EXERCISE
17-3 .
(a) January 1, 2003
Held-to-Maturity
Securities 322,744.44
Cash ... 322,744.44
(b) Schedule of
Interest Revenue and Bond Premium Amortization
Effective Interest Method
12% Bonds Sold to Yield 10%
Date |
Cash Received |
Interest Revenue |
Premium Amortized |
Carrying Amount of
Bonds |
1/1/03 |
— |
— |
— |
$322,744.44 |
12/31/03 |
$36,000 |
$32,274.44 |
$3,725.56 |
319,018.88 |
12/31/04 |
36,000 |
31,901.89 |
4,098.11 |
314,920.77 |
12/31/05 |
36,000 |
31,492.08 |
4,507.92 |
310,412.85 |
12/31/06 |
36,000 |
31,041.29 |
4,958.71 |
305,454.14 |
12/31/07 |
36,000 |
30,545.86 |
*5,454.14* |
300,000.00 |
*Rounded
by 45¢.
(c) December 31, 2003
Cash 36,000
Held-to-Maturity Securities ...
3,725.56
Interest Revenue ...
32,274.44
(d) December
31, 2004
Cash 36,000
Held-to-Maturity Securities ... 4,098.11
Interest Revenue ... 31,901.89
EXERCISE 17-4
(a) January 1, 2003
Available-for-Sale
Securities 322,744.44
Cash ... 322,744.44
(b) December 31, 2003
Cash 36,000
Available-for-Sale Securities ... 3,725.56
Interest Revenue ... 32,744.44
Securities
Fair Value Adjustment—
Available-for-Sale 1,481.12
Unrealized Holding Gain or Loss—
Equity ($320,500.00 – $319,018.88).. 1,481.12
(c) December 31, 2004
Unrealized Holding Gain or Loss—Equity 7,401.89
Securities Fair Value Adjustment—
Available-for-Sale 7,401.89
|
Cost |
Fair Value |
Unrealized Holding
Gain (Loss) |
Available-for-sale
bonds |
314,920.77 |
309,000.00 |
$(5,920.77) |
Previous
securities fair value adjustment—Dr. |
|
|
1,481.12 |
Securities
fair value adjustment—Cr. |
|
|
$(7,401.89) |
EXERCISE 17-9
(a) The portfolio should be
reported at the fair value of $54,500. Since the cost of the portfolio is
$53,000, the unrealized holding gain is $1,500, of which $400 is already
recognized. Therefore, the December 31, 2003 adjusting entry should be:
Securities
Fair Value Adjustment
(Available-for-Sale) 1,100
Unrealized Holding Gain or Loss—Equity. 1,100
(b) The unrealized holding
gain of $1,500 (including the previous balance of $400) should be reported as
an addition to stockholders’ equity and the Securities Fair Value Adjustment
(Available-for-Sale) account balance of $1,500 should be added to the cost of
the securities account.
STEFFI GRAF, INC.
Balance Sheet
As of December 31, 2003
Current assets:
Available-for-sale securities $54,500
Stockholders’
equity:
Common stock xxx,xxx
Additional paid-in capital
xxx,xxx
Retained earnings
xxx,xxx
xxx,xxx
Add: Accumulated other comprehensive income
1,500*
Total stockholders’ equity $xxx,xxx
*Note: The unrealized holding gain could also be
disclosed.
(c) Computation
of realized gain or loss on sale of stock:
Net proceeds from sale of security A $15,100
Cost of security A
17,500
Loss on sale of stock ($
2,400)
January
20, 2004
Cash 15,100
Loss
on Sale of Securities .
2,400
Available-for-Sale Securities ... 17,500
EXERCISE
17-10
(a) STEFFI GRAF
INC.
Statement of
Comprehensive Income
For the Year Ended
December 31, 2003
______
Net income $120,000
Other
comprehensive income
Unrealized holding gain arising during
year 1,100
Comprehensive
net income $121,100
(b) STEFFI GRAF
INC.
Statement of
Comprehensive Income
For the Year Ended
December 31, 2004
______
Net income $140,000
Other
comprehensive income
Unrealized holding gain arising during
year $40,000
Add:
Reclassification adjustment for
loss included in net income
2,400 42,400
Comprehensive
net income $182,400
EXERCISE
17-13 (20-25 minutes)
(a) $110,000,
the increase to the Investment account.
(b) If the payout ratio is 40%, then 40% of
the net income is their share of dividends = $44,000.
(c) Their
share is 25%, so, Total Net Income x 25% = $110,000
Total
Net Income = $110,000 ÷ 25% = $440,000
(d) $44,000
÷ 25% = $176,000 or $440,000 x 40% = $176,000
PROBLEM 17-1 |
(a) December 31, 2001
Held-to-Maturity
Securities 108,660
Cash 108,660
(b) December 31, 2002
Cash 7,000
Held-to-Maturity Securities 1,567
Interest Revenue
5,433
(c) December 31, 2004
Cash
7,000
Held-to-Maturity Securities 1,728
Interest Revenue
5,272
(d) December 31, 2001
Available-for-Sale
Securities 108,660
Cash 108,660
(e) December 31, 2002
Cash 7,000
Available-for-Sale Securities 1,567
Interest Revenue
5,433
Unrealized
Holding Gain or Loss-
Equity ($107,093 - $106,500) 593
Securities Fair Value Adjustment
(Available-for-Sale) 593
(f) December 31, 2004
Cash 7,000
Available-for-Sale Securities 1,728
Interest Revenue
5,272
Available-for-Sale Securities
|
Amortized Cost |
Fair Value |
Unrealized
Gain (Loss) |
Baker Company, 7% bonds |
$103,719 |
$105,650 |
$1,931 |
Previous
securities fair value adjustment—Dr. |
|
|
2,053 |
Securities
fair value adjustment—Cr. |
|
|
$ (122) |
Unrealized Holding Gain or
Loss-Equity 122
Securities
Fair Value Adjustment
(Available-for-Sale) 122
PROBLEM 17-6 |
(a) (1) October 10, 2003
Cash 270,000
Gain on Sale of Stock 45,000
Trading Securities 225,000
(2) November 2, 2003
Trading Securities 178,500
Cash 178,500
(3) At September 30, 2003, Gypsy Kings had the
following fair value adjustment:
Trading
Securities Portfolio—September 30, 2003
Securities |
Cost |
Fair Value |
Unrealized Gain (Loss) |
Fogelberg common |
$225,000 |
$200,000 |
($(25,000) |
Petra, Inc.
preferred |
133,000 |
140,000 |
( 7,000) |
Weisberg common |
180,000 |
179,000 |
( (1,000) |
Total of portfolio |
$538,000 |
$519,000 |
((19,000) |
Previous securities fair value adjustment balance |
|
|
( 0) |
Securities fair value adjustment—Cr. |
|
|
($(19,000) |
At
December 31, 2003, Gypsy Kings had the following fair value adjustment:
Trading
Securities Portfolio—December 31, 2003
Securities |
Cost |
Fair Value |
Unrealized Gain (Loss) |
Petra, Inc.
preferred |
$133,000 |
$ 96,000 |
($(37,000) |
Weisberg common |
180,000 |
193,000 |
13,000) |
Los Tigres common |
178,500 |
132,000 |
( (46,500) |
Total of portfolio |
$491,500 |
$421,000 |
(70,500) |
Previous securities fair value adjustment balance—Cr. |
|
|
(19,000) |
Securities fair value adjustment—Cr. |
|
|
($(51,500) |
The entry on December 31, 2003 is
therefore as follows:
Unrealized Holding Gain or Loss—Income 51,500
Securities Fair Value Adjustment
(Trading) 51,500
(b) The entries would be the
same except that instead of debiting and crediting accounts associated with
trading securities, the accounts used would be associated with
available-for-sale securities. In addition, the Unrealized Holding Gain or
Loss—Equity account is used instead of Unrealized Holding Gain or Loss—Income.
The unrealized holding loss in this case would be deducted from the
stockholders’ equity section rather than charged to the income statement.
PROBLEM 17-8 |
(a) 1. Investment in trading securities:
Unrealized Holding Gain or Loss—
Income 180,000
Securities Fair Value Adjustment
(Trading) 180,000
2. Investment in available-for-sale
securities:
Securities Fair Value Adjustment
(Available-for-Sale) 775,000
Unrealized Holding Gain or Loss—
Equity 775,000
Computations:
1. Security |
Cost |
Fair Value |
Unrealized Gain
(Loss) |
Davis Motors |
$1,400,000 |
$1,600,000 |
($(200,000 |
Smits Electric |
1,000,000 |
620,000 |
( (380,000) |
Total of portfolio |
$2,400,000 |
$2,220,000 |
($(180,000) |
2. Current market value of Ricky Pierce
Industries equity $22,275,000
2003 market value of Ricky Pierce
Industries equity 21,500,000
Increase in fair value $
775,000
(b) The unrealized holding
loss on the valuation of Pacers’ trading securities is reported on the income
statement. The loss would appear in the “Other Expenses and Losses” section of
the income statement and would be included in “Income Before Extraordinary
Items.” The Securities Fair Value Adjustment is a valuation account and it
will be used to show the reduction in the fair value of the trading securities.
The trading securities portfolio is disclosed in the balance sheet as a current
asset and reported at its fair value.
The unrealized holding
gain on the valuation of Pacers’ available-for-sale securities is reported as
other comprehensive income and as a separate component of stockholders’ equity.
The Securities Fair Value Adjustment is used to report the increase in fair
value of the available-for-sale securities. The fair value of the securities is
reported in the Investments section of the balance sheet. It should be noted
that a combined statement of income and comprehensive income, a statement of
comprehensive income, or a statement of stockholders’ equity would report the
components of comprehensive income.
The note disclosures for
the available-for-sale securities include the aggregate fair value, gross
unrealized holding gains, and gross unrealized holding losses. Any change in
the net unrealized holding gain or loss account should also be disclosed. The
disclosure for trading securities includes the change in net unrealized
holding gain or loss which was included in earnings.
PROBLEM 17-10 |
(a) January 1,
2003
Fair
value of available-for-sale securities $240,000
Accumulated
other comprehensive income 40,000
Cost
basis $200,000
December
31, 2003
Fair
value of available-for-sale securities $190,000
Cost
basis $120,000
Accumulated
other comprehensive income $
70,000
Cash
($80,000 + $20,000) 100,000
Gain on Sale of Securities 20,000
Available-for-Sale Securities 80,000
(b) ENID INC.
Statement of Comprehensive Income
For the Year Ended December 31, 2003
Net
income $35,000
Other
comprehensive income
Total holding gains arising during
the year $50,000*
Less: Reclassification adjustment for
gains included in income
20,000 30,000
Comprehensive
income $65,000
*Accumulated
other comprehensive income 12/31/03 $70,000
Accumulated other comprehensive
income 1/1/03 40,000
Increase in unrealized holding gain 30,000
Realized holding gain 20,000
Total unrealized holding gain arising
during period $50,000
(c) ENID INC.
Balance Sheet
As of December 31, 2003
Assets |
|
Equity |
|
Cash |
$165,000* |
Common stock |
$250,000 |
Available-for-sale
securities |
190,000 |
Retained
earnings |
35,000 |
|
|
Accumulated
other comprehensive income |
70,000 |
Total assets |
$355,000 |
Total equity |
$355,000 |
*Beginning
balance $ 50,000
Dividend
revenue... 15,000
Cash
proceeds on sale ...... 100,000
$165,000
PROBLEM 17-12 |
(a) Balance Sheet
Available-for-Sale
Securities, at fair value $123,000
(Reported as current or noncurrent based
on intent)
Unrealized
Holding Loss on Securities $
14,000
($137,000 - $123,000) (reported as a
separate component of stockholders'
equity as a deduction and identified as accumulated other
comprehensive loss)
Income
Statement -- No effect
(b) Balance
Sheet
Available-for-Sale
Securities, at fair value $94,000
(Reported as current or noncurrent based
on intent)
Unrealized
Holding Loss on Securities $47,000
($141,000 - $94,000) (reported as a
separate component of stockholders'
equity as a deduction and identified as
accumulated other comprehensive loss)
Income
Statement
Other
Expenses and Losses
Loss on Sale of Securities $11,800*
*The
entry made to recognize the loss on sale is as follows:
Cash 38,200
Loss on Sale of Securities 11,800
Available-for-Sale
Securities 50,000
(c) Balance
Sheet
Available-for-Sale
Securities, at fair value $88,000
(Reported as current or noncurrent based
on intent)
Unrealized
Holding Gain on Securities $ 8,000
($88,000 - $80,000) (reported as a
separate component of stockholders' equity
as an addition and identified as
accumulated other comprehensive gain)
Income Statement
Other
Expenses and Losses
Loss on Sale of Securities ($13,100
+ $2,700) $15,800
The
entry made to record the sale of Jones' stock was:
Cash 39,900
Loss
on Sale of Securities 13,100
Available-for-Sale Securities ($15,000
+ $38,000) 53,000
(d) (1) Statement of Comprehensive Income
Reports
unrealized holding loss of $14,000 as part of comprehensive income.
(2) Statement of Comprehensive Income
Total holding loss arising during
period $44,800*
Less: Reclassification adjustment for loss
included in net income
11,800
Net unrealized loss $33,000
*$47,000 - $14,000 + $11,800