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Exam 15: Investments and International Operations

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Question 91

Multiple Choice

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Accounting for long-term investments in equity securities with controlling influence uses the:

A) Controlling method.
B) Equity method with consolidation.
C) Investor method.
D) Investment method.
E) Consolidated method.

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

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Question 92

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Held-to-maturity securities are equity securities a company intends and is able to hold until maturity.

A) True
B) False

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Question 93

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Investments in trading securities are always classified as ______________ and are reported as _______________ on the balance sheet.

Financial statements that show the financial position, results of operations, and cash flows of all entities under the parent company's control, including all subsidiaries are known as:

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:

Equity securities reflect a creditor relationship such as investments in notes, bonds, and certificates of deposit.

A company had a profit margin of 10.5% and total asset turnover of 1.84. Its return on total assets was:

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.

Identify each of the following investments as either in debt (D) securities or equity (E) securities:

A company had net income of $43,000, net sales of $380,500, and average total assets of $220,000. Its profit margin and total asset turnover were, respectively:

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

On January 3, Kostansas Corporation purchased 5,000 shares of Morton, Inc. for $40 per share plus $700 in broker commissions. These shares represent a 40% ownership in Morton, Inc. Prepare the journal entry Kostansas Corporation should record for the receipt of cash dividends of $2 per share from Morton on July 10.

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 for the accrual of interest for the year-end December 31.

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

Debt securities are recorded at cost when purchased.

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

Consolidated financial statements:

Scotsland Company had the following transactions relating to investments in trading securities during the year. Prepare the required general journal entries for these transactions.

An investor presumed to have significant influence owns as least 20% but not more than 50% of another company's voting stock.

When a U.S. company makes a credit sale to an international customer and the sale terms are for payment in a foreign currency, the foreign exchange rate used to record the sale is the exchange rate: