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Exam 15: Investments and International Operations

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Question 71

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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.

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The equity method of accounting for secu...

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Question 72

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On November 12, Kendra, Inc., a U.S. Company, sold merchandise on credit to Nakakura Company of 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 Kendra prepared its financial statements, the exchange rate was $0.00843. Nakakura Company paid in full on January 12, when the exchange rate was $0.00861. On December 31, Kendra 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-Nakakura Company $90; credit Foreign Exchange Gain $90.
D) Debit Foreign Exchange Loss $90; Accounts Receivable-Nakakura Company $90.
E) No journal entry is required until the amount is collecteD.

F) A) and B)
G) None of the above

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Question 73

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

Texana Inc. imports inventory from Mexico. Prepare the journal entries for Texana to record the following transactions. Include any year-end adjustments.

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

The price of one currency stated in terms of another currency is called a foreign exchange rate.

On February 15, Seacroft buys 7,000 shares of Kebo 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, Kebo declares a dividend of $1.15 per share payable to stockholders of record on April 15. Seacroft received the dividend on April 15 and ultimately sells half of the Kebo 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:

On February 15, Seacroft buys 7,000 shares of Kebo common at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. On March 15, Kebo declares a dividend of $1.15 per share payable to stockholders of record on April 15. Seacroft received the dividend on April 15 and ultimately sells half of the Kebo 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 Seacroft should report in the equity section of its year-end December 31 balance sheet for its investment in Kebo is:

A company purchased $60,000 of 5% bonds on May 1 at par value. 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:

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

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

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.

Rhone Importers purchases automotive parts from Germany. Prepare journal entries for the following transactions of Rhone.

Halam Company had the following transactions relating to investments in trading securities during the year. Prepare the required general journal entries for these transactions.

Foreign exchange rates fluctuate due to changes in:

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

A company had a profit margin of 10.5% and total asset turnover of 1.84. Its return on total assets was:

Bond sinking funds are examples of short-term investments.

All of the following statements regarding accounting for trading securities under U.S. GAAP are True except:

Investments can be classified as: