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intermediate accounting 11th
Intermediate Accounting IFRS International Adaptation 5th Edition Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield - Solutions
CA16.3 (LO 1, 2) (Financial Statement Effect of Investments) Presented below are three unrelated situations involving investments.Situation 1: A debt investment portfolio, whose fair value is currently less than cost, is classified as trading but is to be reclassified as
CA16.2 (LO 2) (Equity Investments) Lexington Co. has the following equity investments on December 31, 2025 (its first year of operations).Cost Fair Value Greenspan Corp. ordinary shares $20,000 $19,000 Summerset Company ordinary shares 9,500 8,800 Tinkers Company ordinary shares 20,000
CA16.1 (LO 1, 2) (Issues Raised About Investments) You have just started work for Warren AG as part of the controller’s group involved in current financial reporting problems. Jane Henshaw, controller for Warren, is interested in your accounting background because the company has experienced a
*P16.17 (LO 6) (Fair Value Hedge) On October 15, 2025, Oil Products plc purchased 4,000 barrels of fuel oil with a cost of £240,000 (£60 per barrel). Oil Products is holding this inventory in anticipation of the winter 2026 heating season. Oil Products accounts for its inventory at the
*P16.16 (LO 6) (Cash Flow Hedge) Suzuki Jewelry Group uses gold in the manufacture of its products.Suzuki anticipates that it will need to purchase 500 ounces of gold in October 2025, for jewelry that will be shipped for the holiday shopping season. However, if the price of gold increases,
*P16.15 (LO 6) (Fair Value Hedge Interest Rate Swap) On December 31, 2025, Mercantile Corp.had a $10,000,000, 8% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2-year swap with Chicago First Bank to convert the fixed-rate debt to variable-rate debt. The terms of the
*P16.14 (LO 5) (Free-Standing Derivative) Warren Co. purchased a put option on Echo ordinary shares on January 7, 2025, for $360. The put option is for 400 shares, and the strike price is $85 (which equals the price of an Echo share on the purchase date). The option expires on July 31, 2025. The
*P16.13 (LO 5) (Derivative Financial Instrument) Johnstone AG purchased a put option on Ewing ordinary shares on July 7, 2025, for €240. The put option is for 200 shares, and the strike price is€70. (The market price of an ordinary share of Ewing on that date is €70.) The option expires on
*P16.12 (LO 5) (Derivative Financial Instrument) The treasurer of Miller AG has read on the Internet that the price of Wade Inc. ordinary shares is about to take off. In order to profit from this potential development, Miller purchased a call option on Wade shares on July 7, 2025, for €240. The
P16.11 (LO 2) (Investments—Statement Presentation) Fernandez SA invested its excess cash in equity investments during 2025. The business model for these investments is to profit from trading on price changes.Instructionsa. As of December 31, 2025, the equity investment portfolio consisted of the
P16.10 (LO 2) (Equity Investments) Castleman Holdings plc had the following investment portfolio at January 1, 2025.Evers Company 1,000 shares @ £15 each £15,000 Rogers Company 900 shares @ £20 each 18,000 Chance Company 500 shares @ £9 each 4,500 Non-trading investments at cost 37,500 Fair
P16.9 (LO 2) (Financial Statement Presentation of Equity Investments) Kennedy Company has the following portfolio of trading investments at December 31, 2025.Percent Interest Per Share Investment Quantity Cost Market Frank, Inc. 2,000 shares 8% $11 $16 Ellis Corp. 5,000 shares 14% 23 19 Mendota
P16.8 (LO 2, 3) (Fair Value and Equity Method) Brooks Corp. is a medium-sized company specializing in quarrying stone for building construction. The company has long dominated the market, at one time achieving a 70% market penetration. During prosperous years, the company’s profits, coupled with
P16.7 (LO 1, 4) (Debt Investment Entries) The following information relates to the debt investments of Wildcat Welders.1. On February 1, the company purchased 10% bonds of Gibbons plc having a par value of £300,000 at 100 plus accrued interest. Interest is payable April 1 and October 1.2. On April
P16.6 (LO 2) (Equity Investments) McElroy plc has the following portfolio of investments at September 30, 2025, its last reporting date.Trading Investments Cost Fair Value Horton, Inc. ordinary (5,000 shares) £215,000 £200,000 Monty, Inc. preference (3,500 shares) 133,000 140,000 Oakwood Corp.
P16.5 (LO 2) (Equity Investment Entries and Disclosures) Parnevik Company has the following investments in its investment portfolio on December 31, 2025 (all investments were purchased in 2025): (1) 3,000 ordinary shares of Anderson Co. which cost $58,500, (2) 10,000 ordinary shares of Munter Ltd.
P16.4 (LO 1) (Debt Investments) Presented below is information taken from a bond investment amortization schedule with related fair values provided. These bonds are managed to profit from changes in market interest rates.12/31/25 12/31/26 12/31/27 Amortized cost $491,150 $519,442 $550,000 Fair
P16.3 (LO 1, 2) (Debt and Equity Investments) Cardinal Paz Corp. carries an account in its general ledger called Investments, which contains debits for investment purchases, and no credits, with the following descriptions.Feb. 1, 2025 Sharapova Company ordinary shares, $100 par, 200 shares $ 37,400
P16.2 (LO 1) (Debt Investments, Fair Value Option) On January 1, 2025, Novotna AG purchased€400,000, 8% bonds of Aguirre Co. for €369,114. The bonds were purchased to yield 10% interest. Interest is payable semiannually on July 1 and January 1. The bonds mature on January 1, 2030. Novotna
P16.1 (LO 1) (Debt Investments) Presented below is an amortization schedule related to Spangler Company’s 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2022, for $108,660.Date Cash Received Interest Revenue Bond Premium Amortization Carrying Amount of
*E16.29 (LO 7) (Cash Flow Hedge) Choi Golf uses titanium in the production of its specialty drivers.Choi anticipates that it will need to purchase 200 ounces of titanium in October 2025, for clubs that will be shipped in the holiday shopping season. However, if the price of titanium increases, this
*E16.28 (LO 6) (Call Option) On August 15, 2025, Outkast Co. invested idle cash by purchasing a call option on Counting Crows Inc. ordinary shares for $360. The notional value of the call option is 400 shares, and the option price is $40. (Market price of a Counting Crows share is $40.) The option
*E16.27 (LO 6) (Fair Value Hedge) Sarazan Ltd. issues a 4-year, 7.5% fixed-rate interest only, non-prepayable £1,000,000 note payable on December 31, 2025. It decides to change the interest rate from a fixed rate to variable rate and enters into a swap agreement with M&S Corp. The swap agreement
*E16.26 (LO 6) (Cash Flow Hedge) On January 2, 2025, Parton Company issues a 5-year, $10,000,000 note at LIBOR, with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.8%.Parton Company decides it prefers fixed-rate financing and wants
*E16.25 (LO 6) (Fair Value Hedge) On January 2, 2025, MacCloud SA issued a 4-year, €100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note.As a result, on January 2, 2025, MacCloud enters into an interest rate swap where it
*E16.24 (LO 5) (Derivative Transaction) On January 2, 2025, Jones Company purchases a call option for $300 on Merchant ordinary shares. The call option gives Jones the option to buy 1,000 shares of Merchant at a strike price of $50 per share. The market price of a Merchant share is $50 on January
E16.23 (LO 4) (Impairment) Elaina Company has the following investment as of December 31, 2025.Investment in debt securities of FourSquare Company $3,300,000 The carrying value and the fair value of the investment are the same at December 31, 2025. Elaina’s debt investment is considered
E16.22 (LO 4) (Impairment) Komissarov SA has a debt investment in the bonds issued by Keune AG. The bonds were purchased at par for €400,000 and, at the end of 2025, have a remaining life of 3 years with annual interest payments at 10%, paid at the end of each year. This debt investment is
E16.18 (LO 2) (Equity Investments—Trading) Swanson plc has the following trading investment portfolio on December 31, 2025.
E16.17 (LO 2) (Equity Investments—Trading) Feiner Ltd. purchased 300 shares of Guttman plc for £40 each this year and classified the investment as a trading investment. Feiner sold 100 shares for £43 each. At year-end, the price per share dropped to £35.Instructions Prepare the journal entries
E16.16 (LO 3) (Equity Method) Gator plc invested £1,000,000 in Demo Co. for 25% of its outstanding shares. Demo Co. pays out 40% of net income in dividends each year.Instructions Use the information in the following T-account for the investment in Demo to answer the following questions.Investment
E16.15 (LO 2, 3) (Journal Entries for Fair Value and Equity Methods) Presented below are two independent situations.Situation 1: Hatcher Cosmetics acquired 10% of the 200,000 ordinary shares of Ramirez Fashion at a total cost of $14 per share on March 18, 2025. On June 30, Ramirez declared and paid
E16.14 (LO 2) (Equity Investment Entries) Capriati Corporation made the following cash investments during 2025, which is the first year in which Capriati invested in securities.1. On January 15, purchased 9,000 ordinary shares of Gonzalez Company at $33.50 per share plus a commission of $1,980.2.
E16.13 (LO 2) (Equity Investment Entries and Financial Statement Presentation) At December 31, 2025, the equity investment portfolio for Wenger, Inc. is as follows.Investment Cost Fair Value Unrealized Gain (Loss)A $17,500 $15,000 $(2,500)B 12,500 14,000 1,500 C 23,000 25,500 2,500 Total $53,000
E16.12 (LO 2) (Equity Investment Entries and Reporting) Player Corporation makes an equity investment costing $73,000 and classifies it as non-trading. At December 31, the fair value of the investment is $67,000.Instructions Prepare the adjusting entry to report the investment properly. Indicate
E16.11 (LO 2) (Equity Investments) On December 31, 2025, Zurich SA provided you with the following information regarding its trading investments.December 31, 2025 Investments (Trading) Cost Fair Value Unrealized Gain (Loss)Stargate AG shares €20,000 €19,000 €(1,000)Carolina Co. shares 10,000
E16.10 (LO 2) (Entries for Equity Investments) The following information is available for Kinney plc at December 31, 2025, regarding its investments.Investments Cost Fair Value 3,000 ordinary shares of Petty Company £40,000 £46,000 1,000 preference shares of Dowe Inc. 25,000 22,000£65,000
E16.9 (LO 4) (Comprehensive Income Disclosure) Assume the same information as E16.6 and that Steffi Graf SA reports net income in 2025 of €120,000 and in 2026 of €140,000. Total holding gains(including any realized holding gain or loss) equal €40,000 in 2026.Instructionsa. Prepare a statement
E16.8 (LO 1) (Fair Value Option) Presented below is selected information related to the financial instruments of Dawson Ltd. at December 31, 2025 (amounts in thousands). This is Dawson Ltd.’s first year of operations.Carrying Amount Fair Value(at December 31)Debt investments (intent is to hold
E16.7 (LO 1) (Fair Value Option) Refer to the information in E16.3 and assume that Roosevelt elected the fair value option for this held-for-collection investment.Instructionsa. Prepare any entries necessary at December 31, 2025, assuming the fair value of the bonds is $540,000.b. Prepare any
E16.6 (LO 1) (HFCS Debt Securities Entries and Financial Statement Presentation) At December 31, 2025, the held-for-collection and selling debt portfolio for Steffi Graf SA is as follows.Amortized Security Cost Fair Value Unrealized Gain (Loss)A €17,500 €15,000 (€2,500)B 12,500 14,000 1,500 C
E16.5 (LO 1) (Debt Investments) On January 1, 2025, Morgan Company acquires $300,000 of Nicklaus, Inc., 9% bonds at a price of $278,384. The interest is payable each December 31, and the bonds mature December 31, 2027. The investment will provide Morgan Company a 12% yield. The bonds are classified
E16.4 (LO 1) (Debt Investments) Assume the same information as in E16.3 except that Roosevelt has an active trading strategy for these bonds. The fair value of the bonds at December 31 of each yearend is as follows.2025 $534,200 2028 $517,000 2026 $515,000 2029 $500,000 2027 $513,000 Instructionsa.
E16.3 (LO 1) (Debt Investments) On January 1, 2025, Roosevelt Company purchased 12% bonds having a maturity value of $500,000 for $537,907.40. The bonds provide the bondholders with a 10% yield.They are dated January 1, 2025, and mature January 1, 2030, with interest received December 31 of each
E16.2 (LO 1) (Debt Investments) On January 1, 2025, Jennings SA purchased at par 10% bonds having a maturity value of €300,000. They are dated January 1, 2025, and mature January 1, 2030, with interest receivable December 31 of each year. The bonds are held to collect contractual cash
E16.1 (LO 1, 2) (Investment Classifications) For the following investments, identify whether they are:1. Debt investments—held-for-collection.2. Debt investments—held-for-collection and selling.3. Debt investments—trading.4. Trading equity investments.5. Non-trading equity investments.Each
BE16.13 (LO 4) Cameron Company has a portfolio of debt investments that it has managed as a trading investment. At December 31, 2025, Cameron had the following balances related to this portfolio: debt investments, £250,000; fair value adjustment, £10,325 (Dr). Cameron management decides to change
BE16.12 (LO 4) Presented below are two independent cases related to held-for-collection and selling debt investments.Case 1 Case 2 Amortized cost $40,000 $100,000 Fair value 30,000 110,000 Expected credit losses 4,000 4,000 For each case, determine the amount of impairment loss, if any, and the
BE16.11 (LO 4) Hillsborough Co. has a held-for-collection investment in the bonds of Schuyler Corp.with a carrying (and fair) value of $70,000. Due to poor economic prospects for Schuyler, Hillsborough determined that it will not be able to collect all contractual cash flows and the bonds have
BE16.10 (LO 3) Zoop Corporation purchased for $300,000 a 30% interest in Murphy, Inc. This investment enables Zoop to exert significant influence over Murphy. During the year, Murphy earned net income of $180,000 and paid dividends of $60,000. Prepare Zoop’s journal entries related to this
BE16.9 (LO 2) Cleveland Company has a non-trading equity investment portfolio valued at $4,000. Its cost was $3,300. Prepare the journal entry at year-end.
BE16.8 (LO 2) Use the information from BE16.7 but assume the shares were purchased to meet a non-trading regulatory requirement. Prepare Fairbanks’ journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment.
BE16.7 (LO 2) Fairbanks Corporation purchased 400 ordinary shares of Sherman Inc. as a trading investment for £13,200. During the year, Sherman paid a cash dividend of £3.25 per share. At year-end, Sherman shares were selling for £34.50 per share. Prepare Fairbanks’ journal entries to record
BE16.6 (LO 1) Hendricks Corporation purchased $50,000 of bonds at par. Hendricks has an active trading business model for this investment. At December 31, Hendricks received annual interest of$2,000, and the fair value of the bonds was $47,400. Prepare Hendricks’ journal entries for (a) the
BE16.5 (LO 1) Refer to the information in BE16.4. Assume that, to address a measurement mismatch, Carow elects the fair value option for this debt investment. Prepare the journal entry at December 31, 2025, assuming the fair value of the bonds is €64,000.
BE16.4 (LO 1) Carow SA purchased on January 1, 2025, as a held-for-collection investment, €60,000 of the 8%, 5-year bonds of Harrison, Inc. for €65,118, which provides a 6% return. The bonds pay interest semiannually. Prepare Carow’s journal entries for (a) the purchase of the investment, and
BE16.3 (LO 1) Use the information from BE16.1 but assume Garfield plans to actively trade the bonds to profit from market interest rate changes. Prepare Garfield’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the
BE16.2 (LO 1) Use the information from BE16.1 but assume the bonds are purchased as a held-for-collection and selling investment. Prepare Garfield’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair
BE16.1 (LO 1) On January 1, 2025, Garfield AG made an investment in €80,000 of the 9%, 5-year bonds of Chester Corporation for €74,086, which provides an 11% return. Garfield plans to hold these bonds to collect contractual cash flows. Prepare Garfield’s journal entries for (a) the purchase
*35. What are hybrid securities? Give an example of a hybrid security.
*34. Where are gains and losses related to cash flow hedges involving anticipated transactions reported?
*33. What is the purpose of a cash flow hedge?
*32. Why might a company become involved in an interest rate swap contract to receive fixed interest payments and pay variable?
*31. In what situation will the unrealized holding gain or loss on a non-trading equity investment be reported in income?
*30. What is the purpose of a fair value hedge?
*29. What are the main distinctions between a traditional financial instrument and a derivative financial instrument?
*28. What is meant by the term underlying as it relates to derivative financial instruments?
27. Briefly describe the unresolved issues related to fair value accounting.
26. Briefly discuss how a transfer of investments from the trading category to the held-for-collection category affects the financial statements.
25. When is a debt investment considered impaired? Explain how to account for the impairment of a held-for-collection debt investment.
24. Explain why recycling adjustments are necessary.
23. Where on the asset side of the statement of financial position are amounts related to equity investments classified as trading and non-trading reported? Explain.
22. Raleigh plc has an investment with a carrying value (equity method) on its books of £170,000 representing a 30% interest in Borg Company, which suffered a £620,000 loss this year. How should Raleigh handle its proportionate share of Borg’s loss?
21. Hiram Co. uses the equity method to account for investments in ordinary shares. What accounting should be made for dividends received from these investments subsequent to the date of investment?
20. When the equity method is applied, what amounts relate to the investment, and where will these amounts be reported in the financial statements?
19. Explain how the investment account is affected by investee activities under the equity method.
18. What constitutes “significant influence” when an investor’s financial interest is below the 50% level?
17. Distinguish between the accounting treatment for non-trading equity investments and trading equity investments.
16. Hayes Company sold 10,000 shares of Kenyon Co. that it bought in Question 15 for $27.50 per share, incurring $1,770 in brokerage commissions. The carrying value of the investment is $260,000.Prepare the entry to record the sale of this investment.
15. Hayes Company purchased 10,000 ordinary shares of Kenyon Co., paying $26 per share plus $1,500 in broker fees. Hayes plans to actively trade this investment. Prepare the entry to record this investment.
14. Why is the held-for-collection classification not applicable to equity investments?
for this investment? Explain.13. Identify and explain the different types of classifications for equity investments.
12. Franklin Corp. has an investment that it has held for several years. When it purchased the investment, Franklin accounted for the investment at amortized cost. Can Franklin use the fair value option
11. What is the fair value option? Briefly describe its application to debt investments.
10. (a) Assuming no Fair Value Adjustment account balance at the beginning of the year, prepare the adjusting entry at the end of the year if Laura Fashions’ trading bond investment has a fair value€60,000 below carrying value. (b) Assume the same information as in part (a), except that Laura
9. Indicate how unrealized holding gains and losses should be reported for investments classified as (a) trading (b) held-for-collection, and(c) held-for-collection and selling.
8. If the bonds in Question 7 are classified as trading and they have a fair value at December 31, 2025, of €3,700,000, prepare the journal entry (if any) at December 31, 2025, to record this transaction.
7. On July 1, 2025, Wheeler AG purchased €4,000,000 of Duggen Company’s 8% bonds, due on July 1, 2030. The bonds, which pay interest semiannually on January 1 and July 1, were purchased for€3,604,062 to yield 10%. Determine the amount of interest revenue Wheeler should report on its income
6. Consider the bond investment by Lady Gaga in Question 5. Discuss the accounting for this investment if Lady Gaga’s business model is(a) to hold the investment to collect interest while outstanding and to receive the principal at maturity and (b) held-for-collection and selling.
5. Lady Gaga Co. recently made an investment in the bonds issued by Chili Peppers Inc. Lady Gaga’s business model for this investment is to profit from selling in response to changes in market interest rates. How should this investment be classified by Lady Gaga?Explain.
4. Identify and explain the three types of classifications for investments in debt securities.
3. What is amortized cost? What is fair value?
2. Which types of investments are valued at amortized cost? Explain the rationale for this accounting.
1. Describe the two criteria for determining the valuation of financial assets.
CA15.7 (LO 5) Writing (EPS, Antidilution) Brad Dolan, a shareholder of Rhode Corporation, has asked you, the firm’s accountant, to explain why his share warrants were not included in diluted EPS. In order to explain this situation, you must briefly explain what dilutive securities are, why they
CA15.6 (LO 4, 5) (EPS Concepts and Effect of Transactions on EPS) Chorkina Corporation, a new audit client of yours, has not reported earnings per share data in its annual reports to shareholders in the past. The treasurer, Beth Botsford, requested that you furnish information about the reporting
CA15.5 (LO 4, 5) (EPS: Preference Dividends, Options, and Convertible Debt) Earnings per share (EPS) is the single most reported financial statistic about modern companies. Daily published quotations of share prices have recently been expanded to include for many securities a “times
CA15.4 (LO 3) Writing (Share Compensation Plans) The following item appeared on the Internet concerning the requirement to expense share options.“Here We Go Again!” by Jack Ciesielski (2/21/2005, www.accountingobserver.com/blog/2005/02/herewe-go-again) “On February 17, Congressman David
CA15.3 (LO 2, 3) Writing (Share Warrants—Various Types) For various reasons a company may issue warrants to purchase its ordinary shares at specified prices that, depending on the circumstances, may be less than, equal to, or greater than the current market price. For example, warrants may be
CA15.2 (LO 3) Ethics (Ethical Issues—Compensation Plan) The executive officers of Rouse Corporation have a performance-based compensation plan. The performance criteria of this plan are linked to growth in earnings per share. When annual EPS growth is 12%, the Rouse executives earn 100%of the
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