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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 (30 minutes)
Part 1
1. Journal entries (assuming significant influence)
2015
Jan. 5
Long-Term Investments—Kildaire ................................
1,560,000
Cash ................................................................
1,560,000
Purchased Kildaire shares.
Oct. 23
Cash ..........................................................................................
192,000
Long-Term Investments—Kildaire ................................
192,000
Received cash dividend (60,000 x $3.20).
Dec. 31
Long-Term Investments—Kildaire ................................
232,800
Earnings from Long-Term Investment ............................
232,800
Record equity in investee earnings
($1,164,000 x 20%).
2016
Oct. 15
Cash ..........................................................................................
156,000
Long-Term Investments—Kildaire ................................
156,000
Record cash dividend (60,000 x $2.60).
Dec. 31
Long-Term Investments—Kildaire ................................
295,200
Earnings from Long-Term Investment ............................
295,200
Record equity in investee earnings
($1,476,000 x 20%).
2017
Jan. 2
Cash ..........................................................................................
1,894,000
Gain on Sale of Investments ................................
154,000
Long-Term Investments—Kildaire* ................................
1,740,000
Sold Kildaire shares.
* Investment carrying value, January 2, 2017
Original cost ..............................................
$1,560,000
Less 2015 dividends ................................
(192,000)
Plus 2015 earnings ...................................
232,800
Less 2016 dividends ................................
(156,000)
Plus 2016 earnings ...................................
295,200
Carrying value at date of sale .................
$1,740,000
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
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
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-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
17,500 shares of Company C common stock ..............
662,750
610,312
4,500 shares of Company X common stock ..............
128,312
118,125
8,500 shares of Company Z common stock ..............
270,350
278,800
$1,141,102
$1,088,612
Disclosure
The portfolio of available-for-sale securities would be reported on the
December 31, 2015, balance sheet at its fair value of $1,088,612.
Part 2
Dec. 31
Fair Value Adjustment—AFS* ................................
20,002
Unrealized Loss—Equity ................................
20,002
Adjustment to fair value for AFS securities..
* December 31, 2014, available-for-sale securities
Cost _
Fair Value
$ 535,300
$ 490,000
159,380
154,000
662,750
640,938
$1,357,430
$1,284,938
December 31, 2015, adjustment to the Fair Value Adjustment account:
$1,357,430 - $1,284,938 = $ 72,492 Cr. balance on Dec. 31, 2014
$1,141,102 - $1,088,612 = 52,490 Cr. balance required on Dec. 31, 2015
$ 20,002 Dr. to adjust cost to fair value
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)
3,500 shares of Company B stock ............
$ 79,690
$ 77,688
$ (2,002)
40,000 shares of Company A stock ..........
535,300
510,900
(24,400)
Realized gain (loss) ...................................
$(26,402)
Problem C-6AA (60 minutes)
Part 1
2015
Apr. 8
Cash ..........................................................................................
5,938
Sales ................................................................
5,938
July 21
Accounts ReceivableSumito ................................
14,100
Sales ................................................................
14,100
(1,500,000 yen x $0.0094/yen)
Oct. 14
Accounts ReceivableSmithers ................................
27,675
Sales ................................................................
27,675
(19,000£ x $1.4566/£)
Nov. 18
Cash ..........................................................................................
13,800
Foreign Exchange Loss ..........................................................
300
Accounts ReceivableSumito ................................
14,100
(1,500,000 yen x $0.0092/yen)
Dec. 20
Accounts ReceivableHamid Albar ................................
7,652
Sales ................................................................
7,652
(17,000 ringgits x $0.4501/ringgits)
Dec. 31
Accounts ReceivableSmithers. ................................
103
Foreign Exchange Gain * ................................
103
Problem C-6AA (Continued)
Part 2
Foreign exchange loss reported on the 2015 income statement
November 18 .......................................
$(300)
December 31 ........................................
103
December 31 ........................................
(77)
Total ......................................................
$(274)
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 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 (Continued)
2016
Apr. 26
Cash .......................................................................
170,450
Loss on Sale of Short-Term Investments ...........
13,655
Short-Term Investments—Trading (MTV) .......
184,105
Sold MTV shares [(5,000 x $34.50) - $2,050].
Apr. 27
Cash .......................................................................
70,812
Gain on Sale of Short-Term Investments .....
862
Short-Term Investments—Trading (UPS) .......
69,950
Sold UPS shares [(1,200 x $60.50) - $1,788].
June 2
Short-Term Investments—Trading (SPW) ................
622,450
Cash ................................................................
622,450
Purchased SPW shares
[(3,600 x $172.00) + $3,250].
June 14
Short-Term Investments—Trading (W-M) .............
46,307
Cash ................................................................
46,307
Purchased Wal-Mart shares
[(900 x $50.25) + $1,082].
Dec. 31
Fair Value Adjustment—Trading (ST) .................
33,298
Unrealized Gain—Income ...............................
33,298
Record fair value of securities.
$828,000 fair value - $812,262 cost*; thus,
FVA—Trading 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:
12/31/2016—F.V. Adj—Trading
Unadj.
17,560
Adj.
33,298
End.
15,738
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
