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13-rest-mine - 1.a(i X Z Total Dividend income $10,000 0...

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1.a . (i) Dividend income: X: $10,000 (100,000 x $.10) Z: 0 Total $10,000 Dividends are not recorded as income for Y (40% owned), but are included in “equity in income of affiliates” instead.) (ii) Unrealized gains/losses included in stockholders' equity (all before deferred tax): Firm 12/31/2000 2001 Change 12/31/2001 X $(400,000) $ 300,000 $(100,000) Z 300,000 450,000 750,000 Total $(100,000) $ 750,000 $(650,000) Y: market value changes not recognized under equity method. (iii) Equity in income of affiliates: Y: .40 x $900,000 = $360,000 b. The investments are accounted for as follows: Y using the equity method, as ownership exceeds 20% X and Z at market value as “available-for-sale” securities under SFAS 115 c. Dividend income $ 10,000 Equity income 360,000 Total income $370,000 d. X: 100,000 x $49 = $4,900,000 Z: 150,000 x 30 = 4,500,000 Y: carried at original cost plus equity in undistributed earnings subsequent to acquisition. Carrying amount at 1/1/2001 cannot be determined but would be calculated as: Carrying amount at 1/1/2000: 800,000 x $35 = $2,800,000 Plus 2000 undistributed earnings (data not available) Plus 2001 earnings: $.40 x $900,000 = 360,000 Less 2001 dividends: $.09 x $800,000 = (72,000) e. Mark to market returns for 2001: Firm Dividends + MV Change = Total Return X 10,000 $ 300,000 $ 310,000 Y 72,000 1,600,000 1,672,000 Z 0 450,000 450,000 Total $ 82,000 $2,350,000 $2,432,000 For firms X and Z, the total return is reported in the financial statements, but that return is reported primarily as an adjustment to stockholders' equity. f. If consolidation were required for 40% ownership, Bart would consolidate firm Y. While consolidation does not change reported income, Bart’s equity in the earnings of firm Y would be replaced by all revenues and expenses of firm Y. Similarly, Bart’s investment in firm Y would be replaced by all of the assets and liabilities of firm Y. The 60% of firm Y equity (and income) not owned by Bart would be shown as minority interest. 2.a. The held-to-maturity fixed maturities are measured at amortized cost. The available-for-sale fixed maturities and equity securities are measured at market value. b. 2000 Reported ROA by Portfolio Component ($ millions) Total Fixed Equity Total Maturities Securities Portfolio Opening balance $14,519 $ 769 $15,288 Investment income 903 23 926 Return on assets 6.22% 2.99% 6.06% Note : Opening balances from Exhibit 13-3A (p. 463). Investment income includes realized gains All returns are below the corresponding reported 1999 returns shown in Exhibit 13- 3B. c. First, compute the mark-to-market returns, using the analysis on p. 465 as a guide. 2000 Change in MVA ($ in millions) Fixed Maturity Securities Held-to- Available Equity 2000 Maturity for-Sale Total Securities Market value $1,565 $14,068 $15,633 $ 830 Cost 1,496 13,720 15,216 840 MVA $ 69 $ 348 $ 417 $ (10) 1999 Market value $1,801 $12,777 $14,578 $769 Cost 1,742 12,944 14,686 715 MVA $ 59 $ (167) $ (108) $ 54 Change in MVA Fixed maturities $417 - $(108) = $525 Equity securities $(10) - $ 54 = (64) Total portfolio $461 13-1
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Fixed maturities $1,426 / $19,654 = 7.26% Calculation of 2000 Mark-to-Market Return Equity securities 94 / 2,005 = 4.69 Fixed Equities Total Total portfolio $1,520 / $21,659 = 7.02% Maturities Dividends and interest $ 895 $ 24 $ 919 where return equals dividend and interest income plus realized gains or losses.
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