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Exam 15: Investments

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Question 91

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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:

A) 13.3%; 1.5.
B) 13.3%; 0.2.
C) 1.5%; 0.2.
D) 2.0%; 1.5.
E) 1.5%; 13.3.

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

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Question 92

Multiple Choice

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Foreign exchange rates fluctuate due to changes in all but which of the following?

A) Expectations of future events.
B) Supply and demand for currencies.
C) Political conditions.
D) Economic conditions.
E) Whether the companies prepare financial statements under U.S. GAAP or IFRS.

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

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Question 93

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Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.

________ refers to all changes in equity for a period except for those due to investments by and distributions to owners.

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

Long-term investments are reported in the:

When an investment in an equity security is sold, the sale proceeds are compared with the cost, and if the cost is greater than the proceeds, a gain on the sale of the security is recorded.

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:

Roe Corporation owns 2,000 shares of WRJ Corporation stock. WRJ Corporation has 25,000 shares of stock outstanding. WRJ paid $4 per share in cash dividends to its stockholders. The entry to record the receipt of these dividends is:

Barzetti had no investments prior to the current year. It had the following transactions involving available-for-sale and held-to-maturity securities during the year. The stock purchases are considered short-term available-for-sale securities. Prepare Barzetti's journal entries to record the transactions and events associated with the investment purchases. Apr. 18 Purchased 5,000 shares of Lacy Co. stock at $26.50 per share plus a $350 brokerage fee. May 01 Purchased $200,000 of Butcher's 7%, two-year bonds payable at par value. Interest payments are paid semiannually on November 1 and May 1. It is the company's intent to hold the bonds until maturity. Jun. 10 Purchased 4,000 shares of SubCo stock at $48.25 plus a $325 brokerage fee. Nov. 01 Received a check for the first semiannual interest payment on the Butcher's bonds. Nov. 15 Received a $0.65 per share cash dividend on the Lacy Co. shares. Nov. 30 Sold 2,000 shares of Lacy Co. stock at $29 less a $300 brokerage fee. Dec. 15 Received a $1.10 per share cash dividend on the SubCo shares. Dec. 20 Received a $.075 per share cash dividend on the remaining Lacy Co. shares. Dec. 31 Prepare an adjusting entry to record the fair value adjustment on the available-for-sale securities. At December 31, the Lacy Co. stock has a fair value of $28 per share, and the SubCo stock has a fair value of $49.50 per share.

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

Land used in the company's operations is reported as a long-term investment.

Explain how to account for held-to-maturity debt securities at and after acquisition and how they are reported in the financial statements.

Explain how equity securities having significant influence are accounted for and reported in the financial statements. Include a discussion of the criterion for these securities in terms of an investee's voting stock.

Profit margin is net sales divided by net income.

Any unrealized gain or loss for the portfolio of available-for-sale securities is reported on the income statement in the other gain or loss section.

Equity securities giving an investor significant influence over an investee are always considered short-term investments.

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:

In the current year, Largo Co. purchased bonds of MacDermott Corp. with a cost of $125,000 and a market value of $127,000. Largo also purchased 1,500 shares of Armistead common stock with a cost of $25,000 and a market value of $24,700. These are classified as long-term available-for-sale securities. Prepare the journal entry to record the market value of the investments as of December 31.

To prepare consolidated financial statements when a U.S. parent company has an international subsidiary, the international subsidiary's financial statements must be translated into U.S. dollars.