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CHAPTER 9 SOLUTIONS

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CHAPTER 9 SOLUTIONS ...

    Mugan-Akman 2005

    Solutions Chapter 9

E9-1 A:Cost B: Fair market value C: Equity Method D: Consolidation

    1. trading security fair market value - B

    2. trading security fair market value -B

    3. trading security fair market value -B

    4. Subsidiary consolidate - D

    5. Affiliate equity method of investment - C

    6. Long-term available for sale fair market value -B

E 9-2 Aygun

    1. Journal entries are necessary since market values have changed.

    31-Dec-05 Unrealized Holding Loss on Trading Securities-A 400

     Trading Securities 400 Trading Securities 550

     Unrealized Holding Gain on Trading Securities-B 550 Unrealized Holding Loss 750

     Available for Sale Securities - C 750

2. Items to be reported in the income statement:

    Gross Unrealized Holding Loss on Trading Securities- A TL (400)

    Gross Unrealized Holding Gain on Trading Securities-B TL 550

    Unrealized Holding Gain on Securities of TL 150 will be reported in the income statement of

    2005.

3. Trading Securities Balance on the 31 December 2005 Balance Sheet:

    Security A TL 5.000

    Security B 6.000

     TL 11.000 in current assets

Available for Sale Securities:

    Security C TL 12.000 in long-term assets

    Unrealized Holding Gain or Loss TL (750) in shareholders’ equity section.

E9-3 Hasri

    31-Dec-04 Available for Sale Securities 700

     Unrealized Holding Gain on Securities 700 31-Dec-05 Unrealized Holding Loss on Securities 2,000

     Available for Sale Securities 2,000

The balance of Unrealized Holding Gain or Loss on Securities is a debit of TL 1.300 showing

    an unrealized loss of TL 1.300.

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    Mugan-Akman 2005

    Solutions Chapter 9

E 9-4 Tigros Co.

    Date Account Name Debit Credit 20 September Trading Securities 118.000

     Cash 118.000

    31 December Interest Receivable *23.375

     Interest Revenue 23.375

     *(145.500 -118.000)*102/120

    31 December Trading Securities 2.000

     Unrealized Gain on Trading Securities 2.000

    18 January Cash 145.500

     Unrealized Loss on Trading Securities 2.000

     Interest Receivable 23.375

     Interest Revenue 4.125

     Trading Securities 120.000

E 9-5 Violet A.S.

    Share # of Shares Cost Market

    Seker Pilic 120 366.000 354.000

    Turkcell 180 1.494.000 1.495.800

    Vestel 90 252.000 247.500

    Date Account Name Debit Credit 31 December Unrealized Holding Loss on Trading Sec. 12.000

     Trading Securities- Seker Pilic 12.000

    31 December Unrealized Holding Loss on Trading Sec 4.500

     Trading Securities-Vestel 4.500

    31 December Trading Securities- Turkcell 1.800

     Unrealized Gain on Trading Securities 1.800

    28 February Cash 242.100

     Loss on Sale of Marketable Securities 5.400

     Trading Securities- Vestel 247.500

E 9-6 Classify

    1. Securities available for sale; current assets

    2. Securities available for sale; non-current assets

    3. Trading securities; current assets

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    Mugan-Akman 2005

    Solutions Chapter 9

     P10-1

    a. Purchased Sezin A.Ş shares

    Trading Securities-Sezin A.S. 9.000

     Cash 9.000

    Cost per share = 0.15 TL

    b. Purchased Meski A.Ş. Shares

    Trading Securities - Meski A.S. 4.000

     Cash 4.000

    Cost per share = 0.01 TL

    c. Sezin A.Ş paid 20% dividends or TL 0.03each. Cash 1.800

     Dividend Revenue 1.800

    d. On 15 August 2005 Cash 720 8.000 shares*TL 0.09 = 720

     Gain on Sale of Securities 640

     Trading Securities 80 8.000 shares* TL 0.01 = 80

    e. At the end of the year

    no of at Cost at Market total cost total

    shares (TL ) market

    (TL )

    Sezin AS 60.000 0.15 0.12 9.000 7.200 Meski 392.000 0.01 0.075 3.920 29.400

     12.200 36.600

Unrealized Holding Loss on Securities 1.800

     Trading Securities-Sezin 1.800

     800

    Trading Securities-Meski 25.480

    Unrealized Holding Gain on Securities 25.480

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    Mugan-Akman 2005

    Solutions Chapter 9

f. Effect on Income Statement and Balance Sheet

     Income Statement:

    Realized loss on sale of Securities - TL 640

    Unrealized Holding Gain on Securities -TL 23.680

    Dividend Revenue 1.800

    Net Effect on Income 24.840

Balance Sheet:

    Trading Securities now up to TL 36.600

P 9-2 Aydan Elektronik

    Discount/ premium Amount Amortized Amount Cash Interest At PAR

    Interest Revenue

     a b c b+c Purchase date 0.00 End of Year 1 0.00 0.00 2.200 2.200 End of Year 2 0.00 0.00 2.200 2.200 Maturity date 0.00 0.00 2.200 2.200

    a - TL 10.000 less the outstanding amount b- since there is no discount or premium, there is no amortized amount

    c- 22% x TL 10.000= TL 2.200 same every year

    Discount Amount Amortized Amount Cash Interest At a DISCOUNT Interest Revenue

     a b c b+c Purchase date 585.60

    End of Year 1 432.00 153.60 2.200 2353.60 End of Year 2 240.00 192.00 2.200 2392.00 Maturity date 0.00 240.00 2.200 2440.00

a - TL 10.000 less the outstanding amount

    b- TL 585.60-432=153.60

     TL 432 - 240= 192

     TL 240-0=240

    c- 22% x TL 10.000= TL 2.200 same every year

    Premium Amount Amortized Amount Cash Interest At a PREMIUM Interest Revenue

     a b c c-b Purchase date 421.30 4 End of Year 1 305.56 115.74 2200.00 2084.26

    Mugan-Akman 2005

    Solutions Chapter 9

     End of Year 2 166.67 138.89 2200.00 2061.11

    b- TL 421.20- 305.56= TL 115.74 Maturity date 0.00 166.67 2200.00 2033.33 TL 305.56 -166.67= TL 138.89 TL 166.67 - 0= TL 166.67 a - TL 10.000 less the outstanding amount c- 22% x TL 10.000= TL 2.200 same every year

Journal Entries:

    Date PAR 1-Jan-05 Long-term Invesment in Bonds 10000

     Cash 10000

     record purchase of investment 31-Dec-05 Interest Receivable 2200

     Interest Revenue 2200

     record recognition of interest 1-Jan-06 Cash 2200

     Interest Receivable 2200

     record collection of interest 31-Dec-06 Interest Receivable 2200

     Interest Revenue 2200

     record recognition of interest 1-Jan-07 Cash 2200

     Interest Receivable 2200 31-Dec-07 Interest Receivable 2200

     Interest Revenue 2200

     record collection of interest 1-Jan-08 Cash 12200

     Interest Receivable 2200

     Long term Investment in Bonds 10000

     record collection of interest and

     maturity value-principal value

    Date DISCOUNT 1-Jan-05 Long-term Invesment in Bonds 10000

     Cash 10000

     record purchase of investment 31-Dec-05 Interest Receivable 2200

     Amortization of Discount 153.60

     Interest Revenue 2353.60

     record recognition of interest and amortization of discount 1-Jan-06 Cash 2200

     Interest Receivable 2200

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    Mugan-Akman 2005

    Solutions Chapter 9

     record collection of interest 31-Dec-06 Interest Receivable 2200

     Amortization of Discount 192.00

     Interest Revenue 2392.00

     record recognition of interest and amortization of discount 1-Jan-07 Cash 2200

     Interest Receivable 2200 31-Dec-07 Interest Receivable 2200

     Amortization of Discount 240.00

     Interest Revenue 2440.00

     record recognition of interest and amortization of discount 1-Jan-08 Cash 12200

     Interest Receivable 2200

     Long term Investment in Bonds 10000

     record collection of interest and

     maturity value-principal value

    Date PREMIUM 1-Jan-05 Long-term Invesment in Bonds 10000

     Cash 10000

     record purchase of investment 31-Dec-05 Interest Receivable 2200

     Amortization of Discount 115.74

     Interest Revenue 2084.26

     record recognition of interest and amortization of premium 1-Jan-06 Cash 2200

     Interest Receivable 2200

     record collection of interest 31-Dec-06 Interest Receivable 2200

     Amortization of Discount 138.89

     Interest Revenue 2061.11

     record recognition of interest and amortization of discount 1-Jan-07 Cash 2200

     Interest Receivable 2200 31-Dec-07 Interest Receivable 2200

     Amortization of Discount 166.67

     Interest Revenue 2033.33

     record recognition of interest and amortization of premium 1-Jan-08 Cash 12200

     Interest Receivable 2200

     Long term Investment in Bonds 10000

     record collection of interest and

     maturity value-principal value 6

    Mugan-Akman 2005

    Solutions Chapter 9

P 9-3 Dede Kargo

    Feb-04 Long term Equity Investments-Kolay Tasima 105.000

     Cash 105.000

    Dec-04 TL 55.000 x 0.35 Long-term Equity Investment 19.250

     Revenues from Equity Investments 19.250 when income of the equity investment- Kolay Tasima is known

    Apr-05 Cash 8.750 TL 25.000 x 0.35

     Long-term Equity Investment-Kolay Tasima 8.750 when dividends declared and/or paid.

P 9-4 Fin Finance Comp.

1. Journal Entry for the sale of securities

    Entry 1: Cash 67.000 Realized Losses on Sale of Securities 6.700

     Realized Gains on Sale of Securities 14.278

     Available for Sale Securities 59.422 * 67000+6700-14278

    Cost of securities sold 59.422

    Book value of securities 60.118

    Unrealized Holding gain eliminated 696

     Entry 2:

    Unrealized Holding Gain or Loss on Securities 696

     Available for Sale Securities 696

    2. Cost of securities sold is: TL 59.422

    3.

    Unrealized Holding Gain or Loss on Securities

     Beg Bal * 1404

    Unrealized Holding

    Gain in Securities Sold increase 1746

     696

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    Mugan-Akman 2005

    Solutions Chapter 9

     End Bal * 2454 * 1.914- 510

    * 2.890 - 436

    During 2005 the unrealized gain on the securities on hand at the end of the year increased

    by TL 1.746.

    4.

    Revenue Recognized in the Income Statement of 2005:

     TL

    Realized Gain on Sale of Securities 7.578 * gross realized gain - loss

    Dividend Revenue 5.000

     12.578 Increase in unrealized holding gain on available for sale securities will stay on the balance

    sheet under shareholders' equity account.

P 9-5 Class Computers

a. and b. Journal entries and Valuation on 30 June and 31 December

    Date Account Name Debit Credit 1-Jan Trading Securities 12000

     Cash 12000

    28-Feb Trading Securities 21750

     Cash 21750 total Doktas 6000 shares at TL 2,00 12000 Bossa 1500 shares at TL 6,50 9750 21750

    12-Mar Cash 13500

     Trading Securities-T bill 12000

     Interest Revenue 1500

    15-May Cash 1575

     Dividend Revenue 1575 Bossa 1500 shares x TL 1,05 per share 1575

    30-May Cash 4500

     Dividend Revenue 4500 Doktas 6000 shares x TL 0,75 per share 4500

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    Mugan-Akman 2005 Solutions Chapter 9 Total Cost Total Market Difference # of shares Cost per share Market price market- per share On June 30 Cost Bossa 1500 6.50 6.35 9750 9525 -225 Doktas 6000 2.00 2.01 12000 12060 60

     21750 21585

    30-Jun Unrealized Holding Loss on Securities 225

     Trading Securities 225

    30-Jun Trading Securities 60

     Unrealized Holding Gain on Securities 60

    10-Sep Cash 9720

     Gain on Sale of Securities 195

     Trading Securities 9525 Sold Bossa shares - 1500 shares x Tl 6,48= 9720

     Carrying value on that date 9525

    1-Oct Marketable Securities 3525

     Cash 3525 Ersu 750 shares x TL 4,70 each

    2-Oct Trading Securities - Gov. Bonds 9000

     Cash 9000

    30-Nov Cash 1875

     Dividend Revenue 1875 Ersu dividends 750shares x 2.5

    31-Dec Interest Receivable* 450

     Interest Revenue 450

     (*) 9.000*20%*90/360=450 450 On December 31

    Total Cost Total Market Difference # of shares Cost per share Market

    market- price per

    Cost share

    Bossa 0 0.00 0.00 0 0 0 Doktas 6000 2.00 1.98 12000 11880 -120 Ersu 750 4.70 4.75 3525 3562.5 37.5

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    Mugan-Akman 2005

    Solutions Chapter 9

    31-Dec Unrealized Holding Loss on Securities 120

     Trading Securities 120

    31-Dec Trading Securities 37.50

     Unrealized Holding Gain on Securities 37.50

     TL c.Balance Sheet Trading Securities 15,442.50 Balance Sheet 31 December 2005 d. Revenues Earned from Trading Securities

Income Statement Effects: 2005 TL

    Gross Unrealized Loss 345.00

    Gross Unrealized Gain 97.50

    Net Unrealized Gain or (loss) (247.50)

Gain or (Loss) on Sale of Securities 195.00

    Dividend Revenue 7950.00

    Interest Revenue 1950.00

    Revenues earned from Trading Securities 9847.50

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