Question 1

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 2

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 3

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 4

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}{|ll|r|}
\hline 
  \text {Cash  } &12,915\
 \text { Accounts Receivable - Kalura Company  } &&12,555\
 \text { Foreign Exchange } &&360\
\hline

\end{array}$

B)
$\begin{array}{|l|c|}
\hline \begin{array}{l}
\text { Cash} \
\text { Foreign Exchange Loss... }
\end{array} & \begin{array}{r}
12,555 \
360
\end{array} \
\hline \text { Accounts Receivable-Kakura Company. } & &12,915\
\hline
\end{array}$

C)
$\begin{array}{|l|c|c|}
\hline \text { Cash.. } & 12,915 & \
 \text { Accounts Receivable - Kakura Company. } & & 12,645 \
\hline\text { Foreign Exchange Gain. }&&90\ 
\hline
\end{array}$

D)
$\begin{array}{|l|c|c|}
\hline \text { Cash. } & 12,645 & \
 \text { Foreign Exchange Loss. } & 90 & \
\hline \text { Accounts Receivable }-\mathrm{K} & & 12,915 \
\hline
\end{array}$

E)
$\begin{array}{|l|c|c|}
\hline \text { Cash. } & 12,915 & \
\hline \text { Foreign Exchange Gain. } & & 270 \
\hline \text { Accounts Receivable - Kakura Co. } & & 12,645 \
\hline
\end{array}$

Accepted Answer

The answer of On November 12,Kera,Inc.,a U.S.Company,sold merchandise on credit...

Question 5

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...

Question 6

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

When a company owns more than 20% of another company's stock as a long-term investment, it is considered to have significant influence over the investee company. The equity method is used in such cases to account for the investment, as it takes into account the investor's share of the investee company's net income and dividends. The market value method is not appropriate for long-term investments, as it values the investment at its current market price which can fluctuate significantly. The historical cost method and straight-line method are not applicable in this scenario as they are not specific to equity investments. The effective method is not a recognized accounting method.

Question 7

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 foreign exchange rate is the price of one currency stated in terms of another currency. The other choices are not common terms used in the foreign exchange market.

Question 8

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

Since Vans purchased 40% of Skechers outstanding stock, the amount paid for the shares ($232,000) represents the fair value of the investment. Therefore, the entry to record the transaction would include a debit to Long-Term Investments for the full amount of $232,000.

Question 9

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's financial statements are prepared in U.S. dollars, so they should record the sale at the current exchange rate on the date of the sale. Using a projected estimate or a 30-day average could result in inaccurate financial statements if the exchange rate fluctuates between the sale date and the payment date. The foreign currency value would not be appropriate since the company's financial statements are not prepared in the foreign currency. Waiting until payment is received would result in a delay in recording the sale, which is not in accordance with accrual accounting principles.

Question 10

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 11

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

B)
$\begin{array}{|c|l|l|}
\hline \text { Market Adjustment - Available-for-Sale............... } & 6,000 & \
\hline \text { Unrealized Gain Equity....................................... } & & 6,000 \
\hline
\end{array}$

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)
$\begin{array}{|l|c|c|}
\hline \begin{array}{l}
\text { Unrealized Gain (Loss) - } \
\text { Equity............................. }
\end{array} & 6,000 & \
\hline \text { Market Adjustment - Available-for-Sale. } & & 6,000 \
\hline
\end{array}$

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

Accepted Answer

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

Question 12

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 13

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)
$\begin{array}{|l|r|r|}
\hline \text { Sales.............................. } & 90 & \
\hline \text { Foreign Exchange Gain..... } & & 90 \
\hline
\end{array}$

B)
$\begin{array}{|c|r|r|}
\hline \text { Foreign Exchange Loss....... } & 90 & \
\hline \text { Sales................................. } & & 90 \
\hline
\end{array}$

C)
$\begin{array}{|c|r|r|}
\hline \text { Accounts Receivable - Nakakura Company........... } & 90 & \
\hline \text { Foreign Exchange Gain................................... } & & 90 \
\hline
\end{array}$

D)
$\begin{array}{|c|r|r|}
\hline \text { Foreign Exchange Gain or Loss..................... } & 90 & \
\hline \text { Accounts Receivable - Nakakura Company.... } & & 90 \
\hline
\end{array}$

E)No journal entry is required until the amount is collected

Accepted Answer

On December 31, Kendra should record a foreign exchange gain of $90 by debiting Accounts Receivable - Nakakura Company and crediting Foreign Exchange Gain.

Question 14

On January 4,2008,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 2008 and 2009,respectively.The January 12,2010 entry to record the sale of 3,000 shares of Warner Company stock for $39,000 cash should be:
A)
$$\begin{array} { | c | l | l | } 
\hline \text { Cash } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 39,000 & \
\hline \text { Loss on Sale of Investments } \ldots \ldots \ldots \ldots \ldots & 2,400 & \
\hline \text { Long-Term Investments } \ldots \ldots \ldots \ldots \ldots & & 41,400 \
\hline
\end{array}$$
B)
$\begin{array}{|l|c|c|}
\hline \text { Cash. } & 39,000 & \
\hline \text { Loss on Sale of Investments. } & 8,800 & \
\hline \text { Long-Term Investments. } & & 47,880 \
\hline
\end{array}$

C)
$\begin{array}{|c|c|c|}
\hline \text { Cash.................................................. } & 39,000 & \
\hline \text { Loss on Sale of Investments.................. } & 60 & \
\hline \text { Long-Term Investments.................. } & & 38,940 \
\hline
\end{array}$

D)
$\begin{array}{|r|c|c|}
\hline \text { Cash............................................... } & 39,000 & \
\hline \text { Gain on Sale of Investments.... } & & 8,750 \
\hline \text { Long-Term Investments..... } &&30,250\
\hline
\end{array}$

E)
$\begin{array}{|l|c|c|}
\hline \text { Cash. } & 39,000 & \
\hline \text { Loss on Sale of Investments. } & 21,500 & \
\hline \text { Long-Term Investments. } & & 60,500 \
\hline
\end{array}$

Accepted Answer

The answer of On January 4,2008,Larsen Company purchased 5,000 shares...

Question 15

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 16

On January 1,2008,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 2008 and 2009.Toma's net income was $190,000 and $270,000 for 2008 and 2009 respectively.The January 1,2010 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)
$\begin{array}{llr}
  \text { Cash } &85,000\
 \text { Loss on Sale of Investments } &110,000\
 \text {  Long-Term Investments} &&195,000
\end{array}$

B)
$\begin{array}{llr}
  \text { Cash } &85,000\
 \text {  Gain on Sale of Investments.} &&57,370\
 \text { Long-Term Investments } &&27,630
\end{array}$

C)
$\begin{array}{llr}
  \text { Cash } &85,000.00\
 \text {  Gain on Sale of Investments.} &&76,195.75\
 \text { Long-Term Investments } &&8,804.25
\end{array}$

D)
$\begin{array}{llr}
  \text { Cash } &85,000\
 \text {  Gain on Sale of Investments.} &&5,620\
 \text { Long-Term Investments } &&79,380
\end{array}$

E)
$\begin{array}{llr}
  \text { Cash } &85,000\
 \text {  Gain on Sale of Investments.} &&5,000\
 \text { Long-Term Investments } &&80,000
\end{array}$

Accepted Answer

The answer of On January 1,2008,Posten Company purchased 10,000 shares...

Question 17

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 18

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 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 a credit sale denominated in a foreign currency should be the current exchange rate on the date of sale. Waiting until 30 days after the sale, the end of a fiscal year, or the date of final payment could result in inaccurate financial statements due to fluctuations in exchange rates.

Question 20

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

Quiz 14: Investments and International Operations

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

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

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

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?

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

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 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:

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

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:

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

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