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Financial Accounting Canadian 15th
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Chapter 8
Long-Term Investments and

International Operations
Short Exercises
(10-15 min.) S 8-1
1.
Journal
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
2014
Feb. 10 Long-Term Investment (300 × $25) .......... 7,500
Cash ...................................................... 7,500
Dec. 1 Cash (300 × $0.36) .................................... 108

Dividend Revenue ................................ 108
Dec. 31 Other comprehensive income.................. 500

Long-Term Investment ($7,500 − $7,000) 500
2.
ASSETS
Total current assets ............................................... $ XXX
Long-term investments, at fair value..................... 7,000
SHAREHOLDERS’ EQUITY
Common shares ..................................................... $ XXX
Retained earnings .................................................. XXX
Accumulated other comprehensive income:
Unrealized (loss) on investments ..................... (500)
Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual 559

Copyright © 2015 Pearson Canada Inc.
(5-10 min.) S 8-2
1.
Journal
2015
May 19 Cash (300 × $26) .............................. 7,800
Long-Term Investment ............... 7,000
Other Comprehensive Income ... 800
2. The realized gain from the sale of investment is reported

through Other Comprehensive Income. The loss
recorded at December 31, 2014 was unrealized because
it resulted from a change in the investment’s fair value,
not from the sale of the investment.
Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual

560 Copyright © 2015 Pearson Canada Inc.
(10-15 min.) S 8-3
1. The equity method is appropriate because the investor
(General Motors) holds a 40% investment in the investee
company (ABC).
2.
Journal
ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
(Millions)
a. Long-Term Investment .................................. 41
Cash ............................................................ 41
To purchase equity-method investment.
b. Long-Term Investment ($6 × 0.40) ................ 2.4

Equity-Method Investment Revenue ........ 2.4
To record investment revenue.
c. Cash ($2 × 0.40) .............................................. 0.8

Long-Term Investment .............................. 0.8
To receive cash dividend on equity-method
investment.
3.
Long-Term Investment
(Amounts in millions)
Purchase 41.0 Dividends received 0.8
Net income 2.4
Balance 42.6

(5 min.) S 8-4
(Millions)
Sale proceeds ......................................................... $ 14.0
− Carrying amount of the investment ($42.6 / 2) ..... (21.3)
= (Loss) on sale of investment ................................. $ (7.3)
(10 min.) S 8-5

1. A parent company is a corporation that owns a controlling
(more than 50%) share and has the ability to exercise
control over another company. A subsidiary company is a
company that is controlled by another corporation.
2. Consolidated financial statements combine the balance

sheets, income statements, and cash-flow statements of a
parent company with those of its subsidiaries as if the
parent and its subsidiaries were one company.
3. The parent company’s name appears on the consolidated

financial statements. To consolidate, the parent company
must own more than 50% of the subsidiary’s shares, and
exercise control over the subsidiary.

(10 min.) S 8-6
1. Goodwill is an intangible asset. Goodwill is the excess of
the purchase price to acquire a subsidiary company over
the sum of the net realizable value of the subsidiary’s net
assets (assets minus liabilities). Only the parent company
reports the goodwill. Goodwill appears as an intangible
asset on the consolidated balance sheet.
2. Non-controlling interest is the portion (less than 50%) of a

subsidiary’s shares that are owned by shareholders other
than the parent company. The parent company should
report Non-controlling Interest on its consolidated balance
sheet as part of shareholders' equity.

(10-15 min.) S 8-7
1. Paid $1,010,000 ($1,000,000 × 1.01)
Will collect $1,000,000 at maturity
2. Annual cash interest = $70,000 ($1,000,000 × 0.07)
3. Annual interest revenue will be less than the amount of

cash interest received each year because the investor
bought the bonds at a premium. However, the investor will
collect only the face amount of the bonds at maturity. The
difference between the purchase price paid and the face
amount collected is a reduction in interest revenue over
the life of the bonds.
4. Cash interest received each year......................... $70,000

− Amortization (1,825)*
= Interest revenue year 1 ..................................... $68,175
Interest Received $70,000

Interest @ Effective Rate $1,010,000 × 0.0675 = 68,175
Amortization YR 1 = $ 1,825

(10 min.) S 8-8
Journal
2014
a. Jan. 2 Long-Term Investment in Bonds
($1,000,000 × 1.01) .............................. 1,010,000
Cash ................................................ 1,010,000
To purchase bond investment.
b. Dec. 31 Cash ($1,000,000 × 0.07) ..................... 70,000

Interest Revenue ............................ 70,000
To receive annual interest.
c. 31 Interest Revenue ................................. 1,825

Long-Term Investment in Bonds
($70,000 − [$1,010,000 × 0.0675]) 1,825
To amortize bond investment.
2019
d. Jan. 2 Cash ..................................................... 1,000,000
Long-Term Investment in Bonds ... 1,000,000
To receive face value at maturity.

(5-10 min.) S 8-9
Req. 1
$10,000 x .681 (PV of $1, 5 periods, 8%) = $6,810
Req. 2
$10,000 x 3.993 (PV of an annuity, 5 periods, 8%) = $39,930

(5-10 min.) S 8-10
$1,000,000 x 6.145 (PV of Annuity of $1, 10 periods, 10%) = $6,145,000

(5 min.) S 8-11
1. A. Operating
B. Investing — Most closely related to this chapter.
C. Financing
2. Purchase of investment (or acquisition of other
companies)
Sale of investment (or sale of other companies)

Exercises
(10-15 min.) E 8-12
Journal
a. Long-Term Investment (400 × $40) .......... 16,000

Cash ....................................................... 16,000
b. Cash (400 × $0.50) ..................................... 200

Dividend Revenue ................................. 200
c. Unrealized loss 2,000

[400 × ($40 − $35)] 2,000
d. Cash (400 × $30)......................................... 12,000

Loss on Sale of Investment ...................... 2,000
Long-Term Investment ......................... 14,000

(15-25 min.) E 8-13
Req. 1
Stock Cost Current Net Realizable Value
Shoppers
Drug Mart (3,000 × $50) = $150,000 (3,000 × $48.05) = $ 144,150
Bank of
Montreal (600 × $42.50) = 25,500 (600 × $31.25) = 18,750
EnCana (1,400 × $93.36) = 130,704 (1,400 × $56.96) = 79,744
Total………………………………… $306,204 ……………………….. $242,644
Req. 2
Dec. 31 Other Comprehensive Income 63,560
($306,204 − $242,644)…………..... 63,560
Req. 3
Income Statement (partial):
Other comprehensive income:

Unrealized (loss) on investments ............... $ (63,560)
Balance Sheet (partial):
ASSETS
Long-term investments, at fair value ............. $242,644
Accumulated other comprehensive income:
Unrealized (loss) on investments ................... $ (63,560)

(10-15 min.) E 8-14
Journal
a. Long-Term Investment ................................. 1,000,000

Cash .......................................................... 1,000,000
Purchased equity-method investment.
b. Long-Term Investment ($640,000 × 0.25) .... 160,000

Equity-Method Investment Revenue....... 160,000
c. Cash ($420,000 × 0.25) .................................. 105,000

Long-Term Investment ............................ 105,000
To receive cash dividend on equity-method investment.
Ending balance in the investment account:

$1,055,000 = ($1,000,000 + $160,000 − $105,000)

(10-15 min.) E 8-15
Long-Term Investment in Thai Software
a. Purchase 1,000,000 c. Dividends 105,000
b. Net income 160,000
Balance 1,055,000
Sale of investment for cash of ............ $2,700,000

Carrying amount of investment .......... (1,055,000)
Gain on sale of investment ................. $1,645,000

(15-20 min.) E 8-16
Req. 1
The equity method is appropriate for a 25% investment in

another company’s common shares. Equity method is used
for 20-50% investments, and the investor is presumed to
exercise significant influence over the investee.
Req. 2
Balance sheet (partial):

ASSETS
Long-term investments, at equity......................... $525,000*
Income statement (partial):

Other revenue
Equity-method investment revenue ..................... $ 50,000
_____
*
Explanation:
Cost 500,000
Share of net income Share of dividends
($200,000 × 0.25) 50,000 ($100,000 × 0.25) 25,000
Balance 525,000

(15-20 min.) E 8-17
Req. 1
Manulife should use the amortized-cost method.
Req. 2
Journal
2014
Sept. 30 Long-Term Investment in Bonds
($20,000 × 0.91) ............................................. 18,200
Cash .......................................................... 18,200
Dec. 31 Interest Receivable

($20,000 × 0.07 × 3/12)................................... 350
Interest Revenue ...................................... 350
To accrue interest revenue.
31 Long-Term Investment in Bonds 14*

Interest Revenue ...................................... 14
*($18,200 × 0.08 × 3/12 = $364: $364 − $350 = $14)
Req. 3
Balance sheet (partial)
ASSETS
Current:
Interest receivable ................................................ $ 350
Long-term investment in bonds

($18,200 + $14) ...................................................... $18,214

(5-10 min.) E 8-18
10 x $1,000 = $10,000 x 0.790 (PV of $1, 6 years, 4%) =

$7,900
$10,000 x 5% = $500 x 5.242 (PV of Annuity of $1, 6 years,

4%) = $2,621
The price of the bond investment = $7,900 + $2,621 =

$10,521
Chapter 10 Long-Term Investments and International Operations 575

(10-15 min.) E 8-19
Spanish Subsidiary:
EXCHANGE
EUROS RATE DOLLARS
Assets 500,000 $1.70 $850,000
Liabilities 300,000 1.70 $510,000

Shareholders’ equity:
Common shares 50,000 1.60 80,000
Retained earnings 150,000 1.58 237,000
Accumulated other
comprehensive income:
Foreign-currency
translation adjustment 23,000
500,000 $850,000
During this period, the euro was stronger than the dollar.
The strong euro produced the positive translation
adjustment.

(15-20 min.) E 8-20
Donuts ‘R’ Us Inc. Statement of
Cash Flows (partial)
For the Fiscal Year 2014
(Millions)
Cash flows from investing activities:
Capital expenditures ........................................... $(10.4)
Sale of property, plant, and equipment ............. 7.3
Sale of other businesses .................................... 1.0
Purchase of long-term investments .................. (12.2)
Sale of investments ............................................. 2.5
Net cash (used) in investing activities ........... $(11.8)
Based on Donuts ‘R’ Us investing activities, it appears that

the company is growing. Acquisitions of long-term assets,
other businesses, and investments are greater than the
sales of long-term assets.

(20-25 min.) E 8-21
Journal Entry
Cash.......................................................... 3,110,000
Notes Receivable ................................ 3,110,000
Short-Term Investments ......................... 3,457,000

Cash ..................................................... 3,457,000
Cash.......................................................... 1,409,000
Accumulated Depreciation ..................... 3,691,000
Equipment ............................................ 5,100,000
Cash.......................................................... 461,000
Investments ......................................... 450,000
Gain on Sale of Investments .............. 11,000
Property, Plant, and Equipment ............. 1,761,000

Cash ..................................................... 1,761,000

(20-25 min.) E 8-22
Req. 1
Amount of 5% Factor Present Value

Cash Flow from Table of Cash Flow
$ 20,000 x .952 = $ 19,040
25,000 x .907 = 22,675
30,000 x .864 = 25,920
25,000 x .823 = 20,575
20,000 x .784 = 15,680
$120,000 $103,890
You should choose the option with the payments over the five
years rather than the one payment of $100,000. The present value
of the payments, $103,890, is higher than the present value of the
single payment, $100,000.
Req. 2
Amount of 10% Factor Present Value

Cash Flow from Table of Cash Flow
$ 20,000 x .909 = $ 18,180
25,000 x .826 = 20,650
30,000 x .751 = 22,530
25,000 x .683 = 17,075
20,000 x .621 = 12,420
$120,000 $ 90,855
If the interest rate is 10%, you should choose the one payment of
$100,000 rather than the five payments over five years. The
present value of the single payment, $100,000, is higher than the
present value of the five payments, $90,855.

(continued) E 8-22
Req. 3
Amount of 10% Present Value

Cash Flow Factor of Cash Flow
from
Table
$20,000 x .909 = $ 18,180
25,000 x .826 = 20,650
30,000 x .751 = 22,530
25,000 x .683 = 17,075
Total through $100,000 x $78,435
Yr. 4
Amt. needed
in Yr. 5 to
bring PV to
$100,000 ÷ PV $34,726 ÷ .621 $21,565*
factor for 5 =
yrs.
_____
*$100,000 - $78,435 = $21,565
You would need a payment of $34,726 in Year 5 to make the

present value of the five payments equal to the present
value of the single payment, $100,000.

(20 min.) E 8-23
Req. 1
The two components of accumulated other comprehensive

income discussed in this chapter are as follows:
1. Unrealized gains (losses) on investments.

2. Foreign-currency translation adjustments.
Req. 2
An unrealized gain (loss) on investments produces a

positive (negative) balance.
A foreign-currency translation adjustment is positive when

the assets of a foreign subsidiary are translated into more
dollars than the equities (liabilities plus shareholders’
equity).
The foreign-currency translation adjustment is negative

when the equities of a foreign subsidiary are translated into
more dollars than the assets.

(continued) E 8-23
Req. 3
(Millions)
Accumulated other comprehensive (loss) at
December 31, 2013 .................................................... $(53)
Foreign-currency translation adjustment ................... 29
*Unrealized loss on investments ................................. (16)
Accumulated other comprehensive (loss) at
December 31, 2014 .................................................... $(40)
*
Could also be recorded as Other Income (Loss)

Quiz
Q8-24 a [(1,000 × $71) + (200 × $11) + (500 × $24) =
$85,200]
Q8-25 d [(1,000 × $2) + (200 × $1.50) + (500 × $1) =
$2,800]
Q8-26 Cash (1,000 × $68) ............................ 68,000
Other Comprehensive Income 3,000
Long-Term Investments
(1,000 × $71) ............................... 71,000
Q8-27 b
Q8-28 c
Q8-29 a
Q8-30 d ($100,000 × 0.07) = $7,000)
Q8-31 b $105,000 × 0.06 = $6,300: $7,000 − $6,300 = $700
Interest income = $7,000 − $700 = $6,300
Q8-32 c
Q8-33 b
Q8-34 d
Q8-35 c

Problems
Group A
(20-30 min.) P 8-36A

Req. 1
Current fair value is used to account for the investment in

Tomassini because the investor expects to sell the shares
at their fair value. Fair value is clearly relevant to the
investor’s decisions about this investment.
Fair value is not used for the equity-method investment in

Fellingham because the investor holds the shares to
influence the operations of the investee company, not to
sell the shares.

(continued) P 8-36A
Req. 2
Balance sheet:
ASSETS
Total current assets ..................................................... $ XXX
Long-term investments, at equity ............................... 523,300*
Long-term investments, at fair value .......................... 30,600
Property, plant, and equipment, net ........................... XXX
Common shares ........................................................... $ XXX
Retained earnings ........................................................ XXX
Accumulated other comprehensive income
[$30,600 − (800 × $41.50)].......................................... (2,600)
Income statement:
Income from operations .............................................. $ XXX
Other revenue:
Equity-method investment revenue ($510,000 × 0.35) 178,500
Dividend revenue (800 × $0.30) ................................ 240
Net income .................................................................... XXX
Other comprehensive income.…………………………. (2,600)
_____
*Long-Term Investment in Fellingham Shares
Purchase 370,000
Net income Dividends received
($510,000 × 0.35) 178,500 (20,000 × $1.26) 25,200
Balance 523,300

(45-60 min.) P 8-37A
Req. 1
Journal
Mar. 16 Long-Term Investments (2,000 × $12.25) .... 24,500
Cash.......................................................... 24,500
Purchased investment.
May 21 Cash (2,000 × $0.75) ..................................... 1,500

Dividend Revenue.................................... 1,500
Received cash dividend.
Aug. 17 Cash .............................................................. 81,000

Long-Term Investments in MSC, Inc ...... 81,000
Received cash dividend on equity-method
investment.
Dec. 31 Long-Term Investments in MSC, Inc.

($550,000 × 0.22) ........................................... 121,000
Equity-Method Investment Revenue ...... 121,000
31 Long-Term Investment ($25,700 − $24,500) 1,200

Other Income ............................................ 1,200
Adjusted investment to fair value.

(continued) P 8-37A
Req. 2
Long-Term Investment in MSC, Inc.

Jan. 1 Balance 619,000 Aug. 17 Dividends 81,000
Dec. 31 Net income 121,000
Dec. 31 Balance 659,000
Req. 3
Total current assets ................................................... $ XXX

Long-term investments, at fair value ........................ 25,700
Long-term investment in MSC Software, at equity .. 659,000

(20-30 min.) P 8-38A
Req. 1
Debt ratio of ABC Total liabilities $68.4

= = = 0.722
considered alone Total assets $94.8
Req. 2
ABC Eliminations Consolidated
ABC Credit Totals
Total assets……………….. $94.8 $179.0 -14.3 $259.5
Total liabilities……………. $68.4 $164.7 $233.1

Total shareholders’ 26.4 14.3 -14.3 26.4
equity.
Total liabilities and equity $94.8 $179.0 -14.3 $259.5
Req. 3
Consolidated debt Total liabilities $233.1
= = = 0.851
ratio of ABC Total assets $273.8
Consolidation of the finance subsidiary increased ABC’s
reported debt ratio from 0.722 to 0.898. Companies would
prefer to report a lower debt ratio, so they would prefer not
to consolidate the financial statements of their financing
subsidiaries when the subsidiary has a high debt load
because that makes their debt ratio appear too high.

(45-60 min.) P 8-39A
Req. 1
Journal
2014
Mar. 1 Long-Term Investment in Bonds
($600,000 × 1.045) ............................. 627,000
Cash .............................................. 627,000
Sept. 1 Cash ($600,000 × 0.05 × 6/12) .......... 15,000

Interest Revenue .......................... 15,000
To receive semiannual interest.
1 Interest Revenue ............................... 2,460

($627,000 × 0.04 × 6/12 = $12,540:
$15,000 − $12,540 = $2,460) 2,460
2015
Feb. 28 Interest Receivable
($600,000 × 0.05 × 6/12) .................... 15,000
Interest Revenue .......................... 15,000
31 Interest Revenue ............................... 2,509

[($627,000 − $2,460 = $624,540)
$15,000 − ($624,540 × 0.04 × 6/12 =
12,491) = $2,509] ............................... 2,509

(continued) P 8-39A
Req. 2
Balance sheet at February 28, 2015:

Current assets:
Interest receivable............................................. $ 15,000
Long-term investments in bonds
($627,000 − $2,460 − $2,509) ............................. 622,031
Property, plant, and equipment, net ................... XXX,XXX
Income statement for the year ended February 28, 2015:

Other revenues:
Interest revenue ($15,000 − $2,460 + $15,000 − $2,509) $25,031

(20-25 min.) P 8-40A
Req. 1
Investment Opportunity A
PV of
Year Cash x Factor = Cash Flow
Flow
1 $10,000 x .893 = $ 8,930
2 8,000 x .797 = 6,376
3 6,000 x .712 = 4,272
$24,000 $19,578
Investment Opportunity B
PV of cash flow = $8,000 x 2.402 = $19,216
Choose investment opportunity A because the present

value of cash flows is higher than the present value of
investment opportunity B.

(20-25 min.) P 8-41A
Req. 1
This situation will generate a positive translation

adjustment, which is like a gain. The gain occurs because
the yen’s current exchange rate, which is used to translate
the subsidiary’s net assets, is greater than the historical
exchange rates at which Blackberry invested in the
Japanese subsidiary.
EXCHANGE
YEN RATE DOLLARS
Assets 300,000,000 $0.0137 $4,110,000
Liabilities 80,000,000 0.0137 $1,096,000

Common shares 20,000,000 0.0134 268,000
Retained earnings 200,000,000 0.0135 2,700,000
Accumulated other
Foreign-currency
300,000,000 $4,110,000

(continued) P 8-41A
Req. 2
The translation adjustment “belongs” to Blackberry, the

parent company. Therefore, the translation adjustment will
be reported on Blackberry’s consolidated balance sheet.

(20-25 min.) P 8-42A
DATE: Early in 2015
TO: Smart Pro Inc. Shareholders
FROM: Chief Executive Officer
RE: Investing Activities During 2014
During 2014, Smart Pro invested $7,309 million in

property, plant, and equipment, up from the level of last
year. We also paid $883 million to acquire other companies
and we invested $7,141 million in securities. During the
year, we sold investments for $15,138 million. Overall
investing activities used cash of $195 million. Most
investing amounts are down from their levels in 2013.
Smart Pro financed its 2014 investments mainly from

profitable operations, which generated cash of $8,654
million — almost enough to pay for our investments in plant
and equipment and other companies.
Student responses may vary.

Problems
Group B
(20-30 min.) P 8-43B

Current fair value is used to account for the investment in
Mercury because the investor expects to sell the shares at
their fair value. Fair value is clearly relevant to the
investor’s decisions about this investment.
Fair value is not used for the equity-method investment in

Mars because the investor holds the shares to influence the
operations of the investee company, not to sell the shares.

(continued) P 8-43B
Req. 2
Balance sheet:
ASSETS
Total current assets ................................................ $ XXX
Long-term investments, at equity .......................... 526,300*
Long-term investments, at fair value .................... 19,200
Property, plant, and equipment, net ...................... XXX
Income statement:
Income from operations ......................................... $ XXX
Other revenue:
Equity-method investment revenue ($350,000 × 0.25) 87,500
Dividend revenue (1,000 × $0.75) ......................... 750
Net income ............................................................... XXX
Other income ...........................................................
(3,300)
_____
*Long-Term Investment in Mars Shares
Purchase 450,000
Net income Dividends received
($350,000 × 0.25) 87,500 (8,000 × $1.40) 11,200
Balance 526,300

(45-60 min.) P 8-44B
Req. 1
Journal
Feb. 16 Long-Term Investments (10,000 × $9.25)... 92,500

Cash ........................................................ 92,500
Purchased investment.
May 14 Cash (10,000 × $0.82) .................................. 8,200

Dividend Revenue .................................. 8,200
Received cash dividend.
Oct. 15 Cash ............................................................. 29,000

Long-Term Investments in Affiliates ..... 29,000
Received cash dividend on equity-method
investment.
Dec. 31 Long-Term Investments in Affiliates

($620,000 × .25) ............................................ 155,000
Equity-Method Investment Revenue ..... 155,000
31 Other Comprehensive Income (Loss) ........ 3,500

($89,000 − $92,500) ................................. 3,500
Adjusted investment to fair value.

(continued) P 8-44B
Req. 2
Long-Term Investments in Affiliates

Jan. 1 Balance 409,000 Oct. 15 Dividends 29,000
Dec. 31 Net income 155,000
Dec. 31 Balance 535,000
Req. 3
Total current assets ............................................. $ XXX

Long-term investments, at fair value ................. 89,000
Long-term investments in affiliates, at equity .. 535,000

(45-60 min.) P 8-45B
Req. 1
Journal
2014
Jan. 1 Long-Term Investment in Bonds
($500,000 × 0.88) .............................. 440,000
Cash ............................................. 440,000
July 1 Cash ($500,000 × 0.06 × 6/12) ......... 15,000

Interest Revenue ........................ 15,000
To receive semiannual interest.
1 Long-Term Investment in Bonds
($440,000 × 0.08 × 6/12 = $17,600:
$17,600 − $15,000 = 2,600)... 2,600
Dec. 31 Interest Receivable
($500,000 × 0.06 × 6/12) ................... 15,000
31 Long-Term Investment in Bonds

[($440,000 + $2,600 = $442,600):
$442,600 × 0.08 × 6/12 = $17,704:
$17,704 − $15,000 = $2,704] ............ 2,704

(continued) P 8-45B
Req. 2
Balance sheet at December 31, 2014:

Current assets:
Interest receivable ........................................ $ 15,000
Long-term investments in bonds
($440,000 + $2,600 + $2,704)........................ 445,304
Property, plant, and equipment, net .............. XXX,XXX
Income statement for the year ended December 31, 2014:

Other revenues:
Interest revenue ($15,000 + $2,600 + $15,000 + $2,704) $35,304

(15-20 min.) P 8-46B
Req. 1
Investment Opportunity X
PV of
Year Cash x Factor = Cash Flow
Flow
1 $15,000 x .909 = $13,635
2 10,000 x .826 = 8,260
3 5,000 x .751 = 3,755
$30,000 $25,650
Investment Opportunity Y
PV of cash flow = $10,000 x 2.487 = $24,870
Choose investment opportunity X because the present

value of cash flows is higher than the present value of
investment opportunity Y.

(20-25 min.) P 8-47B
Req. 1
This situation will generate a positive translation

adjustment, which is like a gain. The gain occurs because
the euro’s current exchange rate, which is used to
translate the subsidiary’s net assets, is greater than the
historical exchange rates at which Arte invested in the
French subsidiary.
EXCHANGE
EUROS RATE DOLLARS
Assets 3,000,000 $1.80 $5,400,000
Liabilities 1,000,000 1.80 $1,800,000

Common shares 300,000 1.60 480,000
Retained earnings 1,700,000 1.70 2,890,000
Accumulated other
Foreign-currency
3,000,000 $5,400,000

(continued) P 8-47B
Req. 2
The translation adjustment “belongs” to Arte, the parent

company. Therefore, the translation adjustment will be
reported on Arte’s consolidated balance sheet.

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exception from that rule that Italy continued to flourish during the first
two centuries of the empire. The change in the form of government
was at first nominal, rather than real, and under the rule of Augustus,
Trajan, Hadrian, and the Antonines, Rome enjoyed more real liberty
than many a so-called republic of modern times. When despotism
became a systematic and chronic actuality, the sun of fortune was
soon eclipsed, and the social climate became as unfavorable to art
and literature as to valor and patriotism.
Personal independence is a not less essential condition of individual

happiness. Bondage in any form, and of silken or gilded, as well as
of iron, fetters, is incompatible with the development of the highest
mental and moral faculties. The genius of Poland and modern Italy
has produced its best fruit in exile. The progress of modern
civilization dates only from the time when knowledge once more
flourished in a Republic of Letters; and for a thousand years the
monastery system of medieval literature produced hardly a single
work of genius. Within the period of the last three or four generations
the sun of freedom has ripened better and more abundant fruit in any
single decade than the dungeon-air of despotism during a series of
centuries. All foreign travelers agree in admiring (or condemning)
[100]the early mental development of American children, who have a
chance to exercise their intellectual faculties in an area untrammeled
by the barriers of caste divisions and social restraints. They may
yield to the pupils of the best European colleges in special branches
of scholarship, but in common sense, general intelligence, general
information, in self-respect, in practical versatility and self-
dependence, an American boy of twelve is, as a rule, more than a
match for a continental-European boy of sixteen; and the same holds
good of the average intelligence and self-dependence of our country
population. With the rarest exceptions the political economists of our
Southern states agree that the agricultural negro as a freeman is a
more valuable laborer than as a slave, and that emancipation, in the
long run, has benefited the planter as well as his serf. I venture even
to add the verdict of Professor Hagenbeck, the founder of the great
zoölogical supply depot, that menagerie-trainers of the least despotic
methods are the most successful. Turf-men know that the best
horses do not come from the unequaled perennial pastures of the
lower Danube, but from England and Araby, where pet colts enjoy
almost the freedom of a pet child.
[Contents]
C.—PERVERSION.
The ethics of Anti-naturalism include the Buddhistic doctrine of self-

abasement, as an indispensable condition of salvation. That
salvation meant extinction, the utter renunciation of earthly hopes
and desires, the mortification of all natural instincts, including [101]the
instinct of freedom. Abject submission to injustice, the subordination
of reason to dogma, the sinfulness of rebellion against the “powers
that be,” were inculcated with a zeal that made the church an
invaluable ally of despotism. For centuries a scepter combining the
form of a cross and a bludgeon was the significant emblem of
tyranny. With the aid, nay, in the name, of the Christian hierarchy, the
despots of the Middle Ages elaborated a system of subordination of
personal freedom to autocratic caprices, which, by comparison,
makes the tyranny of the Cæsars a model of liberalism. Every
important function of social and domestic life was subjected to the
control of arbitrary functionaries, armed with irresponsible power or
with a system of oppressive penal by-laws. Censors suppressed
every symptom of visible or audible protest. Every school was a
prison, every judgment-seat a star-chamber. Peasants and
mechanics had no voice in the councils of their rulers. The merit of
official employees was measured by the degree of their flunkeyism.
But the ne-plus-ultras of physical and moral despotism were
combined in the slavery of the monastic convents. The attempt of
reviving the outrages which abbots for centuries practiced on the
unfortunates whom a rash vow (or often the mandate of a bigoted
parent) had submitted to their power, would certainly expose the
manager of a modern convent to the risk of being mobbed and torn
limb from limb. Novices were subjected to all sorts of wanton tortures
and arbitrary deprivation of his scant privileges; they were compelled
to perform shameful and ridiculous [102]acts of self-abasement, all
merely to “break their worldly spirit,” i.e., crush out the last vestige of
self-respect and life-love, in order to prepare them for the
consolations of other-worldliness. The moral emasculation of the
human race seems, indeed, to have been the main purpose of the
educational policy which the priests of the Nature-hating Galilean
pursued wherever the union of Church and State put children and
devotees at the mercy of their dogmatists.
[Contents]
D.—PENALTIES OF NEGLECT.
Voluntary slavery means voluntary renunciation of the chief privilege

of human reason: the privilege of self-control. The spendthrift divests
himself of external advantages; the miser yields up his life-blood for
gold; but he who surrenders his personal liberty has sold his soul, as
well as his body. Bondage circumscribes every sphere of activity.
Political despotism impedes the progress of industry as galling
fetters impede the circulation of the blood. Enterprising autocrats of
the Frederic and Peter type have as utterly failed in the attempt of
enforcing a flourishing state of commerce, as they would have failed
in the attempt of enforcing the growth of a stunted tree by the tension
of iron chains. In free America a voluntary pledge of abstinence has
accomplished what in medieval Europe the most Draconic
temperance and anti-tobacco laws failed to achieve.
The educational despotism of moral pedants has ever defeated its

own purpose, and succeeded only in turning frank, merry-souled
children into hypocrites [103]and sneaks. The idea that a barbarous
system of military discipline could develop model warriors has been
refuted on hundreds of battle-fields, where the machine-soldiers of
despotic kings were routed by the onset of enthusiastic patriots, half-
trained, perhaps, and ill-armed, but assembled by an enlistment of
souls as well as of bodies. The unparalleled intellectual barrenness
of the Middle Ages was well explained by the indictment of a modern
English poet. “The bondage of the Christian doctrine,” says Percy
Shelley, “is fatal to the development of originality and genius.” The
curse of mediocrity has, indeed, for ages rested upon every literary
product devoted to the promotion of clerical interests. The Muses
refuse to assemble on Golgotha. Pegasus declines to be yoked with
the ass of the Galilean ascetic. Outspoken skepticism is almost as
rare as true genius, and it is not possible to mistake the significance
of the fact that the great poets and philosophers of the last seven
generations were, almost without an exception, persistent and
outspoken skeptics. Rousseau, Voltaire, Diderot, D’Alembert,
Holbach, Leibnitz, Lessing, Kant, Fichte, Hegel, Schiller, Heine,
Schopenhauer, Humboldt, Pope, Hume, Byron, Shelley, Keats,
Gibbon, Buckle, and Darwin have all inscribed their names in the
temple o! Liberalism; and Wolfgang Goethe, the primate of European
literature, was at once the most consistent and the most anti-
Christian of modern thinkers. “His personal appearance,” says
Heinrich Heine, “was as harmonious as his mind. A proudly erect
body, never yet bent by Christian worm-humility; [104]classic features,
never distorted by Christian contrition; eyes that had never been
dimmed by Christian sinner-tears or the apathy of monkish
resignation.”
That resignation was for centuries enforced as the first of moral

duties; but Nature has had her revenge, and even the fallen
hierarchy would hesitate to recover the loss of their prestige by a
return to the moral desert which for ages marked the empire of a
mind-enslaving dogma.
[Contents]
E.—REFORM.
Not all slaves can be freed by breaking their shackles; the habit of
servitude may become a hereditary vice, too inveterate for
immediate remedies. The pupils of Freedom’s school may be
required to unlearn, as well as to learn, many lessons; the temples of
the future will have to remove several aphoristic tablets to make
room for such mottoes as “Self-Reliance,” “Liberty,” “Independence.”
Victor Jacquemont tells a memorable story of a Hindoo village,
almost depopulated by a famine caused by the depredations of
sacred monkeys, that made constant raids on the fields and gardens
of the superstitious peasants, who would see their children starve to
death rather than lift a hand against the long-tailed saints. At last the
British stadtholder saw a way to relieve their distress. He called a
meeting of their sirdars and offered them free transportation to a
monkeyless island of the Malay archipelago. Learning that the land
of the proposed colony was fertile and thinly settled, the survivors
accepted the [105]proposal with tears of gratitude; but when the band
of gaunt refugees embarked at the mouth of the Hooghly, the
stadtholder’s agent was grieved to learn that their cargo of
household goods included a large cageful of sacred monkeys. “They
are beyond human help,” says the official memorandum, “and their
children can be redeemed only by curing them of the superstition
that has ruined their monkey-ridden ancestors.”
At the end of the fifteenth century, when southern Europe was in

danger of a similar fate from the rapacity of esurient priests and
monks, Providence, by means of an agent called Christoval
Columbus, offered the victims the chance of a free land of refuge;
but when the host of emigrants embarked at the harbor of Palos,
philosophers must have been grieved to perceive that their cargo of
household-pets comprised a large assortment of ecclesiastics. “They
are beyond human help,” Experience might sigh in the words of the
British commissioner, “and their children can be redeemed only by
curing them of the superstition that has proved the ruin of their
priest-ridden ancestors.”
In regions of our continent where colonists might live as independent

as the birds of their primeval forests, bondage has been imported in
the form of an intriguing hierarchy, working its restless bellows to
forge the chains of their pupils—of the rising generation, who as yet
seem to hesitate at the way-fork of Feudalism and Reform. A timely
word may decide their choice, and, by all the remaining hopes of
[106]Earth and Mankind! that word shall not remain unspoken.
[Contents]
CHAPTER VIII.
PRUDENCE.
[Contents]
A.—LESSONS OF INSTINCT.
The first germs of animal life have been traced to the soil of the
tropics, and in the abundance of a perennial summer the instincts of
pleasure and pain may long have sufficed for the protection of mere
existence. But when the progress of organic development advanced
toward the latitude of the winter-lands, the vicissitudes of the
struggle for existence gradually evolved a third instinct: The faculty
of anticipating the menace of evil and providing the means of
defense. The word Prudence is derived from a verb which literally
means fore-seeing, and that faculty of Foresight manifests itself
already in that curious thrift which enables several species of insects
to survive the long winter of the higher latitudes. Hibernating
mammals show a similar sagacity in the selection of their winter
quarters. Squirrels and marmots gather armfuls of dry moss; bears
excavate a den under the shelter of a fallen tree; and it has been
noticed that cave-loving bats generally select a cavern on the south
side of a mountain or rock. Beavers anticipate floods by elaborate
dams. Several species of birds baffle the attacks of their enemies by
fastening a bag-shaped nest to the extremity [107]of a projecting
branch. Foxes, minks, raccoons, and other carnivora generally
undertake their forages during the darkest hour of the night. Prowling
wolves carefully avoid the neighborhood of human dwellings and
have been known to leap a hundred fences rather than cross or
approach a highway.
Young birds, clamoring for food, suddenly become silent at the
approach of a hunter; and Dr. Moffat noticed with surprise that a
similar instinct seemed to influence the nurslings of the Griqua
Hottentots. Ten or twelve of them, deposited by their mothers in the
shade of a tree, all clawing each other and crowing or bawling at the
top of their voices, would abruptly turn silent at the approach of a
stranger, and huddle together behind the roots of the tree—babies of
ten months as quietly cowering and as cautiously peeping as their
elders of two or three years. Young savages, and often the children
of our rustics, show an extreme caution in accepting an offer of
unknown delicacies. I have seen a toddling farmer’s boy smelling
and nibbling an orange for hours before yielding to the temptation of
its prepossessing appearance. Only the distress of protracted
starvation will induce the Esquimaux to touch their winter stores
before the end of the hunting season; and the supposed
improvidence of savages is often due to the influence of a hereditary
disposition once justified by the abundance which their forefathers
enjoyed for ages before the advent of their Caucasian despoilers.
[108]
[Contents]
B.—REWARDS OF CONFORMITY.
Civilization has partially healed the wounds of that Millennium of

Madness called the Rule of the Cross, and of all the insanities of the
Middle Ages the Improvidence Dogma has perhaps been most
effectually eradicated from the mental constitution—at least, of the
North-Caucasian nations. Instead of relying on the efficacy of
prayers and ceremonies, the dupes of the Galilean miracle-monger
at last returned to the pagan plan of self-help, and it would not be too
much to say that the progress thus achieved in the course of the last
fourteen decades far exceeds that of the preceding fourteen
centuries. Earth has once more become a fit dwelling-place for her
noblest children. Pestilential swamps have been drained. Domestic
hotbeds of disease have been expurgated. Airy, weather-proof
buildings have taken the place of the reeking hovels that housed the
laborers of the Middle Ages. Farmers no longer live from hand to
mouth. The price of the necessities and many luxuries of life has
been brought within the resources of the humblest mechanic.
Affluence is no longer confined to the palaces of kings. There is no
doubt that the cottage of the average modern city tradesman
contains more comforts than could be found in the castle of a
medieval nobleman. Prudence, in the sense of economic foresight,
has become almost a second nature with the industrial classes of the
higher latitudes, and the benefits of such habits can be best
appreciated by comparing the homes of the thrifty Northlanders—
Scotch and Yankees—with those of the [109]Spanish-American
priest-dupes: here deserts tilled into gardens, there gardens wasted
into deserts. In natural resources, South America, for instance,
excels New England as New England excels the snow-wastes of
Hudson’s Bay Territory; yet industrial statistics demonstrate the fact
that the financial resources of Massachusetts alone not only equal
but far surpass those of the entire Brazilian empire.
The contrast between Prussia and Spain is not less striking, and that
climatic causes are insufficient to explain that contrast is proved by
the curious fact that within less than five centuries Spain and North
Germany have exchanged places. Two hundred years before the
conquest of Granada the fields of Moorish Spain had been brought
to a degree of productiveness never surpassed in the most favored
regions of our own continent, while Catholic Prussia was a bleak
heather. Since the expulsion of the Moors from Spain, and the
monks from northern Germany, Prussia has become a garden and
Spain a desert; the contrasting results of prudence and superstition.
While the Prussians were at work the Spaniards were whining to
their saints, or embroidering petticoats for an image of the holy
Virgin. While the countrymen of Humboldt studied chemistry,
physiology, and rational agriculture, the countrymen of Loyola
conned oriental ghost stories; while the former placed their trust in
the promises of nature, the latter trusted in the promises of the New
Testament. Prudence, rather than military prowess, has transferred
the hegemony of Europe from the Ebro to the Elbe, and prudence
alone has smoothened even the path of exile [110]which ill-fated
Israel has pursued now for more than a thousand years. For, with all
the Spiritualistic tendency of their ethics, the children of Jacob have
long ceased to deal in miracles, and train their children in lessons of
secular realism which effectually counteract the influence of their
school-training in the lessons of the past, and as a result famine has
been banished from the tents of the exiles. Like the Corsicans and
the prudent Scots, they rarely marry before the acquisition of a
competency, but the tendency of that habit does not prevent their
numerical increase. Their children do not perish in squalor and
hunger; their patriarchs do not burden our alms-houses.
[Contents]
C.—PERVERSION.
There is a story of an enterprising Italian who increased the

patronage of an unpopular mountain resort by effecting an
inundation of the lowlands; and if the apostles of other-worldliness
had tried to enhance the attractions of their hereafter on the same
plan, they could certainly not have adopted a more effective method
for depreciating the value of temporal existence. The vanity of work,
of thrift, of economy, and the superior merit of reliance on the aid of
preternatural agencies, were a favorite text of the Galilean messiah.
“Take no thought of the morrow, for the morrow shall take thought for
the things of itself.” “Take no thought, saying, What shall we eat?
what shall we drink? or wherewithal shall we be clothed? For after all
these do the gentiles seek.” “Ask and it shall be given you.” [111]
Secular foresight was depreciated even in the form of a prudent care

for the preservation of physical health; the selection of clean in
preference to unclean food was denounced as a relic of worldliness;
and in mitigating the consequences of such insults to nature, prayer
and mystic ceremonies were recommended as superior to secular
remedies. “If any man is sick among you, let him call for the elders of
the church, and let them pray over him, anointing him with oil in the
name of the Lord.” “And the prayer of faith shall save the sick, and
the Lord shall raise him up.” “And when he had called unto him his
twelve disciples, he gave them power against unclean spirits to cast
them out, and to heal all manner of disease.”
If such instructions had been followed to the letter, the human race
would have perished in a hell of madness and disease. As it was, a
thousand years’ purgatory of half insanity cured the world of its
delusion; and the sinners against the laws of common sense
escaped with the penalty of a millennium of barbarism, a barbarism
which, in the most orthodox countries of the fourteenth century, had
sunk deep below the lowest ebb of pagan savagery. The untutored
hunters of the primeval German forest were at least left to the
resources of their animal instincts; they were illiterate, but manly and
generous, braving danger, and prizing health and liberty above all
earthly blessings. Their children were dragged off to the bondage of
the Christian convents and doomed to all the misery of physical
restraint, not for the sake of their intellectual culture, not with a view
of [112]purchasing the comforts of after years by temporal self-denial,
but to educate them in habits of physical apathy and supine reliance
on the aid of interposing saints—a habit which at last revenged itself
by its transfer to the principles of ethics, and encouraged malefactors
to trust their eternal welfare to the same expedient to which
indolence had been taught to confide its temporal interests. Where
was the need of rectitude if iniquity could be compromised by
prayer? Where was the need of industry if its fruits could be obtained
by faith? Where was the need of sanitary precautions if the
consequences of their neglect could be averted by ceremonies?
[Contents]
D.—PENALTIES OF NEGLECT.
The consequences of that dogma refuted its claims by lessons which

mankind is not apt to forget for the next hundred generations. From
the day when the doctrine of Antinaturalism succeeded in
superseding the lingering influence of pagan philosophy, progressive
industry waned, and at last almost ceased to supply even a reduced
demand; commerce lingered, and the sources of subsistence were
wholly confined to the produce of a more and more impoverished
soil. With the exception of (still half pagan) Italy, not one of the many
once prosperous countries of Christian Europe had anything like a
profitable export trade. On the international markets of the Byzantine
empire the products of skilled labor—fine clothes, fine fruits,
perfume, and jewelry—were sold by oriental merchants, while the
Christian buyers had little to offer in exchange but the spontaneous
[113]products of Nature: timber, salt, amber, and perhaps hides and
wool. Medical science had become such a medley of vagaries and
barbarisms that even the princes of Christendom could not boast of
a competent family physician, and in critical cases had to trust their
lives to the skill of Moorish or Persian doctors. Abderaman el Hakim,
a king of Moorish Spain, had so many applications for the services of
his court-doctor that he often jestingly called him the “Savior of
Christian Europe.” The prevalence of the militant type should
certainly have encouraged the manufacture of warlike implements;
yet not one of the twelve heavy-armed countries of Trinitarian
Europe had preserved the art of tempering a first-class sword, and
proof-steel had to be imported from Damascus. The traditions of
architecture were limited to the fantastic elaboration of religious
edifices; peasants dwelt in hovels, and citizens in dingy stone
prisons, crowded into crooked and cobble-paved alleys.
The unspeakable filth of such alleys produced epidemics that almost

depopulated the most orthodox countries of medieval Europe. Under
the stimulus of clerical theories, those epidemics in their turn
produced outbreaks of fanatical superstition, which in pagan Rome
would certainly have been ascribed to the influence of a contagious
mental disease. Diseases, according to a doctrine which it was
deemed blasphemy to doubt, could be averted by prayer and self-
humiliation. In spite of a diligent application of such prophylactics,
diseases of the most virulent kind became more prevalent. The
[114]logical inference seemed that prayer had not been fervent and
self-abasement not abject enough. Hordes of religious maniacs
roamed the streets of the plague-stricken cities, howling like hyenas
and lacerating their bodies in a manner too shocking to describe.
After exhausting the available means of subsistence, the blood-
smeared, wretches would invade the open country, and by frantic
appeals frighten thousands of peasants into joining their ranks, and
in carrying the seeds of mental and physical contagion to a
neighboring country. In Germany and Holland the total number of
“Flagellants” were at one time estimated at three hundred and fifty
thousand; on another occasion at more than half a million. If the
disease had exhausted its fury, the self-torturers would claim the
reward of their services by falling like hungry wolves upon the homes
of the sane survivors. If the plague refused to abate, the leading
fanatics would ascribe the failure to their followers’ want of zeal, and
enforce their theory by an indiscriminate application of a rawhide
knout, till the dispute was referred to the arbitrament of cold steel,
and the ranks of the howling maniacs were thinned by mutual
slaughter.
[Contents]
E.—REWARDS.
The world has trusted in the doctrine of miracle-mongers till

skepticism became a condition of self-preservation, and the benefits
of open revolt are now conspicuous enough to impress even the
non-insurrected slaves of the church. With all their hereditary bias of
prejudice the victims of the miracle dogma [115]cannot help
contrasting their lot with that of the industrial skeptic. They cannot
help seeing self-reliant science succeeds where prayer-relying
orthodoxy fails. The prosperity of Protestantism, its physical,
intellectual, political, and financial superiority to Conservatism, with
the aid of all its saints, are facts too glaringly evident to ignore their
significance, and our ethical text-books might as well plainly admit
that this universe of ours is governed by uniform laws and not by the
caprice of ghosts—at all events not of ghosts that can be influenced
by rant and ceremonies. Whatever may be the established system of
other worlds, in this planet of ours Nature has not trusted our welfare
to the whims of tricksy spooks, but has endowed our own minds with
the faculty of ascertaining and improving the conditions of that
welfare; and the time cannot come too soon when well-directed labor
shall be recognized as the only prayer ever answered to the
inhabitants of this earth.
The philosophic author of the “History of Morals” remarks that the

medieval miracle-creed still lurks in the popular explanation of the
more occult phenomena. While the natural sequence of cause and
effect is, for instance, freely admitted in such plain cases as the
stability of a well-built house and the collapse of a rickety structure,
the phenomena of health and disease, of atmospheric changes or of
the (apparent) caprices of fortune in war or games of chance are still
ascribed to the interference of preternatural agencies. That bias is
undoubtedly at the bottom of the still prevalent mania for hazardous
speculation [116]and the reckless disregard of the laws governing the
condition of our physical health.
Unconfessed, and perhaps unknown, to themselves the

grandchildren of orthodox parents are still influenced by the hope
that in such cases the event of an imprudent venture might be
modified by the interceding favor of “providence.”
Secularism should teach its converts that the most complex as well
as the simplest effect is the necessary consequence of a natural
cause; that the “power behind phenomena” acts by consistent laws,
and that the study and practical application of those laws is the only
way to bias the favor of fortune.
“Pray and you shall receive,” says Superstition. “Sow if you would
reap,” says Science. The Religion of Nature will teach every man to
answer his own prayers, and Prudence will be the Providence of the
Future.
[Contents]
CHAPTER IX.
PERSEVERANCE.
[Contents]
A.—LESSONS OF INSTINCT.
In the course of evolution from brute to man some of our organs

have been highly developed by constant use, while others have
been stunted by habitual disuse. In special adaptations of the sense
of touch and sight, for instance, man surpasses all his fellow-
creatures, most of whom, in turn, surpass him in the acuteness of
their olfactory organs. An analogous result seems to have been
produced by the exercise or [117]neglect of certain mental faculties
and dispositions. The instinct of enterprise, for instance, has been
developed from rather feeble germs of the animal soul, while the
instinct of perseverance appears to have lost something of its
pristine energy. The African termite ant rears structures which, in
proportion to the size of the builders, surpass the pyramids as a
mountain surpasses the monuments of the mound-builders. By the
persistent coöperation of countless generations the tiny architect of
the coral reefs has girt a continent with a rampart of sea-walls. The
prairie wolf will follow a trail for half a week. The teeth of a mouse
are thinner and more brittle than a darning needle, yet by dint of
perseverance gnawing mice manage to perforate the stoutest
planks. Captive prairie dogs have been known to tunnel their way
through forty feet of compact loam.
An instinct, which one might be tempted to call a love of

perseverance for its own sake, seems sometimes to influence the
actions of young children. There are boys whose energies seem to
be roused by the resistance of inanimate things. I have seen lads of
eight or nine years hew away for hours at knotty logs which even a
veteran woodcutter would have been pardoned for flinging aside.
There are school boys, not otherwise distinguished for love of books,
who will forego their recess sports to puzzle out an arithmetical
problem of special intricacy.
Our desultory mode of education hardly tends to encourage that

disposition which, nevertheless, is now and then apt to develop into
a permanent character trait. There are young men who will act out a
self-determined [118]programme of study or business with persistent
disregard of temporary hardships, and pursue even minor details of
their plan with a resolution only strengthened by difficulties. The
moral ideals of antiquity seem to have been more favorable to the
development of that type of character, which also manifests itself in
the national policy of several ancient republics, and the inflexible
consistency of their legal institutions.
[Contents]
B.—REWARDS OF CONFORMITY.
The advantages of perseverance are not too readily admitted by the

numberless victims of that facile disposition that loves to ascribe its
foibles to the “versatility of genius,” or a high-minded “aversion to
pedantic routine;” yet now, as in the days of yore, life reserves its
best rewards for the most persistent competitors. Singleness of
purpose, like a sharp wedge, forces its way through obstacles that
resist many-sided endeavors. The versatile poets and philosophers
of Athens have wreathed her memory with unrivaled laurels, yet in
the affairs of practical life her merchants were out-traded, her

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Financial Accounting Canadian 15th

Edition Harrison Solutions Manual

Long-Term Investments and

Dec. 1 Cash (300 × $0.36) .................................... 108

Dec. 31 Other comprehensive income.................. 500

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual 559

2. The realized gain from the sale of investment is reported

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual

b. Long-Term Investment ($6 × 0.40) ................ 2.4

c. Cash ($2 × 0.40) .............................................. 0.8

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual 561

(10 min.) S 8-5

2. Consolidated financial statements combine the balance

3. The parent company’s name appears on the consolidated

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual

2. Non-controlling interest is the portion (less than 50%) of a

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual 563

2. Annual cash interest = $70,000 ($1,000,000 × 0.07)

3. Annual interest revenue will be less than the amount of

4. Cash interest received each year......................... $70,000

Interest Received $70,000

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual

b. Dec. 31 Cash ($1,000,000 × 0.07) ..................... 70,000

c. 31 Interest Revenue ................................. 1,825

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual 565

$10,000 x .681 (PV of $1, 5 periods, 8%) = $6,810

$10,000 x 3.993 (PV of an annuity, 5 periods, 8%) = $39,930

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual

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Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual

(10-15 min.) E 8-12

a. Long-Term Investment (400 × $40) .......... 16,000

b. Cash (400 × $0.50) ..................................... 200

c. Unrealized loss 2,000

d. Cash (400 × $30)......................................... 12,000

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual 569

EnCana (1,400 × $93.36) = 130,704 (1,400 × $56.96) = 79,744

Total………………………………… $306,204 ……………………….. $242,644

Other comprehensive income:

Balance Sheet (partial):

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual

a. Long-Term Investment ................................. 1,000,000

b. Long-Term Investment ($640,000 × 0.25) .... 160,000

c. Cash ($420,000 × 0.25) .................................. 105,000

Ending balance in the investment account:

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual 571

Sale of investment for cash of ............ $2,700,000

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual

The equity method is appropriate for a 25% investment in

Balance sheet (partial):

Income statement (partial):

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual 573

Dec. 31 Interest Receivable

31 Long-Term Investment in Bonds 14*

Long-term investment in bonds

Financial Accounting Fifth Canadian Edition Instructor’s Solutions Manual

10 x $1,000 = $10,000 x 0.790 (PV of $1, 6 years, 4%) =

$10,000 x 5% = $500 x 5.242 (PV of Annuity of $1, 6 years,