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Exam 14: Investments and International Operations

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Question 81

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On January 1,2008,Posten Company purchased 10,000 shares of Toma Company for $78,000 plus a broker's fee of $2,000.Toma Company has a total of 40,000 shares of common stock outstanding and it is presumed the Posten Company will have a significant influence over Toma.Toma declared and paid cash dividends of $0.93 per share in 2008 and 2009.Toma's net income was $190,000 and $270,000 for 2008 and 2009 respectively.The January 1,2010 entry on the books of Posten Company to record the sale of 4,500 shares of Toma Company stock for $85,000 cash should be:

A)
$\begin{array}{llr} \text { Cash } &85,000\\ \text { Loss on Sale of Investments } &110,000\\ \text { Long-Term Investments} &&195,000\end{array}$

B)
$\begin{array}{llr} \text { Cash } &85,000\\ \text { Gain on Sale of Investments.} &&57,370\\ \text { Long-Term Investments } &&27,630\end{array}$

C)
$\begin{array}{llr} \text { Cash } &85,000.00\\ \text { Gain on Sale of Investments.} &&76,195.75\\ \text { Long-Term Investments } &&8,804.25\end{array}$

D)
$\begin{array}{llr} \text { Cash } &85,000\\ \text { Gain on Sale of Investments.} &&5,620\\ \text { Long-Term Investments } &&79,380\end{array}$


E)
$\begin{array}{llr} \text { Cash } &85,000\\ \text { Gain on Sale of Investments.} &&5,000\\ \text { Long-Term Investments } &&80,000\end{array}$

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Question 82

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A company holds $40,000 of 7% bonds as a held-to-maturity security.The bondholder's journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.

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Question 83

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

Long-term investments in held-to-maturity debt securities are accounted for using the ___________________________.

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

Long-term investments in held-to-maturity debt securities are accounted for using the:

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

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 U.S.company's credit sale to an international customer to be paid in a foreign currency is recorded using the exchange rate on the date of sale.

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

A company had net income of $2,785,000,net sales of $250,000,000,average total assets of $6,000,000 and equity investments of $40,000.Its return on total assets equals:

Columbia Corp.held 1,500 of Vianco common stock with a cost of $74,387.These shares were classified as a long-term available-for-sale investment.It sold the shares on December 13 for $55,275.Prepare the journal entry to record this sale.

A company had net income of $2,660,000,net sales of $25,000,000 and average total assets of $8,000,000.Its return on total assets is equal to:

Short-term investments in held-to-maturity debt securities are accounted for using the ___________________________.

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

An increase in the price of the U.S.dollar against other currencies puts U.S.companies in a stronger competitive position internationally.

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

A company had net income of $450,000 in 2009 and $620,000 in 2010.The company had average total assets of $2,500,000 in 2009 and $3,000,000 in 2010.Calculate the return on total assets for 2009 and 2010.Comment on the results.

Investments in equity securities where the investor has a controlling influence are accounted for using the ________________________________.

Clark Corporation purchased 40% of IT corporation for $125,000 on January 1.On May 20 of the same year,IT Corporation declared total cash dividends of $30,000.At year-end,IT Corporation reported net income of $150,000.The balance in Clark Corporation's Long-Term Investment in IT Corporation account as of December 31 should be: