Question 1

X Company purchased bonds issued by Z Company on November 1. Z Company's bonds pay interest semiannually on April 30 and October 31. X Company's financial statements at December 31 will include:

Accepted Answer

X Company will record Interest Receivable for the interest earned from November 1 to December 31, and Interest Revenue for the same period, as they have earned interest on the bonds but have not yet received the payment.

Question 2

Which of the following is NOT eliminated on a consolidated balance sheet?

Accepted Answer

The assets of the subsidiary are not eliminated; they are included in the consolidated balance sheet.

Question 3

On the statement of cash flows, the cash received from selling available- for- sale securities is shown as an):

Accepted Answer

The cash received from selling available-for-sale securities is considered an investing activity, as it involves the sale of investments, which is part of the investing section of the cash flow statement.

Question 4

An investor company with a 40% interest in an investee debited the Investment account for $70,000 and credited the account for $55,000. Based on this information, the investee must have paid dividends of:

Accepted Answer

The answer of An investor company with a 40% interest...

Question 5

Amortization of a discount or premium on a held- to- maturity investment affects all of the following EXCEPT:

Accepted Answer

Amortization of a discount or premium affects the carrying value of the bonds, interest revenue, and retained earnings, but it does not affect the amount of cash received when interest payments are made, as this is determined by the bond's coupon rate.

Question 6

Which of the following terms represents the measure of one country's currency against another country's currency?

Accepted Answer

The foreign currency exchange rate is the measure of one country's currency against another country's currency.

Question 7

Abler Company owns 40% of Saparo Company. Saparo Company paid $40,000 cash dividends for the year. Abler Company's journal entry to record the dividends includes a:

Accepted Answer

Abler Company owns 40% of Saparo Company, which means it uses the equity method for accounting. Under this method, dividends received reduce the investment account. Therefore, Abler would credit Long-Term Investments for 40% of the $40,000 dividends, which is $16,000.

Question 8

With regard to available- for- sale securities, which of the following is used to compute net income?

Accepted Answer

Realized gains from available-for-sale securities are included in net income, while unrealized gains are reported in other comprehensive income.

Question 9

When the equity method is used to account for stock investments, the investor company recognizes revenue when it receives a cash dividend from the investee company.

Accepted Answer

Under the equity method, the investor recognizes its share of the investee's earnings, not when dividends are received. Dividends are treated as a return on investment, reducing the carrying amount of the investment.

Question 10

Short- term investments in bonds are referred to as held- to- maturity investments.

Accepted Answer

Held-to-maturity investments are typically long-term investments where the investor intends to hold the bond until it matures, rather than short-term investments.

Question 11

Held- to- maturity investments are shown on the balance sheet at their current market value.

Accepted Answer

Held-to-maturity investments are recorded on the balance sheet at their amortized cost, not at current market value.

Question 12

When the exchange rate of nation A's currency rises relative to another nation's currency, the currency of nation A is said to have weakened.

Accepted Answer

When the exchange rate of nation A's currency rises relative to another nation's currency, it means that nation A's currency has strengthened, not weakened.

Question 13

On the statement of cash flows, the cash paid to purchase held- to- maturity investments is shown as an):

Accepted Answer

The purchase of held-to-maturity investments is considered an investing activity, and cash paid for such investments results in a decrease in cash flows from investing activities.

Question 14

For multinational companies, stockholders' equity in the foreign subsidiaries' financial statements is translated into U.S. dollars at the historical exchange rate on the date of the financial statements.

Accepted Answer

Stockholders' equity in the foreign subsidiaries' financial statements is translated into U.S. dollars at the historical exchange rate on the date of the financial statements because this is the rate that was in effect when the transactions that gave rise to the stockholders' equity occurred.

Question 15

Unrealized gains and losses on available- for- sale securities are used to compute net income.

Accepted Answer

Unrealized gains and losses on available-for-sale securities are not used to compute net income. They are reported as a separate component of other comprehensive income on the balance sheet until the securities are sold, at which point the realized gains or losses are then included in net income.

Question 16

The equity method is used to account for stock investments in which the investor company owns between 20% and 50% of another company's stock.

Accepted Answer

The equity method is typically used when an investor has significant influence over the investee, which is generally presumed when owning 20% to 50% of the voting stock.

Question 17

Which of the following would NOT be included in the elimination entries shown on a worksheet used in preparing consolidated financial statements?

Accepted Answer

The answer of Which of the following would NOT be...

Question 18

The Allowance to Adjust Investment to Market is a companion account to Long- Term Investments.

Accepted Answer

The allowance to adjust investment to market is a contra account to long-term investments, meaning it is a related account that is used to adjust the value of long-term investments to their current market value.

Question 19

An investee reports available- for- sale securities that might be sold in the next 12 months as a long- term investment.

Accepted Answer

Available-for-sale securities that are expected to be sold within the next 12 months should be classified as current assets, not long-term investments.

Question 20

A year- end elimination entry is required to remove the parent company's equity from the books of the subsidiary company.

Accepted Answer

A year-end elimination entry is required to eliminate intercompany transactions and balances, not to remove the parent company's equity from the subsidiary's books.

Quiz 10: Long-Term Investments and International Operations