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Exam 15: Investments and International Operations

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Question 1

Multiple Choice

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All of the following statements regarding accounting for trading securities under U.S. GAAP are true except:

A) An unrealized gain or loss from a change in fair value is reported on the income statement.
B) A realized gain or loss is recorded when the securities are sold and reported on the income statement.
C) Any prior period fair value adjustment to the portfolio is not used to compute the gain or loss from sale of individual transactions.
D) When the period-end fair value adjustment for the portfolio of trading securities is computed, it includes the cost and fair value of any securities sold.
E) The entire portfolio of trading securities is reported at fair value.

F) A) and D)
G) B) and C)

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Question 2

True/False

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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.

A) True
B) False

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Question 3

Multiple Choice

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MotorCity, Inc. purchased 40,000 shares of Shaw common stock for $232,000. This represents 40% of the outstanding stock. The entry to record the transaction includes a:

Landmark buys $300,000 of Schroeter Company's 8%, 5-year bonds payable at par value on September 1. Interest payments are made semiannually on March 1 and September 1. The journal entry Landmark should record to accrue interest earned at year-end December 31 is:

All of the following are true for Available-for-sale equity securities except:

Any unrealized gain or loss for the portfolio of available-for-sale securities is reported on the income statement in the other gain or loss section.

Zhang Corp. owns 40% of Magnor Company's common stock. Magnor pays $97,000 in total cash dividends to its shareholders. Zhang's entry to record this transaction should include a:

Long-term investments cannot include:

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. The January 12, Year 3, entry to record Barber's sale of 3,000 shares of Convell Company stock, which represents 60% of Barber's total investment, for $39,000 cash should be:

Investments in debt and equity securities that the company actively manages and trades for profit are referred to as short-term investments in:

Kreighton Manufacturing purchased on credit £50,000 worth of production materials from a British company when the exchange rate was $1.97 per British pound. At the year-end balance sheet date, the exchange rate increased to $2.76. If the liability is still unpaid at that time, Kreighton must record a:

Security prices are sometimes listed in fractions. For example, a debt security with a price of 22¾ is the same as $22.25.

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 shares is $29.50 per share. The amount that Jewel Company should report in the equity section of its year-end December 31 balance sheet for its investment in Marcelo Corp. is:

All companies desire a low return on total assets.

What is comprehensive income and how is it usually reported in the financial statements?

On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common stock at $28.53 per share plus a brokerage fee of $400. The stock is classified as long-term available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel received the dividend on April 15 and ultimately sells half of the Marcelo 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:

Canberry Corporation had net income of $80,000, beginning total assets of $640,000 and ending total assets of $580,000. Its return on total assets is:

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

On November 12, Higgins, Inc., a U.S. Company, sold merchandise on credit to Kagome of Japan at a price of 1,500,000 yen. The exchange rate was $0.00837 on the date of sale. On December 31, when Higgins prepared its financial statements, the exchange rate was $0.00843. Kagome paid in full on January 12, when the exchange rate was $0.00861. On January 12, Higgins should prepare the following journal entry:

Cloverton 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: