Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Textbook Question
Chapter 16, Problem 16.10E
Equity Investments without a Readily Determinable Fair Value. Tekky Corporation purchased an equity investment in Hui Zu. Ltd on December 15 for $100000 Tekky accounts for the equity investment by using market comparables. Hui Zu. Ltd.’s equity is not actively traded and it does not have a readily determinable lair value, but fair value is estimated at $105,000 on December 31. Tekky does not have significant influence over the investee. The investment is sold on June 22 of the next year for $114,000. What are the necessary
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Mary Tokar is comparing a GAAP-based company to a company that uses IFRS. Both companies report equity investments. The IFRS company reports unrealized losses on these investments under the heading “Reserves” in its equity section. However, Mary can find no similar heading in the GAAP-based company financial statements. Can Mary conclude that the GAAP-based company has no unrealized gains or losses on its non-trading equity investments? Explain.
Herbst Enterprises purchased equity securities in Year 1 and classified them as available-for-sale. They reported an unrealized gain in
Year 1 and an additional unrealized gain in Year 2. They decide to sell the securities in Year 3 for $28,000 more than the fair value
recorded in Year 2. Based on this, Herbst needs to
report the realized gain as dividend revenue.
O restate the Year 1 and Year 2 financial reports to change the unrealized gains to realized gains.
report the realized gain under other comprehensive income.
O make a reclassification adjustment for the securities they sold.
Bargain Wholesale Supply owns stock in Cyrus Corporation, which it intends to hold indefinitely. Should the investment in Cyrus be classified as a short-term investment? Why?
Chapter 16 Solutions
Intermediate Accounting (2nd Edition)
Ch. 16 - Prob. 16.1QCh. 16 - Is reporting an investment at its cost considered...Ch. 16 - Prob. 16.3QCh. 16 - Prob. 16.4QCh. 16 - Prob. 16.5QCh. 16 - Prob. 16.6QCh. 16 - What categories can managers use to classify...Ch. 16 - When is the equity method of accounting for...Ch. 16 - Prob. 16.9QCh. 16 - Can companies apply the fair value option to all...
Ch. 16 - What is the fair value hierarchy for investment...Ch. 16 - Prob. 16.12QCh. 16 - Prob. 16.13QCh. 16 - Prob. 16.14QCh. 16 - Prob. 16.15QCh. 16 - Prob. 16.16QCh. 16 - Prob. 16.17QCh. 16 - Deutsch Imports has three securities in its...Ch. 16 - Prob. 16.2MCCh. 16 - Prob. 16.3MCCh. 16 - Prob. 16.4MCCh. 16 - Prob. 16.5MCCh. 16 - Prob. 16.6MCCh. 16 - Prob. 16.7MCCh. 16 - Prob. 16.1BECh. 16 - Prob. 16.2BECh. 16 - Debt Investments, Trading. Using the information...Ch. 16 - Prob. 16.4BECh. 16 - Prob. 16.5BECh. 16 - Prob. 16.6BECh. 16 - Prob. 16.7BECh. 16 - Prob. 16.8BECh. 16 - Prob. 16.9BECh. 16 - Prob. 16.10BECh. 16 - Prob. 16.11BECh. 16 - Prob. 16.12BECh. 16 - Prob. 16.13BECh. 16 - Notes Receivable. Aaron Anatole accepted a...Ch. 16 - Prob. 16.15BECh. 16 - Prob. 16.16BECh. 16 - Prob. 16.17BECh. 16 - Debt Investments. Impairments. IFRS. For each debt...Ch. 16 - Prob. 16.19BECh. 16 - Prob. 16.1ECh. 16 - Prob. 16.2ECh. 16 - Prob. 16.3ECh. 16 - Prob. 16.4ECh. 16 - Prob. 16.5ECh. 16 - Prob. 16.6ECh. 16 - Prob. 16.7ECh. 16 - Debt and Equity Investments, Available-for-Sale...Ch. 16 - Prob. 16.9ECh. 16 - Equity Investments without a Readily Determinable...Ch. 16 - Prob. 16.11ECh. 16 - Prob. 16.12ECh. 16 - Prob. 16.13ECh. 16 - Equity-Investments, Equity Method. Book Value of...Ch. 16 - Prob. 16.15ECh. 16 - Prob. 16.16ECh. 16 - Notes Receivable. Each of the following three...Ch. 16 - Notes Receivable. On January 1, 2018, Racine...Ch. 16 - Debt Investment, Held to Maturity, Impairments....Ch. 16 - Debt Investment, Impairments, IFRS. Repeat E16-19...Ch. 16 - Prob. 16.21ECh. 16 - Prob. 16.22ECh. 16 - Prob. 16.23ECh. 16 - Prob. 16.24ECh. 16 - Prob. 16.25ECh. 16 - Prob. 16.1PCh. 16 - Debt Investments, Trading. Freder Software Group...Ch. 16 - Prob. 16.3PCh. 16 - Equity Investments, Readily Determinable Fair...Ch. 16 - Prob. 16.5PCh. 16 - Prob. 16.6PCh. 16 - Prob. 16.7PCh. 16 - Prob. 16.8PCh. 16 - Prob. 16.9PCh. 16 - Prob. 16.10PCh. 16 - Prob. 16.11PCh. 16 - Equity Investments, Equity Method, Fair Value...Ch. 16 - Prob. 16.13PCh. 16 - Prob. 16.14PCh. 16 - Prob. 16.15PCh. 16 - Prob. 16.16PCh. 16 - Prob. 16.17PCh. 16 - Prob. 16.18PCh. 16 - Prob. 16.19PCh. 16 - Prob. 1JCCh. 16 - Prob. 2JCCh. 16 - Prob. 1SSCCh. 16 - Prob. 1BCCCh. 16 - Prob. 2BCC
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Assume these are the only securities Martin owns and that the company accounts for them as trading securities. How will changes in the prices of the securities affect net income? What would the effect on net income be if the Nichols Inc. securities were worth $463,000 at year-end (instead of $558,000)arrow_forwardHow much is the unrealized gain (loss) accumulated in equity as of December 31, 20x2? Karen Co. purchased the following equity securities on January 1, 20x1 for a total amount of P360,000. Cost Alaska Co. preference shares P200,000 160,000 Valdez Co. ordinary shares Totals P360,000 The shares did not qualify for recognition as held for trading, thus they were classified as investment in equity securities measured at fair value through other comprehensive income. On December 31, 20x1, the portfolio of Karen Co. comprised the following. Fair value - 12/31/x1 Alaska Co. preference shares P240,000 60,000 Valdez Co. ordinary shares Total P300,000 On December 31, 20x2, the portfolio of Karen Co. comprised the following: Fair value - 12/31/x2 Alaska Co. preference shares P220,000 180,000 Valdez Co. ordinary shares Total P400,000 On February 2, 20x3, all of the Alaska Co. preference shares were sold for P160,000 net of transaction costs. 0 100,000 40,000 O (40,000)arrow_forwardTrend Company reported the following investment in equity through other comprehensive income in its December 31, 2020 statement of financial position: Brand Company, equity instrument, at fair market value PI,200,000 Unrealised loss reported in OC1 200 000 0n December 31,2021, there was objective evidence that came to the attention of Trend Company that the investment in Brand Company is impaired. Market value of the investment was established at P800,000. What amount of impairment loss should Trend Company recognize on the investment as of December 31, 2019?arrow_forward
- Pronghorn Ltd. is a Canadian publicly-traded business with a December 31 fiscal year end. In order to get a better return on some of its excess cash, Pronghorn purchased 150 common shares of AFS Corporation on July 1, 2023 at a price of $5 per share. Due to the nature of the investment, Pronghorn's management is accounting for the equity investment using the fair-value through other comprehensive income (FV-OCI) without recycling to net income. On August 1, 2023, AFS declared dividends of $1/share, and paid those dividends on August 20, 2023. On December 31, 2023, shares in AFS were trading at $7 per share. On September 15, 2024, Pronghorn sold the shares in AFS for $8 per share. Prepare the journal entries required to record the above transactions on the books of Pronghorn Ltd. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all…arrow_forward2. On January 1, 20x1, an entity purchased marketable equity securities for P2,500,000. The entity paid commission and taxes of P190,000. The equity securities do not qualify as financial asset held for trading. The entity made irrevocable election to present unrealized gain and loss in other comprehensive income. The securities have a market value of P2,600,000, and P2,750,000 on December 31, 20x1 and December 31, 20x2. O n July 1, 2022, half of the securities are sold for P1,400,000. On December 31, 20x2, how much shall be shown in the statement of comprehensive income as unrealized gain/ loss? (sample answer: 10,500 UG or 10,500 UL)arrow_forwardWhen a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee. The investor should always use the equity method to account for its investment. The investor should always use the fair value method to account for its investment.arrow_forward
- Sumpak, Inc. owns 35% of Marin Corporation. During the calendar year 2004, Marin had net earnings of ₱300,000 and paid dividends of ₱30,000. Dane mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. Dane recognized ₱20,000 gain on the change in fair value of the investment during the year. What effect would this have on the investment account, net income, and retained earnings, respectively?a. Understate, overstate, overstateb. Overstate, understate, understatec. Overstate, overstate, overstated. Understate, understate, understatearrow_forwardOn January 1, 2001, X.Co purchased marketable equity securities at its market value of P5,000,000, while the company also paid commission, taxes and other transaction costs amounting to P200,000. The securities had the following market value on the these dates: December 31, 2001 4,700,000 December 31, 2002 5,300,000 No securities were sold during 2001 and 2002. What amount of unrealized gain or loss should be reported in the 2002 income statement if the securities were held for trading?arrow_forwardBaguio Company is experiencing financial difficulty and is renegotiating debt restructuring with the creditor to relieve its financiaal stress. The entity has P5,000,000 note payable to First Bank. The bank is considering two alternatives. Acceptance of land owned by the entity valued at P4,000,000 and carried at its historical cost of P2,800,000 Acceptance of an equity interest in the entity in the form of 40,000 shares with fair value of P120 per share. The share capital has a par value of P100 per share. Required: Prepare journal entry that Baguio Company would make under each alternative.arrow_forward
- Company S has no long-term marketable securities. Assume the following scenarios:Case AAssume that P Company paid $128,640 cash for 100% of the net assets of S Company. S COMPANY Assets Current Assets Long-lived Assets Liabilities Net Assets Book Value $13,850 $87,400 $18,520 $82,730 Fair Value 19,030 118,200 29,860 107,370 Case BAssume that P Company paid $112,410 cash for 100% of the net assets of S Company. S COMPANY Assets Current Assets Long-lived Assets Liabilities Net Assets Book Value $13,850 $87,400 $18,520 $82,730 Fair Value 29,490 84,700 20,640 93,550 Case CAssume that P Company paid $15,750 cash for 100% of the net assets of S Company. S COMPANY Assets Current Assets Long-lived Assets Liabilities Net Assets Book Value $13,850 $87,400 $18,520 $82,730 Fair Value 19,440 39,110 37,280 21,270 Complete the following schedule by listing the amount…arrow_forwardHow much is the unrealized gain (loss) recognized in other comprehensive income on December 31, 20x1? Karen Co. purchased the following equity securities on January 1, 20x1 for a total amount of P360,000. Cost Alaska Co. preference shares P200,000 160,000 Valdez Co. ordinary shares Totals P360,000 The shares did not qualify for recognition as held for trading, thus they were classified as investment in equity securities measured at fair value through other comprehensive income. On December 31, 20x1, the portfolio of Karen Co. comprised the following. Fair value - 12/31/x1 Alaska Co. preference shares P240,000 60,000 Valdez Co. ordinary shares Total P300,000 On December 31, 20x2, the portfolio of Karen Co. comprised the following: Fair value-12/31/x2 Alaska Co. preference shares P220,000 Valdez Co. ordinary shares 180,000 Total P400,000 On February 2, 20x3, all of the Alaska Co. preference shares were sold for P160,000 net of transaction costs. 60,000 100,000 O (60,000)arrow_forwardWalsh, Inc. began business on January 1, 2002, and at December 31, 2002, Walsh had the following investment portfolios of equity securities: FVPL FVOCI Aggregate cost ₱150,000 ₱225,000 Aggregate fair value 120,000 185,000 None of the declines is judged to be other than temporary. Unrealized losses at December 31, 2002, should be recorded with corresponding charges against Profit or loss Equity Profit or loss Equity 70,000 0 30,000 40,000 40,000 30,000 0 70,000arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Financial instruments products; Author: fi-compass;https://www.youtube.com/watch?v=gvxozM3TUIg;License: Standard Youtube License