Question 1

All of the following statements regarding accounting for influential securities under U.S. GAAP and IFRS are true except:
A)Under the equity method, the share of investee's net income is reported in the investor's income in the same period the investee earns that income.
B)Under the consolidation method, investee and investor revenues and expenses are combined.
C)Under the equity method, the investment account equals the acquisition cost plus the share of investee income plus the share of investee dividends.
D)Under the consolidation method, nonintercompany assets and liabilities are combined (eliminating the need for an investment account).
E)U.S.GAAP companies commonly refer to noncontrolling interests in consolidated subsidiaries as minority interests whereas IFRS companies use noncontrolling interests.

Accepted Answer

The answer of All of the following statements regarding accounting...

Question 2

All of the following statements regarding other comprehensive income are true except:
A)Other comprehensive income includes unrealized gains and losses on available-for-sale securities.
B)Other comprehensive income is not considered when calculating comprehensive income.
C)Other comprehensive income includes foreign currency adjustments.
D)Other comprehensive income includes pension adjustments.
E)Accumulated other comprehensive income is defined as the cumulative impact of other comprehensive income.

Accepted Answer

Other comprehensive income is actually included when calculating comprehensive income. Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Other comprehensive income is a component of this change in equity.

Question 3

On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. On March 15, Marcelo declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel received the dividend on April 15 and ultimately sells half of the Marcelo stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The journal entry to record the purchase on February 15 is:
A)Debit Long-Term Investments-HTM $199,710; credit Cash $199,710.
B)Debit Long-Term Investments-AFS $199,710; credit Cash $199,710.
C)Debit Long-Term Investments-Trading $199,710; credit Cash $199,710.
D)Debit Long-Term Investments-Trading $200,110; credit Cash $200,110.
E)Debit Long-Term Investments-AFS $200,110; credit Cash $200,110.

Accepted Answer

The answer of On February 15, Jewel Company buys 7,000...

Question 4

On January 4, Year 1, Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000. Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During each of the next two years, Convell declared and paid cash dividends of $0.85 per share, and its net income was $72,000 and $67,000 for Year 1 and Year 2, respectively. What is the book value of Barber's investment in Convell at the end of Year 2?
A)$60,500.
B)$79,800.
C)$52,000.
D)$88,300.
E)$87,300.

Accepted Answer

The answer of On January 4, Year 1, Barber Company...

Question 5

Landmark Corp. buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the five year life. The journal entry to record the purchase should include:
A)A debit to Long-Term Investments-AFS $300,000.
B)A debit to Short-Term Investments-Trading $300,000.
C)A debit to Long-Term Investments-HTM $300,000.
D)A debit to Short-Term Investments-AFS $300,000.
E)A debit to Cash $300,000.

Accepted Answer

The bonds are being held for their full five-year maturity, which qualifies them as "held-to-maturity" (HTM) investments. Therefore, the appropriate account to debit is Long-Term Investments-HTM. Choice A is incorrect because this account is used for "available-for-sale" investments, not HTM. Choice B is incorrect because Short-Term Investments-Trading is used for securities that are bought and sold frequently, not those held to maturity. Choice D is incorrect because Short-Term Investments-AFS is used for securities that are intended to be sold in the near future, not held to maturity. Choice E is incorrect because it does not include an appropriate account to record the investment.

Question 6

All of the following statements regarding accounting for trading securities under U.S. GAAP are true except:
A)The entire portfolio of trading securities is reported at fair value.
B)An unrealized gain or loss from a change in fair value is reported on the income statement.
C)A realized gain or loss is recorded when the securities are sold and reported on the income statement.
D)When the period-end fair value adjustment for the portfolio of trading securities is computed, it includes the cost and fair value of any securities sold.
E)Any prior period fair value adjustment to the portfolio is not used to compute the gain or loss from sale of individual transactions.

Accepted Answer

All of the statements listed are typically true regarding accounting for trading securities under U.S. GAAP, except for statement D. When the period-end fair value adjustment for the portfolio of trading securities is computed, it includes the fair value of any securities held at that point in time, but it should not include the cost of any securities that have already been sold. This is because the fair value adjustment only reflects the current fair value of the securities that are still held in the portfolio, and not the historical cost of any securities that may have been sold previously.

Question 7

On November 12, Higgins, Inc., a U.S. Company, sold merchandise on credit to Kagome of Japan at a price of 1,500,000 yen. The exchange rate was $0.00837 on the date of sale. On December 31, when Higgins prepared its financial statements, the exchange rate was $0.00843. Kagome paid in full on January 12, when the exchange rate was $0.00861. On January 12, Higgins should prepare the following journal entry:
A)Debit Cash $12,915; credit Accounts Receivable-Kagome $12,555; credit Foreign Exchange Gain $360.
B)Debit Cash $12,555; debit Foreign Exchange Loss $360; credit Accounts Receivable-Kagome $12,915.
C)Debit Cash $12,915; credit Accounts Receivable-Kagome $12,645; credit Foreign Exchange Gain $90.
D)Debit Cash $12,645; debit Foreign Exchange Loss $90; credit Accounts Receivable-Kagome $12,915.
E)Debit Cash $12,915; credit Accounts Receivable-Kagome $12,645; credit Foreign Exchange Gain $270.

Accepted Answer

To record the payment received from Kagome on January 12, Higgins should debit Cash for the amount received, which is $12,915 (1,500,000 yen x $0.00861). However, the amount recorded in Accounts Receivable at the time of the sale was based on the exchange rate on November 12, which was $0.00837. Therefore, the credit to Accounts Receivable-Kagome should be based on that rate, which gives us a credit of $12,645 (1,500,000 yen x $0.00837). The difference between the two rates results in a Foreign Exchange Gain of $270 ([$12,915 - $12,555] - [$12,645 x ($0.00843 - $0.00837)]). Therefore, Higgins should prepare the journal entry as follows: 
Debit Cash $12,915; credit Accounts Receivable-Kagome $12,645; credit Foreign Exchange Gain $270.

Question 8

Landmark buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1. Interest payments are made semiannually on March 1 and September 1. The journal entry Landmark should record to accrue interest earned at year-end December 31 is:
A)Debit Interest Receivable $8,000, credit Interest Revenue $8,000.
B)Debit Interest Receivable $12,000, credit Interest Revenue $12,000.
C)Debit Cash $8,000, credit Interest Revenue $8,000.
D)Debit Cash $12,000, credit Interest Revenue $12,000.
E)Debit Interest Revenue $8,000, credit Interest Receivable $8,000.

Accepted Answer

The 8% interest rate on the bond is calculated on the par value of $300,000, which means that the annual interest earned is $24,000 ($300,000 x 8%). Since interest payments are made semiannually, each payment will be $12,000 ($24,000 / 2). Landmark only held the bond for part of the year, so they need to accrue the interest earned during that time. Since Landmark bought the bond on September 1, they would have received the interest payment due on that day. Therefore, the journal entry to record the accrued interest at year-end would only include the interest due on March 1. The entry would be:

Debit Interest Receivable $8,000
Credit Interest Revenue $8,000

This entry records the recognition of the interest earned but not yet received as of December 31.

Question 9

Landmark Corp. buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the five year life. When the bonds mature, the journal entry to record the proceeds will be:
A)Debit Long-Term Investments-HTM $300,000; credit Cash $300,000.
B)Debit Cash $300,000; credit Interest Revenue $300,000.
C)Debit Cash $300,000; credit Long-Term Investments-HTM $300,000.
D)Debit Cash $300,000; credit Interest Receivable $300,000.
E)Debit Cash $300,000; credit Bonds Payable $300,000.

Accepted Answer

When the bonds mature, the journal entry to record the proceeds will be to debit Cash for $300,000 and credit Long-Term Investments-HTM for $300,000, which represents the par value of the bonds being received. Choice A is incorrect because it assumes that Landmark will hold the bonds as held-to-maturity investments, but this information is not provided in the question. Choice B is incorrect because it suggests that Landmark will receive $300,000 in interest revenue, which is not accurate as the bonds are only paying 8% interest. Choice D is incorrect because it suggests that Landmark will receive interest receivable, but the question states that Landmark bought the bonds at par value, so there is no accrued interest at the time of purchase. Choice E is incorrect because it suggests that Landmark will record a payment towards Bonds Payable, but this is not accurate as Landmark is the purchaser of the bonds, not the issuer.

Question 10

On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The journal entry to record the sale of the 3,500 shares of stock on November 17 is:
A)Debit Cash $102,300; credit Long-Term Investments-AFS $99,855; credit Gain on Sale of Long-Term Investments $2,445.
B)Debit Cash $102,550; credit Long-Term Investments-Trading $99,855; debit Gain on Sale of Long-Term Investments $2,645.
C)Debit Cash $102,550; credit Long-Term Investments-AFS $100,055; credit Gain on Sale of Long-Term Investments $2,495.
D)Debit Cash $102,300; credit Long-Term Investments-AFS $100,055; credit Gain on Sale of Long-Term Investments $2,245.
E)Debit Cash $102,550; credit Long-Term Investments-Trading $99,855; credit Gain on Sale of Long-Term Investments $2,645.

Accepted Answer

To record the sale of the 3,500 shares of Marcelo Corp. stock, we need to:

1. Debit Cash for the proceeds received: $29.30 x 3,500 = $102,550
2. Credit the cost of the shares sold, which is calculated as follows:
   - Original cost: 7,000 x $28.53 = $199,710
   - Dividend received: 7,000 x $1.15 = $8,050
   - Net cost: $199,710 - $8,050 = $191,660
   - Cost per share: $191,660 ÷ 7,000 = $27.38
   - Cost of 3,500 shares: $27.38 x 3,500 = $95,830
   - Credit Long-Term Investments-AFS for this amount: $95,830
3. Credit the gain on sale of long-term investments, which is the difference between the proceeds and the cost of the shares sold, less the brokerage fee: 
   - Gain on sale: ($29.30 x 3,500) - $95,830 - $250 = $2,245
   - Credit Gain on Sale of Long-Term Investments for this amount: $2,245

Therefore, the correct journal entry is:

Debit Cash $102,550; credit Long-Term Investments-AFS $95,830; credit Gain on Sale of Long-Term Investments $2,245.

Question 11

On January 4, Year 1, Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000. Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During each of the next two years, Convell declared and paid cash dividends of $0.85 per share, and its net income was $72,000 and $67,000 for Year 1 and Year 2, respectively. The January 12, Year 3, entry to record Barber's sale of 3,000 shares of Convell Company stock, which represents 60% of Barber's total investment, for $39,000 cash should be:
A)Debit Cash $39,000; debit Loss on Sale of Investment $8,200; credit Long-Term Investments $47,280.
B)Debit Cash $39,000; debit Loss on Sale of Investment $8,880; credit Long-Term Investments $47,880.
C)Debit Cash $39,000; credit Gain on Sale of Investment $2,700; credit Long-Term Investments $36,300.
D)Debit Cash $39,000; credit Gain on Sale of Investment $8,750; credit Long-Term Investments $30,250.
E)Debit Cash $39,000; debit Loss on Sale of Investment $21,500; credit Long-Term Investments $60,500.

Accepted Answer

We first need to calculate the cost of the 3,000 shares that Barber sold:
- Barber purchased the 5,000 shares for $59,500 + $1,000 (broker's fee) = $60,500
- The cost per share is $60,500 / 5,000 shares = $12.10 per share
- The cost of the 3,000 shares sold is therefore $12.10 per share x 3,000 shares = $36,300

Next, we need to calculate the cash received from the sale of the 3,000 shares:
- Barber sold the 3,000 shares for $39,000
- We can use the cost per share of $12.10 to calculate the gain or loss on the sale:
  - 3,000 shares x $12.10 per share = $36,300 (cost of the shares sold)
  - $39,000 (cash received) - $36,300 (cost of the shares sold) = $2,700 gain

Finally, we can record the journal entry:
- Debit Cash $39,000
- Debit Loss on Sale of Investment $8,880 (calculated as: 3,000 shares x $12.10 per share = $36,300 cost - $39,000 cash received = $2,700 - $8,880 loss on sale)
- Credit Long-Term Investments $47,880 (calculated as: $60,500 original cost - $36,300 cost of shares sold = $24,200 remaining investment + $23,680 share of net income - $800 share of dividends = $47,880 remaining balance in long-term investments)

Question 12

On June 18, Wyman Company (a U.S. Company) sold merchandise to the Nielsen Company of Denmark for €60,000 (Euros), with a payment due in 60 days. If the exchange rate was $1.35 per euro on the date of sale and $1.14 per euro on the date of payment, Wyman Company should recognize a foreign exchange gain or loss in the amount of:
A)$60,000 gain.
B)$60,000 loss.
C)$68,400 loss.
D)$12,600 gain.
E)$12,600 loss.

Accepted Answer

First, we need to calculate the amount in dollars that Wyman Company would receive based on the exchange rate on the date of payment:

€60,000 * $1.14/€ = $68,400

This means that Wyman Company would receive $68,400 in 60 days when they are paid for the merchandise.

Next, we need to compare this amount to the amount the company originally recorded when they made the sale, which was:

€60,000 * $1.35/€ = $81,000

This means that when Wyman Company made the sale, they recorded $81,000 revenue based on the exchange rate at the time.

The difference between these two amounts is the foreign exchange gain or loss:

$68,400 - $81,000 = -$12,600

Since there is a negative result, this represents a foreign exchange loss of $12,600 for Wyman Company. Therefore, the answer is E.

Question 13

When a U.S. company makes a credit sale to an international customer and the sale terms are for payment in a foreign currency, the foreign exchange rate used to record the sale is the exchange rate:
A)Thirty days from the date of sale.
B)At the end of the seller's fiscal year.
C)At the end of the buyer's fiscal year.
D)On the date final payment is made.
E)On the date of the sale.

Accepted Answer

The exchange rate used to record the sale is the rate on the date of the sale as this is the most relevant and accurate information available for recording the transaction. Using a later date may distort the value of the sale and affect financial reporting.

Question 14

A U.S. company makes a sale to a foreign customer with payment receivable in 30 days in the customer's currency. The sale would be recorded by the U.S. company on the date:
A)Of sale using a projected estimate of the U.S.dollar value at payment date.
B)Of sale using a 30-day average U.S.dollar value.
C)Of sale using the current dollar value.
D)Of sale using the foreign currency value.
E)When payment is received.

Accepted Answer

The sale should be recorded on the date of sale using the current dollar value. This is because the accounting principle of historical exchange rates requires that transactions be recorded using the exchange rate in effect at the time of the transaction. Recording the sale using a projected estimate or a 30-day average would violate this principle, while recording it using the foreign currency value would not accurately reflect the U.S. company's financial position. The payment receivable in the foreign customer's currency should be recorded as an accounts receivable in the U.S. company's books and will only be realized when payment is received.

Question 15

On November 12, Higgins, Inc., a U.S. Company, sold merchandise on credit to Kagome of Japan at a price of 1,500,000 yen. The exchange rate was $0.00837 per yen on the date of sale. On December 31, when Higgins prepared its financial statements, the exchange rate was $0.00843. Kagome paid in full on January 12, when the exchange rate was $0.00861. On December 31, Higgins should prepare the following journal entry:
A)Debit Sales $90; credit Foreign Exchange Gain $90.
B)Debit Foreign Exchange Loss $90; credit Sales $90.
C)Debit Accounts Receivable-Kagome $90; credit Foreign Exchange Gain $90.
D)Debit Foreign Exchange Loss $90; Accounts Receivable-Kagome $90.
E)No journal entry is required until the amount is collected

Accepted Answer

Since the exchange rate increased between the date of sale and December 31, Higgins would have gained in the transaction. To reflect that gain, the company should debit Accounts Receivable-Kagome (to reflect that it is now worth more in US dollars) and credit Foreign Exchange Gain. Option A is incorrect because it debits Sales, which has already been recorded at the time of sale. Option B is incorrect because it debits Foreign Exchange Loss, which is not accurate in this situation since the exchange rate actually increased. Option D is incorrect because it debits Foreign Exchange Loss but does not reflect the increase in value of Accounts Receivable-Kagome. Option E is also incorrect because the journal entry should be made at the end of the reporting period to reflect the gain or loss for that period.

Question 16

All of the following statements regarding accounting for noninfluential securities under U.S. GAAP and IFRS are true except:
A)Trading securities are accounted for using fair values with unrealized gains and losses reported in other comprehensive income.
B)Trading securities are accounted for using fair values with unrealized gains and losses reported in net income.
C)Available-for-sale securities are accounted for using fair values with unrealized gains and losses reported in other comprehensive income.
D)Held-to-maturity securities are accounted for using amortized cost.
E)Both systems examine held-to-maturity securities for impairment.

Accepted Answer

The answer of All of the following statements regarding accounting...

Question 17

On January 4, Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000. Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During the next years, Convell declared and paid cash dividends of $0.85 per share, and its net income was $72,000. What is the book value of Barber's investment in Convell at the end of this first year?
A)$69,650.
B)$137,250.
C)$68,650.
D)$70,650.
E)$131,500.

Accepted Answer

Barber's initial investment is $60,500 ($59,500 + $1,000). With significant influence, the equity method is used. Barber's share of Convell's net income is $14,400 (5,000/25,000 * $72,000). Dividends received are $4,250 (5,000 * $0.85). The book value is $60,500 + $14,400 - $4,250 = $70,650.

Question 18

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.

Accepted Answer

The semiannual interest payment amount is $12,000, not $24,000. The total annual interest payment is 8% of $300,000, which is $24,000. This is split into semiannual payments of $12,000 each.

Question 19

All of the following statements regarding accounting for trading securities under U.S. GAAP are true except:
A)The entire portfolio of trading securities is reported at is fair value.
B)An unrealized gain or loss from a change in fair value is reported on the income statement.
C)An unrealized gain or loss is recorded with an adjusting entry when the securities are sold.
D)An unrealized gain or loss is recorded with an adjusting entry at the end of each period.
E)Unrealized gains and losses are recorded in a temporary account that is closed to Income Summary at the end of the period.

Accepted Answer

An unrealized gain or loss is only recorded when the trading securities are sold. It is not recorded with an adjusting entry at the end of each period as suggested in option D. The rest of the options are true statements.

Question 20

On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The journal entry to record the dividend on April 15 is:
A)Debit Cash $7,350; credit Dividend Revenue $7,350.
B)Debit Cash $8,050; credit Dividend Revenue $8,050.
C)Debit Cash $8,050; credit Interest Revenue $8,050.
D)Debit Cash $7,350; credit Interest Revenue $7,350.
E)Debit Cash $8,050; credit Gain on Sale of Investments $8,050.

Accepted Answer

The journal entry to record the dividend on April 15 is to debit Cash for the amount of the dividend received, which is $8,050 ($1.15 x 7,000 shares), and credit Dividend Revenue for the same amount.

Quiz 15: Investments and International Operations

All of the following statements regarding accounting for influential securities under U.S. GAAP and IFRS are true except:

All of the following statements regarding other comprehensive income are true except:

Landmark Corp. buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the five year life. The journal entry to record the purchase should include:

All of the following statements regarding accounting for trading securities under U.S. GAAP are true except:

Landmark buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1. Interest payments are made semiannually on March 1 and September 1. The journal entry Landmark should record to accrue interest earned at year-end December 31 is:

Landmark Corp. buys $300,000 of Schroeter Company's 8% five-year bonds payable at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the five year life. When the bonds mature, the journal entry to record the proceeds will be:

When a U.S. company makes a credit sale to an international customer and the sale terms are for payment in a foreign currency, the foreign exchange rate used to record the sale is the exchange rate:

A U.S. company makes a sale to a foreign customer with payment receivable in 30 days in the customer's currency. The sale would be recorded by the U.S. company on the date:

All of the following statements regarding accounting for noninfluential securities under U.S. GAAP and IFRS are true except:

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:

All of the following statements regarding accounting for trading securities under U.S. GAAP are true except: