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Exercise 12–12 (continued)
Requirement 2
Accumulated
($ in 000s) Unrealized
Available-for-Sale Securities Cost Fair Value Gain (Loss)
Moving from a negative $145 (Jan.1) to a negative $70 requires an increase of
$75:
Fair Value
Adjustment
Balance needed in fair value adjustment
($ 70)
12–42 Intermediate Accounting, 8/e
Exercise 12–12 (concluded)
Requirement 3
Accumulated
($ in 000s) Unrealized
Available-for-Sale Securities Cost Fair Value Gain (Loss)
Moving from a negative $145 (Jan.1) to a positive $30 requires an increase of
$175:
-------------------------------------------------------------------------------------------
– 145 – 70 0 + 30
+175 -------------------------------------------------------->
Fair Value
Adjustment
Balance needed in fair value adjustment
$ 30
Exercise 12–13
Requirement 1
The sale of the A Corporation shares decreased Harlon’s pretax earnings by $5
million. The purchase of the C Corporation shares had no effect on Harlon’s 2017
June 1, 2017 ($ in millions)
Cash 15
12–44 Intermediate Accounting, 8/e
Exercise 12–13 (concluded)
Requirement 2
Harlon’s securities available-for-sale portfolio should be reported in its 2017
balance sheet at its fair value of $101 million:
December 31, 2017
($ in millions) Cost, Dec. 31 Fair Value, Dec. 31
Securities Available-for-Sale 2016 2017 2016 2017
A Corporation shares $20 na $14 na
B Corporation bonds 35 $35 35 $ 37
Exercise 12–14
Requirement 1
Requirement 2
Exercise 12–15
Requirement 1
Requirement 2
The bonds include only interest and principal, but Watney is holding them
12–46 Intermediate Accounting, 8/e
Exercise 12–16
Requirement 1
The investment would be accounted for as an available-for-sale investment:
Purchase
Requirement 2
The investment would be accounted for using the equity method:
Exercise 12–17
Purchase ($ in millions)
Investment in Nursery Supplies shares .................................... 56
Cash .................................................................................... 56
Exercise 12–18
Requirement 1
($ in millions)
Investment in equity securities ($48 million – 31 million) ........... 17
Exercise 12–19
Requirement 1: Error discovered before the books are adjusted or closed in
2016.
The journal entry the company made is:
Cash ............................................................ 100,000
Requirement 2: Error not discovered until early 2017.
Exercise 12–20
Purchase ($ in millions)
Investment in Carne Cosmetics shares ................................ 68
Cash ................................................................................ 68
Net income
12–50 Intermediate Accounting, 8/e
Exercise 12–21
Requirement 1
Purchase ($ in millions)
Investment in Lake Construction shares .............................. 300
Cash ................................................................................ 300
Exercise 12–21 (concluded)
b. As investment revenue in the income statement.
$30 million (share of income) – 1 million (depreciation adjustment) =
12–52 Intermediate Accounting, 8/e
Exercise 12–22
Requirement 1
Purchase ($ in millions)
Investment in VB shares ...................................................... 100
Cash ................................................................................ 100
Exercise 12–22 (concluded)
Requirement 2
a. Investment in VB shares
_______________________________________
($ in millions)
Cost 100
b. As investment revenue or loss in the income statement.
c. Among investing activities in the statement of cash flows.
$100 million investing outflow
[Cash dividends received ($6 million) also are reported as part of
12–54 Intermediate Accounting, 8/e
Exercise 12–23
Requirement 1
Requirement 2 ($ in millions)
Requirement 3
Requirement 4
The carrying value of the bonds is $240 – ($40 – 0.8) = $200.8. Therefore, to
Requirement 5
Requirement 6 ($ in millions)
Exercise 12–24
Requirement 1
Electing the fair value option for available-for-sale securities simply requires
Requirement 2
Requirement 3
12–56 Intermediate Accounting, 8/e
Exercise 12–25
Requirement 1
Electing the fair value option for significant-influence investments requires
use of the same basic accounting approach that is used for trading securities.
Requirement 2
Purchase ($ in millions)
Investment in Nursery Supplies shares .................................... 56
Adjusting entry ......................................................................................
Net unrealized holding gains and losses—I/S ($56 – 52 million) 4
Fair value adjustment ........................................................... 4
Note: A different approach to reach the same outcome would be for Florists to use
equity method accounting throughout the year, and then at the end of the year
Exercise 12–26
Requirement 1
Insurance expense (difference) ............................................... 64,000
Requirement 2
Cash (death benefit) ........................................................ 4,000,000
Exercise 12–27
Requirement 1
Requirement 2
12–58 Intermediate Accounting, 8/e
Exercise 12–28
Requirement 1
Bloom believes it is more likely than not 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. Bloom must recognize the entire OTT
impairment in earnings as follows:
Requirement 2
Bloom does not plan to sell the 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
Exercise 12–28 (concluded)
Requirement 3
12–60 Intermediate Accounting, 8/e
Exercise 12–29
Requirement 1: Assuming Bloom has not previously recorded a $100,000 loss
Scenario 1: Bloom believes it is more likely than not it will have to sell the
investment before fair value recovers, so the portion of the impairment that
Scenario 2: Bloom does not plan to sell the 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. Bloom must recognize the $250,000 of credit losses as an OTT
impairment in earnings, and the other $150,000 as a reduction of OCI. Bloom
makes the following entry:
