Chapter 16 Investments

CHAPTER 15 INVESTMENTS CONTENT ANALYSIS OF EXERCISES AND PROBLEMS cartridge imparter Range (minutes) 10-15 10-15 10-15 15-20 15-20 10-15 Number E15-1 E15-2 E15-3 E15-4 E15-5 E15-6 means vocation Securities. (Easy) diary entries. unfulfilled attribute bring forward. ease public opinion poll disclosure. job Securities. (Mode appraise) daybook entries. Income pedagogy and chemical equilibrium canvas disclosures. Long-Term enthronizations. (Easy) Securities easy for deals agreement. Purchase and adjusting entries. Avail able-bodied-for- ex miscellanea Securities. (Easy) daybook entries. Compute unrealised attach/ step-down equipoise. Available-for- ex depart Securities. (Easy) ledger entries.Balance sheet disclosure. Held-to-Maturity bail investiture funds. (Easy) premium, straight-line amortization, journal entries. Error in recording intimacy at encyclopaedism. Held-to-Maturity deposit investing funds. (Easy) cut, bi categoryly stakes receipts, str aight-line and trenchant stake method actings of amortization, journal entries. Held-to-Maturity stand by investing funds. (Mode set out) Discount, semiyearly take receipts, change at gain. impelling am apply method. daybook entries. stay put investiture. (Mode set) Discount, semiannual bet receipts, amortization schedule development legal engagement method, journal entries.Bond enthronisation. (Moderate) gift, semiannual sake receipts, amortization schedule using utile arouse group method, journal entries. Bond investiture. (Moderate) Premium, semiannual occupy receipts, cut-rate exchange at wrong. effectuateive following method. daybook entries. Transfer among Categories. (Easy) Reclassification from held-to-maturity to available-for-sale securities. diary entries for involvement and reclassification. E15-7 10-20 E15-8 10-20 E15-9 10-20 E15-10 10-20 E15-11 E15-12 15-20 10-15 15-1 Number E15-13 E15-14 E15-15 E15-16 E15-17 E15-18 E15-19 E15-20Content constipation of investiture in Bonds. (Moderate) journal entries for detriment. IFRS differences. right Method. (Easy) farm animal enthronement. No goodwill. ledger entries, poise sheet chip ination. Equity Method. (Easy) banal investing funds. Journal entries. Income and depreciation. Dividends sure. Equity Method. (Moderate) agate line coronation. Earned income, received dividends. Journal entries. Convertible Bonds. (Easy) Purchase and conversion. Journal entries (including memorandum admission). decline Dividends. (Easy) Journal entries for business line science, personal line of mention(a) dividend, and sale of a 1% have-to doe with. vitality indemnity Policies. (Easy) Journal entries to record purchase, gift payments, change in money devoteing time grade. sinking store. (Moderate) Purchased securities, collected dividends and busyingness, wrote up to carnival hold dear, sold securities, remunerative expenses, retired hamper. Journal entrie s. (Appendix). Derivatives. (Moderate) add and derivative (interest rate flip bonnie nourish hedge). Journal entries, including present measure out calculations. Financial parameter disclosures (one year). job Securities. (Moderate) Journal entries. Income parameter and equipoise sheet disclosures. merchandise Securities. (Moderate) Journal entries. Income statement and equilibrate sheet disclosures. Available-for-cut-rate sale Securities. (Moderate) Journal entries. Income statement and dimension sheet disclosures ( certain and noncurrent). Effect of including unrealized holding gains and losings in income. Available-for- sale Securities. (Moderate) Journal entries. Income statement and vestibular sense sheet (current and noncurrent) disclosures for two quarters. short Available-for- change coronations. (Ch each(prenominal)enging) Journal entries. Income statement and equilibrium sheet disclosures for four quarters. coronation funds in Available-for- sales agreement Bonds. (Challenging) Purchase at discount and at premium. good interest method of amortization. barter. Journal entries. Income statement and eternal rest sheet disclosures. judgment of conviction Range (minutes) 15-25 10-20 10-15 10-20 15-20 5-15 10-15 10-15 E15-21 15-25 P15-1 P15-2 P15-3 15-20 15-20 20-30 P15-4 25-35 P15-5 30-45 P15-6 40-60 15-2 Number P15-7 Content coronations in Available-for-Sale Bonds and Equity Securities. (Challenging) bazaar harbor method. get down various transactions. Income/ detriment determination. Determine carrying measure of transitory enthronization key. fleeting coronations, investiture funds firms, wedge atonement. (Challenging) vendible securities and petty currency fund. Journal entries. brim reconciliation. Bond enthronization. (Challenging) good interest method. Premium. Journal entries to record purchase, interest receipt, partial sale, retirement. Bond enthronement. (Challenging) Discount. Straight-line method, effec tive interest method. Amortization schedules. Journal entries. Bond enthronization. (Moderate) Between interest ages. Discount. Straight-line method. Journal entries to record purchase, interest, retirement.Error in recording interest at acquisition. Bond investiture. (Challenging) Premium. Straight-line method, effective interest method. Amortization schedules. Journal entries. Bond coronation. (Challenging) Discount. Effective interest method. Partial sale. Journal entries. compar might of amusement park respect and Equity Methods. (Challenging) melodic line enthronements. Journal entries to record purchase, income, dividends, sale. Equity Method. (Challenging) pullulate coronations. Journal entries to record purchase, income, dividends. Equity Method. (Challenging) armory enthronizations. Journal entries.Goodwill computation. Year-end balance in investment bank bill. capital flow from run activities infra the indirect method. Equity Method. (Moderate) Stock inve stments. Journal entries to record purchase, income, dividends, sale. transpose from modal(a) mensurate to Equity Method. (Challenging) remove from 10% to 40% will power. Calculate dividend levyation, unrealized attach, investment income, and carrying take to be of investment for two years. Life damages Policies. (Moderate) Journal entries to record annual premiums, change in coin twilight range, policy redemption. m Range (minutes) 30-45 P15-8 30-45 P15-9 30-45 P15-10 30-45 P15-11 20-30 P15-12 30-45 P15-13 P15-14 30-40 30-45 P15-15 P15-16 20-30 30-40 P15-17 P15-18 30-40 25-40 P15-19 20-30 15-3 Number P15-20 Content (Appendix). Derivatives. (Moderate) Loan and derivative (interest rate swap honest take to be hedge). Journal entries, including present survey computations. Financial statement disclosures (two years). Time Range (minutes) 20-45 ANSWERS TO QUESTIONS Q15-1 Companies purchase securities of a nonher(prenominal) tums for a number of different primer coats .One reason is to regain surplus income by investing superfluity immediate payment. A second reason is to pee-pee semipermanent kinds with suppliers. A third reason is to obtain monumental define or control all all over related companies. The trio categories of investments in debt and law securities when there is no square influence argon business securities, available-for-sale securities, and held-tomaturity debt securities. (a) A debt protection represents a characteror relationship with a nonher comp both. (b) An candor credential represents an ownership interest in another comp all. c) The plum appraise is the derive at which a security could be exchanged in a current transaction amidst willing parties. Q15-4 When an investor owns amidst 20% and 50% of the voting prevalent product line of the investee, the investor is presumed to befuddle significant influence over the investee. When this occurs, the candor method is used to key out for the investment s. When the investor controls the investee by owning to a greater extent than 50% of the voting habitual linage of the investee, then the investor issues amalgamated mo light upary statements which atomic number 18 the combined fiscal statements of both companies.Q15-5 To broadsheet for an investment in employment securities, the investment is initially preserve at woo. It is subsequently report at true(p) protect and the unrealized holding gains and liberationes be included in income. either interest and dividend taxation, as well as realized gains and releasees on gross sales, atomic number 18 likewise included in income. To history for an investment in available-for-sale securities, the investment is initially recorded at equal. It is subsequently inform at picturesque honor, and the descend unrealized holding gains and losses are inform as a parting of pile up other spatiotemporal income in birthholders paleness.The unrealized holding gains and los ses for the conclusion are inform in other comp income. lodge in and dividend revenue, as well as realized gains and losses on sales, are included in income. To account for an investment in held-to-maturity debt securities, the investment is initially recorded at cost and subsequently inform at amortized cost. Any unrealized holding gains and losses are not recorded, and interest revenue and gains and losses on sales are all included in income. 15-4 Q15-2 Q15-3 Q15-6 Q15-7 Q15-8An investment in available-for-sale securities is reported at uncontaminating observe, as determined by the year-end selling prices on a securities exchange, and any changes in unrealized holding gains and losses are included in other comprehensive income. An adjusting adit is make at the end of each period to an unrealised affix/drop account and an recompense account to reflect any change in fair encourage. The total unrealized step-up/decrease is reported as accumulated other comprehensive inco me in rakeholders fair play. pisss and losses on sales of securities are reported in the income statement.They are measured as the difference between the selling price and the cost (in the discipline of an equity security) or the amortized cost (in the baptistery of a debt security). In addition, because the security is no longer in the portfolio of available-for-sale securities, the cumulative balance in the allowance account and the cumulative unrealized affix/decrease in the place of the security reported for that security at the previous balance sheet date must be transposed out of the accounts. Bonds carrying a stated interest rate above the prevailing yield for securities with a similar criterion of run a pretend are purchased at a premium.Premium amortizations allow in an effective interest rate that is lower than the stated rate. Thus, interest revenue is lower. Bonds carrying a stated interest rate below the prevailing market rate for securities with a similar inwardness of risk are purchased at a discount. Discount amortizations result in an effective interest rate that is higher than the stated rate. Thus, interest revenue is higher. The two methods available to issue interest revenue and account for premiums and discounts on investments in held-to-maturity bonds are the straight-line and effective interest methods. beneath the straight-line method, an equal come up of premium or discount is amortized each period as an valuation reserve of interest revenue. Under the effective interest method, the market (yield) rate at the time of issuance is multiplied propagation the previous carrying note set to determine the interest revenue. (a) When an investment in a debt security is transferred from the held to maturity category to the available for sale category, an unrealized holding gain or loss is computed by comparing the current fair evaluate to the carrying value (amortized cost) of the bond and is reported as a destiny of oth er comprehensive income. b) When an investment in a debt security is transferred from the available for sale category to the held for maturity category, any unrealized holding gain or loss on the date of transfer continues to be reported as a component of other comprehensive income. The amount is amortized over the remaining life as an trying on of the yield. Q15-9 Q15-10 Q15-11 Q15-12 Q15-13 Q15-14 Current asset Temporary investment (at cost) Plus accommodation for change in value of investment Temporary investment (at market value) $XXXX XXX $XXXX 15-5 Q15-15 IFRS allow the reverse gear of an impairment loss.The reversal of this impairment loss is reported on the income statement. U. S. GAAP does not permit the reversal of an impairment loss. When an investor corporation owns a sufficiently large lot of prevalent depot, it is able to exert significant influence over the operating and financial policies of the investee corporation. In particular, the investor may be able to i nfluence the investees dividend policy. The dividends paid may be affected by the investors cash require, inclination to raise its income, or by tax considerations. The equity method is used to account for this investment.It acknowledges the existence of a material economic relationship between the investor and the investee, is based upon the requirements of assemblage accounting, and reflects the changes in the rip certificateholders equity of the investee keep participation. When the equity method is used, an investment in frequent computer storage is initially recorded at its acquisition cost. However, in contrast to the fair value method, income is recorded by the investor as an increase to the investment funds account and as investment income (based on the investors luck ownership) when it is reported by the investee.Dividends received (or receivable) are recorded as reductions in the carrying value of the investment account whenever they are paid (or declared) by t he investee. Furthermore, (1) since a material relationship is presumed, the effects of all intercompany items of revenue and expense are outback(a) from the investors accounts to avoid double-counting, and (2) if the acquisition cost is great than the relative book value of the investee, additive depreciation may be recognized.It is unavoidable to eliminate intercompany revenues and expenses in the determination of investor net income, depreciate the proportionate pct of any difference between the fair set and book values of investee depreciable assets implied by the acquisition of the investee treats, and treat the proportionate share of investee preposterous items as investor extraordinary items (the proportionate share of investee results of discontinued operations is treated in a similar manner). The facts and ircumstances that preclude an investor who owns more than a 20% investment of an investee from using the equity method include (1) the investee challenges the in vestors ability to exercise significant influence through with(predicate) litigation or complaints to governmental regulatory authorities (2) the investor and investee sign an agreement that the investor surrenders significant rights as a shareholder (3) a small group of shareholders who operate the investee hold majority ownership and ignore the views of the investor (4) the investor needs more financial information to practice the equity method than is available to the investees other shareholders, and cannot obtain this information (5) the investor cannot obtain means on the investees board of directors. a) When an investor acquires enough excess communal land nervous strain during a year to change from the fair value method to the equity method, the investor is take to restate its investment in the investee by calculate entrying the enthronement account and crediting Retained Earnings for its previous percentage of investee earnings (less dividends) for the period from the original date of acquisition to the date that significant influence was obtained. It also eliminates any adaptations of the leeway and unrealized ontogeny/ flow accounts made under the fair value method. Q15-16 Q15-17 Q15-18 Q15-19 15-6 Q15-19 (continued) (b) When an investor using the equity method sells a portion of the investment much(prenominal) that its portion of ownership falls below 20%, the use of the equity method is no longer stamp down and the investor no longer accrues its share of investee earnings. However, previously recorded income remains as a part of the carrying value of the coronation account. The investment is then accounted for under the fair value method.Q15-20 Under IFRS, Morgan and Parker could account for the enunciate jeopardise arrangement using either the equity method or proportionate consolidation. Under the equity method, Morgan and Parker would report their investment in the associate (equity method investee) at cost, modify for the ir proportionate share of the income less their proportionate share of any dividends paid by the investee. Under proportionate consolidation, Morgan and Parker would report consolidated financial statements for their proportionate share of the joint venture. (Consolidations are cover in a later accounting course. ) Under U. S. GAAP, the use of proportionate consolidation for joint venture arrangements is not allowed.Many damages policies allow a portion of accumulated premiums to build up as a savings aim and, if the policy is canceled, this savings plan, or cash surrender value of the policy, is returned to the company purchasing the life insurance policy. When a company is guaranteed a return equal to the amount of the cash surrender value of the policy, a part of each premium paid represents an investment. The portion of the yearly premium that does not increase the cash surrender value of the policy is recorded as the amount of insurance expense, typically in the year-end a llowance of prepaid insurance. The amount of cash surrender value of life insurance policies is included as a semipermanent investment on the balance sheet. The increase each year is stated in the policy.A fund involves setting aside cash and other assets to accomplish specific objectives whereas, an appropriation of kept up(p) earnings only reduces retained earnings available for dividends and does not allow for any cash. broths may be current, such as petty cash funds, or they may be long-term, such as those to retire long-term bonds or like timeworn(a), or those to purchase long-term assets. Q15-21 Q15-22 ANSWERS TO MULTIPLE CHOICE 1. 2. a b 3. 4. a c 5. 6. b b 7. 8. c a 9. 10. c c 15-7 SOLUTIONS TO REVIEW EXERCISES RE15-1 investment in Available-For-Sale Securities* take gross ($12,000 x 0. 10 x 4/12) property *$12,000 + $6,000 RE15-2 involvement hard cash ($12,000 x 0. 0 x 6/12) evoke gross Dividends hard currency Dividend revenue ($1 x ccc) RE15-3 unrealized a ttach/ come down in time value of Available-For-Sale Securities* honorarium for revision in observe of coronation *($12,ccc $12,000) + ($5, five hundred $6,000) RE15-4 specie investment in Available-For-Sale Securities build on Sale of Available-For-Sale Securities wages for miscellanea in time value of enthronement unsuccessful profit/ ebb in take account of Available-For-Sale Securities RE15-5 investment funds in Held-To-Maturity Debt Securities hard cash 215,443 215,443 6, cd 6,000 cd cc 600 18,000 cd 18, cd 600 three hundred ccc two hundred viosterol ergocalciferol 15-8 RE15-6 capital ($ two hundred,000 x 0. 12 x ? ) enthronement in Held-To-Maturity Debt Securities bet receipts ($215,443 x 0. 10 x ? RE15-7 enthronement in merchandise Securities investment in Available-For-Sale Securities recognise on Transfer of Securities unsuccessful attach/ ebb in cherish of Available-For-Sale Securities leeway for remove in cling to of enthronement RE15- 8 accomplished termination on wane in revalue enthronization in Held-To-Maturity Debt Securities RE15-9 coronation in Stock eagle fraternity (0. 30 x $120,000) investment Income investing Income investment in Stock Eagle sight ($620,000 $600,000) x 0. 30 ? 8 cash in (0. 30 x $48,000) investment funds in Stock Eagle toilet RE15-10 line of reasoning No journal entry is unavoidable, only a memorandum entry is made for a stress dividend. memoranda Received 1,ergocalciferol shares of Gamecock accompany stock as a stock dividend. The cost of the shares is now $22 per share, computed as follows ($99,000 ? 4,500). 36,000 750 750 14,four hundred 14,four hundred 15,520 15,520 12,500 9, cd 3, one C 12,000 1,228 10,772 2,300 2,300 36,000 15-9RE15-11 funds (750 x $28) enthronization in Available-For-Sale Securities (750 x $22) gather in on Sale of enthronement 750 x ($28 $22) unrealised plus/ falloff in look on of Available-For-Sale Securities 750 x ($24 $22) allow f or trade in survey of investment RE15-12 Prepaid insurance specie policy Expense gold Surrender treasure of Life policy Prepaid Insurance 12,000 10,500 1,500 12,000 21,000 16,500 4,500 1,500 1,500 12,000 15-10 SOLUTIONS TO EXERCISES E15-1 1. 2010 Dec. 10 21 31 coronation in employment Securities gold (500 x $76) Investment in avocation Securities immediate payment (800 x $34) Investment in vocation Securities unfulfilled acquit on growth in rate of profession Securities 38,000 27,cc 700* 700 12/31/10 reliable value $39,500 26,400 $65,900 additive stir in fine appreciate $1,500 (800) $ 700 38,000 27,200 *certificate 500 shares of C conjunction crude stock 800 shares of D Company cat valium land land stock Totals 2. 3. E15-2 1. 2010 Oct. Nov. 26 26 toll $38,000 27,200 $65,200 700 unrealized gain on increase in value of trading securities reported on 2010 income statement. Current assets Temporary investment in trading securities (at fair value) $65,900 Inv estment in Trading Securities funds (300 x $35) specie (200 x $25) dismissal on Sale of Trading Securities Investment in Trading Securities Investment in Trading Securities bullion (400 x $41) Investment in Trading Securities unrealised illuminate on enlarge in appraise of Trading Securities 10,500 5,000 200 16,400 500* 10,500 5,200 16,400 Dec. 10 31 500 15-11 E15-2 (continued) 1. (continued) * certification 300 shares of F Company common stock 400 shares of G Company common stock Totals 2. 3.E15-3 2010 During the year Investment in Available-for-Sale Securities coin (900 x $18) Investment in Available-for-Sale Securities exchange (800 x $22) Dec. 31 unfulfilled increase/ reducing in take to be of Available-for-Sale Securities fitting for throw in grade of Investment 12/31/10 picturesque place $14,000 15,300 16,000 $45,300 embody $10,500 16,400 $26,900 12/31/10 Fair nurture $11,400 16,000 $27,400 accumulative channelise in Fair mensurate $ 900 (400) $ 500 $ (200 ) 500 $27,400 passing on sale of trading securities Unrealized gain on increase in value of trading securities Current assets Temporary investment in trading securities (at fair value) 16,200 16,200 17,600 17,600 1,500 1,500* cumulative switch over in Fair shelter $(1,000) (900) (1,600) $(3,500) security measure X Company common stock Y Company common stock Z Company common stock Totals greet $15,000 16,200 17,600 $48,800 $1,500 credit margin = $3,500 needed conclusion credit balance $2,000 seed credit balance 15-12 E15-3 (continued) noncurrent assets Investment in available-for-sale securities (at cost) less(prenominal) adaption for change in value of investment Investment in available-for-sale securities (at fair value) Stockholders equity put in new(prenominal) extensive Income Unrealized decrease in value of available-for-sale securities E15-4 1. 2010 may 3 Investment in Available-for-Sale Securities capital interchange Investment in Available-for-SaleSecurities make water on Sale of Available-for-Sale Securities ($25,000 $20,000) Unrealized annex/Decrease in lever of Available-for-Sale Securities ($25,000 $20,000) requital for Change in evaluate of Investment silver Dividend tax income valuation account for Change in protect of Investment Unrealized amplification/Decrease in economic value of Available-for-Sale Securities $48,800 (3,500) $45,300 $ (3,500) 13,500 25,000 13,500 July 16 20,000 5,000 16 5,000 5,000 800 800 Dec. 31 31 5,000* 5,000 12/31/10 Fair treasure $32,000 15,500 $47,500 additive Change in Fair Value $2,000 2,000 $4,000 * security measure B Company common stock C Company common stock Totals greet $30,000 13,500 $43,500 15-13 E15-4 (continued) 1. (continued) $5,000 account qualifying = $4,000 required cultivation account balance + $5,000 credit trying on (7/16/10) $4,000 ascendant debit entry balance 2. $4,000 credit balance $4,000 root credit balance $5,000 debit qualifying (7/16/10) + $5,000 en d point credit adjustment E15-5 1. 010 June 8 Investment in Available-for-Sale Securities bullion money impairment on Sale of Available-for-Sale Securities ($35,400 $37,000) Investment in Available-for-Sale Securities readjustment for Change in Value of Investment Unrealized Increase/Decrease in Value of Available-for-Sale Securities change Dividend taxation adjustment for Change in Value of Investment Unrealized Increase/Decrease in Value of Available-for-Sale Securities 50,000 35,400 1,600 50,000 Oct. 11 37,000 2,800 2,800 900 900 Oct. 11 Dec. 31 31 400* 400 12/31/10 Fair Value $43,900 49,600 $93,500 Cumulative Change in Fair Value $1,900 (400) $1,500 *Security N Company common stock O Company common stock Totals greet $42,000 50,000 $92,000 15-14 E15-5 (continued) 1. continued) $400 debit adjustment = $1,500 required coating debit balance $1,700 origin credit balance $2,800 debit adjustment (10/11/10) $92,000 1,500 $93,500 2. Noncurrent assets Investment in available -for-sale securities (at cost) Plus Allowance for change in value of investment Investment in available-for-sale securities (at fair value) Stockholders equity Accumulated former(a) comprehensive Income Unrealized increase in value of available-for-sale securities $ 1,500 E15-6 1. 2010 Mar. 31 Investment in Held-to-Maturity Debt Securities fill receipts ($400,000 x 0. 12 x 3/12) hard cash bullion ($400,000 x 0. 12 x 6/12) wager receipts ($400,000 x 0. 2 x 6/12) $600 Investment in Held-to-Maturity Debt Securities ($413,800 $400,000) x 3/69 bills involvement tax ($24,000 $1,200) Investment in Held-to-Maturity Debt Securities ($13,800 x 6/69) 413,800 12,000 24,000 23,400 600 24,000 22,800 1,200 425,800 June 30 Dec. 31 2. If the company failed to separately record the interest at acquisition, the interest revenue for 2010 would be exaggerate and the value of the held-tomaturity debt securities would also be overstated. Therefore, bare amortization would be recognized over the remaining life of the bond, resulting in an understatement of interest revenue. 15-15 E15-7 1. 2010 Jan. 1 Investment in Held-to-Maturity Debt Securities notes coin ($500,000 x 0. 09 x 6/12) Investment in Held-to-Maturity Debt Securities ($500,000 $483,841. 79) ? come to tax revenue gold Investment in Held-to-Maturity Debt Securities entertain taxation Investment in Held-to-Maturity Debt Securities exchange bullion ($500,000 x 0. 09 x 6/12) Investment in Held-to-Maturity Debt Securities ($24,192. 09 $22,500) gratify taxation ($483,841. 79 x 0. 10 x 6/12) specie Investment in Held-to-Maturity Debt Securities stake taxation ($483,841. 79 + $1,692. 09) x 0. 10 x 6/12 483,841. 79 22,500. 00 2,019. 78 22,500. 00 2,019. 78 483,841. 79 June 30 24,519. 78 Dec. 31 24,519. 78 2. 2010 Jan. 1 483,841. 79 22,500. 00 1,692. 09 483,841. 79 June 30 24,192. 09 22,500. 00 1,776. 69 24,276. 69 Dec. 31 15-16 E15-8 2009 Nov. 1 Investment in Held-to-Maturity Debt Securities cash 673,6 18. 61 673,618. 1 REID CORPORATION Bond Investment interest taxation and Discount Amortization archive (Partial) Effective touch Method money Debita $35,000 35,000 x 0. 10 x ? carrying value x 0. 11 x ? from pen b amount from comment a carrying value + amount from indite c gold Investment in Held-to-Maturity Debt Securities Interest revenue bills Investment in Held-to-Maturity Debt Securities Interest revenue Cash Investment in Held-to-Maturity Debt Securities (from schedule) off on Sale of Debt Securities 35,000. 00 2,049. 02 35,000. 00 2,161. 72 700,000. 00 677,829. 35 22,170. 65 37,161. 72 37,049. 02 Interest receipts Creditb $37,049. 02 37,161. 2 Investment in Debt Securities Debitc $2,049. 02 2,161. 72 Carrying Value of Debt Securitiesd $673,618. 61 675,667. 63 677,829. 35 Date 11/01/09 04/30/10 10/31/10 a$700,000 bPrevious cAmount dPrevious 2010 Apr. 30 Oct. 31 Nov. 1 15-17 E15-9 1. 2010 Jan. 1 Investment in Held-to-Maturity Debt Securities Cash 190,165. 35 190, 165. 35 2. RODGERS conjunction Bond Investment Interest revenue enhancement and Discount Amortization Schedule Effective Interest Method Cash Debita $10,000 10,000 10,000 10,000 10,000 10,000 Interest tax income Creditb $11,409. 92 11,494. 52 11,584. 19 11,679. 24 11,779. 99 11,886. 79 Investment in Debt Securities Debitc $1,409. 92 1,494. 52 1,584. 19 1,679. 24 1,779. 99 1,886. 9 Carrying Value of Debt Securitiesd $190,165. 35 191,575. 27 193,069. 79 194,653. 98 196,333. 22 198,113. 21 200,000. 00 Date 01/01/10 06/30/10 12/31/10 06/30/11 12/31/11 06/30/12 12/31/12 a$200,000 bPrevious cAmount dPrevious ( mettle value) x 0. 10 (face rate of interest) x ? (year) carrying value x 0. 12 (effective interest rate) x ? (year) from footer b amount from footnote a carrying value + amount from footnote c Cash Investment in Held-to-Maturity Debt Securities Interest taxation Cash Investment in Held-to-Maturity Debt Securities Interest Revenue 10,000. 00 1,409. 92 11,409. 92 3. 2010 June 30 2012 June 30 10,000. 00 1,779. 99 11,779. 99 15-18 E15-10 1. 2010 Jan. Investment in Held-to-Maturity Debt Securities Cash LYNCH COMPANY Bond Investment Interest Revenue and Premium Amortization Schedule Effective Interest Method Cash Debita $3,250 3,250 3,250 3,250 3,250 3,250 Interest Revenue Creditb $3,073. 76 3,063. 19 3,051. 98 3,040. 10 3,027. 50 3,014. 12e Investment in Debt Securities Creditc $176. 24 186. 81 198. 02 209. 90 222. 50 235. 88 Carrying Value of Debt Securitiesd $51,229. 35 51,053. 11 50,866. 30 50,668. 28 50,458. 38 50,235. 88 50,000. 00 51,229. 35 51,229. 35 2. Date 01/01/10 06/30/10 12/31/10 06/30/11 12/31/11 06/30/12 12/31/12 a$50,000 (face value) x 0. 13 (face rate of interest) x ? (year) carrying value x 0. 12 (effective interest rate) x ? year) from footnote a amount from footnote b carrying value amount from footnote c due to $0. 03 rounding erroneous belief Cash Investment in Held-to-Maturity Debt Securities Interest Revenue Cash Investment in Held- to-Maturity Debt Securities Interest Revenue 3,250. 00 176. 24 3,073. 76 3,250. 00 235. 88 3,014. 12 bPrevious cAmount dPrevious eDifference 3. 2010 June 30 2012 Dec. 31 15-19 E15-11 2010 Jan. 1 Investment in Held-to-Maturity Debt Securities Cash 307,493. 34 307,493. 34 GLOVER CORPORATION Bond Investment Interest Revenue and Premium Amortization Schedule (Partial) Effective Interest Method Cash Debita $18,000 18,000 Interest Revenue Creditb $16,912. 13 16,852. 30 Investment in Debt Securities Creditc $1,087. 87 1,147. 0 Carrying Value of Debt Securitiesd $307,493. 34 306,405. 47 305,257. 77 Date 01/01/10 06/30/10 12/31/10 a$300,000 bPrevious cAmount dPrevious (face value) x 0. 12 x ? year carrying value x 0. 11 x ? year from footnote a amount from footnote b carrying value amount from footnote c Cash Interest Revenue Investment in Held-to-Maturity Debt Securities Cash Interest Revenue Investment in Held-to-Maturity Debt Securities Cash red ink on Sale of Debt Securities Investmen t in Held-to-Maturity Debt Securities (from schedule) 18,000 2010 June 30 16,912. 13 1,087. 87 Dec. 31 18,000 16,852. 30 1,147. 70 2011 Jan. 1 300,000. 00 5,257. 77 305,257. 77 15-20 E15-12 2010 Dec. 1 Cash ($ one hundred,000 x 0. 08) Interest Revenue ($107,023. 56 x 0. 07) Investment in Held-to-Maturity Debt Securities ($8,000 $7,491. 65) Investment in Available-for-Sale Securities Investment in Held-to-Maturity Debt Securities ($107,023. 56 $508. 35) Unrealized Increase/Decrease in Value of Available-for-Sale Securities Allowance for Change in Value of Investment $106,515. 21 ($ deoxycytidine monophosphate,000 x 1. 05) 8,000 7,491. 65 508. 35 106,515. 21 106,515. 21 31 31 1,515. 21 1,515. 21 E15-13 1. June 1, 2010 Investment in Held-to-Maturity Debt Securities Cash 2011 Realized Loss on Decline in Value Investment in Held-to-Maturity Debt Securities 2012 No entry 2.Under IFRS, the company would make the equivalent journal entries as in Requirement 1 for 2010 and 2011. In 2012, i t would recognize the recovery of the impairment as follows 2012 Investment in Held-to-Maturity Debt Securities Realized Loss Recovery on Increase in Value 3,000 10,000 10,000 4,000 4,000 3,000 15-21 E15-14 1. 2010 Jan. 1 Investment in Stock Crowell locoweed Cash Cash ($50,000 x 0. 30) Investment in Stock Crowell Corporation Investment in Stock Crowell Corporation Investment Income ($120,000 x 0. 30) Cash ($50,000 x 0. 30) Investment in Stock Crowell Corporation Investment in Stock Crowell Corporation Investment Income ($140,000 x 0. 30) 160,000 15,000 160,000 Mar. 31 5,000 36,000 36,000 15,000 15,000 42,000 42,000 June 30 Sept. 30 Dec. 31 2. Investment in Stock Crowell Corporation Original investment $160,000 Share of 06/30 investment income 36,000 Share of 12/31 investment income 42,000 Balance, 12/31/10 $208,000 03/31 dividend 09/30 dividend $15,000 15,000 E15-15 2010 Jan. Dec. 1 31 31 31 Investment in Stock trade union Company Cash Investment in Stock North Company Investment Income ($45,000 x 0. 40) Investment Income ($15,000 ? 12 years) Investment in Stock North Company Cash ($0. 70 x 8,000) Investment in Stock North Company 15-22 144,000 18,000 1,250 5,600 144,000 18,000 1,250 5,600 E15-16 2010 Jan.During the year 1 Investment in Stock concede Company Cash (3,000 x $16) Investment in Stock blackleg Company Investment Income ($22,000 x 0. 30) Cash ($6,000 x 0. 30) Investment in Stock Fink Company 31 Investment Income Investment in Stock Fink Company a($115,000 48,000 6,600 1,800 750a 48,000 6,600 1,800 750 Dec. $90,000) x 0. 30 ? 10 years E15-17 2009 Jan. 1 Investment in Available-for-Sale Securities Cash 19,760 19,760 2011 July 1 archive entry On this date, the Taylor Corporation exchanged its investment in Kalanda Corporation 12% convertible bonds with a carrying value of $19,880a for 300 shares of Kalanda common stock with a fair value of $21,600.The cost per share is $66. 27 ($19,880 ? 300 shares). a$19,760 + (5 x $24*) *Amortization per period = $24 ($20,000 $19,760) ? 10 periods E15-18 2010 Mar. 2 Investment in Available-for-Sale Securities Cash 60,000 60,000 whitethorn 1 Memorandum entry Received 1,000 (5,000 x 0. 20) additional shares of Foreman Company common stock as a stock dividend. The cost of the shares is now $10 per share as follows $60,000 = $10 5,000 + (5,000 x 0. 20) 15-23 E15-18 (continued) 2011 Feb. 1 Cash (1,500 x $12) Investment in Available-for-Sale Securities (1,500 x $10) Gain on Sale of Investment in Available-for-Sale Securities 18,000 15,000 3,000 E15-19 2010 Jan. Dec. 31 Prepaid Insurance Cash Insurance Expense Cash Surrender Value of Life Insurance ($103,900 $98,450) Prepaid Insurance Cash Gain on Death of partr Cash Surrender Value of Life Insurance 13,300 7,850 5,450 13,300 13,300 2011 Jan. 1 50,000 43,520 6,480 E15-20 2010 Jan. Feb. July 1 3 30 sinking feeling stock certificate Cash Cash sinking Fund Securities drop Fund Cash change posture Fund Cash Loss on Sale of sinking Fund Secur ities drop down Fund Securities Sinking Fund Cash Sinking Fund Revenues Allowance for Change in Value of Sinking Fund Securities $355,000 ($400,000 $48,000) Unrealized Increase/Decrease in Value of Sinking Fund Securities 425,000 400,000 45,000 3,000 49,000 48,000 49,000 425,000 400,000 Dec. 31 31 3,000 3,000 15-24 E15-20 (continued) 2011 Dec. 1 31 31 Sinking Fund Cash Sinking Fund Revenues Sinking Fund Expenses Sinking Fund Cash Sinking Fund Cash Sinking Fund Securities Gain on Sale of Sinking Fund Securities 40,000 4,500 360,000 40,000 4,500 352,000 8,000 31 Unrealized Increase/Decrease in Value of Sinking Fund Securities Allowance for Change in Value of Sinking Fund Securities 31 31 E15-21 Bonds collectable Sinking Fund Cash Cash Sinking Fund Cash 3,000 3,000 500,000 14,500 500,000 14,500 Note to instructor This interest rate swap is a fair value hedge. Original situate Loan (not required) Cash Notes Payable Interest Payment on Loan declination 31, 2010 Interest Expense Ca sh a7% 3,000,000 3,000,000 210,000a 210,000 x $3 million Interest identify Swap Payment celestial latitude 31, 2010 Cash Interest Expense b(7% 12,000b 12,000 6. 6%) x $3 million 15-25E15-21 (continued) Fair determine and Gains and Losses, December 31, 2010 Loss in Value of Derivative Liability from Interest estimate Swap cPresent 53,497c 53,497 value = (8% 7%) x $3,000,000 x 1. 783265 (n=2, i=0. 08 from plank 4 in the TVM Module) = $30,000 x 1. 783265 = $53,497 (rounded down to balance) A swap derivative loss and obligation exist because the 8% current market rate is higher than the 7% doctor interest rate that Anglar receives on the derivative. Notes Payable Gain in Value of Debt dPresent 53,497d 53,497 value of principal = $3,000,000 x 0. 857339 (n=2, i=0. 08 from Table 3 in the TVM Module) = $2,572,017 = $210,000 x 1. 783265 (n=2, i=0. 08 from Table 4 in the TVM Module) = $374,486 = $2,572,017 + $374,486 = $2,946,503Present value of interest Total present value Decrease i n value of debt = $3,000,000 $2,946,503 = $53,497 The increase in interest rates decreases the value of note payable by the same amount as the increase in the value of the swap derivative liability. 15-26 E15-21 (continued) 2. Income account for Year Ending December 31, 2010 Other Items Interest expense Loss in value of derivative Gain in value of debt e$210,000 $ (198,000)e (53,497) 53,497 $12,000 Balance Sheet, December 31, 2010 Long-Term Liabilities Notes payable Liability from interest rate swap f$3,000,000 $53,497 $2,946,503f 53,497 $3,000,000 15-27 SOLUTIONS TO PROBLEMS P15-1 1. 2010 Nov. 19 29 Investment in Trading Securities Cash (200 x $86) Investment in Trading Securities Cash (300 x $63) Cash (100 x $89) Investment in Trading Securities (100 x $86) Gain on Sale of Trading Securities Investment in Trading Securities Cash (400 x $37) Cash (100 x $62) Loss on Sale of Trading Securities Investment in Trading Securities (100 x $63) Unrealized Loss on Decrease in Value of T rading Securities Investment in Trading Securities 17,200 18,900 8,900 8,600 300 14,800 6,200 100 6,300 200 14,800 17,200 18,900 Dec. 15 17 31 200* Cumulative Change in Fair Value $ 100 (400) 100 $(200) $ 300 (100) (200) $35,800 *Security 100 shares of M Company common stock 200 shares of P Company preferred stock 400 shares of T Company common stock Totals 2. Cost $ 8,600 12,600 14,800 $36,000 12/31/10 Fair Value $ 8,700 12,200 14,900 $35,800Gain on sale of trading securities Loss on sale of trading securities Unrealized loss on decrease in value of trading securities Current assets Temporary investment in trading securities (at fair value) 3. 15-28 P15-2 1. 2010 July 2 14 Cash (100 x $1. 50) Dividend Revenue Cash (600 x $20) Loss on Sale of Trading Securities Investment in Trading Securities Investment in Trading Securities Cash (300 x $36) Cash (100 x $30) Investment in Trading Securities Gain on Sale of Trading Securities Investment in Trading Securities Cash (500 x $22) Unreali zed Loss on Decrease in Value of Trading Securities Investment in Trading Securities one hundred fifty 12,000 600 10,800 3,000 one hundred fifty 12,600 10,800 2,800 200 11,000 Aug. 9 24 Sept. 17 30 11,000 350 350* *Security 300 shares of P Company preferred stock 500 shares of U Company common stock Totals 2.Cost $10,800 11,000 $21,800 Cumulative 9/30/10 Change in Fair Value Fair Value $10,950 $ 150 10,500 (500) $21,450 $(350) $ 150 (600) 200 (350) $21,450 Dividend revenue Loss on sale of trading securities Gain on sale of trading securities Unrealized loss on decrease in value of trading securities Current assets Temporary investment in trading securities (at fair value) 3. 15-29 P15-3 1. 2010 Mar. 31 Investment in Available-for-Sale Securities Interest Revenue ($10,000 x 0. 08 x 3/12) Cash Cash (200 x $30) Loss on Sale of Available-for-Sale Securities 200 x $30 ($23,100 ? 700) Investment in Available-for-Sale Securities 200 x ($23,100 ? 00) Allowance for Change in Value of Inve stment Unrealized Increase/Decrease in Value of Available-for-Sale Securities 200/700 x ($21,700 $23,100) Cash Interest Revenue ($10,000 x 0. 08 x 6/12) Cash (100 x $24) Investment in Available-for-Sale Securities 100 x ($8,400 ? 400) Gain on Sale of Available-for-Sale Securities 100 x $24 ($8,400 ? 400) Unrealized Increase/Decrease in Value of Available-for-Sale Securities 100/400 x ($9,400 $8,400) Allowance for Change in Value of Investment 10,000 200 10,200 May 17 6,000 600 6,600 400 17 400 400 400 2,400 2,100 300 June 30 Oct. 12 12 250 250 15-30 P15-3 (continued) 1. (continued) Dec. 31 Cash Interest Revenue ($10,000 x 0. 8 x 6/12) Dividend Revenue (300 x $1) + (500 x $1. 50) Allowance for Change in Value of Investment Unrealized Increase/Decrease in Value of Available-for-Sale Securities 1,450 400 1,050 550* 550 12/31/10 Fair Value $ 7,500 15,500 10,100 $33,100 Cumulative Change in Fair Value $1,200 (1,000) 100 $ 300 31 *Security 300 shares of I Company common stock 500 shares of O Company common stock $10,000 face value of U Company 8% bonds Totals $550 debit adjustment = Cost $ 6,300 16,500 10,000 $32,800 $300 required ending debit balance + $400 beginning credit balance $400 debit adjustment (5/17/10) + $250 credit adjustment (10/12/10) $ 600 1,050 (600) 300 2.Interest revenue Dividend revenue Loss on sale of available-for-sale securities Gain on sale of available-for-sale securities Current assets Temporary investment in available-for-sale securities (at cost) Plus Allowance for change in value of investment Temporary investment in available-for-sale securities (at fair value) Noncurrent assets Investment in available-for-sale securities (at cost) less(prenominal) Allowance for change in value of investment Investment in available-for-sale securities (at fair value) 3. $6,300 1,200 $7,500 $26,500 (900) $25,600 15-31 P15-3 (continued) 3. (continued) Stockholders equity Accumulated Other Comprehensive Income Unrealized increase in value of available-f or-sale securities 4. Holly would include a gain of $700 the change in the unrealized increase/decrease on the portfolio from $(400) to $300. $ 300 P15-4 1. 2010 Jan. Cash (400 x $45) Investment in Available-for-Sale Securities (400 x $43) Gain on Sale of Available-for-Sale Securities (400 x $45) $17,200 Unrealized Increase/Decrease in Value of Available-for-Sale Securities Allowance for Change in Value of Investment (400 x $1) Investment in Available-for-Sale Securities Cash (700 x $45) Cash Dividend Revenue Unrealized Increase/Decrease in Value of Available-for-Sale Securities Allowance for Change in Value of Investment 18,000 17,200 800 6 400 400 31,500 2,500 Feb. 3 31,500 2,500 Mar. 31 31 2,300 2,300* 15-32 P15-4 (continued) 1. (continued) 3/31/10 Fair Value $ 29,500 18,000 28,000 30,100 $105,600 Cumulative Change in Fair Value $ (500) 800 -(1,400) $ (1,100) Cost *Security 500 shares of Keene Company common stock $ 30,000 400 shares of Sachs, Inc. common stock 17,200 400 shares of Bacon Company common stock 28,000 700 shares of capital of Mississippi Corp. common stock 31,500 Totals $106,700 $2,300 credit adjustment $1,100 required ending credit balance + $1,600a beginning debit balance $400 credit adjustment (1/6/10) a800 x ($44 $43) + 400 x ($72 $70) Apr. 14 Investment in Available-for-Sale Securities Cash (300 x $52) Cash (400 x $42) Loss on Sale of Available-for-Sale Securities (400 x $42) $17,200 Investment in Available-for-Sale Securities Unrealized Increase/Decrease in Value of Available-for-Sale Securities Allowance for Change in Value of Investment Cash Dividend Revenue Allowance for Change in Value of Investment Unrealized Increase/Decrease in Value of Available-for-Sale Securities 15,600 16,800 400 17,200 15,600 May 11 11 800 800 2,800 2,800 June 30 30 2,600* 2,600 15-33 P15-4 (continued) 1. continued) 6/30/10 Fair Value $ 31,000 27,600 32,200 15,000 $105,800 Cumulative Change in Fair Value $ 1,000 (400) 700 (600) $ 700 Cost *Security 500 s hares of Keene Company common stock $ 30,000 400 shares of Bacon Company common stock 28,000 700 shares of Jackson Corp. common stock 31,500 300 shares of Quinn Company common stock 15,600 Totals $105,100 $2,600 debit adjustment = $700 required ending debit balance + $1,100 beginning credit balance + $800 credit adjustment (5/11/10) $ 800 2,500 siemens Quarter 2010 Loss on sale of securities $ (400) Dividend revenue 2,800 3/31/10 $47,200 300 $47,500 6/30/10 $30,000 1,000 $31,000 2. First Quarter 2010 Gain on sale of securities Dividend revenue 3.Assets Current assets Temporary investment in available-for-sale securities (at cost) Plus Allowance for change in value of investment Temporary investment in available-for-sale securities (at fair value) Noncurrent assets Investment in available-for-sale securities (at cost) Less Allowance for change in value of investment Investment in available-for-sale securities (at fair value) Stockholders Equity Accumulated Other Comprehensive Income Unrealized increase (decrease) in value of available-for-sale securities $59,500 (1,400) $58,100 $75,100 (300) $74,800 $ (1,100) $ 700 15-34 P15-5 1. 2010 Jan. Mar. 6 31 31 Cash Dividend Revenue Cash Dividend Revenue Allowance for Change in Value of Investment Unrealized Increase/Decrease in Value of Available-for-Sale Securities 265 500 65 500 1,180* 1,180 Cumulative 3/31/10 Change in Fair Value Fair Value $13,470 $ (805) 13,765 1,115 18,940 1,490 15,500 (3,600) $61,675 $(1,800) *Security 400 shares of Turben Co. common stock 500 shares of manage Corp. common stock 700 shares of Hill Corp. common stock 200 shares of Web Engines preferred stock Totals $1,180 debit adjustment June 30 30 Cost $14,275 12,650 17,450 19,100 $63,475 = $1,800 required ending credit balance $2,980 ($63,475 $60,495) beginning credit balance 1,075 1,075 Cash ($375 + $700) Dividend Revenue Allowance for Change in Value of Investment Unrealized Increase/Decrease in Value of Available-for-Sale Securities 50* 450 6/30/10 Fair Value $13,300 14,125 19,300 15,400 $62,125 Cumulative Change in Fair Value $ (975) 1,475 1,850 (3,700) $(1,350) *Security 400 shares of Turben Co. common stock 500 shares of Cook Corp. common stock 700 shares of Hill Corp. common stock 200 shares of Web Engines preferred stock Totals Cost $14,275 12,650 17,450 19,100 $63,475 15-35 P15-5 (continued) 1. (continued) $450 debit adjustment = July 6 $1,350 required ending credit balance $1,800 beginning credit balance 13,750 525 14,275 975 975 500 500 Cash Loss on Sale of Available-for-Sale Securities ($13,750 $14,275) Investment in Available-for-Sale Securities Allowance for Change in Value ofInvestment Unrealized Increase/Decrease in Value of Available-for-Sale Securities Cash Dividend Revenue Allowance for Change in Value of Investment Unrealized Increase/Decrease in Value of Available-for-Sale Securities 6 Sept. 29 30 805* 805 Cumulative 9/30/10 Change in Fair Value Fair Value $14,230 $ 1,580 19,500 2,050 15,900 (3 ,200) $49,630 $ 430 *Security 500 shares of Cook Corp. common stock 700 shares of Hill Corp. common stock 200 shares of Web Engines preferred stock Totals $805 debit adjustment = Cost $12,650 17,450 19,100 $49,200 $430 required ending debit balance + $1,350 beginning credit balance $975 debit adjustment (7/6/10) 19,780 17,450 2,330 Nov. 2 Cash Investment in Available-for-Sale Securities Gain on Sale of Available-for-Sale Securities ($19,780 $17,450) 15-36 P15-5 (continued) 1. (continued) Nov. Unrealized Increase/Decrease in Value of Available-for-Sale Securities Allowance for Change in Value of Investment Cash Dividend Revenue Allowance for Increase/Decrease in Value of Available-for-Sale Securities Unrealized Change in Value of Investment 2,050 2,050 375 375 Dec. 30 31 550* 550 Cumulative 12/31/10 Change in Fair Value Fair Value $14,280 $ 1,630 16,400 (2,700) $30,680 $(1,070) *Security 500 shares of Cook Corp. common stock 200 shares of Web Engines preferred stock Totals $550 deb it adjustment = Cost $12,650 19,100 $31,750 $1,070 required ending credit balance + $430 beginning debit balance $2,050 credit adjustment (11/2/10) work 31 $765a For Quarter stop June 30 Sept. 30 $1,075b $500 525 Dec. 31 $ 375 2,330 2. Dividend revenue Loss on sale of securities Gain on sale of securities a$265 b$375 + $500 + $700 15-37 P15-5 (continued) 3.Current assets Temporary investment in available-for-sale securities (at cost) Plus (Less) Allowance for change in value of investment Temporary investment in available-for-sale securities (at fair value) March 31 Balance Sheet as of June 30 Sept. 30 Dec. 31 $63,475 (1,800) $61,675 $63,475 (1,350) $62,125 $49,200 430 $49,630 $31,750 (1,070) $30,680 Stockholders equity Accumulated Other Comprehensive Income Unrealized increase(decrease) in value of available-forsale securities $ (1,800) $ (1,350) P15-6 1. 2010 Jan. 1 Investment in Available-for-Sale Securities Cash ($30,000 x 0. 97) Investment in Available-for-Sale Securitie s Cash ($40,000 x 1. 01) Cash ($30,000 x 0. 08 x 1/2) Investment in Available-for-Sale Securities Interest Revenue ($29,100 x 0. 0 x 1/2) Cash ($40,000 x 0. 10 x 1/2) Investment in Available-for-Sale Securities Interest Revenue ($40,400 x 0. 098 x 1/2) $ 430 $ (1,070) 29,100 29,100 1 40,400 1,200 255 40,400 June 30 1,455 2,000 20 1,980 30 15-38 P15-6 (continued) 1. (continued) June 30 Allowance for Change in Value of Investment Unrealized Increase/Decrease in Value of Available-for-Sale Securities 225* 225 Cumulative Change in Fair Value $ (195) 420 $ 225 *Security $30,000 face value of Bradford Co. bonds $40,000 face value of Morris Co. bonds Totals a$29,100 b$40,400 c$30,000 d$40,000 Amortized 6/30/10 Cost Fair Value a $29,160c $29,355 b 40,800d 40,380 $69,960 $69,735 ost + $255 amortization of discount cost $20 amortization of premium x 0. 972 x 1. 02 1 Investment in Available-for-Sale Securities Cash ($25,000 x 0. 92) Interest due ($25,000 x 0. 11 x 5/12) Investment in Availab le-for-Sale Securities Interest Revenue ($23,000 x 0. 12 x 5/12) Cash ($25,000 x 0. 91) + $1,146 Loss on Sale of Available-for-Sale Securities Investment in Available-for-Sale Securities Interest Receivable 23,000 July 23,000 Nov. 30 1,146 4 1,150 23,896 254* 23,004 1,146 30 *$23,004 carrying value ($23,000 cost + $4 amortization of discount) $22,750 harvest-festival (excluding interest) 15-39 P15-6 (continued) 1. (continued) Dec. 31 Cash ($30,000 x 0. 8 x 1/2) Investment in Available-for-Sale Securities Interest Revenue ($29,355 x 0. 10 x 1/2) Cash ($40,000 x 0. 10 x 1/2) Investment in Available-for-Sale Securities Interest Revenue ($40,380 x 0. 098 x 1/2) Cash ($40,000 x 1. 02) Investment in Available-for-Sale Securities ($40,380 $21) Gain on Sale of Available-for-Sale Securities ($40,800 $40,359) Unrealized Increase/Decrease in Value of Available-for-Sale Securities Allowance for Change in Value of Investment (from 6/30/10 schedule) Unrealized Increase/Decrease in Value of Ava ilable-for-Sale Securities Allowance for Change in Value of Investment 1,200 268 1,468 2,000 21 1,979 40,800 40,359 441 31 31 31 420 420 31 28 628* 12/31/10 Fair Value $28,800b $28,800 Cumulative Change in Fair Value $(823) $(823) *Security $30,000 face value of Bradford Co. bonds Totals a$29,355 b$30,000 Cost $29,623a $29,623 amortized cost (6/30/10) + $268 amortization of discount x 0. 96 = $823 required ending credit balance + $225 beginning (6/30/10) debit balance $420 credit adjustment (12/31/10) $628 credit adjustment 15-40 P15-6 (continued) 2. Interest revenue Loss on sale of securities Gain on sale of securities a$1,455 b$1,150 For biennial Period Ended 12/31/10 6/30/10 a $4,597b $3,435 (254) 441 + $1,980 + $1,468 + $1,979 Balance Sheet As of 06/30/10 12/31/10 $69,753 225 $69,960 $29,623 (823) $28,800 3.Current assets Temporary investment in available-for-sale securities (at amortized cost) Plus (Less) Allowance for change in value of investment Temporary investment in av ailable-for-sale securities (at fair value) Stockholders equity Accumulated Other Comprehensive Income Unrealized increase (decrease) in value of available-for-sale securities $225 $(823) P15-7 1. 2010 Feb. 3 Investment in Available-for-Sale Securities Cash (3,000 x $12) Investment in Available-for-Sale Securities Interest Revenue ($20,000 x 0. 12 x 3/12) Cash Cash Interest Revenue ($20,000 x 0. 12 x 6/12) Dividend Revenue (3,000 x $0. 25) 36,000 36,000 Apr. 1 20,000 600 1,950 1,200 750 20,600 June 30 15-41 P15-7 (continued) 1. (continued) Sept. 1 Investment in Available-for-Sale Securities Cash (4,000 x $22) Investment in Available-for-Sale Securities Interest Revenue ($30,000 x 0. 11 x 5/12) Cash Cash Interest Revenue ($30,000 x 0. 11 x 6/12) Cash ($30,000 x 1. 1) Investment in Available-for-Sale Securities Gain on Sale of Available-for-Sale Securities ($30,300 $30,000) Cash Dividend Revenue (3,000 x $0. 25) Cash Loss on Sale of Available-for-Sale Securities ($35,300 $36,000) In vestment in Available-for-Sale Securities Cash Interest Revenue ($20,000 x 0. 12 x 6/12) Allowance for Change in Value of Investment Unrealized Increase/Decrease in Value of Available-for-Sale Securities 88,000 88,000 Nov. 1 30,000 1,375 1,650 1,650 30,300 30,000 300 750 35,300 700 36,000 1,200 1,200 4,200* 4,200 750 31,375 Dec. 1 1 30 30 31 31 15-42 P15-7 (continued) 1. (continued) Cost *Security $20,000 face value of Solomon Co. bonds $ 20,000 4,000 shares of Woodman Corp. ommon stock 88,000 Totals $108,000 a$20,000 b4,000 Cumulative 12/31/10 Change in Fair Value Fair Value $ 200 $ 20,200a 92,000b 4,000 $112,200 $4,200 x 1. 01 x $23 $2,075 (-$600+$1,200-$1,375+$1,650+$1,200) 1,500 ($750+$750) 300 (700) 2. Interest revenue Dividend revenue Gain on sale of securities Loss on sale of securities 3. Current assets Temporary investment in available-for-sale securities (at cost) Plus Allowance for change in value of investment Temporary investment in available-for-sale securities (at fai r value) $108,000 4,200 $112,200 P15-8 Note to instructor This problem contains petty cash journal entries and a bank reconciliation, previously covered in Chapter 7. 1. 2010 Jan. Investment in Available-for-Sale Securities (150 x $20) + (200 x $30) + (100 x $25) Cash Investment in Available-for-Sale Securities ($20,000 + $12,000) Interest Revenue ($20,000 x 0. 12 x 5/12) + ($12,000 x 0. 10 x 4/12) Cash Petty Cash Cash 11,500 11,500 Feb. 1 32,000 1,400 500 33,400 500 1 15-43 P15-8 (continued) 1. (continued) Feb. 28 Cash Interest Revenue $20,000 x 0. 12 x 6/12 impression Expense Office Supplies Expense superman Expense Miscellaneous Expense Cash Cash Short and Over Cash a$125. 50 1,200 1,200 110. 00 170. 65 45. 00 43. 50 5. 35a 28 369. 15 5. 35 28 ($500. 00 $369. 15) 2,100 200 1,500 800 Mar. 31 Cash ($1,500 + $600) Interest Receivable ($20,000 x 0. 12 x 1/12 A Co. bonds) Dividend Revenue Interest Revenue ($12,000 x 0. 0 x 6/12) + ($20,000 x 0. 12 x 1/12) Unrealized Increase/Decr ease in Value of Available-for-Sale Securities Allowance for Change in Value of Investment b$42,600 31 900 900b ($11,500 + $32,000) 140. 00 75. 30 54. 20 31 Postage Expense Office Supplies Expense Miscellaneous Expense Cash 269. 50 15-44 P15-8 2. (continued) PAYNE CORPORATION Bank Reconciliation March 31, 2010 Balance per bank statement Add Deposits in transit understand Outstanding checks adjusted cash balance Balance per company records Add Note collected by bank Interest on note Deduct Bank service charge NSF check returned Adjusted cash balance 3. 2010 Mar. 31 Cash Notes Receivable Interest Revenue