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Exam 15: Investments and International Operations

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Question 71

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Net profit margin reflects the percent of net income in each dollar of net sales.

A) True
B) False

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Question 72

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Marina,Inc.,held 1,500 of Navia common stock with a cost of $36,900.These shares were classified as a long-term available-for-sale investment.It sold the shares on December 13 for $42,100.Prepare the journal entry to record this sale.

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Question 73

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A company has net income of $130,500.Its net sales were $1,740,000 and its average total assets were $2,750,000.Its profit margin equals 7.5%.

Debt securities are recorded at cost when purchased,and interest revenue for investments in debt securities is recorded when earned.

Savan Co.purchased 14,000 shares of Briton Corporation's 40,000 shares of common stock on January 1.This represented 35% of Briton's outstanding shares and gave Savan Co.significant influence over Briton's management and operations.On October 11,Briton declared and paid cash dividends of $30,000.On December 31,Briton reported net income of $125,000 for the year.Prepare the journal entries Savan Co.should record to account for the dividends received and the earnings reported by Briton Corporation.

All companies desire a low return on total assets.

Long-term investments can include:

If a U.S.company's credit sale to an international customer allows payment to be made in a foreign currency,the transaction is recorded using the exchange rate on the date of sale.

At the end of the accounting period,the owners of debt securities:

Debt securities:

On February 15,Seacroft buys 7,000 shares of Kebo common at $28.53 per share plus a brokerage fee of $400.The stock is classified as available-for-sale securities.On March 15,Kebo declares a dividend of $1.15 per share payable to stockholders of record on April 15.Seacroft received the dividend on April 15 and ultimately sells half of the Kebo stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.The fair value of the remaining shares is $29.50 per share.The amount that Seacroft should report in the equity section of its year-end December 31 balance sheet for its investment in Kebo is:

An investing company that owns _________ of another (investee)company's voting stock (but not more than 50%)is presumed to have a significant influence over the investee.

A company had net income of $76,000 in Year 1 and $88,000 in Year 2.Its net sales were $640,000 in Year 1 and $611,000 in Year 2.Its average total assets in Year 1 were $670,000 and $712,000 in Year 2.Calculate the profit margin,total asset turnover and return on total assets for both years.Comment on the results.

Consolidated financial statements:

When a credit sale is denominated in a foreign currency,the foreign exchange rate used to record the sale is the current exchange rate:

Seamark buys $300,000 of Eider's 8% five-year bonds payable at par value.Interest payments are made semiannually.All of the following regarding accounting for the securities are true except:

Investments in held-to-maturity debt securities are always current assets.

Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.

All of the following statements relating to accounting for international operations are true except:

A company had a profit margin of 10.5% and total asset turnover of 1.84.Its return on total assets was: