17–41
PROBLEM 17-3 (Continued)
Fair Value Adjustment (Available-for-Sale) ….. 15,751
Unrealized Holding Gain or Loss—
Equity ……………………………………………… 15,751
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, 2012
(c) December 31, 2013
Unrealized Holding Gain or Loss—Equity ………….. 16,292
Fair Value Adjustment (Available-for-Sale) ….. 16,292
Available-for-Sale Portfolio
17–43
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
(b) The total purchase price is:
(1,000 X $33.50) + $1,980 = $35,480.
(c) Available-for-Sale Portfolio—December 31, 2013
Securities
Cost
Fair
Value
Unrealized
Gain (Loss)
Munter Ltd.
$580,000
$610,000
($30,000
King Co.
255,000
240,000
(15,000)
Castle Co.
Total of portfolio
Fair value adjustment—Dr.
December 31, 2013
Fair Value Adjustment (Available-for-Sale) ………… 18,620
Unrealized Holding Gain or Loss—Equity …… 18,620
PROBLEM 17-6
(a) (1) October 10, 2012
(2) November 2, 2012
Equity Investments (Trading) ………………….. 163,500
Cash (3,000 X $54.50) ……………………….. 163,500
(3) At September 30, 2012, McElroy had the following fair value
adjustment:
Trading Securities Portfolio—September 30, 2012
17–45
PROBLEM 17-6 (Continued)
At December 31, 2012, McElroy had the following fair value
adjustment:
Trading Securities Portfolio—December 31, 2012
Securities
Cost
Fair
Value
Unrealized
Gain (Loss)
Monty, Inc. preferred
$133,000
$106,000
($(27,000)
The entry on December 31, 2012 is therefore as follows:
Unrealized Holding Gain or Loss—Income …… 36,500
Fair Value Adjustment (Trading) …………… 36,500
Oakwood Corp. common
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
July 1
Debt Investments (Available-for-Sale) ……………….. 200,000
Interest Revenue (1/12 X .09 X $200,000) …………… 1,500
Cash ………………………………………………………… 201,500
(5/12 X .10 X $60,000 = $2,500) ……………….. 2,500
October 1
Cash [($300,000 – $60,000) X .10 X 6/12] ……………. 12,000
Interest Revenue ………………………………………. 12,000
17–47
PROBLEM 17-7 (Continued)
December 31
December 31
Unrealized Holding Gain or Loss—Equity ………… 26,000
Fair Value Adjustment (Available-for-Sale) … 26,000
(Note to instructor: Some students may debit Interest Receivable at date
of purchase instead of Interest Revenue. This procedure is correct,
assuming that when the cash is received for the interest, an appropriate
credit to Interest Receivable is recorded.)
PROBLEM 17-8
(a) 1. Investment in trading securities:
2. Investment in available-for-sale securities:
Computations:
1.
Security
Cost
Fair Value
Unrealized
Gain (Loss)
Delaney Motors
Patrick Electric
Total of portfolio
2.
Computation of Unrealized Gain or Loss in 2011
Security
Cost
Fair
Value
Unrealized
Gain (Loss)
Norton Ind.
$22,500,000
$21,500,000
(($1,000,000)
Computation of Unrealized Gain or Loss in 2012
Fair
Unrealized
17–49
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.
The note disclosures for the available-for-sale securities include the
aggregate fair value, gross unrealized holding gains, and gross un–
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.
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)
Stockholders’ equity:
Common stock …………………………………………. $ xx
Paid-in capital in excess of par—
common stock ……………………………………….. xx
Retained earnings …………………………………….. xx
Accumulated other comprehensive loss …….. (38,000)
Total stockholders’ equity ………………….. $ xx
Fair
Unrealized
17–51
PROBLEM 17-9 (Continued)
Balance Sheet—December 31, 2013
Long-term investments:
Equity Investments (Available-for-sale),
Stockholders’ equity:
Common stock ……………………………………… $ xx
Paid-in capital in excess of par—
The Frank security is transferred to the trading security category at fair
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.
(c) Note 2—Investments.
The fair values and unrealized holding gains and losses of equity
investments were as follows:
PROBLEM 17-9 (Continued)
On December 31, 2013, the company transferred the investment in
17–53
PROBLEM 17-10
(a) January 1, 2012
Fair value of available-for-sale securities …………… $240,000
Accumulated other comprehensive income ……….. (30,000)
Cost basis ……………………………………………………….. $210,000
December 31, 2012
*($210,000 – $140,000)
(b) ACKER INC.
Statement of Comprehensive Income
For the Year Ended December 31, 2012
Net income ………………………………………………………….. $35,000
Other comprehensive income
Total holding gains arising during the year ……. $50,000*
PROBLEM 17-10 (Continued)
(c) ACKER INC.
Balance Sheet
As of December 31, 2012
Assets
Stockholders’ Equity
Cash
$155,000*
Common stock
$260,000
comprehensive income
PROBLEM 17-11
(a)
1. 3/1/12 Cash ……………………………………………… 1,800
Dividend Revenue (900 X $2) ….. 1,800
3. 5/15/12 Equity Investments
(Available-for-Sale) ………………………. 1,600
Cash (100 X $16) ………………………. 1,600
Security
Cost
Fair Value
Unrealized
Gain (Loss)
Evers Comp. ($15,000 + $1,600)
$16,600
$18,700(1)
$ 2,100
Rogers Comp.
18,000
17,100(2)
(900)
Chance Comp. ($4,500 + $2,700)
Total of Portfolio
$36,400
$ 1,000
(1)[(1,000 + 100) X $17] (2)(900 X $19) (3)[(500 – 300) X $8]
5. 2/1/13 Cash ……………………………………………… 1,600
Loss on Sale of Investments
17–56
PROBLEM 17-11 (Continued)
7. 12/21/13 Dividend Receivable ……………………… 3,300
Dividend Revenue (1,100 X $3) …. 3,300
8. 12/31/13 Fair Value Adjustment
(Available-for-Sale) …………………….. 4,200
Unrealized Holding Gain or
Loss—Equity ……………………….. 4,200
(b)
Partial Balance Sheet as of
December 31,
2012
December 31,
2013
Current Assets
Dividend receivable
$ 0
$ 3,300
Equity investments (Available-
Accumulated other
Evers Comp.
Rogers Comp.
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
(b) Balance Sheet
Equity Investments (Available-for-Sale), at fair value …….. $94,000
(Reported as current or noncurrent based on intent)
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)
17–58
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)
Income Statement
Other Expenses and Losses
Loss on Investments ($8,100 + $2,700) ………………….. $10,800
(d) (1) Statement of Comprehensive Income
Reports unrealized holding loss of $4,000 as part of comprehen–
sive income.
(2) Statement of Comprehensive Income
Total holding loss arising during period ….. $39,800*
17–59
*PROBLEM 17-13
(a) July 7, 2012
Call Option …………………………………………………….. 240
Cash ………………………………………………………… 240
(c) December 31, 2012
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
17–60
*PROBLEM 17-14
(a) July 7, 2012
Put Option ………………………………………………………. 240
Cash …………………………………………………………. 240
(b) September 30, 2012
Unrealized Holding Gain or Loss—Income ………… 115
Put Option ($240 – $125) …………………………….. 115