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Exam 14: Investments and International Operations

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Question 1

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

A) True
B) False

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True

Question 2

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On April 1 of the current year,a company paid $150,000 to purchase 7%,10-year bonds that had a par value of $150,000 and paid interest semiannually each April 1 and October 1.The company intends to hold the bonds until they mature.Prepare the journal entry to record the receipt of the first semiannual interest payment on October 1 of the current year.

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\[\begin{array} { | l | c | r | r | } \hline 10 / 1 & \operatorname { Cash } ( 150,000 \times .07 \times 1 / 2 ) \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 5,250 & \\ \hline & \text { Interest Earned } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & &5,250 \\ \hline \end{array}\]

Question 3

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What are the accounting basics for debt securities,including recording their acquisition,interest earned and their disposal?

Investments in trading securities are always short-term investments.

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

A company purchased $60,000 of 5% bonds on May 1.The bonds pay interest on February 1 and August 1.The amount of interest accrued on December 31 (the company's year-end) would be:

A company's return on total assets equals 28%.If total assets and net sales are $4,500,000 and $10,000,000 respectively,how much is net income?

A company reported net income for 2009 of $98,000 and $106,000 in 2010.It also reported net sales of $735,000 in 2009 and $798,000 in 2010.The company's average total assets in 2009 were $1,850,000 and $1,720,000 in 2010.Calculate this company's profit margin,total asset turnover and return on total assets for 2009 and 2010.Comment on the results.

Trading securities,held-to-maturity debt securities and equity securities giving an investor significant influence over an investee are always considered short-term investments.

Investments in trading securities:

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

An investor with significant influence owns as least 20%,but not more than 50% of another company's voting stock.

___________________________ are investments in securities that management intends to convert to cash within the longer of one year or the operating cycle and are readily convertible to cash.

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:

A company had net income of $76,000 in 2009 and $88,000 in 2010.Its net sales were $640,000 in 2009 and $611,000 in 2010.Its average total assets in 2009 were $670,000 and $712,000 in 2010.Calculate the profit margin,total asset turnover and return on total assets for both years.Comment on the results.

Net profit margin reflects the percent of net income in each dollar of net sales.

Explain how equity securities having significant influence are accounted for and reported in the financial statements.Include a discussion of the criterion for these securities in terms of an investee's voting stock.

Rhone Importers purchases automotive parts from Germany.Prepare journal entries for the following transactions of Rhone. $\begin{array} { | l | l | } \hline \text { Oct I } & \begin{array} { l } \text { Purchased inventory from Weimar Co for 12,000 euros, terms n/30. The } \\\text { exchange rate was \$1.15 per euro. }\end{array} \\\hline \text { Oct. 30 } & \begin{array} { l } \text { Paid Weimar Co. For the October I purchase. The exchange rate was } \$ 1.13 \text { per } \\\text { euro }\end{array} \\\hline\end{array}$

Held-to-maturity securities are:

As a long-term investment,Elmer's Equipment Enterprise purchased 35% of Sticky Supplies Inc.'s 300,000 shares for $350,000 at the beginning of the fiscal year of both companies.On the purchase date,the fair value and book value of Sticky's net assets were equal.During the year,Sticky's earned net income of $430,000 and distributed cash dividends of 0.42 cents per share.The fair value of Sticky's assets at the end of the year totaled $349,450.What is the journal entry,if any to record the net income for the investment in Sticky?