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 loss⎯Equity ……………………………………………… ##
Fair Value Adjustment—Available-for-Sale (LT) ……. ##
8. The portfolio for investments in available-for-sale securities should be reported on
the balance sheet at fair (market) value—this 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.]
Apr. 18
Short-Term Investments—Trading (XLT) …………….…
12,850
Cash ……………………………………………………….
12,850
Purchased 300 shares at $42 plus $250 fee.
May 30
Cash …………………………………………………………….…
300
Dividend Revenue …………………………………..…
300
Received dividend of $1 per share.
Quick Study C-4 (10 minutes)
May 7
Short-Term Investments—Trading (Kraft) …………
Cash …………………………………………………………..
10,300
Purchased 200 shares at $50 plus $300 fee.
June 6
Cash ………………………………………………………………..
Gain on Sale of Short-Term Investments ……..
750
Short-Term Investments—Trading (Kraft) ……
10,300
To record sale of trading securities.
200 shares at $56 less $150 fee
Quick Study C-6 (10 minutes)
July 31
Cash …………………………..……………………………..………….
1,200
Interest Revenue …………………………………..………….
1,200
Record interest earned ($40,000 x 6% x 6/12).
Dec. 31
Interest Receivable …………………………………….………….
1,000
Interest Revenue …………………………………..………….
1,000
Record interest earned ($1,200 x 5/6).
Quick Study C-7 (10 minutes)
1. 2015
Dec. 31 Unrealized Loss—Equity …………………………………… 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 Investments—AFS (Higo) …………………..
Cash ………………………………………………………….
5,150
Purchased 200 shares at $25 plus $150 fee.
June 2
Cash* ……………………………………………………………..
Gain on Sale of Short-Term Investments …….
135
Short-Term Investments—AFS (Higo) …………
2,575
To record sale of available-for-sale securities. The
original cost is $5,150 x 100/200 = $2,575
*($100 x $28) – $90
Dec. 31
Unrealized Loss – Equity* …………………………………..
Fair Value Adjustment—Available-for-Sale (ST) .
275
To reflect an unrealized loss in fair value of
available-for-sale securities.
As of
Dec. 31
Number
of
Shares
Cost
per
share
Fair
Value per
share
Total
Fair
Value
Unrealized
Loss (Fair
Value-Cost)
Higo
100
$25.75
$23
$2,300
$275*
Quick Study C-9 (10 minutes)
1.
Dec. 31
Unrealized Loss⎯Equity ……………………………………….
12,000
Fair Value Adjustment—Available-for-Sale (LT) ….
12,000
Record change in value of securities.
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-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
Sales ………………………………………………….……
14,500
Record credit sale in value of pounds
(10,000 pounds x $1.45/pound).
Date of Payment
Cash …………………………..…………………………………………
13,500
Foreign Exchange Loss …………………………………………
1,000
Accounts Receivable …………………………..
14,500
Cash received on account (£10,000 x $1.35/£).
Net income
Net income
Net sales
Net income
Average total assets
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 Investments—Trading (RIP) ………....
10,080
Cash ……………………………………………………….
10,080
Purchased 1,000 shares of stock for
(1,000 x $10) + $80 brokerage fee.
b.
Sept. 1
Cash ……………………………………………………………...
1,000
Dividend Revenue …………………………………....
1,000
Received dividend on stock (1,000 x $1.00).
c.
Oct. 8
Cash* …………………………………………………………....
7,450
Short-Term Investments—Trading (RIP)** …...
5,040
Gain on Sale of Short-Term Investments …………
2,410
Sold 500 shares of stock.
* [(500 x $15) – $50] **($10,080/2)