Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Accounting for long-term investments in equity securities with controlling influence uses the:

Accepted Answer

A)  Controlling method. 
B)  Equity method with consolidation. 
C)  Investor method. 
D)  Investment method. 
E)  Consolidated method. 
A)  Controlling method. 
B)  Equity method with consolidation. 
C)  Investor method. 
D)  Investment method. 
E)  Consolidated method.

Question 3

On January 4, Year1, Larsen Company purchased 5,000 shares of Warner Company for $59,500 plus a broker's fee of $1,000. Warner Company has a total of 25,000 shares of common stock outstanding and it is presumed the Larsen Company will have a significant influence over Warner. During each of the next two years, Warner 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. The January 12, Year 3, entry to record the sale of 3,000 shares of Warner Company stock for $39,000 cash should be:

Accepted Answer

A)  Debit Cash $39,000; debit Loss on Sale of Investment $8,200; credit Long-Term Investments $47,280. 
B)  Debit Cash $39,000; debit Loss on Sale of Investment $8,880; credit Long-Term Investments $47,880. 
C)  Debit Cash $39,000; credit Gain on Sale of Investment $2,700; credit Long-Term Investments $36,300. 
D)  Debit Cash $39,000; credit Gain on Sale of Investment $8,750; credit Long-Term Investments $30,250. 
E)  Debit Cash $39,000; debit Loss on Sale of Investment $21,500; credit Long-Term Investments $60,500. 
A)  Debit Cash $39,000; debit Loss on Sale of Investment $8,200; credit Long-Term Investments $47,280. 
B)  Debit Cash $39,000; debit Loss on Sale of Investment $8,880; credit Long-Term Investments $47,880. 
C)  Debit Cash $39,000; credit Gain on Sale of Investment $2,700; credit Long-Term Investments $36,300. 
D)  Debit Cash $39,000; credit Gain on Sale of Investment $8,750; credit Long-Term Investments $30,250. 
E)  Debit Cash $39,000; debit Loss on Sale of Investment $21,500; credit Long-Term Investments $60,500.

Question 4

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

Accepted Answer

The answer of Investments in equity securities where the investor...

Question 5

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

Accepted Answer

A)  Foreign exchange gains or losses can occur when accounting for international sales transactions. 
B)  Gains and losses from foreign exchange transactions are accumulated in the Fair Value Adjustment Account and are reported on the balance sheet. 
C)  Gains and losses from foreign exchange transactions are accumulated in the Foreign Exchange Gain (or Loss) account. 
D)  The balance in the Foreign Exchange Gain (or Loss) account is reported on the income statement. 
E)  Foreign exchange gains or losses can occur when accounting for international purchases transactions. 
A)  Foreign exchange gains or losses can occur when accounting for international sales transactions. 
B)  Gains and losses from foreign exchange transactions are accumulated in the Fair Value Adjustment Account and are reported on the balance sheet. 
C)  Gains and losses from foreign exchange transactions are accumulated in the Foreign Exchange Gain (or Loss) account. 
D)  The balance in the Foreign Exchange Gain (or Loss) account is reported on the income statement. 
E)  Foreign exchange gains or losses can occur when accounting for international purchases transactions.

Question 6

________________________ refers to all changes in equity for a period except for those due to investments and distributions to owners.

Accepted Answer

Comprehens

Question 7

When 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

Question 8

Seamark buys $300,000 of Eider's 8% five-year bonds payable at par value. Interest payments are made semiannually. Seamark plans to hold the bonds for the five year life. When the bonds mature, the journal entry to record the proceeds will be:

Accepted Answer

A)  Debit Long-Term Investments-HTM $300,000; credit Cash $300,000. 
B)  Debit Cash $300,000; credit Interest Revenue $300,000. 
C)  Debit Cash $300,000; credit Long-Term Investments-HTM $300,000. 
D)  Debit Cash $300,000; credit Interest Receivable $300,000. 
E)  Debit Cash $300,000; credit Bonds Payable $300,000. 
A)  Debit Long-Term Investments-HTM $300,000; credit Cash $300,000. 
B)  Debit Cash $300,000; credit Interest Revenue $300,000. 
C)  Debit Cash $300,000; credit Long-Term Investments-HTM $300,000. 
D)  Debit Cash $300,000; credit Interest Receivable $300,000. 
E)  Debit Cash $300,000; credit Bonds Payable $300,000.

Question 9

A company had net income of $450,000 in Year 1 and $620,000 in Year 2. The company had average total assets of $2,500,000 in Year 1 and $3,000,000 in Year 2. Calculate the return on total assets for Year 1and Year 2. Comment on the results, did the company's performance improve?

Accepted Answer

The answer of A company had net income of $450,000...

Question 10

A company paid $500,000 for 12% bonds with a par value of $500,000. The bonds pay 6% interest semiannually on September 1 and March 1. The company intends to hold the bonds until they mature. Prepare the journal entries for the following dates and transactions related to this bond acquisition.
(1)Bonds purchased on September 1.
(2) Year-end adjusting entry, December 31.
(3) Receipt of semiannual interest March 1.
(4) Redemption of the bonds at maturity on August 31.

Accepted Answer

The answer of A company paid $500,000 for 12% bonds...

Question 11

An investor purchased at par value $75,000 of Cort's 8% bonds, that mature in three-years. The bonds pay interest semiannually on June 1 and December 1. The investor plans to hold the bonds until they mature. When the bonds mature, the investor 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 12

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 13

Sanuk purchased on credit $\leq$20,000 worth of parts from a British company when the exchange rate was $\leq$1.66 per British pound. At the year-end balance sheet date the exchange rate increased to $1.69. Sanuk must record a gain of $600.

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  Must report the dividend income accrued on the debt securities. 
B)  Must retire the debt. 
C)  Must record a gain or loss on the interest income earned. 
D)  Must record a gain or loss on the dividend income earned. 
E)  Must record any interest earned on the debt securities. 
A)  Must report the dividend income accrued on the debt securities. 
B)  Must retire the debt. 
C)  Must record a gain or loss on the interest income earned. 
D)  Must record a gain or loss on the dividend income earned. 
E)  Must record any interest earned on the debt securities.

Question 15

All companies desire a low return on total assets.

Accepted Answer

A) True 
 B)False

Question 16

An investor presumed to have significant influence owns as least 20% but not more than 50% of another company's voting stock.

Accepted Answer

A) True 
 B)False

Question 17

On June 18, Johnson Company (a U.S. Company) sold merchandise to the Frater Company of Denmark for 60,000 Euros, with a payment due in 60 days. If the exchange rate was $1.14 per euro on the date of sale and $1.35 per euro on the date of payment, Johnson Company should recognize a foreign exchange gain or loss in the amount of:

Accepted Answer

A)  $60,000 gain. 
B)  $60,000 loss. 
C)  $68,400 loss. 
D)  $12,600 gain. 
E)  $12,600 loss. 
A)  $60,000 gain. 
B)  $60,000 loss. 
C)  $68,400 loss. 
D)  $12,600 gain. 
E)  $12,600 loss.

Question 18

On July 31, Beatrice Co. purchased 2,000 shares of SimmTech stock for $16,000. The investment is classified as available-for-sale securities. On October 31, which is Beatrice's year-end, the stock had a fair value of $20,000. Beatrice should record a:

Accepted Answer

A)  Credit to Unrealized Gain-Equity for $4,000. 
B)  Credit to Market Adjustment - Available-for-Sale for $4,000. 
C)  Credit to Investment Revenue for $4,000. 
D)  Debit to Investment Revenue for $4,000. 
E)  Debit to Unrealized Gain-Equity for $4,000. 
A)  Credit to Unrealized Gain-Equity for $4,000. 
B)  Credit to Market Adjustment - Available-for-Sale for $4,000. 
C)  Credit to Investment Revenue for $4,000. 
D)  Debit to Investment Revenue for $4,000. 
E)  Debit to Unrealized Gain-Equity for $4,000.

Question 19

When the cost of a short-term held-to-maturity debt security is different from the maturity value, the difference is amortized over the remaining life of the security.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 15: Investments and International Operations

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

Accounting for long-term investments in equity securities with controlling influence uses the:

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

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

________________________ refers to all changes in equity for a period except for those due to investments and distributions to owners.

When 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.

Seamark buys $300,000 of Eider's 8% five-year bonds payable at par value. Interest payments are made semiannually. Seamark plans to hold the bonds for the five year life. When the bonds mature, the journal entry to record the proceeds will be:

A company had net income of $450,000 in Year 1 and $620,000 in Year 2. The company had average total assets of $2,500,000 in Year 1 and $3,000,000 in Year 2. Calculate the return on total assets for Year 1and Year 2. Comment on the results, did the company's performance improve?

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

Long-term investments:

Sanuk purchased on credit ≤\leq≤ 20,000 worth of parts from a British company when the exchange rate was ≤\leq≤ 1.66 per British pound. At the year-end balance sheet date the exchange rate increased to $1.69. Sanuk must record a gain of $600.

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

All companies desire a low return on total assets.

An investor presumed to have significant influence owns as least 20% but not more than 50% of another company's voting stock.

On July 31, Beatrice Co. purchased 2,000 shares of SimmTech stock for $16,000. The investment is classified as available-for-sale securities. On October 31, which is Beatrice's year-end, the stock had a fair value of $20,000. Beatrice should record a:

When the cost of a short-term held-to-maturity debt security is different from the maturity value, the difference is amortized over the remaining life of the security.

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

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 Allocation and Performance Measurement

Cost-Volume-Profit Analysis

Master Budgets and Planning

Flexible Budgets and Standard Costs

Capital Budgeting and Managerial Decisions

Time Value of Money

Filters

Sanuk purchased on credit $\leq$ 20,000 worth of parts from a British company when the exchange rate was $\leq$ 1.66 per British pound. At the year-end balance sheet date the exchange rate increased to $1.69. Sanuk must record a gain of $600.