Exam 15: Investments and International Operations

An increase in the price of the U.S. dollar against other currencies puts U.S. companies in a stronger competitive position internationally.

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

An investor with significant influence owns as least 20%, but not more than 50%, of another company's voting stock.

Consolidated statements are prepared as if a company is organized as one entity, with the amounts allocated for subsidiaries reported in the investment accounts.

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:

Management's intent determines whether an available-for-sale security is classified as long term or short term.

Micron owns 30% of JVT stock. Micron received $6,500 in cash dividends from its investment in JVT. The entry to record receipt of these dividends would include a debit to Cash for $6,500 and a credit to Long-Term Investments for $6,500.

Detalo Co. held bonds of Schooner Corp. with a cost of $125,000 and a market value of $127,000. Detalo also held 1,500 shares of Tranco common stock with a cost of $25,000 and a market value of $24,700. These are classified as long-term available-for-sale securities. Prepare the journal entry to record the market value of the investments as of December 31.

As a long-term investment, Elmer's Equipment Enterprise purchased 35% of Sticky Supplies Inc.'s 300,000 shares for $350,000 at the beginning of the fiscal year of both companies. On the purchase date, the fair value and book value of Sticky's net assets were equal. During the year, Sticky's earned net income of $430,000 and distributed cash dividends of 0.42 cents per share. The fair value of Sticky's assets at the end of the year totaled $349,450. What is the journal entry, if any to record the net income for the investment in Sticky?

Long-term investments in available-for-sale securities are reported at market value on the balance sheet.

On May 15, Briar Company purchased 10,000 shares of Broder Corp. for $80,000. On September 30, the stock had a market value of $85,000. The $5,000 difference must be reported on the income statement as a $5,000 gain.

A company has net income of $130,500. Its net sales were $1,740,000 and its average total assets were $2,750,000. Its total asset turnover is equal to 4.7%.

Explain how transactions (both sales and purchases) in a foreign currency are recorded and reported.

If the exchange rate for Canadian and U.S. dollars is 0.7382 to 1, this implies that 2 Canadian dollars will buy 1.48 worth of U.S. dollars.

An investor purchased $50,000 of bonds that were held to maturity. The investor's journal entry at maturity of the bonds should include a debit to Cash for $50,000 and a credit to Long-Term Investments for $50,000.

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:

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.

On January 1, 2012, Frederich Corporation purchased 7,500 shares of Sport Tech, Inc. as a long-term investment for a total of $235,000. The 7,500 shares represent 30% of the outstanding (25,000) shares of Sport Tech. Prepare the journal entries for Frederich to record the following transactions and events:

A U.S. company's credit sale to an international customer to be paid in a foreign currency requires using the same exchange rate for the date of sale and the cash payment date.