Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 17–41
PROBLEM 17-3
(a) Debt Investments (available-for-sale)……………….. 162,000*
Equity Investments (available-for-sale) …………….. 37,400
Interest Revenue ($50,000 X .12 X 4/12) ……………. 2,000
Investments …………………………………………….. 201,400
17–42 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
PROBLEM 17-3 (Continued)
Fair Value Adjustment (available-for-sale) ………. 15,751
Unrealized Holding Gain or Loss—Equity … 15,751
(d) July 1, 2015
Cash ($119,200 + $3,025) ……………………………….. 122,225
Debt Investments (available-for-sale) ………. 110,000
Interest Revenue ($110,000 X .11 X 3/12) ….. 3,025
Gain on Sale of Investments …………………… 9,200
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 17–43
PROBLEM 17-4
(a) The bonds were purchased at a discount. That is, they were purchased
at less than their face value because the bonds’ amortized cost
increased from $491,150 to $550,000.
(b) December 31, 2014
Fair Value Adjustment (available-for-sale) …………… 4,850
Unrealized Holding Gain or Loss—Equity …….. 4,850
Available-for-Sale Portfolio
Amortized
Cost
Fair
Value
Unrealized
Gain (Loss)
Debt Investment
$491,150
$497,000
$5,850
Previous fair value adjustment—Dr.
1,000
Fair value adjustment—Dr.
$4,850
Debt Investment
$519,442
$509,000
$(10,442)
Previous fair value adjustment—Dr.
5,850
Fair value adjustment—Cr. needed
to bring balance to $10,442 Cr.
($16,292)
17–44 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
PROBLEM 17-5
(a) Gross selling price of 3,000 shares at $22 …………. $66,000
Less: Commissions, taxes, and fees ………………… (2,150)
Net proceeds from sale ……………………………………. 63,850
Cost of 3,000 shares ………………………………………… (58,500)
Gain on sale of investments …………………………….. $ 5,350
Equity Investments (available-for-sale) ………. 58,500
Munter Ltd.
King Co.
255,000
240,000
(15,000)
Castle Co.
35,480
29,000
(6,480)
Total of portfolio
$870,480
$879,000
( 8,520
Previous fair value
adjustment balance—Cr.
(10,100)
Fair value adjustment—Dr.
$18,620
Unrealized Holding Gain or Loss—Equity …… 18,620
(d) The unrealized holding gains or losses should be reported on the bal–
ance sheet under the title “accumulated other comprehensive income”
as a separate component of stockholders’ equity.
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 17–45
PROBLEM 17-6
(a) (1) October 10, 2014
Cash (5,000 X $54) ……………………………………. 270,000
Gain on Sale of Investments ………………. 55,000
Equity Investments (trading) ……………………. 163,500
17–46 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
PROBLEM 17-6 (Continued)
At December 31, 2014, McElroy had the following fair value
adjustment:
Trading Securities Portfolio—December 31, 2014
Securities
Cost
Fair
Value
Unrealized
Gain (Loss)
Monty, Inc. preferred
$133,000
$106,000
($(27,000)
Oakwood Corp. common
180,000
193,000
13,000)
Patriot common
163,500
132,000
( (31,500)
Total of portfolio
$476,500
$431,000
(45,500)
Previous fair value adjustment
balance—Cr.
(9,000)
Fair value adjustment—Cr.
($(36,500)
used would be associated with available-for-sale securities. In addition,
the Unrealized Holding Gain or Loss—Equity account is used instead of
Unrealized Holding Gain or Loss—Income. The Unrealized Holding
Loss—Equity is included in other comprehensive income and then
would be reported on the balance sheet in Accumulated comprehensive
income.
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 17–47
PROBLEM 17-7
(a) February 1
Debt Investments (available-for-sale)………………… 300,000
Interest Revenue (4/12 X .10 X $300,000) …………… 10,000
Cash ………………………………………………………… 310,000
April 1
Cash ……………………………………………………………….. 15,000
Interest Revenue ($300,000 X .10 X 6/12) …….. 15,000
July 1
Debt Investments (available-for-sale)………………… 200,000
Interest Revenue (1/12 X .09 X $200,000) …………… 1,500
Cash ………………………………………………………… 201,500
September 1
Cash [($60,000 X 99%) + ($60,000 X .10 X 5/12)] …. 61,900
Loss on Sale of Investments …………………………... 600
Debt Investments (available-for-sale) …………. 60,000
Interest Revenue
(5/12 X .10 X $60,000 = $2,500) ……………….. 2,500
December 1
Cash ($200,000 X 9% X 6/12) …………………………….. 9,000
Interest Revenue ………………………………………. 9,000
17–48 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
PROBLEM 17-7 (Continued)
December 31
Interest Receivable …………………………………………. 7,500
Interest Revenue ……………………………………… 7,500
(3/12 X $240,000 X .10 = $6,000)
(1/12 X $200,000 X .09 = $1,500)
($6,000 + $1,500 = $7,500)
Gibbons Co.
$240,000
$228,000*
$(12,000)
Sampson, Inc.
200,000
186,000**
(14,000)
Total
$440,000
$414,000
$(26,000)
*$240,000 X 95%
**$200,000 X 93%
Investments (held-to–maturity) would be used instead of Debt
Investments (available-for-sale). In addition, held–to-maturity securities
would be carried at amortized cost and not valued at fair value at year–
end, so the last entry would not be made.
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 17–49
PROBLEM 17-8
(a) 1. Investment in trading securities:
Unrealized Holding Gain or Loss—Income ………. 80,000
Fair Value Adjustment (trading) ……………….. 80,000
2. Investment in available-for-sale securities:
Fair Value Adjustment (available-for-sale) ……….. 725,000
Unrealized Holding Gain or Loss—Equity …. 725,000
Patrick Electric
1,000,000
720,000
( (280,000)
Total of portfolio
$2,400,000
$2,320,000
($ (80,000)
Norton Ind.
$22,500,000
$21,500,000
(($1,000,000)
Norton Ind.
$22,500,000
$22,225,000
Previous Fair Value
Adjustment (Cr)
(1,000,000)
Fair Value Adjustment
(Dr)
$ 725,000
Delaney Motors
$1,400,000
$1,600,000
17–50 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
PROBLEM 17-8 (Continued)
(b) The unrealized holding loss on the valuation of Brooks’ trading securities
is reported on the income statement. The loss would appear in the “Other
expenses and losses” section of the income statement. The Fair Value
Adjustment is a valuation account and it will be used to show the
reduction in the fair value of the trading securities. The trading
securities portfolio is disclosed in the balance sheet as a current asset
and reported at its fair value.
account is used to report the increase in fair value of the available-for–
sale securities. The fair value of the securities is reported in the
Investments section of the balance sheet. It should be noted that a
combined statement of income and comprehensive income, a statement
of comprehensive income, or a statement of stockholders’ equity would
report the components of comprehensive income.
realized holding losses. Any change in the net unrealized holding gain
or loss account should also be disclosed. The disclosure for trading
securities includes the change in net unrealized holding gains or losses
which was included in earnings.
Cash ($100,000 X 25%) ………………………………………. 25,000
Equity Investments (Norton Industries) ………….. 25,000
With 25% ownership, Brooks has significant influence and should apply
the equity method. No fair value adjustments are recorded under the
equity method.
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 17–51
PROBLEM 17-9
(a) Available-for-Sale Portfolio
Securities
Cost
Fair
Value
Unrealized
Gain (Loss)
Frank, Inc.
$ 22,000
$ 32,000
($(10,000)
Ellis Corp.
115,000
95,000
(20,000)
Mendota Company
124,000
96,000
( (28,000)
Total of portfolio
$261,000
$223,000
($(38,000)
Equity Investments (available-for-sale) ………. $261,000
Less: Fair value adjustment ……………………… 38,000
Equity Investments (available-for-sale),
at fair value ……………………………………………. $223,000
Paid-in capital in excess of par—
common stock ……………………………………….. xx
Retained earnings …………………………………….. xx
Accumulated other comprehensive loss …….. (38,000)
Total stockholders’ equity ………………….. $ xx
Fair
Value
Unrealized
Ellis Corp.
$115,000
$140,000
Mendota Company
Total of portfolio
$289,000
$278,000
($(11,000)
Previous fair value
adjustment balance—Cr.
( (38,000)
Fair Value Adjustment—Dr.
($27,000
*(4,000 X $31) + (2,000 X $25)
**[(4,000 + 2,000) X $23]
17–52 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
PROBLEM 17-9 (Continued)
Balance Sheet—December 31, 2015
Long-term investments:
Equity investments (available-for-sale),
at cost ………………………………………………. $289,000
Less: Fair value adjustment …………………. 11,000
Equity investments (available-for-sale),
at fair value ……………………………………….. $278,000
Paid-in capital in excess of par—
common stock …………………………………… xx
Retained earnings ………………………………… xx
Accumulated other comprehensive loss … (11,000)
Total stockholders’ equity ……………… $ xx
value, which is the new cost basis of the security. The unrealized
holding loss of $6,000 [($11 – $8) X 2,000] is recognized in earnings at
the date of the transfer.
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 17–53
PROBLEM 17-10
(a) January 1, 2014
Fair value of available-for-sale securities …………… $240,000
Accumulated other comprehensive income ……….. (30,000)
Cost basis ……………………………………………………….. $210,000
December 31, 2014
Fair value of available-for-sale securities …………… $190,000
Cost basis ……………………………………………………….. (140,000)
Accumulated other comprehensive income ……….. $ 50,000
Cash ($70,000 + $30,000) …………………………………… 100,000
Gain on Sale of Investments ………………………. 30,000
Equity Investments (available-for-sale) ……….. 70,000*
*($210,000 – $140,000)
Accumulated other comprehensive income:
Beginning balance, January 1, 2014 $30,000
Current period other comprehensive
income $50,000**
Amount reclassified from accumulated
other comprehensive income 30,000
Unrealized holding gain 20,000
Ending balance, December 31, 2014 $50,000
17–54 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
PROBLEM 17-10 (Continued)
**Accumulated other comprehensive
income 12/31/14 ………………………………………………. $50,000
Accumulated other comprehensive
income 1/1/14 ………………………………………………….. 30,000
Increase in unrealized holding gain…………………….. 20,000
Realized holding gain ………………………………………… 30,000
Total holding gains arising during period ……………. $50,000
Equity investments
(available-for-sale)
190,000
Retained earnings
Accumulated other
35,000
comprehensive income
50,000
Total assets
$345,000
Total equity
$345,000
*Beginning balance ……………………………………………………….. $ 50,000
Dividend revenue …………………………………………………………. 5,000
Cash proceeds on sale …………………………………………………. 100,000
$155,000
Assets
Cash
$155,000*
Common stock
$260,000
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 17–55
PROBLEM 17-11
(a)
1. 3/1/14 Cash ……………………………………………… 1,800
Dividend Revenue (900 X $2) ….. 1,800
2. 4/30/14 Cash ……………………………………………… 3,300
Gain on Sale of Investments ……… 600*
Equity Investments
(available-for-sale) …………………. 2,700
*(300 X ($11 – $9))
3. 5/15/14 Equity Investments (available-
for-sale) ………………………………………. 1,600
Cash (100 X $16) ………………………. 1,600
4. 12/31/14 Fair Value Adjustment (available-
for-sale) ………………………………………. 8,500
Unrealized Holding Gain
or Loss—Equity …………………….. 8,500
Chance Comp. ($4,500 – $2,700)
1,800
1,600(3)
(200)
Total of portfolio
$36,400
$37,400
$ 1,000
Previous fair value
adjustment bal.—Cr.
(7,500)
Fair value adjustment—Dr.
$ 8,500
[200 X ($8 – $9)] ……………………………… 200
Equity Investments
(available-for-sale) …………………. 1,800
6. 3/1/15 Cash ……………………………………………… 1,800
Dividend Revenue ……………………. 1,800
Security
Evers Comp. ($15,000 + $1,600)
$16,600
$ 2,100
Rogers Comp.
17–56 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
PROBLEM 17-11 (Continued)
7. 12/21/15 Dividend Receivable ……………………… 3,300
Dividend Revenue (1,100 X $3) …. 3,300
8. 12/31/15 Fair Value Adjustment
(available-for-sale) ……………………… 4,200
Unrealized Holding Gain or
Loss—Equity ……………………….. 4,200
Security
Cost
Fair Value
Unrealized
Gain (Loss)
Evers Comp.
$16,600
$20,900(1)
$4,300
Rogers Comp.
18,000
18,900(2)
900
Total of portfolio
$34,600
$39,800
$5,200
Previous fair value
adjustment bal.—Dr.
1,000
Fair value adjustment—Dr.
$4,200
(1)(1,100 X $19) (2)(900 X $21)
Investments
Equity investments (available-
for-sale), at fair value
37,400
39,800
Stockholders’ equity
Accumulated other
comprehensive income
1,000
5,200
(b)
Partial Balance Sheet as of
Current Assets
Dividend receivable
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 17–57
PROBLEM 17-12
(a) Balance Sheet
Equity Investments (available-for-sale), at fair value ……… $123,000
(Reported as current or noncurrent based on intent)
Unrealized Holding Loss (available-for-sale) …………………. $ 4,000
($127,000 – $123,000) (reported as a separate
component of stockholders’ equity as a
deduction and identified as accumulated
other comprehensive loss)
Unrealized Holding Loss (available-for-sale) …………………. $42,000
($136,000 – $94,000) (reported as a separate
component of stockholders’ equity as a
deduction and identified as accumulated
other comprehensive loss)
Other Expenses and Losses
Loss on Sale of Investments ……………… $1,800*
*The entry made to recognize the loss on sale is as follows:
Cash …………………………………………………………… 38,200
Loss on Sale of Investments ………………………… 1,800
Equity Investments (available-for-sale) …. 40,000
17–58 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
PROBLEM 17-12 (Continued)
(c) Balance Sheet
Equity investments (available-for-sale), at fair value ………. $88,000
(Reported as current or noncurrent based on intent)
Unrealized holding gain (available-for-sale) …………………… $ 8,000
($88,000 – $80,000) (reported as a separate
component of stockholders’ equity as an
addition and identified as accumulated
other comprehensive gain)
The entry made to record the sale of Lindsay Jones’ stock was:
Cash ……………………………………………………….…….. 39,900
Loss on Sale of Investments …………………………... 8,100
Equity Investments (available-for-sale)
($15,000 + $33,000) ………………………………. 48,000
(2) Statement of Comprehensive Income
Unrealized holding loss ………………………….. $38,000*
*($42,000 – $4,000)
Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only) 17–59
*PROBLEM 17-13
(a) July 7, 2014
Call Option …………………………………………………….. 240
Cash ………………………………………………………... 240
(b) September 30, 2014
Call Option …………………………………………………….. 1,400
Unrealized Holding Gain or Loss—Income
($7 X 200) ………………………………………………. 1,400
Unrealized Holding Gain or Loss—Income ……….. 60
Call Option ($240–$180) …………………………….. 60
(c) December 31, 2014
Unrealized Holding Gain or Loss—Income ……….. 400
Call Option ($2 X 200) ……………………………….. 400
Unrealized Holding Gain or Loss—Income ……….. 115
Call Option ($180 – $65) …………………………….. 115
Cash (200 X $6) ………………………………………………. 1,200
Loss on Settlement of Call Option …………………… 30
Call Option* ……………………………………………… 1,230
*Value of Call Option at Settlement:
Call Option
240
1,400
60
200
400
115
35
1,230
17–60 Copyright © 2013 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 15/e, Solutions Manual (For Instructor Use Only)
*PROBLEM 17-14
(a) July 7, 2014
Put Option ………………………………………………………. 240
Cash …………………………………………………………. 240
(b) September 30, 2014
Unrealized Holding Gain or Loss—Income ………… 115
Put Option ($240 – $125) …………………………….. 115
(c) December 31, 2014
Unrealized Holding Gain or Loss—Income ………… 75
Put Option ($125 – $50) ………………………………. 75
(d) January 31, 2015
Loss on Settlement of Put Option …………………….. 50
Put Option ($50 – $0) …………………………………. 50