Apply your critical-thinking ability to the knowledge you've gained. These cases will provide you an opportunity to develop your research, analysis, judgment, and communication skills. You also will work with other students, integrate what you've learned, apply it in real world situations, and consider its global and ethical ramifications. This practice will broaden your knowledge and further develop your decision-making abilities. Real World Case 12-1 Intel's investments LO12-4 The following disclosure note appeared in the December 26, 2015, annual report of the Intel Corporation. Note 5: Cash and Investments (partial) Available-for-sale investments as of December 26, 2015, and December 27, 2014, were as follows: December 26, 2015 Gross Gross Adjusted Unrealized Unrealized ($ in millions) Cost Gains Losses Fair Value Gains December 27, 2014 Gross Adjusted Unrealized Unrealized Cost Gross Fair Losses Value Asset-backed securities $ 5 $ - $ (1) $ 4 $ 8 $ - $ (2) $ 6 Corporate debt 4,164 3 (10) 4,157 2,040 13 (5) 2,048 Financial institution instruments 11,140 (2) 11,139 3,146 2 (1) 3,147 Government debt 748 (1) 747 741 - (1) 740 Marketable equity securities 3,254 2,706 5,960 3,318 3,779 7,097 Total available-for-sale investments $19,311 $2,710 $ (14) $22,007 $9,253 $3,794 (9) $13,038 Intel also indicates the following: "During 2015, we sold available-for-sale investments for proceeds of $2.2 billion... The gross realized gains on sales of available-for-sale investments were $133 million in 2015. Intel's Note 24 (Other Comprehensive Income) indicates unrealized holding losses of $999 million during 2015, and a reclassification adjustment of $93 for gains that had previously been included in OCI and recorded in the fair value adjustment but which were now being included in net income after being realized upon sale. Note: Intel's 2015 financial statements were issued prior to the effective date of ASU 2016-01, so Intel includes equity investments among its available-for-sale investments. That difference from current GAAP will not affect your answer to the case questions. 1. Draw a T-account that shows the change between the December 27, 2014, and December 26, 2015, balances for the fair value adjustment associated with Intel's AFS investments for 2015. By how much did the fair value adjustment change during 2015? Instructions: Each requirement is worth 5 points. Replace the Yellow and Blue letters with the correct numbers. Fair Value Adjustment, AFS Investments Dec. 27, 2014 $3,794 gain - $9 loss Decrease during 2015-- n.nnn Dec. 26, 2015 $2,710 gain - $14 loss 2,696 n.nnn Given the T-account above, the fair value adjustment change during 2015 was a reduction of $n.nnn million. 2. Prepare a journal entry that records any unrealized holding gains and losses that occurred during 2015. Ignore income taxes. Account title debit credit The effect of that journal entry would be to credit (decrease) the T-account. 3. Prepare a journal entry that records any reclassification adjustment for available-for-sale investments sold during 2015. Ignore income taxes. Account title debit credit The fair value adjustment is credited (reduced) by $nn because reclassification is removing unrealized gains from the fair value adjustment and from OCI. The effect of that journal entry would be to credit (decrease) the T-account. 4. Using your journal entries from requirements 2 and 3, adjust your T-account from requirement 1. Have you accounted for the entire change in the fair value adjustment that occurred during 2015? Speculate as to the cause of any difference. After considering these adjustments, the T-account appears as follows: Fair Value Adjustment, AFS Investments Dec. 27, 2014 $3,794 gain - $9 loss Net unrealized holding loss Reclassification adjustment n.nnn Plug 3 Dec. 26, 2015 $2,710 gain - $14 loss 2,696 nnn nn www