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Exam 15: Investments and International Operations

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Question 41

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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:

A) Credit to Common Stock for $2,000.
B) Credit to Common Stock for $143,000.
C) Credit to Common Stock for $143,375.
D) Debit to Long-Term Investments for $143,000.
E) Debit to Long-Term Investments for $143,375.

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

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Question 42

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A company had net income of $450,000 in 2012 and $620,000 in 2013.The company had average total assets of $2,500,000 in 2012 and $3,000,000 in 2013.Calculate the return on total assets for 2012 and 2013.Comment on the results.

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a.2012: $450,000/$2,500,000 = ...

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Question 43

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Micron owns 35% of Martok.Martok pays a total of $47,000 in cash dividends for the period.Micron's entry to record the dividend transaction would include a:

Long-term investments can include funds set aside for special purposes such as bond sinking funds.

Brown Company sold supplies in the amount of 15,000 euros to a French company when the exchange rate was $1.15 per euro.At the time of payment,the exchange rate decreased to $1.12.Brown must record a loss of $450.

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

Investments in trading securities:

As a long-term investment,Elmer's Equipment Enterprise purchased 35% of Sticky Supplies Inc.'s 300,000 shares for $350,000 at the beginning of the fiscal year of both companies.On the purchase date,the fair value and book value of Sticky's net assets were equal.During the year,Sticky's earned net income of $430,000 and distributed cash dividends of 0.42 cents per share.The fair value of Sticky's assets at the end of the year totaled $349,450.What is the journal entry,if any to record the net income for the investment in Sticky?

Rhone Importers purchases automotive parts from Germany.Prepare journal entries for the following transactions of Rhone.

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

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

On January 1,2014,Brig Corp.paid $39,200 plus a brokerage fee in the amount of $800 to buy Sonny's 8%,two-year bonds payable with a $40,000 par value.The bonds pay interest semiannually on June 30 and December 31.Brig intends to hold the bonds until they mature on December 31,2016.How would the company record the purchase of the bonds?

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) :

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

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 company owns $100,000 of 9% bonds that pay interest on October 1 and April 1.The amount of interest accrued on December 31 (the company's year-end) would be:

Explain the difference between short-term and long-term investments and give examples of each.

As a long-term investment,Elmer's Equipment Enterprise purchased 35% of Sticky Supplies Inc.'s 300,000 shares for $350,000 at the beginning of the fiscal year of both companies.On the purchase date,the fair value and book value of Sticky's net assets were equal.During the year,Sticky's earned net income of $430,000 and distributed cash dividends of 0.42 cents per share.The fair value of Sticky's assets at the end of the year totaled $349,450.What is Elmer's balance for this investment at the end of the year?

Investments in equity securities where the investor has a significant,but not controlling,influence are accounted for using the _______________ method.

A company paid $47,500 plus a broker's fee of $400 to acquire 8% bonds with a $60,000 maturity value.The company intends to hold the bonds to maturity.The cash proceeds the company will receive upon maturity of the bonds is: