1.
18 Investments—Malmo Inc.* 360,000
Cash 360,000
*9,000 shares × $40 per share
22 Cash* 27,000
Dividend Revenue 27,000
*9,000 shares × $3 per share
2016
Jan.
July
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)
31 Cash 38,000
Investment in Helsi Co. Stock 38,000
2.
Current assets:
Available-for-sale investments (at cost)1$340,000
Plus valuation allowance for available-for-
sale investments 34,000
Available-for-sale investments (at fair value)2$374,000
Dec.
GLACIER PRODUCTS, INC.
December 31, 2017
Balance Sheet (selected items)
CHAPTER 15 Investments and Fair Value Accounting
Prob. 15–4B
a. $147,200 (from table)
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
Hirsch Inc. stock……
…
1,900 28.80 26.00 54,720 49,400
CHAPTER 15 Investments and Fair Value Accounting
Prob. 15–4B (Continued)
The completed comparative unclassified balance sheets are as follows:
Dec. 31, Dec. 31,
2017 2016
Cash $160,000 $156,000
Accounts receivable (net) 115,000 108,000
Available-for-sale investments (at cost)—Note 1 $147,200 $ 91,200
Plus valuation allowance for available-for-sale
investments 4,680 8,776
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
Alvarez Inc. stock…………………
…
960 $38.00 $36,480 $39,936
TEASDALE, INC.
Balance Sheet
December 31, 2017 and 2016
CHAPTER 15 Investments and Fair Value Accounting
Prob. 15–4B (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
Alvarez Inc. stock
…
960 $38.00 $41.50 $ 36,480 $ 39,840
1. a. Cash 450,000
Common Stock 300,000
Paid-In Capital in Excess of Par—
Common Stock 150,000
d. Cash Dividends* 50,000
Cash Dividends Payable 50,000
*100,000 shares × $0.50 per share
Cash Dividends* 20,000
Cash Dividends Payable 20,000
*20,000 shares × $1.00 per share
COMPREHENSIVE PROBLEM 4
CHAPTER 15 Investments and Fair Value Accounting
Comp. Prob. 4 (Continued)
i. Cash Dividends 20,000
Cash Dividends Payable 20,000
m. Cash* 98,800
Treasury Stock** 85,800
Paid-In Capital from Sale of Treasury Stock 13,000
*2,600 shares × $38 per share
** 2,600 shares × $33 per share
CHAPTER 15 Investments and Fair Value Accounting
Comp. Prob. 4 (Continued)
q. Interest Receivable 1,125
Interest Revenue 1,125
Interest accrued for three months.
Computation: $90,000 × 5% × 3/12 = $1,125
r. Investment in Pinkberry Co. Stock* 76,800
Income from Pinkberry Co. 76,800
Recorded 32% share of Pinkberry Co.
net income.
CHAPTER 15 Investments and Fair Value Accounting
Comp. Prob. 4 (Continued)
2. a.
Sales $5,254,000
Cost of merchandise sold 3,700,000
Gross profit $1,554,000
Administrative expenses:
Office salaries expense $170,000
Office rent expense 50,000
Depreciation expense—office
buildings and equipment 30,000
Office supplies expense 10,000
Income before income tax $ 469,500
Income tax 140,500
EQUINOX PRODUCTS INC.
Income Statement
For the Year Ended December 31, 2016
CHAPTER 15 Investments and Fair Value Accounting
Comp. Prob. 4 (Continued)
b.
Retained earnings, January 1, 2016 $9,319,725
Net income for year $329,000
c.
Current assets:
Cash $ 246,000
Available-for-sale investments $ 260,130
Total current assets $ 1,842,705
Investments:
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
Balance Sheet
December 31, 2016
Assets
EQUINOX PRODUCTS INC.
Retained Earnings Statement
For the Year Ended December 31, 2016
EQUINOX PRODUCTS INC.
CHAPTER 15 Investments and Fair Value Accounting
Comp. Prob. 4 (Concluded)
Current liabilities:
Accounts payable $ 194,300
Total liabilities $ 757,300
Paid-in capital:
Preferred 5% stock, $80 par
(30,000 shares authorized;
20,000 shares issued) $1,600,000
Excess of issue price over par 150,000 $ 1,750,000
Unrealized gain (loss) on available-
for-sale investments (6,500)
Total $14,036,905
EQUINOX PRODUCTS INC.
Stockholders’ Equity
Balance Sheet
December 31, 2016
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 1998; thus, the land is valued according to a 1998
CP 15–2
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.
CASES & PROJECTS
CP 15–3
Because 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
CP 15–5
The following are portions of Notes 3 and 4 from the financial statements dated June 30, 2012, 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 $ 2,019 $ — $ — $ 2,019 $2,019 $ — $ —
Mutual funds 820 — — 820 820 — —
Commercial paper 96 — — 96 96 — —
Certificates of deposit 744 — — 744 342 402 —
NOTE 4 INVESTMENTS
CHAPTER 15 Investments and Fair Value Accounting
CP 15–5 (Concluded)
The components of other income (expense) were as follows:
$ 800 $ 900 $ 843
(380) (295) (151)
Note to Instructors: This solution is provided as a guide. Students may have different
numbers, depending on the date of the financial statements.
Answers in millions.
2. $72,816 (termed, “recorded basis” by Microsoft)
4.
5. a. $6,938 ÷ $72,816 = 9.5%
6. $800
$(484)
Dividends and interest
Net recognized gains (losses) on investments
2011 2010
NOTE 3 OTHER INCOME (EXPENSE)
(In millions)
Year Ended June 30, 2012