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Exam 25: Investments and International Operations

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Question 61

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Six months ago, a company purchased an investment in stock for $65,000. This investment is considered available-for-sale. The current market value of the stock is $68,500. The company should record a:

A) Debit to Unrealized Loss-Equity for $3,500
B) Credit to Unrealized Gain-Equity for $3,500
C) Debit to Investment Revenue for $3,500
D) Credit to Market Adjustment - Available-for-Sale for $3,500
E) Credit to Investment Revenue for $3,500

F) A) and C)
G) C) and D)

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Question 62

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Profit margin is calculated by sales divided by net income.

A) True
B) False

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Question 63

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Brown Company sold supplies in the amount of 15,000 euros to a French company when the exchange rate was $1.15 per euro. At the time of payment, the exchange rate decreased to $1.12. Brown must record a loss of $450.

A company had net income of $45,000, net sales of $390,000 and average total assets of $250,000 for the current year. Calculate this company's profit margin, total asset turnover and return on total assets.

Foreign exchange rates fluctuate due to changing _______________ and ___________ conditions.

Micron owns 3,000 shares of JVT. JVT has 25,000 total shares of stock outstanding. JVT paid $3 per share in cash dividends to its stockholders. Micron should record a:

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

On May 15, Briar Company purchased 10,000 shares of Broder Corp. for $80,000. On September 30, the stock 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 in available-for-sale securities are reported using their _______ on the balance sheet.

At acquisition, debt securities are:

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

________________________ refers to all changes in equity for a period except for those due to investments and distributions to owners.

A company paid $500,000 for 12% bonds with a par value of $500,000. The bonds pay 6% interest semiannually on September 1 and March 1. The company intends to hold the bonds until they mature. Prepare the journal entries for the following dates and transactions related to this bond acquisition. (1) Bonds purchased on September 1, 2009. (2) Year-end adjusting entry, December 31, 2009. (3) Receipt of semiannual interest March 1, 2010. (4) Redemption of the bonds at maturity on August 31, 2016.

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

If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment, which method would the investor normally use to account for this investment?

When an equity security is sold, the sale proceeds are compared with the cost and if the cost is greater than the proceeds, a gain on the sale of the security is recorded.

Kramer Corporation had the following long-term investment transactions. Prepare the journal entries Kramer Corporation should record for these transactions and events.

A company had net income of $2,785,000, net sales of $250,000,000, average total assets of $6,000,000 and equity investments of $40,000. Its return on total assets equals:

Savan Co. purchased 14,000 shares of Briton Corporation's 40,000 shares of common stock on December 31, 2009. This represented 35% of Briton's outstanding shares and gave Savan Co. significant influence over Briton's management and operations. On October 11, 2010, Briton declared and paid cash dividends of $30,000. On December 31, 2010, Briton reported net income of $125,000 for the year. Prepare the journal entries Savan Co. should record to account for its investment in Briton Corporation during 2010.

Consolidated financial statements show the financial position, results of operations and cash flows of all entities under the parent's control.