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Exam 27: Investments and International Operations

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Question 71

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If a long-term investment in an equity security gives the investor significant influence over the investee,the investment is classified as available-for-sale.

A) True
B) False

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Question 72

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Foreign exchange rates fluctuate due to changing _______________ and ___________ conditions.

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Question 73

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_________________________ are investments that are both readily converted to known amounts of cash and mature within three months.

Clark Corporation purchased 40% of IT corporation for $125,000 on January 1.On May 20 of the same year,IT Corporation declared total cash dividends of $30,000.At year-end,IT Corporation reported net income of $150,000.The balance in Clark Corporation's Long-Term Investment in IT Corporation account as of December 31 should be:

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

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

The controlling investor is referred to as the:

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 company had net income of $2,785,000,net sales of $250,000,000,average total assets of $6,000,000,and equity investments of $40,000.Its return on total assets equals:

Micron owns 3,000 shares of JVT.JVT has 25,000 total shares of stock outstanding.JVT paid $3 per share in cash dividends to its stockholders.Micron should record a:

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

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

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.

Bond sinking funds are examples of short-term investments.

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?

Haladam Company had the following transactions relating to investments in trading securities during the year.Prepare the required general journal entries for these transactions. $\begin{array}{cl}\text{May 4} & \text{Haladam purchased 600 shares of Cob Company stock at \$ 120 per share plus a \$ 750}\\&\text{brokerage fee.}\\\text{July 1}& \text{Haladam received a \$ 2.50 per share cash dividend on the Cob Company stock.}\\\text{Sept. 15} &\text{Sold 300 shares of the Cob Company stock for \$ 125 per share, less a \$ 450}\\ &\text{brokerage fee.}\\\text{Dec. 31}& \text{The market value of the Cob Company stock (the only investment that Haladam}\\&\text{owns) is \$124 per share. The balance of the Market Adjustment - Trading a zero}\\ &\text{balance prior to adjustment.}\end{array}$

Investments in trading securities are always short-term investments.

Golden Age Co.exports Native American artwork to Japan.Prepare journal entries for the following transactions. $\begin{array} { | l | l | } \hline \text { Nov 10 } &\text { Sold artwork to Tanaka Company for } 10,000,000 \text { yen, terms n/30. The exchange } \\&\text { rate was } \$ 0.0084 \text { per yen. }\\\hline \text { Dec } 5 &\text { Received payment from Tanaka Company for the November } 10 \text { sale. The }\\&\text { exchange rate was } \$ 0.009 \text { per yen. }\\\hline\end{array}$

Long-term investments in available-for-sale securities are reported using their _______ on the balance sheet.

Explain the difference between short-term and long-term investments and give examples of each.