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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