Ch. 2: Reporting Intercorporate Investments and Consolidation of Wholly Owned Subsidiaries with No Differential

If the fair value of an investment is equal to the book value of net identifiable assets, the goodwill recorded by the investor is $______.

0

On January 1, 20X1, Mediabase Inc. acquired all of Carephase Corp.'s common shares for $550,000. On the acquisition date, Carephase's common stock and retained earnings accounts had balances of $350,000 and $200,000, respectively. The difference between the fair value of consideration given and the book value of the shares acquired is $____.

0

Corn Inc. acquired 100% of Candy Corp.'s common stock for $200,000. The fair value of the investment was equal to the book value on the acquisition date. The investment account was equal to the combined book value of Candy Corp's Common Stock of $150,000 and Retained Earnings of $50,000. In the acquisition year, Candy earned net income of $22,000 and declared dividends of $8,000. Candy Corp.'s ending retained earnings balance is $__________.

64,000 ($50,000 + $22,000 - $8,000)

T/F: Dividends declared by the investee are treated as a reduction of investment under both the equity and fair value methods.

False

T/F: The amount of detail provided by the use of the equity method is greater than that provided by consolidation.

False

T/F: Consolidated net income and consolidated net income attributable to the controlling interest are equal when all consolidated subsidiaries are wholly owned.

True

T/F: The carrying amount of the equity method investment is adjusted by the investor's proportionate share of the investee's income or loss each period.

True

A corporation exercises significant influence over an affiliate in which it holds a 40 percent common stock interest. If its affiliate completed a fiscal year profitably but paid no dividends, how would this affect the investor corporation? a. Result in increased earnings per share. b. Decrease book value per share. c. Result in an increased current ratio. d. Increase asset turnover ratios.

a

Bertie Corp. invested in 25 percent shares of Keegan Corp. for $120,000 on the first day of the current year. Keegan Corp. reports net income of $40,000 and declares a $12,000 dividend during the year. Calculate the ending balance of Investment in Keegan Corp. account. a. $127,000 b. $148,000 c. $142,000 d. $133,000

a

Companies often acquire ownership in other companies using a variety of ownership arrangements. The investor should use equity-method reporting whenever a. The investor has significant influence over the operating and financing decisions of the investee. b. There is no differential included in an investment, the carrying value of the investment is less than the market value of the investee's shares held by the investor. c. The investor purchases goods and services from the investee. d. The investor purchases voting common stock of the investee.

a

Consolidated retained earnings is that portion of the consolidated enterprise's earnings that is _____. a. undistributed and accrues to the parent company shareholders b. distributed and accrues to the parent company shareholders c. distributed and accrues to the subsidiary company shareholders d. undistributed and accrues to the subsidiary company shareholders

a

On January 1, 20X1, Lavender Corp. purchased all of Violet Inc.'s common stock for $800,000. During 20X1, Violet earned net income of $75,000. Which of the following is Lavender's equity method journal entry to record the income from its investment in Violet stock? a. Debit Investment in Violet Inc. for $75,000; Credit Income from Violet Inc. for $75,000 b. Debit Income from Violet Inc. for $75,000; Credit Investment in Violet Inc. for $75,000 c. Debit Cash for $75,000; Credit Investment in Violet Inc. for $75,000 d. Debit Cash for $75,000; Credit Income from Violet Inc. for $75,000

a

The retained earnings statement has been dropped by many companies in recent years in favor of the _____. a. statement of changes in stockholders' equity b. statement of financial position c. statement of cash flows d. income statement

a

Under the equity method, the investor's income statement will include what amount of the investee's income or loss for the period? a. The investor's proportionate share of the investee's income or loss b. None of the investee's income or loss c. All of the investee's income or loss d. Only the investor's proportionate share of the investee's income, not losses

a

Under the fair value option, the ______ account is credited in the investor's books to record dividend income. a. Dividend Income b. Investment in Subsidiary c. Cash d. NCI in NA of Subsidiary

a

When the amount of investment equals the net assets of a subsidiary as of the acquisition date, the the amount of investment is equal to _____. a. the sum of the common stock and the retained earnings of the subsidiary b. the common stock of the subsidiary c. the sum of the common stock and the retained earnings of the holding company d. the retained earnings of the holding company

a

Sergeant Corp. acquired 30% of the common stock of Corporal Inc. on July 1, 20X1 for $500,000. Corporal earned net income of $100,000 evenly throughout the year. Calculate Sergeant's share of Corporal's net income for 20X1 under the equity method. a. $15,000 b. $18,000 c. $100,000 d. $30,000

a (100,000*.3*.5 = $15,000)

Select all that apply. The equity method of accounting for investments in equity securities is appropriate when a. the investor has the ability to exercise significant influence over the investee. b. consolidation is not appropriate. c. the investor holds more than 50% of the investee's common stock. d. the investor does not have the ability to exercise significant influence over the investee.

a, b

Select all that apply. Which of the following are recognized as income by the investor under the fair value method? a. Investor's share of investee's dividends declared from earnings b. Unrealized gains or losses during the investment period c. Income is not recognized using the fair value method d. Investor's share of investee's earnings during the investment period

a, b

Select all that apply. Under the equity method, which of the following is a reason the carrying amount of an investment may not be equal to its original cost? a. The investor's share of dividends declared by the investee reduce the carrying value of the investment. b. The investor's share of the investee's income increases the investment's carrying value. c. The investor's share in the investee's net loss reduces the investment's carrying value. d. The carrying amount of the investment is changed according to the changes in the market value of the investment.

a, b, c

Select all that apply Which of the following are true of consolidation? a. During consolidation, the investment and related income accounts are eliminated in preparing the consolidated financial statements. b. The individual assets, liabilities, revenues, and expenses of the investee are combined with those of the investor. c. It is most appropriate when the investor owns between 20% and 50% of the voting shares of the investee. d. It is appropriate when the investor can exercise control over the investee.

a, b, d

Select all that apply. Which of the following are true of consolidation entries? a. Consolidation entries appear only in the consolidation worksheet and do not affect the books of the separate companies. b. Consolidation entries reflect the amounts that would appear if the legally separate companies were actually a single company. c. Consolidation entries are carried forward from one period to another and the same entries will be retained every year. d. Consolidation entries are used to adjust the totals of the individual account balances of the separate consolidating companies.

a, b, d

Select all that apply. Which of the following are true regarding the equity method of accounting for investments in equity securities? a. Income recognized from the investee is reported as one line in the investor's income statement. b. It is appropriate when the investor has the ability to exercise significant influence over the investee and consolidation is not appropriate. c. The individual assets, liabilities, revenues, and expenses of the investee are combined with those of the investor. d. The investment is reported as one line in the investor's balance sheet.

a, b, d

Select all that apply. Which of the following items are included in the calculation of consolidated retained earnings at the end of the period? a. Net income attributable to the controlling interest b. Dividends declared by the parent company c. Consideration paid for the purchase of the subsidiary d. Beginning consolidated retained earnings balance

a, b, d

Select all that apply. Assume Charlie Corp. acquires 100% of the common stock of Delta Inc. The fair value of the investment is equal to its book value on the acquisition date. Delta earns net income during the acquisition year and declares dividends out of the net income. Based on this information, which of the following accounts are included in the basic consolidation entry? a. Common Stock b. Dividends Declared c. Gain on Purchase of the Investment d. Retained Earnings e. Investment in Delta inc.

a, b, d, e

Select all that apply. In which of the following situations will the 20% rule associated with the equity method not apply even though the investor holds more than 20% of the investee's voting stock? a. Existence of a majority shareholder b. Huge losses incurred by the investee company c. Severe restrictions placed by a foreign government d. Investor has investments in stocks of other companies

a, c

Select all that apply. Investments are carried at fair value when a. the equity securities have readily determinable fair values. b. the investor owns more than 50% of the investee's voting shares. c. the investee does not have significant influence over the investee. d. the investee has significant influence over the investee.

a, c

Select all that apply. Which of the following investor accounts are affected in recording an increase in the fair value of an investee's stock? a. Investment in Investee Stock b. Income from Investment c. Unrealized Gain on Investee Stock d. Cash

a, c

Select all that apply. Which of the following is true about the Investment in Investee Company account? a. It appears in the balance sheet of the investor company. b. It appears in the income statement of the investee company. c. It summarizes the investor's ownership of the net assets of investee company. d. It shows the difference between the market value and book value of the net assets of the investee.

a, c

Select all that apply. Under the equity method, which of the following is true of a parent company's recognition of dividends declared by an investee? a. The dividends declared by the investee are not recognized as income. b. The investee's dividends declared are considered as an increase in its equity. c. The investee's dividends are viewed as distributions of previously recognized income. d. The investor's share of an investee's dividends reduce the carrying amount of the investment.

a, c, d

Select all that apply. Which of the following accounts are involved in the basic consolidation entry? a. Common Stock b. Interest Expense c. Investment in Investee Company d. Retained Earnings

a, c, d

Select all that apply. Which of the following affects the investment account of an investor when the equity method is used? a. Dividends declared by an investee b. Sale of goods at cost to another company reported by an investee c. Net income reported by an investee d. A net loss reported by an investee

a, c, d

Select all that apply. Which of the following are approaches commonly used to account for investments in common stock? a. equity method b. amortized cost c. consolidation d. fair value method

a, c, d

Select all that apply. Which of the following are criticisms of the equity method of accounting for investments? a. The investment in stock of another company is reported as a single amount in the investor's balance sheet. b. The use of the equity method provides a greater amount of detail on the financial statements of the investor than is needed. c. Income reported by the investor under the equity method does nothing to explain the composition of the income earned by the investee. d. The investment account balance reported by the investor under the equity method does nothing to explain the investee's asset and capital structure.

a, c, d

Select all that apply. Which of the following are parts of the most widely used consolidation worksheet format? a. the balance sheet b. the statement of cash flows c. the statement of retained earnings d. the income statement

a, c, d

Select all that apply. Which of the following statements are true of the bottom portion of the consolidation worksheet? a. The amount of retained earnings in this section is carried down from the ending balance in retained earnings statement section. b. It reflects the operating cash flow of the parent and the subsidiary company. c. It reflects the assets, liabilities, and equity of both the parent and the subsidiary. d. It reflects the balance sheet amounts at the end of the period.

a, c, d

Select all that apply. In which of the following cases will the companies present consolidated financial statements? a. The investor company has majority ownership of the investee. b. The investor company has less than majority ownership of the investee. c. The investor company does not own any of the common stock of the investee. d. The investor company owns all of the common stock of the investee.

a, d

Select all that apply. Which of the following are reasons for eliminating the investment account with the basic consolidation entry? a. The amount represented in the investment account is recorded separately as net assets of the subsidiary. b. The fair value of the investment is equal to the book value of the net assets of the subsidiary. c. The fair value of the investment is more than the book value of the net assets of the subsidiary. d. From a single entity viewpoint, a company cannot hold an investment in itself.

a, d

A corporation using the equity method of accounting for its investment in a 40 percent-owned investee, which earned $20,000 and paid $5,000 in dividends, made the following entries: Investment in Investee (DR) 8,000 Income from Investee (CR) 8,000 Cash (DR) 2,000 Dividend Revenue (CR) 2,000 What effect will these entries have on the investor's statement of financial position? a. Investment in the investee will be overstated, retained earnings will be overstated. b. Financial position will be fairly stated. c. Investment in the investee will be overstated, retained earnings will be understated. d. Investment in the investee will be understated, retained earnings will be understated.

a; dividends need to be credited to the investment account (to decrease it) and overstating an asset leads to overstated retained earnings

A subsidiary's stockholders' equity accounts are eliminated when _____. a. the parent company has its own equity accounts b. the subsidiary's stock is held entirely by its parent c. less than 50 percent of the subsidiary's stock is held by its parent d. the equity account has no relevance to the consolidation

b

Amber Inc. purchases all of Coral Corp.'s common shares for $450,000. Which of the following is Amber Inc.'s journal entry to record the purchase? a. Debit Cash for $450,000; Credit Investment in Coral Corp. for $450,000 b. Debit Investment in Coral Corp. for $450,000; Credit Cash for $450,000 c. Debit Common Stock for $450,000; Credit Cash for $450,000 d. Debit Income from Investment for $450,000; Credit Cash for $450,000

b

Assume a company acquired 100% of the common stock of another company on January 1, 20X1, and used the equity method to account for the investment. In the acquisition year, the investee company declared and paid cash dividends of $25,000. What is the investor company's journal entry to record the dividends received from the investee company? a. Debit Cash for $25,000; Credit Dividends Income for $25,000 b. Debit Cash for $25,000; Credit Investment in Investee Company for $25,000 c. Debit Investment in Investee Company for $25,000; Credit Income from Investee Company for $25,000 d. Debit Cash for $25,000; Credit Income from Investee Company for $25,000

b

Assume a company acquires 25% of the common of another company for $400,000 on January 1, 20X1. The investor prepares the financial statements at the end of each quarter. On March 31, 20X1, the investor determines that the fair value of the investment is $410,000. Which of the following is the journal entry to record the fair value adjustment? a. Debit Unrealized Gain on Investee Stock for $10,000; Credit Investment in Investee Stock for $10,000 b. Debit Investment in Investee Stock for $10,000; Credit Unrealized Gain on Investee Stock for $10,000 c. Debit Investment in Investee Stock for $10,000; Credit Income from Investment for $10,000 d. Debit Cash for $10,000; Credit Unrealized Gain on Investee Stock for $10,000

b

Assume a company purchases 100% of the common stock of another company on January 1, 20X2. Which of the following is the investor's journal entry to record the stock purchase? a. Debit Cash; Credit Income from Investment b. Debit Investment in Investee Company; Credit Cash c. Debit Cash; Credit Investment in Investee Company d. Debit Income from Investment; Credit Cash

b

Bronze Corp. acquired all of Charcoal Inc.'s common shares for $500,000. The fair value of the investment was equal to the book value on the acquisition date. In the acquisition year, Charcoal earned net income of $60,000 and distributed dividends of $12,000. What is the ending book value of Bronze Corp's investment in Charcoal? a. $560,000 b. $548,000 c. $500,000 d. $572,000

b

Mack Corp. acquired 25% of the common stock of Ball Corp. for $350,000. Ball declares dividends of $30,000. Which of the following journal entries would Mack record with respect to the dividends? Assume the dividends have not yet been paid. a. Debit Dividends Receivable for $30,000; Credit Investment in Ball Company Stock for $30,000 b. Debit Dividends Receivable for $7,500; Credit Investment in Ball Company Stock for $7,500 c. Debit Cash for $7,500; Credit Dividends Receivable for $7,500 d. Debit Cash for $30,000; Credit Investment in Ball Company Stock for $30,000

b

On January 1, 20X1, Zircon Corp. acquires 100% of Topaz Inc.'s common stock for $450,000. What is Zircon's journal entry to record the initial investment? a. Debit Cash for $450,000; Credit Gain on Purchase of Asset for $450,000 b. Debit Investment in Topaz Inc. for $450,000; Credit Cash for $450,000 c. Debit Common Stock for $450,000; Credit Cash for $450,000 d. Debit Cash for $450,000; Credit Investment in Topaz Inc. for $450,000

b

Tate Corp. acquired 25% of Page Inc.'s common stock for $250,000 on January 1. In the acquisition year, Page Inc. earned net income of $80,000 and declared dividends of $25,000. Calculate the carrying amount of the investment under the equity method. a. $236,250 b. $263,750 c. $305,000 d. $76,250

b

The carrying amount of an investment in stock correctly accounted for under the equity method is equal to a. The original price paid to purchase the investment minus cumulative net income minus cumulative dividends declared by the investee since the date the investment was acquired. b. The original price paid to purchase the investment plus cumulative net income minus cumulative dividends declared by the investee since the date the investment was acquired. c. The original price paid to purchase the investment. d. The original price paid to purchase the investment plus cumulative net income plus cumulative dividends declared by the investee since the date the investment was acquired.

b

Under the fair value method of accounting for investments in equity securities, income is recognized when a. the investee reports income. b. dividends are declared by the investee. c. the investment's fair value declines. d. dividends are received by the investor.

b

Which of the following journal entries would an investor company record when an investee company declares dividends? Assume the dividends have not yet been paid and the equity method is applied. a. Debit Investment in Investee Company Stock; Credit Dividends Receivable b. Debit Dividends Receivable; Credit Investment in Investee Company Stock c. Debit Cash; Credit Dividends Receivable d. Debit Cash; Credit Investment in Investee Company Stock

b

Redwood Corp. acquires all of Trio Systems Inc.'s common stock on January 1, 20X1 for $750,000. On the acquisition date, Trio Systems has Accounts Payable of $200,000, Bonds Payable of $150,000, Common Stock of $500,000, and Retained Earnings of $250,000. What is the book value of the shares acquired? a. $900,000 b. $750,000 c. $400,000 d. $1,100,000

b ($500,000 + $250,000 = $750,000)

Select all that apply. Which of the following items are excluded from the parent's net income in calculating consolidated net income using a consolidation worksheet when the parent company owns 100% of the common stock of its subsidiary? The parent uses the equity method. a. The parent's income from its own operations b. Net income from consolidated subsidiaries c. Equity investment income from consolidated subsidiaries d. Income from unconsolidated equity method subsidiaries

b, c

Select all that apply Which of the following items are reported in consolidated financial statements? a. Receivables from a subsidiary company b. Receivables from external parties c. Payables of a subsidiary to the parent company d. Payables to external parties

b, d

Select all that apply. Which of the following will decrease the investment account on the books of the investor when the equity method is applied? a. Gain on sale of asset reported by the investee b. Dividends declared by the investee c. Income received from a foreign investment reported by the investee d. A net loss reported by the investee

b, d

A parent company sells land at a price above the cost it incurred to its subsidiary. A worksheet entry is required in _____. a. the year of sale by the parent company only b. the year of subsequent sale by the subsidiary only c. all the years for which the subsidiary holds the land d. all the years including years after the subsequent sale of land by the subsidiary

c

Assume Thor Corp. purchases 100% of the common stock of Hulk Inc. at book value for $450,000. On the acquisition date, the book value of Hulk's common stock is $300,000 and the book value of the retained earnings is $150,000. Which of the following is the basic consolidation entry recorded in the consolidated worksheet on the acquisition date? a. Debit Investment in Hulk Inc. for $450,000; Credit Common Stock for $300,000; Credit Retained Earnings for $150,000 b. Debit Common Stock for $300,000; Debit Retained Earnings for $150,000; Credit Cash for $450,000 c. Debit Common Stock for $300,000; Debit Retained Earnings for $150,000; Credit Investment in Hulk Inc. for $450,000 d. Debit Cash for $450,000; Credit Investment in Hulk Inc. for $450,000

c

Emerald Inc. acquires all of Opal Corp.'s common stock. The net assets of Opal include equipment of $250,000. On the date of acquisition, the accumulated depreciation on the equipment is $45,000. What is the accumulated depreciation consolidation entry for this transaction? a. Debit Equipment for $45,000; Credit Accumulated Depreciation for $45,000 b. Debit Investment for $45,000; Credit Cash for $45,000 c. Debit Accumulated Depreciation for $45,000; Credit Equipment for $45,000 d. Debit Equipment for $205,000; Accumulated Depreciation for $45,000; Credit Cash for $250,000

c

If a company acquires 100% of the common stock of another company by paying cash, which of the following is the investor's journal entry to record the purchase? a. Debit Income from Investee Company; Credit Cash b. Debit Cash; Credit Investment in Investee Company c. Debit Investment In Investee Company; Credit Cash d. Debit Income from Investment; Credit Investment In Investee Company

c

In 20X0, Neil Company held the following investments in common stock: -25,000 shares of B&K Inc.'s 100,000 outstanding shares. Neil's level of ownership gives it the ability to exercise significant influence over the financial and operating policies of B&K. -6,000 shares of Amal Corporation's 309,000 outstanding shares. During 20X0, Neil received the following distributions from its common stock investments: November 6 - $30,000 cash dividend from B&K November 11 - $1,500 cash dividend from Amal December 26 - 3 percent common stock dividend from Amal The closing price of this stock was $115 per share. What amount of dividend revenue should Neil report for 20X0? a. $34,200 b. $31,500 c. $1,500 d. $4,200

c

In the second year after a company's investment in 100% of the the common stock of another company, the investee declared and paid dividends of $25,000. Which of the following is the journal entry to record the dividends in the books of the investor when the equity method is applied? a. Debit Income from Investment for $25,000; Credit Cash for $25,000 b. Debit Cash for $25,000; Credit Income from Investment for $25,000 c. Debit Cash for $25,000; Credit Investment in Investee Company for $25,000 d. Debit Investment in Investee Company for $25,000; Credit Cash for $25,000

c

Net income calculated in the income statement section of the consolidation worksheet is a. carried forward to the liabilities of the consolidation worksheet. b. subtracted from the common stock in the equity section of the consolidation worksheet. c. carried forward to the retained earnings statement portion of the consolidation worksheet. d. added to the assets of the consolidation worksheet.

c

Newman Software Inc. acquired 30% of the voting shares of Keller Corp. for $250,000 on January 1. Keller reported income of $120,000 during the acquisition year. What is Newman's share of Keller's acquisition year income? a. $50,000 b. $18,000 c. $36,000 d. $12,000

c

What will be the effect of the net income reported by an investee on the investment account of the investor? a. The investment account balance will be replaced by net income. b. The investment account will decrease. c. The investment account will increase. d. The investment account will not be affected.

c

When a subsidiary is purchased for an amount equal to the book value of the subsidiary's net assets, _____. a. there is a difference between the amount of investment made by the parent company and the net assets of the subsidiary b. the net assets of the subsidiary are reported as liability in the books of the parent company c. there is no difference between the amount of investment made by the parent company and the net assets of the subsidiary d. the net assets of the subsidiary are reported as equity in the books of the parent company

c

On January 2, 20X3, Kean Company purchased a 30 percent interest in Pod Company for $250,000. Pod reported net income of $100,000 for 20X3 and declared and paid a dividend of $10,000. Kean accounts for this investment using the equity method. In its December 31, 20X3, balance sheet, what amount should Kean report as its investment in Pod? a. $160,000 b. $340,000 c. $277,000 d. $223,000

c (250,000 + (.3 x 100,000) - (.3 x 10,000) = $277,000)

On July 1, 20X2, Green Inc. acquired 25% of White Inc.'s common stock for $250,000. White reported net income of $60,000 (earned uniformly throughout the year). On December 31, 20X2, White declared a dividend of $20,000. Calculate the carrying amount of Green's investment in White Inc. on December 31, 20X2, under the equity method. a. $260,000 b. $255,000 c. $252,500 d. $290,000

c (250,000 + (60,000*.25*.5)-(20,000*.25) = $252,500)

Select all that apply. Identify the adjustments that are done before adding the separate financial statements of companies for consolidation. a. Adjustments relating to receivables from external parties b. Adjustments relating to payables to external parties c. Adjustments relating to intercompany transactions d. Adjustments relating to holdings

c, d

A parent company sells land at a price above the cost it incurred to its subsidiary. A worksheet entry is required in _____. a. the year of subsequent sale by the subsidiary only b. the year of sale by the parent company only c. all the years including years after the subsequent sale of land by the subsidiary d. all the years for which the subsidiary holds the land

d

An investor uses the equity method to account for an investment in common stock. Assume that (1) the investor owns less than 50 percent of the outstanding common stock of the investee, (2) the investee company reports net income and declares dividends during the year, (3) the fair value of the investee's stock is unchanged during the year, and (4) the investee's net income is more than the dividends it declares. How would the investor's investment in the common stock of the investee company under the equity method differ at year-end from what it would have been if the investor had carried the investment at fair value? a. The balance under the equity method is higher than it would have been if the investment was carried at fair value, but only if the investee company actually paid the dividends before year-end. b. The balance under the equity method is lower than it would have been if the investment was carried at fair value, but only if the investee company actually paid the dividends before year-end. c. The balance under the equity method is lower than it would have been if the investment was carried at fair value. d. The balance under the equity method is higher than it would have been if the investment was carried at fair value.

d

Assume a company acquires all the common shares of another company. The net assets of the investee include accumulated depreciation on equipment. Which of the following is the accumulated depreciation consolidation entry? a. Debit Equipment; Credit Cash b. Debit Equipment; Credit Accumulated Depreciation c. Debit Accumulated Depreciation; Credit Cash d. Debit Accumulated Depreciation; Credit Equipment

d

Assume that a company purchases 20% of the common stock of another company for $250,000 on January 1st. On the last day of the on the acquisition year, the fair value of the common stock is $257,000. The investor receives a dividend of $18,000 during the acquisition year. Which of the following is the journal entry in the investor's books to record the receipt of dividends under the fair value option? a. Debit Cash for $7,000; Credit Income from Investment for $7,000 b. Debit Cash for $7,000; Credit Dividend Income for $7,000 c. Debit Dividend Income for $18,000; Credit Cash for $18,000 d. Debit Cash for $18,000; Credit Dividend Income for $18,000

d

If an investor purchases 40% of an investee's voting shares and this investment provides the investor with significant influence over the investee, the investor would apply which of the following methods to account for the investment? a. fair value method b. consolidation method c. amortized cost method d. equity method

d

On January 1, 20X1, Gold Inc. purchased all of Silver Corp.'s common stock for $400,000 and the purchase price was equal to the book value of Silver Corp on the acquisition date. The book value of the investment on Gold's books is equal to Silver Corp.'s Common Stock of $300,000 and Retained Earnings of $100,000. Silver Corp. earned net income of $50,000 and paid dividends of $25,000 during 20X1. Which of the following accounts is debited in the basic consolidation entry recorded in the consolidation worksheet? a. Dividend Declared for $25,000 and Investment in Silver Corp. for $425,000. b. Common Stock for $300,000 and Retained Earnings for $100,000. c. Investment in Silver Corp. for $400,000. d. Common Stock for $300,000; Retained Earnings for $100,000; and Income from Silver Corp. for $50,000.

d

Peel Company received a cash dividend from a common stock investment. Should Peel report an increase in the investment account if it carries the investment at fair value or if it uses the equity method of accounting? a. Fair Value b. Equity c. Both a and b d. None of the above

d

Which of the following is the journal entry made by an investor company to record its share of the income from an investee company? a. Debit Cash; Credit Income from Investee Company b. Debit Investment in Investee Company Stock; Credit Cash c. Debit Income from Investee Company; Credit Investment in Investee Company Stock d. Debit Investment in Investee Company Stock; Credit Income from Investee Company

d

The investee's ___________ are viewed as distributions of previously recognized income that already has been capitalized in the carrying amount of the investment.

dividends

Investments in which the investor's voting stock gives it the ability to exercise significant influence over operating and financial policies of the subsidiary company should use the ___________ method of accounting for the investment.

equity

Under the equity method of accounting for an investment, an investor records its investment at the _________ cost.

original

Consolidation is generally appropriate when one company, referred to as the ____________, controls another company, referred to as a _________.

parent; subsidiary