Exam 15: Investments

Landers,Inc.,held 1,500 of Shipman Company common stock with a cost of $36,900.These shares were classified as a long-term available-for-sale investment.It sold the shares on December 13 for $42,100.Prepare Lander's journal entry to record this sale.

Landmark Corp.buys $300,000 of Schroeter Company's 8%,5-year bonds payable at par value on September 1.Interest payments are made semiannually.Landmark plans to hold the bonds for the 5-year life.When the bonds mature,the journal entry to record the proceeds will be:

A company paid $600,000 for 10% bonds with a par value of $600,000 on September 1.The bonds pay 5% interest semiannually on September 1 and March 1.The company intends to hold the bonds until they mature.Prepare the journal entries for the following dates and transactions related to this bond acquisition. (1)Bonds purchased on September 1. (2)Year-end adjusting entry,December 31. (3)Receipt of semiannual interest March 1. (4)Redemption of the bonds at maturity on August 31.

A company had net income of $45,000,net sales of $390,000,and average total assets of $450,000 for the current year.Calculate the company's profit margin,total asset turnover,and return on total assets.

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

In the current year,Largo Co.purchased bonds of MacDermott Corp.with a cost of $125,000 and a market value of $127,000.Largo also purchased 1,500 shares of Armistead 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.

J.P.Industries purchased 2,000 shares of Yang's common stock for $143,000 as a long-term investment.The investment is classified as available-for-sale securities.The par value of the stock was $1 per share.J.P.paid $375 in commissions on the transaction.J.P.'s entry to record the purchase transaction would include a:

Investments in trading securities are always classified as ________ and are reported as ________ on the balance sheet.

All of the following statements regarding accounting for trading securities under U.S.GAAP are true except:

On July 31,Potter Co.purchased 2,000 shares of GigaTech stock for $16,000.The investment is classified as available-for-sale securities.This is the company's first and only investment in available-for-sale securities.On October 31,which is Potter's year-end,the stock had a fair value of $20,000.Potter should record a:

Kendall Corp.purchased at par value $160,000 of Barker Company's 7% bonds that mature in 10 months.The bonds pay interest semiannually on June 1 and December 1.Kendall plans to hold the bonds until they mature.The journal entry to record Kendall's purchase of the bonds is:

Long-term investments in held-to-maturity debt securities are accounted for using the:

Define the foreign exchange rate between two currencies.Explain its effect on business transactions conducted in a foreign currency.

Strickland Corporation has invested in 10% of the outstanding stock of Nez Corporation.Strickland intends to actively manage this investment for profit.This investment is classified as:

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?

Both U.S.GAAP and IFRS permit companies to use fair value in reporting available-for-sale and held-to-maturity securities.

Long-term investments cannot include:

On November 12,Higgins,Inc.,a U.S.Company,sold merchandise on credit to Kagome 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 Higgins prepared its financial statements,the exchange rate was $0.00843.Kagome paid in full on January 12,when the exchange rate was $0.00861.On January 12,Higgins should prepare the following journal entry:

________ financial statements show the financial position,results of operations,and cash flows of all entities under the parent company's control,including all subsidiaries.

Unrealized gains and losses on trading securities are reported on the income statement.