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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
SU
PE
3. a
RS
$207,544 – [(6% x $200,000) – (4% x $207,544)] = $203,846
OL
4. d
UT
Reclassification of unrealized loss on AFS securities sold $1,000 credit
Unrealized gain on AFS securities held at year-end 6,000 credit (1)
IO
Total amount reported in OCI $7,000 credit
NS
(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
,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
SU
Property 2,500,000
Goodwill 25,475,000
PE
Liabilities 3,000,000
RS
Cash 25,000,000
OL
9. b
UT
10. a
IO
11. b
NS
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
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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))
SU
(30% x $100,000) – $180,000/10 = $12,000
PE
17. d
RS
Investment balance, beginning of 2020 $10,000,000
($2,400,000 - $2,000,000) x 40% = 160,000
OL
($150,000 - $200,000) x 40% = (20,000)
($60,000 + $10,000 - $25,000) x 40% = 18,000
UT
Investment balance, end of 2025 $10,158,000
18. b
IO
$10,000,000 – ($400,000 + $5,000,000 - $6,000,000) = $10,600,000
NS
19. c
$25,000,000 – ($500,000 + $8,000,000 + $1,000,000 - $6,000,000) = $21,500,000
20. c
, 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
SU
d.
Cash 35
PE
Loss on trading securities (income) 3
Investment in trading securities 38
RS
OL
E1.2 Investment in Trading and AFS Securities
UT
Income OCI
a. End of 2022 $(2,000) $ 5,000
IO
2023 9,000 (1) (5,000)
NS
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
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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
SU
PE
3. a
RS
$207,544 – [(6% x $200,000) – (4% x $207,544)] = $203,846
OL
4. d
UT
Reclassification of unrealized loss on AFS securities sold $1,000 credit
Unrealized gain on AFS securities held at year-end 6,000 credit (1)
IO
Total amount reported in OCI $7,000 credit
NS
(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
,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
SU
Property 2,500,000
Goodwill 25,475,000
PE
Liabilities 3,000,000
RS
Cash 25,000,000
OL
9. b
UT
10. a
IO
11. b
NS
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
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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))
SU
(30% x $100,000) – $180,000/10 = $12,000
PE
17. d
RS
Investment balance, beginning of 2020 $10,000,000
($2,400,000 - $2,000,000) x 40% = 160,000
OL
($150,000 - $200,000) x 40% = (20,000)
($60,000 + $10,000 - $25,000) x 40% = 18,000
UT
Investment balance, end of 2025 $10,158,000
18. b
IO
$10,000,000 – ($400,000 + $5,000,000 - $6,000,000) = $10,600,000
NS
19. c
$25,000,000 – ($500,000 + $8,000,000 + $1,000,000 - $6,000,000) = $21,500,000
20. c
, 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
SU
d.
Cash 35
PE
Loss on trading securities (income) 3
Investment in trading securities 38
RS
OL
E1.2 Investment in Trading and AFS Securities
UT
Income OCI
a. End of 2022 $(2,000) $ 5,000
IO
2023 9,000 (1) (5,000)
NS
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
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