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CHAPTER 16
SOLUTIONS TO EXERCISES—SET B
EXERCISE 16-1B
2016
1. Jan. 1 Debt Investments ...................................... 70,000
Cash ................................................... 70,000
2. Dec. 31 Interest Receivable ................................... 5,600
Interest Revenue
($70,000 X 8%) ............................... 5,600
2019
EXERCISE 16-2B
January 1, 2016
Debt Investments ............................................................. 50,000
Cash ........................................................................... 50,000
December 31, 2016
Interest Receivable ($50,000 x 12%) ............................... 6,000
Interest Revenue ....................................................... 6,000
EXERCISE 16-3B
(a) Feb. 1 Stock Investments .................................... 5,200
Cash ................................................... 5,200
July 1 Cash (500 X $1) ......................................... 500
Dividend Revenue ............................. 500
(b) Dividend revenue and the gain on sale of stock investments are reported
under other revenues and gains in the income statement.
EXERCISE 16-4B
Jan. 1 Stock Investments ........................................... 182,100
Cash .......................................................... 182,100
July 1 Cash (4,000 X $3) ............................................. 12,000
Dividend Revenue .................................... 12,000
EXERCISE 16-5B
February 1
Stock Investments ............................................................. 12,400
Cash (400 X $31) ........................................................ 12,400
March 20
April 25
Cash (300 X $1.00) ............................................................. 300
Dividend Revenue ...................................................... 300
June 15
EXERCISE 16-6B
(a) Jan. 1 Stock Investments .................................... 240,000
Cash ................................................... 240,000
Dec. 31 Cash ($60,000 X 35%) ............................... 21,000
Stock Investments ............................ 21,000
EXERCISE 16-7B
1. 2017
Mar. 18 Stock Investments ................................... 280,000
Cash (200,000 X 10% X $14) ............. 280,000
June 30 Cash ......................................................... 5,000
Dividend Revenue
($50,000 X 10%) ............................ 5,000
2. Jan. 1 Stock Investments ................................... 67,500
Cash (30,000 X 25% X $9) ................ 67,500
June 15 Cash ......................................................... 7,500
Stock Investments
($30,000 X 25%) ............................ 7,500
EXERCISE 16-8B
(a) Dec. 31 Unrealized Loss—Income ....................... 5,000
Fair Value Adjustment—Trading ..... 5,000
(b) Balance Sheet
Current assets
Short-term investments, at fair value................ $50,000
EXERCISE 16-9B
(a) Dec. 31 Unrealized Gain or Loss—Equity ................. 5,000
Fair Value Adjustment—Available-
for-Sale ............................................... 5,000
(b) Balance Sheet
Investments
(c) Dear Mr. Wyman:
Investments which are classified as trading (held for sale in the near
term) are reported at fair value in the balance sheet, with unrealized
gains or losses reported in net income. Investments which are classified as
available-for-sale (held longer than trading but not to maturity) are also
reported at fair value, but unrealized gains or losses are reported in the
stockholders’ equity section.
EXERCISE 16-10B
(a) Fair Value Adjustment—Trading
($125,000 – $120,000) ................................................ 7,000
Unrealized Gain—Income ..................................... 7,000
(b) Balance Sheet
Current assets
Short-term investments, at fair value................... $127,000
Investments
Investment in stock of less than 20% owned
companies, at fair value .................................... 95,000
SOLUTIONS TO PROBLEMS—SET C
PROBLEM 16-1C
(a) 2016
Jan. 1 Debt Investments ................................. 800,000
Cash .............................................. 800,000
Dec. 31 Interest Receivable ($800,000 X .09) .. 72,000
Interest Revenue .......................... 72,000
Dec. 31 Interest Receivable ($400,000 X .09) .. 36,000
Interest Revenue .......................... 36,000
(b) 2016
PROBLEM 16-1C (Continued)
(c) Balance Sheet
Current assets
Interest receivable ...................................................... $ 72,000
Investments
PROBLEM 16-2C
(a) Feb. 1 Stock Investments ..................................... 40,800
Cash .................................................... 40,800
Mar. 1 Stock Investments ..................................... 15,300
Cash .................................................... 15,300
Aug. 1 Cash ........................................................... 21,600
Gain on Sale of Stock Investments... 1,200
Stock Investments
[($40,800 ÷ 600) X 300] ................... 20,400
Sept. 1 Cash ($1 X 500) .......................................... 500
Dividend Revenue .............................. 500
Oct. 1 Cash ($60,000 X 9% X 1/2) ......................... 2,700
Interest Revenue ................................ 2,700
PROBLEM 16-2C (Continued)
(b) Dec. 31 Unrealized Loss—Income ....................... 1,400
Fair Value Adjustment—Trading ..... 1,400
Security
Cost
Fair Value
RNA common
$20,400
$19,800
(300 X $66)
(c) Current assets
Trading securities, at fair value ........................................ $34,300
PROBLEM 16-3C
(a) 2017
July 1 Cash (6,000 X $1) ...................................... 6,000
Dividend Revenue ............................. 6,000
Aug. 1 Cash (3,000 X $.50) ................................... 1,500
Dividend Revenue ............................. 1,500
Oct. 1 Cash (600 X $27) ....................................... 16,200
Stock Investments (600 X $20) ......... 12,000
Gain on Sale of Stock
Investments
[$16,200 – ($12,000)] ..................... 4,200
Nov. 1 Cash (1,200 X $1) ...................................... 1,200
Dividend Revenue ............................. 1,200
Dec. 15 Cash (2,400 X $.50) ................................... 1,200
Dividend Revenue ............................. 1,200
PROBLEM 16-3C (Continued)
(b) Dec. 31 Unrealized Gain or Loss—Equity
($96,000 – $90,000) ................................... 6,000
Fair Value Adjustment—Available-
for-Sale ............................................... 6,000
Security
Cost
Fair Value
Apel Co. common
$48,000
$43,200
(2,400 X $18)
(c) Investments
Investment in stock of less than
20% owned companies, at fair
value ................................................. $ 90,000
Stockholders’ equity
Common stock .................................... $2,000,000
Retained earnings ............................... 1,200,000
PROBLEM 16-4C
(a) 2017
Jan. 1 Stock Investments ................................ 1,350,000
Cash ............................................... 1,350,000
31 Fair Value Adjustment—
Available-for-Sale ............................. 150,000
Unrealized Gain or Loss—Equity
[$1,350,000 – ($30 X 50,000)] .... 150,000
(b) 2017
Jan. 1 Stock Investments ................................ 1,350,000
Cash ............................................... 1,350,000
PROBLEM 16-4C (Continued)
(c)
Cost
Method
Equity
Method
Stock Investments
Common stock
Unrealized Gain—Equity
$1,500,000
150,000
*
$1,450,000
**
PROBLEM 16-5C
(a) Jan. 7 Cash ........................................................... 28,000
Stock Investments .............................. 26,000
Gain on Sale of Stock
Investments ..................................... 2,000
10 Stock Investments ...................................... 15,600
Cash (200 X $78) ................................. 15,600
10 Cash ($26 X 600) ......................................... 15,600
Loss on Sale of Stock Investments ........... 1,200
Stock Investments .............................. 16,800
July 1 Cash ............................................................ 700
Dividend Revenue
($1.00 X 700) .................................... 700
(b)
Stock Investments
1/1 Bal. 84,800
1/7 26,000
1/10 15,600
2/10 16,800
PROBLEM 16-5C (Continued)
(c) Dec. 31 Unrealized Gain or Loss—Equity ................... 900
Fair Value Adjustment—Available-
Security
Cost
Fair Value
Penn Corporation common
$ 42,000
$ 44,100
(700 X $63)
(d) Investments
Investment in stock of less than 20% owned
companies, at fair value ............................................. $101,700
Stockholders’ equity
Total paid-in capital and retained earnings .................. xxxxx
PROBLEM 16-6C
NIETO CORPORATION
Balance Sheet
December 31, 2017
Assets
Current assets
Cash ..................................................................... $ 142,000
Short-term investments,
at fair value ....................................................... 185,000
Accounts receivable ........................................... $ 90,000
Investments
Investment in stock of 20% – 50%
owned company, at equity ............................... 600,000
Property, plant, and equipment
Land ...................................................... 520,000
Buildings ............................................... $900,000
Less: Accumulated depr.—
Intangibles
Goodwill ............................................................... 200,000
Total assets ............................................................... $2,860,000
PROBLEM 16-6C (Continued)
NIETO CORPORATION
Balance Sheet (Continued)
December 31, 2017
Liabilities and Stockholders’ Equity
Current liabilities
Notes payable ................................................. $ 70,000
Accounts payable ........................................... 250,000
Long-term liabilities
Bonds payable, 10%, due 2025 ...................... $ 400,000
Less: Discount on bonds payable ................ 20,000
Stockholders’ equity
Paid-in capital
Common stock, $5 par value,
500,000 shares authorized,
300,000 shares issued and
outstanding .......................................... 1,500,000
In excess of par—common stock ........... 200,000
