CHAPTER 17
SOLUTIONS TO B PROBLEMS
PROBLEM 17-1B
(a) December 31, 2012
Debt Investments (Held-to-Maturity) ……. 191,575
Cash …………………………………………. 191,575
(d) December 31, 2012
Debt Investments (Available-for-Sale) …. 191,575
Cash …………………………………………. 191,575
(e) December 31, 2013
PROBLEM 17-1 (Continued)
(f) December 31, 2015
Cash …………………………………………………. 10,000
Debt Investments (Available-for-Sale) …. 1,679
Amortized
Cost
Fair
Value
Unrealized
Gain (Loss)
Marlin Company, 5% bonds
$196,333
$195,750
$(583)
Previous fair value
PROBLEM 17-2B
(a) January 1, 2014 purchase entry:
(b) The amortization schedule is as follows:
Schedule of Interest Revenue and Bond Discount
Amortization—Effective-Interest Method
6% Bonds Purchased to Yield 5%
Date
Interest
Receivable
Or
Cash Received
Interest
Revenue
Bond
Premium
Amortization
Carrying
Amount of
Bonds
1/1/14
$313,128
7/1/14
$ 9,000
$ 7,828
$ 1,172
311,956
12/31/14
310,755
7/1/15
309,524
12/31/15
308,262
7/1/16
306,969
7/1/17
304,284
12/31/17
302,891
7/1/18
301,463
12/31/18
7,537
1,463
300,000
Total
(c) Interest entries:
July 1, 2014
Cash ………………………………………………………………. 9,000
Debt Investments (Available-for-Sale) ……….. 1,172
PROBLEM 17-2 (Continued)
(d) December 31, 2015 adjusting entry:
Securities
Available-for-Sale
Portfolio Cost
Fair Value
Unrealized
Gain (Loss)
Cabana (total portfolio
value)
*
$308,262*
$310,000
$ 1,738
Previous fair value
Fair value adjustment—
*This is the amortized cost of the bonds on December 31, 2015. See (b)
schedule.
December 31, 2015
(e) January 1, 2016 sale entry:
Selling price of bonds ……………………………………. $305,600
January 1, 2016
PROBLEM 17-3B
(a) Debt Investments (Available-for-Sale)………………. 276,750*
(b) December 31, 2014
Interest Receivable …………………………………………. 5,820
(c) December 31, 2014
Available-for-Sale Portfolio
Securities
Cost
Fair Value
Unrealized
Gain (Loss)
SugarCane Company stock
$ 10,750
$ 13,600
$ 2,850
Bottom Company bonds
78,584*
PROBLEM 17-3 (Continued)
Fair Value Adjustment (Available-for-Sale) …. 3,466
Unrealized Holding Gain or Loss—
Equity …………………………………………….. 3,466
(d) May 1, 2015
Cash ($200,200 + $6,600) …………………………... 206,800
PROBLEM 17-4B
(a) The bonds were purchased at a discount. That is, they were purchased
(b) December 31, 2014
Available-for-Sale Portfolio
Amortized
Cost
Fair
Value
Unrealized
Gain (Loss)
(c) December 31, 2015
Unrealized Holding Gain or Loss—Equity …………… 4,910
Fair Value Adjustment (Available-for-Sale) …… 4,910
Available-for-Sale Portfolio
Amortized
Cost
Fair
Value
Unrealized
Gain (Loss)
Bond Investment
$196,360
$195,000
$(1,360)
PROBLEM 17-5B
(a) Gross selling price of 5,000 shares at $18 …………. $90,000
March 17, 2015
Cash ……………………………………………………………….. 86,500
Equity Investments (Available-for-Sale) ……… 81,590
Gain on Sale of Investments ……………………… 4,910
(c) Available-for-Sale Portfolio—December 31, 2015
Securities
Cost
Fair
Value
Unrealized
Gain (Loss)
Boston Lager Ltd.
$152,780
$187,500
($34,720
Canada Co.
560,000
552,000
(8,000)
Dunlap Co.
Total of portfolio
$910,880
$946,500
Previous fair value
(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.
PROBLEM 17-6B
(a) (1) November 5, 2014
Cash (6,100 X $42) ……………………………………. 256,200
(2) November 26, 2014
(3) At September 30, 2014, Pecan had the following fair value
adjustment:
Trading Securities Portfolio—September 30, 2014
Securities
Cost
Fair
Value
Unrealized
Gain (Loss)
Perry, Inc. common
$367,000
$351,000
($(16,000)
Previous fair value adjustment
balance
PROBLEM 17-6 (Continued)
At December 31, 2014, Pecan had the following fair value
adjustment:
Trading Securities Portfolio—December 31, 2014
Securities
Cost
Fair
Value
Unrealized
Gain (Loss)
Perry, Inc. common
$367,000
$348,000
($(19,000)
Pokey Corp. preferred
The entry on December 31, 2014 is therefore as follows:
Unrealized Holding Gain or Loss—Income ….. 1,000
Fair Value Adjustment (Trading) …………… 1,000
(b) The entries would be the same except that instead of debiting and
crediting accounts associated with trading securities, the accounts
PROBLEM 17-7B
(a) March 1
Debt Investments (Available-for-Sale)……………….. 250,000
Interest Revenue (2/12 X 0.06 X $250,000) …………. 2,500
Cash ………………………………………………………... 252,500
June 1
July 1
Cash ……………………………………………………………….. 7,500
Interest Revenue ($250,000 X 0.06 X 6/12) …… 7,500
September 1
October 1
Cash [($100,000 X 101%) + ($100,000 X 0.08 X 1/12)] 101,667
PROBLEM 17-7B (Continued)
December 31
Interest Receivable …………………………………………. 18,167
December 31
Fair Value Adjustment (Available-for-Sale) ……….. 7,000
Unrealized Holding Gain or Loss—Equity ….. 7,000
Available-for-Sale Portfolio
Security
Cost
Fair
Value
Unrealized
Gain (Loss)
Suzy Co.
$250,000
$245,000*
$(5,000)
Sara, Inc.
Total
$650,000
$657,000
(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.)
(b) All the entries would be the same except the account title Debt
PROBLEM 17-8B
(a) 1. Investment in trading securities:
2. Investment in available-for-sale securities:
Computations:
1.
Security
Cost
Fair Value
Unrealized
Gain (Loss)
LA Mixture
$3,460,000
$3,600,000
($ (140,000
Hollywood Hills
1,520,000
Total of portfolio
2.
Computation of Unrealized Gain or Loss in 2013
Security
Cost
Fair
Value
Unrealized
Gain (Loss)
Driveway Industries
$36,600,000
$35,350,000
(($1,250,000)
Computation of Unrealized Gain or Loss in 2014
PROBLEM 17-8 (Continued)
(b) The unrealized holding loss on the valuation of Rodeo’s trading securities
is reported on the income statement. The loss would appear in the “Other
The unrealized holding gain on the valuation of Rodeo’s available-for-
sale securities is reported as other comprehensive income and as a
separate component of stockholders’ equity. The Fair Value Adjustment
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 17-9B
(a) Available-for-Sale Portfolio
Securities
Cost
Fair
Value
Unrealized
Gain (Loss)
Apple, Inc.
$120,000
$135,000
($(15,000)
Berry Corp.
Total of portfolio
$299,000
($(11,000)
Balance Sheet—December 31, 2014
Long-term investments:
Stockholders’ equity:
Common stock …………………………………………. $ xx
(b) Available-for-Sale Portfolio
Securities
Cost
Fair
Value
Unrealized
Gain (Loss)
Berry Corp.
$160,000
$120,000
($ (40,000)
Cherry Company
156,000*
184,000**
( 28,000
Total of portfolio
$316,000
$304,000
PROBLEM 17-9B (Continued)
Balance Sheet—December 31, 2015
Long-term investments:
Equity Investments (Available-for-sale),
Stockholders’ equity:
Common stock …………………………………….. $ xx
Total stockholders’ equity ……………… $ xx
The Apple 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 $30,000 [($30 – $24) X 5,000] 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:
December 31, 2015
Gross Unrealized
PROBLEM 17-9B (Continued)
On December 31, 2015, the company transferred the investment in
Apple, Inc. to the trading portfolio. This transfer resulted in a realized