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Exam 25: Investments and International Operations

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Question 81

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Detalo Co. held bonds of Schooner Corp. with a cost of $125,000 and a market value of $127,000. Detalo also held 1,500 shares of Tranco common stock with a cost of $25,000 and a market value of $24,700. These are classified as long-term available-for-sale securities. Prepare the journal entry to record the market value of the investments as of December 31.

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Question 82

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What are the accounting basics for debt securities, including recording their acquisition, interest earned and their disposal?

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At acquisition, debt securities are reco...

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Question 83

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

A controlling investor is referred to as the parent and the investee company is referred to as the subsidiary.

Unrealized gains and losses on trading securities are reported as part of net income.

Investments in equity securities where the investor has a controlling influence are accounted for using the ________________________________.

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:

Long-term investments can include funds set aside for special purposes such as bond sinking funds.

A long-term investment is recorded at cost when purchased.

Equity securities are:

A company's return on total assets equals 30%. If net income and net sales are $900,000 and $8,900,000 respectively, what is the amount of total assets?

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

Trading securities, held-to-maturity debt securities and equity securities giving an investor significant influence over an investee are always considered 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?

Return on total assets is computed by dividing ___________ by __________.

Long-term investments:

On April 1 of the current year, a company paid $150,000 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 the bonds until they mature. Prepare the journal entry to record the receipt of the first semiannual interest payment on October 1 of the current year.

Foreign exchange rates fluctuate due to many factors including changing political and economic conditions.

In accounting for non-influential securities:

Return on total assets can be separated into the profit margin ratio and total asset turnover.