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Exam 15: Investments and International Operations

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Question 21

Multiple Choice

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When a credit sale is denominated in a foreign currency, the foreign exchange rate used to record the sale is the current exchange rate:

A) Thirty days from the date of sale.
B) At the end of the seller's fiscal year.
C) At the end of the buyer's fiscal year.
D) On the date final payment is made.
E) On the date of the sale.

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

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Question 22

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A company paid $47,500 plus a broker's fee of $400 to acquire 8% bonds with a $60,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive upon maturity of the bonds is:

A) $60,000
B) $60,400
C) $47,900
D) $64,800
E) $52,300

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

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Question 23

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Chrono Co. held bonds of Ayrford Co. with a cost of $125,000 and a year-end market value of $123,700. Chrono also held 1,500 shares of Avian common stock with a cost of $25,000 and a year-end market value of $26,100. These are classified as long-term available-for-sale securities. Prepare the journal entry to record the market value of the investments as of its December 31 year-end.

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

Investments in trading securities are always short-term investments.

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

On June 18, Johnson Company (a U.S. company) sold merchandise to the Frater Company of Denmark for 60,000 Euros, with a payment due in 60 days. If the exchange rate was $1.14 per euro on the date of sale and $1.35 per euro on the date of payment, Johnson Company should recognize a foreign exchange gain or loss in the amount of:

Debt securities are recorded at cost when purchased and interest revenue from investments in debt securities is recorded when earned.

A company owns $100,000 of 9% bonds that pay interest on October 1 and April 1. The amount of interest accrued on December 31 (the company's year-end) would be:

Long-term investments can include funds set aside for special purposes such as bond sinking funds.

The currency in which a company presents its financial statements is known as the:

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

A controlling influence over the investee is based on the investor owning voting stock exceeding:

Explain how investors report investments in equity securities when the investor has a controlling influence over an investee.

In accounting for noninfluential securities:

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

On November 12, Kera, Inc., a U.S. company, sold merchandise on credit to Kakura Company of Japan at a price of 1,500,000 yen. The exchange rate was $0.00837 on the date of sale. On December 31, when Kera prepared its financial statements, the exchange rate was $0.00843. Kakura Company paid in full on January 12, when the exchange rate was $0.00861. On January 12, Kera should prepare the following journal entry for this transaction:

A company had net income of $82,000, net sales of $781,000, and average total assets of $300,000. Its profit margin and total asset turnover were respectively:

Accounting for long-term investments in equity securities with controlling influence uses the:

Explain how to record the sale of trading securities.