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Exam 15: Investments

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Question 101

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McVeigh Corp.owns 40% of Gondor Company's common stock.McVeigh received $41,200 in cash dividends from Gondor.The entry to record this transaction should include a:

A) Debit to Dividends for $103,000.
B) Credit to Long-Term Investments for $41,200.
C) Debit to Dividend Revenue for $41,200.
D) Credit to Long-Term Investments for $103,000.
E) Credit to Cash for $41,200.

F) A) and D)
G) C) and D)

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Question 102

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If a U.S.company's credit sale to an international customer allows payment to be made in a foreign currency,the sale transaction is recorded using the exchange rate on the date of sale.

A) True
B) False

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Question 103

Multiple Choice

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Accounting for long-term investments in equity securities with controlling influence uses the:

Explain how equity securities having significant influence are accounted for and reported in the financial statements.Include a discussion of the criterion for these securities in terms of an investee's voting stock.

Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 as a long-term investment.The investment is classified as available-for-sale securities.Gonzalez has 500,000 shares of stock currently outstanding and the par value of the stock is $1 per share.Lessington's entry to record the purchase transaction would include a:

When using the equity method,receipt of cash dividends increases the carrying (book)value of an investment in equity securities.

A company has an investment in 9% bonds with a par value of $100,000 that pay interest on October 1 and April 1.The amount of interest accrued on December 31 (the company's year-end) would be:

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

Profit margin is net sales divided by net income.

On January 2,Froxel Company purchased 10,000 shares of Sandia Corp.common stock at $19 per share plus a $3,000 commission.This represents 30% of Sandia Corp.'s outstanding stock.On August 6,Sandia Corp.declared and paid cash dividends of $1.75 per share,and on December 31 it reported net income of $150,000.Prepare the necessary entries for Froxel to account for these transactions and events.

Long-term investments include:

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

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

Define the return on total assets and explain how it is used to measure a company's financial performance.

A company has net income of $130,500.Its net sales were $1,740,000 and its average total assets were $2,750,000.Its profit margin equals 7.5%.

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

Unrealized Loss-Equity and Unrealized Gain-Equity are permanent equity accounts.

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

A controlling investor is called the parent,and the investee company is called the subsidiary.

________ are debt securities a company intends and is able to hold until the maturity date.