Chapter 8
Long-Term Investments &
the Time Value of Money
Short Exercises
(10-15 min.) S 8-1
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2014
Apr.
10
Investment in AFSS (600 × $17) ………………..
10,200
Cash ………………………………………………….
10,200
July
22
Cash (600 × $1.24) ……………………………………
744
Dividend Revenue ………………………………
744
Dec.
31
Unrealized Loss on Investment in AFSS ……
4,700
Allowance to Adjust Investment in AFSS
to Market ($10,200 − $5,500) ………………..
4,700
Req. 2
The income statement will report dividend revenue of $744. The
(continued) S 8-1
Req. 3
ASSETS
Total current assets ………………………………………..
$ XXX
Long-term assets:
Investment in AFSS……………………………………..
5,500
STOCKHOLDERS’ EQUITY
Common stock ……………………………………………..
$ XXX
Retained earnings .…………………………………………
XXX
Accumulated other comprehensive income:
Unrealized (loss) on investment in AFSS……………
(4,700)
(5-10 min.) S 8-2
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2015
May
21
Cash (600 × $23) …………………………………
Allowance to Adjust Investment in AFSS
to Market …………………………..……………….
13,800
4,700
Investment in AFSS ……………………….
10,200
Unrealized Loss on Investment in AFSS
4,700
Gain on Sale of Investment in AFSS .
3,600
Req. 2
Chapter 8 Long-Term Investments & the Time Value of Money 8-3
(10-15 min.) S 8-3
Req. 1
Req. 2
Journal
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Millions
a.
Equity-Method Investment ……………………………….
260
Cash ………………………………………………………….
260
To purchase equity-method investment.
b.
Equity-Method Investment ($34 × .35) ……………….
12
Equity-Method Investment Revenue …………….
12
To record investment revenue.
c.
Cash ($17 × .35) ……………………………………………….
6
Equity-Method Investment …………………………..
6
To receive cash dividend on equity-method
investment.
Req. 3
Equity-Method Investment
(Amounts in millions)
Purchase
260
Dividends received
6
Net income
12
Balance
266
Financial Accounting 10/e Solutions Manual
Copyright © 2015 Pearson Education Inc.
8-4
(5 min.) S 8-4
Millions
Sale proceeds ………………………………………………………….
$ 115
−
Carrying amount of the investment ($266 / 2) ……………..
(133)
=
(Loss) on sale of investment …………………………………….
$ (18)
(10 min.) S 8-5
1. A parent company is a corporation that owns a controlling (more than
50%) interest in another company. A subsidiary company is a
company that is controlled by another corporation.
(10 min.) S 8-6
1. Goodwill is an intangible asset. Goodwill is the excess of the
purchase price to acquire a subsidiary company over the sum of the
2. Noncontrolling interest arises when a parent company owns less than
100% of a subsidiary’s stock. The noncontrolling interest represents
the subsidiaries’ stock that is owned by stockholders other than the
parent company. The parent company can report noncontrolling
interest on its consolidated balance sheet among the stockholders’
equity.
(10-15 min.) S 8-7
(10 min.) S 8-8
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2014
a.
June
30
Held-to-Maturity Investment in Bonds
($950,000 × 1.02) ………………………………..
969,000
Cash …………………………………………….
969,000
To purchase bond investment.
b.
Dec.
31
Cash ($950,000 × .07 × 6/12) ……………….
33,250
Interest Revenue …………………………..
33,250
To receive semiannual interest.
c.
31
Interest Revenue ……………………………….
1,900
Held-to-Maturity Investment in Bonds
[($969,000 − $950,000) / 5 × 6/12] ……
1,900
To amortize bond investment premium.
2019
d.
June
30
Cash …………………………………………………
950,000
Held-to-Maturity Investment in Bonds
950,000
To receive face value at maturity.
Chapter 8 Long-Term Investments & the Time Value of Money 8-7
(5-10 min.) S 8-10
1. A. Operating
(10 min.) S 8-12
DATE: Early in 2015
TO: The HLH Company Stockholders
FROM: Chief Executive Officer
RE: Investing Activities During 2014
HLH Company’s investing activities used more cash than the previous
year principally due to the increase in purchases of property, plant, and
equipment and acquisitions and investments. The cash used for
Chapter 8 Long-Term Investments & the Time Value of Money 8-9
Exercises
(10-15 min.) E 8-13A
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
a.
Investment in AFSS (520 × $35)…………………..
18,200
Cash …………………………………………………….
18,200
b.
Cash (520 × $1.80) ……………………………………..
936
Dividend Revenue …………………………………
936
c.
Allowance to Adjust Investment in AFSS
to Market [520 × ($42 − $35)] ……………………….
3,640
Unrealized Gain on Investment in AFSS ….
3,640
d.
Cash (520 × $27) ………………………………………..
14,040
Loss on Sale of Investment in AFSS ……………
4,160
Unrealized Gain on Investment in AFSS ………
3,640
Investment in AFSS ………………………………
18,200
Allowance to Adjust Investment in AFSS to
Market ………………………………………………..
3,640
(15-25 min.) E 8-14A
Req. 1
Stock
Cost
Fair Value
German
(3,000 × $40)
=
$120,000
(3,000 × $30.125)
=
$ 90,375
Chile
(620 × $47.75)
=
29,605
(620 × $50.00)
=
31,000
Sweden
(1,800 × $78.00)
=
140,400
(1,800 × $70.00)
=
126,000
Total ……………………………………..
$290,005
………………………….
$247,375
Dec. 31
Unrealized Loss on Investments in
AFSS ($290,005 − $247,375)………………..
42,630
Allowance to Adjust Investments
in AFSS to Market ………………………
42,630
Req. 3
Statement of Other Comprehensive Income (partial):
Other comprehensive income:
Unrealized (loss) on investments in AFSS …………
$ (42,630)
Balance Sheet (partial):
ASSETS
Long-term assets:
Investments in AFFS …………………………………………….
$247,375
STOCKHOLDERS’ EQUITY
Accumulated other comprehensive income:
Unrealized (loss) on investments in AFSS …………
$ (42,630)
Chapter 8 Long-Term Investments & the Time Value of Money 8-11
(10-15 min.) E 8-15A
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
a.
Equity-Method Investment ……………………….
1,675,000
Cash ………………………………………………….
1,675,000
Purchased equity-method investment.
b.
Equity-Method Investment ($660,000 × .45).
297,000
Equity-Method Investment Revenue…….
297,000
To record investment revenue.
c.
Cash ($460,000 × .45) ………………………………
207,000
Equity-Method Investment ………………….
207,000
To receive cash dividend on equity-method investment.
(10-15 min.) E 8-16A
Equity-Method Investment
a.
Purchase
1,675,000
c.
Dividends
207,000
b.
Net income
297,000
Balance
1,765,000
Chapter 8 Long-Term Investments & the Time Value of Money 8-13
(15-20 min.) E 8-17A
Req. 2
Balance sheet (partial):
ASSETS
Long-term assets:
Equity-method investment …………………………………….
$511,500*
Income statement (partial):
Other revenue
Equity-method investment revenue ……………………….
$ 64,750
_____
*Explanation:
Equity-Method Investment
Cost
480,000
Share of net income
Share of dividends
($185,000 × 0.35)
64,750
($95,000 × .35)
33,250
Balance
511,500
(20-25 min.) E 8-18A
Req. 1 (consolidation work sheet and balance sheet)
Beta
ELIMINATION
CONSOLIDATED
ASSETS
Alpha, Inc.
Corp.
DEBIT
CREDIT
BALANCE SHEET
Cash
46,000
20,000
66,000
Accounts receivable, net
75,000
52,000
127,000
Note receivable from Alpha
—
29,000
(b) 29,000
—
Inventory
56,000
80,000
136,000
Investment in Beta
113,000
—
(a)113,000
—
Plant assets, net
283,000
97,000
380,000
Other assets
29,000
13,000
42,000
Total
602,000
291,000
751,000
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Accounts payable
49,000
22,000
71,000
Notes payable
148,000
33,000
(b) 29,000
152,000
Other liabilities
78,000
123,000
201,000
Common stock
112,000
80,000
(a) 80,000
112,000
Retained earnings
215,000
33,000
(a) 33,000
_______
215,000
Total
602,000
291,000
142,000
142,000
751,000
Chapter 8 Long-Term Investments & International Operations
8-15
(15-20 min.) E 8-19A
Req. 1
Protex should use the amortized-cost method.
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Sept.
30
Held-to-Maturity Investment in Bonds
($75,000 × .98) …………………………………………
73,500
Cash ………………………………………………….
73,500
To purchase bond investment.
Dec.
31
Interest Receivable
($75,000 × .055 × 3/12) ……………………………..
1,031
Interest Revenue ………………………………..
1,031
To accrue interest revenue.
31
Held-to–Maturity Investment in Bonds
[($75,000 − $73,500) / 60 mo. × 3 mo.] ……….
75
Interest Revenue ………………………………..
75
To amortize discount on bond investment.
Req. 3
Balance sheet (partial)
ASSETS
Current assets:
Interest receivable …………………………………………………..
$ 1,031
Long-term assets:
Held-to-maturity investment in bonds
($73,500 + $75) ……………………………………………………….
$73,575
(5–10 min.) E 8-20A
$10,528.77 EXCEL formula =PV(2%,12,-250,-10000,0)
(10-15 min.) E 8-21A
German Subsidiary:
EUROS
EXCHANGE
RATE
DOLLARS
Assets
450,000
$1.36
$612,000
Liabilities
150,000
1.36
$204,000
Stockholders’ equity:
Common stock
90,000
1.03
92,700
Retained earnings
210,000
1.15
241,500
Accumulated other
comprehensive income:
Foreign-currency
translation adjustment
73,800
450,000
$612,000
Chapter 8 Long-Term Investments & International Operations
8-17
(15-20 min.) E 8-22A
Hearth & Home Bakery
Statement of Cash Flows (partial)
Fiscal Year 2014
Millions
Cash flows from investing activities:
Capital expenditures ………………………………………………
$(8.1)
Sale of property, plant, and equipment …………………….
6.0
Sale of other businesses ………………………………………..
1.8
Purchase of long-term investments …………………………
(11.6)
Sale of long-term investments …………………………………
4.3
Net cash (used) in investing activities …………………..
$(7.6)
Based on Hearth & Home’s investing activities, it appears that the
company is growing. Acquisitions of long-term assets and
investments are greater than the sales of long-term assets and other
businesses. Capital expenditures of $8.1 million exceed the sale of
PPE of $6.0 million.
(20-25 min.) E 8-23A
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Cash ……………………………………………
2,515,000
Notes Receivable …………………..
2,515,000
Short-Term Investments ………………..
3,030,000
Cash ……………………………………..
3,030,000
Cash …………………………………………….
630,000
Accumulated Depreciation …………….
3,670,000
Equipment …………………………….
4,300,000
Cash …………………………………………….
438,000
Investments …………………………..
430,000
Gain on Sale of Investments …..
8,000
Property and Equipment ………………..
557,900
Cash ……………………………………..
557,900
Chapter 8 Long-Term Investments & International Operations
8-19
(10-15 min.) E 8-24B
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
a.
Investment in AFSS (650 × $33) ………………………..
21,450
Cash …………………………………………………………..
21,450
b.
Cash (650 × $1.75) ……………………………………………
1,138
Dividend Revenue ……………………………………….
1,138
c.
Allowance to Adjust Investment in AFSS
to Market [650 × ($38 − $33)] …………………………….
3,250
Unrealized Gain on Investment in AFSS ……….
3,250
d.
Cash (650 × $26) ………………………………………………
16,900
Unrealized Gain on Investment in AFSS ……………
3,250
Loss on Sale of Investment in AFSS …………………
4,550
Investment in AFFS ……………………………………
21,450
Allowance to Adjust Investment in AFSS to
Market …………………………………………… ………..
3,250
(15-25 min.) E 8-25B
Req. 1
Stock
Cost
Fair Value
New
Brunswick
(3,500 × $34)
=
$119,000
(3,500 × $28.125)
=
$98,438
Paris
(740 × $46.25)
=
34,225
(740 × $48.00)
=
35,520
Ireland
(1,380 × $73)
=
100,740
(1,380 × $68.00)
=
93,840
Total ……………………………………..
$253,965
…………………………
$227,798
Dec. 31
Unrealized Loss on Investments in
AFSS ($253,965 − $227,798) ………………..
26,167
Allowance to Adjust Investments in
AFSS to Market …………………………..
26,167
Req. 3
Statement of Other Comprehensive Income (partial):
Other comprehensive income:
Unrealized (loss) on investments in AFSS …………..
$ (26,167)
Balance Sheet (partial):
ASSETS
Long-term assets:
Investments in AFSS ……………………………………………..
$227,798
STOCKHOLDERS’ EQUITY
Accumulated other comprehensive income:
Unrealized (loss) on investments in AFSS …………..
$ (26,167)