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Exam 15: Investments and International Operations

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Question 81

Multiple Choice

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Everrine Corporation owns 30% of JRW Corporation. Everrine Corporation received $9,000 in cash dividends from JRW Corporation. The entry to record receipt of these dividends is:

A) Debit Cash, $9,000; credit Long-Term Investments, $9,000.
B) Debt Long-Term Investment, $9,000; credit Cash, $9000.
C) Debit Cash, $9,000; credit Interest Revenue, $9,000.
D) Debit Unrealized Gain-Equity, $9,000; credit Cash, $9,000.
E) Debit Cash, $9,000; credit Dividend Revenue, $9,000.

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

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Question 82

Multiple Choice

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Available-for-sale debt securities are:

A) Recorded at cost and remain at cost over the life of the investment.
B) Reported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value.
C) Reported at fair value on the balance sheet.
D) Intended to be held to maturity.
E) Always classified with Long-Term Liabilities.

F) C) and E)
G) C) and D)

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Question 83

Multiple Choice

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On March 15, Carter Company purchased 10,000 shares of Tonya Corp. stock for $35,000. The investment is classified as available-for-sale securities. On June 30, the stock had a fair value of $38,000. Carter should do all of the following except:

Comprehensive income includes

A company has net income of $250,000, net sales of $2,000,000, and average total assets of $1,500,000. Its return on total assets equals:

Held-to-maturity securities are:

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

Investments in trading securities:

Long-term investments are usually held as an investment of cash for use in current operations.

Return on total assets can be separated into the profit margin ratio and total asset turnover.

NSC Corporation has invested in 10% of the outstanding stock of VC Corporation. NSC intends to actively manage this investment for profit. This investment is classified as:

Long-term investments include:

A company holds $40,000 of 7% bonds as a held-to-maturity security. Assuming all prior interest entries have been accounted for, the bondholder's journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800. $40,000 x 7% x ½ year = $1,400

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.

Define the foreign exchange rate between two currencies. Explain its effect on business transactions conducted in a foreign currency.

Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.

Schoodic Company had the following long-term available-for-sale securities in its portfolio at December 31 for each of the years listed. The year-end cost and fair values for its portfolio follow. Beginning with Year 1, prepare the appropriate journal entry to record each year-end market adjustment for these securities.

Detalo Co. held bonds of Schooner Corp. with a cost of $125,000 and a market value of $127,000. Detalo also held 1,500 shares of Tranco common stock with a cost of $25,000 and a market value of $24,700. These are classified as long-term available-for-sale securities. Prepare the journal entry to record the market value of the investments as of December 31.

On May 1, Franke Co. purchases 2,000 shares of Computech stock for $25,000. This investment is considered to be an available-for-sale investment. On July 31 (Franke's year-end), the stock had a market value of $28,000. Franke should record a credit to Unrealized Gain-Equity for $3,000.