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Exam 15: Investments

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Question 101

Multiple Choice

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Lessington Corporation purchases 4,000 shares of Gonzalez Company common stock for $150,000 as a long-term investment.The investment is classified as available-for-sale securities.Gonzalez has 500,000 shares of stock currently outstanding and the par value of the stock is $1 per share.Lessington's entry to record the purchase transaction would include a:

A) Debit to Long-Term Investments-AFS for $150,000.
B) Credit to Common Stock for $150,000.
C) Credit Gain on Long-Term Investment $146,000.
D) Debit to Long-Term Investments-AFS for $4,000.
E) Credit to Common Stock for $4,000.

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

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Question 102

Multiple Choice

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

A) Controlling method.
B) Equity method with consolidation.
C) Investor method.
D) Investment method.
E) Consolidated method.

F) A) and D)
G) A) and E)

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Question 103

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Profit margin is net sales divided by net income.

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

McVeigh Corp.owns 40% of Gondor Company's common stock.McVeigh received $41,200 in cash dividends from Gondor.The entry to record this transaction should include a:

Explain how equity securities having significant influence are accounted for and reported in the financial statements.Include a discussion of the criterion for these securities in terms of an investee's voting stock.

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 profit margin equals 7.5%.

If a U.S.company's credit sale to an international customer allows payment to be made in a foreign currency,the sale transaction is recorded using the exchange rate on the date of sale.

Unrealized Loss-Equity and Unrealized Gain-Equity are permanent equity accounts.

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

All of the following statements regarding equity securities are true except:

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

Long-term investments include:

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

When using the equity method,receipt of cash dividends increases the carrying (book)value of an investment in equity securities.

Define the return on total assets and explain how it is used to measure a company's financial performance.

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

On January 2,Froxel Company purchased 10,000 shares of Sandia Corp.common stock at $19 per share plus a $3,000 commission.This represents 30% of Sandia Corp.'s outstanding stock.On August 6,Sandia Corp.declared and paid cash dividends of $1.75 per share,and on December 31 it reported net income of $150,000.Prepare the necessary entries for Froxel to account for these transactions and events.

Rainier Importers purchases automotive parts from Austria.Prepare journal entries for the following transactions of Rainier.

A controlling investor is called the parent,and the investee company is called the subsidiary.