Chapter 8 Long-Term Investments & International Operations
8-41
(20-30 min.) P 8-54B
Req. 1
Current fair value is used to account for the available-for-sale
investment in Sydney, Inc., because the investor expects to sell the
(continued) P 8-54B
Req. 2
Balance sheet:
ASSETS
Total current assets ……………………………………………………
$ XXX
Long-term assets:
Equity-method investment ………………………………………..
552,370*
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
[(1,100 × $41.75) − $31,600] ………………………………………
(14,325)
Income statement and Statement of other comprehensive income:
Income from operations ……………………………………………..
$ XXX
Other revenue:
Equity-method investment revenue ($465,000 × .45)….
209,250
Dividend revenue (1,100 × $.36) ………………………………..
396
Net income ………………………………………………………………..
XXX
Other comprehensive income:
Unrealized (loss) on investment in AFSS …………………..
(14,325)
_____
*Equity-Method Investment
Purchase
370,000
Net income
($465,000 × .45)
209,250
26,880
Balance
552,370
Chapter 8 Long-Term Investments & International Operations
8-43
(45-60 min.) P 8-55B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Mar.
16
Investment in AFSS (2,900 × $12.50) ……………
36,250
Cash ……………………………………………………..
36,250
Purchased investment.
May
21
Cash (2,900 × $1.20) …………………………………..
3,480
Dividend Revenue ………………………………….
3,480
Received cash dividend.
Aug.
17
Cash …………………………………………………………
63,000
Equity-Method Investment ………………………
63,000
Received cash dividend on equity-method
investment.
Dec.
31
Equity-Method Investment
($603,000 × .30) ………………………………………….
180,900
Equity-Method Investment Revenue ………..
180,900
To record investment revenue.
31
Allowance to Adjust Investment in AFSS
to Market ($39,400 − $36,250) …………………….. 3,150
Unrealized Gain on Investment in AFSS …..
3,150
Adjusted investment to market value.
(continued) P 8-55B
Req. 2
Equity-Method Investment
Jan.
1
Balance
585,000
Aug.
17
Dividends
63,000
Dec.
31
Net income
180,900
Dec.
31
Balance
702,900
Req. 3
Total current assets …………………………………………………….
$ XXX
Long-term assets:
Investment in AFSS ……………………………………………………
39,400
Equity-method investment ………………………………………….
702,900
(20-30 min.) P 8-56B
Req. 1
Req. 2
Race
RMCC
Eliminations
Consolidated
Totals
Debit
Credit
(a) $1.3
Total assets ……………….
$78.1
$163.3
(b) 8.0
$232.1
Total liabilities ……………
$63.8
$155.3
(a) $1.3
$217.8
Total stockholders’
equity ……………………..
14.3
8.0
(b) 8.0
14.3
Total liabilities and
equity ……………………..
$78.1
$163.3
$9.3
$9.3
$232.1
Req. 3
(35-45 min.) P 8-57B
Abbey, Inc.
Consolidation Work Sheet
September 30, 2014
ELIMINATION
CONSOLIDATED
ASSETS
ABBEY
MAINE
DEBIT
CREDIT
AMOUNTS
Cash
56,000
28,000
84,000
Accounts receivable, net
169,000
86,000
255,000
Note receivable from Maine
164,000
—
(b) 164,000
0
Inventory
321,000
490,000
811,000
Investment in Maine
479,000
—
(a) 479,000
0
Plant assets, net
407,000
527,000
934,000
Total
1,596,000
1,131,000
2,084,000
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Accounts payable
122,000
61,000
183,000
Notes payable
409,000
289,000
(b) 164,000
534,000
Other liabilities
223,000
302,000
525,000
Common stock
561,000
253,000
(a) 253,000
561,000
Retained earnings
281,000
226,000
(a) 226,000
_______
281,000
Total
1,596,000
1,131,000
643,000
643,000
2,084,000
Chapter 8 Long-Term Investments and International Operations
47
(45-60 min.) P 8-58B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2014
Jan.
1
Held-to–Maturity Investment in Bonds
($2,600,000 × 1.14) ……………………………….
2,964,000
Cash ………………………………………………
2,964,000
To purchase bond investment.
July
1
Cash ($2,600,000 × .1 × 6/12) ………………..
130,000
Interest Revenue …………………………….
130,000
To receive semiannual interest.
1
Interest Revenue …………………………………
45,500
Held-to-Maturity Investment in Bonds
[($2,964,000 − $2,600,000) / 48*] × 6 …..
45,500
To amortize premium on bond
investment.
Req. 2
Oct.
31
Interest Receivable
($2,600,000 × .1 × 4/12) …………………………
86,667
Interest Revenue …………………………….
86,667
To accrue interest revenue.
31
Interest Revenue …………………………………
30,333
Held-to-Maturity Investment in Bonds
[($2,964,000 − $2,600,000) / 48*] × 4 …..
30,333
To amortize premium on bond
investment.
_____
*Amortization period: 48 months, from January 1, 2014 to January 1, 2018.
(continued) P 8-58B
Req. 3
Balance sheet at October 31, 2014:
Current assets:
Interest receivable ……………………………………………
$ 86,667
Long-term assets:
Held-to-maturity investment in bonds
($2,964,000 − $45,500 − $30,333) ………………………..
2,888,167
Property, plant, and equipment, net ……………………..
XXX,XXX
Income statement for the year ended October 31, 2014:
Other revenues:
Interest revenue ($130,000 − $45,500 + $86,667 − $30,333)…
$140,834
Chapter 8 Long-Term Investments and International Operations
49
(15-20 min.) P 8-59B
Req. 1
Investment Opportunity X
Year
Cash
Flow
x
Factor
=
PV of
Cash Flow
1
$17,000
x
.909
=
$15,453
2
10,000
x
.826
=
8,260
3
6,000
x
.751
=
4,506
$33,000
$28,219
Investment Opportunity Y
(20-25 min.) P 8-60B
Req. 1
This situation will generate a positive translation adjustment, which is like a
gain. The gain occurs because the yen’s current exchange rate, which is
used to translate the subsidiary’s net assets, is greater than the historical
exchange rates at which Deepa Corp. invested in the Japanese subsidiary.
YEN
EXCHANGE
RATE
DOLLARS
Assets
390,000,000
$0.0103
$4,017,000
Liabilities
145,000,000
0.0103
$1,493,500
Stockholders’ equity:
Common stock
21,000,000
0.0088
184,800
Retained earnings
224,000,000
0.0092
2,060,800
Accumulated other
comprehensive income:
Foreign-currency
translation adjustment
277,900
390,000,000
$4,017,000
The foreign currency translation adjustment is reported in accumulated other
comprehensive income in stockholders’ equity on the balance sheet and other
comprehensive income on the statement of comprehensive income or the
statement of other comprehensive income.
Req. 2
The translation adjustment “belongs” to Deepa, the parent company.
Challenge Exercises and Problem
(15-20 min.) E 8-61
Req. 1
(20 min.) E 8-62
Req. 1
Two components of accumulated other comprehensive income are:
Req. 2
An unrealized gain (loss) on available-for-sale investments produces a
positive (negative) balance.
Req. 3
Millions
Accumulated other comprehensive (loss) at
December 31, 2014 ………………………………………………………….
$(57)
Foreign-currency translation adjustment ………………………………
25
Unrealized loss on investments in AFSS ………………………………
(15)
Accumulated other comprehensive (loss) at
December 31, 2015 ………………………………………………………...
$(47)