Solutions Chapter 12 – Set B Exercises – Libby 7e
E12–1B.
Req. 1
July 1, 2012:
Held-to-maturity investments (+A) …………………………………..
5,000,000
Cash (–A) ……………………………………………………………..
5,000,000
E12–2B.
Questions
Method of Measurement
Fair value Method
Equity Method
A
Less than 20%.
At least 20% but not more than 50%.
B
At cost: 3,500 shares x $20 =
$70,000.
At cost: 10,500 shares x $20 =
$210,000.
and losses on securities-available-
are declared or paid.
value).
losses of Broadway Co.
E
3,500 shares x $17 = $59,500 fair
value.
Cost of $210,000 plus $22,500 ($75,000
x 30%) equity in affiliate’s earnings
minus $4,500 ($15,000 x 30%) dividends
received equals $228,000.
dividends declared x 10.0% = $1,500
dividend revenue for Addison Co.
Interest revenue (+R, +SE) ………………………………………
stockholders’ equity.
E12–3B.
June 30, 2011:
Investments in SAS (+A) (11,000 shares x $25) ……………….
275,000
Cash (–A) ………………………………………………………………..
275,000
Dec. 31, 2011:
Investments in SAS (+A).. ……………………………………………..
33,000
Net unrealized losses/gains (+OCI, +SE) ……………………..
33,000
Computations:
Year
Fair Value
−
Book Value before
Adjustment
=
Amount for
Adjusting Entry
2011
$308,000
−
$275,000
=
+$33,000
2013
−
=
Feb. 14, 2014:
Cash (+A) (11,000 shares x $27). …………………………………..
297,000
Net unrealized losses/gains (–OCI, –SE) …………………………
55,000
Investments in SAS (–A). ……………………………………………
330,000
Gain on sale of investment (+Gain, +SE) ……………………..
22,000
Investments in SAS (+A). ………………………………………………
Net unrealized losses/gains (+OCI, +SE) ……………………..
Net unrealized losses/gains (–OCI, –SE) …………………………
Investments in SAS (–A). ……………………………………………
22,000
E12–4B.
June 30, 2011:
Investments in TS (+A) ………………………………………………….
275,000
Cash (–A) ………………………………………………………………..
275,000
(11,000 shares x $25 per share)
Dec. 31, 2013:
Net unrealized losses/gains (+Loss, –SE) ………………………..
22,000
Investments in TS (–A) ………………………………………………
22,000
Computations:
Year
Fair Value
−
Book Value before
Adjustment
=
Amount for
Adjusting Entry
2011
$308,000
−
$275,000
=
+$33,000
2012
−
=
Feb. 14, 2014:
Cash (+A) (11,000 shares x $27) ……………………………………
297,000
Loss on sale of investment (+Loss, –SE) …………………………
22,000
Investments in TS (–A). ……………………………………………..
319,000
Investments in TS (+A) ………………………………………………….
33,000
33,000
Investment in TS (+A). ………………………………………………….
E12–5B.
March 10, 2011:
Investments in SAS (+A) (20,000 shares x $49) ……………….
980,000
Cash (–A) ………………………………………………………………..
980,000
Dec. 31, 2013:
Investments in SAS (+A) ……………………………………………….
40,000
Net unrealized losses/gains (+OCI, +SE) ……………………..
40,000
Computations:
Year
Fair Value
−
Book Value before
Adjustment
=
Amount for
Adjusting Entry
2011
$1,000,000
−
$980,000
=
+$20,000
2012
−
=
2013
−
=
Sept. 12, 2014:
Cash (+A) (20,000 shares x $34) ……………………………………
680,000
Loss on sale of securities (+Loss, –SE) …………………………..
300,000
Investments in SAS (–A) …………………………………………….
760,000
Net unrealized losses/gains (+OCI, +SE) ……………………..
220,000
Investments in SAS (+A) ……………………………………………….
20,000
Net unrealized losses/gains (+OCI, +SE) ……………………..
20,000
Net unrealized losses/gains (–OCI, –SE) …………………………
280,000
Investments in SAS (–A) …………………………………………….
280,000
E12–6B.
March 10, 2011:
Investments in TS (+A) ………………………………………………….
980,000
Cash (–A) ………………………………………………………………..
980,000
(20,000 shares x $49 per share)
Dec. 31, 2013:
Investments in TS (+A) ………………………………………………….
40,000
Net unrealized losses/gains – TS (+Gain, +SE) …………….
40,000
Computations:
Year
Fair Value
−
Book Value before
Adjustment
=
Amount for
Adjusting Entry
2011
$1,000,000
−
$980,000
=
+$20,000
2012
−
=
Sept. 12, 2014:
Cash (+A) (20,000 shares x $34) ……………………………………
680,000
Loss on sale of investment (+Loss, –SE) …………………………
80,000
Investments in TS (–A) ………………………………………………
760,000
Investments in TS (+A) ………………………………………………….
20,000
Net unrealized losses/gains – TS (+Gain, +SE) …………….
20,000
Net unrealized losses/gains – TS (+Loss, –SE) ………………..
280,000
Investments in TS (–A) ………………………………………………
E12–7B.
Req. 1
The equity method must be used because the company owns 28% (18,200 ÷ 65,000) of
the total shares outstanding of Trimble Corporation. The equity method must be used
Req. 2
January 10, 2011:
Investments in affiliates (+A) ………………………………………….
218,400
Cash (–A) ………………………………………………………………..
218,400
(18,200 shares x $12 per share) → 28% of the voting common stock
Investments in affiliates (+A). …………………………………………
Equity in affiliate earnings (+R, +SE) …………………………...
Cash (+A) ……………………………………………………………………
(18,200 shares x $.55 = $10,010)
No entry is made under the equity method to record changes in fair value.
Req. 3
Balance Sheet—At December 31, 2011
Long-term Investments:
Investments in affiliates (equity basis*) ………………………………………………..
$233,590
Equity in affiliate earnings …………………………………………………………………..
$ 25,200
E12–8B.
Req. 1 Investing activities
Purchase of investments in affiliated companies (218,400)
Req. 2 Operating activities
Net Income $ xxxxx
E12–9B.
Req. 1
Economic Return = Dividends Received + Change in Fair Value*
from Investing Beginning Fair Value of Investment Portfolio
2011: ($24,906 – $76,452) ÷ $856,451 = -0.0602 (-6.02%)
Req. 2
Klein, Inc.’s investment portfolio had a negative economic return in 2011
(-6.02%) primarily due to the negative change in fair value. However, in 2012 and 2013,
E12–10B.
Req. 1
July 1, 2012:
Held-to-maturity investments (+A) …………………………………..
4,000,000
Cash (–A) ……………………………………………………………..
4,000,000
