SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS

©Cambridge Business Publishers, 2013 Solutions Manual, Chapter 1 1

CHAPTER 1

SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS

MULTIPLE CHOICE QUESTIONS

1.c

$180,000 - $160,000 = $20,000

$125,000 - $100,000 = 25,000

Total gain$45,000 2.a

$29,000 - $26,000 = $3,000

3.a $207,544 – [(6% x $200,000) – (4% x $207,544)] = $203,846 4.c AOCI, beginning balance$ 4,000 credit Reclassification of unrealized loss on AFS securities sold 1,000 credit Unrealized gain on AFS securities held at year-end (1) 6,000 credit AOCI, ending balance$11,000 credit (1) $81,000 – ($100,000 - $25,000) = $6,000 unrealized gain 5.d $5,000,000 + 40% x ($600,000 - $200,000) = $5,160,000 6.b Advanced Accounting 2e Susan Hamlen, Ronald Huefner, James Largay (Solutions Manual All Chapters, 100% Original Verified, A+ Grade) 1 / 4

©Cambridge Business Publishers, 2013

• Advanced Accounting, 2nd Edition
• b

Reported net income 35% x $7,000,000 = $ 2,450,000 Less unconfirmed profit on ending inventory 35% x [$6,000,000 – ($6,000,000/1.25)] = (420,000) Equity in net income for 2014 $ 2,030,000 Less dividends 35% x $2,000,000 (700,000) Plus beginning investment balance 50,000,000 Ending investment balance $51,330,000

• d

Fizzy’s entry to record the acquisition is:

Current assets 25,000 Property 2,500,000 Goodwill 25,475,000 Liabilities 3,000,000 Cash 25,000,000

• b

• a

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©Cambridge Business Publishers, 2013 Solutions Manual, Chapter 1 3

EXERCISES

E1.1 Investment in Trading Securities

(in millions)

• $209 + 3 = $212

• Unrealized gains and losses on trading securities are reported in income.

c.Investment in trading securities 212 Cash 212

Unrealized losses (income) 3 Investment in trading securities 3

d.Cash 215 Investment in trading securities 209 Realized gains (income) 6

E1.2 Investment in Available-for-Sale Securities

(in millions) a.Impairment loss (income) 26

OCI 19

Investment in AFS securities 7

If the original cost of the securities was $150, and the impairment loss is $26, then the current fair value of the securities is $150 - $26 = $124. The credit to Investment reduces the fair value from $131 to $124. The credit to OCI is the amount of unrealized loss recategorized to income (= $150 - $131).

b.Investment in AFS securities 83 Unrealized gains (OCI) 83

$83 = $102 - $19.

c.Cash 55 Unrealized gains (OCI) 6 Investment in AFS securities 50

Realized gain on AFS securities (income) 11 3 / 4

©Cambridge Business Publishers, 2013

• Advanced Accounting, 2nd Edition

E1.3 Held-to-Maturity Investments

Amortization schedule (supports numbers in entries below) Interest income (4% x beginning investment balance) Amortization ($250,000 – interest income) Investment balance (beginning balance – amortization)

1/1/2013 $5,222,591

12/31/2013 $208,904 $41,096 5,181,495

12/31/2014 207,260 42,740 5,138,755

12/31/2015 205,550 44,450 5,094,305

12/31/2016 203,772 46,228 5,048,077

12/31/2017 201,923 48,077 5,000,000

January 1, 2013 Investment in HTM securities 5,222,591 Cash 5,222,591

December 31, 2013 Cash 250,000 Investment income 208,904 Investment in HTM securities 41,096

December 31, 2014 Cash 250,000 Investment income 207,260 Investment in HTM securities 42,740

December 31, 2015 Cash 250,000 Investment income 205,550 Investment in HTM securities 44,450

December 31, 2016 Cash 250,000 Investment income 203,772 Investment in HTM securities 46,228

December 31, 2017 Cash 250,000 Investment income 201,923 Investment in HTM securities 48,077

Cash 5,000,000 Investment in HTM securities 5,000,000

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