Exam 15: Investments and International Operations

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.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 sale of the 3,500 shares of stock on November 17 is:

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:

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:

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

Debt securities are recorded at cost when purchased,and interest revenue for investments in debt securities is recorded when earned.

Cash equivalents are investments that are readily converted to known amounts of cash and mature within three months.

Debt securities are recorded at cost when purchased.

Marjam Company owns 51,000 shares of MacKenzie Company's 100,000 outstanding shares of common stock.MacKenzie Company pays $25,000 in total cash dividends to its shareholders.Marjam's entry to record this transaction should include a:

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

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.

At acquisition,debt securities are:

Scotsland Company had the following transactions relating to investments in trading securities during the year.Prepare the required general journal entries for these transactions.

Long-term investments are usually held as an investment of cash for use in current operations.

Long-term investments in debt securities not classified as trading or held-to-maturity securities are classified as available-for-sale securities.

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:

To prepare consolidated financial statements when a U.S.parent company has an international subsidiary,the international subsidiary's financial statements must be translated into U.S.dollars.

Pravis Corporation owns 30% of Kuster Corporation.Pravis Corporation received $9,000 in cash dividends from Kuster Corporation.The entry to record receipt of these dividends is:

On May 1 of the current year,a company paid $200,000 cash to purchase 6%,10-year bonds with a par value of $200,000;interest is paid semiannually each May 1 and November 1.The company intends to hold these bonds until they mature.Prepare the journal entry for the accrual of interest for the year-end December 31.

Maroon Company sold supplies in the amount of €15,000 (euros)to a French company when the exchange rate was $1.15 per euro.At the time of payment,the exchange rate decreased to $1.12.Maroon must record a loss of $450.

A company had net income of $86,000 in Year 1 and $118,000 in Year 2.Its net sales were $640,000 in Year 1 and $611,000 in Year 2.Its average total assets in Year 1 were $1,670,000 and $1,712,000 in Year 2.Calculate the profit margin,total asset turnover and return on total assets for both years.Comment on the results.