Required:

Prepare all journal entries for Bactin for 2006 and 2007, assuming no change in market value of the Oakton stock during that time period.

Answer:

1/1/06	Investment in Oakton	100,000
	Cash		100,000
12/31/06	Cash ($30,000 x 10%)	3,000
	Investment revenue		3,000
1/1/07	Investment in Oakton	100,000
	Cash		100,000
	Investment in Oakton	3,000
	Retained earnings**		3,000
12/31/07	Cash ($40,000 x 20%)	8,000
	Investment in Oakton		8,000
12/31/07	Investment in Oakton ($80,000 x 20%)	16,000
	Investment revenue		16,000

To adjust retained earnings due to change to equity method:

10% x $60,000 NI - 10% x $30,000 dividends

Learning Objective: 6 Level of Learning: 3

128. The following transactions occurred during the year for XYZ Corporation:

1. During the year, trading securities were purchased for $250,000.

2. During the year, securities available for sale were purchased for $80,000.

3. During the year, trading securities that cost $100,000 at the beginning of the year were sold for $125,000 cash.

4. At the end of the year, the trading securities portfolio has an aggregate market value of $142,000 and an aggregate cost of $150,000.

Required:

Indicate how each of these transactions would affect the statement of cash flows for a corporation. Assume the statement of cash flows is prepared using the indirect method. Each transaction is assumed to be independent of the other transactions.

Answer:

1. The $250,000 cash payment for trading securities will be reflected as an increase in the balance of trading securities and deducted from net income in arriving at cash flows from operations.

2. The $80,000 will be shown as an investing cash outflow.

3. The $25,000 gain will be included in net income, the $100,000 decrease in trading securities will be added to net income in arriving at cash flows from operations.

4. The $8,000 unrealized loss will be added from net income in arriving at cash flows from operations.

Learning Objective: 3 Level of Learning: 3

Use the following to answer questions 129-130:

In its 2005 annual report to shareholders, Kraut Inc. included the following disclosure regarding its available for sale investments in securities:

	December 31
	2005	2004		2003
In thousands
Accumulated other comprehensive income
Unrealized gains (losses) on securities:
Balance at beginning of year	--	(7,533	)	(6,862	)
Unrealized gains (losses) for the year	1,509	(3,564	)	(671	)
Unrealized losses recognized	--	11,097		--
Balance at end of year	1,509	--		(7,533	)

Required:

129. Prepare the journal entry (in thousands) that Kraut made at the end of 2005 to record the information disclosed above.

Answer:

Investments in securities 1,509

Unrealized gain on investments 1,509

Learning Objective: 2 Level of Learning: 3

130. In 2004, Kraut made two adjustments to its available for sale investments.

Required:

Briefly explain the adjustments and why they occurred.

Answer:

The first entry was to record the additional unrealized loss $3,564 thousand that Kraut had incurred from holding these securities. This raised the accumulated holding loss to 11,097 thousand on these investments. The second adjustment indicates the recognition (realization) of that accumulated loss. This occurred because Kraut either wrote off the investment or sold it at the end of the year.

Learning Objective: 2 Level of Learning: 3

Use the following to answer questions 131-133:

Arctic Cat Inc., the snowmobile manufacturer, reported the following in its 2005 annual report to shareholders: