PROBLEM 17.
(a) December 31, 2020
Debt Investments ...................................... 108,660
Cash .................................................. 108,660
(b) December 31, 2021
Cash ........................................................... 7,000
Debt Investments ............................. 1,567
Interest Revenue .............................. 5,433
(c) December 31, 2023
Cash ........................................................... 7,000
Debt Investments ............................. 1,728
Interest Revenue .............................. 5,272
(d) December 31, 2020
Debt Investments ...................................... 108,660
Cash .................................................. 108,660
(e) December 31, 2021
1. Cash ........................................................... 7,000
Debt Investments ............................. 1,567
Interest Revenue .............................. 5,433
Unrealized Holding Gain or Loss−
Income ($107,093 – $106,500) .............. 593
Fair Value Adjustment ..................... 593
2. Cash ........................................................... 7,000
Debt Investments ............................. 1,567
Interest Revenue .............................. 5,433
Unrealized Holding Gain or Loss–Equity 593
Fair Value Adjustment ..................... 593
(f) December 31, 2023
Cash ........................................................... 7,000
Debt Investments ............................. 1,728
Interest Revenue .............................. 5,272
PROBLEM 17.1 (Continued)
Amortized Fair Unrealized
Cost Value Gain (Loss)
Spangler Company, 7% bonds $103,719 $105,650 $1,931
Previous fair value adjustment—Dr. 2,053*
Fair value adjustment—Cr. $ (122)
*($107,500 – $105,447)
Unrealized Holding Gain or Loss—Income ............... 122
Fair Value Adjustment ......................................... 122
LO: 1, Bloom: AP, Difficulty: Moderate, Time: 20-30, AACSB: Analytic, AICPA BC: None, AICPA FC: Reporting, AICPA PC: None
PROBLEM 17.6
(a) (1) October 10, 2023
Cash (5,000 × £54)........................................... 270,000
Gain on Sale of Investments .................. 55,000
Equity Investments ................................. 215,000
(2) November 2, 2023
Equity Investments (3,000 × £54.50) .............. 163,500
Cash ......................................................... 163,500
(3) At September 30, 2023, McElroy had the following fair value
adjustment:
Equity Investment Portfolio—September 30, 2023
Fair Unrealized
Investments Cost Value Gain (Loss)
Horton, Inc. ordinary £215,000 £200,000 (£ (15,000)
Monty, Inc. preference 133,000 140,000 ( 7,000)
Oakwood Corp. ordinary 180,000 179,000 ( (1,000)
Total of portfolio £528,000 £519,000 £ ((9,000)
PROBLEM 17.6 (Continued)
At December 31, 2023, McElroy had the following fair value
adjustment:
Equity Investment Portfolio—December 31, 2023
Fair Unrealized
Investments Cost Value Gain (Loss)
Monty, Inc. preference £133,000 £106,000 (£ (27,000)
Oakwood Corp. ordinary 180,000 193,000 13,000)
Patriot ordinary 163,500 132,000 ( (31,500)
Total of portfolio £476,500 £431,000 (45,500)
Previous fair value adjustment
balance—Cr. (9,000)
Fair value adjustment—Cr. (£ (36,500)
The entry on December 31, 2023 is therefore as follows:
Unrealized Holding Gain or Loss—Income ...... 36,500
Fair Value Adjustment ............................... 36,500
(b) The entries would be the same except that instead of debiting and crediting
accounts associated with trading investments, the accounts used would be
associated with non-trading investments. In addition, the Unrealized
Holding Gain or Loss−Equity account is used instead of Unrealized Holding
Gain or Loss−Income. The unrealized holding loss in this case would be
deducted from the equity section as part of Accumulated Other
Comprehensive Income.
LO: 2, Bloom: AN, Difficulty: Moderate, Time: 15-25, AACSB: Analytic, Communication, AICPA BC: None, AICPA FC: Reporting, AICPA PC: Communication
PROBLEM 17.8
(a) 1. Trading investments:
Unrealized Holding Gain or Loss−
Income .......................................................... 80,000
Fair Value Adjustment ............................. 80,000
2. Non-trading investments:
Equity Investments.......................................... 725,000
Unrealized Holding Gain or Loss−
Equity .................................................... 725,000
Computations:
1. Unrealized
Investments Cost Fair Value Gain (Loss)
Delaney Motors $1,400,000 $1,600,000 ($(200,000
Patrick Electric 1,000,000 720,000 ( (280,000)
Total of portfolio $2,400,000 $2,320,000 ($ (80,000)
2. Computation of Unrealized Gain or Loss in 2022
Unrealized
Investments Cost Fair Value Gain (Loss)
Norton Ind. $22,500,000 $21,500,000 (($1,000,000)
Computation of Unrealized Gain or Loss in 2023
Unrealized
Investments Cost Fair Value Gain (Loss)
Norton Ind. $22,500,000 $22,225,000 $ (275,000)
Previous Fair Value
Adjustment (Cr) ($1,000,000)
Fair Value Adjustment (Dr) $ 725,000
PROBLEM 17.8 (Continued)
(b) The unrealized holding loss on the valuation of Brooks’ trading investments is
reported on the income statement. The loss would appear in the “Other
income and expense” section of the income statement. The Fair Value
Adjustment account is a valuation account and it is used to show the
reduction in the fair value of the trading investments. The trading
investments portfolio is disclosed in the statement of financial position as
a current asset and reported at its fair value.
The unrealized holding gain on the valuation of Brooks’ non-trading
investments is reported as other comprehensive income and as a separate
component of equity. The Equity Investment account is used to report the
change in fair value of the non-trading investments, because the option is
applied on a security-by-security basis. The fair value of the investments is
reported in the investments section of the statement of financial position. It
should be noted that a combined statement of income and comprehensive
income or a statement of comprehensive income would report the
components of comprehensive income.
(c) Equity Investments ($500,000 × 0.25) ......................... 125,000
Investment Revenue............................................ 125,000
Cash ($100,000 × .25) ................................................. 25,000
Equity Investments.............................................. 25,000
With 25%, Brooks has significant influence and should apply the equity
method. No fair value adjustments are recorded under the equity method.
LO: 2,3, Bloom: AN, Difficulty: Moderate, Time: 20-30, AACSB: Analytic, AICPA BC: None, AICPA FC: Reporting, AICPA PC: None
