PROBLEM 2 FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (FV-OCI)

(25 MARKS)

Frank Corporation invested its excess cash in investments accounted for using the fair value through other comprehensive income (FV-OCI) model during 2010. At December 31, 2010, the portfolio consisted of the following common shares:

Investment # shares Cost Fair Value

(and current carrying value)

Lara Inc. 1,000 shares $13,000 $19,000

Paula Inc. 2,000 shares 42,000 44,000

Aryn Inc. 2,000 shares 72,000 60,000

$127,000 $123,000

Frank Corporation applies the FV-OCI model with unrealized gains and losses reclassified to retained earnings.

FOR 2010:

1. Make the journal entry at December 31, 2010 to adjust the share investments to their fair value? (1 marks)

Paula Inc $6000

Lara Inc $2000

Unrealized loss $4,000

Retained Earning 12000

2. What is the balance of accumulated other comprehensive income (AOCI) at December 31, 2010? (1 mark)

$4,000

FOR 2011:

In 2011, Frank Corporation sold 2,000 shares of Paula Inc. for $36,400 less a $1,250 brokerage fee. In that same year, Frank Corporation purchased 500 more shares of Lara Inc. for $7,000. Frank Corporation pays no brokerage fees on share purchases. Aryn Inc. paid Frank Corporation a $1,500 cash dividend.

The December 31, 2011 portfolio of FV-OCI investments were as follows:

PROBLEM 2 FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME (FV-OCI)

(25 MARKS)

Frank Corporation invested its excess cash in investments accounted for using the fair value through other comprehensive income (FV-OCI) model during 2010. At December 31, 2010, the portfolio consisted of the following common shares:

Investment # shares Cost Fair Value

(and current carrying value)

Lara Inc. 1,000 shares $13,000 $19,000

Paula Inc. 2,000 shares 42,000 44,000

Aryn Inc. 2,000 shares 72,000 60,000

$127,000 $123,000

Frank Corporation applies the FV-OCI model with unrealized gains and losses reclassified to retained earnings.

FOR 2010:

1. Make the journal entry at December 31, 2010 to adjust the share investments to their fair value? (1 marks)

Paula Inc $6000

Lara Inc $2000

Unrealized loss $4,000

Retained Earning 12000

2. What is the balance of accumulated other comprehensive income (AOCI) at December 31, 2010? (1 mark)

$4,000

FOR 2011:

In 2011, Frank Corporation sold 2,000 shares of Paula Inc. for $36,400 less a $1,250 brokerage fee. In that same year, Frank Corporation purchased 500 more shares of Lara Inc. for $7,000. Frank Corporation pays no brokerage fees on share purchases. Aryn Inc. paid Frank Corporation a $1,500 cash dividend.

The December 31, 2011 portfolio of FV-OCI investments were as follows: