Exam 15: Investments and International Operations

Pravis Corporation owns 30% of Kuster Corporation. Pravis Corporation received $9,000 in cash dividends from Kuster Corporation. The entry to record receipt of these dividends is:

A company had net income of $86,000 in Year 1 and $118,000 in Year 2. Its net sales were $640,000 in Year 1 and $611,000 in Year 2. Its average total assets in Year 1 were $1,670,000 and $1,712,000 in Year 2. Calculate the profit margin, total asset turnover and return on total assets for both years. Comment on the results.

On May 1 of the current year, a company paid $200,000 cash to purchase 6%, 10-year bonds with a par value of $200,000; interest is paid semiannually each May 1 and November 1. The company intends to hold these bonds until they mature. Prepare the journal entry to record the receipt of the first semiannual interest payment on November 1.

The price of one currency stated in terms of another currency is called a(n):

When using the equity method for investments in equity securities, the investor records the receipt of cash dividends as revenue.

Short-term investments:

Kim Manufacturing purchased on credit £20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound. At the year-end balance sheet date the exchange rate increased to $1.69. Kim must record a gain of $600.

Investments can be classified as all but which of the following?

On January 4, Year 1, Barber Company purchased 5,000 shares of Convell Company for $59,500 plus a broker's fee of $1,000. Convell Company has a total of 25,000 shares of common stock outstanding and it is presumed the Barber Company will have a significant influence over Convell. During each of the next two years, Convell declared and paid cash dividends of $0.85 per share, and its net income was $72,000 and $67,000 for Year 1 and Year 2, respectively. The January 12, Year 3, entry to record Barber's sale of 3,000 shares of Convell Company stock, which represents 60% of Barber's total investment, for $39,000 cash should be:

On February 15, Jewel Company buys 7,000 shares of Marcelo Corp. common at $28.53 per share plus a brokerage fee of $400. The stock is classified as available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250. The fair value of the remaining shares is $29.50 per share. The amount that Jewel Company should report in the equity section of its year-end December 31 balance sheet for its investment in Marcelo Corp. is:

Discuss the reasons companies make investments.

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

If the exchange rate for Canadian and U.S. dollars is 0.82777 to 1, this implies that 3 Canadian dollars will buy ____ worth of U.S. dollars.

An investor purchased $50,000 of 10 year bonds it intends to hold to maturity. The investor's journal entry to record the purchase should include a debit to Long-Term Investments for $50,000 and a credit to Cash for $50,000.

All of the following statements regarding other comprehensive income are true except:

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 holds $40,000 of 7% bonds as a held-to-maturity security. The journal entry to record receipt of a semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800. $40,000 * 7% * ½ year = $1,400

The two business entities involved in an investment in securities with controlling influence, for which consolidated financial statements are prepared, are known as:

If a long-term investment in an equity security gives the investor significant influence over the investee, the investment is classified as available-for-sale.

Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.