FAP 21E Chapter 15 SM

From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil AppendixC

Investments and International Operations

QUESTIONS

1. To be classified as current assets, investments must be (i) capable of being converted into cash quickly and (ii) management must intend to sell the investments as a source of cash to satisfy the needs of current operations (within one year or the operating cycle, whichever is longer). 2. Short-term investments in trading securities are reported on the balance sheet at the fair (market) value of the portfolio of trading securities. 3. The $2,000 difference between the proceeds ($12,000) and the cost ($10,000) 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 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.) 7. Unrealized lossEquity...... ## Fair Value Adjustment—Available-for-Sale (LT)...... ##

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 1 Solutions Manual, Appendix C 8. The portfolio for investments in available-for-sale securities should be reported on the balance sheet at fair (market) value—this is separated into short- and long-term. 9. The portfolio of long-term investments in debt securities is reported at cost adjusted for amortization of any difference between cost and maturity when the investments are classified as held-to-maturity debt securities. 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. 12A. 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. 13A. 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. 14A. 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 or gains 15. Apple reports $112 millionin foreign currency adjustments for the year ended September 28, 2013. This reflects an unrealized loss. 16. Google reports $392 million of net unrealized losses for its AFS investments for the year ended December 31, 2013. 17. Samsung’s financial statements, including its income statement, are all labeled as being consolidated statements.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil QUICK STUDIES

Quick Study C-1 (10 minutes)

True statements: b, d, f, g

Quick Study C-2 (10 minutes) a. D e. D i. D b. E f. D j. E c. D g. E k. D d. D h. D l. E

[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.

May 30 Cash...... 300 Dividend Revenue...... 300 Received dividend of $1 per share.

May 7 Short-Term Investments—Trading (Kraft)...... 10,300 Cash...... 10,300 Purchased 200 shares at $50 plus $300 fee.

June 6 Cash...... 11,050 Gain on Sale of Short-Term Investments. 750 Short-Term Investments—Trading 10,300 (Kraft)...... To record sale of trading securities.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 3 Solutions Manual, Appendix C 200 shares at $56 less $150 fee

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 4 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Quick StudyC-5 (20 minutes)

2014 Dec. 31 Unrealized Loss—Income...... 2 Fair Value Adjustment—Trading (ST)...... 2 Record fair value of securities $35fair value - $37 cost; thus, FVA—Trading = $2 Cr.

2015 Dec. 31 Fair Value Adjustment—Trading (ST)...... 6 Unrealized Gain—Income...... 6 Record fair value of securities. $46 fair value - $42 cost; thus, FVA—Trading s/b $4Dr. Note: Unadjusted FVA is $2 Cr; Ending bal. FVA s/b $4 Dr; thus, entry must $6 Dr FVA. Note: “s/b” is abbreviation for “should be.” 2016 Dec. 31 Fair Value Adjustment—Trading (ST)...... 5 Unrealized Gain—Income...... 5 Record fair value of securities. $69 fair value - $60 cost; thus, FVA—Trading s/b $9 Dr. Note: Unadjusted FVA is $4 Dr; Ending bal. FVA s/b $9 Dr; thus, entry must $5 Dr FVA.

2017 Dec. 31 Unrealized Loss—Income...... 10 Fair Value Adjustment—Trading (ST)*. . . 10 Record fair value of securities. $55 fair value - $56 cost; thus, FVA—Trading s/b $1 Cr. Note: Unadjusted FVA is $9 Dr; Ending bal. FVA s/b $1 Cr; thus, entry must $10 Cr FVA.

We could also use T-accounts to determine the needed adjustment to fair value:

12/31/2015—F.V. Adj—Trading 12/31/2016—F.V. Adj—Trading 12/31/2017—F.V. Adj—Trading Una 2 Unadj 4 Unad 9 dj. . j. Adj. 6 Adj. 5 Adj. 10 End 4 End. 9 End. 1 .

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 5 Solutions Manual, Appendix C Quick Study C-6 (10 minutes)

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...... 1,0 00 Record interest earned ($1,200 x 5/6).

1. 2015 Dec. 31 Unrealized Loss—Equity...... 3,000 Fair Value Adjustment—Available-for-Sale (ST)3,000 To reflect an unrealized loss in fair 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 Fair Value 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 fair value.

3. 2016 Apr. 6 Cash ...... 26,000 Gain on Sale of Short-Term Investments...... 1,000 Short-Term Investments—AFS...... 25,000 To record sale of one-half of the available-for-sale securities. (Cost = $50,000 x 1/2)

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 6 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Quick Study C-8 (10 minutes)

May 9 Short-Term Investments—AFS (Higo)...... 5,150 Cash...... 5,150 Purchased 200 shares at $25 plus $150 fee.

June 2 Cash*...... 2,710 Gain on Sale of Short-Term Investments. 135 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 Fair Value Adjustment—Available-for-Sale (ST)...... 275 To reflect an unrealized loss in fair value of available-for-sale securities.

Number Cost Fair Total Unrealized As of of per Total Value per Fair Loss (Fair Dec. 31 Shares share Cost share Value Value-Cost) Higo 100 $25.75 $2,575 $23 $2,300 $275*

1. Dec. 31 Unrealized 12,000 LossEquity...... Fair Value 12,000 Adjustment— Available-for-Sale (LT)...... 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 Fair Value 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 fair value.

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Valuation Method: The fair value method is used to account for this investment in long-term equity securities (AFS portfolio).

2015 May 20 Long-Term Investments—AFS (ORD)...... 1,000,000 Cash...... 1,000,000 Record purchase of securities.

2016 Aug. 5 Cash...... 625,000 Long-Term Investments—AFS (ORD)*... 500,000 Gain on Sale of Long-Term 125,000 Investment...... Record sale of securities. *(½ x $1,000,000)

Quick Study C-11 (10 minutes) a. Nov. 1 Cash ...... 40,000 Long-Term Investment—ORD...... 40,000 Received cash dividends ($100,000 x 40%). b. Dec. 31 Long-Term Investments—ORD...... 280,000 Earnings from Investment (ORD)...... 280,000 Record equity in investee earnings ($700,000 x 40%).

1. Equity securities giving an investor significant influence are accounted forusing the equity method. 2.Available-for-sale debt securities are reported on the balance sheet at fair value. 3.Trading securities are classified ascurrent (or short-term) assets. 4.Accrual of interest on bonds held as long-term investments requires a credit tointerest revenue (or interest earned).

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 8 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil 5.The controlling investor (more than 50% ownership) is called the parent, andthe investee companyis called the subsidiary.Quick Study C-13 (10 minutes)

1. The controlling investor is called the parent, and the investee is called the subsidiary.

2. A long-term investment classified as equity securities with controlling influence implies that the investor can exert a controlling influence over the investee.

1. Return on total assets =

2. This ratio provides information to evaluate a company's profitability (efficiency) in using its available assets.

1. Return on Total Assets = Profit margin x Total asset turnover

2. Component analysis is useful as it allows the determination of whetherreturn 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.

Quick Study C-16A (10 minutes)

Date of Sale Accounts Receivable...... 14,500 Sales...... 14,500 Record credit sale in value of pounds (10,000 pounds x $1.45/pound).

Date of Payment Cash...... 13,500 Foreign Exchange Loss...... 1,000 Accounts Receivable...... 14,500 ©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 9 Solutions Manual, Appendix C Cash received on account (£10,000 x $1.35/£).

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 10 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Quick Study C-17A (10 minutes)

Mar. 1 Account Receivable—Hamac...... 9,076 Sales...... 9,076 Record credit sale in value of ringgits (20,000 ringgits x $0.4538/ringgit).

Mar. 31 Cash...... 9,798 Foreign Exchange Gain...... 722 Accounts Receivable—Hamac...... 9,076 Cash received on account (20,000 ringgits x $0.4899/ringgit).

For trading securities (and as explained in Carrefour’s description of its trading securities), these assets “are valued at their fair value with variations in value recognized in the income statement.” Thus, the entirety of the € 7 million unrealized gains and the € 26 million unrealized losses are reported in its income statement.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 11 Solutions Manual, Appendix C EXERCISES

Exercise C-1 (10 minutes)

1. Debt securities reflect a creditor relationship such as investments in notes, bonds, and certificates of deposit.

2. Equity securities reflect an owner relationship such as shares of stock issued by companies.

3. Short-term investments are securities that (1) management intends to convert to cash within one year or the operating cycle, whichever is longer, and (2) are readily convertible to cash.

4. Long-term investments in securities are defined as those securities that are not readily convertible to cash or are not intended to be converted into cash in the short term.

a. Mar. 22 Short-Term Investments—Trading (RIP)...... 10,080 Cash...... 10,080 Purchased 1,000 shares of stock for (1,000 x $10) + $80 brokerage fee.

b. Sept. 1 Cash...... 1,000 Dividend Revenue...... 1,000 Received dividend on stock (1,000 x $1.00).

c. Oct. 8 Cash*...... 7,450 Short-Term Investments—Trading 5,040 (RIP)**...... Gain on Sale of Short-Term Investments. 2,410 Sold 500 shares of stock. * [(500 x $15) - $50] **($10,080/2)

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 12 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Exercise C-3 (20 minutes)

1. 2015 Dec. 31 Fair Value Adjustment—Trading...... 6,000 Unrealized Gain—Income...... 6,000 To reflect an unrealized gain in fair values of trading securities.

2. The accounts in part (1) are reported on different financial statements. i. The $6,000 debit balance in the Fair Value 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’ fair value of $72,000. ii. The Unrealized Gain of $6,000 is reported in the Other Revenues and Gains section of the income statement.

3. 2016 Jan. 3 Cash 35,000 Gain on Sale of Short-Term Investments 2,000 Short-Term Investments—Trading...... 33,000 To record sale of trading securities.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 13 Solutions Manual, Appendix C Exercise C-4 (10 minutes)

a. Jun. 15 Short-Term Investments—HTM (Remedy)...... 1,000,000 Cash...... 1,000,000 Purchased 90-day, 10% debt securities.

b. Sep. 16 Cash...... 1,025,000 Short-Term Investments—HTM 1,000,000 (Remedy)...... Interest Revenue...... 25,000 Collected proceeds of debt securities with interest of $1,000,000 x .10 x 90/360.

a. Aug. 1 Short-Term Investments—AFS (Houtte)...... 450,000 Cash...... 450,000 Purchased 6-month, 10% debt securities.

b. Oct. 30 Cash 10,125 Interest Revenue...... 10,125 Received cash interest payment ($450,000 x .09 x 90/360).

(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 Cash...... 35,850 Purchased 700 shares of Fran common stock ([700 x $51] + $150).

(c) May 15 Cash...... 164,000 Short-Term Investments—HTM (A.G.)..... 160,000 Interest Revenue...... 4,000 Collected proceeds of 10% notes ($160,000 x 10% x 90/360).

(d) July 30 Short-Term Investments—Trading (MP3)...... 100,000 Cash...... 100,000 Purchased 8% notes, due Jan. 30, 2016.

(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. *([350 x $64] - $125) **($35,850/2)

(g) Oct. 30 Cash...... 2,000 Interest Revenue...... 2,000 Received interest payment on 8% notes ($100,000 x .08 x 3/12).

Unrealized Available-for-Sale Portfolio Cost Fair Value Gain (Loss) Verrizano Corporation bonds payable...... $ 89,600 $ 91,600 Preble Corporation notes payable...... 70,600 62,900 Lucerne Company common stock...... 86,500 83,100 $246,700 $237,600 $(9,100)

Dec. 31 Unrealized Loss—Equity...... 9,100 Fair Value Adjustment—AFS (ST)...... 9,100 To reflect unrealized loss.

Computation of Fair Value Adjustment Cost Fair Unrealized Value Gain (Loss) Nintendo Co. common stock...... $ 44,450 $ 48,900 Atlantic bonds payable...... 49,000 47,000 Kellogg Company notes payable...... 25,000 23,200 McDonald's Corp. common stock...... 46,3 44,8 00 00 $164,750 $163,900 $ (850)

Dec. 31 Unrealized Loss—Equity...... 850 Fair Value Adjustment—AFS (ST)...... 850 Record fair value adjustment for securities.

Dec. 31 Fair Value Adjustment—AFS (LT)...... 32,078 Unrealized Loss—Equity...... 1,927 Unrealized Gain—Equity...... 30,151 Record fair value of AFS securities.

Computation of Fair Value Adjustment 12/31/2014 12/31/2015 Cost...... $120,483 $60,120 Fair value...... 118,556 90,271 Gain (loss)..... $ (1,927) $30,151

Adjustment = $1,927 + $30,151 = $32,078 (recovery of unrealized loss & recording of unrealized gain)

2013 Dec. 31 Unrealized Loss—Equity...... 11,140 Fair Value Adjustment—AFS (LT)...... 11,140 Record fair value of securities ($372,000 - $360,860).

2014 Dec. 31 Fair Value Adjustment—AFS (LT)*...... 38,440 Unrealized Loss—Equity...... 11,140 Unrealized Gain—Equity...... 27,300 Record fair value of securities. * $428,500 - $455,800 = $27,300 net gain ($11,140 prior loss + $27,300 current period gain).

2015 Dec. 31 Fair Value Adjustment—AFS (LT)*...... 73,000 Unrealized Gain—Equity...... 73,000 Record fair value of securities. * $600,200 - $700,500 = $100,300 net gain ($100,300 current period gain - $27,300 prior gain).

2016 Dec. 31 Unrealized Loss—Equity...... 96,700 Unrealized Gain—Equity...... 100,300 Fair Value Adjustment—AFS (LT)*...... 197,000 Record fair value of securities. * $876,900 - $780,200 = $96,700 net loss ($100,300 prior gain + $96,700 current period loss).

1. Classification of Investments in Securities

a. The Brava Company bonds are a long-term investment in held-to- maturity debt securities.

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

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

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

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

2. Fair Value Adjustment entry at December 31, 2015

Dec. 31 Fair Value Adjustment—AFS (LT)...... 10,825 Unrealized GainEquity...... 10,825 Record fair value of securities ($255,800 - $266,625).

Long-term AFS securities Cost Fair Value Buffa common stock...... $165,500 $178,000 Newton common stock...... 90,3 88,625 00 Totals...... $255,800 $266,625

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 19 Solutions Manual, Appendix C Exercise C-12 (30 minutes) 2015

Jan. 2 Long-Term Investments—Grecco*...... 411,000 Cash...... 411,000 Record purchase of investment ($408,000 + $3,000). *Kodax’s investment equals 33 1/3% of Grecco’s stock (30,000/90,000). Kodax should use the equity method to account for its investment.

Sept. 1 Cash...... 45,000 Long-Term Investments—Grecco...... 45,000 Record receipt of cash dividend (30,000 x $1.50).

Dec. 31 Long-Term Investments—Grecco...... 162,300 Earnings from Long-Term Investment.... 162,300 Record equity in investee earnings ($486,900/3). 2016 June 1 Cash...... 63,000 Long-Term Investments—Grecco...... 63,000 Record receipt of cash dividend (30,000 x $2.10).

Dec. 31 Long-Term Investments—Grecco...... 234,250 Earnings from Long-Term Investment.... 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—Grecco*...... 233,183 Record sale of investment.

* Book value (Grecco stock) at 12/31/2016: Original cost...... $411,000 Less 2015 (45,000) dividends...... Plus share of 162,300 2015 earnings......

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 20 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Less 2016 (63,000) dividends...... Plus share of 234,250 2016 earnings...... Book value at $699,550 date of sale...... Book value of shares sold ($699,550 x [10,000/30,000])...... $233,183† †Rounded to nearest dollar.

1. Consolidated financialstatementsshow the financial position, results of operations, and cash flows of all entities under the parent’s control, including all subsidiaries.

2. The equity method with consolidationis used to account for long-term investments in equity securities with controlling influence.

2015 return on total assets 2016 return on total assets

= 14.0% = 10.9%

Regae Industries appears to be less efficient in the use of its total assets in 2016 than in 2015 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 2015 and 2016. For example, Regae may have increased its investment in plant assets in 2016 in anticipation of increased production and sales in 2017. Or, its competitors’ returns may have fallen even more than that of Regae’s returns.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 22 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Exercise C-15A (25 minutes)

2015 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 342 Ltd...... 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

2016 Jan. 15 Cash (17,000 x $1.4482)...... 24,619 Accounts ReceivableBronson 24,449 Ltd...... 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

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 23 Solutions Manual, Appendix C Exercise C-16A (25 minutes)

Quarter ended June 30, 2015 May 8 recorded amount (800,000 x $0.1323)...... $105,840 June 30 balance sheet amount (800,000 x $0.1352)...... 108,160 Foreign exchange gain...... $ 2,320

Quarter ended September 30, 2015 June 30 balance sheet amount...... $108,160 Sept. 30 balance sheet amount (800,000 x $0.1368)...... 109,440 Foreign exchange gain...... $ 1,280

Quarter ended December 31, 2015 Sept. 30 balance sheet amount...... $109,440 Dec. 31 balance sheet amount (800,000 x $0.1335)...... 106,800 Foreign exchange loss...... $ 2,640

Quarter ended March 31, 2016 Dec. 31 balance sheet amount ...... $106,800 Feb. 10, 2016, amount received (800,000 x $0.1386) ...... 110,880 Foreign exchange gain...... $ 4,080

Note — The combined net gain for all four quarters equals: $5,040 ($2,320 + $1,280 - $2,640 + $4,080). This amount also equals the difference between the number of dollars finally received ($110,880) and the initial measure of the account receivable ($105,840). In addition, this amount equals the number of pesos (800,000) owed by the customer times the change in the exchange rate ($0.0063) between the beginning rate ($0.1323) and the ending rate ($0.1386).

1. Accounting for available-for-sale securities (and as explained in Carrefour’s description of these securities), implies that any “unrealized… gains or losses are recorded as shareholders’ equity until they are sold.” Thus, none of the € 18 million net unrealized losses are reported in Carrefour’s income statement.

2. The entirety of the € 18 million net unrealized losses on available-for-sale securities are reported in Carrefour’s balance sheet as part of its shareholders’ equity—specifically, Carrefour included them within “consolidated reserves” (under U.S. GAAP, it would be titled “accumulated other comprehensive income”).

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 25 Solutions Manual, Appendix C PROBLEM SET A

Problem C-1A (60 minutes) Part 1 2015 Jan. 20 Short-Term 20,925 Investments— Trading (Ford)...... Cash...... 20,925 Purchased Ford Motor Co. shares [(800 x $26.00) + $125].

Feb. 9 Short-Term 97,928 Investments— Trading (Lucent).... Cash...... 97,928 Purchased Lucent shares [(2,200 x $44.25) + $578].

Oct. 12 Short-Term 5,825 Investments— Trading (Z-Seven)... Cash...... 5,825 Purchased Z- Seven shares [(750 x $7.50) + $200].

Dec. 31 Fair Value Adjustment—Trading (ST)...... 5,322 Unrealized Gain—Income...... 5,322 Record fair value of securities. $130,000 fair value - $124,678 cost; thus, FVA—Trading s/b $5,322 Dr. Note: Unadjusted FVA is $0; Ending bal. FVA s/b $5,322 Dr; thus, entry must $5,322 Dr FVA.

We could also use a T-account to determine the needed adjustment to fair value:

12/31/2015—F.V. Adj—Trading Unadj 0

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 26 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil . Adj. 5,322 End. 5,322

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 27 Solutions Manual, Appendix C Problem C-1A (Continued)

2016 Apr. 15 Cash...... 22,915 Gain on Sale of Short-Term 1,990 Investments...... Short-Term Investments—Trading 20,925 (Ford)...... Sold Ford Motor shares [(800 x $29.00) - $285].

July 5 Cash...... 7,585 Gain on Sale of Short-Term 1,760 Investments...... Short-Term Investments—Trading (Z- 5,825 Seven)...... Sold Z-Seven shares [(750 x $10.25) - $102.50].

July 22 Short-Term Investments—Trading (Hunt)...... 48,444 Cash...... 48,444 Purchased Hunt shares [(1,600 x $30.00) + $444].

Aug. 19 Short-Term Investments—Trading (D.Karan). . 33,140 Cash...... 33,140 Purchased Donna Karan shares [(1,800 x $18.25) + $290].

Dec. 31 Unrealized Loss—Income...... 24,834 Fair Value Adjustment—Trading (ST)...... 24,834 Record fair value of securities. $160,000 fair value - $179,512 cost*; thus, FVA—Trading s/b $19,512 Cr. Note: Unadjusted FVA is $5,322 Dr; Ending bal. FVA s/b $19,512 Cr; thus, entry must be $24,834Cr FVA. *$124,678 - $20,925 - $5,825 + $48,444 + $33,140

12/31/2016—F.V. Adj—Trading Unadj 5,322 .

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 28 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Adj. 24,83 4 End. 19,51 2

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 29 Solutions Manual, Appendix C Problem C-1A (Concluded)

2017 Feb. 27 Short-Term Investments—Trading (HCA)...... 116,020 Cash...... 116,020 Purchased HCA shares [(3,400 x $34.00) + $420].

Mar. 3 Cash...... 39,750 Loss on Sale of Short-Term Investments...... 8,694 Short-Term Investments—Trading 48,444 (Hunt)...... Sold Hunt shares [(1,600 x $25.00) - $250].

June 21 Cash...... 91,980 Loss on Sale of Short-Term Investments...... 5,948 Short-Term Investments—Trading 97,928 (Lucent)...... Sold Lucent shares [(2,200 x $42.00) - $420].

June 30 Short-Term Investments—Trading (B&D)...... 57,595 Cash...... 57,595 Purchased Black & Decker shares [(1,200 x $47.50) + $595].

Nov. 1 Cash...... 32,541 Loss on Sale of Short-Term Investments...... 599 Short-Term Investments—Trading 33,140 (D.Karan)...... Sold Donna Karan shares [(1,800 x $18.25) - $309].

Dec. 31 Fair Value Adjustment—Trading (ST)...... 25,897 Unrealized Gain—Income...... 25,897 Record fair value of securities. $180,000 fair value - $173,615 cost*; thus, FVA—Trading s/b $6,385Dr. Note: Unadjusted FVA is $19,512 Cr; Ending bal. FVA s/b $6,385Dr; thus, entry must $25,897Dr FVA. *$179,512+$116,020 - $48,444 - $97,928 +$57,595 -$33,140

12/31/2017—F.V. Adj—Trading

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 30 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Unadj. 19,51 2 Adj. 25,897 End. 6,385

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 31 Solutions Manual, Appendix C Problem C-2A (40 minutes) Part 1 2015 Apr. 16 Short-Term Investments—AFS (Gem)...... 97,180 Cash...... 97,180 Purchased 4,000 shares of Gem [(4,000 x $24.25) + $180].

May. 1 Short-Term Investments—AFS (T-bills)...... 100,000 Cash...... 100,000 Purchased U.S. Treasury bills.

July 7 Short-Term Investments—AFS (Pepsi)...... 98,675 Cash...... 98,675 Purchased 2,000 shares of PepsiCo [(2,000 x $49.25) + $175].

20 Short-Term Investments—AFS (Xerox)...... 16,955 Cash...... 16,955 Purchased 1,000 shares of Xerox [(1,000 x $16.75) + $205].

Aug. 3 Cash...... 101,500 Short-Term Investments—AFS (T-bills). 100,000 Interest Revenue...... 1,500 Proceeds of U.S. Treasury bills ($100,000 x .06 x 13/52).

15 Cash 3,400 Dividend Revenue...... 3,400 Received dividends on Gem (4,000 x $0.85).

28 Cash* 59,775 Short-Term Investments—AFS (Gem)**...... 48,590 Gain on Sale of Short-Term 11,185 Investments...... Sold 2,000 shares of Gem. *(2,000 x $30) - $225 **($97,180 x 2,000/4,000)

Oct. 1 Cash 3,800 Dividend Revenue...... 3,800 Received dividends on PepsiCo (2,000 x $1.90).

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 32 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Dec. 15 Cash...... 2,100 Dividend Revenue...... 2,100 Received dividends on Gem (2,000 x $1.05).

31 Cash...... 2,600 Dividend Revenue...... 2,600 Received dividends on PepsiCo (2,000 x $1.30).

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 33 Solutions Manual, Appendix C Problem C-2A (Continued) Part 2 Comparison of Cost and Fair Values for AFS Portfolio Unrealized Cost Fair Value Gain (Loss) Gem Co. (2,000 x $24.25) + 90a...... $ 48,590 2,000 x $26.50...... $ 53,000 PepsiCo (2,000 x $49.25) + 175b...... 98,675 2,000 x $46.50...... 93,000 Xerox (1,000 x $16.75) + 205c...... 16,955 1,000 x $13.75...... 13,750 $164,220 $159,750 $(4,470) a Brokerage fee attached to remaining 2,000 shares: $180 x (4,000 sh –2,000 sh.)/ 4,000 sh.= $90. b Brokerage fee attached to remaining 2,000 shares: Entire $175 (none sold). c Brokerage fee attached to remaining 1,000 shares: Entire $205 (none sold).

Part 3

Dec. 31 Unrealized LossEquity...... 4,470 Fair Value Adjustment—AFS (ST)...... 4,470 To reflect an unrealized loss in fair values of available-for-sale securities.

Part 4 The balance sheet would report the cost of these short-term investments in available-for-sale securities at $164,220 and show a subtraction of $4,470 for the fair valueadjustment. This yields $159,750 as the net fair value for these securities reported in the current assets section. An alternative presentation is to list these securities at the fair value of $159,750 with a note disclosure of the cost.

Part 5 (a) Income statement (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

(b) Equity section of Balance sheet (i) Subtraction from equity due to the Unrealized Loss, $4,470 (ii) Increase to equity from the $24,585 increase in income (iii) Net effect on equity is $20,115

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 34 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Problem C-3A (60 minutes)

Part 1

Jan. 20 Long-Term Investments—AFS (J&J)...... 20,740 Cash...... 20,740 Purchased Johnson & Johnson shares [(1,000 x $20.50) + $240].

Feb. 9 Long-Term Investments—AFS (Sony)...... 55,665 Cash...... 55,665 Purchased Sony shares [(1,200 x $46.20) + $225].

June 12 Long-Term Investments—AFS (Mattel)...... 40,695 Cash...... 40,695 Purchased Mattel shares [(1,500 x $27.00) + $195].

Dec. 31 Unrealized LossEquity...... 3,650 Fair Value Adjustment—AFS (LT)*...... 3,650 Annual adjustment to fair values.

* Cost Fair Value 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 Fair Adj.: $117,100 - $113,450 = $3,650

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 35 Solutions Manual, Appendix C Problem C-3A (Continued) 2016 Apr. 15 Cash...... 22,975 Gain on Sale of Investments...... 2,235 Long-Term Investments—AFS (J&J)...... 20,740 Sold Johnson & Johnson shares [(1,000 x $23.50) - $525].

July 5 Cash...... 35,615 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 Cash...... 13,980 Purchased Sara Lee shares [(600 x $22.50) + $480].

Aug. 19 Long-Term Investments—AFS (Eastman Kodak)...... 15,498 Cash...... 15,498 Purchased Eastman Kodak shares [(900 x $17.00) + $198].

Dec. 31 Unrealized LossEquity...... 10,168 Fair Value Adjustment—AFS (LT)*...... 10,168 Annual adjustment to fair values. * Cost Fair Value 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

Fair Value Adjustment account: Required balance ..... $13,818 Cr. Unadjusted balance.. 3,650 Cr. Required change...… $10,168 Cr.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 36 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Problem C-3A (Continued) 2017 Feb. 27 Long-Term 161,325 Investments— AFS (Microsoft)..... Cash ...... 161,325 Purchased Microsoft shares [(2,400 x $67.00) + $525].

June 21 Cash ...... 56,720 Gain on Sale of 1,055 Investments ...... Long-Term 55,665 Investments— AFS (Sony)...... Sold Sony shares [(1,200 x $48.00) - $880]. June 30 Long-Term 50,835 Investments— AFS (Black & Decker)...... Cash ...... 50,835 Purchased Black & Decker shares [(1,400 x $36.00) + $435]. Aug. 3 Cash ...... 9,315 Loss on Sale of 4,665 Investments ...... Long-Term 13,980 Investments— AFS (Sara Lee)...... Sold Sara Lee shares [(600 x $16.25) - $435]. Nov. 1 Cash ...... 19,850

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 37 Solutions Manual, Appendix C Gain on Sale of Investments ...... 4,352 Long-Term Investments—AFS (E. Kodak).. 15,498 Sold Eastman Kodak shares [(900 x $22.75) - $625].

Dec. 31 Fair Value Adjustment—AFS (LT)*...... 21,858 Unrealized Loss—Equity...... 13,818 Unrealized Gain—Equity...... 8,040 Annual adjustment to fair values. * Cost Fair Value Black & Decker..... $ 50,835 $ 54,600 Microsoft...... 161,325 165,600 Total...... $212,160 $220,200

Black & Decker: 1,400 x $39.00 = $ 54,600 Microsoft: 2,400 x $69.00 = $165,600

$212,160 - $220,200 = $8,040 (fair value exceeds cost)

Fair Value Adjustment account: Required balance...... $ 8,040 Dr. Unadjusted balance...... 13,818 Cr. Required change...... $21,858 Dr.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 38 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Problem C-3A (Concluded)

Part 2 12/31/2015 12/31/2016 12/31/2017 Long-Term AFS Securities (cost)...... $117,100 $85,143 $212,160

Fair Value Adjustment...... (3,650) (13,818) 8,040

Long-Term AFS Securities (fair value)...... $113,450 $71,325 $220,200

Part 3 2015 2016 2017 Realized gains (losses) Sale of Johnson & Johnson shares... $ 2,235 Sale of Mattel shares...... (5,080) Sale of Sara Lee shares...... $(4,665) Sale of Sony shares...... 1,055 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 Fair Value Adjustment account.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 39 Solutions Manual, Appendix C Problem C-4A (30 minutes) Part 1 1. Journal entries (assuming significant influence) 2015

Jan. 5 Long-Term Investments—Kildaire...... 1,560,000 Cash...... 1,560,000 Purchased Kildaire shares.

Oct. 23 Cash...... 192,000 Long-Term Investments—Kildaire...... 192,000 Received cash dividend (60,000 x $3.20).

Dec. 31 Long-Term Investments—Kildaire...... 232,800 Earnings from Long-Term 232,800 Investment...... Record equity in investee earnings ($1,164,000 x 20%).

2016 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 Earnings from Long-Term 295,200 Investment...... Record equity in investee earnings ($1,476,000 x 20%).

2017 Jan. 2 Cash...... 1,894,000 Gain on Sale of Investments...... 154,000 Long-Term Investments—Kildaire*...... 1,740,000 Sold Kildaire shares. * Investment carrying value, January 2, 2017 Original cost...... $1,560,000 Less 2015 (192,000) dividends...... Plus 2015 earnings. 232,800

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 40 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Less 2016 (156,000) dividends...... Plus 2016 earnings. 295,200 Carrying value at $1,740,000 date of sale......

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 41 Solutions Manual, Appendix C Problem C-4A (Continued)

2. Carrying value per share, January 1, 2017(see computations in part 1) $1,740,000 / 60,000 shares = $29

3. Change in Selk's equity due to stock investment Earnings from Kildaire (2015)...... $232,800 Earnings from Kildaire (2016)...... 295,200 Gain on sale of investments...... 154,000 Net increase...... $682,000

Part 2

1. Journal entries (assuming NO significant influence)

Jan. 5 Long-Term Investments—AFS (Kildaire)...... 1,560,000 Cash...... 1,560,000 Purchased Kildaire shares.

Oct. 23 Cash...... 192,000 Dividend Revenue...... 192,000 Received cash dividend (60,000 x $3.20).

Dec. 31 Fair Value Adjustment—AFS (LT)*...... 240,000 Unrealized Gain—Equity...... 240,000 Record fair value adjustment. *60,000 x $30.00 = $1,800,000 $1,800,000 - $1,560,000 = $240,000

2016 Oct. 15 Cash...... 156,000 Dividend Revenue...... 156,000 Received cash dividends (60,000 x $2.60).

Dec. 31 Fair Value Adjustment—AFS (LT)*...... 120,000 Unrealized Gain—Equity...... 120,000 Record fair value adjustment. *60,000 x $32.00 = $1,920,000 $1,920,000 - $1,560,000 = $360,000

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 42 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil $360,000 - $240,000 = $120,000

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 43 Solutions Manual, Appendix C Problem C-4A (Concluded)

Jan. 2 Cash...... 1,894,000 Long-Term Investments—AFS 1,560,000 (Kildaire)...... Gain on Sale of Investments...... 334,000 Sold Kildaire shares.

Jan. 2 Unrealized Gain—Equity...... 360,000 Fair Value Adjustment—AFS (LT)...... 360,000 To remove fair value adjustment and related accounts ($240,000 + $120,000 = $360,000).

2. Investment cost per share, January 1, 2017

$1,560,000 / 60,000 shares = $26

3. Change in Selk’s equity due to stock investment

Dividend Revenue (2015)...... $192,000 Dividend Revenue (2016)...... 156,000 Gain on sale of investments...... 334,000 Net increase...... $682,000

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 44 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Problem C-5A (40 minutes) Part 1 Available-for-sale securities on December 31, 2015 Security Cost Fair Value 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.... 270,3 278,800 50 $1,141,102 $1,088,612

Disclosure The portfolio of available-for-sale securities would be reported on the December 31, 2015, balance sheet at its fair value of $1,088,612.

Part 2

Dec. 31 Fair Value Adjustment—AFS*...... 20,002 Unrealized Loss—Equity...... 20,002 Adjustment to fair value for AFS securities..

* December 31, 2014, available-for-sale securities Cost _ Fair Value $ 535,300 $ 490,000 159,380 154,000 662,750 640,938 $1,357,430 $1,284,938

December 31, 2015, adjustment to the Fair Value Adjustment account:

$1,357,430 - $1,284,938 = $ 72,492 Cr. balance on Dec. 31, 2014 $1,141,102 - $1,088,612 = 52,490 Cr. balance required on Dec. 31, 2015 $ 20,002 Dr. to adjust cost to fair value

Part 3

Only gains or losses realized on the sale of available-for-sale securities appear on the 2015 income statement. Unrealized gains or losses appear in the equity section of the balance sheet.

Year 2015 realized gains (losses) Stock Sold Cost Sale Gain (Loss)

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 45 Solutions Manual, Appendix C 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)

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 46 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Problem C-6AA (60 minutes) Part 1 2015 Apr. 8 Cash...... 5,938 Sales...... 5,938

July 21 Accounts ReceivableSumito...... 14,100 Sales...... 14,100 (1,500,000yen x $0.0094/yen) Oct. 14 Accounts ReceivableSmithers...... 27,675 Sales...... 27,675 (19,000£ x $1.4566/£) Nov. 18 Cash...... 13,800 Foreign Exchange Loss...... 300 Accounts ReceivableSumito...... 14,100 (1,500,000yen x $0.0092/yen) Dec. 20 Accounts ReceivableHamid Albar...... 7,652 Sales...... 7,652 (17,000ringgits x $0.4501/ringgits) Dec. 31 Accounts ReceivableSmithers...... 103 Foreign Exchange Gain *...... 103

*Original measure = (19,000£ x $1.4566/£) = $27,675 Year-end measure = (19,000£ x $1.4620/£) = 27,778 Gain for the period ……………………... = $ 103 Dec. 31 Foreign Exchange Loss*...... 77 Accounts ReceivableHamid Albar... 77 *Original measure = (17,000ringgits x $0.4501/ringgits) = $7,652 Year-end measure = (17,000 ringgits x $0.4456/ ringgits) = 7,575 Loss for the period ...... = $ 77 2016 Jan. 12 Cash*...... 27,928 Accounts ReceivableSmithers**...... 27,778 Foreign Exchange Gain...... 150 *(19,000£ x $1.4699/£) **($27,675 + $103) Jan. 19 Cash*...... 7,514 Foreign Exchange Loss...... 61 Accounts ReceivableHamid Albar** 7,575 *(17,000 ringgits x $0.4420/ ringgits) **($7,652 - $77)

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 47 Solutions Manual, Appendix C Problem C-6AA (Continued)

Part 2

Foreign exchange loss reported on the 2015 income statement

November 18...... $(300) December 31...... 103 December 31...... (77) Total...... $(274) ......

Part 3

To reduce the risk of foreign exchange gain or loss, Doering could attempt to negotiate foreign customer sales that are denominated in U.S. dollars. To accomplish this, Doering might be willing to offer favorable terms, such as price discounts or longer credit terms. Another possibility that may be of limited potential is for Doering to make credit purchases denominated in foreign currencies, planning the purchases so that the payables in foreign currencies match the foreign currency receivables in time and amount.

NOTE: A few students may also understand Doering's opportunity for hedging. This involves selling foreign currency futures to be delivered at the time the receivables from foreign customers will be collected.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 48 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil PROBLEM SET B

Problem C-1B (60 minutes) Part 1

2015 Mar. 10 Short-Term Investments—Trading (AOL)...... 143,505 Cash...... 143,505 ...... Purchased AOL shares [(2,400 x $59.15) + $1,545].

May 7 Short-Term Investments—Trading (MTV)...... 184,105 Cash...... 184,105 Purchased MTV shares [(5,000 x $36.25) + $2,855].

Sept. 1 Short-Term Investments—Trading (UPS)...... 69,950 Cash...... 69,950 Purchased UPS shares [(1,200 x $57.25) + $1,250].

Dec. 31 Unrealized Loss—Income...... 17,560 Fair Value Adjustment—Trading (ST)...... 17,560 Record fair value of securities. $380,000 fair value - $397,560 cost*; thus, FVA—Trading s/b $17,560Cr. Note: Unadjusted FVA is $0; Ending bal. FVA s/b $17,560Cr; thus, entry must $17,560Cr FVA. *$397,560 = $143,505 + $184,105 + $69,950

12/31/2015—F.V. Adj—Trading Unadj 0 . Adj. 17,56 0 End. 17,56 0

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 49 Solutions Manual, Appendix C Problem C-1B (Continued)

2016 Apr. 26 Cash...... 170,450 Loss on Sale of Short-Term Investments...... 13,655 Short-Term Investments—Trading (MTV). 184,105 Sold MTV shares [(5,000 x $34.50) - $2,050].

Apr. 27 Cash...... 70,812 Gain on Sale of Short-Term Investments 862 Short-Term Investments—Trading (UPS). 69,950 Sold UPS shares [(1,200 x $60.50) - $1,788].

June 2 Short-Term Investments—Trading (SPW)...... 622,450 Cash...... 622,450 Purchased SPW shares [(3,600 x $172.00) + $3,250].

June 14 Short-Term Investments—Trading (W-M)...... 46,307 Cash...... 46,307 Purchased Wal-Mart shares [(900 x $50.25) + $1,082].

Dec. 31 Fair Value Adjustment—Trading (ST)...... 33,298 Unrealized Gain—Income...... 33,298 Record fair value of securities. $828,000 fair value - $812,262 cost*; thus, FVA—Trading s/b $15,738Dr. Note: Unadjusted FVA is $17,560Cr; Ending bal. FVA s/b $15,738Dr; thus, entry must $33,298Dr FVA. *$812,262 = $397,560 -$184,105 -$69,950 +622,450 + $46,307

12/31/2016—F.V. Adj—Trading Unadj. 17,56 0 Adj. 33,298 End. 15,738

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 50 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Problem C-1B (Concluded)

2017 Jan. 28 Short-Term Investments—Trading (Pepsi)...... 88,890 Cash...... 88,890 Purchased PepsiCo shares [(2,000 x $43.00) + $2,890].

Jan. 31 Cash...... 602,760 Loss on Sale of Short-Term Investments...... 19,690 Short-Term Investments—Trading (SPW).... 622,450 Sold SPW shares [(3,600 x $168) - $2,040].

Aug. 22 Cash...... 133,720 Loss on Sale of S-T Investments...... 9,785 Short-Term Investments—Trading (AOL)..... 143,505 Sold AOL shares [(2,400 x $56.75) - $2,480].

Sept. 3 Short-Term Investments—Trading (Voda)...... 62,430 Cash...... 62,430 Purchased Vodaphone shares [(1,500 x $40.50) + $1,680].

Oct. 9 Cash...... 47,155 Gain on Sale of Short-Term Investments...... 848 Short-Term Investments—Trading (W-M)..... 46,307 Sold Wal-Mart shares [(900 x $53.75) - $1,220].

Dec. 31 Unrealized Loss—Income...... 27,058 Fair Value Adjustment—Trading (ST)...... 27,058 Record fair value of securities. $140,000 fair value - $151,320 cost*; thus, FVA—Trading s/b $11,320Cr. Note: Unadjusted FVA is $15,738Dr; Ending bal. FVA s/b $11,320Cr; thus, entry must $27,058Cr FVA. *$812,262 +$88,890 -$622,450 -$143,505 +$62,430 -$46,307

12/31/2017—F.V. Adj—Trading Unadj 15,738 . Adj. 27,05 8 End. 11,32

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 51 Solutions Manual, Appendix C 0

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 52 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Problem C-2B (40 minutes) Part 1 Feb. 6 Short-Term Investments—AFS (Nokia)...... 143,250 Cash...... 143,250 Purchased 3,400 shares of Nokia [(3,400 x $41.25) + $3,000].

15 Short-Term Investments—AFS (T-bills)...... 20,000 Cash...... 20,000 Purchased U.S. Treasury bills.

Apr. 7 Short-Term Investments—AFS (Dell)...... 48,655 Cash...... 48,655 Purchased 1,200 shares of Dell [(1,200 x $39.50) + $1,255].

June 2 Short-Term Investments—AFS (Merck)...... 184,140 Cash...... 184,140 Purchased 2,500 shares of Merck [(2,500 x $72.50) + $2,890].

30 Cash 646 Dividend Revenue...... 646 Received dividends on Nokia stock (3,400 x $0.19).

Aug. 11 Cash*...... 38,050 Gain on Sale of Short-Term 2,237 Investments...... Short-Term Investments—AFS 35,813 (Nokia)**...... Sold 850 shares of Nokia. (rounded) * [(850 x $46.00) - $1,050] **($143,250 x 850/3,400)

16 Cash...... 20,600 Short-Term Investments—AFS (T-bills). 20,000 Interest Revenue*...... 600 Proceeds of U.S. Treasury bills. *($20,000 x .06 x 6/12)

24 Cash...... 120 Dividend Revenue...... 120 Received dividends on Dell stock (1,200 x $0.10).

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 53 Solutions Manual, Appendix C Nov. 9 Cash 510 Dividend Revenue...... 510 Received dividends on Nokia stock (2,550 x $0.20).

Dec. 18 Cash 180 Dividend Revenue...... 180 Received dividends on Dell stock (1,200 x $0.15).

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 54 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Problem C-2B (Concluded) Part 2 Comparison of Cost and Fair Values of AFS Portfolio Unrealized Cost Fair Value Gain (Loss) Nokia (2,550 x $41.25) + $2,250a...... $107,437 2,550 x $40.25 (rounded)...... $102,638 Dell (1,200 x $39.50) + $1,255b...... 48,655 1,200 x $40.50...... 48,600 Merck (2,500 x $72.50) + $2,890c...... 184,140 2,500 x $59.00...... 147,500 $340,232 $298,738 $41,494 a Brokerage fee attached to remaining 2,550 shares: $3,000 x (3,400 sh.– 850 sh.)/ 3,400 sh. = $2,250. b Brokerage fee attached to remaining 1,200 shares: Entire $1,255 (none sold). c Brokerage fee attached to remaining 2,500 shares: Entire $2,890 (none sold).

Part 3 Dec. 31 Unrealized Loss—Equity...... 41,494 Fair Value Adjustment—AFS (ST)...... 41,494 To reflect an unrealized loss in fair values of available-for-sale securities.

Part 4 The balance sheet would report the cost of these short-term investments in available-for-sale securities at $340,232 and show a subtraction of $41,494 for the fair value adjustment. This yields $298,738 as the net fair value for these securities reported in the current assets section. An alternative presentation is to list these securities at the fair value of $298,738 with a note disclosure of the cost.

Part 5 (a) Income statement (i) Interest Revenue, $600 (ii) Dividend Revenue, $1,456 [$646 + $120 + $510 + $180] (iii) Gain on Sale of Short-Term Investments, $2,237 (iv) Net effect on income is $4,293

(b) Equity section of Balance sheet (i) Subtraction from equity of Unrealized Loss—Equity, $41,494 (ii) Increase to equity from the $4,293 increase in income (iii) Net effect on equity is a decrease of $37,201

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 55 Solutions Manual, Appendix C Problem C-3B (60 minutes) Part 1

2015 Mar. 10 Long-Term Investments—AFS (Apple)...... 31,400 Cash...... 31,400 Purchased Apple shares [(1,200 x $25.50) + $800].

April 7 Long-Term Investments—AFS (Ford)...... 57,283 Cash...... 57,283 Purchased Ford shares [(2,500 x $22.50) + $1,033].

Sept. 1 Long-Term Investments—AFS (Polaroid)...... 29,090 Cash...... 29,090 Purchased Polaroid shares [(600 x $47.00) + $890].

Dec. 31 UnrealizedLoss—Equity...... 2,873 Fair Value Adjustment—AFS (LT)*...... 2,873 Annual adjustment to fair values.

* Cost _ Fair Value Apple...... $ 31,400 $ 33,000 Ford...... 57,283 52,500 Polaroid...... 29,09 29,400 0 Total...... $117,773 $114,900

Apple: 1,200 x $27.50 = $33,000 Ford: 2,500 x $21.00 = 52,500 Polaroid: 600 x $49.00 = 29,400

$117,773 - $114,900 = $2,873

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 56 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Problem C-3B (Continued)

2016 Apr. 26 Cash...... 50,043 Loss on Sale of Investments...... 7,240 Long-Term Investments—AFS (Ford) 57,283 Sold Ford shares [(2,500 x $20.50) - $1,207].

June 2 Long-Term Investments—AFS (Duracell)...... 35,700 Cash...... 35,700 Purchased Duracell shares [(1,800 x $19.25) + $1,050].

June 14 Long-Term Investments—AFS (Sears)...... 25,480 Cash ...... 25,480 Purchased Sears shares [(1,200 x $21.00) + $280].

Nov. 27 Cash ...... 29,755 Gain on Sale of Investments...... 665 Long-Term Investments—AFS 29,090 (Polaroid)...... Sold Polaroid shares [600 x $51.00) - $845].

Dec. 31 Fair Value Adjustment—AFS (LT)*...... 5,093 Unrealized Loss—Equity...... 2,873 Unrealized Gain—Equity...... 2,220 Annual adjustment to fair values. * Cost _ Fair Value Apple...... $31,400 $34,800 Duracell...... 35,700 32,400 Sears...... 25,480 27,600 Total...... $92,580 $94,800

Apple: 1,200 x $29.00 = $34,800 Duracell: 1,800 x $18.00 = $32,400 Sears: 1,200 x $23.00 = $27,600

$92,580 - $94,800 = $2,220 Fair Value Adjustment account:

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 57 Solutions Manual, Appendix C Required balance ..... $2,220 Dr. Unadjusted balance.. 2,873 Cr. Required change ...... $5,093 Dr.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 58 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Problem C-3B (Continued) 2017 Jan. 28 Long-Term Investments—AFS (Coca-Cola)...... 41,480 Cash ...... 41,480 Purchased Coca-Cola shares [(1,000 x $40.00) + $1,480].

Aug. 22 Cash ...... 23,950 Loss on Sale of Investments...... 7,450 Long-Term Investments—AFS (Apple). . 31,400 Sold Apple shares [(1,200 x $21.50) - $1,850].

Sept. 3 Long-Term Investments—AFS (Motorola)...... 84,780 Cash...... 84,780 Purchased Motorola shares [(3,000 x $28) + $780].

Oct. 9 Cash ...... 28,201 Gain on Sale of Investments ...... 2,721 Long-Term Investments—AFS (Sears). . 25,480 Sold Sears shares [(1,200 x $24.00) - $599].

Oct. 31 Cash ...... 26,102 Loss on Sale of Investments ...... 9,598 Long-Term Investments—AFS 35,700 (Duracell)...... Sold Duracell shares [(1,800 x $15.00) - $898].

Dec. 31 Unrealized GainEquity...... 2,220 Unrealized LossEquity...... 6,260 Fair Value Adjustment—AFS (LT)*...... 8,480 Annual adjustment to fair values. * Cost _ Fair Value Coca-Cola...... $ 41,480 $ 48,000 Motorola...... 84,78 72,000 0 Total...... $126,260 $120,000

Coca-Cola: 1,000 x $48.00 = $48,000 Motorola: 3,000 x $24.00 = $72,000

$126,260 - $120,000 = $6,260

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 59 Solutions Manual, Appendix C Fair Value Adjustment account: Required balance...... $6,260 Cr. Unadjusted balance...... 2,220 Dr. Required change...... $8,480 Cr.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 60 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Problem C-3B (Concluded)

Part 2

12/31/2015 12/31/2016 12/31/2017 Long-Term AFS Securities (cost)...... $117,773 $92,580 $126,260

Fair Value Adjustment...... (2,873 2,220 (6,260 ) )

Long-Term AFS Securities (fair value). . $114,900 $94,800 $120,000

Part 3

2015 2016 2017 Realized gains (losses) Sale of Ford shares...... $(7,240) Sale of Polaroid shares...... 665 Sale of Duracell shares...... $ (9,598) Sale of Apple shares...... (7,450) Sale of Sears shares...... ______2,721 Total realized gain (loss)...... $ 0 $(6,575) $(14,327)

Unrealized gains (losses) at year-end. $(2,873) $ 2,220 $ (6,260)

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 61 Solutions Manual, Appendix C Problem C-4B (50 minutes) Part 1 1. Journal entries (assuming significant influence) 2015 Jan. 5 Long-Term Investments—Bloch...... 200,500 Cash...... 200,500 Purchased Bloch shares.

Aug. 1 Cash...... 21,000 Long-Term Investments—Bloch...... 21,000 Received cash dividend (20,000 x $1.05).

Dec. 31 Long-Term Investments—Bloch...... 20,500 Earnings from Long-Term 20,500 Investment...... Record equity in investee’s earnings ($82,000 x 25%).

2016 Aug. 1 Cash...... 27,000 Long-Term Investments—Bloch...... 27,000 Record cash dividend (20,000 x $1.35).

Dec. 31 Long-Term Investments (Bloch)...... 19,500 Earnings from Long-Term 19,500 Investment...... Record equity in investee’s earnings ($78,000 x 25%).

2017 Jan. 8 Cash...... 375,000 Long-Term Investments—Bloch*...... 192,500 Gain on Sale of Investments...... 182,500 Sold Bloch shares.

*Investment carrying value at Jan. 7, 2017 Original cost...... $200,500 Less 2015 dividends...... (21,000) Plus 2015 earnings...... 20,500 Less 2016 dividends...... (27,000)

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 62 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Plus 2016 earnings...... 19,500 Carrying value at date of sale...... $192,500

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 63 Solutions Manual, Appendix C Problem C-4B (Continued)

2. Carrying value per share(see computations in part 1) $192,500 / 20,000 shares = $9.63* * Rounded to the nearest cent

3. Change in Brinkley’s equity Earnings from Bloch (for 2015)...... $ 20,500 Earnings from Bloch (for 2016)...... 19,500 Gain on sale of investments...... 182,500 Net increase...... $222,500

Part 2

1. Journal entries (assuming NO significant influence)

2015 Jan. 5 Long-Term Investments—AFS (Bloch)...... 200,500 Cash...... 200,500 Purchased Bloch shares.

Aug. 1 Cash...... 21,000 Dividend Revenue...... 21,000 Received cash dividend (20,000 x $1.05).

Dec. 31 Fair Value Adjustment—AFS (LT)*...... 37,500 Unrealized Gain—Equity...... 37,500 Record fair value adjustment.

*20,000 x $11.90 = $238,000 $238,000 - $200,500 = $37,500

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 64 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil Problem C-4B (Concluded) 2016 Aug. 1 Cash...... 27,000 Dividend Revenue...... 27,000 Received cash dividends (20,000 x $1.35).

Dec. 31 Fair Value Adjustment—AFS (LT)*...... 35,000 Unrealized Gain—Equity...... 35,000 Record fair value adjustment.

*20,000 x $13.65 = $273,000 $273,000 - $200,500 = $72,500 $72,500 - $37,500 = $35,000

2017 Jan. 8 Cash...... 375,000 Long-Term Investments—AFS 200,500 (Bloch)...... Gain on Sale of Investments...... 174,500 Sold Bloch shares.

Jan. 8 Unrealized Gain—Equity...... 72,500 Fair Value Adjustment—AFS (LT)*.... 72,500 To remove fair value adjustment and related accounts.

*$37,500 + $35,000 = $72,500

2. Investment cost per share, January 7, 2017 $200,500 / 20,000 shares = $10.03* *rounded to the nearest cent

3. Change in Brinkley's equity Dividend Revenue (for 2015)...... $ 21,000 Dividend Revenue (for 2016)...... 27,000 Gain on sale of investments...... 174,500 Net increase...... $222,500

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 65 Solutions Manual, Appendix C Problem C-5B (40 minutes) Part 1 Available-for-sale securities on December 31, 2015 Security Cost Fair Value 27,500 shares of $559,125 $568,125 Company R common stock...... 6,375 shares of 231,285 210,375 Company S common stock...... 42,500 shares of 135,000 134,938 Company V common stock...... 5,000 shares of 49,920 45,625 Company X common stock...... $975,330 $959,063

Disclosure The portfolio of available-for-sale securities would be reported on the December 31, 2015, balance sheet at its fair fair value of $959,063.

Part 2

Dec. 31 Unrealized LossEquity...... 16,267 Unrealized GainEquity...... 29,313 Fair Value Adjustment—AFS (LT)*...... 45,580

*December 31, 2014, available-for-sale securities: Cost Fair Value $ 559,125 $ 599,063 308,380 293,250 147,295 151,800 $1,014,800 $1,044,113

December 31, 2015, adjustment to the Fair Value Adjustment account: $1,014,800 - $1,044,113 =$29,313 Dr. balance on Dec. 31, 2014 $ 975,330 - $ 959,063 = 16,267 Cr. balance required on Dec. 31, 2015 $45,580 Cr. to adjust cost to fair value

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 66 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil

Part 3

Only gains or losses realized on the sale of available-for-sale securities appear on the 2015 income statement. Unrealized gains or losses appear in the equity section of the balance sheet.

Year 2015 realized gain (loss) Stock Sold Cost Sale Gain (Loss) 2,125 shares of Company S stock... $ 77,095 $ 71,055 $(6,040) 11,000 shares of Company T stock..... 147,295 154,050 6,755 Realized gain (loss)...... $ 715

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 67 Solutions Manual, Appendix C Problem C-6BA (60 minutes) Part 1 2015 May 26 Accounts Receivable—Fuji...... 60,450 Sales...... 60,450 (6,500,000yen x $0.0093/yen)

June 1 Cash...... 64,800 Sales...... 64,800

July 25 Cash*...... 59,800 Foreign Exchange Loss...... 650 Accounts Receivable—Fuji...... 60,450 *(6,500,000yen x $0.0092/yen)

Oct. 15 Accounts Receivable—Martinez Brothers. . 38,556 Sales...... 38,556 (378,000pesos x $0.1020/peso)

Dec. 6 Accounts Receivable—Chi-Ying...... 35,97 5 Sales...... 35,975 (250,000yuans x $0.1439/yuan)

Dec. 31 Accounts Receivable--Martinez Brothers... 1,512 Foreign Exchange Gain*...... 1,512

*Original measure = (378,000pesos x $0.1020/peso) = $38,556 Year-end measure = (378,000pesos x $0.1060/peso) = 40,068 Gain for the period ...... ……………. = $ 1,512

Dec. 31 Accounts Receivable—Chi-Ying...... 275 Foreign Exchange Gain*...... 275

*Original measure = (250,000yuans x $0.1439/yuan) = $35,975 Year-end measure = (250,000yuans x $0.1450/yuan) = 36,250 Gain for the period ...... ……………... = $ 275

2016 Jan. 5 Cash*...... 39,500 Accounts Receivable—Chi-Ying**.... 36,250 Foreign Exchange Gain...... 3,250 ©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 68 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil *(250,000yuans x $0.1580/yuan) **($35,975 + $275)

Jan. 13 Cash*...... 39,274 Foreign Exchange Loss...... 794 Accounts Receivable—Martinez 40,068 Bros**...... * (378,000pesos x $0.1039/peso) ** ($38,556 + $1,512)

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 69 Solutions Manual, Appendix C Problem C-6BA(Concluded)

Part 2

Foreign exchange gain reported on 2015 income statement

July 25...... $ (650) December 31...... 1,512 December 31...... 275 Total...... $1,137

Part 3

To reduce the risk of foreign exchange gain or loss, Datamix could attempt to negotiate foreign customer sales that are denominated in U.S. dollars. To accomplish this, Datamix may be willing to offer favorable terms, such as price discounts or longer credit terms. Another possibility that may be of limited potential is for Datamix to make credit purchases denominated in foreign currencies, planning the purchases so that the payables in foreign currency match the foreign currency receivables in time and amount.

NOTE: A few students may also understand the company’s opportunity for hedging. This involves selling foreign currency futures to be delivered at the time the receivables from foreign customers will be collected.

Serial Problem — SP C

Serial Problem, Business Solutions (35 minutes)

Part 1

2016 April 16 Short-Term Investments—Trading (J&J)...... 20,300 Cash...... 20,300 ...... Purchased Johnson & Johnson shares [(400 x $50) + $300].

30 Short-Term Investments—Trading (Starbucks)... 4,650 Cash...... 4,650 Purchased Starbucks shares [(200 x $22) + $250].

Part 2 Adjusting entry at June 30, 2016

June 30 Fair Value Adjustment—Trading*...... 850 Unrealized Gain—Income...... 850 To reflect an unrealized gain in fair values of trading securities.

* Fair Value Adjustment computations Trading securities’ Share Price Fair Unrealized portfolio Shares at 6/30/2016 Cost Gain (Loss) J & J 400 $55 $22,000 $20,300 $1,700 Starbucks 200 $19 3,80 4,65 (850 0 0 ) Totals $25,800 $24,950 $ 850

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 71 Solutions Manual, Appendix C Reporting in Action — BTN C-1

1. Yes, Apple’s financial statements are consolidated. The statements are labeled as “consolidated” in each of the financial statement headings.

2. Apple’s comprehensive income for the year ended September 28, 2013, is $36,067 million. This comprehensive income amount is reported on Apple’s consolidated statement of comprehensive income—a summary follows.

Net income...... $37,037

Change in foreign currency translation, net of tax effects of $35...... (112)

Total change in unrecognized gains/losses on derivative instruments, 64 net of tax......

Total change in unrealized gains/losses on marketable securities, net (922) of tax......

Total comprehensive income...... $36,067

3. Yes. Its consolidated statement of comprehensive income does include a Foreign Currency Translation Adjustments amount. (See above for amount.)

4. The return on total assets for the year ended September 28, 2013, ($ millions) follows: $37,037 / [($207,000 + $176,064) / 2] = 19.3%

5. Answer depends on the annual report information obtained.

Comparative Analysis — BTN C-2

1. Apple’s return on total assets

Current Year: $37,037 / [($207,000 + $176,064) / 2] = 19.3%

One Year Prior: $41,733 / [($176,064 + $116,371)/2]= 28.5%

Google’s return on total assets

Current Year: $12,920 / [($110,920 + $93,798)/ 2] = 12.6%

One Year Prior: $10,737/ [($93,798+ $72,574)/2)]= 12.9%

2. Return on total assets = Profit margin x Total asset turnover

—— Returns in part 2 can differ from those in part 1 due to rounding——

Apple’s component analysis of return on total assets*

Current Year 19.3% = $37,037/$170,910 x$170,910/[($207,000 + $176,064)/ 2] 19.3% = 21.7% x 0.89

One Year Prior 28.6% = $41,733/$156,508x $156,508 / [($176,064 + $116,371)/2] 28.6% = 26.7% x 1.07

Google’s component analysis of return on total assets*

Current Year 12.5% = $12,920/$59,825 x $59,825 / [($110,920 + $93,798)/ 2] 12.5% = 21.6% x 0.58

One Year Prior 12.8% = $10,737/$50,175 x $50,175/ [($93,798+ $72,574)/2)] 12.8% = 21.4% x 0.60

*Figures are rounded.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 73 Solutions Manual, Appendix C Comparative Analysis (Concluded)

3. Current Year Analysis: Apple has the higher return on total assets (19.3%) compared to Google (12.6%), the higher profit margin (21.7% vs. 21.6% for Google) and the higher total asset turnover (0.89 vs. 0.58 for Google). Of the two companies, Apple’s return on total assets is substantially higher than the industry average, and Google’s is slightly higher the industry average.

One Year Prior Analysis: Apple has the higher return on total assets (28.5%) compared to Google (12.9%), the higher profit margin (26.7% vs. 21.4% for Google) and the higher total asset turnover (1.07 vs. 0.60 for Google). Of the two companies, Apple’s return on total assets is substantially higher than the industry average, and Google’s is slightly higher the industry average.

This comparative analysis shows that Google could improve on all three measures for both years vis-à-vis Apple (one of its major competitors).

Ethics Challenge — BTN C-3

1. Kasey’s bonus is not contingent on the classification of available-for-sale versus held-to-maturity. Designation of the bonds as available-for-sale debt securities will require that an entry be made to recognize the unrealized holding loss on the bonds—but it will affect equity and not net income. Also, if the bonds are designated as held-to-maturity debt securities then there will be no recognition of their loss in fair value over the past year in net income (and neither in equity).

2. Generally, Kasey must classify its debt securities as either short or long term and as available-for-sale or held-to-maturity. Since the bonds are 5- year bonds they should be classified as long-term investments unless management intends to sell them within the current year or operating cycle. Since the problem states that management probably will not hold the bonds for the full five years the correct classification is available-for- sale. So, if management does not intend to sell within the current year or operating cycle the correct classification is: long-term available-for-sale debt securities.

3. The company’s auditors (internal and external) and/or its board of directors should serve as an effective check on Kasey’s accounting for the company’s long-term investments in securities.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 75 Solutions Manual, Appendix C Communicating in Practice — BTN C-4

TO: Mary Jolee FROM: (Your Name) SUBJECT:Sale of Kemper Common Stock

The $6,000 loss on the sale of Kemper common stock is correctly stated. Jolee Company owned 40% of the outstanding shares, and therefore accounts for the investment according to the equity method. Under the equity method, investments are reported at the investor's cost plus its share in the undistributed earnings accumulated by the investee since the stock was purchased. At sale, the book value of the investment is compared to the net proceeds to determine gain or loss.

During year 2014, the income statement showed earnings from all investments of $126,000. This amount included $81,000 from the investment in Kemper (Kemper’s 2014 net income of $202,500 x 40%), which was debited to the Long-Term Investments—Kemper account. This increased the book value of the investment to $581,000. When sold, the net proceeds of $575,000 was compared to the book value of $581,000 and the result was the $6,000 loss.

Please call me if you have any questions.

Taking It to the Net — BTN C-5

($ millions for Parts 1 through 4)

1...... At June 30, 2013 (total cost-basis) ...... $85,077 At June 30, 2012 (total cost-basis)...... $70,584

2. Mutual funds; Commercial paper; Certificates of deposit; U.S. government and agency securities; Foreign government bonds; Mortgage- backed securities; Corporate notes and bonds; Municipal securities; Common and preferred stock.

3. Unrealized gains = $3,249; and Unrealized losses = $(460).

4. Fair value (titled “recorded basis”) is greater. Specifically: Fair value (recorded basis) is $87,866; and the cost basis is $85,077.

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There is no specific solution to this activity. The instructor should serve as a facilitator during this learning reinforcement activity.

Entrepreneurial Decision — BTN C-7 1. 2015 Jan. 1 Internet Rights...... 106,920 Accounts Payable...... 106,920 ...... Agreed to pay for Internet rights 12,000,000 yen x $0.00891/yen 2. Mar. 31 Accounts Payable*...... 26,730 Loss from Currency Translation...... 60 Cash...... 26,790 Paid ¼ of total amount due *$106,920/4 **3,000,000 yen x $0.00893/yen

June 30 Accounts Payable...... 26,730 Loss from Currency Translation...... 300 Cash*...... 27,030 Paid ¼ of total amount due *3,000,000 yen x $0.00901/yen

Sept. 30 Accounts Payable...... 26,730 Loss from Currency Translation...... 330 Cash*...... 27,060 Paid ¼ of total amount due *3,000,000 yen x $0.00902/yen

Dec. 31 Accounts Payable...... 26,730 Loss from Currency Translation...... 180 Cash*...... 26,910 Paid ¼ of total amount due *3,000,000 yen x $0.00897/yen

3. Since all of the company’s payments are to be in yen, the company can buy yen in advance to “lock in” the payment amount.

NOTE: A few students might understand the company’s opportunity for hedging. For example, this can involve selling foreign currency futures to be delivered at the time that receivables from foreign customers will be collected.

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Exchange rates can be found at businesses that specialize in foreign currency exchange. Also, American Express offices abroad exchange currencies for cardholders and post foreign exchange rates. Typically, railroad stations and airports also post foreign exchange rates and offer currency exchange services.

Global Decision— BTN C-9

1. Samsung (₩ in millions)

Return on total assets = Net Income / Average Total Assets

Current Year:30,474,764 / [(214,075,018 + 181,071,570)/2] = 15.4% Prior Year:23,845,285 / [(181,071,570 + 155,800,263)/2] = 14.2%

Return on total assets = Profit margin x Total asset turnover

Current Year 15.4%=30,474,764/228,692,667 x 228,692,667/[(214,075,018 + 181,071,570)/2] 15.4% = 13.3% x 1.16

One Year Prior 14.2% = 23,845,285/201,103,613 x 201,103,613/[(181,071,570 + 155,800,263)/2] 14.2% = 11.9% x 1.19

2. (a) Current Year Analysis: Samsung vs Apple vs Google

Company Return on total assets* Profit margin Total asset turnover Apple 19.3% 21.7% 0.89 Google 12.6 21.6 0.58 Samsung 15.4 13.3 1.16

In the current year, Apple has the highest return on total assets followed by Samsung, and thenGoogle. Apple also has the highest profit margin of the three companies, withGoogle a close second, followed by Samsung. However, Samsung has the highest total asset turnover of the three

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 80 Financial Accounting Fundamentals, 5th Edition From https://testbankgo.eu/p/Solution-Manual-for-Financial-Accounting- Fundamentals-5th-Edition-by-Wil companies, about twice that of Google. Apple has a lower total asset turnover than Samsung, but it is higher than Google.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 81 Solutions Manual, Appendix C Global Decision (Concluded)

2. (b) Prior Year Analysis: Samsung vs Apple vs Google

Company Return on total assets* Profit margin Total asset turnover Apple 28.6% 26.7% 1.07 Google 12.9 21.4 0.60 Samsung 14.2 11.9 1.19

In the prior year, Apple has the highest return on total assets followed by Samsung, and then Google. Apple also has the highest profit margin of the three companies, with Google a close second, followed by Samsung. However, Samsung has the highest total asset turnover of the three companies, about twice that of Google. Apple has a lower total asset turnover than Samsung, but it is higher than Google.

©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 82 Financial Accounting Fundamentals, 5th Edition