1. The Coca-Cola Corporation purchased North America Coca-Cola Enterprise (CCE); how does Coca-Cola
Corporation benefit from this purchase? Consider Distribution Channels and Product Mix. Product Mix relates to
the mix of products produced and sold, such as soft drinks, water, sport drinks, etc.
2. Identify the three categories of debt securities and describe the accounting and reporting treatment for each
category.
2-1 What are a few examples of Debt Securities?
3. Explain who uses derivatives and why. What are the basic guidelines for accounting for derivatives?
3-1 Provide a few examples of using a derivative as a hedge?
4. Identify the categories of equity securities and describe the accounting and reporting treatment for each category.
4-1 what is the purpose or why do we treat Equity Holdings in this manner? What is the purpose?
5. Investments must be evaluated each period to determine if an Impairment of the Investment has
occurred. Describe the difference between a Temporary Impairment and Other Than Temporary Impairment. If the
security is written-down, can a write-up occur in the future?
Exercise 123
On January 2, 2018, Tylor Company issued a 4-year, $550,000 note at 6% fixed interest, interest payable
semiannually. Tylor now wants to change the note to a variable rate note. As a result, on January 2, 2018, Tylor
Company enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.6% for the
first 6 months on $550,000. At each 6-month period, the variable interest rate will be reset. The variable rate is
reset to 6.7% on June 30, 2018.
Compute the net interest expense to be reported for this note and related swap transaction as of June 30,
2018.
$
Net interest expense
Compute the net interest expense to be reported for this note and related swap transaction as of December 31,
2018.
$
Net interest expense
Brief Exercise 17-13
Presented below are two independent cases related to available-for-sale debt investments.
Case 1
Case 2
$39,040
$98,900
Fair value
28,350
108,290
Expected credit losses
22,930
91,580
Amortized cost
For each case, determine the amount of impairment loss, if any. (If no loss, please enter 0. Do not leave any
fields blank.)
Case 1
Impairment Loss
$
Case 2
Impairment Loss
$
Exercise 122
The following information is available for Irwin Company for 2018:
$127,000
Net Income
Realized gain on sale of available-for-sale debt securities
12,000
Unrealized holding gain arising during the period on available-for-sale debt securities
31,000
Reclassification adjustment for gains included in net income
7,500
(a)
Determine other comprehensive income for 2018.
$
Other comprehensive income
Brief Exercise 17-2
Blue Company purchased, on January 1, 2017, as an available-for-sale security, $65,000 of the 8%, 5-year bonds of
Chester Corporation for $60,072, which provides an 10% return.
Prepare Blue’s journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount
amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment
account.) The bonds have a year-end fair value of $61,750. (Round answers to 0 decimal places, e.g. 1,225.
Credit account titles are automatically indented when amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
No. Account Titles and Explanation
Debit
Credit
(a)
(b)
(c)
Exercise 17-3 (Part Level Submission)
On January 1, 2017, Marigold Company purchased 8% bonds having a maturity value of $240,000, for
$260,219.71. The bonds provide the bondholders with a 6% yield. They are dated January 1, 2017, and mature
January 1, 2022, with interest receivable January 1 of each year. Marigold Company uses the effective-interest
method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.
(a)
Prepare the journal entry at the date of the bond purchase. (Enter answers to 2 decimal places, e.g.
2,525.25. Credit account titles are automatically indented when amount is entered. Do not indent
manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the
amounts.)
Date
Account Titles and Explanation
Debit
Credit
Jan. 1, 2017
Brief Exercise 17-5
Wildhorse Corporation purchased 360 shares of Sherman Inc. common
stock for $11,900 (Wildhorse does not have significant influence). During
the year, Sherman paid a cash dividend of $3.25 per share. At year-end,
Sherman stock was selling for $37.50 per share.
Prepare Wildhorse’ journal entries to record (a) the purchase of the
investment, (b) the dividends received, and (c) the fair value adjustment.
(Assume a zero balance in the Fair Value Adjustment account.) (Credit
account titles are automatically indented when amount is entered.
Do not indent manually. If no entry is required, select "No Entry"
for the account titles and enter 0 for the amounts.)
No. Account Titles and Explanation
Debit
Credit
(a)
(b)
(c)
Brief Exercise 17-7
Pharoah Corporation purchased for $277,000 a 30% interest in Murphy, Inc.
This investment enables Pharoah to exert significant influence over Murphy.
During the year, Murphy earned net income of $183,000 and paid dividends of
$64,000.
Prepare Pharoah’s journal entries related to this investment. (Credit account
titles are automatically indented when amount is entered. Do not
indent manually. If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
(To record the purchase.)
(To record the net income.)
Exercise 17-18
Sarasota Corporation has municipal bonds classified as a held-to-maturity at December 31, 2017. These bonds
have a par value of $865,000, an amortized cost of $865,000, and a fair value of $780,000. The company
believes that impairment accounting is now appropriate for these bonds.
Prepare the journal entry to recognize the impairment. (Credit account titles are automatically indented
when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
(To record the impairment.)
What is the new cost basis of the municipal bonds?
New cost basis of the municipal bonds
$
Given that the maturity value of the bonds is $865,000, should Sarasota Corporation amortize the difference
between the carrying amount and the maturity value over the life of the bonds?
At December 31, 2018, the fair value of the municipal bonds is $816,000. Prepare the entry (if any) to record
this information. (Credit account titles are automatically indented when amount is entered. Do not
indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the
amounts.)
Account Titles and Explanation
Debit
Credit
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