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Exam 15: Investments and International Operations

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Question 61

Multiple Choice

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All of the following statements regarding equity securities are true except:

A) Equity securities should be recorded at cost when acquired.
B) Equity securities are valued at fair value if classified as trading securities.
C) Equity securities are valued at fair value if classified as significant influence securities.
D) Equity securities are valued at fair value if classified as available-for-sale securities.
E) Equity securities classified as available-for-sale record the dividend revenue when received.

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

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Question 62

Multiple Choice

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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:

A) 13.1%
B) 12.5%
C) 13.8%
D) 800%
E) 725%

F) A) and E)
G) A) and B)

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Question 63

Multiple Choice

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The investee company in a long term investment with controlling interest is called the:

Silver Era Co. exports Southwestern artwork to Japan. Prepare journal entries for the following transactions.

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

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

Long-term investments in held-to-maturity debt securities are accounted for using the ___________________________.

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 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 journal entry to record the dividend on April 15 is:

Long-term investments:

On January 1, 2014, Rickson Corporation purchased 7,500 shares of AutoTech as a long-term investment for a total of $235,000. The 7,500 shares represent 30% of the outstanding (25,000) shares of AutoTech. Prepare the journal entries for Rickson to record the following transactions and events:

The controlling investor is called the:

Long-term investments include:

On May 1 of the current year, a company paid $200,000 to purchase 7%, 10-year bonds with a par value of $200,000; interest is paid semiannually on May 1 and November 1. The company intends to hold the bonds until they mature. Prepare the journal entries to record (1) the bond purchase, (2) the receipt of the first semiannual interest payment on November 1 of the current year, (3) the accrual of interest for year-end December 31, and (4) the receipt of the second semiannual payment on May 1.

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 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 on its year-end December 31 income statement related to the investment in Marcelo Corp. is:

Unrealized gains and losses on trading securities are reported on the income statement.

At acquisition, debt securities are:

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

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

J.P. Industries purchased 2,000 shares of Yang's common stock for $143,000 as a long-term investment. The investment is classified as available-for-sale securities. The par value of the stock was $1 per share. J.P. paid $375 in commissions on the transaction. J.P.'s entry to record the purchase transaction would include a:

Rainier Importers purchases automotive parts from Austria. Prepare journal entries for the following transactions of Rainier.