Instructions a prepare the adjusting entries to

Instructions
(a) Prepare the adjusting entries to report each class of securities at fair value.
(b) Indicate the statement presentation of each class of securities and the related unrealized
gain (loss) accounts.
Ans: N/A, LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC:
Problem Solving, IMA: FSA
Solution 189 (5 min.)
(a) Fair Value Adjustment—Trading
($199,000 – $110,000) ........................................................ 9,000
Unrealized Gain or Loss—Income .............................. 9,000
Unrealized Gain or Loss—Equity .............................................. 5,000*
Fair Value Adjustment—Available-for-Sale .......................... 5,000
*(AFS cost – AFS fair val.)
FOR INSTRUCTOR USE ONLY
H-57

Test Bank for Financial Accounting: Tools for Business Decision Making, Eighth Edition
Solution 189 (Cont.)
(b) Balance Sheet
Current Assets
Short-term Investments, at fair value ................................... $119,000
Investments
Long-term Investments, at fair value ................................... 95,000
Stockholders' equity
Less: Unrealized loss on available-for-sale securities ......... $ (5,000)
Income Statement
Other revenues and gains
Unrealized gain—income .................................................... $ 9,000
COMPLETION STATEMENTS
190. Excess cash due to seasonal fluctuations is invested in ______________ investments.
Ans: N/A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: Project
Management, IMA: Investment Decisions
191. Debt investments are investments in government and _____________ bonds.
Ans: N/A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Investment Decisions
192. When an investor owns between 20% and 50% of the common stock of a corporation, it
is generally presumed that the investor has _______________ influence over the
investee and therefore, the appropriate method of accounting for this type of investment
is the _______________ method.
Ans: N/A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC: None, IMA:
Investment Decisions
193. Under the cost method, dividends received from an investee company are credited to the
_______________ account, whereas under the equity method, dividends received from
an investee company are credited to the _______________ account.
Ans: N/A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Measurement, AICPA PC: None,
IMA: FSA
194. At the beginning of the year, Dynamite Corporation acquired 15% of Tuesday Company
common stock for $600,000. Tuesday Company reported net income for the year of
$60,000 and paid $20,000 cash dividends during the year. The balance of the Stock
Investments account on the books of the Dynamite Corporation at the end of the year
should be $______________.
Ans: N/A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FC: Reporting, AICPA PC:
Problem Solving, IMA: Reporting
195. A company that owns more than 50% of the common stock of another company is known
as the ______________ company and _____________ financial statements are usually
prepared.