Financial & Managerial Accounting, 5th Edition
1434
Problem C-5B (Concluded)
2014
Aug. 1
Cash ………………………………………………………………………………
27,000
Dividend Revenue ……………………………….……………………
27,000
Received cash dividends (20,000 x $1.35).
Dec. 31
Fair Value Adjustment—AFS (LT)* ……………..……………
35,000
Unrealized Gain—Equity …………………………..
35,000
Record fair value adjustment.
*20,000 x $13.65 = $273,000
$273,000 – $200,500 = $72,500
$72,500 – $37,500 = $35,000
2015
Jan. 8
Cash ………………………………………………………………………………
375,000
Long-Term Investments—AFS (Bloch) ….……………………
200,500
Gain on Sale of Investments ………………..…………
174,500
Sold Bloch shares.
Jan. 8
Unrealized Gain—Equity …………………………………………………
72,500
Fair Value Adjustment—AFS (LT)* ………..…………………
72,500
To remove fair value adjustment and
related accounts.
*$37,500 + $35,000 = $72,500
2. Investment cost per share, January 7, 2015
3. Change in Brinkley’s equity
Dividend Revenue–2013 …………………………….….
$ 21,000
Dividend Revenue–2014 …………………………….….
27,000
Gain on sale of investments ………………………….
174,500
Net increase ……………………………………………..….
$222,500
Problem C-6BA (60 minutes)
Part 1
2013
May 26
Accounts Receivable—Fuji ……………………….….
60,450
Sales …………………………………………………..…..
60,450
(6,500,000 yen x $0.0093/yen)
June 1
Cash ………………………………………………………………………………
64,800
Sales …………………………………………………..…..
64,800
July 25
Cash* ………………………………………………………..……………………
59,800
Foreign Exchange Loss …………………………….……………………
650
Accounts Receivable—Fuji ………………….……….
60,450
*(6,500,000 yen x $0.0092/yen)
Oct. 15
Accounts Receivable—Martinez Brothers ….……………………
38,556
Sales …………………………………………………..…..
38,556
(378,000 pesos x $0.1020/peso)
Dec. 6
Accounts Receivable—Chi–Ying ………………..…………
35,975
Sales …………………………………………………..…..
35,975
(250,000 yuans x $0.1439/yuan)
Dec. 31
Accounts Receivable—Martinez Brothers …..……………………
1,512
Foreign Exchange Gain* …………………………..
1,512
Dec. 31
Accounts Receivable—Chi–Ying ………………..…………
275
Foreign Exchange Gain* …………………………..
275
Jan. 5
Cash* ………………………………………………………..……………………
39,500
Accounts Receivable—Chi-Ying** ………..…………………
36,250
Foreign Exchange Gain ……………………….….
3,250
Jan. 13
Cash* ………………………………………………………..……………………
39,274
Foreign Exchange Loss …………………………….……………………
Accounts Receivable—Martinez Bros** ….……………………
40,068
Financial & Managerial Accounting, 5th Edition
1436
Problem C-6BA (Concluded)
Part 2
Foreign exchange gain reported on 2013 income statement
July 25 …………………………………………....
$ (650)
December 31…………………………………...
1,512
December 31…………………………………...
275
Total ……………………………………………....
$1,137
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.
Serial Problem — SP C
Serial Problem, Success Systems (35 minutes)
Part 1
2014
April 16
Short-Term Investments—Trading (J&J) ……………...
20,300
Cash ……………………………………………………….
20,300
Purchased Johnson & Johnson shares
[(400 x $50) + $300].
30
Short-Term Investments—Trading (Starbucks) …....
4,650
Cash ……………………………………………………….
4,650
Purchased Starbucks shares
[(200 x $22) + $250].
Part 2 Adjusting entry at June 30, 2014
June 30
Fair Value Adjustment—Trading* …………………...
850
Unrealized Gain—Income ………………………....
850
To reflect an unrealized gain in fair values of
trading securities.
* Fair Value Adjustment computations
Trading securities’
portfolio
Shares
Share Price
at 6/30/2014
Fair
Value
Cost
Unrealized
Gain (Loss)
J & J ………………….
400
$55
$22,000
$20,300
$1,700
Starbucks……………
200
$19
3,800
4,650
(850)
Totals ………………..
$25,800
$24,950
$ 850
Reporting in Action — BTN C-1
2. Polaris’s comprehensive income for the year ended December 31, 2011,
Comparative Analysis — BTN C-2
1. Polaris’s return on total assets
2. Return on total assets = Profit margin x Total asset turnover
Polaris’s component analysis of return on total assets*
Current Year
19.9% = $227,575/$2,656,949 x$2,646,949/[($1,228,024 + $1,061,647)/ 2]
19.9% = 8.6% x 2.31
One Year Prior
Arctic Cat’s component analysis of return on total assets*
Current Year
*Figures are rounded.
Financial & Managerial Accounting, 5th Edition
1440
Comparative Analysis (Concluded)
3. Current Year Analysis: Polaris has the higher return on total assets
(19.9%) compared to Arctic Cat (5.0%), the higher profit margin (8.6%
Ethics Challenge — BTN C-3
1. Kasey’s bonus is not contingent on the classification of available-for-
sale versus held–to-maturity. Designation of the bonds as available–for–
2. Generally, Kasey must classify its debt securities as either short or long
term and as available–for-sale or held-to-maturity. Since the bonds are
5-year bonds they should be classified as long-term investments unless
management intends to sell them within the current year or operating
3. The company’s auditors (internal and external) and/or its board of
directors should serve as an effective check on Kasey’s accounting for
the company’s long-term investments in securities.
Communicating in Practice — BTN C-4
TO: Mary Jolee
FROM: (Your Name)
Taking It to the Net — BTN C-5
($ millions for Parts 1 through 4)
1. At June 30, 2011 (total cost-basis) ……………………………………………. $60,804
At June 30, 2010 (total cost-basis) ……………………………………………. $43,331
2. Mutual funds; Commercial paper; Certificates of deposit; U.S.
3. Unrealized gains = $3,052; and Unrealized losses = $(219).
4. Fair value (titled “recorded basis”) is greater. Specifically: Fair value
(recorded basis) is $63,637; and the cost basis is $60,804.
Teamwork in Action — BTN C-6
1.
2013
Jan. 1
Internet Rights …………………………………………...
106,920
Accounts Payable ………………………………...
106,920
Agreed to pay for Internet rights
12,000,000 yen x $0.00891/yen
2.
Mar. 31
Accounts Payable* ……………………………………..
26,730
Loss from Currency Translation………………....
60
Cash ……………………………………………………..
26,790
Paid ¼ of total amount due
*$106,920/4 **3,000,000 yen x $0.00893/yen
June 30
Accounts Payable ……………………………………...
26,730
Loss from Currency Translation………………....
300
Cash* …………………………………………………....
27,030
Paid ¼ of total amount due
*3,000,000 yen x $0.00901/yen
Sept. 30
Accounts Payable ……………………………………...
26,730
Loss from Currency Translation………………....
330
Cash* …………………………………………………....
27,060
Paid ¼ of total amount due
*3,000,000 yen x $0.00902/yen
Dec. 31
Accounts Payable ……………………………………...
26,730
Loss from Currency Translation………………....
180
Cash* …………………………………………………....
26,910
Paid ¼ of total amount due
*3,000,000 yen x $0.00897/yen
3. Since all of the company’s payments are to be in yen, the company can
buy yen in advance to “lock in” the payment amount.
NOTE: A few students might understand the company’s opportunity for hedging.
For example, this can involve selling foreign currency futures to be delivered at the
time that receivables from foreign customers will be collected.
Hitting the Road— BTN C-8A
1. Piaggio (Euro in thousands)
Return on total assets = Net Income / Average Total Assets
3.1% = 47,053/1,516,463 x 1,516,463/[(1,520,184 + 1,545,722)/2]
3.1% = 3.1% x 0.99
One Year Prior
2.8% = 42,811/1,485,351 x 1,485,351/[(1,545,722 + 1,564,820)/2]
2.8% = 2.9% x 0.96
2. (a) Current Year Analysis: Piaggio vs Polaris vs Arctic Cat
Return on total assets = Profit margin x Total asset turnover
Company
Return on total assets*
Profit margin
Total asset turnover
Polaris
19.9%
8.6%
2.31
Arctic Cat
5.0
2.8
1.79
Piaggio
3.1
3.1
0.99
Global Decision (Concluded)
2. (b) Prior Year Analysis: Piaggio vs Polaris vs Arctic Cat
Return on total assets = Profit margin x Total asset turnover
Company
Return on total assets*
Profit margin
Total asset turnover
Polaris
16.1%
7.4%
2.18
Arctic Cat
0.75
0.416
1.81
Piaggio
2.8
2.9
0.96