COMPREHENSIVE PROBLEM (Continued)
(2) 12/31/18 Interest Expense ……………………………… 41,200
Discount on Bonds Payable
($52,000 ÷ 10) …………………………. 5,200
Interest Payable
($600,000 X .06) ……………………… 36,000
Part V
(e) (1) 2016 Stock Investments ……………………… 900,000
Cash ……………………………………. 900,000
Stock Investments ……………………… 18,000
Revenue from Stock
Investments (.6 X $30,000) … 18,000
COMPREHENSIVE PROBLEM (Continued)
2018 Stock Investments ……………………. 63,000
Revenue from Stock
Investments
(.6 X $105,000) ……………….. 63,000
(2)
Stock Investments
900,000
18,000
1,260
CCC16 CONTINUING COOKIE CHRONICLE
(a) 1. The amount of influence you would have in The Beanery would
determine how you would account for the investment. Given that
you would own 30% of the common shares of The Beanery, it would
be assumed (unless there was evidence to the contrary) that you
could exert significant influence over the day-to-day operations of
the business. This is especially so given the small number of
stockholders. Significant influence over an investee may also
result from representation on the board of directors, participation
in policy-making processes, material intercompany transactions,
interchange of managerial personnel, or technological dependency.
Assuming significant influence existed, the investment would be
2. One of the major advantages of going ahead with this investment
would be the strategic advantage of the horizontal and vertical
CCC16 (Continued)
(a) (Continued)
3. There would be disadvantages associated with this investment as
well. For example, there may be a significant time investment
required by both of you especially since both of the Thornton
sisters are very busy and would like the investor to take over some
of the responsibilities of running the business. Also, the Thornton
investor to purchase the shares held by Cookie & Coffee Creations.
(b)
Stock Investments …………………………………………. 15,000
(c)
Cost Method
Equity Method
Stock Investments …………………………………………. 15,000
Revenue from Stock Investments
CCC16 (Continued)
(d) Because the investment in The Beanery is a strategic investment, it
would be classified as a long-term investment in the noncurrent assets
BYP 16-1 FINANCIAL REPORTING PROBLEM
(a) Percentage increase from 2012 to 2013:
(1) Short-term marketable securities: ($26,287 – $18,383) ÷ 18,383 =
43.0%
(a)
(in millions)
PepsiCo
Coca-Cola
1.
Cash used for investing activities
$2,625
$4,214
(b) In its Note 1 to the consolidated financial statements, PepsiCo states
that its financial statements include the consolidated accounts of PepsiCo
Inc. and the affiliates that it controls. In addition, PepsiCo includes its
share of the results of certain other affiliates based on its ownership
interest.
(a)
(in millions)
Amazon
Wal-Mart
1.
Cash used for investing activities
$4,276
$12,293
(b) In its Note 1 to the consolidated financial statements, Amazon states:
Principles of Consolidation
The consolidated financial statements include the accounts of
Amazon.com, Inc., its wholly-owned subsidiaries, and those entities in
which we have a variable interest and are the primary beneficiary.
Intercompany balances and transactions have been eliminated.
Answers will vary depending on company chosen. The following sample
solution is provided for Medtronic, Inc.
(a) 29 analysts rated this company.
BYP 16-5 DECISION MAKING ACROSS THE ORGANIZATION
(a) The dollar amount received upon the sale of the JMB Company stock was
$1,468,000. Since Neosho Corporation has a 30% interest in JMB, the
equity method should be used to report dividends and net income. A
reconstruction of the correct entries can be prepared for the
(b) Both the stockholder and the president are correct. Since the equity
method adjusts the investment account for the earnings of the
investee, the “very profitable” JMB investment balance has increased
during the period the stock was held. The stock was sold at less than
Entries for the investment in JMB Company:
Acquisition
Stock Investments …………………………………….. 1,300,000
Cash ………………………………………………….. 1,300,000
BYP 16-5 (Continued)
This Year—Equity Method
Stock Investments …………………………………….. 156,000
Revenue from Stock Investments
($520,000 X 30%) …………………………….. 156,000*
Dear Mr. Nichols:
I am writing this memo to make suggestions regarding the appropriate
treatment for the two securities you are holding in your portfolio. Assuming
that your investment in Plummer Corporation does not represent a significant
BYP 16-7 ETHICS CASE
(a) Classifying the securities as they propose will indeed have the effect on
net income that they say it will. Classifying all the gains as trading securities
will cause all the gains to flow through the income statement this year and
classifying the losses as available-for–sale securities will defer the losses
from this year’s income statement. Classifying the gains and losses just
the opposite will have the opposite effect.
BYP 16-8 ALL ABOUT YOU
(a) Ask—The lowest price at which a market maker will sell a specified
number of shares of a stock at any given time.
Margin—Paying for stock partly in cash and partly by borrowing
from the brokerage firm.
(b) The SEC quiz is interactive, thus students are provided with feedback
regarding their answers.
BYP 16-9 FASB CODIFICATION ACTIVITY
(a) Trading Securities; Securities that are bought and held principally for
the purpose of selling them in the near term and therefore held for
only a short period of time. Trading generally reflects active and
frequent buying and selling, and trading securities are generally used
with the objective of generating profits on short-term differences in
price.