CHAPTER 15 Investments and Fair Value Accounting
Prob. 15–3B
1.
18 Investments—Malmo Inc.* 360,000
Cash 360,000
*9,000 shares × $40 per share
2014
Jan.
CHAPTER 15 Investments and Fair Value Accounting
Prob. 15–3B (Concluded)
16 Cash* 27,200
Dividend Revenue 27,200
*8,500 shares × ($3.00 + $0.20)
2.
Current assets:
Available-for-sale investments (at cost)1$340,000
Dec.
December 31, 2015
GLACIER PRODUCTS, INC.
Balance Sheet (selected items)
CHAPTER 15 Investments and Fair Value Accounting
Prob. 15–4B
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
Alvarez Inc. stock…… 960 $38.00 $41.50 $ 36,480 $ 39,840
CHAPTER 15 Investments and Fair Value Accounting
Prob. 15–4B (Continued)
The completed comparative unclassified balance sheets are as follows:
Dec. 31, Dec. 31,
2015 2014
Cash $160,000 $156,000
Accounts receivable (net) 115,000 108,000
Note 1. Investments are classified as available for sale. The investments at cost
and fair value on December 31, 2014, are as follows:
No. of Cost per Total Total Fair
Shares Share Cost Value
Alvarez Inc. stock…………………
…
960 $38.00 $36,480 $39,936
TEASDALE, INC.
Balance Sheet
December 31, 2015 and 2014
CHAPTER 15 Investments and Fair Value Accounting
Prob. 15–4B (Concluded)
For December 31, 2015:
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
Alvarez Inc. stock… 960 $38.00 $41.50 $ 36,480 $ 39,840
CHAPTER 15 Investments and Fair Value Accounting
1. a. Cash 450,000
Common Stock 300,000
Paid-In Capital in Excess of Par—
Common Stock 150,000
b. Cash 400,000
COMPREHENSIVE PROBLEM 4
CHAPTER 15 Investments and Fair Value Accounting
Comp. Prob. 4 (Continued)
i. Cash Dividends 20,000
Cash Dividends Payable 20,000
CHAPTER 15 Investments and Fair Value Accounting
Comp. Prob. 4 (Continued)
p. Interest Expense 11,500
Premium on Bonds Payable 1,000
q. Interest Receivable 1,125
Interest Revenue 1,125
r. Investment in Pinkberry Co. Stock* 76,800
Income from Pinkberry Co. 76,800
CHAPTER 15 Investments and Fair Value Accounting
Comp. Prob. 4 (Continued)
2. a.
Sales $5,254,000
Cost of merchandise sold 3,700,000
Administrative expenses:
Office salaries expense $170,000
Office rent expense 50,000
Gain on sale of investment 4,980
EQUINOX PRODUCTS INC.
Income Statement
For the Year Ended December 31, 2014
CHAPTER 15 Investments and Fair Value Accounting
Comp. Prob. 4 (Continued)
b.
Retained earnings, January 1, 2014 $9,319,725
c.
Current assets:
Cash $ 246,000
Available-for-sale investments $ 260,130
Investment in Pinkberry Co. stock 1,009,300
Investment in Dream Inc. bonds 90,000
Property, plant, and equipment:
Store buildings and equipment $12,560,000
Less accumulated depreciation 4,126,000 $8,434,000
Balance Sheet
For the Year Ended December 31, 2014
Assets
EQUINOX PRODUCTS INC.
Retained Earnings Statement
For the Year Ended December 31, 2014
EQUINOX PRODUCTS INC.
CHAPTER 15 Investments and Fair Value Accounting
Comp. Prob. 4 (Concluded)
Current liabilities:
Accounts payable $ 194,300
Paid-in capital:
Preferred 5% stock, $80 par
(30,000 shares authorized;
EQUINOX PRODUCTS INC.
Stockholders’ Equity
Balance Sheet
For the Year Ended December 31, 2014
Liabilities
CHAPTER 15 Investments and Fair Value Accounting
CP 15–1
1. Under generally accepted accounting principles, the land would be reported
2. The historical cost valuation reduces the ability to compare the two companies.
In this scenario, both companies have nearly identical land holdings. Wyatt
Corp. purchased its land in 1996; thus, the land is valued according to a 1996
CP 15–2
1. There is an emerging trend toward more uniform accounting standards
worldwide. This is caused by companies participating in multiple capital
markets. For example, many companies not only have their stock trade on the
New York Stock Exchange, but might also have their stock trade in London or
2. Fair value reporting for property, plant, and equipment is a very aggressive
fair value position. This is because property, plant, and equipment fair values
CASES & PROJECTS
CHAPTER 15 Investments and Fair Value Accounting
CP 15–2 (Concluded)
3. The accounting treatment for increases in fair value for property, plant, and
equipment under International Accounting Standards is similar to the
treatment for unrealized gains and losses from available-for-sale investments.
CP 15–3
Since many complex and exotic investment vehicles do not have ready market
values, management must value these investments using mathematical models,
CP 15–4
1. Look-through earnings is a Warren Buffett term. It is the GAAP net income
plus an adjustment for the equity earnings (the “forgotten-but-not-gone”
2. Buffett makes the case that there is no reason for the equity method to be used
only for 20%–50% investees, but that the rationale for the equity method applies
equally well for investments of less than 20%. Thus, Berkshire Hathaway provides
CHAPTER 15 Investments and Fair Value Accounting
CP 15–5
The following are portions of Notes 3 and 4 from the financial statements dated June 30, 2011, for Microsoft.
Investment Components, Including Associated Derivatives
Cash Equity and
Cost Unrealized Unrealized Recorded and Cash Short-Term Other
(In millions) Basis Gains Losses Basis Equivalents Investments Investments
June 30, 2011
Cash $ 1,648 $ — $ — $ 1,648 $1,648 $ — $ —
Mutual funds 1,752 — — 1,752 1,752 — —
NOTE 4 INVESTMENTS
CHAPTER 15 Investments and Fair Value Accounting
CP 15–5 (Concluded)
The components of other income (expense) were as follows:
$ 900 $ 843 $ 744
Answers in millions.
1. $60,804
2010 2009
NOTE 3 OTHER INCOME (EXPENSE)
(In millions)
Year Ended June 30, 2011
Dividends and interest