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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 ............................................................
48,655
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 .........................................
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
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 ............................
20,500
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
