F3 - Marketable Securities and Business Combinations

Question 1

To record unrealized loss reported in other comprehensive income (available-for-sale securities)

Answer 1

Dr. Unrealized loss on available-for-sale securities

Cr. Valuation account (FV adjustment)

Question 2

To record the sale of trading securities

Answer 2

Dr. Cash
Cr. Trading security
Cr. Realized gain on trading security

Question 3

To record the sale of available-for-sale securities

Answer 3

Dr. Cash
Dr. Unrealized gain on available-for-sale securities
Cr. Available-for-sale security
Cr. Realized gain on available-for-sale securities

*must remove from AOCI and report on I/S

Question 4

To record all costs of acquisition - Cost Method

Answer 4

Dr. Investment in investee
Cr. Cash

*FV of consideration plus legal fees

Question 5

To record unrealized loss of marketable securities and adjust to FV at yearend - Cost Method

Answer 5

Dr. Unrealized holding losses
Cr. Investment in investee (valuation account)

*B/S, OCI

Question 6

To record a return of capital distribution/ *liquidating dividend in excess of investor’s share of retained earnings - Cost Method

Answer 6

Dr. Cash
Cr. Investment in investee
*Cr. Dividend income

Question 7

To record the cash dividends from the investee’s retained earnings - Cost Method

Answer 7

Dr. Cash

Cr. Dividend income

Question 8

To record distribution that exceeds investor’s share of investee’s retained earnings - Cost Method

Answer 8

Dr. Cash

Cr. Investment in investee

Question 9

To record investment at cost - Equity Method

Answer 9

Dr. Investment in investee
Cr. Cash

*FV of consideration plus legal fees

Question 10

To record increase by the investor’s (parent’s) ownership percentage of earnings of investee - Equity Method

Answer 10

Dr. Investment in investee

Cr. Equity in earnings/investee income

Question 11

To record decrease by the investor’s (parent’s) ownership percentage of cash dividends from investee - Equity Method

Answer 11

Dr. Cash
Cr. Investment in investee

*Stock dividends reduce unit cost of stock owned in investee

Question 12

To record investor’s (parent’s) ownership percentage of earnings as income - Equity Method

Answer 12

Dr. Investment in investee

Cr. Equity in earnings/investee income

Question 13

GAAP accounting rules for the Equity Method

Answer 13

B - Beginning balance
A - Add: Investor’s share of investee’s earnings
S - Subtract: Investor’s share of investee’s dividends
E - Ending balance

*Stock dividend = Memo entry ONLY

Question 14

To record loss on I/S - Trading Securities

Answer 14

Dr. Unrealized loss on trading securities

Cr. Valuation account (FV adjustment)

Question 15

To record the acquisition for cash - Acquisition Method

Answer 15

Dr. Investment in subsidiary

Cr. Cash

Question 16

To record the acquisition for parent common stock - Acquisition Method

Answer 16

Dr. Investment in subsidiary
Cr. Common stock (parent at par)
Cr. APIC (“plug”)

*Use FV at date transaction closes

Question 17

Consolidating workpaper eliminating journal entry - Acquisition Method

Answer 17

C - Common stock (sub)
A - APIC (sub)
R - Retained earnings (sub)
 I - Investment in sub
N - Noncontrolling interest (if not 100% owned)
B - Balance sheet adjustments to FV
 I - Identifiable intangible assets to FV
G - Goodwill

Question 18

CARINBIG Flow Chart/Acquisition Date Calculation - Acquisition Method

Answer 18

Common stock - sub
 APIC - sub
 Retained earnings - sub
(Investment in sub)
(Noncontrolling interest)
(Balance sheet FV adjustment)
(Identifiable intangible assets)
= Goodwill or gain