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Teasdale Inc. manufactures and sells commercial and residential security equipment. The comparative unclassified balance sheets for December 31, Year 2 and Year 1 are provided below. Selected missing balances are shown by letters. Note 1. Investments are classified as available for sale. The investments at cost and fair value on December 31, Year 1, are as follows: Note 2. The Investment in Wright Co. stock is an equity method investment representing 30% of the outstanding shares of Wright Co. The following selected investment transactions occurred during Year 2: Instructions Determine the missing letters in the unclassified balance sheet. Provide appropriate supporting calculations.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 15, Problem 4PB
Textbook Problem
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Teasdale Inc. manufactures and sells commercial and residential security equipment. The comparative unclassified balance sheets for December 31, Year 2 and Year 1 are provided below. Selected missing balances are shown by letters.

Chapter 15, Problem 4PB, Teasdale Inc. manufactures and sells commercial and residential security equipment. The comparative , example  1

Note 1. Investments are classified as available for sale. The investments at cost and fair value on December 31, Year 1, are as follows:

Chapter 15, Problem 4PB, Teasdale Inc. manufactures and sells commercial and residential security equipment. The comparative , example  2

Note 2. The Investment in Wright Co. stock is an equity method investment representing 30% of the outstanding shares of Wright Co.

The following selected investment transactions occurred during Year 2:

Chapter 15, Problem 4PB, Teasdale Inc. manufactures and sells commercial and residential security equipment. The comparative , example  3

Instructions

Determine the missing letters in the unclassified balance sheet. Provide appropriate supporting calculations.

To determine

Find the missing amounts (a) to (i).

Explanation of Solution

Available-for-sale securities: These are short-term or long-term investments in debt and equity securities with an intention of holding the investment for some strategic purposes like meeting liquidity needs, or manage interest risk.

(a)

Compute available-for-sale investment, (at cost), for Year 2.

SecurityNumber of Shares (Or Face Amount)×Cost per Share (Or Bond Value)=Cost of Investment
Company A Stock960 shares×$38.00=$36,480
Company H Stock1,900 shares×28.80=54,720
Company R Stock800 shares×40.00=32,000
Company T Bonds$24,000×100%=24,000
Total $147,200

Table (1)

Therefore, available-for-sale investment, (at cost), for Year 2 is $147,200.

(b)

Compute valuation allowance for available-for-sale investment, for Year 2.

Step 1: Compute available-for-sale investment, (fair value), for Year 2.

SecurityNumber of Shares (Or Face Amount)×Fair Value per Share (Or Bond Value)=Fair Value of Investment
Company A Stock960 shares×$41.50=$39,840
Company H Stock1,900 shares×26.00=49,400
Company R Stock800 shares×48.00=38,400
Company T Bonds$24,000×101%=24,240
Total $151,880

Table (2)

Step 2: Compute valuation allowance for available-for-sale investment, for Year 2.

DetailsAmount ($)
Available-for-sale investments at fair value, December 31, (From Table-2)$151,880
Less: Available-for-sale investments at cost, December 31, (From Table-1)(147,200)
Valuation allowance for available-for-sale investments$4,680

Table (3)

Therefore, valuation allowance for available-for-sale investment, for Year 2 is $4,680.

(c)

Compute available-for-sale investment, (fair value), for Year 2.

SecurityNumber of Shares (Or Face Amount)×Fair Value per Share (Or Bond Value)=Fair Value of Investment
Company A Stock960 shares×$41.50=$39,840
Company H Stock1,900 shares×26.00=49,400
Company R Stock800 shares×48.00=38,400
Company T Bonds$24,000×101%=24,240
Total $151,880

Table (4)

Therefore, available-for-sale investment, (at fair value), for Year 2 is $151,880.

(d)

Compute interest receivable for Year 2.

Interest receivable = {Amount of debt investment × Rate of interest×Time period(October 1 to December 31)}= $24,000×4%×312= $240

Therefore, interest receivable for Year 2 is $240

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