7:59 PM ezto.mheducation.com .\'Il Sprint Chapter 1 5 Practice Exercises The fol

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7:59 PM ezto.mheducation.com .'Il Sprint Chapter 1 5 Practice Exercises The following information applies to the questions displayed below Stoll Co.s long-term available-for-sale portfolio at December 31, 2014, consists of the following Stoll enters into the following long-term investment transactions during year 2015 Sold 8,000 shares of Company B common stock for $162,375 less a brokerage fee of $2,800 Purchased 20,000 shares of Company W common stock for $415,000 plus a brokerage fee of $2,500. The shares represent a 30% ownership in Company w. Purchased 11,000 shares of Company X common stock for $255125 plus a brokerage fee of $2.500. The shares represent a 12% ownership in Company Purchased 100,000 shares of Company Y common stock for $530,000 plus a brokerage fee of $7,300. The shares represent a 51% ownership in Company Y. Pchased 15.000 shares of Company Z common stock for $531,800 plus a brokerage fee of $5,300. The shares represent a 5% ownership in Company Z. Sold 55,000 shares of Company A common stock for $1,012.000 less a brokerage fee of $4,100. The fair values of its investments at December 31, 2015, are 6 0.28 points Determine the amount Stoll should report on its December 31, 2015, balance sheet for its long-term investments in available-for-sale securities. and Prepare any necessary December 31, 2015, adjusting entry to record the fair value adjustment for the long-term investments in available-for- sale securities.

Explanation / Answer

Available for sale investments are held at Fair value in Balance sheet. And the difference in Fair value and Cost price is reflected in Income statement in Other Comprehensive income ( Unrealised).

B stock:

As of Dec 31 2014 Stoll held 16000 shares at cost 326750 and Fair value (fv) at 316000. So by this Stoll would have reported a loss in Other comprehensive income (unrealised) to extent of 10750 ( 326750-316000) and brought down the investment value to 316000.

During the year 2015 there is a sale of 8000 shares of B stock which is 50%. So the loss already recognised as unrealised loss is calculated.

Sale price (8000 shares-50%) 162375

Less Brokerage (2800)

159575

Less 50% of investment value 158000

Profit 1575

But we already have OCI unrealised loss to the extent of 10750. Since 50% is sold now the loss pertaining to this 50% is 5375 which is lying in OCI Unrealised loss and the profit of 1575 is setoff to this. So actual realised loss is 5375 less 1575= 3800. This is transferred to Income statement debit side as loss on sale of 50% B stock.

And on Dec 31 2015 B stock investment value for unsold 50% is at 158000 in books with OCI loss at 5375. This is having a Fair value of 164750 which means there is a profit of 6750 so the OCI unrealised loss is converted to OCI profit of 1375. So as on 31st Dec 2015 stoll reports B stock at fair value 164750 in Balance sheet with OCI unrealised profit at 1375.

W stock:

Stoll purchases 20000 shares for 415000 and brokerage costs of 2500. So investment cost is 417500. The fair value on 31st Dec 2015 is 384500. So Stoll would report a loss 33000 pertaining to W stock since it is an associate company and loss is reported based on equity method in a single line item.

X stock:

Stoll purchases 11000 shares of X stock 255125 at brokerage costs of 2500. So the cost is 257625. The fair value on 31st Dec 2015 is 238250. So the OCI unrealised loss is 257625-238250=19375.

Y stock:

Stoll purchased 100000 shares at 530000 plus a brokerage fees of 7300. So total cost is 537300. This is a subsidiary company.The financial statements of Y company will be consolidated with Holding company Stoll.

Z Stock:

Stoll purchased 15000 shares of Z company at 531800 plus brokerage costs of 5300. So total costs are 537100. FV as on 31st Dec 2015 is 559600 (Balance sheet). So there is OCI unrealised gain of 22500(Income statement).

A stock:

Sold all shares for 1012000

Less brokerage 4100

1007900

Already A stock is recorded in Stoll books at 930000 and OCI unrealised loss at 103600 (1033600-930000). Now the realiased proceeds are 1007900. So there is a profit of 77900.This is setoff with OCI unrealised loss. So the balance loss 25700 is transferred to Income statement debit side as loss realised.

C stock:

Stoll holds 28000 shares at cost of 1339500 and the FV is 1293875. So the OCI unrealised loss is 45625. As on 31st Dec 2015 FV is 1222625. So the OCI unrealised loss is still increased further to 116875.

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