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: Journal entry to record all transactions and year-end fair value adjustment.

Question

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Answer 1

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter C, Problem 2PSB

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, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: Journal entry to record all transactions and year-end fair value adjustment.

1.

Expert Solution

Explanation of Solution

Journal entries are prepared as follows:

Date	Account title and explanation	Debit ($)	Credit ($)
Year 1
Mar. 10	Debt investment − AFS	30,600
	Cash		30,600
	(to record the purchase of bond)
Apr. 7	Debt investment − AFS	56,250
	Cash		56,250
	(to record the purchase of bond)
Sep. 1	Debt investment - AFS	28,200
	Cash		28,200
	(to record the purchase of bond)
Dec. 31	Fair value adjustment − AFS	1,950
	Unrealized gain − equity		1,950
	(to record the fair value adjustment)
Year 2
Apr. 26	Cash	51,250
	Loss on sale of debt investment	5,000
	Debt investment - AFS		56,250
	(to record the sale of bonds on cash)
June 2	Debt investment - AFS	34,650
	Cash		34,650
	(to record the purchase of bonds)
June 14	Debt investment − AFS	25,200
	Cash		25,200
	(to record the purchase of notes)
Nov. 27	Cash	30,600
	Gain on sale of debt investment		2,400
	Debt investment − AFS		28,200
	(to record the sale of bonds)
Dec. 31	Unrealized gain − equity	1,400
	Fair value adjustment − AFS		1,400
	(to record the fair value adjustment)
Year 3
Jan. 28	Debt investment − AFS	40,000
	Cash		40,000
	(to record the purchase of bond)
Aug. 22	Cash	25,800
	Loss on sale of debt investment	4,800
	Debt investment − AFS		30,600
	(to record the sale of bonds on cash)
Sep. 3	Debt investment − AFS	84,000
	Cash		84,000
	(to record the purchase of bonds)
Oct. 9	Cash	28,800
	Gain on sale of debt investment		3,600
	Debt investment − AFS		25,200
	(to record the sale of bonds)
Oct. 31	Cash	27,000
	Loss on sale of debt investment	7,650
	Debt investment − AFS		34,650
	(to record the sale of bonds)
Dec. 31	Fair value adjustment - AFS	5,450
	Unrealized gain − equity		5,450
	(to record the fair value adjustment)

Working notes:

Year 1

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	33,000	2,400
F	56,250	54,600	(1,650)
P	28,200	29,400	1,200
Total	115,050	117,000	1,950

Year 2

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	31,000	400
D	34,650	32,400	(2,250)
S	25,200	27,600	2,400
Total	90,450	91,000	550
Fair value adjustment account:
Required balance	$550
Existence balance	($1,950)
Required change	$1,400

Year 3

Company	Cost ($)	Fair value ($)	Difference ($)
C-C	40,000	48,000	8,000
M	84,000	82,000	(2,000)
Total	124,000	130,000	6,000
Fair value adjustment account:
Required balance	$6,000
Existence balance	($550)
Required change	$5,450

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)	115,050	90,450	124,000
(b)	Fair value adjustment − AFS	1,950	550	6,000
(c)	Long term AFS security (fair value)	117,000	91,000	130,000

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 F		(5,000)
Sale of P		2,400
Sale of A			(4,800)
Sale of S			3,600
Sale of D			(7,650)
Total realized gain or (losses)	0	(2,600)	(8,850)
Unrealized gains or (losses)	1,950	550	6,000

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Answer 2

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter C, Problem 2PSB

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, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: Journal entry to record all transactions and year-end fair value adjustment.

1.

Expert Solution

Explanation of Solution

Journal entries are prepared as follows:

Date	Account title and explanation	Debit ($)	Credit ($)
Year 1
Mar. 10	Debt investment − AFS	30,600
	Cash		30,600
	(to record the purchase of bond)
Apr. 7	Debt investment − AFS	56,250
	Cash		56,250
	(to record the purchase of bond)
Sep. 1	Debt investment - AFS	28,200
	Cash		28,200
	(to record the purchase of bond)
Dec. 31	Fair value adjustment − AFS	1,950
	Unrealized gain − equity		1,950
	(to record the fair value adjustment)
Year 2
Apr. 26	Cash	51,250
	Loss on sale of debt investment	5,000
	Debt investment - AFS		56,250
	(to record the sale of bonds on cash)
June 2	Debt investment - AFS	34,650
	Cash		34,650
	(to record the purchase of bonds)
June 14	Debt investment − AFS	25,200
	Cash		25,200
	(to record the purchase of notes)
Nov. 27	Cash	30,600
	Gain on sale of debt investment		2,400
	Debt investment − AFS		28,200
	(to record the sale of bonds)
Dec. 31	Unrealized gain − equity	1,400
	Fair value adjustment − AFS		1,400
	(to record the fair value adjustment)
Year 3
Jan. 28	Debt investment − AFS	40,000
	Cash		40,000
	(to record the purchase of bond)
Aug. 22	Cash	25,800
	Loss on sale of debt investment	4,800
	Debt investment − AFS		30,600
	(to record the sale of bonds on cash)
Sep. 3	Debt investment − AFS	84,000
	Cash		84,000
	(to record the purchase of bonds)
Oct. 9	Cash	28,800
	Gain on sale of debt investment		3,600
	Debt investment − AFS		25,200
	(to record the sale of bonds)
Oct. 31	Cash	27,000
	Loss on sale of debt investment	7,650
	Debt investment − AFS		34,650
	(to record the sale of bonds)
Dec. 31	Fair value adjustment - AFS	5,450
	Unrealized gain − equity		5,450
	(to record the fair value adjustment)

Working notes:

Year 1

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	33,000	2,400
F	56,250	54,600	(1,650)
P	28,200	29,400	1,200
Total	115,050	117,000	1,950

Year 2

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	31,000	400
D	34,650	32,400	(2,250)
S	25,200	27,600	2,400
Total	90,450	91,000	550
Fair value adjustment account:
Required balance	$550
Existence balance	($1,950)
Required change	$1,400

Year 3

Company	Cost ($)	Fair value ($)	Difference ($)
C-C	40,000	48,000	8,000
M	84,000	82,000	(2,000)
Total	124,000	130,000	6,000
Fair value adjustment account:
Required balance	$6,000
Existence balance	($550)
Required change	$5,450

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)	115,050	90,450	124,000
(b)	Fair value adjustment − AFS	1,950	550	6,000
(c)	Long term AFS security (fair value)	117,000	91,000	130,000

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 F		(5,000)
Sale of P		2,400
Sale of A			(4,800)
Sale of S			3,600
Sale of D			(7,650)
Total realized gain or (losses)	0	(2,600)	(8,850)
Unrealized gains or (losses)	1,950	550	6,000

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Answer 3

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter C, Problem 2PSB

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, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: Journal entry to record all transactions and year-end fair value adjustment.

1.

Expert Solution

Explanation of Solution

Journal entries are prepared as follows:

Date	Account title and explanation	Debit ($)	Credit ($)
Year 1
Mar. 10	Debt investment − AFS	30,600
	Cash		30,600
	(to record the purchase of bond)
Apr. 7	Debt investment − AFS	56,250
	Cash		56,250
	(to record the purchase of bond)
Sep. 1	Debt investment - AFS	28,200
	Cash		28,200
	(to record the purchase of bond)
Dec. 31	Fair value adjustment − AFS	1,950
	Unrealized gain − equity		1,950
	(to record the fair value adjustment)
Year 2
Apr. 26	Cash	51,250
	Loss on sale of debt investment	5,000
	Debt investment - AFS		56,250
	(to record the sale of bonds on cash)
June 2	Debt investment - AFS	34,650
	Cash		34,650
	(to record the purchase of bonds)
June 14	Debt investment − AFS	25,200
	Cash		25,200
	(to record the purchase of notes)
Nov. 27	Cash	30,600
	Gain on sale of debt investment		2,400
	Debt investment − AFS		28,200
	(to record the sale of bonds)
Dec. 31	Unrealized gain − equity	1,400
	Fair value adjustment − AFS		1,400
	(to record the fair value adjustment)
Year 3
Jan. 28	Debt investment − AFS	40,000
	Cash		40,000
	(to record the purchase of bond)
Aug. 22	Cash	25,800
	Loss on sale of debt investment	4,800
	Debt investment − AFS		30,600
	(to record the sale of bonds on cash)
Sep. 3	Debt investment − AFS	84,000
	Cash		84,000
	(to record the purchase of bonds)
Oct. 9	Cash	28,800
	Gain on sale of debt investment		3,600
	Debt investment − AFS		25,200
	(to record the sale of bonds)
Oct. 31	Cash	27,000
	Loss on sale of debt investment	7,650
	Debt investment − AFS		34,650
	(to record the sale of bonds)
Dec. 31	Fair value adjustment - AFS	5,450
	Unrealized gain − equity		5,450
	(to record the fair value adjustment)

Working notes:

Year 1

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	33,000	2,400
F	56,250	54,600	(1,650)
P	28,200	29,400	1,200
Total	115,050	117,000	1,950

Year 2

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	31,000	400
D	34,650	32,400	(2,250)
S	25,200	27,600	2,400
Total	90,450	91,000	550
Fair value adjustment account:
Required balance	$550
Existence balance	($1,950)
Required change	$1,400

Year 3

Company	Cost ($)	Fair value ($)	Difference ($)
C-C	40,000	48,000	8,000
M	84,000	82,000	(2,000)
Total	124,000	130,000	6,000
Fair value adjustment account:
Required balance	$6,000
Existence balance	($550)
Required change	$5,450

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)	115,050	90,450	124,000
(b)	Fair value adjustment − AFS	1,950	550	6,000
(c)	Long term AFS security (fair value)	117,000	91,000	130,000

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 F		(5,000)
Sale of P		2,400
Sale of A			(4,800)
Sale of S			3,600
Sale of D			(7,650)
Total realized gain or (losses)	0	(2,600)	(8,850)
Unrealized gains or (losses)	1,950	550	6,000

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Answer 4

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter C, Problem 2PSB

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, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: Journal entry to record all transactions and year-end fair value adjustment.

1.

Expert Solution

Explanation of Solution

Journal entries are prepared as follows:

Date	Account title and explanation	Debit ($)	Credit ($)
Year 1
Mar. 10	Debt investment − AFS	30,600
	Cash		30,600
	(to record the purchase of bond)
Apr. 7	Debt investment − AFS	56,250
	Cash		56,250
	(to record the purchase of bond)
Sep. 1	Debt investment - AFS	28,200
	Cash		28,200
	(to record the purchase of bond)
Dec. 31	Fair value adjustment − AFS	1,950
	Unrealized gain − equity		1,950
	(to record the fair value adjustment)
Year 2
Apr. 26	Cash	51,250
	Loss on sale of debt investment	5,000
	Debt investment - AFS		56,250
	(to record the sale of bonds on cash)
June 2	Debt investment - AFS	34,650
	Cash		34,650
	(to record the purchase of bonds)
June 14	Debt investment − AFS	25,200
	Cash		25,200
	(to record the purchase of notes)
Nov. 27	Cash	30,600
	Gain on sale of debt investment		2,400
	Debt investment − AFS		28,200
	(to record the sale of bonds)
Dec. 31	Unrealized gain − equity	1,400
	Fair value adjustment − AFS		1,400
	(to record the fair value adjustment)
Year 3
Jan. 28	Debt investment − AFS	40,000
	Cash		40,000
	(to record the purchase of bond)
Aug. 22	Cash	25,800
	Loss on sale of debt investment	4,800
	Debt investment − AFS		30,600
	(to record the sale of bonds on cash)
Sep. 3	Debt investment − AFS	84,000
	Cash		84,000
	(to record the purchase of bonds)
Oct. 9	Cash	28,800
	Gain on sale of debt investment		3,600
	Debt investment − AFS		25,200
	(to record the sale of bonds)
Oct. 31	Cash	27,000
	Loss on sale of debt investment	7,650
	Debt investment − AFS		34,650
	(to record the sale of bonds)
Dec. 31	Fair value adjustment - AFS	5,450
	Unrealized gain − equity		5,450
	(to record the fair value adjustment)

Working notes:

Year 1

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	33,000	2,400
F	56,250	54,600	(1,650)
P	28,200	29,400	1,200
Total	115,050	117,000	1,950

Year 2

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	31,000	400
D	34,650	32,400	(2,250)
S	25,200	27,600	2,400
Total	90,450	91,000	550
Fair value adjustment account:
Required balance	$550
Existence balance	($1,950)
Required change	$1,400

Year 3

Company	Cost ($)	Fair value ($)	Difference ($)
C-C	40,000	48,000	8,000
M	84,000	82,000	(2,000)
Total	124,000	130,000	6,000
Fair value adjustment account:
Required balance	$6,000
Existence balance	($550)
Required change	$5,450

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)	115,050	90,450	124,000
(b)	Fair value adjustment − AFS	1,950	550	6,000
(c)	Long term AFS security (fair value)	117,000	91,000	130,000

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 F		(5,000)
Sale of P		2,400
Sale of A			(4,800)
Sale of S			3,600
Sale of D			(7,650)
Total realized gain or (losses)	0	(2,600)	(8,850)
Unrealized gains or (losses)	1,950	550	6,000

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Answer 5

Chapter C, Problem 2PSB

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, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: Journal entry to record all transactions and year-end fair value adjustment.

1.

Expert Solution

Explanation of Solution

Journal entries are prepared as follows:

Date	Account title and explanation	Debit ($)	Credit ($)
Year 1
Mar. 10	Debt investment − AFS	30,600
	Cash		30,600
	(to record the purchase of bond)
Apr. 7	Debt investment − AFS	56,250
	Cash		56,250
	(to record the purchase of bond)
Sep. 1	Debt investment - AFS	28,200
	Cash		28,200
	(to record the purchase of bond)
Dec. 31	Fair value adjustment − AFS	1,950
	Unrealized gain − equity		1,950
	(to record the fair value adjustment)
Year 2
Apr. 26	Cash	51,250
	Loss on sale of debt investment	5,000
	Debt investment - AFS		56,250
	(to record the sale of bonds on cash)
June 2	Debt investment - AFS	34,650
	Cash		34,650
	(to record the purchase of bonds)
June 14	Debt investment − AFS	25,200
	Cash		25,200
	(to record the purchase of notes)
Nov. 27	Cash	30,600
	Gain on sale of debt investment		2,400
	Debt investment − AFS		28,200
	(to record the sale of bonds)
Dec. 31	Unrealized gain − equity	1,400
	Fair value adjustment − AFS		1,400
	(to record the fair value adjustment)
Year 3
Jan. 28	Debt investment − AFS	40,000
	Cash		40,000
	(to record the purchase of bond)
Aug. 22	Cash	25,800
	Loss on sale of debt investment	4,800
	Debt investment − AFS		30,600
	(to record the sale of bonds on cash)
Sep. 3	Debt investment − AFS	84,000
	Cash		84,000
	(to record the purchase of bonds)
Oct. 9	Cash	28,800
	Gain on sale of debt investment		3,600
	Debt investment − AFS		25,200
	(to record the sale of bonds)
Oct. 31	Cash	27,000
	Loss on sale of debt investment	7,650
	Debt investment − AFS		34,650
	(to record the sale of bonds)
Dec. 31	Fair value adjustment - AFS	5,450
	Unrealized gain − equity		5,450
	(to record the fair value adjustment)

Working notes:

Year 1

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	33,000	2,400
F	56,250	54,600	(1,650)
P	28,200	29,400	1,200
Total	115,050	117,000	1,950

Year 2

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	31,000	400
D	34,650	32,400	(2,250)
S	25,200	27,600	2,400
Total	90,450	91,000	550
Fair value adjustment account:
Required balance	$550
Existence balance	($1,950)
Required change	$1,400

Year 3

Company	Cost ($)	Fair value ($)	Difference ($)
C-C	40,000	48,000	8,000
M	84,000	82,000	(2,000)
Total	124,000	130,000	6,000
Fair value adjustment account:
Required balance	$6,000
Existence balance	($550)
Required change	$5,450

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)	115,050	90,450	124,000
(b)	Fair value adjustment − AFS	1,950	550	6,000
(c)	Long term AFS security (fair value)	117,000	91,000	130,000

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 F		(5,000)
Sale of P		2,400
Sale of A			(4,800)
Sale of S			3,600
Sale of D			(7,650)
Total realized gain or (losses)	0	(2,600)	(8,850)
Unrealized gains or (losses)	1,950	550	6,000

Answer 6

Chapter C, Problem 2PSB

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, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: Journal entry to record all transactions and year-end fair value adjustment.

1.

Expert Solution

Explanation of Solution

Journal entries are prepared as follows:

Date	Account title and explanation	Debit ($)	Credit ($)
Year 1
Mar. 10	Debt investment − AFS	30,600
	Cash		30,600
	(to record the purchase of bond)
Apr. 7	Debt investment − AFS	56,250
	Cash		56,250
	(to record the purchase of bond)
Sep. 1	Debt investment - AFS	28,200
	Cash		28,200
	(to record the purchase of bond)
Dec. 31	Fair value adjustment − AFS	1,950
	Unrealized gain − equity		1,950
	(to record the fair value adjustment)
Year 2
Apr. 26	Cash	51,250
	Loss on sale of debt investment	5,000
	Debt investment - AFS		56,250
	(to record the sale of bonds on cash)
June 2	Debt investment - AFS	34,650
	Cash		34,650
	(to record the purchase of bonds)
June 14	Debt investment − AFS	25,200
	Cash		25,200
	(to record the purchase of notes)
Nov. 27	Cash	30,600
	Gain on sale of debt investment		2,400
	Debt investment − AFS		28,200
	(to record the sale of bonds)
Dec. 31	Unrealized gain − equity	1,400
	Fair value adjustment − AFS		1,400
	(to record the fair value adjustment)
Year 3
Jan. 28	Debt investment − AFS	40,000
	Cash		40,000
	(to record the purchase of bond)
Aug. 22	Cash	25,800
	Loss on sale of debt investment	4,800
	Debt investment − AFS		30,600
	(to record the sale of bonds on cash)
Sep. 3	Debt investment − AFS	84,000
	Cash		84,000
	(to record the purchase of bonds)
Oct. 9	Cash	28,800
	Gain on sale of debt investment		3,600
	Debt investment − AFS		25,200
	(to record the sale of bonds)
Oct. 31	Cash	27,000
	Loss on sale of debt investment	7,650
	Debt investment − AFS		34,650
	(to record the sale of bonds)
Dec. 31	Fair value adjustment - AFS	5,450
	Unrealized gain − equity		5,450
	(to record the fair value adjustment)

Working notes:

Year 1

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	33,000	2,400
F	56,250	54,600	(1,650)
P	28,200	29,400	1,200
Total	115,050	117,000	1,950

Year 2

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	31,000	400
D	34,650	32,400	(2,250)
S	25,200	27,600	2,400
Total	90,450	91,000	550
Fair value adjustment account:
Required balance	$550
Existence balance	($1,950)
Required change	$1,400

Year 3

Company	Cost ($)	Fair value ($)	Difference ($)
C-C	40,000	48,000	8,000
M	84,000	82,000	(2,000)
Total	124,000	130,000	6,000
Fair value adjustment account:
Required balance	$6,000
Existence balance	($550)
Required change	$5,450

Answer 7

Chapter C, Problem 2PSB

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, balance sheet, cash flow statement and stockholders’ equity statement.

To prepare: Journal entry to record all transactions and year-end fair value adjustment.

Answer 8

1.

Expert Solution

Explanation of Solution

Journal entries are prepared as follows:

Date	Account title and explanation	Debit ($)	Credit ($)
Year 1
Mar. 10	Debt investment − AFS	30,600
	Cash		30,600
	(to record the purchase of bond)
Apr. 7	Debt investment − AFS	56,250
	Cash		56,250
	(to record the purchase of bond)
Sep. 1	Debt investment - AFS	28,200
	Cash		28,200
	(to record the purchase of bond)
Dec. 31	Fair value adjustment − AFS	1,950
	Unrealized gain − equity		1,950
	(to record the fair value adjustment)
Year 2
Apr. 26	Cash	51,250
	Loss on sale of debt investment	5,000
	Debt investment - AFS		56,250
	(to record the sale of bonds on cash)
June 2	Debt investment - AFS	34,650
	Cash		34,650
	(to record the purchase of bonds)
June 14	Debt investment − AFS	25,200
	Cash		25,200
	(to record the purchase of notes)
Nov. 27	Cash	30,600
	Gain on sale of debt investment		2,400
	Debt investment − AFS		28,200
	(to record the sale of bonds)
Dec. 31	Unrealized gain − equity	1,400
	Fair value adjustment − AFS		1,400
	(to record the fair value adjustment)
Year 3
Jan. 28	Debt investment − AFS	40,000
	Cash		40,000
	(to record the purchase of bond)
Aug. 22	Cash	25,800
	Loss on sale of debt investment	4,800
	Debt investment − AFS		30,600
	(to record the sale of bonds on cash)
Sep. 3	Debt investment − AFS	84,000
	Cash		84,000
	(to record the purchase of bonds)
Oct. 9	Cash	28,800
	Gain on sale of debt investment		3,600
	Debt investment − AFS		25,200
	(to record the sale of bonds)
Oct. 31	Cash	27,000
	Loss on sale of debt investment	7,650
	Debt investment − AFS		34,650
	(to record the sale of bonds)
Dec. 31	Fair value adjustment - AFS	5,450
	Unrealized gain − equity		5,450
	(to record the fair value adjustment)

Working notes:

Year 1

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	33,000	2,400
F	56,250	54,600	(1,650)
P	28,200	29,400	1,200
Total	115,050	117,000	1,950

Year 2

Company	Cost ($)	Fair value ($)	Difference ($)
A	30,600	31,000	400
D	34,650	32,400	(2,250)
S	25,200	27,600	2,400
Total	90,450	91,000	550
Fair value adjustment account:
Required balance	$550
Existence balance	($1,950)
Required change	$1,400

Year 3

Company	Cost ($)	Fair value ($)	Difference ($)
C-C	40,000	48,000	8,000
M	84,000	82,000	(2,000)
Total	124,000	130,000	6,000
Fair value adjustment account:
Required balance	$6,000
Existence balance	($550)
Required change	$5,450

Answer 9

1.

Expert Solution

Answer 10

1.

Expert Solution

Answer 11

Expert Solution

Answer 12

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)	115,050	90,450	124,000
(b)	Fair value adjustment − AFS	1,950	550	6,000
(c)	Long term AFS security (fair value)	117,000	91,000	130,000

Answer 13

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.

Answer 14

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)	115,050	90,450	124,000
(b)	Fair value adjustment − AFS	1,950	550	6,000
(c)	Long term AFS security (fair value)	117,000	91,000	130,000

Answer 15

2.

Expert Solution

Answer 16

2.

Expert Solution

Answer 17

Expert Solution

Answer 18

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 F		(5,000)
Sale of P		2,400
Sale of A			(4,800)
Sale of S			3,600
Sale of D			(7,650)
Total realized gain or (losses)	0	(2,600)	(8,850)
Unrealized gains or (losses)	1,950	550	6,000

Answer 19

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.

Answer 20

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 F		(5,000)
Sale of P		2,400
Sale of A			(4,800)
Sale of S			3,600
Sale of D			(7,650)
Total realized gain or (losses)	0	(2,600)	(8,850)
Unrealized gains or (losses)	1,950	550	6,000