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Exam 15: Investments and International Operations

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Question 111

Multiple Choice

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MotorCity, Inc. purchased 40,000 shares of Shaw common stock for $232,000. This represents 40% of the outstanding stock. The entry to record the transaction includes a:

A) Debit to Long-Term Investments-AFC for $92,800.
B) Debit to Long-Term Investments-Shaw for $232,000.
C) Credit to Long-Term Investments for $92,800.
D) Debit to Long-Term Investments-HTM for $232,000.
E) Debit to Short-Term Investment for $232,000.

F) C) and E)
G) A) and C)

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Question 112

Multiple Choice

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On May 26, Clark Co. purchased 1,000 of Langston Corporation stock at $20 per share plus a $75 brokerage fee. These shares are categorized as trading securities. The journal entry to record the purchase is:

A) Debit Short-term Investments-Trading 20,000; debit Interest Expense 75; credit Cash 20,075.
B) Debit Cash 20,075; credit Short-term Investments-Trading 20,000; credit Gain on Sale of Short term Investments 75.
C) Debit Short-term Investments-Trading 20,000; credit Cash 20,000.
D) Debit Long-term Investments-HTM 20,075; credit Cash 20,075.
E) Debit Short-term Investments-Trading 20,075; credit Cash 20,075.

F) B) and E)
G) A) and E)

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Question 113

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

_________________ are debt securities a company intends and is able to hold until the maturity date.

Landmark buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1. Interest payments are made semiannually on March 1 and September 1. The journal entry Landmark should record to accrue interest earned at year-end December 31 is:

Marshall Company sold supplies in the amount of €25,000 (euros) to a French company when the exchange rate was $1.21 per euro. At the time of payment, the exchange rate decreased to $0.82. Marshall must record a:

Long-term investments can include funds earmarked for special purposes such as bond sinking funds.

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

On November 12, Higgins, Inc., a U.S. Company, sold merchandise on credit to Kagome of Japan at a price of 1,500,000 yen. The exchange rate was $0.00837 per yen on the date of sale. On December 31, when Higgins prepared its financial statements, the exchange rate was $0.00843. Kagome paid in full on January 12, when the exchange rate was $0.00861. On December 31, Higgins should prepare the following journal entry:

All of the following statements regarding accounting for influential securities under U.S. GAAP and IFRS are true except:

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

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

An investing company that owns _________ of another (investee) company's voting stock (but not more than 50%) is presumed to have a significant influence over the investee.

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

A company reported net sales of $850,000, net income of $200,000 and average total assets of $575,000. Calculate its return on total assets.