Question 1

A decrease in the fair market value of a security that has not yet been realized through an actual sale of the security is called a(n):
A)Contingent loss
B)Realizable loss
C)Unrealized loss
D)Capitalized loss
E)Market loss

Accepted Answer

An unrealized loss is a decrease in the fair market value of a security that has not yet been realized through an actual sale of the security. A contingent loss is a potential loss that depends on the occurrence of a certain event. A realizable loss is a loss that has been realized or occurred and can be sold or liquidated. A capitalized loss is a cost that is spread over a period of time through depreciation or amortization. A market loss is a term used to describe a decrease in the value of a security or investment due to market conditions.

Question 2

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 is equal to:
A)12.5%
B)13.3%
C)16.7%
D)75.0%
E)600.0%

Accepted Answer

Return on total assets = $250,000/$1,500,000 = 16.7%

Question 3

Doherty 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 equal to:
A)3%
B)200%
C)6%
D)17%
E)1.5%

Accepted Answer

$30,000/$500,000 = 6%

Question 4

Available-for-sale debt securities are:
A)Recorded at cost and remain at cost over the life of the investment
B)Reported at historical cost,adjusted for the amortized amount of any difference between cost and maturity value
C)Reported at market value on the balance sheet
D)Intended to be held to maturity
E)Always classified with Long-Term Liabilities

Accepted Answer

Available-for-sale debt securities are reported at fair value (market value) on the balance sheet, with unrealized gains and losses reported in other comprehensive income until the security is sold.

Question 5

Morgan Company purchased 2,000 shares of Asta's common stock for $143,000 as a long-term investment and is considered available-for-sale.The par value of the stock was $1 per share.Morgan paid $375 in commissions on the transaction.The entry to record the transaction would include a:
A)Credit to Common Stock for $2,000
B)Credit to Common Stock for $143,000
C)Credit to Common Stock for $143,375
D)Debit to Long-Term Investments for $143,000
E)Debit to Long-Term Investments for $143,375

Accepted Answer

The purchase of 2,000 shares of Asta's common stock for $143,000 as a long-term investment is recorded as a debit to Long-Term Investments for $143,000. However, since $375 in commissions were paid on the transaction, this amount should also be included in the entry as a part of the cost of the investment. Therefore, the total cost for the investment is $143,375. There is no need to credit Common Stock as this is not a stock issuance transaction.

Question 6

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: $43,000/$380,500 = 11.3%
Asset turnover: $380,500/$220,000 = 1.73

Question 7

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?
A)$2,670,000
B)$270,000
C)$29,666,667
D)$3,000,000
E)$2,940,000

Accepted Answer

$900,000/0.30 = $3,000,000

Question 8

Acme owns 4,000 shares of XYZ.XYZ has 50,000 total shares of stock outstanding.XYZ paid $0.82 per share in cash dividends to its stockholders.Acme should record a:
A)Debit to Dividends for $41,000
B)Debit to Dividends for $3,280
C)Debit to Cash for $3,280
D)Debit to Long-Term Investments for $3,280
E)Credit to Long-Term Investments for $3,280

Accepted Answer

Percent of total stock owned: 4,000 shares/50,000 shares = 8%
4,000 x $0.82 = $3,280

Question 9

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 is equal to:
A)3.01%
B)10.64%
C)32.00%
D)33.25%
E)300.75%

Accepted Answer

Return on total assets = $2,660,000/$8,000,000 = 33.25%

Question 10

Micron owns 3,000 shares of JVT.JVT has 25,000 total shares of stock outstanding.JVT paid $3 per share in cash dividends to its stockholders.Micron should record a:
A)Debit to Dividends for $75,000
B)Debit to Dividends for $9,000
C)Debit to Cash for $9,000
D)Debit to Long-Term Investments for $9,000
E)Credit to Long-Term Investments for $9,000

Accepted Answer

Percent of total stock owned: 3,000 shares/25,000 shares = 12%
3,000 x $3 = $9,000

Question 11

Investments in debt and equity securities that the company actively manages and trades for profit are referred to as short-term investments in:
A)Available-for-sale securities
B)Held-to-maturity securities
C)Trading securities
D)Realizable securities
E)Liquid securities

Accepted Answer

Short-term investments that are actively managed and traded for profit are referred to as trading securities.

Question 12

A company had net income of $40,000,net sales of $300,000 and average total assets of $200,000.Its profit margin and total asset turnover were respectively:
A)13.3%; 0.2
B)13.3%; 1.5
C)2.0%; 1.5
D)1.5%; 0.2
E)1.5%; 13.3

Accepted Answer

Profit margin: $40,000/$300,000 = 13.3%
Asset turnover: $300,000/$200,000 = 1.5

Question 13

A company had investments in long-term available-for-sale securities.At the end of the current year the company's portfolio had a $162,000 cost and $164,000 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)
$\begin{array}{|c|l|l|}
\hline \text { Market Adjustment - Available-for-Sale} & 2,000 & \
\hline \text { Unrealized Gain Equity } & & 2,000 \
\hline
\end{array}$

B)
$\begin{array}{|c|l|l|}
\hline \text { Market Adjustment - Available-for-Sale............... } & 1,000 & \
\hline \text { Unrealized Gain Equity...................................... } & & 1,000 \
\hline
\end{array}$

C)
$\begin{array}{|l|l|l|}
\hline \text { Unrealized Gain Equity........................................................... } & 1,000 & \
\hline \text { Market Adjustment - Available-for-Sale..... }& & 1,000 \
\hline
\end{array}$

D)
$\begin{array}{|c|l|l|}
\hline \text { Unrealized Gain Equity.......................................................... } &2,000 & \
\hline \text { Market Adjustment - Available-for-Sale.... } & & 2,000 \
\hline
\end{array}$

E)
$\begin{array}{|r|l|l|}
\hline \text { Unrealized Gain Equity........................................................... } & 3,000 & \
\hline \text { Market Adjustment - Available-for-Sale..... } && 3,000 \
\hline
\end{array}$

Accepted Answer

The answer of A company had investments in long-term available-for-sale...

Question 14

Held-to-maturity securities are:
A)Always classified as Long-Term Liabilities
B)Part of equity
C)Debt securities that a company intends and is able to hold to maturity
D)Equity securities that a company intends and is able to hold to maturity
E)Equity securities that have a maturity value greater than cost

Accepted Answer

Held-to-maturity securities are debt securities that a company intends and is able to hold to maturity. They are not always classified as long-term liabilities and are not a part of equity. They are also not equity securities. The fact that the equity securities have a maturity value greater than cost is not relevant to held-to-maturity securities.

Question 15

Six months ago,a company purchased an investment in stock for $65,000.This investment is considered available-for-sale.The current market value of the stock is $68,500.The company should record a:
A)Debit to Unrealized Loss-Equity for $3,500
B)Credit to Unrealized Gain-Equity for $3,500
C)Debit to Investment Revenue for $3,500
D)Credit to Market Adjustment - Available-for-Sale for $3,500
E)Credit to Investment Revenue for $3,500

Accepted Answer

Current market value $68,500 - cost $65,000 = $3,500

Question 16

Investments in trading securities:
A)Include only equity securities
B)Are reported as current assets
C)Include only debt securities
D)Are reported at their cost,no matter what their market value
E)Are long-term investments

Accepted Answer

Investments in trading securities are reported as current assets on the balance sheet because they are actively traded and intended to be sold in the short-term to generate profits.

Question 17

A company had net income of $2,785,000,net sales of $250,000,000,average total assets of $6,000,000 and equity investments of $40,000.Its return on total assets equals:
A)$3,215,000
B)41.67%
C)21.54%
D)69.63%
E)46.42%

Accepted Answer

Return on total assets = $2,785,000/$6,000,000 = 46.42%

Question 18

A company had net income of $82,000,net sales of $781,000 and average total assets of $300,000.Its profit margin and total asset turnover were respectively:
A)10.5%; 0.38
B)10.5%; 2.6
C)9.52%; 2.6
D)27.3%; 1
E)27.3%; 9.52

Accepted Answer

Profit margin: $82,000/$781,000 = 10.5%
Asset Turnover: $781,000/$300,000 = 2.6

Question 19

Return on total assets measures a company's ability to:
A)Produce net income from net sales
B)Produce sales from net assets
C)Produce net income from net assets
D)Increase its asset base from sales
E)Increase its asset base from net income

Accepted Answer

Return on total assets measures how efficiently a company is using its assets to generate net income. It is calculated by dividing net income by total assets. This ratio indicates how much profit a company has generated for each dollar of assets it has. Therefore, option C is the best choice as it states that return on total assets measures a company's ability to produce net income from net assets.

Question 20

A company's return on total assets equals 28%.If total assets and net sales are $4,500,000 and $10,000,000 respectively,how much is net income?
A)$2,800,000
B)$4,060,000
C)$1,260,000
D)$14,500,000
E)$2,030,000

Accepted Answer

$4,500,000 * 0.28 = $1,260,000

Quiz 14: Investments and International Operations

A decrease in the fair market value of a security that has not yet been realized through an actual sale of the security is called a(n) :

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 is equal to:

Doherty 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 equal to:

Available-for-sale debt securities are:

Morgan Company purchased 2,000 shares of Asta's common stock for $143,000 as a long-term investment and is considered available-for-sale.The par value of the stock was $1 per share.Morgan paid $375 in commissions on the transaction.The entry to record the transaction would include a:

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 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?

Acme owns 4,000 shares of XYZ.XYZ has 50,000 total shares of stock outstanding.XYZ paid $0.82 per share in cash dividends to its stockholders.Acme should record a:

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 is equal to:

Micron owns 3,000 shares of JVT.JVT has 25,000 total shares of stock outstanding.JVT paid $3 per share in cash dividends to its stockholders.Micron should record a:

Investments in debt and equity securities that the company actively manages and trades for profit are referred to as short-term investments in:

A company had net income of $40,000,net sales of $300,000 and average total assets of $200,000.Its profit margin and total asset turnover were respectively:

Held-to-maturity securities are:

Six months ago,a company purchased an investment in stock for $65,000.This investment is considered available-for-sale.The current market value of the stock is $68,500.The company should record a:

Investments in trading securities:

A company had net income of $2,785,000,net sales of $250,000,000,average total assets of $6,000,000 and equity investments of $40,000.Its return on total assets equals:

A company had net income of $82,000,net sales of $781,000 and average total assets of $300,000.Its profit margin and total asset turnover were respectively:

Return on total assets measures a company's ability to:

A company's return on total assets equals 28%.If total assets and net sales are $4,500,000 and $10,000,000 respectively,how much is net income?