Appendix C – Investments and International Operations
Problem C-4B (40 minutes)
Part 1
Available-for-sale securities on December 31, 2013
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
Fair Value Adjustment—AFS (LT)* …………………………..
2,125 shares of Company S stock ……..
11,000 shares of Company T stock ……..
Problem C-5B (50 minutes)
Part 1
1. Journal entries (assuming significant influence)
2013
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%).
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%).
2015
Jan. 8
Cash ………………………………………………………………………………
375,000
Long-Term Investments—Bloch* ………….……………….
192,500
Gain on Sale of Investments ………………..…………
182,500
Sold Bloch shares.
Problem C-5B (Concluded)
2014
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
2015
Jan. 8
Cash ………………………………………………………………………………
375,000
Long-Term Investments—AFS (Bloch) ….……………………
200,500
Gain on Sale of Investments ………………..…………
174,500
Sold Bloch shares.
Fair Value Adjustment—AFS (LT)* ………..…………………
72,500
related accounts.
*$37,500 + $35,000 = $72,500
Dividend Revenue–2013 …………………………….….
Dividend Revenue–2014 …………………………….….
27,000
Gain on sale of investments ………………………….
Problem C-6BA (Concluded)
Part 2
Foreign exchange gain reported on 2013 income statement
July 25 …………………………………………....
$ (650)
December 31…………………………………...
1,512
December 31…………………………………...
275
Total ……………………………………………....
$1,137
Part 3
To reduce the risk of foreign exchange gain or loss, Datamix could attempt
to negotiate foreign customer sales that are denominated in U.S. dollars.
To accomplish this, Datamix may be willing to offer favorable terms, such
as price discounts or longer credit terms. Another possibility that may be
of limited potential is for Datamix to make credit purchases denominated in
foreign currencies, planning the purchases so that the payables in foreign
currency match the foreign currency receivables in time and amount.
NOTE: A few students may also understand the company’s opportunity for
hedging. This involves selling foreign currency futures to be delivered at the time
the receivables from foreign customers will be collected.
Appendix C – Investments and International Operations
Serial Problem — SP C
Serial Problem, Success Systems (35 minutes)
Part 1
2014
April 16
Short-Term Investments—Trading (J&J) ……………...
20,300
Cash ……………………………………………………….
20,300
Purchased Johnson & Johnson shares
[(400 x $50) + $300].
30
Short-Term Investments—Trading (Starbucks) …....
4,650
Cash ……………………………………………………….
4,650
Purchased Starbucks shares
[(200 x $22) + $250].
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Financial Accounting, 7th Edition
48
1. Kasey’s bonus is not contingent on the classification of available-for-
sale versus held–to-maturity. Designation of the bonds as available–for–
2. Generally, Kasey must classify its debt securities as either short or long
term and as available–for-sale or held–to-maturity. Since the bonds are
5-year bonds they should be classified as long-term investments unless
3. The company’s auditors (internal and external) and/or its board of
directors should serve as an effective check on Kasey’s accounting for
the company’s long-term investments in securities.
Appendix C – Investments and International Operations
Communicating in Practice — BTN C-2
1. At June 30, 2011 (total cost–basis) ……………………………………………. $60,804
2. Mutual funds; Commercial paper; Certificates of deposit; U.S.
3. Unrealized gains = $3,052; and Unrealized losses = $(219).
4. Fair value (titled “recorded basis”) is greater. Specifically: Fair value
(recorded basis) is $63,637; and the cost basis is $60,804.
Appendix C – Investments and International Operations