CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–25
Ex. 13–26
a. Current: Dividend Yield = $0.80 ÷ $26.71 = 3.00%
Previous
:
Dividend Yield = $0.64 ÷ $25.96 = 2.47%
b. Dividends per share increased in the current year from the previous year.
The dividend yield also increased from 2.47% in the previous year to 3.0% in
Ex. 13–27
The investor would receive a return on the investment through share price
appreciation as internally generated funds are used to fund growth and earnings
Dividend Yield
=Cash Dividends per Share of Common Stock
Market Price per Share of Common Stock
13-21
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–28
Net income $50,000
Ex. 13–29
For the Year Ended December 31, 2016
CHEWCO CO.
For the Year Ended December 31, 2016
VALUR CO.
13-22
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–1A
1.
1 Investments—Avery Co. Bonds 75,000
Interest Receivable 875
Cash 75,875
16 Investments—Clawhammer Bonds 60,000
Interest Receivable 150
Cash 60,150
1 Cash* 2,625
Sept.
PROBLEMS
2016
May
13-23
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–1A (Concluded)
1 Cash* 1,575
Interest Receivable 1,050
2. If the bonds are classified as available-for-sale securities, then the portfolio
of bonds would need to be adjusted to fair value. This would be accomplished
2017
Mar.
13-24
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–2A
1.
14 Investments—Wilkomm Inc.* 200,500
Cash 200,500
*(5,000 shares × $40 per share) + $500
*(5,000 shares – 2,600 shares) × $0.35
31 Unrealized Loss on Trading Investments 7,038
Valuation Allowance for Trading
Investments* 7,038
*
$179,400 – $186,438, in table below
2016
Mar.
Dec.
13-25
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–2A (Concluded)
4 Investments—Daley Inc.* 105,175
Cash 105,175
*(3,500 shares × $30 per share) + $175
9 Cash* 22,350
Gain on Sale of Investments 1,315
Investments—Daley Inc.** 21,035
*(700 shares × $32 per share) – $50
2.
Current assets:
Trading investments (at cost) $270,578
3. Unrealized gains or losses are reported on the income statement, often as
“Other Income (Losses).” For 2016, Scofield Financial Co. would have
2017
Apr.
Balance Sheet (selected items)
December 31, 2017
SCOFIELD FINANCIAL CO.
Sept.
13-26
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–3A
1.
22 Investments—Sankal Inc.* 396,000
Cash 396,000
*22,000 shares × $18 per share
*22,000 shares × $0.25 per share
17 Cash* 47,925
Loss on Sale of Investments 6,075
Investments—Sankal Inc.** 54,000
*(3,000 shares × $16.00) – $75
**3,000 shares × $18 per share
Oct.
Jan.
2016
13-27
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–3A (Concluded)
12 Cash* 5,700
Dividend Revenue 5,700
*19,000 shares × ($0.25 + $0.05)
31 Cash 57,600
Investment in Imboden Inc. Stock 57,600
2.
Current assets:
Available-for-sale investments (at cost)1$342,000
Plus valuation allowance for available-for-
sale investments 76,000
Available-for-sale investments (at fair value)2$418,000
Sept.
Dec.
FORTE INC.
December 31, 2017
Balance Sheet (selected items)
13-28
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–4A
a. $236,170 (see table below)
Market
Cost per Value per
No. of Share (or Share (or
Shares (or $100 of $100 of Total Fair
Investments face amount) face amount) face amount) Cost Value
Bernard Co. stock……
…
2,250 $17.00 $15.40 $ 38,250 $ 34,650
Chadwick Co. stock…
…
1,260 52.00 46.00 65,520 57,960
13-29
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–4A (Continued)
The completed comparative unclassified balance sheets are as follows:
Dec. 31, Dec. 31,
2017 2016
Cash $233,000 $220,000
Accounts receivable (net) 136,530 138,000
Available-for-sale investments (at cost)—Note 1 $236,170 $103,770
Less valuation allowance for available-for-sale
Accounts payable $ 69,400 $ 65,000
Common stock 70,000 70,000
Excess of issue price over par 225,000 225,000
Note 1. Investments are classified as available for sale. The investments at cost
and fair value on December 31, 2016, are as follows:
No. of Cost per Total Total Fair
Shares Share Cost Value
Bernard Co. stock………………………
…
2,250 $17.00 $ 38,250 $ 37,500
O’BRIEN INDUSTRIES, INC.
Balance Sheet
December 31, 2017 and 2016
13-30
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–4A (Concluded)
For December 31, 2017:
Market
Cost per Value per
No. of Share (or Share (or
Shares (or $100 of $100 of Total Fair
face amount) face amount) face amount) Cost Value
Bernard Co. stock…
…
2,250 $17.00 $15.40 $ 38,250 $ 34,650
Chadwick Co. stock
…
1,260 52.00 46.00 65,520 57,960
13-31
…
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–1B
1.
1 Investments—Smoke Bay Bonds 90,000
Interest Receivable 900
Cash 90,900
1 Cash* 12,180
Interest Revenue 60
Gain on Sale of Investment 120
Investments—Smoke Bay Bonds 12,000
*($12,000 × 1.01) + $60
Apr.
2016
Sept.
13-32
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–1B (Concluded)
1 Cash* 840
Interest Receivable 280
2. If the bonds are classified as available-for-sale securities, then the portfolio
of bonds would need to be adjusted to fair value. This would be accomplished
by using a valuation allowance account and an unrealized gain (loss) account.
2017
May
13-33
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–2B
1.
14 Investments—Apollo Inc.* 124,992
Cash 124,992
*(4,800 shares × $26 per share) + $192
*(4,800 shares – 600 shares) × $0.20
31 Valuation Allowance for Trading Investments* 27,990
Unrealized Gain on Trading Investments 27,990
*
$181,150 – $153,160, in table below
Number
Cost
2016
Feb.
Dec.
13-34
CHAPTER 13 Investments and Fair Value Accounting
Prob. 13–2B (Concluded)
14 Investments—Athena Inc.* 78,120
Cash 78,120
30 Cash* 28,750
Loss on Sale of Investments 2,498
Investments—Athena Inc.** 31,248
*(480 shares × $60 per share) – $50
2.
Current assets:
Trading investments (at cost)* $200,032
3. Unrealized gains or losses are reported in the income statement, often
as “Other Income (Losses).” For 2016, Zeus Investments Inc. would have
2017
Mar.
December 31, 2017
Balance Sheet (selected items)
ZEUS INVESTMENTS INC.
July
13-35