Exam 15: Investments

On January 1, 2014, Rickson Corporation purchased 7,500 shares of AutoTech as a long-term investment for a total of $235,000. The 7,500 shares represent 30% of the outstanding (25,000) shares of AutoTech. Prepare the journal entries for Rickson to record the following transactions and events: December 31, 2014: AutoTech reported net income of $66,000 for 2014. February 1, 2015: Sold 1,875 of the AutoTech shares for $34 per share. In addition, $1,350 in fees and commissions were paid by Rickson on this sale. November 1, 2015: Rickson received a $0.90 per share cash dividend from AutoTech. December 31, 2015: AutoTech reported net loss of $46,000 for 2015.

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

Investments in equity securities where the investor has a significant, but not controlling influence, are accounted for using the ________ method.

Long-term investments cannot include:

Investments can be classified as all but which of the following:

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.

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.

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

Debt securities are recorded at cost when purchased.

What are the accounting basics for debt securities, including recording their acquisition, interest earned, and their disposal?

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

________ are debt securities a company intends and is able to hold until the maturity date.

Match the following terms with the appropriate definitions. A. Equity method B. Available-for-sale securities C. Subsidiary D. Long-term investments E. Parent company F. Return on total assets G. Consolidated financial statements H. Held-to-maturity securities I. Trading securities J. Unrealized gain (loss) ________ (1) Investments in equity and debt securities that are not readily convertible to cash or are not intended to be converted to cash in the short term. ________ (2) A corporation controlled by another company when the controlling company owns more than 50% of the investee's voting stock. (3) Change in market value that is not yet realized through an actual sale. ________ (4) Financial statements that show the financial position, results of operations, and cash flows of all entities under the parent's control, including those of any subsidiaries. ________ (5) A company that owns a more than 50% controlling interest in a subsidiary. (6) Debt and equity securities not classified as trading or held-to-maturity. ________ (7) Debt securities that a company intends and is able to hold until maturity. (8) Debt and equity securities that a company intends to actively manage and trade for profit. (9) A measure of operating efficiency, computed as net income divided by average total assets. ________ (10)An accounting method for long-term investments in equity when the investor has significant influence over the investee.

On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. This is the company's first and only investment in 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 fair value of the remaining 3,500 shares is $29.50 per share. The amount that Jewel Company should report in the asset section of its year-end December 31 balance sheet for its investment in Marcelo Corp. is:

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

Arkansana Inc. imports inventory from Costa Rica. Prepare the journal entries for Arkansana to record the following transactions. Include any year-end adjustments. Dec 21 Purchased inventory from Rojas Co. for 5,000,000 Costa Rican colon. The exchange rate was $0.002 per colon. The credit terms were n/30. Dec 31 The exchange rate was $0.0023 per colon. Jan 20 Paid Rojas Co. for the December 21 purchase. The exchange rate was $0.0021 per colon.

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

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

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:

On January 4, Year 1, Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000. Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During each of the next two years, Convell declared and paid cash dividends of $0.85 per share, and its net income was $72,000 and $67,000 for Year 1 and Year 2, respectively. -What is the book value of Barber's investment in Convell at the end of Year 2?