Exam 8: Long-Term Investments and the Time Value of Money

The journal entry to record the receipt of a cash dividend will include a credit to Retained Earnings.

The DEML Corporation reported the following transactions for the year 2014: This is a long-term investment giving DEML significant influence over the operations of Utilities Board. Prepare journal entries to record all the above events for the DEML Corporation.

In 2015, Gigajoule Corporation used the equity method to account for a 25% ownership interest in Megawatt Corporation. If Megawatt Corporation reports $400,000 of income and pays $80,000 of dividends in 2015, the net effect of the entries made by Gigajoule Corporation in 2015 will be to:

Under the equity method, the investor's share of dividends is treated as an increase in its investment.

How does a company such as ATCO Ltd. report the results of its diverse worldwide lines of business?

For a company that prepares its financial results in accordance with IFRS, a held to maturity bond investment must use the effective rate interest method.

When preparing a consolidated balance sheet:

An investor company with a 40% interest in an investee properly used the equity method to account for the investment. If the entries to the Investment account for the current year showed a debit of $45,000 and a credit of $22,000, the investee must have paid total dividends of:

How does an investor account for a long-term investment in bonds?

A foreign-currency translation adjustment is reported on the:

On March 1, 2015, Uncontracted Capacity Company (UCC) purchased $20,000 of Utility Service Corporation's 9% bonds at a purchase price of 90. Uncontracted Capacity Company, whose year end is December 31, expects to hold the bonds until their maturity date 5 years from the date of purchase. Interest on the bonds will be paid every March 1 and September 1 until maturity. Assuming that UCC is a private corporation that elects to amortize premium or discounts using straight-line amortization, how much total interest revenue will be recorded by UCC on September 1, 2015?

Megawatt Corporation purchased inventory merchandise on June 15, 2015, from a Scottish company for 100,000 British pounds. Megawatt remitted payment to the Scottish company on July 13, 2015. The British pound was worth $1.74 on June 15, 2015, and $1.78 on July 13, 2015. Prepare entries for Megawatt Corporation needed on June 15, 2015, and July 13, 2015.

Amortizing a discount on a long-term bond investment will cause:

Distribution Services Inc., a Canadian company, sold merchandise on account to Battle River Corporation, a British company, for 400,000 British pounds. The relevant exchange rates for the British pound were as follows: The exchange rate gain or loss for Distribution Services on this transaction was:

Suppose a Canadian company purchased merchandise on account from a British firm for 200,000 British pounds. Assume the exchange rates for the British pound were as follows: The exchange rate gain/loss for the Canadian company on this transaction was:

Non-strategic investments are recorded at market value and are reported on the balance sheet at cost.

Under the equity method the investor's share of dividends is treated as a return of investment.

Goodwill arises when a parent company must pay more to acquire a subsidiary company than the market value of the subsidiary's net assets.

Power Generation Corp. owns 38% of Electric Limited. Net income for Electric Limited for the year ending December 31, 2014, is $450,000. The journal entry prepared by Power Generation Corp. on December 31, 2014, includes a:

If a company owns 49% of the stock of another business, cash dividends received from the investee company are generally recorded by decreasing the value of the Investment account.