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Exam 27: Investments and International Operations

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Question 91

True/False

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Foreign exchange rates fluctuate due to many factors including changing political and economic conditions.

A) True
B) False

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Question 92

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

A) $\begin{array} { | lr |r | } \hline \text { Cash }\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 12,915 \\\quad \text { Accounts Receivable - Kakura Company }\ldots && 12,555 \\\quad \text { Foreign Exchange }\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ && 360 \\\hline\end{array}$
B) $\begin{array} { | l|r |r | } \hline \text { Cash }\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 12,555 \\\quad \text { Foreign Exchange Loss }\ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ & 360 \\\hline \quad \text { Accounts Receivable - Kakura Company }. && 12,915 \\\hline\end{array}$
C) $\begin{array} { | l|r |r | } \hline \text { Cash }\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 12,915 \\\quad \text { Accounts Receivable - Kakura Company }. \ && 12,645 \\\hline \quad \text { Foreign Exchange Gain }\ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots && 90\\\hline\end{array}$
D) $\begin{array} { | lr |r | } \hline \text { Cash }\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots &12,645 \\\quad \text { Foreign Exchange Loss }\ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ &90& \\\hline \quad \text { Accounts Receivable - Kakura Company }...&& 12,915\\\hline\end{array}$
E) $\begin{array} { | c | r | r | } \hline \text { Cash } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 12,915 & \\\hline \text { Foreign Exchange Gain } \ldots \ldots \ldots \ldots \ldots \ldots & & 270 \\\hline \text { Accounts Receivable - Kakura Co... } & & 12,645 \\\hline\end{array}$

F) B) and C)
G) A) and C)

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Question 93

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The currency in which a company presents its financial statements is known as 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?

A decrease in the fair market value of a security that has not yet been realized through an actual sale of the security is called a(n) :

A company had net income of $82,000,net sales of $781,000,and average total assets of $300,000.Its profit margin and total asset turnover were respectively:

Marina,Inc.,held 1,500 of Navia common stock with a cost of $36,900.These shares were classified as a long-term available-for-sale investment.It sold the shares on December 13 for $42,100.Prepare the necessary journal entry to record this sale.

A controlling influence over the investee is based on the investor owning voting stock exceeding:

A U.S.company makes a sale to a foreign customer payable in 30 days in the customer's currency.The sale would be recorded by the U.S.company on the date:

Define the return on total assets and explain how it is used to measure a company's financial performance.

A company reported net income of $275,000,net sales of $2,500,000,and average total assets of $2,100,000 for the current year.Calculate this company's profit margin,total asset turnover,and return on total assets.

A company has net income of $130,500.Its net sales were $1,740,000 and its total assets were $2,750,000.Its profit margin equals 7.5%.

The cost method of accounting is used for long-term investments in equity securities with significant influence.

The equity method with consolidation is used in accounting for long-term investments in equity securities with controlling influence.

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

Short-term investments are readily convertible to cash and are intended to be converted into cash within one year or the operating cycle,whichever is longer.

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

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.

Morgan Company purchased 2,000 shares of Asta's common stock for $143,000 as a long-term investment and is considered available-for-sale.The par value of the stock was $1 per share.Morgan paid $375 in commissions on the transaction.The entry to record the transaction would include a:

Management's intent determines whether an available-for-sale security is classified as long term or short term.