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Exam 26: Investments

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Question 31

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All of the following are true about debt securities except:

A) They can be short-term investments.
B) They can be long-term investments.
C) They can have a cost higher than the maturity value.
D) They can have a cost lower than the maturity value.
E) They reflect an owner relationship.

F) B) and D)
G) All of the above

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Question 32

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Financial statements that show the financial statements of all entities under the parent's control,including all subsidiaries are called:

A) Comprehensive financial statements
B) Consolidated financial statements
C) Equity financial statements
D) Statement of owner's equity
E) Investor financial statements

F) A) and D)
G) A) and C)

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Question 33

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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 bond purchase.

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

A company reported net sales of $850,000,net income of $200,000 and average total assets of $575,000.Calculate its return on total assets.

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

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 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.

Consolidated financial statements show the financial statements of all entities under the parent's control,including all subsidiaries.

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

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

Kreighton Manufacturing purchased on credit £50,000 worth of production materials from a British company when the exchange rate was $1.97 per British pound.At the year-end balance sheet date,the exchange rate increased to $2.76.If the liability is still unpaid at that time,Kreighton must record a:

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

Any unrealized gain or loss for the portfolio of available-for-sale securities is reported on the income statement in the other gain or loss section.

Hamasaki Company owns 30% of CDW Corp.stock and has significant influence.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 Equity Method Investments for $6,500.

An investor presumed to have significant influence owns between 20% and 50% of another company's voting stock.

A company paid $37,800 cash to acquire stock investments with insignificant influence (with a par value of $38,325) .The correct entry to record the purchase of the investment is:

On January 2,Year 1,Barber Company purchased 5,000 shares of Convell Company for $60,500.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.What is the book value of Barber's investment in Convell at the end of Year 2?

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

Available-for-sale debt securities are: