25. When an investor classifies an investment in common stock as securities avai

Question

25. When an investor classifies an investment in common stock as securities available for sale, cash dividends are classified by the investor as:
A. A return of capital.
B. A loss.
C. A deduction from the investment account.
D. Dividend income.

26. A foreign currency transaction gain will be recognized by a U.S. company when it has a receivable from a foreign company
a. denominated in dollars and the foreign currency weakens relative to the dollar before payment is received.
b. denominated in foreign currency and the foreign currency strengthens relative to the dollar before payment is received.
c. denominated in dollars and the foreign currency strengthens relative to the dollar before payment is received.
d. denominated in foreign currency and the foreign currency weakens relative to the dollar before payment is received.

27. When the local currency of the foreign subsidiary is the functional currency, a foreign subsidiary's inventory carried at cost would be converted to U.S. dollars by:
a. translation using historical exchange rates.
b. remeasurement using historical exchange rates.
c. remeasurement using the current exchange rate.
d. translation using the current exchange rate.

Explanation / Answer

Solution(25): Option(D) is correct.

Explanation: When an investor classifies an investment in common stock as securities available for sale, cash dividends are classified by the investor as "Dividend Income"

Solution(26): Option(B) is correct.

Explanation: Suppose the Receivable= 100 Foreign currency and at the sale date 1 Foreign currency= 1US$ that later becomes 1 Foreign currency= 2 US$ (that is the meaning of the foreign currency strengthens relative to the dollar before payment is received) than the US$ amount for the receivable goes from $100 to $200, that is an increase of a receivable, then a transaction gain.

Solution (27): Option(D) is correct.

Explanation: When the local currency of the foreign subsidiary is the functional currency, a foreign subsidiary's inventory carried at cost would be converted to US dollars by translation using the current exchange rate.

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