1. A company may temporarily have excess cash that is not needed for use in its current
operations. Instead of letting excess cash remain idle in a checking account, most companies
invest their excess cash in temporary investments. The primary objectives of investing in
temporary investments are to:
2. A gain or loss can occur when the selling price of the bond differs from the book value (cost) of
4. Under the cost method, a dividend received is treated as dividend revenue. Under the equity
5. An investment greater than 50% of the investee is considered to be an investment that exerts
6. Both portfolios are reported at fair value. However, changes in the fair value of trading securities
7. A credit balance in Valuation Allowance for Available-for-Sale Investments is subtracted from
9. Current GAAP requires fair value accounting for impaired assets. Current GAAP allows financial
10. Fair values may not be readily obtainable for some assets or liabilities, which causes financial
CHAPTER 13
INVESTMENTS AND FAIR VALUE ACCOUNTING
DISCUSSION QUESTIONS
13-1
CHAPTER 13 Investments and Fair Value Accounting
PE 13–1A
a. Investments—Tyler City Bonds 400,000
PE 13–1B
a. Investments—Iceline Inc. Bonds 120,000
PRACTICE EXERCISES
13-2
PE 13–2A
20 Investments—Thorlite Company Stock* 300,250
PE 13–2B
12 Investments—Aspen Company Stock* 100,200
Cash 100,200
10 Cash* 50,250
Mar.
Sept.
Nov.
13-3
CHAPTER 13 Investments and Fair Value Accounting
PE 13–3A
2 Investment in ARO Company Stock 300,000
Cash 300,000
PE 13–3B
2 Investment in Fain Company Stock 500,000
Cash 500,000
PE 13–4A
31 Unrealized Loss on Trading Investments* 8,900
2014
Dec.
Jan.
Jan.
13-4
PE 13–4B
31 Valuation Allowance for Trading Investments*
PE 13–5A
31 Unrealized Gain (Loss) on Available-for-Sale
PE 13–5B
31 Valuation Allowance for Available-for-Sale
Investments*
Dec.
2,090
2014
4,800
2014
Dec.
2014
Dec.
13-5
CHAPTER 13 Investments and Fair Value Accounting
PE 13–6A
PE 13–6B
Dividend Yield = Dividends per Share of Common Stock
Market Price per Share of Common Stock
Dividends per Share of Common Stock
Market Price per Share of Common Stock
Dividend Yield =
13-6
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–1
a.
1 Investments—Clayton Co. Bonds 75,000
Cash 75,000
Ex. 13–2
a.
1 Investments—Pluto Corp. Bonds 150,000
2014
Sept.
EXERCISES
2014
Apr.
13-7
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–3
a.
20 Investments—Thomas County Bonds 60,000
June
2014
13-8
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–4
a.
31 Investments—Government Bonds 75,000
b.
31 Interest Receivable 1,200
Ex. 13–5
Jan.
2014
2014
Dec.
13-9
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–6
a. 10 Investments—Dickson Co. Stock* 192,240
b. 23 Cash* 8,400
c. 22 Cash* 91,000
Gain on Sale of Investments 14,104
Ex. 13–7
8 Investments—Tybee Company Stock* 148,920
Cash 148,920
Nov.
Feb.
Mar.
July
13-10
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–8
16 Investments—McDowell Inc. Stock* 75,140
Cash 75,140
12 Cash* 408
Oct.
Jan.
13-11
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–9
Feb. 24 Investments—Tett Co. Stock* 85,150
Cash 85,150
July 14 Cash* 39,925
Gain on Sale of Investments 5,865
Aug. 12 Cash* 24,295
Loss on Sale of Investments 2,735
Oct. 31 Cash* 240
Ex. 13–10
a. 1. Investment in Larson Corp. Stock 480,000
Income of Larson Corp. 480,000
2. Cash* 320,000
13-12
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–11
a.
4 Investment in Hi Energy Co. Stock* 5,456,000
Ex. 13–12
a.
6 Investment in Gator Co. Stock 212,000
b. Initial acquisition cost……………………………………………………………
…
$212,000
2014
Jan.
Jan.
2014
13-13
…
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–12 (Concluded)
c. Under the equity method, the investor will record their proportionate share of the
Ex. 13–13
Investment in Raven Company stock, December 31, 2014………………………
…
…
Ex. 13–14
a. $6,000 $35,000 [from (c)] – $29,000 [from (b)]
(in millions)
$264
13-14
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–15
a.
24 Investments—Raiders, Inc. Stock 551,000
b. The unrealized gain or unrealized loss for trading investments is disclosed
Ex. 13–16
a.
31 Unrealized Loss on Trading Investments 1,200
Feb.
2014
2014
Dec.
13-15
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–17
a.
31 Valuation Allowance for Trading
b. There would be no adjusting entry for December 31, 2015, if the market prices
Ex. 13–18
a. Retained earnings, December 31, 2013………………………………………
…
…
…
$ 825,000
Dec.
2014
13-16
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–19
a. $44,600 – $7,500
b. $220,000 – $175,400
Ex. 13–20
a.
12 Investments—Bengals Inc. Stock 430,300
$37,100
$44,600
2014
Sept.
13-17
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–21
a. 1.
31 Valuation Allowance for Available-for-
2.
12 Investments—Rogue Wave Inc.* 65,350
2015
June
Dec.
2014
13-18
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–22
a.
31 Unrealized Gain (Loss) on Available-for-
*$259,450 – $263,700, as determined from the following schedule:
Cost
Dust Devil, Inc. …………………………………………………………………
…
$ 81,700 $ 76,000
b. There is no income statement impact from the December 31, 2014, adjusting
2014
Dec.
Fair Value
(Dec. 31, 2014)
1
13-19
CHAPTER 13 Investments and Fair Value Accounting
Ex. 13–23
a.
Current assets:
b.
Ex. 13–24
Common stock $ 50,000
GALILEO COMPANY
Assets
GALILEO COMPANY
Balance Sheet (selected items)
December 31, 2014
December 31, 2014
Balance Sheet (selected items)
December 31, 2014
Stockholders’ Equity
COPERNICUS CORPORATION
Balance Sheet (selected Stockholders’ Equity items)
13-20