Exam 15: Investments and International Operations

If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment, which method would the investor normally use to account for this investment?

On January 1, 2011, Freder Corporation purchased 7,500 shares of SportTech as a long-term investment for a total of $235,000. The 7,500 shares represent 30% of the outstanding (25,000) shares of SportTech. Prepare the journal entries for Freder to record the following transactions and events:

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.

On October 31, Mayfair Co. received cash dividends of $0.15 per share from its investment in Carter Corp.'s common stock. Mayfair owned 1,200 shares of Carter 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.

Marina, Inc., held 1,500 of Navia common stock with a cost of $36,900. These shares were classified as a long-term available-for-sale investment. It sold the shares on December 13 for $42,100. Prepare the journal entry to record this sale.

__________________________ are investments in securities that are not readily convertible to cash, or are not intended to be converted to cash in the short-term.

Clarity Corporation had the following transactions involving investments in trading securities during the year. Prior to these transactions, Clarity had never had any investments in trading securities. Prepare the required general journal entries to record these transactions.

Unrealized gains and losses on trading securities are reported on the income statement.

A company should report its portfolio of trading securities at its fair value.

Seamark buys $300,000 of Eider's 8% five-year bonds payable at par value on September 1. Interest payments are made semiannually on March 1 and September 1. The journal entry to accrue interest earned at year-end December 31 is:

___________________________ are investments in securities that management intends to convert to cash within the longer of one year or the operating cycle, and are readily convertible to cash.

A company has net income of $130,500. Its net sales were $1,740,000 and its average total assets were $2,750,000. Its total asset turnover equals 4.7%. Asset turnover = $1,740,000/$2,750,000 = 0.63

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

If the exchange rate for Canadian and U.S. dollars is 0.7382 to 1, this implies that 2 Canadian dollars will buy 1.48 worth of U.S. dollars. $2 x 0.7382 = $1.48

A company reported net income for Year 1 of $98,000 and $106,000 for Year 2. It also reported net sales of $735,000 in Year 1 and $798,000 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 1and Year 2. Comment on the results.

Explain how transactions (both sales and purchases) in a foreign currency are recorded and reported.

_________________________ securities reflect a creditor relationship while ____________________ securities reflect an owner relationship.

On February 15, Seacroft buys 7,000 shares of Kebo 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, Kebo declares a dividend of $1.15 per share payable to stockholders of record on April 15. Seacroft received the dividend on April 15 and ultimately sells half of the Kebo 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 purchase on February 15 is:

A U.S. company makes a sale to a foreign customer payable in 30 days in the customer's currency. The sale would be recorded by the U.S. company on the date:

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