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Exam 15: Investments and International Operations

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Question 21

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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)
B)
C)
D)
E)

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

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Question 22

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Investments in trading securities are accounted for using the equity method with consolidation.

A) True
B) False

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Question 23

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Cash equivalents are investments that are readily converted to known amounts of cash that mature within three months.

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

A controlling influence over the investee is based on the investor owning voting stock exceeding:

The currency in which a company presents its financial statements is known as the:

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

Explain how to record the sale of trading securities.

Investments in trading securities are always short-term investments.

In accounting for noninfluential securities:

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:

A company had net income of $82,000, net sales of $781,000, and average total assets of $300,000. Its profit margin and total asset turnover were respectively:

_________________________ are investments that are both readily converted to known amounts of cash and mature within three months.

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

When a credit sale is denominated in a foreign currency, the foreign exchange rate used to record the sale is the current exchange rate:

The price of one currency stated in terms of another currency is called a(n) :

On June 18, Johnson Company (a U.S. company) sold merchandise to the Frater Company of Denmark for 60,000 Euros, with a payment due in 60 days. If the exchange rate was $1.14 per euro on the date of sale and $1.35 per euro on the date of payment, Johnson Company should recognize a foreign exchange gain or loss in the amount of:

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

Chrono Co. held bonds of Ayrford Co. with a cost of $125,000 and a year-end market value of $123,700. Chrono also held 1,500 shares of Avian common stock with a cost of $25,000 and a year-end market value of $26,100. These are classified as long-term available-for-sale securities. Prepare the journal entry to record the market value of the investments as of its December 31 year-end.

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: