Chapter 17 BE 17-1

Debit Credit
(a)
1/1/17 Investments 74,086
Cash 74,086
(b)
12/31/17 Cash 7,200
Investments 949
Interest Revenue 8,149

Cash Interest Revenue

7,200 74,068 8,149

Debt Investment
74,068
949
Chapter 17 BE 17-2

Debit
(a)
1/1/17 Investments 74,086
cash
(b)
12/31/17 cash 7,200
investments 949
interest revenue
( c)
12/31/17 fair value adjustment 465
unrealized holding gain or loss equity

Cash Interest Revenue

7,200 74,086 8,149

Debt Investment
74,086
949
75,035

Unrealized Holding Gain or Loss

Fair Value Adjustment - Equity
465 465
Credit

74,086

8,149

465
Chapter 17 BE 17-3 Held to maturity

Debit
(a)
1/1/17 Debt investments 65,118
cash
(b)
6/30/17 cash 2,400
Debt investments
interest revenue

Cash Interest Revenue

2,400 65,118 1,954

Debt Investment
65,118 446
Credit

65,118

446
1,954
Chapter 17 BE 17-4
Trading, fair value, income

Debit
(a)
1/1/17 Debt investment 50,000
cash
(b)
12/31/17 cash 2,000
intetedt revenue
( c)
12/31/17 unrealized holding gain or loss 2,600
fair value adjustment

Cash Interest Revenue

50,000 2,000

Debt Investment
50,000

Unrealized Holding Gain or Loss

Fair Value Adjustment - Income
2,600 2,600
Credit

50,000

2,000

2,600
Chapter 17 BE 17-5
No significance to influence

Debit
(a)
1/1/17 equity investments 13,200
cash
(b)
12/31/17 cash 1,300
dividend revenue
( c)
12/31/17 fair value adjustment 600
unrealized holding gain
or loss

Cash Dividend Revenue

1,300 13,200 1,300

Equity Investments
13,200

Unrealized Holding Gain or Loss

Fair Value Adjustment - Income
600 600
Credit

13,200

1,300

600
Chapter 17 BE 17-6

Debit
(a)
1/1/17 equity investments trading 13,200
cash
(b)
12/31/17 cash 1,300
dividend revenue

(c) No adjustment to fair value is reported because the equity security is nonmarketable.

Cash Dividend Revenue

1,300 13,200 1,300

Equity Investments
13,200
 Credit

13,200

1,300

nonmarketable.
Chapter 17 BE 17-7 Has significant influence

Debit
(a)
1/1/17 investment 300,000
cash
(b)
12/31/17 Equity investments 54,000
Investments income
( c)
12/31/17 Cash 18,000
Equity investments

Cash Investment Income

18,000 300,000 54,000

Equity Investments
300,000 18,000
54,000
336000
Credit

300,000

54,000

18,000
Chapter 17 BE 17-8

Fair Value Adjustment Unrealized Holding Gain or Loss - Income

Bal. 4,000
(3,300)
Bal. * 700
* $4,000 - $3,300

Debit
12/31/20XX fair value adjustment 500
unrealized holding gain or loss
d Holding Gain or Loss - Income
500

Credit

500
Chapter 17 BE 17-9

(a) Other comprehensive loss for 2017 10.9 mill

(b) Comprehensive income for 2017: 1,234.8 mill

(c) Accumulated other comprehensive income: 46.3 mill

total of unrealize losses

total icome-other comprehensive income 1,245.6-10.9

57.2-10.9
Chapter 17 BE 17-10

Debit
12/31/20XX loss on impairment 10,000
Available for loss on debt
investmen

In this case, an impairment has occurred and the individual security should be written down.
 Credit

10,000

ld be written down.
Chapter 17 BE 17-11

Debit
(a)
1/1/17 investments 10,000,000
cash

12/31/17 interest receivable 500,000

interest revenue

12/31/17 fair value adjustment 600,000

Unrealized holding gain or loss

(b)
1/1/17 Investments 10,000,000
Cash

12/31/17 Interest receivable 500,000

Interest revenue

12/31/17 Debt Investment 600,000

Unrealized holding gain
or loss income

Note: One difference here relates to the third entry. Under the fair value option, the specific investment is
adjusted (under general available-for-sale guidance, fair value adjustments are recorded on a portfolio ba
– an allowance account, Fair Value Adjustment, is used). In addition, under the fair value option, unrealize
gains and losses are recorded in income.
 Credit

10,000,000

500,000

600,000

10,000,000

500,000

600,000

e specific investment is
corded on a portfolio basis
r value option, unrealized
Chapter 17 BE 17-12

Debit
(a)
12/31/17 Interest receivable 120,000
Interest revenue

12/31/19 Interest receivable 120,000

Interest revenue

(b)
12/31/17 Interest receivable 120,000
Interest revenue

12/31/17 Invetsmenets 50,000

Unrealized holding gain
or loss

12/31/19 Interest receivable 120,000

Interest receivable

12/31/19 Unrealized holding gain or loss income 20,000

Investments

Note: The Debt Investment account is adjusted because the company is using the fair value option.
 Credit

120,000

120,000

120,000

50,000

120,000

20,000

fair value option.

Chapter 17 BE 17-13

The imparement is the difference between fair value and the cost of the asset. The impairment it $10,000
The loss is limited from lower of amortized cost of fair value.

Fair value is greater than amortized cost. So no impairment exist.

set. The impairment it $10,000 40-30.
E17-2 (LO1) Entries for Held-to-Maturity Securities
On January 1, 2017, Dagwood Company purchased bonds at par. They are dated January 1, 2017,
and mature January 1, 2022, with interest received on January 1 of each year. The bonds are
classified in the held-to-maturity category. Additional information on the bonds follows.

Maturity value of bonds $ 300,000

Stated interest rate 6%

Instructions:
(a) Prepare the journal entry at the date of the bond purchase.

2017 Debit Credit

Jan. 1 Debt investments 300,000
Cash 300,000

(b) Prepare the journal entry to record the interest revenue on December 31, 2017.

2017 Debit Credit

Dec. 31 Interest receivable 18,000
Interest revenue 18,000

(c) Prepare the journal entry to record the interest received on January 1, 2018.

2018 Debit Credit

Jan. 1 Cash 18,000
Interest receivable 18,000
E17-5 (LO1) Effective-Interest versus Straight-Line Bond Amortization
On January 1, 2017, Phantom Company acquired bonds of Spiderman Products, Inc. Additional information
concerning the bond investment follows.

Par value of bonds acquired $ 200,000

Acquisition cost 185,589
Stated rate of bonds 9%
Expected yield for Phantom Company 12%

The interest is received on January 1 of each year, and the bonds mature January 1, 2020. The bonds
are classified as held-to-maturity.

Note: Due to more precise calculations in Excel, some amounts may differ from the solutions manual.

Instructions:
(a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-
line method.

Schedule of Interest Revenue and Bond Discount Amortization Straight-line Method

9% Bond Purchased to Yield 12%
Bond Carrying
Cash Interest Discount Amount
Date Received Revenue Amortization of Bonds
1/1/17 185,589.00
1/1/18 18,000.00 22,803.67 4,803.67 190,392.67
1/1/19 18,000.00 22,803.67 4,803.67 195,196.33
1/1/20 18,000.00 22,803.67 4,803.67 200,000.00

(b) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective-
interest method.

Schedule of Interest Revenue and Bond Discount Amortization Effective-Interest Method

9% Bond Purchased to Yield 12%
Bond Carrying
Cash Interest Discount Amount
Date Received Revenue Amortization of Bonds
1/1/17 185,589.00
1/1/18 18,000.00 22,270.68 4,270.68 189,859.68
1/1/19 18,000.00 22,783.16 4,783.16 194,642.84
1/1/20 18,000.00 23,357.14 5,357.14 199,999.98

(c) Prepare the journal entry for the interest revenue and the discount amortization under the straight-line
method at December 31, 2018.
 Prepare the journal entry for the interest revenue and the discount amortization under the straight-line
method at December 31, 2018.

Debit
12/31/18 Interest receivable 18,000.00
Debt investments 4,803.67
Interest revenue

(d) Prepare the journal entry for the interest revenue and the discount amortization under the effective-
interest method at December 31, 2018.

Debit
12/31/18 Interest receivable 18,000.00
Debt investments 4,803.67
Interest revenue
nc. Additional information

nuary 1, 2020. The bonds

m the solutions manual.

n, applying the straight-

ht-line Method

n, applying the effective-

-Interest Method

on under the straight-line

 Credit

22,803.67

on under the effective-

Credit

22,803.67
 P17-5 (LO2) Equity Securities Entries and Disclosures
Parnevik Company has the following securities in its investment portfolio on December 31, 2017 (all
securities were purchased in 2017):
Shares Total Cost
Anderson Co. common stock 3,000 $ 58,500
Munter Ltd. common stock 10,000 580,000
King Company preferred stock 6,000 255,000

Other information concerning the company's investments follows.

Fair Value Adjustment account balance at December 31, 2017 (credit)

In 2018, Parnevik completed the following securities transactions.

Sale of Anderson common stock on January 15

Selling price per share $ 22.00
Number of shares sold 3,000
Fees associated with the sale $ 2,150

Purchase of Castle common stock on April 17

Selling price per share $ 33.50
Number of shares purchased 1,000
Fees associated with the purchase $ 1,980

On December 31, 2018, the market prices per share of these securities were:

Munter Ltd. $ 61.00

King Co. 40.00
Castle Co. 29.00

In addition, the accounting supervisor of Parnevik told you that, even though all these securities have readily
determinable fair values, Parnevik will not actively trade these securities because the top management
intends to hold them for more than one year.

Instructions:
(a) Prepare the entry for the security sale on January 15, 2018.

Calculation of gain or loss on sale of investments:

Sold 3,000 shares Anderson Co. at $22.00
Less: Commissions, fees
Net Proceeds from Sale
Cost of 3,00 shares Anderson Co.
Gain on sale of investment

Debit
Jan. 15
(b) Prepare the journal entry to record the security purchase on April 17, 2018.

Calculation of total purchase price:

Purchased 1,000 shares Castle at $33.50
Add: Commissions, fees
Total

Debit
Apr. 17

(c) Compute the unrealized gains or losses and prepare the adjusting entry for Parnevik on December 31,
2018.
Equity Portfolio—December 31, 2018Fair
Securities Cost Value

Total portfolio $ - $ -

Fair Value Adjustment

Target ---->

Debit
Dec. 31

(d) How should the unrealized gains or losses be reported on Parnevik’s income statement and balance
sheet?
mber 31, 2017 (all

$ 10,100

ese securities have readily

he top management

Credit
 Credit

Parnevik on December 31,

Unrealized
Gain
(Loss)

$ -

air Value Adjustment

10,100

Credit

e statement and balance

P17-10 (LO2) Equity Investments
Castleman Holdings, Inc. had the following equity investment portfolio at January 1, 2017.

Number of Shares
Evers Company 1,000 shares
Rogers Company 900 shares
Chance Company 500 shares
Equity investments at cost
Fair value adjustment
Equity investments at fair value

During 2017, the following transactions took place:

1. On March 1, Rogers Company paid a dividend, per share

2. On April 30, Castleman Holdings, Inc. sold shares of Chance Company

Number of shares sold
Selling price per share

3. On May 15, Castleman Holdings, Inc. purchased more shares of Evers Co.
Number of shares purchased
Purchase price per share

4. At December 31, 2017, the stocks had the following price per share values:
Evers Company $ 17.00
Rogers Company 19.00
Chance Company 8.00

During 2018, the following transactions took place:

5. On February 1, Castleman Holdings, Inc. sold the remaining Chance shares

Selling price per share

6. On March 1, Rogers Company paid a cash dividend, per share

7. On December 21, Evers Company declared a cash dividend to be paid in the next month, per share

8. At December 31, 2018, the stocks had the following price per share values:
Evers Company $ 19.00
Rogers Company 21.00

Instructions:
(a) Prepare journal entries for each of the above transactions.
 3/1/17

4/30/17

5/15/17

12/31/17

Calculation of fair value adjustment:

Security Cost

Total portfolio

Target ---->

2/1/18

3/1/18

12/21/18

12/31/18
 Security Cost

Total portfolio

Target ---->

(b) Prepare a partial balance sheet showing the investment-related amounts to be reported at December 31, 2017

Partial Balance Sheet as of

Currents Assets:

Investments:
17.

Cost per
Share Total Cost
$ 15.00 $ 15,000
20.00 18,000
9.00 4,500
37,500
(7,500)
$ 30,000

$ 2.00

300
$ 11.00

100
$ 16.00

$ 8.00

$ 2.00

month, per share

$ 3.00
 Debit Credit

Fair Unrealized
Value Gain (Loss)

Fair Value Adjustment

7,500

Debit Credit
 Fair Unrealized
Value Gain (Loss)

Fair Value Adjustment

1,000

ported at December 31, 2017 and 2018.

12/31/2017 12/31/2018