*PROBLEM 17.12
(a) July 7, 2019
Call Option …………………………………………………….. 240
(b) September 30, 2019
Call Option …………………………………………………….. 1,400
(c) December 31, 2019
Unrealized Holding Gain or Loss—Income ……….. 400
Call Option (€2 X 200) ……………………………….. 400
Call Option (€180 – €65) …………………………….. 115
(d) January 4, 2020
Call Option (€1 X 200) ……………………………………… 200
Unrealized Holding Gain or Loss—Income …. 200
*Value of Call Option at Settlement:
Call Option
240
200
*PROBLEM 17.13
(a) July 7, 2019
Put Option ………………………………………………………. 240
Cash …………………………………………………………. 240
(b) September 30, 2019
(c) December 31, 2019
Unrealized Holding Gain or Loss—Income ………… 75
Put Option (€125 – €50) ………………………………. 75
*PROBLEM 17.14
(a) January 7, 2019
Put Option ……………………………………………………… 360
Cash ………………………………………………………… 360
(b) March 31, 2019
Put Option ……………………………………………………… 2,000
(c) June 30, 2019
Unrealized Holding Gain or Loss—Income ……….. 800
Put Option ($2 X 400) ………………………………… 800
(d) July 6, 2019
Put Option ($5 X 400) ………………………………………. 2,000
Unrealized Holding Gain or Loss—Income …. 2,000
Unrealized Holding Gain or Loss—Income ……….. 65
*PROBLEM 17.15
(a) (1) No entry necessary at the date of the swap because the fair value
of the swap at inception is zero.
(2) June 30, 2020
(3) June 30, 2020
Cash ………………………………………………………… 50,000
Interest Expense ………………………………….. 50,000
(4) June 30, 2020
(5) June 30, 2020
Unrealized Holding Gain or Loss—
Income …………………………..………………………. 200,000
Swap Contract ……………………………………… 200,000
*PROBLEM 17.15 (Continued)
(c) Financial statement presentation as of June 30, 2020
Statement of Financial Position
Liabilities
Notes Payable $9,800,000
(d) Financial statement presentation as of December 31, 2020
Statement of Financial Position
Assets
Swap Contract $ 60,000
Liabilities
Notes Payable 10,060,000
Unrealized Holding Gain—
Swap $ 60,000
Unrealized Holding Loss—
Note Payable (60,000)
Total $ 0
*PROBLEM 17.16
(a) April 1, 2019
Memorandum entry to indicate entering into the futures contract.
(b) June 30, 2019
(c) September 30, 2019
Futures Contract …………………………………………. 250,000
Unrealized Holding Gain or Loss—Equity
[(¥31,500 – ¥31,000) X 500 ounces] ………. 250,000
(d) October 10, 2019
(e) December 20, 2019
Cash …………………………………………………………… 35,000,000
Sales Revenue ………………………………………. 35,000,000
*PROBLEM 17.16 (Continued)
(f) SUZUKI JEWELRY GROUP
Partial Statement of Financial Position
At June 30, 2019
Current Assets
(g) SUZUKI JEWELRY GROUP
Income Statement
For the Quarter Ended December 31, 2019
Sales revenue …………………………………………………………… ¥35,000,000
Cost of goods sold……………………………………………………. 19,250,000*
*PROBLEM 17.17
(a) (1) October 15, 2019
Inventory …………………………………………………. 240,000
(2) October 31, 2019
Unrealized Holding Gain or Loss—Income …. 125
Put Option (£300 – £175) ………………………. 125
(3) November 30, 2019
Unrealized Holding Gain or Loss—Income …. 70
Put Option (£175 – £105) ………………………. 70
*PROBLEM 17.17 (Continued)
(4) December 31, 2019
Unrealized Holding Gain or Loss—Income …. 65
Put Option (£105 – £40) ………………………… 65
(b) OIL PRODUCTS PLC
Partial Balance Sheet
At November 30, 2019
Assets
OIL PRODUCTS PLC
Income Statement
For the Month Ended November 30, 2019
Other Income (Loss)
£ (70)
(c) OIL PRODUCTS PLC
Partial Balance Sheet
At December 31, 2019
*PROBLEM 17.17 (Continued)
OIL PRODUCTS PLC
Income Statement
For the Month Ended December 31, 2019
Other Income (Loss)
Unrealized Holding Loss (Inventory) …………….. £(12,000)
Unrealized Holding Gain—put option …………….. £11,935
*Put Option
300
TIME AND PURPOSE OF CONCEPTS FOR ANALYSIS
CA 17.1 (Time 25–30 minutes)
Purpose—To provide the student with an opportunity to discuss issues related to debt and equity
CA 17.2 (Time 25–30 minutes)
CA 17.3 (Time 20–30 minutes)
Purpose—To provide the student with an understanding of the accounting applications dealing with
CA 17.4 (Time 20–25 minutes)
Purpose—To provide the student with an understanding of the conceptual basis for the distinction
CA 17.5 (Time 15–25 minutes)
Purpose—To allow the student to discuss the equity method of accounting for investments and to provide
rationale for this method of accounting.
CA 17.6 (Time 25–35 minutes)
CA 17.7 (Time 25–35 minutes)
Purpose—To provide the student an opportunity to examine the ethical issues related to fair value
accounting.
SOLUTIONS TO CONCEPTS FOR ANALYSIS
CA 17.1
Situation 1 IFRS requires that investments that are actively traded be reported on the statement
of financial position at their fair value amount. Any changes in the fair value of trading
investments from one period to another are included in earnings. Therefore, the €4,200
decrease will be reported on the income statement as an unrealized holding loss.
Situation 4 When a reduction in the fair value of an investment is considered to be an
CA 17.2
(a) The reporting of these investments at fair value provides the financial statement user with more
relevant financial information. The fair value of the investments is essentially the present value of
CA 17.2 (Continued)
(b) Lexington Company should record the following journal entry and report the following amounts on
its statement of financial position.
December 31, 2019
Unrealized Holding Gain or Loss—Income ……………………………… 1,100
(c) No, Lexington Company did not properly account for the sale of the Summerset Company
shares. The cost basis of the Summerset shares is still $9,500. Therefore, Lexington should have
(d) December 31, 2020
Fair Value Adjustment …………………………………………………………. 1,500
Unrealized Holding Gain or Loss—Income ……………………… 1,500
the equity investment portfolio.
Investments
Cost
Fair Value
Unrealized
Gain (Loss)
Greenspan Corp. shares
$20,000
$19,900
($ (100)
Previous fair value adjustment balance—Cr.
( (1,100)
CA 17.3
Situation 1 The carrying value of the held-for-collection investment will be the fair value on the
date of the transfer.
Situation 2 When a decrease in the fair value of an investment is considered to be permanent,
CA 17.4
(a) A company maintains the different investment portfolios because each portfolio serves a different
investment objective. Since each portfolio serves a different objective, the possible risks and
(b) The criteria which should be considered when determining how to properly classify investments
are: (1) the company’s business model for managing their financial assets, and (2) the
contractual cash flow characteristics of the financial asset. If management is planning to sell the
investment in the near future and to earn its profit on the basis of any price change, then the
investment should be classified as a trading investment. On the other hand, if a company’s
business model is to hold debt assets in order to collect contractual cash flows and the
contractual terms give specified dates to cash flows that are solely payments of principal and
interest, then the investment should be classified as a held-for-collection investment.