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
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
8. A debit balance in Unrealized Gain (Loss) on Available-for-Sale Investments would be reported as a
reduction in the Stockholders’ Equity section of the balance sheet, after Retained Earnings.
9. Current GAAP requires fair value accounting for impaired assets. Current GAAP allows financial
assets and liabilities to be reported at fair value. The assets and liabilities reported at fair value are
10. Fair values may not be readily obtainable for some assets or liabilities, which causes financial
statement valuations to become more subjective. In addition, comparability between financial
CHAPTER 15
INVESTMENTS AND FAIR VALUE ACCOUNTING
DISCUSSION QUESTIONS
15-1
CHAPTER 15 Investments and Fair Value Accounting
PE 15–1A
a. Investments—Tyler City Bonds 400,000
PE 15–1B
a. Investments—Iceline Inc. Bonds 120,000
PRACTICE EXERCISES
15-2
PE 15–2A
20 Investments—Thorlite Company Stock* 300,250
Cash 300,250
15 Cash* 179,800
PE 15–2B
12 Investments—Aspen Company Stock* 100,200
*$0.50 per share × 2,000 shares
10 Cash* 50,250
Nov.
June
Sept.
Mar.
15-3
CHAPTER 15 Investments and Fair Value Accounting
PE 15–3A
2 Investment in ARO Company Stock 300,000
Cash 300,000
PE 15–3B
2 Investment in Fain Company Stock 500,000
Cash 500,000
PE 15–4A
31 Unrealized Loss on Trading Investments* 8,900
Jan.
Jan.
2014
Dec.
CHAPTER 15 Investments and Fair Value Accounting
PE 15–4B
31 Valuation Allowance for Trading Investments*
PE 15–5A
31 Unrealized Gain (Loss) on Available-for-Sale
Investments*
PE 15–5B
31 Valuation Allowance for Available-for-Sale
Investments*
2014
Dec.
2014
Dec.
4,800
5,800
2014
Dec.
2,090
15-5
CHAPTER 15 Investments and Fair Value Accounting
PE 15–6A
PE 15–6B
Dividends per Share of Common Stock
Market Price per Share of Common Stock
Dividend Yield =
Dividend Yield = Dividends per Share of Common Stock
Market Price per Share of Common Stock
15-6
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–1
a.
*$25,000 × 98%
d.
31 Interest Receivable 750
Ex. 15–2
a.
1 Investments—Pluto Corp. Bonds 150,000
c.
1Cash 6,000
d.
1Cash* 76,500
EXERCISES
2014
2014
Dec.
2014
Sept.
2015
Mar.
2015
Mar.
15-7
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–3
a.
20 Investments—Thomas County Bonds 60,000
c. 1 Cash* 14,475
d. 31 Interest Receivable 450
June
2014
Dec.
Dec.
15-8
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–4
a.
31 Investments—Government Bonds 75,000
b.
31 Interest Receivable 1,200
Ex. 15–5
Interest earned (April 1 to September 1)1…………………………………………… $1,500
2014
Dec.
Jan.
2014
15-9
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–6
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. 15–7
8 Investments—Tybee Company Stock* 148,920
Cash 148,920
Mar.
July
Nov.
Feb.
15-10
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–8
16 Investments—McDowell Inc. Stock* 75,140
Cash 75,140
10 Cash* 127,800
July
Jan.
15-11
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–9
Feb. 24 Investments—Tett Co. Stock* 85,150
Cash 85,150
July 14 Cash* 39,925
Gain on Sale of Investments 5,865
Oct. 31 Cash* 240
Ex. 15–10
a. 1. Investment in Larson Corp. Stock 480,000
Income of Larson Corp. 480,000
2. Cash* 320,000
b. Stieg’s investment in Larson Corp. represents 40% of the outstanding shares
15-12
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–11
a.
4 Investment in Hi Energy Co. Stock* 5,456,000
b. Initial acquisition cost……………………………………………………………
…
$5,456,000
Ex. 15–12
a.
6 Investment in Gator Co. Stock 212,000
b. Initial acquisition cost……………………………………………………………
…
$212,000
2014
Jan.
2014
Jan.
15-13
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–12 (Concluded)
c. Under the equity method, the investor will record their proportionate share of the
net increase (or decrease) of the book value of the investee resulting from
Ex. 15–13
Investment in Raven Company stock, December 31, 2014………………………
…
…
Ex. 15–14
a. $6,000 $35,000 [from (c)] – $29,000 [from (b)]
(in millions)
$264
15-14
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–15
a.
24 Investments—Raiders, Inc. Stock 551,000
b. The unrealized gain or unrealized loss for trading investments is disclosed
Ex. 15–16
a.
31 Unrealized Loss on Trading Investments 1,200
b.
2015
2014
Dec.
2014
Feb.
15-15
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–17
a.
31 Valuation Allowance for Trading
*$337,500 – $320,000, as determined from the following schedule:
Cost
b. There would be no adjusting entry for December 31, 2015, if the market prices
Ex. 15–18
a. Retained earnings, December 31, 2013………………………………………
…
…
…
Dec.
2014
Fair Value
(Dec. 31, 2014)
$ 825,000
1
15-16
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–19
a. $44,600 – $7,500
Ex. 15–20
a.
12 Investments—Bengals Inc. Stock 430,300
2014
Sept.
$37,100
15-17
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–21
a. 1.
31 Valuation Allowance for Available-for-
2.
12 Investments—Rogue Wave Inc.* 65,350
Dec.
2014
2015
June
15-18
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–22
a.
31 Unrealized Gain (Loss) on Available-for-
b. There is no income statement impact from the December 31, 2014, adjusting
2014
Dec.
15-19
CHAPTER 15 Investments and Fair Value Accounting
Ex. 15–23
a.
Current assets:
*Computation:
Market:
b.
Ex. 15–24
Common stock $ 50,000
December 31, 2014
Balance Sheet (selected items)
December 31, 2014
Stockholders’ Equity
COPERNICUS CORPORATION
Balance Sheet (selected Stockholders’ Equity items)
GALILEO COMPANY
Assets
GALILEO COMPANY
Balance Sheet (selected items)
December 31, 2014
15-20