EXERCISE 17.9 (20–25 minutes)
(a) STEFFI GRAF, SA
Statement of Comprehensive Income
For the Year Ended December 31, 2019
_____________________________________________________________
Net income €120,000
(b) STEFFI GRAF, SA
Statement of Comprehensive Income
For the Year Ended December 31, 2020
_____________________________________________________________
Net income €140,000
Other comprehensive income
Holding gains €40,000
40,000
EXERCISE 17.10 (10–15 minutes)
(a) Fair Value Adjustment (£68,000 – £65,000) …………… 3,000
Unrealized Holding Gain or Loss—Income ……. 3,000
EXERCISE 17.11 (10–15 minutes)
(a) December 31, 2019
Unrealized Holding Gain or Loss—Income ………….. 1,400
Fair Value Adjustment ………………………………… 1,400
(b) During 2020
(c) December 31, 2020
Investments
Cost
Fair Value
Unrealized
Gain (Loss)
Stargate Corp. shares
€20,000
€19,300
(€ (700)
Vectorman Co. shares
EXERCISE 17.12 (5–10 minutes)
The unrealized gains and losses resulting from changes in the fair value of
equity investments [classified as non-trading] are recorded in an unrealized
EXERCISE 17.13 (10–15 minutes)
(a) The portfolio should be reported at the fair value of $54,500. Since the
cost of the portfolio is $53,000, the unrealized holding gain is $1,500, of
(b) The unrealized holding gain of $1,300 should be reported as other
income and expense on the income statement and the Fair Value
Adjustment account balance of $1,500 should be added to the cost of
the investment account.
WENGER, INC.
Statement of Financial Position
As of December 31, 2019
____________________________________________________________
(d) Equity Investment ……………………………………………… 1,300
Unrealized Holding Gain or Loss—Equity …….. 1,300
EXERCISE 17.14 (20–25 minutes)
(a) The total purchase price of these investments is:
The purchase entries will be:
January 15, 2019
Commission Expense ……………………………………. 1,980
Equity Investments ……………………………………….. 301,500
Cash ……………………………………………………… 303,480
April 1, 2019
(b) Gross selling price of 3,000 shares at $35 ………. $105,000
Less: Commissions, taxes, and fees ……………… (2,850)
Net proceeds from sale …………………………………. 102,150
Cost of 3,000 shares ($301,500 X 3/9) ……………… (100,500)
Gain on sale of shares …………………………………… $ 1,650
May 20, 2019
EXERCISE 17.14 (Continued)
(c)
Investments
Cost
Fair Value
Unrealized
Gain (Loss)
Gonzalez Co.
$201,000*
$180,000(1)
$(21,000)
Belmont Co.
260,000
275,000(2)
(15,000
Thep Co.
Total portfolio value
$646,500
December 31, 2019
Fair Value Adjustment …………………………………….. 4,500
Unrealized Holding Gain or Loss—Income … 4,500
LO: 2, Bloom: AN, Difficulty: Moderate, Time: 20-25, AACSB: Analytic, AICPA BB: Critical Thinking, AICPA FC: Reporting, AICPA PC: Problem Solving
EXERCISE 17.15 (15–20 minutes)
March 18, 2019
Equity Investments (20,000 X $14) ………………………….. 280,000
Cash ………………………………………………………………. 280,000
To record the dividend revenue from Ramirez Fashion:
June 30, 2019
EXERCISE 17.15 (Continued)
To record the investment at fair value:
December 31, 2019
Fair Value Adjustment …………………………..…………………. 20,000
Unrealized Holding Gain or Loss—Income …………. 20,000*
January 1, 2019
Equity Investments ………………………………………………….. 67,500
Cash [(30,000 X 25%) X $9] ………………………………… 67,500
June 15, 2019
Cash ($36,000 X 25%) ………………………………………………. 9,000
Equity Investments …………………………………………… 9,000
EXERCISE 17.16 (10–15 minutes)
(a) £130,000, the increase to the Investment account.
(b) If the dividend payout ratio is 40%, then 40% of the net income is their
EXERCISE 17.17 (10–15 minutes)
1. Equity Investments (300 shares X £40) …………….. 12,000
Cash ……………………………………………………. 12,000
EXERCISE 17.18 (15–20 minutes)
(a) Unrealized Holding Gain or Loss—Income …………. 5,900
Fair Value Adjustment (£311,500 – £305,600) .. 5,900
EXERCISE 17.18 (Continued)
(d)
Investments
Cost
Fair Value
Unrealized
Holding Gain
(Loss)
Beilman Corp., Ordinary
£180,000
£175,000
£(5,000)
McDowell Corp., Ordinary
52,500
50,400
(2,100)
Duncan, Inc., Preference
Total portfolio
(9,100)
Previous fair value adjustment—Cr.
Fair value adjustment—Cr.
£(3,200)
EXERCISE 17.19 (15–20 minutes)
(a) December 31, 2019
Equity Investments …………………………………… 125,000,000
Cash …………………………………………………. 125,000,000
June 30, 2020
EXERCISE 17.19 (Continued)
(b) December 31, 2019
Equity Investments …………………………………….. 125,000,000
Cash …………………………………………………… 125,000,000
June 30, 2020
(c)
Fair Value
Method
Equity Method
Investment amount (statement of
financial position)
¥135,000,000
*¥131,600,000*
Dividend revenue (income statement)
EXERCISE 17.20 (10–15 minutes)
Equity Investments ………………………………………….. 200,000
Cash ………………………………………………………… 200,000
EXERCISE 17.21 (15–20 minutes)
(a) The entry to record the impairment is as follows:
December 31, 2019
Loss on Impairment ($800,000 – $740,000) ………. 60,000
Allowance for Impaired Debt Investments … 60,000
EXERCISE 17.22 (10–15 minutes)
(a) Contractual cash flow
[(€400,000 X .10 X 3) + €400,000]……………………. €520,000
(b) Loss on Impairment ………………………………………… 49,998
Allowance for Impaired Debt Investment …… 49,998
(c) Since Komissarov will now receive the contractual cash flow (€520,000)
EXERCISE 17.23 (20–25 minutes)
(a) December 31, 2020
(b) December 31, 2021
Allowance for Impaired Debt Investments
($2,950,000 − $2,500,000) ……………… 450,000
Reversal of Impairment Loss ……………………. 450,000
(d)
Loss on Impairment …………………………………………. 250,000
Unrealized Holding Gain or Loss − Equity ………… 550,000
*EXERCISE 17.24 (15–20 minutes)
(a) January 2, 2019
Call Option ……………………………………………………. 300
Cash ………………………………………………………….. 300
*EXERCISE 17.25 (20–25 minutes)
(a)
6/30/19
(b)
12/31/19
Fixed-rate debt
€100,000
€100,000
Fixed rate (6% ÷ 2)
X3%
X3%
Semiannual debt payment
€ 3,000
€ 3,000
Swap fixed receipt
(3,000)
(3,000)
Net income effect
Swap variable rate
Net interest expense
€ 2,850
€ 3,350
*EXERCISE 17.26 (20–25 minutes)
(a)
12/31/19
(b)
12/31/20
Variable-rate debt
$10,000,000
$10,000,000
Variable rate
X5.8%
X6.6%
Debt payment
$ 580,000
$ 660,000
Debt payment
580,000
660,000
Swap variable received
(580,000)
(660,000)
Net income effect
$ 0
$ 0
600,000
600,000
Net interest expense
$ 600,000
$ 600,000
*EXERCISE 17.27 (15–20 minutes)
(a) Interest Expense ……………………………………………… 75,000
Cash (7.5% X £1,000,000) …………………………... 75,000
*EXERCISE 17.28 (20–25 minutes)
(a) August 15, 2019
Call Option ……………………………………………………… 360
Cash ………………………………………………………… 360
(c) December 31, 2019
Unrealized Holding Gain or Loss—Income ………… 800
Call Option ($2 X 400) ……………………………….. 800
Unrealized Holding Gain or Loss—Income ………… 115
Call Option ($180 – $65) …………………………….. 115
(d) January 15, 2020
Call Option ($1 X 400) ………………………………………. 400
*Value of Call Option at settlement:
Call Option
*EXERCISE 17.29 (25–30 minutes)
(a) May 1, 2019
Memorandum entry to indicate entering into the futures contract.
(b) June 30, 2019
(d) October 5, 2019
Titanium Inventory …………………………………………… 10,500,000
Cash (¥52,500 X 200 ounces) …………………….. 10,500,000
Note to instructor: In practice, futures contracts are settled on a daily basis;
for our purposes, we show only one settlement for the entire amount.
(e) December 15, 2019
Cash ……………………………………………………………….. 25,000,000
Sales Revenue ………………………………………….. 25,000,000
*EXERCISE 17.29 (Continued)
(f) CHOI GOLF.
Partial Income Statement
For the Quarter Ended December 31, 2019
Sales revenue …………………………………………………. ¥25,000,000
TIME AND PURPOSE OF PROBLEMS
Problem 17.1 (Time 20–30 minutes)
Purpose—the student is required to prepare journal entries and adjusting entries covering a three-year
Problem 17.2 (Time 30–40 minutes)
Purpose—The student is required to prepare journal entries and adjusting entries for debt investments,
along with an amortization schedule. The fair value option is addressed.
Problem 17.3 (Time 25–30 minutes)
Purpose—to provide the student with an understanding of the differentiation in accounting treatments
Problem 17.4 (Time 25–35 minutes)
Purpose—the student is required to distinguish between the existence of a bond premium or discount.
Problem 17.5 (Time 25–35 minutes)
Purpose—the student is required to prepare journal entries for the sale and purchase of equity
Problem 17.6 (Time 25–35 minutes)
Problem 17.7 (Time 25–35 minutes)
Problem 17.8 (Time 20–30 minutes)
Purpose—to provide the student with an understanding of the accounting for equity investments. The
Problem 17.9 (Time 20–30 minutes)
Purpose—to provide the student with an understanding of the proper accounting treatment with respect
Problem 17.10 (Time 30–40 minutes)
Purpose—to provide the student with an understanding of the reporting problems associated with non–
Problem 17.11 (Time 20–30 minutes)
Purpose—to provide the student with an understanding of the reporting problems associated with
Time and Purpose of Problems (Continued)
*Problem 17.12 (Time 20–25 minutes)
Purpose—the student is required to prepare the entries at purchase, throughout the life, and at expiration
for a stand alone derivative (call option).
*Problem 17.15 (Time 30–40 minutes)
Purpose—the student is provided with an opportunity to prepare the entries for a fair value hedge in the
context of an interest rate swap, including how the effects of the swap will be reported in the financial
statements.
SOLUTIONS TO PROBLEMS
PROBLEM 17.1
(a) December 31, 2016
Debt Investments ……………………………….. 108,660
Cash …………………………………………. 108,660
(d) December 31, 2016
Debt Investments ……………………………….. 108,660
Cash …………………………………………. 108,660
(e) December 31, 2017
1. Cash …………………………………………………. 7,000
Debt Investments ………………………. 1,567
2. Cash …………………………………………………. 7,000
Debt Investments ………………………. 1,567
Interest Revenue ……………………….. 5,433