Problem C-3A (Concluded)
Part 2
12/31/2015
12/31/2016
12/31/2017
Long-Term AFS Securities (cost)……………....
$117,100
$85,143
$212,160
Fair Value Adjustment ………………………....
(3,650)
(13,818)
8,040
Long-Term AFS Securities (fair value) ……....
$113,450
$71,325
$220,200
Part 3
2015
2016
2017
Realized gains (losses)
Sale of Johnson & Johnson shares …….
$ 2,235
Sale of Mattel shares …………………………..
(5,080)
Sale of Sara Lee shares ……………………...
$(4,665)
Sale of Sony shares …………………………..
1,055
Sale of Eastman Kodak shares …………...
______
_______
4,352
Total realized gain (loss) ……………………...
$ 0
$ (2,845)
$ 742
Unrealized gains (losses) at year–end*…..
$(3,650)
$(13,818)
$ 8,040
* Equals the balance of the Fair Value Adjustment account.
Problem C-4A (Continued)
2. Carrying value per share, January 1, 2017 (see computations in part 1)
3. Change in Selk’s equity due to stock investment
Earnings from Kildaire (2015) …………………….…….
$232,800
Earnings from Kildaire (2016) …………………….…….
295,200
Gain on sale of investments …………………………..
154,000
Net increase ……………………………………………..………..
$682,000
Part 2
1. Journal entries (assuming NO significant influence)
2015
Jan. 5
Long-Term Investments—AFS (Kildaire) ……….………………….
1,560,000
Cash ……………………………………………………….
1,560,000
Purchased Kildaire shares.
Oct. 23
Cash …………………………..…………………………….……………………
192,000
Dividend Revenue ……………………………….……………………
192,000
Received cash dividend (60,000 x $3.20).
Dec. 31
Fair Value Adjustment—AFS (LT)* ……………..……………
240,000
Unrealized Gain—Equity …………………………..
240,000
Record fair value adjustment.
*60,000 x $30.00 = $1,800,000
$1,800,000 – $1,560,000 = $240,000
Oct. 15
Cash …………………………..…………………………….……………………
156,000
Dividend Revenue ……………………………….……………………
156,000
Dec. 31
Fair Value Adjustment—AFS (LT)* ……………..……………
120,000
Unrealized Gain—Equity …………………………..
120,000
Record fair value adjustment.
$1,920,000 – $1,560,000 = $360,000
Problem C-4A (Concluded)
2017
Jan. 2
Cash …………………………..…………………………….……………………
1,894,000
Long-Term Investments—AFS (Kildaire) ….……………………
1,560,000
Gain on Sale of Investments ………………..…………
334,000
Sold Kildaire shares.
Jan. 2
Unrealized Gain—Equity …………………………………………………
360,000
Fair Value Adjustment—AFS (LT) …………………………..
360,000
To remove fair value adjustment and related
accounts ($240,000 + $120,000 = $360,000).
2. Investment cost per share, January 1, 2017
3. Change in Selk’s equity due to stock investment
Dividend Revenue (2015) ………………………….
$192,000
Dividend Revenue (2016) ………………………….
156,000
Gain on sale of investments ……………………..
334,000
Net increase …………………………………………….
$682,000
Problem C-6AA (60 minutes)
Part 1
2015
Apr. 8
Cash …………………………..………………………………………………….
5,938
Sales …………………………………………………….…
5,938
July 21
Accounts Receivable⎯Sumito …………………….…….
14,100
Sales …………………………………………………….…
14,100
(1,500,000 yen x $0.0094/yen)
Oct. 14
Accounts Receivable⎯Smithers …………………………..
27,675
Sales …………………………………………………….…
27,675
(19,000£ x $1.4566/£)
Nov. 18
Cash …………………………..………………………………………………….
13,800
Foreign Exchange Loss ………………………………………………….
300
Accounts Receivable⎯Sumito ……………….………….
14,100
(1,500,000 yen x $0.0092/yen)
Dec. 20
Accounts Receivable⎯Hamid Albar …………….…………….
7,652
Sales …………………………………………………….…
7,652
(17,000 ringgits x $0.4501/ringgits)
Dec. 31
Accounts Receivable⎯Smithers. ………………..…………
103
Foreign Exchange Gain * ……………………….….
103
*Original measure = (19,000£ x $1.4566/£) = $27,675
Year-end measure = (19,000£ x $1.4620/£) = 27,778
Gain for the period ……………………… = $ 103
Dec. 31
Foreign Exchange Loss* ……………………………..………………….
77
Accounts Receivable⎯Hamid Albar ……….………………….
77
*Original measure = (17,000 ringgits x $0.4501/ ringgits) = $7,652
Year-end measure = (17,000 ringgits x $0.4456/ ringgits) = 7,575
Loss for the period ……………………………………… = $ 77
2016
Jan. 12
Cash* ………………………………………………………….………………….
27,928
Accounts Receivable⎯Smithers** ………….……………….
27,778
Foreign Exchange Gain …………………………..
150
*(19,000£ x $1.4699/£) **($27,675 + $103)
Jan. 19
Cash* ………………………………………………………….………………….
7,514
Foreign Exchange Loss …………………………..….………………….
61
Accounts Receivable⎯Hamid Albar** …….………………….
7,575
*(17,000 ringgits x $0.4420/ ringgits) **($7,652 – $77)
PROBLEM SET B
Problem C-1B (60 minutes)
Part 1
2015
Mar. 10
Short-Term Investments—Trading (AOL) ……………....
143,505
Cash ……………………………………………………….
143,505
Purchased AOL shares
[(2,400 x $59.15) + $1,545].
May 7
Short-Term Investments—Trading (MTV) …………..
184,105
Cash ……………………………………………………….
184,105
Purchased MTV shares
[(5,000 x $36.25) + $2,855].
Sept. 1
Short-Term Investments—Trading (UPS) …………..
69,950
Cash ……………………………………………………….
69,950
Purchased UPS shares
[(1,200 x $57.25) + $1,250].
Dec. 31
Unrealized Loss—Income ……………………………....
17,560
Fair Value Adjustment—Trading (ST) ………...
17,560
Record fair value of securities.
$380,000 fair value – $397,560 cost*; thus,
FVA—Trading s/b $17,560 Cr.
Note: Unadjusted FVA is $0; Ending bal. FVA s/b
$17,560 Cr; thus, entry must $17,560 Cr FVA.
*$397,560 = $143,505 + $184,105 + $69,950
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.
17,560
End.
17,560
Problem C-1B (Concluded)
2017
Jan. 28
Short-Term Investments—Trading (Pepsi) …………
88,890
Cash …………………………………………………………
88,890
Purchased PepsiCo shares
[(2,000 x $43.00) + $2,890].
Jan. 31
Cash ………………………………………………………………
602,760
Loss on Sale of Short-Term Investments …………
19,690
Short-Term Investments—Trading (SPW) ……….
622,450
Sold SPW shares [(3,600 x $168) – $2,040].
Aug. 22
Cash ………………………………………………………………
133,720
Loss on Sale of S-T Investments ……………………..
9,785
Short-Term Investments—Trading (AOL) ……….
143,505
Sold AOL shares [(2,400 x $56.75) – $2,480].
Sept. 3
Short-Term Investments—Trading (Voda) ………….
62,430
Cash …………………………………………………………
62,430
Purchased Vodaphone shares
[(1,500 x $40.50) + $1,680].
Oct. 9
Cash ………………………………………………………………
47,155
Gain on Sale of Short-Term Investments ………...
848
Short-Term Investments—Trading (W-M) ………...
46,307
Sold Wal-Mart shares
[(900 x $53.75) – $1,220].
Dec. 31
Unrealized Loss—Income ……………………………….
27,058
Fair Value Adjustment—Trading (ST) …………
27,058
Record fair value of securities.
$140,000 fair value – $151,320 cost*; thus,
FVA—Trading s/b $11,320 Cr.
Note: Unadjusted FVA is $15,738 Dr; Ending bal. FVA s/b
$11,320 Cr; thus, entry must $27,058 Cr FVA.
*$812,262 +$88,890 -$622,450 -$143,505 +$62,430 -$46,307
We could also use a T-account to determine the needed adjustment to fair value:
12/31/2017—F.V. Adj—Trading
Unadj.
15,738
Adj.
27,058
End.
11,320
Problem C-2B (Concluded)
Part 2
Comparison of Cost and Fair Values of AFS Portfolio
Unrealized
Cost Fair Value Gain (Loss)
Nokia (2,550 x $41.25) + $2,250a ……… $107,437
2,550 x $40.25 (rounded) ……… $102,638
a Brokerage fee attached to remaining 2,550 shares: $3,000 x (3,400 sh.– 850 sh.)/ 3,400 sh. = $2,250.
b Brokerage fee attached to remaining 1,200 shares: Entire $1,255 (none sold).
c Brokerage fee attached to remaining 2,500 shares: Entire $2,890 (none sold).
Part 3
Dec. 31
Unrealized Loss—Equity ……………………………………..
41,494
Fair Value Adjustment—AFS (ST) ……………….
41,494
To reflect an unrealized loss in fair values of
available-for-sale securities.
Part 4
The balance sheet would report the cost of these short-term investments in
available-for-sale securities at $340,232 and show a subtraction of $41,494
Part 5
(a) Income statement
(i) Interest Revenue, $600
(b) Equity section of Balance sheet
Problem C-3B (60 minutes)
Part 1
2015
Mar. 10
Long-Term Investments—AFS (Apple) …………………………..
31,400
Cash ……………………………………………………….
31,400
Purchased Apple shares
[(1,200 x $25.50) + $800].
April 7
Long-Term Investments—AFS (Ford) ……………..……………
57,283
Cash ……………………………………………………….
57,283
Purchased Ford shares
[(2,500 x $22.50) + $1,033].
Sept. 1
Long-Term Investments—AFS (Polaroid) ………..………………..
29,090
Cash ……………………………………………………….
29,090
Purchased Polaroid shares
[(600 x $47.00) + $890].
Dec. 31
Unrealized Loss—Equity ……………………………….………………..
2,873
Fair Value Adjustment—AFS (LT)* …………………………..
2,873
Annual adjustment to fair values.
*
Cost _
Fair Value
Apple …………..…….
$ 31,400
$ 33,000
Ford …………….…….
57,283
52,500
Polaroid ……….…….
29,090
29,400
Total…………….…….
$117,773
$114,900
Apple: 1,200 x $27.50 = $33,000
Ford: 2,500 x $21.00 = 52,500
Polaroid: 600 x $49.00 = 29,400
$117,773 – $114,900 = $2,873
Problem C-3B (Continued)
2017
Jan. 28
Long-Term Investments—AFS (Coca-Cola) ……..………………..
41,480
Cash ……………………………………………………….
41,480
Purchased Coca-Cola shares
[(1,000 x $40.00) + $1,480].
Aug. 22
Cash …………………………..……………………………….………………..
23,950
Loss on Sale of Investments …………………………..
7,450
Long-Term Investments—AFS (Apple) ………………………..
31,400
Sold Apple shares [(1,200 x $21.50) – $1,850].
Sept. 3
Long-Term Investments—AFS (Motorola) ………..………………..
84,780
Cash ……………………………………………………….
84,780
Purchased Motorola shares
[(3,000 x $28) + $780].
Oct. 9
Cash …………………………..……………………………….………………..
28,201
Gain on Sale of Investments …………………..………
2,721
Long-Term Investments—AFS (Sears) ……….………………..
25,480
Sold Sears shares [(1,200 x $24.00) – $599].
Oct. 31
Cash …………………………..……………………………….………………..
26,102
Loss on Sale of Investments ………………………..…
9,598
Long-Term Investments—AFS (Duracell) ……………………..
35,700
Sold Duracell shares [(1,800 x $15.00) – $898].
Dec. 31
Unrealized Gain⎯Equity ……………………………….………………..
2,220
Unrealized Loss⎯Equity ………………………………………………..
6,260
Fair Value Adjustment—AFS (LT)* ……………..……………
8,480
Annual adjustment to fair values.
*
Cost _
Fair Value
Coca-Cola …………………...
$ 41,480
$ 48,000
Motorola ……………………...
84,780
72,000
Total…………………………….
$126,260
$120,000
Coca-Cola: 1,000 x $48.00 = $48,000
Motorola: 3,000 x $24.00 = $72,000
$126,260 – $120,000 = $6,260
Fair Value Adjustment account:
Required balance …… $6,260 Cr.
Unadjusted balance .. 2,220 Dr.
Required change ……. $8,480 Cr.