SOLUTIONS TO PROBLEMS
PROBLEM E-1
2014
Jan. 1 Debt Investments …………………………. 600,000
Cash ……………………………………… 600,000
July 1 Cash ($600,000 X .07 X 1/2) …………… 21,000
Interest Revenue ……………………. 21,000
Dec. 31 Interest Receivable ………………………. 21,000
Interest Revenue ……………………. 21,000
PROBLEM E-2
(a) Feb. 1 Stock Investments ………………………………. 51,600
Cash ……………………………………………. 51,600
Mar. 1 Stock Investments ………………………………. 18,500
Cash ……………………………………………. 18,500
Sept. 1 Cash ($2 X 500) ……………………………………. 1,000
Dividend Revenue …………………………. 1,000
Oct. 1 Cash ($70,000 X 08% X 1/2) ………………….. 2,800
Stock Investments Debt Investments
Feb. 1 51,600 Aug. 1 8,600 Apr. 1 70,000 Oct. 1 70,000
PROBLEM E-2 (Continued)
(b) Dec. 31 Unrealized Loss—Income …………….. 7,500
Fair Value Adjustment—Trading 7,500
(c) Current assets
Short-term investments, at fair value …………………… $54,000
(d) Other revenues and gains: Dividend Revenue, Interest Revenue, and
PROBLEM E-3
(a) 2014
July 1 Cash (5,000 X $2.00) …………………………. 10,000
Dividend Revenue ………………………… 10,000
Aug. 1 Cash (1,000 X $0.50) …………………………. 500
Dividend Revenue ………………………… 500
Stock Investments
2014 2014
Jan. 1 Balance 108,000 Sept. 1 7,200
PROBLEM E-3 (Continued)
(b) Dec. 31 Fair Value Adjustment—Available-
for-Sale ($89,700 – $86,400) …………. 3,300
Unrealized Gain or Loss—Equity …. 3,300
Security Cost Fair Value
A Co. common $33,600* $32,900 ( 700 X $47)
(c) Investments
Investments in stock of less than 20%
owned companies, at fair value …………… $ 89,700
Stockholders’ equity
Common stock …………………………………….. $2,000,000
PROBLEM E-4
(a) 2014
Jan. 1 Stock Investments ……………………….. 1,800,000
Cash …………………………………….. 1,800,000
(b) 2014
Jan. 1 Stock Investments ……………………….. 1,800,000
Cash …………………………………….. 1,800,000
PROBLEM E-4 (Continued)
(c) MEMO
To: Board of Directors
From: Student
Re: Cost and equity methods
PROBLEM E-5
(a) Jan. 20 Cash (1,400 X $55) ……………………………. 77,000
Investment in Tabares Inc.
Common Stock ……………………….. 73,500
Feb. 8 Cash ………………………………………………… 320
Dividend Revenue ($0.40 X 800) …. 320
18 Cash ($35 X 800) ………………………………. 28,000
Loss on Sale of Stock Investments …… 5,600
PROBLEM E-5 (Continued)
(b)
Investment in Tabares Inc.
Common Stock
Investment in Munoz
Corporation Common Stock
1/1 Bal. 73,500 1/20 73,500 1/1 Bal. 84,000
(c) Dec. 31 Unrealized Gain or Loss—Equity ……….. 9,400
Fair Value Adjustment—Available-
(d) Investments
Investments in stock of less than 20% owned
PROBLEM E-6
WELLMAN CORPORATION
Balance Sheet
December 31, 2014
Current assets
Cash ……………………………………………………………….. $ 63,000
(Short-term investments, at fair value) ……………… 128,000
Investments
Debt investments………………………………………………. 400,000
Stock Investments
Property, plant, and equipment
Land ………………………………………………….. 410,000
Buildings …………………………………………… $900,000
Less: Accumulated depreciation—
PROBLEM E-6 (Continued)
WELLMAN CORPORATION
Balance Sheet (Continued)
December 31, 2014
Liabilities and Stockholders’ Equity
Current liabilities
Notes payable ………………………………………………. $ 70,000
Accounts payable ………………………………………… 150,000
Stockholders’ equity
Paid-in capital
Common stock, $5 par value, 500,000
shares authorized, 240,000 shares
