Financial Accounting Ch 12

Penny Company owns 20% interest in the stock of Lynn Corporation. During the year, Lynn pays $25,000 in dividends, and reports $200,000 in net income. Penny Company's investment in Lynn will increase by $25000 $35000 $40000 $45000

$35000

The cost of debt investments includes each of the following except commissions the price paid brokerage fees accrued interest

accrued interest

In accounting for stock investments between 20% and 50%, the _______ method is used. controlling interest cost equity consolidated statements

equity

T/F Available-for-sale securities are securities bought and held primarily for sale in the near term to generate income on short-term price differences.

false

T/F Consolidated financial statements present a condensed version of the financial statements so investors will not experience information overload.

false

Corporations invest in other companies for all of the following reasons except to generate earnings meet strategic goals house excess cash until needed increase trading of the other companies' stock

increase trading of the other companies' stock

If an investor owns less than 20% of the common stock of another corporation as a long-term investment, it is presumed that the investor has relatively little influence on the investee. it is presumed that the investor has significant influence on the investee. no dividends can be expected. the equity method of accounting for the investment should be employed.

it is presumed that the investor has relatively little influence on the investee.

Revenue is recognized when cash dividends are received under the controlling interest method. the cost method. the equity method. both the cost and equity methods.

the cost method.

T/F Under the cost method, the investment is recorded at cost and revenue is recognized only when cash dividends are received.

true