EXERCISE H-8
(a) Fair Value Adjustment—Trading
($122,000 – $110,000) …………………………………. 12,000
Unrealized Gain—Income ……………………….. 12,000
(b) Balance Sheet
Current assets
Short-term investments, at fair value …………………… $122,000
Investments
Investments in stock of less than 20% owned
companies, at fair value …………………………………… 96,000
SOLUTIONS TO PROBLEMS
PROBLEM H-1
2017
Jan. 1 Debt Investments …………………………. 600,000
Cash …………………………………….. 600,000
July 1 Cash ($600,000 X .07 X 1/2) …………… 21,000
PROBLEM H-2
(a) Feb. 1 Stock Investments …………………………..…… 51,600
Cash …………………………………………….. 51,600
Mar. 1 Stock Investments …………………………..…… 18,500
Cash …………………………………………….. 18,500
PROBLEM H-2 (Continued)
(b) Dec. 31 Unrealized Loss—Income …………….. 7,500
Fair Value Adjustment—Trading 7,500
Security Cost Fair Value
LAF common $43,000* $39,000 (1,000 X $39)
(c) Current assets
PROBLEM H-3
(a) 2017
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
2017
2017
Jan. 1 Balance
108,000
Sept. 1
7,200
Oct. 1
PROBLEM H-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
(c) Investments
Investments in stock of less than 20%
owned companies, at fair value ………….. $ 89,700
PROBLEM H-4
(a) 2017
Jan. 1 Stock Investments ……………………….. 1,800,000
Cash ……………………………………… 1,800,000
June 30 Cash ……………………………………………. 30,000
(b) 2017
Jan. 1 Stock Investments ……………………….. 1,800,000
Cash ……………………………………… 1,800,000
PROBLEM H-4 (Continued)
(c) MEMO
To: Board of Directors
From: Student
Re: Cost and equity methods
Under the cost method of accounting for investments, the investment is
recorded at cost and revenue is recognized only when cash dividends
Cost Equity
Method Method
Stock investments $1,800,000 $1,980,000*
PROBLEM H-5
(a) Jan. 20 Cash (1,400 X $55) ……………………………. 77,000
Investment in Batone Inc.
Common Stock ……………………….. 73,500
Feb. 8 Cash ………………………………………………… 320
Dividend Revenue ($0.40 X 800) ….. 320
July 30 Cash ………………………………………………… 1,320
Dividend Revenue
($1.10 X 1,200) …………………………. 1,320
Sept. 6 Investment in P. Wahl Corporation
PROBLEM H-5 (Continued)
(b)
Investment in Batone Inc.
Common Stock
Investment in Mendez
Corporation Common Stock
1/1 Bal. 73,500
1/20 73,500
1/1 Bal. 84,000
12/31 Bal. 0
12/31 Bal. 84,000
Investment in P. Wahl
Corporation Common Stock
1/1 Bal. 33,600
2/18 33,600
1/28 31,200
12/31 Bal. 0
9/6 49,200
12/31 Bal. 80,400
(c) Dec. 31 Unrealized Gain or Loss—Equity ………… 9,400
Fair Value Adjustment—Available–
(d) Investments
Investments in stock of less than 20% owned
companies, at fair value ……………………………………. $155,000
PROBLEM H-6
MANFREID CORPORATION
Balance Sheet
December 31, 2017
Current assets
Cash ………………………………………………………………. $ 63,000
Short-term investments, at fair value ……………….. 128,000
Investments
Debt investments ……………………………………………… 400,000
Stock Investments
(Horton Inc. stock, 30% ownership, at equity) …. 240,000
Total investments …………………………………….. 640,000
Property, plant, and equipment
Land …………………………………………………. 410,000
Buildings …………………………………………… $900,000
PROBLEM H-6 (Continued)
MANFREID CORPORATION
Balance Sheet (Continued)
December 31, 2017
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
issued and outstanding ……………………….. $1,200,000
Paid-in capital in excess of par value ………. 464,000