Chapter 8 Long-Term Investments & International Operations
8-21
(10-15 min.) E 8-26B
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
a.
Equity-Method Investment ……………………….
1,420,000
Cash …………………………………………………..
1,420,000
Purchased equity-method investment.
b.
Equity-Method Investment ($660,000 × .35) .
231,000
Equity-Method Investment Revenue …….
231,000
To record investment revenue.
c.
Cash ($400,000 × .35) ………………………………
140,000
Equity-Method Investment …………………..
140,000
To receive cash dividend on equity-method investment.
(10-15 min.) E 8-27B
Equity-Method Investment
a.
Purchase
1,420,000
c.
Dividends
140,000
b.
Net income
231,000
Balance
1,511,000
Chapter 8 Long-Term Investments & International Operations
8-23
(15-20 min.) E 8-28B
Req. 1
The equity method is appropriate for a 45% investment in another
company’s common stock. Equity method is used for 20-50%
investments.
Req. 2
Balance sheet (partial):
ASSETS
Long-term assets:
Equity-method investment ……………………………………..
$544,050*
Income statement (partial):
Other revenue
Equity-method investment revenue ………………………..
$ 92,700
_____
*Explanation:
Equity-Method Investment
Cost
495,000
Share of net income
Share of dividends
($206,000 × 0.45)
92,700
($97,000 × .45)
43,650
Balance
544,050
(20-25 min.) E 8-29B
Req. 1 (consolidation work sheet and balance sheet)
Theta
ELIMINATION
CONSOLIDATED
ASSETS
Zeta, Inc.
Corp.
DEBIT
CREDIT
BALANCE SHEET
Cash
48,000
18,000
66,000
Accounts receivable, net
82,000
58,000
140,000
Note receivable from Zeta
—
33,000
(b) 33,000
—
Inventory
54,000
83,000
137,000
Investment in Theta Corp.
119,000
—
(a) 119,000
—
Plant assets, net
288,000
98,000
386,000
Other assets
29,000
11,000
40,000
Total
620,000
301,000
769,000
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Accounts payable
49,000
35,000
84,000
Notes payable
152,000
23,000
(b) 33,000
142,000
Other liabilities
78,000
124,000
202,000
Common stock
107,000
82,000
(a) 82,000
107,000
Retained earnings
234,000
37,000
(a) 37,000
_______
234,000
Total
620,000
301,000
152,000
152,000
769,000
Req. 2
The stockholders’ equity of the consolidated entity is $341,000 ($107,000 + $234,000).
Chapter 8 Long-Term Investments & International Operations
8-25
(15-20 min.) E 8-30B
Req. 1
Rentex should use the amortized-cost method.
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Sept.
30
Held-to-Maturity Investment in Bonds
($80,000 × .96) ……………………………………….
76,800
Cash …………………………………………………
76,800
To purchase bond investment.
Dec.
31
Interest Receivable
($80,000 × .07 × 3/12) ………………………………
1,400
Interest Revenue ……………………………….
1,400
To accrue interest revenue.
31
Held-to-Maturity Investment in Bonds
[($80,000 − $76,800) / 60 mo. × 3 mo.] ………
160
Interest Revenue …………………………..…..
160
To amortize discount on bond investment.
Req. 3
Balance sheet (partial)
ASSETS
Current:
Interest receivable …………………………………………………
$ 1,400
Long-term:
Held-to-maturity investment in bonds
($76,800 + $160) …………………………………………………….
$76,960
(10-20 min.) E 8-31B
$20,922.22 EXCEL formula =PV(1.5%,10,-400,-20000,0)
(10-15 min.) E 8-32B
Spanish Subsidiary:
EUROS
EXCHANGE
RATE
DOLLARS
Assets
400,000
$1.34
$536,000
Liabilities
300,000
1.34
$402,000
Stockholders’ equity:
Common stock
45,000
1.02
45,900
Retained earnings
55,000
1.17
64,350
Accumulated other
comprehensive income:
Foreign-currency
translation adjustment
23,750
400,000
$536,000
Chapter 8 Long-Term Investments & International Operations
8-27
(15-20 min.) E 8-33B
Creative Cupcakes
Statement of Cash Flows (partial)
Fiscal Year 2014
Millions
Cash flows from investing activities:
Capital expenditures ………………………………………………
$ (8.5)
Sale of property, plant, and equipment …………………….
5.8
Sale of other businesses ………………………………………..
1.9
Purchase of long-term investments …………………………
(12.1)
Sale of investments …………………………..……………………
4.3
Net cash (used) in investing activities …………………..
$ (8.6)
Based on Creative Cupcake’s investing activities, it appears that the
(20-25 min.) E 8-34B
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Cash ………………………………………………………
2,508,000
Notes Receivable ……………………………….
2,508,000
Short-Term Investments ………………………….
3,031,000
Cash …………………………………………………
3,031,000
Cash ………………………………………………………
419,000
Accumulated Depreciation ………………………
3,681,000
Equipment …………………………………………
4,100,000
Cash ………………………………………………………
421,000
Investments ………………………………………
410,000
Gain on Sale of Investments ……………….
11,000
Property and Equipment ………………………….
326,800
Cash …………………………………………………
326,800
Chapter 8 Long-Term Investments & International Operations
8-29
Quiz
Q8-35
c [(800 × $71) + (100 × $11) + (300 × $24) = $65,100]
Q8–36
d [(800 x $1.90) + (100 x $1.30) + (300 x $1.10) = $1,980]
Q8–37
Cash (800 × $67) …………………………………
53,600
Investment in AFSS (800 × $56) ………..
44,800
Gain on Sale of Investment in AFSS ….
8,800
Q8–38
b
Q8–39
a
Q8–40
b
Q8–41
a ($120,000 × .09) = $10,800
Q8–42
c [($120,000 × .09) − ($124,800 − $120,000) / 5 = $9,840]
Q8–43
d ($5,000 x .677)
Q8–44
b
Q8–45
c =PV(4%,8,-150,-5000,0)
Q8–46
a
Problems
(20-30 min.) P 8-47A
Req. 1
Current fair value is used to account for the available-for-sale
investment in Detroit, Inc., because the investor expects to sell the
(continued) P 8-47A
Req. 2
Balance sheet:
ASSETS
Total current assets …………………………..……………………….
$ XXX
Long-term assets:
Equity-method investment ………………………………………..
551,250*
Investment in AFSS ………………………………………………….
31,600
Property, plant, and equipment, net …………………………….
XXX
STOCKHOLDERS’ EQUITY
Common stock …………………………..………………………………
$ XXX
Retained earnings ………………………………………………………
XXX
Accumulated other comprehensive income:
Unrealized (loss) on investment in AFSS
[$31,600 − (800 × $41.75)] …………………………………………
(1,800)
Income statement:
Income from operations ……………………………………………..
$ XXX
Other revenue:
Equity-method investment revenue ($475,000 × .35) ….
166,250
Dividend revenue (800 × $.39) …………………………………..
312
Net income ………………………………………………………………..
XXX
Statement of other comprehensive income:
Unrealized (loss) on investment in AFSS …………………..
$ (1,800)
Balance
551,250
Chapter 8 Long-Term Investments & International Operations
8-33
(45-60 min.) P 8-48A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Mar.
16
Investment in AFSS (2,700 × $12.00) ……………
32,400
Cash ………………………………………………..
32,400
Purchased investment.
May
21
Cash (2,700 × $0.80) ………………………………..
2,160
Dividend Revenue …………………………….
2,160
Received cash dividend.
Aug.
17
Cash ………………………………………………………
65,000
Equity-Method Investment …………………
65,000
Received cash dividend on equity-method
investment.
Dec.
31
Equity-Method Investment
($612,000 × .30) ……………………………………….
183,600
Equity-Method Investment Revenue …..
183,600
To record investment revenue.
31
Allowance to Adjust Investment in AFSS
to Market ($39,000 − $32,400) …………………..
6,600
Unrealized Gain on Investment in AFSS
6,600
Adjusted investment to market value.
(continued) P 8-48A
Req. 2
Equity-Method Investment
Jan.
1
Balance
581,000
Aug.
17
Dividends
65,000
Dec.
31
Net income
183,600
Dec.
31
Balance
699,600
Req. 3
(20-30 min.) P 8-49A
Req. 1
(35-45 min.) P 8-50A
Req. 1
Jackson Corp.
Consolidation Work Sheet
September 30, 2014
ELIMINATIONS
CONSOLIDATED
ASSETS
JACKSON
MARSHALL
DEBIT
CREDIT
AMOUNTS
Cash
48,000
32,000
80,000
Accounts receivable, net
179,000
88,000
267,000
Note receivable from Marshall
168,000
—
(b) 168,000
0
Inventory
329,000
424,000
753,000
Investment in Marshall
351,000
—
(a) 351,000
0
Plant assets, net
407,000
477,000
884,000
Total
1,482,000
1,021,000
1,984,000
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Accounts payable
134,000
64,000
198,000
Notes payable
409,000
306,000
(b) 168,000
547,000
Other liabilities
215,000
300,000
515,000
Common stock
587,000
260,000
(a) 260,000
587,000
Retained earnings
137,000
91,000
(a) 91,000
_______
137,000
Total
1,482,000
1,021,000
519,000
519,000
1,984,000
Chapter 8 Long-Term Investments & International Operations
8-37
(45-60 min.) P 8-51A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2014
Jan.
1
Held-to–Maturity Investment in Bonds
($2,500,000 × 1.16) ………………………………..
2,900,000
Cash ……………………………………………….
2,900,000
To purchase bond investment.
July
1
Cash ($2,500,000 × .06 × 6/12) ……………….
75,000
Interest Revenue ……………………………..
75,000
To receive semiannual interest.
1
Interest Revenue ………………………………….
50,000
Held-to-Maturity Investment in Bonds
[($2,900,000 − $2,500,000) / 48*] x 6 ……
50,000
To amortize premium on bond
investment.
Req. 2
Oct.
31
Interest Receivable
($2,500,000 × .06 × 4/12) …………………………
50,000
Interest Revenue ………………………………
50,000
To accrue interest revenue.
31
Interest Revenue …………………………………..
33,333
Held-to-Maturity Investment in Bonds
[($2,900,000 − $2,500,000) / 48*] x 4 …….
33,333
To amortize premium on bond investment.
(continued) P 8-51A
Req. 3
Balance sheet at October 31, 2014:
Current assets:
Interest receivable ……………………………………………
$ 50,000
Long-term assets:
Held-to-maturity investment in bonds
($2,900,000 − $50,000 − $33,333) ………………………..
2,816,667
Income statement for the year ended October 31, 2014:
Other revenues:
Interest revenue ($75,000 − $50,000 + $50,000 − $33,333) ……..
$41,667
Chapter 8 Long-Term Investments & International Operations
8-39
(20-25 min.) P 8-52A
Req. 1
Investment Opportunity A
Year
Cash
Flow
x
Factor
=
PV of
Cash Flow
1
$14,000
x
.893
=
$12,502
2
8,000
X
.797
=
6,376
3
5,000
X
.712
=
3,560
$27,000
$22,438
Investment Opportunity B
(20-25 min.) P 8-53A
Req. 1
This situation will generate a positive translation adjustment, which is
YEN
EXCHANGE
RATE
DOLLARS
Assets
515,000,000
$.0107
$5,510,500
Liabilities
145,000,000
.0107
$1,551,500
Stockholders’ equity:
Common stock
18,000,000
.0092
165,600
Retained earnings
352,000,000
.0095
3,344,000
Accumulated other
comprehensive income:
Foreign-currency
translation adjustment
449,400
515,000,000
$5,510,500
The foreign currency translation adjustment is reported in accumulated
other comprehensive income in stockholders’ equity on the balance sheet