Ch 12 Solns - Exercise 12-2 November 1 ($ in millions)

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Unformatted text preview: Exercise 12-2 November 1 ($ in millions) Cash................................................................. 2.4 Investment revenue..................................... 2.4 December 1 Investment in Facsimile Enterprises bonds..... 30 Cash............................................................. 30 December 31 Investment in U.S. Treasury bills ................... 8.9 Cash............................................................. 8.9 December 31 Investment revenue receivable - Convenience bonds ($48 million x 10% x 2 / 12 ) ........................ 0.8 Investment revenue receivable - Facsimile Enterprises bonds ($30 million x 12% x 1 / 12 ) ..... 0.3 Investment revenue ................................... 1.1 Note: Securities held-to-maturity are not adjusted to fair value. Exercise 12-3 Investment in GM common shares ................ 41,200 Cash ([800 shares x $50] + $1,200)................... 41,200 Cash ([800 shares x $53] $1,300)....................... 41,100 Loss on sale of investments............................ 100 Investment in GM common shares ............. 41,200 Exercise 12-5 Requirement 1 Securities held-to-maturity are debt securities an investor has the positive intent and ability to hold to maturity. Actively traded investments in debt or equity securities acquired principally for the purpose of selling them in the near term are classified as trading securities. The IBM shares are neither. They are classified as available-for-sale since all investments in debt and equity securities that dont fit the definitions of the other reporting categories are classified this way. Of course, the equity method isnt appropriate either because 10,000 shares of IBM certainly dont constitute significant influence. Investments in securities available-for-sale are reported at fair value, and holding gains or losses are not included in the determination of income for the period. Instead, they are reported as other comprehensive income or loss in the statement of comprehensive income. This statement can be reported either (a) as an additional section of the income statement, (b) as part of the statement of shareholders equity, or (c) as a separate statement in a disclosure note. Accumulated net holding gains and losses for securities available-for-sale are reported as a separate component of shareholders equity in the balance sheet. Requirement 2 December 31, 2009 Net unrealized holding gains and losses OCI (10,000 shares x [$58 - 60]) .......................................................... 20,000 Fair value adjustment............................................................ 20,000 Exercise 12-5 (concluded) Requirement 3 December 31, 2010 Accumulated ($ in 000s) Unrealized Available-for-Sale Securities Cost Fair Value Gain (Loss) IBM shares Dec. 31, 2010 $600 $610 $10 Moving from a negative $20 (2009) to a positive $10 (2010) requires an increase of $30:--------------------------------------------------------...
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Ch 12 Solns - Exercise 12-2 November 1 ($ in millions)

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