ch08 - CHAPTER 8 INVESTMENTS IN EQUITY SECURITIES BRIEF...

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Unformatted text preview: CHAPTER 8 INVESTMENTS IN EQUITY SECURITIES BRIEF EXERCISES BE81 a.Comprehensive income includes the change in value assets that have been sold and in certain assets that the company has not sold. Net income only includes the changes in assets that have been sold. b. Through the first two years (01-02) the prices of these investments increased by $11 and $73. In 2003 Merck shows an unrealized loss of $46. BE82 Bristol-Myers Squibb designated its Marketable Securities as Available-for-Sale Securities and as such reflected holding gains/losses (unrealized) in Comprehensive Income, not on the Income Statement. The $23 million reflected a change in the market value of the Securities which were still owned by the company. The asset section of the balance sheet will also show the change, with the carrying value of the Securities adjusted by the $23 million. BE83 a. Investment in Equity Securities (+A) 151 Equity in net income of affiliates (R, +SE) 151 b. The equity in net income of affiliates was deducted from the cash flow statement because the affilate income increased the companys earnings but did not provide any cash to the company. The cash to the company would have come from dividends, but since no amount was deducted from the add-back to the cash flow statement, no cash was received from the affiliate companies. c. Since no dividends were received the asset increased by the amount of net income from affiliates recognized, $151 million. BE84 Goodwill is the amount paid above fair value when assets are acquired. P & G, in its business growth strategy, has acquired other companies and has paid, collectively, $11.1 billion above the fair value of the assets acquired. BE85 Assets (+A) 1,323 1 Goodwill (+A) 1,800 Liabilities(+L) 323 Cash(-A) 2,800 Goodwill is an intangible asset that represents the excess above fair value paid for assets acquired. J & J paid $2.8 billion in cash and assumed liabilities. Balancing the journal entry, the company acquired assets with a fair value of $1.323 billion. Assets and liabilities increased by $323 million with no change to equity. EXERCISES E81 a. (1) Trading Securities (+A)........................................................... 50,000 Cash (A)......................................................................... 50,000 Invested in IBM. (2) Trading Securities (+A)........................................................... 40,000 Cash (A)......................................................................... 40,000 Invested in GM. (3) Cash (+A)............................................................................... 45,000 Trading Securities (A)..................................................... 37,500 Realized Price Increase on Sale of Trading Securities (Ga, +SE)..................................................... 7,500 Sold IBM stock....
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This note was uploaded on 03/25/2009 for the course FIN FIN504 taught by Professor Byungjinkwak during the Spring '09 term at Korea Advanced Institute of Science and Technology.

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ch08 - CHAPTER 8 INVESTMENTS IN EQUITY SECURITIES BRIEF...

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