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Exam 15: Investments

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Question 81

Multiple Choice

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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.

F) C) and D)
G) All of the above

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Question 82

Multiple Choice

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

A) Fair value method with fair value adjustment to income.
B) Fair value method with fair value adjustment to equity.
C) Cost method with amortization.
D) Cost method without amortization.
E) Equity method.

F) A) and B)
G) A) and C)

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Question 83

Multiple Choice

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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:

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

Marshall 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.Marshall must record a:

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

Match the following terms with the appropriate definitions. -A corporation controlled by another company when the controlling company owns more than 50% of the investee's voting stock.

Draft Co.purchased 14,000 shares of Hamburg Corporation's 40,000 shares of common stock on January 1.This represented 35% of Hamburg's outstanding shares and gave Draft Co.significant influence over Hamburg's management and operations.On October 11,Hamburg declared and paid cash dividends of $30,000.On December 31,Hamburg reported net income of $125,000 for the year.Prepare the journal entries Draft Co.should record to account for the dividends received and the earnings reported by Hamburg Corporation.

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.This is the company's first and only investment in 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 fair value of the remaining shares is $29.50 per share.The impact on Jewel's net income as a result of its investment in Marcelo Corp.was a(n) :

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.This is the company's first and only investment in 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:

Match the following terms with the appropriate definitions. -Debt and equity securities that a company intends to actively manage and trade for profit.

Match the following terms with the appropriate definitions. -A measure of operating efficiency,computed as net income divided by average total assets.

FreshFoods,Inc.sells American gourmet foods to merchandisers in Singapore.Prepare the journal entries for FreshFoods,to record the following transactions.Include any year-end adjustments.

Arkansana Inc.imports inventory from Costa Rica.Prepare the journal entries for Arkansana to record the following transactions.Include any year-end adjustments. $\begin{array} { | l | l | } \hline & \text { Purchased inventory from Rojas Co. for } 5,000,000 \text { Costa Rican colon. The } \\\text { Dec } 21 & \text { exchange rate was } \$ 0.002 \text { per colon. The credit terms were } n / 30 . \\\hline \text { Dec } 31 & \text { The exchange rate was } \$ 0.0023 \text { per colon. } \\\hline & \text { Paid Rojas Co. for the December } 21 \text { purchase. The exchange rate was } \\\text {Jan } 20 & \$ 0.0021 \text { per colon. }\\\hline \end{array}$

Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale securities.The year-end cost and fair values for its portfolio of these investments follow.The year-end adjusting entry to record the unrealized gain/loss at December 31,20X2 is: $\begin{array}{|l|l|r|}\hline \text { Available-for-Sale Securities } & \text { Cost } & \text { Fair Value } \\\hline \text { December } 31,20 \mathrm{X} 1 & \$ 250,000 & \$ 241,000 \\\hline \text { December } 31,20 \mathrm{X} 2 & \$ 340,000 & \$ 350,000 \\\hline \text { December } 31,20 \mathrm{X} 3 & \$ 410,000 & \$ 415,00 \mathrm{0} \\\hline\end{array}$

A company had net income of $350,000 in Year 1 and $520,000 in Year 2.The company had average total assets of $2,500,000 in Year 1 and $3,000,000 in Year 2.Calculate the return on total assets for Year 1 and Year 2.Comment on the results,did the company's performance improve?

Short-term investments are also called temporary investments or marketable securities.

All companies desire a low return on total assets.

Roe Corporation owns 2,000 shares of WRJ Corporation stock.WRJ Corporation has 25,000 shares of stock outstanding.WRJ paid $4 per share in cash dividends to its stockholders.The entry to record the receipt of these dividends is:

At acquisition,debt securities are: