(1,200 x $39.50) + $1,255].
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).
Aug. 11
Cash* ……………………………………………………….
38,050
Gain on Sale of Short-Term Investments ….
2,237
Short-Term Investments—AFS (Nokia)** ….
35,813
Sold 850 shares of Nokia. (rounded)
* [(850 x $46.00) – $1,050] **($143,250 x 850/3,400)
16
Cash ………………………………………………………...
20,600
Short-Term Investments—AFS (T-bills) ……..
20,000
Interest Revenue* …………………………………...
600
Proceeds of U.S. Treasury bills.
*($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).
Dec. 18
Cash ………………………………………………………….
180
Dividend Revenue …………………………………..
180
Received dividends on Dell stock (1,200 x $0.15).
Fundamental Accounting Principles, 21st Edition
900
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
2,550 x $40.25 (rounded) ……… $102,638
Dell (1,200 x $39.50) + $1,255b ……… 48,655
1,200 x $40.50 ……………………. 48,600
Part 3
Dec. 31
Unrealized Loss—Equity ……………………………………..
41,494
Fair Value Adjustment—AFS (ST) ……………….
41,494
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 $340,232 and show a subtraction of $41,494
Part 5
(a) Income statement
(i) Interest Revenue, $600
(ii) Dividend Revenue, $1,456 [$646 + $120 + $510 + $180]
Problem 15-3B (60 minutes)
Part 1
2013
Mar. 10
Long-Term Investments—AFS (Apple) …………………………..
31,400
Cash ……………………………………………………….
31,400
Purchased Apple shares
[(1,200 x $25.50) + $800].
April 7
Long-Term Investments—AFS (Ford) ……………..……………
57,283
Cash ……………………………………………………….
57,283
Purchased Ford shares
[(2,500 x $22.50) + $1,033].
Sept. 1
Long-Term Investments—AFS (Polaroid) ………..………………..
29,090
Cash ……………………………………………………….
29,090
Purchased Polaroid shares
[(600 x $47.00) + $890].
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
Ford …………….…….
57,283
52,500
Polaroid ……….…….
29,090
29,400
Total…………….…….
$117,773
$114,900
Apple: 1,200 x $27.50 = $33,000
Ford: 2,500 x $21.00 = 52,500
Polaroid: 600 x $49.00 = 29,400
$117,773 – $114,900 = $2,873
Fundamental Accounting Principles, 21st Edition
902
Problem 15-3B (Continued)
2014
Apr. 26
Cash ………………………………………………………………………………
50,043
Loss on Sale of Investments ……………………..……
7,240
Long-Term Investments—AFS (Ford) …….……………………
57,283
Sold Ford shares
[(2,500 x $20.50) – $1,207].
June 2
Long-Term Investments—AFS (Duracell) ……..……………………
35,700
Cash ……………………………………………………….
35,700
Purchased Duracell shares
[(1,800 x $19.25) + $1,050].
June 14
Long-Term Investments—AFS (Sears) …………………………..
25,480
Cash …………………………………………………..…..
25,480
Purchased Sears shares
[(1,200 x $21.00) + $280].
Nov. 27
Cash ………………………………………………………..……………………
29,755
Gain on Sale of Investments ………………..…………
665
Long-Term Investments—AFS (Polaroid) ………………………
29,090
Sold Polaroid shares
[600 x $51.00) – $845].
Dec. 31
Fair Value Adjustment—AFS (LT)* …………………………..
5,093
Unrealized Loss—Equity …………………………..
2,873
Unrealized Gain—Equity ……………………….….
2,220
Annual adjustment to fair values.
*
Cost _
Fair Value
Apple ………..
$31,400
$34,800
Duracell …….
35,700
32,400
Sears ………..
25,480
27,600
Total …………
$92,580
$94,800
Apple: 1,200 x $29.00 = $34,800
Duracell: 1,800 x $18.00 = $32,400
Sears: 1,200 x $23.00 = $27,600
$92,580 – $94,800 = $2,220
Fair Value Adjustment account:
Required balance ….. $2,220 Dr.
Unadjusted balance.. 2,873 Cr.
Required change …… $5,093 Dr.
Problem 15-3B (Continued)
2015
Jan. 28
Long-Term Investments—AFS (Coca-Cola) ……..………………..
41,480
Cash ……………………………………………………….
41,480
Purchased Coca-Cola shares
[(1,000 x $40.00) + $1,480].
Aug. 22
Cash ……………………………………………………………………………..
23,950
Loss on Sale of Investments …………………………..
7,450
Long-Term Investments—AFS (Apple) ………………………..
31,400
Sold Apple shares [(1,200 x $21.50) – $1,850].
Sept. 3
Long-Term Investments—AFS (Motorola) ………..………………..
84,780
Cash ……………………………………………………….
84,780
Purchased Motorola shares
[(3,000 x $28) + $780].
Oct. 9
Cash ……………………………………………………………………………..
28,201
Gain on Sale of Investments …………………..………
2,721
Long-Term Investments—AFS (Sears) ……….………………..
25,480
Sold Sears shares [(1,200 x $24.00) – $599].
Oct. 31
Cash ……………………………………………………………………………..
26,102
Loss on Sale of Investments ………………………..…
9,598
Long-Term Investments—AFS (Duracell) ……………………..
35,700
Sold Duracell shares [(1,800 x $15.00) – $898].
Dec. 31
Unrealized Gain⎯Equity ……………………………….………………..
2,220
Unrealized Loss⎯Equity ………………………………………………..
6,260
Fair Value Adjustment—AFS (LT)* ……………..……………
8,480
Annual adjustment to fair values.
*
Cost _
Fair Value
Coca-Cola …………………...
$ 41,480
$ 48,000
Motorola ……………………...
84,780
72,000
Total…………………………….
$126,260
$120,000
Coca-Cola: 1,000 x $48.00 = $48,000
Motorola: 3,000 x $24.00 = $72,000
$126,260 – $120,000 = $6,260
Fair Value Adjustment account:
Required balance …… $6,260 Cr.
Unadjusted balance .. 2,220 Dr.
Required change ……. $8,480 Cr.
Fundamental Accounting Principles, 21st Edition
904
Problem 15-3B (Concluded)
Part 2
12/31/2013
12/31/2014
12/31/2015
Long-Term AFS Securities (cost)…………...
$117,773
$92,580
$126,260
Fair Value Adjustment ……………………...
(2,873)
2,220
(6,260)
Long-Term AFS Securities (fair value) …...
$114,900
$94,800
$120,000
Part 3
2013
2014
2015
Realized gains (losses)
Sale of Ford shares ………………………….
$(7,240)
Sale of Polaroid shares …………………….
665
Sale of Duracell shares …………………….
$ (9,598)
Sale of Apple shares ………………………..
(7,450)
Sale of Sears shares ………………………..
______
______
2,721
Total realized gain (loss) ……………………
$ 0
$(6,575)
$(14,327)
Unrealized gains (losses) at year–end …
$(2,873)
$ 2,220
$ (6,260)
Problem 15-4B (40 minutes)
Part 1
Available–for-sale securities on December 31, 2013
Security
Cost
Fair Value
27,500 shares of Company R common stock ……..…..
$559,125
$568,125
6,375 shares of Company S common stock ……..…..
231,285
210,375
42,500 shares of Company V common stock ……..…..
135,000
134,938
5,000 shares of Company X common stock ……..…..
49,920
45,625
$975,330
$959,063
Disclosure
The portfolio of available–for-sale securities would be reported on the
December 31, 2013, balance sheet at its fair fair value of $959,063.
Part 2
Dec. 31
Unrealized Loss⎯Equity ……………………………….……………….
16,267
Unrealized Gain⎯Equity ………………………………..……………….
29,313
Fair Value Adjustment—AFS (LT)* …………………………..
45,580
*December 31, 2012, available-for-sale securities:
Cost
Fair Value
$ 559,125
$ 599,063
308,380
293,250
147,295
151,800
$1,014,800
$1,044,113
December 31, 2013, adjustment to the Fair Value Adjustment account:
$1,014,800 – $1,044,113 = $29,313 Dr. balance on Dec. 31, 2012
$ 975,330 – $ 959,063 = 16,267 Cr. balance required on Dec. 31, 2013
$45,580 Cr. to adjust cost to fair value
Part 3
Only gains or losses realized on the sale of available-for-sale securities
in the equity section of the balance sheet.
Year 2013 realized gain (loss)
Stock Sold
Cost
Sale
Gain (Loss)
2,125 shares of Company S stock ……..
$ 77,095
$ 71,055
$(6,040)
11,000 shares of Company T stock ……..
147,295
154,050
6,755
Realized gain (loss) …………………………….
$ 715
Fundamental Accounting Principles, 21st Edition
906
Problem 15-5B (50 minutes)
Part 1
1. Journal entries (assuming significant influence)
2013
Jan. 5
Long-Term Investments—Bloch ………………..…………
200,500
Cash ……………………………………………………….
200,500
Purchased Bloch shares.
Aug. 1
Cash ………………………………………………………………………………
21,000
Long–Term Investments—Bloch ……………….………….
21,000
Received cash dividend (20,000 x $1.05).
Dec. 31
Long-Term Investments—Bloch ………………..…………
20,500
Earnings from Long-Term Investment ….……………………
20,500
Record equity in investee’s earnings
($82,000 x 25%).
2014
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
Earnings from Long-Term Investment ….……………………
19,500
Record equity in investee’s earnings
($78,000 x 25%).
2015
Jan. 8
Cash ………………………………………………………………………………
375,000
Long-Term Investments—Bloch* ………….……………….
192,500
Gain on Sale of Investments ………………..…………
182,500
Sold Bloch shares.
*Investment carrying value at Jan. 7, 2015
Original cost ………………………………..….
$200,500
Less 2013 dividends …………………….….
(21,000)
Plus 2013 earnings ………………………….
20,500
Less 2014 dividends …………………….….
(27,000)
Plus 2014 earnings ………………………….
19,500
Carrying value at date of sale ……….….
$192,500
Problem 15-5B (Continued)
2. Carrying value per share (see computations in part 1)
3. Change in Brinkley’s equity
Earnings from Bloch-2013 …………………………..
$ 20,500
Earnings from Bloch-2014 …………………………..
19,500
Gain on sale of investments ………………………….
182,500
Net increase ……………………………………………..….
$222,500
Part 2
1. Journal entries (assuming NO significant influence)
2013
Jan. 5
Long-Term Investments—AFS (Bloch) ……….………………….
200,500
Cash ……………………………………………………….
200,500
Purchased Bloch shares.
Aug. 1
Cash ………………………………………………………………………………
21,000
Dividend Revenue ……………………………….……………………
21,000
Received cash dividend (20,000 x $1.05).
Dec. 31
Fair Value Adjustment—AFS (LT)* ……………..……………
37,500
Unrealized Gain—Equity …………………………..
37,500
Record fair value adjustment.
*20,000 x $11.90 = $238,000
$238,000 – $200,500 = $37,500