Fundamental Accounting Principles Canadian Vol 2 Canadian 14th Edition Larson Solutions Manual

Fundamental Accounting Principles
Canadian Vol 2 Canadian 14th Edition

Larson Solutions Manual
Visit to download the full and correct content document: https://testbankdeal.com/dow
nload/fundamental-accounting-principles-canadian-vol-2-canadian-14th-edition-larson
-solutions-manual/
Last revised January 2013
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles

14th Canadian Edition
by Larson/Jensen
Prepared by:
Tilly Jensen, Athabasca University
Wendy Popowich, Northern Alberta Institute of Technology
Susan Hurley, Northern Alberta Institute of Technology
Ruby So Koumarelas, Northern Alberta Institute of Technology
Technical checks by:

Ross Meacher
Betty Young, Red River College,
ANSR Source
Solutions Manual to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 16-1
Chapter 16 Accounting for Debt and Share

Investments
Chapter Opening Critical Thinking Challenge Questions*
How would an investor account for investment income?

- It depends on how the investment is classified. Income earned from an
investment recorded as a business combination would be recorded differently
than income earned from a debt investment.
How would an investment loss, such as the loss suffered in a Ponzi scheme, be recorded
by an investor?
- Again, how the investment was originally classified would determine how an
investment loss would be recorded. However, in all cases, because a Ponzi
scheme typically leaves the investor with little or nothing, the investments must
be assessed for impairment and appropriately written-down.
*The Chapter 16 Critical Thinking Challenge questions are asked at the beginning of this
chapter. Students are reminded at the conclusion of the chapter to refer to the Critical
Thinking Challenge questions at the beginning of the chapter. The solutions to the
Critical Thinking Challenge questions are available here in the Solutions Manual and
accessible to students at Connect.
CONCEPT REVIEW QUESTIONS
1. The classes for debt and share investments are:

— Non-strategic investments: debt investments and share investments
— Strategic investments: investments in associates (significant influence),
business combination (control), and joint arrangements (joint control).
2. An equity investment means the investor is buying an ownership interest in the
investee while a debt investment means the investor is lending the investee money.
Another difference is that an equity investment can pay dividends while a debt
investment will pay interest.
3. Interest is recorded as it accrues.
4. Using the fair value method when accounting for non-strategic investments,
revenue is recognized when dividends or interest are received or when the
investment is sold. An impairment adjustment is made at the end of each
accounting period to reflect the fair value of the investment, but any resulting gain
is unrealized.
5. Using the amortized cost method, revenue should be recognized when interest is
received or receivable and when the debt investment matures.
6. The equity method is used when the investor has a significant influence and/or
control over the investee corporation; i.e., generally when the investor owns 20% or
more of the investee’s voting shares.
7. Using the equity method, revenue should be recognized to record the investor’s
proportionate share in the declared earnings of the investee. This is done by
debiting the investment account and crediting earnings from investment.
8. Using the equity method dividends received from the investee company are not
recorded as revenue because doing so would be to double count the revenue.
Double counting occurs because the investor company has already recorded
revenue as its share of the investee’s earnings. Dividends paid by the investee
reduces the net assets of the investee and therefore the investor should debit cash
but credit the investment account to reflect its share in reduced net assets.
9. A company prepares consolidated statements if the company has control over a
subsidiary as a result of owning more than 50% of the subsidiary’s voting shares.
QUICK STUDY
Quick Study 16-1 (10 minutes)
1. E Purchased 5,000 shares of Douglas Inc. shares to be held for about 30 days.
2. D Purchased at par a $100,000 5% 5-year bond; interest is payable quarterly and
the bond will be held until maturity.
3. E Purchased 50,000 of the 80,000 authorized shares of Dolby Inc.
4. N Purchased equipment costing $140,000 by issuing shares.
5. N Purchased land costing $289,000 by borrowing $200,000 from the bank and
issuing shares for the balance.
6. N Signed a contract with two other organizations regarding a project to develop
and market a new computer program; each investor has a 1/3 share in the
project costs and revenues.
7. E Purchased 80,000 Inco shares to be held for several years; Inco has over 5
million shares issued and outstanding;
8. E Purchased 3,000 Perdu shares representing a 25% ownership interest.
Explanations: (4) ABC Inc. is not an investor; it has become an investee in this case
because an investor has accepted ABC Inc. shares in exchange for an asset. ABC Inc.
has invested in equipment which is not an investment in debt or equity securities.
(5) Same as (4). (6) ABC Inc. has entered into a contractual agreement as a form of
investment; a joint arrangement which is a type of investment but not a debt or equity
security investment.
Quick Study 16-2

1. N Purchased 5,000 shares of Douglas Inc. shares to be held for about 30
days.
2. N Purchased at par a $100,000 5% 5-year bond; interest is payable
quarterly and the bond will be held until maturity.
3. B Purchased 50,000 of the 80,000 authorized shares of Dolby Inc.
4. NA Purchased equipment costing $140,000 by issuing shares.
5. NA Purchased land costing $289,000 by borrowing $200,000 from the bank
and issuing shares for the balance.
6. J Signed a contract with two other organizations regarding a project to
develop and market a new computer program; each investor has a 1/3
share in the project costs and revenues.
7. N Purchased 80,000 Inco shares to be held for several years; Inco has over
5 million shares issued and outstanding;
8. I Purchased 3,000 Perdu shares representing a 25% ownership interest.

2014
May 2 Short-term investment—Computer Web Corp. 48,600
Shares ...........................................................................
Cash .................................................................... 48,600
Purchased shares to be held as short-term
investment; $40.50 × 1,200 shares = $48,600.
Aug. 7 Cash .............................................................................. 600

Dividend Revenue .............................................. 600
Collected dividends; $0.50 × 1,200 shares.
2014
Dec. 31 Short-term investment – IMC Shares ......................... 7,000
Unrealized Holding Loss ............................................. 45,000
Short-term investment – Zelco Shares ............ 4,000
Short-term investment – Petra Shares ............. 48,000
To record the net unrealized holding loss
resulting from adjustment of investments to fair
value.
Calculations:
Unadjusted Fair
Balance at Values At
Investments Dec. 31/14 Dec. 31/14 Difference
Zelco shares ............................ $102,000 $ 98,000 $ (4,000)
IMC shares ............................... 540,000 547,000 7,000
Petra shares ............................ 96,000 48,000 (48,000)
Unrealized Holding $738,000 $693,000 $(45,000)
Gain (Loss)
2014
Dec. 31 Short-term investment – CashCo Shares .................. 42,500
Short-term investment – Wells Shares ............ 2,500
Unrealized Holding Gain .................................... 40,000
To record the net unrealized holding gain
resulting from adjustment of short-term
investments to fair value.
Calculations:
Unadjusted Fair
Short-term investments Dec. 31/14 Dec. 31/14 Difference
CashCo shares ........................ $340,000 $382,500 $42,500
Wells shares ............................ 34,000 31,500 (2,500)
Unrealized holding gain(loss) $374,000 $414,000 $40,000
1. 21,250 shares × $18 = $382,500
2. 45,000 shares × $0.70 = $31,500
Current assets:
Short-term investments, at fair value .......................... $414,000

2014
Feb. 1 Short-term investment – Telus Bonds ....................... 4,900
Cash .................................................................... 4,900
Purchased bonds to be a short-term
investment; 5,000 × .98 = 4,900.
May 1 Cash .............................................................................. 50

Short-term investment – Telus Bonds ....................... 2
Interest Revenue ................................................ 52
Record receipt of interest; $5,000 × 4% × 3/12 = $50
and amortization of bond discount using the
effective interest method; $4,900 x 4.25% x 3/12 = $52

2014
Jan. 1 Long-term investment – Telus Bond .......................... 42,030
Cash .................................................................... 42,030
Purchased a bond at a premium to be held as
a long-term investment.
June 30 Cash .............................................................................. 2,400

Long-term investment – Telus Bond ................ 298
Interest Revenue ................................................ 2,102
Recorded receipt of interest and amortization
of bond premium using the effective interest
method.
2016
Dec. 31 Cash .............................................................................. 2,400
Long-term investment – Telus Bond ................ 382
Recorded receipt of interest and amortization of bond
premium using the effective interest method.
Dec. 31 Cash .............................................................................. 40,000

Long-term investment – Telus Bond ................ 40,000
Record collection of cash resulting from
maturity of investment in bond.
2014
Jan. 1 Long-term investment – Imax Bond ........................... 46,490
Cash .................................................................... 46,490
Purchased a bond at a discount to be held as
a long-term investment.
June 30 Cash .............................................................................. 1,000

Long-term investment – Imax Bond ........................... 395
Recorded receipt of interest and amortization
of bond discount using the effective interest
method.
Long-term investments:
Long-term investments, at amortized cost .................................... $ 47,292
2014
Jan. 2 Equity Investment – Suffolk Corp. .............................. 500,000
Cash .................................................................... 500,000
Purchased 10,000 common shares representing
significant influence or an investment in associate with
a 25% interest in Suffolk.
Oct. 12 Cash .............................................................................. 25,000

Equity Investment – Suffolk Corp. .................... 25,000
Collected dividend; $100,000 × 25%.
Dec. 31 Equity Investment – Suffolk Corp. .............................. 100,000

Equity Investment Earnings – Suffolk Corp.. .. 100,000
To record equity share in earnings;
$400,000 × 25%.
2014
Jan. 2 Equity Investment – Dofasco Inc. ............................... 1,200,000
Cash .................................................................... 1,200,000
Purchased 704,000 common shares representing
significant influence or an investment in associate
with a 22% interest in Dofasco.
Mar. 15 Cash .............................................................................. 140,800

Equity Investment – Dofasco Inc. ..................... 140,800
Collected dividend; $0.20 × 704,000 shares.
Dec. 31 Equity Investment Loss– Dofasco Inc.. ..................... 368,500

Equity Investment – Dofasco Inc. ..................... 368,500
To record equity share in loss;
$1,675,000 × 22%.
EXERCISES
Exercise 16-1 (30 minutes)
2014
Mar. 1 Short-term investment – Cordy Bond ........................ 60,980
Cash .................................................................... 60,980
Purchased 2-year, 7%, $60,000 bond payable
to be held as a short-term investment.
Apr. 16 Short-term investment – Windsor Motors 51,000

Shares ...........................................................................
Cash .................................................................... 51,000
Purchased short-term investment;
$25.50 × 2,000 shares = $51,000
May 2 Short-term investment – Bates Bond ......................... 38,968

Cash .................................................................... 38,968
Purchased 5-year, 4.5%, $40,000 bond payable
to be held as a short-term investment.
June 1 Cash .............................................................................. 1,050

Collected interest; $60,000 × 7% × 3/12 = 1,050.
Aug. 1 No entry.
15 Cash .............................................................................. 1,500

Dividend Revenue .............................................. 1,500
Collected dividend revenue;
2,000 shares × $0.75 per share = $1,500.
Sept. 1 Cash .............................................................................. 1,050

Collected interest revenue;
$60,000 × 7% × 3/12 = 1,050.
17 Short-term investment – Delta Shares ....................... 80,000

Cash .................................................................... 80,000
Exercise 16-1 (continued)

25,000 shares × $3.20 = $80,000
Oct. 20 Cash .............................................................................. 62,000

Gain on Sale of Investment ............................... 11,000
Short-term investment – Windsor 51,000
Shares .................................................................
Sold short-term investment;
$31 × 2,000 = $62,000
Dec. 1 Cash .............................................................................. 1,050

Collected interest; $60,000 × 7% × 3/12 = 1,050.
1 Cash .............................................................................. 60,600

Loss on Sale of Investment ......................................... 380
Short-term investment – Cordy Bond .............. 60,980
$60,000 × 101% = $60,600 – $60,980 = $380.
31 Interest Receivable ...................................................... 1,200

Accrued interest; $40,000 × 4.5% × 8/12 = 1,200.
31 Short-term investment – Delta Shares ....................... 7,500

To record impairment adjustment at year end.
2015
Apr. 30 Cash .............................................................................. 1,800
Interest Receivable ............................................ 1,200
Collected interest; $40,000 × 4.5% × 4/12 = 600.
Calculations for Dec. 31/14 impairment adjustment:

Unadjusted Fair
Balance at Values at
Bates (Carrying value = FV) ............ $ 38,968 $ 38,968 $ 0
Delta (25,000 × $3.50 = 87,500) ....... 80,000 87,500 7,500
Unrealized Holding Gain(Loss)....... $118,968 $126,468 $ 7,500
Exercise 16-1 (concluded)
Analysis component:
If the adjusting entry on December 31, 2014 was not recorded, net income would have
been understated on the income statement and assets and equity would have been
understated on the balance sheet, which would violate GAAP because the financial
information would not be faithfully represented. It would be worse to not record an
Unrealized Holding Loss than an Unrealized Holding Gain. Net income and assets should
never be overstated; it is better to understate than overstate given that users of financial
statement information are relying on them.
2014
Feb. 1 Short-term investment – Wella Bond ......................... 120,200
Cash .................................................................... 120,200
Purchased a 4-year, 3%, $124,000 bond to be
held as a short-term investment.
Mar. 29 Short-term investment– Regina Shares ..................... 85,600

Cash .................................................................... 85,600
Purchased 100,000 common shares as a
short-term investment.
May 7 No entry
June 1 Short-term investment– Yates Bond .......................... 139,000

Cash .................................................................... 139,000
Purchased a 5-year, 6%, $136,000 bond;
interest paid annually each May 30.
15 Cash .............................................................................. 15,000

$525,000 ÷ 3,500,000 shares = $0.15/share;
$0.15/share × 100,000 shares = $15,000.
Aug. 1 Cash .............................................................................. 1,860

Collected interest; $124,000 × 3% × 6/12 = $1,860.
1 Cash .............................................................................. 121,520

Short-term investment– Wella Bond ................ 120,200
98% × $124,000 = $121,520.
17 Short-term investment– Tech Shares ........................ 450,000

Cash .................................................................... 450,000
75,000 × $6.00 = $450,000.
Dec. 1 Cash .............................................................................. 71,250

Short-term investment– Regina Shares ........... 64,200
75,000/100,000 × $85,600 = $64,200;
75,000 × 0.95 = 71,250.
31 Interest Receivable ...................................................... 4,760

Accrued interest; $136,000 × 6% × 7/12 = $4,760.
31 Short-term investment– Regina Shares ..................... 2,350

Short-term investment– Tech Shares .............. 37,500
To record impairment adjustment at year end.
2015
May 30 Cash .............................................................................. 8,160
Interest Receivable ............................................ 4,760
To record collection of interest;
$136,000 × 6% = 8,160;
$136,000 × 6% × 5/12 = $3,400.
Calculations for Dec. 31/14 impairment adjustment:
Unadjusted Fair
Regina (25,000 × $0.95) ................... $ 21,400 $ 23,750 $ 2,350
Tech (75,000 × $5.50) ....................... 450,000 412,500 (37,500)
Unrealized Holding Gain(Loss)....... $471,400 $436,250 $(35,150)
Analysis component:
The dividends would have been credited to the investment account instead of being
recognized in net income. The net effect on the balance sheet regarding this single
transaction would have been zero had the investment been classified as a significant
influence or an investment in associate investment (cash would have increased and
investments would have decreased = net effect of 0). Net income is higher with the
investment classified as a short-term investment (cash would have increased and equity
would have increased because of an increase in net income).
Part 1
2014
Dec. 31 Unrealized Holding Loss ............................................. 2,650
Short-term investments – RIM Shares ....................... 1,850
Short-term investments – Northern 700
Electric Shares ...................................................
Short-term investments – Imperial Oil 950
Shares .................................................................
Short-term investments – Inco Limited 2,850
Shares .................................................................
To record impairment adjustment.
Calculations:
Cost Fair Value Difference
RIM common shares ...................................... $ 17,600 $ 19,450 $ 1,850
Northern Electric common shares ................ 42,750 42,050 (700)
Imperial Oil common shares ......................... 25,200 24,250 (950)
Inco Limited common shares ........................ 34,800 31,950 (2,850)
Total ................................................................. $120,350 $117,700 $(2,650)
Part 2
Current assets:
Short-term investments, at fair value…………………………………..$ 117,700
Part 1
2014
Dec. 31 Unrealized Holding Loss ............................................. 1,500
Short-term investments - Various .................... 1,500
2015
Dec. 31 Short-term investments – Various .............................. 850
Unrealized Holding Gain .................................... 850
Part 2
IP Corporation
Partial Balance Sheet
December 31, 2014
Assets
Current assets:
Short-term investments, at fair value ............................................ $ 22,000
IP Corporation
December 31, 2015
Assets
Current assets:
Part 1
Partial Amortization Schedule – Hanna Bond:
Cash Period
Period Interest Interest Premium Unamortized Carrying
Ending Received* Revenue Amort. Premium Value
Jan. 1/14 3,141 78,141
June 30/14 3,000 2,891 109 3,032 78,032
Dec. 31/14 3,000 2,887 113 2,919 77,919
June 30/15 3,000 2,883 117 2,802 77,802
Dec. 31/15 3,000 2,879 121 2,681 77,681
*75,000 × 8% × 6/12 = 3,000
Partial Amortization Schedule – Tillemanns Bond:

Cash Period
Period Interest Interest Discount Unamortized Carrying
Ending Received* Revenue Amort. Discount Value
July 1/14 $1,953 $118,047
Sept. 30/14 $2,340 $2,420 $80 1,873 118,127
Dec. 31/14 2,340 2,422 82 1,791 118,209
Mar. 31/15 2,340 2,423 83 1,708 118,292
June 30/15 2,340 2,425 85 1,623 118,377
Sept. 30/15 2,340 2,427 87 1,536 118,464
Dec. 31/15 2,340 2,429 89 1,447 118,553
*120,000 × 7.8% × 3/12 = 2,340
Part 2
2014
Jan. 1 Long-term Investment – Hanna Bond ........................ 78,141
Cash .................................................................... 78,141
held as a long-term investment.
June 30 Cash .............................................................................. 3,000

Long-term Investment – Hanna Bond .............. 109
To record receipt of interest on Hanna Bond.
July 1 Long-term Investment – Tillemanns Bond ................ 118,047

Cash .................................................................... 118,047
Purchased a 5-year, 7.8%, $120,000 bond to be
Sept. 30 Cash .............................................................................. 2,340

Long-term Investment – Tillemanns Bond ................ 80
To record receipt of interest; 120,000 × 7.8% × 3/12 = 2,340.
Dec. 31 Cash .............................................................................. 5,340

Long-term Investment – Tillemanns Bond ................ 82
Long-term Investment – Hanna Bond .............. 113
To record receipt of interest on the Hanna
Bond and the Tillemanns Bond.
Part 3
Corona Inc.
December 31, 2014
Assets
Long-term investments, at amortized cost ............................................ $ 196,1281
1.
$77,919 + $118,209 = $196,128

Part 1
Cash Period
Interest Interest Premium Unamortized Carrying
Period Ending Received* Revenue Amort. Premium Value
Jan. 1/14 6,894 406,894
June 30/14 12,000 11,393 607 6,287 406,287
Dec. 31/14 12,000 11,376 624 5,663 405,663
June 30/15 12,000 11,359 641 5,022 405,022
Dec. 31/15 12,000 11,341 659 4,363 404,363
*400,000 × 6% × 6/12 = 12,000
Part 2
2014
Jan. 1 Long-term Investment – Jarvis Bond ......................... 406,894
Cash .................................................................... 406,894
Mar. 1 Short-term investment – Medley Shares .................... 195,000

Cash .................................................................... 195,000
6,000 × 32.50 = 195,000.
May 7 Cash .............................................................................. 5,400

Collected dividend revenue; 6,000 × 0.90 = 5,400.
June 1 Short-term investment – Xtrapa Shares ..................... 316,000

Cash .................................................................... 316,000
To record purchase of short-term
investment.
30 Cash .............................................................................. 12,000

Long-term Investment – Jarvis Bond ............... 607
To record receipt of interest on the Jarvis
bond.
Aug.
1 Cash .............................................................................. 196,500
Short-term investment – Medley 195,000
Shares .................................................................
To record sale of short-term investment;
6,000 × 32.75 = 196,500.
Dec.
31 Cash .............................................................................. 12,000
Long-term Investment – Jarvis Bond ............... 624
To record receipt of interest on the Jarvis
bond.
31 Unrealized Holding Loss ............................................. 5,200

Short-term investment – Xtrapa 5,200
Shares .................................................................
To record impairment adjustment;
21,000 × 14.80 = 310,800 – 316,000 = 5,200
2015
Jan. 14 Cash .............................................................................. 306,600
Loss on Sale of Investment......................................... 4,200
Short-term investment – Xtrapa 310,800
Shares .................................................................
To record sale of Short-term investment;
21,000 × 14.60 = 306,600;
316,000 – 5,200 = 310,800.

Part 3
Gerges Inc.
December 31, 2014
Assets
Current assets:
Long-term investments, at amortized cost ................................... 405,663
Toronto’s investment equals 20% of Queen’s shares (18,000/90,000). The equity method
should be used by Toronto to account for its investment.
2014
Jan. 14 Equity Investment Queen’s Inc. Common Shares ........... 156,900
Cash .................................................................................. 156,900
To record purchase of investment; $156,900.
Oct. 1 Cash ................................................................................... 46,800

Equity Investment Queen’s Inc. Common Shares ........ 46,800
To record collection of dividend; 18,000 × $2.60.
Dec. 31 Equity Investment Queen’s Inc. Common Shares ........... 130,000

Equity Investment Earnings Queen’s Inc. ..................... 130,000
To record equity share of earnings in investment;
20% × $650,000 = $130,000.
2015
Apr. 1 Cash ................................................................................... 48,600
To record collection of dividend; 18,000 × $2.70.
Dec. 31 Equity Investment Queen’s Inc. Common Shares ........... 146,620

Equity Investment Earnings Queen’s Inc. ..................... 146,620
To record equity share of earnings in investment;
20% × $733,100.
31 Cash ..................................................................................... 104,320

Loss on Sale of Investments ............................................. 8,360
To record sale of investment.
Book value at Dec. 31/15:

Original cost ................................................................ $156,900
Less 2014 dividends ................................................... (46,800)
Plus 2014 earnings ..................................................... 130,000
Less 2015 dividends ................................................... (48,600)
Plus 2015 earnings ..................................................... 146,620
Book value at the date of the sale ............................. $338,120
Book value per share ($338,120/18,000) ........................... $ 18.78*
Book value of the 6,000 shares sold (6,000 x $18.78) ..... $112,680
*Rounded to two decimal places as instructed in the required of the question.
PROBLEMS
Problem 16-1A (35 minutes)
Part 1
Cash Period
Interest Interest Premium Unamortized Carrying
Received Revenue Amort. Premium Value
July 1/14 $2,412 $67,412
Dec. 31/14 $2,275 $2,157 $118 2,294 67,294
June 30/15 2,275 2,153 122 2,172 67,172
Dec. 31/15 2,275 2,150 125 2,047 67,047
Part 2
2014
Apr. 1 Short-term investment – Term Deposit ...................... 100,000
Cash .................................................................... 100,000
Purchased 5% term deposit as short-term investment.
12 Short-term investment – Dofasco Shares .................. 66,750

Cash .................................................................... 66,750
To record purchase of short-term investment;
3,000 × 22.25 = 66,750.
June 9 Short-term investment – Power Corp. Shares ........... 89,100

Cash .................................................................... 89,100
1,800 × 49.50 = 89,100.
20 Short-term investment – Westburne Shares ............. 11,025

Cash .................................................................... 11,025
Investment; 700 × 15.75 = 11,025.
Problem 16-1A (continued)
July 1 Long-term Investment – Littleton Bond ...................... 67,412

Cash ..................................................................... 67,412
Purchased a 7%, 8-year bond.
3 Cash ............................................................................... 101,232.88

Short-term investment – Term Deposit............. 100,000.00
Interest Revenue ................................................. 1,232.88
To record collection of term deposit and
interest earned; 100,000 × 5% × 90/365 = 1,232.88.
15 Cash ............................................................................... 2,850

Dividend Revenue ............................................... 2,850
To record collection of dividend revenue;
3,000 × 0.95 = 2,850.
28 Cash ............................................................................... 39,000

Gain on Sale of Investment ................................ 5,625
Short-term investment – Dofasco 33,375
Shares ..................................................................
1,500 × 26.00 = 39,000;
66,750/3,000 = 22.25 × 1,500 = 33,375.
Sept. 1 Cash ............................................................................... 3,780

1,800 × 2.10 = 3,780.
Dec. 15 Cash ............................................................................... 2,025

To record collection of dividend revenue; 1,500 × 1.35 = 2,025.
31 Cash ............................................................................... 2,275

Long-term Investment – Littleton 118
Bond .....................................................................
Interest Revenue ................................................. 2,157
Collected interest on the bond; 65,000 × 7% × 6/12.
Problem 16-1A (concluded)
Dec. 31 Short-term investment – Dofasco Shares .................. 3,525

Short-term investment – Westburne Shares ............. 210
Short-term investment – Power Corp. 12,870
Shares .................................................................
Dofasco (1,500 × 24.60 = 36,900) .................. $ 33,375 $ 36,900 $ 3,525
Power Corp. (1,800 × 42.35 = 76,230) ............ 89,100 76,230 (12,870)
Westburne (700 × 16.05 = 11,235) .................. 11,025 11,235 210
Total .................................................................. $133,500 $124,365 $(9,135)
2015
Feb. 16 Cash .............................................................................. 39,375
Short-term investment – Dofasco 36,900
Shares ..................................................................
To record sale of investment; 1,500 × 26.25 = 39,375.
Part 3
Landers Inc.
December 31, 2014
Assets
Current assets:
Short-term investments, at fair value ........................................... $ 124,365
Analysis component:
The Unrealized Loss results from the impairment adjustment at the end of the accounting
period; it is not the result of a transaction. The Loss on Sale of Investment results from
the sale of the investment; it is a transaction.
Part 1
Cash Period
Interest Interest Discount Unamortized Carrying
Received Revenue Amort. Discount Value
Apr. 1/14 $1,242 $88,758
June 30/14 $1,530 $1,598 $68 1,174 88,826
Sept. 30/14 1,530 1,599 69 1,105 88,895
Dec. 31/14 1,530 1,600 70 1,035 88,965
Part 2
2014
Feb. 7 Short-term investment – Royal Bank Shares ............ 58,300
Cash .................................................................... 58,300
To record purchase of investment;
2,200 × 26.50 = 58,300.
19 Short-term investment – Imperial Oil Shares ............ 62,100

Cash .................................................................... 62,100
To record purchase of investment;
1,200 × 51.75 = 62,100.
Apr. 1 Long-term Investment – Minco Bond ......................... 88,758

Cash .................................................................... 88,758
Purchased a 4-year, 6.8%, $90,000 bond.
May 26 Short-term investment – BCE Shares ........................ 26,760

Cash .................................................................... 26,760
investment; 2,000 × 13.38 = 26,760.
June 1 Cash .............................................................................. 550

2,200 × 0.25 = 550.
17 Cash .............................................................................. 32,400

Gain on Sale of Investment ............................... 600
Short-term investment – Royal Bank 31,800
Shares .................................................................
58,300/2,200 = 26.50 × 1,200 = 31,800;
1,200 × 27 = 32,400.
30 Cash .............................................................................. 1,530

Long-term Investment – Minco Bond ......................... 68
Collected interest on bond.
Aug. 5 Cash .............................................................................. 600

1,200 × 0.50 = 600.
Sept. 1 Cash .............................................................................. 275

1,000 × 0.275 = 275.
30 Cash .............................................................................. 1,530

Dec. 31 Cash .............................................................................. 1,530

Dec. 31 Short-term investment – Royal Bank Shares ............ 1,000

Short-term investment – BCE Shares ........................ 240
Unrealized Holding Loss ............................................. 704
Short-term investment - Imperial Oil 1,944
Shares .................................................................
Cost Fair Difference

Value
Royal Bank (1,000 × 27.50 = 27,500) ............. $ 26,500 $ 27,500 $ 1,000
Imperial Oil (1,200 × 50.13 = 60,156) ..............62,100 60,156 (1,944)
BCE (2,000 × 13.50 = 27,000) ..........................26,760 27,000 240
Total ..................................................................
$115,360 $114,656 $ (704)
Part 3
Sellers Corporation
December 31, 2014
Assets
Current assets:
Analysis component:
If the impairment adjustment is not recorded by Sellers Corporation, net income, current
assets, and equity will each be overstated by a net amount of $704.
Part 1
Cash Period
Ending Received Revenue Amort. Premium Value
Jan. 1/14 1,960 241,960
June 30/14 7,200 6,896 304 1,656 241,656
Dec. 31/14 7,200 6,887 313 1,343 241,343
Part 2(a)
Jan. 1 Long-term Investment – Peverdo Bond ......................... 241,960
Cash ........................................................................ 241,960
Purchased a 3-year, 6%, $240,000 bond.
Part 2(b)
June 30 Cash .................................................................................. 7,200
Long-term Investment–Peverdo Bond ................. 304
Interest Revenue .................................................... 6,896
Dec. 31 Cash .................................................................................. 7,200

Long-term Investment–Peverdo Bond ................. 313
Interest Revenue .................................................... 6,887
Part 3
Liu Corporation
December 31, 2014
Assets
Long-term investments, at amortized cost…………………….. $241,343
2014
Jan. 17 Cash .............................................................................. 36,000
Loss on Sale of Investment ......................................... 1,200
Short-term investment – Young 37,200
Shares .................................................................
62,000/1,250 = 49.60 × 750 = 37,200.
Mar. 3 Equity Investment Allen Corp. Shares ....................... 300,000

Cash .................................................................... 300,000
To record purchase of 30% interest for $300,000.
June 7 Cash .............................................................................. 12,500

Equity Investment Allen Corp. Shares ............. 12,500
To record collection of dividends from equity
investment; 5,000 × 2.50 = 12,500.
Aug. 14 Cash .............................................................................. 15,750

Short-term investment – Young 24,800
Shares .................................................................
500 × 31.50 = 15,750; 62,000 – 37,200 = 24,800.
Nov. 28 Short-term investment – Davis Corp. Shares ........... 89,000

Cash .................................................................... 89,000
Purchased 10,000 shares.
Dec. 30 Cash .............................................................................. 160,000

Short-term investment – Xavier 145,000
Shares .................................................................
Sold short-term investment.
31 Equity Investment Allen Corp. Shares ....................... 84,000

Equity Investment Earnings Allen Corp. .......... 84,000
To record share of earnings in equity investment; 280,000 × 30% =
84,000.
Analysis component:
A loss of $7,500 (300,000 – 12,500 + 84,000 = 371,500 – 364,000 = 7,500) would be realized
as opposed to unrealized because a transaction has occurred which differentiates
realized vs. unrealized losses (unrealized gains/losses have not yet occurred and are the
result of impairment adjustments).

Part 1
1.
2014
Jan. 6 Equity Investment Ginto Inc. Common Shares ........................ 575,500
Cash ................................................................................. 575,500
To record purchase in equity investment.
Apr. 30 Cash ....................................................................................... 55,000

Equity Investment Ginto Inc. Common Shares ............. 55,000
To record dividends received from equity investment;
50,000 × $1.10.
Dec. 31 Equity Investment Ginto Inc. Common Shares ......................... 96,000

Equity Investment Earnings Ginto Inc. .......................... 96,000
To record share in earnings of equity investment;
$480,000 × 20%.
2015
Oct. 15 Cash ....................................................................................... 35,000
Equity Investment Ginto Inc. Common Shares ............. 35,000
To record dividends received in equity investment;
50,000 × $0.70.
Dec. 31 Equity Investment Ginto Inc. Common Shares ........................ 126,000

Equity Investment Earnings Ginto Inc. .......................... 126,000
To record share in earnings of equity investment;
$630,000 × 20%.
2016
Jan. 5 Cash .......................................................................................... 682,000
Loss on Sale of Investments ................................................. 25,500
Equity Investment Ginto Inc. Common Shares ......... 707,500
To record sale in equity investment.
Investment carrying value, Jan. 4, 2016:

Original cost $575,500
Less 2014 dividends (55,000)
Plus 2014 earnings 96,000
Less 2015 dividends (35,000)
Plus 2015 earnings 126,000
Carrying value at
date of the sale $707,500
2. Carrying value per share, Jan. 4, 2016:

$707,500/50,000 = $14.15
3. Change in the equity of Hamilton:

Earnings from Ginto—2014 ......................................... $ 96,000
Earnings from Ginto—2015 ......................................... 126,000
Loss on sale of investments ........................................ (25,500)
Net increase .................................................................. $196,500
ALTERNATE PROBLEMS
Problem 16-1B (35 minutes)

Part 1
Cash Period
July 1/14 $931 $67,069
Dec. 31/14 $2,312 $2,414 $102 829 67,171
June 30/15 2,312 2,418 106 723 67,277
Dec. 31/15 2,312 2,422 110 613 67,387
Part 2
2014
Feb. 1 Short-term investment – 60-DayTerm Deposit .......... 70,000
Cash .................................................................... 70,000
Purchased 6.23% term deposit as short-term investment.
21 Short-term investment – Hilton Shares ...................... 67,500

Cash .................................................................... 67,500
6,000 × 11.25 = 67,500.
Apr. 2 Cash .............................................................................. 70,716.88

Short-term investment – 60-DayTerm Deposit . 70,000.00
Interest Revenue ................................................ 716.88
To record sale of term deposit and collection of
interest; 70,000 × 6.23% × 60/365 = 716.88.
15 Short-term investment – Elder Corp. Shares ............ 79,950

Cash .................................................................... 79,950
8,200 × 9.75 = 79,950.
20 Short-term investment – Venture Shares .................. 47,600

Cash .................................................................... 47,600
14,000 × 3.40 = 47,600.
July 1 Long-term Investment – Barker Bond ........................ 67,069

Cash .................................................................... 67,069
Purchased a 6.8%, 4-year bond.
Problem 16-1B (continued)
15 Cash ............................................................................... 1,800

6,000 × 0.30 = 1,800.
28 Cash ............................................................................... 44,600

Short-term investment – Hilton Shares ............ 45,000
4,000 × 11.15 = 44,600;
67,500/6,000 = 11.25 × 4,000 = 45,000.
Dec. 1 Cash ............................................................................... 600

2,000 × 0.30 = 600.
31 Cash ............................................................................... 2,312

Long-term Investment – Barker Bond ........................ 102
Collected interest on the bond.
31 Short-term investment – Hilton Shares ...................... 2,700

Short-term investment – Elder Shares ....................... 4,510
Short-term investment – Venture 2,800
Corp. Shares .......................................................
To record impairment adjustment calculated as follows:
Hilton (2,000 × 12.60 = 25,200) ...................... $ 22,500 $ 25,200 $2,700
Elder Corp. (8,200 × 10.30 = 84,460) .............. 79,950 84,460 4,510
Venture (14,000 × 3.20 = 44,800) .................... 47,600 44,800 (2,800)
Total ................................................................. $150,050 $154,460 $4,410
Problem 16-1B (concluded)
2015
Feb. 16 Cash .............................................................................. 25,100
Brokerage Fees Expense……………………………… 200
Short-term investment – Hilton Share .............. 25,200
2,000 × 12.65 = 25,300 - 200 = 25,100
Part 3
Musli Inc.
December 31, 2014
Assets
Current assets:
Short-term investments, at fair value .............................................. $ 154,460
Long-term investments, at amortized cost ..................................... 67,171
Analysis component:
Musli Inc. purchased the Barker Inc. bond for less than its face value because the
contract interest rate on the bond of 6.8% was lower than the market interest rate of 7.2%
which means that in order to entice investors to buy the Barker Inc. bonds instead of
investing at a higher market rate elsewhere, investors will require that the Barker bonds
be sold at less than the face value such that the effective rates are the same.

Part 1
Cash Period
Ending Received Revenue Amort. Premium Value
July 1/14 2,933 142,933
Dec. 31/14 5,040 4,788 252 2,681 142,681
June 30/15 5,040 4,780 260 2,421 142,421
Dec. 31/15 5,040 4,771 269 2,152 142,152
Part 2
2014
Jan. 18 Short-term investment – Logitech Shares ................. 22,400
Cash .................................................................... 22,400
16,000 × 1.40 = 22,400.
Feb. 27 Short-term investment – Gildan Activewear Shares . 51,500

Cash .................................................................... 51,500
500 × 103 = 51,500.
Apr. 26 Short-term investment – Winston Shares .................. 18,000

Cash .................................................................... 18,000
1,000 × 18 = 18,000.
30 Cash .............................................................................. 1,600

16,000 × 0.10 = 1,600.
June 4 Cash .............................................................................. 11,500

Short-term investment – Logitech 14,000
Shares .................................................................
22,400/16,000 = 1.40 × 10,000 = 14,000;
10,000 × 1.15 = 11,500.
Problem 16-2B (continued)
July 1 Long-term Investment – Sharp Bond ......................... 142,933

Cash ..................................................................... 142,933
17 Cash ............................................................................... 3,625

500 × 7.25 = 3,625.
600
Sept. 1 Cash ...............................................................................
6,000 × 0.10 = 600.
Dec. 31 Cash ............................................................................... 5,040

Long-term Investment – Sharp Bond ............... 252
31 Unrealized Holding Loss ............................................. 8,000

Shares .................................................................
Short-term investment – Gildan 1,000
Activewear Shares .............................................
Short-term investment – Winston 4,000
Shares .................................................................
To record impairment adjustment calculated as follows:
Cost Fair Difference
Value
Logitech shares (6,000 × 0.90 = 5,400) ......... $ 8,400 $ 5,400 $ (3,000)
Gildan shares (500 × 101 = 50,500)................ 51,500 50,500 (1,000)
Winston shares (1,000 × 14 = 14,000)............ 18,000 14,000 (4,000)
Total ................................................................. $77,900 $69,900 $(8,000)
2015
Feb. 6 Cash .............................................................................. 5,100
Shares .................................................................
6,000 × 0.85 = 5,100.
June 30 Cash .............................................................................. 5,040

Long-term Investment – Sharp Bond ............... 260
Part 3
Thornhill Corporation
December 31, 2014
Assets
Current assets:
Short-term investments, at fair value. ........................................... $ 69,900
Analysis component:
If the December 31, 2014 impairment adjustment on the Logitech shares was not
recorded by Thornhill Corporation, a violation of the matching principle would occur.
The February 6, 2015 journal entry would overstate the Loss on Sale of Investment by
$3,000 which would result in an understatement of net income and equity for 2015 (and
an overstatement of net income and equity in 2014). $3,000 of the loss actually occurred
in 2014 and therefore should be matched to 2014 and not to 2015.
Problem 16-3B
Part 1
Cash Period
Apr. 1/14 $8,440 $851,560
June 30/14 $13,975 $14,264 $289 8,151 851,849
Sept. 30/14 13,975 14,268 293 7,858 852,142
Dec. 31/14 13,975 14,273 298 7,560 852,440
Part 2(a)
Apr. 1 Long-term Investment – Luxem Bond ........................ 851,560
Cash .................................................................... 851,560
Part 2(b)
June 30 Cash .............................................................................. 13,975
Long-term Investment – Luxem Bond ........................ 289
Sept. 30 Cash .............................................................................. 13,975

Dec. 31 Cash .............................................................................. 13,975

Part 3
JoeLite Corporation
December 31, 2014
Assets
Long-term investments, at amortized cost…………………….. $852,440
Part 1
On December 31, 2013, a total Unrealized Holding Loss of $2,800 was recorded
calculated as follows:
Debt and Equity Investments Cost Fair Value Difference

50,000 Cumber Corporation common shares ............ $138,000 $145,000 $ 7,000
18,000 Olds Inc. common shares ................................ 124,200 118,900 (5,300)
45,000 Wyeth Corp. common shares .......................... 265,500 261,000 (4,500)
Total ............................................................................... $527,700 $524,900 $(2,800)
Part 2
2014
Feb. 2 Cash .............................................................................. 111,600
Short-term investment – Cumber Shares ........ 130,500
45,000 × 2.48 = 111,600;
145,000/50,000 = 2.90 × 45,000 = 130,500.
June 27 Equity Investment Kestler Corp. Shares .................... 540,000

Cash .................................................................... 540,000
To record purchase of 38% interest for $540,000.
30 Cash .............................................................................. 126,000

Equity Investment Kestler Corp. Shares .......... 126,000
To record collection of dividends in equity
investment; 280,000 × 0.45 = 126,000.
July 3 Cash .............................................................................. 14,680

Short-term investment – Cumber Shares ........ 14,500
145,000 – 130,500 = 14,500.
Aug. 7 Short-term investment – Amber Corp. Shares .......... 652,500

Cash .................................................................... 652,500
45,000 × 14.50 = 652,500.
Dec. 30 Cash .............................................................................. 135,000

Short-term investment – Wyeth Shares ........... 145,000
25,000 × 5.40 = 135,000;
261,000/45,000 = 5.80 × 25,000 = 145,000.
31 Equity Investment Loss Kestler Corp. ....................... 15,200

Equity Investment Kestler Corp. Shares. ......... 15,200
To record share in equity investment loss at
year end; 40,000 × 38% = 15,200.
Part 1
1) 2014
Jan. 12 Equity Investment Turner Ltd. ....................................... 250,000
Cash ............................................................................. 250,000
To purchase of equity investment.
Mar. 31 Cash .................................................................................. 12,000

Equity Investment Turner Ltd. ................................... 12,000
investment; 12,000 × $1.00.
Dec. 31 Equity Investment Turner Ltd. ....................................... 30,000

Equity Investment Earnings TurnerLtd. ..................... 30,000
To record share in equity investment earnings
at year end; $125,000 × 24%.
2015
Aug. 15 Cash ................................................................................. 9,600
investment; 12,000 × $0.80.
Dec. 31 Equity Investment Loss Turner Ltd. ............................... 22,800

To record share in equity investment loss at
year end; $95,000 × 24%.
2016
Jan. 6 Cash ................................................................................. 230,000
Loss on Sale of Investments ........................................ 5,600
To record sale of equity investment;
$250,000 – $12,000 + $30,000 – $9,600 – $22,800 = $235,600.
2) Investment Cost per Share, January 1, 2016:

$250,000 – $12,000 + $30,000 – $9,600 – $22,800 = $235,600
$235,600/12,000 = $19.63
3) Change in the equity of River Corporation
Earnings from investment in Turner Ltd.—2014........................... $30,000
Loss from investment in Turner Ltd.—2015.................................. (22,800)
Loss on sale of investments .......................................................... (5,600)
Net increase ................................................................................... $ 1,600
ANALYTICAL AND REVIEW PROBLEMS

A&R Problem 16-1
Closing balance in Hinke Ltd.’s account

Investment in Deveau Ltd. on December 31, 2015 ......................... $500,000
Add Dividends paid by Deveau Ltd. to Hinke
Ltd. in 2015 (30% × $100,000) .......................................................... 30,000
Less: Hinke Ltd.’s portion of Deveau Ltd.’s
Income for 2015 (30% × $400,000) .................................................... 120,000
Add Dividends paid by Deveau Ltd. to Hinke
Ltd. in 2014 (30% × $100,000) ........................................................... 30,000
Less: Hinke Ltd.’s portion of Deveau Ltd.’s
Income for 2014 (30% × $300,000) .................................................... 90,000
Hinke Ltd. shares on January 1, 2014 ................................................. $350,000
ETHICS CHALLENGE
1. Jack’s bonus will be affected by how he treats the long-term investment in the
Delta Inc. bonds. Technically, since the bonds are designated as long-term
securities there is normally no recognition of any loss in fair value over the past
accounting period. However, financial information must be faithfully represented
in order to comply with GAAP. This requires that assets and income not be
overstated. Based on the information provided, it appears that the bond values
have declined in value permanently. If this is the case, a journal entry should be
recorded that will result in a decrease in both net income and assets thereby
affecting Jack’s bonus.
2. Jack must classify the debt securities as short-term or long-term. Because

management intends to hold the bonds to maturity, they are correctly classified as
long-term.
3. Jack might be tempted to ignore what appears to be a permanent decline in the

value of the bonds so that his bonus will not be affected. However, the company’s
auditors or board of directors should serve as an effective check on Jack’s
accounting for the investments.
FOCUS ON FINANCIAL STATEMENTS
FFS 16-1
DELTA CORPORATION
Income Statement
For Year Ended December 31, 2014
(000’s)
Revenues:
Sales ........................................................................................... $460
Fees earned................................................................................ 160
Investment income .................................................................... 134
Earnings from investment in Tildon Inc. ................................. 40
Unrealized holding gains .......................................................... 2
Total revenues ........................................................................ $796
Expenses:
Cost of goods sold .................................................................... $395
Operating expenses .................................................................. 218
Income tax expense .................................................................. 52
Interest expense ........................................................................ 5
Total expenses......................................................................... 670
Net income .................................................................................... $ 126
FFS 16-1 (concluded)

DELTA CORPORATION
Balance Sheet
December 31, 2014
(000’s)
Assets
Current assets:
Cash ......................................................................................... $ 70
Short-term investment ........................................................... 15
Accounts receivable ............................................................... $ 71
Less: Allowance for doubtful accounts ............................... 8 63
Merchandise inventory........................................................... 28
Prepaid rent ............................................................................. 6
Total current assets $ 182
Investment in Tildon Inc. common shares ........................... $238
Investment in Delta Inc. bonds .............................................. 56 294
Property, plant and equipment:
Equipment ................................................................................ $101
Less: Accumulated depreciation ....................................... 76 25
Total assets ....................................................................................... $ 501
Liabilities
Current liabilities:
Accounts payable ................................................................... $ 96
Unearned fees ......................................................................... 12
Income tax payable................................................................. 7
Total current liabilities ........................................................... $115
Long-term liabilities:
Notes payable, due March 2019 .............................................. 74
Total liabilities $ 189
Equity
Contributed capital:
Preferred shares ..................................................................... $ 44
Common shares...................................................................... 100
Total contributed capital ...................................................... $ 144
Retained earnings........................................................................ 168
Total equity................................................................................... $ 312
Total liabilities and equity ................................................................ $ 501
Analysis component:
If the non-strategic investment was listed as a strategic investment, then an unrealized
holding gain would have not have been recorded which would affect net income,
assets, and equity. It would also impact the current ratio.
FFS 16-2
1. Investments, both short-term and long-term, would have appeared on the balance
sheet.
2. The short-term investments would be non-strategic because only long-term

investments can be strategic. The long-term investments could be non-strategic
or strategic. If the long-term investments include long-term debt investments,
these would be non-strategic. If, however, equity investments are included, it is
possible that these might be strategic … additional information is required.
3. The short-term investments could include both debt and equity investments. The
long-term investments could also include both debt and equity investments.
CRITICAL THINKING MINI CASE
Note to instructor: Student responses will vary therefore the answer here is only
suggested and not inclusive of all possibilities; it is presented in point form for brevity.
Problem:
— should CT Inc. purchase some or all of Delmar Corp?
Goal:*
— to determine if Delmar Corp. is a good investment for CT Inc.
Principles:
— comply with GAAP and ethical standards
Facts:
— as noted in the case information
— Delmar Corp. has not purchased any new property, plant and equipment since
2006 (8 years) and given that depreciation is $50 million per year at a straight-line
rate there is a maximum remaining life of 6 years; the property, plant and
equipment are therefore well past their half-life
— Delmar Corp. distributed 90% of its 2014 net income to the shareholders as
dividends
— shareholders paid an average of $6/share ($150 million/25 million), distributed
$2.88/share in dividends in 2014 ($72 million/25 million), and the share value is
$8.50
— Delmar’s current ratio improved from 2013 to 2014 (1.42 in 2013 to 2.09 in 2014) as
did the quick ratio (0.20 in 2013 to 0.74 in 2014)
— Delmar’s gross profit margin is 62% ($310/$500 × 100) and its profit margin is 16%
($80/$500 × 100)
CT 16-1 (continued)
— Total equity decreased as a percentage of assets from 2013 to 2014 (82.59%1 in

2014 from 83.74%2 in 2013)
1. ($150 + $239)/($15 + $46 + $80 + $30 + $300) × 100 = 82.59%
2. ($150 + $231)/($5 + $10 + $75 + $15 + $350) × 100 = 83.74%
Conclusions/Consequences:
— Questions need to be asked regarding the condition of the property, plant and
equipment because if they are near the end of their useful life, replacements will
have to be purchased which will require significant financing given current
property, plant and equipment balances
— Equity is eroding as a percentage of total assets because of large dividends being
paid out and because property, plant and equipment are being depreciated with
no new ones replacing them.
— Delmar is not a growth company because it is distributing a high proportion of its
earnings to the shareholders; this is also evident by the share price which
appears to be slightly less than the original investment plus dividends per share
… absent is the shareholders expectation of value for future potential earnings.
— A comparison of Delmar’s profitability ratios with those of the industry will have to
be made to determine efficiency of its sales efforts.
*The goal is highly dependent on “perspective.”

Fundamental Accounting Principles Canadian Vol 2 Canadian 14th Edition Larson Solutions Manual

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Fundamental Accounting Principles Canadian Vol 2 Canadian 14th Edition Larson Solutions Manual

Uploaded by

Copyright:

Available Formats

Fundamental Accounting Principles

Canadian Vol 2 Canadian 14th Edition

Fundamental Accounting Principles

Technical checks by:

Chapter 16 Accounting for Debt and Share

Chapter Opening Critical Thinking Challenge Questions*

How would an investor account for investment income?

CONCEPT REVIEW QUESTIONS

1. The classes for debt and share investments are:

Quick Study 16-1 (10 minutes)

Quick Study 16-2

Quick Study 16-3 (10 minutes)

Aug. 7 Cash .............................................................................. 600

Quick Study 16-4 (15 minutes)

Quick Study 16-5 (15 minutes)

Quick Study 16-6 (5 minutes)

Quick Study 16-7 (10 minutes)

May 1 Cash .............................................................................. 50

Quick Study 16-8 (15 minutes)

June 30 Cash .............................................................................. 2,400

Dec. 31 Cash .............................................................................. 40,000

Quick Study 16-9 (10 minutes)

June 30 Cash .............................................................................. 1,000

Quick Study 16-10 (5 minutes)

Long-term investments, at amortized cost .................................... $ 47,292

Quick Study 16-11 (10 minutes)

Oct. 12 Cash .............................................................................. 25,000

Dec. 31 Equity Investment – Suffolk Corp. .............................. 100,000

Quick Study 16-12 (10 minutes)

Mar. 15 Cash .............................................................................. 140,800

Dec. 31 Equity Investment Loss– Dofasco Inc.. ..................... 368,500

Exercise 16-1 (30 minutes)

Apr. 16 Short-term investment – Windsor Motors 51,000

May 2 Short-term investment – Bates Bond ......................... 38,968

June 1 Cash .............................................................................. 1,050

15 Cash .............................................................................. 1,500

Sept. 1 Cash .............................................................................. 1,050

17 Short-term investment – Delta Shares ....................... 80,000

Exercise 16-1 (continued)

Purchased short-term investment;

Oct. 20 Cash .............................................................................. 62,000

Dec. 1 Cash .............................................................................. 1,050

1 Cash .............................................................................. 60,600

31 Interest Receivable ...................................................... 1,200

31 Short-term investment – Delta Shares ....................... 7,500

Calculations for Dec. 31/14 impairment adjustment:

Exercise 16-1 (concluded)

Exercise 16-2 (30 minutes)

Mar. 29 Short-term investment– Regina Shares ..................... 85,600

June 1 Short-term investment– Yates Bond .......................... 139,000

15 Cash .............................................................................. 15,000

Exercise 16-2 (continued)

Aug. 1 Cash .............................................................................. 1,860

1 Cash .............................................................................. 121,520

17 Short-term investment– Tech Shares ........................ 450,000

Dec. 1 Cash .............................................................................. 71,250

31 Interest Receivable ...................................................... 4,760

31 Short-term investment– Regina Shares ..................... 2,350

Exercise 16-2 (concluded)

Calculations for Dec. 31/14 impairment adjustment:

Exercise 16-3 (15 minutes)

Exercise 16-4 (15 minutes)

Exercise 16-5 (35 minutes)