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Exam 26: Investments

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Question 91

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

A) True
B) False

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Question 92

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A company paid $37,800 to acquire 8% bonds with a $40,000 maturity value.The company intends to hold the bonds to maturity.The cash proceeds the company will receive when the bonds mature equal:

A) $37,800.
B) $38,325.
C) $40,000.
D) $40,525.
E) $43,200.

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

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Question 93

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Held-to-maturity securities are equity securities a company intends to hold until dividends have been paid.

The price of one currency stated in terms of another currency is called a(n) :

Short-term investments include:

Barzetti had no investments prior to the current year.It had the following transactions during the year involving stock investments with insignificant influence and also held-to-maturity debt securities.Prepare Barzetti's journal entries to record the transactions and events associated with these investment purchases.

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:

When an investor company owns between 20% and 50% of the voting stock of an investee company,it has a controlling influence.

Mire Corporation had the following transactions involving stock investments with insignificant influence during the year.Prior to these transactions,Mire had never had any investments.Prepare the required journal entries to record these transactions.

If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment,which method would the investor normally use to account for this investment?

A company holds $40,000 of 7% bonds as a held-to-maturity security.The journal entry to record receipt of a semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.

Trading debt securities are always reported as current assets.

Explain how to record the sale of trading securities.

A company had net income of $40,000,net sales of $300,000,and average total assets of $200,000.Its profit margin and total asset turnover were respectively:

All of the following statements regarding stock investments with insignificant influence are true except for:

Long-term investments:

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:

Cosmos Corporation had the following long-term investment transactions. Prepare the journal entries Cosmos Corporation should record for these transactions and events.

Carpark Services began operations in 20X1 and maintains long-term investments in available-for-sale debt securities.The year-end cost and fair values for its portfolio of debt securities follows.The year-end adjusting entry to record the unrealized gain/loss at December 31,20X2 is:

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.