Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Appendix C
Appendix C
Investments
QUICK STUDIES
Quick Study C-1 (10 minutes)
True statements: b, d, f
Quick Study C-2 (10 minutes)
a. Debt
e. Debt
i. Debt
Quick Study C-3 (10 minutes)
May 7
Debt Investments—Trading …………………………...
10,300
Cash ………………………………………………………..
10,300
Cash ……………………………………………………………..
11,050
Gain on Sale of Debt Investments ……………..
Debt Investments—Trading ………………………
10,300
Quick Study C-4 (15 minutes)
Unrealized
Portfolio of Trading Securities Cost Fair Value Gain (Loss)
Tesla bonds …………………………..……………………. $12,000 $ 9,000
Quick Study C-5 (15 minutes)
1.
KITTY COMPANY
Assets Section of Balance Sheet
December 31
Assets
Current Assets
Debt investments—Trading (at cost)………………… $37,000
2. Other Revenues and Gains (or Expenses and Losses) section.
C-3
Quick Study C-6 (10 minutes)
Jan. 1
Debt Investments—HTM ………………………………
40,000
Cash ……………………………………………………..
40,000
Purchased bonds to be HTM.
Interest Revenue ……………………………………
Record interest earned ($40,000 x 6% x 6/12).
41,200
Debt Investments—HTM …………………………
Quick Study C-7 (15 minutes)
1. Nov. 25 Debt Investments—AFS ………………………………… 50,000
2. Dec. 31 Unrealized Loss—Equity ……………………………….. 3,000
3. Apr. 6 Cash …………………………………………………………… 6,000
Gain on Sale of Debt Investments …………. 1,000
Quick Study C-8 (10 minutes)
1. July 1 Debt Investments—AFS ………………………………….. 70,000
2.
Fair Value Adjustment—Available-for-Sale …
C-4
Quick Study C-9 (15 minutes)
Unrealized
Available-for-Sale Portfolio Cost Fair Value Gain (Loss)
Verrizano Corporation bonds ……………………….. $ 89,600 $ 91,600
Quick Study C-10 (15 minutes)
1.
REGGIT COMPANY
Assets Section of Balance Sheet
December 31
Assets
Current Assets
2. No.
Explanation: An unrealized gain or loss for the portfolio of AFS
Quick Study C-11 (10 minutes)
Apr. 18
Stock Investments …………………………………………
12,600
Cash ………………………………………………………..
12,600
Dividend Revenue …………………………………….
Quick Study C-12 (10 minutes)
May 9
Stock Investments …………………………………………
6,000
Cash ………………………………………………………..
6,000
Gain on Sale of Stock Investments ……………
Stock Investments** …………………………………
Dec. 31
Unrealized Loss—Income ………………………………
1,260
Fair Value Adjustment—Stock ………………….
1,260
Record an unrealized loss in fair value of equity
securities.
Alternative computation of FVA
As of
Dec. 31
Number
of
Shares
Total
Cost
Fair
Value per
share
Total
Fair
Value
Unrealized
Loss (Fair
Value – Cost)
C-6
Quick Study C-13 (10 minutes)
1. (a)
May 20
Stock Investments ………………………………………..
150,000
Cash ……………………………………………………….
150,000
Record purchase of
ORD
shares.
(b)
Gain on Sale of Stock Investments …………..
Quick Study C-14 (10 minutes)
1. (a) Current assets
2. (g) Equity
Quick Study C-15 (5 minutes)
Investment Acquisition (Jan. 1) …………….
$200,000
Plus earnings ($60,000 x 25%) …………………
Balance (Dec. 31) ………………………………….
$211,000
Quick Study C-16 (10 minutes)
1.
Jan. 1
Equity Method Investments …………………………….
500,000
Cash …………………………………………………………
500,000
Record purchase of 100 JBI shares.
2.
Equity Method Investments ……………………….
Received cash dividends ($5,000 x 40%).
3.
Equity Method Investments …………………………….
Earnings from Equity Method Investments …
Quick Study C-17 (10 minutes)
1.
Assets
=
Liabilities
+
Equity
Equity Method
Investments
+500,000
Cash
–500,000
2.
Assets
=
Liabilities
+
Equity
Cash
3.
Assets
=
Liabilities
+
Equity
C-8
Quick Study C-18 (10 minutes)
1. Consolidation Method.
Explanation. Accenture uses the Consolidation Method to account for the
2. Consolidated Financial Statements.
Explanation. After the acquisition, Accenture will prepare Consolidated
Quick Study C-19 (15 minutes)
1.
One year ago return on total assets Current year return on total assets
2. Less efficient.
Explanation. Fivio appears to be less efficient in its use of total assets for
the current year compared to one year ago as indicated by the decline in
EXERCISES
Exercise C-1 (10 minutes)
1. Debt securities reflect a (g) creditor relation such as with investments in
notes and bonds.
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 (20 minutes)
1. Dec. 27
Debt Investments—Trading ……………………….
66,000
Cash ……………………………………………………
66,000
Record purchase of trading securities.
2. Dec. 31
Unrealized Gain—Income …………………….
Gain on Sale of Debt Investments ………..
Debt Investments—Trading ………………….
Exercise C-3 (10 minutes)
1.
Assets
=
Liabilities
+
Equity
Debt Investments—
Trading
+66,000
Cash
–66,000
2.
Assets
=
Liabilities
+
Equity
3.
Assets
=
Liabilities
+
Equity
Exercise C-4 (10 minutes)
a.
Jun. 15
Debt Investments—HTM …………………………….
1,000
Cash …………………………………………………….
1,000
b.
Cash ………………………………………………………….
1,025
Debt Investments—HTM ……………………….
1,000
Interest Revenue …………………………………..
Purchased 90-day, 10% debt securities
C-11
Exercise C-5 (10 minutes)
a.
Aug. 1
Debt Investments—AFS ……………………………..
50,000
Cash …………………………………………………….
50,000
Interest Revenue …………………………………..
Exercise C-6 (15 minutes)
Computation of Fair Value Adjustment
Cost
Fair
Value
Unrealized
Gain (Loss)
Nintendo Co. notes …………………………...
$ 44,450
$ 48,900
Atlantic bonds …………………………………..
49,000
47,000
McDonald’s Corp. bonds ……………………
Dec. 31
Unrealized Loss—Equity …………………………………
Fair Value Adjustment—AFS ……………………..
Exercise C-7 (30 minutes)
Year 1
Dec. 31
Fair Value Adjustment—AFS ………………………..
$2,000
Unrealized Gain—Equity …………………………
$2,000
Year 2
Dec. 31
Fair Value Adjustment—AFS* ……………………….
$3,000
Unrealized Gain—Equity …………………………
$3,000
Record fair value of LT AFS portfolio.
Year 3
Dec. 31
Fair Value Adjustment—AFS* ……………………….
$1,000
Unrealized Gain—Equity …………………………
$1,000
Record fair value of LT AFS portfolio.
Year 4
Dec. 31
Unrealized Gain—Equity ………………………………
$3,500
Fair Value Adjustment—AFS* …………………
$3,500
Record fair value of LT AFS portfolio.
C-13
Exercise C-8 (15 minutes)
a.
Mar. 22
Stock Investments ……………………………………..
10,000
Cash …………………………………………………….
10,000
Purchased 1,000 shares of
RPI
.
b.
Dividend Revenue …………………………………
Received dividend on
Stock Investments** ……………………………..
Gain on Sale of Stock Investments ………..
Exercise C-9 (10 minutes)
a.
Assets
=
Liabilities
+
Equity
Stock Investments
+10,000
Cash
–10,000
=
Liabilities
+
Equity
Cash
Assets
=
Liabilities
+
Equity
C-14
Exercise C-10 (15 minutes)
Computation of Fair Value Adjustment
Cost
Fair
Value
Unrealized
Gain (Loss)
Apple stock ……………………………………….
$ 6,000
$ 8,000
Chipotle stock …………………………..……….
Under Armour stock …………………………..
Dec. 31
Fair Value Adjustment—Stock ………………………
1,500
Unrealized Gain—Income ………………………..
1,500
Exercise C-11 (15 minutes)
1.
MARS CO.
Assets Section of Balance Sheet
December 31
Assets
Current Assets
2. Other Revenues and Gains (or Expenses and Losses) section.
Exercise C-12 (25 minutes)
July 22
Stock Investments …………………………………………
48,000
Cash ………………………………………………………..
48,000
Purchased
Hunt
shares (1,600 sh x $30).
Cash ………………………………………………………..
Oct. 3
40,000
48,000
Sold
Oct. 30
Stock Investments …………………………………………
60,000
Cash ………………………………………………………..
60,000
Purchased
Black & Decker
shares (1,200 sh x $50).
Unrealized Gain—Income* ………………………..
Unrealized
Portfolio of Stock Investments (ST) Cost Fair Value Gain (Loss)
HCA 3,400 x $34 …………………………….. $115,600
Black & Decker 1,200 x $50 …………………………….. 60,000
$175,600 $180,000 *$4,400
We can also use a T-account to help determine the needed adjustment to fair value:
C-16
Exercise C-13 (30 minutes)
(a) Feb. 15
Debt Investments—HTM …………………………..
160,000
Cash ………………………………………………….
160,000
Purchased 10%, 90-day notes of
GMI
.
(b) Mar. 22
Cash ………………………………………………….
(c) May 15
Cash ……………………………………………………….
164,000
Debt Investments—HTM ……………………..
160,000
Interest Revenue ………………………………..
4,000
Collected principal and interest on notes
of
GMI
($160,000 x 10% x 90/360).
(d) July 30
Debt Investments—Trading ……………………..
100,000
Cash ………………………………………………….
100,000
Purchased 8%, 6-month notes of
(e) Sept. 1
Cash ……………………………………………………….
Dividend Revenue ………………………………
(f) Oct. 8
Cash* ………………………………………………………
1,620
Stock Investments** …………………………...
1,530
Gain on Sale of Stock Investments ……..
90
Sold 30 shares of
Fran
stock.
*30 sh x $54 **$35,700 x (30 sh / 700 sh)
or $51 x 30 sh)
(g) Oct. 30
Cash ……………………………………………………….
2,000
Interest Revenue ………………………………..
2,000
Received interest payment on 8% notes
Exercise C-14 (30 minutes)
Year 1
Jan. 2
Equity Method Investments* …………………………
411,000
Cash ………………………………………………………
411,000
Record purchase of equity method investment.
* Kodax’s investment equals 1/3 of Grecco’s stock (30,000/90,000).
Kodax should use the equity method to account for its investment.
Sept. 1
Cash ……………………………………………………………
45,000
Equity Method Investments …………………….
45,000
Dec. 31
Equity Method Investments ………………………….
162,300
Earnings from Equity Method Investments
162,300
Year 2
June 1
Cash ……………………………………………………………
63,000
Equity Method Investments …………………….
63,000
Record receipt of cash dividend. 30,000 sh x $2.10
Dec. 31
Equity Method Investments ………………………….
234,250
Earnings from Equity Method Investments
234,250
Cash ……………………………………………………………
71,000
Gain on Sale of Investments ……………………
Equity Method Investments* ……………………
69,955
Exercise C-15 (15 minutes)
1. Classification of Investments in Securities
a. Brava bonds: Long-term investment
Debt Investments—Held–to-Maturity
d. Newton notes: Long-term investment**
Debt Investments—Available-for-Sale
2. Fair Value Adjustment entry at December 31.
Dec. 31
Fair Value Adjustment—AFS …………………………….
10,825
Unrealized Gain⎯Equity ……………………………..
10,825
Exercise C-16 (20 minutes)
GERMX CO.
Assets Section of Balance Sheet
December 31
Assets
Current assets
Cash ……………………………………………………………. $ 10,000
Stock investments (at cost) …………………………... $23,000
Total current assets ……………………………………… 39,500
Long-term Investments
Held–to-maturity securities ………………………….... 13,000
Equity method investments ………………………….. 70,000
Total long-term investments …………………………. 83,000
Total assets ………………………………………………………. $122,500
Exercise C-17 (15 minutes)
1. Only FSN is considered a subsidiary of Wixi.
2. Individual assets and liabilities of a parent and its subsidiary are
consolidated into one balance sheet.
Exercise C-18 (15 minutes)
Prescrip Co.
Statement of Comprehensive Income
For Year Ended December 31
Net income ………………………………………………………….. $ 10,000
Change in value of available-for-sale securities .. $(2,000)
Exercise C-19 (15 minutes)
1. Return on total assets (ROA)
2. Profit margin
Nike: $3,760 / $32,376 = 11.6%
3. Nike.