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Exam 15: Investments

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Question 1

Multiple Choice

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

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

F) C) and E)
G) All of the above

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Question 2

Multiple Choice

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Match the following terms with the appropriate definitions. -Financial statements that show the financial position,results of operations,and cash flows of all entities under the parent's control,including those of any subsidiaries.

A) Available-for-sale securities
B) Equity method
C) Parent company
D) Consolidated financial statements
E) Long-term investments
F) Unrealized gain (loss)
G) Trading securities
H) Return on total assets
I) Subsidiary
J) Held-to-maturity securities

K) E) and G)
L) A) and E)

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D

Question 3

Essay

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

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:

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

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:

Short-term investments:

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

On January 4,Year 1,Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000.Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell.During each of the next two years,Convell declared and paid cash dividends of $0.85 per share,and its net income was $72,000 and $67,000 for Year 1 and Year 2,respectively. -What is the book value of Barber's investment in Convell at the end of Year 2?

A company has net income of $250,000,net sales of $2,000,000,and average total assets of $1,500,000.Its return on total assets equals:

Held-to-maturity securities are:

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:

Match the following terms with the appropriate definitions. -A company that owns a more than 50% controlling interest in a subsidiary.

Debt securities are recorded at cost when purchased.

What is comprehensive income and how is it usually reported in the financial statements?

When an investor company owns more than 25% of the voting stock of an investee company,it has a controlling influence.

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.

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

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 investment transaction.

What are the accounting basics for debt securities,including recording their acquisition,interest earned,and their disposal?