Problem 12–9
2018
($ in millions)
October 18
October 31
November 1
November 1
1) Updating the fair-value adjustment:
Need to move from a fair-value adjustment of $0 to ($2) million:
Fair-Value
Adjustment
5/1/2018 0
Note: the loss included in NI equals the difference between the proceeds ($28
million) and the carrying value of the investment ($30 million).
Fair Value
Adjustment
Balance on 5/1/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 11/1/2018 ($28 – 30) ($2)
Problem 12–9 (continued)
2) Recording the sale transaction:
December 1
December 20
December 21
December 23
1) Updating the fair-value adjustment:
Need to move from a fair-value adjustment of $0 to $0.1 million:
Fair-Value
Adjustment
12/20/2018 0
Fair Value
Adjustment
Balance on 12/20/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 12/23/2018 ($5.7 – 5.6) $0.1
Problem 12–9 (continued)
2) Recording the sale transaction:
December 29
December 31
Accrued interest:
Interest receivable – Holistic
Problem 12–9 (continued)
Revaluations:
Equity investment (Millwork Ventures):
Need to move from a fair-value adjustment of $0 to ($3 million):
Fair-Value
Adjustment
10/18/2018 0
Fair Value
Adjustment
Balance on 10/18/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 12/31/2018 ([2 × $27.50] – $58 million) ($3)
Problem 12–9 (continued)
Equity investment (NXS):
Need to move from a fair-value adjustment of $0 to $2 million:
Fair-Value
Adjustment
12/21/2018 0
Note: Securities held-to-maturity are not adjusted to fair value.
Fair Value
Adjustment
Balance on 12/21/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 12/31/2018 ([4 × $11.50] – $44 million) $2
Problem 12–9 (continued)
2019
January 7
1) Updating the fair-value adjustment:
Need to move from a fair-value adjustment from $2 to ($1 million):
Fair-Value
Adjustment
12/31/2018 2
Fair Value
Adjustment
Balance on 12/31/2018 $ 2
± Adjustment needed to update fair value ?
Balance needed on 1/7/2019 ($43 – $44)($1)
Problem 12–9 (concluded)
2) Recording any reclassification adjustment:
Need to move from a fair-value adjustment from ($1 million) to $0:
Fair-Value
Adjustment
1/7/2019 1
3) Recording the sale transaction:
Note: the loss included in NI equals the difference between the proceeds ($43
million) and the cost of the investment ($44 million). It also equals the amount of
unrealized gain that had accumulated in AOCI and was removed from AOCI with
the reclassification adjustment.
Fair Value
Adjustment
Balance on 1/7/2019: ($1)
± Reclassification adjustment ?
Balance needed to close fair value adjustment $0
Problem 12–10
Requirement 1
Purchase ($ in millions)
Net income
Dividends
Depreciation adjustment
‡Calculations:
Investee Net Assets Difference
Net Assets Purchased Attributed to:
Undervaluation
Net income
No entry
Dividends
Adjusting entry
Need to move from a fair-value adjustment from $0 to ($14 million):
Fair-Value
Adjustment
1/4/18 0
Fair Value
Adjustment
Balance on 1/4/2018 $ 0
± Adjustment needed to update fair value ?