Problem 12–11
Requirement 1 (note: requirement 1 has the same answer as does P 12–10)
Purchase ($ in millions)
Investment in Lavery Labeling shares …………………………………… 324
Cash …………………………………………………………………………….. 324
12–102 Intermediate Accounting, 8/e
Problem 12–11 (continued)
Requirement 2
Purchase ($ in millions)
Investment in Lavery Labeling shares …………………………………… 324
Cash …………………………………………………………………………….. 324
‡Calculations:
Investee Net Assets Difference
Net Assets Purchased Attributed to:
Problem 12–11 (concluded)
Note: After the preceding journal entries are recorded, the balance in the
Lavery Labeling investment account would be:
Investment in Lavery Labeling shares
_______________________________________
($ in millions)
Cost 324
12–104 Intermediate Accounting, 8/e
Problem 12–12
Requirement 1
Purchase ($ in millions)
Investment in Vancouver T&M shares ………………………………….. 400.0
Cash …………………………………………………………………………….. 400.0
‡Calculations:
Investee Net Assets Difference
Net Assets Purchased Attributed to:
Problem 12–12 (concluded)
Requirement 2
Investment Revenue
($ in millions)
56.0 Share of income
Inventory 2.0
Requirement 3
Investment in Vancouver T&M shares
($ in millions)
Cost 400.0
Requirement 4
$400 million cash outflow from investing activities
$12 million cash inflow (dividends) among operating activities
12–106 Intermediate Accounting, 8/e
Problem 12–13
Requirement 1
Miller’s management should decide whether it has the ability to exercise
significant influence over operating and financial policies of the Marlon Company.
Requirement 2
a. Income statement: ($ in
millions)
b. Balance sheet:
Problem 12–13 (concluded)
*Investment in Marlon Company
($ in millions)
c. Statement of cash flows:
$19 million cash outflow from investing activities
12–108 Intermediate Accounting, 8/e
Problem 12–14
Item Reporting Category
__A_ 1. 35% of the nonvoting preferred stock T. Trading securities
Problem 12–15
Requirement 1
Bond Fair Value at 1/1/2016:
Interest [($150,000 x 6%) ÷ 2] x 14.21240 * = $ 63,956
Requirement 2
January 1, 2016
Investment in bonds (face amount) …………………… 150,000
12–110 Intermediate Accounting, 8/e
Problem 12–15 (continued)
Requirement 3
January 1, 2016
Investment in bonds (face amount) …………………… 150,000
Bond Fair Value at June 30, 2016:
Interest [($150,000 x 6%) ÷ 2] x 13.13394 * = $ 59,103
Problem 12–15 (concluded)
December 31, 2016
Cash ($150,000 x 6%) ÷ 2 ………………………………. 4,500
Bond Fair Value at December 31, 2016:
Interest [($150,000 x 6%) ÷ 2] x 12.15999 * = $ 54,720
12–112 Intermediate Accounting, 8/e
Problem 12–16
Requirement 1
The Donald Company bonds include only interest and principal, so Feherty’s
business purpose is relevant for the purpose of classification and reporting. Ten
bonds are to be held to collect contractual cash flows over the life of the debt,
Requirement 2
The Donald Company bonds would be reported as follows:
• Ten bonds are accounted for at amortized cost. No unrealized gain or
Problem 12–16 (concluded)
Total effects are as follows:
Net income:
Realized gain on 5 bonds sold that were at amortized cost: $ 200
Problem 12–17
Bee Company Investment
2016: Stewart does not plan to sell the Bee investment, and does not believe it is
more likely than not that it will have to sell the investment before fair value
recovers, so the portion of the impairment that consists of credit and noncredit
losses is relevant. Stewart must recognize the $240,000 of credit losses as an OTT
impairment in earnings, and the other $260,000 as a reduction of OCI, as follows:
Oliver Corporation Investment
2016: Stewart accounts for the Oliver investment as a trading security, so OTT
impairment accounting is not relevant. Stewart simply continues to recognize in
earnings any unrealized gains and losses associated with fair value changes. Given
Problem 12–17 (continued)
2017: Fair value increased to $2,700,000 during 2017, so Stewart needs to have a
positive fair value adjustment of $200,000 in the balance sheet to adjust from
Jones, Inc Investment
2016: Stewart does not plan to sell the Jones investment, and does not believe it is
more likely than not that it will have to sell the investment before fair value
recovers, so the portion of the impairment that consists of credit and noncredit
losses is relevant. Stewart must recognize the $225,000 of credit losses as an OTT
impairment in earnings, and the other $575,000 as a reduction of OCI, as follows:
Other-than-temporary impairment loss—I/S ….. 225,000
Discount on bond investment ……………………. 225,000
12–116 Intermediate Accounting, 8/e
Problem 12–17 (concluded)
However, Stewart still would need to show on the face of the income statement the
total OTT impairment of $800,000 less the $575,000 in OCI, yielding a $225,000
reduction in earnings.
Helms Corp. Investment
2016: Because the Helms Corp. investment is equity, Stewart bases the OTT
impairment on the entire difference between cost and fair value.
Problem 12–18
Bee Company Investment
2016: Under IAS No. 39 only the credit loss component is relevant for debt
impairments. Therefore, Stewart recognizes the $240,000 of credit losses as an
OTT impairment in earnings, as follows:
Other-than-temporary impairment loss—I/S ….. 240,000
Investment in Bee bonds …………………………... 240,000
Oliver Corporation Investment
2016: Stewart accounts for the Oliver investment as a trading security, which under
IAS No. 39 would be called “Fair value through profit and loss,” so OTT
impairment accounting is not relevant. Stewart simply continues to recognize in
12–118 Intermediate Accounting, 8/e
Problem 12–18 (continued)
2017: Fair value increased to $2,700,000 during 2017, so Stewart needs to have a
positive fair value adjustment of $200,000 in the balance sheet to adjust from
amortized cost of $2,500,000 to fair value of $2,700,000. Therefore, Stewart must
Jones Inc. Investment
2016: Given that this debt investment is AFS, IAS No. 39 bases the OTT
impairment on fair value rather than on credit losses. Therefore, Stewart
recognizes the entire $800,000 difference between amortized cost and fair value as
an OTT impairment in earnings, as follows:
Problem 12–18 (concluded)
Helms Corp. Investment
2016: Because the Helms Corp. investment is classified as AFS, Stewart bases the
OTT impairment on the entire difference between cost and fair value.
Other-than-temporary impairment loss—I/S …… 400,000
Investment in Helms equity ………………………. 400,000