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Exam 15: Investments and International Operations

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Question 21

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

A) Debit Sales $90;credit Foreign Exchange Gain $90.
B) Debit Foreign Exchange Loss $90;credit Sales $90.
C) Debit Accounts Receivable-Kagome $90;credit Foreign Exchange Gain $90.
D) Debit Foreign Exchange Loss $90;Accounts Receivable-Kagome $90.
E) No journal entry is required until the amount is collecteD.

F) B) and C)
G) B) and E)

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Question 22

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Any cash dividends received from equity securities are recorded as Dividend Expense.

A) True
B) False

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Question 23

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Hubbard Company had the following trading securities in its portfolio at December 31.The Fair Value Adjustment-Trading account had a balance of zero prior to year-end adjustment.Prepare the appropriate adjusting journal entry.

A company purchased $60,000 of 5% bonds on May 1 at par value.The bonds pay interest on March 1 and September 1.The amount of interest accrued on December 31 (the company's year-end) would be:

When an investment in 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.

Comprehensive income refers to all changes in equity during a period except those from owners' investments and dividends.

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

Long-term investments:

Long-term investments in available-for-sale securities are reported at fair value on the balance sheet.

A decrease in the fair value of a security that has not yet been realized through an actual sale of the security is called a(n) :

Short-term investments in held-to-maturity debt securities are accounted for using the:

On October 31,Augustas Co.received cash dividends of $0.15 per share from its investment in Lamb Corp.'s common stock.Augustas owned 1,200 shares of Lamb 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.

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

On January 3,Kostansas Corporation purchased 5,000 shares of Morton,Inc.for $40 per share plus $700 in broker commissions.These shares represent a 40% ownership in Morton,Inc.Prepare the journal entry Kostansas Corporation should record when Morton reports net income of $52,000 for the year on December 31.

Equity securities reflect a creditor relationship such as investments in notes,bonds,and certificates of deposit.

A company had net income of $45,000,net sales of $390,000,and average total assets of $450,000 for the current year.Calculate the company's profit margin,total asset turnover,and return on total assets.

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

Element Company had the following long-term available-for-sale securities in its portfolio at December 31 for each of the years listed.The year-end cost and fair values for its portfolio follow.Beginning with Year 1,prepare the appropriate journal entry to record each year-end market adjustment for these securities.

Kendall Corp.purchased at par value $75,000 of Shrem Company's 8% bonds that mature in three-years.The bonds pay interest semiannually on June 1 and December 1.Kendall plans to hold the bonds until they mature.When the bonds mature,Kendall should prepare the following journal entry:

When using the equity method for investments in equity securities,the investor records the receipt of cash dividends as revenue.