Q&A Hero

Q: A company paid $47,500 plus a broker's fee of $400 to acquire 8% bonds with a $60,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive upon maturity of the bonds is: A. $60,000 B. $60,400 C. $47,900 D. $64,800 E. $52,300

Q: A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value. The company intends to hold the bonds to maturity. The cash proceeds the company will receive upon the maturity of the bond is: A. $37,800 B. $38,325 C. $40,000 D. $40,525 E. $43,200

Q: A company purchased $60,000 of 5% bonds on May 1. The bonds pay interest on February 1 and August 1. The amount of interest accrued on December 31 (the company's year-end) would be: A. $250 B. $500 C. $1,250 D. $2,500 E. $3,000

Q: A company owns $400,000 of 7% bonds that pay interest on October 1 and April 1. The amount of interest accrued on December 31 (the company's year-end) would be: A. $4,667 B. $7,000 C. $28,000 D. $14,000 E. $9,333

Q: A company owns $100,000 of 9% bonds that pay interest on October 1 and April 1. The amount of interest accrued on December 31 (the company's year-end) would be: A. $750 B. $1,500 C. $2,250 D. $4,500 E. $9,000

Q: Equity securities are: A. Recorded at cost to acquire them plus accrued interest. B. Recorded at cost to acquire them plus dividends earned. C. Recorded at cost to acquire them. D. Not recorded until dividends are received. E. Not recorded until interest is received.

Q: At the end of the accounting period, the owners of debt securities: A. Must report the dividend income accrued on the debt securities. B. Must retire the debt. C. Must record a gain or loss on the interest income earned. D. Must record a gain or loss on the dividend income earned. E. Must accrue interest earned on the debt securities.

Q: At acquisition, debt securities are: A. Recorded at their cost, plus total interest that will be paid over the life of the security. B. Recorded at the amount of interest that will be paid over the life of the security. C. Recorded at cost. D. Not recorded, because no interest is due yet. E. Recorded at the amount of dividend income to be received.

Q: Long-term investments include: A. Investments in bonds and stocks that are not marketable. B. Investments in marketable stocks that are intended to be converted into cash in the short-term. C. Investments in marketable bonds that are intended to be converted into cash in the short-term. D. Only investments readily convertible to cash. E. Investments intended to be converted to cash within one year.

Q: Long-term investments are reported in the: A. Current asset section of the balance sheet. B. Intangible asset section of the balance sheet. C. Noncurrent asset section of the balance sheet. D. Liability section of the balance sheet. E. Equity section of the balance sheet.

Q: Short-term investments: A. Are securities that management intends to convert to cash within one year or an operating cycle, whichever is longer. B. Include funds earmarked for a special purpose such as bond sinking funds. C. Include stocks not intended to be converted into cash. D. Include bonds not intended to be converted into cash. E. Include sinking funds not intended to be converted into cash.

Q: Long-term investments: A. Are current assets B. Include funds earmarked for a special purpose such as bond sinking funds C. Must be readily convertible to cash D. Are expected to be converted into cash within one year E. Include only equity securities

Q: Brown Company sold supplies in the amount of 15,000 euros to a French company when the exchange rate was $1.15 per euro. At the time of payment, the exchange rate decreased to $1.12. Brown must record a loss of $450.

Q: Sanuk 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. Sanuk must record a gain of $600.

Q: 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.

Q: 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.

Q: To prepare consolidated financial statements when a company has an international subsidiary, the international subsidiary's financial statements must be translated into U.S. dollars.

Q: An increase in the price of the U.S. dollar against other currencies puts U.S. companies in a stronger competitive position internationally.

Q: When using the equity method, receipt of cash dividends increases the carrying value of an investment in equity securities.

Q: Micron owns 30% of JVT stock. Micron received $6,500 in cash dividends from its investment in JVT. The entry to record receipt of these dividends would include a debit to Cash for $6,500 and a credit to Long-Term Investments for $6,500.

Q: When using the equity method of accounting for investments in equity securities, the receipt of cash dividends is recorded as revenue.

Q: The cost method of accounting is used for long-term investments in equity securities with significant influence.

Q: An investor with significant influence owns as least 20%, but not more than 50%, of another company's voting stock.

Q: On May 15, Briar Company purchased 10,000 shares of Broder Corp. for $80,000. On September 30, the stock had a market value of $85,000. The $5,000 difference must be reported on the income statement as a $5,000 gain.

Q: On May 1, Franke Co. purchases 2,000 shares of Computech stock for $25,000. This investment is considered to be an available-for-sale investment. On July 31 (Franke's year-end), the stock had a market value of $28,000. Franke should record a credit to Unrealized Gain-Equity for $3,000.

Q: Any unrealized gain or loss on available-for-sale securities is reported on the income statement in the other gain or loss section.

Q: Long-term investments in available-for-sale securities are reported at market value on the balance sheet.

Q: If a long-term investment in an equity security gives the investor significant influence over the investee, the investment is classified as available-for-sale.

Q: Long-term investments in debt securities not classified as held-to-maturity securities are classified as available-for-sale securities.

Q: Accounting for long-term investments in held-to-maturity securities requires companies to record interest revenue as it accrues.

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

Q: A long-term investment is recorded at cost when purchased.

Q: Unrealized gains and losses on trading securities are reported as part of net income.

Q: Trading securities are securities that are purchased by trading other securities rather than by paying cash.

Q: A company should report its portfolio of trading securities at its market value.

Q: Net profit margin reflects the percent of net income in each dollar of net sales.

Q: Profit margin is calculated by sales divided by net income.

Q: Return on total assets can be separated into the profit margin ratio and total asset turnover.

Q: If the exchange rate for Canadian and U.S. dollars is 0.7382 to 1, this implies that 2 Canadian dollars will buy 1.48 worth of U.S. dollars.

Q: The price of one currency stated in terms of another currency is called a foreign exchange rate.

Q: Foreign exchange rates fluctuate due to many factors including changing political and economic conditions.

Q: Trading securities, held-to-maturity debt securities, and equity securities giving an investor significant influence over an investee are always considered short-term investments.

Q: Consolidated statements are prepared as if a company is organized as one entity, with the amounts allocated for subsidiaries reported in the investment accounts.

Q: Consolidated financial statements show the financial position, results of operations, and cash flows of all entities under the parent's control.

Q: Comprehensive income refers to all changes in equity during a period except those due to investments and distributions to income.

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

Q: IFRS requires uniform accounting policies to be used throughout the group of consolidated subsidiaries.

Q: The equity method with consolidation is used in accounting for long-term investments in equity securities with controlling influence.

Q: A long-term investment classified as equity securities with controlling influence implies that the investor can exert a controlling influence over the investee.

Q: A controlling investor is referred to as the parent and the investee company is referred to as the subsidiary.

Q: A company holds $40,000 of 7% bonds as a held-to-maturity security. The bondholder's journal entry to record receipt of the semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.

Q: An investor purchased $50,000 of bonds that were held to maturity. The investor's journal entry at maturity of the bonds should include a debit to Cash for $50,000 and a credit to Long-Term Investments for $50,000.

Q: A company received dividends of $0.35 per share on 300 shares of stock. The journal entry to record this transaction would be to debit Cash for $105 and credit Dividend Revenue for $105.

Q: When 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.

Q: Any cash dividends received from equity securities are recorded as Dividend Expense.

Q: Debt securities are recorded at cost when purchased and interest revenue from investments in debt securities is recorded when earned.

Q: Management's intent and the marketability of a security determine whether or not a security is classified as a long-term or short-term investment.

Q: Management's intent determines whether an available-for-sale security is classified as long term or short term.

Q: Long-term investments include investments in land or other assets not used in a company's operations.

Q: Short-term investments are readily convertible to cash and are intended to be converted into cash within one year or the operating cycle, whichever is longer.

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

Q: Equity securities reflect a creditor relationship such as investments in notes, bonds, and certificates of deposit.

Q: Long-term investments can include funds set aside for special purposes such as bond sinking funds.

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

Q: The future value of an ________________ annuity is the accumulated value of each annuity payment with interest as of the date of the final payment.

Q: An _____________ is a series of equal payments occurring at equal intervals.

Q: To calculate present value of an amount, two factors are required: __________________ and ___________________.

Q: _____________ is a borrower's payment to the owner of an asset for its use.

Q: A company is setting up a sinking fund to pay off $8,654,000 in bonds that are due in seven years. The fund will earn 7% interest, and the company intends to put away a series of equal year-end amounts for seven years. What amount must the company deposit annually?

Q: You hope to retire in 10 years. Regrettably you are only just now beginning to save money for this purpose. You expect to save $6,000 a year at an annual rate of 8%. How much will you have accumulated when you retire?

Q: A company is beginning a savings plan. It will save $15,000 per year for the next 10 years. How much will the company have accumulated after the tenth year-end deposit, assuming the fund earns 10% interest?

Q: Daley Co. lends $524,210 to Davis Corporation. The terms of the loan require that Davis repay the loan with six semiannual period-end payments of $100,000 each. What semiannual interest rate is Davis paying on the loan?

Q: Big League Sports borrowed $883,212 and must make annual year-end payments of $120,000 each. If the applicable interest rate is 6%, how many years will it take Big League Sports to pay off the loan?

Q: When you reach retirement age, you will have one fund of $100,000 from which you are going to make annual withdrawals of $14,702. The fund will earn 6% per year. For how many years will you be able to draw an even amount of $14,702?

Q: A company borrows money from the bank by promising to make eight semiannual payments of $9,000 each. How much is the company able to borrow if the interest rate is 10% compounded semiannually?

Q: A company borrows money from the bank by promising to make six annual year-end payments of $25,000 each. How much is the company able to borrow if the interest rate is 9%?

Q: Madera Iron Sculpting is planning to save the money needed to replace one of its robotic welders in five years by making a one-time deposit of $20,000 today and four yearly contributions of $5,000 beginning at the end of year 1. The deposits will earn 10% interest. How much money will Sierra have accumulated at the end of five years to replace the welder?

Q: Troy has $105,000 now. He has a loan of $175,000 that he must pay at the end of five years. He can invest his $105,000 at 10% interest compounded semiannually. Will Troy have enough to pay his loan at the end of the five years?

Q: A company has $50,000 today to invest in a fund that will earn 7%. How much will the fund contain at the end of eight years?

Q: A company is setting aside $21,354 today and wishes to have $30,000 at the end of three years for a down payment on a piece of property. What interest rate must the company earn?