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Exam 25: Investments and International Operations

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Question 1

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

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Short-term investments are securities ex...

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Question 2

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On January 1, 2009, Frederich Corporation purchased 7,500 shares of Sport Tech, Inc. as a long-term investment for a total of $235,000. The 7,500 shares represent 30% of the outstanding (25,000) shares of Sport Tech. Prepare the journal entries for Frederich to record the following transactions and events:

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Carrying value of stock: ($...

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Investments in trading securities are accounted for using the equity method with consolidation.

A company received dividends of $0.35 per share on 300 shares of stock. The journal entry to record this transaction would be to debit Cash for $105 and credit Dividend Revenue for $105.

Identify the three types of classifications for non-influential investments in securities.

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

The currency in which a company presents its financial statements is known as the:

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

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

If the exchange rate for Canadian and U.S. dollars is 0.7382 to 1, this implies that 2 Canadian dollars will buy 1.48 worth of U.S. dollars.

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

Marina, Inc., held 1,500 of Navia common stock with a cost of $36,900. These shares were classified as a long-term available-for-sale investment. It sold the shares on December 13 for $42,100. Prepare the necessary journal entry to record this sale.

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

A company holds $40,000 of 7% bonds as a held-to-maturity security. 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.

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:

Debt securities are recorded at cost when purchased and interest revenue for investments in debt securities is recorded when earned.

Bond sinking funds are examples of short-term investments.

Available-for-sale debt securities are:

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:

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