FINANCIAL ACCT.FUND.(LOOSELEAF)
7th Edition
ISBN: 9781260482867
Author: Wild
Publisher: MCG
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Chapter C, Problem 2PSA
1.
To determine
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement,
To prepare:
1.
Expert Solution
Explanation of Solution
Journal entries are prepared as follows:
| Date | Account title and explanation | Debit ($) | Credit ($) |
| Year 1 | |||
| Jan. 20 | Debt investment − AFS | 20,500 | |
| Cash | 20,500 | ||
| (to record the purchase of bond) | |||
| Feb. 9 | Debt investment − AFS | 55,440 | |
| Cash | 55,440 | ||
| (to record the purchase of bond) | |||
| June 12 | Debt investment - AFS | 40,500 | |
| Cash | 40,500 | ||
| (to record the purchase of bond) | |||
| Dec. 31 | Fair value adjustment − AFS | 3,910 | |
| Unrealized gain − equity | 3,910 | ||
| (to record the fair value adjustment) | |||
| Year 2 | |||
| Apr. 15 | Cash | 23,500 | |
| Gain on sale of debt investment | 3,000 | ||
| Debt investment - AFS | 20,500 | ||
| (to record the sale of bonds on cash) | |||
| July 5 | Cash | 35,850 | |
| Loss on sale of debt investment | 4,650 | ||
| Debt investment - AFS | 40,500 | ||
| (to record the sale of bonds on cash) | |||
| July 22 | Debt investment − AFS | 13,500 | |
| Cash | 13,500 | ||
| (to record the purchase of notes) | |||
| Aug. 19 | Debt investment − AFS | 15,300 | |
| Cash | 15,300 | ||
| (to record the purchase of bonds) | |||
| Dec. 31 | Fair value adjustment − AFS | 1,175 | |
| Unrealized gain − equity | 1,175 | ||
| (to record the fair value adjustment) | |||
| Year 3 | |||
| Feb. 27 | Debt investment − AFS | 160,800 | |
| Cash | 160,800 | ||
| (to record the purchase of bond) | |||
| June 21 | Cash | 57,600 | |
| Gain on sale of debt investment | 2,160 | ||
| Debt investment − AFS | 55,440 | ||
| (to record the sale of bonds on cash) | |||
| June 30 | Debt investment − AFS | 50,400 | |
| Cash | 50,400 | ||
| (to record the purchase of bonds) | |||
| Aug. 3 | Cash | 9,750 | |
| Loss on sale of debt investment | 3,750 | ||
| Debt investment − AFS | 13,500 | ||
| (to record the sale of bonds) | |||
| Nov. 1 | Cash | 20,475 | |
| Gain on sale of debt investment | 5,175 | ||
| Debt investment − AFS | 15,300 | ||
| (to record the sale of bonds) | |||
| Dec. 31 | Unrealized gain − equity | 3,085 | |
| Fair value adjustment - AFS | 3,085 | ||
| (to record the fair value adjustment) |
Working notes:
Year 1
| Company | Cost ($) | Fair value ($) | Difference ($) |
| J J | 20,500 | 21,500 | 1,000 |
| S | 55,440 | 52,500 | (2,940) |
| M | 40,500 | 46,350 | 5,850 |
| Total | 116,440 | 120,350 | 3,910 |
Year 2
| Company | Cost ($) | Fair value ($) | Difference ($) |
| K | 15,300 | 17,325 | 2,025 |
| S | 13,500 | 12,000 | (1,500) |
| S | 55,440 | 60,000 | 4,560 |
| Total | 84,240 | 89,325 | 5,085 |
| Fair value adjustment account: | |||
| Required balance | $5,085 | ||
| Existence balance | ($3,910) | ||
| Required change | $1,175 | ||
Year 3
| Company | Cost ($) | Fair value ($) | Difference ($) |
| B & D | 50,400 | 54,600 | 4,200 |
| M | 160,800 | 158,600 | (2,200) |
| Total | 211,200 | 213,200 | 2,000 |
| Fair value adjustment account: | |||
| Required balance | $5,085 | ||
| Existence balance | ($2,000) | ||
| Required change | $3,085 | ||
2.
To determine
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.
To prepare: Table showing (a) total cost (b) total fair value adjustment (c) total fair value of portfolio.
2.
Expert Solution
Explanation of Solution
The table is prepared as follows:
| Requirement | Debt investment | Year 1 ($) | Year 2 ($) | Year 3 ($) |
| (a) | Long term AFS securities (cost) | 116,440 | 84,240 | 211,200 |
| (b) | Fair value adjustment − AFS | 3,910 | 5,085 | 2,000 |
| (c) | Long term AFS security (fair value) | 120,350 | 89,325 | 213,200 |
3.
To determine
Financial statement analysis:
The company and its users use financial analysis as a way to analyze the company’s financial statements to make investment and business decisions. There are four financial statements that any company should produce for its users for analysis. These are the income statement, balance sheet, cash flow statement and stockholders’ equity statement.
To prepare:Table showing (a) realized gains or losses and (b) unrealized gains or losses.
3.
Expert Solution
Explanation of Solution
The table showing realized and unrealized gain or losses are prepared as follows:
| Particular | Year 1 ($) | Year 2 ($) | Year 3 ($) |
| Realized gain or (losses) | |||
| Sale of J J | 3,000 | ||
| Sale of M | (4,650) | ||
| Sale of S | 2,160 | ||
| Sale of S L | (3,750) | ||
| Sale of K | 5,175 | ||
| Total realized gain or (losses) | 0 | (1,650) | 3,585 |
| Unrealized gains or (losses) | 3,910 | 5,085 | 2,000 |
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Chapter C Solutions
FINANCIAL ACCT.FUND.(LOOSELEAF)
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