Question :
31. When using the equity method to account for an : 1255684
31. When using the equity method to account for an investment, cash dividends received by the investor from the investee should be recorded: a. As a reduction in the Investments account.b. As an increase in the Investments account.c. As dividend income.d. As a contra item to stockholders’ equity.
32. The equity method of accounting for investments in voting common stock is appropriate when: a. The investor can significantly influence the investee.b. The investor has voting control over the investee.c. The investor intends to hold the common stock indefinitely.d. The investor is assured of a continued supply of a valuable raw material.
33. Sports Spectacular purchased 100,000 shares of stock in The Athletic Warehouse for $30 per share. The investment is properly recorded using the equity method. By the end of the year, the stock price has increased to $32 per share. How would the change in stock price affect Sports Spectacular’s net income under the equity method?
a. Increase net income by $32,000.
b. Increase net income by $30,000.
c. Increase net income by $2,000.
d. No effect.
34. At the beginning of the year, Gilman Company purchased 10,000 of the 40,000 shares of common stock of Burke Corporation at $40 per share as a long-term investment. Gilman can exercise significant influence over Burke and properly records the investment using the equity method. The records of Burke Corporation showed the following by the end of the year:
Net Income
$500,000
Dividends Paid
$200,000
Market Price per Share
$38
What amount should Gilman Company report in its year-end balance sheet for its investment in Burke?
a.
$380,000.
b.
$400,000.
c.
$475,000.
d.
$425,000.
35. Consolidated financial statements are prepared when one company has: a. Accounted for the investment using the equity method.b. Accounted for the investment as available-for-sale securities.c. Control over another company.d. None of these is correct.
36. Which of the following investment securities held by Zoogle Inc. may be classified as held-to-maturity securities in its balance sheet? a. Debt securities.b. Equity securities.c. Common stock.d. All of these are correct.
37. General Investment Co. (GIC) purchased bonds on January 1, 2015. GIC’s accountant has projected the following amortization schedule from purchase until maturity:
Date
Cash
Paid
Interest
Expense
Increase in Carrying Value
Carrying Value
1/1/15
$194,758
6/30/15
$7,000
$7,790
$790
195,548
12/31/15
7,000
7,822
822
196,370
6/30/16
7,000
7,855
855
197,225
12/31/16
7,000
7,889
889
198,114
6/30/17
7,000
7,925
925
199,039
12/31/17
7,000
7,961
961
$200,000
GIC purchased the bonds:
a.At par.
b.At a discount.
c.At a premium.
d.Cannot be determined from the given information.
38. General Investment Co. (GIC) purchased bonds on January 1, 2015. GIC’s accountant has projected the following amortization schedule from purchase until maturity:
Date
Cash
Paid
Interest
Expense
Increase in Carrying Value
Carrying Value
1/1/15
$194,758
6/30/15
$7,000
$7,790
$790
195,548
12/31/15
7,000
7,822
822
196,370
6/30/16
7,000
7,855
855
197,225
12/31/16
7,000
7,889
889
198,114
6/30/17
7,000
7,925
925
199,039
12/31/17
7,000
7,961
961
$200,000
GIC purchased the bonds for:
a.$200,000.
b.$194,758.
c.$242,000.
d.Cannot be determined from the given information.
39. General Investment Co. (GIC) purchased bonds on January 1, 2015. GIC’s accountant has projected the following amortization schedule from purchase until maturity:
Date
Cash
Paid
Interest
Expense
Increase in Carrying Value
Carrying Value
1/1/15
$194,758
6/30/15
$7,000
$7,790
$790
195,548
12/31/15
7,000
7,822
822
196,370
6/30/16
7,000
7,855
855
197,225
12/31/16
7,000
7,889
889
198,114
6/30/17
7,000
7,925
925
199,039
12/31/17
7,000
7,961
961
$200,000
Recording the bond purchase would have what effect on the financial statements?
a. Increase assets.
b. Increase liabilities.
c. Increase assets and liabilities.
d. No effect on total assets and total liabilities.
40. General Investment Co. (GIC) purchased bonds on January 1, 2015. GIC’s accountant has projected the following amortization schedule from purchase until maturity:
Date
Cash
Paid
Interest
Expense
Increase in Carrying Value
Carrying Value
1/1/15
$194,758
6/30/15
$7,000
$7,790
$790
195,548
12/31/15
7,000
7,822
822
196,370
6/30/16
7,000
7,855
855
197,225
12/31/16
7,000
7,889
889
198,114
6/30/17
7,000
7,925
925
199,039
12/31/17
7,000
7,961
961
$200,000
The investment in bonds has a maturity in:
a.Two years.
b.Three years.
c.Six years.
d.Cannot be determined from the given information.
41. General Investment Co. (GIC) purchased bonds on January 1, 2015. GIC’s accountant has projected the following amortization schedule from purchase until maturity:
Date
Cash
Paid
Interest
Expense
Increase in Carrying Value
Carrying Value
1/1/15
$194,758
6/30/15
$7,000
$7,790
$790
195,548
12/31/15
7,000
7,822
822
196,370
6/30/16
7,000
7,855
855
197,225
12/31/16
7,000
7,889
889
198,114
6/30/17
7,000
7,925
925
199,039
12/31/17
7,000
7,961
961
$200,000
What is the annual market interest rate on the bonds?
a. 4%.
b. 3.5%.
c. 7%.
d. 8%.
42. General Investment Co. (GIC) purchased bonds on January 1, 2015. GIC’s accountant has projected the following amortization schedule from purchase until maturity:
Date
Cash
Paid
Interest
Expense
Increase in Carrying Value
Carrying Value
1/1/1
$194,758
6/30/15
$7,000
$7,790
$790
195,548
12/31/15
7,000
7,822
822
196,370
6/30/16
7,000
7,855
855
197,225
12/31/16
7,000
7,889
889
198,114
6/30/17
7,000
7,925
925
199,039
12/31/17
7,000
7,961
961
$200,000
GIC sells the bonds for $196,000 immediately after the interest payment on 12/31/15. What gain or loss, if any, would GIC record on this date?
a.No gain or loss.
b.$370 loss.
c.$4,000 loss.
d.$4,000 gain.
