FinAcctg7SMCh10.docx

FinAcctg7SMCh10.docx

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FinAcctg7SMCh10

Chapter10

Long-TermInvestmentsand

InternationalOperations

ShortExercises

（10-15min.）S10-1

1.

Journal

DATE

ACCOUNTTITLESANDEXPLANATION

DEBIT

CREDIT

20X7

Apr.

10

Long-TermInvestment（300×$20）….......

6,000

Cash………………………………………..

6,000

July

22

Cash（300×$1.25）…………………………..

375

DividendRevenue……………………….

375

Dec.

31

UnrealizedLossonInvestments…….......

900

AllowancetoAdjustInvestment

toMarket（$6,000−$5,100）…………….

900

2.

ASSETS

Totalcurrentassets…………………………………........

$XXX

Long-termavailable-for-saleinvestments,

atmarketvalue……………………………………........

5,100

STOCKHOLDERS’EQUITY

Commonstock……………………………………………..

$XXX

Retainedearnings…………………………………………

XXX

Accumulatedothercomprehensiveincome:

Unrealized（loss）oninvestments……………………

（900）

（5-10min.）S10-2

1.

Journal

DATE

ACCOUNTTITLESANDEXPLANATION

DEBIT

CREDIT

20X9

May

19

Cash（300×$22）………………………

6,600

Long-TermInvestment……………

6,000

GainonSaleofInvestment………

600

2.Thisgainonsaleofinvestmentisarealizedgain.ThelossrecordedatDecember31,20X7wasunrealizedbecauseitresultedfromachangeintheinvestment’smarketvalue,notfromthesaleoftheinvestment.

（10-15min.）S10-3

1.Equitymethodisappropriatebecausetheinvestor（GeneralMotors）holdsa40%investmentintheinvesteecompany（Isuzu）.

2.

Journal

ACCOUNTTITLESANDEXPLANATION

DEBIT

CREDIT

Millions

a.

Long-TermInvestment…………………………..

410

Cash……………………………………………...

410

Topurchaseequity-methodinvestment.

b.

Long-TermInvestment（$60×.40）…………….

24

Equity-MethodInvestmentRevenue……….

24

Torecordinvestmentrevenue.

c.

Cash（$20×.40）…………………………………..

8

Long-TermInvestment……………………….

8

Toreceivecashdividendonequity-method

investment.

3.

Long-TermInvestment

（Amountsinmillions）

Purchase

410

Dividendsreceived

8

Netincome

24

Balance

426

（5min.）S10-4

Millions

Saleproceeds…………………………………………...

$140

−

Carryingamountoftheinvestment（$426/2）……..

（213）

=

（Loss）onsaleofinvestment…………………………

$（73）

（10min.）S10-5

1.Aparentcompanyisacorporationthatownsacontrolling（morethan50%）interestinanothercompany.Asubsidiarycompanyisacompanythatiscontrolledbyanothercorporation.

2.Consolidatedfinancialstatementscombinethebalancesheets,incomestatements,andcash-flowstatementsofaparentcompanywiththoseofitssubsidiariesasiftheparentanditssubsidiarieswereonecompany.

3.Theparentcompany’snameappearsontheconsolidatedfinancialstatements.Toconsolidate,theparentcompanymustownmorethan50%ofthesubsidiary’sstock.

（10min.）S10-6

1.Goodwillisanintangibleasset.Goodwillistheexcessofthepurchasepricetoacquireasubsidiarycompanyoverthesumofthemarketvalueofthesubsidiary’snetassets（assetsminusliabilities）.Onlytheparentcompanyreportsthegoodwill.Goodwillappearsasanintangibleassetontheconsolidatedbalancesheet.

2.Minorityinterestistheportion（lessthan50%）ofasubsidiary’sstockthatisownedbystockholdersotherthantheparentcompany.TheparentcompanycanreportMinorityInterestonitsconsolidatedbalancesheetamongtheliabilities.

（10-15min.）S10-7

1.Paid$1,010,000（$1,000,000×1.01）

Willcollect$1,000,000atmaturity

2.Annualcashinterest=$70,000（$1,000,000×.07）

3.Annualinterestrevenuewillbelessthantheamountofcashinterestreceivedeachyearbecausetheinvestorboughtthebondsatapremium.Buttheinvestorwillcollectonlythefaceamountofthebondsatmaturity.Thedifferencebetweenthepurchasepricepaidandthefaceamountcollectedisareductionininterestrevenueoverthelifeofthebonds.

4.

Cashinterestreceivedeachyear…………………...

$70,000

−Amortization

$1,010,000−$1,000,000

=

（2,000）

5years

=Annualinterestrevenue…………………………...

$68,000

（10min.）S10-8

Journal

DATE

ACCOUNTTITLESANDEXPLANATION

DEBIT

CREDIT

20X1

a.

June

30

Long-TermInvestmentinBonds

（$1,000,000×1.01）………………………...

1,010,000

Cash……………………………….……..

1,010,000

Topurchasebondinvestment.

b.

Dec.

31

Cash（$1,000,000×.07×6/12）…………..

35,000

InterestRevenue……………………….

35,000

Toreceivesemiannualinterest.

c.

31

InterestRevenue………………………….

1,000

Long-TermInvestmentinBonds

[（$1,010,000−$1,000,000）/5×6/12].

1,000

Toamortizebondinvestment.

20X6

d.

Jan.

2

Cash…………………………………….......

1,000,000

Long-TermInvestmentinBonds……

1,000,000

Toreceivefacevalueatmaturity.

（5-10min.）S10-9

Journal

DATE

ACCOUNTTITLESANDEXPLANATION

DEBIT

CREDIT

Sept.

14

AccountsReceivable

（200,000rubles×$0.34）……………………..

68,000

SalesRevenue……………………………..

68,000

Saleonaccount.

Oct.

19

Cash（100,000rubles×$0.30）………………

30,000

Foreign-CurrencyTransactionLoss….......

4,000

AccountsReceivable（$68,000×1/2）…..

34,000

Collectiononaccount.

Nov.

10

Cash（100,000rubles×$0.35）………………

35,000

AccountsReceivable（$68,000×1/2）…..

34,000

Foreign-CurrencyTransactionGain......

1,000

Collectiononaccount.

（10min.）S10-10

Journal

DATE

ACCOUNTTITLESANDEXPLANATION

DEBIT

CREDIT

Aug.

28

Cash（1,000,000pesos×$0.092）…………

92,000

AccountsReceivable

（1,000,000pesos×（0.090）…………..

90,000

Foreign-CurrencyTransactionGain….

2,000

Collectiononaccount.

Sept.

29

AccountsPayable

（20,000Swissfrancs×$0.81）…................

16,200

Foreign-CurrencyTransactionLoss…….

800

Cash（20,000Swissfrancs×$0.85）…..

17,000

Paymentonaccount.

Currency

Strengthened

Weakened

Dollar

X

Peso

X

Dollar

X

Swissfranc

X

（5-10min.）S10-11

IntheUnitedStates,companiescanuseanumberofdifferentinventoryaccountingmethods,whichincludeLIFO.IntheUnitedKingdom,LIFOisunacceptablefortaxpurposesandisnotwidelyused.

IntheU.S.,companiesrecordanylossinthevalueoftheirgoodwill.IntheU.K.,companiesgenerallyamortizegoodwilloveritsusefullife.ButBritishcompaniesmayelectnottoamortizegoodwilliftheybelieveitslifeisindefinite.

IntheU.S.,companiesmustexpenseresearchanddevelopmentcostsasincurred.Britishcompaniesmustalsoexpenseresearchcosts,buttheyareallowedtocapitalizesomedevelopmentcosts.

（5min.）S10-12

1.A.Operating

B.Investing—Mostcloselyrelatedtothischapter.

C.Financing

2.Purchaseofinvestment（oracquisitionofothercompanies）

Saleofinvestment（orsaleofothercompanies）

Exercises

（10-15min.）E10-13

Journal

DATE

ACCOUNTTITLESANDEXPLANATION

DEBIT

CREDIT

a.

Long-TermInvestment（400×$32）………..

12,800

Cash………………………………………...

12,800

b.

Cash（400×$1）……………………………….

400

DividendRevenue………………………..

400

c.

AllowancetoAdjustInvestmenttoMarket

[400×（$38−$32）]……………………………

2,400

UnrealizedGainonInvestment………..

2,400

d.

Cash（400×$23）……………………………...

9,200

LossonSaleofInvestment………………...

3,600

Long-TermInvestment…………………..

12,800

（15-25min.）E10-14

Req.1

Stock

Cost

CurrentMarketValue

HongKong

（3,000×$37）

=

$110,000

（3,000×$29.125）

=

$87,375

Beijing

（600×$46.75）

=

28,050

（600×$48.50）

=

29,100

Shanghai

（1,400×$79）

=

110,600

（1,400×$68.25）

=

95,550

Total…………………………………

$248,650

………………………..

$212,025

Req.2

Dec.31

UnrealizedLossonInvestment

（$248,650−$212,025）………………..

36,625

AllowancetoAdjustInvestment

toMarket…………………………..

36,625

Req.3

IncomeStatement（partial）:

Othercomprehensiveincome:

Unrealized（loss）oninvestments……….……...

$（36,625）

BalanceSheet（partial）:

ASSETS

Long-terminvestments,atmarketvalue…………

$212,025

STOCKHOLDERS’EQUITY

Accumulatedothercomprehensiveincome:

Unrealized（loss）oninvestments………………….

$（36,625）

（10-15min.）E10-15

Journal

DATE

ACCOUNTTITLESANDEXPLANATION

DEBIT

CREDIT

a.

Long-TermInvestment………………………...

1,000,000

Cash……………………………………………

1,000,000

Purchasedequity-methodinvestment.

b.

Long-TermInvestment（$640,000×.25）…….

160,000

Equity-MethodInvestmentRevenue…….

160,000

Torecordinvestmentrevenue.

c.

Cash（$420,000×.25）…………………………..

105,000

Long-TermInvestment……………………..

105,000

Toreceivecashdividendonequity-methodinvestment.

Endingbalanceintheinvestmentaccount:

$1,055,000（$1,000,000+$160,000−$105,000）

（10-15min.）E10-16

Long-TermInvestmentinThaiSoftware

a.

Purchase

1,000,000

c.

Dividends

105,000

b.

Netincome

160,000

Balance

1,055,000

Saleofinvestmentforcashof

$2,700,000

Carryingamountofinvestment

（1,055,000）

Gainonsaleofinvestment

$1,645,000

（15-20min.）E10-17

Req.1

Theequitymethodisappropriate