CHAPTER 12 Investments ASSIGNMENT CLASSIFICATION TABLE
Learning Objetives
!"esti#ns
Brie$ E%erises
It'
E%erises
A Pr#b(ems
B Pr#b(ems
1.
Disc Discus uss s why why corp corpor orat atio ions ns invest in debt and share securities.
1
2.
Expl Explai ain n the the acco accoun unti ting ng for debt investments.
2, 3, 4
1
1
2, 3
1, 2
1!, 2!
3.
Expl Explai ain n the the acco accoun unti ting ng for share investments.
", #, $, %, &, 1'
2, 3
2
4, ", #, $, %
2, 3, 4, "
2!, 3!, 4!, "!
4.
Desc Descri ribe be the the use use of consolidated financial statements.
11
".
(ndi (ndica cate te how how deb debtt and and share investments are reported in financial statements.
12, 13, 14, 1", 1#, 1$
4, ", #, $, %
3
%, 1', 11, 12
1, 2, 3, ", #
1!, 2!, 3!, "!, #!
#.
Dist Distin ingu guis ish h bet betwe ween en short)term and long)term investments.
1%, 1&
", $, %
4
1', 11, 12
1, 2, 3, ", #
1!, 2!, 3!, "!, #!
Desc Descri ribe be the the for form m and and content of consolidated financial statements as well as how to prepare them.
2', 21
&, 1'
13, 14
$
$!
*$. *$.
N#te)
1
&
ll asteris*e+ +uestion, Exercises, and roblems relate to material contained in the appendix to the chapter.
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12)1 12)1
ASSIGNMENT CHARACTERISTICS TABLE Pr#b(em N"mber
&esri,ti#n
&i$$i"(tLeve(
Time A((#tte+ .min/0
1
/our /ourna nali li:e :e debt debt inve invest stme ment nt tran transa sact ctio ions ns and and show show financial statement presentation.
5oderate
3';4'
2
/our /ourna nali li:e :e inve invest stme ment nt tran transa sact ctio ions ns,, pre prepa pare re ad
5oderate
3';4'
3
/our /ourna nali li:e :e tran transa sact ctio ions ns and and ad< ad
5oderate
3';4'
4
rep repar are e entr entrie ies s unde underr the the cost cost and and e=ui e=uity ty meth method ods, s, and tabulate differences.
imple
2';3'
"
/our /ourna nali li:e :e shar share e inve invest stme ment nt tran transa sact ctio ions ns and and show show statement presentation.
5oderate
4';"'
#
repare a statement of financial position.
5oderate
3';4'
*$ *$
rep repar are e cons consol olid idat ated ed wor>s or>she heet et and and stat statem emen entt of financial position when cost exceeds boo> value.
imple
3';4'
1!
/our /ourna nali li:e :e debt debt inve invest stme ment nt tran transa sact ctio ions ns and and show show financial statement presentation.
5oderate
3';4'
2!
/our /ourna nali li:e :e inve invest stme ment nt tran transa sact ctio ions ns,, pre prepa pare re ad
5oderate
3';4'
3!
/our /ourna nali li:e :e tran transa sact ctio ions ns and and ad< ad
5oderate
3';4'
4!
rep repar are e entr entrie ies s unde underr the the cost cost and and e=ui e=uity ty meth method ods, s, and tabulate differences.
imple
2';3'
"!
/our /ourna nali li:e :e shar share e inve invest stme ment nt tran transa sact ctio ions ns and and show show statement presentation.
5oderate
4';"'
#!
repare a statement of financial position.
5oderate
3';4'
imple
3';4'
*$! *$!
rep repar are e cons consol olid idat ated ed wor>s or>she heet et and and stat statem emen entt of financial position when cost exceeds boo> value.
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12)2 12)2
ASSIGNMENT CHARACTERISTICS TABLE Pr#b(em N"mber
&esri,ti#n
&i$$i"(tLeve(
Time A((#tte+ .min/0
1
/our /ourna nali li:e :e debt debt inve invest stme ment nt tran transa sact ctio ions ns and and show show financial statement presentation.
5oderate
3';4'
2
/our /ourna nali li:e :e inve invest stme ment nt tran transa sact ctio ions ns,, pre prepa pare re ad
5oderate
3';4'
3
/our /ourna nali li:e :e tran transa sact ctio ions ns and and ad< ad
5oderate
3';4'
4
rep repar are e entr entrie ies s unde underr the the cost cost and and e=ui e=uity ty meth method ods, s, and tabulate differences.
imple
2';3'
"
/our /ourna nali li:e :e shar share e inve invest stme ment nt tran transa sact ctio ions ns and and show show statement presentation.
5oderate
4';"'
#
repare a statement of financial position.
5oderate
3';4'
*$ *$
rep repar are e cons consol olid idat ated ed wor>s or>she heet et and and stat statem emen entt of financial position when cost exceeds boo> value.
imple
3';4'
1!
/our /ourna nali li:e :e debt debt inve invest stme ment nt tran transa sact ctio ions ns and and show show financial statement presentation.
5oderate
3';4'
2!
/our /ourna nali li:e :e inve invest stme ment nt tran transa sact ctio ions ns,, pre prepa pare re ad
5oderate
3';4'
3!
/our /ourna nali li:e :e tran transa sact ctio ions ns and and ad< ad
5oderate
3';4'
4!
rep repar are e entr entrie ies s unde underr the the cost cost and and e=ui e=uity ty meth method ods, s, and tabulate differences.
imple
2';3'
"!
/our /ourna nali li:e :e shar share e inve invest stme ment nt tran transa sact ctio ions ns and and show show statement presentation.
5oderate
4';"'
#!
repare a statement of financial position.
5oderate
3';4'
imple
3';4'
*$! *$!
rep repar are e cons consol olid idat ated ed wor>s or>she heet et and and stat statem emen entt of financial position when cost exceeds boo> value.
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12)2 12)2
EGAN&T FINANCIAL ACCO3NTING4 ACCO3NTING4 IFRS E&ITION4 5e CHAPTER 12 IN6ESTMENTS N"mber
LO
BT
&i$$i"(t-
Time .min/0
!E1
2
imple
2;4
!E2
3
imple
3;"
!E3
3
imple
3;"
!E4
"
imple
2;3
!E"
", #
?
imple
2;4
!E#
"
?
imple
2;3
!E$
", #
imple
2;4
!E%
", #
imple
3;"
*!E&
$
imple
3;"
*!E1'
$
imple
3;"
D(1
2
5oderate
#;%
D(2
3
imple
#;%
D(3
"
?
imple
4;#
D(4
#
-
imple
4;#
E@1
1
-
imple
%;1'
E@2
2
5oderate
%;1'
E@3
2
5oderate
%;1'
E@4
3
imple
%;1'
E@"
3
imple
#;%
E@#
3
imple
%;1'
E@$
3
imple
#;%
E@%
3, "
imple
%;1'
E@&
4
-
imple
#;%
E@1'
", #
?
imple
4;#
E@11
", #
?
imple
%;1'
E@12
", #
?
imple
#;%
*E@13
$
imple
3;"
*E@14
$
imple
4;#
1
2, ", #
?
5oderate
3';4'
2
2, 3, ", #
?
5oderate
3';4'
3
3, ", #
?
5oderate
3';4'
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12)3 12)3
IN6ESTMENTS .C#ntin"e+0 N"mber
LO
BT
&i$$i"(t-
Time .min/0
4
3
?
imple
2';3'
"
3, ", #
?
5oderate
4';"'
#
", #
5oderate
3';4'
*$
$
5oderate
2';3'
1!
2, ", #
?
5oderate
3';4'
2!
2, 3, ", #
?
5oderate
3';4'
3!
3, ", #
?
5oderate
3';4'
4!
3
?
imple
2';3'
"!
3, ", #
?
5oderate
4';"'
#!
", #
5oderate
3';4'
*$!
$
5oderate
2';3'
!A1
4
-
imple
1';1"
!A2
4
?
imple
1';1"
!A3
B
-
imple
1';1"
!A4
3
-
5oderate
1";2'
!A"
"
-
imple
";1'
!A#
"
E
imple
1';1"
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)4
C#rre(ati#n C9art bet:een B(##m7s Ta%#n#m-4 Learning Objetives an+ En+;#$;C9a,ter E%erises an+ Pr#b(ems Learning Objetive
C#m,re9ensi#n
A,,(iati#n
Ana(-sis
1/ &is"ss :9- #r,#rati#ns invest in +ebt an+ s9are se"rities/
!12;1
E12;1
2/ E%,(ain t9e a#"nting $#r +ebt investments/
!12;2
!12;5 !12;=
BE12;1 &I12;1
E12;2 E12;5
P12;1A P12;2A
P12;1B P12;2B
5/ E%,(ain t9e a#"nting $#r s9are investments/
!12;>
!12;? !12;@ !12; !12;1
!12; BE12;2 BE12;5 &I12;2 E12;=
E12;? E12; E12;> E12;@
P12;2A P12;5A P12;=A P12;?A
P12;2B P12;5B P12;=B P12;?B
=/ &esribe t9e "se #$ #ns#(i+ate+ !12;11 $inania( statements/
E12;
?/ In+iate 9#: +ebt an+ s9are investments are re,#rte+ in $inania( statements/
!12;15
!12;1= !12;1 BE12;= BE12;> BE12;@ E12;@ P12;A P12;B
!12;1? BE12;? BE12; &I12;5 E12;1 E12;11 E12;12 P12;1A
P12;2A P12;5A P12;?A P12;1B P12;2B P12;5B P12;?B
/ &isting"is9 bet:een s9#rt;term an+ (#ng;term investments/
!12;1@ !12;1 &I12;=
BE12;> BE12;@ P12;A P12;B
BE12;? E12;1 E12;11 E12;12 P12;1A P12;2A
P12;5A P12;?A P12;1B P12;2B P12;5B P12;?B
D>/ &esribe t9e $#rm an+ #ntent #$ #ns#(i+ate+ $inania( statements as :e(( as 9#: t# ,re,are t9 em/
!12;2 !12;21
BE12; P12;>A BE12;1 P12;>B E12;15 E12;1=
Br#a+ening #"r Pers,etive
Finania( Re,#rting Rea(;#r(+ F#"s &eisi#n;Ma*ing Ar#ss t9e Organiati#n C#mm"niati#n
!12;12 !12;1>
C#m,arative Ana(-sis
S-nt9esis Eva("ati#n
Et9is Case
ANSERS TO !3ESTIONS 1/
Che reasons corporations invest in securities are 619 excess cash not needed for operations that can be invested, 629 for additional earnings, and 639 strategic reasons.
2/
6a9
5/
6a9 Fosses and gains on the sale of debt investments are computed by comparing the cost of the investment to the net proceeds from the sale. 6b9 Gains and losses are reported in the income statement under other income and expense.
=/
Hol>ata Ftd. is incorrect. Che gain is the difference between the net proceeds, exclusive of interest, and the cost of the bonds. Che correct gain is s4,"'', or I6s4",''' ; s"''9 ; s4','''J.
?/
Che cost of an investment in shares includes all expenditures necessary to ac=uire the investment. Chese expenditures include the actual purchase price plus any commissions or bro>erage fees.
Che cost of an investment in bonds consists of all expenditures necessary to ac=uire the bonds, such as the mar>et price of the bonds plus any bro>erage fees. 6b9 (nterest is recorded as it is earned that is, over the life of the investment in bonds.
B L O O M 7S
T A 8 O N
O M 2 T A B L E
ANSERS TO !3ESTIONS 1/
Che reasons corporations invest in securities are 619 excess cash not needed for operations that can be invested, 629 for additional earnings, and 639 strategic reasons.
2/
6a9
5/
6a9 Fosses and gains on the sale of debt investments are computed by comparing the cost of the investment to the net proceeds from the sale. 6b9 Gains and losses are reported in the income statement under other income and expense.
=/
Hol>ata Ftd. is incorrect. Che gain is the difference between the net proceeds, exclusive of interest, and the cost of the bonds. Che correct gain is s4,"'', or I6s4",''' ; s"''9 ; s4','''J.
?/
Che cost of an investment in shares includes all expenditures necessary to ac=uire the investment. Chese expenditures include the actual purchase price plus any commissions or bro>erage fees.
/
Che entry is
Che cost of an investment in bonds consists of all expenditures necessary to ac=uire the bonds, such as the mar>et price of the bonds plus any bro>erage fees. 6b9 (nterest is recorded as it is earned that is, over the life of the investment in bonds.
hare (nvestments...................................................................................... -ash...................................................................................................
#3,2'' #3,2''
>/
6a9 0henever the investorKs influence on the operating and financial affairs of the associate is significant, the e=uity method should be used. Che ma
@/
ince iing 6M%','''9 should be multiplied by i
/
ignificant influence over an associate may result from representation on the board of directors, participation in policy)ma>ing processes, material intercompany transactions. 8ne must also consider whether the shares held by other shareholders is concentrated or dispersed. n investment 6direct or indirect9 of 2'L;"'L of the voting shares of an associate constitutes significant influence unless there exists evidence to the contrary.
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)#
!"esti#ns C9a,ter 12 6-ontinued9 1/ 7nder the cost method, an investment is originally recorded and reported at cost. Dividends are recorded as revenue. (n subse=uent periods, it is ad
12/ -ompanies classify debt investments into two categories 1. Crading Crading securitie securities s are bought and held primaril primarily y for sale in the near term term to generate income income on short)term price differences. 2. Neld)for)co Neld)for)collect llection ion securities securities are debt securities securities that the investor has the intent and ability ability to hold to maturity. hare investments investments are classified classified either as trading trading or non)trading non)trading securities. securities. hare investments investments have no maturity date and therefore are never classified as held)for)collection securities. hare investments can also be e=uity method investments if ownership is between 2'L and "'L, or consolidated investments if ownership is "'L or more.
15/ Cina should report as follows 619 7nder current current assets assets in the statement statement of financia financiall position position hort) hort)ter term m inves investme tment, nt, at fair fair value.. value..... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ........ ........ .... 629 7nder other income income and expense expense in in the income income stateme statement nt 7nreal 7nreali:e i:ed d lossBi lossBinco ncome. me.... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ........ ........ ........ ........ ........ ....... ...
M$','' M$',''' ' M 4,''' 4,'''
1=/ Cina should report as follows 619 7nder investments investments in the the statem statement ent of financ financial ial positi position on (nve (nvest stme ment nts s in in sha share res s of of les less s than than 2'L 2'L owne owned d comp compan anie ies, s, at at fai fairr val value.. ue.. 629 7nder 7nder e=uity e=uity in the the statem statement ent of finan financia ciall positio position n ccumu ccumulat lated ed other other compre comprehen hensiv sive e loss.. loss..... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ...... ....... ........ ....
M$', M$','' ''' ' M 4,''' 4,'''
1?/ Che entry is air air Oalue alue d
1',''' 1','''
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1','''
12)$ 12)$
!"esti#ns C9a,ter 12 6-ontinued9 1/ Che entry is air air Oalue alue d
1',''' 1',''' 1','''
7nreali:ed ed FossBE=ui FossBE=uity ty is closed out to the account ccumulated 8ther -omprehensive (ncome. 1>/ 7nreali: Chis account is report as an addition to 6or in the case of on accumulated loss, a deduction from9 e=uity. e=uity. Che unreali:ed loss is not included in the computation of net income.
1@/ eporting 7nreali:ed Gains 6Fosses9BE=uity in the e=uity section by closing it out to ccumulated 8ther -omprehensive (ncome serves two important purposes 619 it reduces the volatility of net income due to fluctuations in fair value, and 629 it still informs the financial statement user of the gain or loss that would would occur if the securities securities were sold at fair value. 1/ ?o. Che investment in Hey Ftd. shares is a long)term investment because there is no intent to convert the shares into cash within a year or the operating cycle, whichever is longer. parent compan companyK yKs s invest investmen mentt in the subsid subsidiar iaryK yKs s ordina ordinary ry shares and the subsid subsidiar iaryK yKs s D2/ 6a9 Che parent e=uity account balances are eliminated. 6b9 Che investment account represents an interest in the assets assets of the subsidiary. subsidiary. Che statement statement of financ financial ial positi position on of the subsid subsidiar iary y lists lists all its assets assets and liabil liabiliti ities es 6the 6the net assets assets9. 9. Cherefore, there would be a double counting of net assets. imilarly, there would be a double counting in e=uity because all the ordinary shares of the subsidiary are o wned by the shareholders of the parent. Che rema remain iniing exc excess ess of NHP%, HP%,'' ''', ','' ''' ' INHP INHP31 31%, %,'' ''', ','' ''' ' ; 6NHP 6NHP2& 2&', ','' ''', ','' ''' ' Q D21/ Che NHP2',''','''9J should be allocated to goodwill and presented in the consolidated statement of financial position as an intangible assetBGoodwill.
-opyri -opyright ght 2'1# 2'1# /ohn /ohn 0iley 0iley ons, ons, (nc. (nc. 0eygan 0eygandt dt inan inancia ciall cco ccounti unting ng ( ( 3e 3e olut olution ions s 5anua 5anuall 6or 6or (nst (nstruc ructor tor 7se 8nly9 8nly9
12)% 12)%
SOL3TIONS TO BRIEF E8ERCISES BRIEF E8ERCISE 12;1 an/ a n/ 1
"( "(- 1
&ebt Inv Investme stment nts/ s///// ////// ////// ////// /////// ////// /////// ////// /////// ////// ////// ////// ////// /////// ////// Cas9////////////////////////////////////////////////////////////
?4 4
Cas9/ s9/// ////// ////// ////// ////// //// //// ////// ////// ////// ////// ////// /////// /////// ////// /////// ////// ////// ////// ////// /////// ////// //// // Interest Re Reven"e////////////////////////////////////////
14
?4
14
BRIEF E8ERCISE 12;2 A"g/ "g/ 1
&e/ &e/ 1
S9are 9are IInv nves estm tme ents/ nts/// //// ////// ////// //////// ////// /////// ////// ////// ////// ////// /////// ////// //// //// //// Cas9////////////////////////////////////////////////////////////
5?4> 4>
Cas9 Cas9// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// // S9are Investments///////////////////////////////////// Gain #n Sa(e #$ S9are Investments//////////
=4 = 4
5?4>
5?4> =45
BRIEF E8ERCISE 12;5 &e/ &e/ 51
51
S9are 9are Inves nvestm tme ents nts .2? 2? 8 1 4 4 0/// 0///// //// //// //// //// //// // Reven"e $r#m S9are Investments////////////
=>4? 4?
Cas9 Cas9 .2? .2? 8 = =4 4 0 0// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// //// // S9are Investments/////////////////////////////////////
14 1 4
=>4?
14
BRIEF E8ERCISE 12;= &e/ 51
3nrea(ie+ L#s L#ssIn#me// e///////////////////////////////// Fair 6a("e A+j"stmentTra+ing .J24 K J?40/ J?40 /////////////////////////////////
54
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54
12)& 12)&
BRIEF E8ERCISE 12;? Statement #$ Finania( P#siti#n C"rrent assets S9#rt;term investments4 at $air va("e//////////////////////////////
J?4
In#me Statement Ot9er in#me an+ e%,ense 3nrea(ie+ (#ssin#me/////////////////////////////////////////////////
54
BRIEF E8ERCISE 12; &e/ 51
3nrea(ie+ Gain #r L#ssE"it-////////////////////////// Fair 6a("e A+j"stment N#n;Tra+ing///////////
4 4
BRIEF E8ERCISE 12;> Statement #$ Finania( P#siti#n Investments Investments in s9ares #$ (ess t9an 2 #:ne+ #m,anies4 at $air va("e//////////////////////////////////////////////////////
R4
E"itA"m"(ate+ #t9er #m,re9ensive (#ss//////////////////////////////
R 4
BRIEF E8ERCISE 12;@ Investments Investments in s9ares #$ (ess t9an 2 #:ne+ #m,anies4 at $air va("e////////////////////////////////////////////////////// Investment in s9ares #$ 2K? #:ne+ #m,an-4 at e"it-//////////////////////////////////////////////////////////////////////////////// T#ta( investments////////////////////////////////////////////////////////////
J11?4 2>4 J5@?4
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)1'
DBRIEF E8ERCISE 12; E(iminati#ns Pa"(a C#m,an-
I nv es t me nti n S9ann#n Or+inar- S9ares Shar eCapi t al —Or d. Retaine+ Earnings
S9ann#n C#m,an-
&r/
14
Cr/
C#ns#(i+ate+ &ata
14 124 >4
124 >4
DBRIEF E8ERCISE 12;1 E(iminati#ns Pa"(a C#m,anInvestment in S9ann#n Or di nar yShar es E%ess #$ C#st Over B##* 6a("e #$ S"bsi+iarS9are Ca,ita(Or+/ Retaine+ Earnings
S9ann#n C#m,an-
&r/
24
Cr/
C#ns#(i+ate+ &ata
24
124 >4
14 124 >4
14
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)11
SOL3TIONS FOR &O IT' RE6IE E8ERCISES
&O IT' 12;1 21> .a0 an/ 1
&e/ 51
21@ an/ 1
.b0 &e/ 51
&ebt Investments////////////////////////////////////// Cas9//////////////////////////////////////////////////////
?4
Interest Reeivab(e .?4 @0////////// Interest Reven"e//////////////////////////////////
=4
Cas9/////////////////////////////////////////////////////////// Interest Reeivab(e//////////////////////////////
=4
Cas9/////////////////////////////////////////////////////////// L#ss #n Sa(e #$ &ebt Investments/////////// &ebt Investments .?4 5?0///////////////////////////////
2@4> 145
Interest Reeivab(e//////////////////////////////////// Interest Reven"e .24 @0///////////////////////////////////
14
?4
=4
=4
54
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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&O IT' 12;2 .10 "ne 1>
Se,t/ 5
.20 an/
1
Ma- 1?
&e/ 51
S9are Investments Q.?4 10 11////////////////////////// Cas9////////////////////////////////////////////////////// Cas9//////////////////////////////////////////////////////////// &ivi+en+ Reven"e//////////////////////////////// S9are Investments Q.14 5 1@///////////////////////// Cas9//////////////////////////////////////////////////////
??4 ??4 14 14
?=4 ?=4
Cas9//////////////////////////////////////////////////////////// S9are Investments///////////////////////////////
=?4
S9are Investments///////////////////////////////////// Reven"e $r#m S9are Investments///////
@14
=?4
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&O IT' 12;5 Trading securities: 3nrea(ie+ L#ssIn#me////////////////////////////////////////////////// Fair 6a("e A+j"stmentTra+ing/////////////////////////////////
1545D 1545
D1141 242 Non-trading securities: Fair 6a("e A+j"stmentN#n;Tra+ing//////////////////////////////// 114@?DD 3nrea(ie+ Gain #r L#ssE"it-////////////////////////////////
114@?
DD>4>? =41
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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&O IT' 12;=
1/ 2/ 5/ =/ ?/
Item L#ss #n sa(e #$ investments in s9ares/ 3nrea(ie+ gain #n n#n; tra+ing se"rities/ Fair va("e a+j"stment tra+ing/ Interest earne+ #n investments in b#n+s/ 3nrea(ie+ (#ss #n tra+ing se"rities/
Finania( statement In#me statement Statement #$ $inania( ,#siti#n Statement #$ $inania( ,#siti#n In#me statement In#me statement
Categ#rOt9er in#me an+ e%,ense E"itC"rrent assets Ot9er in#me an+ e%,ense Ot9er in#me an+ e%,ense
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)14
SOL3TIONS TO E8ERCISES E8ERCISE 12;1 1/
C#m,anies ,"r9ase investments in +ebt #r s9are se"rities bea"se t9e- 9ave e%ess as94 t# generate earnings $r#m investment in#me4 #r $#r strategi reas#ns/
2/
A #r,#rati#n :#"(+ 9ave e%ess as9 t9at it +#es n#t nee+ $#r #,erati#ns +"e t# seas#na( $("t"ati#ns in sa(es an+ as a res"(t #$ e#n#mi -(es/
5/
T9e t-,ia( investment :9en investing as9 $#r s9#rt ,eri#+s #$ time is (#:;ris*4 9ig9 (i"i+it-4 s9#rt;term se"rities s"9 as g#vernment;iss"e+ se"rities/
=/
T9e t-,ia( investments :9en investing as9 t# generate earnings are +ebt se"rities an+ s9are se"rities/
?/
A #m,an- :#"(+ invest in se"rities t9at ,r#vi+e n# "rrent as9 $(#:s $#r s,e"(ative reas#ns/ T9e- are s,e"(ating t9at t9e investment :i(( inrease in va("e/
/
T9e t-,ia( s9are investment :9en investing as9 $#r strategi reas#ns is s9ares #$ #m,anies in a re(ate+ in+"str- #r in an "nre(ate+ in+"strt9at t9e #m,an- :is9es t# enter/
E8ERCISE 12;2 .a0 21> an/ 1
&e/ 51
&ebt Investments////////////////////////////////////// Cas9////////////////////////////////////////////////////
?4
Interest Reeivab(e .?4 @0////////// Interest Reven"e//////////////////////////////////
=4
?4
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E8ERCISE 12;2 .C#ntin"e+0 21@ an/ 1
1
.b0 &e/ 51
Cas9/////////////////////////////////////////////////////////// Interest Reeivab(e////////////////////////////
=4
Cas9/////////////////////////////////////////////////////////// &ebt Investments .J?4 8 5?0//////////////////////////////// Gain #n Sa(e #$ &ebt Investments .J554? K J540/////////////////////////
554?
Interest Reeivab(e//////////////////////////////////// Interest Reven"e .J24 8 @ 8 120///////////////////////
@
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54 54?
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E8ERCISE 12;5 an"ar- 14 21> &ebt Investments//////////////////////////////////////////////////////////////// Cas9/////////////////////////////////////////////////////////////////////////////
>4
&eember 514 21> Interest Reeivab(e .>4 8 0/////////////////////////////////// Interest Reven"e/////////////////////////////////////////////////////////
45
an"ar- 14 21@ Cas9///////////////////////////////////////////////////////////////////////////////////// Interest Reeivab(e/////////////////////////////////////////////////////
45
an"ar- 14 21@ Cas9///////////////////////////////////////////////////////////////////////////////////// &ebt Investments .=> 8 >40////////////////////////// Gain #n Sa(e #$ &ebt Investments/////////////////////////////
>4
45
45 =45
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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E8ERCISE 12;= .a0 Feb/ 1
"(- 1
Se,t/ 1
&e/ 1
S9are Investments//////////////////////////////////// Cas9///////////////////////////////////////////////////
42
Cas9 . 8 J10///////////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////
Cas9/////////////////////////////////////////////////////////// S9are Investments .J42 8 50////////////////////////////////// Gain #n Sa(e #$ S9are Investments .J=45 K J5410////////////////////////////
=45
Cas9 .5 8 J10///////////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////
5
42
541 142
5
.b0 &ivi+en+ reven"e an+ t9e gain #n sa(e #$ s9are investments are re,#rte+ "n+er #t9er in#me an+ e%,ense in t9e in#me statement/
E8ERCISE 12;? an/ 1
"(- 1
&e/ 1
&e/ 51
S9are Investments//////////////////////////////////////////// Cas9///////////////////////////////////////////////////////////
1=241
Cas9 .24? 8 2/@0///////////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////////////
>4
Cas9/////////////////////////////////////////////////////////////////// S9are Investments .1=241 8 1?0//////// Gain #n Sa(e #$ S9are Investments/////////
5142
Cas9 .24 8 2/0///////////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////////////
?4@
1=241
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E8ERCISE 12; Febr"ar- 1 S9are Investments////////////////////////////////////////////////////////////// Cas9 .? 8 5/@0////////////////////////////////////////////////////
1?4=
Mar9 2 Cas9///////////////////////////////////////////////////////////////////////////////////// L#ss #n Sa(e #$ S9are Investments////////////////////////////////// S9are Investments .1?4= 8 1?0////////////////////
24@? 25
A,ri( 2? Cas9 .= 8 1/0////////////////////////////////////////////////////////////// &ivi+en+ Reven"e///////////////////////////////////////////////////////
=
"ne 1? Cas9///////////////////////////////////////////////////////////////////////////////////// S9are Investments .1?4= 8 2?0//////////////////// Gain #n Sa(e #$ S9are Investments/////////////////////////// "(- 2@ Cas9 .2 8 1/2?0////////////////////////////////////////////////////////////// &ivi+en+ Reven"e///////////////////////////////////////////////////////
1?4=
54@
= >451 41 141? 2? 2?
E8ERCISE 12;> .a0 an/ 1
&e/ 51
51
S9are Investments//////////////////////////////////// Cas9////////////////////////////////////////////////////
1@4
Cas9 .J54 8 2?0//////////////////////////////// S9are Investments/////////////////////////////
4
S9are Investments//////////////////////////////////// Reven"e $r#m S9are Investments .J14 8 2?0//////////////////////////////
=4
1@4
4
.b0 Investment in M#re((i4 an"ar- 1////////////////////////////////////////// Less) &ivi+en+ reeive+////////////////////////////////////////////////////// P("s) S9are #$ re,#rte+ in#me////////////////////////////////////////// Investment in M#re((i4 &eember 51////////////////////////////////////
=4 J1@4 4 =4 J2114
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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E8ERCISE 12;@ 1/
21> Mar/ 1@ "ne 5
&e/ 51
2/
an/
1
"ne 1?
&e/ 51
S9are Investments/////////////////////////////////// Cas9 .24 8 1? 8 150////////////
54
Cas9////////////////////////////////////////////////////////// &ivi+en+ Reven"e .4 8 1?0/////////////////////////////
4
Fair 6a("e A+j"stmentN#n;Tra+ing///// 3nrea(ie+ Gain #r L#ssE"it.=?4 K 540///////////////////
4
S9are Investments/////////////////////////////////// Cas9 .54 8 5 8 0////////////////
@14
Cas9////////////////////////////////////////////////////////// S9are Investments .54 8 50/////////////////////////////
4
S9are Investments/////////////////////////////////// Reven"e $r#m S9are Investments .@4 8 50/////////////////////////////
2=4
54
4
4
@14
4
2=4
E8ERCISE 12; .a0 Sine E+na #:ns m#re t9an ? #$ t9e #r+inar- s9ares #$ &amen Limite+4 E+na is a((e+ t9e ,arent #m,an-/ &amen is t9e s"bsi+iar.a$$i(iate+0 #m,an-/ Bea"se #$ its s9are #:ners9i,4 E+na 9as a #ntr#((ing interest in &amen/ .b0 9en a #m,an- #:ns m#re t9an ? #$ t9e #r+inar- s9ares #$ an#t9er #m,an-4 #ns#(i+ate+ $inania( statements are "s"a((,re,are+/ C#ns#(i+ate+ $inania( statements ,resent t9e t#ta( assets an+ (iabi(ities #ntr#((e+ b- t9e ,arent #m,an-/ T9e- a(s# ,resent t9e t#ta( reven"es an+ e%,enses #$ t9e a$$i(iate+ #m,anies/ .0 C#ns#(i+ate+ $inania( statements are "se$"( bea"se t9e- in+iate t9e magnit"+e an+ s#,e #$ #,erati#ns #$ t9e #m,anies "n+er #mm#n #ntr#(/
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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E8ERCISE 12;1 .a0 &e/ 51
3nrea(ie+ L#ssIn#me////////////////////////////// =4 Fair 6a("e A+j"stmentTra+ing////////////
.b0
=4
Statement #$ Finania( P#siti#n C"rrent assets S9#rt;term investments4 at $air va("e//////////////////////
CHF=4
In#me Statement Ot9er in#me an+ e%,ense 3nrea(ie+ (#ss #n tra+ing se"rities//////////////////////
CHF =4
E8ERCISE 12;11 .a0 &e/ 51
.b0
3nrea(ie+ Gain #r L#ssE"it-///////////////// Fair 6a("e A+j"stmentN#n;Tra+ing / /
=4 =4
Statement #$ Finania( P#siti#n Investments Investments in s9ares #$ (ess t9an 2 #:ne+ #m,anies4 at $air va("e////////////////////////////////////////
CHF=4
E"itA"m"(ate+ #t9er #m,re9ensive (#ss////////////////
CHF =4
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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E8ERCISE 12;11 .C#ntin"e+0 .0 &ear Ms/ &ev#ns9ire) Investments :9i9 are (assi$ie+ as tra+ing .9e(+ $#r sa(e in t9e near term0 are re,#rte+ at $air va("e in t9e statement #$ $inania( ,#siti#n4 :it9 "nrea(ie+ gains #r (#sses re,#rte+ in net in#me/ S9are investments :9i9 are (assi$ie+ as n#n;tra+ing .9e(+ (#nger t9an tra+ing0 are a(s# re,#rte+ at $air va("e4 b"t "nrea(ie+ gains #r (#sses are re,#rte+ in t9e e"it- seti#n/ Fair va("e is "se+ as a re,#rting basis bea"se it re,resents t9e as9 rea(iab(e va("e #$ t9e se"rities/ 3nrea(ie+ gains #r (#sses #n tra+ing investments are re,#rte+ in t9e in#me statement bea"se #$ t9e (i*e; (i9##+ t9at t9e se"rities :i(( be s#(+ at $air va("e in t9e near term/ 3nrea(ie+ gains #r (#sses #n n#n;tra+ing se"rities are re,#rte+ in e"it- rat9er t9an in in#me bea"se t9ere is a signi$iant 9ane t9at $"t"re 9anges in $air va("e :i(( reverse "nrea(ie+ gains #r (#sses/ S# as t# n#t +ist#rt in#me :it9 t9ese $("t"ati#ns4 t9e- are re,#rte+ +iret(- in e"it-/ I 9#,e t9at t9e ,ree+ing +is"ssi#n (ears ", an- mis"n+erstan+ings/ P(ease #ntat me i$ -#" 9ave an- "esti#ns/ Sinere(-4 St"+ent
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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E8ERCISE 12;12 .a0 Fair 6a("e A+j"stmentTra+ing .12=4 K 1240////////////////////////////////////////////////////// 3nrea(ie+ GainIn#me/////////////////////////////////////////// 3nrea(ie+ Gain #r L#ssE"it-////////////////////////////////////// Fair 6a("e A+j"stmentN#n;Tra+ing//////////////////////// .b0
=4 =4 4 4
Statement #$ Finania( P#siti#n C"rrent assets S9#rt;term investments4 at $air va("e//////////////////////// Investments Investments in s9ares #$ (ess t9an 2 #:ne+ #m,anies4 at $air va("e////////////////////////////////////////// E"itA"m"(ate+ #t9er #m,re9ensive (#ss ///////////////// In#me Statement Ot9er in#me an+ e%,ense 3nrea(ie+ gain #n tra+ing se"rities///////////////////////
12=4
=4
4
=4
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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DE8ERCISE 12;15 LENNON ENTERPRISES AN& S3BSI&IAR #r*s9eetC#ns#(i+ate+ Statement #$ Finania( P#siti#n an"ar- 14 21> Assets P(ant an+ e"i,ment .net0 Investment in On# Lt+/ #r+inars9ares C"rrent assets T#ta(s
Lenn#n Enter,rises
On# Lt+/
54
224
224 4 ?@4
E(iminati#ns &r/ Cr/
C#ns#(i+ate+ &ata ?24
224 ?4 2>4
114 54
E"it- an+ (iabi(ities S9are a,ita( Lenn#n Ent/ S9are a,ita( On# Lt+/ Retaine+ earnings Lenn#n Ent/ Retaine+ earnings On# Lt+/ C"rrent (iabi(ities T#ta(s
254
254 @4
@4
1>4 1@4 ?@4
1>4 1=4 ?4 2>4
1=4 224
224
254 54
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)23
DE8ERCISE 12;1= LENNON ENTERPRISES AN& S3BSI&IAR #r*s9eetC#ns#(i+ate+ Statement #$ Finania( P#siti#n an"ar- 14 21> Assets P(ant an+ e"i,ment .net0 Investment in On# Lt+/ #r+inar- s9ares Cur r e nta ss et s E%ess #$ #st #ver b##* va("e T#ta(s
Lenn#n Enter,rises
On# Lt+/
54
224
22?4 ??4
E(iminati#ns &r/ Cr/
C#ns#(i+ate+ &ata ?24
22?4 ?4
1?4
?4 ?@4
?4 54
2>4
E"it- an+ (iabi(ities S9are a,ita( Lenn#n Ent/ S9are a,ita( On# Lt+/ Retaine+ earnings Lenn#n Ent/ Retaine+ earnings On# Lt+/ C"rrent (iabi(ities T#ta(s
254
254 @4
@4
1>4 1@4 ?@4
1>4 1=4 ?4 2>4
1=4 22?4
22?4
254 54
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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SOL3TIONS TO PROBLEMS .
PROBLEM 12;1A
.a0 21> an/ 1
&e/ 51
22 an/ 1
1
&e/ 51
.b0
&ebt Investments/////////////////////////////////// 244 Cas9//////////////////////////////////////////////// 244 Interest Reeivab(e .H<244 8 />0////////////////////////// Interest Reven"e////////////////////////////
Cas9//////////////////////////////////////////////////////// Interest Reeivab(e////////////////////////
1=4 1=4
1=4 1=4
Cas9 .H<144 8 1/?0////////////////// 14?4 &ebt Investments/////////////////////////// 144 Gain #n Sa(e #$ &ebt Investments//////////////////////////////// ?4 Interest Reeivab(e .H<144 8 />0////////////////////////// Interest Reven"e////////////////////////////
>4 >4
Statement #$ Finania( P#siti#n C"rrent assets Interest reeivab(e//////////////////////////////////////////////////////
H< 1=4
Investments &ebt investments4 at $air va("e//////////////////////////////////
H<244
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PROBLEM 12;2A
.a0 Feb/ 1
Mar/ 1
A,r/ 1
"(- 1
A"g/ 1
Se,t/ 1
Ot/ 1
1
S9are Investments//////////////////////////////////// Cas9////////////////////////////////////////////////////
524=
S9are Investments//////////////////////////////////// Cas9////////////////////////////////////////////////////
24=
&ebt Investments////////////////////////////////////// Cas9////////////////////////////////////////////////////
?4
Cas9 ./ 8 0/////////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////
5
Cas9 .?> 8 20//////////////////////////////////////// S9are Investments Q.524= U 0 8 2/////////////////// Gain #n Sa(e #$ S9are Investments////////////////////////////////////
114=
Cas9 .1 8 @0////////////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////
@
Cas9 .?4 8 > 8 120//////////////////////// Interest Reven"e////////////////////////////////
14>?
Cas9/////////////////////////////////////////////////////////// L#ss #n Sa(e #$ &ebt Investments .?4 K =40//////////////////////////////// &ebt Investments///////////////////////////////
=4
S9are Investments Feb/ 1 524= A"g/ 1 Mar/ 1 24= &e/ 51 Ba(/ =24
14@
A,r/
1
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524=
24=
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5
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&ebt Investments ?4 Ot/ 1
?4
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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PROBLEM 12;2A .C#ntin"e+0 .b0 &e/ 51
3nrea(ie+ L#ssIn#me////////////////////////// Fair 6a("e A+j"stmentTra+ing .=24 K =1420//////////////////////////
Se"ritS",eri#r #r+inar s9ares Pa:(i* #r+inar s9ares
@
C#st
Fair 6a("e
214
224
.= 8 ??0
24= =24
142 =142
.@ 8 2=0
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@
=142
Categ#rOt9er in#me an+ e%,ense Ot9er in#me an+ e%,ense Ot9er in#me an+ e%,ense Ot9er in#me an+ e%,ense Ot9er in#me an+ e%,ense
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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PROBLEM 12;5A
.a0
21> A"g/ 1
Se,t/ 1
Ot/ 1
N#v/ 1
&e/ 1?
51
Cas9 .24 8 J/>0////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////
14=
Cas9 .24 8 J@0/////////////////////////////////////// L#ss #n Sa(e #$ S9are Investments .J1@4 K J140//////////////////////////////// S9are Investments .24 8 J0////////
14
Cas9 .@ 8 J550//////////////////////////////////////// S9are Investments .@ 8 J50///////// Gain #n Sa(e #$ S9are Investments .J24= K J2=40/////////////////////////
24=
Cas9 .14? 8 J10/////////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////
14?
Cas9 .142 8 J/>0////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////
@=
Cas9 .54 8 J10/////////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////
54
21> an/ 1 Ba(ane 21> &e/ 51 Ba(ane
S9are Investments 21> 15?4 Se,t/ 1 Ot/ 1
14=
24 1@4
2=4 24=
14?
@=
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1@4 2=4
54
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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PROBLEM 12;5A .C#ntin"e+0 .b0 &e/ 51
3nrea(ie+ Gain #r L#ssE"it.J54 K J@4=0///////////////////////////////////// Fair 6a("e A+j"stmentN#n;Tra+ing/// Se"rit-
C#st
Fair 6a("e
Car(ene C#/ #mm#n River+a(e C#/ #mm#n Ra-ns*i C#/ #mm#n
J54 2>4 54 J54
J5@4= 2=4 2>4 J@4=
54 54
.142 520 .54 @0 .14? 1@0
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J
E"itS9are a,ita(#r+inar-//////////////////////// J14?40 Retaine+ earnings////////////////////////////////// 1440 A"m"(ate+ #t9er #m,re9ensive (#ss T#ta( e"it-/////////////////////////////////////
54 J24=4=
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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PROBLEM 12;=A
.a0 an/
1
Mar/ 1?
"ne 1?
Se,t/ 1?
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51
.b0 an/
1
Mar/ 1?
"ne 1?
Se,t/ 1?
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S9are Investments//////////////////////////////// Cas9////////////////////////////////////////////////
@4
Cas9//////////////////////////////////////////////////////// &ivi+en+ Reven"e .=?4 8 J/50//////////////////////////
154?
Cas9//////////////////////////////////////////////////////// &ivi+en+ Reven"e//////////////////////////
154?
Cas9//////////////////////////////////////////////////////// &ivi+en+ Reven"e//////////////////////////
154?
Cas9//////////////////////////////////////////////////////// &ivi+en+ Reven"e//////////////////////////
154?
Fair 6a("e A+j"stmentTra+ing////////// 3nrea(ie+ GainIn#me QJ@4 K .J2= 8 =?40 ////////
2@4
S9are Investments//////////////////////////////// Cas9////////////////////////////////////////////////
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Cas9//////////////////////////////////////////////////////// S9are Investments/////////////////////////
154?
Cas9//////////////////////////////////////////////////////// S9are Investments/////////////////////////
154?
Cas9//////////////////////////////////////////////////////// S9are Investments/////////////////////////
154?
Cas9//////////////////////////////////////////////////////// S9are Investments/////////////////////////
154?
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154?
154?
154?
154?
2@4
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154?
154?
154?
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PROBLEM 12;=A .C#ntin"e+0 &e/ 51
S9are Investments//////////////////////////////// Reven"e $r#m S9are Investments .J524 8 50////////////////////////
.0
4
C#st Met9#+ S9are Investments 3nrea(ie+ GainIn#me &ivi+en+ Reven"e Reven"e $r#m S9are Investments
J14@4 D 2@4 ?=4
4 E"itMet9#+ J@=24DD 4
DDJ2= 8 =?4 s9ares DDJ@4 J4 K J?=4
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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PROBLEM 12;?A
.a0 an/ 2
2@
5
Feb/ @
1@
"(- 5
Se,t/
&e/ 1
.b0
Cas9/////////////////////////////////////////////////////////// S9are Investments///////////////////////////// Gain #n Sa(e #$ S9are Investments////////////////////////////////////
?=4@
S9are Investments//////////////////////////////////// Cas9 .= 8 R>/20////////////////////////
514@
Cas9/////////////////////////////////////////////////////////// &ivi+en+ Reven"e .R1/? 8 14=0//////////////////////////////
14=>
Cas9/////////////////////////////////////////////////////////// &ivi+en+ Reven"e .R/= 8 1420/
=@
Cas9 .R2/5 8 1420///////////////////////////// L#ss #n Sa(e #$ S9are Investments///////// S9are Investments/////////////////////////////
514? 24=
Cas9/////////////////////////////////////////////////////////// &ivi+en+ Reven"e .R1/ 8 14=0/
14=
S9are Investments//////////////////////////////////// Cas9 .R@2 8 0/////////////////////////////
=42
Cas9/////////////////////////////////////////////////////////// &ivi+en+ Reven"e .R1/5? 8 140//////////////////////////////
145?
S9are Investments 11 Ba(/ 14 12 12@ 514@ 21@ =42 1251 Ba(/ 1=4@@
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-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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PROBLEM 12;?A .C#ntin"e+0 .0 &e/ 51
3nrea(ie+ Gain #r L#ssE"it-///////////////// Fair 6a("e A+j"stmentN#n;Tra+ing .R1=4@@ K R1140 ///////////////////
542@
A"m"(ate+ Ot9er C#m,re9ensive In#me 3nrea(ie+ Gain #r L#ssE"it-/////////
542@
Se"ritE(+erberr- C#r,#rati#n #r+inarHa9it# C#r,#rati#n #r+inar-
C#st
542@
542@
Fair 6a("e
R @=4
R @4 .14= 8 R=0
@4@@ R1=4@@
>24 .14 8 R>20 R114
.+0 Investments Investments in s9ares #$ (ess t9an 2 #:ne+ #m,anies4 at $air va("e////////////////////////////////////////////
R114
E"itT#ta( s9are a,ita( an+ retaine+ earnings/////////////////// A"m"(ate+ #t9er #m,re9ensive (#ss///////////////////// T#ta( e"it-/////////////////////////////////////////////////////////////
%%%%% 542@ R %%%%%
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)33
PROBLEM 12;A
RA&AR IN&3STRIES LT&/ Statement #$ Finania( P#siti#n &eember 514 21> Assets Intangib(e assets G##+:i((///////////////////////////////////////////////////////////
24
Pr#,ert-4 ,(ant4 an+ e"i,ment Lan+//////////////////////////////////////////////////// 54 B"i(+ings///////////////////////////////////////////// ?4 Less) A"m"(ate+ +e,r/ b"i(+ings////////////////////////////////////////// 1@4 >>4 E"i,ment////////////////////////////////////////// 2>?4 Less) A"m"(ate+ +e,r/ E"i,ment/////////////////////////////////////// ?24 2254
145@54
Investments Investments in s9ares #$ (ess t9an 2 #:ne+ #m,anies4 at $air va("e////////////////// Investment in s9ares #$ 2K? #:ne+ #m,an-4 at e"it-////////////////////////// C"rrent assets Pre,ai+ Ins"rane////////////////////////////// Invent#r-///////////////////////////////////////////// A#"nts reeivab(e////////////////////////// Less) A((#:ane $#r +#"bt$"( a#"nts//////////////////////////////////// S9#rt;term investments4 at $air va("e //////////////////////////////// Cas9//////////////////////////////////////////////////// T#ta( assets////////////////////////////////////////////////
2@4 5@4
4
14 1>4 1=4 4
15=4 1@4 =24
?=24 24>14
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)34
PROBLEM 12;A .C#ntin"e+0 RA&AR IN&3STRIES LT&/ Statement #$ Finania( P#siti#n .C#ntin"e+0 &eember 514 21> E"it- an+ Liabi(ities E"itS9are a,ita(#r+inar-4 1 ,ar va("e4 ?4 s9ares a"t9#rie+ 1?4 s9ares iss"e+ an+ #"tstan+ing/////////////////////////////////14?4 S9are ,remi"m#r+inar-///////////////// 154 1454 Retaine+ earningsVVVVVVVV/ 154 A"m"(ate+ #t9er #m,re9ensive in#me///////////////////////////////////////// @4 14>=14 N#n;"rrent (iabi(ities B#n+s ,a-ab(e4 14 +"e 225 C"rrent (iabi(ities N#tes ,a-ab(e///////////////////////////////////// A#"nts ,a-ab(e////////////////////////////// In#me ta%es ,a-ab(e//////////////////////// &ivi+en+s ,a-ab(e////////////////////////////// T#ta( e"it- an+ (iabi(ities/////////////////////////
?=4
>4 2=4 124 @4
?14 24>14
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)3"
DPROBLEM 12;>A
.a0
21> &e/ 51 S9are Investments C"rrent Assets
.b0
1421@4 1421@4
LI3 LIMITE& AN& S3BSI&IAR #r*s9eetC#ns#(i+ate+ Statement #$ Finania( P#siti#n &eember 514 21> Assets P(ant an+ e"i,ment .net0 Investment in ang P(astis #r+inar- s9ares C"rrent assets E%ess #$ #st #ver b##* va("e #$ s"bsi+iarT#ta(s
Li" Limite+ 2414
1421@4 224
ang P(astis >4
E(iminati#ns &r/ Cr/ @=4
24@4 1421@4
=5?4?
11?4 54?@4
C#ns#(i+ate+ &ata
>4?
11?4 54>24?
141114?
E"it- an+ (iabi(ities S9are a,ita(Li" Limite+ S9are a,ita(ang P(astis Retaine+ earnings Li" Limite+ Retaine+ earnings ang P(astis C"rrent (iabi(ities
Tot al s
14?4
14?4 ?2?4
?2?4
14?24
14?24 ==4
?>@4 54?@4
==4
24? 141114?
>4? 1421@4
1421@4
54>24?
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)3#
DPROBLEM 12;>A .C#ntin"e+0 .0
LI3 LIMITE& AN& S3BSI&IAR C#ns#(i+ate+ Statement #$ Finania( P#siti#n &eember 514 21> Assets G##+:i(( .14 @=40////////////////////////// P(ant an+ e"i,ment4 net .24>>4 @=40 C"rrent assets/////////////////////////////////////////////////// T#ta( assets////////////////////////////////////////////////
24@4 >4? 54>24?
E"it- an+ Liabi(ities E"it-///////////////////////////////////////////////////////////////// S9are a,ita(#r+inar-//////////////////////////// 14?4 Retaine+ earnings///////////////////////////////////// 14?24 C"rrent (iabi(ities/////////////////////////////////////////////// T#ta( e"it- an+ (iabi(ities////////////////////
5424 >4? 54>24?
−
11?4
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)3$
PROBLEM 12;1B
.a0 21> an/ 1
&e/ 51
22 an/ 1
1
&e/ 51
.b0
&ebt Investments////////////////////////////////// Cas9///////////////////////////////////////////////
=4
Interest Reeivab(e .J=4 8 /0// / Interest Reven"e///////////////////////////
2=4
Cas9/////////////////////////////////////////////////////// Interest Reeivab(e////////////////////////
2=4
Cas9 .J2=4 8 1/120///////////////////////// &ebt Investments////////////////////////// Gain #n Sa(e #$ &ebt Investments////////////////////////////////
2@4@
Interest Reeivab(e .J14 8 /0/ // Interest Reven"e///////////////////////////
4
=4
2=4
2=4
2=4 2@4@
4
Statement #$ Finania( P#siti#n C"rrent assets Interest reeivab(e///////////////////////////////////////////////////////
J 2=4
Investments &ebt investments4 at $air va("e///////////////////////////////////
J=4
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)3%
PROBLEM 12;2B
.a0 Feb/ 1
Mar/ 1
A,r/ 1
"(- 1
A"g/ 1
Se,t/ 1
Ot/ 1
1
S9are Investments////////////////////////////////////// Cas9/////////////////////////////////////////////////////
54@
S9are Investments////////////////////////////////////// Cas9/////////////////////////////////////////////////////
245
&ebt Investments//////////////////////////////////////// Cas9/////////////////////////////////////////////////////
=4
Cas9 . / 8 ?0////////////////////////////////////// &ivi+en+ Reven"e///////////////////////////////
5
Cas9///////////////////////////////////////////////////////////// Gain #n Sa(e #$ S9are Investments// / S9are Investments Q. 54@ U ?0 8 5////////////////////
24>
Cas9 . 1 8 0/////////////////////////////////////////// &ivi+en+ Reven"e///////////////////////////////
Cas9 . =4 8 8 120///////////////////////// Interest Reven"e/////////////////////////////////
14@
Cas9///////////////////////////////////////////////////////////// &ebt Investments//////////////////////////////// Gain #n Sa(e #$ &ebt Investments . ==4 K =40/////////////////////////
==4
S9are Investments Feb/ 1 54@ A"g/ 1 Mar/ 1 245 &e/ 51 Ba(/ 5242
1@4=@
A,r/
1
&e/ 51 Ba(/
54@
245
=4
5
2422 1@4=@
14@
=4 =4
&ebt Investments =4 Ot/ 1
=4
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)3&
PROBLEM 12;2B .C#ntin"e+0 .b0 &e/ 51
3nrea(ie+ L#ssIn#me///////////////////////// Fair 6a("e A+j"stmentTra+ing//////
Se"rit-
C#st
Fair 6a("e
#- #r+inarA"re(i"s #r+inar-
12452 245 5242
1542 1>4= 54
242
.2 8 . 8
242
0 20
.0 C"rrent assets S9#rt;term investments4 at $air va("e///////////////////////////////
.+0 In#me Statement A#"nt &ivi+en+ Reven"e Gain #n Sa(e #$ S9are Investments Interest Reven"e Gain #n Sa(e #$ &ebt Investments 3nrea(ie+ L#ssIn#me
54
Categ#rOt9er in#me an+ e%,ense Ot9er in#me an+ e%,ense Ot9er in#me an+ e%,ense Ot9er in#me an+ e%,ense Ot9er in#me an+ e%,ense
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)4'
PROBLEM 12;5B
.a0 A"g/ 1
Se,t/ 1
Ot/ 1
N#v/ 1
&e/ 1?
51
21> Cas9 .=4 8 /?0////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////
24 24
Cas9 .14? 8 @/?0////////////////////////////////// S9are Investments .14? 8 0//////// Gain #n Sa(e #$ S9are Investments////////////////////////////////////
124>?
Cas9 . 8 50//////////////////////////////////////// S9are Investments . 8 2=0///////// Gain #n Sa(e #$ S9are Investments .1@4 K 1=4=0/////////////////////////
1@4
Cas9 .54 8 10/////////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////
54
Cas9 .54= 8 /0////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////
24=
Cas9 .54? 8 10/////////////////////////////////////// &ivi+en+ Reven"e/////////////////////////////
54?
21> an/ 1 Ba(ane 21> &e/ 51 Ba(ane
S9are Investments 21> 1@4 Se,t/ 1 Ot/ 1
4 54>?
1=4=
54
54
24=
54?
4 1=4=
124
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)41
PROBLEM 12;5B .C#ntin"e+0 .b0 &e/ 51
3nrea(ie+ Gain #r L#ssE"it.124 K 1?4>0///////////////////////////////// Fair 6a("e A+j"stment N#n;Tra+ing ////////////////////////////////////////
24 24
Se"rit-
C#st
Fair 6a("e
Tr#:bri+ge C#/ #r+inarH#((- C#/ #r+inarOrienta( M#t#rs C#/ #r+inar-
@14 214
>@42 2=4?
.54= 8 250 .54? 8 >0
4 124
?>4 1?4>
.54 8 10
.0 Investments Investments in s9ares #$ (ess t9an 2 #:ne+ #m,anies4 at $air va("e////////////////////////////////////////////////// E"itS9are a,ita(#r+inar-/////////////////////// Retaine+ earnings//////////////////////////////// A"m"(ate+ #t9er #m,re9ensive (#ss//////////////////////////////////////////// T#ta( e"it-///////////////////////////////////
1?4>
244 1424 24 541>41
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)42
PROBLEM 12;=B
.a0 21> an/
1
"ne 5
&e/ 51
51
.b0 21> an/
1
"ne 5
&e/ 51
51
S9are Investments////////////////////////////// 1414 Cas9///////////////////////////////////////////// Cas9///////////////////////////////////////////////////// &ivi+en+ Reven"e .=4 8 J/?0////////////////////////
24
Cas9///////////////////////////////////////////////////// &ivi+en+ Reven"e .=4 8 J/?0////////////////////////
24
Fair 6a("e A+j"stment N#n;Tra+ing///////////////////////////////////// 3nrea(ie+ Gain #r L#ss E"itQJ1414 K .J5 8 =40//////
1414
24
24
14 14
S9are Investments////////////////////////////// 1414 Cas9///////////////////////////////////////////// Cas9///////////////////////////////////////////////////// S9are Investments//////////////////////
24
Cas9///////////////////////////////////////////////////// S9are Investments//////////////////////
24
S9are Investments////////////////////////////// Reven"e $r#m S9are Investments .J4 8 20/ / /
124
1414
24
24
124
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)43
PROBLEM 12;=B .C#ntin"e+0 .0
C#st Met9#+ S9are Investments 3nrea(ie+ GainE"it&ivi+en+ Reven"e Reven"e $r#m S9are Investments
E"itMet9#+
J1424 D J141@4 DD 14 =4 124
DDJ5 8 =4 s9ares DDJ1414 J124 K J=4
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)44
PROBLEM 12;?B
.a0 an/ >
1
2
Feb/ 2
1
"(- 1
Se,t/ 1
&e/ 1? .b0
Cas9 .> 8 ?0////////////////////////////////////////// S9are Investments/////////////////////////////// Gain #n Sa(e #$ S9are Investments///////////////////////////////////////
542
S9are Investments/////////////////////////////////////// Cas9 .5 8 >@/?0//////////////////////////////
254??
Cas9////////////////////////////////////////////////////////////// &ivi+en+ Reven"e .1/1? 8 0/////////
145?
Cas9////////////////////////////////////////////////////////////// &ivi+en+ Reven"e ./= 8 @0/////////
52
Cas9 .2 8 @0////////////////////////////////////////// L#ss #n Sa(e #$ S9are Investments/////////// S9are Investments///////////////////////////////
24@ 14
Cas9////////////////////////////////////////////////////////////// &ivi+en+ Reven"e .1/? 8 0//////////////////////////////////////
=?
S9are Investments/////////////////////////////////////// Cas9 .>? 8 @0///////////////////////////////////
4
Cas9////////////////////////////////////////////////////////////// &ivi+en+ Reven"e .1/? 8 1410//////
14?
S9are Investments 11 Ba(/ 4= 1> 11 254?? 21 1 4 1251 Ba(/ 12?4??
5?4 =42
254??
145?
52
224=
=?
4
14?
5?4 224=
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)4"
PROBLEM 12;?B .C#ntin"e+0 .0 &e/ 51
3nrea(ie+ Gain #r L#ssE"it-//////////////////// Fair 6a("e A+j"stmentN#n;Tra+ing .12?4?? K 1224=0 /////////////////////////// A"m"(ate+ Ot9er C#m,re9ensive In#me/////////////////////////////////////////////////////////// 3nrea(ie+ Gain #r L#ssE"it-//////////// Se"rit-
3*raine OAO Or+inar- S9ares 6an"i S,A Or+inar- S9ares
C#st
Fair 6a("e
=24 @54?? 12?4??
=542 >42 1224=
541? 541?
541? 541?
. 8 =@0 .141 8 >20
.+0 Investments Investments in s9ares #$ (ess t9an 2 #:ne+ #m,anies4 at $air va("e///////////////////////////////////////////////
1224=
E"itT#ta( s9are a,ita( an+ retaine+ earnings////////////////////// A"m"(ate+ #t9er #m,re9ensive (#ss/////////////////////// T#ta( e"it-///////////////////////////////////////////////////////////////
%%%%% 541? %%%%%
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)4#
PROBLEM 12;B
RE&LAN&S ENTERPRISES AG Statement #$ Finania( P#siti#n &eember 514 21> Assets Intangib(es G##+:i((/////////////////////////////////////////////
CHF54
Pr#,ert-4 ,(ant4 an+ e"i,ment Lan+//////////////////////////////////////////////////// CHF>@4 B"i(+ings//////////////////////////////////////////// CHF145?4 Less) A"m"(ate+ &e,reiati#nWb"i(+ings//////// 2>4 14@4 E"i,ment////////////////////////////////////////// =1?4 Less) A"m"(ate+ +e,reiati#nWe"i,ment////// @4 55?4
241?4
Investments Investment in s9ares #$ 2K? #:ne+ #m,an-4 at e"it-///////////// C"rrent assets Pre,ai+ ins"rane///////////////////////////// Invent#r-//////////////////////////////////////////// A#"nts reeivab(e///////////////////////// Less) A((#:ane $#r +#"bt$"( a#"nts//////////////////////////////// S9#rt;term investments4 at $air va("e////////////////////////////////// Cas9//////////////////////////////////////////////////// T#ta( assets//////////////////////////////////////////////
4
2?4 2??4 15?4 14
12?4 2@4 214
@?4 CHF=424
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)4$
PROBLEM 12;B .C#ntin"e+0 RE&LAN&S ENTERPRISES AG Statement #$ Finania( P#siti#n .C#ntin"e+0 &eember 514 21> E"it- an+ Liabi(ities E"itS9are a,ita(#r+inar-4 CHF? ,ar va("e4 ?4 s9ares a"t9#rie+4 ==4 s9ares iss"e+ an+ #"tstan+ing//////////////////////////////////////////CHF2424 S9are ,remi"m#r+inar-//////////////////////////////// 54 Retaine+ earnings/////////////////////////////////////// =@4 CHF24@4 N#n;"rrent (iabi(ities B#n+s ,a-ab(e4 14 +"e 22>///////////////////////////////////////// C"rrent (iabi(ities N#tes ,a-ab(e//////////////////////////////////////////// A#"nts ,a-ab(e////////////////////////////////////// In#me ta%es ,a-ab(e//////////////////////////////// &ivi+en+s ,a-ab(e///////////////////////////////////// /// T#ta( e"it- an+ (iabi(ities////////////////////////////////
///114 ///5>?4 // 1@4 >?4
?>4
>=4 CHF=424
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)4%
DPROBLEM 12;>B
c.31 S9are Investments .a0 De C"rrent Assets .b0
>4 >4
PATEL COMPAN LT&/ AN& S3BSI&IAR #r*s9eetC#ns#(i+ate+ Statement #$ Finania( P#siti#n &eember 514 21> Assets P(ant an+ e"i,ment .net0 Investment in Sing9 C#m,an#r+inar- s9ares C"rrent assets E%ess #$ #st #ver b##* va("e #$ s"bsi+iarT#ta(s E"it- an+ Liabi(ities S9are a,ita( Pate( C#m,anS9are a,ita( Sing9 C#m,anRetaine+ earnings Pate( C#m,anRetaine+ earnings Sing9 C#m,anC"rrent (iabi(ities Tot al s
Pate( C#m,an14@@24
>4 >>@4
Sing9 C#m,an5?14
E(iminati#ns &r/ Cr/ 2?4
242?@4
>4 5>4
5?4 5454
C#ns#(i+ate+ &ata
141?>4
5?4 54=?4
>54
14=>4
14=>4 54
54
?=54
?=54
2@4
@>4
2@4 4
5454
>54
>4
4 >4
54=?4
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)4&
DPROBLEM 12;>B .C#ntin"e+0 .0
PATEL COMPAN LT&/ AN& S3BSI&IAR C#ns#(i+ate+ Statement #$ Finania( P#siti#n &eember 514 21> Assets G##+:i(( .4 2?40//////////////////////////// P(ant an+ e"i,ment4 net .242554 2?40////////////////////////////////// C"rrent assets/////////////////////////////////////////////////// T#ta( assets//////////////////////////////////////////// −
5?4
242?@4 141?>4 54=?4
E"it- an+ Liabi(ities E"itS9are a,ita(#r+inar-//////////////////////////// 14=>4 Retaine+ earnings///////////////////////////////////// ?=54 C"rrent (iabi(ities/////////////////////////////////////////////// T#ta( e"it- an+ (iabi(ities////////////////////
24=4 4 54=?4
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)"'
COMPREHENSI6E PROBLEM) CHAPTERS 11 TO 12
Part I .a0 T#)
Min+- Fe(+*am,4 Osar L#,e4 an+ L#ri Me(t#n
Fr#m)
#e St"+ent
&ate)
?221
Re)
Ana(-sis #$ Partners9i, vs/ C#r,#rate F#rm #$ B"siness Organiati#n
I 9ave e%amine+ -#"r sit"ati#n regar+ing t9e estab(is9ment #$ -#"r b"siness/ Be$#re +is"ssing m- re#mmen+ati#ns4 I :#"(+ (i*e t# brie$(- revie: t9e a+vantages an+ +isa+vantages #$ ,artners9i,s an+ #r,#rati#ns/ T9e ,rimar- a+vantages #$ a ,artners9i, #ver a #r,#rati#n are) 1/
Partners9i,s are m#re easi(- $#rme+ t9an #r,#rati#ns/ Partners9i,s an be $#rme+ sim,(- b- t9e v#("ntar- agreement #$ t:# #r m#re in+ivi+"a(s/ F#rming a #r,#rati#n re"ires ,re,aring an+ $i(ing +#"; ments :it9 g#vernmenta( agenies4 ,a-ing in#r,#rati#n $ees4 et/
2/
In#me $r#m a ,artners9i, is s"bjet t# (ess ta% t9an in#me $r#m a #r,#rati#n/ Even t9#"g9 ,artners9i,s are re"ire+ t# $i(e in$#rmati#n ta% ret"rns .ret"rns t9at s9#: $inania( in$#rmati#n4 b"t +# n#t re"ire an- ,a-ment #$ ta%es04 t9e- are n#t #nsi+ere+ ta%ab(e entities/ A ,artner7s s9are #$ ,artners9i, in#me is ta%e+ #n(- #n t9e ,artner7s ,ers#na( in#me ta% ret"rn/ C#r,#rati#ns are ta%ab(e entities an+ ,a- ta%es #n #r,#rate in#me/ In a++iti#n4 an- +ivi+en+s +istrib"te+ b- #r,#rati#ns t# in+ivi+"a(s are s"bjet t# ,ers#na( in#me ta% #n t9e ,ers#na( in#me ta% ret"rn/ T9is is *n#:n as +#"b(e ta%ati#n/
5/
Partners9i,s 9ave m#re $(e%ibi(it- in +eisi#n ma*ing/ T9e +eisi#n; ma*ing ,r#ess "se+ in a ,artners9i, is +etermine+ b- t9e ,artners4 :9ereas s#me +eisi#ns re"ire+ in #r,#rati#ns m"st $#((#: $#rma( ,r#e+"res +esribe+ in t9e b-(a:s #$ t9e #r,#rati#n/
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)"1
COMPREHENSI6E PROBLEM .C#ntin"e+0 T9e ,rimar- a+vantages #$ a #r,#rati#n #ver a ,artners9i, are) 1/
M"t"a( agen- +#es n#t e%ist in a #r,#rati#n/ T9is means t9at t9e #:ners #$ a #r,#rati#n .s9are9#(+ers0 +# n#t 9ave t9e ,#:er t# bin+ t9e #r,#rati#n be-#n+ t9eir a"t9#rit-/ F#r e%am,(e4 a s9are9#(+er :9# is n#t em,(#-e+ b- t9e $irm ann#t enter int# #ntrats #r #t9er agreements #n be9a($ #$ t9e #r,#rati#n/ O:ners #$ a ,artners9i, .,artners0 are b#"n+ b- t9e ati#ns #$ t9eir ,artners4 even :9en ,artners at be-#n+ t9e s#,e #$ t9eir a"t9#rit-/ T9is is tr"e as (#ng as t9e ati#ns seem a,,r#,riate $#r t9e b"siness/
2/
T9e #:ners #$ a #r,#rati#n 9ave (imite+ (iabi(it-/ 9en t9e #r,#rati#n7s assets are n#t s"$$iient t# ,a- re+it#rs7 (aims4 t9e ,ers#na( assets #$ t9e s9are9#(+ers are ,r#tete+ $r#m t9e #r,#rati#n7s re+it#rs/ In a ,artners9i,4 #ne t9e assets #$ t9e ,artners9i, 9ave been "se+ t# ,a- re+it#rs7 (aims4 t9e ,ers#na( assets #$ t9e ,artners an be ta*en t# satis$- t9e re+it#rs7 +eman+s/ A s,eia( t-,e #$ ,artners9i,4 a (imite+ ,artners9i,4 ,r#tets t9e ,ers#na( assets #$ (imite+ ,artners4 b"t at (east #ne ,artner7s assets are sti(( at ris*/ T9is ,artner is a((e+ a genera( ,artner/
5/
T9e (i$e #$ a #r,#rati#n is "n(imite+/ 9en #:ners9i, 9anges #"r .e/g/4 s9are9#(+ers b"- #r se(( s9ares04 t9e #r,#rati#n #ntin"es t# e%ist as a (ega( entit-/ 9en #:ners9i, 9anges #"r in a ,artners9i, .e/g/4 e%isting ,artner (eaves4 ne: ,artner is a++e+04 t9e #(+ ,artners9i, n# (#nger e%ists as a (ega( entit-/ A ne: ,artners9i, an be $#rme+ an+ t9e b"siness an #ntin"e4 b"t t9e #rigina( ,artners9i, m"st be +iss#(ve+/
A$ter e%amining -#"r sit"ati#n4 I be(ieve t9at -#" :#"(+ be :ise t# 9##se t9e #r,#rate $#rm #$ b"siness #rganiati#n/ T9ere are t:# reas#ns $#r t9is re#mmen+ati#n/ T9e $irst reas#n is t9at t9e vent"re -#" are ab#"t t# "n+erta*e :i(( re"ire signi$iant a,ita( an+4 genera((-4 a,ita( is m#re easi(raise+ via a #r,#rati#n t9an a ,artners9i,/ T9e #t9er reas#n is t9at -#" :i(( be ,r#tete+ $r#m "n(imite+ (iabi(it- i$ -#" in#r,#rate as #,,#se+ t# $#rming a ,artners9i,/ Given t9e ,#tentia( ris* #$ starting a vent"re #$ t9is *in+4 I be(ieve it is in -#"r best interest t# ,r#tet -#"r ,ers#na( assets b- "sing t9e #r,#rate $#rm #$ #rganiati#n/ I :is9 -#" t9e best in -#"r ne: en+eav#r an+ ,(ease a(( ",#n me :9en -#" are in nee+ #$ $"rt9er assistane/
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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COMPREHENSI6E PROBLEM .C#ntin"e+0 Part II .b0 E"it- $inaning #,ti#n) P#sitives N# $i%e+ interest ,a-ments re"ire+
Negatives C#ntr#( #$ t9e #r,#rati#n is (#st &i$$i"(t- #$ $in+ing an intereste+ invest#r Earnings ,er s9are are (#:er
&ebt $inaning #,ti#n) P#sitives C#ntr#( sta-s :it9 t9ree in#r,#rat#rs N# nee+ $#r a++iti#na( invest#r Earnings ,er s9are are 9ig9er
Negatives Interest ,a-ments "i*(- +rain as9
S9ares #"tstan+ing be$#re $inaning
4 s9ares
E"it- Finaning In#me be$#re interest an+ ta%es Interest e%,ense In#me be$#re ta%es Ta% e%,ense Net in#me S9ares #"tstan+ing a$ter $inaning Earnings ,er s9are
54 54 4 2=4 24 1/2
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Part III .0 1/
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Cas9////////////////////////////////////////////// B"i(+ings/////////////////////////////////////// S9are Ca,ita(Or+inar-////// S9are Premi"mOr+inar-/ /
14 24 124 1@4
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COMPREHENSI6E PROBLEM .C#ntin"e+0 >211
>2>1>
Cas9/////////////////////////////////////////////// S9are Ca,ita(Or+inar-/////// S9are Premi"mOr+inar-/ / / S9are &ivi+en+s .1?4 8 /1 8 50/////////////////// Or+inar- S9are &ivi+en+s &istrib"tab(e/////////////////////// S9are Premi"mOr+inar-/ / /
4 1@4 >24
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&ate
Event
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T#ta( S9ares N"mber #$ Iss"e+ an+ S9ares Iss"e+ O"tstan+ing 4 4 1?4
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-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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COMPREHENSI6E PROBLEM .C#ntin"e+0 2/
5/
=/
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?42 54
Interest Pa-ab(e////////////////////////////////////// 54 Cas9//////////////////////////////////////////////////
54
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S9are Investments /////////////////////////// Cas9///////////////////////////////////////////
4
S9are Investments /////////////////////////// Reven"e $r#m S9are Investments ./D 8 540/ / D4 U 1?4
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124
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COMPREHENSI6E PROBLEM .C#ntin"e+0 21@
.20
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54
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54
54
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-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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MC12
.a0
MATCHA CREATIONS
1/ T9e am#"nt #$ in$("ene -#" :#"(+ 9ave in T9e Beaner- :#"(+ +etermine 9#: -#" :#"(+ a#"nt $#r t9e investment/ Given t9at -#" :#"(+ #:n 5 #$ t9e #r+inar- s9ares #$ T9e Beaner-4 it :#"(+ be ass"me+ ."n(ess t9ere :as evi+ene t# t9e #ntrar-0 t9at -#" #"(+ e%ert signi$iant in$("ene #ver t9e +a-;t#;+a- #,erati#ns #$ t9e b"siness/ T9is is es,eia((- s# given t9e sma(( n"mber #$ s9are9#(+ers/ Signi$iant in$("ene #ver an ass#iate ma- a(s# res"(t $r#m re,resentati#n #n t9e b#ar+ #$ +iret#rs4 ,artii,ati#n in ,#(i-;ma*ing ,r#esses4 materia( inter#m,an- transati#ns4 inter9ange #$ manageria( ,ers#nne(4 #r te9n#(#gia( +e,en+en-/ Ass"ming signi$iant in$("ene e%iste+4 t9e investment :#"(+ be a#"nte+ $#r "sing t9e e"it- met9#+ #$ a#"nting/ H#:ever4 in t9is ase4 t9e T9#rnt#n sisters :i(( sti(( e%erise maj#rit- #ntr#( an+ ma- n#t be :i((ing t# (et an invest#r ,artii,ate in t9e +eisi#n; ma*ing ,r#ess/ I$ t9is +i+ #"r4 signi$iant in$("ene ma- n#t e%ist an+ t9e investment :#"(+ be a#"nte+ $#r "sing t9e #st met9#+/ 2/ One #$ t9e maj#r a+vantages #$ g#ing a9ea+ :it9 t9is investment :#"(+ be t9e strategi a+vantage #$ t9e 9#ri#nta( an+ vertia( integrati#n t9at :#"(+ #"r/ N#t #n(- :#"(+ -#" e(iminate a #m,etit#r b"t -#" b#t9 #"(+ (earn t9e b"siness #$ r#asting beans :9i(e ta*ing a+vantage #$ t9e e%,ertise t9e T9#rnt#n sisters 9ave +eve(#,e+ :it9 res,et t# t9e #,erati#n #$ t9eir #$$ee s9#,/
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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MC12 .C#ntin"e+0 .a0 .C#ntin"e+0 5/ T9ere :#"(+ be +isa+vantages ass#iate+ :it9 t9is investment as :e((/ F#r e%am,(e4 t9ere ma- be a signi$iant time investment re"ire+ b- b#t9 #$ -#" es,eia((- sine b#t9 #$ t9e T9#rnt#n sisters are ver- b"s- an+ :#"(+ (i*e t9e invest#r t# ta*e #ver s#me #$ t9e res,#nsibi(ities #$ r"nning t9e b"siness/ A(s#4 t9e T9#rnt#n sisters :i(( sti(( e%erise maj#rit- #ntr#( an+ ma- n#t be :i((ing t# (et an invest#r ,artii,ate in t9e +eisi#n;ma*ing ,r#ess/ Fina((-4 i$ t9e investment +i+ n#t :#r* #"t4 it ma- be +i$$i"(t t# $in+ an#t9er invest#r t# ,"r9ase t9e s9ares 9e(+ b- Mat9a X C#$$ee Creati#ns/ .b0 S9are Investments/////////////////////////////////////////////////
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-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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MC12 .C#ntin"e+0 .+0
Bea"se t9e investment in T9e Beaner- is a strategi investment4 it :#"(+ be (assi$ie+ as a (#ng;term investment in t9e n#n;"rrent assets seti#n #$ Mat9a X C#$$ee Creati#ns7 statement #$ $inania( ,#siti#n/ I$ t9e investment :ere a#"nte+ $#r "sing t9e #st met9#+4 it :#"(+ be re#r+e+ at its #rigina( #st #$ 1?4/ I$ t9e investment :ere a#"nte+ $#r "sing t9e e"it- met9#+4 it :#"(+ be a#"nte+ $#r at its #rigina( #st ,("s a ,r#,#rti#nate s9are #$ T9e Beaner-7s in#me4 (ess a ,r#,#rti#nate s9are #$ an- +ivi+en+s ,ai+ b- T9e Beaner-/ F#r t9e "rrent -ear t9e investment :#"(+ be at 224? .1?4 1?4 K >4?0/
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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BP 12;1
FINANCIAL REPORTING PROBLEM
.a0 TSMC ma+e t9e $#((#:ing statement ab#"t :9at :as in("+e+ #n its #ns#(i+ate+ $inania( statement)
Basis #$ C#ns#(i+ati#n T9e #ns#(i+ate+ $inania( statements in#r,#rate t9e $inania( statements #$ TSMC an+ entities #ntr#((e+ b- TSMC .its s"bsi+iaries0/ C#ntr#( is a9ieve+ :9en t9e C#m,an-) • •
•
9as ,#:er #ver t9e investeeY is e%,#se+4 #r 9as rig9ts/ t# variab(e ret"rns $r#m its inv#(vement :it9 t9e investeeY an+ 9as t9e abi(it- t# "se its ,#:er t# a$$et its ret"rns/
T9e C#m,an- reassesses :9et9er #r n#t it #ntr#(s an investee i$ $ats an+ ir"mstanes in+iate t9at t9ere are 9anges t# #ne #r m#re #$ t9e t9ree e(ements #$ #ntr#( (iste+ ab#ve/ 9en t9e C#m,an- 9as (ess t9an a maj#rit- #$ t9e v#ting rig9ts #$ an investee4 it 9as ,#:er #ver t9e investee :9en t9e v#ting rig9ts are s"$$iient t# give it t9e ,ratia( abi(it- t# +iret t9e re(evant ativities #$ t9e investee "ni(atera((-/ C#ns#(i+ati#n #$ a s"bsi+iar- begins :9en t9e C#m,an- #btains #ntr#( #ver t9e s"bsi+iar- an+ eases :9en t9e C#m,an- (#ses #ntr#( #$ t9e s"bsi+iar-/ S,ei$ia((-4 in#me an+ e%,enses #$ a s"bsi+iar- a"ire+ #r +is,#se+ #$ +"ring t9e -ear are in("+e+ in t9e #ns#(i+ate+ statement #$ ,r#$it #r (#ss an+ #t9er #m,re9ensive in#me $r#m t9e +ate t9e C#m,an- #btains #ntr#( "nit t9e +ate :9en t9e C#m,an- eases t# #ntr#( t9e s"bsi+iar-/ .b0 TSMC7s C#ns#(i+ate+ Statement #$ Cas9 F(#:s s9#:s t9at NT514?@2/= .514?2?/ ?/?0 mi((i#n :as s,ent $#r t9e ,"r9ase #$ $inania( assets an+ NT2=415>/= mi((i#n $#r ,r#,ert- an+ e"i,ment +"ring t9e -ear/
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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BP 12;2
COMPARATI6E ANALSIS PROBLEM
.a0 1/ Cas9 ,r#vi+e+ ."se+0 $#r investing ativities 2/ Cas9 "se+ $#r a,ita( e%,en+it"res .s,en+ing0
Petra F##+s
Nest(Z
3S142? t9#"san+
.CHF140 mi((i#n
5?45>1
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.b0 In N#te 1 t# t9e #ns#(i+ate+ $inania( statements4 Nest(Z states t9at t9e #ns#(i+ate+ $inania( statements #m,rise t9#se #$ Nest(Z S/A/4 an+ #$ its a$$i(iate+ #m,anies4 in("+ing j#int vent"res an+ ass#iates .t9e Gr#",0/ T9e Gr#",7s re$erab(e #,erating segments areY K K
– – – –
[#ne E"r#,e [#ne Amerias [#ne Asia4 Oeania an+ A$ria Nest(Z aters Nest(Z N"triti#n Ot9er
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)#1
BP 12;5
REAL;ORL& FOC3S
Ans:ers :i(( var- +e,en+ing #n #m,an- 9#sen/ T9e $#((#:ing sam,(e s#("ti#n is ,r#vi+e+ $#r Me+tr#ni4 In/ .a0 .b0 .0 .+0 .e0
2 ana(-sts rate+ t9is #m,an-/ >2 #r 2= #$ t9e ana(-sts rate+ it a str#ng b"-/ Average rating 2/2 #n a sa(e #$ 1/ .str#ng b"-0 t# ?/ .str#ng se((0/ Average rating) N# 9ange/ Earnings s"r,rise) 1/5
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)#2
BP 12;=
&ECISION;MA
T9e +#((ar am#"nt reeive+ ",#n t9e sa(e #$ t9e 3M C#m,an- s9ares :as J14=@4/ Sine
1454 1454
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1524
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-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
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BP 12;= .C#ntin"e+0 T9is earE"it- Met9#+ S9are Investments/////////////////////////////////////////////////// Reven"e $r#m S9are Investments .J?24 8 50///////////////////////////////// Cas9////////////////////////////////////////////////////////////////////////// S9are Investments .J14 8 50/////////////
1?4 1?4D =@4
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-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)#4
BP 12;?
COMM3NICATION ACTI6IT
&ear Mr/ S9#(es) I am :riting t9is mem# t# ma*e s"ggesti#ns regar+ing t9e a,,r#,riate treatment $#r t9e t:# se"rities -#" are 9#(+ing in -#"r ,#rt$#(i#/ Ass"ming t9at -#"r investment in L#ng(e- In+"stries +#es n#t re,resent a signi$iant interest in t9at $irm4 it s9#"(+ be a#"nte+ $#r as a n#n;tra+ing se"ritbea"se it is a s9are investment t9at -#" +# n#t inten+ #n se((ing in t9e near $"t"re/ #" :i(( n#t re,#rt an- gains #r (#sses #n t9is investment in -#"r in#me statement "nti( -#" se(( it/ On t9e #t9er 9an+4 -#"r +ebt investment s9#"(+ be a#"nte+ $#r as a tra+ing se"rit- sine -#" ,"r9ase+ it :it9 t9e intent t# generate a s9#rt;term ,r#$it/ 3nrea(ie+ gains an+ (#sses at -#"r statement #$ $inania( ,#siti#n +ate s9#"(+ be re,#rte+ in #t9er in#me an+ e%,ense #n t9e in#me statement/
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)#"
BP 12;
ETHICS CASE
.a0 C(assi$-ing t9e se"rities as t9e- ,r#,#se :i(( in+ee+ 9ave t9e e$$et #n net in#me t9at t9e- sa- it :i((/ C(assi$-ing a(( t9e gains as tra+ing se"rities :i(( a"se a(( t9e gains t# $(#: t9r#"g9 t9e in#me statement t9is -ear an+ (assi$-ing t9e (#sses as n#n;tra+ing se"rities :i(( +e$er t9e (#sses $r#m t9is -ear7s in#me statement/ C(assi$-ing t9e gains an+ (#sses j"st t9e #,,#site :i(( 9ave t9e #,,#site e$$et/ .b0 9at ea9 ,r#,#ses is "net9ia( sine it is *n#:ing(- n#t in a#r+ane :it9 IFRS/ T9e $inania( statements are $ra"+"(ent(-4 n#t $air(-4 state+/ T9e a$$ete+ sta*e9#(+ers are #t9er members #$ t9e #m,an-7s #$$iers an+ +iret#rs4 t9e in+e,en+ent a"+it#rs .:9# ma- +etet t9ese misstatements04 t9e s9are9#(+ers4 an+ ,r#s,etive invest#rs/ .0 T9e at #$ se((ing ertain se"rities .t9#se :it9 gains #r t9#se :it9 (#sses0 is management7s 9#ie an+ is n#t ,er se "net9ia(/ A#"nting stan+ar+s a((#: t9e sa(e #$ se(ete+ se"rities s# (#ng as t9e met9#+ #$ assigning #st a+#,te+ b- t9e #m,an- is #nsistent(- a,,(ie+/ I$ t9e #$$iers at in t9e best interest #$ t9e #m,an- an+ its sta*e9#(+ers4 an+ in a#r+ane :it9 IFRS4 an+ n#t in t9eir se($;interest4 t9eir be9avi#r is ,r#bab(- et9ia(/
-opyright 2'1# /ohn 0iley ons, (nc. 0eygandt inancial ccounting ( 3e olutions 5anual 6or (nstructor 7se 8nly9
12)##