Exam 14: Investments and International Operations

On April 1 of the current year,a company paid $150,000 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 the bonds until they mature.Prepare the journal entry to record the receipt of the first semiannual interest payment on October 1 of the current year.

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Question 1

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$\begin{array} { | l | c | r | r | } \hline 10 / 1 & \operatorname { Cash } ( 150,000 \times .07 \times 1 / 2 ) \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 5,250 & \\\hline & \text { Interest Earned } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & &5,250 \\\hline\end{array}$

Cash equivalents are investments that are readily converted to known amounts of cash that mature within three months.

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Question 2

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A company reported net income for 2009 of $98,000 and $106,000 in 2010.It also reported net sales of $735,000 in 2009 and $798,000 in 2010.The company's average total assets in 2009 were $1,850,000 and $1,720,000 in 2010.Calculate this company's profit margin,total asset turnover and return on total assets for 2009 and 2010.Comment on the results.

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Question 3

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$\begin{array}{|ll|}\hline \text { 2009: } & \\\hline \text { Profit margin: } \$ 98,000 / \$ 735,000= & \underline{13.3 \%} \\\hline \text { Total asset turnover: } \$ 735,000 / \$ 1,850,000= & \underline{0.397} \\\hline \text { Return on total assets: } \$ 98,000 / \$ 1,850,000= & \underline{5.3 \%} \\\hline\\\hline 2010: & \\\hline \text { Profit margin: } \$ 106,000 / \$ 798,000= & 13.3 \% \\\hline \text { Total asset turnover: } \$ 798,000 / \$ 1,720,000= & \underline{\underline{0.464}} \\\hline \text { Return on total assets: } \$ 106,000 / \$ 1,720,000= & \underline{\underline{6.2 \%}} \\\hline \end{array}$
Comment: This company did not increase its profit margin from 2009 to 2010, however, it did increase its total asset turnover, mainly because total assets declined with no ill effects on sales. The effect is an overall increase in return on total assets.

A company's return on total assets equals 28%.If total assets and net sales are $4,500,000 and $10,000,000 respectively,how much is net income?

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Question 4

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?

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Question 5

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:

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Question 6

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

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Question 7

Rhone Importers purchases automotive parts from Germany.Prepare journal entries for the following transactions of Rhone. Oct I Purchased inventory from Weimar Co for 12,000 euros, terms n/30. The exchange rate was \1 .15 per euro. Oct. 30 Paid Weimar Co. For the October I purchase. The exchange rate was \ 1.13 per euro

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Question 8

A company had net income of $76,000 in 2009 and $88,000 in 2010.Its net sales were $640,000 in 2009 and $611,000 in 2010.Its average total assets in 2009 were $670,000 and $712,000 in 2010.Calculate the profit margin,total asset turnover and return on total assets for both years.Comment on the results.

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Question 9

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.

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Question 10

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

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Question 11

Investments in trading securities:

(Multiple Choice)

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Question 12

Investments in trading securities are always short-term investments.

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Question 13

Trading securities,held-to-maturity debt securities and equity securities giving an investor significant influence over an investee are always considered short-term investments.

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Question 14

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

(True/False)

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Question 15

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:

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Question 16

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

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Question 17

Net profit margin reflects the percent of net income in each dollar of net sales.

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Question 18

Held-to-maturity securities are:

(Multiple Choice)

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Question 19

___________________________ are investments in securities that management intends to convert to cash within the longer of one year or the operating cycle and are readily convertible to cash.

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Question 20

Cash equivalents are investments that are readily converted to known amounts of cash that mature within three months.

A company's return on total assets equals 28%.If total assets and net sales are $4,500,000 and $10,000,000 respectively,how much is net income?

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:

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

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.

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

Investments in trading securities:

Investments in trading securities are always short-term investments.

Trading securities,held-to-maturity debt securities and equity securities giving an investor significant influence over an investee are always considered short-term investments.

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

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

Net profit margin reflects the percent of net income in each dollar of net sales.

Held-to-maturity securities are:

___________________________ are investments in securities that management intends to convert to cash within the longer of one year or the operating cycle and are readily convertible to cash.

Introducing Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Reporting and Analyzing Merchandising Operations

Reporting and Analyzing Inventories

Reporting and Analyzing Cash and Internal Controls

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Term Assets

Reporting and Analyzing Current Liabilities

Reporting and Analyzing Long-Term Liabilities

Reporting and Analyzing Equity

Reporting and Analyzing Cash Flows

Analyzing and Interpreting Financial Statements

Reporting and Analyzing Partnerships

Reporting and Preparing Special Journals

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