Financial Accounting for Undergraduates
6th Edition
Wallace, Nelson, Christensen
SOLUTIONS MANUAL
Includes All Chapters (1 to 13)
+
Appx D & E
, Financial Accounting for Undergraduates, 6e by Wallace et al
Solutions Manual
Appx D. Accounting for Investments and Consolidated Financial Statements
Appx E. Accounting and the Time Value of Money
Chap 1. Financial Accounting and Business Decisions
Chap 2. Processing Accounting Information
Chap 3. Accrual Basis of Accounting
Chap 4. Understanding Financial Statements
Chap 5. Accounting for Merchandising Operations
Chap 6. Accounting for Inventory
Chap 7. Internal Control and Cash
Chap 8. Accounting for Receivables
Chap 9. Accounting for Long-Lived and Intangible Assets
Chap 10. Accounting for Liabilities
Chap 11. Stockholders’ Equity
Chap 12. Statement of Cash Flows
Chap 13. Analysis and Interpretation of Financial Statements
, Appendix D
Accounting for Investments and
Consolidated Financial Statements
QUESTIONS
1. The investment categories for debt security investments are trading securities,
available-for-sale securities, and held-to-maturity securities.
2. The investment categories for equity security investments are noninfluential securities,
influential securities, and controlling securities.
3. The Boris Company bonds belong in the available-for-sale investment category.
Accordingly, the bond premium should be amortized as an adjustment of interest income.
The bonds should be reported at their fair value in the year-end balance sheet.
4. Trading securities are reported at their fair value in the balance sheet. Available-for-sale
securities are reported at their fair value in the balance sheet. Held-to-maturity securities
are reported at their amortized cost in the balance sheet.
5. An unrealized gain is an increase in the fair value of an asset (in this case, an investment
security) that is still owned. An unrealized loss is a decrease in the fair value of an asset
(in this case, an investment security) that is still owned.
6. Unrealized gains and losses related to trading securities and noninfluential securities are
reported in the current year income statement. Unrealized gains and losses related to
available-for-sale securities are reported as a separate component of stockholders' equity
titled Unrealized Gain/Loss on Investments (Equity).
7. An influential stock investment is an investment that gives the owner of the stock the ability
to significantly influence the operating and financing activities of the company whose stock
is owned. Normally, this is accomplished with a 20 to 50 percent ownership of the
company's voting stock.
The equity method is used to account for influential investments. Such an investment is
initially recorded at cost; the investment and investment income accounts are increased
by the proportionate share of the investee company's net income; the investment account
is decreased by dividends received on the investment; and the investment account is
reported in the balance sheet at its book value.
© 2027
Solutions Manual, Appendix D D-1
, 8. Power Company's investment in Starr Company is an influential investment. At year-end,
the investment should be reported in the balance sheet at $258,000 [$250,000 + (40% ´
$80,000) ‒ (40% x $60,000)].
9. A stock investment representing more than 50 percent of the investee company's voting
stock is classified within the controlling securities category. As such, the equity method is
used to account for the investment—initially, the investment is recorded at cost, the
investment and investment income accounts are increased by the proportionate share of
the investee company's net income; and the investment account is decreased by
dividends received on the investment. When financial statements are prepared, the
investment account balance is eliminated as part of the consolidation procedures.
10. Consolidated financial statements portray the financial position, operating results, and
cash flows of affiliated companies as a single economic unit so that the scope of the group
enterprise is more realistically conveyed.
11. Limitations of consolidated statements include the possibility that the performance of poor
companies in a group may be "masked" in consolidation. Likewise, rates of return, other
ratios, and trend percentages calculated from consolidated statements might prove
deceptive because they are composite calculations. Consolidated statements also
eliminate detail about product lines, divisional operations, and the relative profitability of
various business segments. (Some of this information may be available for certain public
firms.) Finally, shareholders and creditors of subsidiary companies find it difficult to isolate
amounts related to their legal rights by inspecting only consolidated statements.
© 2027
D-2 Financial Accounting for Undergraduates, 6th Edition
6th Edition
Wallace, Nelson, Christensen
SOLUTIONS MANUAL
Includes All Chapters (1 to 13)
+
Appx D & E
, Financial Accounting for Undergraduates, 6e by Wallace et al
Solutions Manual
Appx D. Accounting for Investments and Consolidated Financial Statements
Appx E. Accounting and the Time Value of Money
Chap 1. Financial Accounting and Business Decisions
Chap 2. Processing Accounting Information
Chap 3. Accrual Basis of Accounting
Chap 4. Understanding Financial Statements
Chap 5. Accounting for Merchandising Operations
Chap 6. Accounting for Inventory
Chap 7. Internal Control and Cash
Chap 8. Accounting for Receivables
Chap 9. Accounting for Long-Lived and Intangible Assets
Chap 10. Accounting for Liabilities
Chap 11. Stockholders’ Equity
Chap 12. Statement of Cash Flows
Chap 13. Analysis and Interpretation of Financial Statements
, Appendix D
Accounting for Investments and
Consolidated Financial Statements
QUESTIONS
1. The investment categories for debt security investments are trading securities,
available-for-sale securities, and held-to-maturity securities.
2. The investment categories for equity security investments are noninfluential securities,
influential securities, and controlling securities.
3. The Boris Company bonds belong in the available-for-sale investment category.
Accordingly, the bond premium should be amortized as an adjustment of interest income.
The bonds should be reported at their fair value in the year-end balance sheet.
4. Trading securities are reported at their fair value in the balance sheet. Available-for-sale
securities are reported at their fair value in the balance sheet. Held-to-maturity securities
are reported at their amortized cost in the balance sheet.
5. An unrealized gain is an increase in the fair value of an asset (in this case, an investment
security) that is still owned. An unrealized loss is a decrease in the fair value of an asset
(in this case, an investment security) that is still owned.
6. Unrealized gains and losses related to trading securities and noninfluential securities are
reported in the current year income statement. Unrealized gains and losses related to
available-for-sale securities are reported as a separate component of stockholders' equity
titled Unrealized Gain/Loss on Investments (Equity).
7. An influential stock investment is an investment that gives the owner of the stock the ability
to significantly influence the operating and financing activities of the company whose stock
is owned. Normally, this is accomplished with a 20 to 50 percent ownership of the
company's voting stock.
The equity method is used to account for influential investments. Such an investment is
initially recorded at cost; the investment and investment income accounts are increased
by the proportionate share of the investee company's net income; the investment account
is decreased by dividends received on the investment; and the investment account is
reported in the balance sheet at its book value.
© 2027
Solutions Manual, Appendix D D-1
, 8. Power Company's investment in Starr Company is an influential investment. At year-end,
the investment should be reported in the balance sheet at $258,000 [$250,000 + (40% ´
$80,000) ‒ (40% x $60,000)].
9. A stock investment representing more than 50 percent of the investee company's voting
stock is classified within the controlling securities category. As such, the equity method is
used to account for the investment—initially, the investment is recorded at cost, the
investment and investment income accounts are increased by the proportionate share of
the investee company's net income; and the investment account is decreased by
dividends received on the investment. When financial statements are prepared, the
investment account balance is eliminated as part of the consolidation procedures.
10. Consolidated financial statements portray the financial position, operating results, and
cash flows of affiliated companies as a single economic unit so that the scope of the group
enterprise is more realistically conveyed.
11. Limitations of consolidated statements include the possibility that the performance of poor
companies in a group may be "masked" in consolidation. Likewise, rates of return, other
ratios, and trend percentages calculated from consolidated statements might prove
deceptive because they are composite calculations. Consolidated statements also
eliminate detail about product lines, divisional operations, and the relative profitability of
various business segments. (Some of this information may be available for certain public
firms.) Finally, shareholders and creditors of subsidiary companies find it difficult to isolate
amounts related to their legal rights by inspecting only consolidated statements.
© 2027
D-2 Financial Accounting for Undergraduates, 6th Edition
