Question 1

Held-to-maturity securities are:

Accepted Answer

A)  Always classified as Short-Term Investments.
B)  Equity securities where significant influence involved.
C)  Debt securities that a company intends and is able to hold to maturity.
D)  Always classified as Long-Term Investments.
E)  Equity securities that a company intends and is able to hold to maturity.F) All of the above
G) B) and C)

Question 2

Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 as a long-term investment. The investment is classified as available-for-sale securities. Gonzalez has 500,000 shares of stock currently outstanding and the par value of the stock is $1 per share. Lessington's entry to record the purchase transaction would include a:

Accepted Answer

A)  Credit to Common Stock for $4,000.
B)  Credit to Common Stock for $150,000.
C)  Debit to Long-Term Investments-AFS for $4,000.
D)  Credit Gain on Long-Term Investment $146,000.
E)  Debit to Long-Term Investments-AFS for $150,000.F) A) and E)
G) D) and E)

Question 3

An investor purchased $50,000 of 10-year bonds it intends to hold to maturity. The investor's journal entry to record the purchase is a debit to Long-Term Investments for $50,000 and a credit to Cash for $50,000.

Accepted Answer

A) True 
 B)False

Question 4

Debt securities are recorded at cost when purchased, and interest revenue for investments in debt securities is recorded when earned.

Accepted Answer

A) True 
 B)False

Question 5

The price of one currency stated in terms of another currency is called a(n) :

Accepted Answer

A)  Currency rate.
B)  Foreign exchange rate.
C)  International conversion rate.
D)  Currency transaction.
E)  Historical exchange rate.F) All of the above
G) A) and B)

Question 6

Investments can be classified as all but which of the following:

Accepted Answer

A)  Held-to-maturity debt securities.
B)  Available-for-sale equity securities.
C)  Available-for-sale debt securities.
D)  Trading securities.
E)  Intangible investments.F) A) and C)
G) All of the above

Question 7

Profit margin is net sales divided by net income.

Accepted Answer

A) True 
 B)False

Question 8

At acquisition, debt securities are:

Accepted Answer

A)  Recorded at cost.
B)  Recorded at the amount of interest that will be received over the life of the security.
C)  Not recorded, because no interest is due yet.
D)  Recorded at cost plus the amount of dividend income to be received.
E)  Recorded at their cost, plus total interest that will be received over the life of the security.F) A) and D)
G) B) and C)

Question 9

Kim Manufacturing purchased on credit £20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound. At the year-end balance sheet date, the exchange rate increased to $1.69. Kim must record a gain of $600.

Accepted Answer

A) True 
 B)False

Question 10

Segmental Manufacturing owns 35% of Glesson Corp. stock. Glesson pays a total of $47,000 in cash dividends for the period. Segmental's entry to record the dividend transaction would include a:

Accepted Answer

A)  Credit to Investment Revenue for $47,000.
B)  Credit to Long-Term Investments for $16,450.
C)  Credit to Cash for $16,450.
D)  Debit to Long-Term Investments for $16,450.
E)  Debit to Cash for $47,000.F) A) and E)
G) B) and D)

Question 11

On May 15, Tumbleweed, Inc. purchased 10,000 shares of Dansell Corp. for $80,000. The securities are considered available-for-sale securities. This is the company's first and only investment in 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.

Accepted Answer

A) True 
 B)False

Question 12

Multinational corporations can be U.S. companies with operations in other countries.

Accepted Answer

A) True 
 B)False

Question 13

Consolidated financial statements:

Accepted Answer

A)  Show the results of operations, cash flows, and the financial position of all entities under a parent's control, including all subsidiaries.
B)  Include the investments in the subsidiaries on the balance sheet.
C)  Show the results of operations, cash flows, and the financial position of the parent only.
D)  Do not include a balance sheet.
E)  Show the results of operations, cash flows, and the financial position of the subsidiary only.F) C) and E)
G) A) and E)

Question 14

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

Accepted Answer

A)  $125,000.
B)  $197,000.
C)  $173,000.
D)  $77,000.
E)  $370,000.F) All of the above
G) A) and C)

Question 15

When consolidated financial statements are prepared, the parent company uses the equity method and reports the investment accounts for the subsidiaries on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 16

Investments in trading securities:

Accepted Answer

A)  Are reported as current assets.
B)  Are long-term investments.
C)  Are reported at their cost, no matter what their market value.
D)  Include only debt securities.
E)  Include only equity securities.F) A) and B)
G) C) and D)

Question 17

If the exchange rate for Canadian and U.S. dollars is 0.7382 to 1, this implies that 2 Canadian dollars can be purchased for $1.48 U.S. dollars.

Accepted Answer

A) True 
 B)False

Question 18

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:

Accepted Answer

A)  Debit Foreign Exchange Loss $90; Accounts Receivable-Kagome $90.
B)  Debit Accounts Receivable-Kagome $90; credit Foreign Exchange Gain $90.
C)  Debit Foreign Exchange Loss $90; credit Sales $90.
D)  No journal entry is required until the amount is collected.
E)  Debit Sales $90; credit Foreign Exchange Gain $90.F) B) and D)
G) D) and E)

Question 19

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?

Accepted Answer

A)  Effective method.
B)  Fair value method.
C)  Cost with amortization method.
D)  Historical cost method.
E)  Equity method.F) A) and E)
G) All of the above

Question 20

Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale securities. The year-end cost and fair values for its portfolio of these investments follow. The year-end adjusting entry to record the unrealized gain/loss at December 31, 20X2 is:
  Available-for-Sale Securities  Cost  Fair value December 31,20X1$250,000$241,000 December 31,20X2$340,000$350,000 December 31,20X3$410,000$415,000\begin{array}{|l|l|l|}\hline 	ext { Available-for-Sale Securities }&	ext { Cost }&	ext { Fair value}\\hline 	ext { December } 31,20 \mathrm{X} 1 & \$ 250,000 & \$ 241,000 \\hline 	ext { December } 31,20 \mathrm{X} 2 & \$ 340,000 & \$ 350,000 \\hline 	ext { December } 31,20 \mathrm{X} 3 & \$ 410,000 & \$ 415,000\\hline\end{array} Available-for-Sale Securities  December 31,20X1 December 31,20X2 December 31,20X3​ Cost $250,000$340,000$410,000​ Fair value$241,000$350,000$415,000​​

Accepted Answer

A)  Debit Fair Value Adjustment - Available-for-Sale (LT) $19,000; Credit Unrealized Loss - Equity $9,000; Credit Unrealized Gain - Equity, $10,000.
B)  Debit Fair Value Adjustment - Available-for-Sale (LT) $10,000; Credit Unrealized Loss - Equity $10,000.
C)  Debit Fair Value Adjustment - Available-for-Sale (LT) $10,000; Credit Unrealized Gain - Equity, $10,000.
D)  Debit Fair Value Adjustment - Available-for-Sale (LT) $19,000; Credit Unrealized Gain - Equity $19,000.
E)  Debit Unrealized Gain - Equity $10,000; Credit Fair Value Adjustment - Available-for-Sale (LT) $10,000. F) A) and E)
G) None of the above

Exam 15: Investments and International Operations

Correct Answer
verified

When consolidated financial statements are prepared, the parent company uses the equity method and reports the investment accounts for the subsidiaries on the balance sheet.

Correct Answer
verified

If the exchange rate for Canadian and U.S. dollars is 0.7382 to 1, this implies that 2 Canadian dollars can be purchased for $1.48 U.S. dollars.

Correct Answer
verified

Investments can be classified as all but which of the following:

Correct Answer
verified

Multinational corporations can be U.S. companies with operations in other countries.

Correct Answer
verified

An investor purchased $50,000 of 10-year bonds it intends to hold to maturity. The investor's journal entry to record the purchase is a debit to Long-Term Investments for $50,000 and a credit to Cash for $50,000.

Correct Answer
verified

Held-to-maturity securities are:

Correct Answer
verified

Consolidated financial statements:

Correct Answer
verified

Debt securities are recorded at cost when purchased, and interest revenue for investments in debt securities is recorded when earned.

Correct Answer
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Correct Answer
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Correct Answer
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At acquisition, debt securities are:

Correct Answer
verified

The price of one currency stated in terms of another currency is called a(n) :

Correct Answer
verified

Correct Answer
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Profit margin is net sales divided by net income.

Correct Answer
verified

Correct Answer
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Investments in trading securities:

Correct Answer
verified

Segmental Manufacturing owns 35% of Glesson Corp. stock. Glesson pays a total of $47,000 in cash dividends for the period. Segmental's entry to record the dividend transaction would include a:

Correct Answer
verified

Kim Manufacturing purchased on credit £20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound. At the year-end balance sheet date, the exchange rate increased to $1.69. Kim must record a gain of $600.

Correct Answer
verified

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?

Correct Answer
verified

Exam 15: Investments and International Operations

Correct AnswerverifiedShow Answer

When consolidated financial statements are prepared, the parent company uses the equity method and reports the investment accounts for the subsidiaries on the balance sheet.

Correct AnswerverifiedShow Answer

If the exchange rate for Canadian and U.S. dollars is 0.7382 to 1, this implies that 2 Canadian dollars can be purchased for $1.48 U.S. dollars.

Correct AnswerverifiedShow Answer

Investments can be classified as all but which of the following:

Correct AnswerverifiedShow Answer

Multinational corporations can be U.S. companies with operations in other countries.

Correct AnswerverifiedShow Answer

An investor purchased $50,000 of 10-year bonds it intends to hold to maturity. The investor's journal entry to record the purchase is a debit to Long-Term Investments for $50,000 and a credit to Cash for $50,000.

Correct AnswerverifiedShow Answer

Held-to-maturity securities are:

Correct AnswerverifiedShow Answer

Consolidated financial statements:

Correct AnswerverifiedShow Answer

Debt securities are recorded at cost when purchased, and interest revenue for investments in debt securities is recorded when earned.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

At acquisition, debt securities are:

Correct AnswerverifiedShow Answer

The price of one currency stated in terms of another currency is called a(n) :

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Profit margin is net sales divided by net income.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Investments in trading securities:

Correct AnswerverifiedShow Answer

Segmental Manufacturing owns 35% of Glesson Corp. stock. Glesson pays a total of $47,000 in cash dividends for the period. Segmental's entry to record the dividend transaction would include a:

Correct AnswerverifiedShow Answer

Kim Manufacturing purchased on credit £20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound. At the year-end balance sheet date, the exchange rate increased to $1.69. Kim must record a gain of $600.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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