Question

MC Qu. 110 Carpark Services...

Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sales ecurities. The year-end cost and fair values for its portfolio of these investments follow. The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X2 is:

Available-for-Sale Securities	Cost			Fair Value
December 31, 20X1	$	295,000		$	277,000
December 31, 20X2	$	376,000		$	396,000
December 31, 20X3	$	446,000		$	495,000

Multiple Choice

-Debit Fair Value Adjustment – Available-for-Sale (LT) $38,000; Credit Unrealized Gain – Equity $18,000.

-Debit Fair Value Adjustment – Available-for-Sale (LT) $38,000; Credit Unrealized Loss – Equity $18,000; Credit Unrealized Gain – Equity, $20,000.

-Debit Unrealized Gain – Equity $20,000; Credit Fair Value Adjustment – Available-for-Sale (LT) $20,000.

-Debit Fair Value Adjustment – Available-for-Sale (LT) $20,000; Credit Unrealized Loss – Equity $20,000.

-Debit Fair Value Adjustment – Available-for-Sale (LT) $20,000; Credit Unrealized Gain – Equity, $20,000.

MC Qu. 93 Kreighton Manufacturing...

Kreighton Manufacturing purchased on credit £51,000 worth of production materials from a British company when the exchange rate was $1.98 per British pound. At the year-end balance sheet date the exchange rate increased to $2.77. If the liability is still unpaid at that time, Kreighton must record a:

Multiple Choice

-gain of $40,290.

-neither a gain nor loss.

-gain of $141,270.

-loss of $141,270.

-loss of $40,290.

MC Qu. 147 On February 15, Jewel Company...

On February 15, Jewel Company buys 6,900 shares of Marcelo Corp. common stock at $28.64 per share plus a brokerage fee of $450. The stock is classified as available-for-sale securities. This is the company’s first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.16 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.41 per share less a brokerage fee of $305. The fair value of the remaining shares is $29.61 per share. The impact on Jewel’s net income as a result of its investment in Marcelo Corp. was a(n) (Round your intermediate dollar values to the nearest dollar amount):

Multiple Choice

-Increase to income of $10,131.

-Decrease to income of $8,004.

-Increase to income of $3,122.

-Decrease to income of $2,127.

-Increase to income of $5,565.

Answer 1

1. Debit Unrealized Gain – Equity $20,000; Credit Fair Value Adjustment – Available-for-Sale (LT) $20,000

There is a $20000 gain in fair value of the investment.

2.The material purchased on credit =51000*1,98=100980

the exchange rate increased to 2.77=51000*2.77=141270

So now the Kreighton Manufacturing has an extra liability of 40290.

He mus record a loss of 40290

3. The answer is increase to income 10131.

Any dividend received on available for sale securities and actual gain and loss when securities are sold are recognised in income statement.