Financial Accounting, 9/e Appendix A-33
APA–2.
Req. 1
Sept 15, 2016
Investments in TS (+A) ……………………………………………..
224,000
Cash (– A) [7,000 shares x $32] ………………………………
224,000
Req. 2
Sept 15, 2016
Investments in AFS securities (+A) …………………………….
224,000
Cash (– A) …………………………………………………………..
224,000
Dec. 31, 2016
Investments in AFS securities (+A) …………………………….
14,000
Net unrealized gains (losses) (+OCI, +SE) ………………..
14,000
Net unrealized gains (losses) (–OCI, – SE) ………………….
Investments in AFS securities (– A) …………………………
Net unrealized gains (losses) (–OCI, – SE) ………………….
28,000
Investments AFS securities (– A) …………………………….
28,000
Computations for Year-End Adjustments to Market:
Year
Fair Value
Book Value before
Adjustment
Amount for
Adjusting Entry
2016
$238,000
($34 x 7,000 shares)
$224,000
+$14,000
2017
($25 x 7,000 shares)
Investments in TS (+A) ……………………………………………..
14,000
Net unrealized gains (losses) (+Gain, +SE) ……………….
14,000
Net unrealized gains (losses) (+Loss, –SE) …………………
Investments in TS (– A) …………………………………………
Net unrealized gains (losses) (+Loss, –SE) …………………
Investments in TS (– A) …………………………………………
28,000
APA–3.
Req. 1
The fair value method of accounting for long-term investments must be used in this
situation because 6% of the outstanding voting stock of Square Corporation is owned
(12,000 shares ÷ 200,000 shares outstanding). The fair value method must be used
when less than 20% of the outstanding stock is owned because the investor company
cannot exercise significant influence or control.
Req. 2
a.
Acquisition:
2017
2018
Investments in AFS securities (+A) …
300,000
Cash (– A) ……………………………….
300,000
(12,000 shares x $25 per share)
c.
Dividends received:
Cash (+A) ……………………………………
2014: $60,000 x 6% = $3,600
2015: $80,000 x 6% = $4,800
d.
Fair value effects:
Investments in AFS securities (+ A) ..
36,000
Net unrealized gains (losses) (+OCI,
+ SE) ……………………………………..
36,000
Net unrealized gains (losses) (–OCI,– SE)
12,000
Investments in AFS securities (–A)
12,000
Computations for Year-End Adjustments to Market:
Financial Accounting, 9/e Appendix A-35
APA–3. (continued)
Req. 3
2017
2018
a.
Balance sheet:
Long-term Investments:
Investments in AFS securities (at fair value) …………………
$336,000
$324,000
b.
Net unrealized gains (losses) …………………………………
c.
Income Statement:
Dividend revenue ……………………………………………………..
APE–4.
Req. 1
CASE A
The fair value method must be used by the company because it owns 15%
(30,000 ÷ 200,000) of the total shares. When ownership is less than 20% the
fair value method must be used because the investor cannot exercise either
significant influence or control.
(80,000 ÷ 200,000) of the total shares. When ownership is at least 20% but not
more than 50%, the equity method must be used because the investor can
exercise significant influence, but not control, over the operating and financing
policies of the other company.
Req. 2
Case A-15%
Case B-40%
January 10:
Investments in AFS securities (+A) ……….
360,000
(30,000 shares x $12)
Investments in affiliates (+A) ……………….
(80,000 shares x $12)
960,000
Cash (– A) …………………………………..
360,000
960,000
December 31:
Investments in affiliates (+A) ………………..
36,000
Equity in affiliate earnings (+R, +SE) ..
36,000
CASE B—$90,000 x 40% = $36,000
December 31:
Cash (+A) ………………………………………….
18,000
48,000
Investments in affiliates (–A) ……………..
48,000
Dividend revenue (+R, +SE) ……………..
18,000
CASE A—30,000 x $.60 = $18,000
CASE B—80,000 x $.60 = $48,000
December 31:
Net unrealized gains (losses) (–OCI, –SE)
Investments in AFS securities (–A) ……
90,000
CASE A—30,000 shares x ($9 fair value –
Financial Accounting, 9/e Appendix A-37
APA–4. (continued)
Req. 3
Case A
Case B
December 31:
Balance sheet (partial):
Investments:
Investments in AFS securities …………………………………..
$270,000
Income Statement (partial):
Dividend revenue ………………………………………………………
18,000
Equity in earnings of affiliate ……………………………………….
36,000
APA–5.
On the Statement of Cash Flows:
Case A
Case B
Operating Activities:
Net income
$ xxx,xxx
$xxx,xxx
Adjusted for:
Equity in earnings of affiliates (no cash received)
(36,000)
Dividends received (cash received)
Investing Activities:
Purchase of investments
Investments in affiliates* ………………………………………….
$948,000
Stockholders’ Equity:
Other comprehensive income:
Net unrealized gains (losses) ……………………………….
)
APA–6.
Req. 1
Purchase price for the net assets $140,000
Req. 2
Financial Accounting, 9/e Appendix A-39
CONTINUING PROBLEM
CONA-1.
Req. 1
November 21, 2016
Investments in TS (+A) ……………………………………………..
19,200,000
Cash (–A) ……………………………………………………………
19,200,000
Sept. 15, 2019
Cash (+A) ………………………………………………………………
20,000,000
Investments in TS (–A) …………………………………………..
19,600,000
Gain on sale of investments (+Gain, +SE) …………………
400,000
Computations:
Year
Fair Value
−
Book Value before
Adjustment
=
Amount for
Adjusting Entry
2016
2017
−
=
2018
−
=
$18,000,000
−
$19,200,000
=
−$1,200,000
Net unrealized gains (losses) (+Loss, –SE) …………………
Investments in TS (–A) ………………………………………….
Net unrealized gains (losses) (+Loss, –SE) …………………
Investments in TS (+A) ……………………………………………..
CONA-1. (continued)
Req. 2
November 21, 2016
Investments in AFS securities (+A) …………………………….
19,200,000
Cash (–A) ……………………………………………………………
19,200,000
Net unrealized gains (losses) (–OCI, –SE) …………………..
1,200,000
Investments in AFS securities (–A) ………………………….
1,200,000
Net unrealized gains (losses) (–OCI, –SE) …………………..
1,600,000
Investments in AFS securities (–A) …………………………..
1,600,000
Dec. 31, 2018
Investments in AFS securities (+A) …………………………….
3,200,000
Net unrealized gains (losses) (+OCI, +SE) ………………..
3,200,000
Sept. 15, 2019
Cash (+A) ………………………………………………………………
20,000,000
Net unrealized gains (losses) (–OCI, –SE) …………………..
400,000
Investments in AFS securities (–A) ………………………….
19,600,000
Gain on sale of investments (+Gain, +SE) …………………
800,000
Computations:
Year
Fair Value
−
Book Value before
Adjustment
=
Amount for
Adjusting Entry
2016
$18,000,000
($45 x 400,000) shares
−
$19,200,000
($48 x 400,000 shares)
=
−$1,200,000
2017
($41 x 400,000 shares)
−
=
2018
($49 x 400,000 shares)
−
=
Financial Accounting, 9/e Appendix A-41
CASES AND PROJECTS
ANNUAL REPORT CASES
CPA–1
Req. 1
Note 2, under the heading “Cash and Cash Equivalents, Short-term Investments and
Req. 2
A balance of $13,096,000 was reported for goodwill on the January 31, 2015, balance
sheet. There was a very slight change in goodwill during fiscal 2014 ($434,000
CPA–2.
Req. 1
On its balance sheet as of January 31, 2015, Urban Outfitters reported $104,246,000
Req. 2
The company purchased marketable securities for $405,659,000 during the most
recent year, as disclosed on its statement of cash flows under investing activities.
FINANCIAL REPORTING AND ANALYSIS CASES
CPA–3.
Req. 1
Under the equity method, the investment amount (i.e., $485,000) was increased by
the proportionate share in income reported by the affiliate corporation and decreased
Req. 2
The net increase in the investment account was $71,000 (i.e., $556,000 – $485,000).
Dividends during the current year reduced the investment account by the amount of
$90,000; therefore, investment revenue must be $161,000 (i.e., $90,000 + $71,000).
Req. 3
If the fair value method were used, investment revenue for the current year would be
CPA–4.
Under the acquisition method of accounting in both the U.S. and under IFRS,
identifiable intangible assets acquired in a business combination are initially valued at
fair value. Those assets with indefinite useful lives and any goodwill amounts are not
amortized. They are subjected to periodic impairment reviews and any impairment
write-downs are recorded as losses on the income statement. Those intangible assets
CRITICAL THINKING CASES
Financial Accounting, 9/e Appendix A-43
CPA–5.
This case deals with inside (non-public) information. The plan to acquire 80% of
CPA–6.
The assets, liabilities, revenues and expenses of the two companies will be added
together. It is unlikely that the two companies have significant intercompany
FINANCIAL REPORTING AND ANALYSIS TEAM PROJECT
CPA–7.
The solutions to this project will depend on the company and/or accounting period
selected for analysis.