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7/29/2019 Hh Acct7 Sm Appxb

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Appendix B

Investments and International Accounting

Exercises

(10 min.) EB-1

Journal

DATE ACCOUNTS AND EXPLANATIONS

POST.

REF. DEBIT CREDIT

2007

Dec. 6 Short-Term Investment

(1,000 $52.25) 52,250Cash 52,250

23 Cash (1,000 $1.10) 1,100

Dividend Revenue 1,100

31 Loss on Trading Investment

[$52,250 (1,000 $50)] 2,250

Short-Term Investment 2,250

2008

Jan. 27 Cash (1,000 $48) 48,000

Appendix B Investments and International Accounting 187


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Loss on Sale of Investment 2,000

Short-Term Investment

($52,250 $2,250) 50,000

Accounting 7/e Solutions Manual188


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(10-15 min.) EB-2

1.

Journal


POST.

REF. DEBIT CREDIT

2007

Jan. 14 Long-Term Available-for-Sale

Investment (300 $44) 13,200

Cash 13,200

Aug. 22 Cash (300 $0.60) 180

Dividend Revenue 180

Dec. 31 Unrealized Loss on Investment 1,200

Allowance to Adjust

Investment to Market

($13,200 $12,000) 1,200

2.

ASSETS

Total current assets..................................... $ XXX

Long-term available-for-sale investments,at market value............................................ 12,000

STOCKHOLDERS EQUITY

Common stock......................................... $ XXX



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Retained earnings............................................... XXX

Unrealized gain (loss) on investments.......... (1,200)



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(10 min.) EB-3

1.

Journal


POST.

REF. DEBIT CREDIT

2008

Aug. 4 Cash (300 $45) 13,500

Long-Term Available-for-Sale

Investment 13,200

Gain on Sale of Investment 300

2. This gain on sale of investment is a realizedgain. The loss

recorded at December 31, 2007 was unrealized because it

resulted from a change in the investments market value, not

from the sale of the investment.



6/22

(10-15 min.) EB-4

1. Equity methodis appropriate because General Motors holds

a 40% investment in Isuzu.

2.

Journal

ACCOUNTS AND EXPLANATIONS

POST.

REF. DEBIT CREDIT

Millions

a. Long-Term Equity-Method Investment 500

Cash 500

Purchased equity-method investment.

b. Long-Term Equity-Method Investment

($60 .40) 24Equity-Method Investment Revenue 24

Recorded investment revenue.

c. Cash ($50 .40) 20

Long-Term Equity-Method

Investment

20

Received dividend on equity-method

investment.



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3.

Long-Term Equity-Method Investment

(Amounts in millions)

Purchase 500

Net income 24 Dividends received 20

Balance 504



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(10-15 min.) EB-5

1. Paid $980,000 ($1,000,000 .98)

Will collect at maturity $1,000,000

2. Annual cash interest = $80,000 ($1,000,000 .08)

3. Cash interest received each year.................. $80,000

+ Amortization $1,000,000 $980,000

=of discount: 5 years 4,000

= Annual interest revenue....................... $84,000



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(10 min.) EB-6

Journal

DATE ACCOUNTS AND EXPLANATIONSPOST.REF. DEBIT CREDIT

2007

a. Jan. 2 Long-Term Investment in Bonds

($1,000,000 .98) 980,000

Cash 980,000

Purchased bond investment.

b. Dec. 31 Cash ($1,000,000 .08) 80,000

Interest Revenue 80,000

Received annual interest.

c. 31 Long-Term Investment in Bonds

[($1,000,000 $980,000) / 5] 4,000


Amortized discount on bond

investment.

2012

d. Jan. 2 Cash 1,000,000

Long-Term Investment in Bonds 1,000,000

Received face value at maturity.



10/22

(10 min.) EB-7

Journal

DATE ACCOUNTS AND EXPLANATIONSPOST.REF. DEBIT CREDIT

Mar. 14 Accounts Receivable

(2,000,000 rubles $0.030) 60,000

Sales Revenue 60,000

Sale on account.

Apr. 19 Cash (1,000,000 rubles $0.028) 28,000

Foreign-Currency Loss 2,000

Accounts Receivable ($60,000 1/2) 30,000

Collection on account.

May 10 Cash (1,000,000 rubles $0.036) 36,000

Accounts Receivable ($60,000 1/2) 30,000

Foreign-Currency Gain 6,000

Collection on account.

Overall, Wilson had a net foreign-currency gain of $4,000 (gain

of $6,000 minus a loss of $2,000).



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Problems

(15-20 min.) PB-8

Req. 1

Journal


POST.

REF. DEBIT CREDIT

July 2 Short-Term Investment 42,000

Cash (3,500 shares $12) 42,000

Aug. 21 Cash (3,500 shares $0.40) 1,400


Sep. 16 Cash (3,500 shares $13.50) 47,250

Short-Term Investment 42,000Gain on Sale of Investment 5,250

Oct. 8 Short-Term Investment 136,000

Cash 136,000

Dec. 31 Loss on Trading Investment

($136,000 $133,000)

3,000

Short-Term Investment 3,000



12/22

(continued) PB-8

Req. 2

Short-Term Investments

42,000 42,000

136,000 3,000

Bal. 133,000

Balance sheet

Current assets:

Short-term investments, at market value.......

..

$133,000



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(45-60 min.) PB-9

Req. 1

Journal


POST.

REF. DEBIT CREDIT

Mar. 3 Long-Term Available-for-Sale Investments

(5,000 $9) 45,000

Cash 45,000

Purchased investment.

May 14 Cash (5,000 $.80) 4,000


Received dividend.

Dec. 15 Cash 80,000

Long-Term Equity-Method Investments 80,000

Received dividends on equity-methodinvestments.

31 Long-Term Equity-Method Investments

($600,000 .25) 150,000

Equity-Method Investment Revenue 150,000

Recorded investment revenue.

31 Unrealized Loss on Investments 1,000

Allowance to Adjust Investments to Market

($45,000 $44,000) 1,000

Adjusted investment to market value.



14/22

(continued) PB-9

Req. 2

Long-Term Available-for-Sale Investment

Mar. 3 Purchase 45,000

Dec. 31 Balance 45,000

Allowance to Adjust Investment to Market

Dec. 31 Adjustment 1,000

Long-Term Equity-Method Investments

Jan. 1 Balance 600,000

Dec. 31 Net income 150,000 Dec. 15 Dividends 80,000

Dec. 31 Balance 670,000

Req. 3

Total current assets............................................... $ XXX

Long-term available-for-sale investment,

at market value ($45,000 $1,000)................... 44,000



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Long-term equity-method investments................ 670,000



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(45-60 min.) PB-10

Req. 1

Journal


POST.

REF. DEBIT CREDIT

2004

Jan. 1 Long-Term Investment in Bonds

($800,000 .92) 736,000

Cash 736,000Purchased bond investment.

June 30 Cash ($800,000 .06 6/12) 24,000


Received interest.

30 Long-Term Investment in Bonds[($800,000 $736,000) / 60*] 6 6,400



investment.

Dec. 31 Cash ($800,000 .06 6/12) 24,000

Interest Revenue 24,000Received interest.

31 Long-Term Investment in Bonds

[($800,000 $736,000) / 60*] 6 6,400




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investment.

*Amortization period:

60 months, from January 1, 2004 to January 1, 2009.



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(continued) PB-10

Req. 2

Balance sheet at December 31, 2004:

Total current assets.............................. $XXX,XXX

Long-term investments in bonds

($736,000 + $6,400 + $6,400)....................... 748,800

Property, plant, and equipment, net.................. XXX,XXX



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(30-40 min.) PB-11

Req. 1

Journal


POST.

REF. DEBIT CREDIT

May 4 Accounts Receivable 70,000


13 Inventory (or Purchases) 51,000

Accounts Payable

(60,000 $.85) 51,000

20 Accounts Receivable

(80,000 $1.80) 144,000


27 Cash 70,000

Accounts Receivable 70,000

June 21 Accounts Payable 51,000

Cash (60,000 $.82) 49,200Foreign-Currency Gain 1,800

July 17 Cash (80,000 $1.77) 141,600

Foreign-Currency Loss 2,400



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Accounts Receivable 144,000

Income statement (partial):

Other revenue and expense:

Foreign-currency gain (loss), net

($1,800 gain $2,400 loss).......................................... $(600)



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(continued) PB-11

Req. 2

This problem demonstrates that the final cash receipt or cash

payment on a transaction stated in a foreign currency can differ

from the initial dollar amount of the transaction. Students can

thus learn the need to hedge their receivable and payable

positions denominated in foreign currencies. This will help

them minimize foreign-currency losses.



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