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Exercise C-3 (20 minutes)
1.
2015
Dec. 31
Fair Value Adjustment—Trading ........................
6,000
Unrealized Gain—Income ..............................
6,000
To reflect an unrealized gain in fair values of
trading securities.
2. The accounts in part (1) are reported on different financial statements.
i. The $6,000 debit balance in the Fair Value Adjustment—Trading
3.
2016
Jan. 3
Cash .......................................................................
35,000
Gain on Sale of Short-Term Investments .....
2,000
Short-Term Investments—Trading ................
33,000
To record sale of trading securities.
Exercise C-4 (10 minutes)
a.
Jun. 15
Short-Term Investments—HTM (Remedy) .............
1,000,000
Cash ................................................................
1,000,000
Purchased 90-day, 10% debt securities.
b.
Sep. 16
Cash ........................................................................
1,025,000
Short-Term Investments—HTM (Remedy) ....
1,000,000
Interest Revenue .............................................
25,000
Collected proceeds of debt securities
with interest of $1,000,000 x .10 x 90/360.
Exercise C-5 (10 minutes)
a.
Aug. 1
Short-Term Investments—AFS (Houtte) .............
450,000
Cash ................................................................
450,000
Purchased 6-month, 10% debt securities.
b.
Oct. 30
Cash ..............................................................................
10,125
Interest Revenue ..............................................
10,125
Received cash interest payment
($450,000 x .09 x 90/360).
Exercise C-6 (30 minutes)
2015
(a) Feb. 15
Short-Term Investments—HTM (A.G.) ..............................
160,000
Cash ................................................................
160,000
Purchased 90-day, 10% notes.
(b) Mar. 22
Long-Term Investments—AFS (Fran) ...............................
35,850
Cash ................................................................
35,850
Purchased 700 shares of Fran common
stock ([700 x $51] + $150).
(c) May 15
Cash ................................................................................
164,000
Short-Term Investments—HTM (A.G.) ........................
160,000
Interest Revenue ......................................................
4,000
Collected proceeds of 10% notes
($160,000 x 10% x 90/360).
(d) July 30
Short-Term Investments—Trading (MP3) ..........................
100,000
Cash ................................................................
100,000
Purchased 8% notes, due Jan. 30, 2016.
(e) Sept. 1
Cash ................................................................................
700
Dividend Revenue ...................................................
700
Received dividend on Fran shares
(700 x $1).
(f) Oct. 8
Cash*...............................................................................
22,275
Long-Term Investments—AFS (Fran)** ......................
17,925
Gain on Sale of L-T Investments ............................
4,350
Sold 350 shares of Fran stock.
*([350 x $64] - $125) **($35,850/2)
(g) Oct. 30
Cash ................................................................................
2,000
Interest Revenue ......................................................
2,000
Received interest payment on 8% notes
($100,000 x .08 x 3/12).
Exercise C-7 (15 minutes)
Unrealized
Available-for-Sale Portfolio Cost Fair Value Gain (Loss)
Exercise C-9 (15 minutes)
Dec. 31
Fair Value Adjustment—AFS (LT) ................................
32,078
Unrealized Loss—Equity ................................
1,927
Unrealized Gain—Equity .........................................
30,151
Record fair value of AFS securities.
Computation of Fair Value Adjustment
12/31/2014
12/31/2015
Cost................................
$120,483
$60,120
Fair value .......................
118,556
90,271
Gain (loss) .....................
$ (1,927)
$30,151
Adjustment = $1,927 + $30,151 = $32,078
(recovery of unrealized loss &
recording of unrealized gain)
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 GainEquity .........................................
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-12 (30 minutes)
2015
Jan. 2
Long-Term Investments—Grecco* ................................
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).
Exercise C-13 (10 minutes)
1. Consolidated financial statements show the financial position, results of
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
returns.
$38,400
$60,300
Exercise C-15A (25 minutes)
2015
Dec. 16
Accounts ReceivableBronson Ltd. ..........................
24,791
Sales ................................................................
24,791
Record credit sales (17,000 x $1.4583).
Dec. 31
Foreign Exchange Loss* ................................
342
Accounts ReceivableBronson Ltd .....................
342
Record year-end adjustment.
*Original measure = (17,000 x $1.4583) = $24,791
Year-end measure = (17,000 x $1.4382) = 24,449
Loss for the period = $ 342
2016
Jan. 15
Cash (17,000 x $1.4482) ................................
24,619
Accounts ReceivableBronson Ltd. ....................
24,449
Foreign Exchange Gain* ................................
170
Record cash receipt on account.
*Year-end measure = (17,000 x $1.4382) = $24,449
Final measure = (17,000 x $1.4482) = 24,619
Gain for the period = $ 170
