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Exam 15: Investments and International Operations

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Question 1

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Landmark Corp. buys $300,000 of Schroeter Company's 8% five-year bonds at par value on September 1. Interest payments are made semiannually. All of the following regarding accounting for the securities are true except:

A) The debt securities should be recorded at the cost $300,000.
B) The securities will have a maturity value of $300,000.
C) The semiannual interest payment amount is $12,000.
D) The semiannual interest payment amount is $24,000.
E) Interest Revenue should be credited when an interest payment is received.

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

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Question 2

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Profit margin is net sales divided by net income.

A) True
B) False

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Question 3

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McVeigh Corp. owns 40% of Gondor Company's common stock. McVeigh received $41,200 in cash dividends from Gondor. The entry to record this transaction should include a:

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

Long-term investments in debt securities not classified as trading or held-to-maturity securities are classified as available-for-sale securities.

__________________________ are investments in securities that are not readily convertible to cash, or are not intended to be converted to cash in the short-term.

Element Company had the following long-term available-for-sale securities in its portfolio at December 31 for each of the years listed. The year-end cost and fair values for its portfolio follow. Beginning with Year 1, prepare the appropriate journal entry to record each year-end market adjustment for these securities.

Foreign exchange rates fluctuate due to changing _______________ and ___________ conditions.

In the current year, Logic Co. purchased bonds of Waterford Co. with a cost of $125,000 and a year-end fair value of $123,700. Logic also purchased 1,500 shares of Jasper Co. common stock with a cost of $25,000 and a year-end fair 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.

Explain how transactions (both sales and purchases) in a foreign currency are recorded and reported.

Profit margin reflects the percent of net income in each dollar of net sales.

A company has net income of $130,500. Its net sales are $1,740,000 and its average total assets are $2,750,000. Its profit margin equals 7.5%. Profit margin = $130,500/$1,740,000 = 7.5%

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

Investments in debt and equity securities that the company actively manages and trades for profit are referred to as short-term investments in:

Long-term investments include investments in land or other assets not used in a company's operations.

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

When using the equity method, receipt of cash dividends increases the carrying (book) value of an investment in equity securities.

Hubbard Company had the following trading securities in its portfolio at December 31. The Fair Value Adjustment-Trading account had a balance of zero prior to year-end adjustment. Prepare the appropriate adjusting journal entry.

A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value as a long-term investment. The company intends to hold the bonds to maturity. The correct entry to record the purchase of the bond investment is:

Management's intent determines whether an available-for-sale security is classified as long-term or short-term.