Question 1

The investee company in a long term investment with controlling interest is called the:

Accepted Answer

A) Owner. 
B) Subsidiary. 
C) Parent. 
D) Creditor. 
E) Senior entity. 
A) Owner. 
B) Subsidiary. 
C) Parent. 
D) Creditor. 
E) Senior entity.

Question 2

Hubbard Company had the following trading securities in its portfolio at December 31.The Fair Value Adjustment-Trading account had a balance of zero prior to year-end adjustment.Prepare the appropriate adjusting journal entry.

Accepted Answer

The answer of Hubbard Company had the following trading securities...

Question 3

On January 3,Kostansas Corporation purchased 5,000 shares of Morton,Inc.for $40 per share plus $700 in broker commissions.These shares represent a 40% ownership in Morton,Inc.Prepare the journal entry Kostansas Corporation should record when Morton reports net income of $52,000 for the year on December 31.

Accepted Answer

@#IMG-DLM& Kostansas share of

Question 4

When using the equity method for investments in equity securities,the investor records the receipt of cash dividends as revenue.

Accepted Answer

A) True 
 B)False

Question 5

A company purchased $60,000 of 5% bonds on May 1 at par value.The bonds pay interest on March 1 and September 1.The amount of interest accrued on December 31 (the company's year-end)would be:

Accepted Answer

A) $1,000. 
B) $500. 
C) $1,250. 
D) $2,500. 
E) $1,500. 
A) $1,000. 
B) $500. 
C) $1,250. 
D) $2,500. 
E) $1,500.

Question 6

Equity securities reflect a creditor relationship such as investments in notes,bonds,and certificates of deposit.

Accepted Answer

A) True 
 B)False

Question 7

On November 12,Higgins,Inc. ,a U.S.Company,sold merchandise on credit to Kagomeof Japan at a price of 1,500,000 yen.The exchange rate was $0.00837 per yen on the date of sale.On December 31,when Higgins prepared its financial statements,the exchange rate was $0.00843.Kagomepaid in full on January 12,when the exchange rate was $0.00861.On December 31,Higgins should prepare the following journal entry:

Accepted Answer

A) Debit Sales $90;credit Foreign Exchange Gain $90. 
B) Debit Foreign Exchange Loss $90;credit Sales $90. 
C) Debit Accounts Receivable-Kagome $90;credit Foreign Exchange Gain $90. 
D) Debit Foreign Exchange Loss $90;Accounts Receivable-Kagome $90. 
E) No journal entry is required until the amount is collecteD. 
A) Debit Sales $90;credit Foreign Exchange Gain $90. 
B) Debit Foreign Exchange Loss $90;credit Sales $90. 
C) Debit Accounts Receivable-Kagome $90;credit Foreign Exchange Gain $90. 
D) Debit Foreign Exchange Loss $90;Accounts Receivable-Kagome $90. 
E) No journal entry is required until the amount is collecteD.

Question 8

Comprehensive income refers to all changes in equity during a period except those from owners' investments and dividends.

Accepted Answer

A) True 
 B)False

Question 9

A company had net income of $45,000,net sales of $390,000,and average total assets of $450,000 for the current year.Calculate the company's profit margin,total asset turnover,and return on total assets.

Accepted Answer

The answer of A company had net income of $45,000,net...

Question 10

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

Accepted Answer

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. 
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.

Question 11

Element Company had the following long-term available-for-sale securities in its portfolio at December 31 for each of the years listed.The year-end cost and fair values for its portfolio follow.Beginning with Year 1,prepare the appropriate journal entry to record each year-end market adjustment for these securities.

Accepted Answer

@#IMG-DLM& Year 1: $404,500 - $389,900 = $14,600 l

Question 12

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

Accepted Answer

A) Under the equity method,the share of investee's net income is reported in the investor's income in the same period the investee earns that income. 
B) Under the consolidation method,investee and investor revenues and expenses are combined. 
C) Under the equity method,the investment account equals the acquisition cost plus the share of investee income plus the share of investee dividends. 
D) Under the consolidation method,nonintercompany assets and liabilities are combined (eliminating the need for an investment account). 
E) U.S.GAAP companies commonly refer to noncontrolling interests in consolidated subsidiaries as minority interests whereas IFRS companies use noncontrolling interests. 
A) Under the equity method,the share of investee's net income is reported in the investor's income in the same period the investee earns that income. 
B) Under the consolidation method,investee and investor revenues and expenses are combined. 
C) Under the equity method,the investment account equals the acquisition cost plus the share of investee income plus the share of investee dividends. 
D) Under the consolidation method,nonintercompany assets and liabilities are combined (eliminating the need for an investment account). 
E) U.S.GAAP companies commonly refer to noncontrolling interests in consolidated subsidiaries as minority interests whereas IFRS companies use noncontrolling interests.

Question 13

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

Accepted Answer

A) debit Long-Term Investments-HTM,$75,000;credit Cash,$75,000. 
B) debit Cash,$6,000;credit,Unrealized Gain-Equity,$6,000. 
C) debit Cash,$75,000;credit Long-Term Investments-HTM,$75,000. 
D) debit Unrealized Gain-Equity,$6,000;credit Cash,$6,000. 
E) debit Cash,$75,000;credit Long-Term Investments-Trading,$75,000. 
A) debit Long-Term Investments-HTM,$75,000;credit Cash,$75,000. 
B) debit Cash,$6,000;credit,Unrealized Gain-Equity,$6,000. 
C) debit Cash,$75,000;credit Long-Term Investments-HTM,$75,000. 
D) debit Unrealized Gain-Equity,$6,000;credit Cash,$6,000. 
E) debit Cash,$75,000;credit Long-Term Investments-Trading,$75,000.

Question 14

Any cash dividends received from equity securities are recorded as Dividend Expense.

Accepted Answer

A) True 
 B)False

Question 15

Long-term investments:

Accepted Answer

A) Are current assets. 
B) Include funds earmarked for a special purpose such as bond sinking funds. 
C) Must be readily convertible to cash. 
D) Are expected to be converted into cash within one year. 
E) Include only equity securities. 
A) Are current assets. 
B) Include funds earmarked for a special purpose such as bond sinking funds. 
C) Must be readily convertible to cash. 
D) Are expected to be converted into cash within one year. 
E) Include only equity securities.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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.

Accepted Answer

The answer of On October 31,Augustas Co.received cash dividends of...

Question 18

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):

Accepted Answer

A) Contingent loss. 
B) Realizable loss. 
C) Unrealized loss. 
D) Capitalized loss. 
E) Market loss. 
A) Contingent loss. 
B) Realizable loss. 
C) Unrealized loss. 
D) Capitalized loss. 
E) Market loss.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

When an investment in 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.

Accepted Answer

A) True 
 B)False

Exam 15: Investments and International Operations

The investee company in a long term investment with controlling interest is called the:

Hubbard Company had the following trading securities in its portfolio at December 31.The Fair Value Adjustment-Trading account had a balance of zero prior to year-end adjustment.Prepare the appropriate adjusting journal entry.

When using the equity method for investments in equity securities,the investor records the receipt of cash dividends as revenue.

A company purchased $60,000 of 5% bonds on May 1 at par value.The bonds pay interest on March 1 and September 1.The amount of interest accrued on December 31 (the company's year-end)would be:

Equity securities reflect a creditor relationship such as investments in notes,bonds,and certificates of deposit.

Comprehensive income refers to all changes in equity during a period except those from owners' investments and dividends.

A company had net income of $45,000,net sales of $390,000,and average total assets of $450,000 for the current year.Calculate the company's profit margin,total asset turnover,and return on total assets.

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

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

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

Any cash dividends received from equity securities are recorded as Dividend Expense.

Long-term investments:

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

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):

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

When an investment in 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.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resources, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Partnerships

Accounting for Corporations

Long-Term Liabilities

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Managerial Accounting Concepts and Principles

Job Order Cost Accounting

Process Cost Accounting

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Performance Measurement and Responsibility Accounting

Capital Budgeting and Managerial Decisions

Appendix B: Time Value of Money

Appendix C: Activity-Based Costing

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