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Exam 15: Investments

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Question 111

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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:

A) Debit Cash $39,000; debit Loss on Sale of Investment $21,500; credit Long-Term Investments $60,500.
B) Debit Cash $39,000; debit Loss on Sale of Investment $8,200; credit Long-Term Investments $47,280.
C) Debit Cash $39,000; debit Loss on Sale of Investment $8,880; credit Long-Term Investments $47,880.
D) Debit Cash $39,000; credit Gain on Sale of Investment $8,750; credit Long-Term Investments $30,250.
E) Debit Cash $39,000; credit Gain on Sale of Investment $2,700; credit Long-Term Investments $36,300.

F) B) and C)
G) D) and E)

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Question 112

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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.

A) $2.48
B) $0.2759
C) $0.82777
D) $1.00
E) $1.82777

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

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Question 113

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A company had net income of $43,000, net sales of $380,500, and average total assets of $220,000. Its profit margin and total asset turnover were, respectively:

The investee company in a long term investment with controlling interest is called the:

Barnes Company purchased $50,000 of 8% bonds at par. The bonds mature in six years and are a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment?

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 long-term available-for-sale securities. This is the company's first and only investment in available-for-sale securities. On March 15, Marcelo declares a dividend of $1.15 per share payable to stockholders of record on April 15. Jewel received the dividend on April 15 and ultimately sells half of the Marcelo 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 purchase on February 15 is:

Explain how transactions (both sales and purchases) in a foreign currency are recorded and reported.

When a U.S. company makes a credit sale to an international customer and the sale terms are for payment in a foreign currency, the foreign exchange rate used to record the sale is the exchange rate:

Held-to-maturity securities are:

On October 31, Augustas Co. received cash dividends of $0.15 per share from its investment in Lamb Corp.'s common stock. Augustas owned 1,200 shares of Lamb Corp.'s stock on October 31. The investment is considered available-for-sale. Prepare the investor's journal entry to record the receipt of the cash dividends.

Long-term investments include investments in land or other assets not used in a company's operations.

An investing company that owns ________ of another (investee) company's voting stock (but not more than 50%) is presumed to have a significant influence over the investee.

Investments in trading securities:

Investments in trading securities are accounted for using the equity method with consolidation.

A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive when the bonds mature equal:

Hubbard Company had the following trading securities in its portfolio at December 31. The Fair Value Adjustment-Trading account had a balance of zero prior to year-end adjustment. Prepare the appropriate adjusting journal entry. $\begin{array} { l l l } & & \text { Fair } \\\text { Short-Term Investments } & \text { Cost } & \text { Value } \\\text { XBM } & \$ 24,500 & \$ 25,900 \\\text { Micro } & 51,000 & 48,600 \\\text { Outel } & 62,300 & 61,000 \\\text { Dull } & \underline { 29,900 } & \underline { 30,200 } \\\text { Totals } & \underline { \$ 167,700 } & \underline { \$ 165,700 }\end{array}$

Six months ago, a company purchased an investment in stock for $70,000. The investment is classified as available-for-sale securities. This is the company's first and only investment in available-for-sale securities. The current fair value of the stock is $68,500. The company should record a:

Weston Company had the following long-term available-for-sale securities in its portfolio at December 31, Year 1. Weston had several long-term investment transactions during the next year. After analyzing the effects of each transaction, (1) determine the amount Weston should report on its December 31, Year 1 balance sheet for its long-term investments in available-for-sale securities, (2) determine the amount Weston should report on its December 31, Year 2 balance sheet for its long-term investments in available-for-sale securities, (3) prepare the necessary adjusting entry to record the fair value adjustment at December 31, Year 2. $\begin{array}{l|l|l}\text { Available-for-Sale Securities (LT) } & \text { Cost } & \text { Fair } \\&&\text { Value } \\\hline 40,000 \text { shares of Beach common stock } & \$ 497,500 & \$ 488,900 \\\hline 15,000 \text { shares of Danfield common stock } & 410,200 & 412,600 \\\hline 18,000 \text { shares of Cardinal common stock } & 399,600 & 382,500 \\\hline\end{array}$ $\begin{array}{l|l}\hline \text { Jan. 22 } & \begin{array}{l}\text { Sold } 9,000 \text { shares of Cardinal common stock for } \$ 203,000 \text { less a brokerage fee } \\\text { of } \$ 850 .\end{array} \\\hline \text { Mar. 17 } & \begin{array}{l}\text { Purchased 30,000 shares of Apex common stock for } \$ 995,000 \text { plus a brokerage } \\\text { fee of } \$ 2,500 . \text { The shares represent a } 30 \% \text { ownership in Apex. }\end{array} \\\hline \text { Jun. 10 } & \begin{array}{l}\text { Purchased 108,000 shares of Desert Springs common stock for } \$ 1,525,000 \text { plus } \\\text { a brokerage fee of } \$ 4,200 \text {. The shares represent a } 54 \% \text { ownership in Desert } \\\text { Springs. }\end{array} \\\hline \text { Nov. 01 } & \text { Purchased 12,000 shares of Cliff common stock for } \$ 223,500 \text { plus a brokerage }\end{array}$ $\begin{array}{l|l|l}\text { Available-for-Sale Securities (LT) } & \text { Cost } & \text { Fair } \\&&\text { Value } \\\hline 40,000 \text { shares of Beach common stock } & \$ 497,500 & \$ 488,900 \\\hline 15,000 \text { shares of Danfield common stock } & 410,200 & 412,600 \\\hline 18,000 \text { shares of Cardinal common stock } & 399,600 & 382,500 \\\hline\end{array}$ $\begin{array}{l|l}\hline \text { Jan. 22 } & \begin{array}{l}\text { Sold } 9,000 \text { shares of Cardinal common stock for } \$ 203,000 \text { less a brokerage fee } \\\text { of } \$ 850 .\end{array} \\\hline \text { Mar. 17 } & \begin{array}{l}\text { Purchased 30,000 shares of Apex common stock for } \$ 995,000 \text { plus a brokerage } \\\text { fee of } \$ 2,500 . \text { The shares represent a } 30 \% \text { ownership in Apex. }\end{array} \\\hline \text { Jun. 10 } & \begin{array}{l}\text { Purchased 108,000 shares of Desert Springs common stock for } \$ 1,525,000 \text { plus } \\\text { a brokerage fee of } \$ 4,200 \text {. The shares represent a } 54 \% \text { ownership in Desert } \\\text { Springs. }\end{array} \\\hline \text { Nov. 01 } & \text { Purchased 12,000 shares of Cliff common stock for } \$ 223,500 \text { plus a brokerage }\end{array}$ Nov. 01 Purchased 12,000 shares of Cliff common stock for $223,500 plus a brokerage fee of $450. The shares represent a 10% ownership. Dec. 31 At December 31, Year 2, the fair values of its investments are: Beach, $502,500; Danfield, $411,800; Cardinal, $203,100; Apex, $1,113,250; Desert Springs,$1,576,000; Cliff, $224,750.

A company that is a controlling investor in another company is known as the ________.

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