Type
Solution Manual
Book Title
Financial Accounting Fundamentals 5th Edition
ISBN 13
978-0078025754

978-0078025754 Appendix C Solution Manual Part 1

March 26, 2020
Appendix C
Investments and International Operations
QUESTIONS
1. To be classified as current assets, investments must be (i) capable of being
2. Short-term investments in trading securities are reported on the balance sheet at the
fair (market) value of the portfolio of trading securities.
3. The $2,000 difference between the proceeds ($12,000) and the cost ($10,000) is
4. The three classes of noninfluential investments in securities are:
a) debt and equity trading securities.
5. To be classified as current assets, investments must be capable of being converted
into cash quickly and management must intend to sell the investments as a source
6. Unrealized holding gains and losses are not reported on the standard income
statement for available-for-sale securities. Unrealized gains and losses for these
7. Unrealized lossEquity ...................................................... ##
Fair Value AdjustmentAvailable-for-Sale (LT) ....... ##
8. The portfolio for investments in available-for-sale securities should be reported on
the balance sheet at fair (market) valuethis is separated into short- and long-term.
9. The portfolio of long-term investments in debt securities is reported at cost adjusted
10. The equity method is used when the investor has a “significant influence” over the
11. A company prepares consolidated statements if the company has control over a
(2) preparing consolidated financial statements with a foreign subsidiary.
13A. If the foreign exchange rate falls from $1.40 to $1.30 during the time the U.S.
15. Apple reports $112 million in foreign currency adjustments for the year ended
September 28, 2013. This reflects an unrealized loss.
16. Google reports $392 million of net unrealized losses for its AFS investments for the
year ended December 31, 2013.
17. Samsung’s financial statements, including its income statement, are all labeled as
QUICK STUDIES
Quick Study C-1 (10 minutes)
True statements: b, d, f, g
Quick Study C-2 (10 minutes)
a. D
e. D
i. D
Quick Study C-3 (10 minutes)
[Note: This actively managed (for profit) short-term investment in equity securities would
be classified as Trading Securities.]
Quick Study C-4 (10 minutes)
May 7
Short-Term InvestmentsTrading (Kraft) ............
Cash ....................................................................
10,300
Quick Study C-5 (20 minutes)
2014
Dec. 31
Unrealized LossIncome .............................................
2
Fair Value AdjustmentTrading (ST) ....................
2
Record fair value of securities
$35 fair value - $37 cost; thus, FVATrading = $2 Cr.
Note: Unadjusted FVA is $2 Cr; Ending bal. FVA s/b $4 Dr;
thus, entry must $6 Dr FVA.
Note: “s/b” is abbreviation for “should be.
2016
Dec. 31
Fair Value AdjustmentTrading (ST) ..........................
5
2017
Dec. 31
Unrealized LossIncome .............................................
10
We could also use T-accounts to determine the needed adjustment to fair value:
12/31/2015F.V. AdjTrading
12/31/2016F.V. AdjTrading
12/31/2017F.V. AdjTrading
Quick Study C-6 (10 minutes)
July 31
Cash ................................................................................
1,200
Quick Study C-7 (10 minutes)
1. 2015
Dec. 31 Unrealized LossEquity .......................................... 3,000
2. Both accounts in part (1) are reported on the balance sheet.
i. The Unrealized Loss is reported as a reduction in the equity section
3. 2016
Apr. 6 Cash ........................................................................... 26,000
Gain on Sale of Short-Term Investments ........ 1,000
Quick Study C-8 (10 minutes)
May 9
Short-Term InvestmentsAFS (Higo) .......................
Cash ...................................................................
5,150
Quick Study C-9 (10 minutes)
1.
2. Each of the accounts used in the entry for (1) would be reported on the
balance sheet. The unrealized loss of $12,000 is a reduction in equity.
Quick Study C-10 (10 minutes)
Valuation Method: The fair value method is used to account for this investment in
long-term equity securities (AFS portfolio).
2015
Quick Study C-11 (10 minutes)
a.
Nov. 1
Cash ...............................................................................
40,000
Quick Study C-12 (10 minutes)
1. Equity securities giving an investor significant influence are accounted for
using the equity method.
Quick Study C-13 (10 minutes)
1. The controlling investor is called the parent, and the investee is called the
subsidiary.
Quick Study C-14 (10 minutes)
1. Return on total assets =
(efficiency) in using its available assets.
Quick Study C-15 (10 minutes)
1. Return on Total Assets = Profit margin x Total asset turnover
Quick Study C-16A (10 minutes)
Date of Sale
Accounts Receivable ....................................................
14,500
Net income
Average total assets
Quick Study C-17A (10 minutes)
Mar. 1
Account ReceivableHamac ................................
9,076
Sales ................................................................
9,076
Quick Study C-18 (10 minutes)
For trading securities (and as explained in Carrefour’s description of its
EXERCISES
Exercise C-1 (10 minutes)
1. Debt securities reflect a creditor relationship such as investments in
notes, bonds, and certificates of deposit.
3. Short-term investments are securities that (1) management intends to
Exercise C-2 (15 minutes)
a.
Mar. 22
Short-Term InvestmentsTrading (RIP) .............
10,080
Cash ................................................................
10,080
Purchased 1,000 shares of stock for
Exercise C-3 (20 minutes)
1.
2015
Dec. 31
Fair Value AdjustmentTrading ........................
6,000
2. The accounts in part (1) are reported on different financial statements.
i. The $6,000 debit balance in the Fair Value AdjustmentTrading
3.
2016
Jan. 3
Cash .......................................................................
35,000
Exercise C-4 (10 minutes)
a.
Jun. 15
Short-Term InvestmentsHTM (Remedy) .............
1,000,000
Cash ................................................................
1,000,000
Exercise C-5 (10 minutes)
a.
Aug. 1
Short-Term InvestmentsAFS (Houtte) .............
450,000
Exercise C-6 (30 minutes)
2015
(a) Feb. 15
Short-Term InvestmentsHTM (A.G.) ..............................
160,000
Cash ................................................................
160,000
Purchased 90-day, 10% notes.
(f) Oct. 8
Cash* ...............................................................................
22,275
Long-Term InvestmentsAFS (Fran)** ......................
17,925
Gain on Sale of L-T Investments ............................
4,350
Sold 350 shares of Fran stock.
Exercise C-7 (15 minutes)
Unrealized
Available-for-Sale Portfolio Cost Fair Value Gain (Loss)
Verrizano Corporation bonds payable .............. $ 89,600 $ 91,600
Preble Corporation notes payable ..................... 70,600 62,900
Exercise C-8 (15 minutes)
Computation of Fair Value Adjustment
Cost
Fair
Value
Unrealized
Gain (Loss)
Nintendo Co. common stock ................................
$ 44,450
$ 48,900
Atlantic bonds payable ................................
49,000
47,000
Exercise C-9 (15 minutes)
Dec. 31
Fair Value AdjustmentAFS (LT) ................................
32,078
Unrealized LossEquity ................................
1,927
Unrealized GainEquity .........................................
30,151

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