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
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 (Continued)
2016
Apr. 15
Cash …………………………………………………………….
22,915
Gain on Sale of Short–Term Investments ….
1,990
Short–Term Investments—Trading (Ford) …..
20,925
Sold Ford Motor shares
[(800 x $29.00) – $285].
July 5
Cash …………………………………………………………….
7,585
Gain on Sale of Short–Term Investments ….
1,760
Short-Term Investments—Trading (Z-Seven) ...
5,825
Sold Z-Seven shares
[(750 x $10.25) – $102.50].
July 22
Short–Term Investments—Trading (Hunt) ………..
48,444
Cash ……………………………………………………….
48,444
Purchased Hunt shares
[(1,600 x $30.00) + $444].
Aug. 19
Short–Term Investments—Trading (D.Karan)…...
33,140
Cash ……………………………………………………….
33,140
Purchased Donna Karan shares
[(1,800 x $18.25) + $290].
Dec. 31
Unrealized Loss—Income ……………………………..
24,834
Fair Value Adjustment—Trading (ST) …….
24,834
Record fair value of securities.
$160,000 fair value – $179,512 cost*; thus,
FVA—Trading s/b $19,512 Cr.
Note: Unadjusted FVA is $5,322 Dr; Ending bal. FVA s/b
$19,512 Cr; thus, entry must be $24,834 Cr FVA.
*$124,678 – $20,925 – $5,825 + $48,444 + $33,140
We could also use a T-account to determine the needed adjustment to fair value:
12/31/2016—F.V. Adj—Trading
Unadj.
5,322
Adj.
24,834
End.
19,512
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
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
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 LossEquity ………………………………..……..
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)
2016
Apr. 15
Cash ………………………………………………………………………………
22,975
Gain on Sale of Investments ………………………..…
2,235
Long–Term Investments—AFS (J&J) …………………………..
20,740
Sold Johnson & Johnson shares
[(1,000 x $23.50) – $525].
July 5
Cash ………………………………………………………………………………
35,615
Loss on Sale of Investments ……………………………..……………
5,080
Long–Term Investments—AFS (Mattel) …………………………
40,695
Sold Mattel shares [(1,500 x $23.90) – $235].
July 22
Long-Term Investments—AFS (Sara Lee) …………………………..
13,980
Cash …………………………………………………………………………
13,980
Purchased Sara Lee shares
[(600 x $22.50) + $480].
Aug. 19
Long-Term Investments—AFS (Eastman Kodak) ……..……………
15,498
Cash …………………………………………………………………………
15,498
Purchased Eastman Kodak shares
[(900 x $17.00) + $198].
Dec. 31
Unrealized LossEquity …………………………………..……………
10,168
Fair Value Adjustment—AFS (LT)* ………………….……….
10,168
Annual adjustment to fair values.
*
Cost
Fair Value
Kodak ……………....
$15,498
$17,325
Sara Lee …………...
13,980
12,000
Sony ………………...
55,665
42,000
Total ………………...
$85,143
$71,325
Kodak: 900 x $19.25 = $17,325
Sara Lee: 600 x $20.00 = $12,000
Sony: 1,200 x $35.00 = $42,000
$85,143 – $71,325 = $13,818
Fair Value Adjustment account:
Required balance ….. $13,818 Cr.
Unadjusted balance.. 3,650 Cr.
Required change…… $10,168 Cr.
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.