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Exam 15: Investments and International Operations

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Question 31

True/False

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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.

A) True
B) False

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Question 32

Multiple Choice

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Chung owns 40% of Lu's common stock. Lu pays $97,000 in total cash dividends to its shareholders. Chung's entry to record this transaction should include a:

A) Debit to Dividends for $97,000.
B) Debit to Dividends for $38,800.
C) Debit to Long-Term investments for $97,000.
D) Credit to Long-Term Investments for $38,800.
E) Credit to Cash for $97,000.

F) C) and D)
G) B) and C)

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Question 33

Multiple Choice

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All of the following statements regarding equity securities are True except:

Investments in trading securities are accounted for using the equity method with consolidation.

Debt securities are recorded at cost when purchased.

Long-term investments in debt securities not classified as trading or held-to-maturity securities are classified as available-for-sale securities.

Cash equivalents are investments that are readily converted to known amounts of cash and mature within three months.

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%. Profit margin = $130,500/$1,740,000 = 7.5%

When using the equity method for investments in equity securities, the investor records the receipt of cash dividends as revenue.

Held-to-maturity securities are ____________ securities a company intends and is able to hold until maturity.

Eaton Company had the following long-term available-for-sale securities in its portfolio at December 31, Year 1. Eaton had several long-term investment transactions during the next year. After analyzing the effects of each transaction, (1) determine the amount Eaton should report on its December 31, Year 1 balance sheet for its long-term investments in available-for-sale securities, (2) determine the amount Eaton should report on its December 31, Year 2 balance sheet for its long-term investments in available-for-sale securities, (3) prepare the necessary adjusting entry to record the fair value adjustment at December 31, Year 2.

At acquisition, debt securities are:

Investments in equity securities where the investor has a controlling influence are accounted for using the _______________________________.

A company owns 9% bonds with a par value of $100,000 that pay interest on October 1 and April 1. The amount of interest accrued on December 31 (the company's year-end) would be:

If the exchange rate for Canadian and U.S. dollars is 0.82777 to 1, this implies that 3 Canadian dollars will buy ____ worth of U.S. dollars.

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.

When an investor company owns more than 25% of the voting stock of an investee company, it has a controlling influence.

Wiffery Company had the following trading securities in its portfolio at December 31. The Fair Value Adjustment - Trading account had a balance of zero prior to year-end adjustment. Prepare the appropriate adjusting journal entry.

Long-term investments in available-for-sale securities are reported at their _______ on the balance sheet.

Profit margin is net sales divided by net income.