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Exam 15: Investments and International Operations

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Question 21

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Equity securities reflect a creditor relationship such as investments in notes and bonds.

A) True
B) False

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Question 22

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Long-term investments can include:

A) Held-to-maturity debt securities.
B) Available-for-sale debt securities.
C) Available-for-sale equity securities.
D) Equity securities giving an investor significant influence over an investee.
E) All of these.

F) None of the above
G) A) and E)

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Question 23

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On May 15, Briar Company purchased 10,000 shares of Broder Corp. for $80,000. The securities are considered available-for-sale securities. On September 30, the shares had a market value of $85,000. The $5,000 difference must be reported on the income statement as a $5,000 gain.

Long-term investments:

A company had net income of $2,660,000, net sales of $25,000,000, and average total assets of $8,000,000. Its return on total assets equals:

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:

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 EXCEPT:

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

Clark Corporation purchased 40% of IT Corporation for $125,000 on January 1. On May 20 of the same year, IT Corporation declared total cash dividends of $30,000. At year-end, IT Corporation reported net income of $150,000. The balance in Clark Corporation's Long-Term Investment-IT Corporation account as of December 31 should be:

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

On June 18, Johnson Company (a U.S. Company) sold merchandise to the Frater Company of Denmark for 60,000 Euros, with a payment due in 60 days. If the exchange rate was $1.14 per euro on the date of sale and $1.35 per euro on the date of payment, Johnson Company should recognize a foreign exchange gain or loss in the amount of:

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

A company reported net income of $275,000, net sales of $2,500,000, and average total assets of $2,100,000 for the current year. Calculate this company's profit margin, total asset turnover, and return on total assets.

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

A company had net income of $450,000 in Year 1 and $620,000 in Year 2. The company had average total assets of $2,500,000 in Year 1 and $3,000,000 in Year 2. Calculate the return on total assets for Year 1and Year 2. Comment on the results, did the company's performance improve?

Discuss the reasons companies make investments.

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:

Held-for-trading securities are always reported as current assets.

If a long-term investment in an equity security gives the investor significant influence over the investee, the investment is classified as available-for-sale.