Question 1

The currency in which a company presents its financial statements is known as the:
A)Multinational currency.
B)Price-level-adjusted currency.
C)Specific currency.
D)Reporting currency.
E)Historical cost currency.

Accepted Answer

The currency in which a company presents its financial statements is referred to as the reporting currency.

Question 2

All of the following statements relating to accounting for international operations are true except:
A)Foreign exchange gains or losses can occur when accounting for international sales transactions.
B)Gains and losses from foreign exchange transactions are accumulated in the Fair Value Adjustment Account and are reported on the balance sheet.
C)Gains and losses from foreign exchange transactions are accumulated in the Foreign Exchange Gain (or Loss)account.
D)The balance in the Foreign Exchange Gain (or Loss)account is reported on the income statement.
E)Foreign exchange gains or losses can occur when accounting for international purchases transactions.

Accepted Answer

Gains and losses from foreign exchange transactions are typically not accumulated in the Fair Value Adjustment Account. Instead, they are recorded in specific accounts related to foreign exchange gains or losses and are reflected in the income statement, not directly on the balance sheet as a fair value adjustment.

Question 3

Select the correct statement from the following:
A)Profit margin reflects a company's ability to produce net sales from total assets.
B)Total asset turnover reflects the percent of net income in each dollar of net sales.
C)Return on total assets can be separated into the gross margin ratio and debt ratio.
D)A high return on total assets is desirable.
E)Analysis of return on total assets is not beneficial in evaluating profitability.

Accepted Answer

A high return on total assets is a desirable outcome for a company as it indicates efficient utilization of assets to generate profits. It shows how much profit a company has earned for every dollar invested in assets.

Question 4

A company had net income of $43,000,net sales of $380,500,and average total assets of $220,000.Its profit margin and total asset turnover were,respectively:
A)11.3%; 1.73.
B)11.3%; 19.5.
C)1.7%; 19.5.
D)1.7%; 11.3.
E)19.5%; 11.3.

Accepted Answer

Profit margin = net income/net sales
Profit margin = 43,000/380,500
Profit margin = 0.113 or 11.3%

Total asset turnover = net sales/average total assets
Total asset turnover = 380,500/220,000
Total asset turnover = 1.73

Therefore, the correct choice is A.

Question 5

Marshall Company sold supplies in the amount of €25,000 (euros)to a French company when the exchange rate was $1.21 per euro.At the time of payment,the exchange rate decreased to $0.82.Marshall must record a:
A)gain of $9,750.
B)gain of $20,500.
C)loss of $9,750.
D)loss of $20,500.
E)neither a gain nor loss.

Accepted Answer

At the time of sale, the value was 25,000 euros * $1.21/euro = $30,250. At the time of payment, the value was 25,000 euros * $0.82/euro = $20,500. The decrease in value ($30,250 - $20,500) equals a loss of $9,750.

Question 6

Comprehensive income includes all except:
A)Revenues and expenses reported in the income statement.
B)Dividends paid to shareholders.
C)Unrealized gains and losses on long-term available-for-sale securities.
D)All changes in equity for a period except those due to investments and distributions to owners.
E)Gains and losses reported in the income statement.

Accepted Answer

Comprehensive income includes all changes in equity for a period except those due to investments and distributions to owners. Dividends paid to shareholders are not considered a component of comprehensive income.

Question 7

Kreighton Manufacturing purchased on credit £50,000 worth of production materials from a British company when the exchange rate was $1.97 per British pound.At the year-end balance sheet date,the exchange rate increased to $2.76.If the liability is still unpaid at that time,Kreighton must record a:
A)gain of $39,500.
B)loss of $39,500.
C)gain of $138,000.
D)loss of $138,000.
E)neither a gain nor loss.

Accepted Answer

The increase in the exchange rate from $1.97 to $2.76 per British pound means Kreighton will have to pay more dollars to settle the £50,000 liability. Initially, the liability was $98,500 (£50,000 * $1.97). At the new exchange rate, it becomes $138,000 (£50,000 * $2.76). The difference, $39,500 ($138,000 - $98,500), is a loss because it increases the amount of dollars needed to settle the same amount of debt in pounds.

Question 8

Short-term investments in held-to-maturity debt securities are accounted for using the:
A)Fair value method with fair value adjustment to income.
B)Fair value method with fair value adjustment to equity.
C)Cost method with amortization.
D)Cost method without amortization.
E)Equity method.

Accepted Answer

The answer of Short-term investments in held-to-maturity debt securities are...

Question 9

Foreign exchange rates fluctuate due to changes in all but which of the following?
A)Political conditions.
B)Economic conditions.
C)Supply and demand for currencies.
D)Expectations of future events.
E)Whether the companies are considered multinational.

Accepted Answer

Whether the companies are considered multinational does not affect foreign exchange rates. The other factors listed can all impact the supply and demand for currencies, leading to fluctuations in exchange rates.

Question 10

Cloverton Corporation had net income of $30,000,net sales of $1,000,000,and average total assets of $500,000.Its return on total assets is:
A)3%
B)200%
C)6%
D)17%
E)1.5%

Accepted Answer

The return on total assets (ROTA) is calculated as net income divided by average total assets. For Cloverton Corporation, this is $30,000 / $500,000 = 0.06, or 6%.

Question 11

Long-term investments cannot include:
A)Held-to-maturity debt securities.
B)Securities with maturity dates within three months.
C)Equity securities giving an investor insignificant influence over an investee.
D)Equity securities giving an investor significant influence over an investee.
E)Available-for-sale debt securities.

Accepted Answer

Long-term investments are assets that a company holds for more than one year with the intention of generating current and future income as well as capital appreciation. Securities with maturity dates within three months are not considered long-term investments because their holding period is less than a year.

Question 12

If the exchange rate for Canadian and U.S.dollars is 0.82777 to 1,this implies that 3 Canadian dollars will buy ________ worth of U.S.dollars.
A)$0.2759
B)$0.82777
C)$1.82777
D)$2.48
E)$1.00

Accepted Answer

If 1 U.S.dollar is worth 0.82777 Canadian dollars, then 1 Canadian dollar is worth approximately 1.21 U.S.dollars (1/0.82777). Therefore, 3 Canadian dollars would be worth approximately $3.64 (3 x 1.21). However, the question is asking for the value in U.S.dollars, so we need to divide by the exchange rate: $3.64 ÷ 0.82777 ≈ $4.39. So, 3 Canadian dollars will buy approximately $4.39 worth of U.S.dollars, which is closest to answer choice D, $2.48.

Question 13

The price of one currency stated in terms of another currency is called a(n):
A)Foreign exchange rate.
B)Currency transaction.
C)Historical exchange rate.
D)International conversion rate.
E)Currency rate.

Accepted Answer

The term for the price of one currency in terms of another currency is known as foreign exchange rate.

Question 14

The investee company in a long term investment with controlling interest is called the:
A)Owner.
B)Subsidiary.
C)Parent.
D)Creditor.
E)Senior entity.

Accepted Answer

A subsidiary is a company that is controlled by another company, known as the parent. In a long term investment with controlling interest, the investor has control over the investee company and is therefore considered the parent company with the subsidiary being the investee company.

Question 15

A company has net income of $250,000,net sales of $2,000,000,and average total assets of $1,500,000.Its return on total assets equals:
A)12.5%.
B)13.3%.
C)16.7%.
D)75.0%.
E)600.0%.

Accepted Answer

The answer of A company has net income of $250,000,net...

Question 16

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%

Accepted Answer

The answer of Canberry Corporation had net income of $80,000,beginning...

Question 17

A controlling influence over the investee is based on the investor owning voting stock exceeding:
A)10%.
B)20%.
C)30%.
D)40%.
E)50%.

Accepted Answer

According to the accounting standard, a controlling influence is considered to exist when the investor owns more than 50% of the voting stock of the investee. Therefore, the correct answer is E - 50%.

Question 18

A company had net income of $2,660,000,net sales of $25,000,000,and average total assets of $8,000,000.Its return on total assets equals:
A)3.01%.
B)10.64%.
C)32.00%.
D)33.25%.
E)300.75%.

Accepted Answer

The answer of A company had net income of $2,660,000,net...

Question 19

Consolidated financial statements:
A)Show the financial statements of all entities under the parent's control,including all subsidiaries.
B)Show the results of operations,cash flows,and the financial position of the parent only.
C)Show the results of operations,cash flows,and the financial position of the subsidiary only.
D)Include line items for investments in the subsidiaries on the balance sheet.
E)Do not include a balance sheet.

Accepted Answer

Consolidated financial statements show the financial statements of all entities under the parent's control, including all subsidiaries. This provides a comprehensive overview of the financial position of the entire group and helps investors and stakeholders to make informed decisions based on the combined financial information.

Question 20

Long-term investments in held-to-maturity debt securities are accounted for using the:
A)Fair value method with fair value adjustment to income.
B)Fair value method with fair value adjustment to equity.
C)Cost method without amortization.
D)Cost method with amortization.
E)Equity method.

Accepted Answer

Long-term investments in held-to-maturity debt securities are accounted for using the cost method with amortization, as these securities are intended to be held until maturity and thus their value is not subject to fluctuations in the market. Therefore, the cost at which the securities were initially purchased is recorded on the balance sheet and amortized over the life of the security to reflect the actual yield earned over time.

Quiz 26: Investments

The currency in which a company presents its financial statements is known as the:

All of the following statements relating to accounting for international operations are true except:

Select the correct statement from the following:

A company had net income of $43,000,net sales of $380,500,and average total assets of $220,000.Its profit margin and total asset turnover were,respectively:

Marshall Company sold supplies in the amount of €25,000 (euros) to a French company when the exchange rate was $1.21 per euro.At the time of payment,the exchange rate decreased to $0.82.Marshall must record a:

Comprehensive income includes all except:

Kreighton Manufacturing purchased on credit £50,000 worth of production materials from a British company when the exchange rate was $1.97 per British pound.At the year-end balance sheet date,the exchange rate increased to $2.76.If the liability is still unpaid at that time,Kreighton must record a:

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

Foreign exchange rates fluctuate due to changes in all but which of the following?

Cloverton Corporation had net income of $30,000,net sales of $1,000,000,and average total assets of $500,000.Its return on total assets is:

Long-term investments cannot include:

If the exchange rate for Canadian and U.S.dollars is 0.82777 to 1,this implies that 3 Canadian dollars will buy ________ worth of U.S.dollars.

The price of one currency stated in terms of another currency is called a(n) :

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

A company has net income of $250,000,net sales of $2,000,000,and average total assets of $1,500,000.Its return on total assets equals:

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 controlling influence over the investee is based on the investor owning voting stock exceeding:

A company had net income of $2,660,000,net sales of $25,000,000,and average total assets of $8,000,000.Its return on total assets equals:

Consolidated financial statements:

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