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Business Accounting Intermediate Accounting w/ Annual Report; Connect Access Card

1) Investment : The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment. Equity investments : The financial instruments which claim ownership in the issuing company and pay a dividend revenue to the investor company, are referred to as equity securities. The investments in equity securities are referred to as equity investments. Equity method : Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company. Journal entry : Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically. Debit and credit rules: Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts. Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts. To Journalize : The entries related to the investments during 2016, for Company R assuming the investment is made under equity method. Explanation : Prepare the journal to record the investment in the books. Date Account Title Debit ($) Credit ($) 01.04.16 Investment in L shares $324,000,000 Cash $324,000,000 (To record the investment in shares of Company L) Table (1) Investment in is an asset account. Since stock investments are purchased, asset value increases, and an increase in asset is debited. Cash is an asset account. Since cash is paid, asset account decreases, and a decrease in asset is credited. Prepare the journal to record the net income in the books. Date Account Title Debit ($) Credit ($) 12.31.16 Investment in L shares $48,000,000 Investment revenue (1) $48,000,000 (To record the net income from the investment in shares of Company L ) Table (2) Investment in is an asset account. Since stock investments are purchased, asset value increases, and an increase in asset is debited. Investment revenue is a revenue account. Since revenues increases equity, equity value is increased, and an increase in equity is credited. Working Notes: Calculate the investment revenue. Investment revenue = 30 % × Net Income = 30% × $ 160 , 000 , 000 = $ 48 , 000 , 000 (1) Prepare the journal entry to record the dividend in the books. Date Account Title Debit ($) Credit ($) 12.15.16 Cash $20,000,000 Investment in L shares (2) $20,000,000 (To record the issue of the dividends) Table (3) Cash is an asset account. Since cash is received, asset account increases, and an increase in asset is debited. Investment revenue is a revenue account. Since revenues increases equity, equity value is increased, and an increase in equity is credited. Working Notes: Calculate the investments. Dividends = $ 2 × Number of shares = $ 2 × 10 , 000 , 000 = $ 20 , 000 , 000 (2) Prepare the depreciation adjustment journal entry to be recorded in the books. Date Account Title Debit ($) Credit ($) 12.31.16 Investment revenue (3) $4,000,000 Investment in L shares $4,000,000 (To record the depreciation) Table (4) Investment revenue is a revenue account. Since revenue is depreciated , it decreases equity, equity value is decreased, and the decrease in equity is debited. Investment is an asset account. Since deprecation reduces the asset value, asset is credited. Working Notes: Calculate the depreciation amount. Depreciation = ( 30 % × Fair value − 30 % × Book value ) ÷ 6 years = ( ( 30 % × $ 880 , 000 , 000 ) − ( 30 % × $ 800 , 000 , 000 ) ) ÷ 6 years = ( $ 264 , 000 , 000 − $ 240 , 000 , 000 ) ÷ 6 years = $ 24 , 000 , 000 ÷ 6 years = $4,000,000 (3) 2) To Journalize : The entries related to the investments during 2016, for Company R assuming that 10 million shares represent 10% of net assets of Company L instead of 30%. Explanation : Prepare the journal to record the investment in the books. Date Account Title Debit ($) Credit ($) 01.04.16 Investment in L shares $324,000,000 Cash $324,000,000 (To record the investment in shares of Company L) Table (5) Investment in is an asset account. Since stock investments are purchased, asset value increases, and an increase in asset is debited. Cash is an asset account. Since cash is paid, asset account decreases, and a decrease in asset is credited. Prepare the journal entry to record the dividend in the books. Date Account Title Debit ($) Credit ($) 12.15.16 Cash $20,000,000 Investment in L shares (2) $20,000,000 (To record the issue of the dividends) Table (6) Cash is an asset account. Since cash is received, asset account increases, and an increase in asset is debited. Investment revenue is a revenue account. Since revenues increases equity, equity value is increased, and an increase in equity is credited. Working Notes: Calculate the investments. Dividends = $ 2 × Number of shares = $ 2 × 10 , 000 , 000 = $ 20 , 000 , 000 (2) Prepare the adjusting entry to record the holding loss in the books. Date Account Title Debit ($) Credit ($) 12.31.16 Unrealized holding loss—NI (4) $14,000,000 Fair value adjustment $14,000,000 (To record the loss through adjustment) Table (7) Unrealized Holding Loss–NI is an adjustment account used to report gain or loss on adjusting cost of investment at fair market value. Since loss has occurred and losses decrease stockholders’ equity value, stockholders’ equity value is debited. Fair Value Adjustment is a contra-asset account which serves the purpose of valuation allowance account. The account is adjusted to update the fair value as on December 31, 2016. Working Notes: Compute the unrealized loss as on December 31, 2016, by adjusting the cost to the fair value. Details Amount ($) Fair value adjustment balance as on January 4, 2016 324,000,000 Adjustment needed to update fair value (Balancing figure) (4) 14,000,000 Fair value adjustment balance needed on December 31, 2016 ( 10 million shares × $31 per share ) 310,000,000 Table (8) (4)

1) Investment : The act of allocating money to buy a monetary asset, in order to generate wealth in the future is referred to as investment. Equity investments : The financial instruments which claim ownership in the issuing company and pay a dividend revenue to the investor company, are referred to as equity securities. The investments in equity securities are referred to as equity investments. Equity method : Equity method is the method used for accounting equity investments which claim a significant influence of above 20% but less than 50% in the outstanding stock of the investee company. Journal entry : Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically. Debit and credit rules: Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts. Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts. To Journalize : The entries related to the investments during 2016, for Company R assuming the investment is made under equity method. Explanation : Prepare the journal to record the investment in the books. Date Account Title Debit ($) Credit ($) 01.04.16 Investment in L shares $324,000,000 Cash $324,000,000 (To record the investment in shares of Company L) Table (1) Investment in is an asset account. Since stock investments are purchased, asset value increases, and an increase in asset is debited. Cash is an asset account. Since cash is paid, asset account decreases, and a decrease in asset is credited. Prepare the journal to record the net income in the books. Date Account Title Debit ($) Credit ($) 12.31.16 Investment in L shares $48,000,000 Investment revenue (1) $48,000,000 (To record the net income from the investment in shares of Company L ) Table (2) Investment in is an asset account. Since stock investments are purchased, asset value increases, and an increase in asset is debited. Investment revenue is a revenue account. Since revenues increases equity, equity value is increased, and an increase in equity is credited. Working Notes: Calculate the investment revenue. Investment revenue = 30 % × Net Income = 30% × $ 160 , 000 , 000 = $ 48 , 000 , 000 (1) Prepare the journal entry to record the dividend in the books. Date Account Title Debit ($) Credit ($) 12.15.16 Cash $20,000,000 Investment in L shares (2) $20,000,000 (To record the issue of the dividends) Table (3) Cash is an asset account. Since cash is received, asset account increases, and an increase in asset is debited. Investment revenue is a revenue account. Since revenues increases equity, equity value is increased, and an increase in equity is credited. Working Notes: Calculate the investments. Dividends = $ 2 × Number of shares = $ 2 × 10 , 000 , 000 = $ 20 , 000 , 000 (2) Prepare the depreciation adjustment journal entry to be recorded in the books. Date Account Title Debit ($) Credit ($) 12.31.16 Investment revenue (3) $4,000,000 Investment in L shares $4,000,000 (To record the depreciation) Table (4) Investment revenue is a revenue account. Since revenue is depreciated , it decreases equity, equity value is decreased, and the decrease in equity is debited. Investment is an asset account. Since deprecation reduces the asset value, asset is credited. Working Notes: Calculate the depreciation amount. Depreciation = ( 30 % × Fair value − 30 % × Book value ) ÷ 6 years = ( ( 30 % × $ 880 , 000 , 000 ) − ( 30 % × $ 800 , 000 , 000 ) ) ÷ 6 years = ( $ 264 , 000 , 000 − $ 240 , 000 , 000 ) ÷ 6 years = $ 24 , 000 , 000 ÷ 6 years = $4,000,000 (3) 2) To Journalize : The entries related to the investments during 2016, for Company R assuming that 10 million shares represent 10% of net assets of Company L instead of 30%. Explanation : Prepare the journal to record the investment in the books. Date Account Title Debit ($) Credit ($) 01.04.16 Investment in L shares $324,000,000 Cash $324,000,000 (To record the investment in shares of Company L) Table (5) Investment in is an asset account. Since stock investments are purchased, asset value increases, and an increase in asset is debited. Cash is an asset account. Since cash is paid, asset account decreases, and a decrease in asset is credited. Prepare the journal entry to record the dividend in the books. Date Account Title Debit ($) Credit ($) 12.15.16 Cash $20,000,000 Investment in L shares (2) $20,000,000 (To record the issue of the dividends) Table (6) Cash is an asset account. Since cash is received, asset account increases, and an increase in asset is debited. Investment revenue is a revenue account. Since revenues increases equity, equity value is increased, and an increase in equity is credited. Working Notes: Calculate the investments. Dividends = $ 2 × Number of shares = $ 2 × 10 , 000 , 000 = $ 20 , 000 , 000 (2) Prepare the adjusting entry to record the holding loss in the books. Date Account Title Debit ($) Credit ($) 12.31.16 Unrealized holding loss—NI (4) $14,000,000 Fair value adjustment $14,000,000 (To record the loss through adjustment) Table (7) Unrealized Holding Loss–NI is an adjustment account used to report gain or loss on adjusting cost of investment at fair market value. Since loss has occurred and losses decrease stockholders’ equity value, stockholders’ equity value is debited. Fair Value Adjustment is a contra-asset account which serves the purpose of valuation allowance account. The account is adjusted to update the fair value as on December 31, 2016. Working Notes: Compute the unrealized loss as on December 31, 2016, by adjusting the cost to the fair value. Details Amount ($) Fair value adjustment balance as on January 4, 2016 324,000,000 Adjustment needed to update fair value (Balancing figure) (4) 14,000,000 Fair value adjustment balance needed on December 31, 2016 ( 10 million shares × $31 per share ) 310,000,000 Table (8) (4)

Intermediate Accounting w/ Annual Report; Connect Access Card

Intermediate Accounting w/ Annual Report; Connect Access Card

8th Edition

ISBN: 9781259546860

Author: J. David Spiceland

Publisher: McGraw-Hill Education

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Intermediate Accounting w/ Annual Report; Connect Access Card

Ch. 12 - Prob. 12.1Q Ch. 12 - When market rates of interest rise after a...Ch. 12 - Does GAAP distinguish between fair values that are...Ch. 12 - When a debt investment is acquired to be held for...Ch. 12 - Prob. 12.5Q Ch. 12 - What is comprehensive income? Its composition...Ch. 12 - Why are holding gains and losses treated...Ch. 12 - Prob. 12.8Q Ch. 12 - Prob. 12.9Q Ch. 12 - Prob. 12.10Q

Ch. 12 - Prob. 12.11Q Ch. 12 - Prob. 12.12Q Ch. 12 - Do U.S. GAAP and IFRS differ in the amount of...Ch. 12 - Under what circumstances is the equity method used...Ch. 12 - The equity method has been referred to as a...Ch. 12 - In the application of the equity method, how...Ch. 12 - Prob. 12.17Q Ch. 12 - Prob. 12.18Q Ch. 12 - Prob. 12.19Q Ch. 12 - How does IFRS differ from U.S. GAAP with respect...Ch. 12 - What is the effect of a company electing the fair...Ch. 12 - Define a financial instrument. Provide three...Ch. 12 - Some financial instruments are called derivatives....Ch. 12 - Prob. 12.24Q Ch. 12 - Prob. 12.25Q Ch. 12 - Prob. 12.26Q Ch. 12 - (Based on Appendix 12B) Reporting an investment at...Ch. 12 - Prob. 12.28Q Ch. 12 - Explain how the CECL model (introduced in ASU No....Ch. 12 - Prob. 12.1BE Ch. 12 - Prob. 12.2BE Ch. 12 - Available -for-sale securities LO12-4 SL...Ch. 12 - Prob. 12.4BE Ch. 12 - Prob. 12.5BE Ch. 12 - Prob. 12.6BE Ch. 12 - Prob. 12.7BE Ch. 12 - Prob. 12.8BE Ch. 12 - Prob. 12.9BE Ch. 12 - Prob. 12.10BE Ch. 12 - Prob. 12.11BE Ch. 12 - Prob. 12.12BE Ch. 12 - Prob. 12.13BE Ch. 12 - Prob. 12.14BE Ch. 12 - Prob. 12.15BE Ch. 12 - Prob. 12.16BE Ch. 12 - Prob. 12.17BE Ch. 12 - Prob. 12.18BE Ch. 12 - Prob. 12.1E Ch. 12 - Prob. 12.2E Ch. 12 - Prob. 12.3E Ch. 12 - Prob. 12.4E Ch. 12 - Prob. 12.5E Ch. 12 - Prob. 12.6E Ch. 12 - Prob. 12.7E Ch. 12 - Prob. 12.8E Ch. 12 - Prob. 12.9E Ch. 12 - Prob. 12.10E Ch. 12 - Prob. 12.11E Ch. 12 - Prob. 12.12E Ch. 12 - Prob. 12.13E Ch. 12 - Prob. 12.14E Ch. 12 - Prob. 12.15E Ch. 12 - Prob. 12.16E Ch. 12 - Prob. 12.17E Ch. 12 - Prob. 12.18E Ch. 12 - Prob. 12.19E Ch. 12 - Prob. 12.20E Ch. 12 - Prob. 12.21E Ch. 12 - Prob. 12.22E Ch. 12 - Prob. 12.23E Ch. 12 - Prob. 12.24E Ch. 12 - Prob. 12.25E Ch. 12 - Prob. 12.26E Ch. 12 - Prob. 12.27E Ch. 12 - Prob. 12.28E Ch. 12 - Prob. 12.29E Ch. 12 - Prob. 12.30E Ch. 12 - Prob. 12.31E Ch. 12 - Prob. 1CPA Ch. 12 - Prob. 2CPA Ch. 12 - Prob. 3CPA Ch. 12 - Prob. 4CPA Ch. 12 - Prob. 5CPA Ch. 12 - Prob. 6CPA Ch. 12 - Prob. 7CPA Ch. 12 - Prob. 8CPA Ch. 12 - Prob. 9CPA Ch. 12 - Prob. 10CPA Ch. 12 - Prob. 11CPA Ch. 12 - Prob. 12CPA Ch. 12 - Prob. 13CPA Ch. 12 - Prob. 1CMA Ch. 12 - Prob. 2CMA Ch. 12 - Prob. 3CMA Ch. 12 - Prob. 12.1P Ch. 12 - Prob. 12.2P Ch. 12 - Prob. 12.3P Ch. 12 - Prob. 12.4P Ch. 12 - Prob. 12.5P Ch. 12 - Prob. 12.6P Ch. 12 - Prob. 12.7P Ch. 12 - Prob. 12.8P Ch. 12 - Prob. 12.9P Ch. 12 - Prob. 12.10P Ch. 12 - Prob. 12.11P Ch. 12 - Prob. 12.12P Ch. 12 - Prob. 12.13P Ch. 12 - P 12–14 Classifying investments LO12–1 through...Ch. 12 - Prob. 12.15P Ch. 12 - Prob. 12.16P Ch. 12 - Prob. 12.17P Ch. 12 - Prob. 12.18P Ch. 12 - Prob. 12.1BYP Ch. 12 - Prob. 12.2BYP Ch. 12 - Case 12–4 Accounting for debt and equity...Ch. 12 - Prob. 12.6BYP Ch. 12 - Prob. 12.7BYP

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