Study Guide Solutions_Chapter 15_annotated

Study Guide Solutions_Chapter 15_annotated - Quick Study...

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Quick Study 15-1 1. Interest revenue (or interest earned) 2. Parent, subsidiary 3. Current (or short-term) 4. Equity method 5. Fair value Quick Study 15-2 True: c, e, f, g Quick Study 15-6 These are securities “available for sale”; therefore they are under the “fair (market) value” reporting method. (1) Must not enable the investor to have significant influence over the “investee” (the company whose shares are owned by the buyer) which means that the buyer owns < 20% of the investee’s voting stock (2) Dividends are reported as Dividend Revenue on the Income Statement (3) Any gain or loss is reported on the income statement (4) On the Balance sheet the shares are shown at fair market value and any unrealized gain or loss is reported as a separate item in the equity section on the Balance Sheet. May 9 ..................... 20,400 Cash . ................................................................ 20,400 Purchased 400 shares at $50 plus $400 fee. Remember fees/commissions paid on purchases increase the acquisition cost basis. This now makes the cost value per share = $51 [$20,400 / 400 = $51) June 2 Cash . ...................................................................... 11,020 Gain on Sale of Short-Term Investments . .... 820 ......... 10,200 Sale Proceeds = value of sale – fees/commissions or ($56 X 200) - $180 commission $11,200 - $180 = $11,020 To record sale of available-for-sale securities. The original cost is $20,400 x200/400 =$10,200 A better way to compute the cost is $51 X 200 = $10,200 Dec. 31 Unrealized Loss – Equity* ....................................... 1,000 Fair Value Adjustment–Available-for-Sale (ST) .. 1,000 To reflect an unrealized loss in fair value of available-for-sale securities. As of Dec. 31 Number of Shares Cost per Share Total Cost Fair Value per Share Total Fair Value Unrealized Loss (Fair Value-Cost) X&O 200 $51 $10,200 $46 $9,200 $1,000*
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Quick Study 15-7 Valuation Method: The fair value method is used to account for this investment in long-term equity securities (AFS portfolio). 3 These are securities “available for sale”; therefore they are under the “fair (market) value” reporting method. (1) Must not enable the investor to have significant influence over the “investee” (the company whose shares are owned by the buyer) which means that the buyer owns < 20% of the investee’s voting stock (2) Dividends are reported as Dividend Revenue on the Income Statement (3) Any gain or loss is reported on the income statement (4) On the Balance sheet the shares are shown at fair market value and any unrealized gain or loss is reported as a separate item in the equity section on the Balance Sheet. 2011
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Study Guide Solutions_Chapter 15_annotated - Quick Study...

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