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Exam 26: Investments

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Question 21

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A company reported net income of $225,000,net sales of $2,500,000,and average total assets of $2,100,000 for the current year.Calculate this company's profit margin,total asset turnover,and return on total assets.

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Question 22

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________ are debt securities a company intends and is able to hold until the maturity date.

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Question 23

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Roe Corporation owns 2,000 shares of WRJ Corporation stock.WRJ Corporation has 25,000 shares of stock outstanding.WRJ paid $4 per share in cash dividends to its stockholders.Roe's entry to record the receipt of these dividends is:

A company paid $600,000 for 1-year,10% bonds with a par value of $600,000 on July 1.The bonds pay 5% interest semiannually on December 31 and June 30.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 July 1. (2)Receipt of semiannual interest only on December 31. (3)Receipt of semiannual interest only on June 30. (4)Redemption of the bonds at maturity on June 30.

On July 1 of the current year,a company paid $200,000 to purchase 7%,10-year bonds with a par value of $200,000; interest is paid semiannually on June 30 and December 31.The company intends to hold the bonds until they mature.Prepare the journal entries to record (1)the bond purchase,(2)the receipt of the first semiannual interest payment on December 31 of the current year,and (3)the receipt of the second semiannual payment on June 30.

Bharrat Corporation purchased 40% of Ferris Corporation for $100,000 on January 1.On October 17 of the same year,Ferris Corporation declared total cash dividends of $12,000.At year-end,Ferris Corporation reported net income of $60,000.The balance in the Bharrat's Equity Method Investments-Ferris account at December 31 should be:

A company has an investment in 9% bonds with a par value of $100,000 that pays interest on October 1 and April 1.The amount of interest accrued on December 31 (the company's year-end) would be:

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

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.at $28.53 per share.The purchase is classified as a stock investment with insignificant influence.This is the company's first and only stock investment.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 30 and ultimately sells half of the Marcelo Corp.stock on November 17 of the current year for $29.30 per share. -The fair value of the remaining shares is $29.50 per share at year-end.The amount that Jewel Company should report in the current-year income statement from its investment in Marcelo Corp.is:

Landers,Inc.,held 1,500 of Shipman Company common stock with a cost of $36,900.The investment is considered a stock investment with insignificant influence.Landers sold the shares on December 13 for $42,100 cash.Prepare Lander's journal entry to record this sale.

All of the following are true for available-for-sale debt securities except for:

Draft Co.purchased 14,000 shares of Hamburg Corporation's 40,000 shares of common stock on January 1.This represented 35% of Hamburg's outstanding shares and gave Draft Co.significant influence over Hamburg's management and operations.On October 11,Hamburg declared and paid cash dividends of $30,000.On December 31,Hamburg reported net income of $125,000 for the year.Prepare the journal entries Draft Co.should record to account for the dividends received and the earnings reported by Hamburg Corporation.

Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it is earned.

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%.

Kim Manufacturing purchased on credit £20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound.At the year-end balance sheet date,the exchange rate increased to $1.69.Kim must record a gain of $600.

The cost method of accounting,which does not adjust for changes in fair value,is used to account for long-term investments in equity securities with insignificant influence.

Any unrealized gain or loss for the portfolio of available-for-securities is reported in the equity section of the balance sheet.

Equity securities giving an investor significant influence over an investee are always considered short-term investments.

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

An investor purchased $50,000 of 10-year bonds it intends to hold to maturity.The investor's journal entry to record the purchase is a debit to Debt Investments-HTM for $50,000 and a credit to Cash for $50,000.