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Exam 15: Investments and International Operations

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Question 1

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

A) True
B) False

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Question 2

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The price of one currency stated in terms of another currency is referred to as the:

A) Historical exchange rate
B) Foreign exchange rate
C) Consolidated exchange rate
D) General exchange rate
E) Multinational exchange rate

F) A) and C)
G) A) and E)

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Question 3

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Explain how held-to-maturity debt securities are accounted for at and after acquisition and how they are reported in the financial statements.

Long-term investments are reported in the:

On April 1 of the current year,a company paid $150,000 to purchase 7%,10-year bonds that had a par value of $150,000 and paid interest semiannually on October 1 and April 1.The company intends to hold the bonds until they mature.Prepare the journal entry to record the receipt of the semiannual interest payment on April 1 of the following year.

Explain how to record the sale of trading securities.

On January 4,2011,Larsen Company purchased 5,000 shares of Warner Company for $59,500 plus a broker's fee of $1,000.Warner Company has a total of 25,000 shares of common stock outstanding and it is presumed the Larsen Company will have a significant influence over Warner.During each of the next two years,Warner declared and paid cash dividends of $0.85 per share.Its net income was $72,000 and $67,000 for 2011 and 2012,respectively.The January 12,2013,entry to record the sale of 3,000 shares of Warner Company stock for $39,000 cash should be:

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

On January 2,2014,McLachlan Corp.paid $50,000 cash to acquire 400,000 shares of stock in Gradley Corp.These shares represent 40% of Gradley Corp.'s total outstanding stock.McLachlan accounted for this acquisition using the equity method.For the year ended December 31,2014,Gradley Corp.earned $800,000 in net income.How would McLachlan record the related adjusting entry?

When 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.

When a credit sale is denominated in a foreign currency,the foreign exchange rate used to record the sale is the current exchange rate:

A company had investments in long-term available-for-sale securities.At the end of the current year,the company's portfolio had a $731,000 cost and $730,000 market value. What is the current year's adjustment to market value given the following account balances at the end of the prior year?

A company's return on total assets equals 28%.If total assets and net sales are $4,500,000 and $10,000,000 respectively,how much is net income?

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

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

A long-term investment is recorded at cost when purchased.

Investments in trading securities are always short-term investments.

An investor purchased $50,000 of bonds that were held to maturity.The investor's journal entry at maturity of the bonds should include a debit to Cash for $50,000 and a credit to Long-Term Investments for $50,000.

Identify the three types of classifications for noninfluential investments in securities.

Explain how transactions (both sales and purchases) in a foreign currency are recorded and reported.