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Exam 15: Investments and International Operations

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Question 21

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Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 as a long-term investment. The investment is classified as available-for-sale securities. Gonzalez has 500,000 shares of stock currently outstanding and the par value of the stock is $1 per share. Lessington's entry to record the purchase transaction would include a:

A) Debit to Long-Term Investments-AFS for $150,000.
B) Credit to Common Stock for $150,000.
C) Credit Gain on Long-Term Investment $146,000.
D) Debit to Long-Term Investments-AFS for $4,000.
E) Credit to Common Stock for $4,000.

F) B) and E)
G) A) and D)

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Question 22

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Long-term investments in held-to-maturity debt securities are accounted for using the:

A) Fair value method with fair value adjustment to income.
B) Fair value method with fair value adjustment to equity.
C) Cost method without amortization.
D) Cost method with amortization.
E) Equity method.

F) C) and E)
G) A) and E)

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Question 23

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Explain how to record the sale of trading securities.

Investments in equity securities where the investor has a significant, but not controlling influence, are accounted for using the _______________ method.

Barzetti had no investments prior to the current year. It had the following transactions involving available-for-sale and held-to-maturity securities during the year. The stock purchases are considered short-term available-for-sale securities. Prepare Barzetti's journal entries to record the transactions and events associated with the investment purchases.

A U.S. company makes a sale to a foreign customer with payment receivable in 30 days in the customer's currency. The sale would be recorded by the U.S. company on the date:

A company had net income of $40,000, net sales of $300,000, and average total assets of $200,000. Its profit margin and total asset turnover were respectively:

Bond sinking funds are examples of short-term investments.

Mire Corporation had the following transactions involving investments in trading securities during the year. Prior to these transactions, Mire never had any investments in trading securities. Prepare the required general journal entries to record these transactions.

Short-term investments in held-to-maturity debt securities are accounted for using the:

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

The price of one currency stated in terms of another currency is called a foreign exchange rate.

If a U. S. Company's credit sale to an international customer allows payment to be made in a foreign currency, the same exchange rate must be used for the date of sale and the cash payment date.

Equity securities that give an investor significant influence over an investee are always considered short-term investments.

The cost method of accounting is used for long-term investments in equity securities with significant influence.

Any unrealized gain or loss for the portfolio of available-for-sale securities is reported on the income statement in the other gain or loss section.

When consolidated financial statements are prepared, the parent company uses the equity method and the investments in the subsidiaries are reported on the balance sheet.

Explain how to account for held-to-maturity debt securities at and after acquisition and how they are reported in the financial statements.

On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The journal entry to record the sale of the 3,500 shares of stock on November 17 is:

On July 31, Potter Co. purchased 2,000 shares of GigaTech stock for $16,000. The investment is classified as available-for-sale securities. On October 31, which is Potter's year-end, the stock had a fair value of $20,000. Potter should record a: