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

978-0078025754 Appendix C Solution Manual Part 3

March 26, 2020
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
Problem C-4A (30 minutes)
Part 1
1. Journal entries (assuming significant influence)
2015
Jan. 5
Long-Term InvestmentsKildaire ................................
1,560,000
Cash ................................................................
1,560,000
Purchased Kildaire shares.
Oct. 23
Cash ..........................................................................................
192,000
($1,164,000 x 20%).
2016
Oct. 15
Cash ..........................................................................................
156,000
Long-Term InvestmentsKildaire ................................
156,000
Record cash dividend (60,000 x $2.60).
Jan. 2
Cash ..........................................................................................
1,894,000
Sold Kildaire shares.
* Investment carrying value, January 2, 2017
Original cost ............................................
$1,560,000
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
Part 2
1. Journal entries (assuming NO significant influence)
2015
Jan. 5
Long-Term InvestmentsAFS (Kildaire) ................................
1,560,000
Cash ................................................................
1,560,000
Purchased Kildaire shares.
$360,000 - $240,000 = $120,000
Problem C-4A (Concluded)
2017
Jan. 2
Cash ..........................................................................................
1,894,000
Long-Term InvestmentsAFS (Kildaire) ............................
1,560,000
2. Investment cost per share, January 1, 2017
3. Change in Selk’s equity due to stock investment
Problem C-5A (40 minutes)
Part 1
Available-for-sale securities on December 31, 2015
Security
Cost
Fair Value
3,500 shares of Company B common stock ..............
$ 79,690
$ 81,375
Disclosure
Part 2
Dec. 31
Fair Value AdjustmentAFS* ................................
20,002
Unrealized LossEquity ................................
20,002
Adjustment to fair value for AFS securities..
* December 31, 2014, available-for-sale securities
Cost _
Fair Value
December 31, 2015, adjustment to the Fair Value Adjustment account:
Part 3
Only gains or losses realized on the sale of available-for-sale securities
appear on the 2015 income statement. Unrealized gains or losses appear
in the equity section of the balance sheet.
Year 2015 realized gains (losses)
Stock Sold
Cost
Sale
Gain (Loss)
Problem C-6AA (60 minutes)
Part 1
2015
Apr. 8
Cash ..........................................................................................
5,938
Sales ................................................................
5,938
July 21
Accounts ReceivableSumito ................................
14,100
Nov. 18
Cash ..........................................................................................
13,800
Foreign Exchange Loss ..........................................................
300
Accounts ReceivableSumito ................................
14,100
(1,500,000 yen x $0.0092/yen)
Foreign Exchange Gain * ................................
103
2016
Jan. 12
Cash* .........................................................................................
27,928
Problem C-6AA (Continued)
Part 2
Foreign exchange loss reported on the 2015 income statement
November 18 .......................................
$(300)
Part 3
To reduce the risk of foreign exchange gain or loss, Doering could attempt
to negotiate foreign customer sales that are denominated in U.S. dollars.
PROBLEM SET B
Problem C-1B (60 minutes)
Part 1
2015
Mar. 10
Short-Term InvestmentsTrading (AOL) ...................
143,505
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:
Problem C-1B (Continued)
2016
Apr. 26
Cash .......................................................................
170,450
Loss on Sale of Short-Term Investments ...........
13,655
Short-Term InvestmentsTrading (MTV) .......
184,105
June 2
Short-Term InvestmentsTrading (SPW) ................
622,450
Cash ................................................................
622,450
Purchased SPW shares
[(3,600 x $172.00) + $3,250].
Unrealized GainIncome ...............................
33,298
Record fair value of securities.
$828,000 fair value - $812,262 cost*; thus,
FVATrading s/b $15,738 Dr.
Note: Unadjusted FVA is $17,560 Cr; Ending bal. FVA s/b
$15,738 Dr; thus, entry must $33,298 Dr FVA.
*$812,262 = $397,560 -$184,105 -$69,950 +622,450 +$46,307
We could also use a T-account to determine the needed adjustment to fair value:
12/31/2016F.V. AdjTrading
Problem C-1B (Concluded)
2017
Jan. 28
Short-Term InvestmentsTrading (Pepsi) ............
88,890
Cash ..................................................................
88,890
Purchased PepsiCo shares
Aug. 22
Cash ........................................................................
133,720
Loss on Sale of S-T Investments ..........................
9,785
Short-Term InvestmentsTrading (AOL) ..........
143,505
Sold AOL shares [(2,400 x $56.75) - $2,480].
Sept. 3
Short-Term InvestmentsTrading (Voda) .............
62,430
Short-Term InvestmentsTrading (W-M) ............
46,307
Sold Wal-Mart shares
[(900 x $53.75) - $1,220].
Dec. 31
Unrealized LossIncome .....................................
27,058
$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:
12/31/2017F.V. AdjTrading
Unadj.
15,738
Problem C-2B (40 minutes)
Part 1
Feb. 6
Short-Term InvestmentsAFS (Nokia)............
143,250
Cash ............................................................
143,250
Purchased 3,400 shares of Nokia
[(3,400 x $41.25) + $3,000].
Purchased 1,200 shares of Dell
[(1,200 x $39.50) + $1,255].
June 2
Short-Term InvestmentsAFS (Merck) ...........
184,140
Cash ............................................................
184,140
Purchased 2,500 shares of Merck
(3,400 x $0.19).
Aug. 11
Cash* ................................................................
38,050
Gain on Sale of Short-Term Investments ....
2,237
Short-Term InvestmentsAFS (Nokia)** ....
35,813
Sold 850 shares of Nokia. (rounded)
Proceeds of U.S. Treasury bills.
*($20,000 x .06 x 6/12)
24
Cash ..................................................................
120
Dividend Revenue .........................................
120
Received dividends on Dell stock (1,200 x $0.10).
Dec. 18
Cash ...................................................................
180
Dividend Revenue .........................................
180
Received dividends on Dell stock (1,200 x $0.15).
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
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 InvestmentsAFS (Apple) ................................
31,400
Cash ................................................................
31,400
Purchased Apple shares
Problem C-3B (Continued)
2016
Apr. 26
Cash ..........................................................................................
50,043
Loss on Sale of Investments ................................
7,240
Long-Term InvestmentsAFS (Ford) ...............................
57,283
Sold Ford shares
June 14
Long-Term InvestmentsAFS (Sears) ................................
25,480
Cash ................................................................
25,480
Purchased Sears shares
[(1,200 x $21.00) + $280].
Nov. 27
Cash .........................................................................................
29,755
Unrealized LossEquity ................................
2,873
Unrealized GainEquity ................................
2,220
Annual adjustment to fair values.
*
Cost _
Fair Value
Apple ...........
$31,400
$34,800
Sears: 1,200 x $23.00 = $27,600
Problem C-3B (Continued)
2017
Jan. 28
Long-Term InvestmentsAFS (Coca-Cola) ............................
41,480
Cash ................................................................
41,480
Purchased Coca-Cola shares
Sept. 3
Long-Term InvestmentsAFS (Motorola) ...............................
84,780
Cash ................................................................
84,780
Purchased Motorola shares
[(3,000 x $28) + $780].
Oct. 9
Cash .........................................................................................
28,201
Long-Term InvestmentsAFS (Duracell) ..........................
35,700
Sold Duracell shares [(1,800 x $15.00) - $898].
Dec. 31
Unrealized GainEquity .........................................................
2,220
Motorola ...........................
84,780
72,000
Total..................................
$126,260
$120,000

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