Exam 15: Investments

On May 1 of the current year,a company paid $200,000 to purchase 7%,10-year bonds with a par value of $200,000; interest is paid semiannually on May 1 and November 1.The company intends to hold the bonds until they mature.Prepare the journal entries to record (1)the bond purchase, (2)the receipt of the first semiannual interest payment on November 1 of the current year, (3)the accrual of interest for year-end December 31,and (4)the receipt of the second semiannual payment on May 1.

Equity securities giving an investor significant influence over an investee are always considered short-term investments.

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 to record the bond purchase.

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

A company had a profit margin of 10.5% and total asset turnover of 1.84.Its return on total assets was:

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.

When consolidated financial statements are prepared,the parent company uses the equity method and reports the investment accounts for the subsidiaries on the balance sheet.

An investor purchased $50,000 of 10-year bonds it intends to hold to maturity.The investor's journal entry to record the purchase is a debit to Long-Term Investments for $50,000 and a credit to Cash for $50,000.