(10-15 min.) E 8-29A
German Subsidiary:
EUROS
EXCHANGE
RATE
DOLLARS
Assets
650,000
$1.326
$861,900
Liabilities
300,000
1.326
$397,800
Stockholders’ equity:
Common stock
55,000
1.06
58,300
Retained earnings
295,000
1.19
351,050
Accumulated other
comprehensive income:
Foreign-currency
(15-20 min.) E 8-30A
Req. 1
Honey Bakery
Statement of Cash Flows (partial)
Fiscal Year 2016
Millions
$(10.0)
7.3
Based on Honey Bakery’s investing activities, it appears that the
company is growing. Acquisitions of long-term assets and
investments are greater than the sales of long-term assets and other
businesses. Capital expenditures of $10.0 million exceed the sale of
PPE of $7.3 million.
(20-25 min.) E 8-31A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Cash ……………………………………………
3,116,000
Notes Receivable …………………..
3,116,000
Short-Term Investments ………………..
3,465,000
Cash ……………………………………..
Cash …………………………..………………..
Equipment …………………………….
5,100,000
Cash …………………………..………………..
Investments …………………………..
Gain on Sale of Investments …..
Property and Equipment ………………..
Cash ……………………………………..
(5–10 min.) E 8-32A
(15-20 min.) E 8-33B
Req. 1
Baytex should use the amortized–cost method to account for the long-
term investment in bonds.
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2016
Sept.
30
Held-to-Maturity Investment in Bonds
($46,000 × .97) ……………………………………….
44,620
Cash …………………………………………………
44,620
To purchase bond investment.
Interest Revenue ……………………………….
To accrue interest revenue.
31
Held-to-Maturity Investment in Bonds
To amortize discount on bond investment.
Req. 3
Balance sheet (partial)
ASSETS
Current:
Interest receivable …………………………………………………
$ 575
(10-15 min.) E 8-34B
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
a.
Investment in AFSS (410 × $31) ………………………..
12,710
Cash …………………………………………………………..
12,710
b.
Cash (410 × $1.10) ……………………………………………
451
Dividend Revenue ……………………………………….
451
c.
Allowance to Adjust Investment in AFSS
Unrealized Gain on Investment in AFSS ……….
Unrealized Gain on Investment in AFSS ……………
Cash (410 × $27) ………………………………………………
11,070
Loss on Sale of Investment in AFSS …………………
Investment in AFSS …………………………………….
12,710
(15-25 min.) E 8-35B
Req. 1
Stock
Cost
Fair Value
Dublin
(2,800 × $35)
=
$ 98,000
(2,800 × $28.125)
=
$ 78,750
Chile
(590 × $45.50)
=
26,845
(590 × $48.00)
=
28,320
Russian
=
=
Total ……………………………………..
…………………………
Req. 2
Dec. 31
Unrealized Loss on Investments in
AFSS ($194,845 − $170,320) ………………..
24,525
Allowance to Adjust Investments in
AFSS to Market …………………………..
Req. 3
Statement of Comprehensive Income (partial):
Other comprehensive income:
Unrealized (loss) on investments in AFSS …………..
$ (24,525)
Investments in AFSS ……………………………………………..
Accumulated other comprehensive income:
Unrealized (loss) on investments in AFSS …………..
$ (24,525)
(10-15 min.) E 8-36B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
a.
Equity-Method Investment ……………………….
1,300,000
Cash …………………………………………………..
1,300,000
Purchased equity-method investment.
Equity-Method Investment ($680,000 × .30) .
Equity-Method Investment Revenue …….
To record investment revenue.
c.
Cash ($450,000 × .30) ………………………………
Equity-Method Investment …………………..
To receive cash dividend on equity-method investment.
(10-15 min.) E 8-37B
Equity-Method Investment
a.
Purchase
1,300,000
c.
Dividends
135,000
Net income
Balance
1,369,000
(15-20 min.) E 8-38B
Req. 1
The equity method is appropriate for a 45% investment in another
company’s common stock. Equity method is used for 20-50%
investments.
Req. 2
Balance sheet (partial):
ASSETS
Long-term assets:
Equity-method investment ……………………………………..
$626,250*
Income statement (partial):
Other revenue
Equity-method investment revenue ………………………..
$117,000
(20-25 min.) E 8-39B
Req. 1 (consolidation work sheet and balance sheet)
Gamma,
Cressida
ELIMINATION
CONSOLIDATED
ASSETS
Inc.
Corp.
DEBIT
CREDIT
BALANCE SHEET
Cash
54,000
14,000
68,000
Accounts receivable, net
80,000
55,000
135,000
Note receivable from Gamma
—
40,000
(b) 40,000
—
Inventory
53,000
84,000
137,000
Plant assets, net
99,000
389,000
Investment in Cressida Corp.
—
Other assets
24,000
Total
Accounts payable
46,000
28,000
Notes payable
36,000
150,000
Other liabilities
78,000
216,000
Common stock
85,000
(a) 85,000
Retained earnings
13,000
208,000
(10-15 min.) E 8-40B
Greek Subsidiary:
EUROS
EXCHANGE
RATE
DOLLARS
Assets
600,000
$1.36
$816,000
Liabilities
200,000
Common stock
Retained earnings
355,000
Accumulated other
comprehensive income:
(15-20 min.) E 8-41B
Req. 1
Ellis Bakery
Statement of Cash Flows (partial)
Fiscal Year 2016
Millions
$ (10.6)
7.5
(20-25 min.) E 8-42B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Cash ………………………………………………………
3,117,000
Notes Receivable ……………………………….
3,117,000
Short-Term Investments ………………………….
3,460,000
Cash …………………………..…………………….
3,460,000
Cash ………………………………………………………
1,399,000
Equipment …………………………………………
5,100,000
Cash ………………………………………………………
Investments ………………………………………
Gain on Sale of Investments ……………….
Property and Equipment …………………………
Cash …………………………..…………………….
Quiz
Q8–44
c [(800 × $74) + (250 × $13) + (400 × $26) = $72,850]
Q8–45
c [(800 x $2.10) + (250 x $1.30) + (400 x $0.90) = $2,365]
Q8–46
Cash (800 × $74) …………………………………
59,200
Investment in AFSS (800 × $58) ………..
46,400
Gain on Sale of Investment in AFSS ….
12,800
Q8–47
c
Q8-49
a
Q8–50
d ($100,000 × .05) = $5,000
Q8–51
Q8–54
b =PV(4.5%,12,-60,-2000,0)
Problems
(45-60 min.) P 8-56A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2016
Jan.
1
Held-to-Maturity Investment in Bonds
($2,800,000 × 1.12) ………………………………..
3,136,000
Cash ……………………………………………….
3,136,000
To purchase bond investment.
July
1
Cash ($2,800,000 × .09 × 6/12) ……………….
Interest Revenue ……………………………..
To receive semiannual interest.
1
Interest Revenue ………………………………….
42,000
Held-to-Maturity Investment in Bonds
[($3,136,000 − $2,800,000) / 48*] x 6 …..
42,000
Req. 2
Oct.
31
Interest Receivable
($2,800,000 × .09 × 4/12) …………………………
84,000
Interest Revenue ………………………………
84,000
To accrue interest revenue.
31
Interest Revenue …………………………………..
Held-to-Maturity Investment in Bonds
[($3,136,000 − $2,800,000) / 48*] x 4 ……
To amortize premium on bond investment.
(continued) P 8-56A
Req. 3
Balance sheet at October 31, 2016:
Current assets:
Interest receivable …………………………..………………..
$ 84,000
Property, plant, and equipment, net ………………………
(20-30 min.) P 8-57A
Req. 1
Current fair value is used to account for the available-for-sale
investment in Columbus, Inc., because the investor expects to sell the
stock at its market value. Fair value is clearly relevant to the investor’s
(continued) P 8-57A
Req. 2
Balance sheet:
ASSETS
Total current assets …………………………………………………..
$ XXX
Property, plant, and equipment, net …………………………...
XXX
Investment in AFSS …………………………………………………
STOCKHOLDERS’ EQUITY
Common stock ………………………………………………………….
$ XXX
Retained earnings ……………………………………………………..
XXX
Accumulated other comprehensive income:
Unrealized (loss) on investment in AFSS
Income statement:
Income from operations …………………………………………….
$ XXX
Other revenue:
Equity-method investment revenue ($540,000 × .25)….
Dividend revenue (1,000 × $.33) …………………………..…..
Net income ……………………………………………………………….
XXX
Statement of comprehensive income:
Other comprehensive income:
Unrealized (loss) on investment in AFSS ………………….
$ (11,400)
_____
(45-60 min.) P 8-58A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Mar.
16
Investment in AFSS (1,400 × $12.75) ……………
17,850
Cash ………………………………………………..
17,850
Purchased investment.
May
Cash (1,400 × $2.25) …………………………..……
Dividend Revenue …………………………….
Received cash dividend.
Aug.
Cash …………………………..………………………….
90,000
Received cash dividend on equity-method
investment.
Dec.
Equity-Method Investment in FUN Software
($530,000 × .20) ……………………………………….
Equity-Method Investment Revenue …..
To record investment revenue.
Allowance to Adjust Investment in AFSS
Unrealized Gain on Investment in AFSS.
Adjusted investment to market value.
(continued) P 8-58A
Req. 2
Equity-Method Investment
Jan.
1
Balance
610,000
Aug.
17
Dividends
90,000
Dec.
31
Net income
106,000
Dec.
31
Balance
Accumulated other comprehensive income:
Unrealized gain on investment in AFSS