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Fin-Acctg7-SM-Ch10 - Chapter 10 Long-Term Investments and...

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Chapter 10 Long-Term Investments and International Operations Short Exercises (10-15 min.) S 10-1 1. Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 20X7 Apr. 10 Long-Term Investment (300 × $20)… ....... 6,000 Cash……………………………………….. 6,000 July 22 Cash (300 × $1.25)………………………….. 375 Dividend Revenue………………………. 375 Dec. 31 Unrealized Loss on Investments…… ....... 900 Allowance to Adjust Investment to Market ($6,000 $5,100)……………. 900 2. ASSETS Total current assets………………………………… ........ $ XXX Long-term available-for-sale investments, at market value…………………………………… ........ 5,100 STOCKHOLDERS’ EQUITY Common stock…………………………………………….. $ XXX Retained earnings………………………………………… XXX Accumulated other comprehensive income: Unrealized (loss) on investments…………………… (900) Chapter 10 Long-Term Investments and International Operations 127
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(5-10 min.) S 10-2 1. Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 20X9 May 19 Cash (300 × $22)……………………… 6,600 Long-Term Investment…………… 6,000 Gain on Sale of Investment……… 600 2. This gain on sale of investment is a realized gain. The loss recorded at December 31, 20X7 was unrealized because it resulted from a change in the investment’s market value, not from the sale of the investment. Financial Accounting 7/e Solutions Manual 128
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(10-15 min.) S 10-3 1. Equity method is appropriate because the investor (General Motors) holds a 40% investment in the investee company (Isuzu). 2. Journal ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Millions a. Long-Term Investment………………………….. 410 Cash……………………………………………... 410 To purchase equity-method investment. b. Long-Term Investment ($60 × .40)……………. 24 Equity-Method Investment Revenue………. 24 To record investment revenue. c. Cash ($20 × .40)………………………………….. 8 Long-Term Investment………………………. 8 To receive cash dividend on equity-method investment. 3. Long-Term Investment (Amounts in millions) Purchase 410 Dividends received 8 Net income 24 Balance 426 Chapter 10 Long-Term Investments and International Operations 129
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(5 min.) S 10-4 Millions Sale proceeds…………………………………………... $ 140 Carrying amount of the investment ($426 / 2)…….. (213 ) = (Loss) on sale of investment………………………… $ (73 ) (10 min.) S 10-5 1. A parent company is a corporation that owns a controlling (more than 50%) interest in another company. A subsidiary company is a company that is controlled by another corporation. 2. Consolidated financial statements combine the balance sheets, income statements, and cash-flow statements of a parent company with those of its subsidiaries as if the parent and its subsidiaries were one company.
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