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Exam 15: Investments and International Operations

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Question 41

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________________________ refers to all changes in equity for a period except for those due to investments and distributions to owners.

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Question 42

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All of the following statements relating to accounting for international operations are True except:

A) Foreign exchange gains or losses can occur when accounting for international sales transactions.
B) Gains and losses from foreign exchange transactions are accumulated in the Fair Value Adjustment Account and are reported on the balance sheet.
C) Gains and losses from foreign exchange transactions are accumulated in the Foreign Exchange Gain (or Loss) account.
D) The balance in the Foreign Exchange Gain (or Loss) account is reported on the income statement.
E) Foreign exchange gains or losses can occur when accounting for international purchases transactions.

F) B) and D)
G) C) and D)

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Question 43

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A company had net income of $450,000 in Year 1 and $620,000 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 1and Year 2. Comment on the results, did the company's performance improve?

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.

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

On June 18, Johnson Company (a U.S. Company) sold merchandise to the Frater Company of Denmark for 60,000 Euros, with a payment due in 60 days. If the exchange rate was $1.14 per euro on the date of sale and $1.35 per euro on the date of payment, Johnson Company should recognize a foreign exchange gain or loss in the amount of:

A company paid $500,000 for 12% bonds with a par value of $500,000. The bonds pay 6% interest semiannually on September 1 and March 1. The company intends to hold the bonds until they mature. Prepare the journal entries for the following dates and transactions related to this bond acquisition. (1)Bonds purchased on September 1. (2) Year-end adjusting entry, December 31. (3) Receipt of semiannual interest March 1. (4) Redemption of the bonds at maturity on August 31.

Long-term investments:

An investor purchased at par value $75,000 of Cort's 8% bonds, that mature in three-years. The bonds pay interest semiannually on June 1 and December 1. The investor plans to hold the bonds until they mature. When the bonds mature, the investor should prepare the following journal entry:

Long-term investments in available-for-sale securities are reported at fair value on the balance sheet.

Investments in equity securities where the investor has a significant, but not controlling influence, are accounted for using the _______________ method.

All companies desire a low return on total assets.

When the cost of a short-term held-to-maturity debt security is different from the maturity value, the difference is amortized over the remaining life of the security.

On January 4, Year1, 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, 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 the sale of 3,000 shares of Warner Company stock for $39,000 cash should be:

Sanuk purchased on credit $\leq$ 20,000 worth of parts from a British company when the exchange rate was $\leq$ 1.66 per British pound. At the year-end balance sheet date the exchange rate increased to $1.69. Sanuk must record a gain of $600.

At the end of the accounting period, the owners of debt securities:

Long-term investments can include funds earmarked for special purposes such as bond sinking funds.

An investor presumed to have significant influence owns as least 20% but not more than 50% of another company's voting stock.

Accounting for long-term investments in equity securities with controlling influence uses the:

On July 31, Beatrice Co. purchased 2,000 shares of SimmTech stock for $16,000. The investment is classified as available-for-sale securities. On October 31, which is Beatrice's year-end, the stock had a fair value of $20,000. Beatrice should record a: