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Exam 15: Investments and International Operations

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Question 71

Multiple Choice

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

A) Parent and Subsidiary
B) Parent and Investor
C) Both are referred to as partners.
D) Subsidiary and Investee
E) Consolidator and Parent

F) B) and C)
G) A) and B)

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Question 72

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

A) True
B) False

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Question 73

Multiple Choice

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At the end of the accounting period, the owners of debt securities:

Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1. On October 17 of the same year, Ferris Corporation declared total cash dividends of $12,000. At year-end, Ferris Corporation reported net income of $60,000. The balance in the Bharrat Corporation's Long-Term Investment-Ferris account at December 31 should be:

Long-term investments:

Marjam Company owns 51,000 shares of MacKenzie Company's 100,000 outstanding shares of common stock. MacKenzie Company pays $25,000 in total cash dividends to its shareholders. Marjam's entry to record this transaction should include a:

Hamasaki Company owns 30% of CDW Corp. stock. Hamasaki received $6,500 in cash dividends from its investment in CDW. The entry to record receipt of these dividends includes a debit to Cash for $6,500 and a credit to Long-Term Investments for $6,500.

Foreign exchange rates fluctuate due to many factors including changing political and economic conditions.

To prepare consolidated financial statements when a U.S. parent company has an international subsidiary, the international subsidiary's financial statements must be translated into U.S. dollars.

Maroon Company sold supplies in the amount of €15,000 (euros)to a French company when the exchange rate was $1.15 per euro. At the time of payment, the exchange rate decreased to $1.12. Maroon must record a loss of $450.

Unrealized Loss-Equity and Unrealized Gain-Equity are permanent equity accounts.

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. This is the company's first and only investment in 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 3,500 shares is $29.50 per share. The amount that Jewel Company should report in the asset section of its year-end December 31 balance sheet for its investment in Marcelo Corp. is:

A company has an investment in 9% bonds with a par value of $100,000 that pay interest on October 1 and April 1. The amount of interest accrued on December 31 (the company's year-end) would be:

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 has net income of $130,500. Its net sales were $1,740,000 and its average total assets were $2,750,000. Its profit margin equals 7.5%.

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

Comprehensive income includes all except:

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 equals:

McVeigh Corp. owns 40% of Gondor Company's common stock. McVeigh received $41,200 in cash dividends from Gondor. The entry to record this transaction should include a:

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