Instructor / Section Day + Time: Group No: Student Name: Student Name: Student Name: Student Name: Student Name: Student Name: CHAPTER 17 IN-CLASS ACTIVITY INVESTMENTS - 20 POINTS On January 1, 2047, Erin Corporation bought Roger Corporation bonds. The bonds have a $5 million face value, a 4.5% coupon rate (paid annually), 10 years to maturity, and were priced to yield 5%. The bonds are accounted for as available-for- sale and were worth $4.9 million at year-end 2097. Erin also had the following equity investments outstanding for all of 20Y7. The shares of Jenny were purchased on January 1, 2017 and are accounted for using the equity method. The shares of Frank and Penny were purchased during 20Y6. Investment Investment Stake Cost 5% $6 million 2% $4 million 30% $20 million Equity Investment Frank Corporation Penny Corporation Jenny Corporation Investment Investment FMV FMV 12/31/20Y6 12/31/20Y7 $7 million $6.4 million $4.5 million $4.2 million $21 million Total Dividends 20Y7 $2.4 million $2 million $1 million Total Net Income 2047 $2 million $5 million $7 million 1. How will accounting for all of the above investments impact Erin's pre-tax income for 2017? Add labels and amounts for each relevant income statement item in the blank table below. You may not need to use all of the rows. Income Statement Item 2047 Amount 2. What is the December 31, 20Y7 balance of each of Erin's investment related accounts (excluding Cash and any investment related impacts to Retained Earnings)? Add labels and amounts for each relevant balance sheet item in the blank table below. Please list any fair value adjustment account separately from its Investment account for this part of the activity, even though an actual Balance Sheet would net them.. You may not need to use all of the rows. Balance Sheet Item 12/31/97 Amount OnTrn 3. By how much would Erin's pre-tax earnings in 2017 be different than the amount calculated in Question 1 if- at the time the shares were purchased - management had elected to account for its 30% stake in Jenny using the fair value option rather than the equity method? Yes, that is a choice that companies can make. 4. During 20Y8, Frank and Penny paid the same dividends that they paid during 20Y7. However, Erin sold the shares of Penny for a total of $5 million during 20Y8 before Penny had declared its dividend. If the total 2048 earnings effect associated with the Frank and Penny portion of Erin's portfolio was a decrease of $280,000, what was the fair market value of Erin's investment in Frank at year-end 20Y8? Instructor / Section Day + Time: Group No: Student Name: Student Name: Student Name: Student Name: Student Name: Student Name: CHAPTER 17 IN-CLASS ACTIVITY INVESTMENTS - 20 POINTS On January 1, 2047, Erin Corporation bought Roger Corporation bonds. The bonds have a $5 million face value, a 4.5% coupon rate (paid annually), 10 years to maturity, and were priced to yield 5%. The bonds are accounted for as available-for- sale and were worth $4.9 million at year-end 2097. Erin also had the following equity investments outstanding for all of 20Y7. The shares of Jenny were purchased on January 1, 2017 and are accounted for using the equity method. The shares of Frank and Penny were purchased during 20Y6. Investment Investment Stake Cost 5% $6 million 2% $4 million 30% $20 million Equity Investment Frank Corporation Penny Corporation Jenny Corporation Investment Investment FMV FMV 12/31/20Y6 12/31/20Y7 $7 million $6.4 million $4.5 million $4.2 million $21 million Total Dividends 20Y7 $2.4 million $2 million $1 million Total Net Income 2047 $2 million $5 million $7 million 1. How will accounting for all of the above investments impact Erin's pre-tax income for 2017? Add labels and amounts for each relevant income statement item in the blank table below. You may not need to use all of the rows. Income Statement Item 2047 Amount 2. What is the December 31, 20Y7 balance of each of Erin's investment related accounts (excluding Cash and any investment related impacts to Retained Earnings)? Add labels and amounts for each relevant balance sheet item in the blank table below. Please list any fair value adjustment account separately from its Investment account for this part of the activity, even though an actual Balance Sheet would net them.. You may not need to use all of the rows. Balance Sheet Item 12/31/97 Amount OnTrn 3. By how much would Erin's pre-tax earnings in 2017 be different than the amount calculated in Question 1 if- at the time the shares were purchased - management had elected to account for its 30% stake in Jenny using the fair value option rather than the equity method? Yes, that is a choice that companies can make. 4. During 20Y8, Frank and Penny paid the same dividends that they paid during 20Y7. However, Erin sold the shares of Penny for a total of $5 million during 20Y8 before Penny had declared its dividend. If the total 2048 earnings effect associated with the Frank and Penny portion of Erin's portfolio was a decrease of $280,000, what was the fair market value of Erin's investment in Frank at year-end 20Y8