CHAPTER 15 INVESTMENTS AND FAIR VALUE ACCOUNTING DISCUSSION QUESTIONS A company may temporarily have excess cash that is not needed for use in its current operations Instead of letting excess cash remain idle in a checking account, most companies invest their excess cash in temporary investments The primary objective of investing in temporary investments is to: a earn interest revenue b receive dividends c realize gains from increases in the market price of the securities A gain or loss can occur when the selling price of the bond differs from the book value (cost) of the bond The price of bond investments can change due to changes in the market rate of interest If the proceeds from the sale exceed the book value (cost) of the bonds, then a gain is recorded The equity method is used for equity investments representing more than 20% and less than 50% of the outstanding shares of the investee Under the cost method, a dividend received is treated as dividend revenue Under the equity method, a dividend received is not treated as dividend revenue, but is treated as a reduction in the book value of the investment An investment greater than 50% of the investee is considered to be an investment that exerts control Thus, the financial statements of the investee (subsidiary) are consolidated (combined) with that of the investor (parent company) Both portfolios are reported at fair value However, changes in the fair value of trading securities during a period are reported as an unrealized gain or loss on the income statement For available-forsale securities, changes in the fair value of the securities are reported in stockholders’ equity and, thus, are not recognized as part of net income A credit balance in Valuation Allowance for Available-for-Sale Investments is subtracted from Available-for-Sale Investments (at cost) The net reported amount is the available-for-sale securities at fair value A debit balance in Unrealized Gain (Loss) on Available-for-Sale Investments would be reported as a reduction in the Stockholders’ Equity section of the balance sheet, after Retained Earnings Current GAAP requires fair value accounting for impaired assets Current GAAP allows financial assets and liabilities to be reported at fair value The assets and liabilities reported at fair value are becoming a more significant portion of many companies’ balance sheets International Financial Reporting Standards are also moving more aggressively toward fair value accounting As a result of the desire to converge U.S and international standards, the United States is also moving toward fair value reporting 10 Fair values may not be readily obtainable for some assets or liabilities, which causes financial statement valuations to become more subjective In addition, comparability between financial statements among different companies may be hampered by different methods of determining fair value Lastly, using fair value can result in greater fluctuations in reported results, making predictions of future trends potentially more difficult 15-1 © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part CHAPTER 15 Investments and Fair Value Accounting PRACTICE EXERCISES PE 15–1A a b Investments—Tyler City Bonds Interest Receivable Cash Cash* Interest Receivable Interest Revenue 400,000 2,000 402,000 12,000 2,000 10,000 * $400,000 × 6% × 1/2 c Cash* Loss on Sale of Investments Interest Revenue Investments—Tyler City Bonds 197,000 4,000 1,000 200,000 * Sales proceeds ($200,000 × 98%)…………………………$196,000 1,000 Accrued interest…………………………………………… Total proceeds from sale……………………………………$197,000 PE 15–1B a b Investments—Iceline Inc Bonds Interest Receivable Cash Cash* Interest Receivable Interest Revenue 120,000 1,000 121,000 3,000 1,000 2,000 * $120,000 × 5% × 1/2 c Cash* Interest Revenue Gain on Sale of Investments Investments—Iceline Inc Bonds * Sales proceeds ($60,000 × 101%)……………………… $60,600 500 Accrued interest…………………………………………… Total proceeds from sale………………………………… $61,100 61,100 500 600 60,000 PE 15–2A Mar 20 Investments—Thorlite Company Stock* Cash 300,250 300,250 *(10,000 shares × $30 per share) + $250 May 30 Cash* Dividend Revenue 2,500 2,500 *$0.25 per share × 10,000 shares June 15 Cash* Gain on Sale of Investments Investments—Thorlite Company Stock** 179,800 29,675 150,125 *(5,000 shares × $36) – $200 **5,000 shares × ($300,250 ÷ 10,000 shares) PE 15–2B Sept 12 Investments—Aspen Company Stock* Cash 100,200 100,200 *(2,000 shares × $50 per share) + $200 Oct 15 Cash* Dividend Revenue 1,000 1,000 *$0.50 per share × 2,000 shares Nov 10 Cash* Loss on Sale of Investments Investments—Aspen Company Stock** *(1,200 shares × $42) $150 **1,200 shares ì ($100,200 ữ 2,000 shares) 50,250 9,870 60,120 PE 15–3A Jan Dec Investment in ARO Company Stock Cash 300,000 300,000 31 Investment in ARO Company Stock Income of ARO Company Recorded 30% of ARO Company income, 30% × $60,000 18,000 31 Cash* Investment in ARO Company Stock 4,500 18,000 4,500 *30% × $15,000 PE 15–3B Jan Dec Investment in Fain Company Stock Cash 500,000 500,000 31 Investment in Fain Company Stock Income of Fain Company Recorded 40% of Fain Company income, 40% × $140,000 56,000 31 Cash* Investment in Fain Company Stock 20,000 56,000 20,000 *40% × $50,000 PE 15–4A 2014 Dec 31 Unrealized Loss on Trading Investments* Valuation Allowance for Trading Investments To record decrease in fair value of trading investments * Trading investments at fair value, December 31, 2014…………… $203,600 Trading investments at cost, December 31, 2014……………… Unrealized loss on trading investments…………………………… 212,500 $ (8,900) 8,900 8,900 PE 15–4B 2014 Dec 31 Valuation Allowance for Trading Investments* Unrealized Gain on Trading Investments To record increase in fair value of trading investments 4,800 4,800 * Trading investments at fair value, December 31, 2014………………………… $46,300 Trading investments at cost, December 31, 2014…………………………… Unrealized gain on trading investments………………………………………… 41,500 $ 4,800 PE 15–5A 2014 Dec 31 Unrealized Gain (Loss) on Available-for-Sale Investments* Valuation Allowance for Available-for-Sale Investments To record decrease in fair value of available-for-sale securities 5,800 5,800 * Available-for-sale investments at fair value, December 31, 2014……………………………………………………………… Available-for-sale investments at cost, December 31, 2014………………… Unrealized gain (loss) on available-for-sale investments…………………… $72,600 78,400 $ (5,800) PE 15–5B 2014 Dec 31 Valuation Allowance for Available-for-Sale Investments* Unrealized Gain (Loss) on Available-for-Sale Investments To record increase in fair value of available-for-sale securities 2,090 2,090 * Available-for-sale investments at fair value, December 31, 2014……………………………………………………………… Available-for-sale investments at cost, December 31, 2014………………… Unrealized gain (loss) on available-for-sale investments…………………… $26,350 24,260 $ 2,090 PE 15–6A Dividend Yield = Dividend Yield = PE 15–6B Dividend Yield = Dividend Yield = Dividends per Share of Common Stock Market Price per Share of Common Stock $4.00 $100 = 0.04, or 4% Dividends per Share of Common Stock Market Price per Share of Common Stock $1.20 $40 = 0.03, or 3% EXERCISES Ex 15–1 a b c 2014 Apr 2014 Oct 2014 Oct Investments—Clayton Co Bonds Cash Cash Interest Revenue $75,000 × 6% × 6/12 Cash* Loss on Sale of Investments Investments—Clayton Co Bonds 75,000 75,000 2,250 2,250 24,500 500 25,000 *$25,000 × 98% d 2014 Dec 31 Interest Receivable Interest Revenue Accrued interest 750 750 Ex 15–2 a b c 2014 Sept 2014 Dec 2015 Mar Investments—Pluto Corp Bonds Cash 31 Interest Receivable Interest Revenue Accrued interest, $150,000 × 8% × 4/12 Cash Interest Receivable Interest Revenue* 150,000 150,000 4,000 4,000 6,000 4,000 2,000 *$150,000 × 8% × 2/12 d 2015 Mar Cash* Gain on Sale of Investments Investments—Pluto Corp Bonds *$75,000 × 102% 76,500 1,500 75,000 Ex 15–3 a 2014 June 20 Investments—Thomas County Bonds Interest Receivable* Cash 60,000 500 60,500 * $60,000 × 6% × 50/360 b Nov Cash* Interest Receivable Interest Revenue 1,800 500 1,300 * $60,000 × 6% × 1/2 c Dec Cash* Loss on Sale of Investments Interest Revenue Investments—Thomas County Bonds 14,475 600 75 15,000 * Bond sale ($15,000 × 0.97)………………………………… $14,550 Accrued interest…………………………………………… 75 (150) Less brokerage commission…………………………… Total proceeds……………………………………………… $14,475 d Dec 31 Interest Receivable Interest Revenue 450 450 Ex 15–4 2014 Jan a 31 Investments—Government Bonds Interest Receivable* Cash 75,000 375 75,375 * $75,000 × 6% × 30/360 July Cash* Interest Receivable Interest Revenue 2,250 375 1,875 * $75,000 × 6% × 1/2 Aug 29 Cash* Loss on Sale of Investments Interest Revenue Investments—Government Bonds 34,650 700 350 35,000 * Bond sale ($35,000 × 98%)………………………………… $34,300 350 Accrued interest…………………………………………… Total proceeds from sale…………………………………… $34,650 2014 Dec b 31 Interest Receivable Interest Revenue Accrued interest, $40,000 × 6% × 1/2 1,200 1,200 Ex 15–5 Interest earned (April to September 1) …………………………………………… Interest earned on sold bonds (September to November 1) ………………… Interest earned on remaining bonds (September to December 31) ………… $1,500 Total interest earned in 2014…………………………………………………………… $2,475 $80,000 × 4.5% × 5/12 $30,000 × 4.5% × 2/12 $50,000 × 4.5% × 4/12 225 750 Ex 15–6 a Mar 10 Investments—Dickson Co Stock* Cash 192,240 192,240 *(6,000 shares × $32.00) + $240 b July 23 Cash* Dividend Revenue 8,400 8,400 *$1.40 × 6,000 shares c Nov 22 Cash* Gain on Sale of Investments Investments—Dickson Co Stock** 91,000 14,104 76,896 *(2,400 shares ì $38.00) $200 **($192,240 ữ 6,000 shares) × 2,400 shares Ex 15–7 Feb Investments—Tybee Company Stock* Cash 148,920 148,920 *(2,400 shares × $62.00) + $120 Apr 22 Cash* Dividend Revenue 1,440 1,440 *$0.60 per share × 2,400 shares May 26 Cash* Loss on Sale of Investments Investments—Tybee Company Stock** *(1,000 shares × $52.00) – $60 **1,000 shares ì ($148,920 ữ 2,400 shares) 51,940 10,110 62,050 Prob 15–3B (Concluded) Dec 16 Cash* Dividend Revenue 27,200 27,200 *8,500 shares × ($3.00 + $0.20) 31 Cash Investment in Helsi Co Stock 38,000 31 Investment in Helsi Co Stock Income of Helsi Co To record 30% of Helsi Co income $170,000 ì (75,000 shares ữ 250,000 shares) 51,000 38,000 31 Valuation Allowance for Available-forSale Investments* Unrealized Gain (Loss) on Available-forSale Investments 51,000 68,000 68,000 *8,500 × ($44 – $36.00) GLACIER PRODUCTS, INC Balance Sheet (selected items) December 31, 2015 Current assets: Available-for-sale investments (at cost) Plus valuation allowance for available-forsale investments $340,000 34,000 Available-for-sale investments (at fair value) Investments: Investment in Helsi Co stock Stockholders’ equity: Retained earnings Unrealized gain (loss) on available-for-sale investments 8,500 shares × $40 per share 8,500 shares × $44 per share $800,000 + $51,000 – $38,000 $374,000 $813,000 $700,000 34,000 Prob 15–4B a b c $147,200 $4,680 $151,880 (from table) ($151,880 – $147,200, from table) (from table) Market Alvarez Inc stock…… Hirsch Inc stock……… Richter Inc stock…… Toon Co bonds……… d e f g h i $240 $81,200 $604,320 $178,640 $4,680 $604,320 No of Shares (or Cost per Share (or $100 of Value per Share (or $100 of Total Fair face amount) face amount) face amount) Cost Value $ 36,480 54,720 32,000 24,000 $ 39,840 49,400 38,400 24,240 $147,200 $151,880 960 1,900 800 $24,000 $38.00 28.80 40.00 100 $41.50 26.00 48.00 101 ($24,000 × 4% × 3/12) [$69,200 + ($80,000 × 30%) – $12,000] ($160,000 + $115,000 + $151,880 + $240 + $81,200 + $96,000) ($127,400 + $51,240) [same as (b)] ($91,000 + $80,000 + $250,000 + $178,640 + $4,680) Prob 15–4B (Continued) The completed comparative unclassified balance sheets are as follows: TEASDALE, INC Balance Sheet December 31, 2015 and 2014 Dec 31, 2015 Dec 31, 2014 Cash Accounts receivable (net) $160,000 115,000 $156,000 108,000 Available-for-sale investments (at cost)—Note Plus valuation allowance for available-for-sale investments $147,200 $ 91,200 4,680 $151,880 8,776 $ 99,976 $ 240 81,200 96,000 $604,320 $ — 69,200 105,000 $538,176 $ 91,000 80,000 250,000 178,640 $ 72,000 80,000 250,000 127,400 4,680 $604,320 8,776 $538,176 Available-for-sale investments (fair value) Interest receivable Investment in Wright Co stock—Note Office equipment (net) Total assets Accounts payable Common stock Excess of issue price over par Retained earnings Unrealized gain (loss) on available-for-sale investments Total liabilities and stockholders’ equity Note Investments are classified as available for sale The investments at cost and fair value on December 31, 2014, are as follows: Alvarez Inc stock…………………… Hirsch Inc stock…………………… No of Cost per Total Total Fair Shares Share Cost Value $36,480 54,720 $39,936 60,040 $91,200 $99,976 960 1,900 $38.00 $28.80 Prob 15–4B (Concluded) For December 31, 2015: Market Alvarez Inc stock… Hirsch Inc stock…… Richter Inc stock… Toon Co bonds…… No of Shares (or Cost per Share (or $100 of Value per Share (or $100 of Total Fair face amount) face amount) face amount) Cost Value $ 36,480 54,720 32,000 24,000 $ 39,840 49,400 38,400 24,240 $147,200 $151,880 960 1,900 800 $24,000 $38.00 28.80 40.00 100 $41.50 26.00 48.00 101 Note The Investment in Wright Co stock is an equity method investment representing 30% of the outstanding shares of Wright Co COMPREHENSIVE PROBLEM a b c Cash Common Stock Paid-In Capital in Excess of Par— Common Stock 450,000 Cash Preferred Stock Paid-In Capital in Excess of Par— Preferred Stock 400,000 Cash* Bonds Payable Premium on Bonds Payable 520,000 300,000 150,000 320,000 80,000 500,000 20,000 *$500,000 × 1.04 d Cash Dividends* Cash Dividends Payable 50,000 50,000 *100,000 shares × $0.50 per share Cash Dividends* Cash Dividends Payable 20,000 20,000 *20,000 shares × $1.00 per share e f Cash Dividends Payable Cash Investments—Solstice Corp.* Cash 70,000 70,000 300,150 300,150 *(7,500 shares × $40 per share) + $150 g Treasury Stock* Cash 264,000 264,000 *8,000 shares × $33 per share h Investment in Pinkberry Co Stock* Cash *40,000 shares × $24 per share 960,000 960,000 Comp Prob (Continued) i j k l m n o Cash Dividends Cash Dividends Payable 20,000 Cash Dividends Payable Cash 20,000 Cash Investment in Pinkberry Co Stock 27,500 Investments—Dream Inc Bonds Interest Receivable Cash 90,000 375 Cash* Treasury Stock** Paid-In Capital from Sale of Treasury Stock * 2,600 shares × $38 per share ** 2,600 shares × $33 per share Cash* Dividend Revenue * 7,500 shares × $0.60 per share Cash* Gain on Sale of Investment Investments—Solstice Corp.** * 1,000 shares × $45.00 per share ** 1,000 shares × ($300,150 ÷ 7,500 shares) 20,000 20,000 27,500 90,375 98,800 85,800 13,000 4,500 4,500 45,000 4,980 40,020 Comp Prob (Continued) Interest Expense Premium on Bonds Payable Cash p 11,500 1,000 12,500 Computations: Semiannual interest payment ($500,000 × 5% × 1/2)………………… Less amortization premium [($20,000 ữ 10 years) ì 1/2] Interest expense Interest Receivable Interest Revenue Interest accrued for three months q $12,500 1,000 $11,500 1,125 1,125 Computation: $90,000 × 5% × 3/12 = $1,125 Investment in Pinkberry Co Stock* Income from Pinkberry Co Recorded 32% share of Pinkberry Co net income * $240,000 ì 32%, 32% = 40,000 shares ữ 125,000 shares r s Unrealized Gain (Loss) on Available-for-Sale Investments Valuation Allowance for Available-for-Sale Investments 6,500 shares × ($39.02 – $40.02*) * $40.02 = $300,150 ÷ 7,500 shares 76,800 76,800 6,500 6,500 Comp Prob (Continued) a EQUINOX PRODUCTS INC Income Statement For the Year Ended December 31, 2014 Sales Cost of merchandise sold $5,254,000 3,700,000 Gross profit Operating expenses: Selling expenses: Sales salaries expense Sales commissions Advertising expense Depreciation expense—store buildings and equipment Delivery expense Store supplies expense Miscellaneous selling expense $1,554,000 Administrative expenses: Office salaries expense Office rent expense Depreciation expense—office buildings and equipment Office supplies expense Miscellaneous administrative expense $385,000 185,000 150,000 100,000 30,000 21,000 14,000 $885,000 $170,000 50,000 30,000 10,000 7,500 267,500 Total operating expenses 1,152,500 $ 401,500 Income from operations Other expenses and income: Dividend revenue Interest revenue Income from Pinkberry Co investment Gain on sale of investment Interest expense $ 4,500 2,720 76,800 4,980 (21,000) $ 469,500 140,500 $ 329,000 Income before income tax Income tax Net income Earnings per common share: Net income* 68,000 $2.29 * ($329,000 – $100,000 preferred dividends) ÷ 100,000 common shares, rounded Comp Prob (Continued) EQUINOX PRODUCTS INC Retained Earnings Statement For the Year Ended December 31, 2014 b $9,319,725 Retained earnings, January 1, 2014 Net income for year Less cash dividends: Common Preferred $329,000 $155,120 100,000 255,120 Increase in retained earnings Retained earnings, December 31, 2014 73,880 $9,393,605 EQUINOX PRODUCTS INC Balance Sheet For the Year Ended December 31, 2014 c Assets Current assets: Cash Available-for-sale investments Less valuation allowance for available-for-sale investment Accounts receivable Less allowance for doubtful accounts $ 246,000 $ $ 260,130 6,500 253,630 545,000 8,450 536,550 Merchandise inventory, at lower of cost (FIFO) or market Interest receivable Prepaid expenses 778,000 1,125 27,400 Total current assets Investments: Investment in Pinkberry Co stock Investment in Dream Inc bonds Property, plant, and equipment: Store buildings and equipment Less accumulated depreciation $12,560,000 4,126,000 $8,434,000 Office buildings and equipment Less accumulated depreciation $ 4,320,000 1,580,000 2,740,000 Total property, plant, and equipment Intangible assets: Goodwill Total assets $ 1,842,705 1,009,300 90,000 11,174,000 500,000 $14,616,005 Comp Prob (Concluded) EQUINOX PRODUCTS INC Balance Sheet For the Year Ended December 31, 2014 Liabilities Current liabilities: Accounts payable Income tax payable $ Total current liabilities Long-term liabilities: Bonds payable, 5%, due 2022 Add premium on bonds payable 194,300 44,000 $ $ 500,000 19,000 519,000 $ Total liabilities 238,300 757,300 Stockholders’ Equity Paid-in capital: Preferred 5% stock, $80 par (30,000 shares authorized; 20,000 shares issued) Excess of issue price over par Common stock, $20 par (400,000 shares authorized; 100,000 shares issued, 94,600 shares outstanding) Excess of issue price over par From sale of treasury stock Total paid-in capital Retained earnings Unrealized gain (loss) on availablefor-sale investments Total Deduct treasury common stock (5,400 shares at cost) Total stockholders’ equity Total liabilities and stockholders’ equity $1,600,000 150,000 $ 1,750,000 $2,000,000 886,800 2,886,800 13,000 $ 4,649,800 9,393,605 (6,500) $14,036,905 178,200 13,858,705 $14,616,005 CASES & PROJECTS CP 15–1 Under generally accepted accounting principles, the land would be reported at $350,000 for Wyatt Corp and $2,000,000 for TexoPete Inc These valuations reflect their historical costs The historical cost valuation reduces the ability to compare the two companies In this scenario, both companies have nearly identical land holdings Wyatt Corp purchased its land in 1996; thus, the land is valued according to a 1996 valuation TexoPete Inc., purchased its land in 2014, reflecting a more current valuation Thus, both companies have a similar asset; however, the balance sheet reports very different valuations (Wyatt’s valuation is approximately 17.5% of TexoPete’s) Therefore, comparability is reduced If the land were valued at fair value, then both companies would report the land at nearly identical valuations, which is a better reflection of reality CP 15–2 There is an emerging trend toward more uniform accounting standards worldwide This is caused by companies participating in multiple capital markets For example, many companies not only have their stock trade on the New York Stock Exchange, but might also have their stock trade in London or Japan In these cases, companies must provide financial reports that conform to the laws of the country in which their stock trades Lack of accounting uniformity causes unnecessary reporting expenses for companies that wish to broaden the market for their stock worldwide, while making financial statements less comparable for users around the world Thus, the United States and the European Union are working to align their financial accounting standards When the International Accounting Standards Board (IASB, European Union) releases a standard such as IAS No 16, it influences U.S GAAP In this case, the United States does not embrace IAS No 16, so it is not U.S GAAP However, as the United States and Europe work to converge standards, we might see the substance of IAS No 16 reflected in a future FASB pronouncement Fair value reporting for property, plant, and equipment is a very aggressive fair value position This is because property, plant, and equipment fair values are usually very subjective Given this subjectivity, there is concern that the reported balance sheet amounts for property, plant, and equipment would be subject to manipulation and possible abuse Moreover, the lack of objective fair values for these types of assets could reduce the comparability of financial statements across companies, depending on the subjective assumptions selected in the valuation CP 15–2 (Concluded) The accounting treatment for increases in fair value for property, plant, and equipment under International Accounting Standards is similar to the treatment for unrealized gains and losses from available-for-sale investments Increases in fair value bypass the income statement and are reported directly in stockholders’ equity Thus, increases in property, plant, and equipment fair values would not be reported in earnings Decreases in fair value are reported on the income statement as an expense Income statement treatment is similar to the treatment for unrealized gains and losses from trading securities If the property, plant, and equipment fair value declines, the income statement impact of this decline is fully disclosed CP 15–3 Since many complex and exotic investment vehicles not have ready market values, management must value these investments using mathematical models, subjective inputs, and risk assessments These mathematically determined valuations are subject to wide variation, depending on the assumptions Therein lies the ethical challenge Since the valuation is subjective, it is possible for managers to over- or underestimate fair values to meet their personal objectives Moreover, the ability for auditors to verify these values independently is difficult, since there is a lack of agreed-upon objectivity CP 15–4 Look-through earnings is a Warren Buffett term It is the GAAP net income plus an adjustment for the equity earnings (the “forgotten-but-not-gone” earnings) in investments where less than 20% of the outstanding shares are owned Thus, look-through earnings would be significantly greater than GAAP net income for a company that held a large portfolio of these types of investments (which Berkshire does) These are supplemental disclosures that Buffet provides his shareholders in addition to GAAP disclosures Essentially, he is treating these investments as if they were being accounted for under the equity method Buffett makes the case that there is no reason for the equity method to be used only for 20%–50% investees, but that the rationale for the equity method applies equally well for investments of less than 20% Thus, Berkshire Hathaway provides an additional non-GAAP disclosure to its investors, which essentially adds the after-tax equity earnings of its less than 20% investees to its net income In so doing, Buffett argues that the earning power of all of his investments is properly disclosed in look-through earnings He argues that the dividends that he receives from his less than 20%-owned investees not reflect the earning power of his investment, even though that is what is required by GAAP CHAPTER 15 Investments and Fair Value Accounting CP 15–5 The following are portions of Notes and from the financial statements dated June 30, 2011, for Microsoft NOTE INVESTMENTS Investment Components, Including Associated Derivatives (In millions) June 30, 2011 Cash Mutual funds Commercial paper Certificates of deposit U.S Government and Agency securities Foreign government bonds Mortgage-backed securities Corporate notes and bonds Municipal securities Common and preferred stock Other investments Total Cost Basis $ 1,648 1,752 639 598 33,607 658 2,307 10,575 441 7,925 654 $60,804 Unrealized Gains $ — — — — 162 11 121 260 15 2,483 — $3,052 Unrealized Losses $ — — — — (7) (2) (4) (11) (2) (193) — $(219) Recorded Basis $ 1,648 1,752 639 598 33,762 667 2,424 10,824 454 10,215 654 $63,637 Cash and Cash Equivalents $1,648 1,752 414 372 2,049 — — 3,375 — — — $9,610 Short-Term Investments $ — — 225 226 31,713 667 2,424 7,449 454 — $43,162 15-49 © 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Equity and Other Investments $ — — — — — — — — — 10,215 650 $10,865 CHAPTER 15 CP 15–5 (Concluded) NOTE Investments and Fair Value Accounting OTHER INCOME (EXPENSE) The components of other income (expense) were as follows: (In millions) Year Ended June 30, 2011 Dividends and interest Net recognized gains (losses) on investments Net gains (losses) on derivatives Net gains (losses) on foreign currency remeasurements Other Total $ 900 (295) 439 (77) (26) (31) $ 910 2010 $ 843 (151) 348 (140) 14 $ 915 2009 $ 744 (38) (125) (558) (509) (56) $(542) Note to Instructors: This solution is provided as a guide Students may have different numbers, depending on the date of the financial statements Answers in millions $60,804 $63,637 (termed, “recorded basis” by Microsoft) $3,052 ($219) a b c $900 ($295) $9,610 ÷ $63,637 = 15.1% $43,162 ÷ $63,637 = 67.8% $10,865 ữ $63,637 = 17.1% 15-50 â 2014 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part ... Revenue* 150 ,000 150 ,000 4,000 4,000 6,000 4,000 2,000 * $150 ,000 × 8% × 2/12 d 2 015 Mar Cash* Gain on Sale of Investments Investments—Pluto Corp Bonds *$75,000 × 102% 76,500 1,500 75,000 Ex 15 3.. .CHAPTER 15 Investments and Fair Value Accounting PRACTICE EXERCISES PE 15 1A a b Investments—Tyler City Bonds Interest Receivable Cash... Cash* Dividend Revenue * 800 shares × $0.51 408 408 Ex 15 9 Feb 24 Investments—Tett Co Stock* Cash 85 ,150 85 ,150 *(1,000 shares × $85) + $150 May 16 Investments—Issacson Co Stock* Cash 90,100