ch17_sol

Instructions for the Microsoft Excel Templates by Rex A Schildhouse

Extensive detail and information is contained within the help function of Microsoft Excel and in the provided text.

And information or data which may be required by the solution will be entered in cells with borders to help identify them.

Be advised, the template workbooks and worksheets are not protected.Overtyping any data may remove it.

You should enter your name, date, instructor's name, and course into the cells at the top of the page. This information will be printed on the top of each page if the template requires more than one page.

Each template is set to print with File Name, Page # of # Page(s), the print date, and the print time to assist in assembly of multiple pages.

If more than one page is required by the template, manual page breaks have been set to provide consistent presentation.

All of the cells have been correctly formatted for presentation and should not require any adjustment. For example, if the text requires one, two, or three significant digits in a presentation, the template has been set for that presentation in the appropriate cells.

In general, the yellow highlighted cells are the cells which work and effort should be presented. These entries may include date(s), account title(s), values, memorandum appropriate to the entry, or text answers to questions.

Where a yellow highlighted cell shows "Date" enter the appropriate date for that step of the challenge. This may be any date format that Microsoft Excel accepts. Some of these formats include "1/1/12", "01/01/12", and "01/01/2012." All of these will return January 01, 2012, in the format set in the template.

Where a yellow highlighted cell shows "Acct Nbr" enter the appropriate account number, provided in the template and in the text for that step of the challenge. This is entry may be a "Look to" formula to another cell where that information has been provided or previously entered.

Where a yellow highlighted cell shows "Account Title" enter the appropriate account title for that step of the challenge. This is a text entry and most of those cells are set for the proper indentation for that step. Frequently the chart of accounts appropriate to the challenge is provided and you can use the "look to" formula to reference the appropriate account title without typing it.

Check with your instructor to see if abbreviated account titles are acceptable. For example "A/R" for Accounts Receivable, "A/P" for Accounts Payable. If your instructor is using a comparison process between workbooks for grading, these abbreviates may not be acceptable.

Where a yellow highlighted cell shows titles such as "Values," "Amounts," or "Quantities" enter the appropriate numerical value for that step of the challenge. The cell is formatted for proper presentation of the entered information. If a dollar sign is appropriate, it should not be entered, Microsoft Excel will place it there through formatting. Commas and significant digits (decimals) are also set through formatting for common presentation. Since the formatting of the templates is not protected by any password, you may change any of the formatting found in the templates to meet your desires.

Where a yellow highlighted cell shows titles such as "Formula" you may enter the appropriate formula or enter a numerical value appropriate for that step of the challenge. Most of the values necessary for the appropriate formula are located on the template in cells with borders or in other yellow highlighted cells. The formula may be a simple "Look to" formula, an equal sign and a cell reference, "=E27" or more complex as "=E27*5," or something similar to the time-value-of-money formula. These are addressed in the tutorial text provided for Microsoft Excel.

Where a yellow highlighted cell shows "Text" enter the appropriate text for that step of the challenge. This may be a memorandum entry for a journal entry or a lengthy text answer discussing the results of an analysis of a company's financials. These titles can simply be typed over.

Where a yellow highlighted cell shows titles such as "Journal Number" or "Journ #" you should enter the appropriate number provided in the template and in the text for that step of the challenge. In general this will appear in instances such as "Record the following events in General Journal number six."

The print area is defined to fit onto 8 1/2" × 11" sheets in portrait or landscape mode as required. Margins are generally set to no less than 1/2" so most printers can print them without a problem. If you printer cannot accept margins less than 1" you may have to reformat the margins through Page Setup.

The display may have "Freeze Pane" invoked so column titles remain visible during data entry. This can be removed by utilizing the View menu and selecting "Unfreeze Panes" under "Freeze Panes."

When negative values are required, enter them by starting with a minus sign, "-". Negative values may be shown as ($400) or -$400. Negative values in formulas can be created by putting a minus sign in front of the cell reference - "=E10*-E11" will return a negative value if both cells E10 and E11 contain positive values.

Microsoft Office and Microsoft Excel are products of, and copyrighted by,Microsoft Corporation, One Microsoft Way, Redmond, Washington 98052-6399

document.xlsx, Exercise 17-2 Solution, of 26, 04/17/2023, 22:19:06

Name: Solution Date:

Instructor: Course:

at par 10% bonds having a maturity value of $300,000 . They are

Instructions:

Jan 1, 12 Debt Investments (Held-to-Maturity) 300,000 Cash 300,000

Dec 31, 12 Cash 30,000 Interest Revenue ($300,000 × 10.00%) 30,000

Dec 31, 13 Cash 30,000 Interest Revenue ($300,000 × 10.00%) 30,000

Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield

Primer on Using Excel in Accounting by Rex A Schildhouse

E17-2 (Entries for Held-to-Maturity Securities) On January 1, 2012, Jennings Company purchased

dated January 1, 2012, and mature January 1, 2017, with interest receivable December 31 of each year. The bonds are classified in the held-to-maturity category.

(a) Prepare the journal entry at the date of the bond purchase.

(b) Prepare the journal entry to record the interest received for 2012.

(c) Prepare the journal entry to record the interest received for 2013.

document.xlsx, Exercise 17-2, of 26, 04/17/2023, 22:19:06

Name: Date:

Instructor: Course:

at par 10% bonds having a maturity value of $300,000 . They are

Instructions:

Jan 1, 12 Account Title AmountAccount Title Amount

Dec 31, 12 Account title AmountAccount title Amount

Dec 31, 13 Account Title AmountAccount Title Amount



E17-2 (Entries for Held-to-Maturity Securities) On January 1, 2012, Jennings Company purchased

dated January 1, 2012, and mature January 1, 2017, with interest receivable December 31 of each year. The bonds are classified in the held-to-maturity category.

(a) Prepare the journal entry at the date of the bond purchase.

(b) Prepare the journal entry to record the interest received for 2012.

(c) Prepare the journal entry to record the interest received for 2013.



Instructor: Course:

Company acquires $300,000 of Nicklaus, Inc., 9% bonds at a price of $278,384 . The interest is payable each December 31, and the bonds mature December 31, 2014. The investment will provide Morgan Company a 12% yield. Thebonds are classified as held-to-maturity.

Instructions:

Schedule of Interest Revenue and Bond Discount Amortization Straight-line Method9% Bond Purchased to Yield 12%

DateJan 1, 12 — — — 278,384.00

Dec 31, 12 27,000.00 34,205.33 7,205.33 285,589.33 Dec 31, 13 27,000.00 34,205.33 7,205.33 292,794.67 Dec 31, 14 27,000.00 34,205.33 7,205.33 300,000.00

Schedule of Interest Revenue and Bond Discount Amortization Effective Interest Method9% Bond Purchased to Yield 12%

DateJan 1, 12 — — — 278,384.00

Dec 31, 12 27,000.00 33,406.08 6,406.08 284,790.08 Dec 31, 13 27,000.00 34,174.81 7,174.81 291,964.89 Dec 31, 14 27,000.00 35,035.79 8,035.79 300,000.68

Dec 31, 13 Cash 27,000.00 Held-to-Maturity Securities 7,205.33

Interest Revenue 34,205.33

Dec 31, 13 Cash 27,000.00 Held-to-Maturity Securities 7,174.81

Interest Revenue 34,174.81



E17-5 (Effective-Interest versus Straight-Line Bond Amortization) On January 1, 2012, Morgan .

Note: Due to significant digits and rounding, there may be slight differences in values.

(a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-line method.

CashReceived

InterestRevenue

BondDiscount

Amortization

CarryingAmount

of Bonds

(b) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective-interest method.

CashReceived

InterestRevenue

BondDiscount

Amortization

CarryingAmount

of Bonds

(c) Prepare the journal entry for the interest receipt of December 31, 2013, and the discount amortization under the straight-line method.

(d) Prepare the journal entry for the interest receipt of December 31, 2013, and the discount amortization under the effective-interest method.


Name: Date:

Instructor: Course:

Company acquires $300,000 of Nicklaus, Inc., 9% bonds at a price of $278,384 . The interest is payable each December 31, and the bonds mature December 31, 2014. The investment will provide Morgan Company a 12% yield. Thebonds are classified as held-to-maturity.

Instructions:

Schedule of Interest Revenue and Bond Discount Amortization Straight-line Method9% Bond Purchased to Yield 12%

DateJan 1, 12 — — — Amount

Dec 31, 12 Formula Formula Formula FormulaDec 31, 13 Formula Formula Formula FormulaDec 31, 14 Formula Formula Formula Formula

Schedule of Interest Revenue and Bond Discount Amortization Effective Interest Method9% Bond Purchased to Yield 12%

DateJan 1, 12 — — — Amount

Dec 31, 12 Formula Formula Formula FormulaDec 31, 13 Formula Formula Formula FormulaDec 31, 14 Formula Formula Formula Formula


Account Title Amount





E17-5 (Effective-Interest versus Straight-Line Bond Amortization) On January 1, 2012, Morgan .

Note: Due to significant digits and rounding, there may be slight differences in values.

(a) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the straight-line method.

CashReceived

InterestRevenue

BondDiscount

Amortization

CarryingAmount

of Bonds

(b) Prepare a 3-year schedule of interest revenue and bond discount amortization, applying the effective-interest method.

CashReceived

InterestRevenue

BondDiscount

Amortization

CarryingAmount

of Bonds

(c) Prepare the journal entry for the interest receipt of December 31, 2013, and the discount amortization under the straight-line method.

(d) Prepare the journal entry for the interest receipt of December 31, 2013, and the discount amortization under the effective-interest method.



Instructor: Course:

4 -year, $100,000 note at 6.00% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note.As a result, on January 2, 2012, MacCloud Co. enters into an interest rate swap where it agrees to receive 6.00% fixed and pay LIBOR of 5.70% for the first 6 months on

$100,000 At each 6-month period, the variable rate will be reset. The variable rate is reset to6.70% on June 30, 2012.

Instructions:

(a) 06/30/12 (b) 12/31/12Fixed-rate debt $100,000 $100,000 Fixed rate (6.00% ÷ 2) 3.00% 3.00%Semiannual debt payment 3,000 3,000 Swap fixed receipt 3,000 3,000 Net income effect 0 0 Swap variable rate

5.70% × 1/2 × $100,000 2,850 6.70% × 1/2 × $100,000 0 3,350

Net interest expense $2,850 $3,350



E17-23 (Fair Value Hedge) On January 2, 2012, MacCloud Co. issued a

(a) Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2012.

(b) Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2012.

Note to instructor: An interest rate swap in which a company changes its interest payments from fixed to variable is a fair value hedge because the changes in fair value of both the derivative and the hedged liability offset one another.


Name: Date:

Instructor: Course:

4 -year, $100,000 note at 6.00% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note.As a result, on January 2, 2012, MacCloud Co. enters into an interest rate swap where it agrees to receive 6.00% fixed and pay LIBOR of 5.70% for the first 6 months on

$100,000 At each 6-month period, the variable rate will be reset. The variable rate is reset to6.70% on June 30, 2012.

Instructions:

(a) 06/30/12 (b) 12/31/12Text title Amount AmountText title Percentage PercentageText title Formula FormulaText title Amount AmountText title Formula FormulaText title

Text title FormulaText title Formula Formula

Text title Formula Formula



E17-23 (Fair Value Hedge) On January 2, 2012, MacCloud Co. issued a

(a) Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2012.

(b) Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2012.



Instructor: Course:

4 -year, 7.50%fixed-rate interest only, non-prepayable $1,000,000 note payable on December 31, 2012. It

7.50% and pay variable with settlement dates that match the interest payments on the debt. Assume that interest rates have declined during 2013 and that Sarazan received $13,000 as an adjustment to interest expense for the settlement at December 31, 2013. The loss related to the .debt (due to interest rate changes) was $48,000 . The value of the swap contract increased

$48,000

Instructions:

Interest Expense 75,000 Cash ($1,000,000 × 7.50%) 75,000

Cash 13,000 Interest Expense 13,000

Swap Contract 48,000 Unrealized Holding Gain or Loss—Income 48,000

Unrealized Holding Gain or Loss—Income 48,000 Note Payable 48,000



E17-25 (Fair Value Hedge) Sarazan Company issues a

decides to change the interest rate from a fixed rate to variable rate and enters into a swap agreement with M&S Corp. The swap agreement specifies that Sarazan will receive a fixed rate at

(a) Prepare the journal entry to record the payment of interest expense on December 31, 2013.

(b) Prepare the journal entry to record the receipt of the swap settlement on December 31, 2013.

(c) Prepare the journal entry to record the change in the fair value of the swap contract on December 31, 2013.

(d) Prepare the journal entry to record the change in the fair value of the debt on December 31, 2013.


Name: Date:

Instructor: Course:

4 -year, 7.50%fixed-rate interest only, non-prepayable $1,000,000 note payable on December 31, 2012. It

7.50% and pay variable with settlement dates that match the interest payments on the debt. Assume that interest rates have declined during 2013 and that Sarazan received $13,000 as an adjustment to interest expense for the settlement at December 31, 2013. The loss related to the .debt (due to interest rate changes) was $48,000 . The value of the swap contract increased

$48,000

Instructions:

Account title AmountAccount title Amount






E17-25 (Fair Value Hedge) Sarazan Company issues a

decides to change the interest rate from a fixed rate to variable rate and enters into a swap agreement with M&S Corp. The swap agreement specifies that Sarazan will receive a fixed rate at

(a) Prepare the journal entry to record the payment of interest expense on December 31, 2013.

(b) Prepare the journal entry to record the receipt of the swap settlement on December 31, 2013.

(c) Prepare the journal entry to record the change in the fair value of the swap contract on December 31, 2013.

(d) Prepare the journal entry to record the change in the fair value of the debt on December 31, 2013.

document.xlsx, Problem 17-5 Solution, of 26, 04/17/2023, 22:19:06

Name: Date:

Instructor: Course:

3,000 shares of Anderson Co. common stock which cost $58,500 10,000 shares of Munter Ltd. common stock which cost $580,000 6,000 shares of King Company preferred stock which cost $255,000

The Securities Fair Value Adjustment account shows a credit of $10,100 at the endof 2012.In 2013, Parnevik completed the following securities transactions.1. On January 15, sold 3,000 shares of Anderson’s common stock at $22 per share less fees of $2,150 2. On April 17, purchased 1,000 shares of Castle’s common stock at $33.50 per share plus fees of $1,980 On December 31, 2013, the market values per share of these securities were:

Munter Ltd. $61.00 King Co. $40.00 Castle Co. $29.00

Instructions:

Gross selling price of 3,000 shares at $22.00 $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 stock $5,350

Jan 15, 13 Cash 63,850 Equity Investments (Available-for-Sale) 58,500 Gain on Sale of Stock 5,350

Total purchase price is:Number of shares 1,000 Cost per share $33.50 Cost for shares 33,500.00 Plus fees paid 1,980 Total cost of shares $35,480

Apr 17, 13 Equity Investments (Available-for-Sale) 35,480 Cash 35,480



P17-5 (Equity Securities Entries and Disclosures) Parnevik Company has the following securities in its investment portfolio on December 31, 2012 (all securities were purchased in 2012):

In addition, the accounting supervisor of Parnevik told you that, even though all these securities have readily determinable fair values, Parnevik will not actively trade these securities because the top management intends to hold them for more than one year.

(a) Prepare the entry for the security sale on January 15, 2013.

(b) Prepare the journal entry to record the security purchase on April 17, 2013.


Name: Date:

Instructor: Course:

Available-for-Sale Portfolio—December 31, 2013

Securities CostMunter Ltd. $580,000 $610,000 $30,000 King Co. 255,000 240,000 (15,000)Castle Co. 35,480 29,000 (6,480)Total of portfolio $870,480 $879,000 8,520 Previous securities fair value adjustment balance—Cr. (10,100)Securities fair value adjustment—Dr. $18,620

Dec 31, 13 Fair Value Adjustment (Available-for-Sale) 18,620 Unrealized Holding Gain or Loss—Equity 18,620

(c) Compute the unrealized gains or losses and prepare the adjusting entry for Parnevik on December 31, 2013.

FairValue

UnrealizedGain

(Loss)

(d) How should the unrealized gains or losses be reported on Parnevik’s balance sheet?

The unrealized holding gains or losses should be reported on the balance sheet under the title “accumulated other comprehensive income” as a separate component of stockholders’ equity.

document.xlsx, Problem 17-5, of 26, 04/17/2023, 22:19:06

Name: Date:

Instructor: Course:

3,000 shares of Anderson Co. common stock which cost $58,500 10,000 shares of Munter Ltd. common stock which cost $580,000 6,000 shares of King Company preferred stock which cost $255,000

The Securities Fair Value Adjustment account shows a credit of $10,100 at the endof 2012.In 2013, Parnevik completed the following securities transactions.1. On January 15, sold 3,000 shares of Anderson’s common stock at $22 per share less fees of $2,150 2. On April 17, purchased 1,000 shares of Castle’s common stock at $33.50 per share plus fees of $1,980 On December 31, 2013, the market values per share of these securities were:

Munter Ltd. $61.00 King Co. $40.00 Castle Co. $29.00

Instructions:

Text Title AmountText Title AmountText Title FormulaText Title AmountText Title Formula

Jan 15, 13 Account Title AmountAccount Title AmountAccount Title Amount

Total purchase price is:Text title QuantityText title AmountText title FormulaText title AmountText title Formula

Apr 17, 13 Account Title AmountAccount Title Amount



P17-5 (Equity Securities Entries and Disclosures) Parnevik Company has the following securities in its investment portfolio on December 31, 2012 (all securities were purchased in 2012):

In addition, the accounting supervisor of Parnevik told you that, even though all these securities have readily determinable fair values, Parnevik will not actively trade these securities because the top management intends to hold them for more than one year.

(a) Prepare the entry for the security sale on January 15, 2013.

(b) Prepare the journal entry to record the security purchase on April 17, 2013.


Name: Date:

Instructor: Course:

Available-for-Sale Portfolio—December 31, 2013

Securities CostMunter Ltd. Amount Amount FormulaKing Co. Amount Amount FormulaCastle Co. Amount Amount FormulaTotal of portfolio Formula Formula FormulaPrevious securities fair value adjustment balance—Cr. AmountSecurities fair value adjustment—Dr. Formula


Enter text answer as appropriate.

(c) Compute the unrealized gains or losses and prepare the adjusting entry for Parnevik on December 31, 2013.

FairValue

UnrealizedGain

(Loss)

(d) How should the unrealized gains or losses be reported on Parnevik’s balance sheet?


Name: Date:

Instructor: Course:

1,000 shares of Evers Company at $15.00 per share $15,000 900 shares of Rogers Company at $20.00 per share $18,000 500 shares of Chance Company at $9.00 per share $4,500

Available-for-sale securities at cost: $37,500 ($7,500)

Available-for-sale securities at fair value: $30,000

During 2012, the following transactions took place:1. On March 1, Rogers Company paid a $2.00 per share dividend.2. On April 30, Castleman Holdings, Inc. sold 300 shares of Chance Companyfor $11.00 per share3. On May 15, Castleman Holding, Inc. purchased 100 more shares of Evers Co. stock at $16.00 per share4. At December 31, 2012, the stocks had the following price per share values:

Evers Company $17.00 Rogers Company $19.00 Chance Company $8.00

During 2013, the following transactions took place:5. On February 1, Castleman Holding, Inc. sold the remaining Chance shares for $8.00 per share.6. On March 1, Rogers Company paid a $2.00 per share dividend.7. On December 21, Evers Company declared a cash dividend of $3.00 per share to be paid in the next month.8. At December 31, 2013, the stocks had the following price per share values:

Evers Company $19.00 Rogers Company $21.00

Instructions:

1 Mar 1, 12 Cash 1,800 Dividend Revenue ($2.00 × 900 shares) 1,800

2 Apr 30, 12 Cash 3,300 Gain on Sale of Inv [($11-$9)×300 sh] 600 Equity Investments (Available-for-Sale) 2,700

3 May 15, 12 Equity Investments (Available-for-Sale) 1,600 Cash ($16.00 × 100 shares) 1,600

4 Dec 31, 128,500

Unrealized Holding Gain or Loss-Equity 8,500



P17-11 (Equity Investments—Available-for-Sale) Castleman Holdings, Inc. had the following available-for-sale investment portfolio at January 1, 2012.

Securities fair value adjustment-Available-for-sale - Credit balance

(a) Prepare journal entries for each of the above transactions.

Fair Value Adjustment (Available-for-Sale)


Name: Date:

Instructor: Course:Security Cost

Evers Company ($15,000 + $1,600) 16,600 [(1,000 sh + 100 sh) × $17.00 per sh] 18,700 2,100

Rogers Company ($18,000) 18,000 (900 sh × $19.00 per sh] 17,100 (900)

Chance Company ($4,500 - $2,700) 1,800 [(500 sh - 300 sh) × $8.00 per sh] 1,600 (200)

Total of Portfolio 36,400 37,400 1,000 Previous securities fair value adjustment bal.—Cr. (7,500)Securities fair value adjustment—Dr. 8,500

5 Feb 1, 13 Cash ($8.00 × 200 shares) 1,600 Loss on Sale of Inv [($8-$9)×200 sh] 200

Equity Investments (Available-for-Sale) 1,800

6 Mar 1, 13 Cash ($2.00 × 900 shares) 1,800 Dividend Revenue 1,800

7 Dec 21, 13 Dividends Receivable ($3.00 × 1,100 sh) 3,300 Dividend Revenue 3,300

8 Dec 31, 134,200

Unrealized Holding Gain or Loss-Equity 4,200

Security Cost

Evers Company ($15,000 + $1,600) 16,600 [(1,000 sh + 100 sh) × $19.00 per sh] 20,900 4,300

Rogers Company ($18,000) 18,000 (900 sh × $21.00 per sh] 18,900 900

Total of Portfolio 34,600 39,800 5,200 Previous securities fair value adjustment bal.—Cr. 1,000 Securities fair value adjustment—Dr. 4,200

Partial Balance Sheet as of: December 31, 2012 December 31, 2013Current Assets - Dividends Receivable $0 $3,300 Investments:Available-for-sale securities, at fair value $37,400 $39,800 Stockholders' equity:Accumulated other comprehensive gain $1,000 $5,200

FairValue

UnrealizedGain (Loss)

Fair Value Adjustment (Available-for-Sale)

FairValue


(b) Prepare a partial balance sheet showing the Investments account at December 31, 2012, and 2013.


Name: Date:

Instructor: Course:

1,000 shares of Evers Company at $15.00 per share $15,000 900 shares of Rogers Company at $20.00 per share $18,000 500 shares of Chance Company at $9.00 per share $4,500

Available-for-sale securities at cost: $37,500 ($7,500)

Available-for-sale securities at fair value: $30,000

During 2012, the following transactions took place:1. On March 1, Rogers Company paid a $2.00 per share dividend.2. On April 30, Castleman Holdings, Inc. sold 300 shares of Chance Companyfor $11.00 per share3. On May 15, Castleman Holding, Inc. purchased 100 more shares of Evers Co. stock at $16.00 per share4. At December 31, 2012, the stocks had the following price per share values:

Evers Company $17.00 Rogers Company $19.00 Chance Company $8.00

During 2013, the following transactions took place:5. On February 1, Castleman Holding, Inc. sold the remaining Chance shares for $8 per share.6. On March 1, Rogers Company paid a $2 per share dividend.7. On December 21, Evers Company declared a cash dividend of $3 per share to be paid in the next month.8. At December 31, 2013, the stocks had the following price per share values:

Evers Company $19 Rogers Company $21.00

Instructions:

1 Mar 1, 12 Account Title AmountDividend Revenue Amount

2 Apr 30, 12 Account Title AmountAccount Title AmountAccount Title Amount

3 May 15, 12 Account Title AmountAccount Title Amount

4 Dec 31, 12 Account TitleAmount




P17-11 (Equity Investments—Available-for-Sale) Castleman Holdings, Inc. had the following available-for-sale investment portfolio at January 1, 2012.

Securities fair value adjustment-Available-for-sale - Credit balance

(a) Prepare journal entries for each of the above transactions.


Name: Date:

Instructor: Course:Security Cost

Evers Company FormulaCalculation as desired Formula Formula

Rogers Company FormulaCalculation as desired Formula Formula

Chance Company FormulaCalculation as desired Formula Formula

Total of Portfolio Formula Formula FormulaPrevious securities fair value adjustment bal.—Cr. AmountSecurities fair value adjustment—Dr. Formula

5 Feb 1, 13 Account Title AmountAccount Title Amount


6 Mar 1, 13 Account Title AmountAccount Title Amount

7 Dec 21, 13 Account Title AmountAccount Title Amount

8 Dec 31, 13 Account TitleAmount


Security Cost

Evers Company FormulaCalculation as desired Formula Formula

Rogers Company FormulaCalculation as desired Formula Formula

Total of Portfolio Formula Formula FormulaPrevious securities fair value adjustment bal.—Cr. AmountSecurities fair value adjustment—Dr. Formula

Partial Balance Sheet as of: December 31, 2012 December 31, 2013Current Assets - Dividends Receivable Amount AmountInvestments:Available-for-sale securities, at fair value Amount AmountStockholders' equity:Accumulated other comprehensive gain Amount Amount

FairValue


FairValue


(b) Prepare a partial balance sheet showing the Investments account at December 31, 2012, and 2013.



Instructor: Course:

Miller Co. purchased a call option on Wade common shares on July 7, 2012, for $240.00 The call option is for 200 shares (notional value), and the strike price is

$70.00 . (The market price of a share of Wade stock on that date is$70.00 ) The option expires on January 31, 2013. The following data are available with

respect to the call optionDate Market Price of Wade Shares Time Value of Call Option

September 30, 2012 $77.00 per share $180.00 December 31, 2012 $75.00 per share $65.00

January 4, 2013 $76.00 per share $30.00

Jul 7, 12 Call Option 240 Cash 240

Sep 30, 12 Call Option [($77.00 - $70.00) × 200 shares] 1,400 Unrealized Holding Gain or Loss - Income 1,400

Sep 30, 12 Unrealized Holding Gain or Loss - Income 60 Call Option ($240.00 - $180.00) 60

Dec 31, 12 Unrealized Holding Gain or Loss - Income 400 Call Option [($77.00 - $75.00) × 200 shares] 400

Dec 31, 12 Unrealized Holding Gain or Loss - Income 115 Call Option ($180.00 - $65.00) 115



P 17-13 (Derivative Financial Instrument) The treasurer of Miller Co. has read on the Internet that the stock price of Wade Inc. is about to take off. In order to profit from this potential development,

(a) Prepare the journal entry for Miller Co. for July 7, 2012—Investment in call option on Wade shares.

(b) Prepare the journal entry for Miller Co. for September 30, 2012—Miller prepares financial statements.

(c) Prepare the journal entry for Miller Co. for December 31, 2012—Miller prepares financial statements.



Instructor: Course:

Jan 4, 13 Call Option [($76.00 - $75.00) × 200 shares] 200 Unrealized Holding Gain or Loss - Income 200

Jan 4, 13 Unrealized Holding Gain or Loss - Income 35 Call Option ($65.00 - $30.00) 35

Jan 4, 13 Cash ($6.00 × 200 shares) 1,200 Loss on Settlement of Call Option 30

Call Option 1,230

Call Option240

1,400 60 200 400

115 35

1,230

(d) Prepare the journal entry for Miller Co. for January 4, 2013—Miller settles the call option on the Wade shares.


Name: Date:

Instructor: Course:

Miller Co. purchased a call option on Wade common shares on July 7, 2012, for $240.00 The call option is for 200 shares (notional value), and the strike price is

$70.00 . (The market price of a share of Wade stock on that date is$70.00 ) The option expires on January 31, 2013. The following data are available with

respect to the call optionDate Market Price of Wade Shares Time Value of Call Option

September 30, 2012 $77.00 per share $180.00 December 31, 2012 $75.00 per share $65.00

January 4, 2013 $76.00 per share $30.00

Instructions:

Jul 7, 12 Account title AmountAccount title Amount

Sep 30, 12 Account title AmountAccount title Amount

Sep 30, 12 Account title AmountAccount title Amount





P 17-13 (Derivative Financial Instrument) The treasurer of Miller Co. has read on the Internet that the stock price of Wade Inc. is about to take off. In order to profit from this potential development,

(a) Prepare the journal entry for Miller Co. for July 7, 2012—Investment in call option on Wade shares.

(b) Prepare the journal entry for Miller Co. for September 30, 2012—Miller prepares financial statements.

(c) Prepare the journal entry for Miller Co. for December 31, 2012—Miller prepares financial statements.


Name: Date:

Instructor: Course:

Jan 4, 13 Account title AmountAccount title Amount



Account title Amount

Call Option

Formula

(d) Prepare the journal entry for Miller Co. for January 4, 2013—Miller settles the call option on the Wade shares.


Name: Date:

Instructor: Course:

$10,000,000 8.00% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2-year swap with Chicago First Bank to convert the fixed-rate debt to variable-rate debt. The terms of the swap indicate that Mercantile will receive interest at a fixed rate of 8.00% and will pay a variable rate equal to the 6-month LIBOR rate, based on the $10,000,000 amount. The LIBOR rate on December 31, 2012, is 7.00% . The LIBOR rate will be reset every 6 months and will be used to determine the variable rate to be paid for the following 6-month period.

Date 6-Month LIBOR Rate Swap Fair Value Debt Fair ValueDecember 31, 2012 7.00% - $10,000,000

June 30, 2013 7.50% ($200,000) $9,800,000 December 31, 2013 5.00% $60,000 $10,060,000

Instructions:

No entry necessary at the date of the swap because the fair value of the swap at inception is zero.

Jun 30, 13 Interest Expense 400,000 Cash [$10,000,000 × 8.00% × (1/2)] 400,000

at 8.00% less amount payable at LIBOR, 7.00%

Jun 30, 13 Cash 50,000 Interest Expense 50,000

Swap receivable [$10,000,000 × 8.00% × (1/2)] $400,000 Payable at LIBOR [$10,000,000 × 7.00% × (1/2)] $350,000 Cash settlement $50,000

Jun 30, 13 Notes Payable 200,000 Unrealized Holding Gain or Loss - Income 200,000

Jun 30, 11 Unrealized Holding Gain or Loss - Income 200,000 Swap Contract 200,000

Balance SheetLiabilities

Notes Payable $10,000,000



P 17-16 (Fair Value Hedge Interest Rate Swap) On December 31, 2012, Mercantile Corp. had a

Mercantile Corp. designates the swap as a fair value hedge. Assume that the hedging relationshipmeets all the conditions necessary for hedge accounting. The 6-month LIBOR rate and the swap and debtfair values are as follows.

(a)(1) Present the journal entries to record the entry, if any, swap on December 31, 2012.

(a)(2) Present the journal entries to record the semiannual debt interest payment on June 30, 2013.

(a)(3) Present the journal entries to record the settlement of the semiannual swap amount receivables

Interest Received (Paid)

(a)(4) Present the journal entries to record the change in the fair value of the debt on June 30, 2013.

(a)(5) Present the journal entries to record the change in the fair value of the swap at June 30, 2013.

(b) Indicate the amount(s) reported on the balance sheet and income statement related to the debt and swap on December 31, 2012.


Name: Date:

Instructor: Course:Income Statement No effect

Balance SheetLiabilitiesNotes Payable $9,800,000 Swap Contract $200,000

Income StatementInterest Expense ($400,000 - $50,000) $350,000

Unrealized Holding Gain-Notes Payable $200,000 Unrealized Holding Loss-Swap ($200,000)Total $0

Balance SheetAssets

Swap Contract $60,000 Liabilities

Notes Payable $10,060,000 Income Statement

Interest ExpenseFirst six months $350,000 See (c), above.Second six months $375,000 See below.

Unrealized Holding Gain-Swap $60,000 Unrealized Holding Loss-Notes Payable ($60,000)Total $0

Swap Receivable [8.00% × $10,000,000 × (1/2)] $400,000 Payable at LIBOR (7.50% × $10,000,000 × (1/2)] 375,000 Cash settlement $25,000

Interest expense unadjustedJune 30–December 31, 2013 $400,000 Cash settlement (25,000)

$375,000

(c) Indicate the amount(s) reported on the balance sheet and income statement related to the debt and swap on June 30, 2013.

(d) Indicate the amount(s) reported on the balance sheet and income statement related to the debt and swap on December 31, 2013.


Name: Date:

Instructor: Course:

$10,000,000 8.00% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2-year swap with Chicago First Bank to convert the fixed-rate debt to variable-rate debt. The terms of the swap indicate that Mercantile will receive interest at a fixed rate of 8.00% and will pay a variable rate equal to the 6-month LIBOR rate, based on the $10,000,000 amount. The LIBOR rate on December 31, 2012, is 7.00% . The LIBOR rate will be reset every 6 months and will be used to determine the variable rate to be paid for the following 6-month period.

Date 6-Month LIBOR Rate Swap Fair Value Debt Fair ValueDecember 31, 2012 7.00% - $10,000,000

June 30, 2013 7.50% ($200,000) $9,800,000 December 31, 2013 5.00% $60,000 $10,060,000

Instructions:

Enter text answer as appropriate.

Jun 30, 13 Account title AmountAccount title Amount

at 8.00% less amount payable at LIBOR, 7.00%


Text title AmountText title AmountText title Amount



Balance SheetLiabilities

Account title Amount



P 17-16 (Fair Value Hedge Interest Rate Swap) On December 31, 2012, Mercantile Corp. had a

Mercantile Corp. designates the swap as a fair value hedge. Assume that the hedging relationshipmeets all the conditions necessary for hedge accounting. The 6-month LIBOR rate and the swap and debtfair values are as follows.

(a)(1) Present the journal entries to record the entry, if any, swap on December 31, 2012.

(a)(2) Present the journal entries to record the semiannual debt interest payment on June 30, 2013.

(a)(3) Present the journal entries to record the settlement of the semiannual swap amount receivables

Interest Received (Paid)

(a)(4) Present the journal entries to record the change in the fair value of the debt on June 30, 2013.

(a)(5) Present the journal entries to record the change in the fair value of the swap at June 30, 2013.

(b) Indicate the amount(s) reported on the balance sheet and income statement related to the debt and swap on December 31, 2012.


Name: Date:

Instructor: Course:Income Statement Amount

Balance SheetLiabilitiesAccount title AmountAccount title Amount

Income StatementAccount title Amount

Account title AmountAccount title AmountTotal Formula

Balance SheetAssets

Account title AmountLiabilities

Account title AmountIncome Statement

Account titleFirst six months Amount See (c), above.Second six months Amount See below.

Account title AmountAccount title AmountTotal Formula

Text title AmountText title AmountCash settlement Formula

Interest expense unadjustedText title AmountText title Amount

Formula

(c) Indicate the amount(s) reported on the balance sheet and income statement related to the debt and swap on June 30, 2013.

(d) Indicate the amount(s) reported on the balance sheet and income statement related to the debt and swap on December 31, 2013.

ch17_sol

Documents

Transcript of ch17_sol