Solution manual financial accounting 4e by wild appendix c

The $720 difference between the proceeds $7,500 and the cost $6,780 is credited to Gain on Sale of Short-Term Investments and reported in the income statement.. Unrealized holding gains

Trang 1

3 The $720 difference between the proceeds ($7,500) and the cost ($6,780) is credited

to Gain on Sale of Short-Term Investments and reported in the income statement

4 The three classes of noninfluential investments in securities are:

a) debt and equity trading securities

b) debt securities held-to-maturity

c) debt and equity securities available-for-sale

The two classes of influential investments in securities are:

a) equity securities giving an investor a significant influence over an investee

b) equity securities giving an investor control over an investee

5 To be classified as current assets, investments must be capable of being converted into cash quickly and management must intend to sell the investments as a source

of cash to satisfy the needs of current operations To be classified as long-term, investments must not meet the requirements for short-term investments—not marketable and not intended to be converted into cash Long-term investments also include funds earmarked for a special purpose, and other assets not used in company operations

6 Unrealized lossEquity ##

Trang 2

9 Unrealized holding gains and losses are not reported on the standard income statement for available-for-sale securities Unrealized gains and losses for these securities are reported in the stockholders’ equity section of the balance sheet (They can also be reported either in a separate comprehensive income statement or

in a combined statement of comprehensive income.)

10 The equity method is used when the investor has a ―significant influence‖ over the investee corporation; i.e., generally when the investor owns 20% or more of the investee's voting stock The equity method with consolidation is used when the investor has a ―controlling influence‖ over the investee

11 A company prepares consolidated statements if the company has control over a subsidiary as a result of owning more than 50% of the subsidiary's voting stock

12 A Two major challenges in accounting for international operations include (1) accounting for sales and purchases that are denominated in a foreign currency, and (2) preparing consolidated financial statements with a foreign subsidiary

13 A If the foreign exchange rate falls from $1.40 to $1.30 during the time the U.S company holds a receivable that is denominated in the foreign currency, the U.S company will incur an exchange loss The foreign currency unit is worth $1.40 at the time of sale but is worth only $1.30 at the time it is paid to the U.S company; hence,

a loss of $0.10 is incurred for each foreign currency unit owed to the U.S company

14 A No If a sales agreement requires a foreign customer to pay U.S dollars to the United States seller, the U.S company is not exposed to the risk of exchange losses

[Note: This actively managed (for profit) short-term investment in equity securities would

be classified as Trading Securities.]

Apr 18 Short-Term Investments—Trading (XLT) 12,850

Cash 12,850

Purchased 300 shares at $42 plus $250 fee

Trang 3

Quick Study C-2 (10 minutes)

1 2008

Dec 31 Unrealized Loss—Equity 3,000

Market Adjustment—Available-for-Sale (ST) 3,000

To reflect an unrealized loss in market value

of the available-for-sale securities’ portfolio

2 Both accounts in part (1) are reported on the balance sheet

i The Unrealized Loss is reported as a reduction in the equity section (and in comprehensive income)

ii The credit balance in the Market Adjustment—Available-for-Sale (ST) account is a contra asset account It reduces the (cost) balance in the Short-Term Investments—Available-for-Sale account to its market value

May 7 Short-Term Investments—AFS (Kraft) 10,300

Cash 10,300

June 6 Cash 11,050

Short-Term Investments—AFS (Kraft) 10,300

To record sale of available-for-sale securities

200 shares at $56 less $150 fee

Trang 4

May 9 Short-Term Investments—AFS (Higo) 5,150

Cash 5,150

June 2 Cash* 2,710

Short-Term Investments—AFS (Higo) 2,575

To record sale of available-for-sale securities The original cost is $5,150 x 100/200 = $2,575

*($100 x $28) - $90

Dec 31 Unrealized Loss – Equity* 275

Market Adjustment—Available-for-Sale (ST) 275

To reflect an unrealized loss in market value of available-for-sale securities

As of Dec 31

Number

of Shares

Cost per share

Total Cost

Market Value per share

Total Market Value

Unrealized Loss (Market-Cost) Higo 100 $25.75 $2,575 $23 $2,300 $275*

True: b, d, f, g

1 Interest revenue (or interest earned)

2 Equity method

3 Market value (or fair value)

4 Current (or short-term)

Trang 5

July 31 Cash 1,200

Interest Revenue 1,200

Record interest earned ($40,000 x 6% x 6/12)

Dec 31 Interest Receivable 1,000

Interest Revenue 1,000

Record interest earned ($1,200 x 5/6)

Valuation Method: The (fair) market value method is used to account for this

investment in long-term equity securities (AFS portfolio)

Record sale of securities *(½ x $1,000,000)

Dec 31 Long-Term Investments—ORD 280,000

Earnings from Investment (ORD) 280,000

Record equity in investee earnings

($700,000 x 40%)

Trang 6

1

Dec 31 Unrealized LossEquity 12,000

Market Adjustment—Available-for-Sale (LT) 12,000

Record change in value of securities

2 Each of the accounts used in the entry for (1) would be reported on the balance sheet The unrealized loss of $12,000 is a reduction in equity When the Market Adjustment account contains a credit balance as shown here, it serves as a contra asset account This results in the reporting of the asset (long-term investment) at its market value

Return on total assets =

This ratio provides information to evaluate a company's profitability

(efficiency) in using its available assets

Return on Total Assets = Profit margin x Total asset turnover

Component analysis is useful as it allows the determination of whether the return on assets is achieved primarily due to profitability or efficiency of asset usage (or a balanced combination of both) Component analysis often is more useful when computed and examined over a period of several years and when comparisons are made with competitors

Net income

Average total assets

Net income Net sales

Net sales Average total assets Net income

Average total assets

Trang 7

Quick Study C-13 A (10 minutes)

Cash received on account (£10,000 x 1.35)

Quick Study C-14 A (10 minutes)

Mar 1 Account Receivable—Hamac 9,076

Trang 8

EXERCISES Exercise C-1 (25 minutes)

Collected proceeds of debt securities

Short-Term Investments —Trading (XIF) ** 9,700

Gain on Sale of Short-Term Investments 2,060

Sold 350 shares of stock

* [(350 x $34) - $140] **($19,400/2)

Trang 9

2 The accounts in part (1) are reported on different financial statements

i The $6,000 debit balance in the Market Adjustment—Trading account

is an adjunct asset account in the balance sheet It increases the balance of the Short-Term Investment—Trading account to the securities’ market value of $72,000

ii The Unrealized Gain of $6,000 is reported in the Other Revenues and Gains section of the income statement

Verrizano Corporation bonds payable $ 89,600 $ 91,600

Preble Corporation notes payable 70,600 62,900

Lucerne Company common stock 86,500 83,100

Trang 10

Exercise C-4 (30 minutes)

2008

(a) Feb 15 Short-Term Investments —HTM (A.G.) 160,000

Cash 160,000

Purchased 90-day, 10% notes

(b) Mar 22 Long-Term Investments —AFS (Fran) 35,850

Purchased 8% notes, due Jan 30, 2009

(e) Sept 1 Cash 700

Dividend Revenue 700

Received dividend on Fran shares (700 x $1)

(f) Oct 8 Cash* 22,275

Long-Term Investments —AFS (Fran)** 17,925

Gain on Sale of L-T Investments 4,350

Sold 350 shares of Fran stock

Trang 11

Nintendo Co common stock $ 44,450 $ 48,900

Atlantic Richfield Co bonds payable 49,000 47,000

Kellogg Company notes payable 25,000 23,200

McDonald's Corp common stock 46,300 44,800

Record market (fair) value of AFS securities

Computation of Market Adjustment

Cost $87,855 $89,980 Market value 80,293 90,980 Gain (loss) $ (7,562) $ 1,000 Adjustment = $7,562 + $1,000 = $8,562

(recovery of unrealized loss &

recording of unrealized gain)

Trang 12

Record market value of securities

Trang 13

1 Classification of Investments in Securities

a The Beeman Company bonds are a long-term investment in maturity debt securities

held-to-b The Baybridge stock is a long-term investment in equity securities where the investor has a significant influence over the investee

c The Carroll stock is a long-term investment in available-for-sale equity securities

d The Newtech stock is a long-term investment in available-for-sale equity securities

e Since the Flock stock is marketable and is held as an investment of cash available for operations, it is a current asset

2 Market Adjustment entry at December 31, 2008

Dec 31 Market Adjustment—AFS (LT) 10,825

Unrealized GainEquity 10,825

Record market value of securities ($255,800 - $266,625)

Carroll common stock $165,500 $178,000

Newtech common stock 90,300 88,625

Totals $255,800 $266,625

Trang 14

2008

Jan 2 Long-Term Investments —Goreten* 411,000

Cash 411,000

Record purchase of investment ($408,000 + $3,000)

* Kodan’s investment equals 33 1/3% of Goreten’s stock (30,000/90,000)

Kodan should use the equity method to account for its investment

Sept 1 Cash 45,000

Long-Term Investments —Goreten 45,000

Record receipt of cash dividend (30,000 x $1.50)

Dec 31 Long-Term Investments —Goreten 162,300

Earnings from Long-Term Investment 162,300

Record equity in investee earnings ($486,900/3)

2009

June 1 Cash 63,000

Long-Term Investments —Goreten 63,000

Record receipt of cash dividend (30,000 x $2.10)

Dec 31 Long-Term Investments —Goreten 234,250

Record equity in investee earnings ($702,750/3)

Dec 31 Cash 320,000

Gain on Sale of Investments 86,817 Long-Term Investments —Goreten * 233,183

Record sale of investment

* Book value (Goreten stock) at 12/31/2009:

Original cost $411,000 Less 2008 dividends (45,000) Plus share of 2008 earnings 162,300 Less 2009 dividends (63,000) Plus share of 2009 earnings 234,250 Book value at date of sale $699,550

Book value of shares sold ($699,550 x [10,000/30,000]) $233,183 †

†

Rounded to nearest dollar

Trang 15

2008 return on total assets 2009 return on total assets

Regae Industries appears to be less efficient in the use of its total assets in

2009 than in 2008 as suggested by the decline in return on total assets from 14.0% to 10.9% However, without additional information, it is not possible to determine whether Regae is within the normal range as compared to similar companies In addition, conditions may exist that explain the apparent decline in efficiency between 2008 and 2009 For example, Regae may have increased its investment in plant assets in 2009

in anticipation of increased production and sales in 2010 Or, its competitors’ returns may have fallen even more than that of Regae’s returns

Exercise C-11 A (25 minutes)

2008

Dec 16 Accounts ReceivableBronson Ltd 24,791

Sales 24,791

Record credit sales (17,000 x $1.4583)

Dec 31 Foreign Exchange Loss* 342

Accounts ReceivableBronson Ltd 342

Record year-end adjustment

*Original measure = (17,000 x $1.4583) = $24,791 Year-end measure = (17,000 x $1.4382) = 24,449 Loss for the period = $ 342

2009

Jan 15 Cash (17,000 x $1.4482) 24,619

Accounts ReceivableBronson Ltd 24,449 Foreign Exchange Gain* 170

Record cash receipt on account

*Year-end measure = (17,000 x $1.4382) = $24,449 Final measure = (17,000 x $1.4482) = 24,619 Gain for the period = $ 170

$38,400

($210,000 + $340,000)/2

$60,300 ($340,000 + $770,000)/2

Trang 16

Exercise C-12 A (25 minutes)

Quarter ended June 30, 2008

May 8 recorded amount (800,000 x $0.1323) $105,840 June 30 balance sheet amount (800,000 x $0.1352) 108,160 Unrealized gain reported on income statement $ 2,320

Quarter ended September 30, 2008

June 30 balance sheet amount $108,160 Sept 30 balance sheet amount (800,000 x $0.1368) 109,440 Unrealized gain reported on income statement $ 1,280

Quarter ended December 31, 2008

Sept 30 balance sheet amount $109,440 Dec 31 balance sheet amount (800,000 x $0.1335) 106,800 Unrealized loss reported on income statement $ 2,640

Quarter ended March 31, 2009

Dec 31 balance sheet amount $106,800 Feb 10, 2009, amount received (800,000 x $0.1386) 110,880 Realized gain reported on income statement $ 4,080

Note — The combined net gain for all four quarters equals:

Trang 17

PROBLEM SET A Problem C-1A (60 minutes)

Short-Term Investments —Trading (Ford) 20,925

Sold Ford Motor shares

[(800 x $29.00) - $285]

July 5 Cash 7,585

S hort-Term Investments —Trading (Z-Seven) 5,825

Sold Z-Seven shares

Trang 18

Problem C-1A (Concluded)

Loss on Sale of Short-Term Investments 5,948

Short-Term Investments —Trading (Lucent) 97,928

Sold Lucent shares [(2,200 x $42.00) - $420]

Loss on Sale of Short-Term Investments 599

S hort-Term Investments —Trading (D.Karan) 33,140

Sold Donna Karan shares

[(1,800 x $18.25) - $309]

Part 2 (Adjusting entry at Dec 31, 2010)

Dec 31 Market Adjustment—Trading* 985

Unrealized Gain (Loss) HCA 3,400 $36.00 $122,400 $116,020 $ 6,380

Trang 19

Problem C-2A (40 minutes)

Trang 20

Problem C-2A (Continued)

Part 2

Comparison of Cost and Market Values for AFS Portfolio

Unrealized Cost Market Gain (Loss) Gem Co (2,000 x $24.25) + 90 a $ 48,590

2,000 x $26.50 $ 53,000 PepsiCo (2,000 x $49.25) + 175 b 98,675

2,000 x $46.50 93,000 Xerox (1,000 x $16.75) + 205 c 16,955

a note disclosure of the cost

Part 5

(i) Interest Revenue, $1,500

(ii) Dividend Revenue, $11,900 [$3,400 + $3,800 + $2,100 + $2,600] (iii) Gain on Sale of Short-Term Investments, $11,185

(iv) Net effect on income is $24,585

Trang 21

Market Adjustment —AFS (LT)* 3,650

Annual adjustment to market values

* Cost Market

J & J $ 20,740 $ 21,500 Sony 55,665 45,600 Mattel 40,695 46,350 Total $117,100 $113,450

J & J: 1,000 x $21.50 = $21,500 Sony: 1,200 x $38.00 = $45,600

Mattel: 1,500 x $30.90 = $46,350

Mkt Adj.: $117,100 - $113,450 = $3,650

Trang 22

Loss on Sale of Investments 5,080

Long-Term Investments—AFS (Mattel) 40,695

Sold Mattel shares [(1,500 x $23.90) - $235]

July 22 Long-Term Investments—AFS (Sara Lee) 13,980

Market Adjustment —AFS (LT)* 10,168

Kodak $15,498 $17,325 Sara Lee 13,980 12,000 Sony 55,665 42,000 Total $85,143 $71,325

Kodak: 900 x $19.25 = $17,325

Sara Lee: 600 x $20.00 = $12,000

Sony: 1,200 x $35.00 = $42,000

$85,143 - $71,325 = $13,818 Market Adjustment account:

Required balance $13,818 Cr

Trang 23

Sold Sony shares [(1,200 x $48.00) - $880]

June 30 Long-Term Investments—AFS (Black & Decker) 50,835

Cash 50,835

Purchased Black & Decker shares

[(1,400 x $36.00) + $435]

Aug 3 Cash 9,315

Loss on Sale of Investments 4,665

Long-Term Investments—AFS (Sara Lee) 13,980

Sold Sara Lee shares

* Cost Market

Black & Decker $ 50,835 $ 54,600 Microsoft 161,325 165,600 Total $212,160 $220,200

Trang 24

Problem C-3A (Concluded)

Realized gains (losses)

Sale of Johnson & Johnson shares $ 2,235

Sale of Mattel shares (5,080)

Sale of Eastman Kodak shares _ 4,352 Total realized gain (loss) $ 0 $ (2,845) $ 742

Unrealized gains (losses) at year-end* $(3,650) $(13,818) $ 8,040

* Equals the balance of the Market Adjustment account

Trang 25

Part 1

Available-for-sale securities on December 31, 2008

3,500 shares of Company B common stock $ 79,690 $ 81,375 17,500 shares of Company C common stock 662,750 610,312 4,500 shares of Company X common stock 128,312 118,125 8,500 shares of Company Z common stock 270,350 278,800

Disclosure

The portfolio of available-for-sale securities would be reported on the

December 31, 2008, balance sheet at its market value of $1,088,612

Part 2

Dec 31 Market Adjustment—AFS* 20,002

Unrealized Loss—Equity 20,002

Adjustment to market for AFS securities

* December 31, 2007, available-for-sale securities

Cost Market Value

in the equity section of the balance sheet

Year 2008 realized gains (losses)

3,500 shares of Company B stock $ 79,690 $ 77,688 $ (2,002) 40,000 shares of Company A stock 535,300 510,900 (24,400) Realized gain (loss) $(26,402)

Trang 26

Long-Term Investments —Kildaire 192,000

Received cash dividend (60,000 x $3.20)

Dec 31 Long-Term Investments —Kildaire 232,800

($1,164,000 x 20%)

2009

Oct 15 Cash 156,000

Long-Term Investments —Kildaire 156,000

Record cash dividend (60,000 x $2.60)

Dec 31 Long-Term Investments —Kildaire 295,200

Sold Kildaire shares

* Investment carrying value, January 2, 2010 Original cost $1,560,000

Định dạng
Số trang	52
Dung lượng	1,53 MB