Problem C-2B (40 minutes)
Part 1
Feb. 6
Short–Term Investments—AFS (Nokia)………...
143,250
Cash …………………………………………………...
143,250
Purchased 3,400 shares of Nokia
[(3,400 x $41.25) + $3,000].
15
Short–Term Investments—AFS (T-bills) ………..
20,000
Cash …………………………………………………...
20,000
Purchased U.S. Treasury bills.
Apr. 7
Short–Term Investments—AFS (Dell) …………..
48,655
Cash …………………………………………………...
Purchased 1,200 shares of Dell
[(1,200 x $39.50) + $1,255].
June 2
Short–Term Investments—AFS (Merck) ………..
184,140
Cash …………………………………………………...
184,140
Purchased 2,500 shares of Merck
[(2,500 x $72.50) + $2,890].
30
Cash ………………………………………………………….
646
Dividend Revenue …………………………………..
646
Received dividends on Nokia stock
(3,400 x $0.19).
Aug. 11
Cash* ……………………………………………………….
38,050
Gain on Sale of Short-Term Investments ….
2,237
Short–Term Investments—AFS (Nokia)** ….
35,813
Sold 850 shares of Nokia. (rounded)
* [(850 x $46.00) – $1,050] **($143,250 x 850/3,400)
16
Cash ………………………………………………………...
20,600
Short-Term Investments—AFS (T-bills) ……..
20,000
Interest Revenue*…………………………..……….
600
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).
Nov. 9
Cash ………………………………………………………….
510
Dividend Revenue …………………………………..
510
Received dividends on Nokia stock
(2,550 x $0.20).
Dec. 18
Cash ………………………………………………………….
180
Dividend Revenue …………………………………..
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
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)
2016
Apr. 26
Cash ………………………………………………………………………………
50,043
Loss on Sale of Investments ……………………..……
7,240
Long–Term Investments—AFS (Ford) …….……………………
57,283
Sold Ford shares
[(2,500 x $20.50) – $1,207].
June 2
Long-Term Investments—AFS (Duracell) ……..……………………
35,700
Cash ……………………………………………………….
35,700
Purchased Duracell shares
[(1,800 x $19.25) + $1,050].
June 14
Long-Term Investments—AFS (Sears) …………………………..
25,480
Cash …………………………………………………..…..
25,480
Purchased Sears shares
[(1,200 x $21.00) + $280].
Nov. 27
Cash ………………………………………………………..……………………
29,755
Gain on Sale of Investments ………………..…………
665
Long-Term Investments—AFS (Polaroid) ………………………
29,090
Sold Polaroid shares
[600 x $51.00) – $845].
Dec. 31
Fair Value Adjustment—AFS (LT)* …………………..………
5,093
Unrealized Loss—Equity …………………………..
2,873
Unrealized Gain—Equity ……………………….….
2,220
Annual adjustment to fair values.
*
Cost _
Fair Value
Apple ………..
$31,400
$34,800
Duracell …….
35,700
32,400
Sears ………..
25,480
27,600
Total …………
$92,580
$94,800
Apple: 1,200 x $29.00 = $34,800
Duracell: 1,800 x $18.00 = $32,400
Sears: 1,200 x $23.00 = $27,600
$92,580 – $94,800 = $2,220
Fair Value Adjustment account:
Required balance ….. $2,220 Dr.
Unadjusted balance.. 2,873 Cr.
Required change …… $5,093 Dr.
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 GainEquity …………………………..…..………………..
2,220
Unrealized LossEquity ………………………………………………..
6,260
Fair Value Adjustment—AFS (LT)* ……………..……………
8,480
Annual adjustment to fair values.
Problem C-3B (Concluded)
Part 2
12/31/2015
12/31/2016
12/31/2017
Long-Term AFS Securities (cost)…………...
$117,773
$92,580
$126,260
Fair Value Adjustment ……………………...
(2,873)
2,220
(6,260)
Long-Term AFS Securities (fair value) …...
$114,900
$94,800
$120,000
Part 3
2015
2016
2017
Realized gains (losses)
Sale of Ford shares ………………………….
$(7,240)
Sale of Polaroid shares …………………….
665
Sale of Duracell shares …………………….
$ (9,598)
Sale of Apple shares ………………………..
(7,450)
Sale of Sears shares ………………………..
______
______
2,721
Total realized gain (loss) ……………………
$ 0
$(6,575)
$(14,327)
Unrealized gains (losses) at year–end …
$(2,873)
$ 2,220
$ (6,260)
Problem C-4B (50 minutes)
Part 1
1. Journal entries (assuming significant influence)
2015
Jan. 5
Long-Term Investments—Bloch ………………..…………
200,500
Cash ……………………………………………………….
200,500
Purchased Bloch shares.
Aug. 1
Cash ………………………………………………………………………………
21,000
Long–Term Investments—Bloch………………..…………
21,000
Received cash dividend (20,000 x $1.05).
Dec. 31
Long-Term Investments—Bloch ………………..…………
20,500
Earnings from Long–Term Investment ….……………………
Record equity in investee’s earnings
($82,000 x 25%).
2016
Aug. 1
Cash ………………………………………………………………………………
27,000
Long–Term Investments—Bloch …………..………………
27,000
Record cash dividend (20,000 x $1.35).
Dec. 31
Long-Term Investments (Bloch) ………………..…………
19,500
Earnings from Long–Term Investment ….……………………
19,500
Record equity in investee’s earnings
($78,000 x 25%).
2017
Jan. 8
Cash ………………………………………………………………………………
375,000
Long–Term Investments—Bloch* ………….……………….
192,500
Gain on Sale of Investments ………………..…………
182,500
Sold Bloch shares.
*Investment carrying value at Jan. 7, 2017
Original cost ………………………………..….
$200,500
Less 2015 dividends …………………….….
(21,000)
Plus 2015 earnings ………………………….
20,500
Less 2016 dividends …………………….….
(27,000)
Plus 2016 earnings ………………………….
19,500
Carrying value at date of sale ……….….
$192,500
Problem C-4B (Continued)
2. Carrying value per share (see computations in part 1)
3. Change in Brinkley’s equity
Earnings from Bloch (for 2015) ………………….….
$ 20,500
Earnings from Bloch (for 2016) ………………….….
19,500
Gain on sale of investments ………………………….
182,500
Net increase ……………………………………………..….
$222,500
Part 2
1. Journal entries (assuming NO significant influence)
2015
Jan. 5
Long-Term Investments—AFS (Bloch) ……….………………….
200,500
Cash ……………………………………………………….
200,500
Purchased Bloch shares.
Aug. 1
Cash ………………………………………………………………………………
21,000
Dividend Revenue ……………………………….……………………
21,000
Received cash dividend (20,000 x $1.05).
Dec. 31
Fair Value Adjustment—AFS (LT)* ……………..……………
37,500
Unrealized Gain—Equity …………………………..
37,500
Record fair value adjustment.
*20,000 x $11.90 = $238,000
$238,000 – $200,500 = $37,500
Problem C-4B (Concluded)
2016
Aug. 1
Cash ………………………………………………………………………………
27,000
Dividend Revenue ……………………………….……………………
27,000
Received cash dividends (20,000 x $1.35).
Dec. 31
Fair Value Adjustment—AFS (LT)* ……………..……………
35,000
Unrealized Gain—Equity …………………………..
35,000
Record fair value adjustment.
*20,000 x $13.65 = $273,000
$273,000 – $200,500 = $72,500
$72,500 – $37,500 = $35,000
2017
Jan. 8
Cash ………………………………………………………………………………
375,000
Long–Term Investments—AFS (Bloch) ….……………………
200,500
Gain on Sale of Investments ………………..…………
174,500
Sold Bloch shares.
Jan. 8
Unrealized Gain—Equity …………………………...……………………
72,500
Fair Value Adjustment—AFS (LT)* ………..…………………
72,500
To remove fair value adjustment and
related accounts.
*$37,500 + $35,000 = $72,500
2. Investment cost per share, January 7, 2017
3. Change in Brinkley‘s equity
Dividend Revenue (for 2015) ……………………..….
$ 21,000
Dividend Revenue (for 2016) ……………………..….
27,000
Gain on sale of investments ………………………….
174,500
Net increase ……………………………………………..….
$222,500
Problem C-5B (40 minutes)
Part 1
Available-for-sale securities on December 31, 2015
Security
Cost
Fair Value
27,500 shares of Company R common stock ……..…..
$559,125
$568,125
6,375 shares of Company S common stock ……..…..
231,285
210,375
42,500 shares of Company V common stock ……..…..
135,000
134,938
5,000 shares of Company X common stock ……..…..
49,920
45,625
$975,330
$959,063
Disclosure
The portfolio of available–for-sale securities would be reported on the
December 31, 2015, balance sheet at its fair fair value of $959,063.
Part 2
Dec. 31
Unrealized LossEquity ……………………………….……………….
16,267
Unrealized GainEquity …………………………..…………………….
29,313
Fair Value Adjustment—AFS (LT)* …………………………..
45,580
*December 31, 2014, available-for-sale securities:
Cost
Fair Value
$ 559,125
$ 599,063
308,380
293,250
147,295
151,800
$1,014,800
$1,044,113
December 31, 2015, adjustment to the Fair Value Adjustment account:
$1,014,800 – $1,044,113 = $29,313 Dr. balance on Dec. 31, 2014
$ 975,330 – $ 959,063 = 16,267 Cr. balance required on Dec. 31, 2015
$45,580 Cr. to adjust cost to fair value
Part 3
Year 2015 realized gain (loss)
Stock Sold
Cost
Sale
Gain (Loss)
2,125 shares of Company S stock ……..
$ 77,095
$ 71,055
$(6,040)
11,000 shares of Company T stock ……..
147,295
154,050
6,755
Realized gain (loss) …………………………....
$ 715