Question 1

Investments in trading securities:

Accepted Answer

A)  Include only equity securities. 
B)  Are reported as current assets. 
C)  Include only debt securities. 
D)  Are reported at their cost, no matter what their market value. 
E)  Are long-term investments. 
A)  Include only equity securities. 
B)  Are reported as current assets. 
C)  Include only debt securities. 
D)  Are reported at their cost, no matter what their market value. 
E)  Are long-term investments.

Question 2

Held-to-maturity securities are:

Accepted Answer

A)  Always classified as Long-Term Liabilities. 
B)  Always classified as Long-Term Investments. 
C)  Debt securities that a company intends and is able to hold to maturity. 
D)  Equity securities that a company intends and is able to hold to maturity. 
E)  Equity securities that have a maturity value greater than cost. 
A)  Always classified as Long-Term Liabilities. 
B)  Always classified as Long-Term Investments. 
C)  Debt securities that a company intends and is able to hold to maturity. 
D)  Equity securities that a company intends and is able to hold to maturity. 
E)  Equity securities that have a maturity value greater than cost.

Question 3

Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.

Accepted Answer

A) True 
 B)False

Question 4

On May 1, Franke Co. purchases 2,000 shares of Computech stock for $25,000. This investment is considered to be an available-for-sale investment. On July 31 (Franke's year-end), the stock had a market value of $28,000. Franke should record a credit to Unrealized Gain-Equity for $3,000.

Accepted Answer

A) True 
 B)False

Question 5

When a credit sale is denominated in a foreign currency, the foreign exchange rate used to record the sale is the current exchange rate:

Accepted Answer

A)  Thirty days from the date of sale. 
B)  At the end of the seller's fiscal year. 
C)  At the end of the buyer's fiscal year. 
D)  On the date final payment is made. 
E)  On the date of the sale. 
A)  Thirty days from the date of sale. 
B)  At the end of the seller's fiscal year. 
C)  At the end of the buyer's fiscal year. 
D)  On the date final payment is made. 
E)  On the date of the sale.

Question 6

Return on total assets can be separated into the profit margin ratio and total asset turnover.

Accepted Answer

A) True 
 B)False

Question 7

Detalo Co. held bonds of Schooner Corp. with a cost of $125,000 and a market value of $127,000. Detalo also held 1,500 shares of Tranco common stock with a cost of $25,000 and a market value of $24,700. These are classified as long-term available-for-sale securities. Prepare the journal entry to record the market value of the investments as of December 31.

Accepted Answer

The answer of Detalo Co. held bonds of Schooner Corp....

Question 8

Define the foreign exchange rate between two currencies. Explain its effect on business transactions conducted in a foreign currency.

Accepted Answer

A foreign exchange rate is the price of

Question 9

Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.

Accepted Answer

If an investing company controls another

Question 10

Available-for-sale debt securities are:

Accepted Answer

A)  Recorded at cost and remain at cost over the life of the investment. 
B)  Reported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value. 
C)  Reported at fair value on the balance sheet. 
D)  Intended to be held to maturity. 
E)  Always classified with Long-Term Liabilities. 
A)  Recorded at cost and remain at cost over the life of the investment. 
B)  Reported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value. 
C)  Reported at fair value on the balance sheet. 
D)  Intended to be held to maturity. 
E)  Always classified with Long-Term Liabilities.

Question 11

Comprehensive income includes

Accepted Answer

A)  Revenues and expenses reported in the income statement. 
B)  Gains and losses reported in the income statement. 
C)  Unrealized gains and losses on long-term available-for-sale securities. 
D)  All changes in equity for a period except those due to investments and distributions to owners. 
E)  All of these. 
A)  Revenues and expenses reported in the income statement. 
B)  Gains and losses reported in the income statement. 
C)  Unrealized gains and losses on long-term available-for-sale securities. 
D)  All changes in equity for a period except those due to investments and distributions to owners. 
E)  All of these.

Question 12

Schoodic Company had the following long-term available-for-sale securities in its portfolio at December 31 for each of the years listed. The year-end cost and fair values for its portfolio follow. Beginning with Year 1, prepare the appropriate journal entry to record each year-end market adjustment for these securities.

Accepted Answer

The answer of Schoodic Company had the following long-term available-for-sale...

Question 13

A company holds $40,000 of 7% bonds as a held-to-maturity security. Assuming all prior interest entries have been accounted for, the bondholder's journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.
$40,000 x 7% x ½ year = $1,400

Accepted Answer

A) True 
 B)False

Question 14

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

Accepted Answer

A)  Debit Cash, $9,000; credit Long-Term Investments, $9,000. 
B)  Debt Long-Term Investment, $9,000; credit Cash, $9000. 
C)  Debit Cash, $9,000; credit Interest Revenue, $9,000. 
D)  Debit Unrealized Gain-Equity, $9,000; credit Cash, $9,000. 
E)  Debit Cash, $9,000; credit Dividend Revenue, $9,000. 
A)  Debit Cash, $9,000; credit Long-Term Investments, $9,000. 
B)  Debt Long-Term Investment, $9,000; credit Cash, $9000. 
C)  Debit Cash, $9,000; credit Interest Revenue, $9,000. 
D)  Debit Unrealized Gain-Equity, $9,000; credit Cash, $9,000. 
E)  Debit Cash, $9,000; credit Dividend Revenue, $9,000.

Question 15

NSC Corporation has invested in 10% of the outstanding stock of VC Corporation. NSC intends to actively manage this investment for profit. This investment is classified as:

Accepted Answer

A)  an available-for-sale security. 
B)  a held-to-maturity security. 
C)  a trading security. 
D)  a significant influence security. 
E)  a controlling influence security. 
A)  an available-for-sale security. 
B)  a held-to-maturity security. 
C)  a trading security. 
D)  a significant influence security. 
E)  a controlling influence security.

Question 16

Investments in held-to-maturity debt securities are always current assets.

Accepted Answer

A) True 
 B)False

Question 17

Long-term investments include:

Accepted Answer

A)  Investments in bonds and stocks that are not readily convertible to cash. 
B)  Investments in marketable stocks that are intended to be converted into cash in the short-term. 
C)  Investments in marketable bonds that are intended to be converted into cash in the short-term. 
D)  Only investments readily convertible to cash. 
E)  Investments intended to be converted to cash within one year. 
A)  Investments in bonds and stocks that are not readily convertible to cash. 
B)  Investments in marketable stocks that are intended to be converted into cash in the short-term. 
C)  Investments in marketable bonds that are intended to be converted into cash in the short-term. 
D)  Only investments readily convertible to cash. 
E)  Investments intended to be converted to cash within one year.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

On March 15, Carter Company purchased 10,000 shares of Tonya Corp. stock for $35,000. The investment is classified as available-for-sale securities. On June 30, the stock had a fair value of $38,000. Carter should do all of the following except:

Accepted Answer

A)  Record an increase to the Fair value Adjustment-AFS account. 
B)  Record an increase to the Unrealized Gain - Equity account. 
C)  Report the increase in the equity section of the balance sheet. 
D)  Report the increase in the asset section of the balance sheet. 
E)  Record an increase to the Unrealized Gain - Income account. 
A)  Record an increase to the Fair value Adjustment-AFS account. 
B)  Record an increase to the Unrealized Gain - Equity account. 
C)  Report the increase in the equity section of the balance sheet. 
D)  Report the increase in the asset section of the balance sheet. 
E)  Record an increase to the Unrealized Gain - Income account.

Question 20

A company has net income of $250,000, net sales of $2,000,000, and average total assets of $1,500,000. Its return on total assets equals:

Accepted Answer

A)  12.5%. 
B)  13.3%. 
C)  16.7%. 
D)  75.0%. 
E)  600.0%. 
A)  12.5%. 
B)  13.3%. 
C)  16.7%. 
D)  75.0%. 
E)  600.0%.

Exam 15: Investments and International Operations

Investments in trading securities:

Held-to-maturity securities are:

Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.

On May 1, Franke Co. purchases 2,000 shares of Computech stock for $25,000. This investment is considered to be an available-for-sale investment. On July 31 (Franke's year-end), the stock had a market value of $28,000. Franke should record a credit to Unrealized Gain-Equity for $3,000.

When a credit sale is denominated in a foreign currency, the foreign exchange rate used to record the sale is the current exchange rate:

Return on total assets can be separated into the profit margin ratio and total asset turnover.

Define the foreign exchange rate between two currencies. Explain its effect on business transactions conducted in a foreign currency.

Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.

Available-for-sale debt securities are:

Comprehensive income includes

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

NSC Corporation has invested in 10% of the outstanding stock of VC Corporation. NSC intends to actively manage this investment for profit. This investment is classified as:

Investments in held-to-maturity debt securities are always current assets.

Long-term investments include:

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

On March 15, Carter Company purchased 10,000 shares of Tonya Corp. stock for $35,000. The investment is classified as available-for-sale securities. On June 30, the stock had a fair value of $38,000. Carter should do all of the following except:

A company has net income of $250,000, net sales of $2,000,000, and average total assets of $1,500,000. Its return on total assets equals:

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

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