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Exam 15: Investments

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Question 61

True/False

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

A) True
B) False

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Question 62

Multiple Choice

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Long-term investments:

A) Include only equity securities.
B) Are expected to be converted into cash within one year.
C) Must be readily convertible to cash.
D) Can include funds designated for a special purpose, or investments in land not used in the company's operations.
E) Are current assets.

F) C) and E)
G) All of the above

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Question 63

Multiple Choice

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

When an investor company owns more than 25% of the voting stock of an investee company, it has a controlling influence.

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

Explain how to account for available-for-sale debt and equity securities at and after acquisition and how they are reported in financial statements.

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

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

The equity method with consolidation is used to account for long-term investments in equity securities with controlling influence.

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

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.

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.

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.

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:

Long-term investments in debt securities not classified as trading or held-to-maturity securities are classified as available-for-sale securities.

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:

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

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.

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.

Landmark Corp. buys $300,000 of Schroeter Company's 8%, 5-year bonds payable at par value on September 1. Interest payments are made semiannually. Landmark plans to hold the bonds for the 5-year life. The journal entry to record the purchase should include: