FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E8-41B
(15-20 min.)
Requirement
Solution:
Cash flows from investing activities:
Capital expenditures (10.6)$
Sale of property, plant, and equipment 7.5
Prepare the investing activities section of Ellis Bakery’s statement of cash
flows. Based solely on Ellis Bakery’s investing activities, does it appear that
the company is growing or shrinking? How can you tell?
Ellis Bakery
Statement of Cash Flows (partial)
Fiscal Year 2016
Millions
Chapter 8 : Long-Term Investments and the Time Value of Money Page 41 of 80
Sale of other businesses 1.4
Purchase of long-term investments (12.1)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E8-42B
(20-25 min.)
Requirement
Solution:
Cash 3,117,000
Notes Receivable 3,117,000
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
1. For each item listed, make the journal entry that placed the item on Blue Moon’s
statement
Chapter 8 : Long-Term Investments and the Time Value of Money Page 42 of 80
Short-Term Investments 3,460,000
Cash 3,460,000
Cash 1,399,000
Accumulated Depreciation – Equipment 3,701,000
Equipment 5,100,000
Investments 460,000
Gain on Sale of Investments 8,000
Property and Equipment 1,731,000
Cash 1,731,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E8-43B
(10-15 min.)
Solution:
Using the PV function in Excel, compute the price Shriver paid (the present
value) for the bond investment.
Chapter 8 : Long-Term Investments and the Time Value of Money Page 43 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Quiz
Q10-44 c
[(800 × $74) + (250 × $13) + (400 × $26) = $72,850]
Chapter 8 : Long-Term Investments and the Time Value of Money Page 44 of 80
Q10-45 c
Q10-47 c
Q10-52 c
Cash (800 × $74)
[(800 x $2.10) + (250 x $1.30) + (400 x $0.90) = $2,365]
=PV(4.5%,12,-60,-2000,0)
($2,000 x .735)
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-56A
(45-60 min.)
Requirements
Solution:
Req. 1
Jan. 1 Held-to-Maturity Investment in Bonds
($2,800,000 × 1.12) 3,136,000
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
1. Journalize Bolton’s purchase of the bonds as a long-term investment on January 1,
2016 (to be held to maturity), receipt of cash interest, and amortization of the bond
premium at July 1, 2016. The straight-line method is appropriate for amortizing the
bond investment.
2. Journalize the accrual of interest receivable and amortization of premium on
October 31, 2016 (round the answer to the nearest whole number).
3. Show all financial statement effects of this long-term bond investment on Bolton
Insurance Corp.’s balance sheet at October 31, 2016, and income statement for the
year ending October 31, 2016.
2016
Chapter 8 : Long-Term Investments and the Time Value of Money Page 45 of 80
Cash 3,136,000
To purchase bond investment.
Interest Revenue 126,000
To receive semiannual interest.
Held-to-Maturity Investment in Bonds
To amortize premium on bond investment.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Oct. 31 Interest Receivable
($2,800,000 × .09 × 4/12)
84,000
Req. 3
Balance sheet at October 31, 2016:
Current assets:
Interest receivable 84,000$
Property, plant, and equipment, net
Long-term assets:
Other revenues:
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Chapter 8 : Long-Term Investments and the Time Value of Money Page 46 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P9-57A
(20-30 min.)
Requirements
Solution:
Req. 1
1. For which investment is fair value used in the accounting? Why is fair value
used for one investment and not the other?
2. Show what Delaware Exchange would report on its year-end balance sheet,
income statement, and statement of other comprehensive income for these
investment transactions. It is helpful to use a T-account for the Equity-method
Investment account. Ignore income tax.
Current fair value is used to account for the available-for-sale investment in
Columbus, Inc., because the investor expects to sell the stock at its market
Chapter 8 : Long-Term Investments and the Time Value of Money Page 47 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Balance sheet:
ASSETS
Total current assets $ XXX
Property, plant, and equipment, net XXX
STOCKHOLDERS’ EQUITY
Common stock $ XXX
Retained earnings XXX
Accumulated other comprehensive income:
Unrealized (loss) on investment in AFSS
Income from operations $ XXX
Equity-method investment revenue ($540,000 × .25) 135,000
Dividend revenue (1,000 × $.33) 330
Net income XXX
Unrealized (loss) on investment in AFSS (11,400)$
Net income Dividends received
($540,000 × .25) 135,000 (28,000 × $1.25) 22,386
Chapter 8 : Long-Term Investments and the Time Value of Money Page 48 of 80
Long-term assets:
Equity-method investment 452,614*
Investment in AFSS 30,100
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-58A
(45-60 min.)
Requirements
Solution:
Req. 1
Mar. 16 Investment in AFSS (1,400 × $12.75) 17,850
Cash 17,850
Purchased investment.
1. Record the transactions in the journal of Robideau Corporation.
2. Post entries to the T-account for Equity-method Investment in FUN
Software, and determine its balance at December 31.
3. Show how to report the Investment in Available-for-Sale Securities and the
Equity-method Investment in FUN Software accounts on Robideau
Corporation’s balance sheet at December 31.
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Chapter 8 : Long-Term Investments and the Time Value of Money Page 49 of 80
Received cash dividend.
Equity-Method Investment in FUN Software 90,000
Received cash dividend on equity-method
($530,000 × .20)
Equity-Method Investment Revenue 106,000
To record investment revenue.
Adjusted investment to market value.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Jan. 1 Balance 610,000 Aug. 17 Dividends 90,000
Equity-Method Investment
Chapter 8 : Long-Term Investments and the Time Value of Money Page 50 of 80
Total current assets $ XXX
Long-term assets:
Investment in AFSS 26,200
Equity-method investment 626,000
Accumulated other comprehensive income:
Unrealized gain on investment in AFSS 8,350$
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-59A
(20-30 min.)
Requirements
Solution:
Req. 1
Req. 2
Debit Credit
(a) 13.3
Req. 3
$ 219.9
$ 239.7
SMCC
1. Compute the debt ratio of Spindler Motor Company considered alone.
2. Determine the consolidated total assets, total liabilities, and stockholders’ equity of
Spindler Motor Company after consolidating the financial statements of SMCC into the
totals of Spindler, 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?
Apindler
Eliminations
Total liabilities
Consolidated
Totals
Chapter 8 : Long-Term Investments and the Time Value of Money Page 51 of 80
$ 65.3
$ 85.1
Total liabilities
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-60A
(35-45 min.)
Requirement
Solution:
Req. 1
DEBIT CREDIT
Cash 54,000 20,000 74,000
Accounts receivable, net 196,000 88,000 284,000
Ronny
ASSETS
1. Prepare the work sheet for the consolidated balance sheet of Ronny, Inc.
September 30, 2016
Consolidation Work Sheet
Ronny Corp.
CONSOLIDATED
AMOUNTS
ELIMINATION
Bircher
Chapter 8 : Long-Term Investments and the Time Value of Money Page 52 of 80
Inventory 346,000 469,000 815,000
Notes payable 400,000 330,000
Other liabilities 231,000 294,000 525,000
Common stock 588,000 254,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-61A
(20-25 min.)
Requirement
Solution:
Req. 1
1 7,000$ x 0.877 = $6,139
=
PV of Cash
Flow
Investment Opportunity A
1. Assuming a 14% interest rate, which investment opportunity would you
choose?
Cash Flows
Year
Factor
x
Chapter 8 : Long-Term Investments and the Time Value of Money Page 53 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-62A
(20-25 min.)
Requirements
Solution:
Req. 1
Assets 410,000,000 0.0090$ 3,690,000$
1. Translate into dollars the foreign-currency balance sheet of the Japanese subsidiary
of Mason. When Mason acquired this subsidiary, the Japanese yen was worth
$0.0075. The current exchange rate is $0.0090. During the period when the subsidiary
earned its income, the average exchange rate was $0.0088 per yen. Before you
perform the foreign-currency translation calculations, indicate whether Mason 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.
2. To which company does the foreign-currency translation adjustment “belong”? In
which
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 Patel
Corp. invested in the Japanese subsidiary.
YEN
EXCHANGE
RATE
DOLLARS
Chapter 8 : Long-Term Investments and the Time Value of Money Page 54 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Chapter 8 : Long-Term Investments and the Time Value of Money Page 55 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-63B
(45-60 min.)
Requirements
Solution:
Req. 1
Jan. 1 Held-to-Maturity Investment in Bonds
($3,900,000 × 1.14) 4,446,000
Cash 4,446,000
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
1. Journalize Variety’s purchase of the bonds as a long-term investment on January 1,
2016
(to be held to maturity), receipt of cash interest, and amortization of the bond premium
at
July 1, 2016. The straight-line method is appropriate for amortizing the bond
investment.
2. Journalize the accrual of interest receivable and amortization of premium on October
31,
2016 (round answer to the nearest whole number).
3. Show all financial statement effects of this long-term bond investment on Variety
2016
Chapter 8 : Long-Term Investments and the Time Value of Money Page 56 of 80
To purchase bond investment.
Interest Revenue 78,000
To receive semiannual interest.
Held-to-Maturity Investment in Bonds
To amortize premium on bond investment.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Oct. 31 Interest Receivable
($3,900,000 × .04 × 4/12) 52,000
Interest Revenue 52,000
Req. 3
Balance sheet at October 31, 2016:
Current assets:
Interest receivable 52,000$
Property, plant, and equipment, net XXX,XXX
Long-term assets:
Other revenues:
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Chapter 8 : Long-Term Investments and the Time Value of Money Page 57 of 80
To accrue interest revenue.
Held-to-Maturity Investment in Bonds
To amortize premium on bond investment.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-64B
(20-30 min.)
Requirements
Solution:
Req. 1
1.For which investment is fair value used in the accounting? Why is fair value used
for one investment and not the other?
2. Show what Utah Exchange would report on its year-end balance sheet, income
statement, and statement of other comprehensive income for these investment
transactions. It is helpful to use a T-account for the Equity-method Investment
account. Ignore income tax.
Current fair value is used to account for the available-for-sale investment in
Chapter 8 : Long-Term Investments and the Time Value of Money Page 58 of 80
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Balance sheet:
ASSETS
Total current assets $ XXX
Property, plant, and equipment, net XXX
STOCKHOLDERS’ EQUITY
Common stock $ XXX
Retained earnings XXX
Accumulated other comprehensive income:
Unrealized (loss) on investment in AFSS (15,575)
Income statement and Statement of other comprehensive income:
Income from operations $ XXX
Other revenue:
Equity-method investment revenue ($580,000 × .45) 261,000
Unrealized (loss) on investment in AFSS (15,575)
Net income Dividends received
($580,000 × .45) 261,000 (21,000 × $1.21) 25,410
Chapter 8 : Long-Term Investments and the Time Value of Money Page 59 of 80
Long-term assets:
Equity-method investment 575,590*
Investment in AFSS 30,900
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P8-65B
(45-60 min.)
Requirements
Solution:
Req. 1
Mar. 16 Investment in AFSS (2,200 × $12.00) 26,400
Cash 26,400
Purchased investment.
1. Record the transactions in the journal of Landeau Corporation.
2. Post entries to the T-account for Equity-method Investment in NEW Software, and
determine its balance at December 31.
3. Show how to report the Investment in Available-for-Sale Securities and the Equity–
method Investment in NEW Software accounts on Landeau Corporation’s balance sheet
at December 31.
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Chapter 8 : Long-Term Investments and the Time Value of Money Page 60 of 80
Received cash dividend.
Received cash dividend on equity-method
($550,000 × .26)
To record investment revenue.
Adjusted investment to market value.