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Exam 15: Investments

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Question 91

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When one company owns more than 50% of another company's voting stock and has control over the investee company,the investee is called the ________.

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Question 92

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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 total asset turnover equals 4.7%.

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Question 93

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Cosmos Corporation had the following long-term investment transactions. $\begin{array}{|l|l|}\hline \text { Jan 2 } & \begin{array}{l}\text { Purchased 5,000 shares of Visual, Inc. for } \$ 42 \text { per share plus } \$ 7,000 \text { in fees } \\\text { and commission. These shares represent a } 35 \% \text { ownership of Visual. }\end{array} \\\hline \text { Oct 15 } & \text { Received Visual, Inc. cash dividend of } \$ 2 \text { per share. } \\\hline \text { Dec 31 } & \text { Visual reported a net loss of } \$ 66,000 \text { for the year. }\\\hline\end{array}$ Prepare the journal entries Cosmos Corporation should record for these transactions and events.

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.

Trading securities are securities that are purchased by trading securities with other companies rather than by paying cash.

A company should report its portfolio of trading securities at its fair value.

On May 1,Jorge Co.purchases 2,000 shares of Radiotech stock for $25,000.This investment is considered to be an available-for-sale investment.This is the company's first and only investment in available-for-sale securities.On July 31 (Jorge's year-end),the stock had a market value of $28,000.Jorge should record a credit to Unrealized Gain-Equity for $3,000.

A company purchased $60,000 of 5% bonds on May 1 at par value.The bonds pay interest on March 1 and September 1.The amount of interest accrued on December 31 (the company's year-end) would be:

Match the following terms with the appropriate definitions. -Investments in equity and debt securities that are not readily convertible to cash or are not intended to be converted to cash in the short term.

Management's intent determines whether an available-for-sale security is classified as long-term or short-term.

A company reported net income for Year 1 of $98,000 and $106,000 for Year 2.It also reported net sales of $835,000 in Year 1 and $918,000 in Year 2.The company's average total assets in Year 1 were $1,850,000 and $1,720,000 in Year 2.Calculate the company's profit margin,total asset turnover and return on total assets for Year 1 and Year 2.Comment on the results.

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:

Segmental Manufacturing owns 35% of Glesson Corp.stock.Glesson pays a total of $47,000 in cash dividends for the period.Segmental's entry to record the dividend transaction would include a:

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.

Short-term investments are intended to be converted into cash within the longer of one year or the current operating cycle of the business,and are readily convertible to cash.

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.common stock 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 journal entry to record the sale of the 3,500 shares of stock on November 17 is:

Explain how to record the sale of trading securities.

Match the following terms with the appropriate definitions. -Debt and equity securities not classified as trading or held-to-maturity.

An investing company that owns more than ________ of another (investee)company's voting stock is presumed to have controlling influence over the investee.

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 for the accrual of interest for the year-end December 31.