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(ACCT102)Chap015.pdf
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Chapter 15
Investments and International Operations
QUESTIONS
1. To be classified as current assets, investments must be (i) capable of being converted into cash quickly and (ii) management must intend to sell the investments as a source of cash to satisfy the needs of current operations (within one year or the operating cycle, whichever is longer).
2. Short-term investments in trading securities are reported on the balance sheet at the (fair) market value of the portfolio of trading securities.
3. The $720 difference between the proceeds ($7,500) and the cost ($6,780) is credited to Gain on Sale of Short-Term Investments and reported in the income statement.
4.
The three classes of noninfluential investments in securities are:
a)
debt and equity trading securities.
b)
debt securities held-to-maturity.
c)
debt and equity securities available-for-sale.
The two classes of influential investments in securities are:
a) equity securities giving an investor a significant influence over an investee.
b) equity securities giving an investor control over an investee.
5. To be classified as current assets, investments must be capable of being converted into cash quickly and management must intend to sell the investments as a source of cash to satisfy the needs of current operations. To be classified as long-term, investments must not meet the requirements for short-term investmentsnot marketable and not intended to be converted into cash. Long-term investments also include funds earmarked for a special purpose, and other assets not used in company operations.
6. Unrealized loss.Equity ...................................................... ##
Market AdjustmentAvailable-for-Sale (LT) ............ ##
7. The portfolio for investments in available-for-sale securities should be reported on the balance sheet at (fair) market valuethis is separated into short- and long-term.
8. The portfolio of long-term investments in debt securities is reported at cost adjusted for amortization of any difference between cost and maturity when the investments are classified as held-to-maturity debt securities.
9. Unrealized holding gains and losses are not reported on the standard income statement for available-for-sale securities. Unrealized gains and losses for these securities are reported in the stockholders equity section of the balance sheet. (They can also be reported either in a separate comprehensive income statement or in a combined statement of comprehensive income.)
10. The equity method is used when the investor has a significant influence over the investee corporation; i.e., generally when the investor owns 20% or more of the investee's voting stock. The equity method with consolidation is used when the investor has a controlling influence over the investee.
11. A company prepares consolidated statements if the company has control over a sub