Exam 15: Investments and International Operations

Hector Corp. purchased 1,000 shares of Landmark Corp.'s common stock for $36,850 cash. This purchase is considered a long-term available-for-sale investment by Hector. Prepare Hector's journal entry to record the purchase.

Long-term investments in debt securities not classified as held-to-maturity securities are classified as available-for-sale securities.

A company owns $400,000 of 7% bonds that pay interest on October 1 and April 1. The amount of interest accrued on December 31 (the company's year-end) would be:

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:

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 long-term investment classified as equity securities with controlling influence implies that the investor can exert a controlling influence over the investee.

Any cash dividends received from equity securities are recorded as Dividend Expense.

Explain how available-for-sale debt and equity securities are accounted for at and after acquisition and how they are reported in financial statements.

Equity securities reflect a creditor relationship such as investments in notes, bonds, and certificates of deposit.

Long-term investments include investments in land or other assets not used in a company's operations.

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:

Long-term investments in available-for-sale securities are reported using their _______ on the balance sheet.

A company holds $40,000 of 7% bonds as a held-to-maturity security. The bondholder's journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.

Held-to-maturity securities are equity securities a company intends and is able to hold until maturity.

Identify the three types of classifications for noninfluential investments in securities.

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:

Profit margin is calculated by sales divided by net income.

Define the return on total assets and explain how it is used to measure a company's financial performance.

On May 1, Franke Co. purchases 2,000 shares of Computech stock for $25,000. This investment is considered to be an available-for-sale investment. On July 31 (Franke's year-end), the stock had a market value of $28,000. Franke should record a credit to Unrealized Gain-Equity for $3,000.

On April 1 of the current year, a company paid $150,000 cash to purchase 7%, 10-year bonds that had a par value of $150,000 and paid interest semiannually each April 1 and October 1. The company intends to hold these bonds until they mature. Prepare the journal entry to record the purchase of the bond.