Chapter 12 Homework on Connect, Problem 1
Tanner-UNF Corporation
(Exercise 12-5 (Algo) )Trading Securities
7/1/2021 Investment in bonds 240,000,000
Discount on bond investment 40,000,000
Cash 200,000,000
12/31/2021 Cash 8,400,000
Discount on bond investment 600,000
Interest revenue 9,000,000
12/31/2021 Fair value adjustment 9,400,000
Gain on investment (unrealized, NI) 9,400,000
Jounral entry to adjust the investment to fair value:
1/2/2022 Loss on investment (unrealized, NI) 20,000,000
Fair value adjustment 20,000,000
Journal entry to record the sale of the investment by Tanner-UNF:
1/2/2022 Cash 190,000,000
Discount on bond investment 39,400,000
Fair value adjustment 10,600,000
Investment in bonds 240,000,000
ANSWER IS COMPLETE & CORRECT
Prepare any additional journal entry necessary for Tanner-UNF to report its investment in the
December 31, 2021, balance sheet.
Prepare the journal entry to record Tanner-UNF's investment in the bonds on July 1, 2021 and
interest on December 31, 2021, at the effective (market) rate.
Suppose Moody's bond rating agency downgraded the risk rating of the bonds motivating Tanner-
UNF to sell the investment on January 2, 2022, for $190,000,000. Prepare the journal entries
required on the date of sale.
Problem 1, continued
Investment face value 240,000,000
bond stated rate 7%
bond market rate 9%
*discount because stated rate is less than market rate
Investment cost 200,000,000
**interest received semiannually on June 30 and December 31
Fair value as of 12/31/2021 210,000,000
Therefore, amortized cost as of 12/31/2021 is… 200,600,000
9,400,000
20,000,000
10,600,000
10,600,000
-
Information
Fair Value Adjustment
Chapter 12 Homework, Problem 2
Mills Corporation
(Exercise 12-11 (Algo) AFS)
7/1/2021 Investment in bonds 240,000,000
Premium on bond investment 40,000,000
Cash 280,000,000
12/31/2021 Cash 8,400,000
Premium on bond investment 1,400,000
Interest revenue 7,000,000
At what amount will Mills report its investment in the December 31, 2021, balance sheet?
recorded at fair value, which is … 260,000,000
12/31/2021 Loss on investments (unrealized, OCI) 18,600,000
Fair value adjustment 18,600,000
Record the fair-value adjustment:
1/2/2022 Fair value adjustment 30,000,000
Gain on investments (unrealized, OCI) 30,000,000
Record any reclassification adjustment:
1/2/2022 Reclassification adjustment (OCI) 11,400,000
Fair value adjustment 11,400,000
Record the sale of the investment by Mills:
1/2/2022 Cash 290,000,000
Gain on investments (NI) 290,000,000
ANSWER IS COMPLETE & CORRECT
Prepare the journal entry to record Mills’ investment in the bonds on July 1, 2021 and interest on
December 31, 2021, at the effective (market) rate.
Suppose Moody's bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell
the investment on January 2, 2022, for $290 million. Prepare the journal entries required on the date
of sale.
Problem 2, continued
bond face value 240,000,000
bond stated rate 7%
bond market rate 5%
bond price 280,000,000
*interest received semiannually on June 30 and December 31
fair value as of 21/31/2021 260,000,000
amortized cost as of 12/31/2021 278,600,000
18,600,000
30,000,000
11,400,000
11,400,000
-
Information
Fair Value Adjustment
Chapter 12 Homework , Problem 3
Gupta Corporation
(Exercise 12-24 (Algo) Equity method, partial year)
1. Record the purchase of VB company shares for $140 million.
7/1/2021 Investment in equity affiliate 140,000,000
Cash 140,000,000
2. Record the Gupta Corporation share of VB company net income.
Investment in equity affiliate 15,000,000
Investment revenue 15,000,000
3. Record the cash dividend of 25% on shares held.
Cash 13,000,000
Investment in equity affiliate 13,000,000
*dividends received are apart of operating activities on the statement of cash flows.
4. Record the amortization of the differential.
Investment revenue 13,300,000
Investment in equity affiliate 13,300,000
Required 2: Determine the amounts to be reported by Gupta.
a. Investment in Gupta's 12/31/2021, balance sheet 128,700,000
b. Investment revenue (loss) in Gupta's 2021 income statement 1,700,000
c. Investing activities in Gupta's 2021 statement of cash flows (140,000,000)
ANSWER IS COMPLETE & CORRECT
Required 1: Prepare all appropriate journal entries related to the investment during 2021, assuming
Gupta accounts for this investment by the equity method.
Problem 3, continued
Purcahse price of VB Company stock 140,000,000
% ownership 25%
Total value of VB Company 560,000,000
FV of VB net assets 480,000,000
Book value of net assets 280,000,000
Goodwill thus is 80,000,000
Undervaluation of net assets (difference) 200,000,000
Gupta portion of undervalued net assets 50,000,000
Inventory sold in last half of 2021 11,000,000
Building undervalued (difference) over 10-year useful life 1,600,000
Equipment undervalued (difference) over 5-year useful life 700,000
Amount to be amortized in 2021 journal entry 13,300,000
NI for VB between July 1 & Dec. 31, 2021 60,000,000
Cash dividend paid by VB 52,000,000
Information
Chapter 12 Homework, Problem 5
Jamaican Importers, Inc.
Exercise 12-17 (Algo) Equity investments; fair value through net income
Accounting records as of 1/1/2021
Assets:
Investments in IBM common shares 1,595,000
Less: Fair value adjustment (170,000)
1,425,000
Record the fair value adjustment assuming the fair value of the IBM common shares was $1,235,000.
12/31/2021 Loss on investments (unrealized, NI) 190,000
Fair value adjustments 190,000
170,000
190,000
360,000
ANSWER IS COMPLETE & CORRECT
Fair value adjustment
