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

978-0078025754 Appendix C Solution Manual Part 2

March 26, 2020
Exercise C-10 (30 minutes)
2013
Dec. 31
Unrealized LossEquity ..............................................
11,140
Fair Value AdjustmentAFS (LT) ..........................
11,140
Record fair value of securities
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 AdjustmentAFS (LT) ................................
10,825
Exercise C-12 (30 minutes)
2015
Jan. 2
Long-Term InvestmentsGrecco* ................................
411,000
Cash ..........................................................................
411,000
Record purchase of investment ($408,000 + $3,000).
* Kodax’s investment equals 33 1/3% of Grecco’s stock (30,000/90,000).
Earnings from Long-Term Investment ..................
162,300
Record equity in investee earnings ($486,900/3).
2016
June 1
Cash ................................................................................
63,000
Long-Term InvestmentsGrecco .............................
63,000
Record receipt of cash dividend (30,000 x $2.10).
Long-Term InvestmentsGrecco* ............................
233,183
Record sale of investment.
* Book value (Grecco stock) at 12/31/2016:
Original cost ....................................................................................
$411,000
Less 2015 dividends ................................................................
(45,000)
Rounded to nearest dollar.
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
Exercise C-15A (25 minutes)
2015
Dec. 16
Accounts ReceivableBronson Ltd. ..........................
24,791
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
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 InvestmentsTrading (Ford) .................
20,925
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:
12/31/2015F.V. AdjTrading
Problem C-1A (Continued)
2016
Apr. 15
Cash ......................................................................
22,915
Gain on Sale of Short-Term Investments ....
1,990
Short-Term InvestmentsTrading (Ford) .....
20,925
Sold Ford Motor shares
[(750 x $10.25) - $102.50].
July 22
Short-Term InvestmentsTrading (Hunt) ...........
48,444
Cash ................................................................
48,444
Purchased Hunt shares
[(1,600 x $30.00) + $444].
We could also use a T-account to determine the needed adjustment to fair value:
12/31/2016F.V. AdjTrading
Problem C-1A (Concluded)
2017
Feb. 27
Short-Term InvestmentsTrading (HCA) ................
116,020
Cash ................................................................
116,020
Short-Term InvestmentsTrading (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 InvestmentsTrading (Lucent) ....
97,928
Nov. 1
Cash ......................................................................
32,541
Loss on Sale of Short-Term Investments .........
599
Short-Term InvestmentsTrading (D.Karan) ....
33,140
Sold Donna Karan shares
[(1,800 x $18.25) - $309].
FVATrading 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:
Problem C-2A (40 minutes)
Part 1
2015
Apr. 16
Short-Term InvestmentsAFS (Gem) .........................
97,180
Cash ...............................................................................
97,180
July 7
Short-Term InvestmentsAFS (Pepsi) ........................
98,675
Cash ................................................................
98,675
Purchased 2,000 shares of PepsiCo
[(2,000 x $49.25) + $175].
20
Short-Term InvestmentsAFS (Xerox) ........................
16,955
Interest Revenue ..........................................................
1,500
Proceeds of U.S. Treasury bills
($100,000 x .06 x 13/52).
Short-Term InvestmentsAFS (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)
Received dividends on Gem (2,000 x $1.05).
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
Part 4
The balance sheet would report the cost of these short-term investments in
Part 5
(a) Income statement
Problem C-3A (60 minutes)
Part 1
2015
Jan. 20
Long-Term InvestmentsAFS (J&J) .............................
20,740
Cash ..........................................................................
20,740
Purchased Johnson & Johnson
Problem C-3A (Continued)
2016
Apr. 15
Cash ..........................................................................................
22,975
Gain on Sale of Investments ................................
2,235
Long-Term InvestmentsAFS (J&J) ................................
20,740
Sold Mattel shares [(1,500 x $23.90) - $235].
July 22
Long-Term InvestmentsAFS (Sara Lee) ................................
13,980
Cash ....................................................................................
13,980
Purchased Sara Lee shares
[(600 x $22.50) + $480].
Fair Value AdjustmentAFS (LT)* ................................
10,168
Annual adjustment to fair values.
*
Cost
Fair Value
Problem C-3A (Continued)
2017
Feb. 27
Long-Term InvestmentsAFS (Microsoft) ................................
161,325
Cash ...................................................................................
161,325
Purchased Microsoft shares
[(2,400 x $67.00) + $525].
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 InvestmentsAFS (E. Kodak) ..........................
15,498
Sold Eastman Kodak shares
[(900 x $22.75) - $625].
Dec. 31
Fair Value AdjustmentAFS (LT)* ................................
21,858
Unrealized LossEquity ................................
13,818
Total...................................
$212,160
$220,200

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