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Exam 15: Investments and International Operations

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Question 1

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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?

A) Equity method.
B) Fair value method.
C) Historical cost method.
D) Cost with amortization method.
E) Effective method.

F) A) and D)
G) All of the above

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Question 2

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Investments in equity securities where the investor has a controlling influence are accounted for using the ________________________________.

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equity met...

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Question 3

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

Weston Company had the following long-term available-for-sale securities in its portfolio at December 31,Year 1.Weston had several long-term investment transactions during the next year.After analyzing the effects of each transaction, (1)determine the amount Weston should report on its December 31,Year 1 balance sheet for its long-term investments in available-for-sale securities, (2)determine the amount Weston should report on its December 31,Year 2 balance sheet for its long-term investments in available-for-sale securities, (3)prepare the necessary adjusting entry to record the fair value adjustment at December 31,Year 2.

Available-for-sale debt securities are:

Select the correct statement from the following:

On May 1 of the current year,a company paid $200,000 cash to purchase 6%,10-year bonds with a par value of $200,000;interest is paid semiannually each May 1 and November 1.The company intends to hold these bonds until they mature.Prepare the journal entry to record the receipt of the first semiannual interest payment on November 1.

Long-term investments in held-to-maturity debt securities are accounted for using the ___________________________.

All companies desire a low return on total assets.

Trading securities are securities that are purchased by trading securities with other companies rather than by paying cash.

A company had net income of $40,000,net sales of $300,000,and average total assets of $200,000.Its profit margin and total asset turnover were respectively:

____________________________ are debt and equity securities that a company intends to actively manage and trade for a profit.

Investments in held-to-maturity debt securities are always current assets.

Investments in debt and equity securities that the company actively manages and trades for profit are referred to as short-term investments in:

Hamasaki Company owns 30% of CDW Corp.stock.Hamasaki received $6,500 in cash dividends from its investment in CDW.The entry to record receipt of these dividends includes a debit to Cash for $6,500 and a credit to Long-Term Investments for $6,500.

On May 1 of the current year,a company paid $200,000 to purchase 7%,10-year bonds with a par value of $200,000;interest is paid semiannually on May 1 and November 1.The company intends to hold the bonds until they mature.Prepare the journal entries to record (1)the bond purchase, (2)the receipt of the first semiannual interest payment on September 1 of the current year, (3)the accrual of interest for year-end December 31,and (4)the receipt of the second semiannual payment on May 1.

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.common stock at $28.53 per share plus a brokerage fee of $400.The stock is classified as available-for-sale securities.On March 15,Marcelo Corp.declares a dividend of $1.15 per share payable to stockholders of record on April 15.Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp.stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.The fair value of the remaining shares is $29.50 per share.The amount that Jewel Company should report on its year-end December 31 income statement related to the investment in Marcelo Corp.is:

Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.

If a U.S.Company's credit sale to an international customer allows payment to be made in a foreign currency,the same exchange rate must be used for the date of sale and the cash payment date.

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