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Horngrens Accounting Volume 2 Canadian 10Th Edition Nobles Solutions Manual Full Chapter PDF
Horngrens Accounting Volume 2 Canadian 10Th Edition Nobles Solutions Manual Full Chapter PDF
Questions
1. The cost of the investment in Royal Bank of Canada shares would be
$20,500 (1,000 $20.50) and the brokerage commission of $300 would
be expensed.
2. A short-term investment in shares must meet two qualifications. It is
liquid, and the investor intends to make a profit due to short-term price
changes, thus converting it to cash within one year or less or using the
investment to pay a current liability. All other investments in shares are
long-term investments. Management intent is the deciding factor about
how it should be recorded.
3. Current Assets
Cash
Short-term investments
Accounts receivable
Inventories
Prepaid expenses
Long-term investments (or simply Investments):
Long-term investments
Property, plant, and equipment, net
Intangible assets
Other assets
4. When equity investments that are traded on public stock exchanges are
revalued to market value at year end, investors are given the most
current information possible on which to base their decisions.
Predictions are easier for investors to make, since the cost of
investments might be very different from their market values; market
values approximate the liquidation values.
5. Receipt of a cash dividend is recorded by debiting Cash and crediting
Dividend Revenue. Receipt of a stock dividend is recorded in a
memorandum entry that states the number of dividend shares received
and the new cost per share.
14. The parent’s net income is the sum of its own net income plus its
proportion of the subsidiaries’ net income (100 percent of two
subsidiaries’ income plus 60 percent of the third subsidiary’s income).
15. Weel Soo paid $303,900 ($300,000 1.013). The principal collected at
maturity is $300,000.
16. $10,000.00 ($300,000 0.08 5/12).
17. Foreign-Currency Transaction Loss.
18. a. Gain
b. Loss
c. Loss
d. Gain
19. Under IFRS, most short-term financial instruments must be measured at
fair value. Under ASPE, actively traded equity investments are valued
at fair value but when there is no active market, the cost method can be
used.
20. Under IFRS, the parent must prepare consolidated financial statements
that include the financial results of its subsidiaries. Under ASPE, the
CPA Canada Handbook emphasizes consolidation but the parent is
allowed to report its investment in subsidiaries using either the cost or
equity method as well.
Starters
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2016
Dec. 6 Short-Term Investments 41,000
Brokerage Fees Expense 350
Cash 41,350
(1,000 × $41.00)
23 Cash 1,100
Dividend Revenue 1,100
(1,000 × $1.10)
2017
Jan. 27 Cash 45,630
Brokerage Fees Expense 370
Gain on Sale of Short-Term Investments 1,000
Fair Value Valuation Allowance 4,000
Short-Term Investments 41,000
Cash paid was [(1,000 × $46) – $370]
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2016
Dec. 12 Short-Term Investments 93,000
Commissions Expense 510
Cash 93,510
(1,500 × $62)
21 Cash 720
Dividend Revenue 720
(1,500 × $0.48)
2017
Jan. 16 Cash 88,010
Commissions Expense 490
Fair Value Valuation Allowance 750
Loss on Sale of Short-Term Investments 3,750
Short-Term Investments 93,000
Cash received was [(1,500 × $59.00) – $490]
(5 min.) S 16-4
a. Current asset
b. Current asset
c. Long-term asset
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Jan. 14 Long-Term Investments 41,000
Cash 41,000
(1,000 × $41.00)
2.
ASSETS
Total current assets ..................................................................................... $XXXX
Long-term investments, fair value .............................................................. 50,750
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2018
Aug. 4 Cash 53,000
Fair Value Valuation Allowance 9,750
Long-Term Investments 41,000
Gain on Sale of Long-Term Investments 2,250
Cash received (1,000 × $53.00)
2. This gain on sale of investment is a realized gain. The gain recorded at December 31,
2017 was unrealized because it resulted from a change in the investment’s fair value, not
from the sale of the investment.
2.
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
a. Investment in True World Inc. Common Shares 5,000,000
Cash 5,000,000
Purchased 40 percent investment in True World Inc.
common shares.
c. Cash 320,000
Investment in True World Inc. Common Shares 320,000
Received 40 percent of True World Inc. cash
dividend. ($800,000 × 0.40)
3.
Purchase 5,000,000
Net income 720,000 Dividends received 320,000
Balance 5,400,000
(5 min.) S 16-10
1. E
2. B
3. C
4. A
5. C
6. D
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
a. Jan. 2 Investment in Bonds 970,000
Cash 970,000
Purchase bond investment. ($1,000,000 × 0.97)
2021
d. Dec. 31 Cash 1,000,000
Investment in Bonds 1,000,000
Received face value at maturity.
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
Mar. 14 Accounts Receivable 3,120,000
Sales Revenue 3,120,000
Sale on account. (2,000,000 euros × $1.56)
Exercises
(10-15 min.) E 16-1
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Nov. 6 Short-Term Investments 93,600
Brokerage Fees Expense 500
Cash 94,100
Purchase of 1,200 Aveda Corporation common
shares at $78 plus $500 brokerage
commission.
2018
Jun. 14 Cash 95,000
Brokerage Fees Expense 400
Fair Value Valuation Allowance 2,100
Gain on Sale of Short-Term Investments 3,900
Short-Term Investments 93,600
Sale of Aveda Corporation investment at
$79.50 per share. Cash received: [(1,200 ×
$79.50) – $400].
Note X: Short-term investments are reported at fair value. Cost is $945 million. Fair value is
$950 million.
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2014 Adjusting entry: Millions of U.S. dollars
Fair Value Valuation Allowance 5
Unrealized Gain on Fair Value Adjustment 5
* $950 – $945
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Nov. 6 Short-Term Investments 60,000
Commissions Expense 800
Cash 60,800
30 Cash 3,000
Dividend Revenue 3,000
(2,000 × $1.50)
2018
Jan. 20 Cash 62,100
Commissions Expense 900
Short-Term Investments 60,000
Fair Value Valuation Allowance 2,000
Gain on Sale of Short-Term Investments 1,000
Cash received: ($63,000 – $900]
Req. 2
Carlton Ltd.
Partial Balance Sheet
December 31, 2017
Current assets:
Short-term investments, at fair value $62,000
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Aug. 6 Long-Term Investments 81,000
Commissions Expense 900
Cash 81,900
To purchase 900 shares of Rhodes Corporation at
$90 per share.
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
a. Investment in Minecraft Ltd. Common Shares 12,000,000
Cash 12,000,000
Purchased 40% investment in Minecraft Ltd.
common shares.
c. Cash 260,000
Investment in Minecraft Ltd. Common
Shares 260,000
To record receipt of 40% of Minecraft Ltd.
cash dividend of $650,000.
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
Cash 13,100,000
Investment in Minecraft Ltd. Common Shares 12,452,000
Gain on Sale of Equity Investment 648,000
Sold investment in Minecraft Ltd. common
shares.
3. Annual interest revenue will be more than the amount of cash interest
received each year because the investor bought the bonds at a discount.
$6,000,000 – $5,880,000
+ Amortization of
= 12,000
discount 10 years
Req. 1
The bonds should be reported on the financial statements as a long-term investment.
Therefore the discount will be amortized over the life of the bond and any temporary
fluctuation in market price will be ignored.
Req. 2
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Mar. 31 Investment in Bonds 98,250
Cash 98,250
To purchase $100,000, 4% bonds in Claim
Limited due 30/9/2018 at 98.25.
31 Investment in Bonds 97
Interest Revenue 97
To record amortization of bond discount
($1,750 3/54).
Req. 3
Long-Term Investment—Bonds (Note X) $98,541*
Note X: The long-term bonds are reported at cost plus amortization of discount. At
December 31, 2017, the market value was $99,250.
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
May 1 Investment in Bonds 969,900
Cash 969,900
Purchased $1,000,000 in bonds at a discount
2018
Apr. 30 Cash 45,000
Interest Revenue 45,000
To receive annual interest at 4.5%
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Nov. 17 Purchases (or Inventory) 5,850
Accounts Payable 5,850
Purchase of goods for 500,000¥ at $0.0117.
2018
Jan. 14 Cash 126,400
Accounts Receivable 123,200
Foreign Currency Transaction Gain 3,200
Received payment for receivable—80,000
euros at $1.58.
15 Cash 300
Interest Revenue 300
To record semi-annual interest received on
Consulting Suppliers Inc. bonds.
Ethical Issue
Req. 1
Ken Tung is acting within his authority to influence Arbor Corporation to
pay large cash dividends. The board of directors has the authority to declare
and pay dividends.
The ethics of Tung’s action are questionable. As the president of Sherman
Inc., Tung is responsible for stewardship of company resources. As a
member of Arbor Corporation’s board of directors, Tung is also responsible
for stewardship of Arbor Corporation’s resources. It appears that Tung is
using his position to increase his own bonus, even if it hurts Arbor
Corporation and Sherman Inc. His actions could also hurt creditors if either
of the two companies fails to pay its debts.
Req. 2
Under the fair value method, receipts of dividends increase investor income.
In this case, Tung is manipulating Sherman Inc. income—and his bonus—by
having Arbor Corporation pay high dividends to Sherman Inc.
Under the equity method, investor (Sherman Inc.) income is increased when
the investee company (Arbor Corporation) earns income. Receipts of
dividends have no effect on investor income.
Investment income under the equity method depends on many factors
beyond the investor’s control. Therefore, it is more difficult for the investor
company to manipulate its income—and for Tung to manipulate his bonus—
under the equity method.
Problems
Group A
(25-35 min.) P 16-1A
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
May 1 Investment in Larson Corp. Common Shares 950,000
Commissions Expense 20,000
Cash 970,000
Purchased 12,000 common shares of Larson
Corp. (24 percent of common shares).
(continued) P 16-1A
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Dec. 31 Investment in Larson Corp. Common Shares 224,000
Equity Method Investment Revenue 224,000
To record 28% of Larson Corp. net income of
$800,000.
2018
Feb. 6 Cash 166,950
Commissions Expense 1,550
Loss on Sale of Investment 15,957
Investment in Larson Corp. Common
Shares 184,457
Sold 2,000 common shares of Larson Corp.
* Carrying amount was $950,000 + $162,000 – $44,800 + $224,000 = $1,291,200
$1,291,200 2,000/14,000 = $184,457
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Mar. 3 Short-Term Investments 200,000
Commissions Expense 500
Cash 200,500
Purchased 8,000 shares at $25.00 plus
commission of $500.
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Dec. 15 Cash 30,000
Investments in Significantly Influenced
Companies 30,000
Received cash dividend from significantly
influenced company.
Req. 2
Investments in Significantly Influenced and Other Companies
Jan. 1 Balance 2,500,000 Jun. 15 Dividends 55,000
Mar. 4 Purchase 600,000 Dec. 15 Dividends 30,000
Dec. 31 Net income 390,000
Dec. 31 Balance 3,405,000
Req. 3
Short-Term Investments
Jan. 1 Balance 250,000 Aug. 28 Sale 200,000
Mar. 3 Purchase 200,000
Oct. 24 Purchase 275,000
Dec. 31 Balance 525,000
Req. 4
Spottified Corp.
Partial Balance Sheet
December 31, 2017
Cash $ XXX
Short-term investments, at fair value 510,000
Accounts receivable (net) XXX
Total current assets XXX
Investments in significantly influenced and other companies 3,405,000
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Jul. 1 Investment in Bonds 1,020,000
Cash 1,020,000
To purchase $1,000,000 Hydro Quebec
3.00% bonds at 102.
Req. 2
Cost of bonds ............................................................ $1,020,000
Deduct amortization of premium .............................. 500
Carrying Value .......................................................... $1,019,500
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Dec. 31 Investment in Bonds 647,929
Cash 647,929
To purchase Solar Ltd. 10 year, 5 percent
bond investment.
2018
Jun. 30 Cash 17,500
Investment in Bonds 1,938
Interest Revenue 19,438
To receive semi-annual interest revenue and
amortize discount on investment.
(continued) P 16-7A
Note: At June 30 and December 31, 2018, the investor can make separate entries for the accrual
of cash interest and for the amortization of discount on the investment, as shown below.
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2018
Jun. 30 Cash 17,500
Interest Revenue 17,500
To receive semi-annual interest revenue.
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Jan. 5 Short-Term Investments 255,000
Commissions Expense 500
Cash 255,500
Purchase of 5,000 HHN Ltd. shares at $51.00
plus commission of $500.
31 No entry required.
(continued) P 16-8A
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Dec. 15 Cash 110,500
Commission Expense 1,500
Gain on Sale of Investment 19,273
Short-Term Investments 92,727
Sale of 4,000 shares of HHN Ltd. at $28.00
less commission $1,500 ($255,000 ×
4,000/11,000).
General Journal
POST.
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Dec. 1 Accounts Receivable 45,000
Sales Revenue 45,000
Sale of machinery to a Japanese company.
10 Supplies 132,500
Accounts Payable 132,500
Purchase of supplies for $125,000. U.S.
exchange rate is $1 U.S. = $1.06 Cdn.
22 Cash 45,000
Accounts Receivable 45,000
Collection of receivable from Dec. 1, 2017.
2018
Jan. 18 Accounts Payable 137,500
Cash 135,000
Foreign Currency Transaction Gain 2,500
Paid 125,000 $1.08 = $135,000
Owed $132,500 + $5,000 = $137,000,
Gain is $137,500 – 135,000
24 Cash 358,600
Foreign Currency Transaction Gain 8,800
Accounts Receivable 349,800
Received £220,000 $1.63 = 358,600
Owed $354,200 – $4,400 = $349,800
Gain is $358,600 - $349,800 = $8,800
(continued) P 16-9A
Global Networking Corporation
Partial Income Statement
For the Year Ended December 31, 2017
Other revenue and expense:
Foreign currency transaction loss $9,400
Req. 2
This problem demonstrates that the final amount of a cash receipt or cash
payment on an international transaction may differ from the agreed-upon
amount of the transaction. Students can thus learn the need to hedge their
receivable and payable positions denominated in foreign currencies. This
will help them minimize the negative impacts of foreign-currency
fluctuations. The alternative would be to always request payment in
Canadian funds.
Problems
Group B
(25-35 min.) P 16-1B
General Journal
POST
DATE ACCOUNT TITLES AND EXPLANATIONS REF. DEBIT CREDIT
2017
Feb. 12 Investment in Earl Mfg. Ltd. Common Shares 2,550,000
Commissions Expense 15,000
Cash 2,565,000
Purchased 30,000 common shares of Earl Mfg.
Ltd., a 25 percent investment.