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Brief Exercise 12–15
Because the drop in the market price of stock is considered to be other-than-
temporary, LED records the impairment of $450,000 ($4.50 x 100,000 shares) and
reclassifies previously recognized unrealized losses of $100,000 ($1.00 x 100,000
shares) as follows:
12–22 Intermediate Accounting, 8/e
Brief Exercise 12–16
LED believes 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 not relevant. LED must recognize the entire OTT
impairment in earnings, reducing the carrying value of the LED bonds by crediting
a discount on bond investment account. LED records the impairment of $450,000
and reclassifies previously recognized unrealized losses of $100,000 as follows:
Other-than-temporary impairment loss—I/S ..... 450,000
Brief Exercise 12–17
LED does not intend to sell the investment, and it does not believe it is more
likely than not that it will have to sell the investment before fair value recovers, so
the portion of the impairment that consists of credit and noncredit losses is
12–24 Intermediate Accounting, 8/e
Brief Exercise 12–18
Wickum would have recorded a journal entry previously that recognized the
OTT impairment in earnings and reduced the investment account:
Exercise 12–1
Requirement 1 ($ in millions)
Investment in bonds (face amount) ........................ 240.0
Requirement 2
Requirement 3
Tanner-UNF reports its investment in the December 31, 2016, balance sheet
at its amortized cost—that is, its book value:
Requirement 4 ($ in millions)
Cash (proceeds from sale) ....................................... 190.0
EXERCISES
12–26 Intermediate Accounting, 8/e
Exercise 12–2
November 1
($ in millions)
Cash ................................................................ 2.4
Investment revenue ..................................... 2.4
December 1
Exercise 12–3
Requirement 2
The specific citation that specifies the circumstances and conditions under which it
Requirement 3
FASB ACS 320–10–25–4 reads as follows:
“An entity shall not classify a debt security as held-to-maturity if the entity has the
intent to hold the security for only an indefinite period. Consequently, a debt
security shall not, for example, be classified as held-to-maturity if the entity
anticipates that the security would be available to be sold in response to any of the
following circumstances:
12–28 Intermediate Accounting, 8/e
Exercise 12–4
Investment in GM common shares ................ 41,200
Cash ([800 shares x $50] + $1,200) ................... 41,200
Exercise 12–5
Requirement 1
2016
December 17
Investment in Grocers’ Supply preferred shares ................ 350,000
2017
January 5
Cash (selling price) ................................................................. 395,000
12–30 Intermediate Accounting, 8/e
Exercise 12–5 (concluded)
Requirement 2
Balance Sheet
(short-term investment):
Trading securities .................................................... $400,000
Income Statement:
Exercise 12–6
1. Unrealized holding gains for trading securities should be included in
2. Under the equity method, the investor accounts for its share of the earnings
3. Transfers of securities between categories shall be accounted for at fair
4. Disclosures for available-for-sale securities should include total losses for
securities that have net losses included in accumulated other
12–32 Intermediate Accounting, 8/e
Exercise 12–7
Requirement 1
.
Net unrealized holding gains and losses—OCI 25,000
Requirement 2
None. Accumulated net holding gains and losses for securities available-
Exercise 12–8
Requirement 1
Securities “held-to-maturity” are debt securities that an investor has the
“positive intent and ability” to hold to maturity. Actively traded investments in
debt or equity securities acquired principally for the purpose of selling them in
Requirement 2
December 31, 2016
Net unrealized holding gains and losses—OCI
12–34 Intermediate Accounting, 8/e
Exercise 12–8 (concluded)
Requirement 3
December 31, 2017
Accumulated
($ in 000s) Unrealized
Available-for-Sale Securities Cost Fair Value Gain (Loss)
IBM shares – Dec. 31, 2017 $600 $610 $10
Moving from a negative $20 (2016) to a positive $10 (2017) requires an
increase of $30:
Exercise 12–9
Requirement 1
2016
March 2
($ in millions)
12–36 Intermediate Accounting, 8/e
Exercise 12–9 (continued)
December 31
Accumulated
($ in millions) Unrealized
Available-for-Sale Securities Cost Fair Value Gain (Loss)
Platinum Gauges, Inc., shares $31 $32* $1
2017
January 23
($ in millions)
Cash ([1 million shares x 1/2] x $32) ................................................. 16.0
Gain on sale of investments (difference).................................... 0.5
Exercise 12–9 (concluded)
Requirement 2
2016 Income Statement
($ in millions)
Investment revenue (from July 18; Oct. 15) ..................................... $3
Gain on sale of investments (from Oct. 16) .................................... 1
Exercise 12–10
Requirement 1
Purchase ($ in millions)
Investment in Jackson Industry shares ........................................ 90
Cash ........................................................................................ 90
Requirement 2
Investment revenue .......................... $3 million
Exercise 12–11
1. Investments reported as current assets.
Security A $ 910,000
2. Investments reported as noncurrent assets.
3. Unrealized gain (or loss) component of income before taxes.
Trading Securities:
Cost Fair value Unrealized
gain (loss)
Security A $ 900,000 $ 910,000 $10,000
4. Unrealized gain (or loss) component of AOCI in shareholders’ equity.
Securities Available-for-Sale:
Cost Fair value Unrealized
gain (loss)
Security C $ 700,000 $ 780,000 $80,000
12–40 Intermediate Accounting, 8/e
Exercise 12–12
Requirement 1
Accumulated
($ in 000s) Unrealized
Available-for-Sale Securities Cost Fair Value Gain (Loss)
Moving from a negative $145 (Jan.1) to a negative $170 requires a reduction of
$25:
Fair Value
Adjustment
Balance needed in fair value adjustment
($170)
Existing balance in fair value adjustment:
($145)
Increase (decrease) needed in fair value adjustment:
($ 25)
