*BRIEF EXERCISE 12-9
Eliminations
Paula
Company
Shannon
Company
Cr.
Consolidated
Data
Investment in
Shannon
Common Stock
190,000
190,000
0
Common Stock
120,000
0
Retained Earnings
70,000
0
*BRIEF EXERCISE 12-10
Eliminations
Paula
Company
Shannon
Company
Cr.
Consolidated
Data
Investment in
Shannon
Common Stock
200,000
200,000
0
Excess of Cost
Over Book Value
10,000
10,000
Common Stock
120,000
0
Retained Earnings
70,000
0
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 12-1
(a) Jan. 1 Debt Investments ………………………………. 50,000
July 1 Cash …………………………………………………. 2,500
July 1 Cash …………………………………………………. 29,000
Loss on Sale of Debt Investments ………. 1,000
(b) Dec. 31 Interest Receivable ……………………………. 1,000
DO IT! 12-2
(a) June 17 Stock Investments …………………………..…. 550,000
Sept. 3 Cash ………………………………………………….. 16,000
(b) Jan. 1 Stock Investments …………………………..…. 540,000
May 15 Cash ………………………………………………….. 45,000
Dec. 31 Stock Investments …………………………..…. 81,000
DO IT! 12-3
Trading securities:
Unrealized Loss—Income …………………………………………. 14,600*
Available-for-sale securities:
**$5,750 + $4,200
DO IT! 12-4
Item
Financial statement
Category
1. Loss on sale of investments
in stock.
Income statement
Other expenses
and losses
2. Unrealized gain on available-
for-sale securities.
Balance sheet
Stockholders’
equity
3. Fair value adjustment—
trading.
Balance sheet
Current assets
4. Interest earned on
investments in bonds.
Income statement
Other revenues
and gains
5. Unrealized loss on trading
securities.
Income statement
Other expenses
and losses
SOLUTIONS TO EXERCISES
EXERCISE 12-1
1. Companies purchase investments in debt or stock securities because
2. A corporation would have excess cash that it does not need for operations
3. The typical investment when investing cash for short periods of time
4. The typical investments when investing cash to generate earnings are
debt securities and stock securities.
5. A company would invest in securities that provide no current cash flows
increase in value.
6. The typical investment when investing cash for strategic reasons is
stock of companies in a related industry or in an unrelated industry that
the company wishes to enter.
EXERCISE 12-2
(a) Jan. 1 Debt Investments ………………………………. 50,000
July 1 Cash ($50,000 X 9% X 1/2) ………………….. 2,250
1 Cash …………………………………………………. 33,000
EXERCISE 12-2 (Continued)
(b) Dec. 31 Interest Receivable …………………………….. 900
EXERCISE 12-3
January 1, 2015
Debt Investments …………………………………………………….. 70,000
July 1, 2015
Cash ($70,000 X 12% X 6/12) …………………………………….. 4,200
December 31, 2015
Interest Receivable …………………………..………………………. 4,200
January 1, 2016
Cash ……………………………………………………….………………. 4,200
January 1, 2016
Cash ……………………………………………………….………………. 38,500
EXERCISE 12-4
(a) Feb. 1 Stock Investments …………………………..… 7,200
July 1 Cash (600 X $1) …………………………………. 600
Sept. 1 Cash …………………………………………………. 4,300
Dec. 1 Cash (300 X $1) …………………………………. 300
EXERCISE 12-5
Jan. 1 Stock Investments ……………………………………. 152,000
July 1 Cash (2,500 X $3) ……………………………………… 7,500
Dec. 1 Cash ……………………………………………………….. 32,000
EXERCISE 12-6
February 1
Stock Investments ……………………………………………………. 16,000
March 20
Cash ……………………………………………………….………………. 2,900
April 25
Cash (400 X $1) ………………………………………………………… 400
June 15
Cash ……………………………………………………….………………. 7,600
July 28
Cash (200 X $1.25) ……………………………………………………. 250
EXERCISE 12-7
(a) Jan. 1 Stock Investments ……………………………… 180,000
Dec. 31 Cash ($60,000 X 25%) …………………………. 15,000
31 Stock Investments ……………………………… 50,000
(b) Investment in Helbert, January 1 …………………………………. $180,000
EXERCISE 12-8
(a) 2015
Mar. 18 Stock Investments ……………………………. 260,000
June 30 Cash ……………………………………………….. 6,000
Dec. 31 Fair Value Adjustment—Available-
(b) Jan. 1 Stock Investments ……………………………. 108,000
June 15 Cash ……………………………………………….. 12,000
Dec. 31 Stock Investments ……………………………. 32,000
EXERCISE 12-9
(b) When a company owns more than 50% of the common stock of another
control.
EXERCISE 12–10
(a) Dec. 31 Unrealized Loss—Income ……………………….. 2,000
(b) Balance Sheet
Current assets
Income Statement
Other expenses and losses
EXERCISE 12–11
(a) Dec. 31 Unrealized Gain or Loss—Equity …………….. 2,000
(b) Balance Sheet
Investments
Investments in stock of less than 20% owned
Stockholders’ equity
Less: Unrealized loss on available-for-sale
EXERCISE 12-11 (Continued)
(c) Dear Ms. Kretsinger:
Investments which are classified as trading (held for sale in the near
term) are reported at fair value in the balance sheet, with unrealized
stockholders’ equity section.
Fair value is used as a reporting basis because it represents the cash
realizable value of the securities. Unrealized gains or losses on trading
investments are reported in the income statement because of the like–
reported directly in stockholders’ equity.
I hope that the preceding discussion clears up any misunderstandings.
Please contact me if you have any questions.
Sincerely,
Student