2011
Dec. 31
85,000
2012
Mar. 23 95,000
5,000
100,000
2011
Dec. 31
70,000
Short-Term Investments
less than cost
Cash
Unrealized Gain on Long-Term
Loss on Sale of Investments
Allowance to Adjust Long-Term Investments to
Market
INVESTMENTS
CHAPTER 14—Solutions
Allowance to Adjust Short-Term Investments to
Market
Chapter 14, SE 1.
Chapter 14, SE 2.
31 150,000
150,000
2011
Dec. 31 18,000
30% × =
1.
2012
Chapter 14, SE 3.
to Market
Unrealized Loss on Long-Term Investments
Allowance to Adjust Long-Term Investments
Dec.
Investment in Bargain Company
$40,000
$12,000
b
Chapter 14, SE 5.
Chapter 14, SE 4.
31 25,000
25,000
$—
—
200,000
400,000
$ 20,000
—
Chapter 14, SE 6.
Dec.
2011
Investment in Storm Company
Income, Storm Company Investment
Minority interest
Goodwill*
Chapter 14, SE 9.
Goodwill
Chapter 14, SE 7.
Retained earnings
Minority interest
Common stock
Chapter 14, SE 8.
31 98,000
28 100,000
3,640,000
1,960,000
98,500
1,500
1,420,000
1,080,000 ( 540,000)
$ 460,000
360,000
2,400,000
Accounts receivable
Cost of goods sold
Cash
Chapter 14, SE 10.
P Company S Company Elimination Consolidated
$ 300,000
Interest Income
Sept.
420,000
Sales 1,780,000
180,000Accounts payable
($ 120,000)
( 120,000)
( 540,000)
Short-Term Investments
$ 640,000
Short-Term Investments
May
Chapter 14, SE 11.
31 129,000
129,000
30 333
333
Treasury bills
Mar.
Chapter 14, SE 12.
Apr.
Interest Income
To record accrual of interest on U.S.
Short-Term Investments
Short-Term Investments
Cash
To record investment in 90-day U.S.
1.
2.
1.
2.
Both minority interest and goodwill would occur in a consolidation if the pur-
Financial statements of foreign subsidiaries need to be restated because
chase was for less than 100 percent ownership (resulting in minority interest)
and the price was more than book value (resulting in goodwill).
Chapter 14, E 2.
Chapter 14, E 1.
Long-term investments are reported in an investments section of the balance
sheet. Short-term investments are reported in the current assets section of
the balance sheet. The Allowance to Adjust Short-Term Investments to Mar-
The total market value of the portfolio of trading securities would have in-
creased enough during the year to exceed the negative (credit) balance at
the beginning of the year.
6 210,000
210,000
15 198,000
198,000
30
34,000
34,000
Market Gain/
Cost Value (Loss)
Allowance to Adjust Short-Term
Investments to Market
Security
To record recognition of unrealized gain
Unrealized Gain on Short-Term Investments
June
Feb.
on trading portfolio
Cash
Short-Term Investments
Chapter 14, E 3.
Short-Term Investments
Cash
Jan.
40,000 40,000
Chapter 14, E 4.
Allowance to Adjust Long-Term
Investments to Market
T accounts set up and transactions recorded in the accounts
Unrealized Loss on
Long-Term Investments
Beg. Bal.
Chapter 14, E 5.
Beg. Bal.
The investment in Star Corporation should be accounted for using the cost-
adjusted-to-market method because the investment represents less than 20 per-
Dec. 31 320,000 Jan. 1 4,800,000
320,000 4,800,000
Bal.* (4,480,000)
*
1.
2.
The balance of Cash is negative because there are no data about the begin-
ning balance and the largest entry has been posted to the credit side of the
account.
Chapter 14, E 6.
T accounts set up and transactions recorded in the accounts
Cash
Chapter 14, E 7.
Reason: Less than 20 percent of voting stock
c. Consolidation of parent and subsidiary financial statements
Reason: More than 50 percent of voting stock
a. Cost-adjusted-to-market method
400,000
31 800,000
96,000
Chapter 14, E 9.
Dec.
Chapter 14, E 8.
Common Stock, Pool Manufacturing Company
Retained Earnings, East Corporation
Common Stock, East Corporation
Balance Balance Consolidated
A Company B Company Sheet
1,103,000 544,500 1,647,500
480,000 — * 480,000 —
Eliminations
Balance
Other assets
Investment in B Company
Accounts Debit
A and B Companies
Work Sheet for Consolidated Balance Sheet
September 1, 2011
Credit
Sheet,Sheet,
Chapter 14, E 10.
Income Income
Statement, Statement, Consolidated
Company Company Statement
1,500,000 600,000 (1) 280,000 1,820,000
750,000 400,000 (1) 280,000 870,000
Net sales
Cost of goods sold
Eliminations
Accounts Debit Credit
For the Year Ended December 31, 2011
Lion Fish
Chapter 14, E 11.
Lion and Fish Companies
Income
Work Sheet for Consolidated Income Statement
1 776,000
776,000
30 800,000
784,000
16,000
Short-Term Investments
Cash
Chapter 14, E 12.
2011
2012
Cash
To record investment in 120-day U.S.
Treasury bills
Interest Income
Short-Term Investments
Apr.
Nov.
1,600,000
1,600,000
To record purchase of 100,000 shares of Ink
of the cost-adjusted-to-market method
80,000
80,000
16,000,000
16,000,000
To record purchase of 2,000,000 shares (20
800,000
800,000
To record receipt of $0.40 per-share dividend
from Reef Drilling Company
1,600,000
1,600,000
Investment in Reef Drilling Company
Investment in Reef Drilling Company
(b)
Ink Service Corporation
Reef Drilling Company
Cash
(a)
Cash
Dividend Income
Long-Term Investments
Cash
Chapter 14, P 1.
Investment journal entries prepared1.
Investment in Reef Drilling Company(c)
Income, Reef Drilling Company Investment
(a)
Cash(b)
(a) 12,000,000
12,000,000
(b) 800,000
800,000
(c)
7,200,000
7,200,000
Cost Market
$ 1,600,000 $2,400,000
Ink
Allowance to Adjust Long-Term Investments
Long-Term Investments
To record purchase of 1,000,000 shares
(20 percent) of Bloom Oil Field Supplies
No entry required
Bloom Oil Field Supplies Company
Chapter 14, P 1. (Continued)
Cash
investments to market
to Market
2.
To record the adjustment to reduce
Unrealized Loss on Long-Term Investments
Adjusting entry prepared
Cash
Dividend Income
To record receipt of $0.80 per-share
6,000,000
6,000,000
12,000,000
9,600,000
7,200,000
2,400,000
Allowance to Adjust Long-Term Investments to
Unrealized Gain on Long-Term Investments
Market
Unrealized Loss on Long-Term Investments
Loss on Sale of Investments
Long-Term Investments
4. Year-end adjustment recorded
Chapter 14, P 1. (Continued)
Cash
3. Sale of Bloom shares recorded
investee’s operations were analyzed. When the percentage of ownership is low
Chapter 14, P 1. (Continued)
5.
and/or Dioda cannot exercise significant influence, the investment would have
management’s intent and the circumstances. If the intent is to hold the invest-
Whether the investment is classified as short term or long term depends on
ship in the investee corporation and the level of Dioda’s influence over the
differently because the influence of Dioda over the two companies differs.
In determining how to account for Dioda’s investments, the percentage owner-
User Insight: Principal factors identified
360,000 1st quarter—Dividend 17,500
28,000 2nd quarter—Dividend 17,500
Lander Corporation records its share of Windson’s net income as an increase in
Beg. Bal.
1st quarter—Income
Chapter 14, P 2.
Investment in Windson Corporation*
1.
2.
*Each entry represents 35 percent of either earnings or dividends paid.
Because Lander Corporation owns 35 percent of Windson Corporation, Lander
3.
4. User Insight: Percentage ownership effects discussed
If Lander Corporation owned only 15 percent of Windson Corporation, Lander
T account prepared
User Insight: Cash flow effects discussed
User Insight: Income statement effects discussed
Balance Balance
Sheet, Sheet, Consolidated
Company Company Sheet
60,000 40,000 100,000
100,000 30,000 130,000
BalanceArrak
Debit
Bivak
Cash
Chapter 14, P 3.
1. Worksheet for consolidated balance sheet prepared
Arrak and Bivak Companies
Work Sheet for Consolidated Balance Sheet
December 31, 2011
Credit
Eliminations
Accounts
Accounts receivable