Company had profit margin and total asset turnover


17. The equity method with consolidation is used in accounting for long-term investments in equity securities with controlling influence. � � True False 18. Short-term held-to-maturity debt securities are accounted for using the cost method with amortization. � � True False

22. Consolidated statements are prepared as if a company is organized as one entity, with the amounts allocated for subsidiaries reported in the investment accounts. � � True False 23. Trading securities, held-to-maturity debt securities, and equity securities giving an investor significant influence over an investee are always considered short-term investments. � � True False


27. The price of one currency stated in terms of another currency is called a foreign exchange rate. � True False		�


30. Net profit margin reflects the percent of net income in each dollar of net sales. � True False	�

48. An investor with significant influence owns as least 20% but not more than 50% of another company's voting stock. � �
True False

49. The cost method of accounting is used for long-term investments in equity securities with significant influence. � �
True False

54. 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. � �
True False

55. A U. S. Company's credit sale to an international customer to be paid in a foreign currency requires using the same exchange rate for the date of sale and the cash payment date. � �
True False

D. Are expected to be converted into cash within one year.

E. Include only equity securities.

E. Include sinking funds not intended to be converted into cash.

C. Debit Cash, $12,000; credit Dividend Revenue, $12,000. D. Debit Unrealized Gain-Equity, $12,000; credit Cash, $12,000. D. $2,500. E. $3,000. E. $43,200. 71. An investor purchased $75,000 Cort's 8%, three-year bonds payable on April 1, 2008. The bonds pay interest semiannually on June 1 and December 1. Cort plans to hold the bonds until they mature. When the bonds mature, Cort should prepare the following journal entry: � � A. debit Long-Term Investments–HTM, $75,000; credit Cash, $75,000. 72. Griggs Company holds $50,000 of 8% bonds as a held-to-maturity security. Which of the following is the correct journal entry to record the receipt of the semiannual interest payment? � � A. debit Cash, $4,000; credit Long-Term Investments—HTM, $4,000. B. debt Cash, $2,000; credit Long-Term Investments—HTM, $2000.
B. Equity method with consolidation. C. Investor method. D. Investment method.
C. Parent. D. Investee.

83. Foreign exchange rates fluctuate due to changes in : � A. Political conditions. B. Economic conditions.
B. Price-level-adjusted currency. C. Specific currency. D. Reporting currency.
B. loss of $39,500. C. gain of $138,000. C. loss of $9,750. D. loss of $20,500. D. High returns on total assets are desirable. E. Return on total assets analysis is beneficial in evaluating a company but is not useful for competitor analysis.

97. Investments in trading securities: � �
A. Include only equity securities.

B. Realizable loss.

C. Unrealized loss.

C. Debt securities that a company intends and is able to hold to maturity. D. Equity securities that a company intends and is able to hold to maturity. E. Equity securities that have a maturity value greater than cost.

100.Available-for-sale debt securities are: � �
A. Recorded at cost and remain at cost over the life of the investment.

101.Available-for-sale equity securities: � �
A. Are recorded at cost when acquired.

B. May earn dividends that are reported in that year's income statement. C. May be classified as either short-term or long-term securities.

C. Credit to Common Stock for $143,375.

D. Debit to Long–Term Investments for $143,000.

D. Credit to Market Adjustment – Available-for-Sale for $3,500.

E. Credit to Investment Revenue for $3,500.

B. $100,000. C. $ 95,200. C. $173,000. D. $197,000. D. Debit Unrealized Gain-Equity, $9,000; credit Cash, $9,000. E. Debit Cash, $9,000; credit Unrealized Gain-Equity, $9,000. C. D. D. Of sale using the foreign currency value. E. When payment is received.

120.Match the following terms with the appropriate definitions. � �

total assets to-maturity. __

investments convertible to cash or are not intended to be converted to cash __

in the short term. _

company divided by average total assets. __

method until maturity. __

securities actual sale. __

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122.Discuss the reasons companies make investments. � �
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124.What are the accounting basics for debt securities, including recording their acquisition, interest earned, and their disposal? � �
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126.What is comprehensive income and how is it usually reported in the financial statements? � � �

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128.Define the foreign exchange rate between two currencies. Explain its effect on business transactions conducted in a foreign currency. � �
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130.Explain how to record the sale of trading securities. � �
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132.Explain how available-for-sale debt and equity securities are accounted for at and after acquisition and how they are reported in financial statements. � �
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134.Explain how transactions (both sales and purchases) in a foreign currency are recorded and reported. � � �

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139.On April 1 of the current year, a company paid $150,000 to purchase 7%, 10-year bonds that had a par value of $150,000 and paid interest semiannually on October 1 and April 1. The company intends to hold the bonds until they mature. Prepare the journal entry to record the receipt of the semiannual interest payment on April 1 of the following year. � �

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146.Wiffery Company had the following trading securities in its portfolio at December 31. The Market Adjustment – Trading account had balance of zero prior to year-end adjustment. Prepare the appropriate adjusting journal entry. �

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147.Haladam Company had the following transactions relating to investments in trading securities during the year. Prepare the required general journal entries for these transactions. �

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148.Clarity Corporation had the following transactions involving investments in trading securities during the year. Prior to these transactions, Clarity had never had any investments in trading securities. Prepare the required general journal entries to record these transactions. �

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149.On October 31, Mayfair Co. received cash dividends of $0.15 per share from its investment in Carter Corp.'s common stock. Mayfair owned 1,200 shares of Carter Corp.'s stock on October 31. The investment is considered available for sale. Prepare the investor's journal entry to record the receipt of the cash dividends. � �

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167.Short-term investments in held-to-maturity debt securities are accounted for using the ___________________________. � � ________________________________________ 168.Long-term investments in held-to-maturity debt securities are accounted for using the ___________________________. � � ________________________________________
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173.Return on total assets is computed by dividing ___________ by __________. � ________________________________________
177.Long-term investments in available-for-sale securities are reported at their _______ on the balance sheet. � � ________________________________________ 178.An investing company that owns _________ of another (investee) company's voting stock (but not more than 50%) is presumed to have a significant influence over the investee. � � ________________________________________

37. TRUE
38. FALSE
39. FALSE
40. TRUE
41. FALSE
42. TRUE
43. TRUE
44. TRUE
45. FALSE
46. TRUE
47. FALSE
48. TRUE
49. FALSE
50. FALSE
51. TRUE
52. FALSE
53. TRUE
54. TRUE
55. FALSE
56. FALSE
57. TRUE
58. B
59. A
60. C
61. A
62. C
63. C
64. E
65. C
66. E
67. C
68. C
69. C
70. C
71. C
72. C
73. B
74. C

75. E
76. E
77. A
78. E
79. D
80. C
81. A
82. B
83. E
84. D
85. D
86. B
87. C
88. D
89. C
90. C
91. D
92. A
93. E
94. B
95. E
96. C
97. B
98. C
99. C
100. C
101. E
102. E
103. B
104. A
105. E
106. A
107. B
108. A
109. D
110. C
111. D
112. C

117. D

118. C

123. Non-influential investments in securities can be classified as: (1) trading, (2) held-to-maturity, and (3) available for sale.

124. At acquisition, debt securities are recorded at cost. If the interest periods do not match up with the investor's accounting period, interest earned and interest receivable must be accrued at year-end. Interest must also be recorded on the interest payment dates. When the debt matures, the cash received is debited, and the debt is credited.

129. The return on total assets is calculated by dividing net income by average total assets. It can be computed from the profit margin ratio and total asset turnover. The return on total assets reflects a company's ability to use its assets to make a profit. It can also be used to assess a company's performance compared to competitors.

130. When trading securities are sold, the difference between the net proceeds (sale price less fees) and the cost of the individual trading securities that are sold is recognized as a gain or loss. Any prior period market adjustment is not used to compute the gain or loss from the sale. Gains and losses are included in net income for the period.

(b.) 2010: $620,000 / $3,000,000 = 20.7%
141. (a.) 2009: $450,000 / $2,500,000 = 18.0%
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15 Summary�

Category
AACSB: Analytic
AACSB: Communications
AICPA BB: Industry
AICPA BB: Resource Management AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: Easy
Difficulty: Hard
Difficulty: Medium
Learning Objective: A1
Learning Objective: C1
Learning Objective: C2
Learning Objective: C3
Learning Objective: C4
Learning Objective: P1
Learning Objective: P2
Learning Objective: P3
Learning Objective: P4
Learning Objective: P5
Wild - Chapter 015