Exercise 12–7 (continued)
2019
January 5
1) Updating the fair-value adjustment:
Need to move from a fair-value adjustment of $50,000 to $45,000:
Fair-Value
Adjustment
2) Recording the sale transaction:
Fair Value
Adjustment
Balance on 12/31/2018 $50,000
Exercise 12–7 (concluded)
Requirement 2
Balance Sheet
(short-term investment):
Note: Unlike for securities available-for-sale, unrealized holding gains and
losses for trading securities are included in income.
Exercise 12–8
The FASB Accounting Standards Codification represents the single source of
authoritative U.S. generally accepted accounting principles. The specific citation
for each of the following items is:
1. Unrealized holding gains for trading securities should be included in
earnings: FASB ACS 320–10–35–1a: “Investments—Debt Securities—
2. Under the equity method, the investor accounts for its share of the earnings
or losses of the investee in the periods they are reported by the investee in
its financial statements: FASB ACS 323–10–35–4: “Investments—Equity
3. Transfers of securities between categories shall be accounted for at fair
value: FASB ACS 320–10–35–10: “Investments—Debt Securities—Overall
4. Disclosures for available-for-sale securities should include total losses for
securities that have net losses included in accumulated other
comprehensive income: FASB ACS 320–10–50–2: “Investments—Debt
Exercise 12–9
Requirement 1
Need to move from a fair-value adjustment of $0 to ($25,000):
Fair-Value
Adjustment
1/1/2018 0
Unrealized holding loss—OCI (to balance)
Requirement 2
None. Accumulated net holding gains and losses for securities
available-for-sale are reported as a component of shareholders’ equity (in
accumulated other comprehensive income), and changes in the balance are
Fair Value
Adjustment
Balance on 1/1/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 12/31/2018 ($20,000 − 45,000) ($25,000)
Exercise 12–10
Requirement 1 ($ in millions)
Requirement 2
Requirement 3
Fair-Value
Adjustment
7/1/2018 0
Tanner-UNF would record the following journal entry:
Fair value adjustment…………………………………… 9.2
Unrealized holding gain—OCI (to balance)…… 9.2
Exercise 12–10 (continued)
Requirement 4
1) Updating the fair-value adjustment:
Need to move from a fair-value adjustment from $9.2 to ($10.8):
Fair Value
Adjustment
Balance on 7/1/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 12/31/2018 ($210 – 200.8) $9.2
Exercise 12–10 (concluded)
2) Recording any reclassification adjustment
Need to move from a fair-value adjustment from ($10.8) to $0:
Fair-Value
Adjustment
1/2/2019 10.8
3) Recording the sale transaction:
Cash (proceeds from sale)………………………………… 190.0
Fair Value
Adjustment
Fair Value
Adjustment
Balance on 1/2/2019: ($10.8)
± Reclassification adjustment ?
Balance needed to close fair value adjustment $0
Note: the loss included in NI equals the difference between the proceeds ($190
million) and the carrying value of the investment ($200.8 million). It also equals
the amount of unrealized gain that had accumulated in AOCI and was removed
from AOCI with the reclassification adjustment.
Exercise 12–11
Requirement 1 ($ in millions)
Requirement 2
Requirement 3
Fair-Value
Adjustment
7/1/2018 0
Fair Value
Adjustment
Balance on 7/1/2018 $0
± Adjustment needed to update fair value ?
Balance needed on 12/31/2018 ($270 – 278.4) ($8.4)
Exercise 12–11 (continued)
Requirement 4
1) Updating the fair-value adjustment:
Need to move from a fair-value adjustment from ($8.4) to $11.6:
Fair-Value
Adjustment
12/31/2018 8.4
Fair Value
Adjustment
Balance on 12/31/2018 ($8.4)
± Adjustment needed to update fair value ?
3) Recording the sale transaction:
Cash (proceeds from sale)………………………………… 290.0
Note: the gain included in NI equals the difference between the proceeds ($290
million) and the carrying value of the investment ($278.4 million). It also equals
the amount of unrealized gain that had accumulated in AOCI and was removed
from AOCI with the reclassification adjustment.
Exercise 12–12
Requirement 1
a. July 1, 2018: Purchase of the Jackson bonds
b. December 31, 2018: Recognition of interest revenue
c. December 31, 2018: Year-end adjusting entries
Need to move from a fair-value adjustment of $0 to $200,000:
Fair-Value
Adjustment
Fair Value
Adjustment
Balance on 7/1/2018 $0
± Adjustment needed to update fair value ?
7/1/2018 0