SOLUTION MANUAL
ADVANCED ACCOUNTING
,TABLE OF CONTENTS
Chapter 1: Intercorporate Investments: An Overview
Chapter 2: Mergers and Acquisitions
Chapter 3: Consolidated Financial Statements: Date of Acquisition
Chapter 4: Consolidated Financial Statements Subsequent to Acquisition
Chapter 5: Consolidated Financial Statements: Outside Interests
Chapter 6: Consolidated Financial Statements: Intercompany Transactions
Chapter 7: Consolidating Foreign Currency Financial Statements
Chapter 8: Foreign Currency Transactions and Hedging
Chapter 9: Futures, Options, and Interest Rate Swaps
Chapter 10: State and Local Governments: Introduction and General Fund
Reporting
Chapter 11: State and Local Governments: Other Transactions
Chapter 12: State and Local Governments: External Financial Reporting
Chapter 13: Private Not-For-Profit Organizations
Chapter 14: Partnership Accounting and Reporting Chapter
15: Bankruptcy and Reorganization
Chapter 16: The SEC and Financial Reporting
,
, CHAPTER 1
SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS
MULTIPLE CHOICE QUESTIONS
1. C
$180,000 - $160,000 = $20,000
$125,000 - $100,000 = 25,000
Total Gain $45,000
2. A
$29,000 – $26,000 = $3,000
3. A
$207,544 – [(6% X $200,000) – (4% X $207,544)] =
$203,846
4. D
Reclassification Of Unrealized Loss On AFS Securities Sold $1,000 Credit
Unrealized Gain On AFS Securities Held At Year-End 6,000 Credit (1)
Total Amount Reported In OCI $7,000 Credit
(1) $81,000 – ($100,000 – $25,000) = $6,000 Unrealized Gain
5. D
$5,000,000 + [40% X ($600,000 – $200,000)] = $5,160,000
6. B
2023
Solutions Manual, Chapter 1 1-1
,7. B
Reported Net Income; 35% X $7,000,000 = $ 2,450,000
Less Unconfirmed Profit On Ending Inventory
35% X [$6,000,000 – ($6,000,000/1.25)] = (420,000)
Equity In Net Income $ 2,030,000
Less Dividends; 35% X $2,000,000 (700,000)
Plus Beginning Investment Balance 50,000,000
Ending Investment Balance $51,330,000
8. D
Fizzy’s Entry To Record The Acquisition Is:
Current Assets 25,000
Property 2,500,000
Goodwill 25,475,000
Liabilities 3,000,000
Cash 25,000,000
9. B
10. A
11. B
The Entry To Record The Sale Is:
Cash 410,000
Loss On Sale Of AFS Securities 15,000
Investment In AFS Securities 400,000
Other Comprehensive Income 25,000
The Reclassification Of The Loss Increases OCI, And The Loss Reported In Income Is
The Difference Between The Original Cost ($400,000 + $25,000) And Sales Proceeds
($410,000).
12. B
$285,000 - $300,000 = $15,000 Loss
2023
1-2 Advanced Accounting, 5th Edition
,13. D
Investment Balance At The Beginning Of 2023 Is $203,883 (=$205,768 – ($6,000 – (2% X
$205,768)); 2% X $203,883 = $4,078
14. C
Investment Balance At The End Of 2022 Is $203,827 (=$205,657 – ($8,000 – (3% X
$205,657)); $190,000 - $203,827 = $13,827 Loss
15. C
$510,000 - $500,000 = $10,000; Unrealized Gains Are Reported In Income.
16. B
The Basis Difference Is $180,000 (=$3,000,000 – (30% X $9,400,000))
(30% X $100,000) – $180,000/10 = $12,000
17. D
Investment Balance, Beginning Of 2020 $10,000,000
($2,400,000 - $2,000,000) X 40% = 160,000
($150,000 - $200,000) X 40% = (20,000)
($60,000 + $10,000 - $25,000) X 40% = 18,000
Investment Balance, End Of 2025 $10,158,000
18. B
$10,000,000 – ($400,000 + $5,000,000 - $6,000,000) = $10,600,000
19. C
$25,000,000 – ($500,000 + $8,000,000 + $1,000,000 - $6,000,000) = $21,500,000
20. C
2023
Solutions Manual, Chapter 1 1-3
,EXERCISES
E1.1 Investment In Trading Securities
(In Millions)
a. $38 – 2 = $36
b. Unrealized Gains And Losses On Trading Securities Are Reported In
Income. C.
Investment in trading securities 36
Cash 36
Investment In Trading Securities 2
Gain On Trading Securities (Income) 2
D.
Cash 35
Loss On Trading Securities (Income) 3
Investment In Trading Securities 38
E1.2 Investment In Trading And AFS Securities
Income OCI
A. End Of 2022 $(2,000) $ 5,000
2023 9,000 (1) (5,000)
B. End Of 2022 $ 5,000 $ (4,000)
2023 5,000 (2) 4,000
(1) ($43,000 - $38,000) + ($64,000 - $60,000) = $9,000
(2) ($42,000 - $45,000) + ($68,000 - $60,000) = $5,000
2023
1-4 Advanced Accounting, 5th Edition
,E1.3 Investment In Trading And Available-For-Sale Securities
a. 2022 Entries
Investment In Trading Securities 500,000
Cash 500,000
Investment In Trading Securities 20,000
Gains On Trading Securities (Income) 20,000
2023 Entries
Cash 525,000
Investment In Trading Securities 520,000
Gains On Trading Securities (Income) 5,000
Investment In Trading Securities 700,000
Cash 700,000
Losses On Trading Securities (Income) 100,000
Investment In Trading Securities 100,000
b. (1) 2022 Entries
Investment In AFS Securities 500,000
Cash 500,000
Investment In AFS Securities 20,000
Gains On AFS Securities (OCI) 20,000
2023 Entries
Cash 525,000
Reclassification Of Gains On AFS Securities (OCI) 20,000
Investment In AFS Securities 520,000
Gains On AFS Securities (Income) 25,000
Investment In AFS Securities 700,000
Cash 700,000
Losses On AFS Securities (Income) 100,000
Investment In AFS Securities 100,000
2023
Solutions Manual, Chapter 1 1-5
, (2) 2022 Entries Are The Same As In (1).
2023 Entries
Cash 525,000
Reclassification Of Gains On AFS Securities (OCI) 20,000
Investment In AFS Securities 520,000
Gains On AFS Securities (Income) 25,000
Investment In AFS Securities 700,000
Cash 700,000
Losses On AFS Securities (Income) 100,000
Allowance For Credit Losses On AFS Securities
(Contra 100,000
To Investment Account)
(3) 2022 Entries Are The Same As In (1).
2023 Entries
Cash 525,000
Reclassification Of Gains On AFS Securities (OCI) 20,000
Investment In AFS Securities 520,000
Gains On AFS Securities (Income) 25,000
Investment In AFS Securities 700,000
Cash 700,000
Losses On AFS Securities (OCI) 100,000
Investment In AFS Securities 100,000
E1.4 Financial Statement Display Of AFS Debt Securities
A. The Loss Is A Direct Reduction In The Investment Balance And Is Reported In Income.
Investment In AFS Securities………………………………………….. $185,000
B.
(1) The Loss Is Reported In An Allowance Account, And Is Reported In Income.
Investment In AFS Securities $200,000
Less: Allowance For Expected Credit Losses ( 15,000)
Net Investment In AFS Securities……………………… $185,000
2023
1-6 Advanced Accounting, 5th Edition
, (2) The Credit-Related Loss Is Reported In An Allowance Account, And Is
Reported In Income. The Market-Related Loss Is A Direct Reduction In The
Investment Balance, And Is Reported In OCI.
Investment In AFS Securities ($200,000 - $6,000) $194,000
Less: Allowance For Expected Credit Losses ( 9,000)
Net Investment In AFS Securities……………………… $185,000
E1.5 Investment In AFS Securities
a. $460,000 - $65,000 = $395,000. Historical Cost = Fair Value Less Unrealized Gains.
b. Cash Received = $85,000, Derived By Reconstructing The Summary Entry To
Record Sales Of AFS Securities:
Cash 85,000
Reclassification Of Unrealized Gains On AFS Securities
(OCI) 10,000
Gains On Sale Of AFS Securities (Income) 20,000
Investment In AFS Securities 75,000
The Credit To Investment In AFS Securities Is $75,000, Because The Investment
Balance Declined By $60,000 In 2020, But $15,000 In Unrealized Gains Was
Recorded In OCI.
$520,000 + $15,000 – X = $460,000; X = $75,000. The Amount Of Cash Received
Is The Number That Balances The Entry. The Other Numbers Are Given In The
Exercise.
E1.6 Held-To-Maturity Investments
Amortization Schedule (Supports Numbers In Entries Below)
Interest Income Amortization Investment Balance
(3% X Beginning ($200,000 – Interest (Beginning Balance –
Investment Income) Amortization)
Balance)
1/1/2022 $5,141,431
12/31/2022 $154,243 $45,757 5,095,674
12/31/2023 152,870 47,130 5,048,544
12/31/2024 151,456 48,544 5,000,000
January 1, 2022
Investment In HTM Securities 5,141,431
Cash 5,141,431
December 31, 2022
Cash 200,000
2023
Solutions Manual, Chapter 1 1-7
ADVANCED ACCOUNTING
,TABLE OF CONTENTS
Chapter 1: Intercorporate Investments: An Overview
Chapter 2: Mergers and Acquisitions
Chapter 3: Consolidated Financial Statements: Date of Acquisition
Chapter 4: Consolidated Financial Statements Subsequent to Acquisition
Chapter 5: Consolidated Financial Statements: Outside Interests
Chapter 6: Consolidated Financial Statements: Intercompany Transactions
Chapter 7: Consolidating Foreign Currency Financial Statements
Chapter 8: Foreign Currency Transactions and Hedging
Chapter 9: Futures, Options, and Interest Rate Swaps
Chapter 10: State and Local Governments: Introduction and General Fund
Reporting
Chapter 11: State and Local Governments: Other Transactions
Chapter 12: State and Local Governments: External Financial Reporting
Chapter 13: Private Not-For-Profit Organizations
Chapter 14: Partnership Accounting and Reporting Chapter
15: Bankruptcy and Reorganization
Chapter 16: The SEC and Financial Reporting
,
, CHAPTER 1
SOLUTIONS TO MULTIPLE CHOICE QUESTIONS, EXERCISES AND PROBLEMS
MULTIPLE CHOICE QUESTIONS
1. C
$180,000 - $160,000 = $20,000
$125,000 - $100,000 = 25,000
Total Gain $45,000
2. A
$29,000 – $26,000 = $3,000
3. A
$207,544 – [(6% X $200,000) – (4% X $207,544)] =
$203,846
4. D
Reclassification Of Unrealized Loss On AFS Securities Sold $1,000 Credit
Unrealized Gain On AFS Securities Held At Year-End 6,000 Credit (1)
Total Amount Reported In OCI $7,000 Credit
(1) $81,000 – ($100,000 – $25,000) = $6,000 Unrealized Gain
5. D
$5,000,000 + [40% X ($600,000 – $200,000)] = $5,160,000
6. B
2023
Solutions Manual, Chapter 1 1-1
,7. B
Reported Net Income; 35% X $7,000,000 = $ 2,450,000
Less Unconfirmed Profit On Ending Inventory
35% X [$6,000,000 – ($6,000,000/1.25)] = (420,000)
Equity In Net Income $ 2,030,000
Less Dividends; 35% X $2,000,000 (700,000)
Plus Beginning Investment Balance 50,000,000
Ending Investment Balance $51,330,000
8. D
Fizzy’s Entry To Record The Acquisition Is:
Current Assets 25,000
Property 2,500,000
Goodwill 25,475,000
Liabilities 3,000,000
Cash 25,000,000
9. B
10. A
11. B
The Entry To Record The Sale Is:
Cash 410,000
Loss On Sale Of AFS Securities 15,000
Investment In AFS Securities 400,000
Other Comprehensive Income 25,000
The Reclassification Of The Loss Increases OCI, And The Loss Reported In Income Is
The Difference Between The Original Cost ($400,000 + $25,000) And Sales Proceeds
($410,000).
12. B
$285,000 - $300,000 = $15,000 Loss
2023
1-2 Advanced Accounting, 5th Edition
,13. D
Investment Balance At The Beginning Of 2023 Is $203,883 (=$205,768 – ($6,000 – (2% X
$205,768)); 2% X $203,883 = $4,078
14. C
Investment Balance At The End Of 2022 Is $203,827 (=$205,657 – ($8,000 – (3% X
$205,657)); $190,000 - $203,827 = $13,827 Loss
15. C
$510,000 - $500,000 = $10,000; Unrealized Gains Are Reported In Income.
16. B
The Basis Difference Is $180,000 (=$3,000,000 – (30% X $9,400,000))
(30% X $100,000) – $180,000/10 = $12,000
17. D
Investment Balance, Beginning Of 2020 $10,000,000
($2,400,000 - $2,000,000) X 40% = 160,000
($150,000 - $200,000) X 40% = (20,000)
($60,000 + $10,000 - $25,000) X 40% = 18,000
Investment Balance, End Of 2025 $10,158,000
18. B
$10,000,000 – ($400,000 + $5,000,000 - $6,000,000) = $10,600,000
19. C
$25,000,000 – ($500,000 + $8,000,000 + $1,000,000 - $6,000,000) = $21,500,000
20. C
2023
Solutions Manual, Chapter 1 1-3
,EXERCISES
E1.1 Investment In Trading Securities
(In Millions)
a. $38 – 2 = $36
b. Unrealized Gains And Losses On Trading Securities Are Reported In
Income. C.
Investment in trading securities 36
Cash 36
Investment In Trading Securities 2
Gain On Trading Securities (Income) 2
D.
Cash 35
Loss On Trading Securities (Income) 3
Investment In Trading Securities 38
E1.2 Investment In Trading And AFS Securities
Income OCI
A. End Of 2022 $(2,000) $ 5,000
2023 9,000 (1) (5,000)
B. End Of 2022 $ 5,000 $ (4,000)
2023 5,000 (2) 4,000
(1) ($43,000 - $38,000) + ($64,000 - $60,000) = $9,000
(2) ($42,000 - $45,000) + ($68,000 - $60,000) = $5,000
2023
1-4 Advanced Accounting, 5th Edition
,E1.3 Investment In Trading And Available-For-Sale Securities
a. 2022 Entries
Investment In Trading Securities 500,000
Cash 500,000
Investment In Trading Securities 20,000
Gains On Trading Securities (Income) 20,000
2023 Entries
Cash 525,000
Investment In Trading Securities 520,000
Gains On Trading Securities (Income) 5,000
Investment In Trading Securities 700,000
Cash 700,000
Losses On Trading Securities (Income) 100,000
Investment In Trading Securities 100,000
b. (1) 2022 Entries
Investment In AFS Securities 500,000
Cash 500,000
Investment In AFS Securities 20,000
Gains On AFS Securities (OCI) 20,000
2023 Entries
Cash 525,000
Reclassification Of Gains On AFS Securities (OCI) 20,000
Investment In AFS Securities 520,000
Gains On AFS Securities (Income) 25,000
Investment In AFS Securities 700,000
Cash 700,000
Losses On AFS Securities (Income) 100,000
Investment In AFS Securities 100,000
2023
Solutions Manual, Chapter 1 1-5
, (2) 2022 Entries Are The Same As In (1).
2023 Entries
Cash 525,000
Reclassification Of Gains On AFS Securities (OCI) 20,000
Investment In AFS Securities 520,000
Gains On AFS Securities (Income) 25,000
Investment In AFS Securities 700,000
Cash 700,000
Losses On AFS Securities (Income) 100,000
Allowance For Credit Losses On AFS Securities
(Contra 100,000
To Investment Account)
(3) 2022 Entries Are The Same As In (1).
2023 Entries
Cash 525,000
Reclassification Of Gains On AFS Securities (OCI) 20,000
Investment In AFS Securities 520,000
Gains On AFS Securities (Income) 25,000
Investment In AFS Securities 700,000
Cash 700,000
Losses On AFS Securities (OCI) 100,000
Investment In AFS Securities 100,000
E1.4 Financial Statement Display Of AFS Debt Securities
A. The Loss Is A Direct Reduction In The Investment Balance And Is Reported In Income.
Investment In AFS Securities………………………………………….. $185,000
B.
(1) The Loss Is Reported In An Allowance Account, And Is Reported In Income.
Investment In AFS Securities $200,000
Less: Allowance For Expected Credit Losses ( 15,000)
Net Investment In AFS Securities……………………… $185,000
2023
1-6 Advanced Accounting, 5th Edition
, (2) The Credit-Related Loss Is Reported In An Allowance Account, And Is
Reported In Income. The Market-Related Loss Is A Direct Reduction In The
Investment Balance, And Is Reported In OCI.
Investment In AFS Securities ($200,000 - $6,000) $194,000
Less: Allowance For Expected Credit Losses ( 9,000)
Net Investment In AFS Securities……………………… $185,000
E1.5 Investment In AFS Securities
a. $460,000 - $65,000 = $395,000. Historical Cost = Fair Value Less Unrealized Gains.
b. Cash Received = $85,000, Derived By Reconstructing The Summary Entry To
Record Sales Of AFS Securities:
Cash 85,000
Reclassification Of Unrealized Gains On AFS Securities
(OCI) 10,000
Gains On Sale Of AFS Securities (Income) 20,000
Investment In AFS Securities 75,000
The Credit To Investment In AFS Securities Is $75,000, Because The Investment
Balance Declined By $60,000 In 2020, But $15,000 In Unrealized Gains Was
Recorded In OCI.
$520,000 + $15,000 – X = $460,000; X = $75,000. The Amount Of Cash Received
Is The Number That Balances The Entry. The Other Numbers Are Given In The
Exercise.
E1.6 Held-To-Maturity Investments
Amortization Schedule (Supports Numbers In Entries Below)
Interest Income Amortization Investment Balance
(3% X Beginning ($200,000 – Interest (Beginning Balance –
Investment Income) Amortization)
Balance)
1/1/2022 $5,141,431
12/31/2022 $154,243 $45,757 5,095,674
12/31/2023 152,870 47,130 5,048,544
12/31/2024 151,456 48,544 5,000,000
January 1, 2022
Investment In HTM Securities 5,141,431
Cash 5,141,431
December 31, 2022
Cash 200,000
2023
Solutions Manual, Chapter 1 1-7
