FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Jan. 1 Balance 614,000 Aug. 17 Dividends 85,000
Req. 3
Total current assets $ XXX
Long-term assets:
Investment in AFSS 26,600
Equity-method investment 672,000
Unrealized gain on investment in AFSS 200$
Equity-Method Investment
Chapter 8 : Long-Term Investments and the Time Value of Money Page 61 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-66B
(20-30 min.)
Requirements
Solution:
Req. 1
Req. 2
Debit Credit
(a)$1.6
Total assets 80.6$ 164.8$ (b) 9.4
Req. 3
1. Compute the debt ratio of Randall Motor Company considered alone.
2. Determine the consolidated total assets, total liabilities, and stockholders’ equity of
Randall Motor Company after consolidating the financial statements of RMCC into the
totals of Randall, the parent company.
3. Recompute the debt ratio of the consolidated entity. Why do companies prefer not to
consolidate their financing subsidiaries into their own financial statements?
234.4$
Randall
RMCC
Eliminations
Consolidated
Totals
Chapter 8 : Long-Term Investments and the Time Value of Money Page 62 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-67B
(35-45 min.)
Requirement
Solution:
DEBIT CREDIT
Cash 59,000 57,000 116,000
Accounts receivable, net 199,000 87,000 286,000
1. Prepare the work sheet for the consolidated balance sheet of Robertson, Inc.
Dinette
Robertson, Inc.
Consolidation Work Sheet
September 30, 2014
ASSETS
Robertson
ELIMINATION
CONSOLIDATED
AMOUNTS
Chapter 8 : Long-Term Investments and the Time Value of Money Page 63 of 80
Inventory 294,000 412,000 706,000
Notes payable 405,000 335,000
Other liabilities 212,000 296,000 508,000
Common stock 550,000 272,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-68B
(15-20 min.)
Requirement
Solution:
Req. 1
1 $ 8,000 x 0.926 = $ 7,408
1. Assuming a 8% interest rate, which investment opportunity would you choose?
Factor
=
PV of Cash
Flow
Investment Opportunity X
Year
Cash
Flows
x
Chapter 8 : Long-Term Investments and the Time Value of Money Page 64 of 80
3 17,000 x 0.794 = 13,498
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-69B
(20-25 min.)
Requirements
Solution:
Req. 1
Assets 410,000,000 0.0110$ 4,510,000$
1. Translate into dollars the foreign-currency balance sheet of the Japanese subsidiary
of
Lundgren. When Lundgren acquired this subsidiary, the Japanese yen was worth
$0.0095.
The current exchange rate is $0.0110. During the period when the subsidiary earned its
income, the average exchange rate was $0.0100 per yen. Before you perform the
foreigncurrency translation calculations, indicate whether Lundgren has experienced a
positive or a negative translation adjustment. State whether the adjustment is a gain or
a loss, and show where it is reported in the financial statements.
This situation will generate a positive translation adjustment, which is like a gain. The
gain occurs because the yen’s current exchange rate, which is used to translate the
subsidiary’s net assets, is greater than the historical exchange rates at which Lundgren
Corp. invested in the Japanese subsidiary.
YEN
EXCHANGE
RATE
DOLLARS
Chapter 8 : Long-Term Investments and the Time Value of Money Page 65 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Chapter 8 : Long-Term Investments and the Time Value of Money Page 66 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E8-70
(15-20 min.)
Requirements
Solution:
Req. 1
Req. 2
Req. 3
b. Investment in AFSS
($1,000,000 − $300,000) $700,000
1. Which method is used to account for each investment?
2. By how much did each of these investments increase or decrease
PlaySpace’s net income during 2016?
3. For investments b and c, show how PlaySpace would report these
investments on its balance sheet at December 31, 2016.
PlaySpace’s net income for 2016:
Chapter 8 : Long-Term Investments and the Time Value of Money Page 67 of 80
a.
b.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E8-71
(20 min.)
Requirements
Solution:
Req. 1
Req. 2
Req. 3
1. Identify the two components that typically make up accumulated other
comprehensive income.
2. For each component of accumulated other comprehensive income, describe
the event that can cause a positive balance. Also describe the events that can
cause a negative balance for each component.
3. At December 31, 2016, Big-Box Retail’s accumulated other comprehensive
loss was $58 million. Then during 2017, Big-Box Retail had a positive foreign-
currency translation adjustment of $22 million and an unrealized loss of $15
million on available-for-sale investments. What was Big-Box Retail’s balance of
accumulated other comprehensive income (loss) at December 31, 2017?
Two components of accumulated other comprehensive income are:
An unrealized gain (loss) on available-for-sale investments produces a positive
(negative) balance.
Chapter 8 : Long-Term Investments and the Time Value of Money Page 68 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Millions
Accumulated other comprehensive (loss) at
December 31, 2016 (58)$
Chapter 8 : Long-Term Investments and the Time Value of Money Page 69 of 80
Foreign-currency translation adjustment 22
Accumulated other comprehensive (loss) at
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E8-72
(20-25 min.)
Requirements
Solution:
Req. 1
25,000$
x 0.926 =23,150$
Req. 2
25,000$ x 0.909 = 22,725$
Amount of Cash
Flow
5% Factor from
Table
Present Value of
Cash Flow
Amount of Cash
Flow
10% Factor from
Table
1. Assuming an 8% interest rate, which investment opportunity would you choose?
2. If you could earn 10%, would your choice change?
3. Assuming a 10% interest rate, what would the cash flow in year 5 have to be in
order for you to be indifferent to the two plans?
Present Value of
Cash Flow
Chapter 8 : Long-Term Investments and the Time Value of Money Page 70 of 80
x 0.857 =38,565
x 0.794 =27,790
x 0.735 =11,025
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 3
25,000$
x 0.909 =22,725$
45,000
x 0.826 =37,170
Present Value of
Cash Flow
Amount of
Cash Flow
10% Factor from
Table
Chapter 8 : Long-Term Investments and the Time Value of Money Page 71 of 80
x 0.751 =26,285
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Decision Case 1
(15-20 min.)
Solution:
1.
1. What do the parentheses around the two dollar amounts signify?
2. Are these items reported as assets, liabilities, stockholders’ equity,
revenues, or expenses? Are they normal-balance accounts, or are they contra
accounts?
3. Did Infografix include these items in net income? In retained earnings? In
the final analysis, how much net income did Infografix report for 2016?
4. Should these items scare you away from investing in Infografix stock? Why
The parentheses signify losses (similar to expenses).
Chapter 8 : Long-Term Investments and the Time Value of Money Page 72 of 80
2.
3.
4.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Decision Case 2
(20-30 min.)
Requirement
Solution:
1.
1. Evaluate all three actions as a way for Barham Company to generate the
needed amount of income. Recommend the best way for Barham to achieve
its net income goal.
The Ohio Office Systems investment cannot be used to generate the
needed income because the appropriate way to account for this investment
Chapter 8 : Long-Term Investments and the Time Value of Money Page 73 of 80
2.
3.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Ethical Issue
Requirements
Solution:
Req. 1
Req. 2 and Req. 3
1. What are the ethical issues in the Media One case?
2. Who are the stakeholders? What are the possible consequences to each?
3. What are the alternatives for Austin Cohen to consider? Analyze each
alternative from the following standpoints: (a) economic, (b) legal, (c) ethical.
4. If you were Cohen, what would you do?
5. Discuss how using the equity method of accounting for the investment
would decrease Cohen’s potential for manipulating his bonus.
The issue: Should Cohen have used his power to influence Web Talk to pay
a large cash dividend when they have to borrow to do so?
The stakeholders are Cohen, other shareholders of Media One, Web Talk, its
shareholders, creditors of Media One, and creditors of Web Talk.
Chapter 8 : Long-Term Investments and the Time Value of Money Page 74 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 4
Req. 5
Under the equity method, investor (Media One) income is increased when the
investee company (Web Talk) earns income. Receipts of dividends have no
effect on investor income (revenue) under the equity method.
Student responses will vary on this. Discuss the pros and cons.
Chapter 8 : Long-Term Investments and the Time Value of Money Page 75 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Apple, Inc.
(15-20 min.)
Requirement 1
Solution:
Requirement 2
Solution:
Refer to Note 1—Summary of Significant Accounting Policies, under Cash
Equivalents and Marketable Securities. How does the company classify its
investments?
From the caption Cash Equivalents and Marketable Securities in Note
1—Summary of Significant Accounting Policies—Marketable Debt Investments
Apple does adjust for periodic changes in fair value of their investments.
According to Cash Equivalents and Marketable Securities in Note 1—Summary
Refer to Note 1 under Cash Equivalents and Marketable Securities. Does Apple
Inc. adjust for periodic changes in fair value of these investments? If so, where
do these adjustments appear?
Chapter 8 : Long-Term Investments and the Time Value of Money Page 76 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Requirement 3
Solution:
Refer to Note 2—Financial Instruments, under Cash, Cash Equivalents and
Marketable Securities. What does Apple Inc.’s investment policy require of its
investments? What is the reasoning for this?
Apple considers any declines in market value of its marketable securities to be
temporary. The company invests in only highly rated securities and the
investment policy limits its amount of credit exposure to any one issuer. The
Chapter 8 : Long-Term Investments and the Time Value of Money Page 77 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Under Armour, Inc.
(30 min.)
Requirement 1
Solution:
Requirement 2
Solution:
Read Note 16—Segment Data and Related Information. What are Under
Armour, Inc.’s three main product categories? Which of these product
categories brought in the most revenue in 2014?
Under Armour’s three main categories are Apparel, Footwear, and
Accessories. The categories brought in the following revenue listed from
Read Note 16—Segment Data and Related Information. The company lists
six geographic operating regions worldwide. List these regions. Which region
brings in the most revenue?
Under Armour operates in: North America; Latin America; Europe, the Middle
Chapter 8 : Long-Term Investments and the Time Value of Money Page 78 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Requirement 3
Solution:
Read Note 2—Summary of Significant Accounting Policies—Basis of
Presentation. Which entities does Under Armour, Inc., consolidate? How
does it treat intercompany balances and transactions?
According to Note 2 to the Consolidated Financial Statements, Under
Chapter 8 : Long-Term Investments and the Time Value of Money Page 79 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Group Project
(2-3 hours)
Requirements
Solution:
1. Track the stock for a period assigned by your professor. Over the specified period,
keep a daily record of the price of the stock to see how well your investment has
performed. Each day, search the Corporate Dividend News in The Wall Street Journal to
keep a record of any dividends you’ve received. End the period of your analysis with a
month-end, such as September 30 or December 31.
2. Journalize all transactions that you have experienced, including the stock purchase,
dividends received (both cash dividends and stock dividends), and any year-end
adjustment required by the accounting method that is appropriate for your situation.
Assume you will prepare financial statements on the ending date of your study.
3. Show what you will report on your company’s balance sheet, income statement, and
statement of cash flows as a result of your investment transactions.
Student responses will vary.
Chapter 8 : Long-Term Investments and the Time Value of Money Page 80 of 80