Problem #1 Coca Cola Company (KO)

Obtain KOs 2014 Annual Report online. Review the financial statements and the notes to the financial statements.

1. List the types of investments held by Coca Cola (fair-value method, cost-method, equity-method, consolidated).

2. Assume KO has only one investee in which it holds 40% ownership. Based on the basic financial statements, what was the investees net income (loss) for 2014?

3. Assume KO has a 25% owned investee and it intends to hold the investment indefinitely. Also assume that the investee paid KO $8M in dividends and Coca Cola recorded the following journal entry:

Cash $8M Dividend Income $8M

What would be the effect on the following items on KOs financials (overstated, understated, or no effect):

Circle one:

a) Cash OS US NE

b) Net Income OS US NE

c) Total Assets OS US NE

d) Contributed Capital OS US NE

4. What is the total fair value of KOs marketable securities at year-end 2014?

5. Prepare the journal entry to record KOs share of earnings for fiscal year 2014 of its investees over which it has significant influence.

6. KOs 2014 balance sheet shows $3,665M in marketable securities. How much of it represents trading securities and how much of it represents available-for-sale securities?

7. Assume that the fair value of Coca Colas marketable securities changed only one time during fiscal year 2014. Prepare the journal entry to record the change.

8. What percentage of 2014 total assets represent hedged derivatives?

9. How much (if any) was the ineffective portion of fair value hedges included in 2014 net income?

Problem #2

The effective portion of a loss associated with a change in FV of a derivative instrument should be reported as a component of OCI only if the derivative is appropriately designated as a (circle one):

a) Cash flow hedge of the foreign currency exposure of a forecasted transaction.

b) FV hedge of the foreign currency exposure of an unrecognized firm commitment.

c) FV hedge of the foreign currency exposure of a recognized asset or liability for which a foreign currency transaction gain or loss is recognized in earnings.

d) Speculation in a foreign currency.