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Exam 15: Investments

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Question 61

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When an investment in an equity security is sold,the sale proceeds are compared with the cost,and if the cost is greater than the proceeds,a gain on the sale of the security is recorded.

A) True
B) False

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Question 62

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Scotsland Company had the following transactions relating to investments in trading securities during the year.Prepare the required general journal entries for these transactions. $\begin{array} { | l | l | } \hline \text { May } 4 & \begin{array} { l } \text { Scotsland purchased } 600 \text { shares of Lobe Company stock at } \$ 120 \text { per share plus a } \\\$ 750 \text { brokerage fee. }\end{array} \\\hline \text { July 1 } & \text { Scotsland received a } \$ 2.50 \text { per share cash dividend on the Lobe Company stock. } \\\hline \text { Sept. } 15 & \begin{array} { l } \text { Sold } 300 \text { shares of Lobe Company stock for } \$ 125 \text { per share, less a } \$ 450 \\\text { brokerage fee. }\end{array} \\\hline \text { Dec. } 31 & \begin{array} { l } \text { The fair value of the Lobe Company stock (the only investment that Scotsland } \\\text { owns) is } \$ 124 \text { per share. The balance of the Fair value Adjustment-Trading } \\\text { account had a zero balance prior to adjustment. }\end{array} \\\hline\end{array}$

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Question 63

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All of the following statements regarding accounting for influential securities under U.S.GAAP and IFRS are true except:

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:

Long-term investments are usually held as an investment of cash for use in current operations.

When the cost of a short-term held-to-maturity debt security is different from the maturity value,the difference is amortized over the remaining life of the security.

Return on total assets is computed by dividing ________ by ________.

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:

On January 3,Kostansas Corporation purchased 5,000 shares of Morton,Inc.for $40 per share plus $700 in broker commissions.These shares represent a 40% ownership in Morton,Inc.Prepare the journal entry Kostansas Corporation should record when Morton reports net income of $52,000 for the year on December 31.

A company had net income of $86,000 in Year 1 and $118,000 in Year 2.Its net sales were $640,000 in Year 1 and $611,000 in Year 2.Its average total assets in Year 1 were $1,670,000 and $1,712,000 in Year 2.Calculate the profit margin,total asset turnover and return on total assets for both years.Comment on the results.

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

Match the following terms with the appropriate definitions. -An accounting method for long-term investments in equity when the investor has significant influence over the investee.

A U.S.company makes a sale to a foreign customer receivable in 30 days in the customer's currency.The sale would be recorded by the U.S.company on the date:

________ are debt and equity securities that a company intends to actively manage and trade for a profit.

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:

Held-to-maturity securities are equity securities a company intends and is able to hold until maturity.

Kendall Corp.purchased at par value $75,000 of Shrem Company's 8% bonds that mature in three-years.The bonds pay interest semiannually on June 1 and December 1.Kendall plans to hold the bonds until they mature.When the bonds mature,Kendall should prepare the following journal entry:

If a U.S.Company's credit sale to an international customer allows payment to be made in a foreign currency,the same exchange rate must be used for the date of sale and the cash payment date.

On February 15,Jewel Company buys 7,000 shares of Marcelo Corp.common at $28.53 per share plus a brokerage fee of $400.The stock is classified as available-for-sale securities.This is the company's first and only investment in available-for-sale securities.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 15 and ultimately sells half of the Marcelo Corp.stock on November 17 of the current year for $29.30 per share less a brokerage fee of $250.The fair value of the remaining shares is $29.50 per share.The amount that Jewel Company should report in the equity section of its year-end December 31 balance sheet for its investment in Marcelo Corp.is:

Cloverton Corporation had net income of $30,000,net sales of $1,000,000,and average total assets of $500,000.Its return on total assets is: