Question

MC Qu. 132 On November 12, Higgins...

On November 12, Higgins, Inc., a U.S. Company, sold merchandise on credit to Kagome of Japan at a price of 1,670,000 yen. The exchange rate was $.00854 per yen on the date of sale. On December 31, when Higgins prepared its financial statements, the exchange rate was $.00860. Kagome paid in full on January 12, when the exchange rate was $.00878. On December 31, Higgins should prepare the following journal entry:

Multiple Choice

-Debit Foreign Exchange Loss $100; Accounts Receivable-Kagome $100.

-Debit Foreign Exchange Loss $100; credit Sales $100.

-Debit Sales $100; credit Foreign Exchange Gain $100.

-Debit Accounts Receivable-Kagome $100; credit Foreign Exchange Gain $100.

-No journal entry is required until the amount is collected.

MC Qu. 119 MotorCity, Inc. purchased...

MotorCity, Inc. purchased 59,000 shares of Shaw common stock for $270,000. This represents 40% of the outstanding stock. The entry to record the transaction includes a:

Multiple Choice

-Debit to Long-Term Investments for $4,968,000.

-Credit to Long-Term Investments for $4,968,000.

-Debit to Long-Term Investments for $270,000.

-Debit to Short-Term Investment-AFS for $270,000.

-Debit to Long-Term Investments-HTM for $270,000.

MC Qu. 123 Marjam Company owns...

Marjam Company owns 51,600 shares of MacKenzie Company's 120,000 outstanding shares of common stock. MacKenzie Company pays $120,000 in total cash dividends to its shareholders. Marjam's entry to record this transaction should include a:

Multiple Choice

-Debit to Interest Revenue for $14,190.

-Credit to Long-Term Investments for $33,000.

-Credit to Long-Term investments for $51,600.

-Credit to Dividend Revenue for $33,000.

-Debit to Dividend Revenue for $14,190.

Answer 1

Solution 132:

Sales value on November 12 in Dollars = 1,670,000 *$0.00854 = $14,261.80

Exchange rate on Dec 31 = $.00860

Value of accounts receivable on Dec 31 = 1,670,000 *$.00860 = $14,362

Foreign exchange Gain = Value of accounts receivable on Dec 31 - Sales value on November 12

= $14362 - $$14261.80 = $100.20 or say $100

Therfore, journal entry would be:

Debit Accounts receivable-Kagome $100

Credit Foreign exchange Gain $100

Hence 4th option is correct.

Solution 119:

Since Motor City Inc. is holding more than 20% (i.e. 40%) shares in Shaw , therefore Motor City Inc. will use equity method for accounting of investment in Shaw.

Therefore, the entry to record investment would include "Debit to Long-Term Investments for $270,000".

Hence 3rd option is correct.

Solution 123:

Marjam company owns 51600 shares of Mackenzie company.

Total Shares in Mackenzie company= 120,000

% holding of Marjam company in Mackenzie company = 51600/ 120000 = 43%

Since Marjam company is holding significant shares i.e. more than 20% shares in Mackenzie company, therefore Marjam company will use equity method.

Total dividend paid = $120,000

Dividend to marjam Company = 120,000*43% = $51,600

Therefore entry for dividend received would include "Credit to Long Term Investment for $51,600".