107. Vans purchased 40,000 shares of Skechs common stock for $232,000. This represents
40% of the outstanding stock. The entry to record the transaction includes a:
A. Debit to Long–Term Investments for $92,800.
B. Debit to Long–Term Investments for $232,000.
C. Credit to Long–Term Investments for $92,800.
D. Debit to Long–Term Investments-HTM for $232,000.
E. Debit to Short–Term Investment-AFS for $232,000.
108. Micron owns 35% of Martok. Martok pays a total of $47,000 in cash dividends for the
period. Micron’s entry to record the dividend transaction would include a:
A. Credit to Long–Term Investments for $16,450.
B. Debit to Long–Term Investments for $16,450.
C. Debit to Cash for $47,000.
D. Credit to Cash for $16,450.
E. Credit to Investment Revenue for $47,000.
109. Chung owns 40% of Lu’s common stock. Lu pays $97,000 in total cash dividends to its
shareholders. Chung’s entry to record this transaction should include a:
A. Debit to Dividends for $97,000.
B. Debit to Dividends for $38,800.
C. Debit to Long–Term investments for $97,000.
D. Credit to Long–Term Investments for $38,800.
E. Credit to Cash for $97,000.
110. Hamilton Company owns 51,000 of Hennie Company’s 100,000 outstanding shares of
common stock. Hennie Company pays $25,000 in total cash dividends to its shareholders.
Hamilton’s entry to record this transaction should include a:
A. Debit to Dividend Revenue for $12,750.
B. Debit to Interest Revenue for $12,750
C. Credit to Long–Term investments for $12,750.
D. Credit to Long–Term Investments for $25,000.
E. Credit to Dividend Revenue for $25,000.
111. Parris Corporation purchased 40% of Samitz Corporation for $100,000 on January 1. On
November 17 of the same year, Samitz Corporation declared total cash dividends of $12,000.
At year-end, Samitz Corporation reported net income of $60,000. The balance in the Parris
Corporation’s Long–Term Investment-Samitz account at December 31 should be:
A. $ 80,800.
B. $100,000.
C. $ 95,200.
D. $119,200.
E. $124,000.
112. 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-IT Corporation account as of December 31 should be:
A. $ 77,000.
B. $125,000.
C. $173,000.
D. $197,000.
E. $370,000.
113. Everrine Corporation owns 30% of JRW Corporation. Everrine Corporation received
$9,000 in cash dividends from JRW Corporation. The entry to record receipt of these
dividends is:
A. Debit Cash, $9,000; credit Long-Term Investments, $9,000.
B. Debt Long-Term Investment, $9,000; credit Cash, $9000.
C. Debit Cash, $9,000; credit Interest Revenue, $9,000.
D. Debit Unrealized Gain-Equity, $9,000; credit Cash, $9,000.
E. Debit Cash, $9,000; credit Dividend Revenue, $9,000.
114. On January 4, Year1, Larsen Company purchased 5,000 shares of Warner Company for
$59,500 plus a broker’s fee of $1,000. Warner Company has a total of 25,000 shares of
common stock outstanding and it is presumed the Larsen Company will have a significant
influence over Warner. During each of the next two years, Warner declared and paid cash
dividends of $0.85 per share, and its net income was $72,000 and $67,000 for Year 1 and
Year 2, respectively. The January 12, Year 3, entry to record the sale of 3,000 shares of
Warner Company stock for $39,000 cash should be:
A. Debit Cash $39,000; debit Loss on Sale of Investment $8,200; credit Long-Term
Investments $47,280.
B. Debit Cash $39,000; debit Loss on Sale of Investment $8,880; credit Long-Term
Investments $47,880.
C. Debit Cash $39,000; credit Gain on Sale of Investment $2,700; credit Long-Term
Investments $36,300.
D. Debit Cash $39,000; credit Gain on Sale of Investment $8,750; credit Long-Term
Investments $30,250.
E. Debit Cash $39,000; debit Loss on Sale of Investment $21,500; credit Long-Term
Investments $60,500.
115. A U.S. company makes a sale to a foreign customer payable in 30 days in the customer’s
currency. The sale would be recorded by the U.S. company on the date:
A. Of sale using a projected estimate of the U.S. dollar value at payment date.
B. Of sale using a 30-day average U.S. dollar value.
C. Of sale using the current dollar value.
D. Of sale using the foreign currency value.
E. When payment is received.
116. When a credit sale is denominated in a foreign currency, the foreign exchange rate used
to record the sale is the current exchange rate:
A. Thirty days from the date of sale.
B. At the end of the seller’s fiscal year.
C. At the end of the buyer’s fiscal year.
D. On the date final payment is made.
E. On the date of the sale.
117. On June 18, Johnson Company (a U.S. Company) sold merchandise to the Frater
Company of Denmark for 60,000 Euros, with a payment due in 60 days. If the exchange rate
was $1.14 per euro on the date of sale and $1.35 per euro on the date of payment, Johnson
Company should recognize a foreign exchange gain or loss in the amount of:
A. $60,000 gain.
B. $60,000 loss.
C. $68,400 loss.
D. $12,600 gain.
E. $12,600 loss.
118. On November 12, Kendra, Inc., a U.S. Company, sold merchandise on credit to
Nakakura Company of Japan at a price of 1,500,000 yen. The exchange rate was $0.00837 per
yen on the date of sale. On December 31, when Kendra prepared its financial statements, the
exchange rate was $0.00843. Nakakura Company paid in full on January 12, when the
exchange rate was $0.00861. On December 31, Kendra should prepare the following journal
entry:
A. Debit Sales $90; credit Foreign Exchange Gain $90.
B. Debit Foreign Exchange Loss $90; credit Sales $90.
C. Debit Accounts Receivable-Nakakura Company $90; credit Foreign Exchange Gain $90.
D. Debit Foreign Exchange Loss $90; Accounts Receivable-Nakakura Company $90.
E. No journal entry is required until the amount is collected.
119. On November 12, Kera, Inc., a U.S. Company, sold merchandise on credit to Kakura of
Japan at a price of 1,500,000 yen. The exchange rate was $0.00837 on the date of sale. On
December 31, when Kera prepared its financial statements, the exchange rate was $0.00843.
Kakura paid in full on January 12, when the exchange rate was $0.00861. On January 12,
Kera should prepare the following journal entry:
A. Debit Cash $12,915; credit Accounts Receivable-Kakura $12,555; credit Foreign
Exchange Gain $360.
B. Debit Cash $12,555; debit Foreign Exchange Loss $360; credit Accounts Receivable-
Kakura $12,915.
C. Debit Cash $12,915; credit Accounts Receivable-Kakura $12,645; credit Foreign Exchange
Gain $90.
D. Debit Cash $12,645; debit Foreign Exchange Loss $90; credit Accounts Receivable–
Kakura $12,915.
E. Debit Cash $12,915; credit Accounts Receivable-Kakura $12,645; credit Foreign Exchange
Gain $270.
120. All of the following statements regarding accounting for noninfluential securities under
U.S. GAAP and IFRS are true except:
A. Trading securities are accounted for using fair values with unrealized gains and losses
reported in other comprehensive income.
B. Trading securities are accounted for using fair values with unrealized gains and losses
reported in net income.
C. Available-for-sale securities are accounted for using fair values with unrealized gains and
losses reported in other comprehensive income.
D. Held-to-maturity securities are accounted for using amortized cost.
E. Both systems examine held-to-maturity securities for impairment.
121. All of the following statements regarding accounting for influential securities under U.S.
GAAP and IFRS are true except:
A. Under the equity method, the share of investee’s net income is reported in the investor’s
income in the same period the investee earns that income.
B. Under the consolidation method, investee and investor revenues and expenses are
combined.
C. Under the equity method, the investment account equals the acquisition cost plus the share
of investee income plus the share of investee dividends.
D. Under the consolidation method, nonintercompany assets and liabilities are combined
(eliminating the need for an investment account).
E. U. S. GAAP companies commonly refer to noncontrolling interests in consolidated
subsidiaries as minority interests whereas IFRS companies use noncontrolling interests.
122. All of the following statements regarding accounting for trading securities under U.S.
GAAP are true except:
A. The entire portfolio of trading securities is reported at is fair value.
B. An unrealized gain or loss from a change in fair value is reported on the income statement.
C. An unrealized gain or loss is recorded with an adjusting entry when the securities are sold.
D. An unrealized gain or loss is recorded with an adjusting entry at the end of each period.
E. Unrealized gains and losses are recorded in a temporary account that is closed to Income
Summary at the end of the period.
123. All of the following statements regarding accounting for trading securities under U.S.
GAAP are true except:
A. The entire portfolio of trading securities is reported at is fair value.
B. An unrealized gain or loss from a change in fair value is reported on the income statement.
C. A realized gain or loss is recorded when the securities are sold and reported on the income
statement.
D. When the period-end fair value adjustment for the portfolio of trading securities is
computed, it includes the cost and fair value of any securities sold.
E. When the period-end fair value adjustment for the portfolio of trading securities is
computed, it excludes the cost and fair value of any securities sold.
124. All of the following statements regarding other comprehensive income are true except:
A. Other comprehensive income includes unrealized gains and losses on available-for-sale
securities.
B. Other comprehensive income is not considered when calculating comprehensive income.
C. Other comprehensive income includes foreign currency adjustments.
D. Other comprehensive income includes pension adjustments.
E. Accumulated other comprehensive income is defined as the cumulative impact of other
comprehensive income.
125. Seamark buys $300,000 of Eider’s 8% five-year bonds payable at par value. Interest
payments are made semiannually. All of the following regarding accounting for the securities
are true except:
A. The debt securities should be recorded at the cost $300,000.
B. The securities will have a maturity value of $300,000.
C. The semiannual interest payment amount is $12,000.
D. The semiannual interest payment amount is $24,000.
E. Interest Revenue should be credited when an interest payment is received.
126. Seamark buys $300,000 of Eider’s 8% five-year bonds payable at par value. Interest
payments are made semiannually. Seamark plans to hold the bonds for the five year life. The
journal entry to record the purchase should include:
A. A debit to Long-Term Investments-AFS $300,000.
B. A debit to Short-Term Investments-Trading $300,000.
C. A debit to Long-Term Investments-HTM $300,000.
D. A debit to Short-Term Investments-AFS $300,000.
E. A debit to Cash $300,000.
127. Seamark buys $300,000 of Eider’s 8% five-year bonds payable at par value on
September 1. Interest payments are made semiannually on March 1 and September 1. The
journal entry to accrue interest earned at year-end December 31 is:
A. Debit Interest Receivable $8,000, credit Interest Revenue $8,000.
B. Debit Interest Receivable $12,000, credit Interest Revenue $12,000.
C. Debit Cash $8,000, credit Interest Revenue $8,000.
D. Debit Cash $12,000, credit Interest Revenue $12,000.
E. Debit Interest Revenue $8,000, credit Interest Receivable $8,000.
128. Seamark buys $300,000 of Eider’s 8% five-year bonds payable at par value. Interest
payments are made semiannually. Seamark plans to hold the bonds for the five year life.
When the bonds mature, the journal entry to record the proceeds will be:
A. Debit Long-Term Investments-HTM $300,000; credit Cash $300,000.
B. Debit Cash $300,000; credit Interest Revenue $300,000.
C. Debit Cash $300,000; credit Long-Term Investments-HTM $300,000.
D. Debit Cash $300,000; credit Interest Receivable $300,000.
E. Debit Cash $300,000; credit Bonds Payable $300,000.
129. On February 15, Seacroft buys 7,000 shares of Kebo common stock at $28.53 per share
plus a brokerage fee of $400. The stock is classified as available-for-sale securities. On March
15, Kebo declares a dividend of $1.15 per share payable to stockholders of record on April 15.
Seacroft received the dividend on April 15 and ultimately sells half of the Kebo 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:
A. Debit Long-Term Investments-HTM $199,710; credit Cash $199,710.
B. Debit Long-Term Investments-AFS $199,710; credit Cash $199,710.
C. Debit Long-Term Investments-Trading $199,710; credit Cash $199,710.
D. Debit Long-Term Investments-Trading $200,110; credit Cash $200,110.
E. Debit Long-Term Investments-AFS $200,110; credit Cash $200,110.
130. On February 15, Seacroft buys 7,000 shares of Kebo common stock at $28.53 per share
plus a brokerage fee of $400. The stock is classified as available-for-sale securities. On March
15, Kebo declares a dividend of $1.15 per share payable to stockholders of record on April 15.
Seacroft received the dividend on April 15 and ultimately sells half of the Kebo 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 dividend on April 15 is:
A. Debit Cash $7,350; credit Dividend Revenue $7,350.
B. Debit Cash $8,050; credit Dividend Revenue $8,050.
C. Debit Cash $8,050; credit Interest Revenue $8,050.
D. Debit Cash $7,350; credit Interest Revenue $7,350.
E. Debit Cash $8,050; credit Gain on Sale of Investments $8,050.
131. On February 15, Seacroft buys 7,000 shares of Kebo common stock at $28.53 per share
plus a brokerage fee of $400. The stock is classified as available-for-sale securities. On March
15, Kebo declares a dividend of $1.15 per share payable to stockholders of record on April 15.
Seacroft received the dividend on April 15 and ultimately sells half of the Kebo 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 sale of the stock on November 17 is:
A. Debit Cash $102,300; credit Long-Term Investments-AFS $99,855; credit Gain on Sale of
Long-Term Investments $2,445.
B. Debit Cash $102,550; credit Long-Term Investments-Trading $99,855; debit Gain on Sale
of Long-Term Investments $2,645.
C. Debit Cash $102,550; credit Long-Term Investments-AFS $100,055; credit Gain on Sale
of Long-Term Investments $2,495.
D. Debit Cash $102,300; credit Long-Term Investments-AFS $100,055; credit Gain on Sale
of Long-Term Investments $2,245.
E. Debit Cash $102,550; credit Long-Term Investments-Trading $99,855; credit Gain on Sale
of Long-Term Investments $2,645.
132. On February 15, Seacroft buys 7,000 shares of Kebo common stock at $28.53 per share
plus a brokerage fee of $400. The stock is classified as available-for-sale securities. On March
15, Kebo declares a dividend of $1.15 per share payable to stockholders of record on April 15.
Seacroft received the dividend on April 15 and ultimately sells half of the Kebo 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 Seacroft should report on
its year-end December 31 income statement related to the investment in Kebo is:
A. $10,295.
B. $8,050.
C. $2,245.
D. $3,195.
E. $5,440.
133. On February 15, Seacroft buys 7,000 shares of Kebo common at $28.53 per share plus a
brokerage fee of $400. The stock is classified as available-for-sale securities. On March 15,
Kebo declares a dividend of $1.15 per share payable to stockholders of record on April 15.
Seacroft received the dividend on April 15 and ultimately sells half of the Kebo 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 Seacroft should report in
the equity section of its year-end December 31 balance sheet for its investment in Kebo is:
A. $10,295.
B. $8,050.
C. $2,245.
D. $3,195.
E. $6,390.
134. On February 15, Seacroft buys 7,000 shares of Kebo common at $28.53 per share plus a
brokerage fee of $400. The stock is classified as available-for-sale securities. On March 15,
Kebo declares a dividend of $1.15 per share payable to stockholders of record on April 15.
Seacroft received the dividend on April 15 and ultimately sells half of the Kebo 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 if $29.50 per share. The amount that Seacroft should report in
the asset section of its year-end December 31 balance sheet for its investment in Kebo is:
A. $200,110.
B. $103,250.
C. $2,245.
D. $3,195.
E. $5,440.
135. Match the following terms with the appropriate definitions.
A. Equity method
B. Available-for-sale securities
C. Subsidiary
D. Long-term investments
E. Parent company
F. Return on total assets
G. Consolidated financial statements
H. Held-to-maturity securities
I. Trading securities
J. Unrealized gain (loss)
_______ (1) Investments in equity and debt securities that are not readily convertible to cash
or are not intended to be converted to cash in the short term.
_______ (2) A corporation controlled by another company when the parent owns more than
50% of the subsidiary’s voting stock.
_______ (3) Change in market value that is not yet realized through an actual sale.
_______ (4) Financial statements that show the financial position, results of operations, and
cash flows of all entities under the parent’s control, including those of any subsidiaries.
_______ (5) A company that owns a more than 50% controlling interest in a subsidiary.
_______ (6) Debt and equity securities not classified as trading or held-to-maturity.
_______ (7) Debt securities that a company intends and is able to hold until maturity.
_______ (8) Debt and equity securities that a company intends to actively manage and trade
for profit.
_______ (9) A measure of operating efficiency, computed as net income divided by average
total assets.
_______(10)An accounting method for long-term investments in equity when the investor has
significant influence over the investee.
136. Explain the difference between short-term and long-term investments. Cite examples of
each.
137. Discuss the reasons companies make investments.
138. Identify the classifications for non-influential investments in securities. What are the
accounting basics for non-influential investments in securities, including acquisition,
dividends earned, and disposition?
139. What are the accounting basics for debt securities, including recording their acquisition,
interest earned, and their disposal?
140. What is comprehensive income and how is it usually reported in the financial
statements?
141. Explain how investors report investments in equity securities when the investor has a
controlling influence over an investee.
142. Define the foreign exchange rate between two currencies. Explain its effect on business
transactions conducted in a foreign currency.