Exercise C-10 (30 minutes)
2013
Dec. 31
Unrealized Loss—Equity ………………………………..……..
11,140
Fair Value Adjustment—AFS (LT) ……………………..
11,140
Record fair value of securities
($372,000 – $360,860).
2014
Dec. 31
Fair Value Adjustment—AFS (LT)* …………………..……..
38,440
Unrealized Loss—Equity …………………………..
11,140
Unrealized Gain—Equity …………………………………..
27,300
Record fair value of securities.
* $428,500 – $455,800 = $27,300 net gain
($11,140 prior loss + $27,300 current period gain).
2015
Dec. 31
Fair Value Adjustment—AFS (LT)* …………………..……..
73,000
Unrealized Gain—Equity …………………………………..
73,000
Record fair value of securities.
* $600,200 – $700,500 = $100,300 net gain
($100,300 current period gain – $27,300 prior gain).
2016
Dec. 31
Unrealized Loss—Equity ………………………………..……..
96,700
Unrealized Gain—Equity ………………………………………..
100,300
Fair Value Adjustment—AFS (LT)* …………….……..
197,000
Record fair value of securities.
* $876,900 – $780,200 = $96,700 net loss
($100,300 prior gain + $96,700 current period loss).
Exercise C-11 (15 minutes)
1. Classification of Investments in Securities
a. The Brava Company bonds are a long-term investment in held-to–
maturity debt securities.
2. Fair Value Adjustment entry at December 31, 2015
Dec. 31
Fair Value Adjustment—AFS (LT) ……………………….….
10,825
Unrealized Gain⎯Equity ……………………………….….
10,825
Record fair value of securities ($255,800 – $266,625).
Long-term AFS securities
Cost
Fair Value
Buffa common stock …………..………………
$165,500
$178,000
Newton common stock ……….……………….
90,300
88,625
Totals ………………………………………………….
$255,800
$266,625
Exercise C-13 (10 minutes)
1. Consolidated financial statements show the financial position, results of
2. The equity method with consolidation is used to account for long-term
investments in equity securities with controlling influence.
Exercise C-14 (15 minutes)
2015 return on total assets 2016 return on total assets
from 14.0% to 10.9%. However, without additional information, it is not
possible to determine whether Regae is within the normal range as
$38,400
$60,300
Exercise C-16A (25 minutes)
Quarter ended June 30, 2015
May 8 recorded amount (800,000 x $0.1323) ………………….
$105,840
June 30 balance sheet amount (800,000 x $0.1352) ………..
108,160
Foreign exchange gain …………………………………………………
$ 2,320
Quarter ended September 30, 2015
June 30 balance sheet amount ……………………………………..
$108,160
Sept. 30 balance sheet amount (800,000 x $0.1368) ……….
109,440
Foreign exchange gain …………………………………………………
$ 1,280
Quarter ended December 31, 2015
Sept. 30 balance sheet amount ……………………………………..
$109,440
Dec. 31 balance sheet amount (800,000 x $0.1335) ………..
106,800
Foreign exchange loss …………………………………………………
$ 2,640
Quarter ended March 31, 2016
Dec. 31 balance sheet amount ……………………………………..
$106,800
Feb. 10, 2016, amount received (800,000 x $0.1386) ………
110,880
Foreign exchange gain …………………………………………………
$ 4,080
Note — The combined net gain for all four quarters equals:
$5,040 ($2,320 + $1,280 – $2,640 + $4,080).
This amount also equals the difference between the number of dollars finally
received ($110,880) and the initial measure of the account receivable ($105,840).
In addition, this amount equals the number of pesos (800,000) owed by the
customer times the change in the exchange rate ($0.0063) between the beginning
rate ($0.1323) and the ending rate ($0.1386).
Exercise C-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-
sale securities are reported in Carrefour’s balance sheet as part of its
PROBLEM SET A
Problem C-1A (60 minutes)
Part 1
2015
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].
Dec. 31
Fair Value Adjustment—Trading (ST)……………...
5,322
Unrealized Gain—Income ………………………….
5,322
Record fair value of securities.
$130,000 fair value – $124,678 cost; thus,
FVA—Trading s/b $5,322 Dr.
Note: Unadjusted FVA is $0; Ending bal. FVA s/b $5,322 Dr;
thus, entry must $5,322 Dr FVA.
We could also use a T-account to determine the needed adjustment to fair value:
12/31/2015—F.V. Adj—Trading
Unadj.
0
Adj.
5,322
End.
5,322
Problem C-1A (Concluded)
2017
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].
June 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].
Dec. 31
Fair Value Adjustment—Trading (ST)…………….
25,897
Unrealized Gain—Income ………………………..
25,897
Record fair value of securities.
$180,000 fair value – $173,615 cost*; thus,
FVA—Trading s/b $6,385 Dr.
Note: Unadjusted FVA is $19,512 Cr; Ending bal. FVA s/b
$6,385 Dr; thus, entry must $25,897 Dr FVA.
*$179,512 +$116,020 – $48,444 – $97,928 +$57,595 –$33,140
We could also use a T-account to determine the needed adjustment to fair value:
12/31/2017—F.V. Adj—Trading
Unadj.
19,512
Adj.
25,897
End.
6,385
©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Financial Accounting Fundamentals, 5th Edition
866
Problem C-2A (40 minutes)
Part 1
2015
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 13/52).
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).
Problem C-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
Part 3
Problem C-3A (60 minutes)
Part 1
2015
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
Problem C-3A (Continued)
2017
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.