ANDRES ADI PUTRA S

43220110067
AKM2-Forum 6

PROBLEM
P17.5 (LO 2) (Equity Investment Entries and Disclosures) - Memahami akuntansi untuk investasi
ekuitas pada nilai wajar

Parnevik Company has the following investments in its investment portfolio on December 31, 2022
(all investments were purchased in 2022): (1) 3,000 ordinary shares of Anderson Co. which cost
$58,500, (2) 10,000 ordinary shares of Munter Ltd. which cost $580,000, and (3) 6,000 preference
shares of King Company which cost $255,000. The Fair Value Adjustment account shows a credit of
$10,100 at the end of 2022.

In 2023, Parnevik completed the following investment transactions.

1. On January 15, sold 3,000 ordinary shares of Anderson at $22 per hare less fees of $2,150.
2. 2. On April 17, purchased 1,000 ordinary shares of Castle at $33.50 per share plus fees of
$1,980.

On December 31, 2023, the fair values per share of these investments were: Munter $61, King $40,
and Castle $29. Parnevik classifies these investments as trading.

Instructions

a. Prepare the entry for the sale on January 15, 2023.

b. Prepare the journal entry to record the purchase on April 17, 2023.
c. Compute the unrealized gains or losses and prepare the adjusting entry for Parnevik on
December 31, 2023.
d. How should the unrealized gains or losses be reported on Parnevik’s financial statements?
e. Assuming the investment in King Company preference shares is classified as non-trading,
briefly describe the accounting and reporting of this investment.

Answer :

(a)

Gross selling price of 3,000 shares at $22 $66,000

Less: Commissions, taxes, and fees 2,150

Net proceeds from sale 63,850

Cost of 3,000 shares (58,500)

Gain on sale of shares $ 5,350

 January 15, 2023

Cash 63,850

Equity Investments 58,500

Gain on Sale of Equity Investment 5,350

(b)

The total purchase price is:

(1,000 X $33.50) = $33,500.

The purchase entry will be:

April 17, 2023

Brokerage Expense 1,980

Equity Investments 33,500

Cash 35,480

(c)

Equity Investment Portfolio—December 31, 2023

Investments Cost Fair Value Unrealized Gain (Loss)

Munter Ltd. $580,000 $610,000 ($30,000)
King Co. 255,000 240,000 (15,000)
Castle Co. 33,500 29,000 (4,500)
Total of portfolio $868,500 $879,000 10,500
Previous securities fair value
adjustment balance—Cr. (10,100)
Securities fair value adjustment—Dr. $20,600

December 31, 2023

Securities Fair Value Adjustment 20,600

Unrealized Holding Gain or Loss—Income 20,600

(d) The unrealized holding gains or losses should be reported on the income statement under other
income and expense. This investment would be reported as a current asset on the statement of
financial position.
(e) If the King Company preference shares are classified as non-trading, the unrealized holding loss
would be recorded in other comprehensive income and reported on the statement of financial
position under the title ―Accumulated other comprehensive income‖ as a separate component of
equity.
P17.7 (LO 1, 4) (Debt Investment Entries) - Memahami akuntansi untuk investasi utang pada nilai
wajar

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 1, semiannual interest is received.
3. On July 1, 9% bonds of Sampson, Inc. were purchased. These bonds with a par value of
£200,000 were purchased at 100 plus accrued interest. Interest dates are June 1 and
December 1.
4. On September 1, bonds with a par value of £60,000, purchased on February 1, are sold at 99
plus accrued interest.
5. On October 1, semiannual interest is received.
6. On December 1, semiannual interest is received.
7. On December 31, the fair value of the bonds purchased February 1 and July 1 are 95 and 93,
respectively.

Instructions :

a. Prepare any journal entries you consider necessary, including year-end entries (December 31),
assuming these investments are managed to profit from changes in market interest rates.
b. Indicate how the journal entries would change if Wildcat classified the investments as held-
for-collection and selling.
c. If Wildcat classified these as held-for-collection investments, explain how the journal entries
would differ from those in part (a).
d. Assume that Wildcat elects the fair value option for these investments under the part (b)
conditions. Briefly discuss how the accounting would change.

Answer :

(a) February 1

Debt Investments 300,000

Interest Revenue (4/12 X .10 X $300,000) 10,000

Cash 310,000
 April 1

Cash 15,000

Interest Revenue ($300,000 X .10 X 6/12) 15,000

July 1

Debt Investments 200,000

Interest Revenue (1/12 X .09 X $200,000) 1,500

Cash 201,500

September 1

Cash [($60,000 X 99%) + ($60,000 X .10 X 5/12)] 61,900

Loss on Sale of Debt Investment 600

Debt Investments 60,000

Interest Revenue (5/12 X .10 X $60,000 = $2,500) 2,500

October 1

Cash [($300,000 – $60,000) X .10 X 6/12] 12,000

Interest Revenue 12,000

December 1

Cash ($200,000 X 9% X 6/12) 9,000

Interest Revenue 9,000

December 31

Interest Receivable 7,500

Interest Revenue 7,500

(3/12 X $240,000 X .10 = $6,000)

(1/12 X $200,000 X .09 = $1,500)

($6,000 + $1,500 = $7,500)

 December 31

Unrealized Holding Gain or Loss—Income 26,000

Securities Fair Value Adjustment 26,000

Debt Investment Portfolio

Investments Cost Fair Value Unrealized Gain (Loss)

Gibbons Co. $240,000 $228,000* $(12,000)

Sampson, Inc. 200,000 186,000** (14,000)

Total $440,000 $414,000 $(26,000)

*$240,000 X 95%

**$200,000 X 93%

(Note to instructor: Some students may debit Interest Receivable at date of purchase instead of
Interest Revenue. This procedure is correct, assuming that when the cash is received for the interest,
an appropriate credit to Interest Receivable is recorded.)

(b) All the entries would be the same except the last entry would not be made. In addition, held-for-
collection investments would be carried at amortized cost and not valued at fair value at year-end.

(c) If Wildcat elects the fair value option for these investments, they would need to record an
unrealized gain or loss each year. The unrealized gain (loss) would be the difference between the
investments amortized cost and their year-end fair value.

P17.6 (LO 2) (Equity Investments) - Memahami akuntansi untuk investasi ekuitas pada nilai wajar

McElroy plc has the following portfolio of investments at September 30, 2022, its last reporting date.

On October 10, 2022, the Horton shares were sold at a price of £54 per share. In addition, 3,000
ordinary shares of Patriot were acquired at £54.50 per share on November 2, 2022. The December 31,
2022, fair values were Monty £106,000, Patriot £132,000, and Oakwood £193,000. All the investments
are classified as trading.

Instructions

a. Prepare the journal entries to record the sale, purchase, and adjusting entries related to the
trading investments in the last quarter of 2022.
b. How would the entries in part (a) change if the investments were classified as non-trading?
Answer :

(a)

(1) October 10, 2022

Cash (5,000 X £54) 270,000

Gain on Sale of Stock 55,000

Equity Investments 215,000

(2) November 2, 2022

Equity Investments (3,000 X £54.50) 163,500

Cash 163,500
 (3) At September 30, 2022, McElroy had the following fair value adjustment:

Equity Investment Portfolio—September 30, 2022

Investments Cost Fair Value Unrealized Gain (Loss)

Horton, Inc. ordinary £215,000 £200,000 (£ (15,000)
Monty, Inc. preference 133,000 140,000 ( 7,000)
Oakwood Corp. ordinary 180,000 179,000 ( (1,000)
Total of portfolio £528,000 £519,000 ((9,000)
Previous securities fair value
adjustment balance 0
Securities fair value adjustment—Cr. (£ (9,000)

At December 31, 2022, McElroy had the following fair value adjustment:

Equity Investment Portfolio—December 31, 2022

Investments Cost Fair Value Unrealized Gain (Loss)

Monty, Inc. preference £133,000 £106,000 (£ (27,000)

Oakwood Corp. ordinary 180,000 193,000 13,000)

Patriot ordinary 163,500 132,000 ( (31,500)

Total of portfolio £476,500 £431,000 (45,500)

Previous securities fair value

adjustment balance—Cr. (9,000)

Securities fair value adjustment—Cr. (£ (36,500)

The entry on December 31, 2022 is therefore as follows:

Unrealized Holding Gain or Loss—Income 36,500

Securities Fair Value Adjustment 36,500

(c) The entries would be the same except that instead of debiting and crediting accounts associated
with trading investments, the accounts used would be associated with non-trading investments. In
addition, the Unrealized Holding Gain or Loss—Equity account is used instead of Unrealized Holding
Gain or Loss—Income. The unrealized holding loss in this case would be deducted from the equity
section rather than charged to the income statement.
P17.8 (LO 2, 3) (Fair Value and Equity Method) - Jelaskan metode akuntansi ekuitas dan bandingkan
dengan metode nilai wajar untuk investasi ekuitas

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 a conservative dividend policy, resulted in
funds available for outside investment. Over the years, Brooks has had a policy ofinvesting idle cash
in equity investments. In particular, Brooks has made periodic investments in the company’s principal
supplier, Norton Industries. Although the firm currentlyowns 12% of the outstanding ordinary shares
of Norton Industries, Brooks does not have significant influence over the operations of Norton
Industries.

Cheryl Thomas has recently joined Brooks as assistant controller, and her first assignment is to prepare
the 2022 year-end adjusting entries for the accounts that are valued by the “fair value” rule for
financial reporting purposes. Thomas has gathered the following information about Brooks’pertinent
accounts.
1. Brooks has trading equity investments related to Delaney Motors and Patrick Electric. During
this fiscal year, Brooks purchased 100,000 shares of Delaney Motors for $1,400,000; these
shares currently have a fair value of $1,600,000. Brooks’ investment in Patrick Electric has not
been profitable; the company acquired 50,000 shares of Patrick in April 2022 at $20 per share,
a purchase that currently has a value of $720,000.
2. Prior to 2022, Brooks invested $22,500,000 in Norton Industries and has not changed its
holdings this year. This investment in Norton Industries was valued at $21,500,000 on
December 31, 2021. Brooks’ 12% ownership of Norton Industries has a current fair value of
$22,225,000.

Instructions

a. Prepare the appropriate adjusting entries for Brooks as of December 31, 2022, to reflect the
application of the “fair value” rule for both classes of investments described above.
b. For both classes of investments presented above, describe how the results of the valuation
adjustments made in (a) would be reflected in Brooks’ 2022 financial statements.
c. Prepare the entries for the Norton investment, assuming that Brooks owns 25% of Norton’s
shares. Norton reported income of $500,000 in 2022 and paid cash dividends of $100,000.

Answer :

(a)

1. Trading investments :

Unrealized Holding Gain or Loss— Income 80,000

Securities Fair Value Adjustment 80,000

2. Non-trading investments :

Securities Fair Value Adjustment 725,000

Unrealized Holding Gain or Loss— Equity 725,000

Computations:
1.

Investments Cost Fair Value Unrealized Gain (Loss)

Delaney Motors $1,400,000 $1,600,000 $200,000

Patrick Electric 1,000,000 720,000 (280,000)
Total of portfolio $2,400,000 $2,320,000 $ (80,000)

2. Computation of Unrealized Gain or Loss in 2021

Investments Cost Fair Value Unrealized Gain (Loss)

Norton Ind. $22,500,000 $21,500,000 ($1,000,000)

 Computation of Unrealized Gain or Loss in 2022

Investments Cost Fair Value Unrealized Gain (Loss)

Norton Ind. $22,500,000 $22,225,000 $ (275,000)

Previous Securities Fair

Value Adjustment (Cr) ($1,000,000)

Securities Fair Value

Adjustment (Dr) $ 725,000

(b) The unrealized holding loss on the valuation of Brooks’ trading investments is reported on the
income statement. The loss would appear in the ―Other income and expense‖ section of the income
statement. The Securities Fair Value Adjustment is a valuation account and it will be used to show the
reduction in the fair value of the trading investments. The trading investments portfolio is disclosed in
the statement of financial position as a current asset and reported at its fair value. The unrealized
holding gain on the valuation of Brooks’ non-trading investments is reported as other comprehensive
income and as a separate component of equity. The Securities Fair Value Adjustment account is used
to report the change in fair value of the non-trading investments. The fair value of the investments is
reported in the Investments section of the statement of financial position. It should be noted that a
combined statement of income and comprehensive income or a statement ofcomprehensive income
would report the components of comprehensive income.

(c)

Equity Investments ($500,000 X 25%) 125,000

Investment Revenue 125,000

Cash ($100,000 X 25%) 25,000

Equity Investments 25,000

With 25%, Brooks has significant influence and should apply the equity method. No fair
value adjustments are recorded under the equity method.
EXERCISE
E17.13 (LO 2) (Equity Investment Entries and Financial Statement Presentation) - Jelaskan metode
akuntansi ekuitas dan bandingkan dengan metode nilai wajar untuk investasi ekuitas

At December 31, 2022, the equity investment portfolio for Wenger, Inc. is as follows.

On January 20, 2023, Wenger, Inc. sold investment A for $15,300. The sale proceeds are net of
brokerage fees.

Instructions :

a. Prepare the adjusting entry at December 31, 2022, to report the portfolio at fair value.
b. Show the statement of financial position presentation of the investment-related accounts at
December 31, 2022. (Ignore notes presentation.)
c. Prepare the journal entry or entries for the 2023 sale of investment A.
d. Repeat requirement (a), assuming the portfolio of investments is non-trading.

Answer :

a. The portfolio should be reported at the fair value of $54,500. Since the cost of the portfolio
is $53,000, the unrealized holding gain is $1,500, of which $200 is already recognized.
Therefore, the December 31, 2022 adjusting entry should be :

Securities Fair Value Adjustment 1,300

Unrealized Holding Gain or Loss—Income 1,300

b. The unrealized holding gain of $1,300 should be reported as other income and expense on
the income statement and the Securities Fair Value Adjustment account balance of $1,500
should be added to the cost of the investment account.

WENGER, INC.
Statement of Financial Position
As of December 31, 2022

Current assets:
Equity investment $54,500
 c. Computation of realized gain or loss on sale of investment :
Net proceeds from sale of investment $15,300
Cost of investment A (17,500)
Loss on sale of shares ($ 2,200)

January 20, 2023

Cash 15,300
Loss on Sale of Equity Investment 2,200
Equity Investments 17,500

d. Securities Fair Value Adjustment 1,300

Unrealized Holding Gain or Loss—Equity 1,300

E17.15 (LO 2, 3) (Journal Entries for Fair Value and Equity Methods) - Memahami akuntansi untuk
investasi ekuitas pada nilai wajar

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, 2022. On June 30, Ramirez declared and paid a $75,000
cash dividend. On December 31, Ramirez reported net income of $122,000 for the year. At December
31, the market price of Ramirez Fashion was $15 per share. The investment is classified as trading.

Situation 2: Holmes, Inc. obtained significant influence over Nadal Corporation by buying 25% of
Nadal’s 30,000 outstanding ordinary shares at a total cost of $9 per share on January 1, 2022. On June
15, Nadal declared and paid a cash dividend of $36,000. On December 31, Nadal reported a net income
of $85,000 for the year.

Instructions :

Prepare all necessary journal entries in 2022 for both situations.

Answer :

Situation 1 :

Journal entries by Hatcher Cosmetics: To record purchase of 20,000 shares of Ramirez Fashion at a
cost of $14 per share:

March 18, 2022

Equity Investments 280,000

Cash 280,000

To record the dividend revenue from Ramirez Fashion :

June 30, 2022

Cash 7,500
 Dividend Revenue ($75,000 X 10) 7,500

To record the investment at fair value :

December 31, 2022

Securities Fair Value Adjustment 20,000

Unrealized Holding Gain or Loss—Income 20,000*

*($15 – $14) X 20,000 shares = $20,000

Situation 2 :

Journal entries by Holmes, Inc. :

To record the purchase of 25% of Nadal Corporation’s ordinary shares :

January 1, 2022

Equity Investments 67,500

Cash [(30,000 X 25%) X $9] 67,500

Since Holmes, Inc. obtained significant influence over Nadal Corp., Holmes, Inc. now employs
the equity method of accounting.

To record the receipt of cash dividends from Nadal Corporation :

June 15, 2022

Cash ($36,000 X 25%) 9,000

Equity Investments 9,000

To record Holmes’s share (25%) of Nadal Corporation’s net income of $85,000 :

December 31, 2022

Equity Investments (25% X $85,000) 21,250

Revenue from Investment 21,250

E17.16 (LO 3) (Equity Method) - Jelaskan metode akuntansi ekuitas dan bandingkan dengan metode
nilai wajar untuk investasi ekuitas

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.

a. How much was Gator plc’s share of Demo Co.’s net income for the year?
b. How much was Gator plc’s share of Demo Co.’s dividends for the year?
c. What was Demo Co.’s total net income for the year?
d. What was Demo Co.’s total dividends for the year?

Answer :

a. $130,000, the increase to the Investment account.

b. If the dividend payout ratio is 40%, then 40% of the net income is their share of dividends =
$52,000. The answer is also given in the T-account information.
c. Their share is 25%, so, Total Net Income X 25% = $130,000
Total Net Income = $130,000 ÷ 25% = $520,000
d. $52,000 ÷ 25% = $208,000 or $520,000 X 40% = $208,000

E17.19 (LO 2, 3) (Fair Value and Equity Method Compared) - Jelaskan metode akuntansi ekuitas
dan bandingkan dengan metode nilai wajar untuk investasi ekuitas

Chen Group acquired 20% of the outstanding ordinary shares of Cho Ltd. on December 31, 2022. The
purchase price was ¥125,000,000 for 50,000 shares. Cho declared and paid an ¥80 per share cash
dividend on June 30 and on December 31, 2023. Cho reported net income of ¥73,000,000 for 2023.
The fair value of Cho’s shares was ¥2,700 per share at December 31, 2023.

Instructions

a. Prepare the journal entries for Chen for 2022 and 2023, assuming that Chen cannot exercise
significant influence over Cho. The investments should be classified as trading.
b. Prepare the journal entries for Chen for 2022 and 2023, assuming that Chen can exercise
significant influence over Cho.
c. At what amount is the investment reported on the statement of financial position under
each of these methods at December 31, 2023? What is the effect on net income reported in
2023 under each of these methods?
Answer :

(a)

December 31, 2022

Equity Investments 125,000,000

Cash 125,000,000

June 30, 2023

Cash 4,000,000

Dividend Revenue (50,000 X ¥80) 4,000,000

December 31, 2023

Cash 4,000,000

Dividend Revenue (50,000 X ¥80) 4,000,000

Securities Fair Value Adjustment 10,000,000

Unrealized Holding Gain or Loss—

Income 10,000,000

¥2,700 X 50,000 = ¥135,000,000

¥135,000,000 – ¥125,000,000 = ¥10,000,000

(b)

December 31, 2022

Equity Investments 125,000,000

Cash 125,000,000

June 30, 2023

Cash 4,000,000

Equity Investments 4,000,000

 December 31, 2023

Cash 4,000,000

Equity Investments 4,000,000

Equity Investments 14,600,000

Revenue from Investment

(20% X ¥73,000,000) 14,600,000

(c)

Fair Value Equity

Method Method

Investment amount (statement of financial position) ¥135,000,000 *¥131,600,000*

Dividend revenue (income statement) 8,000,000 0

Unrealized holding gain (income statement) 10,000,000

Revenue from investment (income statement) 14,600,000

*¥125,000,000 + ¥14,600,000 – ¥4,000,000 – ¥4,000,000

E17.21 (LO 4) (Impairment) - Diskusikan akuntansi untuk penurunan nilai investasi utang

Cairo Corporation has government bonds classified as held-for-collection at December 31, 2022.
These bonds have a par value of $800,000, an amortized cost of $800,000, and a fair value of
$740,000. In evaluating the bonds, Cairo determines the bonds have a $60,000 permanent decline in
value. That is, the company believes that impairment accounting is now appropriate for these bonds.

Instructions :

a. Prepare the journal entry to recognize the impairment.

b. What is the new cost basis of the bonds? Given that the maturity value of the bonds is
$800,000, should Cairo Corporation amortize the difference between the carrying amount
and the maturity value over the life of the bonds?
c. At December 31, 2023, the fair value of the municipal bonds is $760,000. Prepare the entry
(if any) to record this information.
Answer :

(a) The entry to record the impairment is as follows :

Loss on Impairment ($800,000 – $740,000) 60,000

Debt Investments 60,000

(b) The new cost basis is $740,000. If the bonds are impaired, it is inappropriate to increase
(amortize) the asset back up to its original maturity value.

(c) Debt Investments 20,000

Recovery of Impairment Loss ($760,000 – $740,000) 20,000