Appendix C – Investments and International Operations
Problem C-2A (40 minutes)
Part 1
2013
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 3/12).
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 (Continued)
2014
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 Loss⎯Equity …………………………………..……………
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 (Concluded)
Part 2
12/31/2013
12/31/2014
12/31/2015
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
2013
2014
2015
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.
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Financial Accounting, 7th Edition
28
Problem C-5A (30 minutes)
Part 1
1. Journal entries (assuming significant influence)
2013
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%).
2014
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%).
2015
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, 2015
Original cost …………………………..………...
$1,560,000
Less 2013 dividends ………………………....
(192,000)
Plus 2013 earnings …………………………....
232,800
Less 2014 dividends ………………………....
(156,000)
Plus 2014 earnings …………………………....
295,200
Carrying value at date of sale ……………..
$1,740,000
Problem C-5A (Concluded)
2015
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, 2015
3. Change in Selk’s equity due to stock investment
Dividend Revenue (2013) ………………………….
$192,000
Dividend Revenue (2014) ………………………….
156,000
Gain on sale of investments ……………………..
334,000
Net increase …………………………………………….
$682,000