CHAPTER 12
Investments
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
Do It!
Exercises
A
Problems
B
Problems
1. Discuss why corporations
invest in debt and stock
securities.
1
1
2. Explain the accounting
for debt investments.
2, 3, 4
1
1
2, 3
1A, 2A
1B, 2B
3. Explain the accounting
for stock investments.
5, 6, 7, 8,
9, 10
2, 3
2
4, 5, 6, 7, 8
2A, 3A, 4A,
5A
2B, 3B, 4B,
5B
4. Describe the use of
consolidated financial
statements.
11, 20
9
5. Indicate how debt and
stock investments are
reported in financial
statements.
12, 13, 14,
15, 16, 17
4, 5, 6,
7, 8
3
8, 10,
11, 12
1A, 2A, 3A,
5A, 6A
1B, 2B, 3B,
5B, 6B
6. Distinguish between
short-term and long-term
investments.
18, 19
5, 7, 8
4
10, 11, 12
1A, 2A, 3A,
5A, 6A
1B, 2B, 3B,
5B, 6B
*8. Explain the form and
content of consolidated
financial statements as
well as how to prepare
them.
21, 22
9, 10
13, 14
7A
7B
Note: All asterisked Question, Exercises, and Problems relate to material contained in the appendix to the
chapter.
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
1A
Journalize debt investment transactions and show
financial statement presentation.
Moderate
30–40
2A
Journalize investment transactions, prepare adjusting
entry, and show statement presentation.
Moderate
30–40
3A
Journalize transactions and adjusting entry for stock
investments.
Moderate
30–40
4A
Prepare entries under the cost and equity methods,
and tabulate differences.
Simple
20–30
5A
Journalize stock investment transactions and show
statement presentation.
Moderate
40–50
6A
Prepare a balance sheet.
Moderate
30–40
*7A
Prepare consolidated worksheet and balance sheet
when cost exceeds book value.
Simple
30–40
1B
Journalize debt investment transactions and show
financial statement presentation.
Moderate
30–40
2B
Journalize investment transactions, prepare adjusting
entry, and show statement presentation.
Moderate
30–40
3B
Journalize transactions and adjusting entry for stock
investments.
Moderate
30–40
4B
Prepare entries under the cost and equity methods,
and tabulate differences.
Simple
20–30
5B
Journalize stock investment transactions and show
statement presentation.
Moderate
40–50
6B
Prepare a balance sheet.
Moderate
30–40
*7B
Prepare consolidated worksheet and balance sheet
when cost exceeds book value.
Simple
30–40
WEYGANDT FINANCIAL ACCOUNTING 9E
CHAPTER 12
INVESTMENTS
Number
LO
BT
Difficulty
Time (min.)
BE1
2
AP
Simple
2–4
BE2
3
AP
Simple
3–5
BE3
3
AP
Simple
3–5
BE4
5
AP
Simple
2–3
BE5
5, 6
AN
Simple
2–4
BE6
5
AN
Simple
2–3
BE7
5, 6
AP
Simple
2–4
BE8
5, 6
AP
Simple
3–5
*BE9
7
AP
Simple
3–5
*BE10
7
AP
Simple
3–5
DI1
2
AP
Moderate
6–8
DI2
3
AP
Simple
6–8
DI3
5
AN
Simple
4–6
DI4
6
C
Simple
4–6
EX1
1
C
Simple
8–10
EX2
2
AP
Moderate
8–10
EX3
2
AP
Moderate
8–10
EX4
3
AP
Simple
8–10
EX5
3
AP
Simple
6–8
EX6
3
AP
Simple
8–10
EX7
3
AP
Simple
6–8
EX8
3, 5
AP
Simple
8–10
EX9
4
C
Simple
6–8
EX10
5, 6
AN
Simple
4–6
EX11
5, 6
AN
Simple
8–10
EX12
5, 6
AN
Simple
6–8
*EX13
7
AP
Simple
3–5
*EX14
7
AP
Simple
4–6
P1A
2, 5, 6
AN
Moderate
30–40
P2A
2, 3, 5, 6
AN
Moderate
30–40
P3A
3, 5, 6
AN
Moderate
30–40
INVESTMENTS (Continued)
Number
LO
BT
Difficulty
Time (min.)
P4A
3
AN
Simple
20–30
P5A
3,5,6
AN
Moderate
40–50
P6A
5,6
AP
Moderate
30–40
*P7A
7
AP
Moderate
20–30
P1B
2, 5, 6
AN
Moderate
30–40
P2B
2, 3, 5, 6
AN
Moderate
30–40
P3B
3, 5, 6
AN
Moderate
30–40
P4B
3
AN
Simple
20–30
P5B
3, 5, 6
AN
Moderate
40–50
P6B
5, 6
AP
Moderate
30–40
*P7B
7
AP
Moderate
20–30
BYP1
4
C
Simple
10–15
BYP2
4
AN
Simple
10–15
BYP3
4
AN
Simple
5–10
BYP4
—
K
Simple
10–15
BYP5
3
C
Moderate
15–20
BYP6
5
C
Simple
5–10
BYP7
5
E
Simple
10–15
BYP8
—
C
Simple
10–15
BYP9
—
AP
Moderate
10–15
BLOOM’S TAXONOMY TABLE
Copyright © 2014 John Wiley & Sons, Inc. Weygandt, Financial Accounting, 9/e, Solutions Manual (For Instructor Use Only) 12-5
Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
Learning Objective
Knowledge
Comprehension
Application
Analysis
Synthesis
Evaluation
1. Discuss why corporations invest
in debt and stock securities.
Q12-1
E12-1
2. Explain the accounting for debt
investments.
Q12-2
Q12-3
Q12-4
BE12-1
DI12-1
E12-2
E12-3
P12-1A
P12-2A
P12-1B
P12-2B
3. Explain the accounting for stock
investments.
Q12-7
Q12-5
Q12-8
Q12-9
Q12-10
Q12-6
BE12-2
BE12-3
DI12-2
E12-4
E12-5
E12-6
E12-7
E12-8
P12-2A
P12-3A
P12-4A
P12-5A
P12-2B
P12-3B
P12-4B
P12-5B
4. Describe the use of consolidated
financial statements.
Q12-11
Q12-20
E12-9
5. Indicate how debt and stock
investments are reported in
financial statements.
Q12-12
Q12-17
Q12-13
Q12-14
Q12-16
BE12-4
BE12-7
BE12-8
E12-8
P12-6A
P12-6B
Q12-15
BE12-5
BE12-6
DI12-3
E12-10
E12-11
E12-12
P12-1A
P12-2A
P12-3A
P12-5A
P12-1B
P12-2B
P12-3B
P12-5B
6. Distinguish between short-term
and long-term investments.
Q12-18
Q12-19
DI12-4
BE12-7
BE12-8
P12-6A
P12-6B
BE12-5
E12-10
E12-11
E12-12
P12-1A
P12-2A
P12-3A
P12-5A
P12-1B
P12-2B
P12-3B
P12-5B
*7. Explain the form and content of
consolidated financial statements
as well as how to prepare them.
Q12-21
Q12-22
BE12-9
BE12-10
E12-13
E12-14
P12-7A
P12-7B
Broadening Your Perspective
Financial Reporting
Real-World Focus
Decision-Making
Across the
Organization
Communication
All About You
FASB Codification
Comparative Analysis
Ethics Case
ANSWERS TO QUESTIONS
1. The reasons corporations invest in securities are: (1) excess cash not needed for operations that
2. (a) The cost of an investment in bonds consists of all expenditures necessary to acquire the bonds,
3. (a) Losses and gains on the sale of debt investments are computed by comparing the amortized
are reported under other revenues and gains.
4. Seibel Company is correct. The gain is the difference between the net proceeds and the cost of the
bonds. The gain is $5,000.
5. The cost of an investment in stock includes all expenditures necessary to acquire the investment.
6. The entry is:
Stock Investments …………………………………………………………………………. 62,000
Cash …………………………………………………………………………………….. 62,000
7. (a) Whenever the investor’s influence on the operating and financial affairs of the investee is
use judgment, however, rather than blindly follow the 20%–50% guideline.
8. Since Ling Corporation uses the equity method, the income reported by Gorman Packing ($80,000)
debited to Cash and credited to Stock Investments.
9. Significant influence over an investee may result from representation on the board of directors,
participation in policy-making processes, or material intercompany transactions between the investor
Questions Chapter 12 (Continued)
10. Under the cost method, an investment is originally recorded and reported at cost. Dividends are
each period for the investor’s share of the earnings or losses of the investee. The investor’s
share of the investee’s earnings is recognized in the earnings of the investor. Dividends received
11. Consolidated financial statements present the details of the assets and liabilities controlled by the
Consolidated financial statements are especially useful to the stockholders, board of directors, and
12. The valuation guidelines for investments is as follows:
Category
Valuation and Reporting
Trading
Available-for-sale
Held-to-maturity
At fair value with changes reported in net income
At fair value with changes reported in stockholders’ equity
At amortized cost
Investments recorded under the equity method are reported at their carrying value. The carrying
13. Jill should report as follows:
(1) Under current assets in the balance sheet:
Short-term investments, at fair value ……………………………………………….. $72,000
Unrealized loss on trading securities ……………………………………………….. $ 2,000
14. Jill should report as follows:
(1) Under investments in the balance sheet:
Less: Unrealized loss on available-for-sale securities ………………………… $ (2,000)
15. The entry is:
Fair Value Adjustment—Available-for-Sale ……………………………………….. 10,000
Unrealized Gain or Loss—Equity ……………………………………………… 10,000
16. The entry is:
Fair Value Adjustment—Trading ……………………………………………………… 10,000
Unrealized Gain—Income ……………………………………………………….. 10,000
Questions Chapter 12 (Continued)
17. Unrealized Loss—Equity is reported as a deduction from stockholders’ equity. The unrealized loss is
18. Reporting Unrealized Gains (Losses)—Equity in the stockholders’ equity section serves two important
fair value.
19. No. The investment in Orr Corporation stock is a long-term investment because there is no intent
to convert the stock into cash within a year or the operating cycle, whichever is longer.
20. In Note 1, Apple stated the following regarding its accounting policy on consolidated financial
statements:
The accompanying consolidated financial statements include the accounts of the Company.
Intercompany accounts and transactions have been eliminated. The preparation of these
*21. (a) The parent company’s investment in the subsidiary’s common stock and the subsidiary’s
stockholders’ equity account balances are eliminated.
(b) The investment account represents an interest in the assets of the subsidiary. The balance
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 12-1
Jan. 1 Debt Investments ……………………………………… 52,000
July 1 Cash ………………………………………………………… 2,340
BRIEF EXERCISE 12-2
Aug. 1 Stock Investments ……………………………………. 37,000
Dec. 1 Cash ………………………………………………………… 40,000
BRIEF EXERCISE 12-3
Dec. 31 Stock Investments ……………………………………. 45,000
31 Cash (25% X $50,000) ……………………………….. 12,500
BRIEF EXERCISE 12-4
Dec. 31 Unrealized Loss—Income ………………………….. 5,000
BRIEF EXERCISE 12-5
Balance Sheet
Current assets
BRIEF EXERCISE 12-6
Dec. 31 Unrealized Gain or Loss—Equity …………………….. 4,000
BRIEF EXERCISE 12-7
Balance Sheet
Investments
Investments in stock of less than 20% owned
Stockholders’ equity
BRIEF EXERCISE 12-8
Investments
Investments in stock of less than 20% owned