Question 1

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:
A) $77,000
B) $125,000
C) $173,000
D) $197,000
E) $370,000

Accepted Answer

$125,000 - (40% x $30,000) + (40% x $150,000) = $173,000

Question 2

Chung owns 40% of Lu's common stock.Lu pays $97,000 in total cash dividends to its shareholders.Chung's entry to record this transaction should include a:
A) Debit to Dividends for $97,000.
B) Debit to Dividends for $38,800.
C) Debit to Long-Term investments for $97,000.
D) Credit to Long-Term Investments for $38,800.
E) Credit to Cash for $97,000.

Accepted Answer

40% x $97,000 = $38,800

Question 3

On November 12,Kera,Inc.,a U.S.company,sold merchandise on credit to Kakura Company of Japan at a price of 1,500,000 yen.The exchange rate was $0.00837 on the date of sale.On December 31,when Kera prepared its financial statements,the exchange rate was $0.00843.Kakura Company paid in full on January 12,when the exchange rate was $0.00861.
On January 12,Kera should prepare the following journal entry for this transaction:
A) $$\begin{array} { | lr |r | } 
\hline \text { Cash }\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 12,915 \
\quad \text { Accounts Receivable - Kakura Company }\ldots && 12,555 \
\quad \text { Foreign Exchange }\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ && 360 \
\hline
\end{array}$$
B) $$\begin{array} { | l|r |r | } 
\hline \text { Cash }\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 12,555 \
\quad \text { Foreign Exchange Loss }\ldots \ldots  \ldots \ldots \ldots\ldots \ldots \ldots \ & 360 \
\hline \quad \text { Accounts Receivable - Kakura Company }. && 12,915 \
\hline
\end{array}$$
C) $$\begin{array} { | l|r |r | } 
\hline \text { Cash }\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 12,915 \
\quad \text { Accounts Receivable - Kakura Company }.  \ && 12,645 \
\hline \quad \text { Foreign Exchange Gain }\ldots \ldots  \ldots \ldots \ldots\ldots \ldots \ldots && 90\
\hline
\end{array}$$
D) $$\begin{array} { | lr |r | } 
\hline \text { Cash }\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots &12,645  \
\quad \text { Foreign Exchange Loss }\ldots \ldots  \ldots \ldots \ldots\ldots \ldots \ldots   \ &90&  \
\hline \quad \text { Accounts Receivable - Kakura Company }...&& 12,915\
\hline
\end{array}$$
E) $$\begin{array} { | c | r | r | } 
\hline \text { Cash } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 12,915 & \
\hline \text { Foreign Exchange Gain } \ldots \ldots \ldots \ldots \ldots \ldots & & 270 \
\hline \text { Accounts Receivable - Kakura Co... } & & 12,645 \
\hline
\end{array}$$

Accepted Answer

$\begin{array}{|l|r|}
\hline\text{Value of receivable at December} 31: 1,500,000\times. 00843=&\$12,645\
\text{Amount collected:} \quad\quad\quad\quad\quad\quad\quad~~~1,500,000 \times .00861=&12,915\
\hline\text {Foreign exchange gain }&\$~~~270\
\hline
\end{array}$

Question 4

A U.S.company makes a sale to a foreign customer payable in 30 days in the customer's currency.The sale would be recorded by the U.S.company on the date:
A) Of sale using a projected estimate of the U.S. dollar value at payment date.
B) Of sale using a 30-day average U.S. dollar value.
C) Of sale using the current dollar value.
D) Of sale using the foreign currency value.
E) When payment is received.

Accepted Answer

The sale should be recorded on the date of sale using the current dollar value. This is because the U.S. company needs to record the transaction at the exchange rate on the date of the sale for accounting and tax purposes. Using a projected estimate or a 30-day average would not accurately reflect the actual exchange rate on the date of the sale. The foreign currency value should only be used to convert the amount received into U.S. dollars when payment is received.

Question 5

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

Accepted Answer

The answer of Explain the difference between short-term and long-term...

Question 6

On June 18,Johnson Company (a U.S.company)sold merchandise to the Frater Company of Denmark for 60,000 Euros,with a payment due in 60 days.If the exchange rate was $1.14 per euro on the date of sale and $1.35 per euro on the date of payment,Johnson Company should recognize a foreign exchange gain or loss in the amount of:
A) $60,000 gain
B) $60,000 loss
C) $68,400 loss
D) $12,600 gain
E) $12,600 loss

Accepted Answer

Value of receivable at date of sale: 60,000 euros x $1.14/euro = $68,400
Amount collected: 60,000 euros x $1.35/euro = 81,000
Foreign exchange gain: $12,600

Question 7

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 for this transaction:
A) $$\begin{array} { | l | c | l | } 
\hline \text { Sales } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 90 & \
\hline \quad \text { Foreign Exchange Gain } \ldots \ldots \ldots \ldots \ldots && 90  \
\hline
\end{array}$$
B) $$\begin{array} { | l | r | r | } 
\hline \text { Foreign Exchange Loss}  \ldots \ldots \ldots& 90 & \
\hline \quad\text { Sales } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & & 90 \
\hline
\end{array}$$
C) $$\begin{array} { | l | r | r | } 
\hline \text { Accounts Receivable - Nakakura Company}  \ldots \ldots \ldots& 90 & \
\hline \quad\text { Foreion Exchange Gain } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & & 90 \
\hline
\end{array}$$
D) $$\begin{array} { | l | r | r | } 
\hline \text { Foreign Exchange Gain or Loss } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots  & 90 \
\hline \quad \text { Accounts Receivable - Nakakura Company}  \ldots \ldots \ldots& &90  \

\hline
\end{array}$$
E) No journal entry is required until the amount is collected

Accepted Answer

$$\begin{array} { | l | r | } 
\hline \text { Value of receivable at date of sale: } & 1,500,000 \times .00837 = \$12,555 \
\text { Value of receivable at year end: } & 1,500,000 \times .00843 =  \underline{~12,645} \
\hline \text { Gain } & \$ \quad 90 \
\hline
\end{array}$$

Question 8

What are the accounting basics for equity securities,including acquisition,dividends earned,and disposition?

Accepted Answer

The answer of What are the accounting basics for equity...

Question 9

Vans purchased 40,000 shares of Skechers common stock for $232,000.This represents 40% of the outstanding stock.The entry to record the transaction includes a:
A) Debit to Long-Term Investments for $92,800.
B) Debit to Long-Term Investments for $232,000.
C) Credit to Long-Term Investments for $92,800.
D) Credit to Long-Term Investments for $232,000.
E) Debit to Long-Term Investment for $40,000.

Accepted Answer

The entry to record the purchase of 40,000 shares of Skechers common stock for $232,000 would be a debit to Long-Term Investments for the same amount, as this represents an investment in another company. The percentage of outstanding stock is given only as background information and is not relevant to the recording of the transaction.

Question 10

On January 1,2011,Posten Company purchased 10,000 shares of Toma Company for $78,000 plus a broker's fee of $2,000.Toma Company has a total of 40,000 shares of common stock outstanding and it is presumed the Posten Company will have a significant influence over Toma.Toma declared and paid cash dividends of $0.93 per share in 2011 and 2012.Toma's net income was $190,000 and $270,000 for 2011 and 2012 respectively.The January 1,2013,entry on the books of Posten Company to record the sale of 4,500 shares of Toma Company stock for $85,000 cash should be:
A)
$\begin{array} { l cc } 
\text { Cash } \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots & 85,000\
\text { Loss on Sale of Investments }\ldots \ldots \ldots \ldots \ldots & 110,000 \
\quad \text { Long-Term Investments }\ldots \ldots \ldots \ldots \ldots & & 195,000
\end{array}$
B)
$\begin{array} { l cc } 
\text { Cash } \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots & 85,000\
\quad \text { Gain on Sale of Investments }\ldots \ldots \ldots \ldots \ldots && 57,370 \
\quad \text { Long-Term Investments }\ldots \ldots \ldots \ldots \ldots & & 27,630
\end{array}$
C)
$\begin{array} { l cc } 
\text { Cash } \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots & 85,000.00\
\quad \text { Gain on Sale of Investments }\ldots \ldots \ldots \ldots \ldots && 76,195.75 \
\quad \text { Long-Term Investments }\ldots \ldots \ldots \ldots \ldots & & 8,804.25
\end{array}$
D)
$\begin{array} { l cc } 
\text { Cash } \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots & 85,000\
\quad \text { Gain on Sale of Investments }\ldots \ldots \ldots \ldots \ldots && 5,620 \
\quad \text { Long-Term Investments }\ldots \ldots \ldots \ldots \ldots & & 79,380
\end{array}$
E)
$\begin{array} { l cc } 
\text { Cash } \ldots \ldots \ldots \ldots \ldots\ldots \ldots \ldots \ldots \ldots & 85,000\
\quad \text { Gain on Sale of Investments }\ldots \ldots \ldots \ldots \ldots && 5,000 \
\quad \text { Long-Term Investments }\ldots \ldots \ldots \ldots \ldots & & 80,000
\end{array}$

Accepted Answer

$$\begin{array} { | l | c | } 
\hline
\text { Purchase price of investment: }& \$ 80,000  \
\text { Dividends received: }\
\hline \quad 2011 ( \$ 0.93 \times 10,000 ) & ( 9,300 ) \
\quad2012 ( \$ 0.93 \times 10,000 ) & ( 9,300 ) \
\hline ~2011 \text { income } ( 25 \% \times \$ 190,000 ) & 47,500 \
\hline ~2012 \text { income } ( 25 \% \times \$ 270,000 ) & \underline { 67,500 } \
\hline \text { Baok value of investment at } 1 / 01 / 13 & \$ 176,400 \
\hline \text { Baok value of } 45 \% \text {  investment } & \$ 79,380 \
\hline\text { Cash received }& \underline { 85,000  } \
\text { Gain on sale }& \underline { \underline { \$ 5,620 }}\
\hline
\end{array}$$

Question 11

What is comprehensive income and how is it usually reported in the financial statements?

Accepted Answer

The answer of What is comprehensive income and how is...

Question 12

A company had investments in long-term available-for-sale securities.At the end of the current year,the company's portfolio had a $731,000 cost and $730,000 market value.
What is the current year's adjustment to market value given the following account balances at the end of the prior year?

A) $$\begin{array} { | c | l | l | } 
\hline \text { Market Adjustment - Available-for-Sale } \ldots \ldots \ldots \ldots \ldots & 1,000 & \
\hline \text { Ururealized Gain Equity } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & & 1,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | l | l | } 
\hline \text { Market Adjustment - Available-for-Sale } \ldots \ldots \ldots \ldots \ldots &6 , 0 0 0  & \
\hline \text { Ururealized Gain Equity } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & & 6  , 000 \
\hline
\end{array}$$
C) $$\begin{array} { | l | l | l |} 
\hline \text { Ururealized Gain Equity } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots  & 1,000 \
\hline\quad \text { Market Adjustment - Available-for-Sale } \ldots \ldots \ldots \ldots \ldots && 1,000  \

\hline
\end{array}$$
D) $$\begin{array} { | l | l | l |} 
\hline \text {Ururealized Gain (Loss)}\
\text{Equity } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots  & 6,000 \
\hline\quad \text { Market Adjustment - Available-for-Sale } \ldots \ldots \ldots \ldots \ldots && 6,000  \

\hline
\end{array}$$
E) $$\begin{array} { | c | l | l | } 
\hline \text { Uryealized Gain (Loss) Equity } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 4,000 & \
\hline \text { Market Adjustment - Available-for-Sale } \ldots \ldots \ldots \ldots & & 4,000 \
\hline
\end{array}$$

Accepted Answer

Prior year balances $5,000 excess of market over cost
Desired current year balances 1,000 excess of cost over market
Amount of decrease 6,000

Question 13

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

Accepted Answer

The answer of What are the accounting basics for debt...

Question 14

The price of one currency stated in terms of another currency is referred to as the:
A) Historical exchange rate
B) Foreign exchange rate
C) Consolidated exchange rate
D) General exchange rate
E) Multinational exchange rate

Accepted Answer

The price of one currency stated in terms of another currency is referred to as the foreign exchange rate. The other options are not commonly used terms in the field of economics and finance.

Question 15

If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment,which method would the investor normally use to account for this investment?
A) Equity method
B) Market value method
C) Historical cost method
D) Straight-line method
E) Effective method

Accepted Answer

The equity method is used when an investor owns more than 20% of the stock of another company and the stock is being held as a long-term investment. This method requires the investor to report their share of the investee's earnings and losses on their own financial statements.

Question 16

On January 4,2011,Larsen Company purchased 5,000 shares of Warner Company for $59,500 plus a broker's fee of $1,000.Warner Company has a total of 25,000 shares of common stock outstanding and it is presumed the Larsen Company will have a significant influence over Warner.During each of the next two years,Warner declared and paid cash dividends of $0.85 per share.Its net income was $72,000 and $67,000 for 2011 and 2012,respectively.The January 12,2013,entry to record the sale of 3,000 shares of Warner Company stock for $39,000 cash should be:
A) $$\begin{array} { | l | c | l | } 
\hline \text { Cash } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 39,000 & \
\hline \text { Loss on Sale of Investments } \ldots \ldots \ldots \ldots \ldots & 2,400 & \
\hline \quad \text { Long-Term Investments } \ldots \ldots \ldots \ldots \ldots & & 41,400 \
\hline
\end{array}$$
B) $$\begin{array} { | l | c | l | } 
\hline \text { Cash } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 39,000 & \
\hline \text { Loss on Sale of Investments } \ldots \ldots \ldots \ldots \ldots & 8,800 & \
\hline \quad \text { Long-Term Investments } \ldots \ldots \ldots \ldots \ldots & & 47,880 \
\hline
\end{array}$$
C) $$\begin{array} { | l | c | l | } 
\hline \text { Cash } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 39,000 & \
\hline \text { Loss on Sale of Investments } \ldots \ldots \ldots \ldots \ldots & 60 & \
\hline \quad \text { Long-Term Investments } \ldots \ldots \ldots \ldots \ldots & & 38,940 \
\hline
\end{array}$$
D) $$\begin{array} { | l | c | l | } 
\hline \text { Cash } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 39,000 & \
\hline \quad \text { Gain on Sale of Investments } \ldots \ldots \ldots \ldots \ldots && 8,750  \
\hline \quad \text { Long-Term Investments } \ldots \ldots \ldots \ldots \ldots & & 30,250 \
\hline
\end{array}$$
E) $$\begin{array} { | l | c | l | } 
\hline \text { Cash } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 39,000 & \
\hline \text { Loss on Sale of Investments } \ldots \ldots \ldots \ldots \ldots & 21,500  \
\hline \quad \text { Long-Term Investments } \ldots \ldots \ldots \ldots \ldots & & 60,500 \
\hline
\end{array}$$

Accepted Answer

$$\begin{array} { | l | c | l | } 
\hline \text { Purchase price of investment: }  & 60,500  \
\text { Dividends received: }\
\hline \quad 2011(\$ 0.85 \times 5,000)& (4,250)  \
\text \quad 2012(\$ 0.85 \times 5,000)& (4,250) \
\hline 2011 \text{income}  (20 \% \times \$ 72,000)  & 14,400 \
\hline 2012 \text{income} (20 \% \times \$ 67,000)  & \underline{13,400} \
\hline  \text { Book value of investment at 1/12/13 }  & \$79,800 \
\hline  \text { Book value of 60 \%  of investment }  &  \$ 47,880 \
\hline  \text { Cash received }  & \underline{39,000}  \
 \text { Loss on sale }  & \underline{\underline{\$ 8,880}} \
\hline
\end{array}$$

Question 17

Parris Corporation purchased 40% of Samitz Corporation for $100,000 on January 1.On November 17 of the same year,Samitz Corporation declared total cash dividends of $12,000.At year-end,Samitz Corporation reported net income of $60,000.The balance in the Parris Corporation's Long-Term Investment in Samitz Corporation at December 31 should be:
A) $80,800
B) $100,000
C) $95,200
D) $119,200
E) $124,000

Accepted Answer

$100,000 - (40% x $12,000) + (40% x $60,000) = $119,200

Question 18

Micron owns 35% of Martok.Martok pays a total of $47,000 in cash dividends for the period.Micron's entry to record the dividend transaction would include a:
A) Credit to Long-Term Investments for $16,450.
B) Debit to Long-Term Investments for $16,450.
C) Debit to Cash for $47,000.
D) Credit to Cash for $16,450.
E) Credit to Investment Revenue for $47,000.

Accepted Answer

35% x $47,000 = $16,450

Question 19

When a credit sale is denominated in a foreign currency,the foreign exchange rate used to record the sale is the current exchange rate:
A) Thirty days from the date of sale.
B) At the end of the seller's fiscal year.
C) At the end of the buyer's fiscal year.
D) On the date final payment is made.
E) On the date of the sale.

Accepted Answer

The foreign exchange rate used to record the sale should be the current exchange rate on the date of the sale. This is because the exchange rate can fluctuate over time and using a different exchange rate could result in inaccurate recording of the sale.

Question 20

Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.

Accepted Answer

The answer of Explain how investors report investments in equity...

Quiz 27: Investments and International Operations

Chung owns 40% of Lu's common stock.Lu pays $97,000 in total cash dividends to its shareholders.Chung's entry to record this transaction should include a:

A U.S.company makes a sale to a foreign customer payable in 30 days in the customer's currency.The sale would be recorded by the U.S.company on the date:

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

What are the accounting basics for equity securities,including acquisition,dividends earned,and disposition?

Vans purchased 40,000 shares of Skechers common stock for $232,000.This represents 40% of the outstanding stock.The entry to record the transaction includes a:

What is comprehensive income and how is it usually reported in the financial statements?

A company had investments in long-term available-for-sale securities.At the end of the current year,the company's portfolio had a $731,000 cost and $730,000 market value. What is the current year's adjustment to market value given the following account balances at the end of the prior year?

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

The price of one currency stated in terms of another currency is referred to as the:

If a company owns more than 20% of the stock of another company and the stock is being held as a long-term investment,which method would the investor normally use to account for this investment?

Micron owns 35% of Martok.Martok pays a total of $47,000 in cash dividends for the period.Micron's entry to record the dividend transaction would include a:

When a credit sale is denominated in a foreign currency,the foreign exchange rate used to record the sale is the current exchange rate:

Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.