chapter 16 accounting for debt and share...

Last revised January 2013

Quick Study Solutions to accompany Fundamental Accounting Principles, 14th Canadian Edition. © 2013 McGraw-Hill Ryerson Ltd. 1

Chapter 16 Accounting for Debt and Share Investments QUICK STUDY SOLUTIONS Quick Study 16-1 (10 minutes) 1. E Purchased 5,000 shares of Douglas Inc. shares to be held for about 30 days. 2. D Purchased at par a $100,000 5% 5-year bond; interest is payable quarterly and

the bond will be held until maturity. 3. E Purchased 50,000 of the 80,000 authorized shares of Dolby Inc. 4. N Purchased equipment costing $140,000 by issuing shares. 5. N Purchased land costing $289,000 by borrowing $200,000 from the bank and

issuing shares for the balance. 6. N Signed a contract with two other organizations regarding a project to develop

and market a new computer program; each investor has a 1/3 share in the project costs and revenues.

7. E Purchased 80,000 Inco shares to be held for several years; Inco has over 5 million shares issued and outstanding;

8. E Purchased 3,000 Perdu shares representing a 25% ownership interest. Explanations: (4) ABC Inc. is not an investor; it has become an investee in this case because an investor has accepted ABC Inc. shares in exchange for an asset. ABC Inc. has invested in equipment which is not an investment in debt or equity securities. (5) Same as (4). (6) ABC Inc. has entered into a contractual agreement as a form of investment; a joint arrangement which is a type of investment but not a debt or equity security investment. Quick Study 16-2 1. N Purchased 5,000 shares of Douglas Inc. shares to be held for about 30

days. 2. N Purchased at par a $100,000 5% 5-year bond; interest is payable

quarterly and the bond will be held until maturity. 3. B Purchased 50,000 of the 80,000 authorized shares of Dolby Inc. 4. NA Purchased equipment costing $140,000 by issuing shares. 5. NA Purchased land costing $289,000 by borrowing $200,000 from the bank

and issuing shares for the balance. 6. J Signed a contract with two other organizations regarding a project to

develop and market a new computer program; each investor has a 1/3 share in the project costs and revenues.

7. N Purchased 80,000 Inco shares to be held for several years; Inco has over 5 million shares issued and outstanding;

8. I Purchased 3,000 Perdu shares representing a 25% ownership interest.



Quick Study 16-3 (10 minutes)

2014 May 2 Short-term investment—Computer Web Corp.

Shares ........................................................................... 48,600

Cash .................................................................... 48,600 Purchased shares to be held as short-term

investment; $40.50 × 1,200 shares = $48,600.

Aug. 7 Cash .............................................................................. 600

Dividend Revenue .............................................. 600 Collected dividends; $0.50 × 1,200 shares.


2014

Dec. 31 Short-term investment – IMC Shares ......................... 7,000 Unrealized Holding Loss ............................................. 45,000 Short-term investment – Zelco Shares ............ 4,000 Short-term investment – Petra Shares ............. 48,000 To record the net unrealized holding loss

resulting from adjustment of investments to fair value.

Calculations:

Investments

Unadjusted Balance at Dec. 31/14

Fair Values At Dec. 31/14

Difference Zelco shares ............................ $102,000 $ 98,000 $ (4,000) IMC shares ............................... 540,000 547,000 7,000 Petra shares ............................ 96,000 48,000 (48,000) Unrealized Holding Gain (Loss)

$738,000 $693,000 $(45,000)




2014 Dec. 31 Short-term investment – CashCo Shares .................. 42,500

Short-term investment – Wells Shares ............ 2,500 Unrealized Holding Gain .................................... 40,000 To record the net unrealized holding gain

resulting from adjustment of short-term investments to fair value.

Calculations:

Short-term investments

Unadjusted Balance at Dec. 31/14

Fair Values At Dec. 31/14

Difference CashCo shares ........................ $340,000 $382,500 $42,500 Wells shares ............................ 34,000 31,500 (2,500) Unrealized holding gain(loss) $374,000 $414,000 $40,000

1. 21,250 shares × $18 = $382,500 2. 45,000 shares × $0.70 = $31,500


Current assets:

Short-term investments, at fair value .......................... $414,000 Quick Study 16-7 (10 minutes)

2014 Feb. 1 Short-term investment – Telus Bonds ....................... 4,900

Cash .................................................................... 4,900 Purchased bonds to be a short-term

investment; 5,000 × .98 = 4,900.

May 1 Cash .............................................................................. 50

Short-term investment – Telus Bonds ....................... 2 Interest Revenue ................................................ 52 Record receipt of interest; $5,000 × 4% × 3/12 = $50

and amortization of bond discount using the effective interest method; $4,900 x 4.25% x 3/12 = $52



Quick Study 16-8 (15 minutes) 2014 Jan. 1 Long-term investment – Telus Bond .......................... 42,030

Cash .................................................................... 42,030 Purchased a bond at a premium to be held as

a long-term investment.

June 30 Cash .............................................................................. 2,400 Long-term investment – Telus Bond ................ 298 Interest Revenue ................................................ 2,102 Recorded receipt of interest and amortization

of bond premium using the effective interest method.

2016

Dec. 31 Cash .............................................................................. 2,400 Long-term investment – Telus Bond ................ 382 Interest Revenue ................................................ 2,018 Recorded receipt of interest and amortization of bond

premium using the effective interest method.

Dec. 31 Cash .............................................................................. 40,000

Long-term investment – Telus Bond ................ 40,000 Record collection of cash resulting from

maturity of investment in bond.


2014

Jan. 1 Long-term investment – Imax Bond ........................... 46,490 Cash .................................................................... 46,490 Purchased a bond at a discount to be held as

a long-term investment.

June 30 Cash .............................................................................. 1,000 Long-term investment – Imax Bond ........................... 395 Interest Revenue ................................................ 1,395 Recorded receipt of interest and amortization

of bond discount using the effective interest method.



Quick Study 16-10 (5 minutes) Long-term investments:

Long-term investments, at amortized cost .................................... $ 47,292


2014

Jan. 2 Equity Investment – Suffolk Corp. .............................. 500,000 Cash .................................................................... 500,000 Purchased 10,000 common shares representing

significant influence or an investment in associate with a 25% interest in Suffolk.

Oct. 12 Cash .............................................................................. 25,000

Equity Investment – Suffolk Corp. .................... 25,000 Collected dividend; $100,000 × 25%.

Dec. 31 Equity Investment – Suffolk Corp. .............................. 100,000 Equity Investment Earnings – Suffolk Corp.. .. 100,000 To record equity share in earnings;

$400,000 × 25%.


2014 Jan. 2 Equity Investment – Dofasco Inc. ............................... 1,200,000

Cash .................................................................... 1,200,000 Purchased 704,000 common shares representing

significant influence or an investment in associate with a 22% interest in Dofasco.

Mar. 15 Cash .............................................................................. 140,800

Equity Investment – Dofasco Inc. ..................... 140,800 Collected dividend; $0.20 × 704,000 shares.

Dec. 31 Equity Investment Loss– Dofasco Inc.. ..................... 368,500 Equity Investment – Dofasco Inc. ..................... 368,500 To record equity share in loss;

$1,675,000 × 22%.

chapter 16 accounting for debt and share...

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