Question 1

All companies desire a low return on total assets.

Accepted Answer

All companies do not desire a low return on total assets. Generally, companies aim for a high return on total assets to maximize profits and shareholder value.

Question 2

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

Accepted Answer

The answer of Investments in held-to-maturity debt securities are always...

Question 3

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

Accepted Answer

Multinational corporations refer to companies that operate in multiple countries, including the United States. Thus, U.S. companies with operations in other countries can be considered multinational corporations.

Question 4

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

Accepted Answer

There is no direct relationship between equity securities that give an investor significant influence over an investee and their classification as short-term investments. The classification of such securities as short-term or long-term depends on the investor's intention and ability to hold them for a significant period.

Question 5

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%

Accepted Answer

The calculation of profit margin is correct and the result of 7.5% is accurate, therefore (A) is the correct answer.

Question 6

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 total asset turnover equals 4.7%.
Asset turnover = $1,740,000/$2,750,000 = 0.63 or 63%

Accepted Answer

The calculation for the asset turnover is incorrect. It should be $1,740,000/$2,750,000 = 0.6327 or 63.27%, not 4.7%. Therefore, the answer is false.

Question 7

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

Accepted Answer

Consolidated financial statements are prepared to provide a comprehensive view of the financial position, results of operations, and cash flows of all entities under the parent's control, including all subsidiaries. These statements are prepared by combining the financial information of all subsidiaries with that of the parent company.

Question 8

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

Accepted Answer

Return on total assets (ROTA) is calculated by dividing the net profit of a company by its total assets. ROTA can be further separated into two components: profit margin ratio (net profit/sales) and total asset turnover (sales/total assets). Therefore, the statement is true.

Question 9

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

Accepted Answer

The answer of Held-to-maturity securities are equity securities a company...

Question 10

Profit margin is net sales divided by net income.

Accepted Answer

Profit margin is net income divided by net sales, not the other way around.

Question 11

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

Accepted Answer

Unrealized gains and losses on trading securities are reported on the income statement as part of the company's net income or loss. This is because trading securities are bought and held primarily for the purpose of selling them in the near term, and any changes in their fair value are considered part of the company's ongoing operations.

Question 12

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

Accepted Answer

Trading securities are securities that are bought and held for the purpose of selling them in the short-term to make a profit. They are purchased using cash, not by trading with other companies.

Question 13

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

Accepted Answer

Foreign exchange rates are influenced by various factors such as government policies, political stability, inflation rates, interest rates, and global economic conditions. As these factors change, the exchange rates will also change.

Question 14

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

Accepted Answer

Accounting standards require companies to record interest revenue on held-to-maturity securities as it is earned. This is known as the effective interest rate method, which ensures that interest income is recognized over the life of the security based on the actual yield earned.

Question 15

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

Accepted Answer

According to the accounting guidelines, companies should report their portfolio of trading securities at their fair value. This means that the securities are shown on the balance sheet at their current market value, and any changes in value are recognized in the income statement.

Question 16

If the exchange rate for Canadian and U.S. dollars is 0.7382 to 1, this implies that 2 Canadian dollars can be purchased for $1.48 U.S. dollars.
$2 * 0.7382 = $1.48

Accepted Answer

The calculation shown in the statement is correct. If you multiply the amount in Canadian dollars by the exchange rate, you get the equivalent amount in U.S. dollars. Therefore, 2 Canadian dollars multiplied by the exchange rate of 0.7382 equals $1.48 U.S. dollars.

Question 17

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

Accepted Answer

This is the correct definition of a foreign exchange rate.

Question 18

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

Accepted Answer

Profit margin is calculated by dividing net income by net sales and multiplying the result by 100 to get the percentage of net income in each dollar of net sales.

Question 19

Trading securities are always reported as current assets.

Accepted Answer

Trading securities are considered short-term investments and are reported as current assets on the balance sheet.

Question 20

When consolidated financial statements are prepared, the parent company uses the equity method and the investments in the subsidiaries are reported on the balance sheet.

Accepted Answer

When consolidated financial statements are prepared, the equity method is only used for investments in associates and joint ventures. Generally, investments in subsidiaries are reported on the balance sheet using the cost or acquisition method.

Quiz 15: Investments and International Operations