Accounting Chapter 12 Homework Company Does Not Intend Sell The Impaired

12–120 Intermediate Accounting, 8/e

Real World Case 12–1

Requirement 1

Fair Value Adjustment, AFS Investments

Dec. 29, 2012)

$1,079 gain – $5 loss

1,074

Dec. 28, 2013)

$2,902 gain – $7 loss

Requirement 2

Intel would record the following entry to account for unrealized holding gains

and losses associated with its AFS investments:

CASES

Case 12–1 (concluded)

Requirement 3

Intel recorded an “adjustment for gains on available-for-sale investments

included in net income” of $146. That adjustment is capturing the fact that Intel

sold some AFS investments that had accumulated unrealized holding gains of

$146, so it had to reduce the fair value adjustment upon sale.

One possible explanation for the debit plug of $4 is an OTT impairment. As

12–122 Intermediate Accounting, 8/e

Research Case 12–2

[Note: This case encourages the student to reference actual annual reports.]

The note that describes an investment in securities “available-for-sale” may be

headed by any one of a variety of captions or subsumed within another disclosure

Investments in securities available-for-sale will be reported as current or

noncurrent assets depending on the intent of management regarding the timing of

their eventual sale. Realized gains or losses are reported in the income statement if

any of these securities were sold during any year reported.

Investments in securities available-for-sale are reported at fair value. Unrealized

holding gains and losses from retaining securities during periods of price change

are not included in the determination of income for the period. Rather, they are

measures to be included in earnings.

Cash outflows from acquiring these investments or inflows from selling them are

reported as investing activities in the company’s comparative statements of cash

12–124 Intermediate Accounting, 8/e

International Case 12–3

Requirement 1

Requirement 2

Renault’s decision appears appropriate, as the company has significant

Requirement 3

It is not surprising that Renault makes adjustments that take into account the

fair value of Nissan’s assets and liabilities at the time Renault invested in

Requirement 4

Renault’s harmonization adjustments are required by IFRS, which requires that,

Solutions Manual, Vol.1, Chapter 12 12–125

12–126 Intermediate Accounting, 8/e

International Case 12–4

Requirement 1

Note 18 indicates a December 31, 2013, fair value and a carrying value of each

category of investments as follows:

Fair value

Carrying value

HTM

€ 75

Per Note 17:

(I) HELD-TO-MATURITY INVESTMENTS

“These are assets with set cash flows and fixed maturities which Unilever intends

(III) AVAILABLE-FOR-SALE FINANCIAL ASSETS

“Any financial assets not classified as either loans and receivables or financial

assets at fair value through profit or loss are designated as available-for-sale. They

Case 12–4 (concluded)

(IV) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR

LOSS

“These are derivatives and assets that are held for trading. Related transaction costs

are expensed as incurred. Unless they form part of a hedging relationship, these

Requirement 2

Unilever’s December 31, 2013, balance sheet reports non-current financial

Requirement 3

Even though Unilever indicates that it accounts for HTM investments at

12–128 Intermediate Accounting, 8/e

Research Case 12–5

Answers to the questions will, of course, vary because students will research

financial statements of different companies.

The responses should identify securities held that are classified as trading

securities, available-for-sale, or held-to-maturity. Although a company is not

Real World Case 12–6

Requirement 1

The 2013 balance sheet reports the following two current and one

noncurrent asset categories ($ in millions):

2013

2012

Current Assets:

Cash and cash equivalents

$15,621

$13,451

Noncurrent assets:

Case 12–6 (continued)

Requirement 2

Merck (in the summary of critical accounting policies) describes its policy

regarding accounting for its investments:

Accounting for unrealized gains and losses (both temporary and OTT):

“Investments — Investments in marketable debt and equity securities

classified as available-for-sale are reported at fair value. Fair values of

considered other-than-temporary, impairment losses are charged to

Other (income) expense, net. The Company considers available evidence

in evaluating potential impairments of its investments, including the

duration and extent to which fair value is less than cost and, for equity

securities, the Company’s ability and intent to hold the investments. For

debt securities, an other-than-temporary impairment has occurred if the

Accounting for realized gains and losses:

“Realized gains and losses for both debt and equity securities are

included in Other (income) expense, net.”

12–2 Intermediate Accounting, 8e

Case 12–6 (concluded)

Requirement 3

Investments accounted for using the equity method are described in Note 8,

Requirement 4

Requirement 5

Real World Case 12–7

Requirement 1

The note indicates unrealized holding losses during 2013 in the amount of $101

Requirement 2

Reclassification adjustment for losses (gains) included in net income refers to

unrealized holding gains and losses that occurred in periods prior to the period in

12–4 Intermediate Accounting, 8e

Trueblood Accounting Case 12–8

Research Case 12–9

From “Recognition and Presentation of Other-Than-Temporary Impairments,”

FASB Staff Position (FSP) No. 115-2 and 124-2 (Norwalk, Conn.: FASB April 9,

2009), pp. 17–19,

1. Need to reduce net income for the full difference between amortized cost

and fair value for debt investments, rather than only for credit losses,

because that better suits the needs of investors: “Messrs. Linsmeier and

Siegel …believe that to the extent there is an other-than-temporary impairment,

it should be measured as the entire difference between the fair value and the

2. Likely that there will be fewer OTT impairments given the new recognition

criteria: “Second, Messrs. Linsmeier and Siegel object to the change in the

trigger for the nonrecognition of the full impairment loss in net income. The

12–6 Intermediate Accounting, 8e

Case 12–9 (concluded)

primary objective of this change is to make the held-to-recovery concept more

operational, they also recognize that a likely result of this change is a

3. Lack of convergence with the IASB: Finally, Messrs. Linsmeier and Siegel

believe that there potentially may be other standard-setting issues that need to

Note: This dissent offers interesting opportunities for classroom discussion. Points

that might come up include:

1. Political pressures on the FASB (banks were pushing hard for flexibility in

Air France-KLM Case

Requirement 1

a. Per note 24 (“Other financial assets”), the balance of investments accounted

for at FVPL is $951 (including “Cash secured” portion) as of December 31,

Air France-KLM Case (concluded)

Requirement 2

a. Per note 24 (“Other financial assets”), the balance of investments accounted

for as available for sale is $1,135 (including “Shares secured” portion) as of

Requirement 3

a. If AF has the ability to exercise significant influence over the investee, it uses

the equity method to account for the investment. AF assumes that it has the