Question 1

Breanna Boutique purchased on credit £50,000 worth of clothing from a British company when the exchange rate was $1.97 per British pound.At the year-end balance sheet date the exchange rate increased to $2.76.Breanna Boutique must record a:

Accepted Answer

Breanna Boutique purchased £50,000 when the exchange rate was $1.97 per British pound, which equals $98,500 ($1.97 x £50,000). At year-end, the exchange rate increased to $2.76 per British pound, which means that the value of the purchases decreased to $138,000 ($50,000 x $2.76). Therefore, Breanna Boutique experienced a loss of $39,500 ($138,000 - $98,500).

Question 2

On March 15,Carter Company purchased 10,000 shares of Tonya Corp.stock for $35,000.The investment is classified as available-for-sale securities.On June 30,the stock had a fair value of $38,000.Carter should do all of the following except:

Accepted Answer

Unrealized gains for available-for-sale securities are recorded in equity, not income.

Question 3

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

Accepted Answer

Short-term investments that are actively managed and traded for profit are referred to as trading securities. Available-for-sale securities are investments that a company holds with the intention of selling in the future, but not necessarily for profit. Held-to-maturity securities are long-term investments that a company plans to hold until maturity. Realizable securities are securities that can be converted into cash quickly, while liquid securities are investments that can be easily bought or sold without affecting the market price.

Question 4

A decrease in the fair value of a security that has not yet been realized through an actual sale of the security is called a(n):

Accepted Answer

An unrealized loss refers to a decrease in the fair value of a security that has not yet been realized through an actual sale of the security. Contingent loss refers to a potential loss depending on the occurrence or non-occurrence of a specific event, while realizable loss refers to a loss that has actually been realized through the sale of a security. Capitalized loss and market loss are not commonly used terms in this context.

Question 5

Available-for-sale equity securities:

Accepted Answer

Available-for-sale equity securities are recorded at cost when acquired but are reported at fair market value on the balance sheet. They may earn dividends that are reported in the income statement, and they may be classified as either short-term or long-term securities. Therefore, all of the choices describe available-for-sale equity securities.

Question 6

Vans purchased 40,000 shares of Skechs common stock for $232,000.This represents 40% of the outstanding stock.The entry to record the transaction includes a:

Accepted Answer

The entry to record the purchase of common stock is a debit to the Long-Term Investments account for the cost of the investment. In this case, Vans purchased 40,000 shares for $232,000, which represents 40% of the outstanding stock. Therefore, the correct entry would be a debit to Long-Term Investments for $232,000. Choice A is incorrect because $92,800 is 40% of the outstanding stock, but it is not the cost of the investment. Choices C, D, and E are also incorrect because they do not reflect the correct account to which the cost of the investment should be debited.

Question 7

Morgan Company purchased 2,000 shares of Asta's common stock for $143,000 as a long-term investment.The investment is classified as available-for-sale securities.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:

Accepted Answer

The total cost of the investment includes the purchase price and any additional costs such as commissions. Therefore, the debit to Long-Term Investments-AFS should be for the total amount paid, which is $143,000 + $375 = $143,375.

Question 8

Six months ago,a company purchased an investment in stock for $65,000.The investment is classified as available-for-sale securities.The current fair value of the stock is $68,500.The company should record a:

Accepted Answer

The answer of Six months ago,a company purchased an investment...

Question 9

Investments in trading securities:

Accepted Answer

Investments in trading securities are reported as current assets on the balance sheet, as they are intended to be bought and sold in the short-term. Trading securities can include both equity and debt securities, and are reported on the balance sheet at fair value (market value) rather than cost.

Question 10

Rosser Company sold supplies in the amount of 25,000 euros to a French company when the exchange rate was $1.21 per euro.At the time of payment,the exchange rate decreased to $0.82.Rosser must record a:

Accepted Answer

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Question 11

Available-for-sale debt securities are:

Accepted Answer

Available-for-sale debt securities are reported at fair value on the balance sheet. Unrealized gains and losses are recognized in other comprehensive income until the securities are sold, at which point the gains and losses are recognized in the income statement.

Question 12

If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment,which method would the investor normally use to account for this investment?

Accepted Answer

When a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment, the investor normally uses the equity method to account for the investment. Under the equity method, the investor records its share of the investee's net income or loss on its income statement and adjusts the investment account for its share of the investee's dividends or earnings distributions.

Question 13

A company had a profit margin of 10.5% and total asset turnover of 1.84.Its return on total assets was:

Accepted Answer

Profit margin = $40,000/$300,000 = 13.3%
Total asset turnover $300,000/$200,000 = 1.5

Question 14

Investments can be classified as:

Accepted Answer

All of the choices are correct as these are the four main classifications of investments recognized under generally accepted accounting principles (GAAP). Trading securities are investments that are held with the intent of being sold in the near future for a profit, held-to-maturity debt securities are investments that a company has the intent and ability to hold until maturity, available-for-sale debt securities are investments that a company may sell at any time but are not intended to be held until maturity, and available-for-sale equity securities are investments in shares of stock that a company may sell at any time.

Question 15

Select the correct statement from the following:

Accepted Answer

High returns on total assets are desirable because they indicate that a company is effectively using its assets to generate profit.

Question 16

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:

Accepted Answer

The answer of Micron owns 35% of Martok.Martok pays a...

Question 17

A company has net income of $250,000,net sales of $2,000,000,and average total assets of $1,500,000.Its return on total assets equals:

Accepted Answer

Return on total assets = $250,000/$1,500,000 = 16.7%

Question 18

Doherty Corporation had net income of $30,000,net sales of $1,000,000,and average total assets of $500,000.Its return on total assets is:

Accepted Answer

$30,000/$500,000 = 6%

Question 19

A company had net income of $43,000,net sales of $380,500,and average total assets of $220,000.Its profit margin and total asset turnover were,respectively:

Accepted Answer

Profit margin = $43,000/$380,500 = 11.3%
Total asset turnover = $380,500/$220,000 = 1.73

Question 20

A company had net income of $2,660,000,net sales of $25,000,000,and average total assets of $8,000,000.Its return on total assets equals:

Accepted Answer

Return on total assets = $2,660,000/$8,000,000 = 33.25%

Quiz 15: Investments and International Operations