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Exam 15: Investments and International Operations

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Question 1

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As a long-term investment, Elmer's Equipment Enterprise purchased 35% of Sticky Supplies Inc.'s 300,000 shares for $350,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of Sticky's net assets were equal. During the year, Sticky's earned net income of $430,000 and distributed cash dividends of 0.42 cents per share. The fair value of Sticky's assets at the end of the year totaled $349,450. What is Elmer's balance for this investment at the end of the year?

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Question 2

Multiple Choice

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Doherty Corporation had net income of $30,000, net sales of $1,000,000, and average total assets of $500,000. Its return on total assets is equal to:

A) 3%
B) 200%
C) 6%
D) 17%
E) 1.5%

F) A) and E)
G) A) and D)

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C

Question 3

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Unrealized gains and losses on trading securities are reported as part of net income.

Net profit margin reflects the percent of net income in each dollar of net sales.

A company had net income of $45,000, net sales of $390,000, and average total assets of $250,000 for the current year. Calculate this company's profit margin, total asset turnover, and return on total assets.

On January 2, Froxel Company purchased 10,000 shares of Sandia Corp. common stock at $19 per share plus a $3,000 commission. This represents 30% of Sandia Corp.'s outstanding stock. On August 6, Sandia Corp. declared and paid cash dividends of $1.75 per share and on December 31 it reported net income of $150,000. Prepare the necessary entries Froxel Company must make to account for these transactions and events.

Parris Corporation purchased 40% of Samitz Corporation for $100,000 on January 1. On November 17 of the same year, Samitz Corporation declared total cash dividends of $12,000. At year-end, Samitz Corporation reported net income of $60,000. The balance in the Parris Corporation's Long-Term Investment in Samitz Corporation at December 31 should be:

Comprehensive income refers to all changes in equity during a period except those due to investments and distributions to income.

An investing company that owns _________ of another (investee) company's voting stock (but not more than 50%) is presumed to have a significant influence over the investee.

Short-term investments are readily convertible to cash and are intended to be converted into cash within one year or the operating cycle, whichever is longer.

IFRS requires uniform accounting policies to be used throughout the group of consolidated subsidiaries.

The following information is available from the financial statements of Cosmotropolis: What is Cosmotropolis' return on total assets for 2014?

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.

A company reported net income of $275,000, net sales of $2,500,000, and average total assets of $2,100,000 for the current year. Calculate this company's profit margin, total asset turnover, and return on total assets.

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.

A U.S. company's credit sale to an international customer to be paid in a foreign currency is recorded using the exchange rate on the date of sale.

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

The equity method with consolidation is used in accounting for long-term investments in equity securities with controlling influence.

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

On April 1 of the current year, a company paid $150,000 to purchase 7%, 10-year bonds that had a par value of $150,000 and paid interest semiannually on October 1 and April 1. The company intends to hold the bonds until they mature. Prepare the journal entry to record the receipt of the semiannual interest payment on April 1 of the following year.