Deck 15: Investments and International Operations

Question 1

Bond sinking funds are examples of short-term investments.

Answer 1

False

Question 2

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

Answer 2

True

Question 3

Long-term investments are usually held as an investment of cash for use in current operations.

Answer 3

False

Question 4

A company received dividends of $0.35 per share on 300 shares of stock it holds as an investment.The journal entry to record this transaction would be to debit Cash for $105 and credit Dividend Revenue for $105.

Question 5

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

Question 6

Short-term investments are intended to be converted into cash within the longer of one year or the current operating cycle of the business,and are readily convertible to cash.

Question 7

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

Question 8

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

Question 9

Any cash dividends received from equity securities are recorded as Dividend Expense.

Question 10

The equity method with consolidation is used to account for long-term investments in equity securities with controlling influence.

Question 11

When the cost of a short-term held-to-maturity debt security is different from the maturity value,the difference is amortized over the remaining life of the security.

Question 12

An investor purchased $50,000 of 10 year bonds it intends to holdto maturity.The investor's journal entry to record the purchase should include a debit to Long-Term Investments for $50,000 and a credit to Cash for $50,000.

Question 13

A company holds $40,000 of 7% bonds as a held-to-maturity security.The journal entry to record receipt of a semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.
$40,000 * 7% * ½ year = $1,400

Question 14

Debt securities are recorded at cost when purchased.

Question 15

When an investment in an equity security is sold,the sale proceeds are compared with the cost,and if the cost is greater than the proceeds,a gain on the sale of the security is recorded.

Question 16

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

Question 17

Comprehensive income refers to all changes in equity during a period except those from owners' investments and dividends.

Question 18

A controlling investor is called the parent,and the investee company is called the subsidiary.

Question 19

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

Question 20

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

Question 21

Trading securities are securities that are purchased by trading securities with other companies rather than by paying cash.

Question 22

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

Question 23

The price of one currency stated in terms of another currency is called a foreign exchange rate.

Question 24

Equity securities giving an investor significant influence over an investee are always considered short-term investments.

Question 25

All companies desire a low return on total assets.

Question 26

Foreign exchange rates fluctuate due to many factors including changing political and economic conditions.

Question 27

Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.

Question 28

A company should report its portfolio of trading securities at its fair value.

Question 29

Unrealized gains and losses on trading securities are reported on the income statement.

Question 30

Return on total assets can be separated into the profit margin ratio and total asset turnover.

Question 31

Multinational corporations can be U.S.companies with operations in other countries.

Question 32

When consolidated financial statement are prepared,the parent company uses the equity method and reports the investment accounts for the subsidiaries on the balance sheet.

Question 33

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

Question 34

Consolidated financial statements show the financial position,results of operations,and cash flows of all entities under the parent's control,including all subsidiaries.

Question 35

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

Question 36

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

Question 37

Investments in held-to-maturity debt securities are always current assets.

Question 38

Profit margin is net sales divided by net income.

Question 39

Trading securities are always reported as current assets.

Question 40

If a long-term investment in an equity security gives the investor significant influence over the investee,the investment is classified as available-for-sale.

Question 41

Hamasaki Company owns 30% of CDW Corp.stock.Hamasaki received $6,500 in cash dividends from its investment in CDW.The entry to record receipt of these dividends includes a debit to Cash for $6,500 and a credit to Long-Term Investments for $6,500.

Question 42

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

Question 43

Any unrealized gain or loss for the portfolio of available-for-sale securities is reported on the income statement in the other gain or loss section.

Question 44

Long-term investments are reported in the:

A)Current asset section of the balance sheet.
B)Intangible asset section of the balance sheet.
C)Non-current section of the balance sheet called long-term investments.
D)Plant assets section of the balance sheet.
E)Equity section of the balance sheet.

Question 45

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

Question 46

To prepare consolidated financial statements when a U.S.parent company has an international subsidiary,the international subsidiary's financial statements must be translated into U.S.dollars.

Question 47

All of the following are true about debt securities except:

A)They can be short-term investments.
B)They can be long-term investments.
C)They can have a cost higher than the maturity value.
D)They can have a cost lower than the maturity value.
E)The reflect an owner relationship.

Question 48

At acquisition,debt securities are:

A)Recorded at their cost,plus total interest that will be received over the life of the security.
B)Recorded at the amount of interest that will be received over the life of the security.
C)Recorded at cost.
D)Not recorded,because no interest is due yet.
E)Recorded at cost plus the amount of dividend income to be received.

Question 49

Maroon 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.Maroon must record a loss of $450.

Question 50

If a U.S.Company's credit sale to an international customer allows payment to be made in a foreign currency,the same exchange rate must be used for the date of sale and the cash payment date.

Question 51

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

Question 52

Strickland Corporation has invested in 10% of the outstanding stock of Nez Corporation.Strickland intends to actively manage this investment for profit.This investment is classified as:

A)an available-for-sale security.
B)a held-to-maturity security.
C)a trading security.
D)a significant influence security.
E)a controlling influence security.

Question 53

Long-term investments:

A)Are current assets.
B)Include funds earmarked for a special purpose such as bond sinking funds.
C)Must be readily convertible to cash.
D)Are expected to be converted into cash within one year.
E)Include only equity securities.

Question 54

Available-for-sale securities are actively managed like trading securities because the company intends to trade them for profit in the short term.

Question 55

Short-term investments:

A)Are securities that management intends to convert to cash within the longer of one year or the current operating cycle,and are readily convertible to cash.
B)Include funds earmarked for a special purpose such as bond sinking funds.
C)Include stocks not intended to be converted into cash.
D)Include bonds not intended to be converted into cash.
E)Include sinking funds not intended to be converted into cash.

Question 56

Long-term investments include:

A)Investments in bonds and stocks that are not readily convertible to cash or not intended to be converted to cash in the short term.
B)Investments in marketable stocks that are intended to be converted into cash in the short-term.
C)Investments in marketable bonds that are intended to be converted into cash in the short-term.
D)Only investments readily convertible to cash.
E)Investments intended to be converted to cash within one year.

Question 57

All of the following statements regarding equity securities are true except:

A)Equity securities should be recorded at cost when acquired.
B)Equity securities are valued at fair value if classified as trading securities.
C)Equity securities are valued at fair value if classified as significant influence securities.
D)Equity securities are valued at fair value if classified as available-for-sale securities.
E)Equity securities classified as available-for-sale record the dividend revenue when received.

Question 58

If a U.S.company's credit sale to an international customer allows payment to be made in a foreign currency,the sale transaction is recorded using the exchange rate on the date of sale.

Question 59

Long-term investments in available-for-sale securities are reported at fair value on the balance sheet.

Question 60

When using the equity method for investments in equity securities,the investor records the receipt of cash dividends as revenue.

Question 61

Consolidated financial statements:

A)Show the results of operations,cash flows,and the financial position of all entities under a parent's control,including all subsidiaries.
B)Show the results of operations,cash flows,and the financial position of the parent only.
C)Show the results of operations,cash flows,and the financial position of the subsidiary only.
D)Include the investments in the subsidiaries on the balance sheet.
E)Do not include a balance sheet.

Question 62

Long-term investments can not include:

A)Held-to-maturity debt securities.
B)Securities with maturity dates within one operating cycle.
C)Available-for-sale equity securities.
D)Equity securities giving an investor significant influence over an investee.
E)Available-for-sale debt securities.

Question 63

Comprehensive income includes all except:

A)Revenues and expenses reported in the income statement.
B)Dividends paid to shareholders.
C)Unrealized gains and losses on long-term available-for-sale securities.
D)All changes in equity for a period except those due to investments and distributions to owners.
E)Gains and losses reported in the income statement.

Question 64

Kendall Corp.purchased at par value $160,000 of Barker Company's 7% bonds that mature in 10 months.The bonds pay interest semiannually on June 1 and December 1.Kendall plans to hold the bonds until they mature.The journal entry to record Kendall's purchase of the bonds is:

A)debit Short-Term Investments-HTM $160,000;credit Cash,$160,000.
B)debit Cash,$169,333;credit,Short-Term Investments-HTM $169,333.
C)debit Cash,$160,000;credit Short-Term Investments-HTM $160,000.
D)debit Long-Term Investments-HTM $160,000;credit Cash $160,000.
E)debit Cash,$160,000;credit Long-Term Investments-HTM $160,000.

Question 65

A company purchased $60,000 of 5% bonds on May 1 at par value.The bonds pay interest on March 1 and September 1.The amount of interest accrued on December 31 (the company's year-end)would be:

A)$1,000.
B)$500.
C)$1,250.
D)$2,500.
E)$1,500.

Question 66

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.

Question 67

Barnes Company holds $50,000 of 8% bonds that mature in six years as a held-to-maturity security.Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?

A)debit Cash,$4,000;credit Long-Term Investments-HTM,$4,000.
B)debt Cash,$2,000;credit Long-Term Investments-HTM,$2000.
C)debit Cash,$2,000;credit Interest Revenue,$2,000.
D)debit Unrealized Gain-Equity,$2,000;credit Cash,$2,000.
E)debit Cash,$4,000;credit Unrealized Gain-Equity,$4,000.

Question 68

Kendall Corp.purchased at par value $75,000 of Shrem Company's 8% bonds that mature in three-years.The bonds pay interest semiannually on June 1 and December 1.Kendall plans to hold the bonds until they mature.When the bonds mature,Kendall should prepare the following journal entry:

A)debit Long-Term Investments-HTM,$75,000;credit Cash,$75,000.
B)debit Cash,$6,000;credit,Unrealized Gain-Equity,$6,000.
C)debit Cash,$75,000;credit Long-Term Investments-HTM,$75,000.
D)debit Unrealized Gain-Equity,$6,000;credit Cash,$6,000.
E)debit Cash,$75,000;credit Long-Term Investments-Trading,$75,000.

Question 69

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:

A)Debit Long-Term Investments-HTM $37,800;credit Cash $37,800.
B)Debit Long-Term Investments-HTM $38,325;credit Cash $38,325.
C)Debit Cash $40,000;credit Long-Term Investments-HTM $40,000.
D)Debit Long-Term Investments-HTM $37,800;debit Investment Expense $525;credit Cash $38,325.
E)Debit Long-Term Investments-HTM $37,800;debit Loss on Investment $525;credit Cash $38,325.

Question 70

The controlling investor is called the:

A)Owner.
B)Subsidiary.
C)Parent.
D)Investee.
E)Senior entity.

Question 71

A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value.The company intends to hold the bonds to maturity.The cash proceeds the company will receive when the bonds mature equal:

A)$37,800.
B)$38,325.
C)$40,000.
D)$40,525.
E)$43,200.

Question 72

All of the following statements relating to accounting for international operations are true except:

A)Foreign exchange gains or losses can occur when accounting for international sales transactions.
B)Gains and losses from foreign exchange transactions are accumulated in the Fair Value Adjustment Account and are reported on the balance sheet.
C)Gains and losses from foreign exchange transactions are accumulated in the Foreign Exchange Gain (or Loss)account.
D)The balance in the Foreign Exchange Gain (or Loss)account is reported on the income statement.
E)Foreign exchange gains or losses can occur when accounting for international purchases transactions.

Question 73

The investee company in a long term investment with controlling interest is called the:

A)Owner.
B)Subsidiary.
C)Parent.
D)Creditor.
E)Senior entity.

Question 74

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

A)10%.
B)20%.
C)30%.
D)40%.
E)50%.

Question 75

A company has an investment in 9% bonds with a par value of $100,000 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)$750.
B)$1,500.
C)$2,250.
D)$4,500.
E)$9,000.

Question 76

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

A)Foreign exchange rate.
B)Currency transaction.
C)Historical exchange rate.
D)International conversion rate.
E)Currency rate.

Question 77

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

A)Fair value method with fair value adjustment to income.
B)Fair value method with fair value adjustment to equity.
C)Cost method without amortization.
D)Cost method with amortization.
E)Equity method.

Question 78

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:

A)Debit Cash,$8,000;credit Long-Term Investments,$8,000.
B)Debt Long-Term Investment,$8,000;credit Cash,$8,000.
C)Debit Cash,$8,000;credit Dividend Revenue,$8,000.
D)Debit Unrealized Gain-Equity,$8,000;credit Cash,$8,000.
E)Debit Cash,$8,000;credit Unrealized Gain-Equity,$8,000.

Question 79

At the end of the accounting period,the owners of debt securities:

A)Must report the dividend income accrued on the debt securities.
B)Must retire the debt.
C)Must record a gain or loss on the interest income earned.
D)Must record a gain or loss on the dividend income earned.
E)Must record any interest earned on the debt securities during the period.

Question 80

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

A)Fair value method with fair value adjustment to income.
B)Fair value method with fair value adjustment to equity.
C)Cost method with amortization.
D)Cost method without amortization.
E)Equity method.