Solution manual intermediate accounting 15th kiesoch17

Securities Fair Value Adjustment—Unrealized Holding Gain Loss... a Unrealized Holding Gain or Loss—at fair value... Therefore, the following adjusting entry should be made at the year-en

E17-3B (15–20 minutes)

Effective Interest Method 5% Bonds Sold to Yield 7%

Date

Cash Received

Interest Revenue

Discount Amortized

Securities Fair Value Adjustment—

Unrealized Holding Gain (Loss)

E17-5B (20–30 minutes)

Straight-Line Method 8% Bond Purchased to Yield 7%

Date

Cash Received

Interest Revenue

Bond Discount Amortization

Date

Cash Received

Interest Revenue

Bond Discount Amortization

(a) Unrealized Holding Gain or Loss—

at fair value.

E17-7B (10–15 minutes)

(a) December 31, 2014:

(b) During 2015:

Cash 33,200

E17-7B (Continued)

(c) At December 31, 2015:

Unrealized Gain (Loss)

a separate component of stockholders’ equity until realized Therefore, the following adjusting entry should be made at the year-end:

Securities Fair Value Adjustment

(Available-for-Sale) 4,020

Unrealized Holding Gain or Loss—Equity is reported as other comprehensive income and as a separate component in stockholders’ equity and not included

in net income The Securities Fair Value Adjustment (Available-for-Sale) account is a valuation account to the related investment account.

(a) The portfolio should be reported at the fair value of $273,500 Since the cost of the portfolio is $268,000, the unrealized holding gain is $5,500, of which $5,400 is already recognized Therefore, the December 31, 2014, adjusting entry should be:

Securities Fair Value Adjustment

(Available-for-Sale) 100

(b) The unrealized holding gain of $5,500 (including the previous balance of

$5,400) should be reported as an addition to stockholders’ equity, and the Securities Fair Value Adjustment (Available-for-Sale) account balance of

$5,500 should be added to the cost of the securities account.

ZORRO FOODS CORP.

Balance Sheet

As of December 31, 2014 Current assets

(c) Computation of realized gain or loss on sale of stock:

Cost of Apple 33,600 Loss on sale of stock $ (2,500)

January 20, 2015

Cash 31,100

Available-for-Sale Securities 33,600

(a) ZORRO FOODS CORP.

Statement of Comprehensive Income For the Year Ended December 31, 2014 _ Net income $689,600 Other comprehensive income

Statement of Comprehensive Income For the Year Ended December 31, 2015

Other comprehensive income

Unrealized holding gain arising during

year $26,600

Add: Reclassification adjustment for

May 10, 2014 Trading Securities 7,390

August 25, 2014

Trading Securities 235,610

(b) Gross selling price of 10,000 shares at $26.25 $262,500

Net proceeds from sale 260,950

Gain on sale of stock $ 43,490

August 25, 2014 Cash 260,950

Previous securities fair value

(Trading) 133,410

E17-12B (15–20 minutes)

Situation 1: Journal entries by People Tables:

To record purchase of 750,000 shares of Robot Sofas at a cost of $8.50 per share:

To record the investment at fair value:

December 31, 2014 Securities Fair Value Adjustment

(Available-for-Sale) 375,000

*($9.00 – $8.50) X 750,000 shares = $375,000

Situation 2: Journal entries by Mica Company:

To record the purchase of 40% of Santos Corporation’s common stock:

To record the receipt of cash dividends from Santos Corp.:

October 25, 2014

To record Mica’s share (40%) of Santos Corp.’s net income of $860,000:

December 31, 2014 Investment in Santos Corp Stock

(40% X $860,000) 344,000

E17-13B (20–25 minutes)

share of dividends = $270,000.

Total net income = $360,000 ÷ 30% = $1,200,000

E17-15B (15–20 minutes)

(d)

Securities Cost Fair Value

Unrealized Holding Gain (Loss) Dora Corp., Common $268,500 $272,000 $ 3,500 Boots and Boots, Preferred 100,000 103,900 3,900 Total portfolio $368,500 $375,900 7,400 Previous securities fair value

adjustment—Dr 18,500 Securities fair value adjustment—Cr $(11,100)

E17-16B (15–20 minutes)

Cash 150,000

December 31, 2015 Unrealized Holding Gain or Loss—

December 31, 2015

Revenue from Investment

Method

Equity Method

*$3,600,000 + $300,000 – $150,000 – $150,000

E17-17B (10–15 minutes)

Revenue from Investment

(c) Securities Fair Value Adjustment

(Available-for-Sale) 25,000

Unrealized Holding Gain or Loss—

(a) Investment in Azul Company Stock 21,000

Unrealized Holding Gain or Loss

Unrealized Holding Gain or Loss—Income

E17-20B (15–20 minutes)

Sale of Investment in Tiger Inc stock

Investment in Azul Company stock

($195,000 – $221,000) (26,000)

Investment in Azul Stock

E17-21B (15–20 minutes)

Investment in Olive Company stock

*E17-22B (15–20 minutes)

(a) Put Option 800

Cash 800

(b) Unrealized Holding Gain or Loss—Income 250

Put Option ($800 – $550) 250

Put Option 5,000 Unrealized Holding Gain or Loss— Income (5,000 X $1) 5,000 (c) Unrealized holding gain: $4,750 ($5,000 – $250) *E17-23B (20–25 minutes) (a) 6/30/12 (b) 12/31/12 Fixed-rate debt $500,000 $500,000 Fixed rate (8% ÷ 2) 4% 4%

Semiannual debt payment 20,000 20,000 Swap fixed receipt 20,000 20,000 Net income effect $ 0 $ 0

Swap variable rate

payments from fixed to variable is a fair value hedge because the changes in fair value of both the derivative and the hedged liability offset one another.

from variable to fixed is a cash flow hedge because interest costs are always the same.

*E17-26B (20–25 minutes)

Call Option 700

Cash 700

(b) September 30, 2014 Call Option 700

Unrealized Holding Gain or Loss—Income ($1 X 700) 700

Unrealized Holding Gain or Loss—Income 290

Call Option ($700 – $410) 290

(c) December 31, 2014 Call Option ($3 X 700) 2,100 Unrealized Holding Gain or Loss—Income 2,100 Unrealized Holding Gain or Loss—Income 360

Call Option ($410 – $50) 360

(d) January 31, 2015 Unrealized Holding Gain or Loss—Income 700

Call Option ($1 X 700) 700

Unrealized Holding Gain or Loss—Income 30

Call Option ($50 – $20) 30

Cash (700 X $3) 2,100 Loss on Settlement of Call Option 20

*Value of Call Option at settlement:

*E17-27B (Continued)

Partial Income Statement For the Quarter Ended December 31, 2014 Sales revenue $710,000 Cost of goods sold 305,500* Gross profit $404,500