Appendix C
Investments and International Operations
QUESTIONS
1. To be classified as current assets, investments must be (i) capable of being
2. Short-term investments in trading securities are reported on the balance sheet at the
4. The three classes of noninfluential investments in securities are:
a) debt and equity trading securities.
5. To be classified as current assets, investments must be capable of being converted
6. Unrealized holding gains and losses are not reported on the standard income
are classified as held-to-maturity debt securities.
10. The equity method is used when the investor has a “significant influence” over the
QUICK STUDIES
Quick Study C-1 (10 minutes)
True statements: b, d, f, g
Quick Study C-2 (10 minutes)
Quick Study C-3 (10 minutes)
[Note: This actively managed (for profit) short-term investment in equity securities would
be classified as Trading Securities.]
Quick Study C-4 (10 minutes)
May 7
Short-Term Investments—Trading (Kraft) …………
Quick Study C-5 (20 minutes)
2015
Dec. 31
Unrealized Loss—Income ………………………………………
2
2016
Dec. 31
Fair Value Adjustment—Trading (ST) ……………………..
6
2017
Dec. 31
Fair Value Adjustment—Trading (ST) ……………………..
5
2018
Dec. 31
Unrealized Loss—Income ………………………………………
10
We could also use T-accounts to determine the needed adjustment to fair value:
12/31/2016—F.V. Adj—Trading
12/31/2017—F.V. Adj—Trading
12/31/2018—F.V. Adj—Trading
Adj.
End.
Quick Study C-6 (10 minutes)
July 31
Cash …………………………..…………………………………………
1,200
Dec. 31
1,000
Quick Study C-7 (10 minutes)
1. 2016
2. Both accounts in part (1) are reported on the balance sheet.
i. The Unrealized Loss is reported as a reduction in the equity section
3. 2017
Apr. 6 Cash ……………………………………………………….……….. 26,000
Quick Study C-8 (10 minutes)
May 9
Short-Term Investments—AFS (Higo) …………………..
*($100 x $28) – $90
Dec. 31
Unrealized Loss – Equity* …………………………………..
available-for-sale securities.
Quick Study C-9 (10 minutes)
1.
Dec. 31
Unrealized Loss⎯Equity ……………………………………….
12,000
Quick Study C-10 (10 minutes)
Valuation Method: The fair value method is used to account for this investment in
long-term equity securities (AFS portfolio).
2016
May 20
Long-Term Investments—AFS (ORD) ……………………..
1,000,000
1,000,000
2017
Aug. 5
Cash …………………………..…………………………………………
Quick Study C-11 (10 minutes)
a.
Nov. 1
Cash …………………………..………………………………………..
40,000
Dec. 31
Long-Term Investments—ORD …………………………..
Quick Study C-12 (10 minutes)
1. Equity securities giving an investor significant influence are accounted for
4. Accrual of interest on bonds held as long-term investments requires a credit to
Quick Study C-13 (10 minutes)
2. A long-term investment classified as equity securities with controlling
Quick Study C-14 (10 minutes)
Quick Study C-15 (10 minutes)
1. Return on Total Assets = Profit margin x Total asset turnover
2. Component analysis is useful as it allows the determination of whether
Quick Study C-16A (10 minutes)
Date of Sale
Accounts Receivable …………………………………………….
14,500
13,500
Quick Study C-17A (10 minutes)
Mar. 1
Account Receivable—Hamac …………………………..
9,076
Mar. 31
9,798
Quick Study C-18 (10 minutes)
For trading securities (and as explained in Carrefour’s description of its
EXERCISES
Exercise C-1 (10 minutes)
notes, bonds, and certificates of deposit.
2. Equity securities reflect an owner relationship such as shares of stock
issued by companies.
3. Short-term investments are securities that (1) management intends to
4. Long-term investments in securities are defined as those securities that
Exercise C-2 (15 minutes)
a.
Mar. 22
Short-Term Investments—Trading (RIP) ………….
10,080
10,080
b.
Exercise C-3 (20 minutes)
1.
2016
2. The accounts in part 1 are reported on different financial statements.
i. The $6,000 debit balance in the Fair Value Adjustment—Trading
3.
2017
Exercise C-4 (10 minutes)
a.
Exercise C-5 (10 minutes)
a.
Aug. 1
Short-Term Investments—AFS (Houtte) ………….
450,000
450,000
Exercise C-6 (30 minutes)
2016
(a) Feb. 15
Short-Term Investments—HTM (A.G.) …………………………
160,000
(b) Mar. 22
(c) May 15
164,000
(d) July 30
Short-Term Investments—Trading (MP3) ……………………..
100,000
(e) Sept. 1
(f) Oct. 8
(g) Oct. 30
Exercise C-7 (15 minutes)
Unrealized
Available-for-Sale Portfolio Cost Fair Value Gain (Loss)
Verrizano Corporation bonds payable ………….. $ 89,600 $ 91,600
Exercise C-8 (15 minutes)
Computation of Fair Value Adjustment
Cost
Fair
Value
Unrealized
Gain (Loss)
Nintendo Co. common stock …………………………..
$ 44,450
$ 48,900
Atlantic bonds payable …………………………..
Kellogg Company notes payable …………………………..
Dec. 31
Exercise C-9 (15 minutes)
Dec. 31
Fair Value Adjustment—AFS (LT) …………………………..
32,078
Exercise C-10 (30 minutes)
2014
Dec. 31
Unrealized Loss—Equity ……………………………………….
11,140
2015
Dec. 31
Fair Value Adjustment—AFS (LT)* ………………………….
38,440
2016
Dec. 31
Fair Value Adjustment—AFS (LT)* ………………………….
73,000
2017
Dec. 31
Unrealized Loss—Equity ……………………………………….
96,700
Unrealized Gain—Equity ………………………………………..
Exercise C-11 (15 minutes)
1. Classification of Investments in Securities
2. Fair Value Adjustment entry at December 31, 2016
Dec. 31
Fair Value Adjustment—AFS (LT) …………………………..
Exercise C-12 (30 minutes)
2016
Jan. 2
Long-Term Investments—Grecco* …………………………..
411,000
Cash …………………………..…………………………………………
45,000
Dec. 31
Long-Term Investments—Grecco…………………………..
162,300
2017
June 1
Cash …………………………..…………………………………………
63,000
Dec. 31
Long-Term Investments—Grecco…………………………..
234,250
Cash …………………………..…………………………………………
320,000
Exercise C-13 (10 minutes)
operations, and cash flows of all entities under the parent’s control,
including all subsidiaries.
investments in equity securities with controlling influence.
Exercise C-14 (15 minutes)
2016 return on total assets 2017 return on total assets
Exercise C-15A (25 minutes)
2016
Dec. 16
Accounts Receivable⎯Bronson Ltd. ……………………..
24,791
Dec. 31
Jan. 15
Cash (17,000 x $1.4482) …………………………..