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Exam 15: Investments and International Operations

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Question 81

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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 82

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On April 1 of the current year, a company paid $150,000 cash to purchase 7%, 10-year bonds with a par value of $150,000; interest is paid semiannually each April 1 and October 1. The company intends to hold these bonds until they mature. Prepare the journal entries to record the bond purchase, the receipt of the first semiannual interest payment on October 1 of the current year, and the accrual of interest for the year-end December 31.

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Question 83

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Consolidated financial statements show the financial position, results of operations, and cash flows of all entities under the parent's control, including all subsidiaries.

Barnes Company holds $50,000 of 8% bonds that mature in six years as a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?

If the exchange rate for Canadian and U.S. dollars is 0.7382 to 1, this implies that 2 Canadian dollars can be purchased for $1.48 U.S. dollars. $2 * 0.7382 = $1.48

Investments in trading securities are accounted for using the equity method with consolidation.

All of the following are true about debt securities except:

The equity method with consolidation is used to account for long-term investments in equity securities with controlling influence.

Washington Corp. held 1,500 of Vashon Company common stock with a cost of $74,387. These shares were classified as a Long-Term available-for-sale investment. It sold the shares on December 13 for $55,275. Prepare the journal entry to record Washington's sale.

A decrease in the fair value of a security that has not yet been realized through an actual sale of the security is called a(n) :

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

Multinational corporations can be U.S. companies with operations in other countries.

On October 31, Augustas Co. received cash dividends of $0.15 per share from its investment in Lamb Corp.'s common stock. Augustas owned 1,200 shares of Lamb Corp.'s stock on October 31. The investment is considered available-for-sale. Prepare the investor's journal entry to record the receipt of the cash dividends.

On January 2, Froxel Company purchased 10,000 shares of Sandia Corp. common stock at $19 per share plus a $3,000 commission. This represents 30% of Sandia Corp.'s outstanding stock. On August 6, Sandia Corp. declared and paid cash dividends of $1.75 per share, and on December 31 it reported net income of $150,000. Prepare the necessary entries for Froxel to account for these transactions and events.

A controlling investor is called the parent, and the investee company is called the subsidiary.

A company received dividends of $0.35 per share on 300 shares of stock it holds as an investment. The journal entry to record this transaction would be to debit Cash for $105 and credit Dividend Revenue for $105.

A company reported net income for Year 1 of $98,000 and $106,000 for Year 2. It also reported net sales of $835,000 in Year 1 and $918,000 in Year 2. The company's average total assets in Year 1 were $1,850,000 and $1,720,000 in Year 2. Calculate the company's profit margin, total asset turnover and return on total assets for Year 1 and Year 2. Comment on the results.

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

Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1. On October 17 of the same year, Ferris Corporation declared total cash dividends of $12,000. At year-end, Ferris Corporation reported net income of $60,000. The balance in the Bharrat Corporation's Long-Term Investment-Ferris account at December 31 should be:

A company paid $37,800 plus a broker's fee of $525 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: