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Exam 15: Investments

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Question 21

Multiple Choice

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Select the correct statement from the following:

A) Total asset turnover reflects the percent of net income in each dollar of net sales.
B) Return on total assets analysis is beneficial in evaluating a company but is not useful for competitor analysis.
C) High returns on total assets are desirable.
D) Profit margin reflects a company's ability to produce net sales from total assets.
E) Return on total assets can be separated into gross margin ratio and price-earnings ratio.

F) A) and E)
G) A) and D)

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Question 22

True/False

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A company received dividends of $0.35 per share on 300 shares of stock it holds as an investment. The journal entry to record this transaction would be to debit Cash for $105 and credit Dividend Revenue for $105.

A) True
B) False

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Question 23

Multiple Choice

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Long-term investments include:

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. This is the company's first and only investment in 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 balance in the investment account on April 16 is:

On April 1 of the current year, a company paid $150,000 cash to purchase 7%, 10-year bonds with a par value of $150,000; interest is paid semiannually each April 1 and October 1. The company intends to hold these bonds until they mature. Prepare the journal entries to record the bond purchase, the receipt of the first semiannual interest payment on October 1 of the current year, and the accrual of interest for the year-end December 31.

Unrealized gains and losses on trading securities are reported on the income statement.

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: $\begin{array}{l|l|l|l|}\hline \text { Available-for-Sale Securities } & \text { Cost } & \begin{array}{l}\text { Fair } \\\text { Value }\end{array} \\\hline \text { December 31, 20X1 } & \$ 250,000 & \$ 241,000 \\\hline \text { December 31, 20X2 } & \$ 340,000 & \$ 350,000 \\\hline \text { December 31, 20X3 } & \$ 410,000 & \$ 415,000\end{array}$

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

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.

A company had net income of $86,000 in Year 1 and $118,000 in Year 2. Its net sales were $640,000 in Year 1 and $611,000 in Year 2. Its average total assets in Year 1 were $1,670,000 and $1,712,000 in Year 2. Calculate the profit margin, total asset turnover and return on total assets for both years. Comment on the results.

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

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

Short-term investments:

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

Zhang Corp. owns 40% of Magnor Company's common stock. Magnor pays $97,000 in total cash dividends to its shareholders. Zhang's entry to record this transaction should include a:

Available-for-sale debt securities are:

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

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

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

Silver Era Co. exports Southwestern artwork to Japan. Prepare journal entries for the following transactions. Nov 10 Sold artwork to Ito Company for ¥10,000,000, terms n/30. The exchange rate was $0.009 per yen. Dec 5 Received payment from Ito Company for the November 10 sale. The exchange rate was $0.0087 per yen.