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Chapter 13: Q19E (page 658)

(Fair Value Measurement) Presented below is information related to the purchases of common stock by Lilly

Company during 2017.

Cost Fair Value

(at purchase date) (at December 31)

Investment in Arroyo Company stock \(100,000 \) 80,000

Investment in Lee Corporation stock 250,000 300,000

Investment in Woods Inc. stock 180,000 190,000

Total \(530,000 \)570,000

Instructions

(Assume a zero balance for any Fair Value Adjustment account.)

(a) What entry would Lilly make at December 31, 2017, to record the investment in Arroyo Company stock if it chooses to

report this security using the fair value option?

(b) What entry(ies) would Lilly make at December 31, 2017, to record the investments in the Lee and Woods corporations,

assuming that Lilly did not select the fair value option for these investments?

Short Answer

Expert verified

a.Unrealized loss is $20,000

b.Unrealized gain is $50,000 and $10,000

Step by step solution

01

fair value adjustment of Arroyo stock

Date

Particulars

Debit

Credit

December 31, 2017

Unrealized holding Gain or loss

$20,000

Fair value adjustment

$20,000

(Loss on the fair value adjustment)

02

Fair value adjustment of Lee and wood stocks

Date

Particulars

Debit

Credit

December 31, 2017

Fair value adjustment

$50,000

Unrealized holding Gain or loss

$50,000

(Gain on the fair value adjustment)

Date

Particulars

Debit

Credit

December 31, 2017

Fair value adjustment

$10,000

Unrealized holding Gain or loss

$10,000

(Gain on the fair value adjustment)

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Most popular questions from this chapter

Kobayashi Corporation reports in the current liability section of its statement of financial position at December 31, 2017 (its year-end), short-term obligations of \(15,000,000, which includes the current portion of 12% long-term debt in the amount of \)10,000,000 (matures in March 2018). Management has stated its intention to refinance the 12% debt whereby no portion of it will mature during 2018. The date of issuance of the financial statements is March 25, 2018.Instructions

(a) Is management鈥檚 intent enough to support long-term classification of the obligation in this situation?

(b)Assume that Kobayashi Corporation issues \(13,000,000 of 10-year debentures to the public in January 2018 and that management intends to use the proceeds to liquidate the \)10,000,000 debt maturing in March 2018. Furthermore, assume that the debt maturing in March 2018 is paid from these proceeds prior to the authorization to issue the financial statements. Will this have any impact on the financial position classification at December 31, 2017? Explain your answer.

(c) Assume that Kobayashi Corporation issues ordinary shares to the public in January and that management intends to entirely liquidate the \(10,000,000 debt maturing in March 2018 with the proceeds of this equity securities issue. In light of these events, should the \)10,000,000 debt maturing in March 2018 be included in current liabilities at December 31, 2017?

Question: Amsterdam Company uses a periodic inventory system. For April, when the company sold 600 units, the following information is available.

Units Unit Cost Total Cost

April 1 inventory 250 \(10 \) 2,500

April 15 purchase 400 12 4,800

April 23 purchase 350 13 4,550

1,000 $11,850

Compute the April 30 inventory and the April cost of goods sold using the average-cost method.

(Equity Securities Entries) McElroy Company has the following portfolio of investment securities at September

30, 2017, its most recent reporting date.

Investment Securities Cost Fair Value

Horton, Inc. common (5,000 shares) \(215,000 \)200,000

Monty, Inc. preferred (3,500 shares) 133,000 140,000

Oakwood Corp. common (1,000 shares) 180,000 179,000

On October 10, 2017, the Horton shares were sold at a price of \(54 per share. In addition, 3,000 shares of Patriot common stock

were acquired at \)54.50 per share on November 2, 2017. December 31, 2017, fair values were Monty \(106,000, Patriot

\)132,000, and Oakwood $193,000.

Instructions

Prepare the journal entries to record the sale, purchase, and adjusting entries related to the equity securities in the last quarter of 2017

(Fair Value Option) Presented below is selected information related to the financial instruments of

Dawson Company at December 31, 2017. This is Dawson Company鈥檚 first year of operations.

Carrying Fair Value

Amount (at December 31)

Investment in debt securities (intent is to hold to maturity) \( 40,000 \) 41,000

Investment in Chen Company stock 800,000 910,000

Bonds payable 220,000 195,000

Instructions

(a) Dawson elects to use the fair value option for these investments. Assuming that Dawson鈥檚 net income is $100,000 in2017 before reporting any securities gains or losses determine Dawson鈥檚 net income for 2017. Assume that the differencebetween the carrying value and fair value is due to credit deterioration.

(b) Record the journal entry, if any, necessary at December 31, 2017, to record the fair value option for the bonds payable

(Premium Entries) No Doubt Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2017, No Doubt Company purchased 8,800 premiums at 80 cents each and sold 110,000 boxes of soap powder at $3.30 per box; 44,000 coupons were presented for redemption in 2017. It is estimated that 60% of the coupons will eventually be presented for redemption.

Instructions

Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2017.
See all solutions

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