D–1
APPENDIX D
INVESTMENTS
EXERCISES
Ex. D–1
Sept.
12
Investments—Aspen Company Stock*
200,400
Cash
200,400
* Sept. 12 investments =
(4,000 shares $50 per share) + $400 = $200,400
Oct.
15
Cash*
2,400
Dividend Revenue
2,400
* Oct. 15 cash = ($0.60 per share 4,000 shares) = $2,400
Nov.
10
Cash*
119,800
Loss on Sale of Investments
30,500
Investments—Aspen Company Stock**
150,300
* Nov. 10 cash = (3,000 shares $40) – $200 = $119,800
** Nov. 10 investments =
3,000 shares ($200,400 ÷ 4,000 shares) = $150,300
Ex. D–2
Feb.
24
Investments—Tett Co. Stock*
160,200
Cash
160,200
* Feb. 24 investments = (2,000 shares $80) + $200 = $160,200
May
16
Investments—Issacson Co. Stock*
80,100
Cash
80,100
* May 16 investments = (2,000 shares $40) + $100 = $80,100
July
14
Cash*
49,950
Gain on Sale of Investments
9,900
Investments—Tett Co. Stock**
40,050
* July 14 cash = (500 shares $100) – $50 = $49,950
** July 14 investments =
500 shares ($160,200 ÷ 2,000 shares) = $40,050
APPENDIX D Investments
D–2
Ex. D–2 (Concluded)
Aug.
12
Cash*
33,920
Loss on Sale of Investments
6,130
Investments—Issacson Co. Stock**
40,050
* Aug. 12 cash = (1,000 shares $34) – $80 = $33,920
** Aug. 12 investments =
1,000 shares ($80,100 ÷ 2,000 shares) = $40,050
Oct.
31
Cash*
450
Dividend Revenue
450
* Oct. 31 cash = (2,000 shares – 500 shares) $0.30 = $450
Ex. D–3
a.
Investments—Iceline Inc. Bonds
150,000
Interest Receivable
1,500
Cash
151,500
b.
Cash
4,500
Interest Receivable
1,500
Interest Revenue
3,000
c.
Cash*
92,700
Interest Revenue
900
Gain on Sale of Investments
1,800
Investments—Iceline Inc. Bonds
90,000
Ex. D–4
a.
20Y5
May
1
Investments—Makofske Co. Bonds
200,000
Cash
200,000
b.
20Y5
Nov.
1
Cash
5,000
Interest Revenue*
5,000
* Interest revenue = $200,000 5% 6/12 = $5,000
c.
20Y5
Nov.
1
Cash*
78,400
Loss on Sale of Investments
1,600
Investments—Makofske Co. Bonds
80,000
* Cash = $80,000 98% = $78,400
APPENDIX D Investments
D–3
Ex. D–4 (Concluded)
d.
20Y5
Dec.
31
Interest Receivable*
1,000
Interest Revenue
1,000
Accrued interest.
* Interest receivable =
($200,000 – $80,000) 5% 2/12 = $1,000
Ex. D–5
a.
20Y2
Oct.
1
Investments—Jerris Corp. Bonds
150,000
Cash
150,000
b.
20Y2
Dec.
31
Interest Receivable*
3,000
Interest Revenue
3,000
* Accrued interest = $150,000 8% 3/12 = $3,000
c.
20Y3
Apr.
1
Cash
6,000
Interest Receivable
3,000
Interest Revenue*
3,000
* Interest revenue = $150,000 8% 3/12 = $3,000
d.
20Y3
Apr.
1
Cash*
51,000
Gain on Sale of Investments
1,000
Investments—Jerris Corp. Bonds
50,000
* Cash = $50,000 102% = $51,000
Ex. D–6
Jan.
2
Investment in Fain Company Stock
800,000
Cash
800,000
Dec.
31
Investment in Fain Company Stock
72,000
Income of Fain Company*
72,000
Recorded 40% of Fain Company income.
* Share of Fain Company income =
40% $180,000 = $72,000
31
Cash*
24,000
Investment in Fain Company Stock
24,000
* Dec. 31 cash = 40% $60,000 = $24,000
APPENDIX D Investments
D–4
Ex. D–7
a.
20Y6
Jan.
4
Investment in Filington Co. Stock*
4,800,000
Cash
4,800,000
* Jan. 14 investment =
160,000 shares $30 per share = $4,800,000
July
2
Cash*
240,000
Investment in Filington Co. Stock
240,000
* Dividend =
$600,000 ($160,000 ÷ 400,000 shares) = $240,000
Dec.
31
Investment in Filington Co. Stock
480,000
Income of Filington Co.*
480,000
Record 40% share of Filington
Co. net income.
* Income = $1,200,000
(160,000 shares ÷ 400,000 shares) = $480,000
b. Initial acquisition cost …………………………………………………………………………… $4,800,000
Equity earnings for 20Y6 ……………………………………………………………………….. 480,000
Ex. D–8
20Y9
Dec.
31
Valuation Allowance for Trading Investments*
5,900
Unrealized Gain on Trading Investments
5,900
To record increase in fair value of
trading investments.
APPENDIX D Investments
D–5
Ex. D–9
a.
20Y1
Feb.
24
Investments—Raiders Inc. Stock
851,000
Cash (18,500 shares $46 per share)
851,000
Dec.
31
Valuation Allowance for Trading Investments
111,000
Unrealized Gain on Trading Investments*
111,000
To record increase in fair value
of trading investments
* Unrealized gain = 18,500 shares
($52 per share – $46 per share) = $111,000
b. The unrealized gain or unrealized loss for trading investments is reported on the income
Ex. D–10
20Y3
Dec.
31
Unrealized Loss on Trading Investments
2,200
Valuation Allowance for Trading Investments
2,200
To record decrease in fair value
of trading investments.
APPENDIX D Investments
D–6
Ex. D–11
a.
20Y9
Dec.
31
Unrealized Loss on Trading Investments
4,250
Valuation Allowance for Trading
Investments*
4,250
b. The unrealized loss on trading investments is reported on the income statement as
APPENDIX D Investments
D–7
Ex. D–12
a.
Galileo Company
Balance Sheet (selected items)
December 31, 20Y8
Assets
Current assets:
Trading investments (at cost)
$82,000
Valuation allowance for trading investments
5,720
Trading investments (at fair value)
$87,720
* Valuation allowance computation:
Market:
Hawking Inc.: 900 shares $50 ……………………………………………………………. $ 45,000
Pavlov Co.: 1,780 shares $24 …………………………………………………………….. 42,720
Total market value …………………………………………………………………………. $ 87,720
Cost ($44,000 + $38,000) …………………………………………………………………………… (82,000)
Unrealized gain ………………………………………………………………………………………… $ 5,720
b. The unrealized gain on trading investments is reported on the income statement and
added in determining net income. Because net income is closed to Retained Earnings, the
unrealized gain will increase retained earnings and stockholders’ equity.
Ex. D–13
20Y5
Dec.
31
Valuation Allowance for Available-for-Sale
Investments*
3,170
Unrealized Gain on Available-for-Sale
Investments
3,170
To record increase in fair value of
available-for-sale securities.
APPENDIX D Investments
Ex. D–14
a.
20Y7
Jan.
1
Investments—Bengals Inc. Bonds
400,000
Cash
400,000
Dec.
31
Unrealized Loss on Available-for-Sale
Investments*
7,200
Valuation Allowance for Available-for-Sale
Investments
7,200
* $392,800 – $400,000
b. Unrealized Loss on Available-for-Sale Investments is reported in the “Stockholders’
Equity” section of the balance sheet, separately from the retained earnings or paid-in